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[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1836 Enrolled Bill (ENR)]

        H.R.1836

                      One Hundred Seventh Congress

                                 of the

                        United States of America

                          AT THE FIRST SESSION

         Begun and held at the City of Washington on Wednesday,
             the third day of January, two thousand and one

                                 An Act

 
To provide for reconciliation pursuant to section 104 of the concurrent 
             resolution on the budget for fiscal year 2002.

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

SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Economic Growth 
and Tax Relief Reconciliation Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:
Sec. 1. Short title; references; table of contents.

             TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS

Sec. 101. Reduction in income tax rates for individuals.
Sec. 102. Repeal of phaseout of personal exemptions.
Sec. 103. Phaseout of overall limitation on itemized deductions.

               TITLE II--TAX BENEFITS RELATING TO CHILDREN

Sec. 201. Modifications to child tax credit.
Sec. 202. Expansion of adoption credit and adoption assistance programs.
Sec. 203. Refunds disregarded in the administration of Federal programs 
          and federally assisted programs.
Sec. 204. Dependent care credit.
Sec. 205. Allowance of credit for employer expenses for child care 
          assistance.

                   TITLE III--MARRIAGE PENALTY RELIEF

Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in 15-percent bracket.
Sec. 303. Marriage penalty relief for earned income credit; earned 
          income to include only amounts includible in gross income; 
          simplification of earned income credit.

                TITLE IV--AFFORDABLE EDUCATION PROVISIONS

                Subtitle A--Education Savings Incentives

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.

                   Subtitle B--Educational Assistance

Sec. 411. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 412. Elimination of 60-month limit and increase in income 
          limitation on 
          student loan interest deduction.
Sec. 413. Exclusion of certain amounts received under the National 
          Health Service Corps Scholarship Program and the F. Edward 
          Hebert Armed Forces Health Professions Scholarship and 
          Financial Assistance Program.

  Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public 
                           School Construction

Sec. 421. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 422. Treatment of qualified public educational facility bonds as 
          exempt facility bonds.

                      Subtitle D--Other Provisions

Sec. 431. Deduction for higher education expenses.

 TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS

   Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes

Sec. 501. Repeal of estate and generation-skipping transfer taxes.

           Subtitle B--Reductions of Estate and Gift Tax Rates

Sec. 511. Additional reductions of estate and gift tax rates.

                Subtitle C--Increase in Exemption Amounts

Sec. 521. Increase in exemption equivalent of unified credit, lifetime 
          gifts exemption, and GST exemption amounts.

                Subtitle D--Credit for State Death Taxes

Sec. 531. Reduction of credit for State death taxes.
Sec. 532. Credit for State death taxes replaced with deduction for such 
          taxes.

 Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With 
                                 Repeal

Sec. 541. Termination of step-up in basis at death.
Sec. 542. Treatment of property acquired from a decedent dying after 
          December 31, 2009.

                   Subtitle F--Conservation Easements

Sec. 551. Expansion of estate tax rule for conservation easements.

      Subtitle G--Modifications of Generation-Skipping Transfer Tax

Sec. 561. Deemed allocation of GST exemption to lifetime transfers to 
          trusts; retroactive allocations.
Sec. 562. Severing of trusts.
Sec. 563. Modification of certain valuation rules.
Sec. 564. Relief provisions.

         Subtitle H--Extension of Time for Payment of Estate Tax

Sec. 571. Increase in number of allowable partners and shareholders in 
          closely held businesses.
Sec. 572. Expansion of availability of installment payment for estates 
          with interests qualifying lending and finance businesses.
Sec. 573. Clarification of availability of installment payment.

                      Subtitle I--Other Provisions

Sec. 581. Waiver of statute of limitation for taxes on certain farm 
          valuations.

   TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

               Subtitle A--Individual Retirement Accounts

Sec. 601. Modification of IRA contribution limits.
Sec. 602. Deemed IRAs under employer plans.

                     Subtitle B--Expanding Coverage

Sec. 611. Increase in benefit and contribution limits.
Sec. 612. Plan loans for subchapter S owners, partners, and sole 
          proprietors.
Sec. 613. Modification of top-heavy rules.
Sec. 614. Elective deferrals not taken into account for purposes of 
          deduction limits.
Sec. 615. Repeal of coordination requirements for deferred compensation 
          plans of State and local governments and tax-exempt 
          organizations.
Sec. 616. Deduction limits.
Sec. 617. Option to treat elective deferrals as after-tax Roth 
          contributions.
Sec. 618. Nonrefundable credit to certain individuals for elective 
          deferrals and IRA contributions.
Sec. 619. Credit for pension plan startup costs of small employers.
Sec. 620. Elimination of user fee for requests to IRS regarding pension 
          plans.
Sec. 621. Treatment of nonresident aliens engaged in international 
          transportation services.

                Subtitle C--Enhancing Fairness for Women

Sec. 631. Catch-up contributions for individuals age 50 or over.
Sec. 632. Equitable treatment for contributions of employees to defined 
          contribution plans.
Sec. 633. Faster vesting of certain employer matching contributions.
Sec. 634. Modification to minimum distribution rules.
Sec. 635. Clarification of tax treatment of division of section 457 plan 
          benefits upon divorce.
Sec. 636. Provisions relating to hardship distributions.
Sec. 637. Waiver of tax on nondeductible contributions for domestic or 
          similar workers.

           Subtitle D--Increasing Portability for Participants

Sec. 641. Rollovers allowed among various types of plans.
Sec. 642. Rollovers of IRAs into workplace retirement plans.
Sec. 643. Rollovers of after-tax contributions.
Sec. 644. Hardship exception to 60-day rule.
Sec. 645. Treatment of forms of distribution.
Sec. 646. Rationalization of restrictions on distributions.
Sec. 647. Purchase of service credit in governmental defined benefit 
          plans.
Sec. 648. Employers may disregard rollovers for purposes of cash-out 
          amounts.
Sec. 649. Minimum distribution and inclusion requirements for section 
          457 plans.

       Subtitle E--Strengthening Pension Security and Enforcement

                       Part I--General Provisions

Sec. 651. Repeal of 160 percent of current liability funding limit.
Sec. 652. Maximum contribution deduction rules modified and applied to 
          all 
          defined benefit plans.
Sec. 653. Excise tax relief for sound pension funding.
Sec. 654. Treatment of multiemployer plans under section 415.
Sec. 655. Protection of investment of employee contributions to 401(k) 
          plans.
Sec. 656. Prohibited allocations of stock in S corporation ESOP.
Sec. 657. Automatic rollovers of certain mandatory distributions.
Sec. 658. Clarification of treatment of contributions to multiemployer 
          plan.

 Part II--Treatment of Plan Amendments Reducing Future Benefit Accruals

Sec. 659. Excise tax on failure to provide notice by defined benefit 
          plans significantly reducing future benefit accruals.

                 Subtitle F--Reducing Regulatory Burdens

Sec. 661. Modification of timing of plan valuations.
Sec. 662. ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec. 663. Repeal of transition rule relating to certain highly 
          compensated employees.
Sec. 664. Employees of tax-exempt entities.
Sec. 665. Clarification of treatment of employer-provided retirement 
          advice.
Sec. 666. Repeal of the multiple use test.

                  Subtitle G--Miscellaneous Provisions

Sec. 671. Tax treatment and information requirements of Alaska Native 
          Settlement Trusts.

                   TITLE VII--ALTERNATIVE MINIMUM TAX

Sec. 701. Increase in alternative minimum tax exemption.

                      TITLE VIII--OTHER PROVISIONS

Sec. 801. Time for payment of corporate estimated taxes.
Sec. 802. Expansion of authority to postpone certain tax-related 
          deadlines by reason of Presidentially declared disaster.
Sec. 803. No Federal income tax on restitution received by victims of 
          the Nazi 
          regime or their heirs or estates.

           TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

Sec. 901. Sunset of provisions of Act.

             TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS

SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.

    (a) In General.--Section 1 (relating to tax imposed) is amended by 
adding at the end the following new subsection:
    ``(i) Rate Reductions After 2000.--
        ``(1) 10-percent rate bracket.--
            ``(A) In general.--In the case of taxable years beginning 
        after December 31, 2000--
                ``(i) the rate of tax under subsections (a), (b), (c), 
            and (d) on taxable income not over the initial bracket 
            amount shall be 10 percent, and
                ``(ii) the 15 percent rate of tax shall apply only to 
            taxable income over the initial bracket amount but not over 
            the maximum dollar amount for the 15-percent rate bracket.
            ``(B) Initial bracket amount.--For purposes of this 
        paragraph, the initial bracket amount is--
                ``(i) $14,000 ($12,000 in the case of taxable years 
            beginning before January 1, 2008) in the case of subsection 
            (a),
                ``(ii) $10,000 in the case of subsection (b), and
                ``(iii) \1/2\ the amount applicable under clause (i) 
            (after adjustment, if any, under subparagraph (C)) in the 
            case of subsections (c) and (d).
            ``(C) Inflation adjustment.--In prescribing the tables 
        under subsection (f) which apply with respect to taxable years 
        beginning in calendar years after 2000--
                ``(i) the Secretary shall make no adjustment to the 
            initial bracket amount for any taxable year beginning 
            before January 1, 2009,
                ``(ii) the cost-of-living adjustment used in making 
            adjustments to the initial bracket amount for any taxable 
            year beginning after December 31, 2008, shall be determined 
            under subsection (f)(3) by substituting `2007' for `1992' 
            in subparagraph (B) thereof, and
                ``(iii) such adjustment shall not apply to the amount 
            referred to in subparagraph (B)(iii).
        If any amount after adjustment under the preceding sentence is 
        not a multiple of $50, such amount shall be rounded to the next 
        lowest multiple of $50.
            ``(D) Coordination with acceleration of 10 percent rate 
        bracket benefit for 2001.--This paragraph shall not apply to 
        any taxable year to which section 6428 applies.
        ``(2) Reductions in rates after june 30, 2001.--In the case of 
    taxable years beginning in a calendar year after 2000, the 
    corresponding percentage specified for such calendar year in the 
    following table shall be substituted for the otherwise applicable 
    tax rate in the tables under subsections (a), (b), (c), (d), and 
    (e).

------------------------------------------------------------------------
                                         The corresponding percentages
                   ``In the case of      shall be substituted for  the
                    taxable years           following percentages:
                   beginning during  -----------------------------------
                    calendar year:      28%      31%      36%     39.6%
------------------------------------------------------------------------
                 2001...............   27.5%    30.5%    35.5%    39.1%
                 2002 and 2003......   27.0%    30.0%    35.0%    38.6%
                 2004 and 2005......   26.0%    29.0%    34.0%    37.6%
                 2006 and thereafter   25.0%    28.0%    33.0%    35.0%
------------------------------------------------------------------------

        ``(3) Adjustment of tables.--The Secretary shall adjust the 
    tables prescribed under subsection (f) to carry out this 
    subsection.''.
    (b) Acceleration of 10 Percent Rate Bracket Benefit for 2001.--
        (1) In general.--Subchapter B of chapter 65 (relating to 
    abatements, credits, and refunds) is amended by adding at the end 
    the following new section:

``SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACKET BENEFIT 
              FOR 2001.

    ``(a) In General.--In the case of an eligible individual, there 
shall be allowed as a credit against the tax imposed by chapter 1 for 
the taxpayer's first taxable year beginning in 2001 an amount equal to 
5 percent of so much of the taxpayer's taxable income as does not 
exceed the initial bracket amount (as defined in section 1(i)(1)(B)).
    ``(b) Limitation Based on Amount of Tax.--The credit allowed by 
subsection (a) shall not exceed the excess (if any) of--
        ``(1) the sum of the regular tax liability (as defined in 
    section 26(b)) plus the tax imposed by section 55, over
        ``(2) the sum of the credits allowable under part IV of 
    subchapter A of chapter 1 (other than the credits allowable under 
    subpart C thereof, relating to refundable credits).
    ``(c) Eligible Individual.--For purposes of this section, the term 
`eligible individual' means any individual other than--
        ``(1) any estate or trust,
        ``(2) any nonresident alien individual, and
        ``(3) any individual with respect to whom a deduction under 
    section 151 is allowable to another taxpayer for a taxable year 
    beginning in the calendar year in which the individual's taxable 
    year begins.
    ``(d) Special Rules.--
        ``(1) Coordination with advance refunds of credit.--
            ``(A) In general.--The amount of credit which would (but 
        for this paragraph) be allowable under this section shall be 
        reduced (but not below zero) by the aggregate refunds and 
        credits made or allowed to the taxpayer under subsection (e). 
        Any failure to so reduce the credit shall be treated as arising 
        out of a mathematical or clerical error and assessed according 
        to section 6213(b)(1).
            ``(B) Joint returns.--In the case of a refund or credit 
        made or allowed under subsection (e) with respect to a joint 
        return, half of such refund or credit shall be treated as 
        having been made or allowed to each individual filing such 
        return.
        ``(2) Coordination with estimated tax.--The credit under this 
    section shall be treated for purposes of section 6654(f) in the 
    same manner as a credit under subpart A of part IV of subchapter A 
    of chapter 1.
    ``(e) Advance Refunds of Credit Based on Prior Year Data.--
        ``(1) In general.--Each individual who was an eligible 
    individual for such individual's first taxable year beginning in 
    2000 shall be treated as having made a payment against the tax 
    imposed by chapter 1 for such first taxable year in an amount equal 
    to the advance refund amount for such taxable year.
        ``(2) Advance refund amount.--For purposes of paragraph (1), 
    the advance refund amount is the amount that would have been 
    allowed as a credit under this section for such first taxable year 
    if this section (other than subsection (d) and this subsection) had 
    applied to such taxable year.
        ``(3) Timing of payments.--In the case of any overpayment 
    attributable to this subsection, the Secretary shall, subject to 
    the provisions of this title, refund or credit such overpayment as 
    rapidly as possible and, to the extent practicable, before October 
    1, 2001. No refund or credit shall be made or allowed under this 
    subsection after December 31, 2001.
        ``(4) No interest.--No interest shall be allowed on any 
    overpayment attributable to this subsection.''.
        (2) Clerical amendment.--The table of sections for subchapter B 
    of chapter 65 is amended by adding at the end the following new 
    item:
        ``Sec. 6428. Acceleration of 10 percent income tax rate bracket 
                  benefit for 2001.''.

    (c) Conforming Amendments.--
        (1) Subparagraph (B) of section 1(g)(7) is amended by striking 
    ``15 percent'' in clause (ii)(II) and inserting ``10 percent.''.
        (2) Section 1(h) is amended--
            (A) by striking ``28 percent'' both places it appears in 
        paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting ``25 
        percent'', and
            (B) by striking paragraph (13).
        (3) Section 15 is amended by adding at the end the following 
    new subsection:
    ``(f) Rate Reductions Enacted by Economic Growth and Tax Relief 
Reconciliation Act of 2001.--This section shall not apply to any change 
in rates under subsection (i) of section 1 (relating to rate reductions 
after 2000).''.
        (4) Section 531 is amended by striking ``equal to'' and all 
    that follows and inserting ``equal to the product of the highest 
    rate of tax under section 1(c) and the accumulated taxable 
    income.''.
        (5) Section 541 is amended by striking ``equal to'' and all 
    that follows and inserting ``equal to the product of the highest 
    rate of tax under section 1(c) and the undistributed personal 
    holding company income.''.
        (6) Section 3402(p)(1)(B) is amended by striking ``7, 15, 28, 
    or 31 percent'' and inserting ``7 percent, any percentage 
    applicable to any of the 3 lowest income brackets in the table 
    under section 1(c),''.
        (7) Section 3402(p)(2) is amended by striking ``15 percent'' 
    and inserting ``10 percent''.
        (8) Section 3402(q)(1) is amended by striking ``equal to 28 
    percent of such payment'' and inserting ``equal to the product of 
    the third lowest rate of tax applicable under section 1(c) and such 
    payment''.
        (9) Section 3402(r)(3) is amended by striking ``31 percent'' 
    and inserting ``the fourth lowest rate of tax applicable under 
    section 1(c)''.
        (10) Section 3406(a)(1) is amended by striking ``equal to 31 
    percent of such payment'' and inserting ``equal to the product of 
    the fourth lowest rate of tax applicable under section 1(c) and 
    such payment''.
        (11) Section 13273 of the Revenue Reconciliation Act of 1993 is 
    amended by striking ``28 percent'' and inserting ``the third lowest 
    rate of tax applicable under section 1(c) of the Internal Revenue 
    Code of 1986''.
    (d) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 2000.
        (2) Amendments to withholding provisions.--The amendments made 
    by paragraphs (6), (7), (8), (9), (10), and (11) of subsection (c) 
    shall apply to amounts paid after the 60th day after the date of 
    the enactment of this Act. References to income brackets and rates 
    of tax in such paragraphs shall be applied without regard to 
    section 1(i)(1)(D) of the Internal Revenue Code of 1986.

SEC. 102. REPEAL OF PHASEOUT OF PERSONAL EXEMPTIONS.

    (a) In General.--Paragraph (3) of section 151(d) (relating to 
exemption amount) is amended by adding at the end the following new 
subparagraphs:
            ``(E) Reduction of phaseout.--
                ``(i) In general.--In the case of taxable years 
            beginning after December 31, 2005, and before January 1, 
            2010, the reduction under subparagraph (A) shall be equal 
            to the applicable fraction of the amount which would (but 
            for this subparagraph) be the amount of such reduction.
                ``(ii) Applicable fraction.--For purposes of clause 
            (i), the applicable fraction shall be determined in 
            accordance with the following table:

        ``For taxable years beginning
                                                          The applicable
          in calendar year--
                                                           fraction is--
            2006 and 2007.....................................
                                                                  \2/3\ 
            2008 and 2009.....................................
                                                                  \1/3\.

            ``(F) Termination.--This paragraph shall not apply to any 
        taxable year beginning after December 31, 2009.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2005.

SEC. 103. PHASEOUT OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.

    (a) In General.--Section 68 is amended by adding at the end the 
following new subsections:
    ``(f) Phaseout of Limitation.--
        ``(1) In general.--In the case of taxable years beginning after 
    December 31, 2005, and before January 1, 2010, the reduction under 
    subsection (a) shall be equal to the applicable fraction of the 
    amount which would (but for this subsection) be the amount of such 
    reduction.
        ``(2) Applicable fraction.--For purposes of paragraph (1), the 
    applicable fraction shall be determined in accordance with the 
    following table:

        ``For taxable years beginning
                                                          The applicable
          in calendar year--
                                                           fraction is--
            2006 and 2007.....................................
                                                                  \2/3\ 
            2008 and 2009.....................................
                                                                  \1/3\.

    ``(g) Termination.--This section shall not apply to any taxable 
year beginning after December 31, 2009.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2005.

              TITLE II--TAX BENEFITS RELATING TO CHILDREN

SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.

    (a) Increase in Per Child Amount.--Subsection (a) of section 24 
(relating to child tax credit) is amended to read as follows:
    ``(a) Allowance of Credit.--
        ``(1) In general.--There shall be allowed as a credit against 
    the tax imposed by this chapter for the taxable year with respect 
    to each qualifying child of the taxpayer an amount equal to the per 
    child amount.
        ``(2) Per child amount.--For purposes of paragraph (1), the per 
    child amount shall be determined as follows:
``In the case of any taxable year 
    beginning in--
    The per child amount is--
    2001, 2002, 2003, or 2004.................................

                                                                 $  600 

    2005, 2006, 2007, or 2008.................................

                                                                    700 

    2009......................................................

                                                                    800 

    2010 or thereafter........................................

                                                               1,000.''.

    (b) Credit Allowed Against Alternative Minimum Tax.--
        (1) In general.--Subsection (b) of section 24 (relating to 
    child tax credit) is amended by adding at the end the following new 
    paragraph:
        ``(3) Limitation based on amount of tax.--The credit allowed 
    under subsection (a) for any taxable year shall not exceed the 
    excess of--
            ``(A) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(B) the sum of the credits allowable under this subpart 
        (other than this section) and section 27 for the taxable 
        year.''.
        (2) Conforming amendments.--
            (A) The heading for section 24(b) is amended to read as 
        follows: ``Limitations.--''.
            (B) The heading for section 24(b)(1) is amended to read as 
        follows: ``Limitation based on adjusted gross income.--''.
            (C) Section 24(d), as amended by subsection (c), is 
        amended--
                (i) by striking ``section 26(a)'' each place it appears 
            and inserting ``subsection (b)(3)'', and
                (ii) in paragraph (1)(B) by striking ``aggregate amount 
            of credits allowed by this subpart'' and inserting ``amount 
            of credit allowed by this section''.
            (D) Paragraph (1) of section 26(a) is amended by inserting 
        ``(other than section 24)'' after ``this subpart''.
            (E) Subsection (c) of section 23 is amended by striking 
        ``and section 1400C'' and inserting ``and sections 24 and 
        1400C''.
            (F) Subparagraph (C) of section 25(e)(1) is amended by 
        inserting ``, 24,'' after ``sections 23''.
            (G) Section 904(h) is amended by inserting ``(other than 
        section 24)'' after ``chapter''.
            (H) Subsection (d) of section 1400C is amended by inserting 
        ``and section 24'' after ``this section''.
    (c) Refundable Child Credit.--
        (1) In general.--So much of section 24(d) (relating to 
    additional credit for families with 3 or more children) as precedes 
    paragraph (2) is amended to read as follows:
    ``(d) Portion of Credit Refundable.--
        ``(1) In general.--The aggregate credits allowed to a taxpayer 
    under subpart C shall be increased by the lesser of--
            ``(A) the credit which would be allowed under this section 
        without regard to this subsection and the limitation under 
        section 26(a), or
            ``(B) the amount by which the amount of credit allowed by 
        this section (determined without regard to this subsection) 
        would increase if the limitation imposed by section 26(a) were 
        increased by the greater of--
                ``(i) 15 percent (10 percent in the case of taxable 
            years beginning before January 1, 2005) of so much of the 
            taxpayer's earned income (within the meaning of section 32) 
            which is taken into account in computing taxable income for 
            the taxable year as exceeds $10,000, or
                ``(ii) in the case of a taxpayer with 3 or more 
            qualifying children, the excess (if any) of--

                    ``(I) the taxpayer's social security taxes for the 
                taxable year, over
                    ``(II) the credit allowed under section 32 for the 
                taxable year.

    The amount of the credit allowed under this subsection shall not be 
    treated as a credit allowed under this subpart and shall reduce the 
    amount of credit otherwise allowable under subsection (a) without 
    regard to section 26(a).''.
        (2) Inflation adjustment.--Subsection (d) of section 24 is 
    amended by adding at the end the following new paragraph:
        ``(4) Inflation adjustment.--In the case of any taxable year 
    beginning in a calendar year after 2001, the $10,000 amount 
    contained in paragraph (1)(B) shall be increased by an amount equal 
    to--
            ``(A) such dollar amount, multiplied by
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined by substituting `calendar year 2000' for 
        `calendar year 1992' in subparagraph (B) thereof.
    Any increase determined under the preceding sentence shall be 
    rounded to the nearest multiple of $50.''.
        (3) Conforming amendment.--Section 32 is amended by striking 
    subsection (n).
    (d) Elimination of Reduction of Credit to Taxpayer Subject to 
Alternative Minimum Tax Provision.--Section 24(d) is amended--
        (1) by striking paragraph (2), and
        (2) by redesignating paragraphs (3) and (4) as paragraphs (2) 
    and (3), respectively.
    (e) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 2000.
        (2) Subsection (b).--The amendments made by subsection (b) 
    shall apply to taxable years beginning after December 31, 2001.

SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSISTANCE 
              PROGRAMS.

    (a) In General.--
        (1) Adoption credit.--Section 23(a)(1) (relating to allowance 
    of credit) is amended to read as follows:
        ``(1) In general.--In the case of an individual, there shall be 
    allowed as a credit against the tax imposed by this chapter--
            ``(A) in the case of an adoption of a child other than a 
        child with special needs, the amount of the qualified adoption 
        expenses paid or incurred by the taxpayer, and
            ``(B) in the case of an adoption of a child with special 
        needs, $10,000.''.
        (2) Adoption assistance programs.--Section 137(a) (relating to 
    adoption assistance programs) is amended to read as follows:
    ``(a) In General.--Gross income of an employee does not include 
amounts paid or expenses incurred by the employer for adoption expenses 
in connection with the adoption of a child by an employee if such 
amounts are furnished pursuant to an adoption assistance program. The 
amount of the exclusion shall be--
        ``(1) in the case of an adoption of a child other than a child 
    with special needs, the amount of the qualified adoption expenses 
    paid or incurred by the taxpayer, and
        ``(2) in the case of an adoption of a child with special needs, 
    $10,000.''.
    (b) Dollar Limitations.--
        (1) Dollar amount of allowed expenses.--
            (A) Adoption expenses.--Section 23(b)(1) (relating to 
        allowance of credit) is amended--
                (i) by striking ``$5,000'' and inserting ``$10,000'',
                (ii) by striking ``($6,000, in the case of a child with 
            special needs)'', and
                (iii) by striking ``subsection (a)'' and inserting 
            ``subsection (a)(1)(A)''.
            (B) Adoption assistance programs.--Section 137(b)(1) 
        (relating to dollar limitations for adoption assistance 
        programs) is amended--
                (i) by striking ``$5,000'' and inserting ``$10,000'', 
            and
                (ii) by striking ``($6,000, in the case of a child with 
            special needs)'', and
                (iii) by striking ``subsection (a)'' and inserting 
            ``subsection (a)(1)''.
        (2) Phase-out limitation.--
            (A) Adoption expenses.--Clause (i) of section 23(b)(2)(A) 
        (relating to income limitation) is amended by striking 
        ``$75,000'' and inserting ``$150,000''.
            (B) Adoption assistance programs.--Section 137(b)(2)(A) 
        (relating to income limitation) is amended by striking 
        ``$75,000'' and inserting ``$150,000''.
    (c) Year Credit Allowed.--Section 23(a)(2) (relating to year credit 
allowed) is amended by adding at the end the following new flush 
sentence:
    ``In the case of the adoption of a child with special needs, the 
    credit allowed under paragraph (1) shall be allowed for the taxable 
    year in which the adoption becomes final.''.
    (d) Repeal of Terminations.--
        (1) Children without special needs.--Paragraph (2) of section 
    23(d) (relating to definition of eligible child) is amended to read 
    as follows:
        ``(2) Eligible child.--The term `eligible child' means any 
    individual who--
            ``(A) has not attained age 18, or
            ``(B) is physically or mentally incapable of caring for 
        himself.''.
        (2) Adoption assistance programs.--Section 137 (relating to 
    adoption assistance programs) is amended by striking subsection 
    (f).
    (e) Adjustment of Dollar and Income Limitations for Inflation.--
        (1) Adoption credit.--Section 23 (relating to adoption 
    expenses) is amended by redesignating subsection (h) as subsection 
    (i) and by inserting after subsection (g) the following new 
    subsection:
    ``(h) Adjustments for Inflation.--In the case of a taxable year 
beginning after December 31, 2002, each of the dollar amounts in 
subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of subsection (b) 
shall be increased by an amount equal to--
        ``(1) such dollar amount, multiplied by
        ``(2) the cost-of-living adjustment determined under section 
    1(f)(3) for the calendar year in which the taxable year begins, 
    determined by substituting `calendar year 2001' for `calendar year 
    1992' in subparagraph (B) thereof.''.
        (2) Adoption assistance programs.--Section 137 (relating to 
    adoption assistance programs), as amended by subsection (d), is 
    amended by adding at the end the following new subsection:
    ``(f) Adjustments for Inflation.--In the case of a taxable year 
beginning after December 31, 2002, each of the dollar amounts in 
subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall 
be increased by an amount equal to--
        ``(1) such dollar amount, multiplied by
        ``(2) the cost-of-living adjustment determined under section 
    1(f)(3) for the calendar year in which the taxable year begins, 
    determined by substituting `calendar year 2001' for `calendar year 
    1992' in subparagraph (B) thereof.''.
    (f) Credit Allowed Against Alternative Minimum Tax.--
        (1) In general.--Subsection (b) of section 23 is amended by 
    adding at the end the following new paragraph:
        ``(4) Limitation based on amount of tax.--The credit allowed 
    under subsection (a) for any taxable year shall not exceed the 
    excess of--
            ``(A) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(B) the sum of the credits allowable under this subpart 
        (other than this section) and section 27 for the taxable 
        year.''.
        (2) Conforming amendments.--
            (A) Section 23(c), as amended by section 201(b), is 
        amended--
                (i) by striking ``section 26(a)'' and inserting 
            ``subsection (b)(4)'', and
                (ii) by striking ``reduced by the sum of the credits 
            allowable under this subpart (other than this section and 
            sections 24 and 1400C)''.
            (B) Section 24(b)(3)(B), as added by section 201(b), is 
        amended by striking ``this section'' and inserting ``this 
        section and section 23''.
            (C) Sections 26(a)(1), 904(h), and 1400C(d), as amended by 
        section 201(b), are each amended by striking ``section 24'' and 
        inserting ``sections 23 and 24''.
    (g) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 2001.
        (2) Subsection (a).--The amendments made by subsection (a) 
    shall apply to taxable years beginning after December 31, 2002.

SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS 
              AND FEDERALLY ASSISTED PROGRAMS.

    Any payment considered to have been made to any individual by 
reason of section 24 of the Internal Revenue Code of 1986, as amended 
by section 201, shall not be taken into account as income and shall not 
be taken into account as resources for the month of receipt and the 
following month, for purposes of determining the eligibility of such 
individual or any other individual for benefits or assistance, or the 
amount or extent of benefits or assistance, under any Federal program 
or under any State or local program financed in whole or in part with 
Federal funds.

SEC. 204. DEPENDENT CARE CREDIT.

    (a) Increase in Dollar Limit.--Subsection (c) of section 21 
(relating to expenses for household and dependent care services 
necessary for gainful employment) is amended--
        (1) by striking ``$2,400'' in paragraph (1) and inserting 
    ``$3,000'', and
        (2) by striking ``$4,800'' in paragraph (2) and inserting 
    ``$6,000''.
    (b) Increase in Applicable Percentage.--Section 21(a)(2) (defining 
applicable percentage) is amended--
        (1) by striking ``30 percent'' and inserting ``35 percent'', 
    and
        (2) by striking ``$10,000'' and inserting ``$15,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD CARE 
              ASSISTANCE.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits), as amended by section 619, is 
further amended by adding at the end the following:

``SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT.

    ``(a) In General.--For purposes of section 38, the employer-
provided child care credit determined under this section for the 
taxable year is an amount equal to the sum of--
        ``(1) 25 percent of the qualified child care expenditures, and
        ``(2) 10 percent of the qualified child care resource and 
    referral expenditures,
of the taxpayer for such taxable year.
    ``(b) Dollar Limitation.--The credit allowable under subsection (a) 
for any taxable year shall not exceed $150,000.
    ``(c) Definitions.--For purposes of this section--
        ``(1) Qualified child care expenditure.--
            ``(A) In general.--The term `qualified child care 
        expenditure' means any amount paid or incurred--
                ``(i) to acquire, construct, rehabilitate, or expand 
            property--

                    ``(I) which is to be used as part of a qualified 
                child care facility of the taxpayer,
                    ``(II) with respect to which a deduction for 
                depreciation (or amortization in lieu of depreciation) 
                is allowable, and
                    ``(III) which does not constitute part of the 
                principal residence (within the meaning of section 121) 
                of the taxpayer or any employee of the taxpayer,

                ``(ii) for the operating costs of a qualified child 
            care facility of the taxpayer, including costs related to 
            the training of employees, to scholarship programs, and to 
            the providing of increased compensation to employees with 
            higher levels of child care training, or
                ``(iii) under a contract with a qualified child care 
            facility to provide child care services to employees of the 
            taxpayer.
            ``(B) Fair market value.--The term `qualified child care 
        expenditures' shall not include expenses in excess of the fair 
        market value of such care.
        ``(2) Qualified child care facility.--
            ``(A) In general.--The term `qualified child care facility' 
        means a facility--
                ``(i) the principal use of which is to provide child 
            care assistance, and
                ``(ii) which meets the requirements of all applicable 
            laws and regulations of the State or local government in 
            which it is located, including the licensing of the 
            facility as a child care facility.
        Clause (i) shall not apply to a facility which is the principal 
        residence (within the meaning of section 121) of the operator 
        of the facility.
            ``(B) Special rules with respect to a taxpayer.--A facility 
        shall not be treated as a qualified child care facility with 
        respect to a taxpayer unless--
                ``(i) enrollment in the facility is open to employees 
            of the taxpayer during the taxable year,
                ``(ii) if the facility is the principal trade or 
            business of the taxpayer, at least 30 percent of the 
            enrollees of such facility are dependents of employees of 
            the taxpayer, and
                ``(iii) the use of such facility (or the eligibility to 
            use such facility) does not discriminate in favor of 
            employees of the taxpayer who are highly compensated 
            employees (within the meaning of section 414(q)).
        ``(3) Qualified child care resource and referral expenditure.--
            ``(A) In general.--The term `qualified child care resource 
        and referral expenditure' means any amount paid or incurred 
        under a contract to provide child care resource and referral 
        services to an employee of the taxpayer.
            ``(B) Nondiscrimination.--The services shall not be treated 
        as qualified unless the provision of such services (or the 
        eligibility to use such services) does not discriminate in 
        favor of employees of the taxpayer who are highly compensated 
        employees (within the meaning of section 414(q)).
    ``(d) Recapture of Acquisition and Construction Credit.--
        ``(1) In general.--If, as of the close of any taxable year, 
    there is a recapture event with respect to any qualified child care 
    facility of the taxpayer, then the tax of the taxpayer under this 
    chapter for such taxable year shall be increased by an amount equal 
    to the product of--
            ``(A) the applicable recapture percentage, and
            ``(B) the aggregate decrease in the credits allowed under 
        section 38 for all prior taxable years which would have 
        resulted if the qualified child care expenditures of the 
        taxpayer described in subsection (c)(1)(A) with respect to such 
        facility had been zero.
        ``(2) Applicable recapture percentage.--
            ``(A) In general.--For purposes of this subsection, the 
        applicable recapture percentage shall be determined from the 
        following table:

  
                                                          The applicable
  
                                                               recapture
        ``If the recapture event 
      occurs in:
                                                          percentage is:
        Years 1-3.......................................
                                                                100     
        Year 4..........................................
                                                                 85     
        Year 5..........................................
                                                                 70     
        Year 6..........................................
                                                                 55     
        Year 7..........................................
                                                                 40     
        Year 8..........................................
                                                                 25     
        Years 9 and 10..................................
                                                                 10     
        Years 11 and thereafter.........................
                                                                  0.    

