II

104TH CONGRESS

2D SESSION S. 1668

To improve the job and income security and retirement security of the

American worker, and for other purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 15, 1996

Mr. KENNEDY introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To improve the job and income security and retirement

security of the American worker, and for other purposes.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘American Workers Economic Security Act’’.

6 (b) TABLE OF CONTENTS.—

Sec. 1. Short title; table of contents.

TITLE I—JOB AND INCOME SECURITY

Subtitle A—Most Favored Companies

Sec. 101. 25-percent reduction in corporate tax on taxable income equaling dividends paid by most favored companies.

Sec. 102. Evaluation of contract offers by most favored companies.

Sec. 103. Preference in direct financial assistance to most favored companies.
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Subtitle B—Investment in New Technologies

Sec. 111. Small business technology transfer program.

Sec. 112. Permanent extension of research credit.

Sec. 113. Increase in non-defense research and development spending.

Subtitle C—Minimizing the Adverse Impacts of Mergers and Acquisitions

Sec. 121. Disallowance of deduction for merger and acquisition expenses.

Sec. 122. Investigations of certain transactions.

Sec. 123. Additional consideration of harm to workers or communities.

Subtitle D—Corporate Restructurings

Sec. 131. Corporate restructurings.

Subtitle E—Expansion of Educational Opportunities for Workers

Sec. 141. Credit for employee training.

Sec. 142. Deduction for higher education expenses.

Subtitle F—Elimination of Tax Incentives for Moving Jobs Overseas

Sec. 151. Source of income from certain sales of inventory property.

Sec. 152. Transfer pricing rules.

Sec. 153. Income from runaway plants or from manufacturing operations located in a country which provides a tax holiday included in

subpart F income.

Sec. 154. Repeal of section 911 exclusion of foreign earned income.

Sec. 155. Revision of tax rules on expatriation.

Subtitle G—Distressed Community Economic Development Bonds

Sec. 161. Distressed community economic development bonds.

TITLE II—RETIREMENT SECURITY

Sec. 201. Short title.

Sec. 202. Findings and purpose.

Sec. 203. Deduction for contributions to individual pension plans.

Sec. 204. Establishment of individual pension plans.

Sec. 205. Employer responsibilities.

Sec. 206. Establishment and responsibilities of regional pension service centers.

Sec. 207. Secretarial responsibilities.

Sec. 208. Preemption of State law.

TITLE III—SEVERABILITY

Sec. 301. Severability.
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1 TITLE I—JOB AND INCOME

2 SECURITY

3 Subtitle A—Most Favored

4 Companies

5 SEC. 101. 25-PERCENT REDUCTION IN CORPORATE TAX ON

6 TAXABLE INCOME EQUALING DIVIDENDS

7 PAID BY MOST FAVORED COMPANIES.

8 (a) IN GENERAL.—Section 11(b) of the Internal Rev9 enue Code of 1986 (relating to amount of tax) is amended

10 by adding at the end the following new paragraph:

11 ‘‘(3) 25-PERCENT REDUCTION IN RATES ON

12 TAXABLE INCOME EQUALING DIVIDENDS PAID BY

13 MOST FAVORED COMPANIES.—

14 ‘‘(A) IN GENERAL.—Notwithstanding para15 graph (1) or (2), if a most favored company has

16 paid dividends for the taxable year, then such

17 paragraph shall be applied—

18 ‘‘(i) first, to the taxable income of

19 such company equal to the amount of such

20 dividends at rates equal to 75 percent of

21 the otherwise applicable percentages under

22 such paragraph, and

23 ‘‘(ii) then, to the balance of the tax24 able income of such company at rates de25 termined without regard to this paragraph.
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1 ‘‘(B) MOST FAVORED COMPANY.—

2 ‘‘(i) IN GENERAL.—For purposes of

3 this title, a corporation is a most favored

4 company for a taxable year if it is certified

5 as such by the Secretary of Labor upon re6 quest.

7 ‘‘(ii) CRITERIA FOR CERTIFICATION.—

8 For purposes of clause (i), the Secretary of

9 Labor shall use the following certification

10 criteria:

11 ‘‘(I) Training and education ben12 efits provided to employees through

13 any approved training program (as

14 defined in section 45C(b)(3)).

15 ‘‘(II) Health care benefits pro16 vided to employees through insurance

17 or otherwise.

18 ‘‘(III) Pension benefits provided

19 to employees.

20 ‘‘(IV) Child care provided to em21 ployees.

22 ‘‘(V) Such other criteria as deter23 mined by the Secretary of Labor.

24 ‘‘(iii) CONTROLLED GROUP OF COR25 PORATIONS.—For purposes of this sub-
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1 paragraph, all corporations which are

2 members of the same controlled group of

3 corporations shall be treated as a single

4 corporation. For purposes of the preceding

5 sentence, the term ‘controlled group of cor6 porations’ has the meaning given to such

7 term by section 1563(a), except that—

8 ‘‘(I) ‘more than 50 percent’ shall

9 be substituted for ‘at least 80 percent’

10 each place it appears in section

11 1563(a)(1), and

12 ‘‘(II) the determination shall be

13 made without regard to subsections

14 (a)(4) and (e)(3)(C) of section

15 1563.’’.

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

17 this section shall apply to taxable years beginning after

18 December 31, 1996.

19 SEC. 102. EVALUATION OF CONTRACT OFFERS BY MOST FA20 VORED COMPANIES.

21 (a) PREFERENCES.—

22 (1) IN GENERAL.—The Office of Federal Pro23 curement Policy Act (41 U.S.C. 401 et seq.) is

24 amended by adding at the end the following:
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1 ‘‘SEC. 38. OFFERS BY MOST FAVORED COMPANIES.

2 ‘‘(a) PRICE EVALUATION PREFERENCE.—In any case

3 in which a contract is to be awarded by the head of an

4 executive agency on the basis of full and open competition

5 and in which price is the primary evaluation factor for

6 selection of the offeror for award of the contract, the price

7 offered by a most favored company shall be deemed as

8 being lower than the price offered by another offeror

9 (other than another most favored company) if the price

10 offered by the most favored company is not more than 10

11 percent higher than the price offered by the other offeror.

12 ‘‘(b) STATUS AS EVALUATION FACTOR.—In any case

13 in which price is not the primary evaluation factor for se14 lection of an offeror for award of a contract by the head

15 of an executive agency, the factors prescribed for the eval16 uation of offers for the contract may include a factor that

17 provides credit for status as a most favored company.

18 ‘‘(c) MOST FAVORED COMPANY DEFINED.—In this

19 section, the term ‘most favored company’ means an entity

20 that is certified as a most favored company in accordance

21 with section 11(b)(3) of the Internal Revenue Code of

22 1986.’’.

23 (2) CLERICAL AMENDMENT.—The table of con24 tents in section 1(b) of such Act is amended by add25 ing at the end the following:

‘‘Sec. 38. Offers by most favored companies.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 subsection (a) shall take effect 180 days after the date

3 of the enactment of this Act and shall apply with respect

4 to solicitations of contract offers that are issued on or

5 after that date.

6 SEC. 103. PREFERENCE IN DIRECT FINANCIAL ASSISTANCE

7 TO MOST FAVORED COMPANIES.

8 It is the sense of the Senate that most favored com9 panies (as certified under section 11(b)(3) of the Internal

10 Revenue Code of 1986) should be given a preference in

11 the provision of direct financial assistance, in the form of

12 grants, loans, and loan guarantees from the Small Busi13 ness Administration, the Department of Commerce, the

14 Export-Import Bank, the Overseas Private Investment

15 Corporation, the United States Trade and Development

16 Agency, and other appropriate Federal agencies.

17 Subtitle B—Investment in New

18 Technologies

19 SEC. 111. SMALL BUSINESS TECHNOLOGY TRANSFER PRO20 GRAM.

21 Section 9(n)(1)(C) of the Small Business Act (15

22 U.S.C. 638(n)(1)(C)) is amended to read as follows:

23 ‘‘(C) not less than 0.30 percent of such

24 budget in each of fiscal years 1996 through

25 2001.’’.
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1 SEC. 112. PERMANENT EXTENSION OF RESEARCH CREDIT.

2 (a) IN GENERAL.—Section 41 of the Internal Reve3 nue Code of 1986 (relating to credit for research activi4 ties) is amended by striking subsection (h).

5 (b) NEW BASE AMOUNT.—

6 (1) IN GENERAL.—Subparagraphs (A) and

7 (B)(i) of section 41(c)(3) of the Internal Revenue

8 Code of 1986 (relating to fixed-base percentage) are

9 each amended by striking ‘‘after December 31,

10 1983, and before January 1, 1989’’ and inserting

11 ‘‘after December 31, 1990, and before January 1,

12 1996’’.

13 (2) CONFORMING AMENDMENTS.—

14 (A) Section 41(e)(5)(C) of such Code is

15 amended by striking ‘‘1987’’ and inserting

16 ‘‘1994’’, by striking ‘‘1983’’ each place it ap17 pears and inserting ‘‘1990’’, and by striking

18 ‘‘1984’’ each place it appears and inserting

19 ‘‘1991’’.

20 (B) Section 41(e)(7)(B) of such Code is

21 amended by striking ‘‘1983’’ and inserting

22 ‘‘1990’’.

23 (c) CONFORMING AMENDMENT.—Section 28(b)(1) of

24 the Internal Revenue Code of 1986 is amended by striking

25 subparagraph (D).
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after June

3 30, 1995.

4 SEC. 113. INCREASE IN NON-DEFENSE RESEARCH AND DE5 VELOPMENT SPENDING.

6 It is the sense of the Senate that the total level of

7 non-defense research and development spending in the

8 Federal budget should be increased in equal increments

9 over a 5-fiscal year period to 2.77 percent of the gross

10 domestic product of the United States.

11 Subtitle C—Minimizing the Ad12 verse Impacts of Mergers and

13 Acquisitions

14 SEC. 121. DISALLOWANCE OF DEDUCTION FOR MERGER

15 AND ACQUISITION EXPENSES.

16 (a) DEDUCTION DISALLOWED.—Part IX of sub17 chapter B of chapter 1 of subtitle A of the Internal Reve18 nue Code of 1986 (relating to items not deductible) is

19 amended by adding at the end the following new section:

20 ‘‘SEC. 280I. DISALLOWANCE OF DEDUCTION FOR MERGER

21 AND ACQUISITION EXPENSES.

22 ‘‘(a) IN GENERAL.—No deduction otherwise allow23 able under this chapter shall be allowed for any amount

24 paid or incurred in connection with an applicable acquisi25 tion.
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1 ‘‘(b) APPLICABLE ACQUISITION.—For purposes of

2 this section—

3 ‘‘(1) IN GENERAL.—The term ‘applicable acqui4 sition’ means the acquisition by a person of owner5 ship interests in, or assets used in the active conduct

6 of a trade or business by, an entity if such acquisi7 tion occurs during the 3-year period ending on the

8 date the person acquires control of the entity or the

9 person acquires more than one-half of the assets

10 used in the trade or business.

11 ‘‘(2) EXCEPTIONS.—The term ‘applicable acqui12 sition’ shall not include—

13 ‘‘(A) except as provided in paragraph (3),

14 any acquisition by a person from an entity

15 which it controls (or which controlled it) imme16 diately before the acquisition, or

17 ‘‘(B) any acquisition described in clause

18 (i), (ii), or (iii) of section 382(l)(3)(B).

19 ‘‘(3) RELATED TRANSACTIONS.—The term ‘ap20 plicable acquisition’ shall include any acquisition

21 after the acquisition described in paragraph (1)(A)

22 if such acquisitions are part of a series of related

23 transactions.

24 ‘‘(c) OTHER DEFINITIONS AND RULES.—For pur25 poses of this section—
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1 ‘‘(1) CONTROL.—A person shall be treated as

2 in control of another entity if—

3 ‘‘(A) in the case of a corporation, it pos4 sesses more than 50 percent of the stock of the

5 corporation (by vote or value), or

6 ‘‘(B) in the case of any other entity, it pos7 sesses ownership interests representing more

8 than 50 percent of the capital or profits interest

9 in the entity.

10 ‘‘(2) CONSTRUCTIVE OWNERSHIP RULES.—

11 ‘‘(A) IN GENERAL.—For purposes of para12 graph (1), the following rules shall apply:

13 ‘‘(i) in the case of a corporation, the

14 rules of section 267(c);

15 ‘‘(ii) in the case of a partnership, the

16 rules of section 707(b); and

17 ‘‘(iii) in the case of any other entity,

18 rules prescribed by the Secretary based on

19 the principles of the rules described in

20 clauses (i) and (ii).

21 ‘‘(B) OPTIONS.—Except as provided in

22 regulations, a person shall be treated as pos23 sessing stock or assets if the person has an op24 tion to acquire the stock or assets.
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1 ‘‘(3) RELATED PARTIES.—All persons treated

2 as the employer under subsection (a) or (b) of sec3 tion 52 shall be treated as 1 person for purposes of

4 this section.’’.

