I

103D CONGRESS

1ST SESSION H. R. 13

To simplify certain provisions of the Internal Revenue Code of 1986.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 5, 1993

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

Committee on Ways and Means

A BILL

To simplify certain provisions of the Internal Revenue Code

of 1986.

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, ETC.

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

5 ‘‘Tax Simplification Act of 1993’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

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

10 shall be considered to be made to a section or other provi11 sion of the Internal Revenue Code of 1986.
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1 (c) TABLE OF CONTENTS.—

Sec. 1. Short title, etc.

TITLE I—PROVISIONS RELATING TO INDIVIDUALS

Subtitle A—Provision Relating to Earned Income Credit

Sec. 101. Simplification of earned income credit.

Subtitle B—Provisions Relating to Rollover of gain on Sale of Principal

Residence

Sec. 111. Multiple sales within rollover period.

Sec. 112. Special rules in case of divorce.

Subtitle C—Other Provisions

Sec. 121. De minimis exception to passive loss rules.

Sec. 122. Payment of tax by credit card.

Sec. 123. Modifications to election to include child’s income on parent’s return.

Sec. 124. Simplified foreign tax credit limitation for individuals.

Sec. 125. Treatment of personal transactions by individuals under foreign currency rules.

Sec. 126. Expanded access to simplified income tax returns.

Sec. 127. Treatment of certain reimbursed expenses of rural mail carriers.

Sec. 128. Exemption from luxury excise tax for certain equipment installed on

passenger vehicles for use by disabled individuals.

Sec. 129. Exclusion of combat pay from withholding limited to amount excludable from gross income.

TITLE II—PENSION SIMPLIFICATION

Subtitle A—Simplified Distribution Rules

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

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

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

Sec. 204. Required distributions.

Subtitle B—Increased Access to Pension Plans

Sec. 211. Modifications of simplified employee pensions.

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

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

Subtitle C—Nondiscrimination Provisions

Sec. 221. Definition of highly compensated employees.

Sec. 222. Modification of additional participation requirements.

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

and matching contributions.

Subtitle D—Miscellaneous Simplification

Sec. 231. Treatment of leased employees.

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

Sec. 233. Plans covering self-employed individuals.
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Sec. 234. Elimination of special vesting rule for multiemployer plans.

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

Sec. 236. Alternative full-funding limitation.

Sec. 237. Distributions under rural cooperative plans.

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

Sec. 239. Uniform retirement age.

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

Sec. 241. Contributions on behalf of disabled employees.

Sec. 242. Affiliated employers.

Sec. 243. Special rules for plans covering pilots.

Sec. 244. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

Sec. 245. Treatment of employer reversions required by contract to be paid to

the United States.

Sec. 246. Continuation health coverage for employees of failed financial institutions.

Sec. 247. Date for adoption of plan amendments.

TITLE III—TREATMENT OF LARGE PARTNERSHIPS

Subtitle A—General Provisions

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

Sec. 302. Simplified audit procedures for large partnerships.

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

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

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

Sec. 306. Effective date.

Subtitle B—Provisions Related to TEFRA Partnership Proceedings

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

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

Sec. 313. Provisions relating to statute of limitations.

Sec. 314. Expansion of small partnership exception.

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

Sec. 316. Extension of time for filing a request for administrative adjustment.

Sec. 317. Availability of innocent spouse relief in context of partnership proceedings.

Sec. 318. Determination of penalties at partnership level.

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

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

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

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

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

bad debts or worthless securities.

TITLE IV—FOREIGN PROVISIONS

Subtitle A—Simplification of Treatment of Passive Foreign Corporations

Sec. 401. Repeal of foreign personal holding company rules and foreign investment company rules.
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Sec. 402. Replacement for passive foreign investment company rules.

Sec. 403. Technical and conforming amendments.

Sec. 404. Effective date.

Subtitle B—Treatment of Controlled Foreign Corporations

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

as dividends.

Sec. 412. Authority to prescribe simplified method for applying section

960(b)(2).

Sec. 413. Miscellaneous modifications to subpart F.

Sec. 414. Indirect foreign tax credit allowed for certain lower tier companies.

Sec. 415. Study on investments by controlled foreign corporation in United

States property.

Subtitle C—Other Provisions

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

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

Sec. 423. Modification of section 1491.

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

TITLE V—TREATMENT OF INTANGIBLES

Sec. 501. Amortization of goodwill and certain other intangibles.

Sec. 502. Treatment of certain payments to retired or deceased partner.

TITLE VI—OTHER INCOME TAX PROVISIONS

Subtitle A—Provisions Relating to Subchapter S Corporations

Sec. 601. Authority to validate certain invalid elections.

Sec. 602. Treatment of distributions during loss years.

Sec. 603. Other modifications.

Subtitle B—Accounting Provisions

Sec. 611. Modifications to look-back method for long-term contracts.

Sec. 612. Simplified method for capitalizing certain indirect costs.

Subtitle C—Provisions Relating to Regulated Investment Companies

Sec. 621. Repeal of 30-percent gross income limitation.

Sec. 622. Basis rules for shares in open-end regulated investment companies.

Sec. 623. Nonrecognition treatment for certain transfers by common trust

funds to regulated investment companies.

Subtitle D—Tax-Exempt Bond Provisions

Sec. 631. Repeal of $100,000 limitation on unspent proceeds under 1-year exception from rebate.

Sec. 632. Exception from rebate for earnings on bona fide debt service fund

under construction bond rules.

Sec. 633. Aggregation of issues rules not to apply to tax or revenue anticipation

bonds.

Sec. 634. Repeal of disproportionate private business use test.

Sec. 635. Expanded exception from rebate for issuers issuing $10,000,000 or

less of bonds.
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Sec. 636. Repeal of debt service-based limitation on investment in certain

nonpurpose investments.

Sec. 637. Repeal of expired provisions.

Sec. 638. Clarification of investment–type property.

Sec. 639. Effective dates.

Subtitle E—Insurance Provisions

Sec. 641. Treatment of certain insurance contracts on retired lives.

Sec. 642. Treatment of modified guaranteed contracts.

Subtitle F—Other Provisions

Sec. 651. Closing of partnership taxable year with respect to deceased partner,

etc.

Sec. 652. Repeal of special treatment of ownership changes in determining adjusted current earnings.

Sec. 653. Simplification of corporate minimum tax depreciation preference.

Sec. 654. Modification of credit for producing fuel from a nonconventional

source.

TITLE VII—ESTATE AND GIFT TAX PROVISIONS

Sec. 701. Clarification of waiver of certain rights of recovery.

Sec. 702. Adjustments for gifts within 3 years of decedent’s death.

Sec. 703. Clarification of qualified terminable interest rules.

Sec. 704. Transitional rule under section 2056A.

Sec. 705. Opportunity to correct certain failures under section 2032A.

TITLE VIII—EXCISE TAX SIMPLIFICATION

Subtitle A—Fuel Tax Provisions

Sec. 801. Repeal of certain retail and use taxes.

Sec. 802. Revision of fuel tax credit and refund procedures.

Sec. 803. Authority to provide exceptions from information reporting with respect to diesel fuel and aviation fuel.

Sec. 804. Technical and conforming amendments.

Sec. 805. Effective date.

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

Sec. 811. Credit or refund for imported bottled distilled spirits returned to distilled spirits plant.

Sec. 812. Authority to cancel or credit export bonds without submission of

records.

Sec. 813. Repeal of required maintenance of records on premises of distilled

spirits plant.

Sec. 814. Fermented material from any brewery may be received at a distilled

spirits plant.

Sec. 815. Repeal of requirement for wholesale dealers in liquors to post sign.

Sec. 816. Refund of tax to wine returned to bond not limited to

unmerchantable wine.

Sec. 817. Use of additional ameliorating material in certain wines.

Sec. 818. Domestically-produced beer may be withdrawn free of tax for use of

foreign embassies, legations, etc.

Sec. 819. Beer may be withdrawn free of tax for destruction.
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Sec. 820. Authority to allow drawback on exported beer without submission of

records.

Sec. 821. Transfer to brewery of beer imported in bulk without payment of tax.

Subtitle C—Other Excise Tax Provisions

Sec. 831. Authority to grant exemptions from registration requirements.

Sec. 832. Repeal of expired provisions.

TITLE IX—ADMINISTRATIVE PROVISIONS

Subtitle A—General Provisions

Sec. 901. Simplification of employment taxes on domestic services.

Sec. 902. Use of reproductions of returns stored in digital image format.

Sec. 903. Repeal of authority to disclose whether prospective juror has been audited.

Sec. 904. Repeal of special audit provisions for subchapter S items.

Sec. 905. Clarification of statute of limitations.

Sec. 906. Certain notices disregarded under provision increasing interest rate

on large corporate underpayments.

Sec. 907. Special rule for corporate estimated taxes where no liability for preceding year.

Subtitle B—Tax Court Procedures

Sec. 911. Overpayment determinations of tax court.

Sec. 912. Awarding of administrative costs.

Sec. 913. Redetermination of interest pursuant to motion.

Sec. 914. Application of net worth requirement for awards of litigation costs.

Subtitle C—Authority for Certain Cooperative Agreements

Sec. 921. Cooperative agreements with State tax authorities.

1 TITLE I—PROVISIONS RELATING

2 TO INDIVIDUALS

3 Subtitle A—Provision Relating to

4 Earned Income Credit

5 SEC. 101. SIMPLIFICATION OF EARNED INCOME CREDIT.

6 (a) GENERAL RULE.—Section 32 (relating to earned

7 income credit) is amended by striking subsections (a) and

8 (b) and inserting the following:

9 ‘‘(a) ALLOWANCE OF CREDIT.—
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1 ‘‘(1) IN GENERAL.—In the case of an eligible

2 individual, there shall be allowed as a credit against

3 the tax imposed by this subtitle for the taxable year

4 an amount equal to the credit percentage of so much

5 of the taxpayer’s earned income for the taxable year

6 as does not exceed $5,714.

7 ‘‘(2) LIMITATION.—The amount of the credit

8 allowable to a taxpayer under paragraph (1) for any

9 taxable year shall not exceed the excess (if any) of—

10 ‘‘(A) the credit percentage of $5,714, over

11 ‘‘(B) the phaseout percentage of so much

12 of the adjusted gross income (or, if greater, the

13 earned income) of the taxpayer for the taxable

14 year as exceeds $9,000.

15 ‘‘(b) PERCENTAGES.—For purposes of subsection

16 (a)—

17 ‘‘(1) IN GENERAL.—Except as otherwise pro18 vided in this subsection—

In the case of an eligible individual with:The credit percentage

is:

The phaseout percentage is:

1 qualifying child ..... 23.0 ............................ 16.43

2 or more qualifying

children ................. 28.8 ............................ 20.58

19 ‘‘(2) TRANSITIONAL PERCENTAGES.—In the

20 case of a taxable year beginning in 1993:
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In the case of an

eligible individual

with:

The credit percentage

is:

The phaseout percentage is:

1 qualifying child . 18.5 ............................ 13.21

2 or more qualifying children ...... 23.3 ............................ 16.64’’

1 (b) CONFORMING AMENDMENTS.—

2 (1) Subparagraph (B) of section 32(i)(2) is

3 amended—

4 (A) by striking ‘‘subsection (b)(1)’’ in

5 clause (i) and inserting ‘‘subsection (a)’’, and

6 (B) by striking ‘‘subsection (b)(1)(B)(ii)’’

7 in clause (ii) and inserting ‘‘subsection (a)(2)’’.

8 (2) Paragraph (3) of section 162(l) is amended

9 to read as follows:

10 ‘‘(3) COORDINATION WITH MEDICAL DEDUC11 TION.—Any amount paid by a taxpayer for insur12 ance to which paragraph (1) applies shall not be

13 taken into account in computing the amount allow14 able to the taxpayer as a deduction under section

15 213(a).’’

16 (3) Section 213 is amended by striking sub17 section (f).

18 (4) Subparagraph (B) of section 3507(c)(2) is

19 amended by striking clauses (i) and (ii) and insert20 ing the following:

21 ‘‘(i) of not more than the percentage

22 (in effect under section 32(a)(1) for an eli-
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1 gible individual with 1 qualifying child) of

2 earned income not in excess of the amount

3 of earned income taken into account under

4 section 32(a)(1), which

5 ‘‘(ii) phases out between the amount

6 of earned income at which the phaseout be7 gins under subsection (a)(2) of section 32

8 and the amount of earned income at which

9 the credit under section 32 is phased out

10 under such subsection for an individual

11 with 1 qualifying child, or’’.

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

13 this section shall apply to taxable years beginning after

14 December 31, 1992.

15 Subtitle B—Provisions Relating to

16 Rollover of gain on Sale of

17 Principal Residence

18 SEC. 111. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

19 (a) GENERAL RULE.—

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

21 sale of principal residence) is amended by striking

22 subsection (d).

23 (2) Paragraph (4) of section 1034(c) is amend24 ed to read as follows:
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1 ‘‘(4) If the taxpayer, during the period de2 scribed in subsection (a), purchases more than 1 res3 idence which is used by him as his principal resi4 dence at some time within 2 years after the date of

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

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

7 shall constitute the new residence.’’

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

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

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

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

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

13 the meaning of section 1034 of the Internal Revenue Code

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

15 SEC. 112. SPECIAL RULES IN CASE OF DIVORCE.

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

17 amended by adding at the end thereof the following new

18 paragraph:

19 ‘‘(5) If—

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

21 pursuant to a divorce or marital separation,

22 and

23 ‘‘(B) the taxpayer used such residence as

24 his principal residence at any time during the

25 2-year period ending on the date of such sale,
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1 for purposes of this section, such residence shall be

2 treated as the taxpayer’s principal residence at the

3 time of such sale.’’

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

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

6 the meaning of section 1034 of the Internal Revenue Code

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

8 Subtitle C—Other Provisions

9 SEC. 121. DE MINIMIS EXCEPTION TO PASSIVE LOSS

10 RULES.

11 (a) GENERAL RULE.—Section 469 (relating to pas12 sive activity losses and credits limited) is amended—

13 (1) by striking subsection (m),

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

15 (m), and

16 (3) by inserting after subsection (k) the follow17 ing new subsection:

18 ‘‘(l) DE MINIMIS EXCEPTION.—

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

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

21 activity loss for any taxable year if the amount of

22 such loss does not exceed $200.

23 ‘‘(2) EXCEPTION FOR ITEMS ATTRIBUTABLE TO

24 PUBLICLY TRADED PARTNERSHIPS.—This subsection

25 shall not apply to items treated separately under
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1 subsection (k) (and such items shall not be taken

2 into account in determining whether paragraph (1)

3 applies to the taxpayer for the taxable year with re4 spect to other items).

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

6 subsection, an estate shall be treated as a natural

7 person with respect to any taxable year ending less

8 than 2 years after the death of the decedent.

9 ‘‘(4) MARRIED INDIVIDUALS FILING SEPA10 RATELY.—

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

12 not apply to a taxpayer who—

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

14 separate return for the taxable year, and

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

16 spouse at all times during such taxable

17 year.

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

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

20 case of a married individual who files a sepa21 rate return for the taxable year and to whom

22 this subsection applies after the application of

23 subparagraph (A).’’

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (C) of section 56(b)(1) is

2 amended by striking clause (ii) and redesignating

3 the following clauses accordingly.

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

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

6 striking paragraph (2), and by redesignating para7 graph (3) as paragraph (2).

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

9 by striking subparagraph (E).

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

11 striking paragraph (6).

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

13 striking paragraph (5).

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

15 this section shall apply to taxable years beginning after

16 December 31, 1992.

17 SEC. 122. PAYMENT OF TAX BY CREDIT CARD.

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

19 read as follows:

20 ‘‘SEC. 6311. PAYMENT BY CHECK, MONEY ORDER, OR

21 OTHER MEANS.

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

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

24 payment for internal revenue stamps) checks, money or25 ders, or any other commercially acceptable means that the
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1 Secretary deems appropriate, including payment by use of

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

3 conditions provided in regulations prescribed by the Sec4 retary.

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

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

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

8 is paid and subsequently charged back to the Secretary,

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

10 method of payment has been tendered shall remain liable

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

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

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

14 been tendered.

15 ‘‘(c) LIABILITY OF BANKS AND OTHERS.—If any cer16 tified, treasurer’s, or cashier’s check (or other guaranteed

17 draft), or any money order, or any other means of pay18 ment that has been guaranteed by a financial institution

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

20 been guaranteed expressly by a financial institution) so

21 received is not duly paid, the United States shall, in addi22 tion to its right to exact payment from the party originally

23 indebted therefor, have a lien for—
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1 ‘‘(1) the amount of such check (or draft) upon

2 all assets of the financial institution on which

3 drawn,

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

5 the assets of the issuer thereof, or

6 ‘‘(3) the guaranteed amount of any other trans7 action upon all the assets of the institution making

8 such guarantee,

9 and such amount shall be paid out of such assets in pref10 erence to any other claims whatsoever against such finan11 cial institution, issuer, or guaranteeing institution, except

12 the necessary costs and expenses of administration and

13 the reimbursement of the United States for the amount

14 expended in the redemption of the circulating notes of

15 such financial institution.

16 ‘‘(d) PAYMENT BY OTHER MEANS.—

17 ‘‘(1) AUTHORITY TO PRESCRIBE REGULA18 TIONS.—The Secretary shall prescribe such regula19 tions as the Secretary deems necessary to receive

20 payment by commercially acceptable means, includ21 ing regulations that—

22 ‘‘(A) specify which methods of payment by

23 commercially acceptable means will be accept24 able,
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1 ‘‘(B) specify when payment by such means

2 will be considered received,

3 ‘‘(C) identify types of nontax matters re4 lated to payment by such means that are to be

5 resolved by persons ultimately liable for pay6 ment and financial intermediaries, without the

7 involvement of the Secretary, and

8 ‘‘(D) ensure that tax matters will be re9 solved by the Secretary, without the involve10 ment of financial intermediaries.

11 ‘‘(2) AUTHORITY TO ENTER INTO CON12 TRACTS.—Notwithstanding section 3718(f) of title

13 31, United States Code, the Secretary is authorized

14 to enter into contracts to obtain services related to

15 receiving payment by other means where cost bene16 ficial to the Government and is further authorized to

17 pay any fees required by such contracts.

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

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

20 method of payment of taxes pursuant to subsection

21 (a)—

22 ‘‘(A) a payment of internal revenue taxes

23 (or a payment for internal revenue stamps) by

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

25 subject to section 161 of the Truth-in-Lending
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1 Act (15 U.S.C. 1666), or to any similar provi2 sions of State law, if the error alleged by the

3 person is an error relating to the underlying tax

4 liability, rather than an error relating to the

5 credit card account such as a computational

6 error or numerical transposition in the credit

7 card transaction or an issue as to whether the

8 person authorized payment by use of the credit

9 card,

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

11 (or a payment for internal revenue stamps)

12 shall not be subject to section 170 of the Truth13 in-Lending Act (15 U.S.C. 1666i), or to any

14 similar provisions of State law,

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

16 (or a payment for internal revenue stamps) by

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

18 subject to section 908 of the Electronic Fund

19 Transfer Act (15 U.S.C. 1693f), or to any simi20 lar provisions of State law, if the error alleged

21 by the person is an error relating to the under22 lying tax liability, rather than an error relating

23 to the debit card account such as a computa24 tional error or numerical transposition in the

25 debit card transaction or an issue as to whether
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1 the person authorized payment by use of the

2 debit card,

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

4 103(f) of the Truth-in-Lending Act (15 U.S.C.

5 1602(f)) shall not include the Secretary with re6 spect to credit card transactions in payment of

7 internal revenue taxes (or payment for internal

8 revenue stamps), and

9 ‘‘(E) notwithstanding any other provision

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

11 made by credit card or debit card transaction of

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

13 correction of an error under section 161 of the

14 Truth-in-Lending Act (15 U.S.C. 1666) or sec15 tion 908 of the Electronic Fund Transfer Act

16 (15 U.S.C. 1693f), the Secretary is authorized

17 to provide such amount to such person as a

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

19 account through the applicable credit card or

20 debit card system.

21 ‘‘(e) CONFIDENTIALITY OF INFORMATION.—

22 ‘‘(1) IN GENERAL.—Except as otherwise au23 thorized by this subsection, no person may use or

24 disclose any information relating to credit or debit

25 card transactions obtained pursuant to section
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1 6103(k)(8) other than for purposes directly related

2 to the processing of such transactions, or the billing

3 or collection of amounts charged or debited pursuant

4 thereto.

5 ‘‘(2) EXCEPTIONS.—

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

7 acting on behalf of such issuers may also use

8 and disclose such information for purposes di9 rectly related to servicing an issuer’s accounts.

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

11 directly involved in the processing of credit or

12 debit card transactions or the billing or collec13 tion of amounts charged or debited thereto may

14 also use and disclose such information for pur15 poses directly related to—

16 ‘‘(i) statistical risk and profitability

17 assessment;

18 ‘‘(ii) transferring receivables, ac19 counts, or interest therein;

20 ‘‘(iii) auditing the account informa21 tion;

22 ‘‘(iv) complying with Federal, State,

23 or local law; and
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1 ‘‘(v) properly authorized civil, crimi2 nal, or regulatory investigation by Federal,

3 State, or local authorities.

4 ‘‘(3) PROCEDURES.—Use and disclosure of in5 formation under this paragraph shall be made only

6 to the extent authorized by written procedures pro7 mulgated by the Secretary.

8 ‘‘(4) CROSS REFERENCE.—

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

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

10 for subchapter B of chapter 64 is amended by striking

11 the item relating to section 6311 and inserting the follow12 ing:

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

13 (c) AMENDMENTS TO SECTIONS 6103 AND 7431

14 WITH RESPECT TO DISCLOSURE AUTHORIZATION.—

15 (1) Subsection (k) of section 6103 and (relating

16 to confidentiality and disclosure of returns and re17 turn information) is amended by adding at the end

18 thereof the following new paragraph:

19 ‘‘(8) DISCLOSURE OF INFORMATION TO ADMIN20 ISTER SECTION 6311.—The Secretary may disclose

21 returns or return information to financial institu22 tions and others to the extent the Secretary deems

23 necessary for the administration of section 6311.
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1 Disclosures of information for purposes other than

2 to accept payments by checks or money orders shall

3 be made only to the extent authorized by written

4 procedures promulgated by the Secretary.’’

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

6 unauthorized disclosure of returns and return infor7 mation) is amended by adding at the end thereof the

8 following new subsection:

9 ‘‘(g) SPECIAL RULE FOR INFORMATION OBTAINED

10 UNDER SECTION 6103(k)(8).—For purposes of this sec11 tion, any reference to section 6103 shall be treated as in12 cluding a reference to section 6311(e).’’

13 (3) Section 6103(p)(3)(A) is amended by strik14 ing ‘‘or (6)’’ and inserting in lieu thereof ‘‘(6), or

15 (8),’’.

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

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

18 the date of the enactment of this Act.

19 SEC. 123. MODIFICATIONS TO ELECTION TO INCLUDE

20 CHILD’S INCOME ON PARENT’S RETURN.

21 (a) ELIGIBILITY FOR ELECTION.—Clause (ii) of sec22 tion 1(g)(7)(A) (relating to election to include certain un23 earned income of child on parent’s return) is amended to

24 read as follows:
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1 ‘‘(i) such gross income is more than

2 the amount described in paragraph

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

4 amount so described,’’.

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

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

7 return) is amended—

8 (1) by striking ‘‘$1,000’’ in clause (i) and in9 serting ‘‘twice the amount described in paragraph

10 (4)(A)(ii)(I)’’, and

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

12 read as follows:

13 ‘‘(II) for each such child, 15 per14 cent of the lesser of the amount de15 scribed in paragraph (4)(A)(ii)(I) or

16 the excess of the gross income of such

17 child over the amount so described,

18 and’’.

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

20 59(j)(1) is amended by striking ‘‘$1,000’’ and inserting

21 ‘‘twice the amount in effect for the taxable year under sec22 tion 63(c)(5)(A)’’.

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

24 this section shall apply to taxable years beginning after

25 December 31, 1992.
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1 SEC. 124. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION

2 FOR INDIVIDUALS.

3 (a) GENERAL RULE.—Section 904 (relating to limi4 tations on foreign tax credit) is amended by redesignating

5 subsection (j) as subsection (k) and by inserting after sub6 section (i) the following new subsection:

7 ‘‘(j) SIMPLIFIED LIMITATION FOR CERTAIN INDIVID8 UALS.—

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

10 to whom this subsection applies for any taxable year,

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

12 of—

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

14 income for the taxable year from sources with15 out the United States, or

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

17 taxes paid or accrued by the individual during

18 the taxable year (determined without regard to

19 subsection (c)).

20 No taxes paid or accrued by the individual during

21 such taxable year may be deemed paid or accrued in

22 any other taxable year under subsection (c).

23 ‘‘(2) INDIVIDUALS TO WHOM SUBSECTION AP24 PLIES.—This subsection shall apply to an individual

25 for any taxable year if—
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1 ‘‘(A) the entire amount of such individual’s

2 gross income for the taxable year from sources

3 without the United States consists of qualified

4 passive income,

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

6 taxes paid or accrued by the individual during

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

8 the case of a joint return), and

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

10 subsection apply for the taxable year.

11 ‘‘(3) DEFINITIONS.—For purposes of this sub12 section—

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

14 term ‘qualified passive income’ means any item

15 of gross income if—

16 ‘‘(i) such item of income is passive in17 come (as defined in subsection (d)(2)(A)

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

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

20 a payee statement furnished to the individ21 ual.

22 ‘‘(B) CREDITABLE FOREIGN TAXES.—The

23 term ‘creditable foreign taxes’ means any taxes

24 for which a credit is allowable under section

25 901; except that such term shall not include
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1 any tax unless such tax is shown on a payee

2 statement furnished to such individual.

3 ‘‘(C) PAYEE STATEMENT.—The term

4 ‘payee statement’ has the meaning given to

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

6 ‘‘(D) ESTATES AND TRUSTS NOT ELIGI7 BLE.—This subsection shall not apply to any

8 estate or trust.’’

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

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

11 December 31, 1992.

12 SEC. 125. TREATMENT OF PERSONAL TRANSACTIONS BY

13 INDIVIDUALS UNDER FOREIGN CURRENCY

14 RULES.

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

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

17 as follows:

18 ‘‘(e) APPLICATION TO INDIVIDUALS.—

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

20 this section shall not apply to any section 988 trans21 action entered into by an individual which is a per22 sonal transaction.

23 ‘‘(2) EXCLUSION FOR CERTAIN PERSONAL

24 TRANSACTIONS.—If—
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1 ‘‘(A) nonfunctional currency is disposed of

2 by an individual in any transaction, and

3 ‘‘(B) such transaction is a personal trans4 action,

5 no gain shall be recognized for purposes of this sub6 title by reason of changes in exchange rates after

7 such currency was acquired by such individual and

8 before such disposition. The preceding sentence shall

9 not apply if the gain which would otherwise be rec10 ognized exceeds $200.

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

12 of this subsection, the term ‘personal transaction’

13 means any transaction entered into by an individual,

14 except that such term shall not include any trans15 action to the extent that expenses properly allocable

16 to such transaction meet the requirements of section

17 162 or 212 (other than that part of section 212

18 dealing with expenses incurred in connection with

19 taxes).’’

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

21 this section shall apply to taxable years beginning after

22 December 31, 1992.
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1 SEC. 126. EXPANDED ACCESS TO SIMPLIFIED INCOME TAX

2 RETURNS.

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

4 or his delegate shall take such actions as may be appro5 priate to expand access to simplified individual income tax

6 returns and to otherwise simplify the individual income tax

7 returns, including—

8 (1) (if appropriate) allowing taxpayers who

9 itemize deductions to file their return on Form

10 1040A, and

11 (2) removing or raising the taxable income limi12 tations on taxpayers who may file Form 1040A.

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

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

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

16 Committee on Ways and Means of the House of Rep17 resentatives and the Committee on Finance of the Senate,

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

19 such recommendations as he may deem advisable.

20 SEC. 127. TREATMENT OF CERTAIN REIMBURSED EX21 PENSES OF RURAL MAIL CARRIERS.

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

23 business expenses) is amended by redesignating subsection

24 (m) as subsection (n) and by inserting after subsection

25 (l) the following new subsection:
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1 ‘‘(m) TREATMENT OF CERTAIN REIMBURSED EX2 PENSES OF RURAL MAIL CARRIERS.—

3 ‘‘(1) GENERAL RULE.—In the case of any em4 ployee of the United States Postal Service who per5 forms services involving the collection and delivery of

6 mail on a rural route and who receives qualified re7 imbursements for the expenses incurred by such em8 ployee for the use of a vehicle in performing such

9 services—

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

11 under this chapter for the use of a vehicle in

12 performing such services shall be equal to the

13 amount of such qualified reimbursements; and

14 ‘‘(B) such qualified reimbursements shall

15 be treated as paid under a reimbursement or

16 other expense allowance arrangement for pur17 poses of section 62(a)(2)(A) (and section 62(c)

18 shall not apply to such qualified reimburse19 ments).

20 ‘‘(2) DEFINITION OF QUALIFIED REIMBURSE21 MENTS.—For purposes of this subsection, the term

22 ‘qualified reimbursements’ means the amounts paid

23 by the United States Postal Service to employees as

24 an equipment maintenance allowance under the

25 1991 collective bargaining agreement between the
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1 United States Postal Service and the National Rural

2 Letter Carriers’ Association. Amounts paid as an

3 equipment maintenance allowance by such Postal

4 Service under later collective bargaining agreements

5 that supersede the 1991 agreement shall be consid6 ered qualified reimbursements if such amounts do

7 not exceed the amounts that would have been paid

8 under the 1991 agreement, adjusted for changes in

9 the Consumer Price Index (as defined in section

10 1(f)(5)) since 1991.’’

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

12 Technical and Miscellaneous Revenue Act of 1988 is here13 by repealed.

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

15 this section shall apply to taxable years beginning after

16 December 31, 1992.

17 SEC. 128. EXEMPTION FROM LUXURY EXCISE TAX FOR CER18 TAIN EQUIPMENT INSTALLED ON PASSENGER

19 VEHICLES FOR USE BY DISABLED INDIVID20 UALS.

21 (a) IN GENERAL.—Paragraph (3) of section 4004(b)

22 (relating to separate purchase of article and parts and ac23 cessories therefor) is amended—

24 (1) by striking ‘‘or’’ at the end of subparagraph

25 (A),
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1 (2) by redesignating subparagraph (B) as sub2 paragraph (C), and

3 (3) by inserting after subparagraph (A) the fol4 lowing new subparagraph:

5 ‘‘(B) the part or accessory is installed on

6 a passenger vehicle to enable or assist an indi7 vidual with a disability to operate the vehicle, or

8 to enter or exit the vehicle, by compensating for

9 the effect of such disability, or’’.

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

11 this section shall take effect as if included in the amend12 ments made by section 11221(a) of the Omnibus Budget

13 Reconciliation Act of 1990.

14 SEC. 129. EXCLUSION OF COMBAT PAY FROM WITHHOLD15 ING LIMITED TO AMOUNT EXCLUDABLE

16 FROM GROSS INCOME.

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

18 (defining wages) is amended by inserting before the semi19 colon the following: ‘‘to the extent remuneration for such

20 service is excludable from gross income under such sec21 tion’’.

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

23 subsection (a) shall apply to remuneration paid after De24 cember 31, 1993.
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1 TITLE II—PENSION

2 SIMPLIFICATION

3 Subtitle A—Simplified Distribution

4 Rules

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

6 LUMP-SUM DISTRIBUTIONS.

7 (a) IN GENERAL.—Subsection (d) of section 402 (re8 lating to taxability of beneficiary of employees’ trust) is

9 amended to read as follows:

10 ‘‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN

11 FOREIGN SITUS TRUSTS.—For purposes of subsections

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

13 trust which would qualify for exemption from tax under

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

15 or organized outside the United States shall be treated

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

17 501(a).’’

18 (b) CONFORMING AMENDMENTS.—

19 (1) Subparagraph (D) of section 402(e)(4) (re20 lating to other rules applicable to exempt trusts) is

21 amended to read as follows:

22 ‘‘(D) LUMP-SUM DISTRIBUTION.—For pur23 poses of this paragraph—

24 ‘‘(i) IN GENERAL.—The term ‘lump

25 sum distribution’ means the distribution or
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1 payment within one taxable year of the re2 cipient of the balance to the credit of an

3 employee which becomes payable to the re4 cipient—

5 ‘‘(I) on account of the employee’s

6 death,

7 ‘‘(II) after the employee attains

age 591 8 ⁄2,

9 ‘‘(III) on account of the employ10 ee’s separation from service, or

11 ‘‘(IV) after the employee has be12 come disabled (within the meaning of

13 section 72(m)(7)),

14 from a trust which forms a part of a plan

15 described in section 401(a) and which is

16 exempt from tax under section 501 or from

17 a plan described in section 403(a).

18 Subclause (III) of this clause shall be ap19 plied only with respect to an individual

20 who is an employee without regard to sec21 tion 401(c)(1), and subclause (IV) shall be

22 applied only with respect to an employee

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

24 For purposes of this clause, a distribution

25 to two or more trusts shall be treated as
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1 a distribution to one recipient. For pur2 poses of this paragraph, the balance to the

3 credit of the employee does not include the

4 accumulated deductible employee contribu5 tions under the plan (within the meaning

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

7 ‘‘(ii) AGGREGATION OF CERTAIN

8 TRUSTS AND PLANS.—For purposes of de9 termining the balance to the credit of an

10 employee under clause (i)—

11 ‘‘(I) all trusts which are part of

12 a plan shall be treated as a single

13 trust, all pension plans maintained by

14 the employer shall be treated as a sin15 gle plan, all profit-sharing plans main16 tained by the employer shall be treat17 ed as a single plan, and all stock

18 bonus plans maintained by the em19 ployer shall be treated as a single

20 plan, and

21 ‘‘(II) trusts which are not quali22 fied trusts under section 401(a) and

23 annuity contracts which do not satisfy

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

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

2 The provisions of this paragraph shall be

3 applied without regard to community prop4 erty laws.

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

7 amounts described in subparagraph (A) of

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

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

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

18 meaning of section 414(p)).

19 ‘‘(vi) TRANSFERS TO COST-OF-LIVING

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

24 shall not include any amount transferred

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

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

3 defined benefit plan.

4 ‘‘(vii) LUMP-SUM DISTRIBUTIONS OF

5 ALTERNATE PAYEES.—If any distribution

6 or payment of the balance to the credit of

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

9 paragraph, the payment under a qualified

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

12 credit of an alternate payee who is the

13 spouse or former spouse of the employee

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

17 shall not include any amount payable to

18 the employee.’’

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

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

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

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

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

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

7 clause (v).

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

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

11 ‘‘(ii) LUMP-SUM DISTRIBUTION.—For pur12 poses of this subparagraph, the term ‘lump-sum

13 distribution’ means any distribution of the bal14 ance to the credit of an employee immediately

15 before the distribution.’’

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

17 status as deemed employee not to be treated as sep18 aration from service for purposes of limitation of

19 tax) is hereby repealed.

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

21 status as deemed employee not to be treated as sep22 aration from service for purposes of limitation of

23 tax) is hereby repealed.

24 (9) Section 691(c) (relating to deduction for es25 tate tax) is amended by striking paragraph (5).
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1 (10) Paragraph (1) of section 871(b) (relating

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

3 1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or

4 55’’.

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

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

7 55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.

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

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

10 section 402(e)(4)(B) applies’’ and inserting

11 ‘‘(as defined in section 402(e)(4)(D)) with re12 spect to which the individual elects to have this

13 paragraph apply’’,

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

15 flush sentence:

16 ‘‘An individual may elect to have this paragraph

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

18 (C) by striking the heading and inserting:

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

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

21 paragraph (5).

22 (c) EFFECTIVE DATES.—

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

24 this section shall apply to taxable years beginning

25 after December 31, 1993.
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1 (2) RETENTION OF CERTAIN TRANSITION

2 RULES.—Notwithstanding any other provision of

3 this section, the amendments made by this section

4 shall not apply to any distribution for which the tax5 payer elects the benefits of section 1122 (h)(3) or

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

7 of the preceding sentence, the rules of sections

8 402(c)(10) and 402(d) (as in effect before the

9 amendments made by this Act) shall apply.

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

11 DEATH BENEFITS.

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

13 hereby repealed.

14 (b) CONFORMING AMENDMENT.—Subsection (c) of

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

16 and inserting ‘‘subsection (a)’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 1993.

20 SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS21 TRIBUTIONS UNDER CERTAIN EMPLOYER

22 PLANS.

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

24 (relating to annuities; certain proceeds of endowment and

25 life insurance contracts) is amended to read as follows:
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1 ‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER

2 RETIREMENT PLANS.—

3 ‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY

4 PAYMENTS.—

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

6 amount received as an annuity under a quali7 fied employer retirement plan—

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

9 and

10 ‘‘(ii) the investment in the contract

11 shall be recovered as provided in this para12 graph.

13 ‘‘(B) METHOD OF RECOVERING INVEST14 MENT IN CONTRACT.—

15 ‘‘(i) IN GENERAL.—Gross income

16 shall not include so much of any monthly

17 annuity payment under a qualified em18 ployer retirement plan as does not exceed

19 the amount obtained by dividing—

20 ‘‘(I) the investment in the con21 tract (as of the annuity starting date),

22 by

23 ‘‘(II) the number of anticipated

24 payments determined under the table

25 contained in clause (iii) (or, in the
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1 case of a contract to which subsection

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

3 monthly annuity payments under such

4 contract).

5 ‘‘(ii) CERTAIN RULES MADE APPLICA6 BLE.—Rules similar to the rules of para7 graphs (2) and (3) of subsection (b) shall

8 apply for purposes of this paragraph.

9 ‘‘(iii) NUMBER OF ANTICIPATED PAY10 MENTS.—

‘‘If the age of the

primary annuitant on The number

the annuity starting of anticipated

date is: payments is:

Not more than 55 ................................ 300

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

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

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

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

11 ‘‘(C) ADJUSTMENT FOR REFUND FEATURE

12 NOT APPLICABLE.—For purposes of this para13 graph, investment in the contract shall be de14 termined under subsection (c)(1) without re15 gard to subsection (c)(2).

16 ‘‘(D) SPECIAL RULE WHERE LUMP SUM

17 PAID IN CONNECTION WITH COMMENCEMENT

18 OF ANNUITY PAYMENTS.—If, in connection with

19 the commencement of annuity payments under

20 any qualified employer retirement plan, the tax21 payer receives a lump sum payment—
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1 ‘‘(i) such payment shall be taxable

2 under subsection (e) as if received before

3 the annuity starting date, and

4 ‘‘(ii) the investment in the contract

5 for purposes of this paragraph shall be de6 termined as if such payment had been so

7 received.

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

9 not apply in any case where the primary annu10 itant has attained age 75 on the annuity start11 ing date unless there are fewer than 5 years of

12 guaranteed payments under the annuity.

13 ‘‘(F) ADJUSTMENT WHERE ANNUITY PAY14 MENTS NOT ON MONTHLY BASIS.—In any case

15 where the annuity payments are not made on a

16 monthly basis, appropriate adjustments in the

17 application of this paragraph shall be made to

18 take into account the period on the basis of

19 which such payments are made.

20 ‘‘(G) QUALIFIED EMPLOYER RETIREMENT

21 PLAN.—For purposes of this paragraph, the

22 term ‘qualified employer retirement plan’ means

23 any plan or contract described in paragraph

24 (1), (2), or (3) of section 4974(c).
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1 ‘‘(2) TREATMENT OF EMPLOYEE CONTRIBU2 TIONS UNDER DEFINED CONTRIBUTION PLANS.—

3 For purposes of this section, employee contributions

4 (and any income allocable thereto) under a defined

5 contribution plan may be treated as a separate con6 tract.’’

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

8 this section shall apply in cases where the annuity starting

9 date is after December 31, 1993.

10 SEC. 204. REQUIRED DISTRIBUTIONS.

11 (a) IN GENERAL.—Section 401(a)(9)(C) (defining re12 quired beginning date) is amended to read as follows:

13 ‘‘(C) REQUIRED BEGINNING DATE.—For

14 purposes of this paragraph—

15 ‘‘(i) IN GENERAL.—The term ‘re16 quired beginning date’ means April 1 of

17 the calendar year following the later of—

18 ‘‘(I) the calendar year in which

the employee attains age 701 19 ⁄2, or

20 ‘‘(II) the calendar year in which

21 the employee retires.

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

23 clause (i) shall not apply—

24 ‘‘(I) except as provided in section

25 409(d), in the case of an employee
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1 who is a 5-percent owner (as defined

2 in section 416) with respect to the

3 plan year ending in the calendar year

4 in which the employee attains age

701 5 ⁄2, or

6 ‘‘(II) for purposes of section 408

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

8 ‘‘(iii) ACTUARIAL ADJUSTMENT.—In

9 the case of an employee to whom clause

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

11 year after the calendar year in which the

employee attains age 701 12 ⁄2, the employee’s

13 accrued benefit shall be actuarially in14 creased to take into account the period

after age 701 15 ⁄2 in which the employee was

16 not receiving any benefits under the plan.

17 ‘‘(iv) EXCEPTION FOR GOVERN18 MENTAL AND CHURCH PLANS.—Clauses

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

20 a governmental plan or church plan. For

21 purposes of this clause, the term ‘church

22 plan’ means a plan maintained by a church

23 for church employees, and the term

24 ‘church’ means any church (as defined in

25 section 3121(w)(3)(A)) or qualified church-
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1 controlled organization (as defined in sec2 tion 3121(w)(3)(B)).’’

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

4 subsection (a) shall apply to years beginning after Decem5 ber 31, 1993.

6 Subtitle B—Increased Access to

7 Pension Plans

8 SEC. 211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PEN9 SIONS.

10 (a) INCREASE IN NUMBER OF ALLOWABLE PARTICI11 PANTS FOR SALARY REDUCTION ARRANGEMENTS.—Sec12 tion 408(k)(6)(B) is amended by striking ‘‘25’’ each place

13 it appears in the text and heading thereof and inserting

14 ‘‘100’’.

15 (b) REPEAL OF PARTICIPATION REQUIREMENT.—

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

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

18 and (iii), respectively.

19 (c) CONFORMING AMENDMENTS.—Clause (ii) of sec20 tion 408(k)(6)(C) and clause (ii) of section 408(k)(6)(F)

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

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

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

24 this section shall apply to years beginning after December

25 31, 1993.
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1 SEC. 212. TAX EXEMPT ORGANIZATIONS ELIGIBLE UNDER

2 SECTION 401(k).

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

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

5 ‘‘(B) STATE AND LOCAL GOVERNMENTS

6 NOT ELIGIBLE.—A cash or deferred arrange7 ment shall not be treated as a qualified cash or

8 deferred arrangement if it is part of a plan

9 maintained by a State or local government or

10 political subdivision thereof, or any agency or

11 instrumentality thereof. This subparagraph

12 shall not apply to a rural cooperative plan.’’

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

14 this section shall apply to plan years beginning after De15 cember 31, 1993, but shall not apply to any cash or de16 ferred arrangement to which clause (i) of section

17 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

18 SEC. 213. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE

19 PLANS.

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

21 may, as a condition of sponsorship, prescribe rules defin22 ing the duties and responsibilities of sponsors of master

23 and prototype plans, regional prototype plans, and other

24 Internal Revenue Service preapproved plans.

25 (b) DUTIES RELATING TO PLAN AMENDMENT, NOTI26 FICATION OF ADOPTERS, AND PLAN ADMINISTRATION.—
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1 The duties and responsibilities referred to in subsection

2 (a) may include—

3 (1) the maintenance of lists of persons adopting

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

5 lists not less frequently than annually,

6 (2) the furnishing of notices at least annually

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

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

9 prescribe,

10 (3) duties relating to administrative services to

11 such persons in the operation of their plans, and

12 (4) other duties that the Secretary considers

13 necessary to ensure that—

14 (A) the master and prototype, regional

15 prototype, and other preapproved plans of

16 adopting employers are timely amended to meet

17 the requirements of the Internal Revenue Code

18 of 1986 or of any rule or regulation of the Sec19 retary, and

20 (B) adopting employers receive timely noti21 fication of amendments and other actions taken

22 by sponsors with respect to their plans.
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1 Subtitle C—Nondiscrimination

2 Provisions

3 SEC. 221. DEFINITION OF HIGHLY COMPENSATED EM4 PLOYEES.

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

6 (defining highly compensated employee) is amended to

7 read as follows:

8 ‘‘(1) IN GENERAL.—The term ‘highly com9 pensated employee’ means any employee who—

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

11 during the year or the preceding year, or

12 ‘‘(B) had compensation for the preceding

13 year from the employer in excess of $50,000.

14 The Secretary shall adjust the $50,000 amount

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

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

17 (b) SPECIAL RULE WHERE NO EMPLOYEES TREAT18 ED AS HIGHLY COMPENSATED.—Paragraph (2) of section

19 414(q) is amended to read as follows:

20 ‘‘(2) SPECIAL RULE IF NO EMPLOYEE DE21 SCRIBED IN PARAGRAPH (1).—If no employee is

22 treated as a highly compensated employee under

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

24 shall be treated as a highly compensated employee.
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1 (c) TREATMENT OF FAMILY MEMBERS.—Paragraph

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

3 (d) CONFORMING AMENDMENTS.—

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

5 414(q) are hereby repealed.

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

7 the end thereof the following new paragraph:

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

9 this subsection, the following employees shall be ex10 cluded:

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

12 months of service.

13 ‘‘(B) Employees who normally work less

than 171 14 ⁄2 hours per week.

15 ‘‘(C) Employees who normally work not

16 more than 6 months during any year.

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

18 age of 21.

19 ‘‘(E) Except to the extent provided in reg20 ulations, employees who are included in a unit

21 of employees covered by an agreement which

22 the Secretary of Labor finds to be a collective

23 bargaining agreement between employee rep24 resentatives and the employer.
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1 Except as provided by the Secretary, the employer

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

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

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

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

6 age (as the case may be) specified in such subpara7 graph.’’

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

9 amended by striking ‘‘subsection (q)(8)’’ and insert10 ing ‘‘paragraph (9)’’.

11 (3) Paragraph (17) of section 401(a) is amend12 ed by striking the last sentence.

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

14 striking the last sentence.

15 (5) Section 1114(c)(4) of the Tax Reform Act

16 of 1986 is amended by adding at the end the follow17 ing new sentence: ‘‘Any reference in this paragraph

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

19 such section as in effect before the Revenue Act of

20 1992.’’

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

22 this section shall apply to years beginning after December

23 31, 1993.
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1 SEC. 222. MODIFICATION OF ADDITIONAL PARTICIPATION

2 REQUIREMENTS.

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

5 to read as follows:

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

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

8 shall not constitute a qualified trust under this sub9 section unless on each day of the plan year such

10 trust benefits at least the lesser of—

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

12 ‘‘(ii) the greater of—

13 ‘‘(I) 40 percent of all employees of the

14 employer, or

15 ‘‘(II) 2 employees (or if there is only

16 1 employee, such employee).’’

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

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

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

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

22 this section shall apply to years beginning after December

23 31, 1993.
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1 SEC. 223. NONDISCRIMINATION RULES FOR QUALIFIED

2 CASH OR DEFERRED ARRANGEMENTS AND

3 MATCHING CONTRIBUTIONS.

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

6 401(k) (relating to cash or deferred arrangements) is

7 amended by adding at the end thereof the following new

8 paragraph:

9 ‘‘(11) ALTERNATIVE METHODS OF MEETING

10 NONDISCRIMINATION REQUIREMENTS.—

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

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

17 ‘‘(ii) meets the notice requirements of

18 subparagraph (D).

19 ‘‘(B) MATCHING CONTRIBUTIONS.—

20 ‘‘(i) IN GENERAL.—The requirements

21 of this subparagraph are met if, under the

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

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

2 contributions of the employee to the

3 extent such elective contributions do

4 not exceed 3 percent of the employee’s

5 compensation, and

6 ‘‘(II) 50 percent of the elective

7 contributions of the employee to the

8 extent that such elective contributions

9 exceed 3 percent but do not exceed 5

10 percent of the employee’s compensa11 tion.

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

15 under the arrangement, the matching con16 tribution with respect to any elective con17 tribution of a highly compensated employee

18 at any level of compensation is greater

19 than that with respect to an employee who

20 is not a highly compensated employee.

21 ‘‘(iii) ALTERNATIVE PLAN DESIGNS.—

22 If the matching contribution with respect

23 to any elective contribution at any specific

24 level of compensation is not equal to the

25 percentage required under clause (i), an
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1 arrangement shall not be treated as

2 failing to meet the requirements of

3 clause (i) if—

4 ‘‘(I) the level of an employer’s

5 matching contribution does not in6 crease as an employee’s elective con7 tributions increase, and

8 ‘‘(II) the aggregate amount of

9 matching contributions with respect to

10 elective contributions not in excess of

11 such level of compensation is at least

12 equal to the amount of matching con13 tributions which would be made if

14 matching contributions were made on

15 the basis of the percentages described

16 in clause (i).

17 ‘‘(C) NONELECTIVE CONTRIBUTIONS.—

18 The requirements of this subparagraph are met

19 if, under the arrangement, the employer is re20 quired, without regard to whether the employee

21 makes an elective contribution or employee con22 tribution, to make a contribution to a defined

23 contribution plan on behalf of each employee

24 who is not a highly compensated employee and

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

2 employee’s compensation.

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

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

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

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

12 such rights and obligations, and

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

14 to be understood by the average employee

15 eligible to participate.

16 ‘‘(E) OTHER REQUIREMENTS.—

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

19 treated as meeting the requirements of

20 subparagraph (B) or (C) unless the re21 quirements of subparagraphs (B) and (C)

22 of paragraph (2) are met with respect to

23 all employer contributions (including

24 matching contributions).
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1 ‘‘(ii) SOCIAL SECURITY AND SIMILAR

2 CONTRIBUTIONS NOT TAKEN INTO AC3 COUNT.—An arrangement shall not be

4 treated as meeting the requirements of

5 subparagraph (B) or (C) unless such re6 quirements are met without regard to sub7 section (l), and, for purposes of subsection

8 (l), employer contributions under subpara9 graph (B) or (C) shall not be taken into

10 account.

11 ‘‘(F) OTHER PLANS.—An arrangement

12 shall be treated as meeting the requirements

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

14 maintained by the employer meets such require15 ments with respect to employees eligible under

16 the arrangement.’’

17 (b) ALTERNATIVE METHODS OF SATISFYING SEC18 TION 401(m) NONDISCRIMINATION TESTS.—Section

19 401(m) (relating to nondiscrimination test for matching

20 contributions and employee contributions) is amended by

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

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

23 ‘‘(10) ALTERNATIVE METHOD OF SATISFYING

24 TESTS.—
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1 ‘‘(A) IN GENERAL.—A defined contribution

2 plan shall be treated as meeting the require3 ments of paragraph (2) with respect to match4 ing contributions if the plan—

5 ‘‘(i) meets the contribution require6 ments of subparagraph (B) or (C) of sub7 section (k)(11),

8 ‘‘(ii) meets the notice requirements of

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

10 ‘‘(iii) meets the requirements of sub11 paragraph (B).

12 ‘‘(B) LIMITATION ON MATCHING CON13 TRIBUTIONS.—The requirements of this sub14 paragraph are met if—

15 ‘‘(i) matching contributions on behalf

16 of any employee may not be made with

17 respect to an employee’s contributions or

18 elective deferrals in excess of 6 percent of

19 the employee’s compensation,

20 ‘‘(ii) the level of an employer’s match21 ing contribution does not increase as an

22 employee’s contributions or elective defer23 rals increase, and

24 ‘‘(iii) the matching contribution with

25 respect to any highly compensated em-
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1 ployee at a specific level of compensation is

2 not greater than that with respect to an

3 employee who is not a highly compensated

4 employee.’’

5 (c) YEAR FOR COMPUTING NONHIGHLY COM6 PENSATED EMPLOYEE PERCENTAGE.—

7 (1) CASH OR DEFERRED ARRANGEMENTS.—

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

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

10 ‘‘the plan year’’, and

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

12 inserting ‘‘the preceding plan year’’.

