In the Senate of the United States,

May 23, 2001.

Resolved, That the bill from the House of Representatives (H.R. 1836) entitled ‘‘An Act to provide for reconciliation pursuant to section 104 of the concurrent resolution on

the budget for fiscal year 2002.’’, do pass with the following

AMENDMENT:

Strike out all after the enacting clause and insert:

1 SECTION 1. SHORT TITLE; ETC.

2 (a) SHORT TITLE.—This Act may be cited as the ‘‘Re3 storing Earnings To Lift Individuals and Empower Fami4 lies (RELIEF) Act of 2001’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as otherwise

2 expressly provided, whenever in this Act an amendment or

3 repeal is expressed in terms of an amendment to, or repeal

4 of, a section or other provision, the reference shall be consid5 ered to be made to a section or other provision of the Inter6 nal Revenue Code of 1986.

7 (c) SECTION 15 NOT TO APPLY.—No amendment

8 made by this Act shall be treated as a change in a rate

9 of tax for purposes of section 15 of the Internal Revenue

10 Code of 1986.

11 (d) TABLE OF CONTENTS.—The table of contents of

12 this Act is as follows:

Sec. 1. Short title; etc.

TITLE I—INDIVIDUAL INCOME TAX RATE REDUCTIONS

Subtitle A—In General

Sec. 101. Reduction in income tax rates for individuals.

Sec. 102. Increase in amount of income required before phaseout of itemized deductions begins.

Sec. 103. Repeal of phaseout of deduction for personal exemptions.

Subtitle B—Compliance With Congressional Budget Act

Sec. 111. Sunset of provisions of title.

TITLE II—CHILD TAX CREDIT

Subtitle A—In General

Sec. 201. Modifications to child tax credit.

Sec. 202. Sense of the Senate on the modifications to the child tax credit.

Sec. 203. Expansion of adoption credit and adoption assistance programs.

Sec. 204. Refunds disregarded in the administration of Federal programs and

federally assisted programs.

Sec. 205. Dependent care credit.

Sec. 206. Allowance of credit for employer expenses for child care assistance.

Sec. 207. Allowance of credit for employer expenses for child care assistance.

Subtitle B—Compliance With Congressional Budget Act

Sec. 211. Sunset of provisions of title.
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TITLE III—MARRIAGE PENALTY RELIEF

Subtitle A—In General

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.

Subtitle B—Compliance With Congressional Budget Act

Sec. 311. Sunset of provisions of title.

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. Permanent 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.

Sec. 414. Exclusion from income of certain amounts contributed to Coverdell education savings accounts.

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.

Sec. 423. Treatment of bonds issued to acquire renewable resources on land subject to conservation easement.

Subtitle D—Other Provisions

Sec. 431. Deduction for higher education expenses.

Sec. 432. Credit for interest on higher education loans.

Sec. 433. Above-the-line deduction for qualified emergency response expenses of eligible emergency response professionals.

Sec. 434. Contributions of book inventory.

Subtitle E—Miscellaneous Education Provisions

Sec. 441. Short title.

Sec. 442. Above-the-line deduction for qualified professional development expenses

of elementary and secondary school teachers.

Sec. 443. Credit to elementary and secondary school teachers who provide classroom materials.
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Subtitle F—Compliance With Congressional Budget Act

Sec. 451. Sunset of provisions of title.

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, 2010.

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. Expansion of availability of installment payment for estates with interests qualifying lending and finance businesses.

Sec. 572. Clarification of availability of installment payment.

Subtitle I—Compliance With Congressional Budget Act

Sec. 581. Sunset of provisions of title.

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.
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Sec. 603. Tax-free distributions from individual retirement accounts for charitable purposes.

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 qualified pension plan contributions of small employers.

Sec. 620. Credit for pension plan startup costs of small employers.

Sec. 621. Elimination of user fee for requests to IRS regarding new pension

plans.

Sec. 622. 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. Modifications 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.
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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. Notice required for pension plan amendments having the effect of 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. Reporting simplification.

Sec. 667. Improvement of employee plans compliance resolution system.

Sec. 668. Repeal of the multiple use test.

Sec. 669. Flexibility in nondiscrimination, coverage, and line of business rules.

Sec. 670. Extension to all governmental plans of moratorium on application of

certain nondiscrimination rules applicable to State and local

plans.

Subtitle G—Other ERISA Provisions

Sec. 681. Missing participants.

Sec. 682. Reduced PBGC premium for new plans of small employers.

Sec. 683. Reduction of additional PBGC premium for new and small plans.

Sec. 684. Authorization for PBGC to pay interest on premium overpayment refunds.

Sec. 685. Substantial owner benefits in terminated plans.

Subtitle H—Miscellaneous Provisions

Sec. 691. Tax treatment and information requirements of Alaska Native Settlement Trusts.

Subtitle I—Compliance With Congressional Budget Act

Sec. 695. Sunset of provisions of title.

TITLE VII—ALTERNATIVE MINIMUM TAX

Subtitle A—In General

Sec. 701. Increase in alternative minimum tax exemption.

Subtitle B—Compliance With Congressional Budget Act

Sec. 711. Sunset of provisions of title.
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TITLE VIII—OTHER PROVISIONS

Subtitle A—In General

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.

Sec. 804. Removal of limitation.

Sec. 805. Circuit breaker.

Sec. 806. Deduction for health insurance costs of self-employed individuals increased.

Sec. 807. Deduction for health insurance costs of self-employed individuals increased.

Sec. 808. Charitable contributions of certain items created by the taxpayer.

Sec. 809. Waiver of statute of limitation for taxes on certain farm valuations.

Sec. 810. Research credit.

Sec. 811. Credit for medical research related to developing vaccines against widespread diseases.

Sec. 812. Acceleration of benefits of wage tax credits for empowerment zones.

Sec. 813. Treatment of certain hospital support organizations as qualified organizations for purposes of determining acquisition indebtedness.

Sec. 814. Tax-exempt bond authority for treatment facilities reducing arsenic levels in drinking water.

Sec. 815. Time for payment of corporate estimated tax payments due in 2011.

Sec. 816. Disclosure of tax information to facilitate combined employment tax reporting.

Subtitle B—Compliance With Congressional Budget Act

Sec. 821. Sunset of provisions of title.

TITLE IX—SECTION 527 POLITICAL ORGANIZATION REPORTING

REQUIREMENTS

Sec. 901. Exemption for State and local candidate committees from notification

requirements.

Sec. 902. Exemption for certain State and local political committees from reporting and annual return requirements.

Sec. 903. Notification of interaction of reporting requirements.

Sec. 904. Waiver of penalties.
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1 TITLE I—INDIVIDUAL INCOME

2 TAX RATE REDUCTIONS

3 Subtitle A—In General

4 SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVID5 UALS.

6 (a) IN GENERAL.—Section 1 is amended by adding

7 at the end the following new subsection:

8 ‘‘(i) RATE REDUCTIONS AFTER 2000.—

9 ‘‘(1) 10-PERCENT RATE BRACKET.—

10 ‘‘(A) IN GENERAL.—In the case of taxable

11 years beginning after December 31, 2000—

12 ‘‘(i) the rate of tax under subsections

13 (a), (b), (c), and (d) on taxable income not

14 over the initial bracket amount shall be 10

15 percent, and

16 ‘‘(ii) the 15 percent rate of tax shall

17 apply only to taxable income over the ini18 tial bracket amount but not over the max19 imum dollar amount for the 15-percent rate

20 bracket.

21 ‘‘(B) INITIAL BRACKET AMOUNT.—For pur22 poses of this subsection, the initial bracket

23 amount is—

24 ‘‘(i) $12,000 in the case of subsection

25 (a),
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1 ‘‘(ii) $10,000 in the case of subsection

2 (b), and

‘‘(iii) 1 3 ⁄2 the amount applicable under

4 clause (i) (after adjustment, if any, under

5 subparagraph (C)) in the case of subsections

6 (c) and (d).

7 ‘‘(C) INFLATION ADJUSTMENT.—In pre8 scribing the tables under subsection (f) which

9 apply with respect to taxable years beginning in

10 calendar years after 2001—

11 ‘‘(i) the Secretary shall make no ad12 justment to the initial bracket amount for

13 any taxable year beginning before January

14 1, 2007,

15 ‘‘(ii) the cost-of-living adjustment used

16 in making adjustments to the initial bracket

17 amount for any taxable year beginning

18 after December 31, 2006, shall be deter19 mined under subsection (f)(3) by sub20 stituting ‘2005’ for ‘1992’ in subparagraph

21 (B) thereof, and

22 ‘‘(iii) such adjustment shall not apply

23 to the amount referred to in subparagraph

24 (B)(iii).
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1 If any amount after adjustment under the pre2 ceding sentence is not a multiple of $50, such

3 amount shall be rounded to the next lowest mul4 tiple of $50.

5 ‘‘(2) REDUCTIONS IN RATES AFTER 2001.—In the

6 case of taxable years beginning in a calendar year

7 after 2001, the corresponding percentage specified for

8 such calendar year in the following table shall be sub9 stituted for the otherwise applicable tax rate in the

10 tables under subsections (a), (b), (c), (d), and (e).

‘‘In the case of taxable years

beginning during calendar year:

The corresponding percentages shall be substituted for

the following percentages:

28% 31% 36% 39.6%

2002, 2003, and 2004 ........................................................ 27% 30% 35% 38.6%

2005 and 2006 ................................................................... 26% 29% 34% 37.6%

2007 and thereafter ............................................................ 25% 28% 33% 36%

11 ‘‘(3) ADJUSTMENT OF TABLES.—The Secretary

12 shall adjust the tables prescribed under subsection (f)

13 to carry out this subsection.’’.

14 (b) CONFORMING AMENDMENTS.—

15 (1) Subparagraph (B) of section 1(g)(7) is

16 amended by striking ‘‘15 percent’’ in clause (ii)(II)

17 and inserting ‘‘10 percent.’’.

18 (2) Section 1(h) is amended—

19 (A) by striking ‘‘28 percent’’ both places it

20 appears in paragraphs (1)(A)(ii)(I) and

21 (1)(B)(i) and inserting ‘‘25 percent’’, and
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1 (B) by striking paragraph (13).

2 (3) Section 531 is amended by striking ‘‘equal

3 to’’ and all that follows and inserting ‘‘equal to the

4 product of the highest rate of tax under section 1(c)

5 and the accumulated taxable income.’’.

6 (4) Section 541 is amended by striking ‘‘equal

7 to’’ and all that follows and inserting ‘‘equal to the

8 product of the highest rate of tax under section 1(c)

9 and the undistributed personal holding company in10 come.’’.

11 (5) Section 3402(p)(1)(B) is amended by strik12 ing ‘‘7, 15, 28, or 31 percent’’ and inserting ‘‘7 per13 cent, any percentage applicable to any of the 3 lowest

14 income brackets in the table under section 1(c),’’.

15 (6) Section 3402(p)(2) is amended by striking

16 ‘‘15 percent’’ and inserting ‘‘10 percent’’.

17 (7) Section 3402(q)(1) is amended by striking

18 ‘‘equal to 28 percent of such payment’’ and inserting

19 ‘‘equal to the product of the third lowest rate of tax

20 under section 1(c) and such payment’’.

21 (8) Section 3402(r)(3) is amended by striking

22 ‘‘31 percent’’ and inserting ‘‘the fourth lowest rate of

23 tax under section 1(c)’’.

24 (9) Section 3406(a)(1) is amended by striking

25 ‘‘equal to 31 percent of such payment’’ and inserting
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1 ‘‘equal to the product of the fourth lowest rate of tax

2 under section 1(c) and such payment’’.

3 (10) Section 13273 of the Revenue Reconciliation

4 Act of 1993 is amended by striking ‘‘28 percent’’ and

5 inserting ‘‘the third lowest rate of tax under section

6 1(c) of the Internal Revenue Code of 1986’’.

7 (c) EFFECTIVE DATES.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section shall

10 apply to taxable years beginning after December 31,

11 2000.