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

6 for such part IX is amended by adding after the item re7 lating to section 280H the following new item:

‘‘Sec. 280I. Disallowance of deduction for merger and acquisition

expenses.’’.

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

9 this section shall apply to amounts paid or incurred after

10 December 31, 1996, for taxable years ending after such

11 date.

12 SEC. 122. INVESTIGATIONS OF CERTAIN TRANSACTIONS.

13 Section 7A of the Clayton Act (15 U.S.C. 18a) is

14 amended by adding at the end the following new sub15 section:

16 ‘‘(k)(1) A person acquiring any voting securities or

17 assets of any other person with respect to any trans18 action—

19 ‘‘(A) for which the filing of a notification is re20 quired under this section, and

21 ‘‘(B) which would result in a reduction in the

22 overall number of employees or the shutdown of a

23 plant or other facility,
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1 shall submit a plan to be certified by the Secretary of

2 Labor as meeting the requirements of paragraph (2).

3 ‘‘(2) A plan meets the requirements of this paragraph

4 if it includes—

5 ‘‘(A) a description of the number of plants or

6 other facilities that would be closed or substantially

7 downsized;

8 ‘‘(B) an estimate of the number of employees

9 that would be involuntary terminated, including a

10 description of the employee groups that would be af11 fected; and

12 ‘‘(C) a description of the assistance that would

13 be provided to such employees following their termi14 nation, including skills upgrading, education, contin15 ued health care, and pension benefits.’’.

16 SEC. 123. ADDITIONAL CONSIDERATION OF HARM TO

17 WORKERS OR COMMUNITIES.

18 In determining an appropriate remedy for a violation

19 of section 7 of the Clayton Act (15 U.S.C. 18), including

20 the timing and nature of any required divestiture, a court

21 shall consider the interests of workers and local commu22 nities.
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1 Subtitle D—Corporate

2 Restructurings

3 SEC. 131. CORPORATE RESTRUCTURINGS.

4 (a) IN GENERAL.—Each issuer of securities shall,

5 prior to undertaking any restructuring that includes the

6 involuntary termination of a significant number of the em7 ployees of the issuer, submit a detailed plan to the Com8 mission and to the Secretary of Labor that meets the re9 quirements of subsection (b).

10 (b) CONTENTS OF PLANS.—Each plan required to be

11 submitted under subsection (a) shall specify—

12 (1) the number of employees to be involuntarily

13 terminated, as part of the restructuring;

14 (2) the amount of termination benefits accrued

15 and treated as deductible expenses of the issuer

16 under the Internal Revenue Code of 1986;

17 (3) a description of—

18 (A) the employee groups to be terminated;

19 (B) the employee groups that will be unaf20 fected by the restructuring; and

21 (C) the reasons for such differentiation;

22 (4) the plans for and costs of skills training,

23 education, and health and retirement benefits to be

24 provided to employees of the issuer to be involuntar25 ily terminated as part of the restructuring; and
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1 (5) such other information relating to the re2 structuring as the Commission considers relevant.

3 (c) DEFINITIONS.—For purposes of this section—

4 (1) the term ‘‘Commission’’ means the Securi5 ties and Exchange Commission;

6 (2) the term ‘‘issuer’’ has the same meaning as

7 in section 3 of the Securities Exchange Act of 1934;

8 and

9 (3) the term ‘‘restructuring’’ has the meaning

10 given to such term by rule or regulation of the Com11 mission.

12 Subtitle E—Expansion of Edu13 cational Opportunities for

14 Workers

15 SEC. 141. CREDIT FOR EMPLOYEE TRAINING.

16 (a) IN GENERAL.—Subpart D of part IV of sub17 chapter A of chapter 1 of the Internal Revenue Code of

18 1986 (relating to business related credits) is amended by

19 adding at the end the following new section:

20 ‘‘SEC. 45C. EMPLOYEE TRAINING CREDIT.

21 ‘‘(a) IN GENERAL.—For purposes of section 38, the

22 amount of the employee training credit determined under

23 this section for any taxable year shall be an amount equal

24 to 50 percent of the qualified training expenses of the tax25 payer for such taxable year.
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1 ‘‘(b) QUALIFIED TRAINING EXPENSES.—For pur2 poses of this section—

3 ‘‘(1) IN GENERAL.—The term ‘qualified train4 ing expenses’ means the aggregate amount of ex5 penses paid or incurred by the taxpayer during the

6 taxable year in connection with the training of em7 ployees under any approved training program.

8 ‘‘(2) ONLY FIRST $2,500 OF QUALIFIED TRAIN9 ING EXPENSES TAKEN INTO ACCOUNT.—The amount

10 of the qualified training expenses which may be

11 taken into account with respect to any employee

12 shall not exceed $2,500.

13 ‘‘(3) APPROVED TRAINING PROGRAMS.—The

14 term ‘approved training program’ means—

15 ‘‘(A) any apprenticeship program reg16 istered with or approved by any Federal or

17 State agency or department,

18 ‘‘(B) any employer-designed or employer19 sponsored program which meets such minimum

20 requirements with respect to supervised on-the21 job experience and classroom instruction as the

22 Secretary of Labor shall prescribe by regula23 tions,

24 ‘‘(C) any cooperative education (within the

25 meaning given to such term by section 521(8)
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1 of the Carl D. Perkins Vocational Education

2 Act),

3 ‘‘(D) any training program designated by

4 the Secretary of Labor which is carried out

5 under the supervision of an institution of higher

6 education (within the meaning given to such

7 term by section 1201(a) of the Higher Edu8 cation Act of 1965), or

9 ‘‘(E) any other program for improving job

10 skills directly related to employment which the

11 Secretary of Labor may approve under regula12 tions prescribed by such Secretary.

13 ‘‘(c) SPECIAL RULES.—For purposes of this sec14 tion—

15 ‘‘(1) AGGREGATION OF QUALIFIED TRAINING

16 EXPENSES.—

17 ‘‘(A) CONTROLLED GROUP OF CORPORA18 TIONS.—

19 ‘‘(i) IN GENERAL.—In determining

20 the amount of the credit under this sec21 tion—

22 ‘‘(I) all members of the same

23 controlled group of corporations shall

24 be treated as a single taxpayer, and
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1 ‘‘(II) the credit (if any) allowable

2 by this section to each such member

3 shall be its proportionate share of the

4 qualified training expenses giving rise

5 to the credit.

6 ‘‘(ii) CONTROLLED GROUP OF COR7 PORATIONS DEFINED.—The term ‘con8 trolled group of corporations’ has the same

9 meaning given to such term by section

10 1563(a), except that—

11 ‘‘(I) ‘more than 50 percent’ shall

12 be substituted for ‘at least 80 percent’

13 each place it appears in section

14 1563(a)(1), and

15 ‘‘(II) the determination shall be

16 made without regard to subsections

17 (a)(4) and (e)(3)(C) of section 1563.

18 ‘‘(B) COMMON CONTROL.—Under regula19 tions prescribed by the Secretary, in determin20 ing the amount of the credit under this sec21 tion—

22 ‘‘(i) all trades or businesses (whether

23 or not incorporated) which are under com24 mon control shall be treated as a single

25 taxpayer, and
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1 ‘‘(ii) the credit (if any) allowable by

2 this section to each such trade or business

3 shall be its proportionate share of the

4 qualified training expenses giving rise to

5 the credit.

6 The regulations prescribed under this subpara7 graph shall be based on principles similar to the

8 principles which apply in the case of subpara9 graph (A).

10 ‘‘(2) ALLOCATIONS.—

11 ‘‘(A) PASS-THRU IN THE CASE OF ES12 TATES AND TRUSTS.—Under regulations pre13 scribed by the Secretary, rules similar to the

14 rules of subsection (d) of section 52 shall apply.

15 ‘‘(B) ALLOCATION IN THE CASE OF PART16 NERSHIPS.—In the case of partnerships, the

17 credit shall be allocated among partners under

18 regulations prescribed by the Secretary.

19 ‘‘(d) ADDITIONAL BENEFIT.—The credit allowable

20 under this section with respect to qualified training ex21 penses of the taxpayer shall be in addition to any deduc22 tion or credit allowed the taxpayer under any other provi23 sion of this chapter with respect to such expenses.’’.

24 (b) EMPLOYEE TRAINING CREDIT TREATED AS

25 OTHER BUSINESS CREDITS.—Section 38(b) of the Inter-
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1 nal Revenue Code of 1986 (defining current year business

2 credit) is amended by striking out ‘‘plus’’ at the end of

3 paragraph (10), by striking out the period at the end of

4 paragraph (11) and inserting in lieu thereof ‘‘, plus’’, and

5 by adding at the end thereof the following new paragraph:

6 ‘‘(12) the employee training credit determined

7 under section 45C(a).’’.

8 (c) CLERICAL AMENDMENT.—The table of sections

9 for subpart A of part IV of subchapter A of chapter 1

10 of the Internal Revenue Code of 1986 is amended by add11 ing at the end the following new item:

‘‘Sec. 45C. Employee training credit.’’.

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

13 this section shall apply to taxable years beginning after

14 December 31, 1996.

15 SEC. 142. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

16 (a) DEDUCTION ALLOWED.— Part VII of subchapter

17 B of chapter 1 of the Internal Revenue Code of 1986 (re18 lating to additional itemized deductions for individuals) is

19 amended by redesignating section 220 as section 221 and

20 by inserting after section 219 the following new section:

21 ‘‘SEC. 220. HIGHER EDUCATION TUITION AND FEES; INTER22 EST ON STUDENT LOANS.

23 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an

24 individual, there shall be allowed as a deduction an

25 amount equal to the sum of—
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1 ‘‘(1) the qualified higher education expenses,

2 plus

3 ‘‘(2) interest on qualified higher education

4 loans,

5 paid by the taxpayer during the taxable year.

6 ‘‘(b) QUALIFIED HIGHER EDUCATION EXPENSES.—

7 For purposes of this section—

8 ‘‘(1) QUALIFIED HIGHER EDUCATION EX9 PENSES.—

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

11 higher education expenses’ means tuition and

12 fees charged by an educational institution and

13 required for the enrollment or attendance of—

14 ‘‘(i) the taxpayer,

15 ‘‘(ii) the taxpayer’s spouse, or

16 ‘‘(iii) any dependent of the taxpayer

17 with respect to whom the taxpayer is al18 lowed a deduction under section 151,

19 as an eligible student at an institution of higher

20 education.

21 ‘‘(B) EXCEPTION FOR EDUCATION INVOLV22 ING SPORTS, ETC.—Such term does not include

23 expenses with respect to any course or other

24 education involving sports, games, or hobbies,

25 unless such expenses—
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1 ‘‘(i) are part of a degree program, or

2 ‘‘(ii) are deductible under this chapter

3 without regard to this section.

4 ‘‘(C) EXCEPTION FOR NONACADEMIC

5 FEES.—Such term does not include any student

6 activity fees, athletic fees, insurance expenses,

7 or other expenses unrelated to a student’s aca8 demic course of instruction.

9 ‘‘(D) ELIGIBLE STUDENT.—For purposes

10 of subparagraph (A), the term ‘eligible student’

11 means a student who—

12 ‘‘(i) meets the requirements of section

13 484(a)(1) of the Higher Education Act of

14 1965 (20 U.S.C. 1091(a)(1)), as in effect

15 on the date of the enactment of this sec16 tion, and

17 ‘‘(ii)(I) is carrying at least one-half

18 the normal full-time work load for the

19 course of study the student is pursuing, as

20 determined by the institution of higher

21 education, or

22 ‘‘(II) is enrolled in a course which en23 ables the student to improve the student’s

24 job skills or to acquire new job skills.
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1 ‘‘(E) IDENTIFICATION REQUIREMENT.—No

2 deduction shall be allowed under subsection (a)

3 to a taxpayer with respect to an eligible student

4 unless the taxpayer includes the name, age, and

5 taxpayer identification number of such eligible

6 student on the return of tax for the taxable

7 year.

8 ‘‘(2) DOLLAR LIMITATION.—The amount taken

9 into account under paragraph (1) for any taxable

10 year shall not exceed $10,000.

11 ‘‘(3) LIMITATION BASED ON MODIFIED AD12 JUSTED GROSS INCOME.—

13 ‘‘(A) IN GENERAL.—The amount which

14 would be taken into account under paragraph

15 (1) (after application of paragraph (2)) shall be

16 reduced (but not below zero) by the amount de17 termined under subparagraph (B).

18 ‘‘(B) AMOUNT OF REDUCTION.—The

19 amount determined under this subparagraph

20 equals the amount which bears the same ratio

21 to the deduction (determined without regard to

22 this paragraph) as—

23 ‘‘(i) the excess of—
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1 ‘‘(I) the taxpayer’s modified ad2 justed gross income for such taxable

3 year, over

4 ‘‘(II) $60,000, bears to

5 ‘‘(ii) $15,000.