            ``(B) Years.--For purposes of subparagraph (A), year 1 
        shall begin on the first day of the taxable year in which the 
        qualified child care facility is placed in service by the 
        taxpayer.
        ``(3) Recapture event defined.--For purposes of this 
    subsection, the term `recapture event' means--
            ``(A) Cessation of operation.--The cessation of the 
        operation of the facility as a qualified child care facility.
            ``(B) Change in ownership.--
                ``(i) In general.--Except as provided in clause (ii), 
            the disposition of a taxpayer's interest in a qualified 
            child care facility with respect to which the credit 
            described in subsection (a) was allowable.
                ``(ii) Agreement to assume recapture liability.--Clause 
            (i) shall not apply if the person acquiring such interest 
            in the facility agrees in writing to assume the recapture 
            liability of the person disposing of such interest in 
            effect immediately before such disposition. In the event of 
            such an assumption, the person acquiring the interest in 
            the facility shall be treated as the taxpayer for purposes 
            of assessing any recapture liability (computed as if there 
            had been no change in ownership).
        ``(4) Special rules.--
            ``(A) Tax benefit rule.--The tax for the taxable year shall 
        be increased under paragraph (1) only with respect to credits 
        allowed by reason of this section which were used to reduce tax 
        liability. In the case of credits not so used to reduce tax 
        liability, the carryforwards and carrybacks under section 39 
        shall be appropriately adjusted.
            ``(B) No credits against tax.--Any increase in tax under 
        this subsection shall not be treated as a tax imposed by this 
        chapter for purposes of determining the amount of any credit 
        under subpart A, B, or D of this part.
            ``(C) No recapture by reason of casualty loss.--The 
        increase in tax under this subsection shall not apply to a 
        cessation of operation of the facility as a qualified child 
        care facility by reason of a casualty loss to the extent such 
        loss is restored by reconstruction or replacement within a 
        reasonable period established by the Secretary.
    ``(e) Special Rules.--For purposes of this section--
        ``(1) Aggregation rules.--All persons which are treated as a 
    single employer under subsections (a) and (b) of section 52 shall 
    be treated as a single taxpayer.
        ``(2) Pass-thru in the case of estates and trusts.--Under 
    regulations prescribed by the Secretary, rules similar to the rules 
    of subsection (d) of section 52 shall apply.
        ``(3) Allocation in the case of partnerships.--In the case of 
    partnerships, the credit shall be allocated among partners under 
    regulations prescribed by the Secretary.
    ``(f) No Double Benefit.--
        ``(1) Reduction in basis.--For purposes of this subtitle--
            ``(A) In general.--If a credit is determined under this 
        section with respect to any property by reason of expenditures 
        described in subsection (c)(1)(A), the basis of such property 
        shall be reduced by the amount of the credit so determined.
            ``(B) Certain dispositions.--If, during any taxable year, 
        there is a recapture amount determined with respect to any 
        property the basis of which was reduced under subparagraph (A), 
        the basis of such property (immediately before the event 
        resulting in such recapture) shall be increased by an amount 
        equal to such recapture amount. For purposes of the preceding 
        sentence, the term `recapture amount' means any increase in tax 
        (or adjustment in carrybacks or carryovers) determined under 
        subsection (d).
        ``(2) Other deductions and credits.--No deduction or credit 
    shall be allowed under any other provision of this chapter with 
    respect to the amount of the credit determined under this 
    section.''.
    (b) Conforming Amendments.--
        (1) Section 38(b), as amended by section 619, is amended by 
    striking ``plus'' at the end of paragraph (13), by striking the 
    period at the end of paragraph (14) and inserting ``, plus'', and 
    by adding at the end the following:
        ``(15) the employer-provided child care credit determined under 
    section 45F.''.
        (2) The table of sections for subpart D of part IV of 
    subchapter A of chapter 1 is amended by adding at the end the 
    following:
        ``Sec. 45F. Employer-provided child care credit.''.

        (3) Section 1016(a) is amended by striking ``and'' at the end 
    of paragraph (26), by striking the period at the end of paragraph 
    (27) and inserting ``, and'', and by adding at the end the 
    following:
        ``(28) in the case of a facility with respect to which a credit 
    was allowed under section 45F, to the extent provided in section 
    45F(f)(1).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                   TITLE III--MARRIAGE PENALTY RELIEF

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

    (a) In General.--Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended--
        (1) by striking ``$5,000'' in subparagraph (A) and inserting 
    ``the applicable percentage of the dollar amount in effect under 
    subparagraph (C) for the taxable year'';
        (2) by adding ``or'' at the end of subparagraph (B);
        (3) by striking ``in the case of'' and all that follows in 
    subparagraph (C) and inserting ``in any other case.''; and
        (4) by striking subparagraph (D).
    (b) Applicable Percentage.--Section 63(c) (relating to standard 
deduction) is amended by adding at the end the following new paragraph:
        ``(7) Applicable percentage.--For purposes of paragraph (2), 
    the applicable percentage shall be determined in accordance with 
    the following table:

        ``For taxable years beginning
                                                          The applicable
          in calendar year--
                                                         percentage is--
            2005..............................................
                                                                    174 
            2006..............................................
                                                                    184 
            2007..............................................
                                                                    187 
            2008..............................................
                                                                    190 
            2009 and thereafter...............................
                                                                 200.''.

    (c) Technical Amendments.--
        (1) Subparagraph (B) of section 1(f)(6) is amended by striking 
    ``(other than with'' and all that follows through ``shall be 
    applied'' and inserting ``(other than with respect to sections 
    63(c)(4) and 151(d)(4)(A)) shall be applied''.
        (2) Paragraph (4) of section 63(c) is amended by adding at the 
    end the following flush sentence:
    ``The preceding sentence shall not apply to the amount referred to 
    in paragraph (2)(A).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

    (a) In General.--Section 1(f) (relating to adjustments in tax 
tables so that inflation will not result in tax increases) is amended 
by adding at the end the following new paragraph:
        ``(8) Phaseout of marriage penalty in 15-percent bracket.--
            ``(A) In general.--With respect to taxable years beginning 
        after December 31, 2004, in prescribing the tables under 
        paragraph (1)--
                ``(i) the maximum taxable income in the 15-percent rate 
            bracket in the table contained in subsection (a) (and the 
            minimum taxable income in the next higher taxable income 
            bracket in such table) shall be the applicable percentage 
            of the maximum taxable income in the 15-percent rate 
            bracket in the table contained in subsection (c) (after any 
            other adjustment under this subsection), and
                ``(ii) the comparable taxable income amounts in the 
            table contained in subsection (d) shall be \1/2\ of the 
            amounts determined under clause (i).
            ``(B) Applicable percentage.--For purposes of subparagraph 
        (A), the applicable percentage shall be determined in 
        accordance with the following table:

        ``For taxable years beginning
                                                          The applicable
          in calendar year--
                                                         percentage is--
            2005..............................................
                                                                    180 
            2006..............................................
                                                                    187 
            2007..............................................
                                                                    193 
            2008 and thereafter...............................
                                                                    200.

            ``(C) Rounding.--If any amount determined under 
        subparagraph (A)(i) is not a multiple of $50, such amount shall 
        be rounded to the next lowest multiple of $50.''.
    (b) Technical Amendments.--
        (1) Subparagraph (A) of section 1(f)(2) is amended by inserting 
    ``except as provided in paragraph (8),'' before ``by increasing''.
        (2) The heading for subsection (f) of section 1 is amended by 
    inserting ``Phaseout of Marriage Penalty in 15-Percent Bracket;'' 
    before ``Adjustments''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.

SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED 
              INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS 
              INCOME; SIMPLIFICATION OF EARNED INCOME CREDIT.

    (a) Increased Phaseout Amount.--
        (1) In general.--Section 32(b)(2) (relating to amounts) is 
    amended--
            (A) by striking ``Amounts.--The earned'' and inserting 
        ``Amounts.--
            ``(A) In general.--Subject to subparagraph (B), the 
        earned'', and
            (B) by adding at the end the following new subparagraph:
            ``(B) Joint returns.--In the case of a joint return filed 
        by an eligible individual and such individual's spouse, the 
        phaseout amount determined under subparagraph (A) shall be 
        increased by--
                ``(i) $1,000 in the case of taxable years beginning in 
            2002, 2003, and 2004,
                ``(ii) $2,000 in the case of taxable years beginning in 
            2005, 2006, and 2007, and
                ``(iii) $3,000 in the case of taxable years beginning 
            after 2007.''.
        (2) Inflation adjustment.--Paragraph (1)(B) of section 32(j) 
    (relating to inflation adjustments) is amended to read as follows:
            ``(B) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which the taxable year 
        begins, determined--
                ``(i) in the case of amounts in subsections (b)(2)(A) 
            and (i)(1), by substituting `calendar year 1995' for 
            `calendar year 1992' in subparagraph (B) thereof, and
                ``(ii) in the case of the $3,000 amount in subsection 
            (b)(2)(B)(iii), by substituting `calendar year 2007' for 
            `calendar year 1992' in subparagraph (B) of such section 
            1.''.
        (3) Rounding.--Section 32(j)(2)(A) (relating to rounding) is 
    amended by striking ``subsection (b)(2)'' and inserting 
    ``subsection (b)(2)(A) (after being increased under subparagraph 
    (B) thereof)''.
    (b) Earned Income To Include Only Amounts Includible in Gross 
Income.--Clause (i) of section 32(c)(2)(A) (defining earned income) is 
amended by inserting ``, but only if such amounts are includible in 
gross income for the taxable year'' after ``other employee 
compensation''.
    (c) Repeal of Reduction of Credit to Taxpayers Subject to 
Alternative Minimum Tax.--Section 32(h) is repealed.
    (d) Replacement of Modified Adjusted Gross Income With Adjusted 
Gross Income.--
        (1) In general.--Section 32(a)(2)(B) is amended by striking 
    ``modified''.
        (2) Conforming amendments.--
            (A) Section 32(c) is amended by striking paragraph (5).
            (B) Section 32(f)(2)(B) is amended by striking ``modified'' 
        each place it appears.
    (e) Relationship Test.--
        (1) In general.--Clause (i) of section 32(c)(3)(B) (relating to 
    relationship test) is amended to read as follows:
                ``(i) In general.--An individual bears a relationship 
            to the taxpayer described in this subparagraph if such 
            individual is--

                    ``(I) a son, daughter, stepson, or stepdaughter, or 
                a descendant of any such individual,
                    ``(II) a brother, sister, stepbrother, or 
                stepsister, or a descendant of any such individual, who 
                the taxpayer cares for as the taxpayer's own child, or
                    ``(III) an eligible foster child of the 
                taxpayer.''.

        (2) Eligible foster child.--
            (A) In general.--Clause (iii) of section 32(c)(3)(B) is 
        amended to read as follows:
                ``(iii) Eligible foster child.--For purposes of clause 
            (i), the term `eligible foster child' means an individual 
            not described in subclause (I) or (II) of clause (i) who--

                    ``(I) is placed with the taxpayer by an authorized 
                placement agency, and
                    ``(II) the taxpayer cares for as the taxpayer's own 
                child.''.

            (B) Conforming amendment.--Section 32(c)(3)(A)(ii) is 
        amended by striking ``except as provided in subparagraph 
        (B)(iii),''.
    (f) 2 or More Claiming Qualifying Child.--Section 32(c)(1)(C) is 
amended to read as follows:
            ``(C) 2 or more claiming qualifying child.--
                ``(i) In general.--Except as provided in clause (ii), 
            if (but for this paragraph) an individual may be claimed, 
            and is claimed, as a qualifying child by 2 or more 
            taxpayers for a taxable year beginning in the same calendar 
            year, such individual shall be treated as the qualifying 
            child of the taxpayer who is--

                    ``(I) a parent of the individual, or
                    ``(II) if subclause (I) does not apply, the 
                taxpayer with the highest adjusted gross income for 
                such taxable year.

                ``(ii) More than 1 claiming credit.--If the parents 
            claiming the credit with respect to any qualifying child do 
            not file a joint return together, such child shall be 
            treated as the qualifying child of--

                    ``(I) the parent with whom the child resided for 
                the longest period of time during the taxable year, or
                    ``(II) if the child resides with both parents for 
                the same amount of time during such taxable year, the 
                parent with the highest adjusted gross income.''.

    (g) Expansion of Mathematical Error Authority.--Paragraph (2) of 
section 6213(g) is amended by striking ``and'' at the end of 
subparagraph (K), by striking the period at the end of subparagraph (L) 
and inserting ``, and'', and by inserting after subparagraph (L) the 
following new subparagraph:
            ``(M) the entry on the return claiming the credit under 
        section 32 with respect to a child if, according to the Federal 
        Case Registry of Child Support Orders established under section 
        453(h) of the Social Security Act, the taxpayer is a 
        noncustodial parent of such child.''.
    (h) Clerical Amendment.--Subparagraph (E) of section 32(c)(3) is 
amended by striking ``subparagraphs (A)(ii) and (B)(iii)(II)'' and 
inserting ``subparagraph (A)(ii)''.
    (i) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to taxable years 
    beginning after December 31, 2001.
        (2) Subsection (g).--The amendment made by subsection (g) shall 
    take effect on January 1, 2004.

               TITLE IV--AFFORDABLE EDUCATION PROVISIONS
                Subtitle A--Education Savings Incentives

SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) Maximum Annual Contributions.--
        (1) In general.--Section 530(b)(1)(A)(iii) (defining education 
    individual retirement account) is amended by striking ``$500'' and 
    inserting ``$2,000''.
        (2) Conforming amendment.--Section 4973(e)(1)(A) is amended by 
    striking ``$500'' and inserting ``$2,000''.
    (b) Modification of AGI Limits To Remove Marriage Penalty.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended--
        (1) by striking ``$150,000'' in subparagraph (A)(ii) and 
    inserting ``$190,000'', and
        (2) by striking ``$10,000'' in subparagraph (B) and inserting 
    ``$30,000''.
    (c) Tax-Free Expenditures for Elementary and Secondary School 
Expenses.--
        (1) In general.--Section 530(b)(2) (defining qualified higher 
    education expenses) is amended to read as follows:
        ``(2) Qualified education expenses.--
            ``(A) In general.--The term `qualified education expenses' 
        means--
                ``(i) qualified higher education expenses (as defined 
            in section 529(e)(3)), and
                ``(ii) qualified elementary and secondary education 
            expenses (as defined in paragraph (4)).
            ``(B) Qualified state tuition programs.--Such term shall 
        include any contribution to a qualified State tuition program 
        (as defined in section 529(b)) on behalf of the designated 
        beneficiary (as defined in section 529(e)(1)); but there shall 
        be no increase in the investment in the contract for purposes 
        of applying section 72 by reason of any portion of such 
        contribution which is not includible in gross income by reason 
        of subsection (d)(2).''.
        (2) Qualified elementary and secondary education expenses.--
    Section 530(b) (relating to definitions and special rules) is 
    amended by adding at the end the following new paragraph:
        ``(4) Qualified elementary and secondary education expenses.--
            ``(A) In general.--The term `qualified elementary and 
        secondary education expenses' means--
                ``(i) expenses for tuition, fees, academic tutoring, 
            special needs services in the case of a special needs 
            beneficiary, books, supplies, and other equipment which are 
            incurred in connection with the enrollment or attendance of 
            the designated beneficiary of the trust as an elementary or 
            secondary school student at a public, private, or religious 
            school,
                ``(ii) expenses for room and board, uniforms, 
            transportation, and supplementary items and services 
            (including extended day programs) which are required or 
            provided by a public, private, or religious school in 
            connection with such enrollment or attendance, and
                ``(iii) expenses for the purchase of any computer 
            technology or equipment (as defined in section 
            170(e)(6)(F)(i)) or Internet access and related services, 
            if such technology, equipment, or services are to be used 
            by the beneficiary and the beneficiary's family during any 
            of the years the beneficiary is in school.
        Clause (iii) shall not include expenses for computer software 
        designed for sports, games, or hobbies unless the software is 
        predominantly educational in nature.
            ``(B) School.--The term `school' means any school which 
        provides elementary education or secondary education 
        (kindergarten through grade 12), as determined under State 
        law.''.
        (3) Conforming amendments.--Section 530 is amended--
            (A) by striking ``higher'' each place it appears in 
        subsections (b)(1) and (d)(2), and
            (B) by striking ``higher'' in the heading for subsection 
        (d)(2).
    (d) Waiver of Age Limitations for Children With Special Needs.--
Section 530(b)(1) (defining education individual retirement account) is 
amended by adding at the end the following flush sentence:
    ``The age limitations in subparagraphs (A)(ii) and (E), and 
    paragraphs (5) and (6) of subsection (d), shall not apply to any 
    designated beneficiary with special needs (as determined under 
    regulations prescribed by the Secretary).''.
    (e) Entities Permitted To Contribute to Accounts.--Section 
530(c)(1) (relating to reduction in permitted contributions based on 
adjusted gross income) is amended by striking ``The maximum amount 
which a contributor'' and inserting ``In the case of a contributor who 
is an individual, the maximum amount the contributor''.
    (f) Time When Contributions Deemed Made.--
        (1) In general.--Section 530(b) (relating to definitions and 
    special rules), as amended by subsection (c)(2), is amended by 
    adding at the end the following new paragraph:
        ``(5) Time when contributions deemed made.--An individual shall 
    be deemed to have made a contribution to an education individual 
    retirement account on the last day of the preceding taxable year if 
    the contribution is made on account of such taxable year and is 
    made not later than the time prescribed by law for filing the 
    return for such taxable year (not including extensions thereof).''.
        (2) Extension of time to return excess contributions.--
    Subparagraph (C) of section 530(d)(4) (relating to additional tax 
    for distributions not used for educational expenses) is amended--
            (A) by striking clause (i) and inserting the following new 
        clause:
                ``(i) such distribution is made before the first day of 
            the sixth month of the taxable year following the taxable 
            year, and'', and
            (B) by striking ``due date of return'' in the heading and 
        inserting ``certain date''.
    (g) Coordination With Hope and Lifetime Learning Credits and 
Qualified Tuition Programs.--
        (1) In general.--Section 530(d)(2)(C) is amended to read as 
    follows:
            ``(C) Coordination with hope and lifetime learning credits 
        and qualified tuition programs.--For purposes of subparagraph 
        (A)--
                ``(i) Credit coordination.--The total amount of 
            qualified higher education expenses with respect to an 
            individual for the taxable year shall be reduced--

                    ``(I) as provided in section 25A(g)(2), and
                    ``(II) by the amount of such expenses which were 
                taken into account in determining the credit allowed to 
                the taxpayer or any other person under section 25A.

                ``(ii) Coordination with qualified tuition programs.--
            If, with respect to an individual for any taxable year--

                    ``(I) the aggregate distributions during such year 
                to which subparagraph (A) and section 529(c)(3)(B) 
                apply, exceed
                    ``(II) the total amount of qualified education 
                expenses (after the application of clause (i)) for such 
                year,

            the taxpayer shall allocate such expenses among such 
            distributions for purposes of determining the amount of the 
            exclusion under subparagraph (A) and section 
            529(c)(3)(B).''.
        (2) Conforming amendments.--
            (A) Subsection (e) of section 25A is amended to read as 
        follows:
    ``(e) Election Not To Have Section Apply.--A taxpayer may elect not 
to have this section apply with respect to the qualified tuition and 
related expenses of an individual for any taxable year.''.
            (B) Section 135(d)(2)(A) is amended by striking 
        ``allowable'' and inserting ``allowed''.
            (C) Section 530(d)(2)(D) is amended--
                (i) by striking ``or credit'' and inserting ``, credit, 
            or exclusion'', and
                (ii) by striking ``credit or deduction'' in the heading 
            and inserting ``deduction, credit, or exclusion''.
            (D) Section 4973(e)(1) is amended by adding ``and'' at the 
        end of subparagraph (A), by striking subparagraph (B), and by 
        redesignating subparagraph (C) as subparagraph (B).
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

    (a) Eligible Educational Institutions Permitted To Maintain 
Qualified Tuition Programs.--
      (1) In general.--Section 529(b)(1) (defining qualified State 
    tuition program) is amended--
            (A) by inserting ``or by 1 or more eligible educational 
        institutions'' after ``maintained by a State or agency or 
        instrumentality thereof'' in the matter preceding subparagraph 
        (A), and
            (B) by adding at the end the following new flush sentence:
    ``Except to the extent provided in regulations, a program 
    established and maintained by 1 or more eligible educational 
    institutions shall not be treated as a qualified tuition program 
    unless such program provides that amounts are held in a qualified 
    trust and such program has received a ruling or determination that 
    such program meets the applicable requirements for a qualified 
    tuition program. For purposes of the preceding sentence, the term 
    `qualified trust' means a trust which is created or organized in 
    the United States for the exclusive benefit of designated 
    beneficiaries and with respect to which the requirements of 
    paragraphs (2) and (5) of section 408(a) are met.''.
        (2) Private qualified tuition programs limited to benefit 
    plans.--Clause (ii) of section 529(b)(1)(A) is amended by inserting 
    ``in the case of a program established and maintained by a State or 
    agency or instrumentality thereof,'' before ``may make''.
        (3) Additional tax on nonqualified withdrawals.--Section 529 is 
    amended--
            (A) by striking paragraph (3) of subsection (b) and by 
        redesignating paragraphs (4), (5), (6), and (7) of such 
        subsection as paragraphs (3), (4), (5), and (6), respectively, 
        and
            (B) by adding at the end of subsection (c) the following 
        new paragraph:
        ``(6) Additional tax.--The tax imposed by section 530(d)(4) 
    shall apply to any payment or distribution from a qualified tuition 
    program in the same manner as such tax applies to a payment or 
    distribution from an education individual retirement account. This 
    paragraph shall not apply to any payment or distribution in any 
    taxable year beginning before January 1, 2004, which is includible 
    in gross income but used for qualified higher education expenses of 
    the designated beneficiary.''.
        (4) Conforming amendments.--
            (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
        530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by 
        striking ``qualified State tuition'' each place it appears and 
        inserting ``qualified tuition''.
            (B) The headings for sections 72(e)(9) and 135(c)(2)(C) are 
        amended by striking ``qualified state tuition'' each place it 
        appears and inserting ``qualified tuition''.
            (C) The headings for sections 529(b) and 530(b)(2)(B) are 
        amended by striking ``Qualified state tuition'' each place it 
        appears and inserting ``Qualified tuition''.
            (D) The heading for section 529 is amended by striking 
        ``state''.
            (E) The item relating to section 529 in the table of 
        sections for part VIII of subchapter F of chapter 1 is amended 
        by striking ``State''.
    (b) Exclusion From Gross Income of Education Distributions From 
Qualified Tuition Programs.--
        (1) In general.--Section 529(c)(3)(B) (relating to 
    distributions) is amended to read as follows:
            ``(B) Distributions for qualified higher education 
        expenses.--For purposes of this paragraph--
                ``(i) In-kind distributions.--No amount shall be 
            includible in gross income under subparagraph (A) by reason 
            of a distribution which consists of providing a benefit to 
            the distributee which, if paid for by the distributee, 
            would constitute payment of a qualified higher education 
            expense.
                ``(ii) Cash distributions.--In the case of 
            distributions not described in clause (i), if--

                    ``(I) such distributions do not exceed the 
                qualified higher education expenses (reduced by 
                expenses described in clause (i)), no amount shall be 
                includible in gross income, and
                    ``(II) in any other case, the amount otherwise 
                includible in gross income shall be reduced by an 
                amount which bears the same ratio to such amount as 
                such expenses bear to such distributions.

                ``(iii) Exception for institutional programs.--In the 
            case of any taxable year beginning before January 1, 2004, 
            clauses (i) and (ii) shall not apply with respect to any 
            distribution during such taxable year under a qualified 
            tuition program established and maintained by 1 or more 
            eligible educational institutions.
                ``(iv) Treatment as distributions.--Any benefit 
            furnished to a designated beneficiary under a qualified 
            tuition program shall be treated as a distribution to the 
            beneficiary for purposes of this paragraph.
                ``(v) Coordination with hope and lifetime learning 
            credits.--The total amount of qualified higher education 
            expenses with respect to an individual for the taxable year 
            shall be reduced--

                    ``(I) as provided in section 25A(g)(2), and
                    ``(II) by the amount of such expenses which were 
                taken into account in determining the credit allowed to 
                the taxpayer or any other person under section 25A.

                ``(vi) Coordination with education individual 
            retirement accounts.--If, with respect to an individual for 
            any taxable year--

                    ``(I) the aggregate distributions to which clauses 
                (i) and (ii) and section 530(d)(2)(A) apply, exceed
                    ``(II) the total amount of qualified higher 
                education expenses otherwise taken into account under 
                clauses (i) and (ii) (after the application of clause 
                (v)) for such year,

            the taxpayer shall allocate such expenses among such 
            distributions for purposes of determining the amount of the 
            exclusion under clauses (i) and (ii) and section 
            530(d)(2)(A).''.
        (2) Conforming amendments.--
            (A) Section 135(d)(2)(B) is amended by striking ``the 
        exclusion under section 530(d)(2)'' and inserting ``the 
        exclusions under sections 529(c)(3)(B) and 530(d)(2)''.
            (B) Section 221(e)(2)(A) is amended by inserting ``529,'' 
        after ``135,''.
    (c) Rollover to Different Program for Benefit of Same Designated 
Beneficiary.--Section 529(c)(3)(C) (relating to change in 
beneficiaries) is amended--
        (1) by striking ``transferred to the credit'' in clause (i) and 
    inserting ``transferred--

                    ``(I) to another qualified tuition program for the 
                benefit of the designated beneficiary, or
                    ``(II) to the credit'',

        (2) by adding at the end the following new clause:
                ``(iii) Limitation on certain rollovers.--Clause (i)(I) 
            shall not apply to any transfer if such transfer occurs 
            within 12 months from the date of a previous transfer to 
            any qualified tuition program for the benefit of the 
            designated beneficiary.'', and
        (3) by inserting ``or programs'' after ``beneficiaries'' in the 
    heading.
    (d) Member of Family Includes First Cousin.--Section 529(e)(2) 
(defining member of family) is amended by striking ``and'' at the end 
of subparagraph (B), by striking the period at the end of subparagraph 
(C) and by inserting ``; and'', and by adding at the end the following 
new subparagraph:
            ``(D) any first cousin of such beneficiary.''.
    (e) Adjustment of Limitation on Room and Board Distributions.--
Section 529(e)(3)(B)(ii) is amended to read as follows:
                ``(ii) Limitation.--The amount treated as qualified 
            higher education expenses by reason of clause (i) shall not 
            exceed--

                    ``(I) the allowance (applicable to the student) for 
                room and board included in the cost of attendance (as 
                defined in section 472 of the Higher Education Act of 
                1965 (20 U.S.C. 1087ll), as in effect on the date of 
                the enactment of the Economic Growth and Tax Relief 
                Reconciliation Act of 2001) as determined by the 
                eligible educational institution for such period, or
                    ``(II) if greater, the actual invoice amount the 
                student residing in housing owned or operated by the 
                eligible educational institution is charged by such 
                institution for room and board costs for such 
                period.''.

    (f) Special Needs Services.--Subparagraph (A) of section 529(e)(3) 
(defining qualified higher education expenses) is amended to read as 
follows:
            ``(A) In general.--The term `qualified higher education 
        expenses' means--
                ``(i) tuition, fees, books, supplies, and equipment 
            required for the enrollment or attendance of a designated 
            beneficiary at an eligible educational institution; and
                ``(ii) expenses for special needs services in the case 
            of a special needs beneficiary which are incurred in 
            connection with such enrollment or attendance.''.
    (g) Technical Amendments.--Section 529(c)(3)(D) is amended--
        (1) by inserting ``except to the extent provided by the 
    Secretary,'' before ``all distributions'' in clause (ii), and
        (2) by inserting ``except to the extent provided by the 
    Secretary,'' before ``the value'' in clause (iii).
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

                   Subtitle B--Educational Assistance

SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
              ASSISTANCE.

    (a) In General.--Section 127 (relating to exclusion for educational 
assistance programs) is amended by striking subsection (d) and by 
redesignating subsection (e) as subsection (d).
    (b) Repeal of Limitation on Graduate Education.--The last sentence 
of section 127(c)(1) is amended by striking ``, and such term also does 
not include any payment for, or the provision of any benefits with 
respect to, any graduate level course of a kind normally taken by an 
individual pursuing a program leading to a law, business, medical, or 
other advanced academic or professional degree''.
    (c) Conforming Amendment.--Section 51A(b)(5)(B)(iii) is amended by 
striking ``or would be so excludable but for section 127(d)''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to expenses relating to courses beginning after 
December 31, 2001.

SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
              LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.

    (a) Elimination of 60-Month Limit.--
        (1) In general.--Section 221 (relating to interest on education 
    loans), as amended by section 402(b)(2)(B), is amended by striking 
    subsection (d) and by redesignating subsections (e), (f), and (g) 
    as subsections (d), (e), and (f), respectively.
        (2) Conforming amendment.--Section 6050S(e) is amended by 
    striking ``section 221(e)(1)'' and inserting ``section 221(d)(1)''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply with respect to any loan interest paid after December 
    31, 2001, in taxable years ending after such date.
    (b) Increase in Income Limitation.--
        (1) In general.--Section 221(b)(2)(B) (relating to amount of 
    reduction) is amended by striking clauses (i) and (ii) and 
    inserting the following:
                ``(i) the excess of--

                    ``(I) the taxpayer's modified adjusted gross income 
                for such taxable year, over
                    ``(II) $50,000 ($100,000 in the case of a joint 
                return), bears to

                ``(ii) $15,000 ($30,000 in the case of a joint 
            return).''.
        (2) Conforming amendment.--Section 221(g)(1) is amended by 
    striking ``$40,000 and $60,000 amounts'' and inserting ``$50,000 
    and $100,000 amounts''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to taxable years ending after December 31, 2001.

SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL 
              HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM AND THE F. 
              EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP 
              AND FINANCIAL ASSISTANCE PROGRAM.

    (a) In General.--Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is amended--
        (1) by striking ``Subsections (a)'' and inserting the 
    following:
        ``(1) In general.--Except as provided in paragraph (2), 
    subsections (a)'', and
        (2) by adding at the end the following new paragraph:
        ``(2) Exceptions.--Paragraph (1) shall not apply to any amount 
    received by an individual under--
            ``(A) the National Health Service Corps Scholarship Program 
        under section 338A(g)(1)(A) of the Public Health Service Act, 
        or
            ``(B) the Armed Forces Health Professions Scholarship and 
        Financial Assistance program under subchapter I of chapter 105 
        of title 10, United States Code.''.
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to amounts received in taxable years beginning after December 31, 
2001.

  Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public 
                          School Construction

SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
              GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
              FACILITIES.

    (a) In General.--Section 148(f)(4)(D)(vii) (relating to increase in 
exception for bonds financing public school capital expenditures) is 
amended by striking ``$5,000,000'' the second place it appears and 
inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to obligations issued in calendar years beginning after December 
31, 2001.

SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
              EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of section 
142 (relating to exempt facility bond) is amended by striking ``or'' at 
the end of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``, or'', and by adding at the end the 
following new paragraph:
        ``(13) qualified public educational facilities.''.
    (b) Qualified Public Educational Facilities.--Section 142 (relating 
to exempt facility bond) is amended by adding at the end the following 
new subsection:
    ``(k) Qualified Public Educational Facilities.--
        ``(1) In general.--For purposes of subsection (a)(13), the term 
    `qualified public educational facility' means any school facility 
    which is--
            ``(A) part of a public elementary school or a public 
        secondary school, and
            ``(B) owned by a private, for-profit corporation pursuant 
        to a public-private partnership agreement with a State or local 
        educational agency described in paragraph (2).
        ``(2) Public-private partnership agreement described.--A 
    public-private partnership agreement is described in this paragraph 
    if it is an agreement--
            ``(A) under which the corporation agrees--
                ``(i) to do 1 or more of the following: construct, 
            rehabilitate, refurbish, or equip a school facility, and
                ``(ii) at the end of the term of the agreement, to 
            transfer the school facility to such agency for no 
            additional consideration, and
            ``(B) the term of which does not exceed the term of the 
        issue to be used to provide the school facility.
        ``(3) School facility.--For purposes of this subsection, the 
    term `school facility' means--
            ``(A) any school building,
            ``(B) any functionally related and subordinate facility and 
        land with respect to such building, including any stadium or 
        other facility primarily used for school events, and
            ``(C) any property, to which section 168 applies (or would 
        apply but for section 179), for use in a facility described in 
        subparagraph (A) or (B).
        ``(4) Public schools.--For purposes of this subsection, the 
    terms `elementary school' and `secondary school' have the meanings 
    given such terms by section 14101 of the Elementary and Secondary 
    Education Act of 1965 (20 U.S.C. 8801), as in effect on the date of 
    the enactment of this subsection.
        ``(5) Annual aggregate face amount of tax-exempt financing.--
            ``(A) In general.--An issue shall not be treated as an 
        issue described in subsection (a)(13) if the aggregate face 
        amount of bonds issued by the State pursuant thereto (when 
        added to the aggregate face amount of bonds previously so 
        issued during the calendar year) exceeds an amount equal to the 
        greater of--
                ``(i) $10 multiplied by the State population, or
                ``(ii) $5,000,000.
            ``(B) Allocation rules.--
                ``(i) In general.--Except as otherwise provided in this 
            subparagraph, the State may allocate the amount described 
            in subparagraph (A) for any calendar year in such manner as 
            the State determines appropriate.
                ``(ii) Rules for carryforward of unused limitation.--A 
            State may elect to carry forward an unused limitation for 
            any calendar year for 3 calendar years following the 
            calendar year in which the unused limitation arose under 
            rules similar to the rules of section 146(f), except that 
            the only purpose for which the carryforward may be elected 
            is the issuance of exempt facility bonds described in 
            subsection (a)(13).''.
    (c) Exemption From General State Volume Caps.--Paragraph (3) of 
section 146(g) (relating to exception for certain bonds) is amended--
        (1) by striking ``or (12)'' and inserting ``(12), or (13)'', 
    and
        (2) by striking ``and environmental enhancements of 
    hydroelectric generating facilities'' and inserting ``environmental 
    enhancements of hydroelectric generating facilities, and qualified 
    public educational facilities''.
    (d) Exemption From Limitation on Use for Land Acquisition.--Section 
147(h) (relating to certain rules not to apply to mortgage revenue 
bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is 
amended by adding at the end the following new paragraph:
        ``(3) Exempt facility bonds for qualified public-private 
    schools.--Subsection (c) shall not apply to any exempt facility 
    bond issued as part of an issue described in section 142(a)(13) 
    (relating to qualified public educational facilities).''.
    (e) Conforming Amendment.--The heading for section 147(h) is 
amended by striking ``Mortgage Revenue Bonds, Qualified Student Loan 
Bonds, and Qualified 501(c)(3) Bonds'' and inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2001.

                      Subtitle D--Other Provisions

SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is amended 
by redesignating section 222 as section 223 and by inserting after 
section 221 the following:

``SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the qualified 
tuition and related expenses paid by the taxpayer during the taxable 
year.
    ``(b) Dollar limitations.--
        ``(1) In general.--The amount allowed as a deduction under 
    subsection (a) with respect to the taxpayer for any taxable year 
    shall not exceed the applicable dollar limit.
        ``(2) Applicable dollar limit.--
            ``(A) 2002 and 2003.--In the case of a taxable year 
        beginning in 2002 or 2003, the applicable dollar limit shall be 
        equal to--
                ``(i) in the case of a taxpayer whose adjusted gross 
            income for the taxable year does not exceed $65,000 
            ($130,000 in the case of a joint return), $3,000, and--
                ``(ii) in the case of any other taxpayer, zero.
            ``(B) 2004 and 2005.--In the case of a taxable year 
        beginning in 2004 or 2005, the applicable dollar amount shall 
        be equal to--
                ``(i) in the case of a taxpayer whose adjusted gross 
            income for the taxable year does not exceed $65,000 
            ($130,000 in the case of a joint return), $4,000,
                ``(ii) in the case of a taxpayer not described in 
            clause (i) whose adjusted gross income for the taxable year 
            does not exceed $80,000 ($160,000 in the case of a joint 
            return), $2,000, and
                ``(iii) in the case of any other taxpayer, zero.
            ``(C) Adjusted gross income.--For purposes of this 
        paragraph, adjusted gross income shall be determined--
                ``(i) without regard to this section and sections 911, 
            931, and 933, and
                ``(ii) after application of sections 86, 135, 137, 219, 
            221, and 469.
    ``(c) No Double Benefit.--
        ``(1) In general.--No deduction shall be allowed under 
    subsection (a) for any expense for which a deduction is allowed to 
    the taxpayer under any other provision of this chapter.
        ``(2) Coordination with other education incentives.--
            ``(A) Denial of deduction if credit elected.--No deduction 
        shall be allowed under subsection (a) for a taxable year with 
        respect to the qualified tuition and related expenses with 
        respect to an individual if the taxpayer or any other person 
        elects to have section 25A apply with respect to such 
        individual for such year.
            ``(B) Coordination with exclusions.--The total amount of 
        qualified tuition and related expenses shall be reduced by the 
        amount of such expenses taken into account in determining any 
        amount excluded under section 135, 529(c)(1), or 530(d)(2). For 
        purposes of the preceding sentence, the amount taken into 
        account in determining the amount excluded under section 
        529(c)(1) shall not include that portion of the distribution 
        which represents a return of any contributions to the plan.
        ``(3) Dependents.--No deduction shall be allowed under 
    subsection (a) to any individual with respect to whom a deduction 
    under section 151 is allowable to another taxpayer for a taxable 
    year beginning in the calendar year in which such individual's 
    taxable year begins.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Qualified tuition and related expenses.--The term 
    `qualified tuition and related expenses' has the meaning given such 
    term by section 25A(f). Such expenses shall be reduced in the same 
    manner as under section 25A(g)(2).
        ``(2) Identification requirement.--No deduction shall be 
    allowed under subsection (a) to a taxpayer with respect to the 
    qualified tuition and related expenses of an individual unless the 
    taxpayer includes the name and taxpayer identification number of 
    the individual on the return of tax for the taxable year.
        ``(3) Limitation on taxable year of deduction.--
            ``(A) In general.--A deduction shall be allowed under 
        subsection (a) for qualified tuition and related expenses for 
        any taxable year only to the extent such expenses are in 
        connection with enrollment at an institution of higher 
        education during the taxable year.
            ``(B) Certain prepayments allowed.--Subparagraph (A) shall 
        not apply to qualified tuition and related expenses paid during 
        a taxable year if such expenses are in connection with an 
        academic term beginning during such taxable year or during the 
        first 3 months of the next taxable year.
        ``(4) No deduction for married individuals filing separate 
    returns.--If the taxpayer is a married individual (within the 
    meaning of section 7703), this section shall apply only if the 
    taxpayer and the taxpayer's spouse file a joint return for the 
    taxable year.
        ``(5) Nonresident aliens.--If the taxpayer is a nonresident 
    alien individual for any portion of the taxable year, this section 
    shall apply only if such individual is treated as a resident alien 
    of the United States for purposes of this chapter by reason of an 
    election under subsection (g) or (h) of section 6013.
        ``(6) Regulations.--The Secretary may prescribe such 
    regulations as may be necessary or appropriate to carry out this 
    section, including regulations requiring recordkeeping and 
    information reporting.
    ``(e) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2005.''.
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) is amended by inserting after paragraph (17) the following:
        ``(18) Higher education expenses.--The deduction allowed by 
    section 222.''.
    (c) Conforming Amendments.--
        (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are 
    each amended by inserting ``222,'' after ``221,''.
        (2) Section 221(b)(2)(C) is amended by inserting ``222,'' 
    before ``911''.
        (3) Section 469(i)(3)(F) is amended by striking ``and 221'' and 
    inserting ``, 221, and 222''.
        (4) The table of sections for part VII of subchapter B of 
    chapter 1 is amended by striking the item relating to section 222 
    and inserting the following:

        ``Sec. 222. Qualified tuition and related expenses.
        ``Sec. 223. Cross reference.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to payments made in taxable years beginning after December 31, 
2001.

 TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
  Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes

SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.

    (a) Estate Tax Repeal.--Subchapter C of chapter 11 of subtitle B 
(relating to miscellaneous) is amended by adding at the end the 
following new section:

``SEC. 2210. TERMINATION.

    ``(a) In General.--Except as provided in subsection (b), this 
chapter shall not apply to the estates of decedents dying after 
December 31, 2009.
    ``(b) Certain Distributions From Qualified Domestic Trusts.--In 
applying section 2056A with respect to the surviving spouse of a 
decedent dying before January 1, 2010--
        ``(1) section 2056A(b)(1)(A) shall not apply to distributions 
    made after December 31, 2020, and
        ``(2) section 2056A(b)(1)(B) shall not apply after December 31, 
    2009.''.
    (b) Generation-Skipping Transfer Tax Repeal.--Subchapter G of 
chapter 13 of subtitle B (relating to administration) is amended by 
adding at the end the following new section:

``SEC. 2664. TERMINATION.

    ``This chapter shall not apply to generation-skipping transfers 
after December 31, 2009.''.
    (c) Conforming Amendments.--
        (1) The table of sections for subchapter C of chapter 11 is 
    amended by adding at the end the following new item:
        ``Sec. 2210. Termination.''.

        (2) The table of sections for subchapter G of chapter 13 is 
    amended by adding at the end the following new item:
        ``Sec. 2664. Termination.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying, and generation-skipping 
transfers, after December 31, 2009.

          Subtitle B--Reductions of Estate and Gift Tax Rates

SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

    (a) Maximum Rate of Tax Reduced to 50 Percent.--The table contained 
in section 2001(c)(1) is amended by striking the two highest brackets 
and inserting the following:

  ``Over $2,500,000
  $1,025,800, plus 50% of the excess over $2,500,000.''.

    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of 
section 2001 is amended by striking paragraph (2).
    (c) Additional Reductions of Maximum Rate of Tax.--Subsection (c) 
of section 2001, as amended by subsection (b), is amended by adding at 
the end the following new paragraph:
        ``(2) Phasedown of maximum rate of tax.--
            ``(A) In general.--In the case of estates of decedents 
        dying, and gifts made, in calendar years after 2002 and before 
        2010, the tentative tax under this subsection shall be 
        determined by using a table prescribed by the Secretary (in 
        lieu of using the table contained in paragraph (1)) which is 
        the same as such table; except that--
                ``(i) the maximum rate of tax for any calendar year 
            shall be determined in the table under subparagraph (B), 
            and
                ``(ii) the brackets and the amounts setting forth the 
            tax shall be adjusted to the extent necessary to reflect 
            the adjustments under subparagraph (A).
            ``(B) Maximum rate.--

                                                             The maximum
``In calendar year:
                                                                rate is:
    2003......................................................

                                                             49 percent 

    2004......................................................

                                                             48 percent 

    2005......................................................

                                                             47 percent 

    2006......................................................

                                                             46 percent 

    2007, 2008, and 2009......................................

                                                          45 percent.''.

    (d) Maximum Gift Tax Rate Reduced to Maximum Individual Rate After 
2009.--Subsection (a) of section 2502 (relating to rate of tax) is 
amended to read as follows:
    ``(a) Computation of Tax.--
        ``(1) In general.--The tax imposed by section 2501 for each 
    calendar year shall be an amount equal to the excess of--
            ``(A) a tentative tax, computed under paragraph (2), on the 
        aggregate sum of the taxable gifts for such calendar year and 
        for each of the preceding calendar periods, over
            ``(B) a tentative tax, computed under paragraph (2), on the 
        aggregate sum of the taxable gifts for each of the preceding 
        calendar periods.
        ``(2) Rate schedule.--

``If the amount with respect to which the tentative tax to be computed 
    is:
The tentative tax is:
  Not over $10,000
  18% of such amount.
  Over $10,000 but not over $20,000
  $1,800, plus 20% of the excess over $10,000.
  Over $20,000 but not over $40,000
  $3,800, plus 22% of the excess over $20,000.
  Over $40,000 but not over $60,000
  $8,200, plus 24% of the excess over $40,000.
  Over $60,000 but not over $80,000
  $13,000, plus 26% of the excess over $60,000.
  Over $80,000 but not over $100,000
  $18,200, plus 28% of the excess over $80,000.
  Over $100,000 but not over $150,000
  $23,800, plus 30% of the excess over $100,000.
  Over $150,000 but not over $250,000
  $38,800, plus 32% of the excess over $150,000.
  Over $250,000 but not over $500,000
  $70,800, plus 34% of the excess over $250,000.
  Over $500,000
  $155,800, plus 35% of the excess over $500,000.''.

    (e) Treatment of Certain Transfers in Trust.--Section 2511 
(relating to transfers in general) is amended by adding at the end the 
following new subsection:
    ``(c) Treatment of Certain Transfers in Trust.--Notwithstanding any 
other provision of this section and except as provided in regulations, 
a transfer in trust shall be treated as a taxable gift under section 
2503, unless the trust is treated as wholly owned by the donor or the 
donor's spouse under subpart E of part I of subchapter J of chapter 
1.''.
    (f) Effective Dates.--
        (1) Subsections (a) and (b).--The amendments made by 
    subsections (a) and (b) shall apply to estates of decedents dying, 
    and gifts made, after December 31, 2001.
        (2) Subsection (c).--The amendment made by subsection (c) shall 
    apply to estates of decedents dying, and gifts made, after December 
    31, 2002.
        (3) Subsections (d) and (e).--The amendments made by 
    subsections (d) and (e) shall apply to gifts made after December 
    31, 2009.

               Subtitle C--Increase in Exemption Amounts

SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME 
              GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS.

    (a) In General.--Subsection (c) of section 2010 (relating to 
applicable credit amount) is amended by striking the table and 
inserting the following new table:

    ``In the case of estates of decedents
                                                          The applicable
      dying during:
                                                    exclusion amount is:
          2002 and 2003.................................
                                                             $1,000,000 
          2004 and 2005.................................
                                                             $1,500,000 
          2006, 2007, and 2008..........................
                                                             $2,000,000 
          2009..........................................
                                                          $3,500,000.''.

    (b) Lifetime Gift Exemption Increased to $1,000,000.--
        (1) For periods before estate tax repeal.--Paragraph (1) of 
    section 2505(a) (relating to unified credit against gift tax) is 
    amended by inserting ``(determined as if the applicable exclusion 
    amount were $1,000,000)'' after ``calendar year''.
        (2) For periods after estate tax repeal.--Paragraph (1) of 
    section 2505(a) (relating to unified credit against gift tax), as 
    amended by paragraph (1), is amended to read as follows:
        ``(1) the amount of the tentative tax which would be determined 
    under the rate schedule set forth in section 2502(a)(2) if the 
    amount with respect to which such tentative tax is to be computed 
    were $1,000,000, reduced by''.
    (c) GST Exemption.--
        (1) In general.--Subsection (a) of 2631 (relating to GST 
    exemption) is amended by striking ``of $1,000,000'' and inserting 
    ``amount''.
        (2) Exemption amount.--Subsection (c) of section 2631 is 
    amended to read as follows:
    ``(c) GST Exemption Amount.--For purposes of subsection (a), the 
GST exemption amount for any calendar year shall be equal to the 
applicable exclusion amount under section 2010(c) for such calendar 
year.''.
    (d) Repeal of Special Benefit for Family-Owned Business 
Interests.--Section 2057 (relating to family-owned business interests) 
is amended by adding at the end the following new subsection:
    ``(j) Termination.--This section shall not apply to the estates of 
decedents dying after December 31, 2003.''.
    (e) Effective Dates.--
        (1) In general.--Except as provided in paragraphs (2) and (3), 
    the amendments made by this section shall apply to estates of 
    decedents dying, and gifts made, after December 31, 2001.
        (2) Subsection (b)(2).--The amendments made by subsection 
    (b)(2) shall apply to gifts made after December 31, 2009.
        (3) Subsections (c) and (d).--The amendments made by 
    subsections (c) and (d) shall apply to estates of decedents dying, 
    and generation-skipping transfers, after December 31, 2003.

                Subtitle D--Credit for State Death Taxes

SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.

    (a) In General.--Section 2011(b) (relating to amount of credit) is 
amended--
        (1) by striking ``Credit.--The credit allowed'' and inserting 
    ``Credit.--
        ``(1) In general.--Except as provided in paragraph (2), the 
    credit allowed'',
        (2) by striking ``For purposes'' and inserting the following:
        ``(3) Adjusted taxable estate.--For purposes'', and
        (3) by inserting after paragraph (1) the following new 
    paragraph:
        ``(2) Reduction of maximum credit.--
            ``(A) In general.--In the case of estates of decedents 
        dying after December 31, 2001, the credit allowed by this 
        section shall not exceed the applicable percentage of the 
        credit otherwise determined under paragraph (1).
            ``(B) Applicable percentage.--

    ``In the case of estates of decedents
                                                          The applicable
      dying during:
                                                          percentage is:
          2002..........................................
                                                             75 percent 
          2003..........................................
                                                             50 percent 
          2004..........................................
                                                          25 percent.''.

    (b) Effective Date.--The amendments made by this subsection shall 
apply to estates of decedents dying after December 31, 2001.

SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH 
              TAXES.

    (a) Repeal of Credit.--Section 2011 (relating to credit for State 
death taxes) is amended by adding at the end the following new 
subsection:
    ``(g) Termination.--This section shall not apply to the estates of 
decedents dying after December 31, 2004.''.
    (b) Deduction for State Death Taxes.--Part IV of subchapter A of 
chapter 11 is amended by adding at the end the following new section:

``SEC. 2058. STATE DEATH TAXES.

    ``(a) Allowance of Deduction.--For purposes of the tax imposed by 
section 2001, the value of the taxable estate shall be determined by 
deducting from the value of the gross estate the amount of any estate, 
inheritance, legacy, or succession taxes actually paid to any State or 
the District of Columbia, in respect of any property included in the 
gross estate (not including any such taxes paid with respect to the 
estate of a person other than the decedent).
    ``(b) Period of Limitations.--The deduction allowed by this section 
shall include only such taxes as were actually paid and deduction 
therefor claimed before the later of--
        ``(1) 4 years after the filing of the return required by 
    section 6018, or
        ``(2) if--
            ``(A) a petition for redetermination of a deficiency has 
        been filed with the Tax Court within the time prescribed in 
        section 6213(a), the expiration of 60 days after the decision 
        of the Tax Court becomes final,
            ``(B) an extension of time has been granted under section 
        6161 or 6166 for payment of the tax shown on the return, or of 
        a deficiency, the date of the expiration of the period of the 
        extension, or
            ``(C) a claim for refund or credit of an overpayment of tax 
        imposed by this chapter has been filed within the time 
        prescribed in section 6511, the latest of the expiration of--
                ``(i) 60 days from the date of mailing by certified 
            mail or registered mail by the Secretary to the taxpayer of 
            a notice of the disallowance of any part of such claim,
                ``(ii) 60 days after a decision by any court of 
            competent jurisdiction becomes final with respect to a 
            timely suit instituted upon such claim, or
                ``(iii) 2 years after a notice of the waiver of 
            disallowance is filed under section 6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on the deduction 
may be made if the claim for refund is filed within the period provided 
in the preceding sentence. Any such refund shall be made without 
interest.''.
    (c) Conforming Amendments.--
        (1) Subsection (a) of section 2012 is amended by striking ``the 
    credit for State death taxes provided by section 2011 and''.
        (2) Subparagraph (A) of section 2013(c)(1) is amended by 
    striking ``2011,''.
        (3) Paragraph (2) of section 2014(b) is amended by striking ``, 
    2011,''.
        (4) Sections 2015 and 2016 are each amended by striking ``2011 
    or''.
        (5) Subsection (d) of section 2053 is amended to read as 
    follows:
    ``(d) Certain Foreign Death Taxes.--
        ``(1) In general.--Notwithstanding the provisions of subsection 
    (c)(1)(B), for purposes of the tax imposed by section 2001, the 
    value of the taxable estate may be determined, if the executor so 
    elects before the expiration of the period of limitation for 
    assessment provided in section 6501, by deducting from the value of 
    the gross estate the amount (as determined in accordance with 
    regulations prescribed by the Secretary) of any estate, succession, 
    legacy, or inheritance tax imposed by and actually paid to any 
    foreign country, in respect of any property situated within such 
    foreign country and included in the gross estate of a citizen or 
    resident of the United States, upon a transfer by the decedent for 
    public, charitable, or religious uses described in section 2055. 
    The determination under this paragraph of the country within which 
    property is situated shall be made in accordance with the rules 
    applicable under subchapter B (sec. 2101 and following) in 
    determining whether property is situated within or without the 
    United States. Any election under this paragraph shall be exercised 
    in accordance with regulations prescribed by the Secretary.
        ``(2) Condition for allowance of deduction.--No deduction shall 
    be allowed under paragraph (1) for a foreign death tax specified 
    therein unless the decrease in the tax imposed by section 2001 
    which results from the deduction provided in paragraph (1) will 
    inure solely for the benefit of the public, charitable, or 
    religious transferees described in section 2055 or section 
    2106(a)(2). In any case where the tax imposed by section 2001 is 
    equitably apportioned among all the transferees of property 
    included in the gross estate, including those described in sections 
    2055 and 2106(a)(2) (taking into account any exemptions, credits, 
    or deductions allowed by this chapter), in determining such 
    decrease, there shall be disregarded any decrease in the Federal 
    estate tax which any transferees other than those described in 
    sections 2055 and 2106(a)(2) are required to pay.
        ``(3) Effect on credit for foreign death taxes of deduction 
    under this subsection.--
            ``(A) Election.--An election under this subsection shall be 
        deemed a waiver of the right to claim a credit, against the 
        Federal estate tax, under a death tax convention with any 
        foreign country for any tax or portion thereof in respect of 
        which a deduction is taken under this subsection.
            ``(B) Cross reference.--
          ``See section 2014(f) for the effect of a deduction taken 
        under this paragraph on the credit for foreign death taxes.''.

        (6) Subparagraph (A) of section 2056A(b)(10) is amended--
            (A) by striking ``2011,'', and
            (B) by inserting ``2058,'' after ``2056,''.
        (7)(A) Subsection (a) of section 2102 is amended to read as 
    follows:
    ``(a) In General.--The tax imposed by section 2101 shall be 
credited with the amounts determined in accordance with sections 2012 
and 2013 (relating to gift tax and tax on prior transfers).''.
        (B) Section 2102 is amended by striking subsection (b) and by 
    redesignating subsection (c) as subsection (b).
        (C) Section 2102(b)(5) (as redesignated by subparagraph (B)) 
    and section 2107(c)(3) are each amended by striking ``2011 to 2013, 
    inclusive,'' and inserting ``2012 and 2013''.
        (8) Subsection (a) of section 2106 is amended by adding at the 
    end the following new paragraph:
        ``(4) State death taxes.--The amount which bears the same ratio 
    to the State death taxes as the value of the property, as 
    determined for purposes of this chapter, upon which State death 
    taxes were paid and which is included in the gross estate under 
    section 2103 bears to the value of the total gross estate under 
    section 2103. For purposes of this paragraph, the term `State death 
    taxes' means the taxes described in section 2011(a).''.
        (9) Section 2201 is amended--
            (A) by striking ``as defined in section 2011(d)'', and
            (B) by adding at the end the following new flush sentence:
``For purposes of this section, the additional estate tax is the 
difference between the tax imposed by section 2001 or 2101 and the 
amount equal to 125 percent of the maximum credit provided by section 
2011(b), as in effect before its repeal by the Economic Growth and Tax 
Relief Reconciliation Act of 2001.''.
        (10) Section 2604 (relating to credit for certain State taxes) 
    is amended by adding at the end the following new subsection:
    ``(c) Termination.--This section shall not apply to the generation-
skipping transfers after December 31, 2004.''.
        (11) Paragraph (2) of section 6511(i) is amended by striking 
    ``2011(c), 2014(b),'' and inserting ``2014(b)''.
        (12) Subsection (c) of section 6612 is amended by striking 
    ``section 2011(c) (relating to refunds due to credit for State 
    taxes),''.
        (13) The table of sections for part II of subchapter A of 
    chapter 11 is amended by striking the item relating to section 
    2011.
        (14) The table of sections for part IV of subchapter A of 
    chapter 11 is amended by adding at the end the following new item:
        ``Sec. 2058. State death taxes.''.

        (15) The table of sections for subchapter A of chapter 13 is 
    amended by striking the item relating to section 2604.
    (d) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and generation-skipping transfers, 
after December 31, 2004.

Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With 
                                 Repeal

SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.

    Section 1014 (relating to basis of property acquired from a 
decedent) is amended by adding at the end the following new subsection:
    ``(f) Termination.--This section shall not apply with respect to 
decedents dying after December 31, 2009.''.

SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2009.

    (a) General Rule.--Part II of subchapter O of chapter 1 (relating 
to basis rules of general application) is amended by inserting after 
section 1021 the following new section:

``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2009.

    ``(a) In General.--Except as otherwise provided in this section--
        ``(1) property acquired from a decedent dying after December 
    31, 2009, shall be treated for purposes of this subtitle as 
    transferred by gift, and
        ``(2) the basis of the person acquiring property from such a 
    decedent shall be the lesser of--
            ``(A) the adjusted basis of the decedent, or
            ``(B) the fair market value of the property at the date of 
        the decedent's death.
    ``(b) Basis Increase for Certain Property.--
        ``(1) In general.--In the case of property to which this 
    subsection applies, the basis of such property under subsection (a) 
    shall be increased by its basis increase under this subsection.
        ``(2) Basis increase.--For purposes of this subsection--
            ``(A) In general.--The basis increase under this subsection 
        for any property is the portion of the aggregate basis increase 
        which is allocated to the property pursuant to this section.
            ``(B) Aggregate basis increase.--In the case of any estate, 
        the aggregate basis increase under this subsection is 
        $1,300,000.
            ``(C) Limit increased by unused built-in losses and loss 
        carryovers.--The limitation under subparagraph (B) shall be 
        increased by--
                ``(i) the sum of the amount of any capital loss 
            carryover under section 1212(b), and the amount of any net 
            operating loss carryover under section 172, which would 
            (but for the decedent's death) be carried from the 
            decedent's last taxable year to a later taxable year of the 
            decedent, plus
                ``(ii) the sum of the amount of any losses that would 
            have been allowable under section 165 if the property 
            acquired from the decedent had been sold at fair market 
            value immediately before the decedent's death.
        ``(3) Decedent nonresidents who are not citizens of the united 
    states.--In the case of a decedent nonresident not a citizen of the 
    United States--
            ``(A) paragraph (2)(B) shall be applied by substituting 
        `$60,000' for `$1,300,000', and
            ``(B) paragraph (2)(C) shall not apply.
    ``(c) Additional Basis Increase for Property Acquired by Surviving 
Spouse.--
        ``(1) In general.--In the case of property to which this 
    subsection applies and which is qualified spousal property, the 
    basis of such property under subsection (a) (as increased under 
    subsection (b)) shall be increased by its spousal property basis 
    increase.
        ``(2) Spousal property basis increase.--For purposes of this 
    subsection--
            ``(A) In general.--The spousal property basis increase for 
        property referred to in paragraph (1) is the portion of the 
        aggregate spousal property basis increase which is allocated to 
        the property pursuant to this section.
            ``(B) Aggregate spousal property basis increase.--In the 
        case of any estate, the aggregate spousal property basis 
        increase is $3,000,000.
        ``(3) Qualified spousal property.--For purposes of this 
    subsection, the term `qualified spousal property' means--
            ``(A) outright transfer property, and
            ``(B) qualified terminable interest property.
        ``(4) Outright transfer property.--For purposes of this 
    subsection--
            ``(A) In general.--The term `outright transfer property' 
        means any interest in property acquired from the decedent by 
        the decedent's surviving spouse.
            ``(B) Exception.--Subparagraph (A) shall not apply where, 
        on the lapse of time, on the occurrence of an event or 
        contingency, or on the failure of an event or contingency to 
        occur, an interest passing to the surviving spouse will 
        terminate or fail--
                ``(i)(I) if an interest in such property passes or has 
            passed (for less than an adequate and full consideration in 
            money or money's worth) from the decedent to any person 
            other than such surviving spouse (or the estate of such 
            spouse), and
                ``(II) if by reason of such passing such person (or his 
            heirs or assigns) may possess or enjoy any part of such 
            property after such termination or failure of the interest 
            so passing to the surviving spouse, or
                ``(ii) if such interest is to be acquired for the 
            surviving spouse, pursuant to directions of the decedent, 
            by his executor or by the trustee of a trust.
        For purposes of this subparagraph, an interest shall not be 
        considered as an interest which will terminate or fail merely 
        because it is the ownership of a bond, note, or similar 
        contractual obligation, the discharge of which would not have 
        the effect of an annuity for life or for a term.
            ``(C) Interest of spouse conditional on survival for 
        limited period.--For purposes of this paragraph, an interest 
        passing to the surviving spouse shall not be considered as an 
        interest which will terminate or fail on the death of such 
        spouse if--
                ``(i) such death will cause a termination or failure of 
            such interest only if it occurs within a period not 
            exceeding 6 months after the decedent's death, or only if 
            it occurs as a result of a common disaster resulting in the 
            death of the decedent and the surviving spouse, or only if 
            it occurs in the case of either such event, and
                ``(ii) such termination or failure does not in fact 
            occur.
        ``(5) Qualified terminable interest property.--For purposes of 
    this subsection--
            ``(A) In general.--The term `qualified terminable interest 
        property' means property--
                ``(i) which passes from the decedent, and
                ``(ii) in which the surviving spouse has a qualifying 
            income interest for life.
            ``(B) Qualifying income interest for life.--The surviving 
        spouse has a qualifying income interest for life if--
                ``(i) the surviving spouse is entitled to all the 
            income from the property, payable annually or at more 
            frequent intervals, or has a usufruct interest for life in 
            the property, and
                ``(ii) no person has a power to appoint any part of the 
            property to any person other than the surviving spouse.
        Clause (ii) shall not apply to a power exercisable only at or 
        after the death of the surviving spouse. To the extent provided 
        in regulations, an annuity shall be treated in a manner similar 
        to an income interest in property (regardless of whether the 
        property from which the annuity is payable can be separately 
        identified).
            ``(C) Property includes interest therein.--The term 
        `property' includes an interest in property.
            ``(D) Specific portion treated as separate property.--A 
        specific portion of property shall be treated as separate 
        property. For purposes of the preceding sentence, the term 
        `specific portion' only includes a portion determined on a 
        fractional or percentage basis.
    ``(d) Definitions and Special Rules for Application of Subsections 
(b) and (c).--
        ``(1) Property to which subsections (b) and (c) apply.--
            ``(A) In general.--The basis of property acquired from a 
        decedent may be increased under subsection (b) or (c) only if 
        the property was owned by the decedent at the time of death.
            ``(B) Rules relating to ownership.--
                ``(i) Jointly held property.--In the case of property 
            which was owned by the decedent and another person as joint 
            tenants with right of survivorship or tenants by the 
            entirety--

                    ``(I) if the only such other person is the 
                surviving spouse, the decedent shall be treated as the 
                owner of only 50 percent of the property,
                    ``(II) in any case (to which subclause (I) does not 
                apply) in which the decedent furnished consideration 
                for the acquisition of the property, the decedent shall 
                be treated as the owner to the extent of the portion of 
                the property which is proportionate to such 
                consideration, and
                    ``(III) in any case (to which subclause (I) does 
                not apply) in which the property has been acquired by 
                gift, bequest, devise, or inheritance by the decedent 
                and any other person as joint tenants with right of 
                survivorship and their interests are not otherwise 
                specified or fixed by law, the decedent shall be 
                treated as the owner to the extent of the value of a 
                fractional part to be determined by dividing the value 
                of the property by the number of joint tenants with 
                right of survivorship.