13 (2) MATCHING AND EMPLOYEE CONTRIBU14 TIONS.—Section 401(m)(2)(A) is amended—

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

16 ‘‘highly compensated employee’’, and

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

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

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

20 (d) SPECIAL RULE FOR DETERMINING AVERAGE DE21 FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—

22 (1) Paragraph (3) of section 401(k) is amended

23 by adding at the end thereof the following new sub24 paragraph:
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1 ‘‘(E) For purposes of this paragraph, in

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

3 amount taken into account as the actual defer4 ral percentage of nonhighly compensated em5 ployees for the preceding plan year shall be—

6 ‘‘(i) 3 percent, or

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

8 under this subclause, the actual deferral

9 percentage of nonhighly compensated em10 ployees determined for such first plan

11 year.’’

12 (2) Paragraph (3) of section 401(m) is amend13 ed by adding at the end thereof the following:

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

15 shall apply for purposes of this subsection.’’

16 (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS.—

17 (1) Subparagraph (C) of section 401(k)(8) (re18 lating to arrangement not disqualified if excess con19 tributions distributed) is amended by striking ‘‘on

20 the basis of the respective portions of the excess con21 tributions attributable to each of such employees’’

22 and inserting ‘‘on the basis of the amount of con23 tributions by, or on behalf of, each of such employ24 ees’’.
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1 (2) Subparagraph (C) of section 401(m)(6) (re2 lating to method of distributing excess aggregate

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

4 of the respective portions of such amounts attrib5 utable to each of such employees’’ and inserting ‘‘on

6 the basis of the amount of contributions on behalf

7 of, or by, each such employee’’.

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

9 this section shall apply to years beginning after December

10 31, 1993.

11 Subtitle D—Miscellaneous

12 Simplification

13 SEC. 231. TREATMENT OF LEASED EMPLOYEES.

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

15 414(n)(2) (defining leased employee) is amended to read

16 as follows:

17 ‘‘(C) such services are performed under

18 significant direction or control by the recipi19 ent.’’

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

21 subsection (a) shall apply to years beginning after Decem22 ber 31, 1993, but shall not apply to any relationship deter23 mined under an Internal Revenue Service ruling issued be24 fore the date of the enactment of this Act pursuant to

25 section 414(n)(2)(C) of the Internal Revenue Code of
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1 1986 (as in effect on the day before such date) not to

2 involve a leased employee.

3 SEC. 232. MODIFICATIONS OF COST-OF-LIVING ADJUST4 MENTS.

5 (a) IN GENERAL.—Section 415(d) (relating to cost6 of-living adjustments) is amended to read as follows:

7 ‘‘(d) COST-OF-LIVING ADJUSTMENTS.—

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

9 annually—

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

11 (b)(1)(A), and

12 ‘‘(B) in the case of a participant who sepa13 rated from service, the amount taken into ac14 count under subsection (b)(1)(B),

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

16 regulations prescribed by the Secretary.

17 ‘‘(2) METHOD.—

18 ‘‘(A) IN GENERAL.—The regulations pre19 scribed under paragraph (1) shall provide for

20 adjustment procedures which are similar to the

21 procedures used to adjust benefit amounts

22 under section 215(i)(2)(A) of the Social Secu23 rity Act.
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1 ‘‘(B) PERIODS FOR ADJUSTMENT OF DOL2 LAR AMOUNT.—For purposes of paragraph

3 (1)(A)—

4 ‘‘(i) IN GENERAL.—The adjustment

5 with respect to any calendar year shall be

6 based on the increase in the applicable

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

9 calendar year over such index as of the

10 close of the base period.

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

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

13 quarter beginning October 1, 1986.

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

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

17 year preceding the calendar year in which the

18 participant separated from service.

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

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

23 408(k)(2)(C) shall be rounded to the nearest $100.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section apply to adjustments with respect to calendar

3 years beginning after December 31, 1993.

4 SEC. 233. PLANS COVERING SELF-EMPLOYED INDIVID5 UALS.

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

7 to additional requirements for qualification of trusts and

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

9 follows:

10 ‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOY11 EES.—A trust forming part of a pension or profit-sharing

12 plan which provides contributions or benefits for employ13 ees some or all of whom are owner-employees shall con14 stitute a qualified trust under this section only if, in addi15 tion to meeting the requirements of subsection (a), the

16 plan provides that contributions on behalf of any owner17 employee may be made only with respect to the earned

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

19 trade or business with respect to which such plan is estab20 lished.’’

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

22 this section shall apply to years beginning after December

23 31, 1993.
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1 SEC. 234. ELIMINATION OF SPECIAL VESTING RULE FOR

2 MULTIEMPLOYER PLANS.

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

4 (relating to minimum vesting standards) is amended—

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

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

7 (2) by striking subparagraph (C).

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

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

10 the earlier of—

11 (1) the later of—

12 (A) January 1, 1994, or

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

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

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

18 (2) January 1, 1996.

19 Such amendments shall not apply to any individual who

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

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

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

3 (a) FULL-FUNDING LIMITATION.—Section

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

5 amended—

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

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

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

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

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

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

14 heading and inserting ‘‘VALUATION’’.

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

16 this section shall apply to years beginning after December

17 31, 1993.

18 SEC. 236. ALTERNATIVE FULL-FUNDING LIMITATION.

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

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

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

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

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

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

7 met.

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

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

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

13 ‘‘(C) REQUIREMENTS RELATING TO PLAN

14 ELIGIBILITY.—

15 ‘‘(i) IN GENERAL.—The requirements

16 of this subparagraph are met with respect

17 to a defined benefit plan if—

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

21 under the plan for the 5 immediately

22 preceding plan years is at least 80

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

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

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

5 years, and

6 ‘‘(III) each defined benefit plan

7 of the employer (and each defined

8 benefit plan of each employer who is

9 a member of any controlled group

10 which includes such employer) meets

11 the requirements of subclauses (I) and

12 (II).

13 ‘‘(ii) FAILURE TO CONTINUE TO MEET

14 REQUIREMENTS.—

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

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

17 plan year during an election period,

18 the benefits of the election under this

19 paragraph shall be phased out under

20 regulations prescribed by the Sec21 retary.

22 ‘‘(II) If any plan fails to meet

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

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

2 for the remainder of the election pe3 riod.

4 If there is a failure described in subclause

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

6 plan (and each plan described in clause

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

8 treated as not meeting the requirements of

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

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

13 ‘‘(i) IN GENERAL.—The requirements

14 of this subparagraph are met with respect

15 to an election if—

16 ‘‘(I) FILING DATE.—Notice of

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

19 containing such information as the

20 Secretary may provide) by January 1

21 of any calendar year, and is effective

22 as of the 1st day of the election period

23 beginning on or after January 1 of

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

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

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

7 ‘‘(ii) TRANSITION PERIOD.—In the

8 case of any election period beginning on or

9 after July 1, 1993, and before January 1,

10 1994, the requirements of clause (i) shall

11 not apply and the requirements of this

12 subparagraph are met with respect to such

13 election period if—

14 ‘‘(I) FILING DATE.—Notice of

15 election is filed with the Secretary by

16 October 1, 1993.

17 ‘‘(II) INFORMATION.—The notice

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

20 names and tax identification numbers

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

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

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

2 of this paragraph have been met.

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

5 1, 1994, notify defined benefit plans that

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

8 clause (ii) of the adjustment required by

9 subparagraph (H). The revenue offset for

10 the transition period shall apply to plan

11 years beginning on or after July 1, 1993,

12 and before January 1, 1994.

13 ‘‘(iv) EXCESS CONTRIBUTIONS MADE

14 BY NON-ELECTING PLANS.—To the extent

15 a defined benefit plan sponsor makes a

16 contribution to a defined benefit plan with

17 respect to the transition period described

18 in clause (ii) which exceeds the limitation

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

22 against allowable contributions to the plan

23 in subsequent quarters in the taxable year

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

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

4 taxable year. Notwithstanding any other

5 provision of this title, no deduction shall be

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

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

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

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

14 to the plan sponsor, as provided in this

15 clause.

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

17 made under this paragraph shall apply for the

18 election period.

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

21 ‘‘(i) NO FUNDING WAIVERS.—In the

22 case of a plan with respect to which an

23 election is made under this paragraph, no

24 waiver may be granted under subsection

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

2 the close of the election period with respect

3 thereto.

4 ‘‘(ii) FAILURE TO MAKE SUCCESSIVE

5 ELECTIONS.—If an election is made under

6 this paragraph with respect to any plan

7 and such an election does not apply for

8 each successive plan year of such plan,

9 such plan shall be treated as not meeting

10 the requirements of subparagraph (C) for

11 the period of 10 plan years beginning after

12 the close of the last election period for

13 such plan.

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

15 paragraph—

16 ‘‘(i) ELECTION PERIOD.—The term

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

19 plan year for which the election is made.

20 ‘‘(ii) CONTROLLED GROUP.—The term

21 ‘controlled group’ means all persons who

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

2 FUNDING LIMITATION REDUCES NET FEDERAL

3 REVENUES.—

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

5 respect to each fiscal year, the Secretary

6 shall estimate whether the application of

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

9 year.

10 ‘‘(ii) ADJUSTMENT OF FULL-FUNDING

11 LIMITATION IF REVENUE SHORTFALL.—If

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

14 than insubstantial net reduction in Federal

15 revenues for any fiscal year, the Sec16 retary—

17 ‘‘(I) shall make the adjustment

18 described in clause (iii), and

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

21 reduction to an insubstantial amount,

22 shall make the adjustment described

23 in clause (iv).

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

2 effect.

3 ‘‘(iii) REDUCTION IN LIMITATION

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

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

8 percent) for the percentage described in

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

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

13 the plan.

14 ‘‘(iv) REDUCTION IN LIMITATION

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

18 accrued liability taken into account under

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

20 the amount of accrued liability taken into

21 account under such paragraph after the

22 adjustment be less than 140 percent of

23 current liability.’’

24 (b) ALTERATION OF DISCRETIONARY REGULATORY

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

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

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

4 this section shall take effect on January 1, 1993.

5 SEC. 237. DISTRIBUTIONS UNDER RURAL COOPERATIVE

6 PLANS.

7 (a) DISTRIBUTIONS AFTER CERTAIN AGE.—Section

8 401(k)(7) is amended by adding at the end thereof the

9 following new subparagraph:

10 ‘‘(C) SPECIAL RULE FOR CERTAIN DISTRIBU11 TIONS.—A rural cooperative plan which includes a

12 qualified cash or deferred arrangement shall not be

13 treated as violating the requirements of section

14 401(a) merely by reason of a distribution to a participant after attainment of age 591 15 ⁄2.’’

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

17 this section shall apply to distributions after the date of

18 the enactment of this Act.

19 SEC. 238. TREATMENT OF GOVERNMENTAL PLANS UNDER

20 SECTION 415.

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

22 of section 415 (regarding limitations on benefits and con23 tributions under qualified plans) is amended by adding im24 mediately after paragraph (2) thereof the following new

25 paragraph:
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1 ‘‘(3) DEFINITION OF COMPENSATION FOR GOV2 ERNMENTAL PLANS.—For purposes of this section,

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

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

5 addition to the amounts described in subsection

6 (c)(3)—

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

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

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

10 the employer at the election of the employee

11 and which is not includible in the gross income

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

13 (b) COMPENSATION LIMIT.—Subsection (b) of sec14 tion 415 is amended by adding immediately after para15 graph (10) the following new paragraph:

16 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN17 MENTAL PLANS.—In the case of a governmental

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

19 (B) of paragraph (1) shall not apply.’’

20 (c) TREATMENT OF CERTAIN EXCESS BENEFIT

21 PLANS.—

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

23 adding at the end thereof the following new sub24 section:
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1 ‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL

2 EXCESS BENEFIT ARRANGEMENTS.—

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

4 In determining whether a governmental plan (as de5 fined in section 414(d)) meets the requirements of

6 this section, benefits provided under a qualified gov7 ernmental excess benefit arrangement shall not be

8 taken into account. Income accruing to a govern9 mental plan (or to a trust that is maintained solely

10 for the purpose of providing benefits under a quali11 fied governmental excess benefit arrangement) in re12 spect of a qualified governmental excess benefit ar13 rangement shall constitute income derived from the

14 exercise of an essential governmental function upon

15 which such governmental plan (or trust) shall be ex16 empt from tax under section 115.

17 ‘‘(2) TAXATION OF PARTICIPANT.—For pur18 poses of this chapter—

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

20 amounts in respect of a qualified governmental

21 excess benefit arrangement are includible in

22 gross income by a participant, and

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

24 so includible by the participant,
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1 shall be determined as if such qualified govern2 mental excess benefit arrangement were treated as a

3 plan for the deferral of compensation which is main4 tained by a corporation not exempt from tax under

5 this chapter and which does not meet the require6 ments for qualification under section 401.

7 ‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN8 EFIT ARRANGEMENT.—For purposes of this sub9 section, the term ‘qualified governmental excess ben10 efit arrangement’ means a portion of a governmental

11 plan if—

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

13 the purpose of providing to participants in the

14 plan that part of the participant’s annual bene15 fit otherwise payable under the terms of the

16 plan that exceeds the limitations on benefits im17 posed by this section,

18 ‘‘(B) under such portion no election is pro19 vided at any time to the participant (directly or

20 indirectly) to defer compensation, and

21 ‘‘(C) benefits described in subparagraph

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

23 of such governmental plan unless such trust is

24 maintained solely for the purpose of providing

25 such benefits.’’
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1 (2) COORDINATION WITH SECTION 457.—Sub2 section (e) of section 457 is amended by adding at

3 the end thereof the following new paragraph:

4 ‘‘(15) TREATMENT OF QUALIFIED GOVERN5 MENTAL EXCESS BENEFIT ARRANGEMENTS.—Sub6 sections (b)(2) and (c)(1) shall not apply to any

7 qualified governmental excess benefit arrangement

8 (as defined in section 415(m)(3)), and benefits pro9 vided under such an arrangement shall not be taken

10 into account in determining whether any other plan

11 is an eligible deferred compensation plan.’’

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

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

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

15 the period after subparagraph (D) and inserting the

16 words ‘‘, and’’, and by inserting immediately there17 after the following new subparagraph:

18 ‘‘(E) a qualified governmental excess bene19 fit arrangement described in section 415(m).’’

20 (d) EXEMPTION FOR SURVIVOR AND DISABILITY

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

22 by adding at the end thereof the following new subpara23 graph:

24 ‘‘(I) EXEMPTION FOR SURVIVOR AND DIS25 ABILITY BENEFITS PROVIDED UNDER GOVERN-
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1 MENTAL PLANS.—Subparagraph (B) of para2 graph (1), subparagraph (C) of this paragraph,

3 and paragraph (5) shall not apply to—

4 ‘‘(i) income received from a govern5 mental plan (as defined in section 414(d))

6 as a pension, annuity, or similar allowance

7 as the result of the recipient becoming dis8 abled by reason of personal injuries or

9 sickness, or

10 ‘‘(ii) amounts received from a govern11 mental plan by the beneficiaries, survivors,

12 or the estate of an employee as the result

13 of the death of the employee.’’

14 (e) REVOCATION OF GRANDFATHER ELECTION.—

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

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

17 election made pursuant to the preceding sentence to have

18 the provisions of this paragraph applied to the plan may

19 be revoked not later than the last day of the 3rd plan year

20 beginning after the date of enactment with respect to all

21 plan years as to which such election has been applicable

22 and all subsequent plan years; provided that any amount

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

24 of such election in respect of benefits attributable to a tax25 able year during which such election was in effect shall
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1 be includible in income by the recipient in accordance with

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

3 amount is received (except that such amount shall be

4 treated as received for purposes of the limitations imposed

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

6 such amount is attributable).’’

7 (f) EFFECTIVE DATE.—

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

9 subsections (a), (b), (c), and (d) shall apply to tax10 able years beginning on or after the date of the en11 actment of this Act. The amendments made by sub12 section (e) shall apply with respect to election rev13 ocations adopted after the date of the enactment of

14 this Act.

15 (2) TREATMENT FOR YEARS BEGINNING BE16 FORE DATE OF ENACTMENT.—In the case of a gov17 ernmental plan (as defined in section 414(d) of the

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

19 treated as satisfying the requirements of section 415

20 of such Code for all taxable years beginning before

21 the date of the enactment of this Act.

22 SEC. 239. UNIFORM RETIREMENT AGE.

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

24 section 401(a) (relating to special rules relating to non-
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1 discrimination requirements) is amended by adding at the

2 end thereof the following new subparagraph:

3 ‘‘(F) SOCIAL SECURITY RETIREMENT

4 AGE.—For purposes of testing for discrimina5 tion under paragraph (4)—

6 ‘‘(i) the social security retirement age

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

8 treated as a uniform retirement age, and

9 ‘‘(ii) subsidized early retirement bene10 fits and joint and survivor annuities shall

11 not be treated as being unavailable to em12 ployees on the same terms merely because

13 such benefits or annuities are based in

14 whole or in part on an employee’s social

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

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

17 this section shall apply to years beginning after December

18 31, 1993.

19 SEC. 240. UNIFORM PENALTY PROVISIONS TO APPLY TO

20 CERTAIN PENSION REPORTING REQUIRE21 MENTS.

22 (a) IN GENERAL.—

23 (1) Paragraph (1) of section 6724(d) is amend24 ed by striking ‘‘and’’ at the end of subparagraph

25 (A), by striking the period at the end of subpara-
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1 graph (B) and inserting ‘‘, and’’, and by inserting

2 after subparagraph (B) the following new subpara3 graph:

4 ‘‘(C) any statement of the amount of pay5 ments to another person required to be made to

6 the Secretary under—

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

8 with respect to individual retirement ac9 counts or annuities), or

10 ‘‘(ii) section 6047(d) (relating to re11 ports by employers, plan administrators,

12 etc.).’’

13 (2) Paragraph (2) of section 6724(d) is amend14 ed by striking ‘‘or’’ at the end of subparagraph (R),

15 by striking the period at the end of subparagraph

16 (S) and inserting a comma, and by inserting after

17 subparagraph (S) the following new subparagraphs:

18 ‘‘(T) section 408(i) (relating to reports

19 with respect to individual retirement plans) to

20 any person other than the Secretary with re21 spect to the amount of payments made to such

22 person, or

23 ‘‘(U) section 6047(d) (relating to reports

24 by plan administrators) to any person other
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1 than the Secretary with respect to the amount

2 of payments made to such person.’’

3 (b) MODIFICATION OF REPORTABLE DESIGNATED

4 DISTRIBUTIONS.—

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

6 (relating to individual retirement account reports) is

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

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

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

10 6047(d) (relating to reports by employers, plan ad11 ministrators, etc.) is amended by adding at the end

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

13 report may be required under the preceding sentence

14 with respect to distributions to any person during

15 any year unless such distributions aggregate $10 or

16 more.’’

17 (c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec18 tion 6652(i) is amended—

19 (1) by striking ‘‘the $10’’ and inserting

20 ‘‘$100’’, and

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

22 ‘‘$50,000’’.

23 (d) CONFORMING AMENDMENTS.—

24 (1) Paragraph (1) of section 6047(f) is amend25 ed to read as follows:
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1 ‘‘(1) For provisions relating to penalties for failures

2 to file returns and reports required under this section, see

3 sections 6652(e), 6721, and 6722.’’

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

5 by adding at the end thereof the following new sen6 tence: ‘‘This subsection shall not apply to any return

7 or statement which is an information return de8 scribed in section 6724(d)(1)(C)(ii) or a payee state9 ment described in section 6724(d)(2)(U).’’

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

11 by adding at the end thereof the following new sen12 tence: ‘‘This subsection shall not apply to any report

13 which is an information return described in section

14 6724(d)(1)(C)(i) or a payee statement described in

15 section 6724(d)(2)(T).’’

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

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

18 statements the due date for which (determined without re19 gard to extensions) is after December 31, 1993.

20 SEC. 241. CONTRIBUTIONS ON BEHALF OF DISABLED EM21 PLOYEES.

22 (a) ALL DISABLED PARTICIPANTS RECEIVING CON23 TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding

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

25 plan provides for the continuation of contributions on be-
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1 half of all participants described in clause (i) for a fixed

2 or determinable period, this subparagraph shall be applied

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

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

5 this section shall apply to years beginning after December

6 31, 1993.

7 SEC. 242. AFFILIATED EMPLOYERS.

8 (a) IN GENERAL.—For purposes of Treasury Regula9 tions section 1.501(c)(9)–2(a)(1), a group of employers

10 shall be deemed to be affiliated if they are substantially

11 all section 501(c)(12) organizations which perform serv12 ices (or with respect to which their members perform serv13 ices) which are the same or are directly related to each

14 other.

15 (b) SECTION 501(c)(12) ORGANIZATION.—For pur16 poses of this section, the term ‘‘section 501(c)(12) organi17 zation’’ means—

18 (1) any organization described in section

19 501(c)(12) of the Internal Revenue Code of 1986,

20 (2) any organization providing a service which

21 is the same as a service which is (or could be) pro22 vided by an organization described in paragraph (1),

23 (3) any organization described in paragraph (4)

24 or (6) of section 501(c) of such Code, but only if at

25 least 80 percent of the members of the organization
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1 are organizations described in paragraph (1) or (2),

2 and

3 (4) any organization which is a national asso4 ciation of organizations described in paragraph (1),

5 (2), or (3).

6 An organization described in paragraph (2) (but not in

7 paragraph (1)) shall not be treated as a section 501(c)(12)

8 organization with respect to a voluntary employees’ bene9 ficiary association unless a substantial number of employ10 ers maintaining such association are described in para11 graph (1).

12 (c) EFFECTIVE DATE.—The provisions of this section

13 shall apply to years beginning after December 31, 1993.

14 SEC. 243. SPECIAL RULES FOR PLANS COVERING PILOTS.

15 (a) GENERAL RULE.—

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

17 amended to read as follows:

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

19 maintained by one or more employers to provide

20 contributions or benefits for air pilots employed

21 by one or more common carriers engaged in

22 interstate or foreign commerce or air pilots em23 ployed by carriers transporting mail for or

24 under contract with the United States Govern25 ment, all employees who are not air pilots.’’
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1 (2) Paragraph (3) of section 410(b) is amended

2 by striking the last sentence and inserting the fol3 lowing new sentence: ‘‘Subparagraph (B) shall not

4 apply in the case of a plan which provides contribu5 tions or benefits for employees who are not air pilots

6 or for air pilots whose principal duties are not cus7 tomarily performed aboard aircraft in flight.’’

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

9 subsection (a) shall apply to years beginning after Decem10 ber 31, 1993.

11 SEC. 244. TREATMENT OF DEFERRED COMPENSATION

12 PLANS OF STATE AND LOCAL GOVERNMENTS

13 AND TAX-EXEMPT ORGANIZATIONS.

14 (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—

15 Paragraph (9) of section 457(e) (relating to other defini16 tions and special rules) is amended to read as follows:

17 ‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL18 ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—

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

20 OR LESS.—The total amount payable to a par21 ticipant under the plan shall not be treated as

22 made available merely because the participant

23 may elect to receive such amount (or the plan

24 may distribute such amount without the partici25 pant’s consent) if—
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1 ‘‘(i) such amount does not exceed

2 $3,500, and

3 ‘‘(ii) such amount may be distributed

4 only if—

5 ‘‘(I) no amount has been deferred

6 under the plan with respect to such

7 participant during the 2-year period

8 ending on the date of the distribution,

9 and

10 ‘‘(II) there has been no prior dis11 tribution under the plan to such par12 ticipant to which this subparagraph

13 applied.

14 A plan shall not be treated as failing to

15 meet the distribution requirements of sub16 section (d) by reason of a distribution to which

17 this subparagraph applies.

18 ‘‘(B) ELECTION TO DEFER COMMENCE19 MENT OF DISTRIBUTIONS.—The total amount

20 payable to a participant under the plan shall

21 not be treated as made available merely because

22 the participant may elect to defer commence23 ment of distributions under the plan if—

24 ‘‘(i) such election is made after

25 amounts may be available under the plan
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1 in accordance with subsection (d)(1)(A)

2 and before commencement of such dis3 tributions, and

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

5 such election.’’

6 (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE7 FERRAL AMOUNT.—Subsection (e) of section 457 is

8 amended by adding at the end thereof the following new

9 paragraph:

10 ‘‘(14) COST-OF-LIVING ADJUSTMENT OF MAXI11 MUM DEFERRAL AMOUNT.—The Secretary shall ad12 just the $7,500 amount specified in subsections

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

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

15 base year in applying such section for purposes of

16 this paragraph shall be 1993.’’

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

18 this section shall apply to taxable years beginning after

19 the date of the enactment of this Act.

20 SEC. 245. TREATMENT OF EMPLOYER REVERSIONS RE21 QUIRED BY CONTRACT TO BE PAID TO THE

22 UNITED STATES.

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

24 4980(c)(2) (defining employer reversion) is amended by

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

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

3 ‘‘(iii) any distribution to the employer

4 to the extent that the distribution is paid

5 within a reasonable period to the United

6 States in satisfaction of a Federal claim

7 for an equitable share of the plan’s surplus

8 assets, as determined pursuant to Federal

9 contracting regulations.’’

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

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

12 of the enactment of this Act.

13 SEC. 246. CONTINUATION HEALTH COVERAGE FOR EM14 PLOYEES OF FAILED FINANCIAL INSTITU15 TIONS.

16 (a) ENFORCEMENT OF CONTINUATION OF HEALTH

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

19 (relating to continuation of coverage requirements of

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

21 thereof the following new paragraph:

22 ‘‘(9) SPECIAL RULES FOR ACQUIRERS OF

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

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

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

5 provide a group health plan meeting the

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

9 would have had but for its failure, and

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

11 of such qualified individuals for purposes

12 of this section.

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

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

16 section by reason of being an acquirer of a

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

19 Trust Corporation elects to relieve such

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

22 of subparagraph (A) shall apply to the Federal

23 Deposit Insurance Corporation or the Resolu24 tion Trust Corporation, as the case may be.
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1 ‘‘(C) ACQUIRER.—For purposes of this

2 paragraph, an entity is an acquirer of a failed

3 depository institution during any period if—

4 ‘‘(i) such entity holds substantially all

5 of the assets or liabilities of such institu6 tion, and

7 ‘‘(ii)(I) such entity is a bridge bank,

8 or

9 ‘‘(II) such entity acquired such assets

10 or liabilities from the Federal Deposit In11 surance Corporation, the Resolution Trust

12 Corporation, or a bridge bank.

13 ‘‘(D) FAILED DEPOSITORY INSTITUTION.—

14 For purposes of this section, the term ‘failed

15 depository institution’ means any depository in16 stitution (as defined in section 3(c) of the Fed17 eral Deposit Insurance Act) for which a receiver

18 or conservator has been appointed.

19 ‘‘(E) QUALIFIED INDIVIDUAL.—For pur20 poses of this section, the term ‘qualified individ21 ual’ means—

22 ‘‘(i) any individual who was, on the

23 day before the date of the appointment of

24 the receiver or conservator, provided cov25 erage under a group health plan of the
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1 failed depository institution by reason of

2 the performance of services for such insti3 tution, and

4 ‘‘(ii) any individual who was, on such

5 day, a beneficiary under such plan as the

6 spouse or dependent child of the individual

7 described in clause (i).’’

8 (b) TREATMENT OF DEPOSITORY INSTITUTION FAIL9 URES AS QUALIFYING EVENTS FOR RETIREES OF SUCH

10 INSTITUTIONS.—

11 (1) IN GENERAL.—Subparagraph (B) of section

12 4980B(f)(3) is amended—

13 (A) by striking ‘‘The termination’’ and in14 serting ‘‘(i) The termination’’,

15 (B) by striking the period at the end and

16 inserting ‘‘, or’’, and

17 (C) by inserting after clause (i) the follow18 ing new clause:

19 ‘‘(ii) the appointment of a receiver or

20 conservator for a failed depository institu21 tion from whose employment the covered

22 employee retired at any time.’’

23 (2) CONFORMING AMENDMENT.—Subclause (I)

24 of section 4980B(f)(2)(B)(i) is amended by striking

25 ‘‘AND REDUCED HOURS’’ and inserting ‘‘, REDUCED
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1 HOURS, AND FAILURES OF DEPOSITORY INSTITU2 TIONS’’.

3 (c) EFFECTIVE DATES.—

4 (1) IN GENERAL.—Except as provided in para5 graph (2), the amendments made by this section

6 shall apply as if included in section 451 of the Fed7 eral Deposit Insurance Corporation Improvement

8 Act of 1991 as of the date of the enactment of such

9 Act.

10 (2) LIABILITY OF FDIC.—In the case of the

11 Federal Deposit Insurance Corporation or any

12 acquirer from such Corporation, the amendments

13 made by this section shall apply only to failed depos14 itory institutions for which the receiver or conserva15 tor is appointed after the date of the enactment of

16 this Act.

17 (3) SPECIAL RULE FOR COVERAGE UNDER FDIC

18 PLAN.—Effective as of the date of the enactment of

19 the Federal Deposit Insurance Corporation Improve20 ment Act of 1991, coverage under the health care

21 continuation plan maintained by the Federal Deposit

22 Insurance Corporation on June 25, 1992, and any

23 other substantially similar plan maintained by such

24 Corporation, shall be deemed to satisfy the obliga25 tions of the Federal Deposit Insurance Corporation
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1 (and any acquirer from such Corporation) under sec2 tion 4980B(f) of the Internal Revenue Code of 1986

3 and section 451 of the Federal Deposit Insurance

4 Corporation Improvement Act of 1991 with respect

5 to qualified individuals of failed depository institu6 tions.

7 SEC. 247. DATE FOR ADOPTION OF PLAN AMENDMENTS.

8 If any amendment made by this Act requires an

9 amendment to any plan, such plan amendment shall not

10 be required to be made before the first day of the first

11 plan year beginning on or after January 1, 1995, if—

12 (1) during the period after such amendment

13 takes effect and before such first plan year, the plan

14 is operated in accordance with the requirements of

15 such amendment, and

16 (2) such plan amendment applies retroactively

17 to such period.

18 TITLE III—TREATMENT OF

19 LARGE PARTNERSHIPS

20 Subtitle A—General Provisions

21 SEC. 301. SIMPLIFIED FLOW-THROUGH FOR LARGE PART22 NERSHIPS.

23 (a) GENERAL RULE.—Subchapter K (relating to

24 partners and partnerships) is amended by adding at the

25 end thereof the following new part:
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1 ‘‘PART IV—SPECIAL RULES FOR LARGE

2 PARTNERSHIPS

‘‘Sec. 771. Application of subchapter to large partnerships.

‘‘Sec. 772. Simplified flow-through.

‘‘Sec. 773. Computations at partnership level.

‘‘Sec. 774. Other modifications.

‘‘Sec. 775. Large partnership defined.

‘‘Sec. 776. Special rules for partnerships holding oil and gas

properties.

‘‘Sec. 777. Regulations.

3 ‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO LARGE PART4 NERSHIPS.

5 ‘‘The preceding provisions of this subchapter to the

6 extent inconsistent with the provisions of this part shall

7 not apply to a large partnership and its partners.

8 ‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH.

9 ‘‘(a) GENERAL RULE.—In determining the income

10 tax of a partner of a large partnership, such partner shall

11 take into account separately such partner’s distributive

12 share of the partnership’s—

13 ‘‘(1) taxable income or loss from passive loss

14 limitation activities,

15 ‘‘(2) taxable income or loss from other activi16 ties,

17 ‘‘(3) net capital gain (or net capital loss)—

18 ‘‘(A) to the extent allocable to passive loss

19 limitation activities, and

20 ‘‘(B) to the extent allocable to other activi21 ties,
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1 ‘‘(4) tax-exempt interest,

2 ‘‘(5) applicable net AMT adjustment separately

3 computed for—

4 ‘‘(A) passive loss limitation activities, and

5 ‘‘(B) other activities,

6 ‘‘(6) general credits,

7 ‘‘(7) low-income housing credit determined

8 under section 42,

9 ‘‘(8) rehabilitation credit determined under sec10 tion 47,

11 ‘‘(9) foreign income taxes, and

12 ‘‘(10) the credit allowable under section 29.

13 ‘‘(b) SEPARATE COMPUTATIONS.—In determining

14 the amounts required under subsection (a) to be sepa15 rately taken into account by any partner, this section and

16 section 773 shall be applied separately with respect to

17 such partner by taking into account such partner’s dis18 tributive share of the items of income, gain, loss, deduc19 tion, or credit of the partnership.

20 ‘‘(c) TREATMENT AT PARTNER LEVEL.—

21 ‘‘(1) IN GENERAL.—Except as provided in this

22 subsection, rules similar to the rules of section

23 702(b) shall apply to any partner’s distributive share

24 of the amounts referred to in subsection (a).
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1 ‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIM2 ITATION ACTIVITIES.—For purposes of this chapter,

3 any partner’s distributive share of any income or

4 loss described in subsection (a)(1) shall be treated as

5 an item of income or loss (as the case may be) from

6 the conduct of a trade or business which is a single

7 passive activity (as defined in section 469). A similar

8 rule shall apply to a partner’s distributive share of

9 amounts referred to in paragraphs (3)(A) and

10 (5)(A) of subsection (a).

11 ‘‘(3) INCOME OR LOSS FROM OTHER ACTIVI12 TIES.—

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

14 chapter, any partner’s distributive share of any

15 income or loss described in subsection (a)(2)

16 shall be treated as an item of income or expense

17 (as the case may be) with respect to property

18 held for investment.

19 ‘‘(B) DEDUCTIONS FOR LOSS NOT SUB20 JECT TO SECTION 67.—The deduction under

21 section 212 for any loss described in subpara22 graph (A) shall not be treated as a miscellane23 ous itemized deduction for purposes of section

24 67.
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1 ‘‘(4) TREATMENT OF NET CAPITAL GAIN OR

2 LOSS.—For purposes of this chapter, any partner’s

3 distributive share of any gain or loss described in

4 subsection (a)(3) shall be treated as a long-term

5 capital gain or loss, as the case may be.

6 ‘‘(5) MINIMUM TAX TREATMENT.—In determin7 ing the alternative minimum taxable income of any

8 partner, such partner’s distributive share of any ap9 plicable net AMT adjustment shall be taken into ac10 count in lieu of making the separate adjustments

11 provided in sections 56, 57, and 58 with respect to

12 the items of the partnership. Except as provided in

13 regulations, the applicable net AMT adjustment

14 shall be treated, for purposes of section 53, as an

15 adjustment or item of tax preference not specified in

16 section 53(d)(1)(B)(ii).

17 ‘‘(6) GENERAL CREDITS.—A partner’s distribu18 tive share of the amount referred to in paragraph

19 (6) of subsection (a) shall be taken into account as

20 a current year business credit.

21 ‘‘(d) OPERATING RULES.—For purposes of this sec22 tion—

23 ‘‘(1) PASSIVE LOSS LIMITATION ACTIVITY.—

24 The term ‘passive loss limitation activity’ means—
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1 ‘‘(A) any activity which involves the con2 duct of a trade or business, and

3 ‘‘(B) any rental activity.

4 For purposes of the preceding sentence, the term

5 ‘trade or business’ includes any activity treated as a

6 trade or business under paragraph (5) or (6) of sec7 tion 469(c).

8 ‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax9 exempt interest’ means interest excludable from

10 gross income under section 103.

11 ‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—

12 ‘‘(A) IN GENERAL.—The applicable net

13 AMT adjustment is—

14 ‘‘(i) with respect to taxpayers other

15 than corporations, the net adjustment de16 termined by using the adjustments applica17 ble to individuals, and

18 ‘‘(ii) with respect to corporations, the

19 net adjustment determined by using the

20 adjustments applicable to corporations.

21 ‘‘(B) NET ADJUSTMENT.—The term ‘net

22 adjustment’ means the net adjustment in the

23 items attributable to passive loss activities or

24 other activities (as the case may be) which
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1 would result if such items were determined with

2 the adjustments of sections 56, 57, and 58.

3 ‘‘(4) TREATMENT OF CAPITAL GAINS AND

4 LOSSES.—

5 ‘‘(A) EXCLUSION FOR CERTAIN PUR6 POSES.—In determining the amounts referred

7 to in paragraphs (1) and (2) of subsection (a),

8 any net capital gain or net capital loss (as the

9 case may be) shall be excluded.

10 ‘‘(B) ALLOCATION RULES.—The net cap11 ital gain shall be treated—

12 ‘‘(i) as allocable to passive loss limita13 tion activities to the extent the net capital

14 gain does not exceed the net capital gain

15 determined by only taking into account

16 gains and losses from sales and exchanges

17 of property used in connection with such

18 activities, and

19 ‘‘(ii) as allocable to other activities to

20 the extent such gain exceeds the amount

21 allocated under clause (i).

22 A similar rule shall apply for purposes of allo23 cating any net capital loss.

24 ‘‘(C) NET CAPITAL LOSS.—The term ‘net

25 capital loss’ means the excess of the losses from
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1 sales or exchanges of capital assets over the

2 gains from sales or exchange of capital assets.

3 ‘‘(5) GENERAL CREDITS.—The term ‘general

4 credits’ means any credit other than the low-income

5 housing credit, the rehabilitation credit, the foreign

6 tax credit, and the credit allowable under section 29.

7 ‘‘(6) FOREIGN INCOME TAXES.—The term ‘for8 eign income taxes’ means taxes described in section

9 901 which are paid or accrued to foreign countries

10 and to possessions of the United States.

11 ‘‘(e) SPECIAL RULE FOR UNRELATED BUSINESS

12 TAX.—In the case of a partner which is an organization

13 subject to tax under section 511, such partner’s distribu14 tive share of any items shall be taken into account sepa15 rately to the extent necessary to comply with the provi16 sions of section 512(c)(1).

17 ‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS

18 LIMITATIONS.—If any person holds an interest in a large

19 partnership other than as a limited partner—

20 ‘‘(1) paragraph (2) of subsection (c) shall not

21 apply to such partner, and

22 ‘‘(2) such partner’s distributive share of the

23 partnership items allocable to passive loss limitation

24 activities shall be taken into account separately to
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1 the extent necessary to comply with the provisions of

2 section 469.

3 The preceding sentence shall not apply to any items alloca4 ble to an interest held as a limited partner.

5 ‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

6 ‘‘(a) GENERAL RULE.—

7 ‘‘(1) TAXABLE INCOME.—The taxable income of

8 a large partnership shall be computed in the same

9 manner as in the case of an individual except that—

10 ‘‘(A) the items described in section 772(a)

11 shall be separately stated, and

12 ‘‘(B) the modifications of subsection (b)

13 shall apply.

14 ‘‘(2) ELECTIONS.—All elections affecting the

15 computation of the taxable income of a large part16 nership or the computation of any credit of a large

17 partnership shall be made by the partnership; except

18 that the election under section 901 shall be made by

19 each partner separately.

20 ‘‘(3) LIMITATIONS, ETC.—

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

22 subparagraph (B), all limitations and other pro23 visions affecting the computation of the taxable

24 income of a large partnership or the computa25 tion of any credit of a large partnership shall
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1 be applied at the partnership level (and not at

2 the partner level).

3 ‘‘(B) CERTAIN LIMITATIONS APPLIED AT

4 PARTNER LEVEL.—The following provisions

5 shall be applied at the partner level (and not at

6 the partnership level):

7 ‘‘(i) Section 68 (relating to overall

8 limitation on itemized deductions).

9 ‘‘(ii) Sections 49 and 465 (relating to

10 at risk limitations).

11 ‘‘(iii) Section 469 (relating to limita12 tion on passive activity losses and credits).

13 ‘‘(iv) Any other provision specified in

14 regulations.

15 ‘‘(4) COORDINATION WITH OTHER PROVI16 SIONS.—Paragraphs (2) and (3) shall apply notwith17 standing any other provision of this chapter other

18 than this part.

19 ‘‘(b) MODIFICATIONS TO DETERMINATION OF TAX20 ABLE INCOME.—In determining the taxable income of a

21 large partnership—

22 ‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—

23 The following deductions shall not be allowed:

24 ‘‘(A) The deduction for personal exemp25 tions provided in section 151.
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1 ‘‘(B) The net operating loss deduction pro2 vided in section 172.

3 ‘‘(C) The additional itemized deductions

4 for individuals provided in part VII of sub5 chapter B (other than section 212 thereof).

6 ‘‘(2) CHARITABLE DEDUCTIONS.—In determin7 ing the amount allowable under section 170, the lim8 itation of section 170(b)(2) shall apply.

9 ‘‘(3) COORDINATION WITH SECTION 67.—In lieu

10 of applying section 67, 70 percent of the amount of

11 the miscellaneous itemized deductions shall be dis12 allowed.

13 ‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE

14 OF INDEBTEDNESS.—If a large partnership has income

15 from the discharge of any indebtedness—

16 ‘‘(1) such income shall be excluded in determin17 ing the amounts referred to in section 772(a), and

18 ‘‘(2) in determining the income tax of any part19 ner of such partnership—

20 ‘‘(A) such income shall be treated as an

21 item required to be separately taken into ac22 count under section 772(a), and

23 ‘‘(B) the provisions of section 108 shall be

24 applied without regard to this part.
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1 ‘‘SEC. 774. OTHER MODIFICATIONS.

2 ‘‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUST3 MENTS, ETC.—In the case of a large partnership—

4 ‘‘(1) computations under section 773 shall be

5 made without regard to any adjustment under sec6 tion 743(b) or 108(b), but

7 ‘‘(2) a partner’s distributive share of any

8 amount referred to in section 772(a) shall be appro9 priately adjusted to take into account any adjust10 ment under section 743(b) or 108(b) with respect to

11 such partner.

12 ‘‘(b) DEFERRED SALE TREATMENT OF CONTRIB13 UTED PROPERTY.—

14 ‘‘(1) TREATMENT OF PARTNERSHIP.—In the

15 case of any contribution of property to which this

16 subsection applies—

17 ‘‘(A) the basis of such property to the

18 partnership shall be its fair market value as of

19 the time of such contribution,

20 ‘‘(B) section 704(c) shall not apply to such

21 property, and

22 ‘‘(C) section 737 shall not apply.

23 ‘‘(2) TREATMENT OF CONTRIBUTING PART24 NER.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 partner who makes a contribution of property

3 to which this subsection applies—

4 ‘‘(i) such partner shall recognize the

5 precontribution gain or loss from such

6 property as provided in this paragraph,

7 and

8 ‘‘(ii) appropriate adjustments to the

9 basis of such partner’s interest in the part10 nership shall be made for the amounts rec11 ognized under this paragraph.

12 ‘‘(B) CHARACTER.—The character of any

13 gain or loss recognized under this paragraph

14 shall be determined by reference to the char15 acter which would have resulted if the property

16 had been sold to the partnership at the time of

17 the contributions; except that any gain or loss

18 recognized under subparagraph (C)(i) shall be

19 treated as ordinary income or loss, as the case

20 may be.

21 ‘‘(C) TRANSACTIONS AT PARTNERSHIP

22 LEVEL.—

23 ‘‘(i) DEPRECIATION, ETC.—If any

24 partnership deduction for depreciation, de25 pletion, or amortization is increased by
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1 reason of an increase in the basis of any

2 property under paragraph (1), the contrib3 uting partner shall recognize so much of

4 the precontribution gain with respect to

5 such property as does not exceed the in6 crease in such deduction. If there is a

7 precontribution loss, a similar rule shall

8 apply to any decrease in such a deduction.

9 ‘‘(ii) DISPOSITIONS.—

10 ‘‘(I) IN GENERAL.—Except as

11 otherwise provided in this clause, any

12 precontribution gain or loss with re13 spect to any property (to the extent

14 not previously taken into account

15 under this paragraph) shall be recog16 nized by the contributing partner if

17 the partnership makes any disposition

18 of the property.

19 ‘‘(II) DISTRIBUTIONS TO CON20 TRIBUTING PARTNER.—No gain or

21 loss shall be recognized under

22 subclause (I) by reason of any dis23 tribution of the contributed property

24 to the contributing partner (and sub25 paragraph (D)(ii) shall not apply to
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1 any such distribution). In any such

2 case, no adjustment shall be made

3 under section 734 on account of such

4 distribution and the adjusted basis of

5 such property in the hands of the con6 tributing partner shall be its adjusted

7 basis immediately before the contribu8 tion properly adjusted for gain or loss

9 previously recognized under this para10 graph. If the property distributed con11 sists of an interest in an entity, this

12 subclause shall not apply to the extent

13 that the value of such interest is at14 tributable to property contributed to

15 such entity after such interest had

16 been contributed to the partnership.

17 ‘‘(iii) YEAR FOR WHICH AMOUNT

18 TAKEN INTO ACCOUNT.—Any amount rec19 ognized under this subparagraph shall be

20 taken into account for the partner’s tax21 able year in which or with which ends the

22 partnership taxable year of the deduction

23 or disposition.

24 ‘‘(D) TRANSACTIONS AT PARTNER

25 LEVEL.—
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1 ‘‘(i) IN GENERAL.—If the contributing

2 partner makes a disposition of any portion

3 of his interest in the partnership, a cor4 responding portion of any precontribution

5 gain or loss which was not previously taken

6 into account under this paragraph shall be

7 recognized for the partner’s taxable year in

8 which the disposition occurs. The preced9 ing sentence shall not apply to a disposi10 tion at death.

11 ‘‘(ii) TREATMENT OF CERTAIN DIS12 TRIBUTIONS.—If—

13 ‘‘(I) the amount of cash and the

14 fair market value of property distrib15 uted to a partner, exceeds

16 ‘‘(II) the adjusted basis of such

17 partner’s interest in the partnership

18 immediately before the distribution

19 (determined without regard to any ad20 justment under subparagraph (A)(ii)

21 resulting from such distribution),

22 the contributing partner shall recognize so

23 much of any precontribution gain as does

24 not exceed such excess.
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1 ‘‘(iii) SPECIAL RULE.—Except as pro2 vided in clause (ii)(II), any basis adjust3 ment under subparagraph (A)(ii) resulting

4 from any gain or loss recognized under this

5 subparagraph shall be treated as occurring

6 immediately before the disposition or dis7 tribution involved.

8 ‘‘(E) SECTION 267 AND 707(b) PRINCIPLES

9 TO APPLY.—No loss shall be recognized under

10 subparagraph (C)(ii) or (D) by reason of any

11 disposition (directly or indirectly) to a person

12 related (within the meaning of section 267(b) or

13 707(b)(1)) to the contributing partner.

14 ‘‘(F) TREATMENT OF CERTAIN NON15 TAXABLE EXCHANGES.—

16 ‘‘(i) SECTION 1031 AND 1033 TRANS17 ACTIONS.—If the disposition referred to in

18 subclause (I) of subparagraph (C)(ii) is an

19 exchange described in section 1031 or a

20 compulsory or involuntary conversion with21 in the meaning of section 1033—

22 ‘‘(I) the amount of gain or loss

23 recognized by the contributing partner

24 under such subclause (I) shall not ex-
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1 ceed the gain or loss recognized by the

2 partnership on the disposition, and

3 ‘‘(II) the replacement property

4 shall be treated as the contributed

5 property for purposes of this para6 graph.

7 For purposes of the preceding sentence,

8 the term ‘replacement property’ means the

9 property the basis of which is determined

10 under section 1031(d) or 1033(b), which11 ever is applicable.

12 ‘‘(ii) CONTRIBUTIONS TO CON13 TROLLED PARTNERSHIP.—If the disposi14 tion referred to in subclause (I) of sub15 paragraph (C)(ii) is a contribution of the

16 property to another partnership which is a

17 controlled partnership—

18 ‘‘(I) the rules of subclause (I) of

19 clause (i) shall apply, and

20 ‘‘(II) the partnership shall be

21 treated as continuing to hold the con22 tributed property so long as the other

23 partnership continues to be a con24 trolled partnership and continues to

25 hold such property.
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1 For purposes of the preceding sentence,

2 the term ‘controlled partnership’ means

3 any partnership in which the partnership

4 making the disposition owns more than 50

5 percent of the capital interest or profits in6 terest.

7 ‘‘(3) PRECONTRIBUTION GAIN OR LOSS.—For

8 purposes of this subsection—

9 ‘‘(A) PRECONTRIBUTION GAIN.—The term

10 ‘precontribution gain’ means the excess (if any)

11 of—

12 ‘‘(i) the fair market value of the con13 tributed property as of the time of the con14 tribution, over

15 ‘‘(ii) the adjusted basis of such prop16 erty immediately before such contribution.

17 ‘‘(B) PRECONTRIBUTION LOSS.—The term

18 ‘precontribution loss’ means the excess (if any)

19 of the amount referred to in clause (ii) of sub20 paragraph (A) over the amount referred to in

21 clause (i) of subparagraph (A).

22 ‘‘(4) CONTRIBUTIONS TO WHICH SUBSECTION

23 APPLIES.—This subsection shall apply to any con24 tribution of property (other than cash) which is

25 made by any partner to a partnership if—
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1 ‘‘(A) as of the time of such contribution,

2 such partnership is a large partnership, or

3 ‘‘(B) such contribution is to a partnership

4 reasonably expected to become a large partner5 ship.

6 This subsection shall not apply to any contribution

7 made before the date of the enactment of this part.

8 ‘‘(c) CREDIT RECAPTURE DETERMINED AT PART9 NERSHIP LEVEL.—

10 ‘‘(1) IN GENERAL.—In the case of a large part11 nership—

12 ‘‘(A) any credit recapture shall be taken

13 into account by the partnership, and

14 ‘‘(B) the amount of such recapture shall be

15 determined as if the credit with respect to

16 which the recapture is made had been fully uti17 lized to reduce tax.

18 ‘‘(2) METHOD OF TAKING RECAPTURE INTO AC19 COUNT.—A large partnership shall take into account

20 a credit recapture by reducing the amount of the ap21 propriate current year credit to the extent thereof,

22 and if such recapture exceeds the amount of such

23 current year credit, the partnership shall be liable to

24 pay such excess.
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1 ‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP2 TURE.—No credit recapture shall be required by rea3 son of any transfer of an interest in a large partner4 ship.

5 ‘‘(4) CREDIT RECAPTURE.—For purposes of

6 this subsection, the term ‘credit recapture’ means

7 any increase in tax under section 42(j) or 50(a).

8 ‘‘(d) PARTNERSHIP NOT TERMINATED BY REASON

9 OF CHANGE IN OWNERSHIP.—Subparagraph (B) of sec10 tion 708(b)(1) shall not apply to a large partnership.

11 ‘‘(e) PARTNERSHIP ENTITLED TO CERTAIN CRED12 ITS.—The following shall be allowed to a large partnership

13 and shall not be taken into account by the partners of

14 such partnership:

15 ‘‘(1) The credit provided by section 34.

16 ‘‘(2) Any credit or refund under section

17 852(b)(3)(D).

18 ‘‘(f) TREATMENT OF REMIC RESIDUALS.—For pur19 poses of applying section 860E(e)(6) to any large partner20 ship—

21 ‘‘(1) all interests in such partnership shall be

22 treated as held by disqualified organizations,

23 ‘‘(2) in lieu of applying subparagraph (C) of

24 section 860E(e)(6), the amount subject to tax under
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1 section 860E(e)(6) shall be excluded from the gross

2 income of such partnership, and

3 ‘‘(3) subparagraph (D) of section 860E(e)(6)

4 shall not apply.

5 ‘‘(g) SPECIAL RULES FOR APPLYING CERTAIN IN6 STALLMENT SALE RULES.—In the case of a large partner7 ship—

8 ‘‘(1) the provisions of sections 453(l)(3) and

9 453A shall be applied at the partnership level, and

10 ‘‘(2) in determining the amount of interest pay11 able under such sections, such partnership shall be

12 treated as subject to tax under this chapter at the

13 highest rate of tax in effect under section 1 or 11.

14 ‘‘SEC. 775. LARGE PARTNERSHIP.

15 ‘‘(a) GENERAL RULE.—For purposes of this part—

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this section or section 776, the term ‘large

18 partnership’ means, with respect to any partnership

19 taxable year, any partnership if the number of per20 sons who were partners in such partnership in such

21 taxable year or any preceding partnership taxable

22 year ending on or after December 31, 1993, equaled

23 or exceeded 250. To the extent provided in regula24 tions, a partnership shall cease to be treated as a

25 large partnership for any partnership taxable year if
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1 in such taxable year fewer than 100 persons were

2 partners in such partnership.