6 ‘‘(C) MODIFIED ADJUSTED GROSS IN7 COME.—The term ‘modified adjusted gross in8 come’ means the adjusted gross income of the

9 taxpayer for the taxable year determined—

10 ‘‘(i) without regard to this section and

11 sections 911, 931, and 933, and

12 ‘‘(ii) after the application of sections

13 86, 135, 219 and 469.

14 For purposes of sections 86, 135, 219, and

15 469, adjusted gross income shall be determined

16 without regard to the deduction allowed under

17 this section.

18 ‘‘(4) INSTITUTION OF HIGHER EDUCATION.—

19 The term ‘institution of higher education’ means an

20 institution which—

21 ‘‘(A) is described in section 481 of the

22 Higher Education Act of 1965 (20 U.S.C.

23 1088), as in effect on the date of the enactment

24 of this section, and
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1 ‘‘(B) is eligible to participate in programs

2 under title IV of such Act.

3 ‘‘(c) QUALIFIED HIGHER EDUCATION LOAN.—For

4 purposes of this section—

5 ‘‘(1) IN GENERAL.—The term ‘qualified higher

6 education loan’ means a loan to a student which is—

7 ‘‘(A) made, insured, or guaranteed by the

8 Federal Government,

9 ‘‘(B) made by a State or a political sub10 division of a State,

11 ‘‘(C) made from the proceeds of a qualified

12 student loan bond under section 144(b), or

13 ‘‘(D) made by an institution of higher edu14 cation (as defined in section 1201(a) of the

15 Higher Education Act of 1965 (20 U.S.C.

16 1141(a))).

17 ‘‘(2) LIMITATION.—

18 ‘‘(A) IN GENERAL.—The amount of inter19 est on a qualified higher education loan which

20 is taken into account under subsection (a)(2)

21 shall be reduced by the amount which bears the

22 same ratio to such amount of interest as—

23 ‘‘(i) the proceeds from such loan used

24 for qualified higher education expenses,

25 bears to
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1 ‘‘(ii) the total proceeds from such

2 loan.

3 ‘‘(B) QUALIFIED HIGHER EDUCATION EX4 PENSES.—For purposes of subparagraph (A),

5 the term ‘qualified higher education expenses’

6 has the meaning given such term by subsection

7 (b), except that—

8 ‘‘(i) such term shall include reason9 able living expenses while away from home,

10 and

11 ‘‘(ii) the limitations of paragraphs (2)

12 and (3) of subsection (b) shall not apply.

13 ‘‘(d) SPECIAL RULES.—

14 ‘‘(1) NO DOUBLE BENEFIT.—

15 ‘‘(A) IN GENERAL.—No deduction shall be

16 allowed under subsection (a) for qualified high17 er education expenses or interest on qualified

18 higher education loans with respect to which a

19 deduction is allowable to the taxpayer under

20 any other provision of this chapter unless the

21 taxpayer irrevocably waives his right to the de22 duction of such expenses under such other pro23 vision.

24 ‘‘(B) DEPENDENTS.—No deduction shall

25 be allowed under subsection (a) to any individ-
27

•S 1668 IS

1 ual with respect to whom a deduction under

2 section 151 is allowable to another taxpayer for

3 a taxable year beginning in the calendar year in

4 which such individual’s taxable year begins.

5 ‘‘(C) SAVINGS BOND EXCLUSION.—A de6 duction shall be allowed under subsection (a)

7 for qualified higher education expenses only to

8 the extent the amount of such expenses exceeds

9 the amount excludable under section 135 for

10 the taxable year.

11 ‘‘(2) LIMITATION ON TAXABLE YEAR OF DE12 DUCTION.—

13 ‘‘(A) IN GENERAL.—A deduction shall be

14 allowed under subsection (a) for any taxable

15 year only to the extent the qualified higher edu16 cation expenses are in connection with enroll17 ment at an institution of higher education dur18 ing the taxable year.

19 ‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—

20 Subparagraph (A) shall not apply to qualified

21 higher education expenses paid during a taxable

22 year if such expenses are in connection with an

23 academic term beginning during such taxable

24 year or during the 1st 3 months of the next

25 taxable year.
28

•S 1668 IS

1 ‘‘(3) ADJUSTMENT FOR CERTAIN SCHOLAR2 SHIPS AND VETERANS BENEFITS.—The amount of

3 qualified higher education expenses otherwise taken

4 into account under subsection (a) with respect to the

5 education of an individual shall be reduced (before

6 the application of subsection (b)) by the sum of the

7 amounts received with respect to such individual for

8 the taxable year as—

9 ‘‘(A) a qualified scholarship which under

10 section 117 is not includable in gross income,

11 ‘‘(B) an educational assistance allowance

12 under chapter 30, 31, 32, 34, or 35 of title 38,

13 United States Code, or

14 ‘‘(C) a payment (other than a gift, be15 quest, devise, or inheritance within the meaning

16 of section 102(a)) for educational expenses, or

17 attributable to enrollment at an eligible edu18 cational institution, which is exempt from in19 come taxation by any law of the United States.

20 ‘‘(4) NO DEDUCTION FOR MARRIED INDIVID21 UALS FILING SEPARATE RETURNS.—If the taxpayer

22 is a married individual (within the meaning of sec23 tion 7703), this section shall apply only if the tax24 payer and the taxpayer’s spouse file a joint return

25 for the taxable year.
29

•S 1668 IS

1 ‘‘(5) NONRESIDENT ALIENS.—If the taxpayer is

2 a nonresident alien individual for any portion of the

3 taxable year, this section shall apply only if such in4 dividual is treated as a resident alien of the United

5 States for purposes of this chapter by reason of an

6 election under subsection (g) or (h) of section 6013.

7 ‘‘(6) REGULATIONS.—The Secretary may pre8 scribe such regulations as may be necessary or ap9 propriate to carry out this section, including regula10 tions requiring recordkeeping and information re11 porting.’’.

12 (b) DEDUCTION ALLOWED IN COMPUTING AD13 JUSTED GROSS INCOME.—Section 62(a) of the Internal

14 Revenue Code of 1986 (defining adjusted gross income)

15 is amended by inserting after paragraph (15) the following

16 new paragraph:

17 ‘‘(16) HIGHER EDUCATION TUITION AND

18 FEES.—The deduction allowed by section 220.’’.

19 (c) CONFORMING AMENDMENT.—The table of sec20 tions for part VII of subchapter B of chapter 1 of the

21 Internal Revenue Code of 1986 is amended by striking the

22 item relating to section 220 and inserting:

‘‘Sec. 220. Higher education tuition and fees.

‘‘Sec. 221. Cross reference.’’.
30

•S 1668 IS

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

2 this section shall apply to payments made after December

3 31, 1996.

4 Subtitle F—Elimination of Tax In5 centives for Moving Jobs Over6 seas

7 SEC. 151. SOURCE OF INCOME FROM CERTAIN SALES OF IN8 VENTORY PROPERTY.

9 (a) GENERAL RULE.—Subsection (b) of section 865

10 of the Internal Revenue Code of 1986 (relating to excep11 tion for inventory property) is amended to read as follows:

12 ‘‘(b) EXCEPTION FOR INVENTORY PROPERTY.—

13 ‘‘(1) IN GENERAL.—Except as otherwise pro14 vided in this subsection, income derived from the

15 sale of inventory property shall be sourced under the

16 rules of sections 861(a)(6), 862(a)(6), and 863 and

17 this section shall not apply.

18 ‘‘(2) TREATMENT OF CERTAIN SALES TO RE19 LATED PERSONS.—

20 ‘‘(A) IN GENERAL.—If any inventory prop21 erty produced (in whole or in part) by the tax22 payer is sold by the taxpayer (directly or indi23 rectly) to a related person—

24 ‘‘(i) the portion determined under

25 subparagraph (B) of the income from such
31

•S 1668 IS

1 sale shall be sourced in the United States

2 or outside the United States depending on

3 where the production activities occur, and

4 ‘‘(ii) the remaining portion of such in5 come shall be sourced under the rules of

6 sections 861(a)(6), 862(a)(6), and 863.

7 ‘‘(B) AMOUNT APPORTIONED TO PRODUC8 TION ACTIVITIES.—For purposes of subpara9 graph (A), the portion determined under this

10 subparagraph is so much of the income from

11 the sale as does not exceed the greater of—

12 ‘‘(i) the portion of such income appor13 tioned to production activities under sec14 tion 863(b), or

15 ‘‘(ii) the portion of the combined in16 come of the taxpayer and related person

17 attributable to such property which would

18 have been apportioned to production activi19 ties under section 863(b) if such taxpayer

20 and related person were one taxpayer.

21 ‘‘(C) RELATED PERSON.—For purposes of

22 this paragraph, the term ‘related person’ means

23 any person related (within the meaning of sec24 tion 482) to the taxpayer.
32

•S 1668 IS

1 ‘‘(3) CERTAIN SALES FOR USE IN UNITED

2 STATES.—If—

3 ‘‘(A) a United States resident sells (di4 rectly or indirectly) inventory property to an5 other United States resident for use, consump6 tion, or disposition in the United States, and

7 ‘‘(B) such sale is not attributable to an of8 fice or other fixed place of business maintained

9 by such United States resident outside the

10 United States,

11 any income of such United States resident (or any

12 related person) from such sale shall be sourced in

13 the United States.’’.

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

15 this section shall apply to sales after December 31, 1996.

16 SEC. 152. TRANSFER PRICING RULES.

17 (a) AUTHORITY OF SECRETARY WHEN LEGAL LIM18 ITS ON TRANSFER BY TAXPAYER.—Section 482 of the In19 ternal Revenue Code of 1986 (relating to allocation of in20 come and deductions among taxpayers) is amended by

21 adding at the end the following: ‘‘The authority of the Sec22 retary under this section shall not be limited by any re23 striction (by any law or agreement) on the ability of such

24 interests, organizations, trades, or businesses to transfer

25 or receive money or other property.’’.
33

•S 1668 IS

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

2 this section shall apply to taxable years beginning after

3 December 31, 1996.

4 SEC. 153. INCOME FROM RUNAWAY PLANTS OR FROM MAN5 UFACTURING OPERATIONS LOCATED IN A

6 COUNTRY WHICH PROVIDES A TAX HOLIDAY

7 INCLUDED IN SUBPART F INCOME.

8 (a) FOREIGN BASE COMPANY MANUFACTURING RE9 LATED INCOME ADDED TO CURRENTLY TAXED

10 AMOUNTS.—Subsection (a) of section 954 of the Internal

11 Revenue Code of 1986 (defining foreign base company in12 come) is amended by striking ‘‘and’’ at the end of para13 graph (4), by striking the period at the end of paragraph

14 (5) and inserting ‘‘, and’’, and by adding at the end there15 of the following new paragraph:

16 ‘‘(6) the foreign base company manufacturing

17 related income for the taxable year (determined

18 under subsection (h) and reduced as provided in

19 subsection (b)(5)).’’.

20 (b) DEFINITION OF FOREIGN BASE COMPANY MANU21 FACTURING RELATED INCOME.—Section 954 of the Inter22 nal Revenue Code of 1986 is amended by adding at the

23 end the following new subsection:

24 ‘‘(h) FOREIGN BASE COMPANY MANUFACTURING

25 RELATED INCOME.—
34

•S 1668 IS

1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘foreign base company manufacturing

3 related income’ means income (whether in the form

4 of profits, commissions, fees, or otherwise) derived in

5 connection with the manufacture for or sale to any

6 person of personal property by the controlled foreign

7 corporation where the property sold was manufac8 tured by the controlled foreign corporation in any

9 country other than the United States if such prop10 erty or any component of such property was manu11 factured—

12 ‘‘(A) in a tax holiday plant, or

13 ‘‘(B) in a runaway plant.

14 ‘‘(2) OTHER DEFINITIONS; SPECIAL RULES.—

15 For purposes of this subsection—

16 ‘‘(A) TAX HOLIDAY PLANT DEFINED.—The

17 term ‘tax holiday plant’ means any facility—

18 ‘‘(i) operated by the controlled foreign

19 corporation in connection with the manu20 facture of personal property, and

21 ‘‘(ii) with respect to which any eco22 nomic benefit under any tax law of the

23 country in which such facility is located ac24 crued—

25 ‘‘(I) to such corporation,
35

•S 1668 IS

1 ‘‘(II) for the purpose of providing

2 an incentive to such corporation to es3 tablish, maintain, or expand such fa4 cility, and

5 ‘‘(III) for the taxable year of

6 such corporation during which the

7 personal property referred to in para8 graph (1) was manufactured.