                ``(ii) Revocable trusts.--The decedent shall be treated 
            as owning property transferred by the decedent during life 
            to a qualified revocable trust (as defined in section 
            645(b)(1)).
                ``(iii) Powers of appointment.--The decedent shall not 
            be treated as owning any property by reason of holding a 
            power of appointment with respect to such property.
                ``(iv) Community property.--Property which represents 
            the surviving spouse's one-half share of community property 
            held by the decedent and the surviving spouse under the 
            community property laws of any State or possession of the 
            United States or any foreign country shall be treated for 
            purposes of this section as owned by, and acquired from, 
            the decedent if at least one-half of the whole of the 
            community interest in such property is treated as owned by, 
            and acquired from, the decedent without regard to this 
            clause.
            ``(C) Property acquired by decedent by gift within 3 years 
        of death.--
                ``(i) In general.--Subsections (b) and (c) shall not 
            apply to property acquired by the decedent by gift or by 
            inter vivos transfer for less than adequate and full 
            consideration in money or money's worth during the 3-year 
            period ending on the date of the decedent's death.
                ``(ii) Exception for certain gifts from spouse.--Clause 
            (i) shall not apply to property acquired by the decedent 
            from the decedent's spouse unless, during such 3-year 
            period, such spouse acquired the property in whole or in 
            part by gift or by inter vivos transfer for less than 
            adequate and full consideration in money or money's worth.
            ``(D) Stock of certain entities.--Subsections (b) and (c) 
        shall not apply to--
                ``(i) stock or securities of a foreign personal holding 
            company,
                ``(ii) stock of a DISC or former DISC,
                ``(iii) stock of a foreign investment company, or
                ``(iv) stock of a passive foreign investment company 
            unless such company is a qualified electing fund (as 
            defined in section 1295) with respect to the decedent.
        ``(2) Fair market value limitation.--The adjustments under 
    subsections (b) and (c) shall not increase the basis of any 
    interest in property acquired from the decedent above its fair 
    market value in the hands of the decedent as of the date of the 
    decedent's death.
        ``(3) Allocation rules.--
            ``(A) In general.--The executor shall allocate the 
        adjustments under subsections (b) and (c) on the return 
        required by section 6018.
            ``(B) Changes in allocation.--Any allocation made pursuant 
        to subparagraph (A) may be changed only as provided by the 
        Secretary.
        ``(4) Inflation adjustment of basis adjustment amounts.--
            ``(A) In general.--In the case of decedents dying in a 
        calendar year after 2010, the $1,300,000, $60,000, and 
        $3,000,000 dollar amounts in subsections (b) and (c)(2)(B) 
        shall each be increased by an amount equal to the product of--
                ``(i) such dollar amount, and
                ``(ii) the cost-of-living adjustment determined under 
            section 1(f)(3) for such calendar year, determined by 
            substituting `2009' for `1992' in subparagraph (B) thereof.
            ``(B) Rounding.--If any increase determined under 
        subparagraph (A) is not a multiple of--
                ``(i) $100,000 in the case of the $1,300,000 amount,
                ``(ii) $5,000 in the case of the $60,000 amount, and
                ``(iii) $250,000 in the case of the $3,000,000 amount,
        such increase shall be rounded to the next lowest multiple 
        thereof.
    ``(e) Property Acquired From the Decedent.--For purposes of this 
section, the following property shall be considered to have been 
acquired from the decedent:
        ``(1) Property acquired by bequest, devise, or inheritance, or 
    by the decedent's estate from the decedent.
        ``(2) Property transferred by the decedent during his 
    lifetime--
            ``(A) to a qualified revocable trust (as defined in section 
        645(b)(1)), or
            ``(B) to any other trust with respect to which the decedent 
        reserved the right to make any change in the enjoyment thereof 
        through the exercise of a power to alter, amend, or terminate 
        the trust.
        ``(3) Any other property passing from the decedent by reason of 
    death to the extent that such property passed without 
    consideration.
    ``(f) Coordination With Section 691.--This section shall not apply 
to property which constitutes a right to receive an item of income in 
respect of a decedent under section 691.
    ``(g) Certain Liabilities Disregarded.--
        ``(1) In general.--In determining whether gain is recognized on 
    the acquisition of property--
            ``(A) from a decedent by a decedent's estate or any 
        beneficiary other than a tax-exempt beneficiary, and
            ``(B) from the decedent's estate by any beneficiary other 
        than a tax-exempt beneficiary,
    and in determining the adjusted basis of such property, liabilities 
    in excess of basis shall be disregarded.
        ``(2) Tax-exempt beneficiary.--For purposes of paragraph (1), 
    the term `tax-exempt beneficiary' means--
            ``(A) the United States, any State or political subdivision 
        thereof, any possession of the United States, any Indian tribal 
        government (within the meaning of section 7871), or any agency 
        or instrumentality of any of the foregoing,
            ``(B) an organization (other than a cooperative described 
        in section 521) which is exempt from tax imposed by chapter 1,
            ``(C) any foreign person or entity (within the meaning of 
        section 168(h)(2)), and
            ``(D) to the extent provided in regulations, any person to 
        whom property is transferred for the principal purpose of tax 
        avoidance.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Information Returns, Etc.--
        (1) Large transfers at death.--So much of subpart C of part II 
    of subchapter A of chapter 61 as precedes section 6019 is amended 
    to read as follows:

   ``Subpart C--Returns Relating to Transfers During Life or at Death

        ``Sec. 6018. Returns relating to large transfers at death.
        ``Sec. 6019. Gift tax returns.

``SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.

    ``(a) In General.--If this section applies to property acquired 
from a decedent, the executor of the estate of such decedent shall make 
a return containing the information specified in subsection (c) with 
respect to such property.
    ``(b) Property to Which Section Applies.--
        ``(1) Large transfers.--This section shall apply to all 
    property (other than cash) acquired from a decedent if the fair 
    market value of such property acquired from the decedent exceeds 
    the dollar amount applicable under section 1022(b)(2)(B) (without 
    regard to section 1022(b)(2)(C)).
        ``(2) Transfers of certain gifts received by decedent within 3 
    years of death.--This section shall apply to any appreciated 
    property acquired from the decedent if--
            ``(A) subsections (b) and (c) of section 1022 do not apply 
        to such property by reason of section 1022(d)(1)(C), and
            ``(B) such property was required to be included on a return 
        required to be filed under section 6019.
        ``(3) Nonresidents not citizens of the united states.--In the 
    case of a decedent who is a nonresident not a citizen of the United 
    States, paragraphs (1) and (2) shall be applied--
            ``(A) by taking into account only--
                ``(i) tangible property situated in the United States, 
            and
                ``(ii) other property acquired from the decedent by a 
            United States person, and
            ``(B) by substituting the dollar amount applicable under 
        section 1022(b)(3) for the dollar amount referred to in 
        paragraph (1).
        ``(4) Returns by trustees or beneficiaries.--If the executor is 
    unable to make a complete return as to any property acquired from 
    or passing from the decedent, the executor shall include in the 
    return a description of such property and the name of every person 
    holding a legal or beneficial interest therein. Upon notice from 
    the Secretary, such person shall in like manner make a return as to 
    such property.
    ``(c) Information Required To Be Furnished.--The information 
specified in this subsection with respect to any property acquired from 
the decedent is--
        ``(1) the name and TIN of the recipient of such property,
        ``(2) an accurate description of such property,
        ``(3) the adjusted basis of such property in the hands of the 
    decedent and its fair market value at the time of death,
        ``(4) the decedent's holding period for such property,
        ``(5) sufficient information to determine whether any gain on 
    the sale of the property would be treated as ordinary income,
        ``(6) the amount of basis increase allocated to the property 
    under subsection (b) or (c) of section 1022, and
        ``(7) such other information as the Secretary may by 
    regulations prescribe.
    ``(d) Property Acquired From Decedent.--For purposes of this 
section, section 1022 shall apply for purposes of determining the 
property acquired from a decedent.
    ``(e) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
        ``(1) the name, address, and phone number of the person 
    required to make such return, and
        ``(2) the information specified in subsection (c) with respect 
    to property acquired from, or passing from, the decedent to the 
    person required to receive such statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.''.
        (2) Gifts.--Section 6019 (relating to gift tax returns) is 
    amended--
            (A) by striking ``Any individual'' and inserting ``(a) In 
        General.--Any individual'', and
            (B) by adding at the end the following new subsection:
    ``(b) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
        ``(1) the name, address, and phone number of the person 
    required to make such return, and
        ``(2) the information specified in such return with respect to 
    property received by the person required to receive such statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.''.
        (3) Time for filing section 6018 returns.--
            (A) Returns relating to large transfers at death.--
        Subsection (a) of section 6075 is amended to read as follows:
    ``(a) Returns Relating to Large Transfers at Death.--The return 
required by section 6018 with respect to a decedent shall be filed with 
the return of the tax imposed by chapter 1 for the decedent's last 
taxable year or such later date specified in regulations prescribed by 
the Secretary.''.
            (B) Conforming amendments.--Paragraph (3) of section 
        6075(b) is amended--
                (i) by striking ``estate tax return'' in the heading 
            and inserting ``section 6018 return'', and
                (ii) by striking ``(relating to estate tax returns)'' 
            and inserting ``(relating to returns relating to large 
            transfers at death)''.
        (4) Penalties.--Part I of subchapter B of chapter 68 (relating 
    to assessable penalties) is amended by adding at the end the 
    following new section:

``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
              TRANSFERS AT DEATH AND GIFTS.

    ``(a) Information Required To Be Furnished to the Secretary.--Any 
person required to furnish any information under section 6018 who fails 
to furnish such information on the date prescribed therefor (determined 
with regard to any extension of time for filing) shall pay a penalty of 
$10,000 ($500 in the case of information required to be furnished under 
section 6018(b)(2)) for each such failure.
    ``(b) Information Required To Be Furnished to Beneficiaries.--Any 
person required to furnish in writing to each person described in 
section 6018(e) or 6019(b) the information required under such section 
who fails to furnish such information shall pay a penalty of $50 for 
each such failure.
    ``(c) Reasonable Cause Exception.--No penalty shall be imposed 
under subsection (a) or (b) with respect to any failure if it is shown 
that such failure is due to reasonable cause.
    ``(d) Intentional Disregard.--If any failure under subsection (a) 
or (b) is due to intentional disregard of the requirements under 
sections 6018 and 6019(b), the penalty under such subsection shall be 5 
percent of the fair market value (as of the date of death or, in the 
case of section 6019(b), the date of the gift) of the property with 
respect to which the information is required.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by this section.''.
        (5) Clerical amendments.--
            (A) The table of sections for part I of subchapter B of 
        chapter 68 is amended by adding at the end the following new 
        item:
        ``Sec. 6716. Failure to file information with respect to certain 
                  transfers at death and gifts.''.

            (B) The item relating to subpart C in the table of subparts 
        for part II of subchapter A of chapter 61 is amended to read as 
        follows:
        ``Subpart C. Returns relating to transfers during life or at 
                  death.''.

    (c) Exclusion of Gain on Sale of Principal Residence Made Available 
to Heir of Decedent in Certain Cases.--Subsection (d) of section 121 
(relating to exclusion of gain from sale of principal residence) is 
amended by adding at the end the following new paragraph:
        ``(9) Property acquired from a decedent.--The exclusion under 
    this section shall apply to property sold by--
            ``(A) the estate of a decedent,
            ``(B) any individual who acquired such property from the 
        decedent (within the meaning of section 1022), and
            ``(C) a trust which, immediately before the death of the 
        decedent, was a qualified revocable trust (as defined in 
        section 645(b)(1)) established by the decedent,
    determined by taking into account the ownership and use by the 
    decedent.''.
    (d) Transfers of Appreciated Carryover Basis Property To Satisfy 
Pecuniary Bequest.--
        (1) In general.--Section 1040 (relating to transfer of certain 
    farm, etc., real property) is amended to read as follows:

``SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY 
              PECUNIARY BEQUEST.

    ``(a) In General.--If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest with 
appreciated property, then gain on such exchange shall be recognized to 
the estate only to the extent that, on the date of such exchange, the 
fair market value of such property exceeds such value on the date of 
death.
    ``(b) Similar Rule for Certain Trusts.--To the extent provided in 
regulations prescribed by the Secretary, a rule similar to the rule 
provided in subsection (a) shall apply where--
        ``(1) by reason of the death of the decedent, a person has a 
    right to receive from a trust a specific dollar amount which is the 
    equivalent of a pecuniary bequest, and
        ``(2) the trustee of a trust satisfies such right with 
    property.
    ``(c) Basis of Property Acquired in Exchange Described in 
Subsection (a) or (b).--The basis of property acquired in an exchange 
with respect to which gain realized is not recognized by reason of 
subsection (a) or (b) shall be the basis of such property immediately 
before the exchange increased by the amount of the gain recognized to 
the estate or trust on the exchange.''.
        (2) The item relating to section 1040 in the table of sections 
    for part III of subchapter O of chapter 1 is amended to read as 
    follows:
        ``Sec. 1040. Use of appreciated carryover basis property to 
                  satisfy pecuniary bequest.''.

    (e) Amendments Related to Carryover Basis.--
        (1) Recognition of gain on transfers to nonresidents.--
            (A) Subsection (a) of section 684 is amended by inserting 
        ``or to a nonresident alien'' after ``or trust''.
            (B) Subsection (b) of section 684 is amended to read as 
        follows:
    ``(b) Exceptions.--
        ``(1) Transfers to certain trusts.--Subsection (a) shall not 
    apply to a transfer to a trust by a United States person to the 
    extent that any United States person is treated as the owner of 
    such trust under section 671.
        ``(2) Lifetime transfers to nonresident aliens.--Subsection (a) 
    shall not apply to a lifetime transfer to a nonresident alien.''.
            (C) The section heading for section 684 is amended by 
        inserting ``and nonresident aliens'' after ``estates''.
            (D) The item relating to section 684 in the table of 
        sections for subpart F of part I of subchapter J of chapter 1 
        is amended by inserting ``and nonresident aliens'' after 
        ``estates''.
        (2) Capital gain treatment for inherited art work or similar 
    property.--
            (A) In general.--Subparagraph (C) of section 1221(a)(3) 
        (defining capital asset) is amended by inserting ``(other than 
        by reason of section 1022)'' after ``is determined''.
            (B) Coordination with section 170.--Paragraph (1) of 
        section 170(e) (relating to certain contributions of ordinary 
        income and capital gain property) is amended by adding at the 
        end the following: ``For purposes of this paragraph, the 
        determination of whether property is a capital asset shall be 
        made without regard to the exception contained in section 
        1221(a)(3)(C) for basis determined under section 1022.''.
        (3) Definition of executor.--Section 7701(a) (relating to 
    definitions) is amended by adding at the end the following:
        ``(47) Executor.--The term `executor' means the executor or 
    administrator of the decedent, or, if there is no executor or 
    administrator appointed, qualified, and acting within the United 
    States, then any person in actual or constructive possession of any 
    property of the decedent.''.
        (4) Certain trusts.--Subparagraph (A) of section 4947(a)(2) is 
    amended by inserting ``642(c),'' after ``170(f)(2)(B),''.
        (5) Other amendments.--
            (A) Section 1246 is amended by striking sub-
        section (e).
            (B) Subsection (e) of section 1291 is amended--
                (i) by striking ``(e),''; and
                (ii) by striking ``; except that'' and all that follows 
            and inserting a period.
            (C) Section 1296 is amended by striking sub-
        section (i).
        (6) Clerical amendment.--The table of sections for part II of 
    subchapter O of chapter 1 is amended by inserting after the item 
    relating to section 1021 the following new item:
        ``Sec. 1022. Treatment of property acquired from a decedent 
                  dying after 
                  December 31, 2009.''.

    (f) Effective Date.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to estates of decedents 
    dying after December 31, 2009.
        (2) Transfers to nonresidents.--The amendments made by 
    subsection (e)(1) shall apply to transfers after December 31, 2009.
        (3) Section 4947.--The amendment made by subsection (e)(4) 
    shall apply to deductions for taxable years beginning after 
    December 31, 2009.

                   Subtitle F--Conservation Easements

SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Repeal of Certain Restrictions on Where Land Is Located.--
Clause (i) of section 2031(c)(8)(A) (defining land subject to a 
qualified conservation easement) is amended to read as follows:
                ``(i) which is located in the United States or any 
            possession of the United States,''.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--Section 2031(c)(2) (defining applicable percentage) is 
amended by adding at the end the following new sentence: ``The values 
taken into account under the preceding sentence shall be such values as 
of the date of the contribution referred to in paragraph (8)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2000.

     Subtitle G--Modifications of Generation-Skipping Transfer Tax

SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO 
              TRUSTS; RETROACTIVE ALLOCATIONS.

    (a) In General.--Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating subsection (c) 
as subsection (e) and by inserting after subsection (b) the following 
new subsections:
    ``(c) Deemed Allocation to Certain Lifetime Transfers to GST 
Trusts.--
        ``(1) In general.--If any individual makes an indirect skip 
    during such individual's lifetime, any unused portion of such 
    individual's GST exemption shall be allocated to the property 
    transferred to the extent necessary to make the inclusion ratio for 
    such property zero. If the amount of the indirect skip exceeds such 
    unused portion, the entire unused portion shall be allocated to the 
    property transferred.
        ``(2) Unused portion.--For purposes of paragraph (1), the 
    unused portion of an individual's GST exemption is that portion of 
    such exemption which has not previously been--
            ``(A) allocated by such individual,
            ``(B) treated as allocated under subsection (b) with 
        respect to a direct skip occurring during or before the 
        calendar year in which the indirect skip is made, or
            ``(C) treated as allocated under paragraph (1) with respect 
        to a prior indirect skip.
        ``(3) Definitions.--
            ``(A) Indirect skip.--For purposes of this subsection, the 
        term `indirect skip' means any transfer of property (other than 
        a direct skip) subject to the tax imposed by chapter 12 made to 
        a GST trust.
            ``(B) GST trust.--The term `GST trust' means a trust that 
        could have a generation-skipping transfer with respect to the 
        transferor unless--
                ``(i) the trust instrument provides that more than 25 
            percent of the trust corpus must be distributed to or may 
            be withdrawn by one or more individuals who are non-skip 
            persons--

                    ``(I) before the date that the individual attains 
                age 46,
                    ``(II) on or before one or more dates specified in 
                the trust instrument that will occur before the date 
                that such individual attains age 46, or
                    ``(III) upon the occurrence of an event that, in 
                accordance with regulations prescribed by the 
                Secretary, may reasonably be expected to occur before 
                the date that such individual attains age 46,

                ``(ii) the trust instrument provides that more than 25 
            percent of the trust corpus must be distributed to or may 
            be withdrawn by one or more individuals who are non-skip 
            persons and who are living on the date of death of another 
            person identified in the instrument (by name or by class) 
            who is more than 10 years older than such individuals,
                ``(iii) the trust instrument provides that, if one or 
            more individuals who are non-skip persons die on or before 
            a date or event described in clause (i) or (ii), more than 
            25 percent of the trust corpus either must be distributed 
            to the estate or estates of one or more of such individuals 
            or is subject to a general power of appointment exercisable 
            by one or more of such individuals,
                ``(iv) the trust is a trust any portion of which would 
            be included in the gross estate of a non-skip person (other 
            than the transferor) if such person died immediately after 
            the transfer,
                ``(v) the trust is a charitable lead annuity trust 
            (within the meaning of section 2642(e)(3)(A)) or a 
            charitable remainder annuity trust or a charitable 
            remainder unitrust (within the meaning of section 664(d)), 
            or
                ``(vi) the trust is a trust with respect to which a 
            deduction was allowed under section 2522 for the amount of 
            an interest in the form of the right to receive annual 
            payments of a fixed percentage of the net fair market value 
            of the trust property (determined yearly) and which is 
            required to pay principal to a non-skip person if such 
            person is alive when the yearly payments for which the 
            deduction was allowed terminate.
        For purposes of this subparagraph, the value of transferred 
        property shall not be considered to be includible in the gross 
        estate of a non-skip person or subject to a right of withdrawal 
        by reason of such person holding a right to withdraw so much of 
        such property as does not exceed the amount referred to in 
        section 2503(b) with respect to any transferor, and it shall be 
        assumed that powers of appointment held by non-skip persons 
        will not be exercised.
        ``(4) Automatic allocations to certain gst trusts.--For 
    purposes of this subsection, an indirect skip to which section 
    2642(f) applies shall be deemed to have been made only at the close 
    of the estate tax inclusion period. The fair market value of such 
    transfer shall be the fair market value of the trust property at 
    the close of the estate tax inclusion period.
        ``(5) Applicability and effect.--
            ``(A) In general.--An individual--
                ``(i) may elect to have this subsection not apply to--

                    ``(I) an indirect skip, or
                    ``(II) any or all transfers made by such individual 
                to a particular trust, and

                ``(ii) may elect to treat any trust as a GST trust for 
            purposes of this subsection with respect to any or all 
            transfers made by such individual to such trust.
            ``(B) Elections.--
                ``(i) Elections with respect to indirect skips.--An 
            election under subparagraph (A)(i)(I) shall be deemed to be 
            timely if filed on a timely filed gift tax return for the 
            calendar year in which the transfer was made or deemed to 
            have been made pursuant to paragraph (4) or on such later 
            date or dates as may be prescribed by the Secretary.
                ``(ii) Other elections.--An election under clause 
            (i)(II) or (ii) of subparagraph (A) may be made on a timely 
            filed gift tax return for the calendar year for which the 
            election is to become effective.
    ``(d) Retroactive Allocations.--
        ``(1) In general.--If--
            ``(A) a non-skip person has an interest or a future 
        interest in a trust to which any transfer has been made,
            ``(B) such person--
                ``(i) is a lineal descendant of a grandparent of the 
            transferor or of a grandparent of the transferor's spouse 
            or former spouse, and
                ``(ii) is assigned to a generation below the generation 
            assignment of the transferor, and
            ``(C) such person predeceases the transferor,
    then the transferor may make an allocation of any of such 
    transferor's unused GST exemption to any previous transfer or 
    transfers to the trust on a chronological basis.
        ``(2) Special rules.--If the allocation under paragraph (1) by 
    the transferor is made on a gift tax return filed on or before the 
    date prescribed by section 6075(b) for gifts made within the 
    calendar year within which the non-skip person's death occurred--
            ``(A) the value of such transfer or transfers for purposes 
        of section 2642(a) shall be determined as if such allocation 
        had been made on a timely filed gift tax return for each 
        calendar year within which each transfer was made,
            ``(B) such allocation shall be effective immediately before 
        such death, and
            ``(C) the amount of the transferor's unused GST exemption 
        available to be allocated shall be determined immediately 
        before such death.
        ``(3) Future interest.--For purposes of this subsection, a 
    person has a future interest in a trust if the trust may permit 
    income or corpus to be paid to such person on a date or dates in 
    the future.''.
    (b) Conforming Amendment.--Paragraph (2) of section 2632(b) is 
amended by striking ``with respect to a prior direct skip'' and 
inserting ``or subsection (c)(1)''.
    (c) Effective Dates.--
        (1) Deemed allocation.--Section 2632(c) of the Internal Revenue 
    Code of 1986 (as added by subsection (a)), and the amendment made 
    by subsection (b), shall apply to transfers subject to chapter 11 
    or 12 made after December 31, 2000, and to estate tax inclusion 
    periods ending after December 31, 2000.
        (2) Retroactive allocations.--Section 2632(d) of the Internal 
    Revenue Code of 1986 (as added by subsection (a)) shall apply to 
    deaths of non-skip persons occurring after December 31, 2000.

SEC. 562. SEVERING OF TRUSTS.

    (a) In General.--Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following new 
paragraph:
        ``(3) Severing of trusts.--
            ``(A) In general.--If a trust is severed in a qualified 
        severance, the trusts resulting from such severance shall be 
        treated as separate trusts thereafter for purposes of this 
        chapter.
            ``(B) Qualified severance.--For purposes of subparagraph 
        (A)--
                ``(i) In general.--The term `qualified severance' means 
            the division of a single trust and the creation (by any 
            means available under the governing instrument or under 
            local law) of two or more trusts if--

                    ``(I) the single trust was divided on a fractional 
                basis, and
                    ``(II) the terms of the new trusts, in the 
                aggregate, provide for the same succession of interests 
                of beneficiaries as are provided in the original trust.

                ``(ii) Trusts with inclusion ratio greater than zero.--
            If a trust has an inclusion ratio of greater than zero and 
            less than 1, a severance is a qualified severance only if 
            the single trust is divided into two trusts, one of which 
            receives a fractional share of the total value of all trust 
            assets equal to the applicable fraction of the single trust 
            immediately before the severance. In such case, the trust 
            receiving such fractional share shall have an inclusion 
            ratio of zero and the other trust shall have an inclusion 
            ratio of 1.
                ``(iii) Regulations.--The term `qualified severance' 
            includes any other severance permitted under regulations 
            prescribed by the Secretary.
            ``(C) Timing and manner of severances.--A severance 
        pursuant to this paragraph may be made at any time. The 
        Secretary shall prescribe by forms or regulations the manner in 
        which the qualified severance shall be reported to the 
        Secretary.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to severances after December 31, 2000.

SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.

    (a) Gifts for Which Gift Tax Return Filed or Deemed Allocation 
Made.--Paragraph (1) of section 2642(b) (relating to valuation rules, 
etc.) is amended to read as follows:
        ``(1) Gifts for which gift tax return filed or deemed 
    allocation made.--If the allocation of the GST exemption to any 
    transfers of property is made on a gift tax return filed on or 
    before the date prescribed by section 6075(b) for such transfer or 
    is deemed to be made under section 2632 (b)(1) or (c)(1)--
            ``(A) the value of such property for purposes of subsection 
        (a) shall be its value as finally determined for purposes of 
        chapter 12 (within the meaning of section 2001(f)(2)), or, in 
        the case of an allocation deemed to have been made at the close 
        of an estate tax inclusion period, its value at the time of the 
        close of the estate tax inclusion period, and
            ``(B) such allocation shall be effective on and after the 
        date of such transfer, or, in the case of an allocation deemed 
        to have been made at the close of an estate tax inclusion 
        period, on and after the close of such estate tax inclusion 
        period.''.
    (b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is 
amended to read as follows:
            ``(A) Transfers at death.--If property is transferred as a 
        result of the death of the transferor, the value of such 
        property for purposes of subsection (a) shall be its value as 
        finally determined for purposes of chapter 11; except that, if 
        the requirements prescribed by the Secretary respecting 
        allocation of post-death changes in value are not met, the 
        value of such property shall be determined as of the time of 
        the distribution concerned.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers subject to chapter 11 or 12 of the Internal Revenue 
Code of 1986 made after December 31, 2000.

SEC. 564. RELIEF PROVISIONS.

    (a) In General.--Section 2642 is amended by adding at the end the 
following new subsection:
    ``(g) Relief Provisions.--
        ``(1) Relief from late elections.--
            ``(A) In general.--The Secretary shall by regulation 
        prescribe such circumstances and procedures under which 
        extensions of time will be granted to make--
                ``(i) an allocation of GST exemption described in 
            paragraph (1) or (2) of subsection (b), and
                ``(ii) an election under subsection (b)(3) or (c)(5) of 
            section 2632.
        Such regulations shall include procedures for requesting 
        comparable relief with respect to transfers made before the 
        date of the enactment of this paragraph.
            ``(B) Basis for determinations.--In determining whether to 
        grant relief under this paragraph, the Secretary shall take 
        into account all relevant circumstances, including evidence of 
        intent contained in the trust instrument or instrument of 
        transfer and such other factors as the Secretary deems 
        relevant. For purposes of determining whether to grant relief 
        under this paragraph, the time for making the allocation (or 
        election) shall be treated as if not expressly prescribed by 
        statute.
        ``(2) Substantial compliance.--An allocation of GST exemption 
    under section 2632 that demonstrates an intent to have the lowest 
    possible inclusion ratio with respect to a transfer or a trust 
    shall be deemed to be an allocation of so much of the transferor's 
    unused GST exemption as produces the lowest possible inclusion 
    ratio. In determining whether there has been substantial 
    compliance, all relevant circumstances shall be taken into account, 
    including evidence of intent contained in the trust instrument or 
    instrument of transfer and such other factors as the Secretary 
    deems relevant.''.
    (b) Effective Dates.--
        (1) Relief from late elections.--Section 2642(g)(1) of the 
    Internal Revenue Code of 1986 (as added by subsection (a)) shall 
    apply to requests pending on, or filed after, December 31, 2000.
        (2) Substantial compliance.--Section 2642(g)(2) of such Code 
    (as so added) shall apply to transfers subject to chapter 11 or 12 
    of the Internal Revenue Code of 1986 made after December 31, 2000. 
    No implication is intended with respect to the availability of 
    relief from late elections or the application of a rule of 
    substantial compliance on or before such date.

        Subtitle H--Extension of Time for Payment of Estate Tax

SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND SHAREHOLDERS IN 
              CLOSELY HELD BUSINESSES.

    (a) In General.--Paragraphs (1)(B)(ii), (1)(C)(ii), and 
(9)(B)(iii)(I) of section 6166(b) (relating to definitions and special 
rules) are each amended by striking ``15'' and inserting ``45''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2001.

SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT FOR ESTATES 
              WITH INTERESTS QUALIFYING LENDING AND FINANCE BUSINESSES.

    (a) In General.--Section 6166(b) (relating to definitions and 
special rules) is amended by adding at the end the following new 
paragraph:
        ``(10) Stock in qualifying lending and finance business treated 
    as stock in an active trade or business company.--
            ``(A) In general.--If the executor elects the benefits of 
        this paragraph, then--
                ``(i) Stock in qualifying lending and finance business 
            treated as stock in an active trade or business company.--
            For purposes of this section, any asset used in a 
            qualifying lending and finance business shall be treated as 
            an asset which is used in carrying on a trade or business.
                ``(ii) 5-year deferral for principal not to apply.--The 
            executor shall be treated as having selected under 
            subsection (a)(3) the date prescribed by section 6151(a).
                ``(iii) 5 equal installments allowed.--For purposes of 
            applying subsection (a)(1), `5' shall be substituted for 
            `10'.
            ``(B) Definitions.--For purposes of this paragraph--
                ``(i) Qualifying lending and finance business.--The 
            term `qualifying lending and finance business' means a 
            lending and finance business, if--

                    ``(I) based on all the facts and circumstances 
                immediately before the date of the decedent's death, 
                there was substantial activity with respect to the 
                lending and finance business, or
                    ``(II) during at least 3 of the 5 taxable years 
                ending before the date of the decedent's death, such 
                business had at least 1 full-time employee 
                substantially all of whose services were the active 
                management of such business, 10 full-time, nonowner 
                employees substantially all of whose services were 
                directly related to such business, and $5,000,000 in 
                gross receipts from activities described in clause 
                (ii).

                ``(ii) Lending and finance business.--The term `lending 
            and finance business' means a trade or business of--

                    ``(I) making loans,
                    ``(II) purchasing or discounting accounts 
                receivable, notes, or installment obligations,
                    ``(III) engaging in rental and leasing of real and 
                tangible personal property, including entering into 
                leases and purchasing, servicing, and disposing of 
                leases and leased assets,
                    ``(IV) rendering services or making facilities 
                available in the ordinary course of a lending or 
                finance business, and
                    ``(V) rendering services or making facilities 
                available in connection with activities described in 
                subclauses (I) through (IV) carried on by the 
                corporation rendering services or making facilities 
                available, or another corporation which is a member of 
                the same affiliated group (as defined in section 1504 
                without regard to section 1504(b)(3)).

                ``(iii) Limitation.--The term `qualifying lending and 
            finance business' shall not include any interest in an 
            entity, if the stock or debt of such entity or a controlled 
            group (as defined in section 267(f)(1)) of which such 
            entity was a member was readily tradable on an established 
            securities market or secondary market (as defined by the 
            Secretary) at any time within 3 years before the date of 
            the decedent's death.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after December 31, 2001.

SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAYMENT.

    (a) In General.--Subparagraph (B) of section 6166(b)(8) (relating 
to all stock must be non-readily-tradable stock) is amended to read as 
follows:
            ``(B) All stock must be non-readily-tradable stock.--
                ``(i) In general.--No stock shall be taken into account 
            for purposes of applying this paragraph unless it is non-
            readily-tradable stock (within the meaning of paragraph 
            (7)(B)).
                ``(ii) Special application where only holding company 
            stock is non-readily-tradable stock.--If the requirements 
            of clause (i) are not met, but all of the stock of each 
            holding company taken into account is non-readily-tradable, 
            then this paragraph shall apply, but subsection (a)(1) 
            shall be applied by substituting `5' for `10'.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after December 31, 2001.

                      Subtitle I--Other Provisions

SEC. 581. WAIVER OF STATUTE OF LIMITATION FOR TAXES ON CERTAIN FARM 
              VALUATIONS.

    If on the date of the enactment of this Act (or at any time within 
1 year after the date of the enactment) a refund or credit of any 
overpayment of tax resulting from the application of section 
2032A(c)(7)(E) of the Internal Revenue Code of 1986 is barred by any 
law or rule of law, the refund or credit of such overpayment shall, 
nevertheless, be made or allowed if claim therefor is filed before the 
date 1 year after the date of the enactment of this Act.

   TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
               Subtitle A--Individual Retirement Accounts

SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.

    (a) Increase in Contribution Limit.--
        (1) In general.--Paragraph (1)(A) of section 219(b) (relating 
    to maximum amount of deduction) is amended by striking ``$2,000'' 
    and inserting ``the deductible amount''.
        (2) Deductible amount.--Section 219(b) is amended by adding at 
    the end the following new paragraph:
        ``(5) Deductible amount.--For purposes of paragraph (1)(A)--
            ``(A) In general.--The deductible amount shall be 
        determined in accordance with the following table:

        ``For taxable years
                                                          The deductible
          beginning in:
                                                            amount is:  
            2002 through 2004.................................

                                                                 $3,000 

            2005 through 2007.................................

                                                                 $4,000 

            2008 and thereafter...............................

                                                                 $5,000.