12 (2) AMENDMENTS TO WITHHOLDING PROVI13 SIONS.—The amendments made by paragraphs (6),

14 (7), (8), (9), (10), and (11) of subsection (b) shall

15 apply to amounts paid after the 60th day after the

16 date of the enactment of this Act.

17 SEC. 102. INCREASE IN AMOUNT OF INCOME REQUIRED BE18 FORE PHASEOUT OF ITEMIZED DEDUCTIONS

19 BEGINS.

20 (a) IN GENERAL.—Section 68(b)(1) (defining applica21 ble amount) is amended—

22 (1) by striking ‘‘$100,000’’ and inserting

23 ‘‘$150,000’’, and

24 (2) by striking ‘‘$50,000’’ and inserting

25 ‘‘$75,000’’.
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1 (b) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2008.

4 SEC. 103. REPEAL OF PHASEOUT OF DEDUCTION FOR PER5 SONAL EXEMPTIONS.

6 (a) IN GENERAL.—Subsection (d) of section 151 (relat7 ing to exemption amount) is amended by striking para8 graph (3).

9 (b) TECHNICAL AMENDMENTS.—

10 (1) Paragraph (6) of section 1(f) is amended—

11 (A) by striking ‘‘section 151(d)(4)’’ in sub12 paragraph (A) and inserting ‘‘section

13 151(d)(3)’’, and

14 (B) by striking ‘‘section 151(d)(4)(A)’’ in

15 subparagraph (B) and inserting ‘‘section

16 151(d)(3)’’.

17 (2) Paragraph (4) of section 151(d) is amended

18 to read as follows:

19 ‘‘(3) INFLATION ADJUSTMENT.—In the case of

20 any taxable year beginning in a calendar year after

21 1989, the dollar amount contained in paragraph (1)

22 shall be increased by an amount equal to—

23 ‘‘(A) such dollar amount, multiplied by

24 ‘‘(B) the cost-of-living adjustment deter25 mined under section 1(f)(3) for the calendar year
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1 in which the taxable year begins, by substituting

2 ‘calendar year 1988’ for ‘calendar year 1992’ in

3 subparagraph (B) thereof.’’

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

5 section shall apply to taxable years beginning after Decem6 ber 31, 2008.

7 Subtitle B—Compliance With

8 Congressional Budget Act

9 SEC. 111. SUNSET OF PROVISIONS OF TITLE.

10 All provisions of, and amendments made by, this title

11 which are in effect on September 30, 2011, shall cease to

12 apply as of the close of September 30, 2011.

13 TITLE II—CHILD TAX CREDIT

14 Subtitle A—In General

15 SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.

16 (a) INCREASE IN PER CHILD AMOUNT.—Subsection

17 (a) of section 24 (relating to child tax credit) is amended

18 to read as follows:

19 ‘‘(a) ALLOWANCE OF CREDIT.—

20 ‘‘(1) IN GENERAL.—There shall be allowed as a

21 credit against the tax imposed by this chapter for the

22 taxable year with respect to each qualifying child of

23 the taxpayer an amount equal to the per child

24 amount.
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1 ‘‘(2) PER CHILD AMOUNT.—For purposes of

2 paragraph (1), the per child amount shall be deter3 mined as follows:

‘‘In the case of any taxable

year beginning in—

The per child amount is—

2001, 2002, or 2003 ....................................................................... $ 600

2004, 2005, or 2006 ....................................................................... 700

2007, 2008, or 2009 ....................................................................... 800

2010 ................................................................................................ 900

2011 or thereafter .......................................................................... 1,000.’’.

4 (b) CREDIT ALLOWED AGAINST ALTERNATIVE MIN5 IMUM TAX.—

6 (1) IN GENERAL.—Subsection (b) of section 24

7 (relating to child tax credit) is amended by adding at

8 the end the following new paragraph:

9 ‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—

10 The credit allowed under subsection (a) for any tax11 able year shall not exceed the excess of—

12 ‘‘(A) the sum of the regular tax liability (as

13 defined in section 26(b)) plus the tax imposed by

14 section 55, over

15 ‘‘(B) the sum of the credits allowable under

16 this subpart (other than this section) and section

17 27 for the taxable year.’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) The heading for section 24(b) is amend20 ed to read as follows: ‘‘LIMITATIONS.—’’.
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1 (B) The heading for section 24(b)(1) is

2 amended to read as follows: ‘‘LIMITATION BASED

3 ON ADJUSTED GROSS INCOME.—’’.

4 (C) Section 24(d) is amended—

5 (i) by striking ‘‘section 26(a)’’ each

6 place it appears and inserting ‘‘subsection

7 (b)(3)’’, and

8 (ii) in paragraph (1)(B) by striking

9 ‘‘aggregate amount of credits allowed by

10 this subpart’’ and inserting ‘‘amount of

11 credit allowed by this section’’.

12 (D) Paragraph (1) of section 26(a) is

13 amended by inserting ‘‘(other than section 24)’’

14 after ‘‘this subpart’’.

15 (E) Subsection (c) of section 23 is amended

16 by striking ‘‘and section 1400C’’ and inserting

17 ‘‘and sections 24 and 1400C’’.

18 (F) Subparagraph (C) of section 25(e)(1) is

19 amended by inserting ‘‘, 24,’’ after ‘‘sections 23’’.

20 (G) Section 904(h) is amended by inserting

21 ‘‘(other than section 24)’’ after ‘‘chapter’’.

22 (H) Subsection (d) of section 1400C is

23 amended by inserting ‘‘and section 24’’ after

24 ‘‘this section’’.

25 (c) REFUNDABLE CHILD CREDIT.—
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1 (1) IN GENERAL.—So much of section 24(d) (re2 lating to additional credit for families with 3 or more

3 children) as precedes paragraph (2) is amended to

4 read as follows:

5 ‘‘(d) PORTION OF CREDIT REFUNDABLE.—

6 ‘‘(1) IN GENERAL.—The aggregate credits al7 lowed to a taxpayer under subpart C shall be in8 creased by the lesser of—

9 ‘‘(A) the credit which would be allowed

10 under this section without regard to this sub11 section and the limitation under subsection

12 (b)(3), or

13 ‘‘(B) the amount by which the amount of

14 credit allowed by this section (determined with15 out regard to this subsection) would increase if

16 the limitation imposed by subsection (b)(3) were

17 increased by the greater of—

18 ‘‘(i) 15 percent of so much of the tax19 payer’s earned income (within the meaning

20 of section 32) for the taxable year as exceeds

21 $10,000, or

22 ‘‘(ii) in the case of a taxpayer with 3

23 or more qualifying children, the excess (if

24 any) of—
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1 ‘‘(I) the taxpayer’s social security

2 taxes for the taxable year, over

3 ‘‘(II) the credit allowed under sec4 tion 32 for the taxable year.

5 The amount of the credit allowed under this sub6 section shall not be treated as a credit allowed under

7 this subpart and shall reduce the amount of credit

8 otherwise allowable under subsection (a) without re9 gard to subsection (b)(3).’’.

10 (2) CONFORMING AMENDMENT.—Section 32 is

11 amended by striking subsection (n).

12 (d) ELIMINATION OF REDUCTION OF CREDIT TO TAX13 PAYER SUBJECT TO ALTERNATIVE MINIMUM TAX PROVI14 SION.—Section 24(d) is amended—

15 (1) by striking paragraph (2), and

16 (2) by redesignating paragraph (3) as para17 graph (2).

18 (e) EFFECTIVE DATES.—

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section shall

21 apply to taxable years beginning after December 31,

22 2000.

23 (2) SUBSECTION (b).—The amendments made by

24 subsection (b) shall apply to taxable years beginning

25 after December 31, 2001.
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1 SEC. 202. SENSE OF THE SENATE ON THE MODIFICATIONS

2 TO THE CHILD TAX CREDIT.

3 (a) FINDINGS.—

4 (1) There are over 12,000,000 children in pov5 erty in the United States—about 78 percent of these

6 children live in working families.

7 (2) The child tax credit was originally designed

8 to benefit families with children in recognition of the

9 costs associated with raising children.

10 (3) There are 15,400,000 children whose families

11 would not benefit from the doubling of the child tax

12 credit unless it is made refundable and another

13 7,000,000 children live in families who will not re14 ceive an increased benefit under the bill unless the

15 credit is made refundable.

16 (4) A person who earns the Federal minimum

17 wage and works 40 hours a week for 50 weeks a year

18 earns approximately $10,300.

19 (5) The provision included in section 201 would

20 give families with children the benefit of a partially

21 refundable child tax credit based on 15 cents of their

22 income for every dollar earned above $10,000.

23 (6) For a family earning $15,000 that is an ad24 ditional $750 to help make ends meet.
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1 (7) Doubling the child tax credit to $1,000 and

2 making it partially refundable will benefit over

3 37,000,000 families with dependent children.

4 (8) The expansion of the child tax credit in5 cluded in section 201 is a meaningful and a respon6 sible effort on the part of the Senate to address the

7 needs of low income working families to promote work

8 and such an expansion would provide the benefit of

9 a child tax credit to 10,700,000 more children than

10 the provision passed by the House of Representatives.

11 (b) SENSE OF THE SENATE.—It is the sense of the Sen12 ate that the ‘‘10–15’’ child tax credit provision included in

13 section 201 is a worthy start, and should be maintained

14 as part of the final package.

15 SEC. 203. EXPANSION OF ADOPTION CREDIT AND ADOP16 TION ASSISTANCE PROGRAMS.

17 (a) IN GENERAL.—

18 (1) ADOPTION CREDIT.—Section 23(a)(1) (relat19 ing to allowance of credit) is amended to read as fol20 lows:

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

22 there shall be allowed as a credit against the tax im23 posed by this chapter—

24 ‘‘(A) in the case of an adoption of a child

25 other than a child with special needs, the
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1 amount of the qualified adoption expenses paid

2 or incurred by the taxpayer, and

3 ‘‘(B) in the case of an adoption of a child

4 with special needs, $10,000.’’.

5 (2) ADOPTION ASSISTANCE PROGRAMS.—Section

6 137(a) (relating to adoption assistance programs) is

7 amended to read as follows:

8 ‘‘(a) IN GENERAL.—Gross income of an employee does

9 not include amounts paid or expenses incurred by the em10 ployer for adoption expenses in connection with the adop11 tion of a child by an employee if such amounts are fur12 nished pursuant to an adoption assistance program. The

13 amount of the exclusion shall be—

14 ‘‘(1) in the case of an adoption of a child other

15 than a child with special needs, the amount of the

16 qualified adoption expenses paid or incurred by the

17 taxpayer, and

18 ‘‘(2) in the case of an adoption of a child with

19 special needs, $10,000.’’.

20 (b) DOLLAR LIMITATIONS.—

21 (1) DOLLAR AMOUNT OF ALLOWED EXPENSES.—

22 (A) ADOPTION EXPENSES.—Section 23(b)(1)

23 (relating to allowance of credit) is amended—

24 (i) by striking ‘‘$5,000’’ and inserting

25 ‘‘$10,000’’,
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1 (ii) by striking ‘‘($6,000, in the case of

2 a child with special needs)’’, and

3 (iii) by striking ‘‘subsection (a)’’ and

4 inserting ‘‘subsection (a)(1)(A)’’.

5 (B) ADOPTION ASSISTANCE PROGRAMS.—

6 Section 137(b)(1) (relating to dollar limitations

7 for adoption assistance programs) is amended—

8 (i) by striking ‘‘$5,000’’ and inserting

9 ‘‘$10,000’’, and

10 (ii) by striking ‘‘($6,000, in the case of

11 a child with special needs)’’, and

12 (iii) by striking ‘‘subsection (a)’’ and

13 inserting ‘‘subsection (a)(1)’’.

14 (2) PHASE-OUT LIMITATION.—

15 (A) ADOPTION EXPENSES.—Clause (i) of

16 section 23(b)(2)(A) (relating to income limita17 tion) is amended by striking ‘‘$75,000’’ and in18 serting ‘‘$150,000’’.

19 (B) ADOPTION ASSISTANCE PROGRAMS.—

20 Section 137(b)(2)(A) (relating to income limita21 tion) is amended by striking ‘‘$75,000’’ and in22 serting ‘‘$150,000’’.