3 ‘‘(2) ELECTION FOR PARTNERSHIPS WITH AT

4 LEAST 100 PARTNERS.—If a partnership makes an

5 election under this paragraph, paragraph (1) shall

6 be applied by substituting ‘100’ for ‘250’. Such an

7 election shall apply to the taxable year for which

8 made and all subsequent taxable years unless re9 voked with the consent of the Secretary.

10 ‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART11 NERSHIPS.—

12 ‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For

13 purposes of this section, the term ‘partner’ does not

14 include any individual performing substantial serv15 ices in connection with the activities of the partner16 ship and holding an interest in such partnership, or

17 an individual who formerly performed substantial

18 services in connection with such activities and who

19 held an interest in such partnership at the time the

20 individual performed such services.

21 ‘‘(2) EXCLUSION.—For purposes of this part,

22 the term ‘large partnership’ does not include any

23 partnership if substantially all the partners of such

24 partnership—
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1 ‘‘(A) are individuals performing substantial

2 services in connection with the activities of such

3 partnership or are personal service corporations

4 (as defined in section 269A(b)) the owner-em5 ployees (as defined in section 269A(b)) of which

6 perform such substantial services,

7 ‘‘(B) are retired partners who had per8 formed such substantial services, or

9 ‘‘(C) are spouses of partners who are per10 forming (or had previously performed) such

11 substantial services.

12 ‘‘(3) SPECIAL RULE FOR LOWER TIER PART13 NERSHIPS.—For purposes of this subsection, the ac14 tivities of a partnership shall include the activities of

15 any other partnership in which the partnership owns

16 directly an interest in the capital and profits of at

17 least 80 percent.

18 ‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur19 poses of this part, the term ‘large partnership’ does not

20 include any partnership the principal activity of which is

21 the buying and selling of commodities (not described in

22 section 1221(1)), or options, futures, or forwards with re23 spect to such commodities.

24 ‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE25 TURN.—If, on the partnership return of any partnership,
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1 such partnership is treated as a large partnership, such

2 treatment shall be binding on such partnership and all

3 partners of such partnership but not on the Secretary.

4 ‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING

5 OIL AND GAS PROPERTIES.

6 ‘‘(a) EXCEPTION FOR PARTNERSHIPS HOLDING SIG7 NIFICANT OIL AND GAS PROPERTIES.—

8 ‘‘(1) IN GENERAL.—For purposes of this part,

9 the term ‘large partnership’ shall not include any

10 partnership if the average percentage of assets (by

11 value) held by such partnership during the taxable

12 year which are oil or gas properties is at least 25

13 percent. For purposes of the preceding sentence, any

14 interest held by a partnership in another partnership

15 shall be disregarded, except that the partnership

16 shall be treated as holding its proportionate share of

17 the assets of such other partnership.

18 ‘‘(2) ELECTION TO WAIVE EXCEPTION.—Any

19 partnership may elect to have paragraph (1) not

20 apply. Such an election shall apply to the partner21 ship taxable year for which made and all subsequent

22 partnership taxable years unless revoked with the

23 consent of the Secretary.

24 ‘‘(b) SPECIAL RULES WHERE PART APPLIES.—
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1 ‘‘(1) COMPUTATION OF PERCENTAGE DEPLE2 TION.—In the case of a large partnership, except as

3 provided in paragraph (2)—

4 ‘‘(A) the allowance for depletion under sec5 tion 611 with respect to any partnership oil or

6 gas property shall be computed at the partner7 ship level without regard to any provision of

8 section 613A requiring such allowance to be

9 computed separately by each partner,

10 ‘‘(B) such allowance shall be determined

11 without regard to the provisions of section

12 613A(c) limiting the amount of production for

13 which percentage depletion is allowable and

14 without respect to paragraph (1) of section

15 613A(d), and

16 ‘‘(C) paragraph (3) of section 705(a) shall

17 not apply.

18 ‘‘(2) TREATMENT OF CERTAIN PARTNERS.—

19 ‘‘(A) IN GENERAL.—In the case of a dis20 qualified person, the treatment under this chap21 ter of such person’s distributive share of any

22 item of income, gain, loss, deduction, or credit

23 attributable to any partnership oil or gas prop24 erty shall be determined without regard to this

25 part. Such person’s distributive share of any
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1 such items shall be excluded for purposes of

2 making determinations under sections 772 and

3 773.

4 ‘‘(B) DISQUALIFIED PERSON.—For pur5 poses of subparagraph (A), the term ‘disquali6 fied person’ means, with respect to any partner7 ship taxable year—

8 ‘‘(i) any person referred to in para9 graph (2) or (4) of section 613A(d) for

10 such person’s taxable year in which such

11 partnership taxable year ends, and

12 ‘‘(ii) any other person if such person’s

13 average daily production of domestic crude

14 oil and natural gas for such person’s tax15 able year in which such partnership tax16 able year ends exceeds 500 barrels.

17 ‘‘(C) AVERAGE DAILY PRODUCTION.—For

18 purposes of subparagraph (B), a person’s aver19 age daily production of domestic crude oil and

20 natural gas for any taxable year shall be com21 puted as provided in section 613A(c)(2)—

22 ‘‘(i) by taking into account all produc23 tion of domestic crude oil and natural gas

24 (including such person’s proportionate

25 share of any production of a partnership),
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1 ‘‘(ii) by treating 6,000 cubic feet of

2 natural gas as a barrel of crude oil, and

3 ‘‘(iii) by treating as 1 person all per4 sons treated as 1 taxpayer under section

5 613A(c)(8) or among whom allocations are

6 required under such section.

7 ‘‘SEC. 777. REGULATIONS.

8 ‘‘The Secretary shall prescribe such regulations as

9 may be appropriate to carry out the purposes of this

10 part.’’

11 (b) CLERICAL AMENDMENT.—The table of parts for

12 subchapter K of chapter 1 is amended by adding at the

13 end thereof the following new item:

‘‘Part IV. Special rules for large partnerships.’’

14 SEC. 302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE

15 PARTNERSHIPS.

16 (a) GENERAL RULE.—Chapter 63 is amended by

17 adding at the end thereof the following new subchapter:

18 ‘‘SUBCHAPTER D—TREATMENT OF LARGE

19 PARTNERSHIPS

‘‘Part I. Treatment of partnership items and adjustments.

‘‘Part II. Partnership level adjustments.

‘‘Part III. Definitions and special rules.

20 ‘‘PART I—TREATMENT OF PARTNERSHIP ITEMS

21 AND ADJUSTMENTS

‘‘Sec. 6240. Application of subchapter.
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‘‘Sec. 6241. Partner’s return must be consistent with partnership

return.

‘‘Sec. 6242. Procedures for taking partnership adjustments into

account.

1 ‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.

2 ‘‘(a) GENERAL RULE.—This subchapter shall only

3 apply to large partnerships and partners in such partner4 ships.

5 ‘‘(b) COORDINATION WITH OTHER PARTNERSHIP

6 AUDIT PROCEDURES.—

7 ‘‘(1) IN GENERAL.—Subchapter C of this chap8 ter shall not apply to any large partnership other

9 than in its capacity as a partner in another partner10 ship which is not a large partnership.

11 ‘‘(2) TREATMENT WHERE PARTNER IN OTHER

12 PARTNERSHIP.—If a large partnership is a partner

13 in another partnership which is not a large partner14 ship—

15 ‘‘(A) subchapter C of this chapter shall

16 apply to items of such large partnership which

17 are partnership items with respect to such other

18 partnership, but

19 ‘‘(B) any adjustment under such sub20 chapter C shall be taken into account in the

21 manner provided by section 6242.
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1 ‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT

2 WITH PARTNERSHIP RETURN.

3 ‘‘(a) GENERAL RULE.—A partner of any large part4 nership shall, on the partner’s return, treat each partner5 ship item attributable to such partnership in a manner

6 which is consistent with the treatment of such partnership

7 item on the partnership return.

8 ‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT

9 TREATMENT ASSESSED AS MATH ERROR.—Any

10 underpayment of tax by a partner by reason of failing to

11 comply with the requirements of subsection (a) shall be

12 assessed and collected in the same manner as if such

13 underpayment were on account of a mathematical or cleri14 cal error appearing on the partner’s return. Paragraph (2)

15 of section 6213(b) shall not apply to any assessment of

16 an underpayment referred to in the preceding sentence.

17 ‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR

18 OF PARTNERS.—

19 ‘‘(1) IN GENERAL.—Except as provided in para20 graph (2), subsections (a) and (b) shall apply with21 out regard to any adjustment to the partnership

22 item under part II.

23 ‘‘(2) CERTAIN CHANGES IN DISTRIBUTIVE

24 SHARE TAKEN INTO ACCOUNT BY PARTNER.—

25 ‘‘(A) IN GENERAL.—To the extent that

26 any adjustment under part II involves a change
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1 under section 704 in a partner’s distributive

2 share of the amount of any partnership item

3 shown on the partnership return, such adjust4 ment shall be taken into account in applying

5 this title to such partner for the partner’s tax6 able year for which such item was required to

7 be taken into account.

8 ‘‘(B) COORDINATION WITH DEFICIENCY

9 PROCEDURES.—

10 ‘‘(i) IN GENERAL.—Subchapter B

11 shall not apply to the assessment or collec12 tion of any underpayment of tax attrib13 utable to an adjustment referred to in sub14 paragraph (A).

15 ‘‘(ii) ADJUSTMENT NOT PRE16 CLUDED.—Notwithstanding any other law

17 or rule of law, nothing in subchapter B (or

18 in any proceeding under subchapter B)

19 shall preclude the assessment or collection

20 of any underpayment of tax (or the allow21 ance of any credit or refund of any over22 payment of tax) attributable to an adjust23 ment referred to in subparagraph (A) and

24 such assessment or collection or allowance

25 (or any notice thereof) shall not preclude
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1 any notice, proceeding, or determination

2 under subchapter B.

3 ‘‘(C) PERIOD OF LIMITATIONS.—The pe4 riod for—

5 ‘‘(i) assessing any underpayment of

6 tax, or

7 ‘‘(ii) filing a claim for credit or refund

8 of any overpayment of tax,

9 attributable to an adjustment referred to in

10 subparagraph (A) shall not expire before the

11 close of the period prescribed by section 6248

12 for making adjustments with respect to the

13 partnership taxable year involved.

14 ‘‘(D) TIERED STRUCTURES.—If the part15 ner referred to in subparagraph (A) is another

16 partnership or an S corporation, the rules of

17 this paragraph shall also apply to persons hold18 ing interests in such partnership or S corpora19 tion (as the case may be); except that, if such

20 partner is a large partnership, the adjustment

21 referred to in subparagraph (A) shall be taken

22 into account in the manner provided by section

23 6242.
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1 ‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY

2 WITH SECTION.—

‘‘For addition to tax in case of partner’s disregard

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

3 ‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP AD4 JUSTMENTS INTO ACCOUNT.

5 ‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS

6 FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT.—

7 ‘‘(1) IN GENERAL.—If any partnership adjust8 ment with respect to any partnership item takes ef9 fect (within the meaning of subsection (d)(2)) during

10 any partnership taxable year and if an election

11 under paragraph (2) does not apply to such adjust12 ment, such adjustment shall be taken into account

13 in determining the amount of such item for the part14 nership taxable year in which such adjustment takes

15 effect. In applying this title to any person who is

16 (directly or indirectly) a partner in such partnership

17 during such partnership taxable year, such adjust18 ment shall be treated as an item actually arising

19 during such taxable year.

20 ‘‘(2) PARTNERSHIP LIABLE IN CERTAIN

21 CASES.—If—

22 ‘‘(A) a partnership elects under this para23 graph to not take an adjustment into account

24 under paragraph (1),
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1 ‘‘(B) a partnership does not make such an

2 election but in filing its return for any partner3 ship taxable year fails to take fully into account

4 any partnership adjustment as required under

5 paragraph (1), or

6 ‘‘(C) any partnership adjustment involves a

7 reduction in a credit which exceeds the

8 amount of such credit determined for the

9 partnership taxable year in which the adjust10 ment takes effect,

11 the partnership shall pay to the Secretary an

12 amount determined by applying the rules of sub13 section (b)(4) to the adjustments not so taken into

14 account and any excess referred to in subparagraph

15 (C).

16 ‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO

17 ACCOUNT.—If a partnership adjustment requires an18 other adjustment in a taxable year after the ad19 justed year and before the partnership taxable year

20 in which such partnership adjustment takes effect,

21 such other adjustment shall be taken into account

22 under this subsection for the partnership taxable

23 year in which such partnership adjustment takes ef24 fect.
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1 ‘‘(4) COORDINATION WITH PART II.—Amounts

2 taken into account under this subsection for any

3 partnership taxable year shall continue to be treated

4 as adjustments for the adjusted year for purposes of

5 determining whether such amounts may be read6 justed under part II.

7 ‘‘(b) PARTNERSHIP LIABLE FOR INTEREST AND

8 PENALTIES.—

9 ‘‘(1) IN GENERAL.—If a partnership adjust10 ment takes effect during any partnership taxable

11 year and such adjustment results in an imputed

12 underpayment for the adjusted year, the partner13 ship—

14 ‘‘(A) shall pay to the Secretary interest

15 computed under paragraph (2), and

16 ‘‘(B) shall be liable for any penalty, addi17 tion to tax, or additional amount as provided in

18 paragraph (3).

19 ‘‘(2) DETERMINATION OF AMOUNT OF INTER20 EST.—The interest computed under this paragraph

21 with respect to any partnership adjustment is the in22 terest which would be determined under chapter

23 67—
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1 ‘‘(A) on the imputed underpayment deter2 mined under paragraph (4) with respect to such

3 adjustment, or

4 ‘‘(B) for the period beginning on the day

5 after the return due date for the adjusted year

6 and ending on the return due date for the part7 nership taxable year in which such adjustment

8 takes effect (or, if earlier, in the case of any ad9 justment to which subsection (a)(2) applies, the

10 date on which the payment under subsection

11 (a)(2) is made).

12 Proper adjustments in the amount determined under

13 the preceding sentence shall be made for adjust14 ments required for partnership taxable years after

15 the adjusted year and before the year in which the

16 partnership adjustment takes effect by reason of

17 such partnership adjustment.

18 ‘‘(3) PENALTIES.—A partnership shall be liable

19 for any penalty, addition to tax, or additional

20 amount for which it would have been liable if such

21 partnership had been an individual subject to tax

22 under chapter 1 for the adjusted year and the im23 puted underpayment determined under paragraph

24 (4) were an actual underpayment (or understate25 ment) for such year.
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1 ‘‘(4) IMPUTED UNDERPAYMENT.—For purposes

2 of this subsection, the imputed underpayment deter3 mined under this paragraph with respect to any

4 partnership adjustment is the underpayment (if any)

5 which would result—

6 ‘‘(A) by netting all adjustments to items of

7 income, gain, loss, or deduction and—

8 ‘‘(i) if such netting results in a net in9 crease in income, by treating such net in10 crease as an underpayment equal to the

11 amount of such net increase multiplied by

12 the highest rate of tax in effect under sec13 tion 1 or 11 for the adjusted year, or

14 ‘‘(ii) if such netting results in a net

15 decrease in income, by treating such net

16 decrease as an overpayment equal to such

17 net decrease multiplied by such highest

18 rate, and

19 ‘‘(B) by taking adjustments to credits into

20 account as increases or decreases (whichever is

21 appropriate) in the amount of tax.

22 For purposes of the preceding sentence, any net de23 crease in a loss shall be treated as an increase in in24 come and a similar rule shall apply to a net increase

25 in a loss.
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1 ‘‘(c) ADMINISTRATIVE PROVISIONS.—

2 ‘‘(1) IN GENERAL.—Any payment required by

3 subsection (a)(2) or (b)(1)(A)—

4 ‘‘(A) shall be assessed and collected in the

5 same manner as if it were a tax imposed by

6 subtitle C, and

7 ‘‘(B) shall be paid on or before the return

8 due date for the partnership taxable year in

9 which the partnership adjustment takes effect.

10 ‘‘(2) INTEREST.—For purposes of determining

11 interest, any payment required by subsection (a)(2)

12 or (b)(1)(A) shall be treated as an underpayment

13 of tax.

14 ‘‘(3) PENALTIES.—

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

16 failure by any partnership to pay on the date

17 prescribed therefor any amount required by

18 subsection (a)(2) or (b)(1)(A), there is hereby

19 imposed on such partnership a penalty of 10

20 percent of the underpayment. For purposes of

21 the preceding sentence, the term

22 ‘underpayment’ means the excess of any pay23 ment required under this section over the

24 amount (if any) paid on or before the date pre25 scribed therefor.
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1 ‘‘(B) ACCURACY-RELATED AND FRAUD

2 PENALTIES MADE APPLICABLE.—For purposes

3 of part II of subchapter A of chapter 68, any

4 payment required by subsection (a)(2) shall be

5 treated as an underpayment of tax.

6 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur7 poses of this section—

8 ‘‘(1) PARTNERSHIP ADJUSTMENT.—The term

9 ‘partnership adjustment’ means any adjustment in

10 the amount of any partnership item of a large part11 nership.

12 ‘‘(2) WHEN ADJUSTMENT TAKES EFFECT.—A

13 partnership adjustment takes effect—

14 ‘‘(A) in the case of an adjustment pursu15 ant to the decision of a court in a proceeding

16 brought under part II, when such decision be17 comes final,

18 ‘‘(B) in the case of an adjustment pursu19 ant to any administrative adjustment request

20 under section 6251, when such adjustment is

21 allowed by the Secretary, or

22 ‘‘(C) in any other case, when such adjust23 ment is made.
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1 ‘‘(3) ADJUSTED YEAR.—The term ‘adjusted

2 year’ means the partnership taxable year to which

3 the item being adjusted relates.

4 ‘‘(4) RETURN DUE DATE.—The term ‘return

5 due date’ means, with respect to any taxable year,

6 the date prescribed for filing the partnership return

7 for such taxable year (determined without regard to

8 extensions).

9 ‘‘(5) ADJUSTMENTS INVOLVING CHANGES IN

10 CHARACTER.—Under regulations, appropriate ad11 justments in the application of this section shall be

12 made for purposes of taking into account partner13 ship adjustments which involve a change in the char14 acter of any item of income, gain, loss, or deduction.

15 ‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction

16 shall be allowed under subtitle A for any payment required

17 to be made by a large partnership under this section.

18 ‘‘PART II—PARTNERSHIP LEVEL ADJUSTMENTS

‘‘Subpart A. Adjustments by Secretary.

‘‘Subpart B. Claims for adjustments by partnership.

19 ‘‘Subpart A—Adjustments by Secretary

‘‘Sec. 6245. Secretarial authority.

‘‘Sec. 6246. Restrictions on partnership adjustments.

‘‘Sec. 6247. Judicial review of partnership adjustment.

‘‘Sec. 6248. Period of limitations for making adjustments.
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1 ‘‘SEC. 6245. SECRETARIAL AUTHORITY.

2 ‘‘(a) GENERAL RULE.—The Secretary is authorized

3 and directed to make adjustments at the partnership level

4 in any partnership item to the extent necessary to have

5 such item be treated in the manner required.

6 ‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—

7 ‘‘(1) IN GENERAL.—If the Secretary determines

8 that a partnership adjustment is required, the Sec9 retary is authorized to send notice of such adjust10 ment to the partnership by certified mail or reg11 istered mail. Such notice shall be sufficient if mailed

12 to the partnership at its last known address even if

13 the partnership has terminated its existence.

14 ‘‘(2) FURTHER NOTICES RESTRICTED.—If the

15 Secretary mails a notice of a partnership adjustment

16 to any partnership for any partnership taxable year

17 and the partnership files a petition under section

18 6247 with respect to such notice, in the absence of

19 a showing of fraud, malfeasance, or misrepresenta20 tion of a material fact, the Secretary shall not mail

21 another such notice to such partnership with respect

22 to such taxable year.

23 ‘‘(3) AUTHORITY TO RESCIND NOTICE WITH

24 PARTNERSHIP CONSENT.—The Secretary may, with

25 the consent of the partnership, rescind any notice of

26 a partnership adjustment mailed to such partner-
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1 ship. Any notice so rescinded shall not be treated as

2 a notice of a partnership adjustment, for purposes of

3 this section, section 6246, and section 6247, and the

4 taxpayer shall have no right to bring a proceeding

5 under section 6247 with respect to such notice.

6 Nothing in this subsection shall affect any suspen7 sion of the running of any period of limitations dur8 ing any period during which the rescinded notice

9 was outstanding.

10 ‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUST11 MENTS.

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

13 in this chapter, no adjustment to any partnership item

14 may be made (and no levy or proceeding in any court for

15 the collection of any amount resulting from such adjust16 ment may be made, begun or prosecuted) before—

17 ‘‘(1) the close of the 90th day after the day on

18 which a notice of a partnership adjustment was

19 mailed to the partnership, and

20 ‘‘(2) if a petition is filed under section 6247

21 with respect to such notice, the decision of the court

22 has become final.

23 ‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—

24 Notwithstanding section 7421(a), any action which vio25 lates subsection (a) may be enjoined in the proper court,
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1 including the Tax Court. The Tax Court shall have no ju2 risdiction to enjoin any action under this subsection unless

3 a timely petition has been filed under section 6247 and

4 then only in respect of the adjustments that are the sub5 ject of such petition.

6 ‘‘(c) EXCEPTIONS TO RESTRICTIONS ON ADJUST7 MENTS.—

8 ‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR

9 CLERICAL ERRORS.—

10 ‘‘(A) IN GENERAL.—If the partnership is

11 notified that, on account of a mathematical or

12 clerical error appearing on the partnership re13 turn, an adjustment to a partnership item is re14 quired, rules similar to the rules of paragraphs

15 (1) and (2) of section 6213(b) shall apply to

16 such adjustment.

17 ‘‘(B) SPECIAL RULE.—If a large partner18 ship is a partner in another large partnership,

19 any adjustment on account of such partner20 ship’s failure to comply with the requirements

21 of section 6241(a) with respect to its interest in

22 such other partnership shall be treated as an

23 adjustment referred to in subparagraph (A), ex24 cept that paragraph (2) of section 6213(b) shall

25 not apply to such adjustment.
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1 ‘‘(2) PARTNERSHIP MAY WAIVE RESTRIC2 TIONS.—The partnership shall at any time (whether

3 or not a notice of partnership adjustment has been

4 issued) have the right, by a signed notice in writing

5 filed with the Secretary, to waive the restrictions

6 provided in subsection (a) on the making of any

7 partnership adjustment.

8 ‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.—If no

9 proceeding under section 6247 is begun with respect to

10 any notice of a partnership adjustment during the 90-day

11 period described in subsection (a), the amount for which

12 the partnership is liable under section 6242 (and any in13 crease in any partner’s liability for tax under chapter 1

14 by reason of any adjustment under section 6242(a)) shall

15 not exceed the amount determined in accordance with such

16 notice.

17 ‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUST18 MENT.

19 ‘‘(a) GENERAL RULE.—Within 90 days after the date

20 on which a notice of a partnership adjustment is mailed

21 to the partnership with respect to any partnership taxable

22 year, the partnership may file a petition for a readjust23 ment of the partnership items for such taxable year with—

24 ‘‘(1) the Tax Court,
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1 ‘‘(2) the district court of the United States for

2 the district in which the partnership’s principal place

3 of business is located, or

4 ‘‘(3) the Claims Court.

5 ‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING

6 ACTION IN DISTRICT COURT OR CLAIMS COURT.—

7 ‘‘(1) IN GENERAL.—A readjustment petition

8 under this section may be filed in a district court of

9 the United States or the Claims Court only if the

10 partnership filing the petition deposits with the Sec11 retary, on or before the date the petition is filed, the

12 amount for which the partnership would be liable

13 under section 6242(b) (as of the date of the filing

14 of the petition) if the partnership items were ad15 justed as provided by the notice of partnership ad16 justment. The court may by order provide that the

17 jurisdictional requirements of this paragraph are

18 satisfied where there has been a good faith attempt

19 to satisfy such requirement and any shortfall of the

20 amount required to be deposited is timely corrected.

21 ‘‘(2) INTEREST PAYABLE.—Any amount depos22 ited under paragraph (1), while deposited, shall not

23 be treated as a payment of tax for purposes of this

24 title (other than chapter 67).
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1 ‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court with

2 which a petition is filed in accordance with this section

3 shall have jurisdiction to determine all partnership items

4 of the partnership for the partnership taxable year to

5 which the notice of partnership adjustment relates and the

6 proper allocation of such items among the partners (and

7 the applicability of any penalty, addition to tax, or addi8 tional amount for which the partnership may be liable

9 under section 6242(b)).

10 ‘‘(d) DETERMINATION OF COURT REVIEWABLE.—

11 Any determination by a court under this section shall have

12 the force and effect of a decision of the Tax Court or a

13 final judgment or decree of the district court or the Claims

14 Court, as the case may be, and shall be reviewable as such.

15 The date of any such determination shall be treated as

16 being the date of the court’s order entering the decision.

17 ‘‘(e) EFFECT OF DECISION DISMISSING ACTION.—If

18 an action brought under this section is dismissed other

19 than by reason of a rescission under section 6245(b)(3),

20 the decision of the court dismissing the action shall be con21 sidered as its decision that the notice of partnership ad22 justment is correct, and an appropriate order shall be en23 tered in the records of the court.
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1 ‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUST2 MENTS.

3 ‘‘(a) GENERAL RULE.—Except as otherwise provided

4 in this section, no adjustment under this subpart to any

5 partnership item for any partnership taxable year may be

6 made after the date which is 3 years after the later of—

7 ‘‘(1) the date on which the partnership return

8 for such taxable year was filed, or

9 ‘‘(2) the last day for filing such return for such

10 year (determined without regard to extensions).

11 ‘‘(b) EXTENSION BY AGREEMENT.—The period de12 scribed in subsection (a) (including an extension period

13 under this subsection) may be extended by an agreement

14 entered into by the Secretary and the partnership before

15 the expiration of such period.

16 ‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—

17 ‘‘(1) FALSE RETURN.—In the case of a false or

18 fraudulent partnership return with intent to evade

19 tax, the adjustment may be made at any time.

20 ‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If

21 any partnership omits from gross income an amount

22 properly includible therein which is in excess of 25

23 percent of the amount of gross income stated in its

24 return, subsection (a) shall be applied by substitut25 ing ‘6 years’ for ‘3 years’.
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1 ‘‘(3) NO RETURN.—In the case of a failure by

2 a partnership to file a return for any taxable year,

3 the adjustment may be made at any time.

4 ‘‘(4) RETURN FILED BY SECRETARY.—For pur5 poses of this section, a return executed by the Sec6 retary under subsection (b) of section 6020 on be7 half of the partnership shall not be treated as a re8 turn of the partnership.

9 ‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE

10 OF ADJUSTMENT.—If notice of a partnership adjustment

11 with respect to any taxable year is mailed to the partner12 ship, the running of the period specified in subsection (a)

13 (as modified by the other provisions of this section) shall

14 be suspended—

15 ‘‘(1) for the period during which an action may

16 be brought under section 6247 (and, if a petition is

17 filed under section 6247 with respect to such notice,

18 until the decision of the court becomes final), and

19 ‘‘(2) for 1 year thereafter.

20 ‘‘Subpart B—Claims for Adjustments by Partnership

‘‘Sec. 6251. Administrative adjustment requests.

‘‘Sec. 6252. Judicial review where administrative adjustment request is not allowed in full.

21 ‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

22 ‘‘(a) GENERAL RULE.—A partnership may file a re23 quest for an administrative adjustment of partnership
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1 items for any partnership taxable year at any time which

2 is—

3 ‘‘(1) within 3 years after the later of—

4 ‘‘(A) the date on which the partnership re5 turn for such year is filed, or

6 ‘‘(B) the last day for filing the partnership

7 return for such year (determined without re8 gard to extensions), and

9 ‘‘(2) before the mailing to the partnership of a

10 notice of a partnership adjustment with respect to

11 such taxable year.

12 ‘‘(b) SECRETARIAL ACTION.—If a partnership files

13 an administrative adjustment request under subsection

14 (a), the Secretary may allow any part of the requested

15 adjustments.

16 ‘‘(c) SPECIAL RULE IN CASE OF EXTENSION UNDER

17 SECTION 6248.—If the period described in section

18 6248(a) is extended pursuant to an agreement under sec19 tion 6248(b), the period prescribed by subsection (a)(1)

20 shall not expire before the date 6 months after the expira21 tion of the extension under section 6248(b).
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1 ‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE

2 ADJUSTMENT REQUEST IS NOT ALLOWED IN

3 FULL.

4 ‘‘(a) IN GENERAL.—If any part of an administrative

5 adjustment request filed under section 6251 is not allowed

6 by the Secretary, the partnership may file a petition for

7 an adjustment with respect to the partnership items to

8 which such part of the request relates with—

9 ‘‘(1) the Tax Court,

10 ‘‘(2) the district court of the United States for

11 the district in which the principal place of business

12 of the partnership is located, or

13 ‘‘(3) the Claims Court.

14 ‘‘(b) PERIOD FOR FILING PETITION.—A petition may

15 be filed under subsection (a) with respect to partnership

16 items for a partnership taxable year only—

17 ‘‘(1) after the expiration of 6 months from the

18 date of filing of the request under section 6251, and

19 ‘‘(2) before the date which is 2 years after the

20 date of such request.

21 The 2-year period set forth in paragraph (2) shall be ex22 tended for such period as may be agreed upon in writing

23 by the partnership and the Secretary.

24 ‘‘(c) COORDINATION WITH SUBPART A.—

25 ‘‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT

26 BEFORE FILING OF PETITION.—No petition may be
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1 filed under this section after the Secretary mails to

2 the partnership a notice of a partnership adjustment

3 for the partnership taxable year to which the request

4 under section 6251 relates.

5 ‘‘(2) NOTICE OF PARTNERSHIP ADJUSTMENT

6 AFTER FILING BUT BEFORE HEARING OF PETI7 TION.—If the Secretary mails to the partnership a

8 notice of a partnership adjustment for the partner9 ship taxable year to which the request under section

10 6251 relates after the filing of a petition under this

11 subsection but before the hearing of such petition,

12 such petition shall be treated as an action brought

13 under section 6247 with respect to such notice, ex14 cept that subsection (b) of section 6247 shall not

15 apply.

16 ‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF

17 STATUTE OF LIMITATIONS.—A notice of a partner18 ship adjustment for the partnership taxable year

19 shall be taken into account under paragraphs (1)

20 and (2) only if such notice is mailed before the expi21 ration of the period prescribed by section 6248 for

22 making adjustments to partnership items for such

23 taxable year.

24 ‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in the

25 case described in paragraph (2) of subsection (c), a court
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1 with which a petition is filed in accordance with this sec2 tion shall have jurisdiction to determine only those part3 nership items to which the part of the request under sec4 tion 6251 not allowed by the Secretary relates and those

5 items with respect to which the Secretary asserts adjust6 ments as offsets to the adjustments requested by the part7 nership.

8 ‘‘(e) DETERMINATION OF COURT REVIEWABLE.—

9 Any determination by a court under this subsection shall

10 have the force and effect of a decision of the Tax Court

11 or a final judgment or decree of the district court or the

12 Claims Court, as the case may be, and shall be reviewable

13 as such. The date of any such determination shall be treat14 ed as being the date of the court’s order entering the deci15 sion.

16 ‘‘PART III—DEFINITIONS AND SPECIAL RULES

‘‘Sec. 6255. Definitions and special rules.

17 ‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.

18 ‘‘(a) DEFINITIONS.—For purposes of this sub19 chapter—

20 ‘‘(1) LARGE PARTNERSHIP.—The term ‘large

21 partnership’ has the meaning given to such term by

22 section 775 without regard to section 776(a).
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1 ‘‘(2) PARTNERSHIP ITEM.—The term ‘partner2 ship item’ has the meaning given to such term by

3 section 6231(a)(3).

4 ‘‘(b) PARTNERS BOUND BY ACTIONS OF PARTNER5 SHIP, ETC.—

6 ‘‘(1) DESIGNATION OF PARTNER.—Each large

7 partnership shall designate (in the manner pre8 scribed by the Secretary) a partner (or other person)

9 who shall have the sole authority to act on behalf of

10 such partnership under this subchapter. In any case

11 in which such a designation is not in effect, the Sec12 retary may select any partner as the partner with

13 such authority.

14 ‘‘(2) BINDING EFFECT.—A large partnership

15 and all partners of such partnership shall be

16 bound—

17 ‘‘(A) by actions taken under this sub18 chapter by the partnership, and

19 ‘‘(B) by any decision in a proceeding

20 brought under this subchapter.

21 ‘‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF

22 BUSINESS OUTSIDE THE UNITED STATES.—For purposes

23 of sections 6247 and 6252, a principal place of business

24 located outside the United States shall be treated as lo25 cated in the District of Columbia.
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1 ‘‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO

2 EXIST.—If a partnership ceases to exist before a partner3 ship adjustment under this subchapter takes effect, such

4 adjustment shall be taken into account by the former part5 ners of such partnership under regulations prescribed by

6 the Secretary.

7 ‘‘(e) DATE DECISION BECOMES FINAL.—For pur8 poses of this subchapter, the principles of section 7481(a)

9 shall be applied in determining the date on which a deci10 sion of a district court or the Claims Court becomes final.

11 ‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF

12 THE UNITED STATES CODE.—The running of any period

13 of limitations provided in this subchapter on making a

14 partnership adjustment (or provided by section 6501 or

15 6502 on the assessment or collection of any amount re16 quired to be paid under section 6242) shall, in a case

17 under title 11 of the United States Code, be suspended

18 during the period during which the Secretary is prohibited

19 by reason of such case from making the adjustment (or

20 assessment or collection) and—

21 ‘‘(1) for adjustment or assessment, 60 days

22 thereafter, and

23 ‘‘(2) for collection, 6 months thereafter.
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1 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

2 such regulations as may be necessary to carry out the pro3 visions of this subchapter, including regulations—

4 ‘‘(1) to prevent abuse through manipulation of

5 the provisions of this subchapter, and

6 ‘‘(2) providing that this subchapter shall not

7 apply to any case described in section 6231(c)(1) (or

8 the regulations prescribed thereunder) where the ap9 plication of this subchapter to such a case would

10 interfere with the effective and efficient enforcement

11 of this title.

12 In any case to which this subchapter does not apply by

13 reason of paragraph (2), rules similar to the rules of sec14 tions 6229(f) and 6255(f) shall apply.’’

15 (b) CLERICAL AMENDMENT.—The table of sub16 chapters for chapter 63 is amended by adding at the end

17 thereof the following new item:

‘‘SUBCHAPTER D. Treatment of large partnerships.’’

18 SEC. 303. DUE DATE FOR FURNISHING INFORMATION TO

19 PARTNERS OF LARGE PARTNERSHIPS.

20 (a) GENERAL RULE.—Subsection (b) of section 6031

21 (relating to copies to partners) is amended by adding at

22 the end thereof the following new sentence: ‘‘In the case

23 of a large partnership (as defined in sections 775 and

24 776(a)), such information shall be furnished on or before
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1 the first March 15 following the close of such taxable

2 year.’’

3 (b) TREATMENT AS INFORMATION RETURN.—Sec4 tion 6724 is amended by adding at the end thereof the

5 following new subsection:

6 ‘‘(e) SPECIAL RULE FOR CERTAIN PARTNERSHIP RE7 TURNS.—If any partnership return under section 6031(a)

8 is required under section 6011(e) to be filed on magnetic

9 media or in other machine-readable form, for purposes of

10 this part, each schedule required to be included with such

11 return with respect to each partner shall be treated as a

12 separate information return.’’

13 SEC. 304. RETURNS MAY BE REQUIRED ON MAGNETIC

14 MEDIA.

15 Paragraph (2) of section 6011(e) (relating to returns

16 on magnetic media) is amended by adding at the end

17 thereof the following new sentence:

18 ‘‘The preceding sentence shall not apply in the case

19 of the partnership return of a large partnership (as

20 defined in sections 775 and 776(a)) or any other

21 partnership with 250 or more partners.’’

22 SEC. 305. TREATMENT OF PARTNERSHIP ITEMS OF INDI23 VIDUAL RETIREMENT ACCOUNTS.

24 Subsection (b) of section 6012 is amended by adding

25 at the end thereof the following new paragraph:
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1 ‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.—

2 In the case of a trust which is exempt from taxation

3 under section 408(e), for purposes of this section,

4 the trust’s distributive share of items of gross in5 come and gain of any partnership to which sub6 chapter C or D of chapter 63 applies shall be treat7 ed as equal to the trust’s distributive share of the

8 taxable income of such partnership.’’

9 SEC. 306. EFFECTIVE DATE.

10 (a) GENERAL RULE.—Except as otherwise provided

11 in this section, the amendments made by this subtitle shall

12 apply to partnership taxable years ending on or after De13 cember 31, 1993.

14 (b) SPECIAL RULE FOR SECTION 304.—In the case

15 of a partnership which is not a large partnership (as de16 fined in sections 775 and 776(a) of the Internal Revenue

17 Code of 1986, as added by this subtitle), the amendment

18 made by section 304 shall only apply to partnership tax19 able years ending on or after December 31, 1998.

20 (c) SPECIAL RULE FOR SECTION 305.—The amend21 ment made by section 305 shall apply to taxable years be22 ginning after December 31, 1992.
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1 Subtitle B—Provisions Related to

2 TEFRA Partnership Proceedings

3 SEC. 311. TREATMENT OF PARTNERSHIP ITEMS IN DEFI4 CIENCY PROCEEDINGS.

5 (a) IN GENERAL.—Subchapter C of chapter 63 is

6 amended by adding at the end thereof the following new

7 section:

8 ‘‘SEC. 6234. DECLARATORY JUDGMENT RELATING TO

9 TREATMENT OF ITEMS OTHER THAN PART10 NERSHIP ITEMS WITH RESPECT TO AN

11 OVERSHELTERED RETURN.

12 ‘‘(a) GENERAL RULE.—If—

13 ‘‘(1) a taxpayer files an oversheltered return for

14 a taxable year,

15 ‘‘(2) the Secretary makes a determination with

16 respect to the treatment of items (other than part17 nership items) of such taxpayer for such taxable

18 year, and

19 ‘‘(3) the adjustments resulting from such deter20 mination do not give rise to a deficiency (as defined

21 in section 6211) but would give rise to a deficiency

22 if there were no net loss from partnership items,

23 the Secretary is authorized to send a notice of adjustment

24 reflecting such determination to the taxpayer by certified

25 or registered mail.
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1 ‘‘(b) OVERSHELTERED RETURN.—For purposes of

2 this section, the term ‘oversheltered return’ means an in3 come tax return which—

4 ‘‘(1) shows no taxable income for the taxable

5 year, and

6 ‘‘(2) shows a net loss from partnership items.

7 ‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.—Within

8 90 days, or 150 days if the notice is addressed to a person

9 outside the United States, after the day on which the no10 tice of adjustment authorized in subsection (a) is mailed

11 to the taxpayer, the taxpayer may file a petition with the

12 Tax Court for redetermination of the adjustments. Upon

13 the filing of such a petition, the Tax Court shall have ju14 risdiction to make a declaration with respect to all items

15 (other than partnership items and affected items which

16 require partner level determinations as described in sec17 tion 6230(a)(2)(A)(i)) for the taxable year to which the

18 notice of adjustment relates, in accordance with the prin19 ciples of section 6214(a). Any such declaration shall have

20 the force and effect of a decision of the Tax Court and

21 shall be reviewable as such.

22 ‘‘(d) FAILURE TO FILE PETITION.—

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (2), if the taxpayer does not file a petition

25 with the Tax Court within the time prescribed in
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1 subsection (c), the determination of the Secretary

2 set forth in the notice of adjustment that was mailed

3 to the taxpayer shall be deemed to be correct.

4 ‘‘(2) EXCEPTION.—Paragraph (1) shall not

5 apply after the date that the taxpayer—

6 ‘‘(A) files a petition with the Tax Court

7 within the time prescribed in subsection (c)

8 with respect to a subsequent notice of adjust9 ment relating to the same taxable year, or

10 ‘‘(B) files a claim for refund of an overpay11 ment of tax under section 6511 for the taxable

12 year involved.

13 If a claim for refund is filed by the taxpayer, then

14 solely for purposes of determining (for the taxable

15 year involved) the amount of any computational ad16 justment in connection with a partnership proceed17 ing under this subchapter (other than under this

18 section) or the amount of any deficiency attributable

19 to affected items in a proceeding under section

20 6230(a)(2), the items that are the subject of the no21 tice of adjustment shall be presumed to have been

22 correctly reported on the taxpayer’s return during

23 the pendency of the refund claim (and, if within the

24 time prescribed by section 6532 the taxpayer com25 mences a civil action for refund under section 7422,
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1 until the decision in the refund action becomes

2 final).

3 ‘‘(e) LIMITATIONS PERIOD.—

4 ‘‘(1) IN GENERAL.—Any notice to a taxpayer

5 under subsection (a) shall be mailed before the expi6 ration of the period prescribed by section 6501 (re7 lating to the period of limitations on assessment).

8 ‘‘(2) SUSPENSION WHEN SECRETARY MAILS NO9 TICE OF ADJUSTMENT.—If the Secretary mails a no10 tice of adjustment to the taxpayer for a taxable year,

11 the period of limitations on the making of assess12 ments shall be suspended for the period during

13 which the Secretary is prohibited from making the

14 assessment (and, in any event, if a proceeding in re15 spect of the notice of adjustment is placed on the

16 docket of the Tax Court, until the decision of the

17 Tax Court becomes final), and for 60 days there18 after.

19 ‘‘(3) RESTRICTIONS ON ASSESSMENT.—Except

20 as otherwise provided in section 6851, 6852, or

21 6861, no assessment of a deficiency with respect to

22 any tax imposed by subtitle A attributable to any

23 item (other than a partnership item or any item af24 fected by a partnership item) shall be made—
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1 ‘‘(A) until the expiration of the applicable

2 90-day or 150-day period set forth in sub3 section (c) for filing a petition with the Tax

4 Court, or

5 ‘‘(B) if a petition has been filed with the

6 Tax Court, until the decision of the Tax Court

7 has become final.

8 ‘‘(f) FURTHER NOTICES OF ADJUSTMENT RE9 STRICTED.—If the Secretary mails a notice of adjustment

10 to the taxpayer for a taxable year and the taxpayer files

11 a petition with the Tax Court within the time prescribed

12 in subsection (c), the Secretary may not mail another such

13 notice to the taxpayer with respect to the same taxable

14 year in the absence of a showing of fraud, malfeasance,

15 or misrepresentation of a material fact.

16 ‘‘(g) COORDINATION WITH OTHER PROCEEDINGS

17 UNDER THIS SUBCHAPTER.—

18 ‘‘(1) IN GENERAL.—The treatment of any item

19 that has been determined pursuant to subsection (c)

20 or (d) shall be taken into account in determining the

21 amount of any computational adjustment that is

22 made in connection with a partnership proceeding

23 under this subchapter (other than under this sec24 tion), or the amount of any deficiency attributable to

25 affected items in a proceeding under section
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1 6230(a)(2), for the taxable year involved. Notwith2 standing any other law or rule of law pertaining to

3 the period of limitations on the making of assess4 ments, for purposes of the preceding sentence, any

5 adjustment made in accordance with this section

6 shall be taken into account regardless of whether

7 any assessment has been made with respect to such

8 adjustment.

9 ‘‘(2) SPECIAL RULE IN CASE OF COMPUTA10 TIONAL ADJUSTMENT.—In the case of a computa11 tional adjustment that is made in connection with a

12 partnership proceeding under this subchapter (other

13 than under this section), the provisions of paragraph

14 (1) shall apply only if the computational adjustment

15 is made within the period prescribed by section 6229

16 for assessing any tax under subtitle A which is at17 tributable to any partnership item or affected item

18 for the taxable year involved.

19 ‘‘(3) CONVERSION TO DEFICIENCY PROCEED20 ING.—If—

21 ‘‘(A) after the notice referred to in sub22 section (a) is mailed to a taxpayer for a taxable

23 year but before the expiration of the period for

24 filing a petition with the Tax Court under sub25 section (c) (or, if a petition is filed with the Tax
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1 Court, before the Tax Court makes a declara2 tion for that taxable year), the treatment of any

3 partnership item for the taxable year is finally

4 determined, or any such item ceases to be a

5 partnership item pursuant to section 6231(b),

6 and

7 ‘‘(B) as a result of that final determination

8 or cessation, a deficiency can be determined

9 with respect to the items that are the subject

10 of the notice of adjustment,

11 the notice of adjustment shall be treated as a notice

12 of deficiency under section 6212 and any petition

13 filed in respect of the notice shall be treated as an

14 action brought under section 6213.

15 ‘‘(4) FINALLY DETERMINED.—For purposes of

16 this subsection, the treatment of partnership items

17 shall be treated as finally determined if—

18 ‘‘(A) the Secretary enters into a settlement

19 agreement (within the meaning of section 6224)

20 with the taxpayer regarding such items,

21 ‘‘(B) a notice of final partnership adminis22 trative adjustment has been issued and—

23 ‘‘(i) no petition has been filed under

24 section 6226 and the time for doing so has

25 expired, or
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1 ‘‘(ii) a petition has been filed under

2 section 6226 and the decision of the court

3 has become final, or

4 ‘‘(C) the period within which any tax at5 tributable to such items may be assessed

6 against the taxpayer has expired.

7 ‘‘(h) SPECIAL RULES IF SECRETARY INCORRECTLY

8 DETERMINES APPLICABLE PROCEDURE.—

9 ‘‘(1) SPECIAL RULE IF SECRETARY ERRO10 NEOUSLY MAILS NOTICE OF ADJUSTMENT.—If the

11 Secretary erroneously determines that subchapter B

12 does not apply to a taxable year of a taxpayer and

13 consistent with that determination timely mails a no14 tice of adjustment to the taxpayer pursuant to sub15 section (a) of this section, the notice of adjustment

16 shall be treated as a notice of deficiency under sec17 tion 6212 and any petition that is filed in respect of

18 the notice shall be treated as an action brought

19 under section 6213.

20 ‘‘(2) SPECIAL RULE IF SECRETARY ERRO21 NEOUSLY MAILS NOTICE OF DEFICIENCY.—If the

22 Secretary erroneously determines that subchapter B

23 applies to a taxable year of a taxpayer and consist24 ent with that determination timely mails a notice of

25 deficiency to the taxpayer pursuant to section 6212,
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1 the notice of deficiency shall be treated as a notice

2 of adjustment under subsection (a) and any petition

3 that is filed in respect of the notice shall be treated

4 as an action brought under subsection (c).’’

5 (b) TREATMENT OF PARTNERSHIP ITEMS IN DEFI6 CIENCY PROCEEDINGS.—Section 6211 (defining defi7 ciency) is amended by adding at the end thereof the follow8 ing new subsection:

9 ‘‘(c) COORDINATION WITH SUBCHAPTER C.—In de10 termining the amount of any deficiency for purposes of

11 this subchapter, adjustments to partnership items shall be

12 made only as provided in subchapter C.’’

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

14 for subchapter C of chapter 63 is amended by adding at

15 the end thereof the following new item:

‘‘Sec. 6234. Declaratory judgment relating to treatment of items

other than partnership items with respect to an

oversheltered return.’’

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

17 this section shall apply to partnership taxable years ending

18 after the date of the enactment of this Act.

19 SEC. 312. PARTNERSHIP RETURN TO BE DETERMINATIVE

20 OF AUDIT PROCEDURES TO BE FOLLOWED.

21 (a) IN GENERAL.—Section 6231 (relating to defini22 tions and special rules) is amended by adding at the end

23 thereof the following new subsection:
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1 ‘‘(g) PARTNERSHIP RETURN TO BE DETERMINATIVE

2 OF WHETHER SUBCHAPTER APPLIES.—

3 ‘‘(1) DETERMINATION THAT SUBCHAPTER AP4 PLIES.—If, on the basis of a partnership return for

5 a taxable year, the Secretary reasonably determines

6 that this subchapter applies to such partnership for

7 such year but such determination is erroneous, then

8 the provisions of this subchapter are hereby ex9 tended to such partnership (and its items) for such

10 taxable year and to partners of such partnership.

11 ‘‘(2) DETERMINATION THAT SUBCHAPTER DOES

12 NOT APPLY.—If, on the basis of a partnership re13 turn for a taxable year, the Secretary reasonably de14 termines that this subchapter does not apply to such

15 partnership for such year but such determination is

16 erroneous, then the provisions of this subchapter

17 shall not apply to such partnership (and its items)

18 for such taxable year or to partners of such partner19 ship.’’

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

21 this section shall apply to partnership taxable years ending

22 after the date of the enactment of this Act.
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1 SEC. 313. PROVISIONS RELATING TO STATUTE OF LIMITA2 TIONS.

3 (a) SUSPENSION OF STATUTE WHERE UNTIMELY

4 PETITION FILED.—Paragraph (1) of section 6229(d) (re5 lating to suspension where Secretary makes administrative

6 adjustment) is amended by striking all that follows ‘‘sec7 tion 6226’’ and inserting the following: ‘‘(and, if a petition

8 is filed under section 6226 with respect to such adminis9 trative adjustment, until the decision of the court becomes

10 final), and’’.

11 (b) SUSPENSION OF STATUTE DURING BANKRUPTCY

12 PROCEEDING.—Section 6229 is amended by adding at the

13 end thereof the following new subsection:

14 ‘‘(h) SUSPENSION DURING PENDENCY OF BANK15 RUPTCY PROCEEDING.—If a petition is filed naming a

16 partner as a debtor in a bankruptcy proceeding under title

17 11 of the United States Code, the running of the period

18 of limitations provided in this section with respect to such

19 partner shall be suspended—

20 ‘‘(1) for the period during which the Secretary

21 is prohibited by reason of such bankruptcy proceed22 ing from making an assessment, and

23 ‘‘(2) for 60 days thereafter.’’

24 (c) TAX MATTERS PARTNER IN BANKRUPTCY.—Sec25 tion 6229(b) is amended by redesignating paragraph (2)
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1 as paragraph (3) and by inserting after paragraph (1) the

2 following new paragraph:

3 ‘‘(2) SPECIAL RULE WITH RESPECT TO DEBT4 ORS IN TITLE 11 CASES.—Notwithstanding any other

5 law or rule of law, if an agreement is entered into

6 under paragraph (1)(B) and the agreement is signed

7 by a person who would be the tax matters partner

8 but for the fact that, at the time that the agreement

9 is executed, the person is a debtor in a bankruptcy

10 proceeding under title 11 of the United States Code,

11 such agreement shall be binding on all partners in

12 the partnership unless the Secretary has been noti13 fied of the bankruptcy proceeding in accordance with

14 regulations prescribed by the Secretary.’’

15 (d) EFFECTIVE DATES.—

16 (1) SUBSECTIONS (a) AND (b).—The amend17 ments made by subsections (a) and (b) shall apply

18 to partnership taxable years with respect to which

19 the period under section 6229 of the Internal Reve20 nue Code of 1986 for assessing tax has not expired

21 on or before the date of the enactment of this Act.

22 (2) SUBSECTION (c).—The amendment made

23 by subsection (c) shall apply to agreements entered

24 into after the date of the enactment of this Act.
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1 SEC. 314. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

2 (a) IN GENERAL.—Clause (i) of section

3 6231(a)(1)(B) (relating to exception for small partner4 ships) is amended to read as follows:

5 ‘‘(i) IN GENERAL.—The term ‘part6 nership’ shall not include any partnership

7 having 10 or fewer partners each of whom

8 is an individual (other than a nonresident

9 alien), a C corporation, or an estate of a

10 deceased partner. For purposes of the pre11 ceding sentence, a husband and wife (and

12 their estates) shall be treated as 1 part13 ner.’’

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

15 this section shall apply to partnership taxable years ending

16 after the date of the enactment of this Act.