            ``(B) Catch-up contributions for individuals 50 or older.--
                ``(i) In general.--In the case of an individual who has 
            attained the age of 50 before the close of the taxable 
            year, the deductible amount for such taxable year shall be 
            increased by the applicable amount.
                ``(ii) Applicable amount.--For purposes of clause (i), 
            the applicable amount shall be the amount determined in 
            accordance with the following table:

        ``For taxable years
                                                          The applicable
          beginning in:
                                                            amount is:  
            2002 through 2005.................................

                                                                   $500 

            2006 and thereafter...............................

                                                                 $1,000.

            ``(C) Cost-of-living adjustment.--
                ``(i) In general.--In the case of any taxable year 
            beginning in a calendar year after 2008, the $5,000 amount 
            under subparagraph (A) shall be increased by an amount 
            equal to--

                    ``(I) such dollar amount, multiplied by
                    ``(II) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2007' for `calendar year 1992' in 
                subparagraph (B) thereof.

                ``(ii) Rounding rules.--If any amount after adjustment 
            under clause (i) is not a multiple of $500, such amount 
            shall be rounded to the next lower multiple of $500.''.
    (b) Conforming Amendments.--
        (1) Section 408(a)(1) is amended by striking ``in excess of 
    $2,000 on behalf of any individual'' and inserting ``on behalf of 
    any individual in excess of the amount in effect for such taxable 
    year under section 219(b)(1)(A)''.
        (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' and 
    inserting ``the dollar amount in effect under section 
    219(b)(1)(A)''.
        (3) Section 408(b) is amended by striking ``$2,000'' in the 
    matter following paragraph (4) and inserting ``the dollar amount in 
    effect under section 219(b)(1)(A)''.
        (4) Section 408(j) is amended by striking ``$2,000''.
        (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
    inserting ``the dollar amount in effect under section 
    219(b)(1)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 602. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection (r) 
and by inserting after subsection (p) the following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
        ``(1) General rule.--If--
            ``(A) a qualified employer plan elects to allow employees 
        to make voluntary employee contributions to a separate account 
        or annuity established under the plan, and
            ``(B) under the terms of the qualified employer plan, such 
        account or annuity meets the applicable requirements of this 
        section or section 408A for an individual retirement account or 
        annuity,
    then such account or annuity shall be treated for purposes of this 
    title in the same manner as an individual retirement plan and not 
    as a qualified employer plan (and contributions to such account or 
    annuity as contributions to an individual retirement plan and not 
    to the qualified employer plan). For purposes of subparagraph (B), 
    the requirements of subsection (a)(5) shall not apply.
        ``(2) Special rules for qualified employer plans.--For purposes 
    of this title, a qualified employer plan shall not fail to meet any 
    requirement of this title solely by reason of establishing and 
    maintaining a program described in paragraph (1).
        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Qualified employer plan.--The term `qualified 
        employer plan' has the meaning given such term by section 
        72(p)(4); except such term shall not include a government plan 
        which is not a qualified plan unless the plan is an eligible 
        deferred compensation plan (as defined in section 457(b)).
            ``(B) Voluntary employee contribution.--The term `voluntary 
        employee contribution' means any contribution (other than a 
        mandatory contribution within the meaning of section 
        411(c)(2)(C))--
                ``(i) which is made by an individual as an employee 
            under a qualified employer plan which allows employees to 
            elect to make contributions described in paragraph (1), and
                ``(ii) with respect to which the individual has 
            designated the contribution as a contribution to which this 
            subsection applies.''.
    (b) Amendment of ERISA.--
        (1) In general.--Section 4 of the Employee Retirement Income 
    Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the 
    end the following new subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as provided 
in section 408(q) of the Internal Revenue Code of 1986, such accounts 
and annuities (and contributions thereto) shall not be treated as part 
of such plan (or as a separate pension plan) for purposes of any 
provision of this title other than section 403(c), 404, or 405 
(relating to exclusive benefit, and fiduciary and co-fiduciary 
responsibilities).''.
        (2) Conforming amendment.--Section 4(a) of such Act (29 U.S.C. 
    1003(a)) is amended by inserting ``or (c)'' after ``subsection 
    (b)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2002.

                     Subtitle B--Expanding Coverage

SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
        (1) Dollar limit.--
            (A) Subparagraph (A) of section 415(b)(1) (relating to 
        limitation for defined benefit plans) is amended by striking 
        ``$90,000'' and inserting ``$160,000''.
            (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
        amended in the headings and the text, by striking ``$90,000'' 
        and inserting ``$160,000'',
            (C) Paragraph (7) of section 415(b) (relating to benefits 
        under certain collectively bargained plans) is amended by 
        striking ``the greater of $68,212 or one-half the amount 
        otherwise applicable for such year under paragraph (1)(A) for 
        `$90,000''' and inserting ``one-half the amount otherwise 
        applicable for such year under paragraph (1)(A) for 
        `$160,000'''.
        (2) Limit reduced when benefit begins before age 62.--
    Subparagraph (C) of section 415(b)(2) is amended by striking ``the 
    social security retirement age'' each place it appears in the 
    heading and text and inserting ``age 62'' and by striking the 
    second sentence.
        (3) Limit increased when benefit begins after age 65.--
    Subparagraph (D) of section 415(b)(2) is amended by striking ``the 
    social security retirement age'' each place it appears in the 
    heading and text and inserting ``age 65''.
        (4) Cost-of-living adjustments.--Subsection (d) of section 415 
    (related to cost-of-living adjustments) is amended--
            (A) by striking ``$90,000'' in paragraph (1)(A) and 
        inserting ``$160,000''; and
            (B) in paragraph (3)(A)--
                (i) by striking ``$90,000'' in the heading and 
            inserting ``$160,000''; and
                (ii) by striking ``October 1, 1986'' and inserting 
            ``July 1, 2001''.
        (5) Conforming amendments.--
            (A) Section 415(b)(2) is amended by striking subparagraph 
        (F).
            (B) Section 415(b)(9) is amended to read as follows:
        ``(9) Special rule for commercial airline pilots.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        in the case of any participant who is a commercial airline 
        pilot, if, as of the time of the participant's retirement, 
        regulations prescribed by the Federal Aviation Administration 
        require an individual to separate from service as a commercial 
        airline pilot after attaining any age occurring on or after age 
        60 and before age 62, paragraph (2)(C) shall be applied by 
        substituting such age for age 62.
            ``(B) Individuals who separate from service before age 
        60.--If a participant described in subparagraph (A) separates 
        from service before age 60, the rules of paragraph (2)(C) shall 
        apply.''.
            (C) Section 415(b)(10)(C)(i) is amended by striking 
        ``applied without regard to paragraph (2)(F)''.
    (b) Defined Contribution Plans.--
        (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
    (relating to limitation for defined contribution plans) is amended 
    by striking ``$30,000'' and inserting ``$40,000''.
        (2) Cost-of-living adjustments.--Subsection (d) of section 415 
    (related to cost-of-living adjustments) is amended--
            (A) by striking ``$30,000'' in paragraph (1)(C) and 
        inserting ``$40,000''; and
            (B) in paragraph (3)(D)--
                (i) by striking ``$30,000'' in the heading and 
            inserting ``$40,000''; and
                (ii) by striking ``October 1, 1993'' and inserting 
            ``July 1, 2001''.
    (c) Qualified Trusts.--
        (1) Compensation limit.--Sections 401(a)(17), 404(l), 408(k), 
    and 505(b)(7) are each amended by striking ``$150,000'' each place 
    it appears and inserting ``$200,000''.
        (2) Base period and rounding of cost-of-living adjustment.--
    Subparagraph (B) of section 401(a)(17) is amended--
            (A) by striking ``October 1, 1993'' and inserting ``July 1, 
        2001''; and
            (B) by striking ``$10,000'' both places it appears and 
        inserting ``$5,000''.
    (d) Elective Deferrals.--
        (1) In general.--Paragraph (1) of section 402(g) (relating to 
    limitation on exclusion for elective deferrals) is amended to read 
    as follows:
        ``(1) In general.--
            ``(A) Limitation.--Notwithstanding subsections (e)(3) and 
        (h)(1)(B), the elective deferrals of any individual for any 
        taxable year shall be included in such individual's gross 
        income to the extent the amount of such deferrals for the 
        taxable year exceeds the applicable dollar amount.
            ``(B) Applicable dollar amount.--For purposes of 
        subparagraph (A), the applicable dollar amount shall be the 
        amount determined in accordance with the following table:

        ``For taxable years
                                                          The applicable
          beginning in
                                                          dollar amount:
          calendar year:
            2002..............................................
                                                                $11,000 
            2003..............................................
                                                                $12,000 
            2004..............................................
                                                                $13,000 
            2005..............................................
                                                                $14,000 
            2006 or thereafter................................
                                                             $15,000.''.

        (2) Cost-of-living adjustment.--Paragraph (5) of section 402(g) 
    is amended to read as follows:
        ``(5) Cost-of-living adjustment.--In the case of taxable years 
    beginning after December 31, 2006, the Secretary shall adjust the 
    $15,000 amount under paragraph (1)(B) at the same time and in the 
    same manner as under section 415(d), except that the base period 
    shall be the calendar quarter beginning July 1, 2005, and any 
    increase under this paragraph which is not a multiple of $500 shall 
    be rounded to the next lowest multiple of $500.''.
        (3) Conforming amendments.--
            (A) Section 402(g) (relating to limitation on exclusion for 
        elective deferrals), as amended by paragraphs (1) and (2), is 
        further amended by striking paragraph (4) and redesignating 
        paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), 
        (6), (7), and (8), respectively.
            (B) Paragraph (2) of section 457(c) is amended by striking 
        ``402(g)(8)(A)(iii)'' and inserting ``402(g)(7)(A)(iii)''.
            (C) Clause (iii) of section 501(c)(18)(D) is amended by 
        striking ``(other than paragraph (4) thereof)''.
    (e) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
        (1) In general.--Section 457 (relating to deferred compensation 
    plans of State and local governments and tax-exempt organizations) 
    is amended--
            (A) in subsections (b)(2)(A) and (c)(1) by striking 
        ``$7,500'' each place it appears and inserting ``the applicable 
        dollar amount''; and
            (B) in subsection (b)(3)(A) by striking ``$15,000'' and 
        inserting ``twice the dollar amount in effect under subsection 
        (b)(2)(A)''.
        (2) Applicable dollar amount; cost-of-living adjustment.--
    Paragraph (15) of section 457(e) is amended to read as follows:
        ``(15) Applicable dollar amount.--
            ``(A) In general.--The applicable dollar amount shall be 
        the amount determined in accordance with the following table:

        ``For taxable years
                                                          The applicable
          beginning in
                                                          dollar amount:
          calendar year:
            2002..............................................
                                                                $11,000 
            2003..............................................
                                                                $12,000 
            2004..............................................
                                                                $13,000 
            2005..............................................
                                                                $14,000 
            2006 or thereafter................................
                                                                $15,000.

            ``(B) Cost-of-living adjustments.--In the case of taxable 
        years beginning after December 31, 2006, the Secretary shall 
        adjust the $15,000 amount under subparagraph (A) at the same 
        time and in the same manner as under section 415(d), except 
        that the base period shall be the calendar quarter beginning 
        July 1, 2005, and any increase under this paragraph which is 
        not a multiple of $500 shall be rounded to the next lowest 
        multiple of $500.''.
    (f) Simple Retirement Accounts.--
        (1) Limitation.--Clause (ii) of section 408(p)(2)(A) (relating 
    to general rule for qualified salary reduction arrangement) is 
    amended by striking ``$6,000'' and inserting ``the applicable 
    dollar amount''.
        (2) Applicable dollar amount.--Subparagraph (E) of 408(p)(2) is 
    amended to read as follows:
            ``(E) Applicable dollar amount; cost-of-living 
        adjustment.--
                ``(i) In general.--For purposes of subparagraph 
            (A)(ii), the applicable dollar amount shall be the amount 
            determined in accordance with the following table:

        ``For years
                                                          The applicable
          beginning in
                                                          dollar amount:
          calendar year:
                2002..........................................
                                                                 $7,000 
                2003..........................................
                                                                 $8,000 
                2004..........................................
                                                                 $9,000 
                2005 or thereafter............................
                                                                $10,000.

                ``(ii) Cost-of-living adjustment.--In the case of a 
            year beginning after December 31, 2005, the Secretary shall 
            adjust the $10,000 amount under clause (i) at the same time 
            and in the same manner as under section 415(d), except that 
            the base period taken into account shall be the calendar 
            quarter beginning July 1, 2004, and any increase under this 
            subparagraph which is not a multiple of $500 shall be 
            rounded to the next lower multiple of $500.''.
        (3) Conforming amendments.--
            (A) Subclause (I) of section 401(k)(11)(B)(i) is amended by 
        striking ``$6,000'' and inserting ``the amount in effect under 
        section 408(p)(2)(A)(ii)''.
            (B) Section 401(k)(11) is amended by striking subparagraph 
        (E).
    (g) Certain Compensation Limits.--
        (1) In general.--Subparagraph (A) of section 401(c)(2) 
    (defining earned income) is amended by adding at the end thereof 
    the following new sentence: ``For purposes of this part only (other 
    than sections 419 and 419A), this subparagraph shall be applied as 
    if the term `trade or business' for purposes of section 1402 
    included service described in section 1402(c)(6).''.
        (2) Simple retirement accounts.--Clause (ii) of section 
    408(p)(6)(A) (defining self-employed) is amended by adding at the 
    end the following new sentence: ``The preceding sentence shall be 
    applied as if the term `trade or business' for purposes of section 
    1402 included service described in section 1402(c)(6).''.
    (h) Rounding Rule Relating to Defined Benefit Plans and Defined 
Contribution Plans.--Paragraph (4) of section 415(d) is amended to read 
as follows:
        ``(4) Rounding.--
            ``(A) $160,000 amount.--Any increase under subparagraph (A) 
        of paragraph (1) which is not a multiple of $5,000 shall be 
        rounded to the next lowest multiple of $5,000.
            ``(B) $40,000 amount.--Any increase under subparagraph (C) 
        of paragraph (1) which is not a multiple of $1,000 shall be 
        rounded to the next lowest multiple of $1,000.''.
    (i) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to years beginning after December 31, 2001.
        (2) Defined benefit plans.--The amendments made by subsection 
    (a) shall apply to years ending after December 31, 2001.

SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
              PROPRIETORS.

    (a) In General.--Subparagraph (B) of section 4975(f)(6) (relating 
to exemptions not to apply to certain transactions) is amended by 
adding at the end the following new clause:
                ``(iii) Loan exception.--For purposes of subparagraph 
            (A)(i), the term `owner-employee' shall only include a 
            person described in subclause (II) or (III) of clause 
            (i).''.
    (b) Amendment of ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is 
amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-employee' 
shall only include a person described in clause (ii) or (iii) of 
subparagraph (A).''.
    (c) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 613. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
        (1) In general.--Section 416(i)(1)(A) (defining key employee) 
    is amended--
            (A) by striking ``or any of the 4 preceding plan years'' in 
        the matter preceding clause (i);
            (B) by striking clause (i) and inserting the following:
                ``(i) an officer of the employer having an annual 
            compensation greater than $130,000,'';
            (C) by striking clause (ii) and redesignating clauses (iii) 
        and (iv) as clauses (ii) and (iii), respectively; and
            (D) by striking the second sentence in the matter following 
        clause (iii), as redesignated by subparagraph (C), and by 
        inserting the following: ``in the case of plan years beginning 
        after December 31, 2002, the $130,000 amount in clause (i) 
        shall be adjusted at the same time and in the same manner as 
        under section 415(d), except that the base period shall be the 
        calendar quarter beginning July 1, 2001, and any increase under 
        this sentence which is not a multiple of $5,000 shall be 
        rounded to the next lower multiple of $5,000.''.
        (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is amended 
    by striking ``and subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to defined 
contribution plans) is amended by adding at the end the following: 
``Employer matching contributions (as defined in section 401(m)(4)(A)) 
shall be taken into account for purposes of this subparagraph (and any 
reduction under this sentence shall not be taken into account in 
determining whether section 401(k)(4)(A) applies).''.
    (c) Distributions During Last Year Before Determination Date Taken 
Into Account.--
        (1) In general.--Paragraph (3) of section 416(g) is amended to 
    read as follows:
        ``(3) Distributions during last year before determination date 
    taken into account.--
            ``(A) In general.--For purposes of determining--
                ``(i) the present value of the cumulative accrued 
            benefit for any employee, or
                ``(ii) the amount of the account of any employee,
        such present value or amount shall be increased by the 
        aggregate distributions made with respect to such employee 
        under the plan during the 1-year period ending on the 
        determination date. The preceding sentence shall also apply to 
        distributions under a terminated plan which if it had not been 
        terminated would have been required to be included in an 
        aggregation group.
            ``(B) 5-year period in case of in-service distribution.--In 
        the case of any distribution made for a reason other than 
        separation from service, death, or disability, subparagraph (A) 
        shall be applied by substituting `5-year period' for `1-year 
        period'.''.
        (2) Benefits not taken into account.--Subparagraph (E) of 
    section 416(g)(4) is amended--
            (A) by striking ``last 5 years'' in the heading and 
        inserting ``last year before determination date''; and
            (B) by striking ``5-year period'' and inserting ``1-year 
        period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of section 416(g) 
(relating to other special rules for top-heavy plans) is amended by 
adding at the end the following new subparagraph:
            ``(H) Cash or deferred arrangements using alternative 
        methods of meeting nondiscrimination requirements.--The term 
        `top-heavy plan' shall not include a plan which consists solely 
        of--
                ``(i) a cash or deferred arrangement which meets the 
            requirements of section 401(k)(12), and
                ``(ii) matching contributions with respect to which the 
            requirements of section 401(m)(11) are met.
        If, but for this subparagraph, a plan would be treated as a 
        top-heavy plan because it is a member of an aggregation group 
        which is a top-heavy group, contributions under the plan may be 
        taken into account in determining whether any other plan in the 
        group meets the requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined benefit 
plans) is amended--
            (A) by striking ``clause (ii)'' in clause (i) and inserting 
        ``clause (ii) or (iii)''; and
            (B) by adding at the end the following:
                ``(iii) Exception for frozen plan.--For purposes of 
            determining an employee's years of service with the 
            employer, any service with the employer shall be 
            disregarded to the extent that such service occurs during a 
            plan year when the plan benefits (within the meaning of 
            section 410(b)) no key employee or former key employee.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
              DEDUCTION LIMITS.

    (a) In General.--Section 404 (relating to deduction for 
contributions of an employer to an employees' trust or annuity plan and 
compensation under a deferred payment plan) is amended by adding at the 
end the following new subsection:
    ``(n) Elective Deferrals Not Taken Into Account for Purposes of 
Deduction Limits.--Elective deferrals (as defined in section 402(g)(3)) 
shall not be subject to any limitation contained in paragraph (3), (7), 
or (9) of subsection (a), and such elective deferrals shall not be 
taken into account in applying any such limitation to any other 
contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
              PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
              ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and tax-
exempt organizations), as amended by section 611, is amended to read as 
follows:
    ``(c) Limitation.--The maximum amount of the compensation of any 
one individual which may be deferred under subsection (a) during any 
taxable year shall not exceed the amount in effect under subsection 
(b)(2)(A) (as modified by any adjustment provided under subsection 
(b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 2001.

SEC. 616. DEDUCTION LIMITS.

    (a) Modification of Limits.--
        (1) Stock bonus and profit sharing trusts.--
            (A) In general.--Subclause (I) of section 404(a)(3)(A)(i) 
        (relating to stock bonus and profit sharing trusts) is amended 
        by striking ``15 percent'' and inserting ``25 percent''.
            (B) Conforming amendment.--Subparagraph (C) of section 
        404(h)(1) is amended by striking ``15 percent'' each place it 
        appears and inserting ``25 percent''.
        (2) Defined contribution plans.--
            (A) In general.--Clause (v) of section 404(a)(3)(A) 
        (relating to stock bonus and profit sharing trusts) is amended 
        to read as follows:
                ``(v) Defined contribution plans subject to the funding 
            standards.--Except as provided by the Secretary, a defined 
            contribution plan which is subject to the funding standards 
            of section 412 shall be treated in the same manner as a 
            stock bonus or profit-sharing plan for purposes of this 
            subparagraph.''.
            (B) Conforming amendments.--
                (i) Section 404(a)(1)(A) is amended by inserting 
            ``(other than a trust to which paragraph (3) applies)'' 
            after ``pension trust''.
                (ii) Section 404(h)(2) is amended by striking ``stock 
            bonus or profit-sharing trust'' and inserting ``trust 
            subject to subsection (a)(3)(A)''.
                (iii) The heading of section 404(h)(2) is amended by 
            striking ``stock bonus and profit-sharing trust'' and 
            inserting ``certain trusts''.
    (b) Compensation.--
        (1) In general.--Section 404(a) (relating to general rule) is 
    amended by adding at the end the following:
        ``(12) Definition of compensation.--For purposes of paragraphs 
    (3), (7), (8), and (9), the term `compensation' shall include 
    amounts treated as `participant's compensation' under subparagraph 
    (C) or (D) of section 415(c)(3).''.
        (2) Conforming amendments.--
            (A) Subparagraph (B) of section 404(a)(3) is amended by 
        striking the last sentence thereof.
            (B) Clause (i) of section 4972(c)(6)(B) is amended by 
        striking ``(within the meaning of section 404(a))'' and 
        inserting ``(within the meaning of section 404(a) and as 
        adjusted under section 404(a)(12))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH 
              CONTRIBUTIONS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
(relating to deferred compensation, etc.) is amended by inserting after 
section 402 the following new section:

``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH 
              CONTRIBUTIONS.

    ``(a) General Rule.--If an applicable retirement plan includes a 
qualified Roth contribution program--
        ``(1) any designated Roth contribution made by an employee 
    pursuant to the program shall be treated as an elective deferral 
    for purposes of this chapter, except that such contribution shall 
    not be excludable from gross income, and
        ``(2) such plan (and any arrangement which is part of such 
    plan) shall not be treated as failing to meet any requirement of 
    this chapter solely by reason of including such program.
    ``(b) Qualified Roth Contribution Program.--For purposes of this 
section--
        ``(1) In general.--The term `qualified Roth contribution 
    program' means a program under which an employee may elect to make 
    designated Roth contributions in lieu of all or a portion of 
    elective deferrals the employee is otherwise eligible to make under 
    the applicable retirement plan.
        ``(2) Separate accounting required.--A program shall not be 
    treated as a qualified Roth contribution program unless the 
    applicable retirement plan--
            ``(A) establishes separate accounts (`designated Roth 
        accounts') for the designated Roth contributions of each 
        employee and any earnings properly allocable to the 
        contributions, and
            ``(B) maintains separate recordkeeping with respect to each 
        account.
    ``(c) Definitions and Rules Relating to Designated Roth 
Contributions.--For purposes of this section--
        ``(1) Designated roth contribution.--The term `designated Roth 
    contribution' means any elective deferral which--
            ``(A) is excludable from gross income of an employee 
        without regard to this section, and
            ``(B) the employee designates (at such time and in such 
        manner as the Secretary may prescribe) as not being so 
        excludable.
        ``(2) Designation limits.--The amount of elective deferrals 
    which an employee may designate under paragraph (1) shall not 
    exceed the excess (if any) of--
            ``(A) the maximum amount of elective deferrals excludable 
        from gross income of the employee for the taxable year (without 
        regard to this section), over
            ``(B) the aggregate amount of elective deferrals of the 
        employee for the taxable year which the employee does not 
        designate under paragraph (1).
        ``(3) Rollover contributions.--
            ``(A) In general.--A rollover contribution of any payment 
        or distribution from a designated Roth account which is 
        otherwise allowable under this chapter may be made only if the 
        contribution is to--
                ``(i) another designated Roth account of the individual 
            from whose account the payment or distribution was made, or
                ``(ii) a Roth IRA of such individual.
            ``(B) Coordination with limit.--Any rollover contribution 
        to a designated Roth account under subparagraph (A) shall not 
        be taken into account for purposes of paragraph (1).
    ``(d) Distribution Rules.--For purposes of this title--
        ``(1) Exclusion.--Any qualified distribution from a designated 
    Roth account shall not be includible in gross income.
        ``(2) Qualified distribution.--For purposes of this 
    subsection--
            ``(A) In general.--The term `qualified distribution' has 
        the meaning given such term by section 408A(d)(2)(A) (without 
        regard to clause (iv) thereof).
            ``(B) Distributions within nonexclusion period.--A payment 
        or distribution from a designated Roth account shall not be 
        treated as a qualified distribution if such payment or 
        distribution is made within the 5-taxable-year period beginning 
        with the earlier of--
                ``(i) the first taxable year for which the individual 
            made a designated Roth contribution to any designated Roth 
            account established for such individual under the same 
            applicable retirement plan, or
                ``(ii) if a rollover contribution was made to such 
            designated Roth account from a designated Roth account 
            previously established for such individual under another 
            applicable retirement plan, the first taxable year for 
            which the individual made a designated Roth contribution to 
            such previously established account.
            ``(C) Distributions of excess deferrals and contributions 
        and earnings thereon.--The term `qualified distribution' shall 
        not include any distribution of any excess deferral under 
        section 402(g)(2) or any excess contribution under section 
        401(k)(8), and any income on the excess deferral or 
        contribution.
        ``(3) Treatment of distributions of certain excess deferrals.--
    Notwithstanding section 72, if any excess deferral under section 
    402(g)(2) attributable to a designated Roth contribution is not 
    distributed on or before the 1st April 15 following the close of 
    the taxable year in which such excess deferral is made, the amount 
    of such excess deferral shall--
            ``(A) not be treated as investment in the contract, and
            ``(B) be included in gross income for the taxable year in 
        which such excess is distributed.
        ``(4) Aggregation rules.--Section 72 shall be applied 
    separately with respect to distributions and payments from a 
    designated Roth account and other distributions and payments from 
    the plan.
    ``(e) Other Definitions.--For purposes of this section--
        ``(1) Applicable retirement plan.--The term `applicable 
    retirement plan' means--
            ``(A) an employees' trust described in section 401(a) which 
        is exempt from tax under section 501(a), and
            ``(B) a plan under which amounts are contributed by an 
        individual's employer for an annuity contract described in 
        section 403(b).
        ``(2) Elective deferral.--The term `elective deferral' means 
    any elective deferral described in subparagraph (A) or (C) of 
    section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended--
        (1) by adding at the end of paragraph (1)(A) (as added by 
    section 201(c)(1)) the following new sentence: ``The preceding 
    sentence shall not apply the portion of such excess as does not 
    exceed the designated Roth contributions of the individual for the 
    taxable year.''; and
        (2) by inserting ``(or would be included but for the last 
    sentence thereof)'' after ``paragraph (1)'' in paragraph (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is amended by 
adding at the end the following:
        ``If any portion of an eligible rollover distribution is 
        attributable to payments or distributions from a designated 
        Roth account (as defined in section 402A), an eligible 
        retirement plan with respect to such portion shall include only 
        another designated Roth account and a Roth IRA.''.
    (d) Reporting Requirements.--
        (1) W-2 information.--Section 6051(a)(8) is amended by 
    inserting ``, including the amount of designated Roth contributions 
    (as defined in section 402A)'' before the comma at the end.
        (2) Information.--Section 6047 is amended by redesignating 
    subsection (f) as subsection (g) and by inserting after subsection 
    (e) the following new subsection:
    ``(f) Designated Roth Contributions.--The Secretary shall require 
the plan administrator of each applicable retirement plan (as defined 
in section 402A) to make such returns and reports regarding designated 
Roth contributions (as defined in section 402A) to the Secretary, 
participants and beneficiaries of the plan, and such other persons as 
the Secretary may prescribe.''.
    (e) Conforming Amendments.--
        (1) Section 408A(e) is amended by adding after the first 
    sentence the following new sentence: ``Such term includes a 
    rollover contribution described in section 402A(c)(3)(A).''.
        (2) The table of sections for subpart A of part I of subchapter 
    D of chapter 1 is amended by inserting after the item relating to 
    section 402 the following new item:
        ``Sec. 402A. Optional treatment of elective deferrals as Roth 
                  contributions.''.

    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE 
              DEFERRALS AND IRA CONTRIBUTIONS.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25A the following new section:

``SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
              INDIVIDUALS.

    ``(a) Allowance of Credit.--In the case of an eligible individual, 
there shall be allowed as a credit against the tax imposed by this 
subtitle for the taxable year an amount equal to the applicable 
percentage of so much of the qualified retirement savings contributions 
of the eligible individual for the taxable year as do not exceed 
$2,000.
    ``(b) Applicable Percentage.--For purposes of this section, the 
applicable percentage is the percentage determined in accordance with 
the following table:

------------------------------------------------------------------------
                    Adjusted Gross Income
-------------------------------------------------------------
    Joint return           Head of a        All other cases   Applicable
---------------------      household     -------------------- percentage
                     --------------------
   Over     Not over    Over    Not over    Over    Not over
------------------------------------------------------------------------
           $30,000    ........  $22,500   ........  $15,000          50
 30,000     32,500     22,500    24,375    15,000    16,250          20
 32,500     50,000     24,375    37,500    16,250    25,000          10
 50,000    .........   37,500   ........   25,000   ........          0
------------------------------------------------------------------------

    ``(c) Eligible Individual.--For purposes of this section--
        ``(1) In general.--The term `eligible individual' means any 
    individual if such individual has attained the age of 18 as of the 
    close of the taxable year.
        ``(2) Dependents and full-time students not eligible.--The term 
    `eligible individual' shall not include--
            ``(A) any individual with respect to whom a deduction under 
        section 151 is allowed to another taxpayer for a taxable year 
        beginning in the calendar year in which such individual's 
        taxable year begins, and
            ``(B) any individual who is a student (as defined in 
        section 151(c)(4)).
    ``(d) Qualified Retirement Savings Contributions.--For purposes of 
this section--
        ``(1) In general.--The term `qualified retirement savings 
    contributions' means, with respect to any taxable year, the sum 
    of--
            ``(A) the amount of the qualified retirement contributions 
        (as defined in section 219(e)) made by the eligible individual,
            ``(B) the amount of--
                ``(i) any elective deferrals (as defined in section 
            402(g)(3)) of such individual, and
                ``(ii) any elective deferral of compensation by such 
            individual under an eligible deferred compensation plan (as 
            defined in section 457(b)) of an eligible employer 
            described in section 457(e)(1)(A), and
            ``(C) the amount of voluntary employee contributions by 
        such individual to any qualified retirement plan (as defined in 
        section 4974(c)).
        ``(2) Reduction for certain distributions.--
            ``(A) In general.--The qualified retirement savings 
        contributions determined under paragraph (1) shall be reduced 
        (but not below zero) by the sum of--
                ``(i) any distribution from a qualified retirement plan 
            (as defined in section 4974(c)), or from an eligible 
            deferred compensation plan (as defined in section 457(b)), 
            received by the individual during the testing period which 
            is includible in gross income, and
                ``(ii) any distribution from a Roth IRA or a Roth 
            account received by the individual during the testing 
            period which is not a qualified rollover contribution (as 
            defined in section 408A(e)) to a Roth IRA or a rollover 
            under section 402(c)(8)(B) to a Roth account.
            ``(B) Testing period.--For purposes of subparagraph (A), 
        the testing period, with respect to a taxable year, is the 
        period which includes--
                ``(i) such taxable year,
                ``(ii) the 2 preceding taxable years, and
                ``(iii) the period after such taxable year and before 
            the due date (including extensions) for filing the return 
            of tax for such taxable year.
            ``(C) Excepted distributions.--There shall not be taken 
        into account under subparagraph (A)--
                ``(i) any distribution referred to in section 72(p), 
            401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
                ``(ii) any distribution to which section 408A(d)(3) 
            applies.
            ``(D) Treatment of distributions received by spouse of 
        individual.--For purposes of determining distributions received 
        by an individual under subparagraph (A) for any taxable year, 
        any distribution received by the spouse of such individual 
        shall be treated as received by such individual if such 
        individual and spouse file a joint return for such taxable year 
        and for the taxable year during which the spouse receives the 
        distribution.
    ``(e) Adjusted Gross Income.--For purposes of this section, 
adjusted gross income shall be determined without regard to sections 
911, 931, and 933.
    ``(f) Investment in the Contract.--Notwithstanding any other 
provision of law, a qualified retirement savings contribution shall not 
fail to be included in determining the investment in the contract for 
purposes of section 72 by reason of the credit under this section.
    ``(g) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2006.''.
    (b) Credit Allowed Against Regular Tax and Alternative Minimum 
Tax.--
        (1) In general.--Section 25B, as added by subsection (a), is 
    amended by inserting after subsection (f) the following new 
    subsection:
    ``(g) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
        ``(1) the sum of the regular tax liability (as defined in 
    section 26(b)) plus the tax imposed by section 55, over
        ``(2) the sum of the credits allowable under this subpart 
    (other than this section and section 23) and section 27 for the 
    taxable year.''.
        (2) Conforming amendments.--
            (A) Section 24(b)(3)(B), as amended by sections 201(b) and 
        203(d), is amended by striking ``section 23'' and inserting 
        ``sections 23 and 25B''.
            (B) Section 25(e)(1)(C), as amended by section 201(b), is 
        amended by inserting ``25B,'' after ``24,''.
            (C) Section 26(a)(1), as amended by sections 201(b) and 
        203, is amended by striking ``and 24'' and inserting ``, 24, 
        and 25B''.
            (D) Section 904(h), as amended by sections 201(b) and 203, 
        is amended by striking ``and 24'' and inserting ``, 24, and 
        25B''.
            (E) Section 1400C(d), as amended by sections 201(b) and 
        203, is amended by striking ``and 24'' and inserting ``, 24, 
        and 25B''.
    (c) Conforming Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1, as amended by section 432, is 
amended by inserting after the item relating to section 25A the 
following new item:
        ``Sec. 25B. Elective deferrals and IRA contributions by certain 
                  individuals.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 619. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL EMPLOYERS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by adding at the end 
the following new section:

``SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer, the small employer pension plan startup cost credit 
determined under this section for any taxable year is an amount equal 
to 50 percent of the qualified startup costs paid or incurred by the 
taxpayer during the taxable year.
    ``(b) Dollar Limitation.--The amount of the credit determined under 
this section for any taxable year shall not exceed--
        ``(1) $500 for the first credit year and each of the 2 taxable 
    years immediately following the first credit year, and
        ``(2) zero for any other taxable year.
    ``(c) Eligible Employer.--For purposes of this section--
        ``(1) In general.--The term `eligible employer' has the meaning 
    given such term by section 408(p)(2)(C)(i).
        ``(2) Requirement for new qualified employer plans.--Such term 
    shall not include an employer if, during the 3-taxable year period 
    immediately preceding the 1st taxable year for which the credit 
    under this section is otherwise allowable for a qualified employer 
    plan of the employer, the employer or any member of any controlled 
    group including the employer (or any predecessor of either) 
    established or maintained a qualified employer plan with respect to 
    which contributions were made, or benefits were accrued, for 
    substantially the same employees as are in the qualified employer 
    plan.
    ``(d) Other Definitions.--For purposes of this section--
        ``(1) Qualified startup costs.--
            ``(A) In general.--The term `qualified startup costs' means 
        any ordinary and necessary expenses of an eligible employer 
        which are paid or incurred in connection with--
                ``(i) the establishment or administration of an 
            eligible employer plan, or
                ``(ii) the retirement-related education of employees 
            with respect to such plan.
            ``(B) Plan must have at least 1 participant.--Such term 
        shall not include any expense in connection with a plan that 
        does not have at least 1 employee eligible to participate who 
        is not a highly compensated employee.
        ``(2) Eligible employer plan.--The term `eligible employer 
    plan' means a qualified employer plan within the meaning of section 
    4972(d).
        ``(3) First credit year.--The term `first credit year' means--
            ``(A) the taxable year which includes the date that the 
        eligible employer plan to which such costs relate becomes 
        effective, or
            ``(B) at the election of the eligible employer, the taxable 
        year preceding the taxable year referred to in subparagraph 
        (A).
    ``(e) Special Rules.--For purposes of this section--
        ``(1) Aggregation rules.--All persons treated as a single 
    employer under subsection (a) or (b) of section 52, or subsection 
    (n) or (o) of section 414, shall be treated as one person. All 
    eligible employer plans shall be treated as 1 eligible employer 
    plan.
        ``(2) Disallowance of deduction.--No deduction shall be allowed 
    for that portion of the qualified startup costs paid or incurred 
    for the taxable year which is equal to the credit determined under 
    subsection (a).
        ``(3) Election not to claim credit.--This section shall not 
    apply to a taxpayer for any taxable year if such taxpayer elects to 
    have this section not apply for such taxable year.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) (defining current year business credit) is amended by striking 
``plus'' at the end of paragraph (12), by striking the period at the 
end of paragraph (13) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
        ``(14) in the case of an eligible employer (as defined in 
    section 45E(c)), the small employer pension plan startup cost 
    credit determined under section 45E(a).''.
    (c) Conforming Amendments.--
        (1) Section 39(d) is amended by adding at the end the following 
    new paragraph:
        ``(10) No carryback of small employer pension plan startup cost 
    credit before january 1, 2002.--No portion of the unused business 
    credit for any taxable year which is attributable to the small 
    employer pension plan startup cost credit determined under section 
    45E may be carried back to a taxable year beginning before January 
    1, 2002.''.
        (2) Subsection (c) of section 196 is amended by striking 
    ``and'' at the end of paragraph (8), by striking the period at the 
    end of paragraph (9) and inserting ``, and'', and by adding at the 
    end the following new paragraph:
        ``(10) the small employer pension plan startup cost credit 
    determined under section 45E(a).''.
        (3) The table of sections for subpart D of part IV of 
    subchapter A of chapter 1 is amended by adding at the end the 
    following new item:
        ``Sec. 45E. Small employer pension plan startup costs.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after 
December 31, 2001, with respect to qualified employer plans established 
after such date.