23 (c) YEAR CREDIT ALLOWED.—Section 23(a)(2) (relat24 ing to year credit allowed) is amended by adding at the

25 end the following new flush sentence:
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1 ‘‘In the case of the adoption of a child with special

2 needs, the credit allowed under paragraph (1) shall be

3 allowed for the taxable year in which the adoption be4 comes final.’’.

5 (d) REPEAL OF SUNSET PROVISIONS.—

6 (1) CHILDREN WITHOUT SPECIAL NEEDS.—

7 Paragraph (2) of section 23(d) (relating to definition

8 of eligible child) is amended to read as follows:

9 ‘‘(2) ELIGIBLE CHILD.—The term ‘eligible child’

10 means any individual who—

11 ‘‘(A) has not attained age 18, or

12 ‘‘(B) is physically or mentally incapable of

13 caring for himself.’’.

14 (2) ADOPTION ASSISTANCE PROGRAMS.—Section

15 137 (relating to adoption assistance programs) is

16 amended by striking subsection (f).

17 (e) ADJUSTMENT OF DOLLAR AND INCOME LIMITA18 TIONS FOR INFLATION.—

19 (1) ADOPTION CREDIT.—Section 23 (relating to

20 adoption expenses) is amended by redesignating sub21 section (h) as subsection (i) and by inserting after

22 subsection (g) the following new subsection:

23 ‘‘(h) ADJUSTMENTS FOR INFLATION.—In the case of a

24 taxable year beginning after December 31, 2002, each of the

25 dollar amounts in subsection (a)(1)(B) and paragraphs (1)
24

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1 and (2)(A)(i) of subsection (b) shall be increased by an

2 amount equal to—

3 ‘‘(1) such dollar amount, multiplied by

4 ‘‘(2) the cost-of-living adjustment determined

5 under section 1(f)(3) for the calendar year in which

6 the taxable year begins, determined by substituting

7 ‘calendar year 2001’ for ‘calendar year 1992’ in sub8 paragraph (B) thereof.’’.

9 (2) ADOPTION ASSISTANCE PROGRAMS.—Section

10 137 (relating to adoption assistance programs), as

11 amended by subsection (d), is amended by adding at

12 the end the following new subsection:

13 ‘‘(f) ADJUSTMENTS FOR INFLATION.—In the case of a

14 taxable year beginning after December 31, 2002, each of the

15 dollar amounts in subsection (a)(2) and paragraphs (1)

16 and (2)(A) of subsection (b) shall be increased by an

17 amount equal to—

18 ‘‘(1) such dollar amount, multiplied by

19 ‘‘(2) the cost-of-living adjustment determined

20 under section 1(f)(3) for the calendar year in which

21 the taxable year begins, determined by substituting

22 ‘calendar year 2001’ for ‘calendar year 1992’ in sub23 paragraph (B) thereof.’’.

24 (f) LIMITATION BASED ON AMOUNT OF TAX.—
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1 (1) IN GENERAL.—Section 23(c) (relating to

2 carryforwards of unused credit) is amended by strik3 ing ‘‘the limitation imposed’’ and all that follows

4 through ‘‘1400C)’’ and inserting ‘‘the applicable tax

5 limitation’’.

6 (2) APPLICABLE TAX LIMITATION.—Section 23(d)

7 (relating to definitions) is amended by adding at the

8 end the following new paragraph:

9 ‘‘(4) APPLICABLE TAX LIMITATION.—The term

10 ‘applicable tax limitation’ means the sum of—

11 ‘‘(A) the taxpayer’s regular tax liability for

12 the taxable year, reduced (but not below zero) by

13 the sum of the credits allowed by sections 21, 22,

14 24 (other than the amount of the increase under

15 subsection (d) thereof), 25, and 25A, and

16 ‘‘(B) the tax imposed by section 55 for such

17 taxable year.’’.

18 (3) CONFORMING AMENDMENTS.—

19 (A) Section 26(a) (relating to limitation

20 based on amount of tax) is amended by inserting

21 ‘‘(other than section 23)’’ after ‘‘allowed by this

22 subpart’’.

23 (B) Section 53(b)(1) (relating to minimum

24 tax credit) is amended by inserting ‘‘reduced by

25 the aggregate amount taken into account under
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1 section 23(d)(3)(B) for all such prior taxable

2 years,’’ after ‘‘1986,’’.

3 (g) EFFECTIVE DATE.—The amendments made by this

4 section shall apply to taxable years beginning after Decem5 ber 31, 2001.

6 SEC. 204. REFUNDS DISREGARDED IN THE ADMINISTRA7 TION OF FEDERAL PROGRAMS AND FEDER8 ALLY ASSISTED PROGRAMS.

9 Any payment considered to have been made to any in10 dividual by reason of section 24 of the Internal Revenue

11 Code of 1986, as amended by section 201, shall not be taken

12 into account as income and shall not be taken into account

13 as resources for the month of receipt and the following

14 month, for purposes of determining the eligibility of such

15 individual or any other individual for benefits or assist16 ance, or the amount or extent of benefits or assistance,

17 under any Federal program or under any State or local

18 program financed in whole or in part with Federal funds.

19 SEC. 205. DEPENDENT CARE CREDIT.

20 (a) INCREASE IN DOLLAR LIMIT.—Subsection (c) of

21 section 21 (relating to expenses for household and dependent

22 care services necessary for gainful employment) is

23 amended—

24 (1) by striking ‘‘$2,400’’ in paragraph (1) and

25 inserting ‘‘$3,000’’, and
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1 (2) by striking ‘‘$4,800’’ in paragraph (2) and

2 inserting ‘‘$6,000’’.

3 (b) INCREASE IN APPLICABLE PERCENTAGE.—Section

4 21(a)(2) (defining applicable percentage) is amended—

5 (1) by striking ‘‘30 percent’’ and inserting ‘‘40

6 percent’’, and

7 (2) by striking ‘‘$10,000’’ and inserting

8 ‘‘$20,000’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to taxable years beginning after Decem11 ber 31, 2002.

12 SEC. 206. ALLOWANCE OF CREDIT FOR EMPLOYER EX13 PENSES FOR CHILD CARE ASSISTANCE.

14 (a) IN GENERAL.—Subpart D of part IV of subchapter

15 A of chapter 1 of the Internal Revenue Code of 1986 (relat16 ing to business related credits), as amended by sections 619

17 and 620, is further amended by adding at the end the fol18 lowing:

19 ‘‘SEC. 45G. EMPLOYER-PROVIDED CHILD CARE CREDIT.

20 ‘‘(a) IN GENERAL.—For purposes of section 38, the em21 ployer-provided child care credit determined under this sec22 tion for the taxable year is an amount equal to the sum

23 of—

24 ‘‘(1) 25 percent of the qualified child care ex25 penditures, and
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1 ‘‘(2) 10 percent of the qualified child care re2 source and referral expenditures,

3 of the taxpayer for such taxable year.

4 ‘‘(b) DOLLAR LIMITATION.—The credit allowable

5 under subsection (a) for any taxable year shall not exceed

6 $150,000.

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

8 ‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—

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

10 child care expenditure’ means any amount paid

11 or incurred—

12 ‘‘(i) to acquire, construct, rehabilitate,

13 or expand property—

14 ‘‘(I) which is to be used as part of

15 a qualified child care facility of the

16 taxpayer,

17 ‘‘(II) with respect to which a de18 duction for depreciation (or amortiza19 tion in lieu of depreciation) is allow20 able, and

21 ‘‘(III) which does not constitute

22 part of the principal residence (within

23 the meaning of section 121) of the tax24 payer or any employee of the taxpayer,
29

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1 ‘‘(ii) for the operating costs of a quali2 fied child care facility of the taxpayer, in3 cluding costs related to the training of em4 ployees, to scholarship programs, and to the

5 providing of increased compensation to em6 ployees with higher levels of child care

7 training, or

8 ‘‘(iii) under a contract with a quali9 fied child care facility to provide child care

10 services to employees of the taxpayer.

11 ‘‘(B) FAIR MARKET VALUE.—The term

12 ‘qualified child care expenditures’ shall not in13 clude expenses in excess of the fair market value

14 of such care.

15 ‘‘(2) QUALIFIED CHILD CARE FACILITY.—

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

17 child care facility’ means a facility—

18 ‘‘(i) the principal use of which is to

19 provide child care assistance, and

20 ‘‘(ii) which meets the requirements of

21 all applicable laws and regulations of the

22 State or local government in which it is lo23 cated, including the licensing of the facility

24 as a child care facility.
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1 Clause (i) shall not apply to a facility which is

2 the principal residence (within the meaning of

3 section 121) of the operator of the facility.

4 ‘‘(B) SPECIAL RULES WITH RESPECT TO A

5 TAXPAYER.—A facility shall not be treated as a

6 qualified child care facility with respect to a tax7 payer unless—

8 ‘‘(i) enrollment in the facility is open

9 to employees of the taxpayer during the tax10 able year,

11 ‘‘(ii) if the facility is the principal

12 trade or business of the taxpayer, at least

13 30 percent of the enrollees of such facility

14 are dependents of employees of the taxpayer,

15 and

16 ‘‘(iii) the use of such facility (or the

17 eligibility to use such facility) does not dis18 criminate in favor of employees of the tax19 payer who are highly compensated employ20 ees (within the meaning of section 414(q)).

21 ‘‘(3) QUALIFIED CHILD CARE RESOURCE AND RE22 FERRAL EXPENDITURE.—

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

24 child care resource and referral expenditure’

25 means any amount paid or incurred under a
31

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1 contract to provide child care resource and refer2 ral services to an employee of the taxpayer.

3 ‘‘(B) NONDISCRIMINATION.—The services

4 shall not be treated as qualified unless the provi5 sion of such services (or the eligibility to use such

6 services) does not discriminate in favor of em7 ployees of the taxpayer who are highly com8 pensated employees (within the meaning of sec9 tion 414(q)).

10 ‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION

11 CREDIT.—

12 ‘‘(1) IN GENERAL.—If, as of the close of any tax13 able year, there is a recapture event with respect to

14 any qualified child care facility of the taxpayer, then

15 the tax of the taxpayer under this chapter for such

16 taxable year shall be increased by an amount equal

17 to the product of—

18 ‘‘(A) the applicable recapture percentage,

19 and

20 ‘‘(B) the aggregate decrease in the credits

21 allowed under section 38 for all prior taxable

22 years which would have resulted if the qualified

23 child care expenditures of the taxpayer described

24 in subsection (c)(1)(A) with respect to such facil25 ity had been zero.
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1 ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—

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

3 subsection, the applicable recapture percentage

4 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.

5 ‘‘(B) YEARS.—For purposes of subpara6 graph (A), year 1 shall begin on the first day of

7 the taxable year in which the qualified child care

8 facility is placed in service by the taxpayer.

9 ‘‘(3) RECAPTURE EVENT DEFINED.—For pur10 poses of this subsection, the term ‘recapture event’

11 means—

12 ‘‘(A) CESSATION OF OPERATION.—The ces13 sation of the operation of the facility as a quali14 fied child care facility.

15 ‘‘(B) CHANGE IN OWNERSHIP.—

16 ‘‘(i) IN GENERAL.—Except as provided

17 in clause (ii), the disposition of a tax18 payer’s interest in a qualified child care fa19 cility with respect to which the credit de20 scribed in subsection (a) was allowable.
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1 ‘‘(ii) AGREEMENT TO ASSUME RECAP2 TURE LIABILITY.—Clause (i) shall not

3 apply if the person acquiring such interest

4 in the facility agrees in writing to assume

5 the recapture liability of the person dis6 posing of such interest in effect immediately

7 before such disposition. In the event of such

8 an assumption, the person acquiring the in9 terest in the facility shall be treated as the

10 taxpayer for purposes of assessing any re11 capture liability (computed as if there had

12 been no change in ownership).