9 ‘‘(B) RUNAWAY PLANT DEFINED.—The

10 term ‘runaway plant’ means any facility—

11 ‘‘(i) for the manufacture of personal

12 property of which not less than 10 percent

13 is used, consumed, or otherwise disposed of

14 in the United States, and

15 ‘‘(ii) which is established or main16 tained by the controlled foreign corporation

17 in a country in which the effective tax rate

18 imposed by such country on the corpora19 tion is less than 90 percent of the effective

20 tax rate which would be imposed on such

21 corporation under this title.

22 ‘‘(C) ECONOMIC BENEFIT UNDER ANY TAX

23 LAW DEFINED.—The term ‘economic benefit

24 under any tax law’ includes—
36

•S 1668 IS

1 ‘‘(i) any exclusion or deduction of any

2 amount from gross income derived in con3 nection with—

4 ‘‘(I) the operation of any manu5 facturing facility, or

6 ‘‘(II) the manufacture or sale of

7 any personal property,

8 which would otherwise be subject to tax

9 under the law of such country;

10 ‘‘(ii) any reduction in the rate of any

11 tax which would otherwise be imposed

12 under the laws of such country with re13 spect to any facility or property referred to

14 in clause (i) (including any ad valorem tax

15 or excise tax with respect to such prop16 erty);

17 ‘‘(iii) any credit against any tax which

18 would otherwise be assessed against any

19 such facility or property or any income de20 rived in connection with the operation of

21 any such facility or the manufacture or

22 sale of any such property; and

23 ‘‘(iv) any abatement of any amount of

24 tax otherwise due and any other reduction
37

•S 1668 IS

1 in the actual amount of tax paid to such

2 country.

3 ‘‘(D) MANUFACTURE DEFINED.—The term

4 ‘manufacture’ or ‘manufacturing’ includes any

5 production, processing, assembling, or finishing

6 of any personal property or any component of

7 property not yet assembled and any packaging,

8 handling, or other activity incidental to the

9 shipment or delivery of such property to any

10 buyer.

11 ‘‘(E) CORPORATION INCLUDES ANY RELAT12 ED PERSON.—The term ‘controlled foreign cor13 poration’ includes any related person with re14 spect to such corporation.

15 ‘‘(F) SPECIAL RULE FOR DETERMINING

16 WHICH TAXABLE YEAR AN ECONOMIC BENEFIT

17 WAS OBTAINED.—An economic benefit under

18 any tax law shall be treated as having accrued

19 in the taxable year of the controlled foreign cor20 poration in which such corporation actually ob21 tained the benefit, notwithstanding the fact that

22 such benefit may have been allowable for any

23 preceding or succeeding taxable year and was

24 carried forward or back, for any reason, to the

25 taxable year.
38

•S 1668 IS

1 ‘‘(3) LIMITATION ON APPLICATION OF PARA2 GRAPH (1) IN CERTAIN CASES.—For purposes of this

3 section—

4 ‘‘(A) IN GENERAL.—The term ‘foreign

5 base company manufacturing related income’

6 shall not include any income of a controlled for7 eign corporation from the manufacture or sale

8 of personal property if—

9 ‘‘(i) such corporation is not a corpora10 tion significantly engaged in manufactur11 ing,

12 ‘‘(ii) the investment in the expansion

13 of an existing facility which gave rise to a

14 tax holiday for such facility was not a sub15 stantial investment, or

16 ‘‘(iii) the personal property was used,

17 consumed, or otherwise disposed of in the

18 country in which such property was manu19 factured.

20 ‘‘(B) CORPORATION SIGNIFICANTLY EN21 GAGED IN MANUFACTURING DEFINED.—

22 ‘‘(i) GENERAL RULE.—A corporation

23 shall be deemed to be significantly engaged

24 in manufacturing if the value of real prop25 erty and other capital assets owned or con-
39

•S 1668 IS

1 trolled by the corporation and dedicated to

2 manufacturing operations is more than 10

3 percent of the total value of all real prop4 erty and other capital assets owned or con5 trolled by such corporation.

6 ‘‘(ii) SPECIAL RULE FOR ASSESSING

7 PROPERTY VALUE.—The value of any

8 property owned by the corporation is the

9 basis of such corporation in such property.

10 The basis of the corporation in any prop11 erty which was acquired other than by pur12 chase shall be the fair market value of

13 such property at the time of such acquisi14 tion. Any property controlled but not

15 owned by such corporation under any lease

16 (or any other instrument which gives such

17 corporation any right of use or occupancy

18 with respect to such property) shall be

19 treated as property acquired other than by

20 purchase in the manner provided in the

21 preceding sentence.

22 ‘‘(C) SUBSTANTIAL INVESTMENT DE23 FINED.—The term ‘substantial investment’

24 means any amount which—
40

•S 1668 IS

1 ‘‘(i) was added to the capital account

2 for an existing facility during the 3-year

3 period ending on the last day of any tax4 able year with respect to which such facil5 ity is a tax holiday plant, and

6 ‘‘(ii) caused the sum of all amounts

7 added to such account during such period

8 to exceed 20 percent of the total value of

9 such facility (determined in the manner

10 provided in subparagraph (B)(ii)) on the

11 first day of such period.’’.

12 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

13 (1) The last sentence of subsection (b)(4) of

14 such section 954 is amended by striking out ‘‘sub15 section (a)(5).’’ and by inserting in lieu thereof

16 ‘‘subsection (a)(5) or foreign base company manu17 facturing related income described in subsection

18 (a)(6).’’

19 (2) Subsection (b)(5) of such section 954 is

20 amended by striking out ‘‘and the foreign base com21 pany oil related income’’ and by inserting in lieu

22 thereof ‘‘the foreign base company oil related in23 come, and the foreign base company manufacturing

24 related income’’.
41

•S 1668 IS

1 (3) Subsection (b) of such section 954 is

2 amended by inserting at the end thereof the follow3 ing new paragraph:

4 ‘‘(9) FOREIGN BASE COMPANY MANUFACTURING

5 RELATED INCOME NOT TREATED AS ANOTHER KIND

6 OF BASE COMPANY INCOME.—Income of a corpora7 tion which is foreign base company manufacturing

8 related income shall not be treated as foreign base

9 company income of such corporation under any

10 paragraph of subsection (a) other than paragraph

11 (6).’’.

12 (d) EFFECTIVE DATES.—

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

14 this section shall apply to taxable years of foreign

15 corporations beginning after December 31, 1988,

16 and to taxable years of United States shareholders

17 in which, or with which, such taxable years of for18 eign corporations end.

19 (2) INVESTMENTS BEFORE THE DATE OF EN20 ACTMENT NOT TAKEN INTO ACCOUNT.—No facility

21 of a foreign controlled corporation shall be treated

22 as a tax holiday plant (within the meaning of section

23 954(h)(2)(A) of the Internal Revenue Code of 1986,

24 as amended by this section) or as a runaway plant

25 (within the meaning of section 954(h)(2)(B) of such
42

•S 1668 IS

1 Code, as amended by this section) on the basis of

2 any amount paid or incurred with respect to such fa3 cility and added to the capital account for such facil4 ity before the date of the enactment of this Act.

5 SEC. 154. REPEAL OF SECTION 911 EXCLUSION OF FOREIGN

6 EARNED INCOME.

7 Subsection (a) of section 911 of the Internal Revenue

8 Code of 1986 (relating to citizens or residents of the Unit9 ed States living abroad) is amended by striking ‘‘under

10 this subtitle’’ and all that follows through ‘‘individual.’’

11 and inserting ‘‘under this subtitle—

12 ‘‘(1) for any taxable year beginning before Jan13 uary 1, 1997, the foreign earned income of such in14 dividual, and

15 ‘‘(2) for any taxable year, the housing cost

16 amount of such individual.’’.

17 SEC. 155. REVISION OF TAX RULES ON EXPATRIATION.

18 (a) IN GENERAL.—Subpart A of part II of sub19 chapter N of chapter 1 of the Internal Revenue Code of

20 1986 is amended by inserting after section 877 the follow21 ing new section:

22 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

23 ‘‘(a) GENERAL RULES.—For purposes of this sub24 title—
43

•S 1668 IS

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

2 subsection (f)(2), all property held by an expatriate

3 immediately before the expatriation date shall be

4 treated as sold at such time for its fair market

5 value.

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

7 case of any sale under paragraph (1)—

8 ‘‘(A) notwithstanding any other provision

9 of this title, any gain arising from such sale

10 shall be taken into account for the taxable year

11 of the sale unless such gain is excluded from

12 gross income under part III of subchapter B,

13 and

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

15 be taken into account for the taxable year of

16 the sale to the extent otherwise provided by this

17 title, except that section 1091 shall not apply

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

19 ‘‘(3) ELECTION TO CONTINUE TO BE TAXED AS

20 UNITED STATES CITIZEN.—

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

22 the application of this paragraph with respect

23 to any property—
44

•S 1668 IS

1 ‘‘(i) this section (other than this para2 graph) shall not apply to such property,

3 but

4 ‘‘(ii) such property shall be subject to

5 tax under this title in the same manner as

6 if the individual were a United States citi7 zen.

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

9 GIFT, AND GENERATION-SKIPPING TRANSFER

10 TAXES.—The aggregate amount of taxes im11 posed under subtitle B with respect to any

12 transfer of property by reason of an election

13 under subparagraph (A) shall not exceed the

14 amount of income tax which would be due if the

15 property were sold for its fair market value im16 mediately before the time of the transfer or

17 death (taking into account the rules of sub18 section (a)(2)).

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

20 shall not apply to an individual unless the indi21 vidual—

22 ‘‘(i) provides security for payment of

23 tax in such form and manner, and in such

24 amount, as the Secretary may require,
45

•S 1668 IS

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

2 right of the individual under any treaty of

3 the United States which would preclude as4 sessment or collection of any tax which

5 may be imposed by reason of this para6 graph, and

7 ‘‘(iii) complies with such other re8 quirements as the Secretary may prescribe.

9 ‘‘(D) ELECTION.—An election under sub10 paragraph (A) shall apply only to the property

11 described in the election and, once made, shall

12 be irrevocable.

13 ‘‘(b) EXCLUSION FOR CERTAIN GAIN.—The amount

14 which would (but for this subsection) be includible in the

15 gross income of any individual by reason of subsection (a)

16 shall be reduced (but not below zero) by $600,000.

17 ‘‘(c) PROPERTY TREATED AS HELD.—For purposes

18 of this section, except as otherwise provided by the Sec19 retary, an individual shall be treated as holding—

20 ‘‘(1) all property which would be includible in

21 his gross estate under chapter 11 if such individual

22 were a citizen or resident of the United States (with23 in the meaning of chapter 11) who died at the time

24 the property is treated as sold,
46

•S 1668 IS

1 ‘‘(2) any other interest in a trust which the in2 dividual is treated as holding under the rules of sub3 section (f)(1), and

4 ‘‘(3) any other interest in property specified by

5 the Secretary as necessary or appropriate to carry

6 out the purposes of this section.

7 ‘‘(d) EXCEPTIONS.—The following property shall not

8 be treated as sold for purposes of this section:

9 ‘‘(1) UNITED STATES REAL PROPERTY INTER10 ESTS.—Any United States real property interest (as

11 defined in section 897(c)(1)), other than stock of a

12 United States real property holding corporation

13 which does not, on the expatriation date, meet the

14 requirements of section 897(c)(2).

15 ‘‘(2) INTEREST IN CERTAIN RETIREMENT

16 PLANS.—

17 ‘‘(A) IN GENERAL.—Any interest in a

18 qualified retirement plan (as defined in section

19 4974(c)), other than any interest attributable to

20 contributions which are in excess of any limita21 tion or which violate any condition for tax-fa22 vored treatment.

23 ‘‘(B) FOREIGN PENSION PLANS.—

24 ‘‘(i) IN GENERAL.—Under regulations

25 prescribed by the Secretary, interests in
47

•S 1668 IS

1 foreign pension plans or similar retirement

2 arrangements or programs.

3 ‘‘(ii) LIMITATION.—The value of prop4 erty which is treated as not sold by reason

5 of this subparagraph shall not exceed

6 $500,000.

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

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

9 means—

10 ‘‘(A) any United States citizen who relin11 quishes his citizenship, or

12 ‘‘(B) any long-term resident of the United

13 States who—

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

15 resident of the United States (within the

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

17 ‘‘(ii) commences to be treated as a

18 resident of a foreign country under the

19 provisions of a tax treaty between the

20 United States and the foreign country and

21 who does not waive the benefits of such

22 treaty applicable to residents of the foreign

23 country.

24 An individual shall not be treated as an expatriate

25 for purposes of this section by reason of the individ-
48

•S 1668 IS

1 ual relinquishing United States citizenship before attaining the age of 181 2 ⁄2 if the individual has been a

3 resident of the United States (as defined in section

4 7701(b)(1)(A)(ii)) for less than 5 taxable years be5 fore the date of relinquishment.