SEC. 620. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
              PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment of user 
fees under the program established under section 10511 of the Revenue 
Act of 1987 for requests to the Internal Revenue Service for 
determination letters with respect to the qualified status of a pension 
benefit plan maintained solely by one or more eligible employers or any 
trust which is part of the plan. The preceding sentence shall not apply 
to any request--
        (1) made after the later of--
            (A) the fifth plan year the pension benefit plan is in 
        existence; or
            (B) the end of any remedial amendment period with respect 
        to the plan beginning within the first 5 plan years; or
        (2) made by the sponsor of any prototype or similar plan which 
    the sponsor intends to market to participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, the term 
``pension benefit plan'' means a pension, profit-sharing, stock bonus, 
annuity, or employee stock ownership plan.
    (c) Eligible Employer.--For purposes of this section, the term 
``eligible employer'' means an eligible employer (as defined in section 
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986) which has at 
least one employee who is not a highly compensated employee (as defined 
in section 414(q)) and is participating in the plan. The determination 
of whether an employer is an eligible employer under this section shall 
be made as of the date of the request described in subsection (a).
    (d) Determination of Average Fees Charged.--For purposes of any 
determination of average fees charged, any request to which subsection 
(a) applies shall not be taken into account.
    (e) Effective Date.--The provisions of this section shall apply 
with respect to requests made after December 31, 2001.

SEC. 621. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL 
              TRANSPORTATION SERVICES.

    (a) Exclusion From Income Sourcing Rules.--The second sentence of 
section 861(a)(3) (relating to gross income from sources within the 
United States) is amended by striking ``except for purposes of sections 
79 and 105 and subchapter D,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to remuneration for services performed in plan years beginning 
after December 31, 2001.

                Subtitle C--Enhancing Fairness for Women

SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(v) Catch-up Contributions for Individuals Age 50 or Over.--
        ``(1) In general.--An applicable employer plan shall not be 
    treated as failing to meet any requirement of this title solely 
    because the plan permits an eligible participant to make additional 
    elective deferrals in any plan year.
        ``(2) Limitation on amount of additional deferrals.--
            ``(A) In general.--A plan shall not permit additional 
        elective deferrals under paragraph (1) for any year in an 
        amount greater than the lesser of--
                ``(i) the applicable dollar amount, or
                ``(ii) the excess (if any) of--

                    ``(I) the participant's compensation (as defined in 
                section 415(c)(3)) for the year, over
                    ``(II) any other elective deferrals of the 
                participant for such year which are made without regard 
                to this subsection.

            ``(B) Applicable dollar amount.--For purposes of this 
        paragraph--
                ``(i) In the case of an applicable employer plan other 
            than a plan described in section 401(k)(11) or 408(p), the 
            applicable dollar amount shall be determined in accordance 
            with the following table:

``For taxable years
                                                          The applicable
beginning in:
                                                       dollar amount is:
    2002......................................................

                                                                 $1,000 

    2003......................................................

                                                                 $2,000 

    2004......................................................

                                                                 $3,000 

    2005......................................................

                                                                 $4,000 

    2006 and thereafter.......................................

                                                                 $5,000.

                ``(ii) In the case of an applicable employer plan 
            described in section 401(k)(11) or 408(p), the applicable 
            dollar amount shall be determined in accordance with the 
            following table:

``For taxable years
                                                          The applicable
beginning in:
                                                       dollar amount is:
    2002......................................................

                                                                   $500 

    2003......................................................

                                                                 $1,000 

    2004......................................................

                                                                 $1,500 

    2005......................................................

                                                                 $2,000 

    2006 and thereafter.......................................

                                                                 $2,500.

            ``(C) Cost-of-living adjustment.--In the case of a year 
        beginning after December 31, 2006, the Secretary shall adjust 
        annually the $5,000 amount in subparagraph (B)(i) and the 
        $2,500 amount in subparagraph (B)(ii) for increases in the 
        cost-of-living at the same time and in the same manner as 
        adjustments under section 415(d); except that the base period 
        taken into account shall be the calendar quarter beginning July 
        1, 2005, and any increase under this subparagraph which is not 
        a multiple of $500 shall be rounded to the next lower multiple 
        of $500.''.
        ``(3) Treatment of contributions.--In the case of any 
    contribution to a plan under paragraph (1)--
            ``(A) such contribution shall not, with respect to the year 
        in which the contribution is made--
                ``(i) be subject to any otherwise applicable limitation 
            contained in section 402(g), 402(h), 403(b), 404(a), 
            404(h), 408(k), 408(p), 415, or 457, or
                ``(ii) be taken into account in applying such 
            limitations to other contributions or benefits under such 
            plan or any other such plan, and
            ``(B) except as provided in paragraph (4), such plan shall 
        not be treated as failing to meet the requirements of section 
        401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 
        403(b)(12), 408(k), 408(p), 408B, 410(b), or 416 by reason of 
        the making of (or the right to make) such contribution.
        ``(4) Application of nondiscrimination rules.--
            ``(A) In general.--An applicable employer plan shall be 
        treated as failing to meet the nondiscrimination requirements 
        under section 401(a)(4) with respect to benefits, rights, and 
        features unless the plan allows all eligible participants to 
        make the same election with respect to the additional elective 
        deferrals under this subsection.
            ``(B) Aggregation.--For purposes of subparagraph (A), all 
        plans maintained by employers who are treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414 
        shall be treated as 1 plan.
        ``(5) Eligible participant.--For purposes of this subsection, 
    the term `eligible participant' means, with respect to any plan 
    year, a participant in a plan--
            ``(A) who has attained the age of 50 before the close of 
        the plan year, and
            ``(B) with respect to whom no other elective deferrals may 
        (without regard to this subsection) be made to the plan for the 
        plan year by reason of the application of any limitation or 
        other restriction described in paragraph (3) or comparable 
        limitation or restriction contained in the terms of the plan.
        ``(6) Other definitions and rules.--For purposes of this 
    subsection--
            ``(A) Applicable employer plan.--The term `applicable 
        employer plan' means--
                ``(i) an employees' trust described in section 401(a) 
            which is exempt from tax under section 501(a),
                ``(ii) a plan under which amounts are contributed by an 
            individual's employer for an annuity contract described in 
            section 403(b),
                ``(iii) an eligible deferred compensation plan under 
            section 457 of an eligible employer described in section 
            457(e)(1)(A), and
                ``(iv) an arrangement meeting the requirements of 
            section 408 (k) or (p).
            ``(B) Elective deferral.--The term `elective deferral' has 
        the meaning given such term by subsection (u)(2)(C).
            ``(C) Exception for section 457 plans.--This subsection 
        shall not apply to an applicable employer plan described in 
        subparagraph (A)(iii) for any year to which section 457(b)(3) 
        applies.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions in taxable years beginning after December 31, 2001.

SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
              CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
        (1) In general.--Subparagraph (B) of section 415(c)(1) 
    (relating to limitation for defined contribution plans) is amended 
    by striking ``25 percent'' and inserting ``100 percent''.
        (2) Application to section 403(b).--Section 403(b) is amended--
            (A) by striking ``the exclusion allowance for such taxable 
        year'' in paragraph (1) and inserting ``the applicable limit 
        under section 415'',
            (B) by striking paragraph (2), and
            (C) by inserting ``or any amount received by a former 
        employee after the fifth taxable year following the taxable 
        year in which such employee was terminated'' before the period 
        at the end of the second sentence of paragraph (3).
        (3) Conforming amendments.--
            (A) Subsection (f) of section 72 is amended by striking 
        ``section 403(b)(2)(D)(iii))'' and inserting ``section 
        403(b)(2)(D)(iii), as in effect before the enactment of the 
        Economic Growth and Tax Relief Reconciliation Act of 2001''.
            (B) Section 404(a)(10)(B) is amended by striking ``, the 
        exclusion allowance under section 403(b)(2),''.
            (C) Section 415(a)(2) is amended by striking ``, and the 
        amount of the contribution for such portion shall reduce the 
        exclusion allowance as provided in section 403(b)(2)''.
            (D) Section 415(c)(3) is amended by adding at the end the 
        following new subparagraph:
            ``(E) Annuity contracts.--In the case of an annuity 
        contract described in section 403(b), the term `participant's 
        compensation' means the participant's includible compensation 
        determined under section 403(b)(3).''.
            (E) Section 415(c) is amended by striking paragraph (4).
            (F) Section 415(c)(7) is amended to read as follows:
        ``(7) Certain contributions by church plans not treated as 
    exceeding limit.--
            ``(A) In general.--Notwithstanding any other provision of 
        this subsection, at the election of a participant who is an 
        employee of a church or a convention or association of 
        churches, including an organization described in section 
        414(e)(3)(B)(ii), contributions and other additions for an 
        annuity contract or retirement income account described in 
        section 403(b) with respect to such participant, when expressed 
        as an annual addition to such participant's account, shall be 
        treated as not exceeding the limitation of paragraph (1) if 
        such annual addition is not in excess of $10,000.
            ``(B) $40,000 aggregate limitation.--The total amount of 
        additions with respect to any participant which may be taken 
        into account for purposes of this subparagraph for all years 
        may not exceed $40,000.
            ``(C) Annual addition.--For purposes of this paragraph, the 
        term `annual addition' has the meaning given such term by 
        paragraph (2).''.
            (G) Subparagraph (B) of section 402(g)(7) (as redesignated 
        by section 611(c)(3)) is amended by inserting before the period 
        at the end the following: ``(as in effect before the enactment 
        of the Economic Growth and Tax Relief Reconciliation Act of 
        2001''.
            (H) Section 664(g) is amended--
                (i) in paragraph (3)(E) by striking ``limitations under 
            section 415(c)'' and inserting ``applicable limitation 
            under paragraph (7)'', and
                (ii) by adding at the end the following new paragraph:
        ``(7) Applicable limitation.--
            ``(A) In general.--For purposes of paragraph (3)(E), the 
        applicable limitation under this paragraph with respect to a 
        participant is an amount equal to the lesser of--
                ``(i) $30,000, or
                ``(ii) 25 percent of the participant's compensation (as 
            defined in section 415(c)(3)).
            ``(B) Cost-of-living adjustment.--The Secretary shall 
        adjust annually the $30,000 amount under subparagraph (A)(i) at 
        the same time and in the same manner as under section 415(d), 
        except that the base period shall be the calendar quarter 
        beginning October 1, 1993, and any increase under this 
        subparagraph which is not a multiple of $5,000 shall be rounded 
        to the next lowest multiple of $5,000.''.
        (4) Effective date.--The amendments made by this subsection 
    shall apply to years beginning after December 31, 2001.
    (b) Special Rules for Sections 403(b) and 408.--
        (1) In general.--Subsection (k) of section 415 is amended by 
    adding at the end the following new paragraph:
        ``(4) Special rules for sections 403(b) and 408.--For purposes 
    of this section, any annuity contract described in section 403(b) 
    for the benefit of a participant shall be treated as a defined 
    contribution plan maintained by each employer with respect to which 
    the participant has the control required under subsection (b) or 
    (c) of section 414 (as modified by subsection (h)). For purposes of 
    this section, any contribution by an employer to a simplified 
    employee pension plan for an individual for a taxable year shall be 
    treated as an employer contribution to a defined contribution plan 
    for such individual for such year.''.
        (2) Effective date.--
            (A) In general.--The amendment made by paragraph (1) shall 
        apply to limitation years beginning after December 31, 1999.
            (B) Exclusion allowance.--Effective for limitation years 
        beginning in 2000, in the case of any annuity contract 
        described in section 403(b) of the Internal Revenue Code of 
        1986, the amount of the contribution disqualified by reason of 
        section 415(g) of such Code shall reduce the exclusion 
        allowance as provided in section 403(b)(2) of such Code.
        (3) Election to modify section 403(b) exclusion allowance to 
    conform to section 415 modification.--In the case of taxable years 
    beginning after December 31, 1999, and before January 1, 2002, a 
    plan may disregard the requirement in the regulations regarding the 
    exclusion allowance under section 403(b)(2) of the Internal Revenue 
    Code of 1986 that contributions to a defined benefit pension plan 
    be treated as previously excluded amounts for purposes of the 
    exclusion allowance.
    (c) Deferred Compensation Plans of State and Local Governments and 
Tax-Exempt Organizations.--
        (1) In general.--Subparagraph (B) of section 457(b)(2) 
    (relating to salary limitation on eligible deferred compensation 
    plans) is amended by striking ``33\1/3\ percent'' and inserting 
    ``100 percent''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to years beginning after December 31, 2001.

SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

    (a) In General.--Section 411(a) (relating to minimum vesting 
standards) is amended--
        (1) in paragraph (2), by striking ``A plan'' and inserting 
    ``Except as provided in paragraph (12), a plan''; and
        (2) by adding at the end the following:
        ``(12) Faster vesting for matching contributions.--In the case 
    of matching contributions (as defined in section 401(m)(4)(A)), 
    paragraph (2) shall be applied--
            ``(A) by substituting `3 years' for `5 years' in 
        subparagraph (A), and
            ``(B) by substituting the following table for the table 
        contained in subparagraph (B):

          
                                                      The nonforfeitable
        ``Years of service:
                                                        percentage is:  
            2.................................................
                                                                     20 
            3.................................................
                                                                     40 
            4.................................................
                                                                     60 
            5.................................................
                                                                     80 
            6.................................................
                                                                 100.''.

    (b) Amendment of ERISA.--Section 203(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
        (1) in paragraph (2), by striking ``A plan'' and inserting 
    ``Except as provided in paragraph (4), a plan'', and
        (2) by adding at the end the following:
        ``(4) In the case of matching contributions (as defined in 
    section 401(m)(4)(A) of the Internal Revenue Code of 1986), 
    paragraph (2) shall be applied--
            ``(A) by substituting `3 years' for `5 years' in 
        subparagraph (A), and
            ``(B) by substituting the following table for the table 
        contained in subparagraph (B):

          
                                                      The nonforfeitable
        ``Years of service:
                                                        percentage is:  
            2.................................................
                                                                     20 
            3.................................................
                                                                     40 
            4.................................................
                                                                     60 
            5.................................................
                                                                     80 
            6.................................................
                                                                 100.''.

    (c) Effective Dates.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to contributions for 
    plan years beginning after December 31, 2001.
        (2) Collective bargaining agreements.--In the case of a plan 
    maintained pursuant to one or more collective bargaining agreements 
    between employee representatives and one or more employers ratified 
    by the date of the enactment of this Act, the amendments made by 
    this section shall not apply to contributions on behalf of 
    employees covered by any such agreement for plan years beginning 
    before the earlier of--
            (A) the later of--
                (i) the date on which the last of such collective 
            bargaining agreements terminates (determined without regard 
            to any extension thereof on or after such date of the 
            enactment); or
                (ii) January 1, 2002; or
            (B) January 1, 2006.
        (3) Service required.--With respect to any plan, the amendments 
    made by this section shall not apply to any employee before the 
    date that such employee has 1 hour of service under such plan in 
    any plan year to which the amendments made by this section apply.

SEC. 634. MODIFICATION TO MINIMUM DISTRIBUTION RULES.

    The Secretary of the Treasury shall modify the life expectancy 
tables under the regulations relating to minimum distribution 
requirements under sections 401(a)(9), 408(a)(6) and (b)(3), 
403(b)(10), and 457(d)(2) of the Internal Revenue Code to reflect 
current life expectancy.

SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
              PLAN BENEFITS UPON DIVORCE.

    (a) In General.--Section 414(p)(11) (relating to application of 
rules to governmental and church plans) is amended--
        (1) by inserting ``or an eligible deferred compensation plan 
    (within the meaning of section 457(b))'' after ``subsection (e))''; 
    and
        (2) in the heading, by striking ``governmental and church 
    plans'' and inserting ``certain other plans''.
    (b) Waiver of Certain Distribution Requirements.--Paragraph (10) of 
section 414(p) is amended by striking ``and section 409(d)'' and 
inserting ``section 409(d), and section 457(d)''.
    (c) Tax Treatment of Payments From a Section 457 Plan.--Subsection 
(p) of section 414 is amended by redesignating paragraph (12) as 
paragraph (13) and inserting after paragraph (11) the following new 
paragraph:
        ``(12) Tax treatment of payments from a section 457 plan.--If a 
    distribution or payment from an eligible deferred compensation plan 
    described in section 457(b) is made pursuant to a qualified 
    domestic relations order, rules similar to the rules of section 
    402(e)(1)(A) shall apply to such distribution or payment.''.
    (d) Effective Date.--The amendment made by this section shall apply 
to transfers, distributions, and payments made after December 31, 2001.

SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

    (a) Safe Harbor Relief.--
        (1) In general.--The Secretary of the Treasury shall revise the 
    regulations relating to hardship distributions under section 
    401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide 
    that the period an employee is prohibited from making elective and 
    employee contributions in order for a distribution to be deemed 
    necessary to satisfy financial need shall be equal to 6 months.
        (2) Effective date.--The revised regulations under this 
    subsection shall apply to years beginning after December 31, 2001.
    (b) Hardship Distributions Not Treated as Eligible Rollover 
Distributions.--
        (1) Modification of definition of eligible rollover.--
    Subparagraph (C) of section 402(c)(4) (relating to eligible 
    rollover distribution) is amended to read as follows:
            ``(C) any distribution which is made upon hardship of the 
        employee.''.
        (2) Effective date.--The amendment made by this subsection 
    shall apply to distributions made after December 31, 2001.

SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR 
              SIMILAR WORKERS.

    (a) In General.--Section 4972(c)(6) (relating to exceptions to 
nondeductible contributions), as amended by section 616, is amended by 
striking ``and'' at the end of subparagraph (A), by striking the period 
and inserting ``, or'' at the end of subparagraph (B), and by inserting 
after subparagraph (B) the following new subparagraph:
            ``(C) so much of the contributions to a simple retirement 
        account (within the meaning of section 408(p)) or a simple plan 
        (within the meaning of section 401(k)(11)) which are not 
        deductible when contributed solely because such contributions 
        are not made in connection with a trade or business of the 
        employer.''.
    (b) Exclusion of Certain Contributions.--Section 4972(c)(6), as 
amended by subsection (a), is amended by adding at the end the 
following new sentence: ``Subparagraph (C) shall not apply to 
contributions made on behalf of the employer or a member of the 
employer's family (as defined in section 447(e)(1)).''.
    (c) No Inference.--Nothing in the amendments made by this section 
shall be construed to infer the proper treatment of nondeductible 
contributions under the laws in effect before such amendments.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

          Subtitle D--Increasing Portability for Participants

SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
        (1) Rollovers from section 457 plans.--
            (A) In general.--Section 457(e) (relating to other 
        definitions and special rules) is amended by adding at the end 
        the following:
        ``(16) Rollover amounts.--
            ``(A) General rule.--In the case of an eligible deferred 
        compensation plan established and maintained by an employer 
        described in subsection (e)(1)(A), if--
                ``(i) any portion of the balance to the credit of an 
            employee in such plan is paid to such employee in an 
            eligible rollover distribution (within the meaning of 
            section 402(c)(4)),
                ``(ii) the employee transfers any portion of the 
            property such employee receives in such distribution to an 
            eligible retirement plan described in section 402(c)(8)(B), 
            and
                ``(iii) in the case of a distribution of property other 
            than money, the amount so transferred consists of the 
            property distributed,
        then such distribution (to the extent so transferred) shall not 
        be includible in gross income for the taxable year in which 
        paid.
            ``(B) Certain rules made applicable.--The rules of 
        paragraphs (2) through (7) and (9) of section 402(c) and 
        section 402(f) shall apply for purposes of subparagraph (A).
            ``(C) Reporting.--Rollovers under this paragraph shall be 
        reported to the Secretary in the same manner as rollovers from 
        qualified retirement plans (as defined in section 4974(c)).''.
            (B) Deferral limit determined without regard to rollover 
        amounts.--Section 457(b)(2) (defining eligible deferred 
        compensation plan) is amended by inserting ``(other than 
        rollover amounts)'' after ``taxable year''.
            (C) Direct rollover.--Paragraph (1) of section 457(d) is 
        amended by striking ``and'' at the end of subparagraph (A), by 
        striking the period at the end of subparagraph (B) and 
        inserting ``, and'', and by inserting after subparagraph (B) 
        the following:
            ``(C) in the case of a plan maintained by an employer 
        described in subsection (e)(1)(A), the plan meets requirements 
        similar to the requirements of section 401(a)(31).
    Any amount transferred in a direct trustee-to-trustee transfer in 
    accordance with section 401(a)(31) shall not be includible in gross 
    income for the taxable year of transfer.''.
            (D) Withholding.--
                (i) Paragraph (12) of section 3401(a) is amended by 
            adding at the end the following:
            ``(E) under or to an eligible deferred compensation plan 
        which, at the time of such payment, is a plan described in 
        section 457(b) which is maintained by an eligible employer 
        described in section 457(e)(1)(A), or''.
                (ii) Paragraph (3) of section 3405(c) is amended to 
            read as follows:
        ``(3) Eligible rollover distribution.--For purposes of this 
    subsection, the term `eligible rollover distribution' has the 
    meaning given such term by section 402(f)(2)(A).''.
                (iii) Liability for withholding.--Subparagraph (B) of 
            section 3405(d)(2) is amended by striking ``or'' at the end 
            of clause (ii), by striking the period at the end of clause 
            (iii) and inserting ``, or'', and by adding at the end the 
            following:
                ``(iv) section 457(b) and which is maintained by an 
            eligible employer described in section 457(e)(1)(A).''.
        (2) Rollovers to section 457 plans.--
            (A) In general.--Section 402(c)(8)(B) (defining eligible 
        retirement plan) is amended by striking ``and'' at the end of 
        clause (iii), by striking the period at the end of clause (iv) 
        and inserting ``, and'', and by inserting after clause (iv) the 
        following new clause:
                ``(v) an eligible deferred compensation plan described 
            in section 457(b) which is maintained by an eligible 
            employer described in section 457(e)(1)(A).''.
            (B) Separate accounting.--Section 402(c) is amended by 
        adding at the end the following new paragraph:
        ``(10) Separate accounting.--Unless a plan described in clause 
    (v) of paragraph (8)(B) agrees to separately account for amounts 
    rolled into such plan from eligible retirement plans not described 
    in such clause, the plan described in such clause may not accept 
    transfers or rollovers from such retirement plans.''.
            (C) 10 percent additional tax.--Subsection (t) of section 
        72 (relating to 10-percent additional tax on early 
        distributions from qualified retirement plans) is amended by 
        adding at the end the following new paragraph:
        ``(9) Special rule for rollovers to section 457 plans.--For 
    purposes of this subsection, a distribution from an eligible 
    deferred compensation plan (as defined in section 457(b)) of an 
    eligible employer described in section 457(e)(1)(A) shall be 
    treated as a distribution from a qualified retirement plan 
    described in 4974(c)(1) to the extent that such distribution is 
    attributable to an amount transferred to an eligible deferred 
    compensation plan from a qualified retirement plan (as defined in 
    section 4974(c)).''.
    (b) Allowance of Rollovers From and To 403(b) Plans.--
        (1) Rollovers from section 403(b) plans.--Section 
    403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
    striking ``such distribution'' and all that follows and inserting 
    ``such distribution to an eligible retirement plan described in 
    section 402(c)(8)(B), and''.
        (2) Rollovers to section 403(b) plans.--Section 402(c)(8)(B) 
    (defining eligible retirement plan), as amended by subsection (a), 
    is amended by striking ``and'' at the end of clause (iv), by 
    striking the period at the end of clause (v) and inserting ``, 
    and'', and by inserting after clause (v) the following new clause:
                ``(vi) an annuity contract described in section 
            403(b).''.
    (c) Expanded Explanation to Recipients of Rollover Distributions.--
Paragraph (1) of section 402(f) (relating to written explanation to 
recipients of distributions eligible for rollover treatment) is amended 
by striking ``and'' at the end of subparagraph (C), by striking the 
period at the end of subparagraph (D) and inserting ``, and'', and by 
adding at the end the following new subparagraph:
            ``(E) of the provisions under which distributions from the 
        eligible retirement plan receiving the distribution may be 
        subject to restrictions and tax consequences which are 
        different from those applicable to distributions from the plan 
        making such distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to rollover 
where spouse receives distribution after death of employee) is amended 
by striking ``; except that'' and all that follows up to the end 
period.
    (e) Conforming Amendments.--
        (1) Section 72(o)(4) is amended by striking ``and 408(d)(3)'' 
    and inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
        (2) Section 219(d)(2) is amended by striking ``or 408(d)(3)'' 
    and inserting ``408(d)(3), or 457(e)(16)''.
        (3) Section 401(a)(31)(B) is amended by striking ``and 
    403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
    457(e)(16)''.
        (4) Subparagraph (A) of section 402(f)(2) is amended by 
    striking ``or paragraph (4) of section 403(a)'' and inserting ``, 
    paragraph (4) of section 403(a), subparagraph (A) of section 
    403(b)(8), or subparagraph (A) of section 457(e)(16)''.
        (5) Paragraph (1) of section 402(f) is amended by striking 
    ``from an eligible retirement plan''.
        (6) Subparagraphs (A) and (B) of section 402(f)(1) are amended 
    by striking ``another eligible retirement plan'' and inserting ``an 
    eligible retirement plan''.
        (7) Subparagraph (B) of section 403(b)(8) is amended to read as 
    follows:
            ``(B) Certain rules made applicable.--The rules of 
        paragraphs (2) through (7) and (9) of section 402(c) and 
        section 402(f) shall apply for purposes of subparagraph (A), 
        except that section 402(f) shall be applied to the payor in 
        lieu of the plan administrator.''.
        (8) Section 408(a)(1) is amended by striking ``or 403(b)(8),'' 
    and inserting ``403(b)(8), or 457(e)(16)''.
        (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
    amended by striking ``and 408(d)(3)'' and inserting ``403(b)(8), 
    408(d)(3), and 457(e)(16)''.
        (10) Section 415(c)(2) is amended by striking ``and 408(d)(3)'' 
    and inserting ``408(d)(3), and 457(e)(16)''.
        (11) Section 4973(b)(1)(A) is amended by striking ``or 
    408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
    (f) Effective Date; Special Rule.--
        (1) Effective date.--The amendments made by this section shall 
    apply to distributions after December 31, 2001.
        (2) Reasonable notice.--No penalty shall be imposed on a plan 
    for the failure to provide the information required by the 
    amendment made by subsection (c) with respect to any distribution 
    made before the date that is 90 days after the date on which the 
    Secretary of the Treasury issues a safe harbor rollover notice 
    after the date of the enactment of this Act, if the administrator 
    of such plan makes a reasonable attempt to comply with such 
    requirement.
        (3) Special rule.--Notwithstanding any other provision of law, 
    subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act 
    of 1986 shall not apply to any distribution from an eligible 
    retirement plan (as defined in clause (iii) or (iv) of section 
    402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an 
    individual if there was a rollover to such plan on behalf of such 
    individual which is permitted solely by reason of any amendment 
    made by this section.

SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

    (a) In General.--Subparagraph (A) of section 408(d)(3) (relating to 
rollover amounts) is amended by adding ``or'' at the end of clause (i), 
by striking clauses (ii) and (iii), and by adding at the end the 
following:
                ``(ii) the entire amount received (including money and 
            any other property) is paid into an eligible retirement 
            plan for the benefit of such individual not later than the 
            60th day after the date on which the payment or 
            distribution is received, except that the maximum amount 
            which may be paid into such plan may not exceed the portion 
            of the amount received which is includible in gross income 
            (determined without regard to this paragraph).
        For purposes of clause (ii), the term `eligible retirement 
        plan' means an eligible retirement plan described in clause 
        (iii), (iv), (v), or (vi) of section 402(c)(8)(B).''.
    (b) Conforming Amendments.--
        (1) Paragraph (1) of section 403(b) is amended by striking 
    ``section 408(d)(3)(A)(iii)'' and inserting ``section 
    408(d)(3)(A)(ii)''.
        (2) Clause (i) of section 408(d)(3)(D) is amended by striking 
    ``(i), (ii), or (iii)'' and inserting ``(i) or (ii)''.
        (3) Subparagraph (G) of section 408(d)(3) is amended to read as 
    follows:
            ``(G) Simple retirement accounts.--In the case of any 
        payment or distribution out of a simple retirement account (as 
        defined in subsection (p)) to which section 72(t)(6) applies, 
        this paragraph shall not apply unless such payment or 
        distribution is paid into another simple retirement account.''.
    (c) Effective Date; Special Rule.--
        (1) Effective date.--The amendments made by this section shall 
    apply to distributions after December 31, 2001.
        (2) Special rule.--Notwithstanding any other provision of law, 
    subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act 
    of 1986 shall not apply to any distribution from an eligible 
    retirement plan (as defined in clause (iii) or (iv) of section 
    402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an 
    individual if there was a rollover to such plan on behalf of such 
    individual which is permitted solely by reason of the amendments 
    made by this section.

SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 402(c) 
(relating to maximum amount which may be rolled over) is amended by 
adding at the end the following: ``The preceding sentence shall not 
apply to such distribution to the extent--
            ``(A) such portion is transferred in a direct trustee-to-
        trustee transfer to a qualified trust which is part of a plan 
        which is a defined contribution plan and which agrees to 
        separately account for amounts so transferred, including 
        separately accounting for the portion of such distribution 
        which is includible in gross income and the portion of such 
        distribution which is not so includible, or
            ``(B) such portion is transferred to an eligible retirement 
        plan described in clause (i) or (ii) of paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover Distributions.--
Subparagraph (B) of section 401(a)(31) (relating to limitation) is 
amended by adding at the end the following: ``The preceding sentence 
shall not apply to such distribution if the plan to which such 
distribution is transferred--
                ``(i) agrees to separately account for amounts so 
            transferred, including separately accounting for the 
            portion of such distribution which is includible in gross 
            income and the portion of such distribution which is not so 
            includible, or
                ``(ii) is an eligible retirement plan described in 
            clause (i) or (ii) of section 402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) of 
section 408(d) (relating to special rules for applying section 72) is 
amended by inserting at the end the following:
            ``(H) Application of section 72.--
                ``(i) In general.--If--

                    ``(I) a distribution is made from an individual 
                retirement plan, and
                    ``(II) a rollover contribution is made to an 
                eligible retirement plan described in section 
                402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to 
                all or part of such distribution,

            then, notwithstanding paragraph (2), the rules of clause 
            (ii) shall apply for purposes of applying section 72.
                ``(ii) Applicable rules.--In the case of a distribution 
            described in clause (i)--

                    ``(I) section 72 shall be applied separately to 
                such distribution,
                    ``(II) notwithstanding the pro rata allocation of 
                income on, and investment in, the contract to 
                distributions under section 72, the portion of such 
                distribution rolled over to an eligible retirement plan 
                described in clause (i) shall be treated as from income 
                on the contract (to the extent of the aggregate income 
                on the contract from all individual retirement plans of 
                the distributee), and
                    ``(III) appropriate adjustments shall be made in 
                applying section 72 to other distributions in such 
                taxable year and subsequent taxable years.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2001.

SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) (relating to 
transfer must be made within 60 days of receipt) is amended to read as 
follows:
        ``(3) Transfer must be made within 60 days of receipt.--
            ``(A) In general.--Except as provided in subparagraph (B), 
        paragraph (1) shall not apply to any transfer of a distribution 
        made after the 60th day following the day on which the 
        distributee received the property distributed.
            ``(B) Hardship exception.--The Secretary may waive the 60-
        day requirement under subparagraph (A) where the failure to 
        waive such requirement would be against equity or good 
        conscience, including casualty, disaster, or other events 
        beyond the reasonable control of the individual subject to such 
        requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to rollover 
contributions), as amended by section 643, is amended by adding after 
subparagraph (H) the following new subparagraph:
            ``(I) Waiver of 60-day requirement.--The Secretary may 
        waive the 60-day requirement under subparagraphs (A) and (D) 
        where the failure to waive such requirement would be against 
        equity or good conscience, including casualty, disaster, or 
        other events beyond the reasonable control of the individual 
        subject to such requirement.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
        (1) Amendment of internal revenue code.--Paragraph (6) of 
    section 411(d) (relating to accrued benefit not to be decreased by 
    amendment) is amended by adding at the end the following:
            ``(D) Plan transfers.--
                ``(i) In general.--A defined contribution plan (in this 
            subparagraph referred to as the `transferee plan') shall 
            not be treated as failing to meet the requirements of this 
            subsection merely because the transferee plan does not 
            provide some or all of the forms of distribution previously 
            available under another defined contribution plan (in this 
            subparagraph referred to as the `transferor plan') to the 
            extent that--

                    ``(I) the forms of distribution previously 
                available under the transferor plan applied to the 
                account of a participant or beneficiary under the 
                transferor plan that was transferred from the 
                transferor plan to the transferee plan pursuant to a 
                direct transfer rather than pursuant to a distribution 
                from the transferor plan,
                    ``(II) the terms of both the transferor plan and 
                the transferee plan authorize the transfer described in 
                subclause (I),
                    ``(III) the transfer described in subclause (I) was 
                made pursuant to a voluntary election by the 
                participant or beneficiary whose account was 
                transferred to the transferee plan,
                    ``(IV) the election described in subclause (III) 
                was made after the participant or beneficiary received 
                a notice describing the consequences of making the 
                election, and
                    ``(V) the transferee plan allows the participant or 
                beneficiary described in subclause (III) to receive any 
                distribution to which the participant or beneficiary is 
                entitled under the transferee plan in the form of a 
                single sum distribution.

                ``(ii) Special rule for mergers, etc.--Clause (i) shall 
            apply to plan mergers and other transactions having the 
            effect of a direct transfer, including consolidations of 
            benefits attributable to different employers within a 
            multiple employer plan.
            ``(E) Elimination of form of distribution.--Except to the 
        extent provided in regulations, a defined contribution plan 
        shall not be treated as failing to meet the requirements of 
        this section merely because of the elimination of a form of 
        distribution previously available thereunder. This subparagraph 
        shall not apply to the elimination of a form of distribution 
        with respect to any participant unless--
                ``(i) a single sum payment is available to such 
            participant at the same time or times as the form of 
            distribution being eliminated, and
                ``(ii) such single sum payment is based on the same or 
            greater portion of the participant's account as the form of 
            distribution being eliminated.''.
        (2) Amendment of erisa.--Section 204(g) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
    amended by adding at the end the following:
    ``(4)(A) A defined contribution plan (in this subparagraph referred 
to as the `transferee plan') shall not be treated as failing to meet 
the requirements of this subsection merely because the transferee plan 
does not provide some or all of the forms of distribution previously 
available under another defined contribution plan (in this subparagraph 
referred to as the `transferor plan') to the extent that--
        ``(i) the forms of distribution previously available under the 
    transferor plan applied to the account of a participant or 
    beneficiary under the transferor plan that was transferred from the 
    transferor plan to the transferee plan pursuant to a direct 
    transfer rather than pursuant to a distribution from the transferor 
    plan;
        ``(ii) the terms of both the transferor plan and the transferee 
    plan authorize the transfer described in clause (i);
        ``(iii) the transfer described in clause (i) was made pursuant 
    to a voluntary election by the participant or beneficiary whose 
    account was transferred to the transferee plan;
        ``(iv) the election described in clause (iii) was made after 
    the participant or beneficiary received a notice describing the 
    consequences of making the election; and
        ``(v) the transferee plan allows the participant or beneficiary 
    described in clause (iii) to receive any distribution to which the 
    participant or beneficiary is entitled under the transferee plan in 
    the form of a single sum distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and other 
transactions having the effect of a direct transfer, including 
consolidations of benefits attributable to different employers within a 
multiple employer plan.
    ``(5) Except to the extent provided in regulations promulgated by 
the Secretary of the Treasury, a defined contribution plan shall not be 
treated as failing to meet the requirements of this subsection merely 
because of the elimination of a form of distribution previously 
available thereunder. This paragraph shall not apply to the elimination 
of a form of distribution with respect to any participant unless--
        ``(A) a single sum payment is available to such participant at 
    the same time or times as the form of distribution being 
    eliminated; and
        ``(B) such single sum payment is based on the same or greater 
    portion of the participant's account as the form of distribution 
    being eliminated.''.
        (3) Effective date.--The amendments made by this subsection 
    shall apply to years beginning after December 31, 2001.
    (b) Regulations.--
        (1) Amendment of internal revenue code.--Paragraph (6)(B) of 
    section 411(d) (relating to accrued benefit not to be decreased by 
    amendment) is amended by inserting after the second sentence the 
    following: ``The Secretary shall by regulations provide that this 
    subparagraph shall not apply to any plan amendment which reduces or 
    eliminates benefits or subsidies which create significant burdens 
    or complexities for the plan and plan participants, unless such 
    amendment adversely affects the rights of any participant in a more 
    than de minimis manner.''.
        (2) Amendment of erisa.--Section 204(g)(2) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) is 
    amended by inserting after the second sentence the following: ``The 
    Secretary of the Treasury shall by regulations provide that this 
    paragraph shall not apply to any plan amendment which reduces or 
    eliminates benefits or subsidies which create significant burdens 
    or complexities for the plan and plan participants, unless such 
    amendment adversely affects the rights of any participant in a more 
    than de minimis manner.''.
        (3) Secretary directed.--Not later than December 31, 2003, the 
    Secretary of the Treasury is directed to issue regulations under 
    section 411(d)(6) of the Internal Revenue Code of 1986 and section 
    204(g) of the Employee Retirement Income Security Act of 1974, 
    including the regulations required by the amendment made by this 
    subsection. Such regulations shall apply to plan years beginning 
    after December 31, 2003, or such earlier date as is specified by 
    the Secretary of the Treasury.

SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
        (1) Section 401(k).--
            (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
        or deferred arrangements) is amended by striking ``separation 
        from service'' and inserting ``severance from employment''.
            (B) Subparagraph (A) of section 401(k)(10) (relating to 
        distributions upon termination of plan or disposition of assets 
        or subsidiary) is amended to read as follows:
            ``(A) In general.--An event described in this subparagraph 
        is the termination of the plan without establishment or 
        maintenance of another defined contribution plan (other than an 
        employee stock ownership plan as defined in section 
        4975(e)(7)).''.
            (C) Section 401(k)(10) is amended--
                (i) in subparagraph (B)--

                    (I) by striking ``An event'' in clause (i) and 
                inserting ``A termination''; and
                    (II) by striking ``the event'' in clause (i) and 
                inserting ``the termination'';

                (ii) by striking subparagraph (C); and
                (iii) by striking ``or disposition of assets or 
            subsidiary'' in the heading.
        (2) Section 403(b).--
            (A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are 
        each amended by striking ``separates from service'' and 
        inserting ``has a severance from employment''.
            (B) The heading for paragraph (11) of section 403(b) is 
        amended by striking ``separation from service'' and inserting 
        ``severance from employment''.
        (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
    amended by striking ``is separated from service'' and inserting 
    ``has a severance from employment''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
              PLANS.

    (a) Section 403(b) Plans.--Subsection (b) of section 403 is amended 
by adding at the end the following new paragraph:
        ``(13) Trustee-to-trustee transfers to purchase permissive 
    service credit.--No amount shall be includible in gross income by 
    reason of a direct trustee-to-trustee transfer to a defined benefit 
    governmental plan (as defined in section 414(d)) if such transfer 
    is--
            ``(A) for the purchase of permissive service credit (as 
        defined in section 415(n)(3)(A)) under such plan, or
            ``(B) a repayment to which section 415 does not apply by 
        reason of subsection (k)(3) thereof.''.
    (b) Section 457 Plans.--Subsection (e) of section 457, as amended 
by section 641, is amended by adding after paragraph (16) the following 
new paragraph:
        ``(17) Trustee-to-trustee transfers to purchase permissive 
    service credit.--No amount shall be includible in gross income by 
    reason of a direct trustee-to-trustee transfer to a defined benefit 
    governmental plan (as defined in section 414(d)) if such transfer 
    is--
            ``(A) for the purchase of permissive service credit (as 
        defined in section 415(n)(3)(A)) under such plan, or
            ``(B) a repayment to which section 415 does not apply by 
        reason of subsection (k)(3) thereof.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to trustee-to-trustee transfers after December 31, 2001.

SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
              AMOUNTS.

    (a) Qualified Plans.--
        (1) Amendment of internal revenue code.--Section 411(a)(11) 
    (relating to restrictions on certain mandatory distributions) is 
    amended by adding at the end the following:
            ``(D) Special rule for rollover contributions.--A plan 
        shall not fail to meet the requirements of this paragraph if, 
        under the terms of the plan, the present value of the 
        nonforfeitable accrued benefit is determined without regard to 
        that portion of such benefit which is attributable to rollover 
        contributions (and earnings allocable thereto). For purposes of 
        this subparagraph, the term `rollover contributions' means any 
        rollover contribution under sections 402(c), 403(a)(4), 
        403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).''.
        (2) Amendment of erisa.--Section 203(e) of the Employee 
    Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
    amended by adding at the end the following:
    ``(4) A plan shall not fail to meet the requirements of this 
subsection if, under the terms of the plan, the present value of the 
nonforfeitable accrued benefit is determined without regard to that 
portion of such benefit which is attributable to rollover contributions 
(and earnings allocable thereto). For purposes of this subparagraph, 
the term `rollover contributions' means any rollover contribution under 
sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of section 
457(e)(9)(A) is amended by striking ``such amount'' and inserting ``the 
portion of such amount which is not attributable to rollover 
contributions (as defined in section 411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to distributions after December 31, 2001.

SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
              457 PLANS.

    (a) Minimum Distribution Requirements.--Paragraph (2) of section 
457(d) (relating to distribution requirements) is amended to read as 
follows:
        ``(2) Minimum distribution requirements.--A plan meets the 
    minimum distribution requirements of this paragraph if such plan 
    meets the requirements of section 401(a)(9).''.
    (b) Inclusion in Gross Income.--
        (1) Year of inclusion.--Subsection (a) of section 457 (relating 
    to year of inclusion in gross income) is amended to read as 
    follows:
    ``(a) Year of Inclusion in Gross Income.--
        ``(1) In general.--Any amount of compensation deferred under an 
    eligible deferred compensation plan, and any income attributable to 
    the amounts so deferred, shall be includible in gross income only 
    for the taxable year in which such compensation or other income--
            ``(A) is paid to the participant or other beneficiary, in 
        the case of a plan of an eligible employer described in 
        subsection (e)(1)(A), and
            ``(B) is paid or otherwise made available to the 
        participant or other beneficiary, in the case of a plan of an 
        eligible employer described in subsection (e)(1)(B).
        ``(2) Special rule for rollover amounts.--To the extent 
    provided in section 72(t)(9), section 72(t) shall apply to any 
    amount includible in gross income under this subsection.''.
        (2) Conforming amendments.--
            (A) So much of paragraph (9) of section 457(e) as precedes 
        subparagraph (A) is amended to read as follows:
        ``(9) Benefits of tax exempt organization plans not treated as 
    made available by reason of certain elections, etc.--In the case of 
    an eligible deferred compensation plan of an employer described in 
    subsection (e)(1)(B)--''.
            (B) Section 457(d) is amended by adding at the end the 
        following new paragraph:
        ``(3) Special rule for government plan.--An eligible deferred 
    compensation plan of an employer described in subsection (e)(1)(A) 
    shall not be treated as failing to meet the requirements of this 
    subsection solely by reason of making a distribution described in 
    subsection (e)(9)(A).''.
    (c) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to distributions after December 31, 2001.

       Subtitle E--Strengthening Pension Security and Enforcement

                       PART I--GENERAL PROVISIONS

SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

    (a) Amendments to Internal Revenue Code.--Section 412(c)(7) 
(relating to full-funding limitation) is amended--
        (1) by striking ``the applicable percentage'' in subparagraph 
    (A)(i)(I) and inserting ``in the case of plan years beginning 
    before January 1, 2004, the applicable percentage''; and
        (2) by amending subparagraph (F) to read as follows:
            ``(F) Applicable percentage.--For purposes of subparagraph 
        (A)(i)(I), the applicable percentage shall be determined in 
        accordance with the following table:

        ``In the case of any plan year
                                                          The applicable
          beginning in--
                                                         percentage is--
            2002..............................................
                                                                   165  
            2003..............................................
                                                                 170.''.

    (b) Amendment of ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is 
amended--
        (1) by striking ``the applicable percentage'' in subparagraph 
    (A)(i)(I) and inserting ``in the case of plan years beginning 
    before January 1, 2004, the applicable percentage'', and
        (2) by amending subparagraph (F) to read as follows:
            ``(F) Applicable percentage.--For purposes of subparagraph 
        (A)(i)(I), the applicable percentage shall be determined in 
        accordance with the following table:

        ``In the case of any plan year
                                                          The applicable
          beginning in calendar year--
                                                         percentage is--
            2002..............................................
                                                                    165 
            2003..............................................
                                                                 170.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
              ALL DEFINED BENEFIT PLANS.

    (a) In General.--Subparagraph (D) of section 404(a)(1) (relating to 
special rule in case of certain plans) is amended to read as follows:
            ``(D) Special rule in case of certain plans.--
                ``(i) In general.--In the case of any defined benefit 
            plan, except as provided in regulations, the maximum amount 
            deductible under the limitations of this paragraph shall 
            not be less than the unfunded current liability determined 
            under section 412(l).
                ``(ii) Plans with 100 or less participants.--For 
            purposes of this subparagraph, in the case of a plan which 
            has 100 or less participants for the plan year, unfunded 
            current liability shall not include the liability 
            attributable to benefit increases for highly compensated 
            employees (as defined in section 414(q)) resulting from a 
            plan amendment which is made or becomes effective, 
            whichever is later, within the last 2 years.
                ``(iii) Rule for determining number of participants.--
            For purposes of determining the number of plan 
            participants, all defined benefit plans maintained by the 
            same employer (or any member of such employer's controlled 
            group (within the meaning of section 412(l)(8)(C))) shall 
            be treated as one plan, but only employees of such member 
            or employer shall be taken into account.
                ``(iv) Plans maintained by professional service 
            employers.--In the case of a plan which, subject to section 
            4041 of the Employee Retirement Income Security Act of 
            1974, terminates during the plan year, clause (i) shall be 
            applied by substituting for unfunded current liability the 
            amount required to make the plan sufficient for benefit 
            liabilities (within the meaning of section 4041(d) of such 
            Act).''.
    (b) Conforming Amendment.--Paragraph (6) of section 4972(c), as 
amended by sections 616 and 637, is amended--
        (1) by striking subparagraph (A) and redesignating 
    subparagraphs (B) and (C) as subparagraphs (A) and (B), 
    respectively,
        (2) by striking the first sentence following subparagraph (B) 
    (as so redesignated),
        (3) by striking ``subparagraph (B)'' in the next to last 
    sentence and inserting ``subparagraph (A)'', and
        (4) by striking ``Subparagraph (C)'' in the last sentence and 
    inserting ``Subparagraph (B)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating to 
nondeductible contributions) is amended by adding at the end the 
following new paragraph:
        ``(7) Defined benefit plan exception.--In determining the 
    amount of nondeductible contributions for any taxable year, an 
    employer may elect for such year not to take into account any 
    contributions to a defined benefit plan except to the extent that 
    such contributions exceed the full-funding limitation (as defined 
    in section 412(c)(7), determined without regard to subparagraph 
    (A)(i)(I) thereof). For purposes of this paragraph, the deductible 
    limits under section 404(a)(7) shall first be applied to amounts 
    contributed to defined contribution plans and then to amounts 
    described in this paragraph. If an employer makes an election under 
    this paragraph for a taxable year, paragraph (6) shall not apply to 
    such employer for such taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--
        (1) In general.--Paragraph (11) of section 415(b) (relating to 
    limitation for defined benefit plans) is amended to read as 
    follows:
        ``(11) Special limitation rule for governmental and 
    multiemployer plans.--In the case of a governmental plan (as 
    defined in section 414(d)) or a multiemployer plan (as defined in 
    section 414(f)), subparagraph (B) of paragraph (1) shall not 
    apply.''.
        (2) Conforming amendment.--Section 415(b)(7) (relating to 
    benefits under certain collectively bargained plans) is amended by 
    inserting ``(other than a multiemployer plan)'' after ``defined 
    benefit plan'' in the matter preceding subparagraph (A).
    (b) Combining and Aggregation of Plans.--
        (1) Combining of plans.--Subsection (f) of section 415 
    (relating to combining of plans) is amended by adding at the end 
    the following:
        ``(3) Exception for multiemployer plans.--Notwithstanding 
    paragraph (1) and subsection (g), a multiemployer plan (as defined 
    in section 414(f)) shall not be combined or aggregated--
            ``(A) with any other plan which is not a multiemployer plan 
        for purposes of applying subsection (b)(1)(B) to such other 
        plan, or
            ``(B) with any other multiemployer plan for purposes of 
        applying the limitations established in this section.''.
        (2) Conforming amendment for aggregation of plans.--Subsection 
    (g) of section 415 (relating to aggregation of plans) is amended by 
    striking ``The Secretary'' and inserting ``Except as provided in 
    subsection (f)(3), the Secretary''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
              PLANS.

    (a) In General.--Section 1524(b) of the Taxpayer Relief Act of 1997 
is amended to read as follows:
    ``(b) Effective Date.--
        ``(1) In general.--Except as provided in paragraph (2), the 
    amendments made by this section shall apply to elective deferrals 
    for plan years beginning after December 31, 1998.
        ``(2) Nonapplication to previously acquired property.--The 
    amendments made by this section shall not apply to any elective 
    deferral which is invested in assets consisting of qualifying 
    employer securities, qualifying employer real property, or both, if 
    such assets were acquired before January 1, 1999.''.
    (b) Effective Date.--The amendment made by this section shall apply 
as if included in the provision of the Taxpayer Relief Act of 1997 to 
which it relates.

SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

    (a) In General.--Section 409 (relating to qualifications for tax 
credit employee stock ownership plans) is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Prohibited Allocations of Securities in an S Corporation.--
        ``(1) In general.--An employee stock ownership plan holding 
    employer securities consisting of stock in an S corporation shall 
    provide that no portion of the assets of the plan attributable to 
    (or allocable in lieu of) such employer securities may, during a 
    nonallocation year, accrue (or be allocated directly or indirectly 
    under any plan of the employer meeting the requirements of section 
    401(a)) for the benefit of any disqualified person.
        ``(2) Failure to meet requirements.--
            ``(A) In general.--If a plan fails to meet the requirements 
        of paragraph (1), the plan shall be treated as having 
        distributed to any disqualified person the amount allocated to 
        the account of such person in violation of paragraph (1) at the 
        time of such allocation.
            ``(B) Cross reference.--
          ``For excise tax relating to violations of paragraph (1) and 
        ownership of synthetic equity, see section 4979A.

        ``(3) Nonallocation year.--For purposes of this subsection--
            ``(A) In general.--The term `nonallocation year' means any 
        plan year of an employee stock ownership plan if, at any time 
        during such plan year--
                ``(i) such plan holds employer securities consisting of 
            stock in an S corporation, and
                ``(ii) disqualified persons own at least 50 percent of 
            the number of shares of stock in the S corporation.
            ``(B) Attribution rules.--For purposes of subparagraph 
        (A)--
                ``(i) In general.--The rules of section 318(a) shall 
            apply for purposes of determining ownership, except that--

                    ``(I) in applying paragraph (1) thereof, the 
                members of an individual's family shall include members 
                of the family described in paragraph (4)(D), and
                    ``(II) paragraph (4) thereof shall not apply.

                ``(ii) Deemed-owned shares.--Notwithstanding the 
            employee trust exception in section 318(a)(2)(B)(i), an 
            individual shall be treated as owning deemed-owned shares 
            of the individual.
        Solely for purposes of applying paragraph (5), this 
        subparagraph shall be applied after the attribution rules of 
        paragraph (5) have been applied.
        ``(4) Disqualified person.--For purposes of this subsection--
            ``(A) In general.--The term `disqualified person' means any 
        person if--
                ``(i) the aggregate number of deemed-owned shares of 
            such person and the members of such person's family is at 
            least 20 percent of the number of deemed-owned shares of 
            stock in the S corporation, or
                ``(ii) in the case of a person not described in clause 
            (i), the number of deemed-owned shares of such person is at 
            least 10 percent of the number of deemed-owned shares of 
            stock in such corporation.
            ``(B) Treatment of family members.--In the case of a 
        disqualified person described in subparagraph (A)(i), any 
        member of such person's family with deemed-owned shares shall 
        be treated as a disqualified person if not otherwise treated as 
        a disqualified person under subparagraph (A).
            ``(C) Deemed-owned shares.--
                ``(i) In general.--The term `deemed-owned shares' 
            means, with respect to any person--

                    ``(I) the stock in the S corporation constituting 
                employer securities of an employee stock ownership plan 
                which is allocated to such person under the plan, and
                    ``(II) such person's share of the stock in such 
                corporation which is held by such plan but which is not 
                allocated under the plan to participants.

                ``(ii) Person's share of unallocated stock.--For 
            purposes of clause (i)(II), a person's share of unallocated 
            S corporation stock held by such plan is the amount of the 
            unallocated stock which would be allocated to such person 
            if the unallocated stock were allocated to all participants 
            in the same proportions as the most recent stock allocation 
            under the plan.
            ``(D) Member of family.--For purposes of this paragraph, 
        the term `member of the family' means, with respect to any 
        individual--
                ``(i) the spouse of the individual,
                ``(ii) an ancestor or lineal descendant of the 
            individual or the individual's spouse,
                ``(iii) a brother or sister of the individual or the 
            individual's spouse and any lineal descendant of the 
            brother or sister, and
                ``(iv) the spouse of any individual described in clause 
            (ii) or (iii).
        A spouse of an individual who is legally separated from such 
        individual under a decree of divorce or separate maintenance 
        shall not be treated as such individual's spouse for purposes 
        of this subparagraph.
        ``(5) Treatment of synthetic equity.--For purposes of 
    paragraphs (3) and (4), in the case of a person who owns synthetic 
    equity in the S corporation, except to the extent provided in 
    regulations, the shares of stock in such corporation on which such 
    synthetic equity is based shall be treated as outstanding stock in 
    such corporation and deemed-owned shares of such person if such 
    treatment of synthetic equity of 1 or more such persons results 
    in--
            ``(A) the treatment of any person as a disqualified person, 
        or
            ``(B) the treatment of any year as a nonallocation year.
    For purposes of this paragraph, synthetic equity shall be treated 
    as owned by a person in the same manner as stock is treated as 
    owned by a person under the rules of paragraphs (2) and (3) of 
    section 318(a). If, without regard to this paragraph, a person is 
    treated as a disqualified person or a year is treated as a 
    nonallocation year, this paragraph shall not be construed to result 
    in the person or year not being so treated.
        ``(6) Definitions.--For purposes of this subsection--
            ``(A) Employee stock ownership plan.--The term `employee 
        stock ownership plan' has the meaning given such term by 
        section 4975(e)(7).
            ``(B) Employer securities.--The term `employer security' 
        has the meaning given such term by section 409(l).
            ``(C) Synthetic equity.--The term `synthetic equity' means 
        any stock option, warrant, restricted stock, deferred issuance 
        stock right, or similar interest or right that gives the holder 
        the right to acquire or receive stock of the S corporation in 
        the future. Except to the extent provided in regulations, 
        synthetic equity also includes a stock appreciation right, 
        phantom stock unit, or similar right to a future cash payment 
        based on the value of such stock or appreciation in such value.
        ``(7) Regulations and guidance.--
            ``(A) In general.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection.
            ``(B) Avoidance or evasion.--The Secretary may, by 
        regulation or other guidance of general applicability, provide 
        that a nonallocation year occurs in any case in which the 
        principal purpose of the ownership structure of an S 
        corporation constitutes an avoidance or evasion of this 
        subsection.''.
    (b) Coordination With Section 4975(e)(7).--The last sentence of 
section 4975(e)(7) (defining employee stock ownership plan) is amended 
by inserting ``, section 409(p),'' after ``409(n)''.
    (c) Excise Tax.--
        (1) Application of tax.--Subsection (a) of section 4979A 
    (relating to tax on certain prohibited allocations of employer 
    securities) is amended--
            (A) by striking ``or'' at the end of paragraph (1), and
            (B) by striking all that follows paragraph (2) and 
        inserting the following:
        ``(3) there is any allocation of employer securities which 
    violates the provisions of section 409(p), or a nonallocation year 
    described in subsection (e)(2)(C) with respect to an employee stock 
    ownership plan, or
        ``(4) any synthetic equity is owned by a disqualified person in 
    any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 
50 percent of the amount involved.''.
        (2) Liability.--Section 4979A(c) (defining liability for tax) 
    is amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section shall be 
paid--
        ``(1) in the case of an allocation referred to in paragraph (1) 
    or (2) of subsection (a), by--
            ``(A) the employer sponsoring such plan, or
            ``(B) the eligible worker-owned cooperative,
    which made the written statement described in section 664(g)(1)(E) 
    or in section 1042(b)(3)(B) (as the case may be), and
        ``(2) in the case of an allocation or ownership referred to in 
    paragraph (3) or (4) of subsection (a), by the S corporation the 
    stock in which was so allocated or owned.''.
        (3) Definitions.--Section 4979A(e) (relating to definitions) is 
    amended to read as follows:
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Definitions.--Except as provided in paragraph (2), terms 
    used in this section have the same respective meanings as when used 
    in sections 409 and 4978.
        ``(2) Special rules relating to tax imposed by reason of 
    paragraph (3) or (4) of subsection (a).--
            ``(A) Prohibited allocations.--The amount involved with 
        respect to any tax imposed by reason of subsection (a)(3) is 
        the amount allocated to the account of any person in violation 
        of section 409(p)(1).
            ``(B) Synthetic equity.--The amount involved with respect 
        to any tax imposed by reason of subsection (a)(4) is the value 
        of the shares on which the synthetic equity is based.
            ``(C) Special rule during first nonallocation year.--For 
        purposes of subparagraph (A), the amount involved for the first 
        nonallocation year of any employee stock ownership plan shall 
        be determined by taking into account the total value of all the 
        deemed-owned shares of all disqualified persons with respect to 
        such plan.
            ``(D) Statute of limitations.--The statutory period for the 
        assessment of any tax imposed by this section by reason of 
        paragraph (3) or (4) of subsection (a) shall not expire before 
        the date which is 3 years from the later of--
                ``(i) the allocation or ownership referred to in such 
            paragraph giving rise to such tax, or
                ``(ii) the date on which the Secretary is notified of 
            such allocation or ownership.''.
    (d) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to plan years beginning after December 31, 2004.
        (2) Exception for certain plans.--In the case of any--
            (A) employee stock ownership plan established after March 
        14, 2001, or
            (B) employee stock ownership plan established on or before 
        such date if employer securities held by the plan consist of 
        stock in a corporation with respect to which an election under 
        section 1362(a) of the Internal Revenue Code of 1986 is not in 
        effect on such date,
    the amendments made by this section shall apply to plan years 
    ending after March 14, 2001.

SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DISTRIBUTIONS.

    (a) Direct Transfers of Mandatory Distributions.--
        (1) In general.--Section 401(a)(31) (relating to optional 
    direct transfer of eligible rollover distributions), as amended by 
    section 643, is amended by redesignating subparagraphs (B), (C), 
    and (D) as subparagraphs (C), (D), and (E), respectively, and by 
    inserting after subparagraph (A) the following new subparagraph:
            ``(B) Certain mandatory distributions.--
                ``(i) In general.--In case of a trust which is part of 
            an eligible plan, such trust shall not constitute a 
            qualified trust under this section unless the plan of which 
            such trust is a part provides that if--

                    ``(I) a distribution described in clause (ii) in 
                excess of $1,000 is made, and
                    ``(II) the distributee does not make an election 
                under subparagraph (A) and does not elect to receive 
                the distribution directly,

            the plan administrator shall make such transfer to an 
            individual retirement plan of a designated trustee or 
            issuer and shall notify the distributee in writing (either 
            separately or as part of the notice under section 402(f)) 
            that the distribution may be transferred to another 
            individual retirement plan.
                ``(ii) Eligible plan.--For purposes of clause (i), the 
            term `eligible plan' means a plan which provides that any 
            nonforfeitable accrued benefit for which the present value 
            (as determined under section 411(a)(11)) does not exceed 
            $5,000 shall be immediately distributed to the 
            participant.''.
        (2) Conforming amendments.--
            (A) The heading of section 401(a)(31) is amended by 
        striking ``Optional direct'' and inserting ``Direct''.
            (B) Section 401(a)(31)(C), as redesignated by paragraph 
        (1), is amended by striking ``Subparagraph (A)'' and inserting 
        ``Subparagraphs (A) and (B)''.
    (b) Notice Requirement.--Subparagraph (A) of section 402(f)(1) is 
amended by inserting before the comma at the end the following: ``and 
that the automatic distribution by direct transfer applies to certain 
distributions in accordance with section 401(a)(31)(B)''.
    (c) Fiduciary Rules.--
        (1) In general.--Section 404(c) of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended by 
    adding at the end the following new paragraph:
        ``(3) In the case of a pension plan which makes a transfer to 
    an individual retirement account or annuity of a designated trustee 
    or issuer under section 401(a)(31)(B) of the Internal Revenue Code 
    of 1986, the participant or beneficiary shall, for purposes of 
    paragraph (1), be treated as exercising control over the assets in 
    the account or annuity upon--
            ``(A) the earlier of the earlier of--
                ``(i) a rollover of all or a portion of the amount to 
            another individual retirement account or annuity; or
                ``(ii) one year after the transfer is made; or
            ``(B) if the transfer is made in a manner consistent with 
        guidance provided by the Secretary.''.
        (2) Regulations.--
            (A) Automatic rollover safe harbor.--Not later than 3 years 
        after the date of enactment of this Act, the Secretary of Labor 
        shall prescribe regulations providing for safe harbors under 
        which the designation of an institution and investment of funds 
        in accordance with section 401(a)(31)(B) of the Internal 
        Revenue Code of 1986 is deemed to satisfy the fiduciary 
        requirements of section 404(a) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1104(a)).
            (B) Use of low-cost individual retirement plans.--The 
        Secretary of the Treasury and the Secretary of Labor may 
        provide, and shall give consideration to providing, special 
        relief with respect to the use of low-cost individual 
        retirement plans for purposes of transfers under section 
        401(a)(31)(B) of the Internal Revenue Code of 1986 and for 
        other uses that promote the preservation of assets for 
        retirement income purposes.
    (d) Effective Date.--The amendments made by this section shall 
apply to distributions made after final regulations implementing 
subsection (c)(2)(A) are prescribed.

SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO MULTIEMPLOYER 
              PLAN.

    (a) Not Considered Method of Accounting.--For purposes of section 
446 of the Internal Revenue Code of 1986, a determination under section 
404(a)(6) of such Code regarding the taxable year with respect to which 
a contribution to a multiemployer pension plan is deemed made shall not 
be treated as a method of accounting of the taxpayer. No deduction 
shall be allowed for any taxable year for any contribution to a 
multiemployer pension plan with respect to which a deduction was 
previously allowed.
    (b) Regulations.--The Secretary of the Treasury shall promulgate 
such regulations as necessary to clarify that a taxpayer shall not be 
allowed an aggregate amount of deductions for contributions to a 
multiemployer pension plan which exceeds the amount of such 
contributions made or deemed made under section 404(a)(6) of the 
Internal Revenue Code of 1986 to such plan.
    (c) Effective Date.--Subsection (a), and any regulations 
promulgated under subsection (b), shall be effective for years ending 
after the date of the enactment of this Act.

 PART II--TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS

SEC. 659. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
              PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.

    (a) Amendment of Internal Revenue Code.--
        (1) In general.--Chapter 43 (relating to qualified pension, 
    etc., plans) is amended by adding at the end the following new 
    section:

``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO 
              SATISFY NOTICE REQUIREMENTS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any applicable pension plan to meet the requirements of 
subsection (e) with respect to any applicable individual.
    ``(b) Amount of Tax.--
        ``(1) In general.--The amount of the tax imposed by subsection 
    (a) on any failure with respect to any applicable individual shall 
    be $100 for each day in the noncompliance period with respect to 
    such failure.
        ``(2) Noncompliance period.--For purposes of this section, the 
    term `noncompliance period' means, with respect to any failure, the 
    period beginning on the date the failure first occurs and ending on 
    the date the notice to which the failure relates is provided or the 
    failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
        ``(1) Tax not to apply where failure not discovered and 
    reasonable diligence exercised.--No tax shall be imposed by 
    subsection (a) on any failure during any period for which it is 
    established to the satisfaction of the Secretary that any person 
    subject to liability for the tax under subsection (d) did not know 
    that the failure existed and exercised reasonable diligence to meet 
    the requirements of subsection (e).
        ``(2) Tax not to apply to failures corrected within 30 days.--
    No tax shall be imposed by subsection (a) on any failure if--
            ``(A) any person subject to liability for the tax under 
        subsection (d) exercised reasonable diligence to meet the 
        requirements of subsection (e), and
            ``(B) such person provides the notice described in 
        subsection (e) during the 30-day period beginning on the first 
        date such person knew, or exercising reasonable diligence would 
        have known, that such failure existed.
        ``(3) Overall limitation for unintentional failures.--
            ``(A) In general.--If the person subject to liability for 
        tax under subsection (d) exercised reasonable diligence to meet 
        the requirements of subsection (e), the tax imposed by 
        subsection (a) for failures during the taxable year of the 
        employer (or, in the case of a multiemployer plan, the taxable 
        year of the trust forming part of the plan) shall not exceed 
        $500,000. For purposes of the preceding sentence, all 
        multiemployer plans of which the same trust forms a part shall 
        be treated as 1 plan.
            ``(B) Taxable years in the case of certain controlled 
        groups.--For purposes of this paragraph, if all persons who are 
        treated as a single employer for purposes of this section do 
        not have the same taxable year, the taxable years taken into 
        account shall be determined under principles similar to the 
        principles of section 1561.
        ``(4) Waiver by secretary.--In the case of a failure which is 
    due to reasonable cause and not to willful neglect, the Secretary 
    may waive part or all of the tax imposed by subsection (a) to the 
    extent that the payment of such tax would be excessive or otherwise 
    inequitable relative to the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
        ``(1) In the case of a plan other than a multiemployer plan, 
    the employer.
        ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Notice Requirements for Plans Significantly Reducing Benefit 
Accruals.--
        ``(1) In general.--If an applicable pension plan is amended to 
    provide for a significant reduction in the rate of future benefit 
    accrual, the plan administrator shall provide written notice to 
    each applicable individual (and to each employee organization 
    representing applicable individuals).
        ``(2) Notice.--The notice required by paragraph (1) shall be 
    written in a manner calculated to be understood by the average plan 
    participant and shall provide sufficient information (as determined 
    in accordance with regulations prescribed by the Secretary) to 
    allow applicable individuals to understand the effect of the plan 
    amendment. The Secretary may provide a simplified form of notice 
    for, or exempt from any notice requirement, a plan--
            ``(A) which has fewer than 100 participants who have 
        accrued a benefit under the plan, or
            ``(B) which offers participants the option to choose 
        between the new benefit formula and the old benefit formula.
        ``(3) Timing of notice.--Except as provided in regulations, the 
    notice required by paragraph (1) shall be provided within a 
    reasonable time before the effective date of the plan amendment.
        ``(4) Designees.--Any notice under paragraph (1) may be 
    provided to a person designated, in writing, by the person to which 
    it would otherwise be provided.
        ``(5) Notice before adoption of amendment.--A plan shall not be 
    treated as failing to meet the requirements of paragraph (1) merely 
    because notice is provided before the adoption of the plan 
    amendment if no material modification of the amendment occurs 
    before the amendment is adopted.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
        ``(1) Applicable individual.--The term `applicable individual' 
    means, with respect to any plan amendment--
            ``(A) each participant in the plan, and
            ``(B) any beneficiary who is an alternate payee (within the 
        meaning of section 414(p)(8)) under an applicable qualified 
        domestic relations order (within the meaning of section 
        414(p)(1)(A)),
    whose rate of future benefit accrual under the plan may reasonably 
    be expected to be significantly reduced by such plan amendment.
        ``(2) Applicable pension plan.--The term `applicable pension 
    plan' means--
            ``(A) any defined benefit plan, or
            ``(B) an individual account plan which is subject to the 
        funding standards of section 412.
    Such term shall not include a governmental plan (within the meaning 
    of section 414(d)) or a church plan (within the meaning of section 
    414(e)) with respect to which the election provided by section 
    410(d) has not been made.
        ``(3) Early retirement.--A plan amendment which eliminates or 
    significantly reduces any early retirement benefit or retirement-
    type subsidy (within the meaning of section 411(d)(6)(B)(i)) shall 
    be treated as having the effect of significantly reducing the rate 
    of future benefit accrual.
    ``(g) New Technologies.--The Secretary may by regulations allow any 
notice under subsection (e) to be provided by using new 
technologies.''.
        (2) Clerical amendment.--The table of sections for chapter 43 
    is amended by adding at the end the following new item:
         ``Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.''.

    (b) Amendment of ERISA.--Subsection (h) of section 204 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054) is 
amended to read as follows:
    ``(h)(1) An applicable pension plan may not be amended so as to 
provide for a significant reduction in the rate of future benefit 
accrual unless the plan administrator provides the notice described in 
paragraph (2) to each applicable individual (and to each employee 
organization representing applicable individuals).
    ``(2) The notice required by paragraph (1) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall provide sufficient information (as determined in accordance with 
regulations prescribed by the Secretary of the Treasury) to allow 
applicable individuals to understand the effect of the plan amendment. 
The Secretary of the Treasury may provide a simplified form of notice 
for, or exempt from any notice requirement, a plan--
        ``(A) which has fewer than 100 participants who have accrued a 
    benefit under the plan, or
        ``(B) which offers participants the option to choose between 
    the new benefit formula and the old benefit formula.
    ``(3) Except as provided in regulations prescribed by the Secretary 
of the Treasury, the notice required by paragraph (1) shall be provided 
within a reasonable time before the effective date of the plan 
amendment.
    ``(4) Any notice under paragraph (1) may be provided to a person 
designated, in writing, by the person to which it would otherwise be 
provided.
    ``(5) A plan shall not be treated as failing to meet the 
requirements of paragraph (1) merely because notice is provided before 
the adoption of the plan amendment if no material modification of the 
amendment occurs before the amendment is adopted.
    ``(6)(A) In the case of any egregious failure to meet any 
requirement of this subsection with respect to any plan amendment, the 
provisions of the applicable pension plan shall be applied as if such 
plan amendment entitled all applicable individuals to the greater of--
        ``(i) the benefits to which they would have been entitled 
    without regard to such amendment, or
        ``(ii) the benefits under the plan with regard to such 
    amendment.
    ``(B) For purposes of subparagraph (A), there is an egregious 
failure to meet the requirements of this subsection if such failure is 
within the control of the plan sponsor and is--
        ``(i) an intentional failure (including any failure to promptly 
    provide the required notice or information after the plan 
    administrator discovers an unintentional failure to meet the 
    requirements of this subsection),
        ``(ii) a failure to provide most of the individuals with most 
    of the information they are entitled to receive under this 
    subsection, or
        ``(iii) a failure which is determined to be egregious under 
    regulations prescribed by the Secretary of the Treasury.
    ``(7) The Secretary of the Treasury may by regulations allow any 
notice under this subsection to be provided by using new technologies.
    ``(8) For purposes of this subsection--
        ``(A) The term `applicable individual' means, with respect to 
    any plan amendment--
            ``(i) each participant in the plan; and
            ``(ii) any beneficiary who is an alternate payee (within 
        the meaning of section 206(d)(3)(K)) under an applicable 
        qualified domestic relations order (within the meaning of 
        section 206(d)(3)(B)(i)),
    whose rate of future benefit accrual under the plan may reasonably 
    be expected to be significantly reduced by such plan amendment.
        ``(B) The term `applicable pension plan' means--
            ``(i) any defined benefit plan; or
            ``(ii) an individual account plan which is subject to the 
        funding standards of section 412 of the Internal Revenue Code 
        of 1986.
    ``(9) For purposes of this subsection, a plan amendment which 
eliminates or significantly reduces any early retirement benefit or 
retirement-type subsidy (within the meaning of subsection (g)(2)(A)) 
shall be treated as having the effect of significantly reducing the 
rate of future benefit accrual.''.
    (c) Effective Dates.--
        (1) In general.--The amendments made by this section shall 
    apply to plan amendments taking effect on or after the date of the 
    enactment of this Act.
        (2) Transition.--Until such time as the Secretary of the 
    Treasury issues regulations under sections 4980F(e)(2) and (3) of 
    the Internal Revenue Code of 1986, and section 204(h) of the 
    Employee Retirement Income Security Act of 1974, as added by the 
    amendments made by this section, a plan shall be treated as meeting 
    the requirements of such sections if it makes a good faith effort 
    to comply with such requirements.
        (3) Special notice rule.--
            (A) In general.--The period for providing any notice 
        required by the amendments made by this section shall not end 
        before the date which is 3 months after the date of the 
        enactment of this Act.
            (B) Reasonable notice.--The amendments made by this section 
        shall not apply to any plan amendment taking effect on or after 
        the date of the enactment of this Act if, before April 25, 
        2001, notice was provided to participants and beneficiaries 
        adversely affected by the plan amendment (or their 
        representatives) which was reasonably expected to notify them 
        of the nature and effective date of the plan amendment.

                Subtitle F--Reducing Regulatory Burdens

SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Paragraph (9) of section 412(c) (relating to 
annual valuation) is amended to read as follows:
        ``(9) Annual valuation.--
            ``(A) In general.--For purposes of this section, a 
        determination of experience gains and losses and a valuation of 
        the plan's liability shall be made not less frequently than 
        once every year, except that such determination shall be made 
        more frequently to the extent required in particular cases 
        under regulations prescribed by the Secretary.
            ``(B) Valuation date.--
                ``(i) Current year.--Except as provided in clause (ii), 
            the valuation referred to in subparagraph (A) shall be made 
            as of a date within the plan year to which the valuation 
            refers or within one month prior to the beginning of such 
            year.
                ``(ii) Use of prior year valuation.--The valuation 
            referred to in subparagraph (A) may be made as of a date 
            within the plan year prior to the year to which the 
            valuation refers if, as of such date, the value of the 
            assets of the plan are not less than 125 percent of the 
            plan's current liability (as defined in paragraph (7)(B)).
                ``(iii) Adjustments.--Information under clause (ii) 
            shall, in accordance with regulations, be actuarially 
            adjusted to reflect significant differences in 
            participants.''.
    (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
amended--
        (1) by inserting ``(A)'' after ``(9)'', and
        (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), the valuation referred 
to in subparagraph (A) shall be made as of a date within the plan year 
to which the valuation refers or within one month prior to the 
beginning of such year.
    ``(ii) The valuation referred to in subparagraph (A) may be made as 
of a date within the plan year prior to the year to which the valuation 
refers if, as of such date, the value of the assets of the plan are not 
less than 125 percent of the plan's current liability (as defined in 
paragraph (7)(B)).
    ``(iii) Information under clause (ii) shall, in accordance with 
regulations, be actuarially adjusted to reflect significant differences 
in participants.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2001.

SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
              DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause (ii), by 
redesignating clause (iii) as clause (iv), and by inserting after 
clause (ii) the following new clause:
                ``(iii) is, at the election of such participants or 
            their beneficiaries--

                    ``(I) payable as provided in clause (i) or (ii), or
                    ``(II) paid to the plan and reinvested in 
                qualifying employer securities, or''.

    (b) Standards for Disallowance.--Section 404(k)(5)(A) (relating to 
disallowance of deduction) is amended by inserting ``avoidance or'' 
before ``evasion''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
              COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the Tax Reform 
Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to plan years beginning after December 31, 2001.

SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES.

    (a) In General.--The Secretary of the Treasury shall modify 
Treasury Regulations section 1.410(b)-6(g) to provide that employees of 
an organization described in section 403(b)(1)(A)(i) of the Internal 
Revenue Code of 1986 who are eligible to make contributions under 
section 403(b) of such Code pursuant to a salary reduction agreement 
may be treated as excludable with respect to a plan under section 
401(k) or (m) of such Code that is provided under the same general 
arrangement as a plan under such section 401(k), if--
        (1) no employee of an organization described in section 
    403(b)(1)(A)(i) of such Code is eligible to participate in such 
    section 401(k) plan or section 401(m) plan; and
        (2) 95 percent of the employees who are not employees of an 
    organization described in section 403(b)(1)(A)(i) of such Code are 
    eligible to participate in such plan under such section 401(k) or 
    (m).
    (b) Effective Date.--The modification required by subsection (a) 
shall apply as of the same date set forth in section 1426(b) of the 
Small Business Job Protection Act of 1996.

SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
              ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at the end 
of paragraph (5), by striking the period at the end of paragraph (6) 
and inserting ``, or'', and by adding at the end the following new 
paragraph:
        ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--Section 132 is 
amended by redesignating subsection (m) as subsection (n) and by 
inserting after subsection (l) the following:
    ``(m) Qualified Retirement Planning Services.--
        ``(1) In general.--For purposes of this section, the term 
    `qualified retirement planning services' means any retirement 
    planning advice or information provided to an employee and his 
    spouse by an employer maintaining a qualified employer plan.
        ``(2) Nondiscrimination rule.--Subsection (a)(7) shall apply in 
    the case of highly compensated employees only if such services are 
    available on substantially the same terms to each member of the 
    group of employees normally provided education and information 
    regarding the employer's qualified employer plan.
        ``(3) Qualified employer plan.--For purposes of this 
    subsection, the term `qualified employer plan' means a plan, 
    contract, pension, or account described in section 219(g)(5).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2001.

SEC. 666. REPEAL OF THE MULTIPLE USE TEST.

    (a) In General.--Paragraph (9) of section 401(m) is amended to read 
as follows:
        ``(9) Regulations.--The Secretary shall prescribe such 
    regulations as may be necessary to carry out the purposes of this 
    subsection and subsection (k), including regulations permitting 
    appropriate aggregation of plans and contributions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 2001.

                  Subtitle G--Miscellaneous Provisions

SEC. 671. TAX TREATMENT AND INFORMATION REQUIREMENTS OF ALASKA NATIVE 
              SETTLEMENT TRUSTS.

    (a) Treatment of Alaska Native Settlement Trusts.--Subpart A of 
part I of subchapter J of chapter 1 (relating to general rules for 
taxation of trusts and estates) is amended by adding at the end the 
following new section:

``SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--If an election under this section is in effect 
with respect to any Settlement Trust, the provisions of this section 
shall apply in determining the income tax treatment of the Settlement 
Trust and its beneficiaries with respect to the Settlement Trust.
    ``(b) Taxation of Income of Trust.--Except as provided in 
subsection (f)(1)(B)(ii)--
        ``(1) In general.--There is hereby imposed on the taxable 
    income of an electing Settlement Trust, other than its net capital 
    gain, a tax at the lowest rate specified in section 1(c).
        ``(2) Capital gain.--In the case of an electing Settlement 
    Trust with a net capital gain for the taxable year, a tax is hereby 
    imposed on such gain at the rate of tax which would apply to such 
    gain if the taxpayer were subject to a tax on its other taxable 
    income at only the lowest rate specified in section 1(c).
Any such tax shall be in lieu of the income tax otherwise imposed by 
this chapter on such income or gain.
    ``(c) One-Time Election.--
        ``(1) In general.--A Settlement Trust may elect to have the 
    provisions of this section apply to the trust and its 
    beneficiaries.
        ``(2) Time and method of election.--An election under paragraph 
    (1) shall be made by the trustee of such trust--
            ``(A) on or before the due date (including extensions) for 
        filing the Settlement Trust's return of tax for the first 
        taxable year of such trust ending after the date of the 
        enactment of this section, and
            ``(B) by attaching to such return of tax a statement 
        specifically providing for such election.
        ``(3) Period election in effect.--Except as provided in 
    subsection (f), an election under this subsection--
            ``(A) shall apply to the first taxable year described in 
        paragraph (2)(A) and all subsequent taxable years, and
            ``(B) may not be revoked once it is made.
    ``(d) Contributions to Trust.--
        ``(1) Beneficiaries of electing trust not taxed on 
    contributions.--In the case of an electing Settlement Trust, no 
    amount shall be includible in the gross income of a beneficiary of 
    such trust by reason of a contribution to such trust.
        ``(2) Earnings and profits.--The earnings and profits of the 
    sponsoring Native Corporation shall not be reduced on account of 
    any contribution to such Settlement Trust.
    ``(e) Tax Treatment of Distributions to Beneficiaries.--Amounts 
distributed by an electing Settlement Trust during any taxable year 
shall be considered as having the following characteristics in the 
hands of the recipient beneficiary:
        ``(1) First, as amounts excludable from gross income for the 
    taxable year to the extent of the taxable income of such trust for 
    such taxable year (decreased by any income tax paid by the trust 
    with respect to the income) plus any amount excluded from gross 
    income of the trust under section 103.
        ``(2) Second, as amounts excludable from gross income to the 
    extent of the amount described in paragraph (1) for all taxable 
    years for which an election is in effect under subsection (c) with 
    respect to the trust, and not previously taken into account under 
    paragraph (1).
        ``(3) Third, as amounts distributed by the sponsoring Native 
    Corporation with respect to its stock (within the meaning of 
    section 301(a)) during such taxable year and taxable to the 
    recipient beneficiary as amounts described in section 301(c)(1), to 
    the extent of current or accumulated earnings and profits of the 
    sponsoring Native Corporation as of the close of such taxable year 
    after proper adjustment is made for all distributions made by the 
    sponsoring Native Corporation during such taxable year.
        ``(4) Fourth, as amounts distributed by the trust in excess of 
    the distributable net income of such trust for such taxable year.
Amounts distributed to which paragraph (3) applies shall not be treated 
as a corporate distribution subject to section 311(b), and for purposes 
of determining the amount of a distribution for purposes of paragraph 
(3) and the basis to the recipients, section 643(e) and not section 301 
(b) or (d) shall apply.
    ``(f) Special Rules Where Transfer Restrictions Modified.--
        ``(1) Transfer of beneficial interests.--If, at any time, a 
    beneficial interest in an electing Settlement Trust may be disposed 
    of to a person in a manner which would not be permitted by section 
    7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) 
    if such interest were Settlement Common Stock--
            ``(A) no election may be made under subsection (c) with 
        respect to such trust, and
            ``(B) if such an election is in effect as of such time--
                ``(i) such election shall cease to apply as of the 
            first day of the taxable year in which such disposition is 
            first permitted,
                ``(ii) the provisions of this section shall not apply 
            to such trust for such taxable year and all taxable years 
            thereafter, and
                ``(iii) the distributable net income of such trust 
            shall be increased by the current or accumulated earnings 
            and profits of the sponsoring Native Corporation as of the 
            close of such taxable year after proper adjustment is made 
            for all distributions made by the sponsoring Native 
            Corporation during such taxable year.
    In no event shall the increase under clause (iii) exceed the fair 
    market value of the trust's assets as of the date the beneficial 
    interest of the trust first becomes so disposable. The earnings and 
    profits of the sponsoring Native Corporation shall be adjusted as 
    of the last day of such taxable year by the amount of earnings and 
    profits so included in the distributable net income of the trust.
        ``(2) Stock in corporation.--If--
            ``(A) stock in the sponsoring Native Corporation may be 
        disposed of to a person in a manner which would not be 
        permitted by section 7(h) of the Alaska Native Claims 
        Settlement Act (43 U.S.C. 1606(h)) if such stock were 
        Settlement Common Stock, and
            ``(B) at any time after such disposition of stock is first 
        permitted, such corporation transfers assets to a Settlement 
        Trust,
    paragraph (1)(B) shall be applied to such trust on and after the 
    date of the transfer in the same manner as if the trust permitted 
    dispositions of beneficial interests in the trust in a manner not 
    permitted by such section 7(h).
        ``(3) Certain distributions.--For purposes of this section, the 
    surrender of an interest in a Native Corporation or an electing 
    Settlement Trust in order to accomplish the whole or partial 
    redemption of the interest of a shareholder or beneficiary in such 
    corporation or trust, or to accomplish the whole or partial 
    liquidation of such corporation or trust, shall be deemed to be a 
    transfer permitted by section 7(h) of the Alaska Native Claims 
    Settlement Act.
    ``(g) Taxable Income.--For purposes of this title, the taxable 
income of an electing Settlement Trust shall be determined under 
section 641(b) without regard to any deduction under section 651 or 
661.
    ``(h) Definitions.--For purposes of this section--
        ``(1) Electing settlement trust.--The term `electing Settlement 
    Trust' means a Settlement Trust which has made the election, 
    effective for a taxable year, described in subsection (c).
        ``(2) Native corporation.--The term `Native Corporation' has 
    the meaning given such term by section 3(m) of the Alaska Native 
    Claims Settlement Act (43 U.S.C. 1602(m)).
        ``(3) Settlement common stock.--The term `Settlement Common 
    Stock' has the meaning given such term by section 3(p) of the 
    Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
        ``(4) Settlement trust.--The term `Settlement Trust' means a 
    trust that constitutes a settlement trust under section 3(t) of the 
    Alaska Native Claims Settlement Act (43 U.S.C. 1602(t)).
        ``(5) Sponsoring native corporation.--The term `sponsoring 
    Native Corporation' means the Native Corporation which transfers 
    assets to an electing Settlement Trust.
    ``(i) Special Loss Disallowance Rule.--Any loss that would 
otherwise be recognized by a shareholder upon a disposition of a share 
of stock of a sponsoring Native Corporation shall be reduced (but not 
below zero) by the per share loss adjustment factor. The per share loss 
adjustment factor shall be the aggregate of all contributions to all 
electing Settlement Trusts sponsored by such Native Corporation made on 
or after the first day each trust is treated as an electing Settlement 
Trust expressed on a per share basis and determined as of the day of 
each such contribution.
    ``(j) Cross Reference.--
          ``For information required with respect to electing Settlement 
        Trusts and sponsoring Native Corporations, see section 6039H.''.

    (b) Reporting.--Subpart A of part III of subchapter A of chapter 61 
of subtitle F (relating to information concerning persons subject to 
special provisions) is amended by inserting after section 6039G the 
following new section:

``SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE SETTLEMENT 
              TRUSTS AND SPONSORING NATIVE CORPORATIONS.

    ``(a) Requirement.--The fiduciary of an electing Settlement Trust 
(as defined in section 646(h)(1)) shall include with the return of 
income of the trust a statement containing the information required 
under subsection (c).
    ``(b) Application With Other Requirements.--The filing of any 
statement under this section shall be in lieu of the reporting 
requirements under section 6034A to furnish any statement to a 
beneficiary regarding amounts distributed to such beneficiary (and such 
other reporting rules as the Secretary deems appropriate).
    ``(c) Required Information.--The information required under this 
subsection shall include--
        ``(1) the amount of distributions made during the taxable year 
    to each beneficiary,
        ``(2) the treatment of such distribution under the applicable 
    provision of section 646, including the amount that is excludable 
    from the recipient beneficiary's gross income under section 646, 
    and
        ``(3) the amount (if any) of any distribution during such year 
    that is deemed to have been made by the sponsoring Native 
    Corporation (as defined in section 646(h)(5)).
    ``(d) Sponsoring Native Corporation.--
        ``(1) In general.--The electing Settlement Trust shall, on or 
    before the date on which the statement under subsection (a) is 
    required to be filed, furnish such statement to the sponsoring 
    Native Corporation (as so defined).
        ``(2) Distributees.--The sponsoring Native Corporation shall 
    furnish each recipient of a distribution described in section 
    646(e)(3) a statement containing the amount deemed to have been 
    distributed to such recipient by such corporation for the taxable 
    year.''.
    (c) Clerical Amendment.--
        (1) The table of sections for subpart A of part I of subchapter 
    J of chapter 1 of such Code is amended by adding at the end the 
    following new item:
        ``Sec. 646. Tax treatment of electing Alaska Native Settlement 
                  Trusts.''.

        (2) The table of sections for subpart A of part III of 
    subchapter A of chapter 61 of subtitle F of such Code is amended by 
    inserting after the item relating to section 6039G the following 
    new item:
        ``Sec. 6039H. Information with respect to Alaska Native 
                  Settlement Trusts and sponsoring Native 
                  Corporations.''.

    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act and to contributions made to electing Settlement Trusts for such 
year or any subsequent year.

                   TITLE VII--ALTERNATIVE MINIMUM TAX

SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION.

    (a) In General.--
        (1) Subparagraph (A) of section 55(d)(1) (relating to exemption 
    amount for taxpayers other than corporations) is amended by 
    striking ``$45,000'' and inserting ``$45,000 ($49,000 in the case 
    of taxable years beginning in 2001, 2002, 2003, and 2004)''.
        (2) Subparagraph (B) of section 55(d)(1) (relating to exemption 
    amount for taxpayers other than corporations) is amended by 
    striking ``$33,750'' and inserting ``$33,750 ($35,750 in the case 
    of taxable years beginning in 2001, 2002, 2003, and 2004)''.
    (b) Conforming Amendments.--
        (1) Paragraph (1) of section 55(d) is amended by striking 
    ``and'' at the end of subparagraph (B), by striking subparagraph 
    (C), and by inserting after subparagraph (B) the following new 
    subparagraphs:
            ``(C) 50 percent of the dollar amount applicable under 
        paragraph (1)(A) in the case of a married individual who files 
        a separate return, and
            ``(D) $22,500 in the case of an estate or trust.''.
        (2) Subparagraph (C) of section 55(d)(3) is amended by striking 
    ``paragraph (1)(C)'' and inserting ``subparagraph (C) or (D) of 
    paragraph (1)''.
        (3) The last sentence of section 55(d)(3) is amended--
            (A) by striking ``paragraph (1)(C)(i)'' and inserting 
        ``paragraph (1)(C)''; and
            (B) by striking ``$165,000 or (ii) $22,500'' and inserting 
        ``the minimum amount of such income (as so determined) for 
        which the exemption amount under paragraph (1)(C) is zero, or 
        (ii) such exemption amount (determined without regard to this 
        paragraph)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

                      TITLE VIII--OTHER PROVISIONS

SEC. 801. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    Notwithstanding section 6655 of the Internal Revenue Code of 1986--
        (1) 100 percent of the amount of any required installment of 
    corporate estimated tax which is otherwise due in September 2001 
    shall not be due until October 1, 2001; and
        (2) 20 percent of the amount of any required installment of 
    corporate estimated tax which is otherwise due in September 2004 
    shall not be due until October 1, 2004.

SEC. 802. EXPANSION OF AUTHORITY TO POSTPONE CERTAIN TAX-RELATED 
              DEADLINES BY REASON OF PRESIDENTIALLY DECLARED DISASTER.

    (a) In General.--Section 7508A(a) (relating to authority to 
postpone certain tax-related deadlines by reason of presidentially 
declared disaster) is amended by striking ``90 days'' and inserting 
``120 days''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of enactment of this Act.

SEC. 803. NO FEDERAL INCOME TAX ON RESTITUTION RECEIVED BY VICTIMS OF 
              THE NAZI REGIME OR THEIR HEIRS OR ESTATES.

    (a) In General.--For purposes of the Internal Revenue Code of 1986, 
any excludable restitution payments received by an eligible individual 
(or the individual's heirs or estate) and any excludable interest--
        (1) shall not be included in gross income; and
        (2) shall not be taken into account for purposes of applying 
    any provision of such Code which takes into account excludable 
    income in computing adjusted gross income, including section 86 of 
    such Code (relating to taxation of Social Security benefits).
For purposes of such Code, the basis of any property received by an 
eligible individual (or the individual's heirs or estate) as part of an 
excludable restitution payment shall be the fair market value of such 
property as of the time of the receipt.
    (b) Eligible Individual.--For purposes of this section, the term 
``eligible individual'' means a person who was persecuted on the basis 
of race, religion, physical or mental disability, or sexual orientation 
by Nazi Germany, any other Axis regime, or any other Nazi-controlled or 
Nazi-allied country.
    (c) Excludable Restitution Payment.--For purposes of this section, 
the term ``excludable restitution payment'' means any payment or 
distribution to an individual (or the individual's heirs or estate) 
which--
        (1) is payable by reason of the individual's status as an 
    eligible individual, including any amount payable by any foreign 
    country, the United States of America, or any other foreign or 
    domestic entity, or a fund established by any such country or 
    entity, any amount payable as a result of a final resolution of a 
    legal action, and any amount payable under a law providing for 
    payments or restitution of property;
        (2) constitutes the direct or indirect return of, or 
    compensation or reparation for, assets stolen or hidden from, or 
    otherwise lost to, the individual before, during, or immediately 
    after World War II by reason of the individual's status as an 
    eligible individual, including any proceeds of insurance under 
    policies issued on eligible individuals by European insurance 
    companies immediately before and during World War II; or
        (3) consists of interest which is payable as part of any 
    payment or distribution described in paragraph (1) or (2).
    (d) Excludable Interest.--For purposes of this section, the term 
``excludable interest'' means any interest earned by--
        (1) escrow accounts or settlement funds established pursuant to 
    the settlement of the action entitled ``In re: Holocaust Victim 
    Assets Litigation,'' (E.D.N.Y.) C.A. No. 96-4849,
        (2) funds to benefit eligible individuals or their heirs 
    created by the International Commission on Holocaust Insurance 
    Claims as a result of the Agreement between the Government of the 
    United States of America and the Government of the Federal Republic 
    of Germany concerning the Foundation ``Remembrance, Responsibility, 
    and Future,'' dated July 17, 2000, or
        (3) similar funds subject to the administration of the United 
    States courts created to provide excludable restitution payments to 
    eligible individuals (or eligible individuals' heirs or estates).
    (e) Effective Date.--
        (1) In general.--This section shall apply to any amount 
    received on or after January 1, 2000.
        (2) No inference.--Nothing in this Act shall be construed to 
    create any inference with respect to the proper tax treatment of 
    any amount received before January 1, 2000.

           TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT

SEC. 901. SUNSET OF PROVISIONS OF ACT.

    (a) In General.--All provisions of, and amendments made by, this 
Act shall not apply--
        (1) to taxable, plan, or limitation years beginning after 
    December 31, 2010, or
        (2) in the case of title V, to estates of decedents dying, 
    gifts made, or generation skipping transfers, after December 31, 
    2010.
    (b) Application of Certain Laws.--The Internal Revenue Code of 1986 
and the Employee Retirement Income Security Act of 1974 shall be 
applied and administered to years, estates, gifts, and transfers 
described in subsection (a) as if the provisions and amendments 
described in subsection (a) had never been enacted.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
```