13 ‘‘(4) SPECIAL RULES.—

14 ‘‘(A) TAX BENEFIT RULE.—The tax for the

15 taxable year shall be increased under paragraph

16 (1) only with respect to credits allowed by reason

17 of this section which were used to reduce tax li18 ability. In the case of credits not so used to re19 duce tax liability, the carryforwards and

20 carrybacks under section 39 shall be appro21 priately adjusted.

22 ‘‘(B) NO CREDITS AGAINST TAX.—Any in23 crease in tax under this subsection shall not be

24 treated as a tax imposed by this chapter for pur-
34

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1 poses of determining the amount of any credit

2 under subpart A, B, or D of this part.

3 ‘‘(C) NO RECAPTURE BY REASON OF CAS4 UALTY LOSS.—The increase in tax under this

5 subsection shall not apply to a cessation of oper6 ation of the facility as a qualified child care fa7 cility by reason of a casualty loss to the extent

8 such loss is restored by reconstruction or replace9 ment within a reasonable period established by

10 the Secretary.

11 ‘‘(e) SPECIAL RULES.—For purposes of this section—

12 ‘‘(1) AGGREGATION RULES.—All persons which

13 are treated as a single employer under subsections (a)

14 and (b) of section 52 shall be treated as a single tax15 payer.

16 ‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND

17 TRUSTS.—Under regulations prescribed by the Sec18 retary, rules similar to the rules of subsection (d) of

19 section 52 shall apply.

20 ‘‘(3) ALLOCATION IN THE CASE OF PARTNER21 SHIPS.—In the case of partnerships, the credit shall

22 be allocated among partners under regulations pre23 scribed by the Secretary.

24 ‘‘(f) NO DOUBLE BENEFIT.—
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1 ‘‘(1) REDUCTION IN BASIS.—For purposes of this

2 subtitle—

3 ‘‘(A) IN GENERAL.—If a credit is deter4 mined under this section with respect to any

5 property by reason of expenditures described in

6 subsection (c)(1)(A), the basis of such property

7 shall be reduced by the amount of the credit so

8 determined.

9 ‘‘(B) CERTAIN DISPOSITIONS.—If, during

10 any taxable year, there is a recapture amount

11 determined with respect to any property the

12 basis of which was reduced under subparagraph

13 (A), the basis of such property (immediately be14 fore the event resulting in such recapture) shall

15 be increased by an amount equal to such recap16 ture amount. For purposes of the preceding sen17 tence, the term ‘recapture amount’ means any

18 increase in tax (or adjustment in carrybacks or

19 carryovers) determined under subsection (d).

20 ‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No de21 duction or credit shall be allowed under any other

22 provision of this chapter with respect to the amount

23 of the credit determined under this section.’’.

24 (b) CONFORMING AMENDMENTS.—
36

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1 (1) Section 38(b) of the Internal Revenue Code

2 of 1986 is amended by striking ‘‘plus’’ at the end of

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

4 paragraph (13) and inserting ‘‘, plus’’, and by add5 ing at the end the following:

6 ‘‘(14) the employer-provided child care credit de7 termined under section 45G.’’.

8 (2) The table of sections for subpart D of part

9 IV of subchapter A of chapter 1 of such Code is

10 amended by adding at the end the following:

‘‘Sec. 45G. Employer-provided child care credit.’’

11 (3) Section 1016(a) of such Code is amended by

12 striking ‘‘and’’ at the end of paragraph (26), by strik13 ing the period at the end of paragraph (27) and in14 serting ‘‘, and’’, and by adding at the end the fol15 lowing:

16 ‘‘(28) in the case of a facility with respect to

17 which a credit was allowed under section 45G, to the

18 extent provided in section 45G(f)(1).’’.

19 (c) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to taxable years beginning after Decem21 ber 31, 2001.

22 SEC. 207. ALLOWANCE OF CREDIT FOR EMPLOYER EX23 PENSES FOR CHILD CARE ASSISTANCE.

24 (a) IN GENERAL.—Subpart D of part IV of subchapter

25 A of chapter 1 of the Internal Revenue Code of 1986 (relat-
37

HR 1836 EAS

1 ing to business related credits), as amended by sections 619

2 and 620, is further amended by adding at the end the fol3 lowing:

4 ‘‘SEC. 45G. EMPLOYER-PROVIDED CHILD CARE CREDIT.

5 ‘‘(a) IN GENERAL.—For purposes of section 38, the em6 ployer-provided child care credit determined under this sec7 tion for the taxable year is an amount equal to the sum

8 of—

9 ‘‘(1) 25 percent of the qualified child care ex10 penditures, and

11 ‘‘(2) 10 percent of the qualified child care re12 source and referral expenditures,

13 of the taxpayer for such taxable year.

14 ‘‘(b) DOLLAR LIMITATION.—The credit allowable

15 under subsection (a) for any taxable year shall not exceed

16 $150,000.

17 ‘‘(c) DEFINITIONS.—For purposes of this section—

18 ‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—

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

20 child care expenditure’ means any amount paid

21 or incurred—

22 ‘‘(i) to acquire, construct, rehabilitate,

23 or expand property—
38

HR 1836 EAS

1 ‘‘(I) which is to be used as part of

2 a qualified child care facility of the

3 taxpayer,

4 ‘‘(II) with respect to which a de5 duction for depreciation (or amortiza6 tion in lieu of depreciation) is allow7 able, and

8 ‘‘(III) which does not constitute

9 part of the principal residence (within

10 the meaning of section 121) of the tax11 payer or any employee of the taxpayer,

12 ‘‘(ii) for the operating costs of a quali13 fied child care facility of the taxpayer, in14 cluding costs related to the training of em15 ployees, to scholarship programs, and to the

16 providing of increased compensation to em17 ployees with higher levels of child care

18 training, or

19 ‘‘(iii) under a contract with a quali20 fied child care facility to provide child care

21 services to employees of the taxpayer.

22 ‘‘(B) FAIR MARKET VALUE.—The term

23 ‘qualified child care expenditures’ shall not in24 clude expenses in excess of the fair market value

25 of such care.
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HR 1836 EAS

1 ‘‘(2) QUALIFIED CHILD CARE FACILITY.—

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

3 child care facility’ means a facility—

4 ‘‘(i) the principal use of which is to

5 provide child care assistance, and

6 ‘‘(ii) which meets the requirements of

7 all applicable laws and regulations of the

8 State or local government in which it is lo9 cated, including the licensing of the facility

10 as a child care facility.

11 Clause (i) shall not apply to a facility which is

12 the principal residence (within the meaning of

13 section 121) of the operator of the facility.

14 ‘‘(B) SPECIAL RULES WITH RESPECT TO A

15 TAXPAYER.—A facility shall not be treated as a

16 qualified child care facility with respect to a tax17 payer unless—

18 ‘‘(i) enrollment in the facility is open

19 to employees of the taxpayer during the tax20 able year,

21 ‘‘(ii) if the facility is the principal

22 trade or business of the taxpayer, at least

23 30 percent of the enrollees of such facility

24 are dependents of employees of the taxpayer,

25 and
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1 ‘‘(iii) the use of such facility (or the

2 eligibility to use such facility) does not dis3 criminate in favor of employees of the tax4 payer who are highly compensated employ5 ees (within the meaning of section 414(q)).

6 ‘‘(3) QUALIFIED CHILD CARE RESOURCE AND RE7 FERRAL EXPENDITURE.—

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

9 child care resource and referral expenditure’

10 means any amount paid or incurred under a

11 contract to provide child care resource and refer12 ral services to an employee of the taxpayer.

13 ‘‘(B) NONDISCRIMINATION.—The services

14 shall not be treated as qualified unless the provi15 sion of such services (or the eligibility to use such

16 services) does not discriminate in favor of em17 ployees of the taxpayer who are highly com18 pensated employees (within the meaning of sec19 tion 414(q)).

20 ‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION

21 CREDIT.—

22 ‘‘(1) IN GENERAL.—If, as of the close of any tax23 able year, there is a recapture event with respect to

24 any qualified child care facility of the taxpayer, then

25 the tax of the taxpayer under this chapter for such
41

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1 taxable year shall be increased by an amount equal

2 to the product of—

3 ‘‘(A) the applicable recapture percentage,

4 and

5 ‘‘(B) the aggregate decrease in the credits

6 allowed under section 38 for all prior taxable

7 years which would have resulted if the qualified

8 child care expenditures of the taxpayer described

9 in subsection (c)(1)(A) with respect to such facil10 ity had been zero.

11 ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—

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

13 subsection, the applicable recapture percentage

14 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.

15 ‘‘(B) YEARS.—For purposes of subpara16 graph (A), year 1 shall begin on the first day of

17 the taxable year in which the qualified child care

18 facility is placed in service by the taxpayer.
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1 ‘‘(3) RECAPTURE EVENT DEFINED.—For pur2 poses of this subsection, the term ‘recapture event’

3 means—

4 ‘‘(A) CESSATION OF OPERATION.—The ces5 sation of the operation of the facility as a quali6 fied child care facility.

7 ‘‘(B) CHANGE IN OWNERSHIP.—

8 ‘‘(i) IN GENERAL.—Except as provided

9 in clause (ii), the disposition of a tax10 payer’s interest in a qualified child care fa11 cility with respect to which the credit de12 scribed in subsection (a) was allowable.

13 ‘‘(ii) AGREEMENT TO ASSUME RECAP14 TURE LIABILITY.—Clause (i) shall not

15 apply if the person acquiring such interest

16 in the facility agrees in writing to assume

17 the recapture liability of the person dis18 posing of such interest in effect immediately

19 before such disposition. In the event of such

20 an assumption, the person acquiring the in21 terest in the facility shall be treated as the

22 taxpayer for purposes of assessing any re23 capture liability (computed as if there had

24 been no change in ownership).

25 ‘‘(4) SPECIAL RULES.—
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HR 1836 EAS

1 ‘‘(A) TAX BENEFIT RULE.—The tax for the

2 taxable year shall be increased under paragraph

3 (1) only with respect to credits allowed by reason

4 of this section which were used to reduce tax li5 ability. In the case of credits not so used to re6 duce tax liability, the carryforwards and

7 carrybacks under section 39 shall be appro8 priately adjusted.

9 ‘‘(B) NO CREDITS AGAINST TAX.—Any in10 crease in tax under this subsection shall not be

11 treated as a tax imposed by this chapter for pur12 poses of determining the amount of any credit

13 under subpart A, B, or D of this part.

14 ‘‘(C) NO RECAPTURE BY REASON OF CAS15 UALTY LOSS.—The increase in tax under this

16 subsection shall not apply to a cessation of oper17 ation of the facility as a qualified child care fa18 cility by reason of a casualty loss to the extent

19 such loss is restored by reconstruction or replace20 ment within a reasonable period established by

21 the Secretary.

22 ‘‘(e) SPECIAL RULES.—For purposes of this section—

23 ‘‘(1) AGGREGATION RULES.—All persons which

24 are treated as a single employer under subsections (a)
44

HR 1836 EAS

1 and (b) of section 52 shall be treated as a single tax2 payer.

3 ‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND

4 TRUSTS.—Under regulations prescribed by the Sec5 retary, rules similar to the rules of subsection (d) of

6 section 52 shall apply.

7 ‘‘(3) ALLOCATION IN THE CASE OF PARTNER8 SHIPS.—In the case of partnerships, the credit shall

9 be allocated among partners under regulations pre10 scribed by the Secretary.

11 ‘‘(f) NO DOUBLE BENEFIT.—

12 ‘‘(1) REDUCTION IN BASIS.—For purposes of this

13 subtitle—

14 ‘‘(A) IN GENERAL.—If a credit is deter15 mined under this section with respect to any

16 property by reason of expenditures described in

17 subsection (c)(1)(A), the basis of such property

18 shall be reduced by the amount of the credit so

19 determined.

20 ‘‘(B) CERTAIN DISPOSITIONS.—If, during

21 any taxable year, there is a recapture amount

22 determined with respect to any property the

23 basis of which was reduced under subparagraph

24 (A), the basis of such property (immediately be25 fore the event resulting in such recapture) shall
45

HR 1836 EAS

1 be increased by an amount equal to such recap2 ture amount. For purposes of the preceding sen3 tence, the term ‘recapture amount’ means any

4 increase in tax (or adjustment in carrybacks or

5 carryovers) determined under subsection (d).