17 SEC. 315. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1

18 YEAR LIMITATION ON ASSESSMENT.

19 (a) IN GENERAL.—Subsection (f) of section 6229 (re20 lating to items becoming nonpartnership items) is amend21 ed—

22 (1) by striking ‘‘(f) ITEMS BECOMING

23 NONPARTNERSHIP ITEMS.—If ’’ and inserting the

24 following:

25 ‘‘(f) SPECIAL RULES.—
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1 ‘‘(1) ITEMS BECOMING NONPARTNERSHIP

2 ITEMS.—If ’’,

3 (2) by moving the text of such subsection 2 ems

4 to the right, and

5 (3) by adding at the end thereof the following

6 new paragraph:

7 ‘‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT

8 AGREEMENTS.—If a partner enters into a settlement

9 agreement with the Secretary with respect to the

10 treatment of some of the partnership items in dis11 pute for a partnership taxable year but other part12 nership items for such year remain in dispute, the

13 period of limitations for assessing any tax attrib14 utable to the settled items shall be determined as if

15 such agreement had not been entered into.’’

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

17 this section shall apply to settlements entered into after

18 the date of the enactment of this Act.

19 SEC. 316. EXTENSION OF TIME FOR FILING A REQUEST

20 FOR ADMINISTRATIVE ADJUSTMENT.

21 (a) IN GENERAL.—Section 6227 (relating to admin22 istrative adjustment requests) is amended by redesignat23 ing subsections (b) and (c) as subsections (c) and (d), re24 spectively, and by inserting after subsection (a) the follow25 ing new subsection:
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1 ‘‘(b) SPECIAL RULE IN CASE OF EXTENSION OF PE2 RIOD OF LIMITATIONS UNDER SECTION 6229.—The pe3 riod prescribed by subsection (a)(1) for filing of a request

4 for an administrative adjustment shall be extended—

5 ‘‘(1) for the period within which an assessment

6 may be made pursuant to an agreement (or any ex7 tension thereof) under section 6229(b), and

8 ‘‘(2) for 6 months thereafter.’’

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

10 this section shall take effect as if included in the amend11 ments made by section 402 of the Tax Equity and Fiscal

12 Responsibility Act of 1982.

13 SEC. 317. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN

14 CONTEXT OF PARTNERSHIP PROCEEDINGS.

15 (a) IN GENERAL.—Subsection (a) of section 6230 is

16 amended by adding at the end thereof the following new

17 paragraph:

18 ‘‘(3) SPECIAL RULE IN CASE OF ASSERTION BY

19 PARTNER’S SPOUSE OF INNOCENT SPOUSE RE20 LIEF.—

21 ‘‘(A) Notwithstanding section 6404(b), if

22 the spouse of a partner asserts that section

23 6013(e) applies with respect to a liability that

24 is attributable to any adjustment to a partner25 ship item, then such spouse may file with the
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1 Secretary within 60 days after the notice of

2 computational adjustment is mailed to the

3 spouse a request for abatement of the assess4 ment specified in such notice. Upon receipt of

5 such request, the Secretary shall abate the as6 sessment. Any reassessment of the tax with re7 spect to which an abatement is made under this

8 subparagraph shall be subject to the deficiency

9 procedures prescribed by subchapter B. The pe10 riod for making any such reassessment shall

11 not expire before the expiration of 60 days after

12 the date of such abatement.

13 ‘‘(B) If the spouse files a petition with the

14 Tax Court pursuant to section 6213 with re15 spect to the request for abatement described in

16 subparagraph (A), the Tax Court shall only

17 have jurisdiction pursuant to this section to de18 termine whether the requirements of section

19 6013(e) have been satisfied. For purposes of

20 such determination, the treatment of partner21 ship items under the settlement, the final part22 nership administrative adjustment, or the deci23 sion of the court (whichever is appropriate) that

24 gave rise to the liability in question shall be

25 conclusive.
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1 ‘‘(C) Rules similar to the rules contained

2 in subparagraphs (B) and (C) of paragraph (2)

3 shall apply for purposes of this paragraph.’’

4 (b) CLAIMS FOR REFUND.—Subsection (c) of section

5 6230 is amended by adding at the end thereof the follow6 ing new paragraph:

7 ‘‘(5) RULES FOR SEEKING INNOCENT SPOUSE

8 RELIEF.—

9 ‘‘(A) IN GENERAL.—The spouse of a part10 ner may file a claim for refund on the ground

11 that the Secretary failed to relieve the spouse

12 under section 6013(e) from a liability that is at13 tributable to an adjustment to a partnership

14 item.

15 ‘‘(B) TIME FOR FILING CLAIM.—Any claim

16 under subparagraph (A) shall be filed within 6

17 months after the day on which the Secretary

18 mails to the spouse the notice of computational

19 adjustment referred to in subsection (a)(3)(A).

20 ‘‘(C) SUIT IF CLAIM NOT ALLOWED.—If

21 the claim under subparagraph (B) is not al22 lowed, the spouse may bring suit with respect

23 to the claim within the period specified in para24 graph (3).
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1 ‘‘(D) PRIOR DETERMINATIONS ARE BIND2 ING.—For purposes of any claim or suit under

3 this paragraph, the treatment of partnership

4 items under the settlement, the final partner5 ship administrative adjustment, or the decision

6 of the court (whichever is appropriate) that

7 gave rise to the liability in question shall be

8 conclusive.’’

9 (c) TECHNICAL AMENDMENTS.—

10 (1) Paragraph (1) of section 6230(a) is amend11 ed by striking ‘‘paragraph (2)’’ and inserting ‘‘para12 graph (2) or (3)’’.

13 (2) Subsection (a) of section 6503 is amended

14 by striking ‘‘section 6230(a)(2)(A)’’ and inserting

15 ‘‘paragraph (2)(A) or (3) of section 6230(a)’’.

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

17 this section shall take effect as if included in the amend18 ments made by section 402 of the Tax Equity and Fiscal

19 Responsibility Act of 1982.

20 SEC. 318. DETERMINATION OF PENALTIES AT PARTNER21 SHIP LEVEL.

22 (a) IN GENERAL.—Section 6221 (relating to tax

23 treatment determined at partnership level) is amended by

24 striking ‘‘item’’ and inserting ‘‘item (and the applicability
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1 of any penalty, addition to tax, or additional amount which

2 relates to an adjustment to a partnership item)’’.

3 (b) CONFORMING AMENDMENTS.—

4 (1) Subsection (f) of section 6226 is amended—

5 (A) by striking ‘‘relates and’’ and inserting

6 ‘‘relates,’’, and

7 (B) by inserting before the period ‘‘, and

8 the applicability of any penalty, addition to tax,

9 or additional amount which relates to an ad10 justment to a partnership item’’.

11 (2) Clause (i) of section 6230(a)(2)(A) is

12 amended to read as follows:

13 ‘‘(i) affected items which require part14 ner level determinations (other than pen15 alties, additions to tax, and additional

16 amounts that relate to adjustments to

17 partnership items), or’’.

18 (3)(A) Subparagraph (A) of section 6230(a)(3),

19 as added by section 317, is amended by inserting

20 ‘‘(including any liability for any penalty, addition to

21 tax, or additional amount relating to such adjust22 ment)’’ after ‘‘partnership item’’.

23 (B) Subparagraph (B) of such section is

24 amended by inserting ‘‘(and the applicability of any
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1 penalties, additions to tax, or additional amounts)’’

2 after ‘‘partnership items’’.

3 (C) Subparagraph (A) of section 6230(c)(5), as

4 added by section 317, is amended by inserting before

5 the period ‘‘(including any liability for any penalties,

6 additions to tax, or additional amounts relating to

7 such adjustment)’’.

8 (D) Subparagraph (D) of section 6230(c)(5), as

9 added by section 317, is amended by inserting ‘‘(and

10 the applicability of any penalties, additions to tax, or

11 additional amounts)’’ after ‘‘partnership items’’.

12 (4) Paragraph (1) of section 6230(c) is amend13 ed by striking ‘‘or’’ at the end of subparagraph (A),

14 by striking the period at the end of subparagraph

15 (B) and inserting ‘‘, or’’, and by adding at the end

16 thereof the following new subparagraph:

17 ‘‘(C) the Secretary erroneously imposed

18 any penalty, addition to tax, or additional

19 amount which relates to an adjustment to a

20 partnership item.’’

21 (5) So much of subparagraph (A) of section

22 6230(c)(2) as precedes ‘‘shall be filed’’ is amended

23 to read as follows:
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1 ‘‘(A) UNDER PARAGRAPH (1) (A) OR (C).—

2 Any claim under subparagraph (A) or (C) of

3 paragraph (1)’’.

4 (6) Paragraph (4) of section 6230(c) is amend5 ed by adding at the end thereof the following: ‘‘In

6 addition, the determination under the final partner7 ship administrative adjustment or under the decision

8 of the court (whichever is appropriate) concerning

9 the applicability of any penalty, addition to tax, or

10 additional amount which relates to an adjustment to

11 a partnership item shall also be conclusive.

12 Notwithstanding the preceding sentence, the partner

13 shall be allowed to assert any partner level defenses

14 that may apply or to challenge the amount of the

15 computational adjustment.’’

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

17 this section shall apply to partnership taxable years ending

18 after the date of the enactment of this Act.

19 SEC. 319. PROVISIONS RELATING TO COURT JURISDIC20 TION, ETC.

21 (a) TAX COURT JURISDICTION TO ENJOIN PRE22 MATURE ASSESSMENTS OF DEFICIENCIES ATTRIBUTABLE

23 TO PARTNERSHIP ITEMS.—Subsection (b) of section 6225

24 is amended by striking ‘‘the proper court.’’ and inserting

25 ‘‘the proper court, including the Tax Court. The Tax
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1 Court shall have no jurisdiction to enjoin any action or

2 proceeding under this subsection unless a timely petition

3 for a readjustment of the partnership items for the taxable

4 year has been filed and then only in respect of the adjust5 ments that are the subject of such petition.’’

6 (b) JURISDICTION TO CONSIDER STATUTE OF LIMI7 TATIONS WITH RESPECT TO PARTNERS.—Paragraph (1)

8 of section 6226(d) is amended by adding at the end there9 of the following new sentence:

10 ‘‘Notwithstanding subparagraph (B), any person

11 treated under subsection (c) as a party to an action

12 shall be permitted to participate in such action (or

13 file a readjustment petition under subsection (b) or

14 paragraph (2) of this subsection) solely for the pur15 pose of asserting that the period of limitations for

16 assessing any tax attributable to partnership items

17 has expired with respect to such person, and the

18 court having jurisdiction of such action shall have

19 jurisdiction to consider such assertion.’’

20 (c) TAX COURT JURISDICTION TO DETERMINE

21 OVERPAYMENTS ATTRIBUTABLE TO AFFECTED ITEMS.—

22 (1) Paragraph (6) of section 6230(d) is amend23 ed by striking ‘‘(or an affected item)’’.
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1 (2) Paragraph (3) of section 6512(b) is amend2 ed by adding at the end thereof the following new

3 sentence:

4 ‘‘In the case of a credit or refund relating to an af5 fected item (within the meaning of section

6 6231(a)(5)), the preceding sentence shall be applied

7 by substituting the periods under sections 6229 and

8 6230(d) for the periods under section 6511(b) (2),

9 (c), and (d).’’

10 (d) VENUE ON APPEAL.—

11 (1) Paragraph (1) of section 7482(b) is amend12 ed by striking ‘‘or’’ at the end of subparagraph (D),

13 by striking the period at the end of subparagraph

14 (E) and inserting ‘‘, or’’, and by inserting after sub15 paragraph (E) the following new subparagraph:

16 ‘‘(F) in the case of a petition under section

17 6234(c)—

18 ‘‘(i) the legal residence of the peti19 tioner if the petitioner is not a corporation,

20 and

21 ‘‘(ii) the place or office applicable

22 under subparagraph (B) if the petitioner is

23 a corporation.’’
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1 (2) The last sentence of section 7482(b) is

2 amended by striking ‘‘or 6228(a)’’ and inserting ‘‘,

3 6228(a), or 6234(c)’’.

4 (e) OTHER PROVISIONS.—

5 (1) Subsection (c) of section 7459 is amended

6 by striking ‘‘or section 6228(a)’’ and inserting ‘‘,

7 6228(a), or 6234(c)’’.

8 (2) Subsection (o) of section 6501 is amended

9 by adding at the end thereof the following new para10 graph:

11 ‘‘(3) For declaratory judgment relating to treat12 ment of items other than partnership items with re13 spect to an oversheltered return, see section 6234.’’

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

15 this section shall apply to partnership taxable years ending

16 after the date of the enactment of this Act.

17 SEC. 320. TREATMENT OF PREMATURE PETITIONS FILED

18 BY NOTICE PARTNERS OR 5-PERCENT

19 GROUPS.

20 (a) IN GENERAL.—Subsection (b) of section 6226

21 (relating to judicial review of final partnership administra22 tive adjustments) is amended by redesignating paragraph

23 (5) as paragraph (6) and by inserting after paragraph (4)

24 the following new paragraph:
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1 ‘‘(5) TREATMENT OF PREMATURE PETI2 TIONS.—If—

3 ‘‘(A) a petition for a readjustment of part4 nership items for the taxable year involved is

5 filed by a notice partner (or a 5-percent group)

6 during the 90-day period described in sub7 section (a), and

8 ‘‘(B) no action is brought under paragraph

9 (1) during the 60-day period described therein

10 with respect to such taxable year which is not

11 dismissed,

12 such petition shall be treated for purposes of para13 graph (1) as filed on the last day of such 60-day pe14 riod.’’

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

16 this section shall apply to petitions filed after the date of

17 the enactment of this Act.

18 SEC. 321. BONDS IN CASE OF APPEALS FROM TEFRA PRO19 CEEDING.

20 (a) IN GENERAL.—Subsection (b) of section 7485

21 (relating to bonds to stay assessment of collection) is

22 amended—

23 (1) by inserting ‘‘penalties,’’ after ‘‘any inter24 est,’’, and
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1 (2) by striking ‘‘aggregate of such deficiencies’’

2 and inserting ‘‘aggregate liability of the parties to

3 the action’’.

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

5 this section shall take effect as if included in the amend6 ments made by section 402 of the Tax Equity and Fiscal

7 Responsibility Act of 1982.

8 SEC. 322. SUSPENSION OF INTEREST WHERE DELAY IN

9 COMPUTATIONAL ADJUSTMENT RESULTING

10 FROM TEFRA SETTLEMENTS.

11 (a) IN GENERAL.—Subsection (c) of section 6601

12 (relating to interest on underpayment, nonpayment, or ex13 tension of time for payment, of tax) is amended by adding

14 at the end thereof the following new sentence: ‘‘In the case

15 of a settlement under section 6224(c) which results in the

16 conversion of partnership items to nonpartnership items

17 pursuant to section 6231(b)(1)(C), the preceding sentence

18 shall apply to a computational adjustment resulting from

19 such settlement in the same manner as if such adjustment

20 were a deficiency and such settlement were a waiver re21 ferred to in the preceding sentence.’’

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

23 this section shall apply to adjustments with respect to

24 partnership taxable years beginning after the date of the

25 enactment of this Act.
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1 SEC. 323. SPECIAL RULES FOR ADMINISTRATIVE ADJUST2 MENT REQUESTS WITH RESPECT TO BAD

3 DEBTS OR WORTHLESS SECURITIES.

4 (a) GENERAL RULE.—Section 6227 (relating to ad5 ministrative adjustment requests) is amended by adding

6 at the end thereof the following new subsection:

7 ‘‘(d) REQUESTS WITH RESPECT TO BAD DEBTS OR

8 WORTHLESS SECURITIES.—In the case of that portion of

9 any request for an administrative adjustment which re10 lates to the deductibility by the partnership under section

11 166 of a debt as a debt which became worthless, or under

12 section 165(g) of a loss from worthlessness of a security,

13 the period prescribed in subsection (a)(1) shall be 7 years

14 from the last day for filing the partnership return for the

15 year with respect to which such request is made (deter16 mined without regard to extensions).’’

17 (b) EFFECTIVE DATE.—

18 (1) IN GENERAL.—The amendment made by

19 subsection (a) shall take effect as if included in the

20 amendments made by section 402 of the Tax Equity

21 and Fiscal Responsibility Act of 1982.

22 (2) TREATMENT OF REQUESTS FILED BEFORE

23 DATE OF ENACTMENT.—In the case of that portion

24 of any request (filed before the date of the enact25 ment of this Act) for an administrative adjustment

26 which relates to the deductibility of a debt as a debt
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1 which became worthless or the deductibility of a loss

2 from the worthlessness of a security—

3 (A) paragraph (2) of section 6227(a) of

4 the Internal Revenue Code of 1986 shall not

5 apply,

6 (B) the period for filing a petition under

7 section 6228 of the Internal Revenue Code of

8 1986 with respect to such request shall not ex9 pire before the date 6 months after the date of

10 the enactment of this Act, and

11 (C) such a petition may be filed without

12 regard to whether there was a notice of the be13 ginning of an administrative proceeding or a

14 final partnership administrative adjustment.

15 TITLE IV—FOREIGN PROVISIONS

16 Subtitle A—Simplification of Treat17 ment of Passive Foreign Cor18 porations

19 SEC. 401. REPEAL OF FOREIGN PERSONAL HOLDING COM20 PANY RULES AND FOREIGN INVESTMENT

21 COMPANY RULES.

22 (a) GENERAL RULE.—The following provisions are

23 hereby repealed:

24 (1) Part III of subchapter G of chapter 1 (re25 lating to foreign personal holding companies).
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1 (2) Section 1246 (relating to gain on foreign in2 vestment company stock).

3 (3) Section 1247 (relating to election by foreign

4 investment companies to distribute income cur5 rently).

6 (b) EXEMPTION OF FOREIGN CORPORATIONS FROM

7 ACCUMULATED EARNINGS TAX AND PERSONAL HOLDING

8 COMPANY RULES.—

9 (1) ACCUMULATED EARNINGS TAX.—Subsection

10 (b) of section 532 (relating to exceptions) is amend11 ed—

12 (A) by striking paragraph (2) and insert13 ing the following:

14 ‘‘(2) a foreign corporation, or’’,

15 (B) by striking ‘‘, or’’ at the end of para16 graph (3) and inserting a period, and

17 (C) by striking paragraph (4).

18 (2) PERSONAL HOLDING COMPANY RULES.—

19 Subsection (c) of section 542 (relating to exceptions)

20 is amended—

21 (A) by striking paragraph (5) and insert22 ing the following:

23 ‘‘(5) a foreign corporation,’’,
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1 (B) by striking paragraphs (7) and (10)

2 and by redesignating paragraphs (8) and (9) as

3 paragraphs (7) and (8), respectively,

4 (C) by inserting ‘‘and’’ at the end of para5 graph (7) (as so redesignated), and

6 (D) by striking ‘‘; and’’ at the end of para7 graph (8) (as so redesignated) and inserting a

8 period.

9 (c) TREATMENT OF CERTAIN SERVICE CONTRACTS

10 UNDER SUBPART F.—

11 (1) Paragraph (1) of section 954(c) (defining

12 foreign personal holding company income) is amend13 ed by adding at the end thereof the following new

14 subparagraph:

15 ‘‘(F) PERSONAL SERVICE CONTRACTS.—

16 ‘‘(i) Amounts received under a con17 tract under which the corporation is to fur18 nish personal services, if some person other

19 than the corporation has the right to des20 ignate (by name or by description) the in21 dividual who is to perform the services, or

22 if the individual who is to perform the

23 services is designated (by name or by de24 scription) in the contract.
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1 ‘‘(ii) Amounts received from the sale

2 or other disposition of such contract.

3 This subparagraph shall apply with respect to

4 amounts received for services under a particular

5 contract only if at some time during the taxable

6 year 25 percent or more in value of the out7 standing stock of the corporation is owned, di8 rectly or indirectly, by or for the individual who

9 has performed, is to perform, or may be des10 ignated (by name or by description) as the one

11 to perform, such services. For purposes of the

12 preceding sentence, the attribution rules of sec13 tion 544 shall apply, determined as if any ref14 erence to section 543(a)(7) were a reference to

15 this subparagraph.’’

16 (2) Clause (iii) of section 904(d)(2)(A) is

17 amended by striking ‘‘and’’ at the end of subclause

18 (III), by striking the period at the end of subclause

19 (IV) and inserting ‘‘, and’’, and by adding at the

20 end thereof the following new subclause:

21 ‘‘(V) any income described in section

22 954(c)(1)(F) (relating to personal service con23 tracts).’’
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1 SEC. 402. REPLACEMENT FOR PASSIVE FOREIGN INVEST2 MENT COMPANY RULES.

3 (a) GENERAL RULE.—Part VI of subchapter P of

4 chapter 1 (relating to treatment of certain passive foreign

5 investment companies) is amended to read as follows:

6 ‘‘PART VI—TREATMENT OF PASSIVE FOREIGN

7 CORPORATIONS

‘‘Subpart A. Current taxation rules.

‘‘Subpart B. Interest on holdings to which subpart A does not apply.

‘‘Subpart C. General provisions.

8 ‘‘Subpart A—Current Taxation Rules

‘‘Sec. 1291. Stock in certain passive foreign corporations marked to market.

‘‘Sec. 1292. Inclusion of income of certain passive foreign corporations.

9 ‘‘SEC. 1291. STOCK IN CERTAIN PASSIVE FOREIGN COR10 PORATIONS MARKED TO MARKET.

11 ‘‘(a) GENERAL RULE.—In the case of marketable

12 stock in a passive foreign corporation which is owned (or

13 treated under subsection (g) as owned) by a United States

14 person at the close of any taxable year of such person—

15 ‘‘(1) If the fair market value of such stock as

16 of the close of such taxable year exceeds its adjusted

17 basis, such United States person shall include in

18 gross income for such taxable year an amount equal

19 to the amount of such excess.

20 ‘‘(2) If the adjusted basis of such stock exceeds

21 the fair market value of such stock as of the close
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1 of such taxable year, such United States person

2 shall be allowed a deduction for such taxable year

3 equal to the lesser of—

4 ‘‘(A) the amount of such excess, or

5 ‘‘(B) the unreversed inclusions with respect

6 to such stock.

7 ‘‘(b) BASIS ADJUSTMENTS.—

8 ‘‘(1) IN GENERAL.—The adjusted basis of stock

9 in a passive foreign corporation—

10 ‘‘(A) shall be increased by the amount in11 cluded in the gross income of the United States

12 person under subsection (a)(1) with respect to

13 such stock, and

14 ‘‘(B) shall be decreased by the amount al15 lowed as a deduction to the United States per16 son under subsection (a)(2) with respect to

17 such stock.

18 ‘‘(2) SPECIAL RULE FOR STOCK CONSTRUC19 TIVELY OWNED.—In the case of stock in a passive

20 foreign corporation which the United States person

21 is treated as owning under subsection (g)—

22 ‘‘(A) the adjustments under paragraph (1)

23 shall apply to such stock in the hands of the

24 person actually holding such stock but only for

25 purposes of determining the subsequent treat-
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1 ment under this chapter of the United States

2 person with respect to such stock, and

3 ‘‘(B) similar adjustments shall be made to

4 the adjusted basis of the property by reason of

5 which the United States person is treated as

6 owning such stock.

7 ‘‘(c) CHARACTER AND SOURCE RULES.—

8 ‘‘(1) ORDINARY TREATMENT.—

9 ‘‘(A) GAIN.—Any amount included in gross

10 income under subsection (a)(1), and any gain

11 on the sale or other disposition of marketable

12 stock in a passive foreign corporation, shall be

13 treated as ordinary income.

14 ‘‘(B) LOSS.—Any—

15 ‘‘(i) amount allowed as a deduction

16 under subsection (a)(2), and

17 ‘‘(ii) loss on the sale or other disposi18 tion of marketable stock in a passive for19 eign corporation to the extent that the

20 amount of such loss does not exceed the

21 unreversed inclusions with respect to such

22 stock,

23 shall be treated as an ordinary loss. The

24 amount so treated shall be treated as a deduc-
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1 tion allowable in computing adjusted gross in2 come.

3 ‘‘(2) SOURCE.—The source of any amount in4 cluded in gross income under subsection (a)(1) (or

5 allowed as a deduction under subsection (a)(2)) shall

6 be determined in the same manner as if such

7 amount were gain or loss (as the case may be) from

8 the sale of stock in the passive foreign corporation.

9 ‘‘(d) UNREVERSED INCLUSIONS.—For purposes of

10 this section, the term ‘unreversed inclusions’ means, with

11 respect to any stock in a passive foreign corporation, the

12 excess (if any) of—

13 ‘‘(1) the amount included in gross income of

14 the taxpayer under subsection (a)(1) with respect to

15 such stock for prior taxable years, over

16 ‘‘(2) the amount allowed as a deduction under

17 subsection (a)(2) with respect to such stock for prior

18 taxable years.

19 The amount referred to in paragraph (1) shall include any

20 amount which would have been included in gross income

21 under subsection (a)(1) with respect to such stock for any

22 prior taxable year but for section 1293.

23 ‘‘(e) COORDINATION WITH SECTION 1292.—This

24 section shall not apply with respect to any stock in a pas25 sive foreign corporation—
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1 ‘‘(1) which is U.S. controlled,

2 ‘‘(2) which is a qualified electing fund with re3 spect to the United States person for the taxable

4 year, or

5 ‘‘(3) in which the United States person is a 25-

6 percent shareholder.

7 ‘‘(f) TREATMENT OF CONTROLLED FOREIGN COR8 PORATIONS WHICH ARE SHAREHOLDERS IN PASSIVE

9 FOREIGN CORPORATIONS.—In the case of a foreign cor10 poration which is a controlled foreign corporation (or is

11 treated as a controlled foreign corporation under section

12 1292) and which owns (or is treated under subsection (g)

13 as owning) stock in a passive foreign corporation—

14 ‘‘(1) this section (other than subsection (c)(2)

15 thereof) shall apply to such foreign corporation in

16 the same manner as if such corporation were a Unit17 ed States person, and

18 ‘‘(2) for purposes of subpart F of part III of

19 subchapter N—

20 ‘‘(A) any amount included in gross income

21 under subsection (a)(1) shall be treated as for22 eign personal holding company income de23 scribed in section 954(c)(1)(A), and

24 ‘‘(B) any amount allowed as a deduction

25 under subsection (a)(2) shall be treated as a de-
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1 duction allocable to foreign personal holding

2 company income so described.

3 ‘‘(g) STOCK OWNED THROUGH CERTAIN FOREIGN

4 ENTITIES.—Except as provided in regulations—

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, stock owned, directly or indirectly, by or for a

7 foreign partnership or foreign trust or foreign estate

8 shall be considered as being owned proportionately

9 by its partners or beneficiaries. Stock considered to

10 be owned by a person by reason of the application

11 of the preceding sentence shall, for purposes of ap12 plying such sentence, be treated as actually owned

13 by such person.

14 ‘‘(2) TREATMENT OF CERTAIN DISPOSITIONS.—

15 In any case in which a United States person is

16 treated as owning stock in a passive foreign corpora17 tion by reason of paragraph (1)—

18 ‘‘(A) any disposition by the United States

19 person or by any other person which results in

20 the United States person being treated as no

21 longer owning such stock, and

22 ‘‘(B) any disposition by the person owning

23 such stock,
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1 shall be treated as a disposition by the United

2 States person of the stock in the passive foreign cor3 poration.

4 ‘‘(h) COORDINATION WITH SECTION 851(b).—For

5 purposes of paragraphs (2) and (3) of section 851(b), any

6 amount included in gross income under subsection (a)

7 shall be treated as a dividend.

8 ‘‘(i) TRANSITION RULES.—

9 ‘‘(1) INDIVIDUALS BECOMING SUBJECT TO

10 UNITED STATES TAX.—If any individual becomes a

11 United States person in a taxable year beginning

12 after December 31, 1993, solely for purposes of this

13 section, the adjusted basis (before adjustments

14 under subsection (b)) of any marketable stock in a

15 passive foreign corporation owned (or treated as

16 owned under subsection (g)) by such individual on

17 the first day of such taxable year shall be treated as

18 being the greater of its fair market value on such

19 first day or its adjusted basis on such first day.

20 ‘‘(2) MARKETABLE STOCK HELD BEFORE EF21 FECTIVE DATE.—

22 ‘‘(A) IN GENERAL.—If any marketable

23 stock in a passive foreign corporation is owned

24 (or treated under subsection (g) as owned) by

25 a United States person on the first day of such
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1 person’s first taxable year, beginning after De2 cember 31, 1993—

3 ‘‘(i) paragraph (2) of section 1294(a)

4 shall apply to such stock as if it became

5 marketable during such first taxable year;

6 except that—

7 ‘‘(I) section 1293 shall not apply

8 to the amount included in gross in9 come under subsection (a) to the ex10 tent such amount is attributable to in11 creases in fair market value during

12 such first taxable year, and

13 ‘‘(II) the taxpayer’s holding pe14 riod shall be treated as having ended

15 on the last day of the preceding tax16 able year for purposes of allocating

17 amounts under section 1293(a)(1)(A),

18 and

19 ‘‘(ii) such person may elect to extend

20 the time for the payment of the applicable

21 section 1293 deferred tax as provided in

22 subparagraph (B).

23 ‘‘(B) ELECTION TO EXTEND TIME FOR

24 PAYMENT.—
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1 ‘‘(i) IN GENERAL.—At the election of

2 the taxpayer, the time for the payment of

3 the applicable section 1293 deferred tax

4 shall be extended to the extent and subject

5 to the limitations provided in this subpara6 graph.

7 ‘‘(ii) TERMINATION OF EXTENSION.—

8 ‘‘(I) DISTRIBUTIONS.—If any

9 distribution is received with respect to

10 any stock to which an extension under

11 clause (i) relates and such distribution

12 would be an excess distribution within

13 the meaning of section 1293 if such

14 section applied to such stock, then the

15 extension under clause (i) for the ap16 propriate portion (as determined

17 under regulations) of the applicable

18 section 1293 deferred tax shall expire

19 on the last day prescribed by law (de20 termined without regard to exten21 sions) for filing the return of tax for

22 the taxable year in which the distribu23 tion is received.

24 ‘‘(II) REVERSAL OF INCLU25 SION.—If an amount is allowable as a
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1 deduction under subsection (a)(2)

2 with respect to any stock to which an

3 extension under clause (i) relates and

4 the amount so allowable is allocable to

5 the amount which gave rise to the ap6 plicable section 1293 deferred tax,

7 then the extension under clause (i) for

8 the appropriate portion (as deter9 mined under regulations) of the appli10 cable section 1293 deferred tax shall

11 expire on the last day prescribed by

12 law (determined without regard to ex13 tensions) for filing the return of the

14 tax for the taxable year for which

15 such deduction is allowed.

16 ‘‘(III) DISPOSITIONS, ETC.—If

17 stock in a passive foreign corporation

18 is disposed of during the taxable year,

19 all extensions under clause (i) for pay20 ment of the applicable section 1293

21 deferred tax attributable to such stock

22 which have not expired before the date

23 of such disposition shall expire on the

24 last date prescribed by law (deter25 mined without regard to extensions)
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1 for filing the return of tax for the tax2 able year in which such disposition oc3 curs. To the extent provided in regu4 lations, the preceding sentence shall

5 not apply in the case of a disposition

6 in a transaction with respect to which

7 gain or loss is not recognized (in

8 whole or in part), and the person ac9 quiring such stock in such transaction

10 shall succeed to the treatment under

11 this section of the person making such

12 disposition.

13 ‘‘(iii) OTHER RULES.—

14 ‘‘(I) ELECTION.—The election

15 under clause (i) shall be made not

16 later than the time prescribed by law

17 (including extensions) for filing the

18 return of tax imposed by this chapter

19 for the first taxable year referred to

20 in subparagraph (A).

21 ‘‘(II) TREATMENT OF LOANS TO

22 SHAREHOLDER.—For purposes of this

23 subparagraph, any loan by a passive

24 foreign corporation (directly or indi25 rectly) to a shareholder of such cor-
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1 poration shall be treated as a distribu2 tion to such shareholder.

3 ‘‘(C) CROSS REFERENCE.—

‘‘For provisions providing for interest for the period of the extension under this paragraph, see section 6601.

4 ‘‘(D) APPLICABLE SECTION 1293 DE5 FERRED TAX.—For purposes of this paragraph,

6 the term ‘applicable section 1293 deferred tax’

7 means the deferred tax amount determined

8 under section 1293 with respect to the amount

9 which, but for section 1293, would have been

10 included in gross income for the first taxable

11 year referred to in subparagraph (A). Such

12 term also includes the tax imposed by this

13 chapter for such first taxable year to the extent

14 attributable to the amounts allocated under sec15 tion 1293(a)(1)(A) to a period described in sec16 tion 1293(a)(1)(B)(ii).

17 ‘‘(3) SPECIAL RULES FOR REGULATED INVEST18 MENT COMPANIES.—

19 ‘‘(A) IN GENERAL.—If any marketable

20 stock in a passive foreign corporation is owned

21 (or treated under subsection (g) as owned) by

22 a regulated investment company on the first

23 day of such company’s first taxable year begin24 ning after December 31, 1993—
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1 ‘‘(i) section 1293 shall not apply to

2 such stock with respect to any distribution

3 or disposition during, or amount included

4 in gross income under this section for,

5 such first taxable year, but

6 ‘‘(ii) such company’s tax under this

7 chapter for such first taxable year shall be

8 increased by the aggregate amount of in9 terest which would have been determined

10 under section 1293(c)(3) if section 1293

11 were applied without regard to this sub12 paragraph.

13 ‘‘(B) DISALLOWANCE OF DEDUCTION.—No

14 deduction shall be allowed to any regulated in15 vestment company for the increase in tax under

16 subparagraph (A)(ii).

17 SEC. 1292. CURRENT INCLUSION OF INCOME OF CERTAIN

18 PASSIVE FOREIGN CORPORATIONS.

19 ‘‘(a) PASSIVE FOREIGN CORPORATIONS WHICH ARE

20 UNITED STATES CONTROLLED.—

21 ‘‘(1) TREATMENT UNDER SUBPART F.—

22 ‘‘(A) IN GENERAL.—If a passive foreign

23 corporation is United States controlled, then for

24 purposes of subpart F of part III of subchapter

25 N—
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1 ‘‘(i) such corporation, if not otherwise

2 a controlled foreign corporation, shall be

3 treated as a controlled foreign corporation,

4 ‘‘(ii) the term ‘United States share5 holder’ means, with respect to such cor6 poration, any United States person who

7 owns (within the meaning of section

8 958(a)) any stock in such corporation,

9 ‘‘(iii) the entire gross income of such

10 corporation shall, after being reduced

11 under the principles of paragraph (5) of

12 section 954(b), be treated as foreign base

13 company income, and

14 ‘‘(iv) sections 970 and 971 shall not

15 apply.

16 Except as provided in regulations, the preceding

17 sentence shall also apply for purposes of section

18 904(d).

19 ‘‘(B) SPECIAL RULES.—If any taxpayer is

20 treated as being a United States shareholder in

21 a controlled foreign corporation solely by reason

22 of this section—

23 ‘‘(i) section 954(b)(4) (relating to ex24 ception for certain income subject to high

25 foreign taxes) shall not apply for purposes
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1 of determining the amount included in the

2 gross income of such taxpayer under sec3 tion 951 by reason of being so treated with

4 respect to such corporation, and

5 ‘‘(ii) the amount so included in the

6 gross income of such taxpayer under sec7 tion 951 with respect to such corporation

8 shall be treated as long-term capital gain

9 to the extent attributable to the net capital

10 gain of such corporation.

11 ‘‘(2) U.S. CONTROLLED.—For purposes of this

12 subpart, a passive foreign corporation is United

13 States controlled if—

14 ‘‘(A) such corporation is a controlled for15 eign corporation determined without regard to

16 this subsection, or

17 ‘‘(B) at any time during the taxable year

18 more than 50 percent of—

19 ‘‘(i) the total combined voting power

20 of all classes of stock of such corporation

21 entitled to vote, or

22 ‘‘(ii) the total value of the stock of

23 such corporation,

24 is owned directly or indirectly by 5 or fewer

25 United States persons.
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1 ‘‘(3) CONSTRUCTIVE OWNERSHIP RULES FOR

2 PURPOSES OF PARAGRAPH (2)(B).—For purposes of

3 paragraph (2)(B), the attribution rules provided in

4 section 544 shall apply, determined as if any ref5 erence to a personal holding company were a ref6 erence to a corporation described in paragraph

7 (2)(B) (and any reference to the stock ownership re8 quirement provided in section 542(a)(2) were a ref9 erence to the requirement of paragraph (2)(B)); ex10 cept that—

11 ‘‘(A) subsection (a)(4) of such section shall

12 be applied by substituting ‘Paragraphs (1), (2),

13 and (3)’ for ‘Paragraphs (2) and (3)’,

14 ‘‘(B) stock owned by a nonresident alien

15 individual shall not be considered by reason of

16 attribution through family membership as

17 owned by a citizen or resident alien individual

18 who is not the spouse of the nonresident alien

19 individual and who does not otherwise own

20 stock in the foreign corporation (determined

21 after the application of such attribution rules

22 other than attribution through family member23 ship), and

24 ‘‘(C) stock of a corporation owned by any

25 foreign person shall not be considered by reason
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1 of attribution through partners as owned by a

2 citizen or resident of the United States who

3 does not otherwise own stock in the foreign cor4 poration (determined after the application of

5 such attribution rules and subparagraph (A),

6 other than attribution through partners).

7 ‘‘(b) TAXPAYERS ELECTING CURRENT INCLUSION

8 AND 25-PERCENT SHAREHOLDERS.—

9 ‘‘(1) IN GENERAL.—If a passive foreign cor10 poration which is not United States controlled is a

11 qualified electing fund with respect to any taxpayer

12 or the taxpayer is a 25-percent shareholder in such

13 corporation, then for purposes of subpart F of part

14 III of subchapter N—

15 ‘‘(A) such passive foreign corporation shall

16 be treated as a controlled foreign corporation

17 with respect to such taxpayer,

18 ‘‘(B) such taxpayer shall be treated as a

19 United States shareholder in such corporation,

20 and

21 ‘‘(C) the modifications of clauses (iii) and

22 (iv) of subsection (a)(1)(A) and of subpara23 graph (B) of subsection (a)(1) shall apply in

24 determining the amount included under such
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1 subpart F in the gross income of such taxpayer

2 (and the character of the amount so included).

3 For purposes of section 904(d), any amount in4 cluded in the gross income of the taxpayer under the

5 preceding sentence shall be treated as a dividend

6 from a foreign corporation which is not a controlled

7 foreign corporation.

8 ‘‘(2) QUALIFIED ELECTING FUND.—For pur9 poses of this subpart, the term ‘qualified electing

10 fund’ means any passive foreign corporation if—

11 ‘‘(A) an election by the taxpayer under

12 paragraph (3) applies to such corporation for

13 the taxable year of the taxpayer, and

14 ‘‘(B) such corporation complies with such

15 requirements as the Secretary may prescribe for

16 purposes of carrying out the purposes of this

17 subpart.

18 ‘‘(3) ELECTION.—

19 ‘‘(A) IN GENERAL.—A taxpayer may make

20 an election under this paragraph with respect to

21 any passive foreign corporation for any taxable

22 year of the taxpayer. Such an election, once

23 made with respect to any corporation, shall

24 apply to all subsequent taxable years of the tax25 payer with respect to such corporation unless
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1 revoked by the taxpayer with the consent of the

2 Secretary.

3 ‘‘(B) WHEN MADE.—An election under

4 this subsection may be made for any taxable

5 year of the taxpayer at any time on or before

6 the due date (determined with regard to exten7 sions) for filing the return of the tax imposed

8 by this chapter for such taxable year. To the

9 extent provided in regulations, such an election

10 may be made later than as required in the pre11 ceding sentence where the taxpayer fails to

12 make a timely election because the taxpayer

13 reasonably believes that the corporation was not

14 a passive foreign corporation.

15 ‘‘(4) 25-PERCENT SHAREHOLDER.—For pur16 poses of this subpart, the term ‘25-percent share17 holder’ means, with respect to any passive foreign

18 corporation, any United States person who owns

19 (within the meaning of section 958(a)), or is consid20 ered as owning by applying the rules of section

21 958(b), 25 percent or more (by vote or value) of the

22 stock of such corporation.

23 ‘‘Subpart B—Interest on Holdings To Which Subpart

24 A Does Not Apply

‘‘Sec. 1293. Interest on tax deferral.

‘‘Sec. 1294. Definitions and special rules.
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1 ‘‘SEC. 1293. INTEREST ON TAX DEFERRAL.

2 ‘‘(a) TREATMENT OF DISTRIBUTIONS AND STOCK

3 DISPOSITIONS.—

4 ‘‘(1) DISTRIBUTIONS.—If a United States per5 son receives an excess distribution in respect of

6 stock to which this section applies, then—

7 ‘‘(A) the amount of the excess distribution

8 shall be allocated ratably to each day in the tax9 payer’s holding period for the stock,

10 ‘‘(B) with respect to such excess distribu11 tion, the taxpayer’s gross income for the cur12 rent year shall include (as ordinary income)

13 only the amounts allocated under subparagraph

14 (A) to—

15 ‘‘(i) the current year, or

16 ‘‘(ii) any period in the taxpayer’s

17 holding period before the first day of the

18 first taxable year of the corporation which

19 begins after December 31, 1986, and for

20 which it was a passive foreign corporation,

21 and

22 ‘‘(C) the tax imposed by this chapter for

23 the current year shall be increased by the de24 ferred tax amount (determined under sub25 section (c)).
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1 ‘‘(2) DISPOSITIONS.—If the taxpayer disposes

2 of stock to which this section applies, then the rules

3 of paragraph (1) shall apply to any gain recognized

4 on such disposition in the same manner as if such

5 gain were an excess distribution.

6 ‘‘(3) DEFINITIONS.—For purposes of this sub7 part—

8 ‘‘(A) HOLDING PERIOD.—The taxpayer’s

9 holding period shall be determined under sec10 tion 1223; except that—

11 ‘‘(i) for purposes of applying this sec12 tion to an excess distribution, such holding

13 period shall be treated as ending on the

14 date of such distribution, and

15 ‘‘(ii) if section 1291 applied to such

16 stock with respect to the taxpayer for any

17 prior taxable year, such holding period

18 shall be treated as beginning on the first

19 day of the first taxable year beginning

20 after the last taxable year for which sec21 tion 1291 so applied.

22 ‘‘(B) CURRENT YEAR.—The term ‘current

23 year’ means the taxable year in which the ex24 cess distribution or disposition occurs.

25 ‘‘(b) EXCESS DISTRIBUTION.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘excess distribution’ means any dis3 tribution in respect of stock received during any tax4 able year to the extent such distribution does not ex5 ceed its ratable portion of the total excess distribu6 tion (if any) for such taxable year.

7 ‘‘(2) TOTAL EXCESS DISTRIBUTION.—For pur8 poses of this subsection—

9 ‘‘(A) IN GENERAL.—The term ‘total excess

10 distribution’ means the excess (if any) of—

11 ‘‘(i) the amount of the distributions in

12 respect of the stock received by the tax13 payer during the taxable year, over

14 ‘‘(ii) 125 percent of the average

15 amount received in respect of such stock

16 by the taxpayer during the 3 preceding

17 taxable years (or, if shorter, the portion of

18 the taxpayer’s holding period before the

19 taxable year).

20 For purposes of clause (ii), any excess distribu21 tion received during such 3-year period shall be

22 taken into account only to the extent it was in23 cluded in gross income under subsection

24 (a)(1)(B).
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1 ‘‘(B) NO EXCESS FOR FIRST YEAR.—The

2 total excess distributions with respect to any

3 stock shall be zero for the taxable year in which

4 the taxpayer’s holding period in such stock be5 gins.

6 ‘‘(3) ADJUSTMENTS.—Under regulations pre7 scribed by the Secretary—

8 ‘‘(A) determinations under this subsection

9 shall be made on a share-by-share basis, except

10 that shares with the same holding period may

11 be aggregated,

12 ‘‘(B) proper adjustments shall be made for

13 stock splits and stock dividends,

14 ‘‘(C) if the taxpayer does not hold the

15 stock during the entire taxable year, distribu16 tions received during such year shall be

17 annualized,

18 ‘‘(D) if the taxpayer’s holding period in19 cludes periods during which the stock was held

20 by another person, distributions received by

21 such other person shall be taken into account

22 as if received by the taxpayer,

23 ‘‘(E) if the distributions are received in a

24 foreign currency, determinations under this

25 subsection shall be made in such currency and
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1 the amount of any excess distribution deter2 mined in such currency shall be translated into

3 dollars,

4 ‘‘(F) proper adjustment shall be made for

5 amounts not includible in gross income by rea6 son of section 959(a) or for which a deduction

7 is allowable under section 245(c), and

8 ‘‘(G) if a charitable deduction was allow9 able under section 642(c) to a trust for any dis10 tribution of its income, proper adjustments

11 shall be made for the deduction so allowable to

12 the extent allocable to distributions or gain in

13 respect of stock in a passive foreign corpora14 tion.

15 For purposes of subparagraph (F), any amount not

16 includible in gross income by reason of section

17 551(d) (as in effect on January 1, 1993) or 1293(c)

18 (as so in effect) shall be treated as an amount not

19 includible in gross income by reason of section

20 959(a).

21 ‘‘(c) DEFERRED TAX AMOUNT.—For purposes of this

22 section—

23 ‘‘(1) IN GENERAL.—The term ‘deferred tax

24 amount’ means, with respect to any distribution or
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1 disposition to which subsection (a) applies, an

2 amount equal to the sum of—

3 ‘‘(A) the aggregate increases in taxes de4 scribed in paragraph (2), plus

5 ‘‘(B) the aggregate amount of interest (de6 termined in the manner provided under para7 graph (3)) on such increases in tax.

8 Any increase in the tax imposed by this chapter for

9 the current year under subsection (a) to the extent

10 attributable to the amount referred to in subpara11 graph (B) shall be treated as interest paid under

12 section 6601 on the due date for the current year.

13 ‘‘(2) AGGREGATE INCREASES IN TAXES.—For

14 purposes of paragraph (1)(A), the aggregate in15 creases in taxes shall be determined by multiplying

16 each amount allocated under subsection (a)(1)(A) to

17 any taxable year (other than any taxable year re18 ferred to in subsection (a)(1)(B)) by the highest rate

19 of tax in effect for such taxable year under section

20 1 or 11, whichever applies.

21 ‘‘(3) COMPUTATION OF INTEREST.—

22 ‘‘(A) IN GENERAL.—The amount of inter23 est referred to in paragraph (1)(B) on any in24 crease determined under paragraph (2) for any
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1 taxable year shall be determined for the pe2 riod—

3 ‘‘(i) beginning on the due date for

4 such taxable year, and

5 ‘‘(ii) ending on the due date for the

6 taxable year with or within which the dis7 tribution or disposition occurs,

8 by using the rates and method applicable under

9 section 6621 for underpayments of tax for such

10 period.

11 ‘‘(B) DUE DATE.—For purposes of this

12 subsection, the term ‘due date’ means the date

13 prescribed by law (determined without regard to

14 extensions) for filing the return of the tax im15 posed by this chapter for the taxable year.

16 ‘‘(C) SPECIAL RULE.—For purposes of de17 termining the amount of interest referred to in

18 paragraph (1)(B), the amount of any increase

19 in tax determined under paragraph (2) shall be

20 determined without regard to any reduction

21 under section 1294(d) for a tax described in

22 paragraph (2)(A)(ii) thereof.

23 ‘‘SEC. 1294. DEFINITIONS AND SPECIAL RULES.

24 ‘‘(a) STOCK TO WHICH SECTION 1293 APPLIES.—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, section 1293 shall apply to

3 any stock in a passive foreign corporation unless—

4 ‘‘(A) such stock is marketable stock as of

5 the time of the distribution or disposition in6 volved, or

7 ‘‘(B)(i) with respect to each of such cor8 poration’s taxable years for which such corpora9 tion was a passive foreign corporation and

10 which began after December 31, 1993, and in11 cluded any portion of the taxpayer’s holding pe12 riod in such stock—

13 ‘‘(I) such corporation was United

14 States controlled (within the meaning of

15 section 1292(a)(2)), or

16 ‘‘(II) such corporation was treated as

17 a controlled foreign corporation under sec18 tion 1292(b) with respect to the taxpayer,

19 and

20 ‘‘(ii) with respect to each of such corpora21 tion’s taxable years for which such corporation

22 was a passive foreign corporation and which

23 begin after December 31, 1986, and before

24 January 1, 1994, and included any portion of

25 the taxpayer’s holding period in such stock,
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1 such corporation was treated as a qualified

2 electing fund under this part (as in effect on

3 January 1, 1993) with respect to the taxpayer.

4 ‘‘(2) TREATMENT WHERE STOCK BECOMES

5 MARKETABLE.—If any stock in a passive foreign

6 corporation becomes marketable stock after the be7 ginning of the taxpayer’s holding period in such

8 stock, and if the requirements of paragraph (1)(B)

9 are not satisfied, section 1293 shall apply to—

10 ‘‘(A) any distributions with respect to, or

11 disposition of, such stock in the taxable year of

12 the taxpayer in which it becomes so marketable,

13 and

14 ‘‘(B) any amount which, but for section

15 1293, would have been included in gross income

16 under section 1291(a) with respect to such

17 stock for such taxable year in the same manner

18 as if such amount were gain on the disposition

19 of such stock.

20 ‘‘(3) ELECTION TO RECOGNIZE GAIN WHERE

21 COMPANY BECOMES SUBJECT TO CURRENT INCLU22 SIONS.—

23 ‘‘(A) IN GENERAL.—If—

24 ‘‘(i) a passive foreign corporation first

25 meets the requirements of clause (i) of
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1 paragraph (1)(B) with respect to the tax2 payer for a taxable year of such taxpayer

3 which begins after December 31, 1993,

4 ‘‘(ii) the taxpayer holds stock in such

5 company on the first day of such taxable

6 year, and

7 ‘‘(iii) the taxpayer establishes to the

8 satisfaction of the Secretary the fair mar9 ket value of such stock on such first day,

10 the taxpayer may elect to recognize gain as if

11 he sold such stock on such first day for such

12 fair market value.

13 ‘‘(B) ADDITIONAL ELECTION FOR SHARE14 HOLDER OF CONTROLLED FOREIGN CORPORA15 TIONS.—

16 ‘‘(i) IN GENERAL.—If—

17 ‘‘(I) a passive foreign corporation

18 first meets the requirements of

19 subclause (I) of paragraph (1)(B)(i)

20 with respect to the taxpayer for a tax21 able year of such taxpayer which be22 gins after December 31, 1993,

23 ‘‘(II) the taxpayer holds stock in

24 such corporation on the first day of

25 such taxable year, and
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1 ‘‘(III) such corporation is a con2 trolled foreign corporation without re3 gard to this part,

4 the taxpayer may elect to be treated as receiv5 ing a dividend on such first day in an amount

6 equal to the portion of the post-1986 earnings

7 and profits of such corporation attributable

8 (under regulations prescribed by the Secretary)

9 to the stock in such corporation held by the tax10 payer on such first day. The amount treated as

11 a dividend under the preceding sentence shall

12 be treated as an excess distribution and shall be

13 allocated under section 1293(a)(1)(A) only to

14 days during periods taken into account in deter15 mining the post-1986 earnings and profits so

16 attributable.

17 ‘‘(ii) POST-1986 EARNINGS AND PROF18 ITS.—For purposes of clause (i), the term

19 ‘post-1986 earnings and profits’ means

20 earnings and profits which were accumu21 lated in taxable years of the corporation

22 beginning after December 31, 1986, and

23 during the period or periods the stock was

24 held by the taxpayer while the corporation

25 was a passive foreign corporation.
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1 ‘‘(iii) COORDINATION WITH SECTION

2 959(e).—For purposes of section 959(e),

3 any amount treated as a dividend under

4 this subparagraph shall be treated as in5 cluded in gross income under section

6 1248(a).