6 ‘‘(2) EXPATRIATION DATE.—The term ‘expa7 triation date’ means—

8 ‘‘(A) the date an individual relinquishes

9 United States citizenship, or

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

11 the United States, the date of the event de12 scribed in clause (i) or (ii) of paragraph (1)(B).

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

14 citizen shall be treated as relinquishing his United

15 States citizenship on the earliest of—

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

17 United States nationality before a diplomatic or

18 consular officer of the United States pursuant

19 to paragraph (5) of section 349(a) of the Immi20 gration and Nationality Act (8 U.S.C.

21 1481(a)(5)),

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

23 the United States Department of State a signed

24 statement of voluntary relinquishment of Unit25 ed States nationality confirming the perform-
49

•S 1668 IS

1 ance of an act of expatriation specified in para2 graph (1), (2), (3), or (4) of section 349(a) of

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

4 1481(a)(1)–(4)),

5 ‘‘(C) the date the United States Depart6 ment of State issues to the individual a certifi7 cate of loss of nationality, or

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

9 cancels a naturalized citizen’s certificate of nat10 uralization.

11 Subparagraph (A) or (B) shall not apply to any indi12 vidual unless the renunciation or voluntary relin13 quishment is subsequently approved by the issuance

14 to the individual of a certificate of loss of nationality

15 by the United States Department of State.

16 ‘‘(4) LONG-TERM RESIDENT.—

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

18 resident’ means any individual (other than a

19 citizen of the United States) who is a lawful

20 permanent resident of the United States in at

21 least 8 taxable years during the period of 15

22 taxable years ending with the taxable year dur23 ing which the sale under subsection (a)(1) is

24 treated as occurring. For purposes of the pre25 ceding sentence, an individual shall not be
50

•S 1668 IS

1 treated as a lawful permanent resident for any

2 taxable year if such individual is treated as a

3 resident of a foreign country for the taxable

4 year under the provisions of a tax treaty be5 tween the United States and the foreign coun6 try and does not waive the benefits of such

7 treaty applicable to residents of the foreign

8 country.

9 ‘‘(B) SPECIAL RULE.—For purposes of

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

11 account—

12 ‘‘(i) any taxable year during which

13 any prior sale is treated under subsection

14 (a)(1) as occurring, or

15 ‘‘(ii) any taxable year prior to the tax16 able year referred to in clause (i).

17 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE18 FICIARIES’ INTERESTS IN TRUST.—

19 ‘‘(1) DETERMINATION OF BENEFICIARIES’ IN20 TEREST IN TRUST.—For purposes of this section—

21 ‘‘(A) GENERAL RULE.—A beneficiary’s in22 terest in a trust shall be based upon all relevant

23 facts and circumstances, including the terms of

24 the trust instrument and any letter of wishes or

25 similar document, historical patterns of trust
51

•S 1668 IS

1 distributions, and the existence of and functions

2 performed by a trust protector or any similar

3 advisor.

4 ‘‘(B) SPECIAL RULE.—The remaining in5 terests in the trust not determined under sub6 paragraph (A) to be held by any beneficiary

7 shall be allocated first to the grantor, if a bene8 ficiary, and then to other beneficiaries under

9 rules prescribed by the Secretary similar to the

10 rules of intestate succession.

11 ‘‘(C) CONSTRUCTIVE OWNERSHIP.—If a

12 beneficiary of a trust is a corporation, partner13 ship, trust, or estate, the shareholders, part14 ners, or beneficiaries shall be deemed to be the

15 trust beneficiaries for purposes of this section.

16 ‘‘(D) TAXPAYER RETURN POSITION.—A

17 taxpayer shall clearly indicate on its income tax

18 return—

19 ‘‘(i) the methodology used to deter20 mine that taxpayer’s trust interest under

21 this section, and

22 ‘‘(ii) if the taxpayer knows (or has

23 reason to know) that any other beneficiary

24 of such trust is using a different methodol-
52

•S 1668 IS

1 ogy to determine such beneficiary’s trust

2 interest under this section.

3 ‘‘(2) DEEMED SALE IN CASE OF TRUST INTER4 EST.—If an individual who is an expatriate is treat5 ed under paragraph (1) as holding an interest in a

6 trust for purposes of this section—

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

8 having sold such interest,

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

10 separate share in the trust, and

11 ‘‘(C)(i) such separate share shall be treat12 ed as a separate trust consisting of the assets

13 allocable to such share,

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

15 having sold its assets immediately before the ex16 patriation date for their fair market value and

17 as having distributed all of its assets to the in18 dividual as of such time, and

19 ‘‘(iii) the individual shall be treated as hav20 ing recontributed the assets to the separate

21 trust.

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

23 loss of the individual arising from a distribution de24 scribed in subparagraph (C)(ii).
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1 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the

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

3 under subsection (a), notwithstanding any other provision

4 of this title—

5 ‘‘(1) any period during which recognition of in6 come or gain is deferred shall terminate, and

7 ‘‘(2) any extension of time for payment of tax

8 shall cease to apply and the unpaid portion of such

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

10 manner prescribed by the Secretary.

11 ‘‘(h) RULES RELATING TO PAYMENT OF TAX.—

12 ‘‘(1) IMPOSITION OF TENTATIVE TAX.—

13 ‘‘(A) IN GENERAL.—If an individual is re14 quired to include any amount in gross income

15 under subsection (a) for any taxable year, there

16 is hereby imposed, immediately before the expa17 triation date, a tax in an amount equal to the

18 amount of tax which would be imposed if the

19 taxable year were a short taxable year ending

20 on the expatriation date.

21 ‘‘(B) DUE DATE.—The due date for any

22 tax imposed by subparagraph (A) shall be the

23 90th day after the expatriation date.

24 ‘‘(C) TREATMENT OF TAX.—Any tax paid

25 under subparagraph (A) shall be treated as a
54

•S 1668 IS

1 payment of the tax imposed by this chapter for

2 the taxable year to which subsection (a) applies.

3 ‘‘(2) DEFERRAL OF TAX.—The payment of any

4 tax attributable to amounts included in gross income

5 under subsection (a) may be deferred to the same

6 extent, and in the same manner, as any tax imposed

7 by chapter 11, except that the Secretary may extend

8 the period for extension of time for paying tax under

9 section 6161 to such number of years as the Sec10 retary determines appropriate.

11 ‘‘(3) RULES RELATING TO SECURITY INTER12 ESTS.—

13 ‘‘(A) ADEQUACY OF SECURITY INTER14 ESTS.—In determining the adequacy of any se15 curity to be provided under this section, the

16 Secretary may take into account the principles

17 of section 2056A.

18 ‘‘(B) SPECIAL RULE FOR TRUST.—If a

19 taxpayer is required by this section to provide

20 security in connection with any tax imposed by

21 reason of this section with respect to the hold22 ing of an interest in a trust and any trustee of

23 such trust is an individual citizen of the United

24 States or a domestic corporation, such trustee

25 shall be required to provide such security upon
55

•S 1668 IS

1 notification by the taxpayer of such require2 ment.

3 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

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

5 individual for any taxable year and—

6 ‘‘(1) such property is includible in the gross es7 tate of such individual solely by reason of section

8 2107, or

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

10 property by such individual solely by reason of sec11 tion 2501(a)(3),

12 then there shall be allowed as a credit against the addi13 tional tax imposed by section 2101 or 2501, whichever is

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

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

16 this chapter for such taxable year by reason of this sec17 tion.

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

19 such regulations as may be necessary or appropriate to

20 carry out the purposes of this section, including regula21 tions to prevent double taxation by ensuring that—

22 ‘‘(1) appropriate adjustments are made to basis

23 to reflect gain recognized by reason of subsection (a)

24 and the exclusion provided by subsection (b),
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•S 1668 IS

1 ‘‘(2) no interest in property is treated as held

2 for purposes of this section by more than one tax3 payer, and

4 ‘‘(3) any gain by reason of a deemed sale under

5 subsection (a) of an interest in a corporation, part6 nership, trust, or estate is reduced to reflect that

7 portion of such gain which is attributable to an in8 terest in a trust which a shareholder, partner, or

9 beneficiary is treated as holding directly under sub10 section (f)(1)(C).

11 ‘‘(k) CROSS REFERENCE.—

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

7701(a)(47).’’

12 (b) DEFINITION OF TERMINATION OF UNITED

13 STATES CITIZENSHIP.—Section 7701(a) of the Internal

14 Revenue Code of 1986 is amended by adding at the end

15 the following new paragraph:

16 ‘‘(47) TERMINATION OF UNITED STATES CITI17 ZENSHIP.—An individual shall not cease to be treat18 ed as a United States citizen before the date on

19 which the individual’s citizenship is treated as relin20 quished under section 877A(e)(3).’’

21 (c) CONFORMING AMENDMENTS.—

22 (1) Section 877 of the Internal Revenue Code

23 of 1986 is amended by adding at the end the follow24 ing new subsection:
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•S 1668 IS

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

2 any individual who relinquishes (within the meaning of

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

4 February 6, 1995.’’

5 (2) Section 2107(c) of such Code is amended by

6 adding at the end the following new paragraph:

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

8 the tax imposed by subsection (a) for expatriation

9 tax, see section 877A(i).’’

10 (3) Section 2501(a)(3) of such Code is amended

11 by adding at the end the following new flush sen12 tence:

13 ‘‘For credit against the tax imposed under this sec14 tion by reason of this paragraph, see section

15 877A(i).’’

16 (4) Section 6851 of such Code is amended by

17 striking subsection (d) and by redesignating sub18 section (e) as subsection (d).

19 (5) Paragraph (10) of section 7701(b) of such

20 Code is amended by adding at the end the following

21 new sentence: ‘‘This paragraph shall not apply to

22 any long-term resident of the United States who is

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

24 (d) CLERICAL AMENDMENT.—The table of sections

25 for subpart A of part II of subchapter N of chapter 1
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•S 1668 IS

1 of the Internal Revenue Code of 1986 is amended by in2 serting after the item relating to section 877 the following

3 new item:

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

4 (e) EFFECTIVE DATE.—

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

6 this section shall apply to expatriates (within the

7 meaning of section 877A(e) of the Internal Revenue

8 Code of 1986, as added by this section) whose expa9 triation date (as so defined) occurs on or after Feb10 ruary 6, 1995.

11 (2) DUE DATE FOR TENTATIVE TAX.—The due

12 date under section 877A(h)(1)(B) of such Code shall

13 in no event occur before the 90th day after the date

14 of the enactment of this Act.

15 Subtitle G—Distressed Community

16 Economic Development Bonds

17 SEC. 161. DISTRESSED COMMUNITY ECONOMIC DEVELOP18 MENT BONDS.

19 (a) IN GENERAL.—Paragraph (1) of section 141(e)

20 of the Internal Revenue Code of 1986 (defining qualified

21 bond) is amended by striking ‘‘or’’ at the end of subpara22 graph (F), by striking the period at the end of subpara23 graph (G) and inserting ‘‘, or’’, and by adding at the end

24 the following new subparagraph:
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•S 1668 IS

1 ‘‘(H) a distressed community economic de2 velopment bond.’’

3 (b) DISTRESSED COMMUNITY ECONOMIC DEVELOP4 MENT BOND DEFINED.—

5 (1) IN GENERAL.—Section 144 of the Internal

6 Revenue Code of 1986 is amended by adding at the

7 end the following new subsection:

8 ‘‘(d) DISTRESSED COMMUNITY ECONOMIC DEVELOP9 MENT BOND.—For purposes of this subpart—

10 ‘‘(1) IN GENERAL.—The term ‘distressed com11 munity economic development bond’ means any bond

12 issued as part of an issue 95 percent or more of the

13 net proceeds of which are to be used for distressed

14 community economic development purposes.

15 ‘‘(2) DISTRESSED COMMUNITY ECONOMIC DE16 VELOPMENT PURPOSES.—For purposes of this sub17 section, the net proceeds of any issue shall be treat18 ed as used for distressed community economic devel19 opment purposes to the extent such proceeds are

20 used—

21 ‘‘(A) to provide qualified economic develop22 ment facilities or land which is functionally re23 lated and subordinate to such facilities, or

24 ‘‘(B) to provide working capital required in

25 connection with the establishment of a qualified
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1 business in a distressed community or the ex2 pansion of such a business in such a commu3 nity.

4 ‘‘(3) QUALIFIED ECONOMIC DEVELOPMENT FA5 CILITIES.—For purposes of this subsection, the term

6 ‘qualified economic development facilities’ means any

7 property to which section 168 applies (or would

8 apply but for section 179) if—

9 ‘‘(A) such property was acquired by pur10 chase (as defined in section 179(d)(2)) after the

11 date on which the designation of the distressed

12 community took effect,

13 ‘‘(B) the original use of which in the dis14 tressed community commences with the person

15 to whom the financing is provided under the

16 issue, and

17 ‘‘(C) substantially all the use of which is in

18 a distressed community and in the active con19 duct of a qualified business.