6 ‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No de7 duction or credit shall be allowed under any other

8 provision of this chapter with respect to the amount

9 of the credit determined under this section.’’.

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 38(b) of the Internal Revenue Code

12 of 1986 is amended by striking ‘‘plus’’ at the end of

13 paragraph (12), by striking the period at the end of

14 paragraph (13) and inserting ‘‘, plus’’, and by add15 ing at the end the following:

16 ‘‘(14) the employer-provided child care credit de17 termined under section 45G.’’.

18 (2) The table of sections for subpart D of part

19 IV of subchapter A of chapter 1 of such Code is

20 amended by adding at the end the following:

‘‘Sec. 45G. Employer-provided child care credit.’’

21 (3) Section 1016(a) of such Code is amended by

22 striking ‘‘and’’ at the end of paragraph (26), by strik23 ing the period at the end of paragraph (27) and in24 serting ‘‘, and’’, and by adding at the end the fol25 lowing:
46

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1 ‘‘(28) in the case of a facility with respect to

2 which a credit was allowed under section 45G, to the

3 extent provided in section 45G(f)(1).’’.

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

5 section shall apply to taxable years beginning after Decem6 ber 31, 2001.

7 Subtitle B—Compliance With

8 Congressional Budget Act

9 SEC. 211. SUNSET OF PROVISIONS OF TITLE.

10 All provisions of, and amendments made by, this title

11 which are in effect on September 30, 2011, shall cease to

12 apply as of the close of September 30, 2011.

13 TITLE III—MARRIAGE PENALTY

14 RELIEF

15 Subtitle A—In General

16 SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STAND17 ARD DEDUCTION.

18 (a) IN GENERAL.—Paragraph (2) of section 63(c) (re19 lating to standard deduction) is amended—

20 (1) by striking ‘‘$5,000’’ in subparagraph (A)

21 and inserting ‘‘the applicable percentage of the dollar

22 amount in effect under subparagraph (C) for the tax23 able year’’;

24 (2) by adding ‘‘or’’ at the end of subparagraph

25 (B);
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1 (3) by striking ‘‘in the case of’’ and all that fol2 lows in subparagraph (C) and inserting ‘‘in any

3 other case.’’; and

4 (4) by striking subparagraph (D).

5 (b) APPLICABLE PERCENTAGE.—Section 63(c) (relat6 ing to standard deduction) is amended by adding at the

7 end the following new paragraph:

8 ‘‘(7) APPLICABLE PERCENTAGE.—For purposes

9 of paragraph (2), the applicable percentage shall be

10 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.’’.

11 (c) TECHNICAL AMENDMENTS.—

12 (1) Subparagraph (B) of section 1(f)(6), as

13 amended by section 103(b), is amended by striking

14 ‘‘(other than with’’ and all that follows through ‘‘shall

15 be applied’’ and inserting ‘‘(other than with respect

16 to sections 63(c)(4) and 151(d)(3)(A)) shall be ap17 plied’’.

18 (2) Paragraph (4) of section 63(c) is amended by

19 adding at the end the following flush sentence:

20 ‘‘The preceding sentence shall not apply to the

21 amount referred to in paragraph (2)(A).’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2004.

4 SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PER5 CENT BRACKET.

6 (a) IN GENERAL.—Section 1(f) (relating to adjust7 ments in tax tables so that inflation will not result in tax

8 increases) is amended by adding at the end the following

9 new paragraph:

10 ‘‘(8) PHASEOUT OF MARRIAGE PENALTY IN 15-

11 PERCENT BRACKET.—

12 ‘‘(A) IN GENERAL.—With respect to taxable

13 years beginning after December 31, 2004, in pre14 scribing the tables under paragraph (1)—

15 ‘‘(i) the maximum taxable income in

16 the 15-percent rate bracket in the table con17 tained in subsection (a) (and the minimum

18 taxable income in the next higher taxable

19 income bracket in such table) shall be the

20 applicable percentage of the maximum tax21 able income in the 15-percent rate bracket

22 in the table contained in subsection (c)

23 (after any other adjustment under this sub24 section), and
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1 ‘‘(ii) the comparable taxable income

2 amounts in the table contained in subsection (d) shall be 1 3 ⁄2 of the amounts deter4 mined under clause (i).

5 ‘‘(B) APPLICABLE PERCENTAGE.—For pur6 poses of subparagraph (A), the applicable per7 centage shall be determined in accordance with

8 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.

9 ‘‘(C) ROUNDING.—If any amount deter10 mined under subparagraph (A)(i) is not a mul11 tiple of $50, such amount shall be rounded to the

12 next lowest multiple of $50.’’.

13 (b) TECHNICAL AMENDMENTS.—

14 (1) Subparagraph (A) of section 1(f)(2) is

15 amended by inserting ‘‘except as provided in para16 graph (8),’’ before ‘‘by increasing’’.

17 (2) The heading for subsection (f) of section 1 is

18 amended by inserting ‘‘PHASEOUT OF MARRIAGE

19 PENALTY IN 15-PERCENT BRACKET;’’ before ‘‘ADJUST20 MENTS’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2004.

4 SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED IN5 COME CREDIT; EARNED INCOME TO INCLUDE

6 ONLY AMOUNTS INCLUDIBLE IN GROSS IN7 COME; SIMPLIFICATION OF EARNED INCOME

8 CREDIT.

9 (a) INCREASED PHASEOUT AMOUNT.—

10 (1) IN GENERAL.—Section 32(b)(2) (relating to

11 amounts) is amended—

12 (A) by striking ‘‘AMOUNTS.—The earned’’

13 and inserting ‘‘AMOUNTS.—

14 ‘‘(A) IN GENERAL.—Subject to subpara15 graph (B), the earned’’, and

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

17 subparagraph:

18 ‘‘(B) JOINT RETURNS.—In the case of a

19 joint return filed by an eligible individual and

20 such individual’s spouse, the phaseout amount

21 determined under subparagraph (A) shall be in22 creased by $3,000.’’.

23 (2) INFLATION ADJUSTMENT.—Paragraph (1)(B)

24 of section 32(j) (relating to inflation adjustments) is

25 amended to read as follows:
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1 ‘‘(B) the cost-of-living adjustment deter2 mined under section 1(f)(3) for the calendar year

3 in which the taxable year begins, determined—

4 ‘‘(i) in the case of amounts in sub5 sections (b)(2)(A) and (i)(1), by sub6 stituting ‘calendar year 1995’ for ‘calendar

7 year 1992’ in subparagraph (B) thereof,

8 and

9 ‘‘(ii) in the case of the $3,000 amount

10 in subsection (b)(2)(B), by substituting ‘cal11 endar year 2001’ for ‘calendar year 1992’

12 in subparagraph (B) of such section 1.’’.

13 (3) ROUNDING.—Section 32(j)(2)(A) (relating to

14 rounding) is amended by striking ‘‘subsection (b)(2)’’

15 and inserting ‘‘subsection (b)(2)(A) (after being in16 creased under subparagraph (B) thereof)’’.

17 (b) EARNED INCOME TO INCLUDE ONLY AMOUNTS IN18 CLUDIBLE IN GROSS INCOME.—Clause (i) of section

19 32(c)(2)(A) (defining earned income) is amended by insert20 ing ‘‘, but only if such amounts are includible in gross in21 come for the taxable year’’ after ‘‘other employee compensa22 tion’’.

23 (c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS

24 SUBJECT TO ALTERNATIVE MINIMUM TAX.—Section 32(h)

25 is repealed.
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1 (d) REPLACEMENT OF MODIFIED ADJUSTED GROSS

2 INCOME WITH ADJUSTED GROSS INCOME.—

3 (1) IN GENERAL.—Section 32(a)(2)(B) is amend4 ed by striking ‘‘modified’’.

5 (2) CONFORMING AMENDMENTS.—

6 (A) Section 32(c) is amended by striking

7 paragraph (5).

8 (B) Section 32(f)(2)(B) is amended by

9 striking ‘‘modified’’ each place it appears.

10 (e) RELATIONSHIP TEST.—

11 (1) IN GENERAL.—Clause (i) of section

12 32(c)(3)(B) (relating to relationship test) is amended

13 to read as follows:

14 ‘‘(i) IN GENERAL.—An individual

15 bears a relationship to the taxpayer de16 scribed in this subparagraph if such indi17 vidual is—

18 ‘‘(I) a son, daughter, stepson, or

19 stepdaughter, or a descendant of any

20 such individual,

21 ‘‘(II) a brother, sister, stepbrother,

22 or stepsister, or a descendant of any

23 such individual, who the taxpayer

24 cares for as the taxpayer’s own child,

25 or
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1 ‘‘(III) an eligible foster child of

2 the taxpayer.’’.

3 (2) ELIGIBLE FOSTER CHILD.—

4 (A) IN GENERAL.—Clause (iii) of section

5 32(c)(3)(B) is amended to read as follows:

6 ‘‘(iii) ELIGIBLE FOSTER CHILD.—For

7 purposes of clause (i), the term ‘eligible fos8 ter child’ means an individual not described

9 in subclause (I) or (II) of clause (i) who—

10 ‘‘(I) is placed with the taxpayer

11 by an authorized placement agency,

12 and

13 ‘‘(II) the taxpayer cares for as the

14 taxpayer’s own child.’’.

15 (B) CONFORMING AMENDMENT.—Section

16 32(c)(3)(A)(ii) is amended by striking ‘‘except as

17 provided in subparagraph (B)(iii),’’.

18 (f) 2 OR MORE CLAIMING QUALIFYING CHILD.—Sec19 tion 32(c)(1)(C) is amended to read as follows:

20 ‘‘(C) 2 OR MORE CLAIMING QUALIFYING

21 CHILD.—

22 ‘‘(i) IN GENERAL.—Except as provided

23 in clause (ii), if (but for this paragraph) an

24 individual may be claimed, and is claimed,

25 as a qualifying child by 2 or more tax-
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1 payers for a taxable year beginning in the

2 same calendar year, such individual shall

3 be treated as the qualifying child of the tax4 payer who is—

5 ‘‘(I) a parent of the individual, or

6 ‘‘(II) if subclause (I) does not

7 apply, the taxpayer with the highest

8 adjusted gross income for such taxable

9 year.

10 ‘‘(ii) MORE THAN 1 CLAIMING CRED11 IT.—If the parents claiming the credit with

12 respect to any qualifying child do not file a

13 joint return together, such child shall be

14 treated as the qualifying child of—

15 ‘‘(I) the parent with whom the

16 child resided for the longest period of

17 time during the taxable year, or

18 ‘‘(II) if the child resides with both

19 parents for the same amount of time

20 during such taxable year, the parent

21 with the highest adjusted gross in22 come.’’.

23 (g) EXPANSION OF MATHEMATICAL ERROR AUTHOR24 ITY.—Paragraph (2) of section 6213(g) is amended by strik25 ing ‘‘and’’ at the end of subparagraph (K), by striking the
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1 period at the end of subparagraph (L) and inserting ‘‘,

2 and’’, and by inserting after subparagraph (L) the fol3 lowing new subparagraph:

4 ‘‘(M) the entry on the return claiming the

5 credit under section 32 with respect to a child if,

6 according to the Federal Case Registry of Child

7 Support Orders established under section 453(h)

8 of the Social Security Act, the taxpayer is a non9 custodial parent of such child.’’

10 (h) EFFECTIVE DATES.—

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

12 this section shall apply to taxable years beginning

13 after December 31, 2001.

14 (2) SUBSECTION (g).—The amendment made by

15 subsection (g) shall take effect on January 1, 2004.

16 Subtitle B—Compliance With

17 Congressional Budget Act

18 SEC. 311. SUNSET OF PROVISIONS OF TITLE.

19 All provisions of, and amendments made by, this title

20 which are in effect on September 30, 2011, shall cease to

21 apply as of the close of September 30, 2011.
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1 TITLE IV—AFFORDABLE

2 EDUCATION PROVISIONS

3 Subtitle A—Education Savings

4 Incentives

5 SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RE6 TIREMENT ACCOUNTS.

7 (a) MAXIMUM ANNUAL CONTRIBUTIONS.—

8 (1) IN GENERAL.—Section 530(b)(1)(A)(iii) (de9 fining education individual retirement account) is

10 amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’.