7 ‘‘(C) ADJUSTMENTS.—In the case of any

8 stock to which subparagraph (A) or (B) ap9 plies—

10 ‘‘(i) the adjusted basis of such stock

11 shall be increased by the gain recognized

12 under subparagraph (A) or the amount

13 treated as a dividend under subparagraph

14 (B), as the case may be, and

15 ‘‘(ii) the taxpayer’s holding period in

16 such stock shall be treated as beginning on

17 the first day referred to in such subpara18 graph.

19 ‘‘(b) RULES RELATING TO STOCK ACQUIRED FROM

20 A DECEDENT.—

21 ‘‘(1) BASIS.—In the case of stock of a passive

22 foreign corporation acquired by bequest, devise, or

23 inheritance (or by the decedent’s estate), notwith24 standing section 1014, the basis of such stock in the

25 hands of the person so acquiring it shall be the ad-
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1 justed basis of such stock in the hands of the dece2 dent immediately before his death (or, if lesser, the

3 basis which would have been determined under sec4 tion 1014 without regard to this paragraph).

5 ‘‘(2) DEDUCTION FOR ESTATE TAX.—If stock

6 in a passive foreign corporation is acquired from a

7 decedent, the taxpayer shall, under regulations pre8 scribed by the Secretary, be allowed (for the taxable

9 year of the sale or exchange) a deduction from gross

10 income equal to that portion of the decedent’s estate

11 tax deemed paid which is attributable to the excess

12 of (A) the value at which such stock was taken into

13 account for purposes of determining the value of the

14 decedent’s gross estate, over (B) the basis deter15 mined under paragraph (1).

16 ‘‘(3) EXCEPTIONS.—This subsection shall not

17 apply to any stock in a passive foreign corporation

18 if—

19 ‘‘(A) section 1293 would not have applied

20 to a disposition of such stock by the decedent

21 immediately before his death, or

22 ‘‘(B) the decedent was a nonresident alien

23 at all times during his holding period in such

24 stock.
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1 ‘‘(c) RECOGNITION OF GAIN.—Except as otherwise

2 provided in regulations, in the case of any transfer of stock

3 in a passive foreign company to which section 1293 ap4 plies, where (but for this subsection) there is not full rec5 ognition of gain, the excess (if any) of—

6 ‘‘(1) the fair market value of such stock, over

7 ‘‘(2) its adjusted basis,

8 shall be treated as gain from the sale or exchange of such

9 stock and shall be recognized notwithstanding any provi10 sion of law. Proper adjustment shall be made to the basis

11 of property for gain recognized under the preceding sen12 tence.

13 ‘‘(d) COORDINATION WITH FOREIGN TAX CREDIT

14 RULES.—

15 ‘‘(1) IN GENERAL.—If there are creditable for16 eign taxes with respect to any distribution in respect

17 of stock in a passive foreign corporation—

18 ‘‘(A) the amount of such distribution shall

19 be determined for purposes of section 1293 with

20 regard to section 78,

21 ‘‘(B) the excess distribution taxes shall be

22 allocated ratably to each day in the taxpayer’s

23 holding period for the stock, and

24 ‘‘(C) to the extent—
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1 ‘‘(i) that such excess distribution

2 taxes are allocated to a taxable year re3 ferred to in section 1293(a)(1)(B), such

4 taxes shall be taken into account under

5 section 901 for the current year, and

6 ‘‘(ii) that such excess distribution

7 taxes are allocated to any other taxable

8 year, such taxes shall reduce (subject to

9 the principles of section 904 and not below

10 zero) the increase in tax determined under

11 section 1293(c)(2) for such taxable year by

12 reason of such distribution (but such taxes

13 shall not be taken into account under sec14 tion 901).

15 ‘‘(2) DEFINITIONS.—For purposes of this sub16 section—

17 ‘‘(A) CREDITABLE FOREIGN TAXES.—The

18 term ‘creditable foreign taxes’ means, with re19 spect to any distribution—

20 ‘‘(i) any foreign taxes deemed paid

21 under section 902 with respect to such dis22 tribution, and

23 ‘‘(ii) any withholding tax imposed with

24 respect to such distribution,
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1 but only if the taxpayer chooses the benefits of

2 section 901 and such taxes are creditable under

3 section 901 (determined without regard to

4 paragraph (1)(C)(ii)).

5 ‘‘(B) EXCESS DISTRIBUTION TAXES.—The

6 term ‘excess distribution taxes’ means, with re7 spect to any distribution, the portion of the

8 creditable foreign taxes with respect to such

9 distribution which is attributable (on a pro rata

10 basis) to the portion of such distribution which

11 is an excess distribution.

12 ‘‘(C) SECTION 1248 GAIN.—The rules of

13 this subsection also shall apply in the case of

14 any gain which but for this section would be in15 cludible in gross income as a dividend under

16 section 1248.

17 ‘‘(e) ATTRIBUTION OF OWNERSHIP.—For purposes

18 of this subpart—

19 ‘‘(1) ATTRIBUTION TO UNITED STATES PER20 SONS.—This subsection—

21 ‘‘(A) shall apply to the extent that the ef22 fect is to treat stock of a passive foreign cor23 poration as owned by a United States person,

24 and
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1 ‘‘(B) except as provided in paragraph (3)

2 or in regulations, shall not apply to treat stock

3 owned (or treated as owned under this sub4 section) by a United States person as owned by

5 any other person.

6 ‘‘(2) CORPORATIONS.—

7 ‘‘(A) IN GENERAL.—If 50 percent or more

8 in value of the stock of a corporation (other

9 than an S corporation) is owned, directly or in10 directly, by or for any person, such person shall

11 be considered as owning the stock owned di12 rectly or indirectly by or for such corporation in

13 that proportion which the value of the stock

14 which such person so owns bears to the value

15 of all stock in the corporation.

16 ‘‘(B) 50-PERCENT LIMITATION NOT TO

17 APPLY IN CERTAIN CASES.—For purposes of de18 termining whether a shareholder of a passive

19 foreign corporation (or whether a United States

20 shareholder of a controlled foreign corporation

21 which is not a passive foreign corporation) is

22 treated as owning stock owned directly or indi23 rectly by or for such corporation, subparagraph

24 (A) shall be applied without regard to the 50-

25 percent limitation contained therein.
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1 ‘‘(C) FAMILY AND PARTNER ATTRIBUTION

2 FOR 50-PERCENT LIMITATION.—For purposes of

3 determining whether the 50-percent limitation

4 of subparagraph (A) is met, the constructive

5 ownership rules of section 544(a)(2) shall apply

6 in addition to the other rules of this subsection.

7 ‘‘(3) PARTNERSHIPS, ETC.—Except as provided

8 in regulations, stock owned, directly or indirectly, by

9 or for a partnership, S corporation, estate, or trust

10 shall be considered as being owned proportionately

11 by its partners, shareholders, or beneficiaries (as the

12 case may be).

13 ‘‘(4) OPTIONS.—To the extent provided in regu14 lations, if any person has an option to acquire stock,

15 such stock shall be considered as owned by such per16 son. For purposes of this paragraph, an option to

17 acquire such an option, and each one of a series of

18 such options, shall be considered as an option to ac19 quire such stock.

20 ‘‘(5) SUCCESSIVE APPLICATION.—Stock consid21 ered to be owned by a person by reason of the appli22 cation of paragraph (2), (3), or (4) shall, for pur23 poses of applying such paragraphs, be considered as

24 actually owned by such person.
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1 ‘‘(f) OTHER SPECIAL RULES.—For purposes of this

2 subpart—

3 ‘‘(1) TIME FOR DETERMINATION.—Stock held

4 by a taxpayer shall be treated as stock in a passive

5 foreign corporation if, at any time during the hold6 ing period of the taxpayer with respect to such

7 stock, such corporation (or any predecessor) was a

8 passive foreign corporation. The preceding sentence

9 shall not apply if the taxpayer elects to recognize

10 gain (as of the last day of the last taxable year for

11 which the company was a passive foreign corpora12 tion) under rules similar to the rules of subsection

13 (a)(3)(A).

14 ‘‘(2) APPLICATION OF SUBPART WHERE STOCK

15 HELD BY OTHER ENTITY.—Under regulations—

16 ‘‘(A) IN GENERAL.—In any case in which

17 a United States person is treated as owning

18 stock in a passive foreign corporation by reason

19 of subsection (e)—

20 ‘‘(i) any transaction which results in

21 the United States person being treated as

22 no longer owning such stock,

23 ‘‘(ii) any disposition of such stock by

24 the person owning such stock, and
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1 ‘‘(iii) any distribution of property in

2 respect of such stock to the person holding

3 such stock,

4 shall be treated as a disposition by, or distribu5 tion to, the United States person with respect

6 to the stock in the passive foreign corporation.

7 ‘‘(B) AMOUNT TREATED IN SAME MANNER

8 AS PREVIOUSLY TAXED INCOME.—Rules similar

9 to the rules of section 959(b) shall apply to any

10 amount described in subparagraph (A) in re11 spect of stock which the taxpayer is treated as

12 owning under subsection (e).

13 ‘‘(C) COORDINATION WITH SECTION 951.—

14 If, but for this subparagraph, an amount would

15 be taken into account under section 1293 by

16 reason of subparagraph (A) and such amount

17 would also be included in the gross income of

18 the taxpayer under section 951, such amount

19 shall only be taken into account under section

20 1293.

21 ‘‘(3) DISPOSITIONS.—Except as provided in

22 regulations, if a taxpayer uses any stock in a passive

23 foreign corporation as security for a loan, the tax24 payer shall be treated as having disposed of such

25 stock.
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1 ‘‘Subpart C—General Provisions

‘‘Sec. 1296. Passive foreign corporation.

‘‘Sec. 1297. Special rules.

2 ‘‘SEC. 1296. PASSIVE FOREIGN CORPORATION.

3 ‘‘(a) IN GENERAL.—For purposes of this part, except

4 as otherwise provided in this subpart, the term ‘passive

5 foreign corporation’ means any foreign corporation if—

6 ‘‘(1) 60 percent or more of the gross income of

7 such corporation for the taxable year is passive in8 come,

9 ‘‘(2) the average percentage of assets (by value)

10 held by such corporation during the taxable year

11 which produce passive income or which are held for

12 the production of passive income is at least 50 per13 cent, or

14 ‘‘(3) such corporation is registered under the

15 Investment Company Act of 1940, as amended (15

16 U.S.C. 80a–1 to 80b–2), either as a management

17 company or as a unit investment trust.

18 A foreign corporation may elect to have the determination

19 under paragraph (2) based on the adjusted bases of its

20 assets in lieu of their value. Such an election, once made,

21 may be revoked only with the consent of the Secretary.

22 ‘‘(b) PASSIVE INCOME.—For purposes of this sec23 tion—
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1 ‘‘(1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the term ‘passive income’

3 means any income which is of a kind which would

4 be foreign personal holding company income as de5 fined in section 954(c) without regard to paragraph

6 (3) thereof.

7 ‘‘(2) EXCEPTIONS.—Except as provided in reg8 ulations, the term ‘passive income’ does not include

9 any income—

10 ‘‘(A) derived in the active conduct of a

11 banking business by an institution licensed to

12 do business as a bank in the United States (or,

13 to the extent provided in regulations, by any

14 other corporation),

15 ‘‘(B) derived in the active conduct of an in16 surance business by a corporation which is pre17 dominantly engaged in an insurance business

18 and which would be subject to tax under sub19 chapter L if it were a domestic corporation,

20 ‘‘(C) which is interest, a dividend, or a

21 rent or royalty, which is received or accrued

22 from a related person (within the meaning of

23 section 954(d)(3)) to the extent such amount is

24 properly allocable (under regulations prescribed
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1 by the Secretary) to income of such related per2 son which is not passive income, or

3 ‘‘(D) any foreign trade income of a FSC.

4 For purposes of subparagraph (C), the term ‘related

5 person’ has the meaning given such term by section

6 954(d)(3) determined by substituting ‘foreign cor7 poration’ for ‘controlled foreign corporation’ each

8 place it appears in section 954(d)(3).

9 ‘‘(3) TREATMENT OF INCOME FROM CERTAIN

10 ASSETS.—To the extent that any asset is properly

11 treated as not held for the production of passive in12 come for purposes of subsection (a)(2), all income

13 from such asset shall be treated as income which is

14 not passive income.

15 ‘‘(4) TREATMENT OF CERTAIN MATCHED RE16 PURCHASE TRANSACTIONS.—

17 ‘‘(A) IN GENERAL.—In the case of any for18 eign corporation engaged in the active conduct

19 of a trade or business as a dealer in securi20 ties—

21 ‘‘(i) an amount properly treated as in22 terest income by reason of a qualified

23 matched transaction shall be netted with

24 the amount properly treated as interest ex25 pense by reason of such transaction, and
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1 any net income resulting from such netting

2 shall be treated as an item of gross inter3 est income, and

4 ‘‘(ii) the offsetting positions which are

5 part of such transaction shall be netted

6 and the net position shall be treated as a

7 single asset.

8 ‘‘(B) QUALIFIED MATCHED TRANS9 ACTION.—For purposes of subparagraph (A)

10 the term ‘qualified matched transaction’ means

11 a sale and repurchase agreement with respect

12 to a security and an offsetting reverse agree13 ment with respect to the same security, entered

14 into by the foreign corporation in the active

15 conduct of its trade or business of being a

16 dealer in securities, and properly treated as

17 offsetting agreements in a matched book.

18 ‘‘(C) SECURITY.—For purposes of this

19 paragraph, the term ‘security’ has the meaning

20 given such term by section 1236(c).

21 ‘‘(c) LOOK-THROUGH IN CASE OF 25-PERCENT

22 OWNED CORPORATION.—If a foreign corporation owns

23 (directly or indirectly) at least 25 percent (by value) of

24 the stock of another corporation, for purposes of determin25 ing whether such foreign corporation is a passive foreign
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1 corporation, such foreign corporation shall be treated as

2 if it—

3 ‘‘(1) held its proportionate share of the assets

4 of such other corporation, and

5 ‘‘(2) received directly its proportionate share of

6 the income of such other corporation.

7 ‘‘SEC. 1297. SPECIAL RULES.

8 ‘‘(a) UNITED STATES PERSON.—For purposes of this

9 part, the term ‘United States person’ has the meaning

10 given to such term by section 7701(a)(30).

11 ‘‘(b) CONTROLLED FOREIGN CORPORATION.—For

12 purposes of this part, the term ‘controlled foreign corpora13 tion’ has the meaning given such term by section 957(a).

14 ‘‘(c) MARKETABLE STOCK.—For purposes of this

15 part—

16 ‘‘(1) IN GENERAL.—The term ‘marketable

17 stock’ means—

18 ‘‘(A) any stock which is regularly traded

19 on—

20 ‘‘(i) a national securities exchange

21 which is registered with the Securities and

22 Exchange Commission or the national mar23 ket system established pursuant to section

24 11A of the Securities and Exchange Act of

25 1934, or
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1 ‘‘(ii) any exchange or other market

2 which the Secretary determines has rules

3 adequate to carry out the purposes of this

4 part, and

5 ‘‘(B) to the extent provided in regulations,

6 stock in any foreign corporation which is com7 parable to a regulated investment company and

8 which offers for sale or has outstanding any

9 stock of which it is the issuer and which is re10 deemable at its net asset value.

11 ‘‘(2) SPECIAL RULE FOR REGULATED INVEST12 MENT COMPANIES.—In the case of any regulated in13 vestment company which is offering for sale or has

14 outstanding any stock of which it is the issuer and

15 which is redeemable at its net asset value, all stock

16 in a passive foreign corporation which it owns (or is

17 treated under section 1291(g) as owning) shall be

18 treated as marketable stock for purposes of this

19 part. Except as provided in regulations, a similar

20 rule shall apply in the case of any other regulated

21 investment company.

22 ‘‘(d) OTHER SPECIAL RULES.—For purposes of this

23 part—

24 ‘‘(1) CERTAIN CORPORATIONS NOT TREATED AS

25 PASSIVE.—A corporation shall not be treated as a
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1 passive foreign corporation for the 1st taxable year

2 such corporation has gross income (hereinafter in

3 this paragraph referred to as the ‘start-up year’)

4 if—

5 ‘‘(A) no predecessor of such corporation

6 was a passive foreign corporation,

7 ‘‘(B) it is established to the satisfaction of

8 the Secretary that such corporation will not be

9 a passive foreign corporation for either of the

10 1st 2 taxable years following the start-up year,

11 and

12 ‘‘(C) such corporation is not a passive for13 eign corporation for either of the 1st 2 taxable

14 years following the start-up year.

15 ‘‘(2) CERTAIN CORPORATIONS CHANGING BUSI16 NESSES.—A corporation shall not be treated as a

17 passive foreign corporation for any taxable year if—

18 ‘‘(A) neither such corporation (nor any

19 predecessor) was a passive foreign corporation

20 for any prior taxable year,

21 ‘‘(B) it is established to the satisfaction of

22 the Secretary that—

23 ‘‘(i) substantially all of the passive in24 come of the corporation for the taxable

25 year is attributable to proceeds from the
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1 disposition of 1 or more active trades or

2 businesses, and

3 ‘‘(ii) such corporation will not be a

4 passive foreign corporation for either of

5 the first 2 taxable years following the tax6 able year, and

7 ‘‘(C) such corporation is not a passive for8 eign corporation for either of such 2 taxable

9 years.

10 For purposes of section 1296(c), any passive income

11 referred to in subparagraph (B)(i) shall be treated

12 as income which is not passive income and any as13 sets which produce income so described shall be

14 treated as assets producing income other than pas15 sive income.

16 ‘‘(3) TREATMENT OF CERTAIN FOREIGN COR17 PORATIONS OWNING STOCK IN 25-PERCENT OWNED

18 DOMESTIC CORPORATION.—

19 ‘‘(A) IN GENERAL.—If a foreign corpora20 tion owns at least 25 percent (by value) of the

21 stock of a domestic corporation, for purposes of

22 determining whether such foreign corporation is

23 a passive foreign corporation, any qualified

24 stock held by such domestic corporation shall be

25 treated as an asset which does not produce pas-
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1 sive income (and is not held for the production

2 of passive income) and any amount included in

3 gross income with respect to such stock shall

4 not be treated as passive income.

5 ‘‘(B) QUALIFIED STOCK.—For purposes of

6 subparagraph (A), the term ‘qualified stock’

7 means any stock in a C corporation which is a

8 domestic corporation and which is not a regu9 lated investment company or real estate invest10 ment trust.

11 ‘‘(4) TREATMENT OF CORPORATION WHICH WAS

12 A PFIC.—A corporation shall be treated as a passive

13 foreign corporation for any taxable year beginning

14 before January 1, 1994, if and only if such corpora15 tion was a passive foreign investment company

16 under this part as in effect for such taxable year.

17 ‘‘(5) SEPARATE INTERESTS TREATED AS SEPA18 RATE CORPORATIONS.—Under regulations prescribed

19 by the Secretary, where necessary to carry out the

20 purposes of this part, separate classes of stock (or

21 other interests) in a corporation shall be treated as

22 interests in separate corporations.

23 ‘‘(e) TREATMENT OF CERTAIN LEASED PROP24 ERTY.—For purposes of section 1296(a)(2)—
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1 ‘‘(1) IN GENERAL.—Any tangible personal

2 property with respect to which the foreign corpora3 tion is the lessee under a lease with a term of at

4 least 12 months shall be treated as an asset actually

5 held by such corporation.

6 ‘‘(2) DETERMINATION OF VALUE.—

7 ‘‘(A) IN GENERAL.—The value of any asset

8 to which paragraph (1) applies shall be the less9 er of—

10 ‘‘(i) the fair market value of such

11 property, or

12 ‘‘(ii) the unamortized portion (as de13 termined under regulations prescribed by

14 the Secretary) of the present value of the

15 payments under the lease for the use of

16 such property.

17 ‘‘(B) PRESENT VALUE.—For purposes of

18 subparagraph (A), the present value of pay19 ments described in subparagraph (A)(ii) shall

20 be determined in the manner provided in regu21 lations prescribed by the Secretary—

22 ‘‘(i) as of the beginning of the lease

23 term, and

24 ‘‘(ii) except as provided in such regu25 lations, by using a discount rate equal to
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1 the applicable Federal rate determined

2 under section 1274(d)—

3 ‘‘(I) by substituting the lease

4 term for the term of the debt instru5 ment, and

6 ‘‘(II) without regard to para7 graph (2) or (3) thereof.

8 ‘‘(3) EXCEPTIONS.—This subsection shall not

9 apply in any case where—

10 ‘‘(A) the lessor is a related person (as de11 fined in the last sentence of section 1296(b)(2))

12 with respect to the foreign corporation, or

13 ‘‘(B) a principal purpose of leasing the

14 property was to avoid the provisions of this

15 part.

16 ‘‘(f) ELECTION BY CERTAIN PASSIVE FOREIGN COR17 PORATIONS TO BE TREATED AS A DOMESTIC CORPORA18 TION.—

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

20 if—

21 ‘‘(A) a passive foreign corporation would

22 qualify as a regulated investment company

23 under part I of subchapter M if such passive

24 foreign corporation were a domestic corpora25 tion,
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1 ‘‘(B) such passive foreign corporation

2 meets such requirements as the Secretary shall

3 prescribe to ensure that the taxes imposed by

4 this title on such passive foreign corporation

5 are paid, and

6 ‘‘(C) such passive foreign corporation

7 makes an election to have this paragraph apply

8 and waives all benefits which are granted by the

9 United States under any treaty and to which

10 such corporation would otherwise be entitled by

11 reason of being a resident of another country,

12 such corporation shall be treated as a domestic cor13 poration.

14 ‘‘(2) CERTAIN RULES MADE APPLICABLE.—

15 Rules similar to the rules of paragraphs (2), (3),

16 (4)(A), and (5) of section 953(d) shall apply with re17 spect to any corporation making an election under

18 paragraph (1).

19 ‘‘(g) SPECIAL RULES FOR CERTAIN TAXPAYERS.—

20 ‘‘(1) TAX-EXEMPT ORGANIZATIONS.—In the

21 case of any organization exempt from tax under sec22 tion 501—

23 ‘‘(A) this part shall apply to any stock in

24 a passive foreign corporation owned (or treated

25 as owned under section 1294(e)) by such orga-
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1 nization only to the extent that a dividend on

2 such stock would be taken into account in de3 termining the unrelated business taxable income

4 of such organization, and

5 ‘‘(B) to the extent that this part applies to

6 any such stock, this part shall be applied in the

7 same manner as if such organization were not

8 exempt from tax under section 501(a).

9 ‘‘(2) TREATMENT OF STOCK HELD BY POOLED

10 INCOME FUND.—If stock in a passive foreign cor11 poration is owned (or treated as owned under section

12 1294(e)) by a pooled income fund (as defined in sec13 tion 642(c)(5)) and no portion of any gain from a

14 disposition of such stock may be allocated to income

15 under the terms of the governing instrument of such

16 fund—

17 ‘‘(A) section 1293 shall not apply to any

18 gain on a disposition of such stock by such fund

19 if (without regard to section 1293) a deduction

20 would be allowable with respect to such gain

21 under section 642(c)(3),

22 ‘‘(B) subpart A shall not apply with re23 spect to such stock, and

24 ‘‘(C) in determining whether section 1293

25 applies to any distribution in respect of such
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1 stock, such stock shall be treated as failing to

2 qualify for the exceptions under section

3 1294(a)(1).

4 ‘‘(h) INFORMATION FROM SHAREHOLDERS.—Every

5 United States person who owns stock in any passive for6 eign corporation shall furnish with respect to such cor7 poration such information as the Secretary may prescribe.

8 ‘‘(i) REGULATIONS.—The Secretary shall prescribe

9 such regulations as may be necessary or appropriate to

10 carry out the purposes of this part, including regula11 tions—

12 ‘‘(1) providing that gross income shall be deter13 mined without regard to section 1293 for such pur14 poses as may be specified in such regulations, and

15 ‘‘(2) to prevent avoidance of the provisions of

16 this part through changes in citizenship or residence

17 status.’’

18 (b) INSTALLMENT SALES TREATMENT NOT AVAIL19 ABLE.—Paragraph (2) of section 453(k) is amended by

20 striking ‘‘or’’ at the end of subparagraph (A), by inserting

21 ‘‘or’’ at the end of subparagraph (B), and by adding at

22 the end thereof the following new subparagraph:

23 ‘‘(C) stock in a passive foreign corporation

24 (as defined in section 1296) if section 1293 ap25 plies to such sale,’’.
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1 (c) TREATMENT OF MARK-TO-MARKET GAIN UNDER

2 SECTION 4982.—

3 (1) Subsection (e) of section 4982 is amended

4 by adding at the end thereof the following new para5 graph:

6 ‘‘(6) TREATMENT OF GAIN RECOGNIZED UNDER

7 SECTION 1291.—For purposes of determining a regu8 lated investment company’s ordinary income—

9 ‘‘(A) notwithstanding paragraph (1)(C),

10 section 1291 shall be applied as if such compa11 ny’s taxable year ended on October 31, and

12 ‘‘(B) any ordinary gain or loss from an ac13 tual disposition of stock in a passive foreign

14 corporation during the portion of the calendar

15 year after October 31 shall be taken into ac16 count in determining such company’s ordinary

17 income for the following calendar year.

18 In the case of a company making an election under

19 paragraph (4), the preceding sentence shall be ap20 plied by substituting the last day of the company’s

21 taxable year for October 31.’’

22 (2) Subsection (b) of section 852 is amended by

23 adding at the end thereof the following new para24 graph:
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1 ‘‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON

2 STOCK IN PASSIVE FOREIGN CORPORATIONS.—To

3 the extent provided in regulations, the taxable in4 come of a regulated investment company (other than

5 a company to which an election under section

6 4982(e)(4) applies) shall be computed without re7 gard to any net reduction in the value of any stock

8 of a passive foreign corporation to which section

9 1291 applies occurring after October 31 of the tax10 able year, and any such reduction shall be treated as

11 occurring on the first day of the following taxable

12 year.’’

13 (3) Subsection (c) of section 852 is amended by

14 inserting after ‘‘October 31 of such year’’ the follow15 ing: ‘‘, without regard to any net reduction in the

16 value of any stock of a passive foreign corporation

17 to which section 1291 applies occurring after Octo18 ber 31 of such year,’’.

19 (d) TREATMENT OF CERTAIN PREVIOUSLY TAXED

20 AMOUNTS.—Subsection (e) of section 959 is amended—

21 (1) by adding at the end thereof the following

22 new sentence: ‘‘A similar rule shall apply in the case

23 of amounts included in gross income under section

24 1293 (as in effect on January 1, 1993).’’, and
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1 (2) by striking ‘‘AMOUNTS PREVIOUSLY TAXED

2 UNDER SECTION 1248’’ in the subsection heading

3 and inserting ‘‘CERTAIN PREVIOUSLY TAXED

4 AMOUNTS’’.

5 SEC. 403. TECHNICAL AND CONFORMING AMENDMENTS.

6 (a) GENERAL RULE.—

7 (1) Paragraph (2) of section 171(c) is amend8 ed—

9 (A) by striking ‘‘, or by a foreign personal

10 holding company, as defined in section 552’’,

11 and

12 (B) by striking ‘‘, or a foreign personal

13 holding company’’.

14 (2) Section 312 is amended by striking sub15 section (j).

16 (3) Subsection (m) of section 312 is amended

17 by striking ‘‘, a foreign investment company (within

18 the meaning of section 1246(b)), or a foreign per19 sonal holding company (within the meaning of sec20 tion 552)’’ and inserting ‘‘or a passive foreign cor21 poration (as defined in section 1296)’’.

22 (4) Subsection (e) of section 443 is amended by

23 striking paragraph (3) and by redesignating para24 graphs (4) and (5) as paragraphs (3) and (4), re25 spectively.
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1 (5) Clause (ii) of section 465(c)(7)(B) is

2 amended to read as follows:

3 ‘‘(ii) a passive foreign corporation

4 with respect to which the stock ownership

5 requirements of section 1292(a)(2)(B) are

6 met, or’’.

7 (6) Subsection (b) of section 535 is amended by

8 striking paragraph (9).

9 (7) Subsection (d) of section 535 is hereby re10 pealed.

11 (8) Paragraph (1) of section 543(b) is amended

12 by inserting ‘‘and’’ at the end of subparagraph (A),

13 by striking ‘‘, and’’ at the end of subparagraph (B)

14 and inserting a period, and by striking subparagraph

15 (C).

16 (9) Paragraph (1) of section 562(b) is amended

17 by striking ‘‘or a foreign personal holding company

18 described in section 552’’.

19 (10) Section 563 is amended—

20 (A) by striking subsection (c),

21 (B) by redesignating subsection (d) as sub22 section (c), and

23 (C) by striking ‘‘subsection (a), (b), or (c)’’

24 in subsection (c) (as so redesignated) and in25 serting ‘‘subsection (a) or (b)’’.
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1 (11) Paragraph (2) of section 751(d) is amend2 ed by striking ‘‘subsection (a) of section 1246 (relat3 ing to gain on foreign investment company stock)’’

4 and inserting ‘‘section 1291 (relating to stock in cer5 tain passive foreign corporations marked to mar6 ket)’’.

7 (12) Subsection (b) of section 851 is amended

8 by striking the sentence following paragraph (4)(B)

9 which contains a reference to section 1293(a).

10 (13) Clause (ii) of section 864(b)(2)(A) is

11 amended by striking ‘‘(other than’’ and all that fol12 lows down through ‘‘holding company)’’ and insert13 ing ‘‘(other than a corporation which would be a

14 personal holding company but for section 542(c)(5)

15 and which is not United States controlled (as de16 fined in section 1292(a)(2))’’.

17 (14) Subsection (d) of section 904 is amended

18 by striking paragraphs (2)(A)(ii), (2)(E)(iii), and

19 (3)(I).

20 (15)(A) Subparagraph (A) of section 904(g)(1)

21 is amended to read as follows:

22 ‘‘(A) Any amount included in gross income

23 under section 951(a) (relating to amounts in24 cluded in gross income of United States share25 holders).’’
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1 (B) The paragraph heading of paragraph (2) of

2 section 904(g) is amended by striking ‘‘AND FOR3 EIGN PERSONAL HOLDING OR PASSIVE FOREIGN IN4 VESTMENT COMPANY’’.

5 (16) Section 951 is amended by striking sub6 sections (c), (d), and (f), and by redesignating sub7 section (e) as subsection (c).

8 (17) Paragraph (1) of section 986(c) is amend9 ed by striking ‘‘or 1293(c)’’.

10 (18) Paragraph (3) of section 989(b) is amend11 ed by striking ‘‘, 551(a), or 1293(a)’’.

12 (19) Paragraph (5) of section 1014(b) is hereby

13 repealed.

14 (20) Subsection (a) of section 1016 is amended

15 by striking paragraph (13) and by redesignating the

16 following paragraphs accordingly.

17 (21) Paragraph (3) of section 1212(a) is

18 amended—

19 (A) by striking subparagraph (A),

20 (B) by redesignating subparagraphs (B)

21 and (C) as subparagraphs (A) and (B), respec22 tively, and

23 (C) by amending subparagraph (D) to read

24 as follows:
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1 ‘‘(C) for which it is a passive foreign cor2 poration.’’

3 (22) Section 1223 is amended by striking para4 graph (10) and by redesignating the following para5 graphs accordingly.

6 (23) Subsection (d) of section 1248 is amended

7 by striking paragraphs (5) and (7).

8 (24)(A) Subsection (a) of section 6035 is

9 amended by striking ‘‘foreign personal holding com10 pany (as defined in section 552)’’ and inserting

11 ‘‘passive foreign corporation with respect to which

12 the stock ownership requirements of section

13 1292(a)(2)(B) are met’’.

14 (B) The section heading for section 6035 is

15 amended by striking ‘‘FOREIGN PERSONAL

16 HOLDING COMPANIES’’ and inserting

17 ‘‘CLOSELY HELD PASSIVE FOREIGN

18 CORPORATIONS’’.

19 (C) The table of sections for subpart A of part

20 III of subchapter A of chapter 61 is amended by

21 striking ‘‘foreign personal holding companies’’ in the

22 item relating to section 6035 and inserting ‘‘closely23 held passive foreign corporations’’.

24 (25) Subparagraph (D) of section 6103(e)(1) is

25 amended by striking clause (iv) and redesignating
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1 clauses (v) and (vi) as clauses (iv) and (v), respec2 tively.

3 (26) Subparagraph (B) of section 6501(e)(1) is

4 amended to read as follows:

5 ‘‘(B) CONSTRUCTIVE DIVIDENDS.—If the

6 taxpayer omits from gross income an amount

7 properly includible therein under section

8 951(a), the tax may be assessed, or a proceed9 ing in court for the collection of such tax may

10 be done without assessing, at any time within

11 6 years after the return was filed.’’

12 (27) Section 4947 and section 4948(c)(4) are

13 each amended by striking ‘‘556(b)(2),’’ each place it

14 appears.

15 (b) CLERICAL AMENDMENTS.—

16 (1) The table of parts for subchapter G of

17 chapter 1 is amended by striking the item relating

18 to part III.

19 (2) The table of sections for part IV of sub20 chapter P of chapter 1 is amended by striking the

21 items relating to sections 1246 and 1247.

22 (3) The table of parts for subchapter P of chap23 ter 1 is amended by striking the item relating to

24 part VI and inserting the following:

‘‘Part VI. Treatment of passive foreign corporations.’’
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1 SEC. 404. EFFECTIVE DATE.

2 (a) GENERAL RULE.—Except as otherwise provided

3 in this section, the amendments made by this subtitle shall

4 apply to—

5 (1) taxable years of United States persons be6 ginning after December 31, 1993, and

7 (2) taxable years of foreign corporations ending

8 with or within such taxable years of United States

9 persons.

10 (b) DENIAL OF INSTALLMENT SALES TREATMENT.—

11 The amendment made by section 402(b) shall apply to dis12 positions after December 31, 1993.

13 (c) BASIS RULE.—The amendments made by this

14 subtitle shall not affect the determination of the basis of

15 any stock acquired from a decedent in a taxable year be16 ginning before January 1, 1994.

17 (d) STUDY.—

18 (1) IN GENERAL.—The Secretary of the Treas19 ury shall conduct a study of the tax treatment for

20 purposes of the rules applicable to passive foreign

21 corporations (as amended by this subtitle) of securi22 ties sale and repurchase transactions and securities

23 lending and borrowing transactions.

24 (2) REPORT.—Not later than the day 1 year

25 after the date of the enactment of this Act, the Sec26 retary of the Treasury shall submit to the Commit-
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1 tee on Ways and Means of the House of Representa2 tives and the Committee on Finance a report on the

3 study conducted under this subsection, together with

4 such recommendations as he may deem advisable.

5 Subtitle B—Treatment of

6 Controlled Foreign Corporations

7 SEC. 411. GAIN ON CERTAIN STOCK SALES BY CON8 TROLLED FOREIGN CORPORATIONS TREAT9 ED AS DIVIDENDS.

10 (a) GENERAL RULE.—Section 964 (relating to mis11 cellaneous provisions) is amended by adding at the end

12 thereof the following new subsection:

13 ‘‘(f) GAIN ON CERTAIN STOCK SALES BY CON14 TROLLED FOREIGN CORPORATIONS TREATED AS DIVI15 DENDS.—

16 ‘‘(1) IN GENERAL.—If a controlled foreign cor17 poration sells or exchanges stock in any other for18 eign corporation, gain recognized on such sale or ex19 change shall be included in the gross income of such

20 controlled foreign corporation as a dividend to the

21 same extent that it would have been so included

22 under section 1248(a) if such controlled foreign cor23 poration were a United States person. For purposes

24 of determining the amount which would have been so

25 includible, the determination of whether such other
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1 foreign corporation was a controlled foreign corpora2 tion shall be made without regard to the preceding

3 sentence.

4 ‘‘(2) SAME COUNTRY EXCEPTION NOT APPLICA5 BLE.—Clause (i) of section 954(c)(3)(A) shall not

6 apply to any amount treated as a dividend by reason

7 of paragraph (1).

8 ‘‘(3) CLARIFICATION OF DEEMED SALES.—For

9 purposes of this subsection, a controlled foreign cor10 poration shall be treated as having sold or ex11 changed any stock if, under any provision of this

12 subtitle, such controlled foreign corporation is treat13 ed as having gain from the sale or exchange of such

14 stock.’’.

15 (b) AMENDMENT OF SECTION 904(d).—Clause (i) of

16 section 904(d)(2)(E) is amended by striking ‘‘and except

17 as provided in regulations, the taxpayer was a United

18 States shareholder in such corporation’’.

19 (c) EFFECTIVE DATES.—

20 (1) The amendment made by subsection (a)

21 shall apply to gain recognized on transactions occur22 ring after the date of the enactment of this Act.

23 (2) The amendment made by subsection (b)

24 shall apply to distributions after the date of the en25 actment of this Act.
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1 SEC. 412. AUTHORITY TO PRESCRIBE SIMPLIFIED METHOD

2 FOR APPLYING SECTION 960(b)(2).

3 (a) GENERAL RULE.—Paragraph (2) of section

4 960(b) is amended by adding at the end thereof the follow5 ing new sentence: ‘‘The Secretary may prescribe regula6 tions requiring the use of simplified methods set forth in

7 such regulations for determining the amount of the in8 crease referred to in the preceding sentence.’’

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

10 subsection (a) shall take effect on the date of the enact11 ment of this Act.

12 SEC. 413. MISCELLANEOUS MODIFICATIONS TO SUBPART

13 F.

14 (a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN

15 DETERMINING PRO RATA SHARE.—

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

17 951(a) (defining pro rata share of subpart F in18 come) is amended by adding at the end thereof the

19 following new sentence: ‘‘For purposes of subpara20 graph (B), any gain included in the gross income of

21 any person as a dividend under section 1248 shall

22 be treated as a distribution received by such person

23 with respect to the stock involved.’’

24 (2) EFFECTIVE DATE.—The amendment made

25 by paragraph (1) shall apply to dispositions after the

26 date of the enactment of this Act.
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1 (b) BASIS ADJUSTMENTS IN STOCK HELD BY FOR2 EIGN CORPORATION.—

3 (1) IN GENERAL.—Section 961 (relating to ad4 justments to basis of stock in controlled foreign cor5 porations and of other property) is amended by add6 ing at the end thereof the following new subsection:

7 ‘‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOR8 EIGN CORPORATION.—Under regulations prescribed by

9 the Secretary, if a United States shareholder is treated

10 under section 958(a)(2) as owning any stock in a con11 trolled foreign corporation which is actually owned by an12 other controlled foreign corporation, adjustments similar

13 to the adjustments provided by subsections (a) and (b)

14 shall be made to the basis of such stock in the hands of

15 such other controlled foreign corporation, but only for the

16 purposes of determining the amount included under sec17 tion 951 in the gross income of such United States share18 holder (or any other United States shareholder who ac19 quires from any person any portion of the interest of such

20 United States shareholder by reason of which such share21 holder was treated as owning such stock, but only to the

22 extent of such portion, and subject to such proof of iden23 tity of such interest as the Secretary may prescribe by reg24 ulations).’’
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1 (2) EFFECTIVE DATE.—The amendment made

2 by paragraph (1) shall apply for purposes of deter3 mining inclusions for taxable years of United States

4 shareholders beginning after December 31, 1993.

5 (c) DETERMINATION OF PREVIOUSLY TAXED IN6 COME IN SECTION 304 DISTRIBUTIONS, ETC.—

7 (1) IN GENERAL.—Section 959 (relating to ex8 clusion from gross income of previously taxed earn9 ings and profits) is amended by adding at the end

10 thereof the following new subsection:

11 ‘‘(f) ADJUSTMENTS FOR CERTAIN TRANSACTIONS.—

12 If by reason of—

13 ‘‘(1) a transaction to which section 304 applies,

14 ‘‘(2) the structure of a United States sharehold15 er’s holdings in controlled foreign corporations, or

16 ‘‘(3) other circumstances,

17 there would be a multiple inclusion of any item in income

18 (or an inclusion or exclusion without an appropriate basis

19 adjustment) by reason of this subpart, the Secretary may

20 prescribe regulations providing such modifications in the

21 application of this subpart as may be necessary to elimi22 nate such multiple inclusion or provide such basis adjust23 ment, as the case may be.’’
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1 (2) EFFECTIVE DATE.—The amendment made

2 by paragraph (1) shall take effect on the date of the

3 enactment of this Act.

4 (d) CLARIFICATION OF TREATMENT OF BRANCH TAX

5 EXEMPTIONS OR REDUCTIONS.—

6 (1) IN GENERAL.—Subsection (b) of section

7 952 is amended by adding at the end thereof the fol8 lowing new sentence: ‘‘For purposes of this sub9 section, any exemption (or reduction) with respect to

10 the tax imposed by section 884 shall not be taken

11 into account.’’

12 (2) EFFECTIVE DATE.—The amendment made

13 by paragraph (1) shall apply to taxable years begin14 ning after December 31, 1986.

15 SEC. 414. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR

16 CERTAIN LOWER TIER COMPANIES.

17 (a) SECTION 902 CREDIT.—

18 (1) IN GENERAL.—Subsection (b) of section

19 902 (relating to deemed taxes increased in case of

20 certain 2nd and 3rd tier foreign corporations) is

21 amended to read as follows:

22 ‘‘(b) DEEMED TAXES INCREASED IN CASE OF CER23 TAIN LOWER TIER CORPORATIONS.—

24 ‘‘(1) IN GENERAL.—If—
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1 ‘‘(A) any foreign corporation is a member

2 of a qualified group, and

3 ‘‘(B) such foreign corporation owns 10 per4 cent or more of the voting stock of another

5 member of such group from which it receives

6 dividends in any taxable year,

7 such foreign corporation shall be deemed to have

8 paid the same proportion of such other member’s

9 post-1986 foreign income taxes as would be deter10 mined under subsection (a) if such foreign corpora11 tion were a domestic corporation.

12 ‘‘(2) QUALIFIED GROUP.—For purposes of

13 paragraph (1), the term ‘qualified group’ means—

14 ‘‘(A) the foreign corporation described in

15 subsection (a), and

16 ‘‘(B) any other foreign corporation if—

17 ‘‘(i) the domestic corporation owns at

18 least 5 percent of the voting stock of such

19 other foreign corporation indirectly

20 through a chain of foreign corporations

21 connected through stock ownership of at

22 least 10 percent of their voting stock,

23 ‘‘(ii) the foreign corporation described

24 in subsection (a) is the first tier corpora25 tion in such chain, and
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1 ‘‘(iii) such other corporation is not

2 below the sixth tier in such chain,

3 The term ‘qualified group’ shall not include any for4 eign corporation below the third tier in the chain re5 ferred to in clause (i) unless such foreign corpora6 tion is a controlled foreign corporation (as defined in

7 section 957) and the domestic corporation is a Unit8 ed States shareholder (as defined in section 951(b))

9 in such foreign corporation. Paragraph (1) shall

10 apply to those taxes paid by a member of the quali11 fied group below the third tier only with respect to

12 periods during which it was a controlled foreign cor13 poration.’’

14 (2) CONFORMING AMENDMENTS.—

15 (A) Subparagraph (B) of section 902(c)(3)

16 is amended by adding ‘‘or’’ at the end of clause

17 (i) and by striking clauses (ii) and (iii) and in18 serting the following new clause:

19 ‘‘(ii) the requirements of subsection

20 (b)(2) are met with respect to such foreign

21 corporation.’’

22 (B) Subparagraph (B) of section 902(c)(4)

23 is amended by striking ‘‘3rd foreign corpora24 tion’’ and inserting ‘‘sixth tier foreign corpora25 tion’’.
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1 (C) The heading for paragraph (3) of sec2 tion 902(c) is amended by striking ‘‘WHERE DO3 MESTIC CORPORATION ACQUIRES 10 PERCENT

4 OF FOREIGN CORPORATION’’ and inserting

5 ‘‘WHERE FOREIGN CORPORATION FIRST QUALI6 FIES’’.

7 (D) Paragraph (3) of section 902(c) is

8 amended by striking ‘‘ownership’’ each place it

9 appears.

10 (b) SECTION 960 CREDIT.—Paragraph (1) of section

11 960(a) (relating to special rules for foreign tax credits)

12 is amended to read as follows:

13 ‘‘(1) DEEMED PAID CREDIT.—For purposes of

14 subpart A of this part, if there is included under

15 section 951(a) in the gross income of a domestic cor16 poration any amount attributable to earnings and

17 profits of a foreign corporation which is a member

18 of a qualified group (as defined in section 902(b))

19 with respect to the domestic corporation, then, ex20 cept to the extent provided in regulations, section

21 902 shall be applied as if the amount so included

22 were a dividend paid by such foreign corporation

23 (determined by applying section 902(c) in accord24 ance with section 904(d)(3)(B)).’’

25 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to taxes of foreign corpora3 tions for taxable years of such corporations begin4 ning after the date of enactment of this Act.

5 (2) SPECIAL RULE.—In the case of any chain

6 of foreign corporations described in clauses (i) and

7 (ii) of section 902(b)(2)(B) of the Internal Revenue

8 Code of 1986 (as amended by this section), no liq9 uidation, reorganization, or similar transaction in a

10 taxable year beginning after the date of the enact11 ment of this Act shall have the effect of permitting

12 taxes to be taken into account under section 902 of

13 the Internal Revenue Code of 1986 which could not

14 have been taken into account under such section but

15 for such transaction.

16 SEC. 415. STUDY ON INVESTMENTS BY CONTROLLED FOR17 EIGN CORPORATION IN UNITED STATES

18 PROPERTY.

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

20 shall conduct a study on tax treatment of investments by

21 controlled foreign corporations in obligations of United

22 States persons other than corporations. Such study shall

23 include the Secretary’s views as to whether the treatment

24 of such investments should be changed, along with a dis-
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1 cussion of the merits and consequences of any such

2 change.

3 (b) REPORT.—Not later than December 31, 1993,

4 the Secretary of the Treasury shall submit to the Commit5 tee on Ways and Means of the House of Representatives

6 and the Committee on Finance a report on the study con7 ducted under this subsection, together with such rec8 ommendations as he may deem advisable.

9 Subtitle C—Other Provisions

10 SEC. 421. EXCHANGE RATE USED IN TRANSLATING FOR11 EIGN TAXES.

12 (a) ACCRUED TAXES TRANSLATED BY USING AVER13 AGE RATE FOR YEAR TO WHICH TAXES RELATE.—

14 (1) IN GENERAL.—Subsection (a) of section

15 986 (relating to translation of foreign taxes) is

16 amended to read as follows:

17 ‘‘(a) FOREIGN INCOME TAXES.—

18 ‘‘(1) TRANSLATION OF ACCRUED TAXES.—

19 ‘‘(A) IN GENERAL.—For purposes of deter20 mining the amount of the foreign tax credit, in

21 the case of a taxpayer who takes foreign income

22 taxes into account when accrued, the amount of

23 any foreign income taxes (and any adjustment

24 thereto) shall be translated into dollars by using
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1 the average exchange rate for the taxable year

2 to which such taxes relate.

3 ‘‘(B) EXCEPTION FOR TAXES NOT PAID

4 WITHIN FOLLOWING 2 YEARS.—

5 ‘‘(i) Subparagraph (A) shall not apply

6 to any foreign income taxes paid after the

7 date 2 years after the close of the taxable

8 year to which such taxes relate.

9 ‘‘(ii) Subparagraph (A) shall not

10 apply to taxes paid before the beginning of

11 the taxable year to which such taxes relate.

12 ‘‘(C) EXCEPTION FOR INFLATIONARY CUR13 RENCIES.—To the extent provided in regula14 tions, subparagraph (A) shall not apply to any

15 foreign income taxes the liability for which is

16 denominated in any currency determined to be

17 an inflationary currency under such regulations.

18 ‘‘(D) CROSS REFERENCE.—

‘‘For adjustments where tax is not paid within 2

years, see section 905(c).

19 ‘‘(2) TRANSLATION OF TAXES TO WHICH PARA20 GRAPH (1) DOES NOT APPLY.—For purposes of de21 termining the amount of the foreign tax credit, in

22 the case of any foreign income taxes to which sub23 paragraph (A) of paragraph (1) does not apply—
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1 ‘‘(A) such taxes shall be translated into

2 dollars using the exchange rates as of the time

3 such taxes were paid to the foreign country or

4 possession of the United States, and

5 ‘‘(B) any adjustment to the amount of

6 such taxes shall be translated into dollars

7 using—

8 ‘‘(i) except as provided in clause (ii),

9 the exchange rate as of the time when such

10 adjustment is paid to the foreign country

11 or possession, or

12 ‘‘(ii) in the case of any refund or cred13 it of foreign income taxes, using the ex14 change rate as of the time of the original

15 payment of such foreign income taxes.

16 ‘‘(3) FOREIGN INCOME TAXES.—For purposes

17 of this subsection, the term ‘foreign income taxes’

18 means any income, war profits, or excess profits

19 taxes paid or accrued to any foreign country or to

20 any possession of the United States.’’

21 (2) ADJUSTMENT WHEN NOT PAID WITHIN 2

22 YEARS AFTER YEAR TO WHICH TAXES RELATE.—

23 Subsection (c) of section 905 is amended to read as

24 follows:

25 ‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.—
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1 ‘‘(1) IN GENERAL.—If—

2 ‘‘(A) accrued taxes when paid differ from

3 the amounts claimed as credits by the taxpayer,

4 ‘‘(B) accrued taxes are not paid before the

5 date 2 years after the close of the taxable year

6 to which such taxes relate, or

7 ‘‘(C) any tax paid is refunded in whole or

8 in part,

9 the taxpayer shall notify the Secretary, who shall re10 determine the amount of the tax for the year or

11 years affected.

12 ‘‘(2) SPECIAL RULE FOR TAXES NOT PAID

13 WITHIN 2 YEARS.—In making the redetermination

14 under paragraph (1), no credit shall be allowed for

15 accrued taxes not paid before the date referred to in

16 subparagraph (B) of paragraph (1). Any such taxes

17 if subsequently paid shall be taken into account for

18 the taxable year in which paid and no redetermina19 tion under this section shall be made on account of

20 such payment.

21 ‘‘(3) ADJUSTMENTS.—The amount of tax due

22 on any redetermination under paragraph (1) (if any)

23 shall be paid by the taxpayer on notice and demand

24 by the Secretary, and the amount of tax overpaid (if

25 any) shall be credited or refunded to the taxpayer in
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1 accordance with subchapter B of chapter 66 (section

2 6511 et seq.).

3 ‘‘(4) BOND REQUIREMENTS.—In the case of

4 any tax accrued but not paid, the Secretary, as a

5 condition precedent to the allowance of the credit

6 provided in this subpart, may require the taxpayer

7 to give a bond, with sureties satisfactory to and ap8 proved by the Secretary, in such sum as the Sec9 retary may require, conditioned on the payment by

10 the taxpayer of any amount of tax found due on any

11 such redetermination. Any such bond shall contain

12 such further conditions as the Secretary may re13 quire.

14 ‘‘(5) OTHER SPECIAL RULES.—In any redeter15 mination under paragraph (1) by the Secretary of

16 the amount of tax due from the taxpayer for the

17 year or years affected by a refund, the amount of

18 the taxes refunded for which credit has been allowed

19 under this section shall be reduced by the amount of

20 any tax described in section 901 imposed by the for21 eign country or possession of the United States with

22 respect to such refund; but no credit under this sub23 part, or deduction under section 164, shall be al24 lowed for any taxable year with respect to any such

25 tax imposed on the refund. No interest shall be as-
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1 sessed or collected on any amount of tax due on any

2 redetermination by the Secretary, resulting from a

3 refund to the taxpayer, for any period before the re4 ceipt of such refund, except to the extent interest

5 was paid by the foreign country or possession of the

6 United States on such refund for such period.’’

7 (b) AUTHORITY TO USE AVERAGE RATES.—

8 (1) IN GENERAL.—Subsection (a) of section

9 986 (relating to foreign taxes) is amended by adding

10 at the end thereof the following new paragraph:

11 ‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE

12 RATES.—To the extent prescribed in regulations, the

13 average exchange rate for the period (specified in

14 such regulations) during which the taxes or adjust15 ment is paid may be used instead of the exchange

16 rate as of the time of such payment.’’