20 For purposes of the preceding sentence, rules similar

21 to the rules of subsections (a)(2) and (b) of section

22 1397C shall apply.

23 ‘‘(4) QUALIFIED BUSINESS.—For purposes of

24 this subsection—
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•S 1668 IS

1 ‘‘(A) IN GENERAL.—Except as otherwise

2 provided in this paragraph, the term ‘qualified

3 business’ means any trade or business.

4 ‘‘(B) RENTAL OF REAL PROPERTY.—The

5 rental of any building or structure located in a

6 distressed community shall be treated as a

7 qualified business if and only if—

8 ‘‘(i) the property is not residential

9 rental property (as defined in section

10 168(e)(2), and

11 ‘‘(ii) at least 50 percent of the gross

12 rental income from the building or struc13 ture is from other qualified businesses in

14 such community.

15 ‘‘(C) RENTAL OF TANGIBLE PERSONAL

16 PROPERTY.—The rental of tangible personal

17 property shall be treated as a qualified business

18 if and only if substantially all of the rental of

19 such property is by qualified businesses in the

20 distressed community or by individual residents

21 of the distressed community.

22 ‘‘(D) TREATMENT OF BUSINESS HOLDING

23 INTANGIBLES.—The term ‘qualified business’

24 shall not include any trade or business consist-
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•S 1668 IS

1 ing predominantly of the development or hold2 ing of intangibles for sale or license.

3 ‘‘(E) CERTAIN BUSINESSES EXCLUDED.—

4 The term ‘qualified business’ shall not include

5 any trade or business consisting of—

6 ‘‘(i) the operation of any facility de7 scribed in subsection (c)(6)(B), or

8 ‘‘(ii) operating a trade or business the

9 principal activity of which is farming

10 (within the meaning of subparagraph (A)

11 or (B) of section 2032A(e)(5)), but only if,

12 as of the close of the preceding taxable

13 year, the sum of the following exceeds

14 $500,000—

15 ‘‘(I) the aggregate unadjusted

16 bases (or, if greater, the fair market

17 value) of the assets owned by the tax18 payer and used in such trade or busi19 ness, and

20 ‘‘(II) the aggregate value of the

21 assets leased by the taxpayer and

22 used in such trade or business.

23 For purposes of subclause (II), rules simi24 lar to the rules of section 1397(b) shall

25 apply.
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1 ‘‘(5) DISTRESSED COMMUNITY.—For purposes

2 of this subsection, the term ‘distressed community’

3 means, with respect to periods in any calendar year,

4 any area—

5 ‘‘(A) which is the area over which a gen6 eral purpose local governmental unit has juris7 diction and which is designated for purposes of

8 this subsection by the governing body of such

9 unit, and

10 ‘‘(B) which (as of the beginning of such

11 year) meets the requirements of clause (i), (ii),

12 or (iii) of this subparagraph:

13 ‘‘(i) CHRONIC ECONOMIC DISTRESS.—

14 An area meets the requirements of this

15 clause if—

16 ‘‘(I) the area has experienced

17 population loss (as determined by the

18 1990 or subsequent census data) of

19 not less than 5 percent, or

20 ‘‘(II) the area has experienced an

21 average unemployment rate over the

22 last 5 years (as determined by the

23 Bureau of Labor Statistics) of not

24 less than 8 percent.
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•S 1668 IS

1 ‘‘(ii) SLOW JOB GROWTH.—An area

2 meets the requirements of this clause if,

3 over the last 5 years—

4 ‘‘(I) the area has experienced job

5 growth in the retail and manufactur6 ing sectors of less than 3 percent, or

7 ‘‘(II) if data are available only

8 for the manufacturing sector, the

9 community has experienced no job

10 growth in such sector, or if data are

11 available only for the retail sector, the

12 area has experienced job growth in

13 such sector of less than 8.5 percent.

14 ‘‘(iii) MAJOR BASE CLOSING.—An

15 area meets the requirements of this clause

16 if—

17 ‘‘(I) there has been a military

18 base closing within its boundaries or

19 adjacent thereto within the last 2

20 years which has resulted, or will re21 sult, in the loss of not less than 500

22 jobs, or

23 ‘‘(II) there has been an official

24 notification of a military base closing

25 within its boundaries or adjacent
65

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1 thereto within the next 6 months,

2 which will result in the loss of not less

3 than 500 jobs.

4 ‘‘(6) PROHIBITION OF ASSISTANCE FOR BUSI5 NESS RELOCATIONS.—

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

7 not apply to any bonds issued as part of an

8 issue if any of the proceeds of such an issue are

9 used to assist any establishment in relocating

10 from an area outside the distressed community

11 to the distressed community.

12 ‘‘(B) EXCEPTION.—The limitation estab13 lished in subparagraph (A) shall not be con14 strued to prohibit assistance for the expansion

15 of an existing business entity through the estab16 lishment of a new branch affiliate, or subsidiary

17 if—

18 ‘‘(i) the establishment of the new

19 branch, affiliate, or subsidiary will not re20 sult in a decrease in employment in the

21 area of original location or in any other

22 area where the existing business entity

23 conducts business operations, and

24 ‘‘(ii) there is no reason to believe that

25 the new branch, affiliate, or subsidiary is
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•S 1668 IS

1 being established with the intention of clos2 ing down the operations of the existing

3 business entity in the area of its original

4 location or in any other area where the ex5 isting business entity conducts business op6 erations.’’.

7 (2) CLERICAL AMENDMENTS.—

8 (A) The section heading for section 144 of

9 such Code is amended by striking ‘‘QUALIFIED

10 REDEVELOPMENT BOND.’’ and inserting

11 ‘‘ETC.’’.

12 (B) The table of sections for subpart A of

13 part IV of subchapter B of chapter 1 of such

14 Code is amended by striking ‘‘qualified redevel15 opment bond.’’ in the item relating to section

16 144 and inserting ‘‘etc.’’.

17 (c) CERTAIN RULES NOT TO APPLY.—

18 (1) Subsection (h) of section 147 of the Inter19 nal Revenue Code of 1986 (relating to certain rules

20 which do not apply) is amended by adding at the

21 end thereof the following new paragraph:

22 ‘‘(3) BONDS FOR DISTRESSED COMMUNITY ECO23 NOMIC DEVELOPMENT FACILITIES.—Subsection

24 (c)(1)(A) shall be applied by substituting ‘50 per25 cent’ for ‘25 percent’ and subsection (d) shall not
67

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1 apply to any bond issued as part of an issue de2 scribed in section 144(d)(1).’’.

3 (2) The subsection heading for subsection (h) of

4 section 147 of such Code is amended to read as fol5 lows:

6 ‘‘(h) SPECIAL RULES FOR CERTAIN BONDS.—’’.

7 (d) VOLUME CAP ONLY CHARGED WITH 50 PER8 CENT OF DISTRESSED COMMUNITY ECONOMIC DEVELOP9 MENT BONDS.—Subsection (g) of section 146 of the Inter10 nal Revenue Code of 1986 (relating to an exception for

11 certain bonds from volume cap) is amended by striking

12 ‘‘and’’ at the end of paragraph (3), by striking the period

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

14 by inserting after paragraph (4) the following new para15 graph:

16 ‘‘(5) 50 percent of any bond issued as part of

17 an issue described in section 144(d)(1) (relating to

18 distressed community economic development facili19 ties).’’.

20 (e) PENALTIES FOR LOANS MADE TO BUSINESSES

21 THAT CEASE TO BE DISTRESSED COMMUNITY ECONOMIC

22 DEVELOPMENT BUSINESSES, ETC.—Subsection (b) of

23 section 150 of the Internal Revenue Code of 1986 (relat24 ing to change in use) is amended by adding at the end

25 the following new paragraph:
68

•S 1668 IS

1 ‘‘(7) DISTRESSED COMMUNITY ECONOMIC DE2 VELOPMENT BONDS.—In the case of any qualified

3 economic development facility with respect to which

4 financing was provided by an issue described in sec5 tion 144(d)(1):

6 ‘‘(A) NO DEDUCTION ALLOWED.—No de7 duction shall be allowed under this chapter for

8 interest on such financing which accrues during

9 the period beginning on the first day of the cal10 endar year which includes the date on which—

11 ‘‘(i) the trade or business to which the

12 financing was provided ceases to be a

13 qualified business, or

14 ‘‘(ii) substantially all of the use of

15 such facility with respect to which the fi16 nancing was provided ceases to be in a dis17 tressed community.

18 For purposes of this subparagraph, the term

19 ‘distressed community’ means any area which

20 qualifies as a distressed community under sec21 tion 144(d)(5) as of the time the financing was

22 provided without regard to any subsequent rev23 ocation or termination.

24 ‘‘(B) PENALTY IMPOSED ON DISTRESSED

25 COMMUNITY ECONOMIC DEVELOPMENT BUSI-
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•S 1668 IS

1 NESS.—If at any time while such financing is

2 outstanding—

3 ‘‘(i) such facility ceases to be in use in

4 a qualified business, or

5 ‘‘(ii) substantially all of the use of

6 such facility ceases to be in a distressed

7 community (as so defined),

8 there is hereby imposed on such business to

9 which such financing was provided a penalty

10 equal to 1.25 percent of the portion of such fi11 nancing which is outstanding immediately be12 fore such cessation. Such penalty shall be as13 sessed and collected by the Secretary.

14 ‘‘(C) EXCEPTION FOR BANKRUPTCY.—

15 Subparagraphs (A) and (B) shall not apply to

16 any cessation resulting from bankruptcy.’’.

17 (f) BANK INTEREST DEDUCTION.—

18 (1) IN GENERAL.—Clause (ii) of section

19 265(b)(3)(B) of the Internal Revenue Code of 1986

20 (relating to exception for certain tax-exempt obliga21 tions) is amended—

22 (A) by striking ‘‘or’’ at the end of

23 subclause (I),

24 (B) by redesignating subclause (II) as

25 subclause (III), and
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•S 1668 IS

1 (C) by inserting after subclause (I) the fol2 lowing new subclause:

3 ‘‘(II) any bond issued as part of

4 an issue described in section

5 144(d)(1), or’’.

6 (2) CONFORMING AGREEMENT.—Subclause (I)

7 of section 265(b)(3)(B)(i) of such Code (defining

8 qualified tax-exempt obligation) is amended by in9 serting ‘‘or is an obligation issued as part of an

10 issue described in section 144(d)(1)’’ after ‘‘issuer’’.

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

12 this section shall apply to bonds issued after the date of

13 the enactment of this Act.

14 TITLE II—RETIREMENT

15 SECURITY

16 SEC. 201. SHORT TITLE.

17 This title may be cited as the ‘‘Workers Pension Act

18 of 1996’’.

19 SEC. 202. FINDINGS AND PURPOSE.

20 (a) STATEMENT OF FINDINGS.—The Senate finds

21 that—

22 (1) most workers, over one-half of the Nation’s

23 workforce, do not have a private pension plan;
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•S 1668 IS

1 (2) most of these workers do not have pensions

2 because their employers do not offer pension plans

3 or limit pension coverage only to certain workers;

4 (3) workers without employer-sponsored pen5 sions are most likely to be individuals who work for

6 small- or medium-size firms, who work in service in7 dustries, who are women, or are individuals who are

8 in and out of the labor force during their careers;

9 (4) workers who have employer-sponsored pen10 sion plans receive large Federal tax benefits;

11 (5) in 1995, the Federal tax subsidies for em12 ployer-sponsored pension plans equaled

13 $52,000,000,000;

14 (6) workers who do not have employer-spon15 sored pensions are not eligible for these tax benefits;

16 (7) simplified employer plans and other efforts

17 to encourage employers to offer more pensions have

18 not resulted in coverage for most of those who have

19 lacked employer-sponsored pensions;

20 (8) economic growth can be improved by a

21 higher national savings rate and better labor mobil22 ity;

23 (9) improved pension arrangements can raise

24 national savings, and pension portability can in-
72

•S 1668 IS

1 crease workers’ willingness to move to jobs offered

2 by newer and smaller companies;

3 (10) the vulnerability of future retirees to po4 tential social security and medicare cutbacks would

5 be reduced, and their standards of living improved,

6 if they had greater personal retirement savings;

7 (11) workers can have good pensions through

8 arrangements that do not require each employer to

9 set up and manage its own pension benefits pro10 gram; and

11 (12) the Teachers Insurance Annuity Associa12 tion, for example, is a nationwide pension system—

13 (A) which covers workers with many dif14 ferent employers,

15 (B) which provides individual workers with

16 their own pension accounts, and

17 (C) which allows workers to keep these

18 same accounts when they change jobs between

19 participating institutions.