11 (2) CONFORMING AMENDMENT.—Section

12 4973(e)(1)(A) is amended by striking ‘‘$500’’ and in13 serting ‘‘$2,000’’.

14 (b) MODIFICATION OF AGI LIMITS TO REMOVE MAR15 RIAGE PENALTY.—Section 530(c)(1) (relating to reduction

16 in permitted contributions based on adjusted gross income)

17 is amended—

18 (1) by striking ‘‘$150,000’’ in subparagraph

19 (A)(ii) and inserting ‘‘$190,000’’, and

20 (2) by striking ‘‘$10,000’’ in subparagraph (B)

21 and inserting ‘‘$30,000’’.

22 (c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND

23 SECONDARY SCHOOL EXPENSES.—
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1 (1) IN GENERAL.—Section 530(b)(2) (defining

2 qualified higher education expenses) is amended to

3 read as follows:

4 ‘‘(2) QUALIFIED EDUCATION EXPENSES.—

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

6 education expenses’ means—

7 ‘‘(i) qualified higher education ex8 penses (as defined in section 529(e)(3)), and

9 ‘‘(ii) qualified elementary and sec10 ondary education expenses (as defined in

11 paragraph (4)).

12 ‘‘(B) QUALIFIED STATE TUITION PRO13 GRAMS.—Such term shall include any contribu14 tion to a qualified State tuition program (as de15 fined in section 529(b)) on behalf of the des16 ignated beneficiary (as defined in section

17 529(e)(1)); but there shall be no increase in the

18 investment in the contract for purposes of apply19 ing section 72 by reason of any portion of such

20 contribution which is not includible in gross in21 come by reason of subsection (d)(2).’’.

22 (2) QUALIFIED ELEMENTARY AND SECONDARY

23 EDUCATION EXPENSES.—Section 530(b) (relating to

24 definitions and special rules) is amended by adding

25 at the end the following new paragraph:
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1 ‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY

2 EDUCATION EXPENSES.—

3 ‘‘(A) IN GENERAL.—The term ‘qualified ele4 mentary and secondary education expenses’

5 means—

6 ‘‘(i) expenses for tuition, fees, academic

7 tutoring, special needs services, books, sup8 plies, and other equipment which are in9 curred in connection with the enrollment or

10 attendance of the designated beneficiary of

11 the trust as an elementary or secondary

12 school student at a public, private, or reli13 gious school,

14 ‘‘(ii) expenses for room and board, uni15 forms, transportation, and supplementary

16 items and services (including extended day

17 programs) which are required or provided

18 by a public, private, or religious school in

19 connection with such enrollment or attend20 ance, and

21 ‘‘(iii) expenses for the purchase of any

22 computer technology or equipment (as de23 fined in section 170(e)(6)(F)(i)) or Internet

24 access and related services, if such tech25 nology, equipment, or services are to be used
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1 by the beneficiary and the beneficiary’s

2 family during any of the years the bene3 ficiary is in school. Such terms shall not in4 clude computer software including sports,

5 games, or hobbies unless the software is edu6 cational in nature.

7 ‘‘(B) SCHOOL.—The term ‘school’ means

8 any school which provides elementary education

9 or secondary education (kindergarten through

10 grade 12), as determined under State law.’’.

11 (3) CONFORMING AMENDMENTS.—Section 530 is

12 amended—

13 (A) by striking ‘‘higher’’ each place it ap14 pears in subsections (b)(1) and (d)(2), and

15 (B) by striking ‘‘HIGHER’’ in the heading

16 for subsection (d)(2).

17 (d) WAIVER OF AGE LIMITATIONS FOR CHILDREN

18 WITH SPECIAL NEEDS.—Section 530(b)(1) (defining edu19 cation individual retirement account) is amended by add20 ing at the end the following flush sentence:

21 ‘‘The age limitations in subparagraphs (A)(ii) and

22 (E), and paragraphs (5) and (6) of subsection (d),

23 shall not apply to any designated beneficiary with

24 special needs (as determined under regulations pre25 scribed by the Secretary).’’.
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1 (e) ENTITIES PERMITTED TO CONTRIBUTE TO AC2 COUNTS.—Section 530(c)(1) (relating to reduction in per3 mitted contributions based on adjusted gross income) is

4 amended by striking ‘‘The maximum amount which a con5 tributor’’ and inserting ‘‘In the case of a contributor who

6 is an individual, the maximum amount the contributor’’.

7 (f) TIME WHEN CONTRIBUTIONS DEEMED MADE.—

8 (1) IN GENERAL.—Section 530(b) (relating to

9 definitions and special rules), as amended by sub10 section (c)(2), is amended by adding at the end the

11 following new paragraph:

12 ‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED

13 MADE.—An individual shall be deemed to have made

14 a contribution to an education individual retirement

15 account on the last day of the preceding taxable year

16 if the contribution is made on account of such taxable

17 year and is made not later than the time prescribed

18 by law for filing the return for such taxable year (not

19 including extensions thereof).’’.

20 (2) EXTENSION OF TIME TO RETURN EXCESS

21 CONTRIBUTIONS.—Subparagraph (C) of section

22 530(d)(4) (relating to additional tax for distributions

23 not used for educational expenses) is amended—

24 (A) by striking clause (i) and inserting the

25 following new clause:
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1 ‘‘(i) such distribution is made before

2 the first day of the sixth month of the tax3 able year following the taxable year, and’’,

4 and

5 (B) by striking ‘‘DUE DATE OF RETURN’’ in

6 the heading and inserting ‘‘CERTAIN DATE’’.

7 (g) COORDINATION WITH HOPE AND LIFETIME

8 LEARNING CREDITS AND QUALIFIED TUITION PRO9 GRAMS.—

10 (1) IN GENERAL.—Section 530(d)(2)(C) is

11 amended to read as follows:

12 ‘‘(C) COORDINATION WITH HOPE AND LIFE13 TIME LEARNING CREDITS AND QUALIFIED TUI14 TION PROGRAMS.—For purposes of subparagraph

15 (A)—

16 ‘‘(i) CREDIT COORDINATION.—The

17 total amount of qualified higher education

18 expenses with respect to an individual for

19 the taxable year shall be reduced—

20 ‘‘(I) as provided in section

21 25A(g)(2), and

22 ‘‘(II) by the amount of such ex23 penses which were taken into account

24 in determining the credit allowed to
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1 the taxpayer or any other person under

2 section 25A.

3 ‘‘(ii) COORDINATION WITH QUALIFIED

4 TUITION PROGRAMS.—If, with respect to an

5 individual for any taxable year—

6 ‘‘(I) the aggregate distributions

7 during such year to which subpara8 graph (A) and section 529(c)(3)(B)

9 apply, exceed

10 ‘‘(II) the total amount of qualified

11 education expenses (after the applica12 tion of clause (i)) for such year,

13 the taxpayer shall allocate such expenses

14 among such distributions for purposes of de15 termining the amount of the exclusion

16 under subparagraph (A) and section

17 529(c)(3)(B).’’.

18 (2) CONFORMING AMENDMENTS.—

19 (A) Subsection (e) of section 25A is amend20 ed to read as follows:

21 ‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A

22 taxpayer may elect not to have this section apply with re23 spect to the qualified tuition and related expenses of an in24 dividual for any taxable year.’’.
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1 (B) Section 135(d)(2)(A) is amended by

2 striking ‘‘allowable’’ and inserting ‘‘allowed’’.

3 (C) Section 530(d)(2)(D) is amended—

4 (i) by striking ‘‘or credit’’, and

5 (ii) by striking ‘‘CREDIT OR’’ in the

6 heading.

7 (D) Section 4973(e)(1) is amended by add8 ing ‘‘and’’ at the end of subparagraph (A), by

9 striking subparagraph (B), and by redesignating

10 subparagraph (C) as subparagraph (B).

11 (h) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to taxable years beginning after Decem13 ber 31, 2001.

14 SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PRO15 GRAMS.

16 (a) ELIGIBLE EDUCATIONAL INSTITUTIONS PER17 MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—

18 (1) IN GENERAL.—Section 529(b)(1) (defining

19 qualified State tuition program) is amended—

20 (A) by inserting ‘‘or by 1 or more eligible

21 educational institutions’’ after ‘‘maintained by a

22 State or agency or instrumentality thereof ’’ in

23 the matter preceding subparagraph (A), and

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

25 flush sentence:
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1 ‘‘Except to the extent provided in regulations, a pro2 gram established and maintained by 1 or more eligi3 ble educational institutions shall not be treated as a

4 qualified tuition program unless such program has

5 received a ruling or determination that such program

6 meets the applicable requirements for a qualified tui7 tion program.’’.

8 (2) PRIVATE QUALIFIED TUITION PROGRAMS LIM9 ITED TO BENEFIT PLANS.—Clause (ii) of section

10 529(b)(1)(A) is amended by inserting ‘‘in the case of

11 a program established and maintained by a State or

12 agency or instrumentality thereof,’’ before ‘‘may

13 make’’.

14 (3) CONFORMING AMENDMENTS.—

15 (A) Sections 72(e)(9), 135(c)(2)(C),

16 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and

17 6693(a)(2)(C) are amended by striking ‘‘quali18 fied State tuition’’ each place it appears and in19 serting ‘‘qualified tuition’’.

20 (B) The headings for sections 72(e)(9) and

21 135(c)(2)(C) are amended by striking ‘‘QUALI22 FIED STATE TUITION’’ each place it appears and

23 inserting ‘‘QUALIFIED TUITION’’.

24 (C) The headings for sections 529(b) and

25 530(b)(2)(B) are amended by striking ‘‘QUALI-
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1 FIED STATE TUITION’’ each place it appears and

2 inserting ‘‘QUALIFIED TUITION’’.

3 (D) The heading for section 529 is amended

4 by striking ‘‘STATE’’.

5 (E) The item relating to section 529 in the

6 table of sections for part VIII of subchapter F of

7 chapter 1 is amended by striking ‘‘State’’.

8 (b) EXCLUSION FROM GROSS INCOME OF EDUCATION

9 DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.—

10 (1) IN GENERAL.—Section 529(c)(3)(B) (relating

11 to distributions) is amended to read as follows:

12 ‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGH13 ER EDUCATION EXPENSES.—For purposes of this

14 paragraph—

15 ‘‘(i) IN-KIND DISTRIBUTIONS.—No

16 amount shall be includible in gross income

17 under subparagraph (A) by reason of a dis18 tribution which consists of providing a ben19 efit to the distributee which, if paid for by

20 the distributee, would constitute payment of

21 a qualified higher education expense.

22 ‘‘(ii) CASH DISTRIBUTIONS.—In the

23 case of distributions not described in clause

24 (i), if—
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1 ‘‘(I) such distributions do not ex2 ceed the qualified higher education ex3 penses (reduced by expenses described

4 in clause (i)), no amount shall be in5 cludible in gross income, and

6 ‘‘(II) in any other case, the

7 amount otherwise includible in gross

8 income shall be reduced by an amount

9 which bears the same ratio to such

10 amount as such expenses bear to such

11 distributions.

12 ‘‘(iii) EXCEPTION FOR INSTITUTIONAL

13 PROGRAMS.—In the case of any taxable

14 year beginning before January 1, 2004,

15 clauses (i) and (ii) shall not apply with re16 spect to any distribution during such tax17 able year under a qualified tuition program

18 established and maintained by 1 or more el19 igible educational institutions.

20 ‘‘(iv) TREATMENT AS DISTRIBU21 TIONS.—Any benefit furnished to a des22 ignated beneficiary under a qualified tui23 tion program shall be treated as a distribu24 tion to the beneficiary for purposes of this

25 paragraph.
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1 ‘‘(v) COORDINATION WITH HOPE AND

2 LIFETIME LEARNING CREDITS.—The total

3 amount of qualified higher education ex4 penses with respect to an individual for the

5 taxable year shall be reduced—

6 ‘‘(I) as provided in section

7 25A(g)(2), and

8 ‘‘(II) by the amount of such ex9 penses which were taken into account

10 in determining the credit allowed to

11 the taxpayer or any other person under

12 section 25A.