17 (2) DETERMINATION OF AVERAGE RATES.—

18 Subsection (c) of section 989 is amended by striking

19 ‘‘and’’ at the end of paragraph (4), by striking the

20 period at the end of paragraph (5) and inserting ‘‘,

21 and’’, and by adding at the end thereof the following

22 new paragraph:

23 ‘‘(6) setting forth procedures for determining

24 the average exchange rate for any period.’’
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1 (3) CONFORMING AMENDMENTS.—Subsection

2 (b) of section 989 is amended by striking ‘‘weight3 ed’’ each place it appears.

4 (c) EFFECTIVE DATES.—

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

6 subsections (a)(1) and (b) shall apply to taxes paid

7 or accrued in taxable years beginning after Decem8 ber 31, 1992.

9 (2) SUBSECTION (a)(2).—The amendment made

10 by subsection (a)(2) shall apply to taxes which relate

11 to taxable years beginning after December 31, 1992.

12 SEC. 422. ELECTION TO USE SIMPLIFIED SECTION 904 LIM13 ITATION FOR ALTERNATIVE MINIMUM TAX.

14 (a) GENERAL RULE.—Subsection (a) of section 59

15 (relating to alternative minimum tax foreign tax credit)

16 is amended by adding at the end thereof the following new

17 paragraph:

18 ‘‘(3) ELECTION TO USE SIMPLIFIED SECTION

19 904 LIMITATION.—

20 ‘‘(A) IN GENERAL.—In determining the al21 ternative minimum tax foreign tax credit for

22 any taxable year to which an election under this

23 paragraph applies—

24 ‘‘(i) subparagraph (B) of paragraph

25 (1) shall not apply, and
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1 ‘‘(ii) the limitation of section 904

2 shall be based on the proportion which—

3 ‘‘(I) the taxpayer’s taxable in4 come (as determined for purposes of

5 the regular tax) from sources without

6 the United States (but not in excess

7 of the taxpayer’s entire alternative

8 minimum taxable income), bears to

9 ‘‘(II) the taxpayer’s entire alter10 native minimum taxable income for

11 the taxable year.

12 ‘‘(B) ELECTION.—

13 ‘‘(i) IN GENERAL.—An election under

14 this paragraph may be made only for the

15 taxpayer’s first taxable year which begins

16 after December 31, 1993, and for which

17 the taxpayer claims an alternative mini18 mum tax foreign tax credit.

19 ‘‘(ii) ELECTION REVOCABLE ONLY

20 WITH CONSENT.—An election under this

21 paragraph, once made, shall apply to the

22 taxable year for which made and all subse23 quent taxable years unless revoked with

24 the consent of the Secretary.’’
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 SEC. 423. MODIFICATION OF SECTION 1491.

5 (a) GENERAL RULE.—So much of chapter 5 (relating

6 to tax on transfers to avoid income tax) as precedes sec7 tion 1492 is amended to read as follows:

8 ‘‘CHAPTER 5—TREATMENT OF TRANSFERS

9 TO AVOID INCOME TAX

‘‘Sec. 1491. Recognition of gain.

‘‘Sec. 1492. Exceptions.

10 ‘‘SEC. 1491. RECOGNITION OF GAIN.

11 ‘‘In the case of any transfer of property by a United

12 States person to a foreign corporation as paid-in surplus

13 or as a contribution to capital, to a foreign estate or trust,

14 or to a foreign partnership, for purposes of this subtitle,

15 such transfer shall be treated as a sale or exchange for

16 an amount equal to the fair market value of the property

17 transferred, and the transferor shall recognize as gain the

18 excess of—

19 ‘‘(1) the fair market value of the property so

20 transferred, over

21 ‘‘(2) the adjusted basis (for purposes of deter22 mining gain) of such property in the hands of the

23 transferor.’’

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 1057 is hereby repealed.

2 (2) Section 1492 is amended to read as follows:

3 ‘‘SEC. 1492. EXCEPTIONS.

4 ‘‘The provisions of section 1491 shall not apply—

5 ‘‘(1) If the transferee is an organization exempt

6 from income tax under part I of subchapter F of

7 chapter 1 (other than an organization described in

8 section 401(a)),

9 ‘‘(2) To a transfer described in section 367, or

10 ‘‘(3) To any other transfer, to the extent pro11 vided in regulations in accordance with principles

12 similar to the principles of section 367 or otherwise

13 consistent with the purpose of section 1491.’’

14 (3) Section 1494 is hereby repealed.

15 (4) The table of sections for part IV of sub16 chapter O of chapter 1 is amended by striking the

17 item relating to section 1057.

18 (5) The table of chapters for subtitle A is

19 amended by striking ‘‘Tax on’’ in the item relating

20 to chapter 5 and inserting ‘‘Treatment of’’.

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

22 this section shall apply to transfers after the date of the

23 enactment of this Act.
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1 SEC. 424. MODIFICATION OF SECTION 367(b).

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

3 367(b) is amended to read as follows:

4 ‘‘(1) IN GENERAL.—In the case of any trans5 action described in section 332, 351, 354, 355, 356,

6 or 361 in which the status of a foreign corporation

7 as a corporation is a general condition for non8 recognition by 1 or more of the parties to the trans9 action, income shall be required to be recognized to

10 the extent provided in regulations prescribed by the

11 Secretary which are necessary or appropriate to pre12 vent the avoidance of Federal income taxes. This

13 subsection shall not apply to a transaction in which

14 the foreign corporation is not treated as a corpora15 tion under subsection (a)(1).’’

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

17 subsection (a) shall apply to transfers after December 31,

18 1993.

19 TITLE V—TREATMENT OF

20 INTANGIBLES

21 SEC. 501. AMORTIZATION OF GOODWILL AND CERTAIN

22 OTHER INTANGIBLES.

23 (a) GENERAL RULE.—Part VI of subchapter B of

24 chapter 1 (relating to itemized deductions for individuals

25 and corporations) is amended by adding at the end thereof

26 the following new section:
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1 ‘‘SEC. 197. AMORTIZATION OF GOODWILL AND CERTAIN

2 OTHER INTANGIBLES.

3 ‘‘(a) GENERAL RULE.—A taxpayer shall be entitled

4 to an amortization deduction with respect to any amortiz5 able section 197 intangible. The amount of such deduction

6 shall be determined by amortizing the adjusted basis (for

7 purposes of determining gain) of such intangible ratably

8 over the 14-year period beginning with the month in which

9 such intangible was acquired.

10 ‘‘(b) NO OTHER DEPRECIATION OR AMORTIZATION

11 DEDUCTION ALLOWABLE.—Except as provided in sub12 section (a), no depreciation or amortization deduction

13 shall be allowable with respect to any amortizable section

14 197 intangible.

15 ‘‘(c) AMORTIZABLE SECTION 197 INTANGIBLE.—For

16 purposes of this section—

17 ‘‘(1) IN GENERAL.—Except as otherwise pro18 vided in this section, the term ‘amortizable section

19 197 intangible’ means any section 197 intangible—

20 ‘‘(A) which is acquired by the taxpayer

21 after the date of the enactment of this section,

22 and

23 ‘‘(B) which is held in connection with the

24 conduct of a trade or business or an activity de25 scribed in section 212.
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1 ‘‘(2) EXCLUSION OF SELF-CREATED INTANGI2 BLES, ETC.—The term ‘amortizable section 197 in3 tangible’ shall not include any section 197 intangi4 ble—

5 ‘‘(A) which is not described in subpara6 graph (D), (E), or (F) of subsection (d)(1), and

7 ‘‘(B) which is created by the taxpayer.

8 This paragraph shall not apply if the intangible is

9 created in connection with a transaction (or series of

10 related transactions) involving the acquisition of as11 sets constituting a trade or business or substantial

12 portion thereof.

13 ‘‘(3) ANTI-CHURNING RULES.—

‘‘For exclusion of intangibles acquired in certain

transactions, see subsection (f)(9).

14 ‘‘(d) SECTION 197 INTANGIBLE.—For purposes of

15 this section—

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this section, the term ‘section 197 intangi18 ble’ means—

19 ‘‘(A) goodwill,

20 ‘‘(B) going concern value,

21 ‘‘(C) any of the following intangible items:

22 ‘‘(i) workforce in place including its

23 composition and terms and conditions
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1 (contractual or otherwise) of its employ2 ment,

3 ‘‘(ii) business books and records, oper4 ating systems, or any other information

5 base (including lists or other information

6 with respect to current or prospective cus7 tomers),

8 ‘‘(iii) any patent, copyright, formula,

9 process, design, pattern, knowhow, format,

10 or other similar item,

11 ‘‘(iv) any customer-based intangible,

12 ‘‘(v) any supplier-based intangible,

13 and

14 ‘‘(vi) any other similar item,

15 ‘‘(D) any license, permit, or other right

16 granted by a governmental unit or an agency or

17 instrumentality thereof,

18 ‘‘(E) any covenant not to compete (or

19 other arrangement to the extent such arrange20 ment has substantially the same effect as a cov21 enant not to compete) entered into in connec22 tion with an acquisition (directly or indirectly)

23 of an interest in a trade or business or substan24 tial portion thereof, and
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1 ‘‘(F) any franchise, trademark, or trade

2 name.

3 ‘‘(2) CUSTOMER-BASED INTANGIBLE.—

4 ‘‘(A) IN GENERAL.—The term ‘customer5 based intangible’ means—

6 ‘‘(i) composition of market,

7 ‘‘(ii) market share, and

8 ‘‘(iii) any other value resulting from

9 future provision of goods or services pursu10 ant to relationships (contractual or other11 wise) in the ordinary course of business

12 with customers.

13 ‘‘(B) SPECIAL RULE FOR FINANCIAL INSTI14 TUTIONS.—In the case of a financial institu15 tion, the term ‘customer-based intangible’ in16 cludes deposit base and similar items.

17 ‘‘(3) SUPPLIER-BASED INTANGIBLE.—The term

18 ‘supplier-based intangible’ means any value resulting

19 from future acquisitions of goods or services pursu20 ant to relationships (contractual or otherwise) in the

21 ordinary course of business with suppliers of goods

22 or services to be used or sold by the taxpayer.

23 ‘‘(e) EXCEPTIONS.—For purposes of this section, the

24 term ‘section 197 intangible’ shall not include any of the

25 following:
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1 ‘‘(1) FINANCIAL INTERESTS.—Any interest—

2 ‘‘(A) in a corporation, partnership, trust,

3 or estate, or

4 ‘‘(B) under an existing futures contract,

5 foreign currency contract, notional principal

6 contract, or other similar financial contract.

7 ‘‘(2) LAND.—Any interest in land.

8 ‘‘(3) COMPUTER SOFTWARE.—

9 ‘‘(A) IN GENERAL.—Any—

10 ‘‘(i) computer software which is read11 ily available for purchase by the general

12 public, is subject to a nonexclusive license,

13 and has not been substantially modified,

14 and

15 ‘‘(ii) other computer software which is

16 not acquired in a transaction (or series of

17 related transactions) involving the acquisi18 tion of assets constituting a trade or busi19 ness or substantial portion thereof.

20 ‘‘(B) COMPUTER SOFTWARE DEFINED.—

21 For purposes of subparagraph (A), the term

22 ‘computer software’ means any program de23 signed to cause a computer to perform a de24 sired function. Such term shall not include any

25 data base or similar item unless the data base
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1 or item is in the public domain and is incidental

2 to the operation of otherwise qualifying com3 puter software.

4 ‘‘(4) CERTAIN INTERESTS OR RIGHTS AC5 QUIRED SEPARATELY.—Any of the following not ac6 quired in a transaction (or series of related trans7 actions) involving the acquisition of assets constitut8 ing a trade business or substantial portion thereof:

9 ‘‘(A) Any interest in a film, sound record10 ing, video tape, book, or similar property.

11 ‘‘(B) Any right to receive tangible property

12 or services under a contract or granted by a

13 governmental unit or agency or instrumentality

14 thereof.

15 ‘‘(C) Any interest in a patent or copyright.

16 ‘‘(D) To the extent provided in regulations,

17 any right under a contract (or granted by a

18 governmental unit or an agency or instrumen19 tality thereof) if such right—

20 ‘‘(i) has a fixed duration of less than

21 14 years, or

22 ‘‘(ii) is fixed as to amount and, with23 out regard to this section, would be recov24 erable under a method similar to the unit25 of-production method.
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1 ‘‘(5) INTERESTS UNDER LEASES AND DEBT IN2 STRUMENTS.—Any interest under—

3 ‘‘(A) an existing lease of tangible property,

4 or

5 ‘‘(B) except as provided in subsection

6 (d)(2)(B), any existing indebtedness.

7 ‘‘(6) TREATMENT OF SPORTS FRANCHISES.—A

8 franchise to engage in professional football, basket9 ball, baseball, or other professional sport, and any

10 item acquired in connection with such a franchise.

11 ‘‘(7) CERTAIN TRANSACTION COSTS.—Any fees

12 for professional services, and any transaction costs,

13 incurred by parties to a transaction with respect to

14 which any portion of the gain or loss is not recog15 nized under part III of subchapter C.

16 ‘‘(f) SPECIAL RULES.—

17 ‘‘(1) TREATMENT OF CERTAIN DISPOSITIONS,

18 ETC.—If there is a disposition of any amortizable

19 section 197 intangible acquired in a transaction or

20 series of related transactions (or any such intangible

21 becomes worthless) and one or more other amortiz22 able section 197 intangibles acquired in such trans23 action or series of related transactions are re24 tained—
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1 ‘‘(A) no loss shall be recognized by reason

2 of such disposition (or such worthlessness), and

3 ‘‘(B) appropriate adjustments to the ad4 justed bases of such retained intangibles shall

5 be made for any loss not recognized under sub6 paragraph (A).

7 All persons treated as a single taxpayer under sec8 tion 41(f)(1) shall be so treated for purposes of the

9 preceding sentence.

10 ‘‘(2) TREATMENT OF CERTAIN TRANSFERS.—

11 ‘‘(A) IN GENERAL.—In the case of any sec12 tion 197 intangible transferred in a transaction

13 described in subparagraph (B), the transferee

14 shall be treated as the transferor for purposes

15 of applying this section with respect to so much

16 of the adjusted basis in the hands of the trans17 feree as does not exceed the adjusted basis in

18 the hands of the transferor.

19 ‘‘(B) TRANSACTIONS COVERED.—The

20 transactions described in this subparagraph

21 are—

22 ‘‘(i) any transaction described in sec23 tion 332, 351, 361, 721, 731, 1031, or

24 1033, and
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1 ‘‘(ii) any transaction between mem2 bers of the same affiliated group during

3 any taxable year for which a consolidated

4 return is made by such group.

5 ‘‘(3) TREATMENT OF AMOUNTS PAID PURSUANT

6 TO COVENANTS NOT TO COMPETE, ETC.—Any

7 amount paid or incurred pursuant to a covenant or

8 arrangement referred to in subsection (d)(1)(E)

9 shall be treated as an amount chargeable to capital

10 account.

11 ‘‘(4) TREATMENT OF FRANCHISES, ETC.—

12 ‘‘(A) FRANCHISE.—The term ‘franchise’

13 has the meaning given to such term by section

14 1253(b)(1).

15 ‘‘(B) TREATMENT OF RENEWALS.—Any

16 renewal of a franchise, trademark, or trade

17 name (or of a license, a permit, or other right

18 referred to in subsection (d)(1)(D)) shall be

19 treated as an acquisition. The preceding sen20 tence shall only apply with respect to costs in21 curred in connection with such renewal.

22 ‘‘(C) CERTAIN AMOUNTS NOT TAKEN INTO

23 ACCOUNT.—Any amount to which section

24 1253(d)(1) applies shall not be taken into ac25 count under this section.
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1 ‘‘(5) TREATMENT OF CERTAIN REINSURANCE

2 TRANSACTIONS.—In the case of any amortizable sec3 tion 197 intangible resulting from an assumption re4 insurance transaction, the amount taken into ac5 count as the adjusted basis of such intangible under

6 this section shall be the excess of—

7 ‘‘(A) the amount paid or incurred by the

8 acquirer under the assumption reinsurance

9 transaction, over

10 ‘‘(B) the amount required to be capitalized

11 under section 848 in connection with such

12 transaction.

13 Subsection (b) shall not apply to any amount re14 quired to be capitalized under section 848.

15 ‘‘(6) TREATMENT OF CERTAIN SUBLEASES.—

16 For purposes of this section, a sublease shall be

17 treated in the same manner as a lease of the under18 lying property involved.

19 ‘‘(7) TREATMENT AS DEPRECIABLE.—For pur20 poses of this chapter, any amortizable section 197

21 intangible shall be treated as property which is of a

22 character subject to the allowance for depreciation

23 provided in section 167.

24 ‘‘(8) TREATMENT OF CERTAIN INCREMENTS IN

25 VALUE.—This section shall not apply to any incre-
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1 ment in value if, without regard to this section, such

2 increment is properly taken into account in deter3 mining the cost of property which is not a section

4 197 intangible.

5 ‘‘(9) ANTI-CHURNING RULES.—For purposes of

6 this section—

7 ‘‘(A) IN GENERAL.—The term ‘amortizable

8 section 197 intangible’ shall not include any

9 section 197 intangible which is described in

10 subparagraph (A) or (B) of subsection (d)(1)

11 (or for which depreciation or amortization

12 would not have been allowable but for this sec13 tion) and which is acquired by the taxpayer

14 after the date of the enactment of this section,

15 if—

16 ‘‘(i) the intangible was held or used at

17 any time on or after July 25, 1991, and on

18 or before such date of enactment by the

19 taxpayer or a related person,

20 ‘‘(ii) the intangible was acquired from

21 a person who held such intangible at any

22 time on or after July 25, 1991, and on or

23 before such date of enactment, and, as

24 part of the transaction, the user of such

25 intangible does not change, or
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1 ‘‘(iii) the taxpayer grants the right to

2 use such intangible to a person (or a per3 son related to such person) who held or

4 used such intangible at any time on or

5 after July 25, 1991, and on or before such

6 date of enactment.

7 For purposes of this subparagraph, the deter8 mination of whether the user of property

9 changes as part of a transaction shall be deter10 mined in accordance with regulations prescribed

11 by the Secretary. For purposes of this subpara12 graph, deductions allowable under section

13 1253(d) shall be treated as deductions allowable

14 for amortization.

15 ‘‘(B) EXCEPTION WHERE GAIN RECOG16 NIZED.—If—

17 ‘‘(i) subparagraph (A) would not

18 apply to an intangible acquired by the tax19 payer but for the last sentence of subpara20 graph (C)(i), and

21 ‘‘(ii) the person from whom the tax22 payer acquired the intangible elects, not23 withstanding any other provision of this

24 title—
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1 ‘‘(I) to recognize gain on the dis2 position of the intangible, and

3 ‘‘(II) to pay a tax on such gain

4 which, when added to any other in5 come tax on such gain under this title,

6 equals such gain multiplied by the

7 highest rate of income tax applicable

8 to such person under this title,

9 then subparagraph (A) shall apply to the

10 intangible only to the extent that the tax11 payer’s adjusted basis in the intangible ex12 ceeds the gain recognized under clause

13 (ii)(I).

14 ‘‘(C) RELATED PERSON DEFINED.—For

15 purposes of this paragraph—

16 ‘‘(i) RELATED PERSON.—A person

17 (hereinafter in this paragraph referred to

18 as the ‘related person’) is related to any

19 person if—

20 ‘‘(I) the related person bears a

21 relationship to such person specified

22 in section 267(b) or section 707(b)(1),

23 or

24 ‘‘(II) the related person and such

25 person are engaged in trades or busi-
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1 nesses under common control (within

2 the meaning of subparagraphs (A)

3 and (B) of section 41(f)(1)).

4 For purposes of subclause (I), in applying

5 section 267(b) or 707(b)(1), ‘20 percent’

6 shall be substituted for ‘50 percent’.

7 ‘‘(ii) TIME FOR MAKING DETERMINA8 TION.—A person shall be treated as related

9 to another person if such relationship ex10 ists immediately before or immediately

11 after the acquisition of the intangible in12 volved.

13 ‘‘(D) ACQUISITIONS BY REASON OF

14 DEATH.—Subparagraph (A) shall not apply to

15 the acquisition of any property by the taxpayer

16 if the basis of the property in the hands of the

17 taxpayer is determined under section 1014(a).

18 ‘‘(E) SPECIAL RULE FOR PARTNER19 SHIPS.—With respect to any increase in the

20 basis of partnership property under section 732,

21 734, or 743, determinations under this para22 graph shall be made at the partner level and

23 each partner shall be treated as having owned

24 and used such partner’s proportionate share of

25 the partnership assets.
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1 ‘‘(F) ANTI-ABUSE RULES.—The term ‘am2 ortizable section 197 intangible’ does not in3 clude any section 197 intangible acquired in a

4 transaction, one of the principal purposes of

5 which is to avoid the requirement of subsection

6 (c)(1) that the intangible be acquired after the

7 date of the enactment of this section or to avoid

8 the provisions of subparagraph (A).

9 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

10 such regulations as may be appropriate to carry out the

11 purposes of this section, including such regulations as may

12 be appropriate to prevent avoidance of the purposes of this

13 section through related persons or otherwise.’’

14 (b) MODIFICATIONS TO DEPRECIATION RULES.—

15 (1) TREATMENT OF CERTAIN PROPERTY EX16 CLUDED FROM SECTION 197.—Section 167 (relating

17 to depreciation deduction) is amended by redesignat18 ing subsection (f) as subsection (g) and by inserting

19 after subsection (e) the following new subsection:

20 ‘‘(f) TREATMENT OF CERTAIN PROPERTY EXCLUDED

21 FROM SECTION 197.—

22 ‘‘(1) COMPUTER SOFTWARE.—

23 ‘‘(A) IN GENERAL.—If a depreciation de24 duction is allowable under subsection (a) with

25 respect to any computer software, such deduc-
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1 tion shall be computed by using the straight

2 line method and a useful life of 36 months.

3 ‘‘(B) COMPUTER SOFTWARE.—For pur4 poses of this section, the term ‘computer soft5 ware’ has the meaning given to such term by

6 section 197(e)(3)(B); except that such term

7 shall not include any such software which is an

8 amortizable section 197 intangible.

9 ‘‘(2) CERTAIN INTERESTS OR RIGHTS AC10 QUIRED SEPARATELY.—If a depreciation deduction

11 is allowable under subsection (a) with respect to any

12 property described in subparagraph (B), (C), or (D)

13 of section 197(e)(4), such deduction shall be com14 puted in accordance with regulations prescribed by

15 the Secretary.’’

16 (2) ALLOCATION OF BASIS IN CASE OF LEASED

17 PROPERTY.—Subsection (c) of section 167 is amend18 ed to read as follows:

19 ‘‘(c) BASIS FOR DEPRECIATION.—

20 ‘‘(1) IN GENERAL.—The basis on which exhaus21 tion, wear and tear, and obsolescence are to be al22 lowed in respect of any property shall be the ad23 justed basis provided in section 1011, for the pur24 pose of determining the gain on the sale or other

25 disposition of such property.
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1 ‘‘(2) SPECIAL RULE FOR PROPERTY SUBJECT

2 TO LEASE.—If any property is acquired subject to a

3 lease—

4 ‘‘(A) no portion of the adjusted basis shall

5 be allocated to the leasehold interest, and

6 ‘‘(B) the entire adjusted basis shall be

7 taken into account in determining the deprecia8 tion deduction (if any) with respect to the prop9 erty subject to the lease.’’

10 (c) AMENDMENTS TO SECTION 1253.—Subsection

11 (d) of section 1253 is amended by striking paragraphs (2),

12 (3), (4), and (5) and inserting the following:

13 ‘‘(2) OTHER PAYMENTS.—Any amount paid or

14 incurred on account of a transfer, sale, or other dis15 position of a franchise, trademark, or trade name to

16 which paragraph (1) does not apply shall be treated

17 as an amount chargeable to capital account.

18 ‘‘(3) RENEWALS, ETC.—For purposes of deter19 mining the term of a transfer agreement under this

20 section, there shall be taken into account all renewal

21 options (and any other period for which the parties

22 reasonably expect the agreement to be renewed).’’

23 (d) AMENDMENT TO SECTION 848.—Subsection (g)

24 of section 848 is amended by striking ‘‘this section’’ and

25 inserting ‘‘this section or section 197’’.
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1 (e) AMENDMENTS TO SECTION 1060.—

2 (1) Paragraph (1) of section 1060(b) is amend3 ed by striking ‘‘goodwill or going concern value’’ and

4 inserting ‘‘section 197 intangibles’’.

5 (2) Paragraph (1) of section 1060(d) is amend6 ed by striking ‘‘goodwill or going concern value (or

7 similar items)’’ and inserting ‘‘section 197 intangi8 bles’’.

9 (f) TECHNICAL AND CONFORMING AMENDMENTS.—

10 (1) Subsection (g) of section 167 (as redesig11 nated by subsection (b)) is amended to read as fol12 lows:

13 ‘‘(g) CROSS REFERENCES.—

‘‘(1) For additional rule applicable to depreciation

of improvements in the case of mines, oil and gas

wells, other natural deposits, and timber, see section 611.

‘‘(2) For amortization of goodwill and certain

other intangibles, see section 197.’’

14 (2) Subsection (f) of section 642 is amended by

15 striking ‘‘section 169’’ and inserting ‘‘sections 169

16 and 197’’.

17 (3) Subsection (a) of section 1016 is amended

18 by striking paragraph (19) and by redesignating the

19 following paragraphs accordingly.

20 (4) Subparagraph (C) of section 1245(a)(2) is

21 amended by striking ‘‘193, or 1253(d) (2) or (3)’’

22 and inserting ‘‘or 193’’.
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1 (5) Paragraph (3) of section 1245(a) is amend2 ed by striking ‘‘section 185 or 1253(d) (2) or (3)’’.

3 (6) The table of sections for part VI of sub4 chapter B of chapter 1 is amended by adding at the

5 end thereof the following new item:

‘‘Sec. 197. Amortization of goodwill and certain other intangibles.’’

6 (g) EFFECTIVE DATE.—

7 (1) IN GENERAL.—Except as otherwise pro8 vided in this subsection, the amendments made by

9 this section shall apply with respect to property ac10 quired after the date of the enactment of this Act.

11 (2) ELECTION TO HAVE AMENDMENTS APPLY

12 TO PROPERTY ACQUIRED AFTER JULY 25, 1991.—

13 (A) IN GENERAL.—If an election under

14 this paragraph applies to the taxpayer—

15 (i) the amendments made by this sec16 tion shall apply to property acquired by the

17 taxpayer after July 25, 1991,

18 (ii) subsection (c)(1)(A) of section

19 197 of the Internal Revenue Code of 1986

20 (as added by this section) (and so much of

21 subsection (f)(9)(A) of such section 197 as

22 precedes clause (i) thereof) shall be applied

23 with respect to the taxpayer by treating
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1 July 25, 1991, as the date of the enact2 ment of such section, and

3 (iii) in applying subsection (f)(9) of

4 such section, with respect to any property

5 acquired by the taxpayer on or before the

6 date of the enactment of this Act, only

7 holding or use on July 25, 1991, shall be

8 taken into account.

9 (B) ELECTION.—An election under this

10 paragraph shall be made at such time and in

11 such manner as the Secretary of the Treasury

12 or his delegate may prescribe. Such an election

13 by any taxpayer, once made—

14 (i) may be revoked only with the con15 sent of the Secretary, and

16 (ii) shall apply to the taxpayer making

17 such election and any other taxpayer under

18 common control with the taxpayer (within

19 the meaning of subparagraphs (A) and (B)

20 of section 41(f)(1) of such Code) at any

21 time after November 22, 1991, and on or

22 before the date on which such election is

23 made.

24 (3) ELECTIVE BINDING CONTRACT EXCEP25 TION.—
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1 (A) IN GENERAL.—The amendments made

2 by this section shall not apply to any acquisi3 tion of property by the taxpayer if—

4 (i) such acquisition is pursuant to a

5 written binding contract in effect on the

6 date of the enactment of this Act and at

7 all times thereafter before such acquisition,

8 (ii) an election under paragraph (2)

9 does not apply to the taxpayer, and

10 (iii) the taxpayer makes an election

11 under this paragraph with respect to such

12 contract.

13 (B) ELECTION.—An election under this

14 paragraph shall be made at such time and in

15 such manner as the Secretary of the Treasury

16 or his delegate shall prescribe. Such an election,

17 once made—

18 (i) may be revoked only with the con19 sent of the Secretary, and

20 (ii) shall apply to all property ac21 quired pursuant to the contract with re22 spect to which such election was made.

23 (h) ANNUAL REPORTS.—The Secretary of the Treas24 ury shall submit annual reports to the Committee on Ways

25 and Means of the House of Representatives and the Com-
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1 mittee on Finance of the Senate on the implementation

2 and effects of the amendments made by this section, in3 cluding the effects of such amendments on merger and

4 acquisition activities. The first such annual report shall

5 be submitted on or before December 31, 1994.

6 (i) ANNUAL REPORTS ON OUTSTANDING CASES.—

7 The Secretary of the Treasury shall submit annual reports

8 to the Committee on Ways and Means of the House of

9 Representatives and the Committee on Finance of the

10 Senate regarding the volume of cases still outstanding that

11 involve disputes regarding the amortization of intangibles,

12 progress made in resolving such cases, efforts made to co13 ordinate settlement proceedings, and factors inhibiting the

14 resolution of such cases. The report shall also address the

15 impact of the amendments made by this section on the

16 volume of disputes regarding the amortization of intangi17 bles. The first such annual report shall be submitted on

18 or before December 31, 1994.

19 SEC. 502. TREATMENT OF CERTAIN PAYMENTS TO RE20 TIRED OR DECEASED PARTNER.

21 (a) SECTION 736(b) NOT TO APPLY IN CERTAIN

22 CASES.—Subsection (b) of section 736 (relating to pay23 ments for interest in partnership) is amended by adding

24 at the end thereof the following new paragraph:
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1 ‘‘(3) LIMITATION ON APPLICATION OF PARA2 GRAPH (2).—Paragraph (2) shall apply only if—

3 ‘‘(A) capital is not a material income-pro4 ducing factor for the partnership, and

5 ‘‘(B) the retiring or deceased partner was

6 a general partner in the partnership.’’

7 (b) LIMITATION ON DEFINITION OF UNREALIZED

8 RECEIVABLES.—

9 (1) IN GENERAL.—Subsection (c) of section

10 751 (defining unrealized receivables) is amended—

11 (A) by striking ‘‘sections 731, 736, and

12 741’’ each place they appear and inserting ‘‘,

13 sections 731 and 741 (but not for purposes of

14 section 736)’’, and

15 (B) by striking ‘‘section 731, 736, or 741’’

16 each place it appears and inserting ‘‘section

17 731 or 741’’.

18 (2) TECHNICAL AMENDMENTS.—

19 (A) Subsection (e) of section 751 is

20 amended by striking ‘‘sections 731, 736, and

21 741’’ and inserting ‘‘sections 731 and 741’’.

22 (B) Section 736 is amended by striking

23 subsection (c).

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

2 this section shall apply in the case of partners retir3 ing or dying on or after January 5, 1993.

4 (2) BINDING CONTRACT EXCEPTION.—The

5 amendments made by this section shall not apply to

6 any partner retiring on or after January 5, 1993, if

7 a written contract to purchase such partner’s inter8 est in the partnership was binding on January 4,

9 1993, and at all times thereafter before such pur10 chase.

11 TITLE VI—OTHER INCOME TAX

12 PROVISIONS

13 Subtitle A—Provisions Relating to

14 Subchapter S Corporations

15 SEC. 601. AUTHORITY TO VALIDATE CERTAIN INVALID

16 ELECTIONS.

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

18 (relating to inadvertent terminations) is amended to read

19 as follows:

20 ‘‘(f) INADVERTENT INVALID ELECTIONS OF TERMI21 NATIONS.—If—

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

23 corporation—

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

25 for which made (determined without regard to
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1 subsection (b)(2)) by reason of a failure to meet

2 the requirements of section 1361(b) or to ob3 tain shareholder consents, or

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

5 or (3) of subsection (d),

6 ‘‘(2) the Secretary determines that the cir7 cumstances resulting in such ineffectiveness or ter8 mination were inadvertent,

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

10 after discovery of the circumstances resulting in

11 such ineffectiveness or termination, steps were

12 taken—

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

14 business corporation, or

15 ‘‘(B) to acquire the required shareholder

16 consents, and

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

18 a shareholder in the corporation at any time during

19 the period specified pursuant to this subsection,

20 agrees to make such adjustments (consistent with

21 the treatment of the corporation as an S corpora22 tion) as may be required by the Secretary with re23 spect to such period,

24 then, notwithstanding the circumstances resulting in such

25 ineffectiveness or termination, such corporation shall be
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1 treated as an S corporation during the period specified

2 by the Secretary.’’

3 (b) LATE ELECTIONS.—Subsection (b) of section

4 1362 is amended by adding at the end thereof the follow5 ing new paragraph:

6 ‘‘(5) AUTHORITY TO TREAT LATE ELECTIONS

7 AS TIMELY.—If—

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

9 made for any taxable year (determined without

10 regard to paragraph (3)) after the date pre11 scribed by this subsection for making such elec12 tion for such taxable year, and

13 ‘‘(B) the Secretary determines that there

14 was reasonable cause for the failure to timely

15 make such election,

16 the Secretary may treat such election as timely

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

18 not apply).’’

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

20 this section shall apply with respect to elections for taxable

21 years beginning after December 31, 1982.

22 SEC. 602. TREATMENT OF DISTRIBUTIONS DURING LOSS

23 YEARS.

24 (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO

25 ACCOUNT BEFORE LOSSES.—
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1 (1) Subparagraph (A) of section 1366(d)(1) is

2 amended by striking ‘‘paragraph (1)’’ and inserting

3 ‘‘paragraphs (1) and (2)(A)’’.

4 (2) Subsection (d) of section 1368 is amended

5 by adding at the end thereof the following new sen6 tence:

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

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

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

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

11 (b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para12 graph (1) of section 1368(e) (relating to accumulated ad13 justments account) is amended by adding at the end there14 of the following new subparagraph:

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

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

17 to distributions made during any taxable year,

18 the amount in the accumulated adjustments ac19 count as of the close of such taxable year shall

20 be determined without regard to any net nega21 tive adjustment for such taxable year.

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

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

24 adjustment’ means, with respect to any taxable

25 year, the excess (if any) of—
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1 ‘‘(I) the reductions in the account for

2 the taxable year (other than for distribu3 tions), over

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

5 such taxable year.’’

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

7 of section 1368(e)(1) is amended—

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

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

10 paragraph’’, and

11 (2) by striking ‘‘section 1367(b)(2)(A)’’ and in12 serting ‘‘section 1367(a)(2)’’.

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

14 this section shall apply to distributions in taxable years

15 beginning after December 31, 1992.

16 SEC. 603. OTHER MODIFICATIONS.

17 (a) TREATMENT OF S CORPORATIONS UNDER SUB18 CHAPTER C.—Subsection (a) of section 1371 (relating to

19 application of subchapter C rules) is amended to read as

20 follows:

21 ‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex22 cept as otherwise provided in this title, and except to the

23 extent inconsistent with this subchapter, subchapter C

24 shall apply to an S corporation and its shareholders.’’
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1 (b) S CORPORATIONS PERMITTED TO HOLD SUB2 SIDIARIES.—

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

4 1361(b) (defining ineligible corporation) is amended

5 by striking subparagraph (A) and by redesignating

6 subparagraphs (B), (C), (D), and (E) as subpara7 graphs (A), (B), (C), and (D), respectively.

8 (2) CONFORMING AMENDMENTS.—

9 (A) Subsection (c) of section 1361 is

10 amended by striking paragraph (6).

11 (B) Subsection (b) of section 1504 (defin12 ing includible corporation) is amended by add13 ing at the end thereof the following new para14 graph:

15 ‘‘(8) An S corporation.’’

16 (c) ELIMINATION OF PRE-1983 EARNINGS AND

17 PROFITS.—

18 (1) IN GENERAL.—If—

19 (A) a corporation was an electing small

20 business corporation under subchapter S of

21 chapter 1 of the Internal Revenue Code of 1986

22 for any taxable year beginning before January

23 1, 1983, and

24 (B) such corporation is an S corporation

25 under subchapter S of chapter 1 of such Code
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1 for its first taxable year beginning after Decem2 ber 31, 1992,

3 the amount of such corporation’s accumulated earn4 ings and profits (as of the beginning of such first

5 taxable year) shall be reduced by an amount equal

6 to the portion (if any) of such accumulated earnings

7 and profits which were accumulated in any taxable

8 year beginning before January 1, 1983, for which

9 such corporation was an electing small business cor10 poration under such subchapter S.

11 (2) CONFORMING AMENDMENTS.—

12 (A) Paragraph (3) of section 1362(d) is

13 amended—

14 (i) by striking ‘‘subchapter C’’ in the

15 paragraph heading and inserting ‘‘accumu16 lated’’,

17 (ii) by striking ‘‘subchapter C’’ in

18 subparagraph (A)(i)(I) and inserting ‘‘ac19 cumulated’’, and

20 (iii) by striking subparagraph (B) and

21 redesignating the following subparagraphs

22 accordingly.

23 (B)(i) Subsection (a) of section 1375 is

24 amended by striking ‘‘subchapter C’’ in para25 graph (1) and inserting ‘‘accumulated’’.
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1 (ii) Paragraph (3) of section 1375(b) is

2 amended to read as follows:

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

4 terms ‘passive investment income’ and ‘gross re5 ceipts’ have the same respective meanings as when

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

7 (iii) The section heading for section 1375

8 is amended by striking ‘‘SUBCHAPTER C’’

9 and inserting ‘‘ACCUMULATED’’.

10 (iv) The table of sections for part III of

11 subchapter S of chapter 1 is amended by strik12 ing ‘‘subchapter C’’ in the item relating to sec13 tion 1375 and inserting ‘‘accumulated’’.

14 (C) Clause (i) of section 1042(c)(4)(A) is

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

16 and inserting ‘‘section 1362(d)(3)(C)’’.

17 (d) ADJUSTMENTS TO BASIS OF INHERITED S STOCK

18 TO REFLECT CERTAIN ITEMS OF INCOME.—Subsection

19 (b) of section 1367 (relating to adjustments to basis of

20 stock of shareholders, etc.) is amended by adding at the

21 end thereof the following new paragraph:

22 ‘‘(4) ADJUSTMENTS IN CASE OF INHERITED

23 STOCK.—

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

25 stock in an S corporation by reason of the
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1 death of a decedent or by bequest, devise, or in2 heritance, section 691 shall be applied with re3 spect to any item of income of the S corpora4 tion in the same manner as if the decedent had

5 held directly his pro rata share of such item.

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

7 determined under section 1014 of any stock in

8 an S corporation shall be reduced by the por9 tion of the value of the stock which is attrib10 utable to items constituting income in respect

11 of the decedent.’’

12 (e) EFFECTIVE DATES.—

13 (1) SUBSECTIONS (a) AND (b).—The amend14 ments made by subsections (a) and (b) shall take ef15 fect on the date of the enactment of this Act.

16 (2) SUBSECTION (c).—The amendments made

17 by subsection (c) shall apply to taxable years begin18 ning after December 31, 1992.

19 (3) SUBSECTION (d).—The amendment made

20 by subsection (d) shall apply in the case of decedents

21 dying after the date of the enactment of this Act.
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1 Subtitle B—Accounting Provisions

2 SEC. 611. MODIFICATIONS TO LOOK-BACK METHOD FOR

3 LONG-TERM CONTRACTS.

4 (a) LOOK-BACK METHOD NOT TO APPLY IN CER5 TAIN CASES.—Subsection (b) of section 460 (relating to

6 percentage of completion method) is amended by adding

7 at the end thereof the following new paragraph:

8 ‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD

9 NOT APPLY IN DE MINIMIS CASES.—

10 ‘‘(A) AMOUNTS TAKEN INTO ACCOUNT

11 AFTER COMPLETION OF CONTRACT.—Para12 graph (1)(B) shall not apply with respect to

13 any taxable year (beginning after the taxable

14 year in which the contract is completed) if—

15 ‘‘(i) the cumulative taxable income (or

16 loss) under the contract as of the close of

17 such taxable year, is within

18 ‘‘(ii) 10 percent of the cumulative

19 look-back taxable income (or loss) under

20 the contract as of the close of the most re21 cent taxable year to which paragraph

22 (1)(B) applied (or would have applied but

23 for subparagraph (B)).
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1 ‘‘(B) DE MINIMIS DISCREPANCIES.—Para2 graph (1)(B) shall not apply in any case to

3 which it would otherwise apply if—

4 ‘‘(i) the cumulative taxable income (or

5 loss) under the contract as of the close of

6 each prior contract year, is within

7 ‘‘(ii) 10 percent of the cumulative

8 look-back income (or loss) under the con9 tract as of the close of such prior contract

10 year.

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

12 paragraph—

13 ‘‘(i) CONTRACT YEAR.—The term

14 ‘contract year’ means any taxable year for

15 which income is taken into account under

16 the contract.

17 ‘‘(ii) LOOK-BACK INCOME OR LOSS.—

18 The look-back income (or loss) is the

19 amount which would be the taxable income

20 (or loss) under the contract if the alloca21 tion method set forth in paragraph (2)(A)

22 were used in determining taxable income.

23 ‘‘(iii) DISCOUNTING NOT APPLICA24 BLE.—The amounts taken into account

25 after the completion of the contract shall
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1 be determined without regard to any dis2 counting under the 2nd sentence of para3 graph (2).

4 ‘‘(D) CONTRACTS TO WHICH PARAGRAPH

5 APPLIES.—This paragraph shall only apply if

6 the taxpayer makes an election under this sub7 paragraph. Unless revoked with the consent of

8 the Secretary, such an election shall apply to all

9 long-term contracts completed during the tax10 able year for which election is made or during

11 any subsequent taxable year.’’

12 (b) MODIFICATION OF INTEREST RATE.—

13 (1) IN GENERAL.—Subparagraph (C) of section

14 460(b)(2) is amended by striking ‘‘the overpayment

15 rate established by section 6621’’ and inserting ‘‘the

16 adjusted overpayment rate (as defined in paragraph

17 (7))’’.

18 (2) ADJUSTED OVERPAYMENT RATE.—Sub19 section (b) of section 460 is amended by adding at

20 the end thereof the following new paragraph:

21 ‘‘(7) ADJUSTED OVERPAYMENT RATE.—

22 ‘‘(A) IN GENERAL.—The adjusted overpay23 ment rate for any interest accrual period is the

24 overpayment rate in effect under section 6621
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1 for the calendar quarter in which such interest

2 accrual period begins.

3 ‘‘(B) INTEREST ACCRUAL PERIOD.—For

4 purposes of subparagraph (A), the term ‘inter5 est accrual period’ means the period—

6 ‘‘(i) beginning on the day after the re7 turn due date for any taxable year of the

8 taxpayer, and

9 ‘‘(ii) ending on the return due date

10 for the following taxable year.

11 For purposes of the preceding sentence, the

12 term ‘return due date’ means the date pre13 scribed for filing the return of the tax imposed

14 by this chapter (determined without regard to

15 extensions).’’

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

17 this section shall apply to contracts completed in taxable

18 years ending after the date of the enactment of this Act.

19 SEC. 612. SIMPLIFIED METHOD FOR CAPITALIZING CER20 TAIN INDIRECT COSTS.

21 (a) GENERAL RULE.—Subsection (i) of section 263A

22 (relating to regulations) is amended by striking ‘‘and’’ at

23 the end of paragraph (1), by striking the period at the

24 end of paragraph (2) and inserting ‘‘, and’’, and by adding

25 at the end thereof the following:
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1 ‘‘(3) regulations providing that allocations of

2 costs of any administrative, service, or support func3 tion or department may be made on the basis of the

4 base period percentage of the current costs of such

5 function or department.

6 For purposes of paragraph (3), the term ‘base period per7 centage’ means, with respect to any function or depart8 ment, the percentage of the costs of such function or de9 partment during a base period specified in regulations

10 which were allocable to property to which this section ap11 plies.’’

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

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

14 the date of the enactment of this Act.

15 Subtitle C—Provisions Relating To

16 Regulated Investment Companies

17 SEC. 621. REPEAL OF 30-PERCENT GROSS INCOME LIMITA18 TION.

19 (a) GENERAL RULE.—Subsection (b) of section 851

20 (relating to limitations) is amended by striking paragraph

21 (3), by adding ‘‘and’’ at the end of paragraph (2), and

22 by redesignating paragraph (4) as paragraph (3).

23 (b) TECHNICAL AMENDMENTS.—
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1 (1) The material following paragraph (3) of sec2 tion 851 (as redesignated by subsection (a)) is

3 amended—

4 (A) by striking out ‘‘paragraphs (2) and

5 (3)’’ and inserting ‘‘paragraph (2)’’, and

6 (B) by striking out the last sentence there7 of.

8 (2) Subsection (c) of section 851 is amended by

9 striking ‘‘subsection (b)(4)’’ each place it appears

10 (including the heading) and inserting ‘‘subsection

11 (b)(3)’’.

12 (3) Subsection (d) of section 851 is amended by

13 striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub14 sections (b)(3)’’.

15 (4) Paragraph (1) of section 851(e) is amended

16 by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub17 section (b)(3)’’.

18 (5) Paragraph (4) of section 851(e) is amended

19 by striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub20 sections (b)(3)’’.

21 (6) Section 851 is amended by striking sub22 section (g) and redesignating subsection (h) as sub23 section (g).
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1 (7) Subsection (g) of section 851 (as redesig2 nated by paragraph (6)) is amended by striking

3 paragraph (3).

4 (8) Section 817(h)(2) is amended—

5 (A) by striking ‘‘851(b)(4)’’ in subpara6 graph (A) and inserting ‘‘851(b)(3)’’, and

7 (B) by striking ‘‘851(b)(4)(A)(i)’’ in sub8 paragraph (B) and inserting ‘‘851(b)(3)(A)(i)’’.

9 (9) Section 1092(f)(2) is amended by striking

10 ‘‘Except for purposes of section 851(b)(3), the’’ and

11 inserting ‘‘The’’.

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

13 this section shall apply to taxable years ending after the

14 date of the enactment of this Act.

15 SEC. 622. BASIS RULES FOR SHARES IN OPEN-END REGU16 LATED INVESTMENT COMPANIES.

17 (a) ADDITIONAL REPORTING REQUIREMENT.—Sec18 tion 6045 (relating to returns of brokers) is amended by

19 adding at the end thereof the following new subsection:

20 ‘‘(f) ADDITIONAL INFORMATION REQUIRED WITH

21 RESPECT TO OPEN-END REGULATED INVESTMENT COM22 PANIES.—

23 ‘‘(1) IN GENERAL.—If any person is required

24 under subsection (a) to make a return regarding the

25 gross proceeds from any disposition of stock in an
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1 open-end regulated investment company, such return

2 shall include for each such disposition—

3 ‘‘(A) the basis of the stock disposed of (de4 termined by reference to the average basis of all

5 of the stock in the account from which the dis6 position was made immediately before the dis7 position), and

8 ‘‘(B) the portion of such gross proceeds at9 tributable to stock held for more than 1 year

10 and the portion not so attributable.

11 Determinations under subparagraph (B) shall be

12 made on a first-in, first-out, basis and determina13 tions of basis and holding period shall be made in

14 such manner as the Secretary may prescribe.

15 ‘‘(2) OPEN-END REGULATED INVESTMENT COM16 PANY.—For purposes of this subsection, the term

17 ‘open-end regulated investment company’ means any

18 regulated investment company which is offering for

19 sale or has outstanding any redeemable security (as

20 defined in section 2(a)(32) of the Investment Com21 pany Act of 1940) of which it is the issuer.

22 ‘‘(3) INFORMATION TRANSFERS.—To the extent

23 provided in regulations, there shall be such ex24 changes of information between brokers as such reg-
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1 ulations may require for purposes of enabling bro2 kers to meet the requirements of this subsection.

3 ‘‘(4) APPLICATION OF SUBSECTION.—This sub4 section shall not apply with respect to stock in any

5 account—

6 ‘‘(A) which was established before January

7 1, 1995, or

8 ‘‘(B) which includes any stock not acquired

9 by purchase.’’

10 (b) BASIS FOR INCOME TAX PURPOSES.—Section

11 1012 of such Code is amended—

12 (1) by striking ‘‘The basis’’ and inserting ‘‘(a)

13 GENERAL RULE.—The basis’’, and

14 (2) by adding at the end thereof the following

15 new subsection:

16 ‘‘(b) SPECIAL RULES FOR STOCK IN OPEN-END REG17 ULATED INVESTMENT COMPANIES.—

18 ‘‘(1) IN GENERAL.—In the case of any disposi19 tion of stock from a covered account—

20 ‘‘(A) the basis of such stock shall be deter21 mined by reference to the average basis of all

22 of the stock in such account immediately before

23 such disposition, and
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1 ‘‘(B) the determination of which stock in

2 such account is so disposed of shall be made on

3 a first-in, first-out, basis.

4 ‘‘(2) COVERED ACCOUNT.—For purposes of this

5 subsection—

6 ‘‘(A) IN GENERAL.—The term ‘covered ac7 count’ means any account of stock in an open8 end regulated investment company if section

9 6045(f) applies to such account.

10 ‘‘(B) ELECTION OUT.—The term ‘covered

11 account’ shall not include any account if, on the

12 taxpayer’s return for his first taxable year in

13 which a disposition from such account occurs,

14 the taxpayer elects to have this subsection not

15 apply to such account.’’

16 (c) COORDINATION WITH WASH SALE RULES.—Sec17 tion 1091 is amended by adding at the end thereof the

18 following new subsection:

19 ‘‘(f) SPECIAL RULES FOR CERTAIN ACCOUNTS IN

20 OPEN-END REGULATED INVESTMENT COMPANIES.—

21 ‘‘(1) IN GENERAL.—In applying this section to

22 a disposition during December of any calendar year

23 of stock from a covered account, any acquisition of

24 stock after January 15 of the following calendar

25 year shall be disregarded if such acquisition is a re-
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1 sult of a dividend reinvestment pursuant to a divi2 dend reinvestment program established at the time

3 such account was opened or, if later, at least 6

4 months before the date of such disposition.

5 ‘‘(2) COVERED ACCOUNT.—For purposes of this

6 subsection, the term ‘covered account’ means any ac7 count of stock in an open-end regulated investment

8 company if section 6045(f) applies to such account.’’

9 (d) MODIFICATION OF LOAD BASIS DEFERRAL RULE

10 FOR CERTAIN ACQUISITIONS OCCURRING AFTER JANU11 ARY 15.—

12 (1) Paragraph (1) of section 852(f) is amended

13 by striking ‘‘subparagraph (C)) shall not’’ and all

14 that follows and inserting ‘‘subparagraph (C)) shall

15 be recaptured as provided in paragraph (2). To the

16 extent such charge is recaptured under paragraph

17 (2), such charge shall be treated as incurred in con18 nection with the acquisition referred to in subpara19 graph (C) (including for purposes of reapplying this

20 paragraph).’’

21 (2) Subsection (f) of section 852 is amended by

22 redesignating paragraph (2) as paragraph (3) and

23 by inserting after paragraph (1) the following new

24 paragraph:

25 ‘‘(2) RECAPTURE.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B), any load charge required by

3 paragraph (1) to be recaptured shall not be

4 taken into account in determining the amount

5 of gain or loss on the disposition referred to in

6 paragraph (1)(B).

7 ‘‘(B) SUBSEQUENT ACQUISITIONS OCCUR8 RING AFTER JANUARY 15.—If—

9 ‘‘(i) the acquisition referred to in

10 paragraph (1)(A) occurs in a calendar

11 year, and

12 ‘‘(ii) the subsequent acquisition re13 ferred to in paragraph (1)(C) occurs after

14 January 15 of the following calendar year,

15 subparagraph (A) shall not apply and the

16 amount of the load charge required by para17 graph (1) to be recaptured shall be included in

18 gross income as short-term capital gain for the

19 taxable year in which the subsequent acquisi20 tion referred to in paragraph (1)(C) occurs.’’