20 (b) STATEMENT OF PURPOSE.—It is the purpose of

21 this Act—

22 (1) to insure that workers who do not have an

23 employer-sponsored pension plan are able to estab24 lish individual pension plans;
73

•S 1668 IS

1 (2) to provide the same tax advantages for

2 these individual pension plans as for employer-spon3 sored pension plans;

4 (3) to insure that individual pension plans will

5 have the same quality of investments as employer6 sponsored pensions, and to require those who man7 age individual pensions plans to meet the same fidu8 ciary responsibility standards as those who manage

9 employer-sponsored pension plans;

10 (4) to provide workers with comparative infor11 mation on individual pension plan options so that

12 they are able to select qualified pension managers

13 and investments that best meet their needs;

14 (5) to guarantee that individual pension plan

15 contributions will be immediately and fully vested,

16 and that such pension plans will be fully portable if

17 a worker changes jobs; and

18 (6) to insure that the individual pension plan

19 contribution system will work as easily and conven20 iently as possible for workers and their employers.

21 SEC. 203. DEDUCTION FOR CONTRIBUTIONS TO INDIVID22 UAL PENSION PLANS.

23 (a) IN GENERAL.—Part VII of subchapter B of chap24 ter 1 of the Internal Revenue Code of 1986 (relating to

25 additional itemized deductions for individuals), as amend-
74

•S 1668 IS

1 ed by section 142, is amended by redesignating section

2 221 as section 222 and by inserting after section 220 the

3 following new section:

4 ‘‘SEC. 221. CONTRIBUTIONS TO INDIVIDUAL PENSION

5 PLANS.

6 ‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi7 ble individual, there shall be allowed as a deduction the

8 amounts paid during the taxable year—

9 ‘‘(1) through a qualified payroll deduction plan

10 by such individual, and

11 ‘‘(2) as optional contributions by the employer

12 of such individual,

13 to an individual pension plan for the benefit of such indi14 vidual.

15 ‘‘(b) LIMITATION.—The amount allowable as a de16 duction under subsection (a) with respect to any individual

17 for the taxable year shall not exceed the excess (if any)

18 of—

19 ‘‘(1) the maximum dollar limit allowed for a

20 section 401(k) salary reduction plan for such taxable

21 year, over

22 ‘‘(2) any contributions made by or on behalf of

23 the individual to any plan described in section

24 219(g)(5).
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1 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section—

3 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible

4 individual’ means, with respect to any taxable year

5 any individual—

6 ‘‘(A) who has earned income reportable as

7 wages on a W-2 form, and

8 ‘‘(B) who elects for such year to partici9 pate in a qualified payroll deduction plan of the

10 individual’s employer.

11 ‘‘(2) INDIVIDUAL PENSION PLAN.—The term

12 ‘individual pension plan’ has the meaning given such

13 term by section 408A.

14 ‘‘(3) QUALIFIED PAYROLL DEDUCTION PLAN.—

15 The term ‘qualified payroll deduction plan’ means a

16 written plan of an employer if—

17 ‘‘(A) the plan applies only with respect to

18 wages of eligible individuals,

19 ‘‘(B) under such plan, contributions will be

20 deducted from the employee’s wages and paid

21 to the individual pension plan specified by the

22 individual in an amount specified by such indi23 vidual,

24 ‘‘(C) under such plan, the employer is re25 quired to pay the amount so deducted with re-
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•S 1668 IS

1 spect to the specified individual pension plan

2 pursuant to section 205(a)(5) of the Workers

3 Pension Act of 1996,

4 ‘‘(D) the employer receives no compensa5 tion for the cost of administering the payroll

6 deduction plan, and

7 ‘‘(E) the employer does not make any en8 dorsement with respect to any individual pen9 sion plan.

10 ‘‘(4) PERIOD FOR ELECTION.—An election may

11 be made under paragraph (1)(B) in January of each

12 year, or if necessary, upon the filing of a W-4 form.’’

13 (b) DEDUCTION ALLOWED AGAINST GROSS IN14 COME.—Subsection (a) of section 62 of the Internal Reve15 nue Code of 1986 (defining adjusted gross income), as

16 amended by section 142, is amended by inserting after

17 paragraph (16) the following new paragraph:

18 ‘‘(17) INDIVIDUAL PENSION PLANS.—The de19 duction allowed by section 221.’’

20 (c) CLERICAL AMENDMENT.—The table of sections

21 for part VII of subchapter B of chapter 1 of the Internal

22 Revenue Code of 1986, as amended by section 142, is

23 amended by striking the last item and inserting the follow24 ing new items:

‘‘Sec. 221. Contributions to individual pension plans.

‘‘Sec. 222. Cross reference.’’
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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, 1996.

4 SEC. 204. ESTABLISHMENT OF INDIVIDUAL PENSION

5 PLANS.

6 (a) IN GENERAL.—Subpart A of part I of subchapter

7 D of chapter 1 of the Internal Revenue Code of 1986 (re8 lating to pension, profit-sharing, stock bonus plans, etc.)

9 is amended by inserting after section 408 the following

10 new section:

11 ‘‘SEC. 408A. INDIVIDUAL PENSION PLANS.

12 ‘‘(a) GENERAL RULE.—Except as provided in this

13 chapter, an individual pension plan shall be treated for

14 purposes of this title in the same manner as an individual

15 retirement plan.

16 ‘‘(b) INDIVIDUAL PENSION PLAN.—For purposes of

17 this title—

18 ‘‘(1) IN GENERAL.—The term ‘individual pen19 sion plan’ means an individual retirement plan which

20 is a standard individual pension plan or a supple21 mentary social security account made available by a

22 qualified pension agency and which is designated at

23 the time of establishment of the plan as an individ24 ual pension plan.

25 ‘‘(2) QUALIFIED PENSION AGENCY.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 pension agency’ means an organization which—

3 ‘‘(i) meets the requirements of sub4 paragraph (B), and

5 ‘‘(ii) is certified by the Secretary as

6 meeting such requirements on an on-going

7 basis.

8 ‘‘(B) REQUIREMENTS.—The requirements

9 of this subparagraph are as follows:

10 ‘‘(i) A qualified pension agency must

11 be a bank (as defined in section 408(n), in12 surance company, mutual fund company,

13 labor union, Taft-Hartley plan, multiple

14 employer welfare arrangement, or other or15 ganization which is responsible for em16 ployer-sponsored pension funds.

17 ‘‘(ii) A qualified pension agency has

18 the same fiduciary and trustee responsibil19 ities for individual pension plans as are re20 quired of trustees for employee benefit

21 plans under sections 402 through 406 of

22 the Employee Retirement Income Security

23 Act of 1974.

24 ‘‘(iii) A qualified pension agency

25 must—
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1 ‘‘(I) offer individual pension

2 plans that meet the requirements of

3 this section;

4 ‘‘(II) establish and maintain such

5 plans pursuant to a written document

6 which shall provide for one or more

7 named fiduciaries who jointly or sev8 erally shall have authority to control

9 and manage the operation and admin10 istration of the plan;

11 ‘‘(III) provide information to the

12 Secretary on its performance with re13 spect to financial security, invest14 ments and investment performance,

15 administrative expenses, customer

16 service, contributions and disburse17 ments, annual audits, and other infor18 mation requested by the Secretary to

19 insure compliance with standards,

20 sound financial and business prac21 tices, and to assess comparative per22 formance;

23 ‘‘(IV) provide annual reports to

24 participants in individual pension

25 plans which provide participants with
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1 information on their account status

2 and activity during the prior year,

3 compare the agency’s performance,

4 using information provided by the

5 Secretary, to those of other qualified

6 pension agencies, and other invest7 ment indicators, and use uniform for8 mats as specified by the Secretary;

9 ‘‘(V) provide for qualified trans10 fers or for disbursement of funds to

11 participants, on their written request;

12 ‘‘(VI) participate in arrange13 ments, approved by the Secretary, for

14 the transfer of payroll deductions and

15 optional contributions from employers

16 to individual pension plans at no

17 charge to the employers; and

18 ‘‘(VII) disclose such administra19 tive charges as it may impose on par20 ticipants.

21 ‘‘(iv) A qualified pension agency shall

22 meet such other requirements and per23 formance standards as the Secretary deter24 mines are in the best interests of the inves25 tors in individual pension plans.
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1 ‘‘(C) DE MINIMIS RULE.—A qualified pen2 sion agency may require that a qualified trans3 fer among individual pension plans be at least

4 $500, and may decline to accept payroll con5 tributions which, on an annualized basis, are

6 less than $200.

7 ‘‘(3) STANDARD INDIVIDUAL PENSION PLAN.—

8 The term ‘standard individual pension plan’ means

9 an individual pension plan which has been certified

10 by the Secretary as meeting the requirements of this

11 section.

12 ‘‘(4) SUPPLEMENTARY SOCIAL SECURITY AC13 COUNT.—The term ‘supplementary social security

14 account’ means an individual pension plan which has

15 been certified by the Commissioner of Social Secu16 rity as meeting the requirements of this section and

17 section 234 of the Social Security Act.

18 ‘‘(c) SPECIAL RULES.—

19 ‘‘(1) DEDUCTION ALLOWED.—A deduction shall

20 be allowed under section 221 for a contribution to

21 an individual pension plan.

22 ‘‘(2) CONTRIBUTION LIMIT.—The aggregate

23 amount of contributions for any taxable year to all

24 individual pension plans maintained for the benefit

25 of an individual shall not exceed the maximum
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1 amount allowable as a deduction under section 221

2 with respect to such individual for such taxable year.

3 ‘‘(3) SPECIAL RULES FOR QUALIFIED TRANS4 FERS.—

5 ‘‘(A) IN GENERAL.—No rollover contribu6 tion may be made to an individual pension plan

7 unless it is a qualified transfer.

8 ‘‘(B) LIMIT NOT TO APPLY.—The limita9 tion under paragraph (2) shall not apply to a

10 qualified transfer to an individual pension plan.

11 ‘‘(C) SPECIAL RULE RELATING TO CER12 TAIN TRANSFERS.—Notwithstanding any other

13 provision of law, in the case of a qualified

14 transfer to an individual pension plan from an

15 individual retirement plan which is not an indi16 vidual pension plan—

17 ‘‘(i) there shall be included in gross

18 income any amount which, but for the

19 qualified transfer, would be includible in

20 gross income, but

21 ‘‘(ii) section 72(t) shall not apply to

22 such amount.

23 ‘‘(D) QUALIFIED TRANSFER.—For pur24 poses of this section, the term ‘qualified trans25 fer’ means a transfer to an individual pension
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1 plan from another such plan or from an individ2 ual retirement plan but only if such transfer

3 meets the requirements of section 408(d)(3).

4 ‘‘(4) LIMITATION ON IRA CONTRIBUTIONS.—

5 For purposes of section 219(g) only, an individual

6 pension plan shall be considered a plan described in

7 paragraph (5) thereof.

8 ‘‘(5) CROSS REFERENCES.—

‘‘For tax treatment of plans and distributions from

plans, see section 408.

‘‘For additional tax for early withdrawal, see section 72(t).

‘‘For tax on excess contributions, see section 4973.

‘‘For tax on prohibited transactions, see section

4975.

‘‘For failure to provide reports, see section 6693.’’

9 (b) PENALTY-FREE DISTRIBUTIONS FROM INDIVID10 UAL PENSION PLANS TO PAY EDUCATIONAL EXPENSES

11 OR FOR THE UNEMPLOYED.—

12 (1) EDUCATIONAL EXPENSES.—

13 (A) IN GENERAL.—Paragraph (2) of sec14 tion 72(t) of the Internal Revenue Code of

15 1986 (relating to exceptions to 10-percent addi16 tional tax on early distributions from qualified

17 retirement plans) is amended by adding at the

18 end the following new subparagraph:

19 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

20 PLANS FOR EDUCATIONAL EXPENSES.—Dis21 tributions to an individual from an individual
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1 pension plan to the extent such distributions do

2 not exceed the qualified higher education ex3 penses (as defined in paragraph (6)) of the tax4 payer for the taxable year.’’

5 (B) DEFINITION.—Section 72(t) of such

6 Code is amended by adding at the end the fol7 lowing new paragraph:

8 ‘‘(6) QUALIFIED HIGHER EDUCATION EX9 PENSES.—For purposes of paragraph (2)(D)—

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

11 higher education expenses’ means tuition and

12 fees required for the enrollment or attendance

13 of—

14 ‘‘(i) the taxpayer,

15 ‘‘(ii) the taxpayer’s spouse,

16 ‘‘(iii) a dependent of the taxpayer

17 with respect to whom the taxpayer is al18 lowed a deduction under section 151, or

19 ‘‘(iv) the taxpayer’s child (as defined

20 in section 151(c)(3)) or grandchild,

21 as an eligible student at an institution of higher

22 education (as defined in section 220(b)(4)).

23 ‘‘(B) COORDINATION WITH SAVINGS BOND

24 PROVISIONS.—The amount of qualified higher

25 education expenses for any taxable year shall be
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1 reduced by any amount excludable from gross

2 income under section 135.’’