13 ‘‘(vi) COORDINATION WITH EDUCATION

14 INDIVIDUAL RETIREMENT ACCOUNTS.—If,

15 with respect to an individual for any tax16 able year—

17 ‘‘(I) the aggregate distributions to

18 which clauses (i) and (ii) and section

19 530(d)(2)(A) apply, exceed

20 ‘‘(II) the total amount of qualified

21 higher education expenses otherwise

22 taken into account under clauses (i)

23 and (ii) (after the application of clause

24 (v)) for such year,
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1 the taxpayer shall allocate such expenses

2 among such distributions for purposes of de3 termining the amount of the exclusion

4 under clauses (i) and (ii) and section

5 530(d)(2)(A).’’.

6 (2) CONFORMING AMENDMENTS.—

7 (A) Section 135(d)(2)(B) is amended by

8 striking ‘‘the exclusion under section 530(d)(2)’’

9 and inserting ‘‘the exclusions under sections

10 529(c)(3)(B) and 530(d)(2)’’.

11 (B) Section 221(e)(2)(A) is amended by in12 serting ‘‘529,’’ after ‘‘135,’’.

13 (c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT

14 OF SAME DESIGNATED BENEFICIARY.—Section

15 529(c)(3)(C) (relating to change in beneficiaries) is

16 amended—

17 (1) by striking ‘‘transferred to the credit’’ in

18 clause (i) and inserting ‘‘transferred—

19 ‘‘(I) to another qualified tuition

20 program for the benefit of the des21 ignated beneficiary, or

22 ‘‘(II) to the credit’’,

23 (2) by adding at the end the following new

24 clause:
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1 ‘‘(iii) LIMITATION ON CERTAIN ROLL2 OVERS.—Clause (i)(I) shall not apply to

3 any transfer if such transfer occurs within

4 12 months from the date of a previous

5 transfer to any qualified tuition program

6 for the benefit of the designated bene7 ficiary.’’, and

8 (3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENE9 FICIARIES’’ in the heading.

10 (d) MEMBER OF FAMILY INCLUDES FIRST COUSIN.—

11 Section 529(e)(2) (defining member of family) is amended

12 by striking ‘‘and’’ at the end of subparagraph (B), by strik13 ing the period at the end of subparagraph (C) and by in14 serting ‘‘; and’’, and by adding at the end the following

15 new subparagraph:

16 ‘‘(D) any first cousin of such beneficiary.’’.

17 (e) ADJUSTMENT OF LIMITATION ON ROOM AND

18 BOARD DISTRIBUTIONS.—Section 529(e)(3)(B)(ii) is

19 amended to read as follows:

20 ‘‘(ii) LIMITATION.—The amount treat21 ed as qualified higher education expenses by

22 reason of clause (i) shall not exceed—

23 ‘‘(I) the allowance (applicable to

24 the student) for room and board in25 cluded in the cost of attendance (as de-
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1 fined in section 472 of the Higher Edu2 cation Act of 1965 (20 U.S.C. 1087ll),

3 as in effect on the date of the enact4 ment of the Restoring Earnings To

5 Lift Individuals and Empower Fami6 lies (RELIEF) Act of 2001) as deter7 mined by the eligible educational insti8 tution for such period, or

9 ‘‘(II) if greater, the actual invoice

10 amount the student residing in housing

11 owned or operated by the eligible edu12 cational institution is charged by such

13 institution for room and board costs

14 for such period.’’.

15 (f) TECHNICAL AMENDMENTS.—Section 529(c)(3)(D)

16 is amended—

17 (1) by inserting ‘‘except to the extent provided by

18 the Secretary,’’ before ‘‘all distributions’’ in clause

19 (ii), and

20 (2) by inserting ‘‘except to the extent provided by

21 the Secretary,’’ before ‘‘the value’’ in clause (iii).

22 (g) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to taxable years beginning after Decem24 ber 31, 2001.
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1 Subtitle B—Educational Assistance

2 SEC. 411. PERMANENT EXTENSION OF EXCLUSION FOR EM3 PLOYER-PROVIDED EDUCATIONAL ASSIST4 ANCE.

5 (a) IN GENERAL.—Section 127 (relating to exclusion

6 for educational assistance programs) is amended by strik7 ing subsection (d) and by redesignating subsection (e) as

8 subsection (d).

9 (b) REPEAL OF LIMITATION ON GRADUATE EDU10 CATION.—The last sentence of section 127(c)(1) is amended

11 by striking ‘‘, and such term also does not include any pay12 ment for, or the provision of any benefits with respect to,

13 any graduate level course of a kind normally taken by an

14 individual pursuing a program leading to a law, business,

15 medical, or other advanced academic or professional de16 gree’’.

17 (c) CONFORMING AMENDMENT.—Section

18 51A(b)(5)(B)(iii) is amended by striking ‘‘or would be so

19 excludable but for section 127(d)’’.

20 (d) EFFECTIVE DATE.—The amendments made by this

21 section shall apply with respect to expenses relating to

22 courses beginning after December 31, 2001.
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1 SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE

2 IN INCOME LIMITATION ON STUDENT LOAN

3 INTEREST DEDUCTION.

4 (a) ELIMINATION OF 60-MONTH LIMIT.—

5 (1) IN GENERAL.—Section 221 (relating to inter6 est on education loans), as amended by section

7 402(b)(2)(B), is amended by striking subsection (d)

8 and by redesignating subsections (e), (f), and (g) as

9 subsections (d), (e), and (f), respectively.

10 (2) CONFORMING AMENDMENT.—Section

11 6050S(e) is amended by striking ‘‘section 221(e)(1)’’

12 and inserting ‘‘section 221(d)(1)’’.

13 (3) EFFECTIVE DATE.—The amendments made

14 by this subsection shall apply with respect to any

15 loan interest paid after December 31, 2001, in taxable

16 years ending after such date.

17 (b) INCREASE IN INCOME LIMITATION.—

18 (1) IN GENERAL.—Section 221(b)(2)(B) (relating

19 to amount of reduction) is amended by striking

20 clauses (i) and (ii) and inserting the following:

21 ‘‘(i) the excess of—

22 ‘‘(I) the taxpayer’s modified ad23 justed gross income for such taxable

24 year, over

25 ‘‘(II) $50,000 ($100,000 in the

26 case of a joint return), bears to
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1 ‘‘(ii) $15,000 ($30,000 in the case of a

2 joint return).’’.

3 (2) CONFORMING AMENDMENT.—Section

4 221(g)(1) is amended by striking ‘‘$40,000 and

5 $60,000 amounts’’ and inserting ‘‘$50,000 and

6 $100,000 amounts’’.

7 (3) EFFECTIVE DATE.—The amendments made

8 by this subsection shall apply to taxable years ending

9 after December 31, 2001.

10 SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED

11 UNDER THE NATIONAL HEALTH SERVICE

12 CORPS SCHOLARSHIP PROGRAM AND THE F.

13 EDWARD HEBERT ARMED FORCES HEALTH

14 PROFESSIONS SCHOLARSHIP AND FINANCIAL

15 ASSISTANCE PROGRAM.

16 (a) IN GENERAL.—Section 117(c) (relating to the ex17 clusion from gross income amounts received as a qualified

18 scholarship) is amended—

19 (1) by striking ‘‘Subsections (a)’’ and inserting

20 the following:

21 ‘‘(1) IN GENERAL.—Except as provided in para22 graph (2), subsections (a)’’, and

23 (2) by adding at the end the following new para24 graph:
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1 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

2 apply to any amount received by an individual

3 under—

4 ‘‘(A) the National Health Service Corps

5 Scholarship Program under section

6 338A(g)(1)(A) of the Public Health Service Act,

7 or

8 ‘‘(B) the Armed Forces Health Professions

9 Scholarship and Financial Assistance program

10 under subchapter I of chapter 105 of title 10,

11 United States Code.’’.

12 (b) EFFECTIVE DATE.—The amendments made by sub13 section (a) shall apply to amounts received in taxable years

14 beginning after December 31, 2001.

15 SEC. 414. EXCLUSION FROM INCOME OF CERTAIN AMOUNTS

16 CONTRIBUTED TO COVERDELL EDUCATION

17 SAVINGS ACCOUNTS.

18 (a) IN GENERAL.—Section 127 (relating to education

19 assistance programs), as amended by section 411(a), is

20 amended by redesignating subsection (d) as subsection (e)

21 and by inserting after subsection (c) the following new sub22 section:

23 ‘‘(d) QUALIFIED COVERDELL EDUCATION SAVINGS AC24 COUNT CONTRIBUTIONS.—
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1 ‘‘(1) IN GENERAL.—Gross income of an employee

2 shall not include amounts paid or incurred by the

3 employer for a qualified Coverdell education savings

4 account contribution on behalf of the employee.

5 ‘‘(2) QUALIFIED COVERDELL EDUCATION SAV6 INGS ACCOUNT CONTRIBUTION.—For purposes of this

7 subsection—

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

9 Coverdell education savings account contribu10 tion’ means an amount contributed pursuant to

11 an educational assistance program described in

12 subsection (b) by an employer to a Coverdell edu13 cation savings account established and main14 tained for the benefit of an employee or the em15 ployee’s spouse, or any lineal descendent of ei16 ther.

17 ‘‘(B) DOLLAR LIMIT.—A contribution by an

18 employer to a Coverdell education savings ac19 count shall not be treated as a qualified Cover20 dell education savings account contribution to

21 the extent that the contribution, when added to

22 prior contributions by the employer during the

23 calendar year to Coverdell education savings ac24 counts established and maintained for the same

25 beneficiary, exceeds $500.
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1 ‘‘(3) SPECIAL RULES.—

2 ‘‘(A) CONTRIBUTIONS NOT TREATED AS

3 EDUCATIONAL ASSISTANCE IN DETERMINING

4 MAXIMUM EXCLUSION.—For purposes of sub5 section (a)(2), qualified Coverdell education sav6 ings account contributions shall not be treated as

7 educational assistance.

8 ‘‘(B) SELF-EMPLOYED NOT TREATED AS EM9 PLOYEE.—For purposes of this subsection, sub10 section (c)(2) shall not apply.

11 ‘‘(C) ADJUSTED GROSS INCOME PHASEOUT

12 OF ACCOUNT CONTRIBUTION NOT APPLICABLE TO

13 INDIVIDUAL EMPLOYERS.—The limitation under

14 section 530(c) shall not apply to a qualified

15 Coverdell education savings account contribution

16 made by an employer who is an individual.

17 ‘‘(D) CONTRIBUTIONS NOT TREATED AS AN

18 INVESTMENT IN THE CONTRACT.—For purposes

19 of section 530(d), a qualified Coverdell education

20 savings account contribution shall not be treated

21 as an investment in the contract.

22 ‘‘(E) FICA EXCLUSION.—For purposes of

23 section 530(d), the exclusion from FICA taxes

24 shall not apply.’’.
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1 (b) REPORTING REQUIREMENT.—Section 6051(a) (re2 lating to receipts for employees) is amended by striking

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

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

5 by adding at the end the following new paragraph:

6 ‘‘(12) the amount of any qualified Coverdell edu7 cation savings account contribution under section

8 127(d) with respect to such employee.’’.

9 (c) CONFORMING AMENDMENT.—Section 221(e)(2)(A)

10 is amended by inserting ‘‘(other than under subsection (d)

11 thereof)’’ after ‘‘section 127’’.

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

13 section shall apply to contributions made in taxable years

14 beginning after December 31, 2001.

15 Subtitle C—Liberalization of Tax16 Exempt Financing Rules for

17 Public School Construction

18 SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE

19 EXCEPTION FOR GOVERNMENTAL BONDS

20 USED TO FINANCE EDUCATIONAL FACILITIES.

21 (a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relating

22 to increase in exception for bonds financing public school

23 capital expenditures) is amended by striking ‘‘$5,000,000’’

24 the second place it appears and inserting ‘‘$10,000,000’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to obligations issued in calendar

3 years beginning after December 31, 2001.