21 (e) TECHNICAL AMENDMENT.—Section 6724 of such

22 Code is amended by adding at the end thereof the follow23 ing new subsection:

24 ‘‘(e) SPECIAL RULE FOR CERTAIN REPORTS WITH

25 RESPECT TO STOCK IN OPEN END REGULATED INVEST-
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1 MENT COMPANIES.—For purposes of sections

2 6721(e)(2)(B) and 6722(c)(1)(B), the amount required to

3 be reported under section 6045 shall be determined with4 out regard to subsection (f) thereof.’’

5 (f) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section

8 shall apply to returns and statements required for

9 calendar year 1995 and subsequent calendar years.

10 (2) SUBSECTION (b).—The amendments made

11 by subsection (b) shall apply to dispositions after

12 December 31, 1994.

13 SEC. 623. NONRECOGNITION TREATMENT FOR CERTAIN

14 TRANSFERS BY COMMON TRUST FUNDS TO

15 REGULATED INVESTMENT COMPANIES.

16 (a) GENERAL RULE.—Section 584 (relating to com17 mon trust funds) is amended by redesignating subsection

18 (h) as subsection (i) and by inserting after subsection (g)

19 the following new subsection:

20 ‘‘(h) NONRECOGNITION TREATMENT FOR CERTAIN

21 TRANSFERS TO REGULATED INVESTMENT COMPANIES.—

22 ‘‘(1) IN GENERAL.—If—

23 ‘‘(A) a common trust fund transfers sub24 stantially all of its assets to a regulated invest-
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1 ment company in exchange solely for stock in

2 such company, and

3 ‘‘(B) such stock is distributed by such

4 common trust fund to participants in such com5 mon trust fund in exchange solely for their in6 terests in such common trust fund,

7 no gain or loss shall be recognized by such common

8 trust fund by reason of such transfer or distribution,

9 and no gain or loss shall be recognized by any par10 ticipant in such common trust fund by reason of

11 such exchange.

12 ‘‘(2) BASIS RULES.—

13 ‘‘(A) REGULATED INVESTMENT COM14 PANY.—The basis of any asset received by a

15 regulated investment company in a transfer re16 ferred to in paragraph (1)(A) shall be the same

17 as it would be in the hands of the common

18 trust fund.

19 ‘‘(B) PARTICIPANTS.—The basis of any

20 stock in a regulated investment company which

21 is received in an exchange referred to in para22 graph (1)(B) shall be the same as that of the

23 property exchanged.

24 ‘‘(3) TREATMENT OF ASSUMPTIONS OF LIABIL25 ITY.—
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1 ‘‘(A) IN GENERAL.—In determining wheth2 er the transfer referred to in paragraph (1)(A)

3 is in exchange solely for stock in the regulated

4 investment company, the assumption by such

5 company of a liability of the common trust

6 fund, and the fact that any property trans7 ferred by the common trust fund is subject to

8 a liability, shall be disregarded.

9 ‘‘(B) SPECIAL RULE WHERE ASSUMED LI10 ABILITIES EXCEED BASIS.—

11 ‘‘(i) IN GENERAL.—If in any transfer

12 referred to in paragraph (1)(A) the as13 sumed liabilities exceed the aggregate ad14 justed bases (in the hands of the common

15 trust fund) of the assets transferred to the

16 regulated investment company—

17 ‘‘(I) notwithstanding paragraph

18 (1), gain shall be recognized to the

19 common trust fund on such transfer

20 in an amount equal to such excess,

21 ‘‘(II) the basis of the assets re22 ceived by the regulated investment

23 company in such transfer shall be in24 creased by the amount so recognized,

25 and
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1 ‘‘(III) any adjustment to the

2 basis of a participant’s interest in the

3 common trust fund as a result of the

4 gain so recognized shall be treated as

5 occurring immediately before the ex6 change referred to in paragraph

7 (1)(B).

8 ‘‘(ii) ASSUMED LIABILITIES.—For

9 purposes of clause (i), the term ‘assumed

10 liabilities’ means the aggregate of—

11 ‘‘(I) any liability of the common

12 trust fund assumed by the regulated

13 investment company in connection

14 with the transfer referred to in para15 graph (1)(A), and

16 ‘‘(II) any liability to which prop17 erty so transferred is subject.

18 ‘‘(4) COMMON TRUST FUND MUST MEET DIVER19 SIFICATION RULES.—This subsection shall not apply

20 to any common trust fund which would not meet the

21 requirements of section 368(a)(2)(F)(ii) if it were a

22 corporation. For purposes of the preceding sentence,

23 Government securities shall not be treated as securi24 ties of an issuer in applying the 25-percent and 50-

25 percent test and such securities shall not be excluded
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1 for purposes of determining total assets under clause

2 (iv) of section 368(a)(2)(F).’’

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

4 subsection (a) shall apply to transfers after the date of

5 the enactment of this Act.

6 Subtitle D—Tax-Exempt Bond

7 Provisions

8 SEC. 631. REPEAL OF $100,000 LIMITATION ON UNSPENT

9 PROCEEDS UNDER 1-YEAR EXCEPTION FROM

10 REBATE.

11 Subclause (I) of section 148(f)(4)(B)(ii) (relating to

12 additional period for certain bonds) is amended by striking

13 ‘‘the lesser of 5 percent of the proceeds of the issue or

14 $100,000’’ and inserting ‘‘5 percent of the proceeds of the

15 issue’’.

16 SEC. 632. EXCEPTION FROM REBATE FOR EARNINGS ON

17 BONA FIDE DEBT SERVICE FUND UNDER

18 CONSTRUCTION BOND RULES.

19 Subparagraph (C) of section 148(f)(4) is amended by

20 adding at the end thereof the following new clause:

21 ‘‘(xvii) TREATMENT OF BONA FIDE

22 DEBT SERVICE FUNDS.—If the spending

23 requirements of clause (ii) are met with re24 spect to the available construction proceeds

25 of a construction issue, then paragraph (2)
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1 shall not apply to earnings on a bona fide

2 debt service fund for such issue.’’

3 SEC. 633. AGGREGATION OF ISSUES RULES NOT TO APPLY

4 TO TAX OR REVENUE ANTICIPATION BONDS.

5 Section 150 (relating to definitions and special rules)

6 is amended by adding at the end thereof the following new

7 subsection:

8 ‘‘(f) TAX OR REVENUE ANTICIPATION BONDS

9 TREATED AS SEPARATE ISSUES.—For purposes of this

10 part, if—

11 ‘‘(1) all of the bonds which are part of an issue

12 are qualified 501(c)(3) bonds or bonds which are not

13 private activity bonds, and

14 ‘‘(2) any portion of such issue consists of tax or

15 revenue anticipation bonds which are reasonably ex16 pected to meet the requirements of section

17 148(f)(4)(B)(iii),

18 then such portion shall, subject to appropriate allocations

19 specified in regulations prescribed by the Secretary, be

20 treated as a separate issue.’’

21 SEC. 634. REPEAL OF DISPROPORTIONATE PRIVATE BUSI22 NESS USE TEST.

23 (a) IN GENERAL.—Subsection (b) of section 141 (re24 lating to private business tests) is amended by striking
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1 paragraph (3) and by redesignating paragraphs (4)

2 through (9) as paragraphs (3) through (8), respectively.

3 (b) CONFORMING AMENDMENTS.—

4 (1) Paragraph (2) of section 141(d) is amended

5 by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub6 section (b)(3)’’.

7 (2) Paragraph (2) of section 142(c) is amended

8 by striking ‘‘section 141(b)(6)’’ and inserting ‘‘sec9 tion 141(b)(5)’’.

10 (3) Subsections (k)(3) and (m)(1) of section

11 146 and section 149(f)(4)(B)(i) are each amended

12 by striking ‘‘section 141(b)(5)’’ and inserting ‘‘sec13 tion 141(b)(4)’’.

14 SEC. 635. EXPANDED EXCEPTION FROM REBATE FOR ISSU15 ERS ISSUING $10,000,000 OR LESS OF BONDS.

16 Subparagraph (D) of section 148(f) (relating to ex17 ception for governmental units issuing $5,000,000 or less

18 of bonds) is amended by striking ‘‘$5,000,000’’ each place

19 it appears (including the heading) and inserting

20 ‘‘$10,000,000’’.
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1 SEC. 636. REPEAL OF DEBT SERVICE-BASED LIMITATION

2 ON INVESTMENT IN CERTAIN NONPURPOSE

3 INVESTMENTS.

4 Subsection (d) of section 148 (relating to special

5 rules for reasonably required reserve or replacement fund)

6 is amended by striking paragraph (3).

7 SEC. 637. REPEAL OF EXPIRED PROVISIONS.

8 (a) Paragraph (2) of section 148(c) is amended by

9 striking subparagraph (B) and by redesignating subpara10 graphs (C), (D), and (E) as subparagraph (B), (C), and

11 (D), respectively.

12 (b) Paragraph (4) of section 148(f) is amended by

13 striking subparagraph (E).

14 SEC. 638. CLARIFICATION OF INVESTMENT–TYPE PROP15 ERTY.

16 Subparagraph (D) of section 148(b)(2) is amended

17 to read as follows:

18 ‘‘(D) any investment-type property, or’’.

19 SEC. 639. EFFECTIVE DATES.

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

21 this section, the amendments made by this subtitle shall

22 apply to bonds issued after the date of the enactment of

23 this Act.

24 (b) SMALL ISSUER EXPANSION.—The amendment

25 made by section 635 shall apply to bonds issued in cal-
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1 endar years beginning after the date of the enactment of

2 this Act.

3 (c) INVESTMENT-TYPE PROPERTY.—The amendment

4 made by section 638 shall take effect as if included in the

5 amendments made by section 1301 of the Tax Reform Act

6 of 1986.

7 Subtitle E—Insurance Provisions

8 SEC. 641. TREATMENT OF CERTAIN INSURANCE CON9 TRACTS ON RETIRED LIVES.

10 (a) GENERAL RULE.—

11 (1) Paragraph (2) of section 817(d) (defining

12 variable contract) is amended by striking ‘‘or’’ at the

13 end of subparagraph (A), by striking ‘‘and’’ at the

14 end of subparagraph (B) and inserting ‘‘or’’, and by

15 inserting after subparagraph (B) the following new

16 subparagraph:

17 ‘‘(C) provides for funding of insurance on

18 retired lives as described in section 807(c)(6),

19 and’’.

20 (2) Paragraph (3) of section 817(d) is amended

21 by striking ‘‘or’’ at the end of subparagraph (A), by

22 striking the period at the end of subparagraph (B)

23 and inserting ‘‘, or’’, and by inserting after subpara24 graph (B) the following new subparagraph:
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1 ‘‘(C) in the case of funds held under a con2 tract described in paragraph (2)(C), the

3 amounts paid in, or the amounts paid out, re4 flect the investment return and the market

5 value of the segregated asset account.’’

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

7 this section shall apply to taxable years beginning after

8 December 31, 1992.

9 SEC. 642. TREATMENT OF MODIFIED GUARANTEED CON10 TRACTS.

11 (a) GENERAL RULE.—Subpart E of part I of sub12 chapter L of chapter 1 (relating to definitions and special

13 rules) is amended by inserting after section 817 the follow14 ing new section:

15 ‘‘SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED

16 CONTRACTS.

17 ‘‘(a) COMPUTATION OF RESERVES.—In the case of

18 a modified guaranteed contract, clause (ii) of section

19 807(e)(1)(A) shall not apply.

20 ‘‘(b) SEGREGATED ASSETS UNDER MODIFIED GUAR21 ANTEED CONTRACTS MARKED TO MARKET.—

22 ‘‘(1) IN GENERAL.—In the case of any life in23 surance company, for purposes of this subtitle—
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1 ‘‘(A) Any gain or loss with respect to a

2 segregated asset shall be treated as ordinary in3 come or loss, as the case may be.

4 ‘‘(B) If any segregated asset is held by

5 such company as of the close of any taxable

6 year—

7 ‘‘(i) such company shall recognize

8 gain or loss as if such asset were sold for

9 its fair market value on the last business

10 day of such taxable year, and

11 ‘‘(ii) any such gain or loss shall be

12 taken into account for such taxable year.

13 Proper adjustment shall be made in the amount

14 of any gain or loss subsequently realized for

15 gain or loss taken into account under the pre16 ceding sentence. The Secretary may provide by

17 regulations for the application of this subpara18 graph at times other than the times provided in

19 this subparagraph.

20 ‘‘(2) SEGREGATED ASSET.—For purposes of

21 paragraph (1), the term ‘segregated asset’ means

22 any asset held as part of a segregated account re23 ferred to in subsection (d)(1) under a modified guar24 anteed contract.
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1 ‘‘(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE

2 RESERVES.—For purposes of applying section

3 816(b)(1)(A) to any modified guaranteed contract, an as4 sumed rate of interest shall include a rate of interest de5 termined, from time to time, with reference to a market

6 rate of interest.

7 ‘‘(d) MODIFIED GUARANTEED CONTRACT DE8 FINED.—For purposes of this section, the term ‘modified

9 guaranteed contract’ means a contract not described in

10 section 817—

11 ‘‘(1) all or part of the amounts received under

12 which are allocated to an account which, pursuant to

13 State law or regulation, is segregated from the gen14 eral asset accounts of the company and is valued

15 from time to time with reference to market values,

16 ‘‘(2) which—

17 ‘‘(A) provides for the payment of annuities,

18 ‘‘(B) is a life insurance contract, or

19 ‘‘(C) is a pension plan contract which is

20 not a life, accident, or health, property, cas21 ualty, or liability contract,

22 ‘‘(3) for which reserves are valued at market for

23 annual statement purposes, and
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1 ‘‘(4) which provides for a net surrender value or

2 a policyholder’s fund (as defined in section

3 807(e)(1)).

4 ‘‘(e) REGULATIONS.—The Secretary may prescribe

5 regulations—

6 ‘‘(1) to provide for the treatment of market

7 value adjustments under sections 72, 7702, 7702A,

8 and 807(e)(1)(B),

9 ‘‘(2) to determine the interest rates applicable

10 under sections 807(c)(3), 807(d)(2)(B), and 812

11 with respect to a modified guaranteed contract an12 nually, in a manner appropriate for modified guar13 anteed contracts and, to the extent appropriate for

14 such a contract, to modify or waive the applicability

15 of section 811(d),

16 ‘‘(3) to provide rules to limit ordinary gain or

17 loss treatment to assets constituting reserves for

18 modified guaranteed contracts (and not other assets)

19 of the company,

20 ‘‘(4) to provide appropriate treatment of trans21 fers of assets to and from the segregated account,

22 and

23 ‘‘(5) as may be necessary or appropriate to

24 carry out the purposes of this section.’’
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 for subpart E of part I of subchapter L of chapter 1 is

3 amended by inserting after the item relating to section

4 817 the following new item:

‘‘Sec. 817A. Special rules for modified guaranteed contracts.’’

5 (c) EFFECTIVE DATE.—

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

7 this section shall apply to taxable years beginning

8 after December 31, 1992.

9 (2) TREATMENT OF NET ADJUSTMENTS.—In

10 the case of any taxpayer required by the amend11 ments made by this section to change its calculation

12 of reserves to take into account market value adjust13 ments and to mark segregated assets to market for

14 any taxable year—

15 (A) such changes shall be treated as a

16 change in method of accounting initiated by the

17 taxpayer,

18 (B) such changes shall be treated as made

19 with the consent of the Secretary, and

20 (C) the adjustments required by reason of

21 section 481 of the Internal Revenue Code of

22 1986 shall be taken into account as ordinary in23 come or loss by the taxpayer for the taxpayer’s

24 first taxable year beginning after December 31,

25 1992.
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1 Subtitle F—Other Provisions

2 SEC. 651. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH

3 RESPECT TO DECEASED PARTNER, ETC.

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

5 706(c)(2) (relating to disposition of entire interest) is

6 amended to read as follows:

7 ‘‘(A) DISPOSITION OF ENTIRE INTER8 EST.—The taxable year of a partnership shall

9 close with respect to a partner whose entire in10 terest in the partnership terminates (whether

11 by reason of death, liquidation, or otherwise).’’

12 (b) CLERICAL AMENDMENT.—The paragraph head13 ing for paragraph (2) of section 706(c) is amended to read

14 as follows:

15 ‘‘(2) TREATMENT OF DISPOSITIONS.—’’.

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

17 this section shall apply to partnership taxable years begin18 ning after December 31, 1993.

19 SEC. 652. REPEAL OF SPECIAL TREATMENT OF OWNER20 SHIP CHANGES IN DETERMINING ADJUSTED

21 CURRENT EARNINGS.

22 (a) GENERAL RULE.—Paragraph (4) of section 56(g)

23 (relating to adjustments) is amended by striking subpara24 graph (G) and by redesignating the following subpara25 graph as paragraph (G).
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to ownership changes after the

3 date of the enactment of this Act.

4 SEC. 653. SIMPLIFICATION OF CORPORATE MINIMUM TAX

5 DEPRECIATION PREFERENCE.

6 (a) IN GENERAL.—

7 (1) Clause (ii) of section 56(a)(1)(A) is amend8 ed—

9 (A) by striking ‘‘150 percent’’ in subclause

10 (I) and inserting ‘‘150 percent (120 percent in

11 the case of a corporation to which subsection

12 (g) applies)’’, and

13 (B) by striking ‘‘150-PERCENT DECLIN14 ING’’ in the clause heading and inserting ‘‘DE15 CLINING’’.

16 (2) Clause (i) of section 56(g)(4)(A) is amended

17 to read as follows:

18 ‘‘(i) PROPERTY PLACED IN SERVICE

19 AFTER 1989.—The depreciation deduction

20 with respect to any property placed in

21 service in a taxable year beginning—

22 ‘‘(I) during 1990, 1991, or 1992

23 shall be determined under the alter24 native system of section 168(g), or
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1 ‘‘(II) after 1992 shall be deter2 mined under the rules of subpara3 graph (A) of subsection (a)(1).’’

4 (b) CONFORMING AMENDMENTS.—

5 (1) Paragraph (2) of section 168(b) is amended

6 to read as follows:

7 ‘‘(2) SPECIAL RULE FOR DECLINING BALANCE

8 METHOD IN CERTAIN CASES.—

9 ‘‘(A) 150 PERCENT METHOD FOR CERTAIN

10 PROPERTY.—Paragraph (1) shall be applied by

11 substituting ‘150 percent’ for ‘200 percent’ in

12 the case of—

13 ‘‘(i) any 15-year or 20-year property,

14 or

15 ‘‘(ii) any property used in a farming

16 business (within the meaning of section

17 263A(e)(4)).

18 ‘‘(B) ELECTION TO USE MINIMUM TAX

19 METHOD.—In the case of any property (other

20 than property described in paragraph (3)) with

21 respect to which the taxpayer elects under para22 graph (5) to have the provisions of this sub23 paragraph apply, paragraph (1) shall be applied

24 by substituting ‘150 percent (120 percent in the

25 case of a corporation to which section 56(g) ap-
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1 plies)’ for ‘200 percent’ (and subparagraph (A)

2 of this paragraph shall not apply).’’

3 (2) Paragraph (5) of section 168(b) is amended

4 by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para5 graph (2)(B)’’.

6 (3) Paragraph (2) of section 168(c) is amend7 ed—

8 (A) by striking ‘‘subsection (b)(2)(C)’’ and

9 inserting ‘‘subsection (b)(2)(B)’’, and

10 (B) by striking ‘‘150 PERCENT METHOD’’

11 in the paragraph heading and inserting ‘‘MINI12 MUM TAX METHOD’’.

13 (c) EFFECTIVE DATES.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section

16 shall apply to property placed in service in taxable

17 years beginning after December 31, 1992.

18 (2) COORDINATION WITH TRANSITIONAL

19 RULES.—The amendments made by this section

20 shall not apply to any property to which paragraph

21 (1) of section 56(a) of the Internal Revenue Code of

22 1986 does not apply by reason of subparagraph

23 (C)(i) of such paragraph (1).
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1 SEC. 654. MODIFICATION OF CREDIT FOR PRODUCING

2 FUEL FROM A NONCONVENTIONAL SOURCE.

3 (a) IN GENERAL.—Subparagraph (A) of section

4 29(c)(2) (relating to gas from geopressured brine, etc.) is

5 amended by adding at the end the following new sentence:

6 ‘‘If the Federal Energy Regulatory Commission ceases to

7 make the determinations described in the preceding sen8 tence, the Secretary shall make such determinations in ac9 cordance with section 503 of such Act.’’

10 (b) CONFORMING AMENDMENT.—Section

11 29(c)(2)(A) is amended by inserting ‘‘(as in effect before

12 its repeal by the Natural Gas Wellhead Decontrol Act of

13 1989)’’± after ‘‘Natural Gas Policy Act of 1978’’.

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

15 this section shall take effect on January 1, 1993.

16 TITLE VII—ESTATE AND GIFT

17 TAX PROVISIONS

18 SEC. 701. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS

19 OF RECOVERY.

20 (a) AMENDMENT TO SECTION 2207A.—Paragraph

21 (2) of section 2207A(a) (relating to right of recovery in

22 the case of certain marital deduction property) is amended

23 to read as follows:

24 ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.—

25 Paragraph (1) shall not apply with respect to any

26 property to the extent that the decedent in his will
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1 (or a revocable trust) specifically indicates an intent

2 to waive any right of recovery under this subchapter

3 with respect to such property.’’

4 (b) AMENDMENT TO SECTION 2207B.—Paragraph

5 (2) of section 2207B(a) (relating to right of recovery

6 where decedent retained interest) is amended to read as

7 follows:

8 ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.—

9 Paragraph (1) shall not apply with respect to any

10 property to the extent that the decedent in his will

11 (or a revocable trust) specifically indicates an intent

12 to waive any right of recovery under this subchapter

13 with respect to such property.’’

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

15 this section shall apply with respect to the estates of dece16 dents dying after the date of the enactment of this Act.

17 SEC. 702. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF

18 DECEDENT’S DEATH.

19 (a) GENERAL RULE.—Section 2035 is amended to

20 read as follows:

21 ‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE

22 WITHIN 3 YEARS OF DECEDENT’S DEATH.

23 ‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS

24 ESTATE.—If—
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1 ‘‘(1) the decedent made a transfer (by trust or

2 otherwise) of an interest in any property, or relin3 quished a power with respect to any property, during

4 the 3-year period ending on the date of the dece5 dent’s death, and

6 ‘‘(2) the value of such property (or an interest

7 therein) would have been included in the decedent’s

8 gross estate under section 2036, 2037, 2038, or

9 2042 if such transferred interest or relinquished

10 power had been retained by the decedent on the date

11 of his death,

12 the value of the gross estate shall include the value of any

13 property (or interest therein) which would have been so

14 included.

15 ‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DUR16 ING 3 YEARS BEFORE DECEDENT’S DEATH.—The

17 amount of the gross estate (determined without regard to

18 this subsection) shall be increased by the amount of any

19 tax paid under chapter 12 by the decedent or his estate

20 on any gift made by the decedent or his spouse during

21 the 3-year period ending on the date of the decedent’s

22 death.

23 ‘‘(c) OTHER RULES RELATING TO TRANSFERS

24 WITHIN 3 YEARS OF DEATH.—

25 ‘‘(1) IN GENERAL.—For purposes of—
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1 ‘‘(A) section 303(b) (relating to distribu2 tions in redemption of stock to pay death

3 taxes),

4 ‘‘(B) section 2032A (relating to special

5 valuation of certain farms, etc., real property),

6 and

7 ‘‘(C) subchapter C of chapter 64 (relating

8 to lien for taxes),

9 the value of the gross estate shall include the value

10 of all property to the extent of any interest therein

11 of which the decedent has at any time made a trans12 fer, by trust or otherwise, during the 3-year period

13 ending on the date of the decedent’s death.

14 ‘‘(2) COORDINATION WITH SECTION 6166.—An

15 estate shall be treated as meeting the 35 percent of

16 adjusted gross estate requirement of section

17 6166(a)(1) only if the estate meets such requirement

18 both with and without the application of paragraph

19 (1).

20 ‘‘(3) SMALL TRANSFERS.—Paragraph (1) shall

21 not apply to any transfer (other than a transfer with

22 respect to a life insurance policy) made during a cal23 endar year to any donee if the decedent was not re24 quired by section 6019 (other than by reason of sec-
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1 tion 6019(a)(2)) to file any gift tax return for such

2 year with respect to transfers to such donee.

3 ‘‘(d) EXCEPTION.—Subsection (a) shall not apply to

4 any bona fide sale for an adequate and full consideration

5 in money or money’s worth.

6 ‘‘(e) TREATMENT OF CERTAIN TRANSFERS FROM

7 REVOCABLE TRUSTS.—For purposes of this section and

8 section 2038, any transfer from any portion of a trust with

9 respect to which the decedent was the grantor during any

10 period when the decedent held the power to revest in the

11 decedent title to such portion shall be treated as a transfer

12 made directly by the decedent.’’

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

14 for part III of subchapter A of chapter 11 is amended

15 by striking ‘‘gifts’’ in the item relating to section 2035

16 and inserting ‘‘certain gifts’’.

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

18 this section shall apply to the estates of decedents dying

19 after the date of the enactment of this Act.

20 SEC. 703. CLARIFICATION OF QUALIFIED TERMINABLE IN21 TEREST RULES.

22 (a) GENERAL RULE.—

23 (1) ESTATE TAX.—Subparagraph (B) of section

24 2056(b)(7) (defining qualified terminable interest
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1 property) is amended by adding at the end thereof

2 the following new clause:

3 ‘‘(v)(i) TREATMENT OF CERTAIN IN4 COME DISTRIBUTIONS.—An income inter5 est shall not fail to qualify as a qualified

6 income interest for life solely because in7 come for the period after the last distribu8 tion date and on or before the date of the

9 surviving spouse’s death is not required to

10 be distributed to the surviving spouse or to

11 the estate of the surviving spouse.’’

12 (2) GIFT TAX.—Paragraph (3) of section

13 2523(f) is amended by striking ‘‘and (iv)’’ and in14 serting ‘‘, (iv), and (vi)’’.

15 (b) CLARIFICATION OF SUBSEQUENT INCLUSIONS.—

16 Section 2044 is amended by adding at the end thereof the

17 following new subsection:

18 ‘‘(d) CLARIFICATION OF INCLUSION OF CERTAIN IN19 COME.—The amount included in the gross estate under

20 subsection (a) shall include the amount of any income

21 from the property to which this section applies for the pe22 riod after the last distribution date and on or before the

23 date of the decedent’s death if such income is not other24 wise included in the decedent’s gross estate.’’

25 (c) EFFECTIVE DATE.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply with respect to the estates of

3 decedents dying, and gifts made, after the date of

4 the enactment of this Act.

5 (2) APPLICATION OF SECTION 2044 TO TRANS6 FERS BEFORE DATE OF ENACTMENT.—In the case

7 of the estate of any decedent dying after the date of

8 the enactment of this Act, if there was a transfer of

9 property on or before such date—

10 (A) such property shall not be included in

11 the gross estate of the decedent under section

12 2044 of the Internal Revenue Code of 1986 if

13 no prior marital deduction was allowed with re14 spect to such a transfer of such property to the

15 decedent, but

16 (B) such property shall be so included if

17 such a deduction was allowed.

18 SEC. 704. TRANSITIONAL RULE UNDER SECTION 2056A.

19 (a) GENERAL RULE.—In the case of any trust cre20 ated under an instrument executed before the date of the

21 enactment of the Revenue Reconciliation Act of 1990,

22 such trust shall be treated as meeting the requirements

23 of paragraph (1) of section 2056A(a) of the Internal Reve24 nue Code of 1986 if the trust instrument requires that
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1 all trustees of the trust be individual citizens of the United

2 States or domestic corporations.

3 (b) EFFECTIVE DATE.—The provisions of subsection

4 (a) shall take effect as if included in the provisions of sec5 tion 11702(g) of the Revenue Reconciliation Act of 1990.

6 SEC. 705. OPPORTUNITY TO CORRECT CERTAIN FAILURES

7 UNDER SECTION 2032A.

8 (a) GENERAL RULE.—Paragraph (3) of section

9 2032A(d) (relating to modification of election and agree10 ment to be permitted) is amended to read as follows:

11 ‘‘(3) MODIFICATION OF ELECTION AND AGREE12 MENT TO BE PERMITTED.—The Secretary shall pre13 scribe procedures which provide that in any case in

14 which the executor makes an election under para15 graph (1) (and submits the agreement referred to in

16 paragraph (2)) within the time prescribed therefor,

17 but—

18 ‘‘(A) the notice of election, as filed, does

19 not contain all required information, or

20 ‘‘(B) signatures of 1 or more persons re21 quired to enter into the agreement described in

22 paragraph (2) are not included on the agree23 ment as filed, or the agreement does not con24 tain all required information,
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1 the executor will have a reasonable period of time

2 (not exceeding 90 days) after notification of such

3 failures to provide such information or signatures.’’

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

5 subsection (a) shall apply to the estates of decedents dying

6 after the date of the enactment of this Act.

7 TITLE VIII—EXCISE TAX

8 SIMPLIFICATION

9 Subtitle A—Fuel Tax Provisions

10 SEC. 801. REPEAL OF CERTAIN RETAIL AND USE TAXES.

11 (a) IN GENERAL.—Section 4041 is amended to read

12 as follows:

13 ‘‘SEC. 4041. SPECIAL MOTOR FUELS AND NONCOMMERCIAL

14 AVIATION GASOLINE.

15 ‘‘(a) SPECIAL MOTOR FUELS.—

16 ‘‘(1) IN GENERAL.—There is hereby imposed a

17 tax on benzol, benzene, naphtha, liquefied petroleum

18 gas, casing head and natural gasoline, or any other

19 liquid—

20 ‘‘(A) sold by any person to an owner, les21 see, or other operator of a motor vehicle or a

22 motorboat for use as a fuel in such motor vehi23 cle or motorboat, or

24 ‘‘(B) used by any person as a fuel in a

25 motor vehicle or motorboat unless there was a
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1 taxable sale of such liquid under subparagraph

2 (A).

3 ‘‘(2) RATE OF TAX.—The rate of the tax im4 posed by this subsection shall be the aggregate rate

5 of tax in effect under section 4081 at the time of

6 such sale or use.

7 ‘‘(3) CERTAIN FUELS EXEMPT FROM TAX.—The

8 tax imposed by this subsection shall not apply to

9 gasoline (as defined in section 4082), diesel fuel (as

10 defined in section 4092), kerosene, gas oil, or fuel

11 oil.

12 ‘‘(4) REDUCED RATES OF TAX ON CERTAIN

13 FUELS.—

14 ‘‘(A) QUALIFIED METHANOL AND ETHA15 NOL FUEL.—

16 ‘‘(i) IN GENERAL.—In the case of any

17 qualified methanol or ethanol fuel—

18 ‘‘(I) the Highway Trust Fund fi19 nancing rate applicable under para20 graph (2) shall be 5.4 cents per gallon

21 less than the otherwise applicable rate

22 (6 cents per gallon less in the case of

23 a mixture none of the alcohol in which

24 consists of ethanol), and
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1 ‘‘(II) the Leaking Underground

2 Storage Tank Trust Fund financing

3 rate applicable under paragraph (2)

4 shall be 0.05 cent per gallon.

5 ‘‘(ii) QUALIFIED METHANOL OR ETHA6 NOL FUEL.—The term ‘qualified methanol

7 or ethanol fuel’ means any liquid at least

8 85 percent of which consists of methanol,

9 ethanol, or other alcohol produced from a

10 substance other than petroleum or natural

11 gas.

12 ‘‘(iii) TERMINATION.—Clause (i) shall

13 not apply to any sale or use after Septem14 ber 30, 2000.

15 ‘‘(B) NATURAL GAS-DERIVED METHANOL

16 OR ETHANOL FUEL.—

17 ‘‘(i) IN GENERAL.—In the case of nat18 ural gas-derived methanol or ethanol

19 fuel—

20 ‘‘(I) the Highway Trust Fund fi21 nancing rate applicable under para22 graph (2) shall be 5.75 cents per gal23 lon, and
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1 ‘‘(II) the deficit reduction rate

2 applicable under paragraph (2) shall

3 be 1.25 cents per gallon.

4 ‘‘(ii) NATURAL GAS-DERIVED METH5 ANOL OR ETHANOL FUEL.—The term ‘nat6 ural-gas derived methanol or ethanol fuel’

7 means any liquid at least 85 percent of

8 which consists of methanol, ethanol, or

9 other alcohol produced from natural gas.

10 ‘‘(C) OTHER FUELS CONTAINING ALCO11 HOL.—

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

13 prescribed by the Secretary, in the case of

14 any liquid at least 10 percent of which con15 sists of alcohol (as defined in section

16 4081(c)(3)), the Highway Trust Fund fi17 nancing rate applicable under paragraph

18 (2) shall be the comparable rate under sec19 tion 4081.

20 ‘‘(ii) LATER SEPARATION.—If any

21 person separates the liquid fuel from a

22 mixture of the liquid fuel and alcohol to

23 which clause (i) applies, such separation

24 shall be treated as a sale of the liquid fuel.

25 Any tax imposed on such sale shall be re-
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1 duced by the amount (if any) of the tax

2 imposed on the sale of such mixture.

3 ‘‘(iii) TERMINATION.—Clause (i) shall

4 not apply to any sale or use after Septem5 ber 30, 2000.

6 ‘‘(D) LIQUEFIED PETROLEUM GAS.—The

7 rate of tax applicable under paragraph (2) to

8 liquefied petroleum gas shall be determined

9 without regard to the Leaking Underground

10 Storage Tank Trust Fund financing rate under

11 section 4081.

12 ‘‘(5) EXEMPTION FOR OFF-HIGHWAY BUSINESS

13 USE.—No tax shall be imposed by paragraph (1) on

14 liquids sold for use or used in an off-highway busi15 ness use (within the meaning of section 6420(f)).

16 ‘‘(b) NONCOMMERCIAL AVIATION GASOLINE.—

17 ‘‘(1) IN GENERAL.—There is hereby imposed a

18 tax on gasoline—

19 ‘‘(A) sold by any person to an owner, les20 see, or other operator of an aircraft for use as

21 a fuel in such aircraft in noncommercial avia22 tion, or

23 ‘‘(B) used by any person as a fuel in an

24 aircraft in noncommercial aviation unless there
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1 was a taxable sale of such gasoline under sub2 paragraph (A).

3 The tax imposed by this paragraph shall be in addi4 tion to any tax imposed by section 4081.

5 ‘‘(2) RATE OF TAX.—The rate of the tax im6 posed by paragraph (1) on any gasoline is the excess

7 of 15 cents a gallon over the sum of the Highway

8 Trust Fund financing rate plus the deficit reduction

9 rate at which tax was imposed on such gasoline

10 under section 4081.

11 ‘‘(3) NONCOMMERCIAL AVIATION.—For pur12 poses of this subsection, the term ‘noncommercial

13 aviation’ means any use of an aircraft other than

14 use in a business of transporting persons or property

15 for compensation or hire by air. Such term includes

16 any use of an aircraft, in a business described in the

17 preceding sentence, which is properly allocable to

18 any transportation exempt from the taxes imposed

19 by sections 4261 and 4271 by reason of section

20 4281 or 4282.

21 ‘‘(4) EXEMPTION FOR FUELS CONTAINING AL22 COHOL.—No tax shall be imposed by this subsection

23 on any liquid at least 10 percent of which consists

24 of alcohol (as defined in section 4081(c)(3)).
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1 ‘‘(5) EXEMPTION FOR CERTAIN HELICOPTER

2 USES.—No tax shall be imposed by this subsection

3 on gasoline sold for use or used in a helicopter for

4 purposes of providing transportation with respect to

5 which the requirements of subsection (e) or (f) of

6 section 4261 are met.

7 ‘‘(6) REGISTRATION.—Except as provided in

8 regulations prescribed by the Secretary, if any gaso9 line is sold by any person for use as a fuel in an air10 craft, it shall be presumed for purposes of this sub11 section that a tax imposed by this subsection applies

12 to the sale of such gasoline unless the purchaser is

13 registered in such manner (and furnished such infor14 mation in respect of the use of the gasoline) as the

15 Secretary shall by regulations provide.

16 ‘‘(7) GASOLINE.—For purposes of this sub17 section, the term ‘gasoline’ has the meaning given

18 such term by section 4082.

19 ‘‘(8) TERMINATION.—Paragraph (1) shall not

20 apply to any sale or use after December 31, 1995.

21 ‘‘(c) EXEMPTION FOR FARM USE.—

22 ‘‘(1) IN GENERAL.—Under regulations pre23 scribed by the Secretary, no tax shall be imposed

24 under this section on any liquid sold for use or used

25 on a farm for farming purposes (determined in ac-
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1 cordance with paragraphs (1), (2), and (3) of section

2 6420(e)).

3 ‘‘(2) TERMINATION.—Except with respect to so

4 much of the tax imposed by subsection (a) as is de5 termined by reference to the Leaking Underground

6 Storage Tank Trust Fund financing rate under sec7 tion 4081, paragraph (1) shall not apply after Sep8 tember 30, 1999.

9 ‘‘(d) EXEMPTIONS FOR STATE AND LOCAL GOVERN10 MENTS, SCHOOLS, EXPORTATION, AND SUPPLIES FOR

11 VESSELS AND AIRCRAFT.—

12 ‘‘(1) IN GENERAL.—Under regulations pre13 scribed by the Secretary, no tax shall be imposed

14 under this section on any liquid sold for use, or

15 used, in an exempt use described in paragraph (4),

16 (5), (6), or (7) of section 6420(b).

17 ‘‘(2) TERMINATION.—Except with respect to so

18 much of the tax imposed by subsection (a) as is de19 termined by reference to the Leaking Underground

20 Storage Tank Trust Fund financing rate under sec21 tion 4081, after September 30, 1999, paragraph (1)

22 shall not apply to exempt uses described in para23 graph (4) and (5) of section 6420(b).

24 ‘‘(e) EXEMPTION FOR USE BY CERTAIN AIRCRAFT

25 MUSEUMS.—Under regulations prescribed by the Sec-
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1 retary, no tax shall be imposed under this section on any

2 liquid sold for use or used in an exempt use described in

3 section 6420(b)(11).’’

4 (b) CERTAIN ADDITIONAL PURCHASERS OF FUEL

5 TREATED AS PRODUCERS.—

6 (1) IN GENERAL.—Subparagraph (C) of section

7 4092(b)(1) is amended to read as follows:

8 ‘‘(C) REDUCED-TAX PURCHASERS TREAT9 ED AS PRODUCERS.—Any person to whom any

10 fuel is sold in a sale on which the amount of

11 tax otherwise required to be paid under section

12 4091 is reduced under section 4093 shall be

13 treated as the producer of such fuel. The

14 amount of tax imposed by section 4091 on any

15 sale of such fuel by such person shall be re16 duced by the amount of tax imposed under sec17 tion 4091 (and not credited or refunded) on

18 any prior sale of such fuel.’’

19 (2) CONFORMING AMENDMENT.—Subsection (b)

20 of section 4093 is amended by inserting ‘‘(as defined

21 in section 4092(b) without regard to paragraph

22 (1)(C) thereof)’’ after ‘‘producer’’.
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1 SEC. 802. REVISION OF FUEL TAX CREDIT AND REFUND

2 PROCEDURES.

3 (a) REFUNDS TO CERTAIN SELLERS OF DIESEL

4 FUEL AND AVIATION FUEL.—

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

6 6416(b) is amended by striking ‘‘4091 or 4121’’ and

7 inserting ‘‘4121 or 4091; except that this paragraph

8 shall apply to a person selling diesel fuel or aviation

9 fuel for a use described in the first sentence if such

10 person meets such requirements as the Secretary

11 may by regulations prescribe’’.

12 (2) LIMITATIONS ON AMOUNT OF TAX; ONLY

13 HIGHWAY TRUST FUND FINANCING RATE TO BE

14 REFUNDABLE.—Paragraph (2) of section 6416(b) is

15 amended by adding at the end thereof the following

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

17 the taxes imposed by sections 4081 and 4091 with

18 respect to any use to the same extent that section

19 6420(a) does not apply to such use by reason of

20 paragraph (1) or (2) of section 6420(c).’’

21 (b) CONSOLIDATION OF REFUND PROVISIONS; RE22 PEAL OF CONSENT REQUIREMENT FOR REFUND OF FUEL

23 TAXES TO CROPDUSTERS, ETC.—Section 6420 (relating

24 to gasoline used on farms) is amended to read as follows:
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1 ‘‘SEC. 6420. CERTAIN TAXES ON FUELS USED FOR EXEMPT

2 PURPOSES.

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

4 this section, if any fuel on which tax was imposed under

5 section 4041, 4081, or 4091 is used in an exempt use,

6 the Secretary shall pay (without interest) to the ultimate

7 purchaser of such fuel the amount equal to the aggregate

8 tax imposed on such fuel under such sections.

9 ‘‘(b) EXEMPT USES.—For purposes of this section,

10 the term ‘exempt use’ means—

11 ‘‘(1) in the case of diesel fuel, use other than

12 as a fuel in a diesel-powered highway vehicle,

13 ‘‘(2) in the case of aviation fuel, use other than

14 as a fuel in an aircraft,

15 ‘‘(3) in the case of gasoline or aviation fuel,

16 used in an aircraft other than in noncommercial

17 aviation (as defined in section 4041(b)),

18 ‘‘(4) use by any State, any political subdivision

19 of a State, or the District of Columbia,

20 ‘‘(5) use by a nonprofit educational organiza21 tion (as defined in section 4221(d)(5)),

22 ‘‘(6) export,

23 ‘‘(7) use as supplies for vessels or aircraft

24 (within the meaning of section 4221(d)(3)),

25 ‘‘(8) use on a farm for farming purposes (with26 in the meaning of subsection (e)),
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1 ‘‘(9) use in an off-highway business use (within

2 the meaning of subsection (f)),

3 ‘‘(10) use in qualified bus transportation (with4 in the meaning of subsection (g)),

5 ‘‘(11) use by an aircraft museum (within the

6 meaning of subsection (h)),

7 ‘‘(12) use in a nonpurpose use (within the

8 meaning of subsection (i)),

9 ‘‘(13) use in a helicopter for purposes of provid10 ing transportation with respect to which the require11 ments of subsection (e) or (f) of section 4261 are

12 met, and

13 ‘‘(14) use in producing a mixture of a fuel if at

14 least 10 percent of such mixture consists of alcohol

15 (as defined in section 4081(c)(3)) and if such mix16 ture is sold or used in the trade or business of the

17 person producing such mixture.

18 Paragraph (14) shall not apply with respect to any mix19 ture sold or used after September 30, 2000.

20 ‘‘(c) LIMITATIONS ON AMOUNT OF PAYMENT.—

21 ‘‘(1) NO REFUND OF LEAKING UNDERGROUND

22 STORAGE TANK TRUST FUND TAXES IN CERTAIN

23 CASES.—Subsection (a) shall not apply to so much

24 of the taxes imposed by sections 4081 and 4091 as
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1 are attributable to a Leaking Underground Storage

2 Tank Trust Fund financing rate in the case of—

3 ‘‘(A) fuel used in a train, and

4 ‘‘(B) fuel used in any aircraft (except as

5 supplies for vessels or aircraft within the mean6 ing of section 4221(d)(3)).

7 ‘‘(2) NO REFUND OF DEFICIT REDUCTION TAX

8 ON DIESEL FUEL USED IN TRAINS.—Subsection (a)

9 shall not apply to so much of the tax imposed by

10 section 4091 as is attributable to a deficit reduction

11 rate in the case of diesel fuel used in a diesel-pow12 ered train unless such fuel was used by a State or

13 any political subdivision thereof.

14 ‘‘(3) NO REFUND OF PORTION OF TAX ON DIE15 SEL FUEL USED IN CERTAIN BUSES.—

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

17 subparagraphs (B) and (C), the rate of tax

18 taken into account under subsection (a) with re19 spect to diesel fuel used in qualified bus trans20 portation (within the meaning of subsection

21 (g)(1)) shall be 3.1 cents per gallon less than

22 the aggregate rate of tax imposed on such fuel

23 by section 4091.

24 ‘‘(B) EXCEPTION FOR SCHOOL BUS TRANS25 PORTATION.—Subparagraph (A) shall not apply
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1 to fuel used in an automobile bus while engaged

2 in transportation described in subsection

3 (g)(1)(B).

4 ‘‘(C) EXCEPTION FOR CERTAIN INTRACITY

5 TRANSPORTATION.—Subparagraph (A) shall

6 not apply to fuel used in any automobile bus

7 while engaged in furnishing (for compensation)

8 intracity passenger land transportation—

9 ‘‘(i) which is available to the general

10 public, and

11 ‘‘(ii) which is scheduled and along

12 regular routes,

13 but only if such bus is a qualified local bus.

14 ‘‘(D) QUALIFIED LOCAL BUS.—For pur15 poses of this paragraph, the term ‘qualified

16 local bus’ means any local bus—

17 ‘‘(i) which has a seating capacity of at

18 least 20 adults (not including the driver),

19 and

20 ‘‘(ii) which is under contract with (or

21 is receiving more than a nominal subsidy

22 from) any State or local government (as

23 defined in section 4221(d)) to furnish such

24 transportation.

25 ‘‘(4) ALCOHOL FUELS.—
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1 ‘‘(A) IN GENERAL.—In the case of a fuel

2 used as described in subsection (b)(14) and on

3 which tax was imposed at regular tax rate, the

4 rate of tax taken into account under subsection

5 (a) with respect to the fuel so used shall equal

6 the excess of the regular tax rate over the in7 centive tax rate.

8 ‘‘(B) REGULAR TAX RATE.—The term

9 ‘regular tax rate’ means—

10 ‘‘(i) in the case of gasoline, the aggre11 gate rate of tax imposed by section 4081

12 determined without regard to subsection

13 (c) thereof,

14 ‘‘(ii) in the case of diesel fuel, the ag15 gregate rate of tax imposed by section

16 4091 on such fuel determined without re17 gard to subsection (c) thereof, and

18 ‘‘(iii) in the case of aviation fuel, the

19 aggregate rate of tax imposed by section

20 4091 on such fuel determined without re21 gard to subsection (d) thereof.

22 ‘‘(C) INCENTIVE TAX RATE.—The term

23 ‘incentive tax rate’ means—

24 ‘‘(i) in the case of gasoline, the aggre25 gate rate of tax imposed by section 4081
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1 with respect to fuel described in subsection

2 (c)(1) thereof,

3 ‘‘(ii) in the case of diesel fuel, the ag4 gregate rate of tax imposed by section

5 4091 with respect to fuel described in sub6 section (c)(1)(B) thereof, and

7 ‘‘(iii) in the case of aviation fuel, the

8 aggregate rate of tax imposed by section

9 4091 with respect to fuel described in sub10 section (d)(1)(B) thereof.

11 ‘‘(5) GASOHOL USED IN NONCOMMERCIAL AVIA12 TION.—If—

13 ‘‘(A) tax is imposed by section 4081 at the

14 rate determined under subsection (c) thereof on

15 gasohol (as defined in such subsection), and

16 ‘‘(B) such gasohol is used as a fuel in any

17 aircraft in noncommercial aviation (as defined

18 in section 4041(b)),

19 the payment under subsection (a) shall be equal to

20 1.4 cents (2 cents in the case of gasohol none of the

21 alcohol in which consists of ethanol) per gallon of

22 gasohol so used.

23 ‘‘(d) TIME FOR FILING CLAIMS; PERIOD COV24 ERED.—
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1 ‘‘(1) GENERAL RULE.—Except as provided in

2 paragraphs (2) and (3), not more than one claim

3 may be filed under this section by any person with

4 respect to fuel used (or a qualified diesel powered

5 highway vehicle purchased) during his taxable year;

6 and no claim shall be allowed under this paragraph

7 with respect to fuel used (or a qualified diesel pow8 ered highway vehicle purchased) during any taxable

9 year unless filed by the purchaser not later than the

10 time prescribed by law for filing a claim for credit

11 or refund of overpayment of income tax for such

12 taxable year. For purposes of this subsection, a per13 son’s taxable year shall be his taxable year for pur14 poses of subtitle A.

15 ‘‘(2) EXCEPTIONS.—

16 ‘‘(A) IN GENERAL.—If as of the close of

17 any quarter of a person’s taxable year, $750 or

18 more is payable under this section to such per19 son with respect to fuel used (or a qualified die20 sel powered highway vehicle purchased) during

21 such quarter or any prior quarter of such tax22 able year (and for which no other claim has

23 been filed), a claim may be filed under this sec24 tion with respect to fuel so used (or qualified

25 diesel powered highway vehicles so purchased).
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1 ‘‘(B) TIME FOR FILING CLAIM.—No claim

2 filed under this paragraph shall be allowed un3 less filed during the first quarter following the

4 last quarter included in the claim.

5 ‘‘(3) SPECIAL RULE FOR GASOHOL CREDIT.—

6 ‘‘(A) IN GENERAL.—A claim may be filed

7 for gasoline used to produce gasohol (as defined

8 in section 4081(c)(1)) for any period—

9 ‘‘(i) for which $200 or more is pay10 able by reason of subsection (b)(14), and

11 ‘‘(ii) which is not less than 1 week.

12 ‘‘(B) PAYMENT OF CLAIM.—Notwithstand13 ing subsection (a), if the Secretary has not paid

14 a claim filed pursuant to subparagraph (A)

15 within 20 days of the date of the filing of such

16 claim, the claim shall be paid with interest from

17 such date determined by using the overpayment

18 rate and method under section 6621.

19 ‘‘(e) USE ON A FARM FOR FARMING.—For purposes

20 of subsection (b)(8)—

21 ‘‘(1) IN GENERAL.—Fuel shall be treated as

22 used on a farm for farming purposes only if used—

23 ‘‘(A) in carrying on a trade or business,

24 ‘‘(B) on a farm situated in the United

25 States, and
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1 ‘‘(C) for farming purposes.

2 ‘‘(2) FARM.—The term ‘farm’ includes stock,

3 dairy, poultry, fruit, fur-bearing animal, and truck

4 farms, plantations, ranches, nurseries, ranges,

5 greenhouses or other similar structures used pri6 marily for the raising of agricultural or horticultural

7 commodities, and orchards.

8 ‘‘(3) FARMING PURPOSES.—Fuel shall be treat9 ed as used for farming purposes only if used—

10 ‘‘(A) by the owner, tenant, or operator of

11 a farm, in connection with cultivating the soil,

12 or in connection with raising or harvesting any

13 agricultural or horticultural commodity, includ14 ing the raising, shearing, feeding, caring for,

15 training, and management of livestock, bees,

16 poultry, and fur-bearing animals and wildlife,

17 on a farm of which he is the owner, tenant, or

18 operator;

19 ‘‘(B) by the owner, tenant, or operator of

20 a farm, in handling, drying, packing, grading,

21 or storing any agricultural or horticultural com22 modity in its unmanufactured state; but only if

23 such owner, tenant, or operator produced more

24 than one-half of the commodity which he so
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1 treated during the period with respect to which

2 claim is filed;

3 ‘‘(C) by the owner, tenant, or operator of

4 a farm, in connection with—

5 ‘‘(i) the planting, cultivating, caring

6 for, or cutting of trees, or

7 ‘‘(ii) the preparation (other than mill8 ing) of trees for market, incidental to

9 farming operations; or

10 ‘‘(D) by the owner, tenant, or operator of

11 a farm, in connection with the operation, man12 agement, conservation, improvement, or mainte13 nance of such farm and its tools and equip14 ment.

15 ‘‘(4) CERTAIN FARMING USE OTHER THAN BY

16 OWNER, ETC.—In applying paragraph (3)(A) to a

17 use on a farm for any purpose described in para18 graph (3)(A) by any person other than the owner,

19 tenant, or operator of such farm—

20 ‘‘(A) the owner, tenant, or operator of such

21 farm shall be treated as the user and ultimate

22 purchaser of the fuel, except that

23 ‘‘(B) if the person so using the fuel is an

24 aerial or other applicator of fertilizers or other

25 substances and is the ultimate purchaser of the
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1 fuel, then subparagraph (A) of this paragraph

2 shall not apply and the aerial or other applica3 tor shall be treated as having used such fuel on

4 a farm for farming purposes.