3 (2) DISTRIBUTIONS FOR CERTAIN UNEMPLOYED

4 INDIVIDUALS.—Paragraph (2) of section 72(t), as

5 amended by paragraph (1) of this subsection, is

6 amended by adding at the end the following new

7 subparagraph:

8 ‘‘(E) DISTRIBUTIONS TO UNEMPLOYED IN9 DIVIDUALS.—A distribution from an individual

10 pension plan to an individual after separation

11 from employment, if—

12 ‘‘(i) such individual has received un13 employment compensation for 12 consecu14 tive weeks under any Federal or State un15 employment compensation law by reason of

16 such separation, and

17 ‘‘(ii) such distributions are made dur18 ing any taxable year during which such un19 employment compensation is paid or the

20 succeeding taxable year.’’

21 (c) EXCESS CONTRIBUTIONS.—Section 4973(b) of

22 the Internal Revenue Code of 1986 is amended by adding

23 at the end the following new sentence: ‘‘In the case of an

24 individual pension plan, paragraphs (1)(B) and (2)(C)
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1 shall be applied by substituting ‘section 221’ for ‘section

2 219’.’’

3 (d) SUPPLEMENTARY SOCIAL SECURITY AC4 COUNTS.—Title II of the Social Security Act (42 U.S.C.

5 401 et seq.) is amended by adding at the end the following

6 new section:

7 ‘‘SUPPLEMENTARY SOCIAL SECURITY ACCOUNTS

8 ‘‘SEC. 234. (a) IN GENERAL.—Any employee may

9 designate to an employer a supplementary social security

10 account as the employee’s individual pension plan under

11 section 408A of the Internal Revenue Code of 1986. Any

12 such designation shall be made in such form and manner

13 as may be prescribed in regulations of the Commissioner

14 of Social Security.

15 ‘‘(b) RESPONSIBILITIES OF COMMISSIONER.—The

16 Commissioner of Social Security shall—

17 ‘‘(1) invest contributions to a supplementary so18 cial security account in United States Treasury se19 curities;

20 ‘‘(2) separately account for the amount of such

21 contributions and investment earnings and not com22 mingle such amount with the Trust Funds under

23 this Act; and

24 ‘‘(3) provide, by regulation, for several with25 drawal options for such contributions and earnings,

26 including—
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1 ‘‘(A) lump sum distributions;

2 ‘‘(B) increased payments of benefits under

3 this title; and

4 ‘‘(C) use as premium payments of supple5 mentary medical insurance or other supple6 mental health or long term care benefits.’’

7 (e) CONFORMING AMENDMENT.—The table of sec8 tions for subpart A of part I of subchapter D of chapter

9 1 of the Internal Revenue Code of 1986 is amended by

10 inserting after the item relating to section 408 the follow11 ing new item:

‘‘Sec. 408A. Individual pension plans.’’

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

13 this section shall apply to taxable years beginning after

14 December 31, 1996.

15 SEC. 205. EMPLOYER RESPONSIBILITIES.

16 (a) IN GENERAL.—Employers of individuals eligible

17 to contribute to an individual pension plan (as defined in

18 section 408A(b)(1) of the Internal Revenue Code of 1986)

19 shall—

20 (1) notify all such individuals, in writing, at the

21 time of hiring, of their right to make payroll deduc22 tions for an individual pension plan;

23 (2) notify all such individuals employed on the

24 date of the enactment of this Act of such right, as

25 provided in regulations of the Secretary of the
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1 Treasury, at the first general enrollment period fol2 lowing such date;

3 (3) include in the notification—

4 (A) such information as provided by the

5 Secretary of the Treasury on available qualified

6 pension agencies (as defined in section

7 408A(b)(2) of such Code), investment options,

8 and agency performance data,

9 (B) how an individual may obtain detailed

10 information from qualified pension agencies,

11 and

12 (C) how an individual may establish an in13 dividual pension plan;

14 (4) deduct the amounts requested by such an

15 eligible individual up to the maximum contribution

16 amount per pay period permitted;

17 (5) remit such amounts to a regional pension

18 service center or to an individual’s plan, at the em19 ployer’s discretion, on a timely basis, as determined

20 by the Secretary of the Treasury;

21 (6) notify each employee participating in an in22 dividual pension plan on each wage statement of the

23 contributions deducted from the employee’s salary;

24 and
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1 (7) notify employees on their W–2 forms of the

2 total amount of individual pension plan contributions

3 made during a calendar year.

4 An employer may refuse to deduct individual pension plan

5 contributions that, on an annual basis, would be less than

6 $200.

7 (b) CONFORMING AMENDMENT.—Subsection (a) of

8 section 6051 of the Internal Revenue Code of 1986 (relat9 ing to receipts for employees) is amended by striking

10 ‘‘and’’ at the end of paragraph (9), striking the period

11 at the end of paragraph (10) and inserting ‘‘, and’’, and

12 by inserting after paragraph (10) the following new para13 graph:

14 ‘‘(11) the total amount of payroll deductions

15 and optional employer contributions to the employ16 ee’s individual pension plan under section 408A.’’

17 (c) APPLICATION OF ERISA AND OTHER REQUIRE18 MENTS.—In forwarding an employee’s payroll deduction

19 to the employee’s individual pension plan, an employer is

20 not offering a plan under title I of the Employee Retire21 ment Income Security Act of 1974. This title does not re22 quire employers, with respect to individual pension plans,

23 to maintain a written pension plan, accept fiduciary re24 sponsibility for their employees’ investments, or meet non25 discrimination tests for employer pension benefits.
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1 SEC. 206. ESTABLISHMENT AND RESPONSIBILITIES OF RE2 GIONAL PENSION SERVICE CENTERS.

3 (a) ESTABLISHMENT.—The Secretary of the Treas4 ury shall designate and enter into an agreement with an

5 organization to serve as a regional pension service center

6 for each area of the United States.

7 (b) RESPONSIBILITIES.—Under an agreement de8 scribed in subsection (a), the responsibilities of a regional

9 pension service center shall be—

10 (1) to receive payroll deductions for individual

11 pension plans (as defined in section 408A(b)(1) of

12 the Internal Revenue Code of 1986) from employers

13 who are required to make such deductions at no

14 charge to such employers;

15 (2) to forward such deductions to the proper

16 qualified pension agency (as defined in section

17 408A(b)(2) of such Code) for deposit to the individ18 ual pension plan of the employee making the con19 tribution;

20 (3) to assist employees, employers, and quali21 fied pension agencies through the provision of infor22 mation and other activities that will facilitate imple23 mentation of the provisions of this title and section

24 408A of such Code;

25 (4) to arrange to receive employer payments in

26 ways which serve employers well, including using the
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1 same procedures and schedule by which employers

2 deposit payroll taxes under the Internal Revenue

3 Code of 1986; and

4 (5) to disclose such administrative charges as

5 such center may impose on qualified pension agen6 cies.

7 SEC. 207. SECRETARIAL RESPONSIBILITIES.

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

9 shall have primary responsibility for the administration of

10 this title and for implementing the amendments made to

11 the Internal Revenue Code of 1986.

12 (b) NOTIFICATION OF AVAILABILITY OF PLANS.—

13 (1) IN GENERAL.—The Secretary of the Treas14 ury, in a joint effort with the Secretary of Labor,

15 shall insure that—

16 (A) all eligible employees are notified of

17 their rights to participate in individual pension

18 plans (as defined in section 408A(b)(1) of the

19 Internal Revenue Code of 1986) and their re20 sponsibilities;

21 (B) all employers are notified of their re22 sponsibilities with respect to individual pension

23 plans; and

24 (C) accurate and complete information

25 about qualified pension agencies (as defined in
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1 section 408A(b)(2) of such Code), individual

2 pension plan options, and administrative proce3 dures are made available to eligible employees

4 and employers on a timely basis for them to ex5 ercise their rights and carry out their respon6 sibilities.

7 (2) USE OF QUALIFIED PENSION AGENCIES.—

8 If the Secretary of the Treasury determines that a

9 private market is not working well, in some in10 stances, to insure that individual pension plan op11 tions are available to all eligible employees, or that

12 available qualified pension agencies are not perform13 ing well, the Secretary may, at the Secretary’s dis14 cretion, contract on a competitive basis with one or

15 more qualified pension agencies to facilitate their

16 entry and competition for improved service in such

17 markets.

18 (c) STANDARDS FOR INDIVIDUAL PENSION PLANS

19 AND QUALIFIED PENSION AGENCIES.—

20 (1) STANDARD INDIVIDUAL PENSION PLAN.—

21 The Secretary of the treasury shall specify at least

22 3 standard individual pension plans that must be

23 made available by all qualified pension agencies of24 fering such plans to an industry or occupational
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1 group, or on a regional basis. In determining such

2 model plans, the Secretary shall consider—

3 (A) the characteristics of the most widely

4 adopted private sector pension plans;

5 (B) surveys of potential participants in in6 dividual pension plans concerning their pref7 erences in plan characteristics; and

8 (C) the preferences of industry, occupa9 tional associations, and other groups concerning

10 such characteristics.

11 (2) CONSULTATION.—In carrying out the re12 sponsibilities to set standards for qualified pension

13 agencies and for individual pension plans, the Sec14 retary of the Treasury—

15 (A) shall consult with—

16 (i) investors in individual pension

17 plans,

18 (ii) the Securities and Exchange Com19 mission and the Department of Labor, and

20 (iii) experts in financial matters and

21 retirement planning; and

22 (B) may establish a formal advisory com23 mittee to assist in this process.

24 (d) ADMINISTRATIVE ARRANGEMENTS AND PER25 FORMANCE STANDARDS.—
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1 (1) IN GENERAL.—The Secretary of the Treas2 ury shall insure an efficient, well-functioning system

3 for individual pension plans.

4 (2) NATIONAL STANDARDS.—Among the areas

5 in which the Secretary shall set national standards,

6 as needed, are—

7 (A) procedures to be followed by employ8 ers, regional pension service centers, and quali9 fied pension agencies;

10 (B) account coding for individual pension

11 plans that will facilitate accurate and timely

12 record-keeping and financial transaction and

13 electronic funds transfers;

14 (C) limits on reasonable charges that may

15 be imposed by qualifying pension agencies,

16 offerers of individual pension plans, and others

17 for their services; and

18 (D) such other requirements for employers,

19 employees, qualified pension agencies, and indi20 vidual pension plans that will facilitate a well21 functioning system in the best interests of par22 ticipants in individual pension plans.

23 (3) CONSULTATION.—In carrying out these

24 functions, the Secretary—
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1 (A) shall consult with employers required

2 to make payroll deductions for individual pen3 sion plans, financial service companies that per4 form payroll and accounting functions for such

5 employers, financial institutions, qualified pen6 sion agencies, offerers of individual pension

7 plans, participants in such plans, the Federal

8 Reserve Board, and experts in such administra9 tive issues; and

10 (B) may establish one or more advisory

11 committees to assist in these efforts.

12 (e) INVESTIGATORY AND OVERSIGHT RESPONSIBIL13 ITIES.—The Secretary of the Treasury is authorized to

14 undertake audits, studies, and investigations as necessary

15 to assess the performance of the individual pension plan

16 system and provide for its improved administration.

17 (f) AUTHORIZATION OF APPROPRIATIONS.—There

18 are authorized to be appropriated not more than

19 $15,000,000 to the Treasury Department for startup and

20 initial implementation expenses, including assistance for

21 the startup expenses of regional pension service centers,

22 and not more than $10,000,000 annually beginning with

23 fiscal year 1998 for the on-going administration of its re24 sponsibilities under this section.
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1 (g) LICENSING FEES.—The Secretary of the Treas2 ury shall establish annual licensing fees for qualified pen3 sion agencies—

4 (1) based on the amount of individual pension

5 plan balances held by an agency and the Secretary’s

6 workload for qualified pension agencies with differ7 ing characteristics;

8 (2) designed to cover the Federal appropriation

9 for the on-going administration under this section;

10 and

11 (3) deposited into the general fund of the

12 Treasury.

13 SEC. 208. PREEMPTION OF STATE LAW.

14 (a) IN GENERAL.—The provisions of, and amend15 ments made by, this title shall preempt State laws that

16 conflict with the provisions and requirements with respect

17 to individual pension plans, regional pension service cen18 ters, and qualified pension agencies.

19 (b) WAIVER AUTHORIZED.—Upon written applica20 tion from a State, the Secretary of the Treasury is author21 ized to waive such preemption to the extent the Secretary

22 determines that a State’s requirements will better serve

23 contributors to individual pension plans. The Secretary

24 will notify affected parties if it is considering such a waiver
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1 and provide them with an opportunity to comment on the

2 proposed waiver.

3 TITLE III—SEVERABILITY

4 SEC. 301. SEVERABILITY.

5 If any provision of this Act or the application thereof

6 is held invalid, the remainder of this Act shall not be af7 fected by the invalidation.

Æ