5 ‘‘(f) OFF-HIGHWAY BUSINESS USE.—For purposes

6 of subsection (b)(9)—

7 ‘‘(1) IN GENERAL.—The term ‘off-highway

8 business use’ means any use by a person in a trade

9 or business of such person or in an activity of such

10 person described in section 212 (relating to produc11 tion of income) other than as a fuel in a highway

12 vehicle—

13 ‘‘(A) which (at the time of such use) is

14 registered, or is required to be registered, for

15 highway use under the laws of any State or for16 eign country, or

17 ‘‘(B) which, in the case of a highway vehi18 cle owned by the United States, is used on the

19 highway.

20 ‘‘(2) USES IN MOTORBOATS.—The term ‘off21 highway business use’ does not include any use in a

22 motorboat. The preceding sentence shall not apply to

23 use in a vessel employed in the fisheries or in the

24 whaling business.
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1 ‘‘(g) QUALIFIED BUS TRANSPORTATION.—For pur2 poses of subsection (b)(10)—

3 ‘‘(1) IN GENERAL.—Fuel is used in qualified

4 bus transportation if it is used in an automobile bus

5 while engaged in—

6 ‘‘(A) furnishing (for compensation) pas7 senger land transportation available to the gen8 eral public, or

9 ‘‘(B) the transportation of students and

10 employees of schools (as defined in the last sen11 tence of section 4221(d)(7)(C)).

12 ‘‘(2) LIMITATION IN THE CASE OF NON13 SCHEDULED INTERCITY OR LOCAL BUSES.—Para14 graph (1)(A) shall not apply in respect of fuel used

15 in any automobile bus while engaged in furnishing

16 transportation which is not along regular routes un17 less the seating capacity of such bus is at least 20

18 adults (not including the driver).

19 ‘‘(h) USE BY AN AIRCRAFT MUSEUM.—For purposes

20 of subsection (b)(11)—

21 ‘‘(1) IN GENERAL.—Fuel is used by an aircraft

22 museum if it is used in an aircraft or vehicle owned

23 by such museum and used exclusively for purposes

24 set forth in paragraph (2)(C).
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1 ‘‘(2) AIRCRAFT MUSEUM.—For purposes of this

2 subsection, the term ‘aircraft museum’ means an or3 ganization—

4 ‘‘(A) described in section 501(c)(3) which

5 is exempt from income tax under section

6 501(a),

7 ‘‘(B) operated as a museum under charter

8 by a State or the District of Columbia, and

9 ‘‘(C) operated exclusively for the procure10 ment, care, and exhibition of aircraft of the

11 type used for combat or transport in World

12 War II.

13 ‘‘(i) USE IN A NONPURPOSE USE.—For purposes of

14 subsection (b)(12), fuel is used in a nonpurpose use if—

15 ‘‘(1) tax was imposed by section 4041 on the

16 sale thereof and the purchaser—

17 ‘‘(A) uses such fuel other than for the use

18 for which it is sold, or

19 ‘‘(B) resells such fuel, or

20 ‘‘(2) tax was imposed by section 4081 on any

21 gasoline blend stock or product commonly used as

22 an additive in gasoline and the purchaser establishes

23 that the ultimate use of such blend stock or product

24 is not to produce gasoline.
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1 ‘‘(j) ADVANCE REPAYMENT OF INCREASED DIESEL

2 FUEL TAX TO ORIGINAL PURCHASERS OF DIESEL-POW3 ERED AUTOMOBILES AND LIGHT TRUCKS.—

4 ‘‘(1) IN GENERAL.—Except as provided in sub5 section (d), the Secretary shall pay (without inter6 est) to the original purchaser of any qualified diesel7 powered highway vehicle an amount equal to the die8 sel fuel differential amount.

9 ‘‘(2) QUALIFIED DIESEL-POWERED HIGHWAY

10 VEHICLE.—For purposes of this subsection, the term

11 ‘qualified diesel-powered highway vehicle’ means any

12 diesel-powered highway vehicle which—

13 ‘‘(A) has at least 4 wheels,

14 ‘‘(B) has a gross vehicle weight rating of

15 10,000 pounds or less, and

16 ‘‘(C) is registered for highway use in the

17 United States under the laws of any State.

18 ‘‘(3) DIESEL FUEL DIFFERENTIAL AMOUNT.—

19 For purposes of this subsection, the term ‘diesel fuel

20 differential amount’ means—

21 ‘‘(A) except as provided in subparagraph

22 (B), $102, or

23 ‘‘(B) in the case of a truck or van, $198.

24 ‘‘(4) ORIGINAL PURCHASER.—For purposes of

25 this subsection—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B), the term ‘original purchaser’

3 means the first person to purchase the qualified

4 diesel-powered vehicle for use other than resale.

5 ‘‘(B) EXCEPTION FOR CERTAIN PERSONS

6 NOT SUBJECT TO FUELS TAX.—The term ‘origi7 nal purchaser’ shall not include any State or

8 local government (as defined in section

9 4221(d)(4)) or any nonprofit educational orga10 nization (as defined in section 4221(d)(5)).

11 ‘‘(C) TREATMENT OF DEMONSTRATION

12 USE BY DEALER.—For purposes of subpara13 graph (A), use as a demonstrator by a dealer

14 shall not be taken into account.

15 ‘‘(5) VEHICLES TO WHICH SUBSECTION AP16 PLIES.—This subsection shall only apply to qualified

17 diesel-powered highway vehicles originally purchased

18 after January 1, 1985, and before January 1, 1995.

19 ‘‘(6) BASIS REDUCTION.—For the purposes of

20 subtitle A, the basis of any qualified diesel-powered

21 highway vehicle shall be reduced by the amount pay22 able under this subsection with respect to such vehi23 cle.

24 ‘‘(k) INCOME TAX CREDIT IN LIEU OF PAYMENT;

25 OTHER SPECIAL RULES.—
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1 ‘‘(1) INCOME TAX CREDIT IN LIEU OF PAY2 MENT.—

3 ‘‘(A) PERSONS NOT SUBJECT TO INCOME

4 TAX.—Payment shall be made under this sec5 tion only to—

6 ‘‘(i) the United States or an agency or

7 instrumentality thereof, a State, a political

8 subdivision of a State, or any agency or in9 strumentality of one or more States or po10 litical subdivisions, or

11 ‘‘(ii) an organization exempt from tax

12 under section 501(a) (other than an orga13 nization required to make a return of the

14 tax imposed under subtitle A for its tax15 able year).

16 ‘‘(B) EXCEPTION.—Subparagraph (A)

17 shall not apply to a payment of a claim filed

18 under paragraph (2) or (3) of subsection (d).

19 ‘‘(C) ALLOWANCE OF CREDIT AGAINST IN20 COME TAX.—

‘‘For allowances of credit against the income tax

imposed by subtitle A for fuel used by the purchaser

in an exempt use, see section 34.

21 ‘‘(2) APPLICABLE LAWS.—

22 ‘‘(A) IN GENERAL.—All provisions of law,

23 including penalties, applicable in respect of the

24 tax with respect to which a payment is claimed
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1 under this section shall, insofar as applicable

2 and not inconsistent with this section, apply in

3 respect of such payment to the same extent as

4 if such payment constituted a refund of over5 payments of such tax.

6 ‘‘(B) EXAMINATION OF BOOKS AND WIT7 NESSES.—For the purpose of ascertaining the

8 correctness of any claim made under this sec9 tion, or the correctness of any payment made in

10 respect of any such claim, the Secretary shall

11 have the authority granted by paragraphs (1),

12 (2), and (3) of section 7602(a) (relating to ex13 amination of books and witnesses) as if the

14 claimant were the person liable for tax.

15 ‘‘(3) COORDINATION WITH SECTION 6416,

16 ETC.—No amount shall be payable under this sec17 tion to any person with respect to any fuel if the

18 Secretary determines that the amount of tax for

19 which such payment is sought was not included in

20 the price paid by such person for such fuel. The

21 amount which would (but for this sentence) be pay22 able under this section with respect to any fuel shall

23 be reduced by any other amount which the Secretary

24 determines is payable under this section, or is re-
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1 fundable under any other provision of this title, to

2 any person with respect to such fuel.

3 ‘‘(4) REGULATIONS.—The Secretary may by

4 regulations prescribe the conditions, not inconsistent

5 with the provisions of this section, under which pay6 ments may be made under this section.

7 ‘‘(l) FUELS.—For purposes of this section, the terms

8 ‘gasoline’, ‘diesel fuel’, and ‘aviation fuel’ have the respec9 tive meanings given such terms by sections 4082 and

10 4092.

11 ‘‘(m) TERMINATION.—Except as otherwise provided

12 in this section, this section shall not apply to any liquid

13 purchased after September 30, 1999. The preceding sen14 tence shall not apply to taxes attributable to any Leaking

15 Underground Storage Tank Trust Fund financing rate.’’

16 SEC. 803. AUTHORITY TO PROVIDE EXCEPTIONS FROM IN17 FORMATION REPORTING WITH RESPECT TO

18 DIESEL FUEL AND AVIATION FUEL.

19 (a) RETURNS BY PRODUCERS AND IMPORTERS.—

20 Subparagraph (A) of section 4093(c)(4) (relating to re21 turns by producers and importers) is amended by striking

22 ‘‘Each producer’’ and inserting ‘‘Except as provided by

23 the Secretary by regulations, each producer’’.

24 (b) RETURNS BY PURCHASERS.—Subparagraph (C)

25 of section 4093(c)(4) (relating to returns by purchasers)
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1 is amended by striking ‘‘Each person’’ and inserting ‘‘Ex2 cept as provided by the Secretary by regulations, each per3 son’’.

4 SEC. 804. TECHNICAL AND CONFORMING AMENDMENTS.

5 (1) Sections 6421 and 6427 are hereby re6 pealed.

7 (2) Section 34 is amended to read as follows:

8 ‘‘SEC. 34. EXCISE TAXES ON FUEL USED FOR EXEMPT PUR9 POSES.

10 ‘‘There shall be allowed as a credit against the tax

11 imposed by this subtitle for the taxable year an amount

12 equal to the excess of—

13 ‘‘(1) the aggregate amount payable to the tax14 payer under section 6420 (determined without re15 gard to section 6420(k)(1)) with respect to—

16 ‘‘(A) exempt uses (as defined in section

17 6420(b)) during such taxable year, and

18 ‘‘(B) qualified diesel-powered highway vehi19 cles purchased during such taxable year, over

20 ‘‘(2) the portion of such amount for which a

21 claim payable under section 6420(d) is timely filed.’’

22 (3) Subsection (c) of section 40 is amended by

23 striking ‘‘subsection (b)(2), (k), or (m)’’ and insert24 ing ‘‘subsection (a)(4) or (b)(4)’’.
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1 (4) Paragraph (2) of section 451(e) is amended

2 by striking ‘‘section 6420(c)(3)’’ and inserting ‘‘sec3 tion 6420(e)(3)’’.

4 (5) Clause (i) of section 1274(c)(3)(A) is

5 amended by striking ‘‘section 6420(c)(2)’’ and in6 serting ‘‘section 6420(e)(2)’’.

7 (6) Sections 874(a) and 1366(f)(1) are each

8 amended by striking ‘‘gasoline and special’’ and in9 serting ‘‘taxable’’.

10 (7) Paragraph (2) of section 882(c) is amended

11 by striking ‘‘gasoline’’ and inserting ‘‘taxable fuels’’.

12 (8) Subsection (b) of section 4042 is amended

13 by striking paragraph (3) and by redesignating

14 paragraph (4) as paragraph (3).

15 (9) Subsection (b) of section 4082 is amended

16 by striking ‘‘special fuels referred to in section

17 4041’’ and inserting ‘‘special motor fuels referred to

18 in section 4041(a)’’.

19 (10) Section 4083 is amended to read as fol20 lows:

21 ‘‘SEC. 4083. CROSS REFERENCE.

22 ‘‘For provision allowing a credit or refund for gaso23 line used for exempt purposes, see section 6420.’’
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1 (11) Subsections (c)(2) and (d)(2) of section

2 4091 are each amended by striking ‘‘section

3 6427(f)(1)’’ and inserting ‘‘section 6420(b)(14)’’.

4 (12) Paragraph (1) of section 4093(c) is

5 amended by striking ‘‘by the purchaser’’ and all that

6 follows and inserting ‘‘by the purchaser in an ex7 empt use (as defined in section 6420(b) other than

8 paragraph (14) thereof).’’

9 (13) Subparagraph (C) of section 4093(c)(2) is

10 amended by striking ‘‘section 6427(b)(2)(A)’’ and

11 inserting ‘‘section 6420(c)(3)(A)’’.

12 (14) Clause (i) of section 4093(c)(4)(C) is

13 amended to read as follows:

14 ‘‘(i) whether such use was an exempt

15 use (as defined in section 6420(b)) and the

16 amount of fuel so used,’’.

17 (15) Section 4093 is amended by redesignating

18 subsection (e) as subsection (f) and by inserting

19 after subsection (d) the following new subsection:

20 ‘‘(e) USE BY PRODUCER OR IMPORTER.—If any pro21 ducer or importer uses any taxable fuel, then such pro22 ducer or importer shall be liable for tax under section

23 4091 in the same manner as if such fuel were sold by

24 him for such use.’’
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1 (16) Subsection (f) of section 4093, as redesig2 nated by paragraph (15), is amended to read as fol3 lows:

4 ‘‘(e) CROSS REFERENCE.—

5 ‘‘For provision allowing a credit or refund for

6 fuel used for exempt purposes, see section 6420.’’

7 (17) Section 6206 is amended to read as fol8 lows:

9 ‘‘SEC. 6206. SPECIAL RULES APPLICABLE TO EXCESSIVE

10 FUEL TAX REFUND CLAIMS.

11 ‘‘Any portion of a payment made under section 6420

12 which constitutes an excessive amount (as defined in sec13 tion 6675(b)), and any civil penalty provided by section

14 6675, may be assessed and collected as if—

15 ‘‘(1) it were a tax imposed by the section to

16 which the claim relates, and

17 ‘‘(2) the person making the claim were liable

18 for such tax.

19 The period for assessing any such portion, and for assess20 ing any such penalty, shall be 3 years from the last day

21 prescribed for filing the claim under section 6420.’’

22 (18) Subparagraph (A) of section 6416(a)(2) is

23 amended by striking ‘‘(relating to tax on special

24 fuels)’’ and inserting ‘‘(relating to special motor

25 fuels and noncommercial aviation gasoline)’’.
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1 (19) Paragraph (2) of section 6416(b) is

2 amended—

3 (A) in the matter preceding subparagraph

4 (A) by striking ‘‘subsection (a) or (d) of section

5 4041’’ and inserting ‘‘section 4041(a)’’, and

6 (B) in subparagraph (F) by striking ‘‘spe7 cial fuels referred to in section 4041’’ and in8 serting ‘‘special motor fuels referred to in sec9 tion 4041(a)’’.

10 (20) Paragraph (9) of section 6504 is amended

11 to read as follows:

12 ‘‘(9) Assessments to recover excessive amounts

13 paid under section 6420 (relating to certain taxes on

14 fuels used for exempt purposes) and assessments of

15 civil penalties under section 6675 for excessive

16 claims under section 6420, see section 6206.’’

17 (21) Subsection (h) of section 6511 is amended

18 by striking paragraphs (5) and (6), by redesignating

19 paragraph (7) as paragraph (6), and by inserting

20 after paragraph (4) the following new paragraph:

21 ‘‘(5) For limitations in the case of payments

22 under section 6420 (relating to certain taxes on

23 fuels used for exempt purposes), see section

24 6420(d).’’
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1 (22) Subsection (c) of section 6612 is amended

2 by striking ‘‘6420 (relating to payments in the case

3 of gasoline used on the farm for farming purposes)

4 and 6421 (relating to payments in the case of gaso5 line used for certain nonhighway purposes or by

6 local transit systems)’’ and inserting ‘‘and 6420 (re7 lating to certain taxes on fuels used for exempt pur8 poses)’’.

9 (23) Subsection (a) of section 6675 is amended

10 by striking ‘‘section 6420 (relating to gasoline used

11 on farms), 6421 (relating to gasoline used for cer12 tain nonhighway purposes or by local transit sys13 tems), or 6427 (relating to fuels not used for taxable

14 purposes)’’ and inserting ‘‘section 6420 (relating to

15 certain taxes on fuels used for exempt purposes)’’.

16 (24) Paragraph (1) of section 6675(b) is

17 amended by striking ‘‘, 6421, or 6427, as the case

18 may be,’’.

19 (25) Section 7210 is amended by striking ‘‘sec20 tions 6420(e)(2), 6421(g)(2), 6427(j)(2)’’ and in21 serting ‘‘sections 6420(k)(3)(B)’’.

22 (26) Section 7603, subsections (b) and (c)(2) of

23 section 7604, section 7605, and 7610(c) are each

24 amended by striking ‘‘section 6420(e)(2),
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1 6421(g)(2), 6427(j)(2),’’ each place it appears and

2 inserting ‘‘section 6420(k)(2)(B)’’.

3 (27) Sections 7605 and 7609(c)(1) are each

4 amended by striking ‘‘section 6420(e)(2),

5 6421(g)(2), or 6427(j)(2)’’ and inserting ‘‘section

6 6420(k)(2)(B)’’.

7 (28) Paragraph (1) of section 9502(b) is

8 amended by striking ‘‘subsections (c) and (e) of sec9 tion 4041 (taxes on aviation fuel)’’ and inserting

10 ‘‘section 4041(b) (relating to taxes on noncommer11 cial aviation gasoline)’’.

12 (29) Paragraph (2) of section 9502(d) is

13 amended by striking ‘‘fuel used in aircraft’’ and all

14 that follows and inserting ‘‘fuel used in aircraft,

15 under section 6420 (relating to certain taxes on

16 fuels used for exempt purposes).’’

17 (30) Paragraph (1) of section 9502(e) is

18 amended by striking ‘‘4041(c)(1) and’’.

19 (31) Subparagraph (A) of section 9503(b)(1) is

20 amended to read as follows:

21 ‘‘(A) section 4041 (relating to special

22 motor fuels and noncommercial aviation

23 gasoline),’’.

24 (32) Paragraph (4) of section 9503(b) is

25 amended to read as follows:
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1 ‘‘(4) CERTAIN ADDITIONAL TAXES NOT TRANS2 FERRED TO HIGHWAY TRUST FUND.—For purposes

3 of paragraphs (1) and (2), the taxes imposed by sec4 tions 4041, 4081, and 4091 shall be taken into ac5 count only to the extent attributable to the Highway

6 Trust Fund financing rates under such sections.’’

7 (33)(A) Clause (i) of section 9503(c)(2)(A) is

8 amended to read as follows:

9 ‘‘(i) the amounts paid before July 1,

10 1996, under section 6420 (relating to cer11 tain taxes on fuels used for exempt pur12 poses) on the basis of claims filed for peri13 ods ending before October 1, 1995, and’’.

14 (B) For purposes of section 9503(c)(2)(A)(i) of

15 the Internal Revenue Code of 1986, the reference to

16 section 6420 shall be treated as including a ref17 erence to sections 6420, 6421, and 6427 of such

18 Code as in effect before the enactment of this Act.

19 (34) Clause (ii) of section 9503(c)(2)(A) is

20 amended by striking ‘‘gasoline, special fuels, and lu21 bricating oil’’ each place it appears and inserting

22 ‘‘taxable fuels’’.

23 (35) Subparagraph (D) of section 9503(c)(4) is

24 amended by striking ‘‘section 4041(a)(2)’’ and in25 serting ‘‘section 4041(a)’’.
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1 (36) Subparagraph (A) of section 9503(e)(5) is

2 amended by striking ‘‘section 6427(g)’’ and inserting

3 ‘‘section 6420(j)’’.

4 (37) Paragraph (1) of section 9508(b) is

5 amended to read as follows:

6 ‘‘(1) taxes received in the Treasury under sec7 tion 4041 (relating to special motor fuels and non8 commercial aviation gasoline) to the extent attrib9 utable to the Leaking Underground Storage Tank

10 Trust Fund financing rates applicable under such

11 section,’’.

12 (38) Subparagraph (A) of section 9508(c)(2) is

13 amended by striking ‘‘equivalent to—’’ and all that

14 follows and inserting the following: ‘‘equivalent to—

15 ‘‘(i) amounts paid under section 6420

16 (relating to certain taxes on fuels used for

17 exempt purposes), and

18 ‘‘(ii) credits allowed under section 34,

19 with respect to so much of the taxes imposed by

20 sections 4041, 4081, and 4091 as are attrib21 utable to the Leaking Underground Storage

22 Tank Trust Fund financing rates applicable

23 under such sections.’’

24 (39) The table of sections for subpart C of part

25 IV of subchapter A of chapter 1 is amended by
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1 striking the item relating to section 34 and inserting

2 the following:

‘‘Sec. 34. Excise taxes on fuels used for exempt purposes.’’

3 (40) The table of sections for subchapter B of

4 chapter 31 is amended by striking the item relating

5 to section 4041 and inserting the following:

‘‘Sec. 4041. Special motor fuels and noncommercial aviation gasoline.’’

6 (41) The table of sections for subpart A of part

7 III of subchapter A of chapter 32 is amended by

8 striking the item relating to section 4083 and insert9 ing the following:

‘‘Sec. 4083. Cross reference.’’

10 (42) The table of sections for subchapter B of

11 chapter 65 is amended by striking the items relating

12 to sections 6421 and 6427 and by striking the item

13 relating to section 6420 and inserting the following

14 new item:

‘‘Sec. 6420. Certain taxes on fuels used for exempt purposes.’’

15 (43) The table of sections for subchapter A of

16 chapter 63 is amended by striking the item relating

17 to section 6206 and inserting the following new

18 item:

‘‘Sec. 6206. Special rules applicable to excessive fuel tax refund

claims.’’
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1 SEC. 805. EFFECTIVE DATE.

2 The amendments made by this subtitle shall take ef3 fect on January 1, 1994.

4 Subtitle B—Provisions Related to

5 Distilled Spirits, Wines, and Beer

6 SEC. 811. CREDIT OR REFUND FOR IMPORTED BOTTLED

7 DISTILLED SPIRITS RETURNED TO DIS8 TILLED SPIRITS PLANT.

9 (a) IN GENERAL.—Paragraph (1) of section 5008(c)

10 (relating to distilled spirits returned to bonded premises)

11 is amended by striking ‘‘withdrawn from bonded premises

12 on payment or determination of tax’’ and inserting ‘‘on

13 which tax has been determined or paid’’.

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

15 subsection (a) shall take effect on the 180th day after the

16 date of the enactment of this Act.

17 SEC. 812. AUTHORITY TO CANCEL OR CREDIT EXPORT

18 BONDS WITHOUT SUBMISSION OF RECORDS.

19 (a) IN GENERAL.—Subsection (c) of section 5175

20 (relating to export bonds) is amended by striking ‘‘on the

21 submission of’’ and all that follows and inserting ‘‘if there

22 is such proof of exportation as the Secretary may by regu23 lations require.’’

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

25 subsection (a) shall take effect on the 180th day after the

26 date of the enactment of this Act.
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1 SEC. 813. REPEAL OF REQUIRED MAINTENANCE OF

2 RECORDS ON PREMISES OF DISTILLED SPIR3 ITS PLANT.

4 (a) IN GENERAL.—Subsection (c) of section 5207

5 (relating to records and reports) is amended by striking

6 ‘‘shall be kept on the premises where the operations cov7 ered by the record are carried on and’’.

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

9 subsection (a) shall take effect on the 180th day after the

10 date of the enactment of this Act.

11 SEC. 814. FERMENTED MATERIAL FROM ANY BREWERY

12 MAY BE RECEIVED AT A DISTILLED SPIRITS

13 PLANT.

14 (a) IN GENERAL.—Paragraph (2) of section 5222(b)

15 (relating to production, receipt, removal, and use of distill16 ing materials) is amended to read as follows:

17 ‘‘(2) beer conveyed without payment of tax

18 from brewery premises, beer which has been lawfully

19 removed from brewery premises upon determination

20 of tax, or’’.

21 (b) CLARIFICATION OF AUTHORITY TO PERMIT RE22 MOVAL OF BEER WITHOUT PAYMENT OF TAX FOR USE

23 AS DISTILLING MATERIAL.—Section 5053 (relating to ex24 emptions) is amended by redesignating subsection (f) as

25 subsection (i) and by inserting after subsection (e) the fol26 lowing new subsection:
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1 ‘‘(f) REMOVAL FOR USE AS DISTILLING MATE2 RIAL.—Subject to such regulations as the Secretary may

3 prescribe, beer may be removed from a brewery without

4 payment of tax to any distilled spirits plant for use as

5 distilling material.’’

6 (c) CLARIFICATION OF REFUND AND CREDIT OF

7 TAX.—Section 5056 (relating to refund and credit of tax,

8 or relief from liability) is amended—

9 (1) by redesignating subsection (c) as sub10 section (d) and by inserting after subsection (b) the

11 following new subsection:

12 ‘‘(c) BEER RECEIVED AT A DISTILLED SPIRITS

13 PLANT.—Any tax paid by any brewer on beer produced

14 in the United States may be refunded or credited to the

15 brewer, without interest, or if the tax has not been paid,

16 the brewer may be relieved of liability therefor, under reg17 ulations as the Secretary may prescribe, if such beer is

18 received on the bonded premises of a distilled spirits plant

19 pursuant to the provisions of section 5222(b)(2), for use

20 in the production of distilled spirits.’’, and

21 (2) by striking ‘‘or rendering unmerchantable’’

22 in subsection (d) (as so redesignated) and inserting

23 ‘‘rendering unmerchantable, or receipt on the bond24 ed premises of a distilled spirits plant’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect on the 180th day after the

3 date of the enactment of this Act.

4 SEC. 815. REPEAL OF REQUIREMENT FOR WHOLESALE

5 DEALERS IN LIQUORS TO POST SIGN.

6 (a) IN GENERAL.—Section 5115 (relating to sign re7 quired on premises) is hereby repealed.

8 (b) CONFORMING AMENDMENTS.—

9 (1) Subsection (a) of section 5681 is amended

10 by striking ‘‘, and every wholesale dealer in liquors,’’

11 and by striking ‘‘section 5115(a) or’’.

12 (2) Subsection (c) of section 5681 is amend13 ed—

14 (A) by striking ‘‘or wholesale liquor estab15 lishment, on which no sign required by section

16 5115(a) or’’ and inserting ‘‘on which no sign

17 required by’’, and

18 (B) by striking ‘‘or wholesale liquor estab19 lishment, or who’’ and inserting ‘‘or who’’.

20 (3) The table of sections for subpart D of part

21 II of subchapter A of chapter 51 is amended by

22 striking the item relating to section 5115.

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

24 this section shall take effect on the date of the enactment

25 of this Act.
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1 SEC. 816. REFUND OF TAX TO WINE RETURNED TO BOND

2 NOT LIMITED TO UNMERCHANTABLE WINE.

3 (a) IN GENERAL.—Subsection (a) of section 5044

4 (relating to refund of tax on unmerchantable wine) is

5 amended by striking ‘‘as unmerchantable’’.

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 5361 is amended by striking

8 ‘‘unmerchantable’’.

9 (2) The section heading for section 5044 is

10 amended by striking ‘‘UNMERCHANTABLE’’.

11 (3) The item relating to section 5044 in the

12 table of sections for subpart C of part I of sub13 chapter A of chapter 51 is amended by striking

14 ‘‘unmerchantable’’.

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

16 this section shall take effect on the 180th day after the

17 date of the enactment of this Act.

18 SEC. 817. USE OF ADDITIONAL AMELIORATING MATERIAL

19 IN CERTAIN WINES.

20 (a) IN GENERAL.—Subparagraph (D) of section

21 5384(b)(2) (relating to ameliorated fruit and berry wines)

22 is amended by striking ‘‘loganberries, currants, or goose23 berries,’’ and inserting ‘‘any fruit or berry with a natural

24 fixed acid of 20 parts per thousand or more (before any

25 correction of such fruit or berry)’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 this section shall take effect on the 180th day after the

3 date of the enactment of this Act.

4 SEC. 818. DOMESTICALLY-PRODUCED BEER MAY BE WITH5 DRAWN FREE OF TAX FOR USE OF FOREIGN

6 EMBASSIES, LEGATIONS, ETC.

7 (a) IN GENERAL.—Section 5053 (relating to exemp8 tions) is amended by inserting after subsection (f) the fol9 lowing new subsection:

10 ‘‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES,

11 LEGATIONS, ETC.—

12 ‘‘(1) IN GENERAL.—Subject to such regulations

13 as the Secretary may prescribe—

14 ‘‘(A) beer may be withdrawn from the

15 brewery without payment of tax for transfer to

16 any customs bonded warehouse for entry pend17 ing withdrawal therefrom as provided in sub18 paragraph (B), and

19 ‘‘(B) beer entered into any customs bonded

20 warehouse under subparagraph (A) may be

21 withdrawn for consumption in the United

22 States by, and for the official and family use of,

23 such foreign governments, organizations, and

24 individuals as are entitled to withdraw imported

25 beer from such warehouses free of tax.
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1 Beer transferred to any customs bonded warehouse

2 under subparagraph (A) shall be entered, stored,

3 and accounted for in such warehouse under such

4 regulations and bonds as the Secretary may pre5 scribe, and may be withdrawn therefrom by such

6 governments, organizations, and individuals free of

7 tax under the same conditions and procedures as im8 ported beer.

9 ‘‘(2) OTHER RULES TO APPLY.—Rules similar

10 to the rules of paragraphs (2) and (3) of section

11 5362(e) of such section shall apply for purposes of

12 this subsection.’’

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

14 subsection (a) shall take effect on the 180th day after the

15 date of the enactment of this Act.

16 SEC. 819. BEER MAY BE WITHDRAWN FREE OF TAX FOR

17 DESTRUCTION.

18 (a) IN GENERAL.—Section 5053 is amended by in19 serting after subsection (g) the following new subsection:

20 ‘‘(h) REMOVALS FOR DESTRUCTION.—Subject to

21 such regulations as the Secretary may prescribe, beer may

22 be removed from the brewery without payment of tax for

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

2 subsection (a) shall take effect on the 180th day after the

3 date of the enactment of this Act.

4 SEC. 820. AUTHORITY TO ALLOW DRAWBACK ON EX5 PORTED BEER WITHOUT SUBMISSION OF

6 RECORDS.

7 (a) IN GENERAL.—The first sentence of section 5055

8 (relating to drawback of tax on beer) is amended by strik9 ing ‘‘found to have been paid’’ and all that follows and

10 inserting ‘‘paid on such beer if there is such proof of ex11 portation as the Secretary may by regulations require.’’

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

13 subsection (a) shall take effect on the 180th day after the

14 date of the enactment of this Act.

15 SEC. 821. TRANSFER TO BREWERY OF BEER IMPORTED IN

16 BULK WITHOUT PAYMENT OF TAX.

17 (a) IN GENERAL.—Part II of subchapter G of chap18 ter 51 is amended by adding at the end thereof the follow19 ing new section:

20 ‘‘SEC. 5418. BEER IMPORTED IN BULK.

21 ‘‘Beer imported or brought into the United States in

22 bulk containers may, under such regulations as the Sec23 retary may prescribe, be withdrawn from customs custody

24 and transferred in such bulk containers to the premises

25 of a brewery without payment of the internal revenue tax
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1 imposed on such beer. The proprietor of a brewery to

2 which such beer is transferred shall become liable for the

3 tax on the beer withdrawn from customs custody under

4 this section upon release of the beer from customs custody,

5 and the importer, or the person bringing such beer into

6 the United States, shall thereupon be relieved of the liabil7 ity for such tax.’’

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

9 for such part II is amended by adding at the end thereof

10 the following new item:

‘‘Sec. 5418. Beer imported in bulk.’’

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

12 this section shall take effect on the 180th day after the

13 date of the enactment of this Act.

14 Subtitle C—Other Excise Tax

15 Provisions

16 SEC. 831. AUTHORITY TO GRANT EXEMPTIONS FROM REG17 ISTRATION REQUIREMENTS.

18 (a) IN GENERAL.—The first sentence of section 4222

19 (relating to registration) is amended to read as follows:

20 ‘‘Except as provided in subsection (b), section 4221 shall

21 not apply with respect to the sale of any article by or to

22 any person who is required by the Secretary to be reg23 istered under this section and who is not so registered.’’
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to sales after the 180th day

3 after the date of the enactment of this Act.

4 SEC. 832. REPEAL OF EXPIRED PROVISIONS.

5 (a) PIGGY-BACK TRAILERS.—Section 4051 is amend6 ed by striking subsection (d) and by redesignating sub7 section (e) as subsection (d).

8 (b) DEEP SEABED MINING.—

9 (1) Subchapter F of chapter 36 (relating to tax

10 on removal of hard mineral resources from deep sea11 bed) is hereby repealed.

12 (2) The table of subchapters for chapter 36 is

13 amended by striking the item relating to subchapter

14 F.

15 TITLE IX—ADMINISTRATIVE

16 PROVISIONS

17 Subtitle A—General Provisions

18 SEC. 901. SIMPLIFICATION OF EMPLOYMENT TAXES ON

19 DOMESTIC SERVICES.

20 (a) THRESHOLD REQUIREMENT FOR SOCIAL SECU21 RITY TAXES.—

22 (1) Subparagraph (B) of section 3121(a)(7)

23 (defining wages) is amended to read as follows:

24 ‘‘(B) cash remuneration paid by an em25 ployer in any calendar year to an employee for
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1 domestic service in a private home of the em2 ployer, if the cash remuneration paid in such

3 year by the employer to the employee for such

4 service is less than $300. As used in this sub5 paragraph, the term ‘domestic service in a pri6 vate home of the employer’ does not include

7 service described in subsection (g)(5);’’

8 (2) Subparagraph (B) of section 209(a)(6) of

9 the Social Security Act is amended to read as fol10 lows:

11 ‘‘(B) Cash remuneration paid by an em12 ployer in any calendar year to an employee for

13 domestic service in a private home of the em14 ployer, if the cash remuneration paid in such

15 year by the employer to the employee for such

16 service is less than $300. As used in this sub17 paragraph, the term ‘domestic service in a pri18 vate home of the employer’ does not include

19 service described in section 210(f)(5).’’

20 (3) The second sentence of section 3102(a) is

21 amended—

22 (A) by striking ‘‘calendar quarter’’ each

23 place it appears and inserting ‘‘calendar year’’,

24 and
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1 (B) by striking ‘‘$50’’ and inserting

2 ‘‘$300’’.

3 (b) COORDINATION OF COLLECTION OF DOMESTIC

4 SERVICE EMPLOYMENT WITH COLLECTION OF INCOME

5 TAXES.—

6 (1) IN GENERAL.—Chapter 25 (relating to gen7 eral provisions relating to employment taxes) is

8 amended by adding at the end thereof the following

9 new section:

10 ‘‘SEC. 3510. COORDINATION OF COLLECTION OF DOMESTIC

11 SERVICE EMPLOYMENT TAXES WITH COLLEC12 TION OF INCOME TAXES.

13 ‘‘(a) GENERAL RULE.—Except as otherwise provided

14 in this section—

15 ‘‘(1) returns with respect to domestic service

16 employment taxes shall be made on a calendar year

17 basis,

18 ‘‘(2) any such return for any calendar year

19 shall be filed on or before the 15th day of the fourth

20 month following the close of the employer’s taxable

21 year which begins in such calendar year, and

22 ‘‘(3) no requirement to make deposits (or to

23 pay installments under section 6157) shall apply

24 with respect to such taxes.
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1 ‘‘(b) DOMESTIC SERVICE EMPLOYMENT TAXES SUB2 JECT TO ESTIMATED TAX PROVISIONS.—

3 ‘‘(1) IN GENERAL.—Solely for purposes of sec4 tion 6654, domestic service employment taxes im5 posed with respect to any calendar year shall be

6 treated as a tax imposed by chapter 2 for the tax7 able year of the employer which begins in such cal8 endar year.

9 ‘‘(2) ANNUALIZATION.—Under regulations pre10 scribed by the Secretary, appropriate adjustments

11 shall be made in the application of section

12 6654(d)(2) in respect of the amount treated as tax

13 under paragraph (1).

14 ‘‘(3) TRANSITIONAL RULE.—For purposes of

15 applying section 6654 to a taxable year beginning in

16 1992, the amount referred to in clause (ii) of section

17 6654(d)(1)(B) shall be increased by 90 percent of

18 the amount treated as tax under paragraph (1) for

19 such taxable year.

20 ‘‘(c) DOMESTIC SERVICE EMPLOYMENT TAXES.—

21 For purposes of this section, the term ‘domestic service

22 employment taxes’ means—

23 ‘‘(1) any taxes imposed by chapter 21 or 23 on

24 remuneration paid for domestic service in a private

25 home of the employer, and
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1 ‘‘(2) any amount withheld from such remunera2 tion pursuant to an agreement under section

3 3402(p).

4 For purposes of this subsection, the term ‘domestic service

5 in a private home of the employer’ does not include service

6 described in section 3121(g)(5).

7 ‘‘(d) EXCEPTION WHERE EMPLOYER LIABLE FOR

8 OTHER EMPLOYMENT TAXES.—To the extent provided in

9 regulations prescribed by the Secretary, this section shall

10 not apply to any employer for any calendar year if such

11 employer is liable for any tax under this subtitle with re12 spect to remuneration for services other than domestic

13 service in a private home of the employer.

14 ‘‘(e) GENERAL REGULATORY AUTHORITY.—The Sec15 retary shall prescribe such regulations as may be nec16 essary or appropriate to carry out the purposes of this

17 section. Such regulations may treat domestic service em18 ployment taxes as taxes imposed by chapter 1 for purposes

19 of coordinating the assessment and collection of such em20 ployment taxes with the assessment and collection of do21 mestic employers’ income taxes.

22 ‘‘(f) AUTHORITY TO ENTER INTO AGREEMENTS TO

23 COLLECT STATE UNEMPLOYMENT TAXES.—

24 ‘‘(1) IN GENERAL.—The Secretary is hereby

25 authorized to enter into an agreement with any
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1 State to collect, as the agent of such State, such

2 State’s unemployment taxes imposed on remunera3 tion paid for domestic service in a private home of

4 the employer. Any taxes to be collected by the Sec5 retary pursuant to such an agreement shall be treat6 ed as domestic service employment taxes for pur7 poses of this section.

8 ‘‘(2) TRANSFERS TO STATE ACCOUNT.—Any

9 amount collected under an agreement referred to in

10 paragraph (1) shall be transferred by the Secretary

11 to the account of the State in the Unemployment

12 Trust Fund.

13 ‘‘(3) SUBTITLE F MADE APPLICABLE.—For

14 purposes of subtitle F, any amount required to be

15 collected under an agreement under paragraph (1)

16 shall be treated as a tax imposed by chapter 23.

17 ‘‘(4) STATE.—For purposes of this subsection,

18 the term ‘State’ has the meaning given such term by

19 section 3306(j)(1).’’

20 (2) CLERICAL AMENDMENT.—The table of sec21 tions for chapter 25 is amended by adding at the

22 end thereof the following:

‘‘Sec. 3510. Coordination of collection of domestic service employment taxes with collection of income taxes.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to remuneration paid in calendar

3 years after 1993.

4 SEC. 902. USE OF REPRODUCTIONS OF RETURNS STORED

5 IN DIGITAL IMAGE FORMAT.

6 (a) IN GENERAL.—Paragraph (2) of section 6103(p)

7 (relating to procedure and recordkeeping) is amended by

8 adding at the end thereof the following new subparagraph:

9 ‘‘(D) REPRODUCTION FROM DIGITAL IM10 AGES.—For purposes of this paragraph, the

11 term ‘reproduction’ includes a reproduction

12 from digital images.’’

13 (b) STUDY.—The Comptroller General of the United

14 States shall conduct a study of available digital image

15 technology for the purpose of determining the extent to

16 which reproductions of documents stored using that tech17 nology accurately reflect the data on the original document

18 and the appropriate period for retaining the original docu19 ment. Not later than 1 year after the date of the enact20 ment of this Act, a report on the results of such study

21 shall be submitted to the Committee on Ways and Means

22 of the House of Representatives and the Committee on

23 Finance of the Senate.
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1 SEC. 903. REPEAL OF AUTHORITY TO DISCLOSE WHETHER

2 PROSPECTIVE JUROR HAS BEEN AUDITED.

3 (a) IN GENERAL.—Subsection (h) of section 6103

4 (relating to disclosure to certain Federal officers and em5 ployees for purposes of tax administration, etc.) is amend6 ed by striking paragraph (5) and by redesignating para7 graph (6) as paragraph (5).

8 (b) CONFORMING AMENDMENT.—Paragraph (4) of

9 section 6103(p) is amended by striking ‘‘(h)(6)’’ each

10 place it appears and inserting ‘‘(h)(5)’’.

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

12 this section shall apply to judicial proceedings pending on,

13 or commenced after, the date of the enactment of this Act.

14 SEC. 904. REPEAL OF SPECIAL AUDIT PROVISIONS FOR

15 SUBCHAPTER S ITEMS.

16 (a) GENERAL RULE.—Subchapter D of chapter 63

17 (relating to tax treatment of subchapter S items) is hereby

18 repealed.

19 (b) CONSISTENT TREATMENT REQUIRED.—Section

20 6037 (relating to return of S corporation) is amended by

21 adding at the end thereof the following new subsection:

22 ‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST23 ENT WITH CORPORATE RETURN OR SECRETARY NOTI24 FIED OF INCONSISTENCY.—

25 ‘‘(1) IN GENERAL.—A shareholder of an S cor26 poration shall, on such shareholder’s return, treat a
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1 subchapter S item in a manner which is consistent

2 with the treatment of such item on the corporate re3 turn.

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

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

7 subchapter S item, if—

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

10 his return is (or may be) inconsistent with

11 the treatment of the item on the corporate

12 return, or

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

14 return, and

15 ‘‘(ii) the shareholder files with the

16 Secretary a statement identifying the in17 consistency,

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

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

21 treated as having complied with clause (ii) of

22 subparagraph (A) with respect to a subchapter

23 S item if the shareholder—

24 ‘‘(i) demonstrates to the satisfaction

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

3 item on the schedule furnished to the

4 shareholder by the corporation, and

5 ‘‘(ii) elects to have this paragraph

6 apply with respect to that item.

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

8 case—

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

10 of paragraph (2), and

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

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

13 (2),

14 any adjustment required to make the treatment of

15 the items by such shareholder consistent with the

16 treatment of the items on the corporate return shall

17 be treated as arising out of mathematical or clerical

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

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

20 any assessment referred to in the preceding sen21 tence.

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

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

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

3 the shareholder level.

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

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

negligence in connection with, or disregard of, the

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

6 (c) CONFORMING AMENDMENTS.—

7 (1) Section 1366 is amended by striking sub8 section (g).

9 (2) Subsection (b) of section 6233 is amended

10 to read as follows:

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

14 extent provided in regulations, rules similar to the rules

15 of subsection (a) shall apply.’’

16 (3) The table of subchapters for chapter 63 is

17 amended by striking the item relating to subchapter

18 D.

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

20 this section shall apply to taxable years beginning after

21 the date of the enactment of this Act.
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1 SEC. 905. CLARIFICATION OF STATUTE OF LIMITATIONS.

2 (a) IN GENERAL.—Subsection (a) of section 6501

3 (relating to limitations on assessment and collection) is

4 amended by adding at the end thereof the following new

5 sentence: ‘‘For purposes of this chapter, the term ‘return’

6 means the return required to be filed by the taxpayer (and

7 does not include a return of any person from whom the

8 taxpayer has received an item of income, gain, loss, deduc9 tion, or credit).’’

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

11 this section shall apply to taxable years beginning after

12 the date of the enactment of this Act.

13 SEC. 906. CERTAIN NOTICES DISREGARDED UNDER PROVI14 SION INCREASING INTEREST RATE ON LARGE

15 CORPORATE UNDERPAYMENTS.

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

17 6621(c)(2) (defining applicable date) is amended by add18 ing at the end thereof the following new clause:

19 ‘‘(iii) EXCEPTION FOR LETTERS OR

20 NOTICES INVOLVING SMALL AMOUNTS.—

21 For purposes of this paragraph, any letter

22 or notice shall be disregarded if the

23 amount of the deficiency or proposed defi24 ciency (or the assessment or proposed as25 sessment) set forth in such letter or notice

26 is not greater than $100,000 (determined
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1 by not taking into account any interest,

2 penalties, or additions to tax).’’

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

4 subsection (a) shall apply for purposes of determining in5 terest for periods after December 31, 1990.

6 SEC. 907. SPECIAL RULE FOR CORPORATE ESTIMATED

7 TAXES WHERE NO LIABILITY FOR PRECED8 ING YEAR.

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

10 6655(d) (relating to amount of required installments) is

11 amended—

12 (1) by striking the last sentence of subpara13 graph (B), and

14 (2) by adding at the end thereof the following

15 new subparagraph:

16 ‘‘(C) SPECIAL RULES.—

17 ‘‘(i) Clause (ii) of subparagraph (B)

18 shall apply only if the preceding taxable

19 year was a taxable year of 12 months and

20 the corporation filed a return for such pre21 ceding taxable year.

22 ‘‘(ii) If—

23 ‘‘(I) the requirements of clause

24 (i) are met with respect to the preced25 ing taxable year,
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1 ‘‘(II) the return for such preced2 ing taxable year does not show a li3 ability for tax, and

4 ‘‘(III) the requirements of clause

5 (i) are met with respect to the second

6 preceding taxable year,

7 clause (ii) of subparagraph (B) shall be ap8 plied by substituting ‘second preceding’ for

9 ‘preceding’ and, if the return for the sec10 ond preceding taxable year does not show

11 a liability for tax, no addition to tax shall

12 be imposed under subsection (a) for the

13 taxable year.’’

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

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

16 the date of the enactment of this Act.

17 Subtitle B—Tax Court Procedures

18 SEC. 911. OVERPAYMENT DETERMINATIONS OF TAX

19 COURT.

20 (a) APPEAL OF ORDER.—Paragraph (2) of section

21 6512(b) (relating to jurisdiction to enforce) is amended

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

23 order of the Tax Court disposing of a motion under this

24 paragraph shall be reviewable in the same manner as a
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1 decision of the Tax Court, but only with respect to the

2 matters determined in such order.’’

3 (b) DENIAL OF JURISDICTION REGARDING CERTAIN

4 CREDITS AND REDUCTIONS.—Subsection (b) of section

5 6512 (relating to overpayment determined by Tax Court)

6 is amended by adding at the end the following new para7 graph:

8 ‘‘(4) DENIAL OF JURISDICTION REGARDING

9 CERTAIN CREDITS AND REDUCTIONS.—The Tax

10 Court shall have no jurisdiction under this sub11 section to restrain or review any credit or reduction

12 made by the Secretary under section 6402.’’

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

14 this section shall take effect on the date of the enactment

15 of this Act.

16 SEC. 912. AWARDING OF ADMINISTRATIVE COSTS.

17 (a) RIGHT TO APPEAL TAX COURT DECISION.—Sub18 section (f) of section 7430 (relating to right of appeal)

19 is amended by adding at the end the following new para20 graph:

21 ‘‘(3) APPEAL OF TAX COURT DECISION.—An

22 order of the Tax Court disposing of a petition under

23 paragraph (2) shall be reviewable in the same man24 ner as a decision of the Tax Court, but only with re25 spect to the matters determined in such order.’’
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1 (b) PERIOD FOR APPLYING TO IRS FOR COSTS.—

2 Subsection (b) of section 7430 (relating to limitations) is

3 amended by adding at the end the following new para4 graph:

5 ‘‘(5) PERIOD FOR APPLYING TO IRS FOR AD6 MINISTRATIVE COSTS.—An award may be made

7 under subsection (a) by the Internal Revenue Serv8 ice for reasonable administrative costs only if the

9 prevailing party files an application with the Inter10 nal Revenue Service for such costs before the 91st

11 day after the date on which the final decision of the

12 Internal Revenue Service as to the determination of

13 the tax, interest, or penalty is mailed to such party.’’

14 (c) PERIOD FOR PETITIONING OF TAX COURT FOR

15 REVIEW OF DENIAL OF COSTS.—Paragraph (2) of section

16 7430(f) (relating to right of appeal) is amended—

17 (1) by striking ‘‘appeal to’’ and inserting ‘‘the

18 filing of a petition for review with’’, and

19 (2) by adding at the end the following new sen20 tence: ‘‘If the Secretary sends by certified or reg21 istered mail a notice of such decision to the peti22 tioner, no proceeding in the Tax Court may be initi23 ated under this paragraph unless such petition is

24 filed before the 91st day after the date of such mail25 ing.’’
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to civil actions or proceedings com3 menced after the date of the enactment of this Act.

4 SEC. 913. REDETERMINATION OF INTEREST PURSUANT TO

5 MOTION.

6 (a) IN GENERAL.—Paragraph (3) of section 7481(c)

7 (relating to jurisdiction over interest determinations) is

8 amended by striking ‘‘petition’’ and inserting ‘‘motion’’.

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

10 this section shall take effect on the date of the enactment

11 of this Act.

12 SEC. 914. APPLICATION OF NET WORTH REQUIREMENT

13 FOR AWARDS OF LITIGATION COSTS.

14 (a) IN GENERAL.—Paragraph (4) of section 7430(c)

15 (defining prevailing party) is amended by adding at the

16 end thereof the following new subparagraph:

17 ‘‘(C) SPECIAL RULES FOR APPLYING NET

18 WORTH REQUIREMENT.—In applying the re19 quirements of section 2412(d)(2)(B) of title 28,

20 United States Code, for purposes of subpara21 graph (A)(iii) of this paragraph—

22 ‘‘(i) the net worth limitation in clause

23 (i) of such section shall apply to—
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1 ‘‘(I) an estate but shall be deter2 mined as of the date of the decedent’s

3 death, and

4 ‘‘(II) a trust but shall be deter5 mined as of the last day of the taxable

6 year involved in the proceeding, and

7 ‘‘(ii) individuals filing a joint return

8 shall be treated as 1 individual for pur9 poses of clause (i) of such section, except

10 in the case of a spouse relieved of liability

11 under section 6013(e).’’

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

13 this section shall apply to proceedings commenced after

14 the date of the enactment of this Act.

15 Subtitle C—Authority for Certain

16 Cooperative Agreements

17 SEC. 921. COOPERATIVE AGREEMENTS WITH STATE TAX

18 AUTHORITIES.

19 (a) GENERAL RULE.—Chapter 77 (relating to mis20 cellaneous provisions) is amended by adding at the end

21 thereof the following new section:

22 ‘‘SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX

23 AUTHORITIES.

24 ‘‘(a) AUTHORIZATION OF AGREEMENTS.—The Sec25 retary is hereby authorized to enter into cooperative agree-
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1 ments with State tax authorities for purposes of enhancing

2 joint tax administration. Such agreements may provide

3 for—

4 ‘‘(1) joint filing of Federal and State income

5 tax returns,

6 ‘‘(2) single processing of such returns,

7 ‘‘(3) joint collection of taxes (other than Fed8 eral income taxes), and

9 ‘‘(4) such other provisions as may enhance joint

10 tax administration.

11 ‘‘(b) SERVICES ON REIMBURSABLE BASIS.—Any

12 agreement under subsection (a) may require reimburse13 ment for services provided by either party to the agree14 ment.

15 ‘‘(c) AVAILABILITY OF FUNDS.—Any funds appro16 priated for purposes of the administration of this title

17 shall be available for purposes of carrying out the Sec18 retary’s responsibility under an agreement entered into

19 under subsection (a). Any reimbursement received pursu20 ant to such an agreement shall be credited to the amount

21 so appropriated.

22 ‘‘(d) STATE TAX AUTHORITY.—For purposes of this

23 section, the term ‘State tax authority’ means agency,

24 body, or commission referred to in section 6103(d)(1).’’
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1 (b) CLERICAL AMENDMENT.—The table of sections

2 for chapter 77 is amended by adding at the end thereof

3 the following new item:

‘‘Sec. 7524. Cooperative agreements with State tax authorities.’’

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