4 SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDU5 CATIONAL FACILITY BONDS AS EXEMPT FA6 CILITY BONDS.

7 (a) TREATMENT AS EXEMPT FACILITY BOND.—Sub8 section (a) of section 142 (relating to exempt facility bond)

9 is amended by striking ‘‘or’’ at the end of paragraph (11),

10 by striking the period at the end of paragraph (12) and

11 inserting ‘‘, or’’, and by adding at the end the following

12 new paragraph:

13 ‘‘(13) qualified public educational facilities.’’.

14 (b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—

15 Section 142 (relating to exempt facility bond) is amended

16 by adding at the end the following new subsection:

17 ‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—

18 ‘‘(1) IN GENERAL.—For purposes of subsection

19 (a)(13), the term ‘qualified public educational facil20 ity’ means any school facility which is—

21 ‘‘(A) part of a public elementary school or

22 a public secondary school, and

23 ‘‘(B) owned by a private, for-profit corpora24 tion pursuant to a public-private partnership
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1 agreement with a State or local educational

2 agency described in paragraph (2).

3 ‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT

4 DESCRIBED.—A public-private partnership agreement

5 is described in this paragraph if it is an agreement—

6 ‘‘(A) under which the corporation agrees—

7 ‘‘(i) to do 1 or more of the following:

8 construct, rehabilitate, refurbish, or equip a

9 school facility, and

10 ‘‘(ii) at the end of the term of the

11 agreement, to transfer the school facility to

12 such agency for no additional consideration,

13 and

14 ‘‘(B) the term of which does not exceed the

15 term of the issue to be used to provide the school

16 facility.

17 ‘‘(3) SCHOOL FACILITY.—For purposes of this

18 subsection, the term ‘school facility’ means—

19 ‘‘(A) any school building,

20 ‘‘(B) any functionally related and subordi21 nate facility and land with respect to such build22 ing, including any stadium or other facility pri23 marily used for school events, and

24 ‘‘(C) any property, to which section 168 ap25 plies (or would apply but for section 179), for
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1 use in a facility described in subparagraph (A)

2 or (B).

3 ‘‘(4) PUBLIC SCHOOLS.—For purposes of this

4 subsection, the terms ‘elementary school’ and ‘sec5 ondary school’ have the meanings given such terms by

6 section 14101 of the Elementary and Secondary Edu7 cation Act of 1965 (20 U.S.C. 8801), as in effect on

8 the date of the enactment of this subsection.

9 ‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX10 EXEMPT FINANCING.—

11 ‘‘(A) IN GENERAL.—An issue shall not be

12 treated as an issue described in subsection

13 (a)(13) if the aggregate face amount of bonds

14 issued by the State pursuant thereto (when

15 added to the aggregate face amount of bonds pre16 viously so issued during the calendar year) ex17 ceeds an amount equal to the greater of—

18 ‘‘(i) $10 multiplied by the State popu19 lation, or

20 ‘‘(ii) $5,000,000.

21 ‘‘(B) ALLOCATION RULES.—

22 ‘‘(i) IN GENERAL.—Except as otherwise

23 provided in this subparagraph, the State

24 may allocate the amount described in sub25 paragraph (A) for any calendar year in
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1 such manner as the State determines appro2 priate.

3 ‘‘(ii) RULES FOR CARRYFORWARD OF

4 UNUSED LIMITATION.—A State may elect to

5 carry forward an unused limitation for any

6 calendar year for 3 calendar years following

7 the calendar year in which the unused limi8 tation arose under rules similar to the rules

9 of section 146(f), except that the only pur10 pose for which the carryforward may be

11 elected is the issuance of exempt facility

12 bonds described in subsection (a)(13).’’.

13 (c) EXEMPTION FROM GENERAL STATE VOLUME

14 CAPS.—Paragraph (3) of section 146(g) (relating to excep15 tion for certain bonds) is amended—

16 (1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or

17 (13)’’, and

18 (2) by striking ‘‘and environmental enhance19 ments of hydroelectric generating facilities’’ and in20 serting ‘‘environmental enhancements of hydroelectric

21 generating facilities, and qualified public educational

22 facilities’’.

23 (d) EXEMPTION FROM LIMITATION ON USE FOR LAND

24 ACQUISITION.—Section 147(h) (relating to certain rules not

25 to apply to mortgage revenue bonds, qualified student loan
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1 bonds, and qualified 501(c)(3) bonds) is amended by adding

2 at the end the following new paragraph:

3 ‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED

4 PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not

5 apply to any exempt facility bond issued as part of

6 an issue described in section 142(a)(13) (relating to

7 qualified public educational facilities).’’.

8 (e) CONFORMING AMENDMENT.—The heading for sec9 tion 147(h) is amended by striking ‘‘MORTGAGE REVENUE

10 BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALI11 FIED 501(c)(3) BONDS’’ and inserting ‘‘CERTAIN BONDS’’.

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

13 section shall apply to bonds issued after December 31, 2001.

14 SEC. 423. TREATMENT OF BONDS ISSUED TO ACQUIRE RE15 NEWABLE RESOURCES ON LAND SUBJECT TO

16 CONSERVATION EASEMENT.

17 (a) IN GENERAL.—Section 145 (defining qualified

18 501(c)(3) bond) is amended by redesignating subsection (e)

19 as subsection (f) and by inserting after subsection (d) the

20 following new subsection:

21 ‘‘(e) BONDS ISSUED TO ACQUIRE RENEWABLE RE22 SOURCES ON LAND SUBJECT TO CONSERVATION EASE23 MENT.—

24 ‘‘(1) IN GENERAL.—If—
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1 ‘‘(A) the proceeds of any bond are used to

2 acquire land (or a long-term lease thereof) to3 gether with any renewable resource associated

4 with the land (including standing timber, agri5 cultural crops, or water rights) from an unaffili6 ated person,

7 ‘‘(B) the land is subject to a conservation

8 restriction—

9 ‘‘(i) which is granted in perpetuity to

10 an unaffiliated person that is—

11 ‘‘(I) a 501(c)(3) organization, or

12 ‘‘(II) a Federal, State, or local

13 government conservation organization,

14 ‘‘(ii) which meets the requirements of

15 clauses (ii) and (iii)(II) of section

16 170(h)(4)(A),

17 ‘‘(iii) which exceeds the requirements of

18 relevant environmental and land use stat19 utes and regulations, and

20 ‘‘(iv) which obligates the owner of the

21 land to pay the costs incurred by the holder

22 of the conservation restriction in moni23 toring compliance with such restriction,

24 ‘‘(C) a management plan which meets the

25 requirements of the statutes and regulations re-
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1 ferred to in subparagraph (B)(iii) is developed

2 for the conservation of the renewable resources,

3 and

4 ‘‘(D) such bond would be a qualified

5 501(c)(3) bond (after the application of para6 graph (2)) but for the failure to use revenues de7 rived by the 501(c)(3) organization from the sale,

8 lease, or other use of such resource as otherwise

9 required by this part,

10 such bond shall not fail to be a qualified 501(c)(3)

11 bond by reason of the failure to so use such revenues

12 if the revenues which are not used as otherwise re13 quired by this part are used in a manner consistent

14 with the stated charitable purposes of the 501(c)(3)

15 organization.

16 ‘‘(2) TREATMENT OF TIMBER, ETC.—

17 ‘‘(A) IN GENERAL.—For purposes of sub18 section (a), the cost of any renewable resource ac19 quired with proceeds of any bond described in

20 paragraph (1) shall be treated as a cost of ac21 quiring the land associated with the renewable

22 resource and such land shall not be treated as

23 used for a private business use because of the sale

24 or leasing of the renewable resource to, or other

25 use of the renewable resource by, an unaffiliated
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1 person to the extent that such sale, leasing, or

2 other use does not constitute an unrelated trade

3 or business, determined by applying section

4 513(a).

5 ‘‘(B) APPLICATION OF BOND MATURITY LIM6 ITATION.—For purposes of section 147(b), the

7 cost of any land or renewable resource acquired

8 with proceeds of any bond described in para9 graph (1) shall have an economic life commensu10 rate with the economic and ecological feasibility

11 of the financing of such land or renewable re12 source.

13 ‘‘(C) UNAFFILIATED PERSON.—For pur14 poses of this subsection, the term ‘unaffiliated

15 person’ means any person who controls not more

16 than 20 percent of the governing body of another

17 person.’’.

18 (b) EFFECTIVE DATE.—The amendments made by sub19 section (a) shall apply to obligations issued after January

20 1, 2002, and before January 1, 2005.

21 Subtitle D—Other Provisions

22 SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

23 (a) DEDUCTION ALLOWED.—Part VII of subchapter B

24 of chapter 1 (relating to additional itemized deductions for
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1 individuals) is amended by redesignating section 222 as

2 section 223 and by inserting after section 221 the following:

3 ‘‘SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

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

5 individual, there shall be allowed as a deduction an amount

6 equal to the qualified tuition and related expenses paid by

7 the taxpayer during the taxable year.

8 ‘‘(b) DOLLAR LIMITATIONS.—

9 ‘‘(1) IN GENERAL.—The amount allowed as a de10 duction under subsection (a) with respect to the tax11 payer for any taxable year shall not exceed the appli12 cable dollar limit.

13 ‘‘(2) APPLICABLE DOLLAR LIMIT.—

14 ‘‘(A) 2002 AND 2003.—In the case of a tax15 able year beginning in 2002 or 2003, the appli16 cable dollar limit shall be equal to—

17 ‘‘(i) in the case of a taxpayer whose

18 adjusted gross income for the taxable year

19 does not exceed $65,000 ($130,000 in the

20 case of a joint return), $3,000, and—

21 ‘‘(ii) in the case of any other taxpayer,

22 zero.

23 ‘‘(B) 2004 AND 2005.—In the case of a tax24 able year beginning in 2004 or 2005, the appli25 cable dollar amount shall be equal to—
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1 ‘‘(i) in the case of a taxpayer whose

2 adjusted gross income for the taxable year

3 does not exceed $65,000 ($130,000 in the

4 case of a joint return), $5,000,

5 ‘‘(ii) in the case of a taxpayer not de6 scribed in clause (i) whose adjusted gross

7 income for the taxable year does not exceed

8 $80,000 ($160,000 in the case of a joint re9 turn), $2,000, and

10 ‘‘(iii) in the case of any other tax11 payer, zero.

12 ‘‘(C) ADJUSTED GROSS INCOME.—For pur13 poses of this paragraph, adjusted gross income

14 shall be determined—

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

16 sections 911, 931, and 933, and

17 ‘‘(ii) after application of sections 86,

18 135, 137, 219, 221, and 469.

19 ‘‘(c) NO DOUBLE BENEFIT.—

20 ‘‘(1) IN GENERAL.—No deduction shall be al21 lowed under subsection (a) for any expense for which

22 a deduction is allowed to the taxpayer under any

23 other provision of this chapter.

24 ‘‘(2) COORDINATION WITH OTHER EDUCATION IN25 CENTIVES.—
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1 ‘‘(A) DENIAL OF DEDUCTION IF CREDIT

2 ELECTED.—No deduction shall be allowed under

3 subsection (a) for a taxable year with respect to

4 the qualified tuition and related expenses with

5 respect to an individual if the taxpayer or any

6 other person elects to have section 25A apply

7 with respect to such individual for such year.

8 ‘‘(B) COORDINATION WITH EXCLUSIONS.—

9 The total amount of qualified tuition and related

10 expenses shall be reduced by the amount of such

11 expenses taken into account in determining any

12 amount excluded under section 135, 529(c)(1), or

13 530(d)(2). For purposes of the preceding sen14 tence, the amount taken into account in deter15 mining the amount excluded under section

16 529(c)(1) shall not include that portion of the

17 distribution which represents a return of any

18 contributions to the plan.

19 ‘‘(3) DEPENDENTS.—No deduction shall be al20 lowed under subsection (a) to any individual with re21 spect to whom a deduction under section 151 is allow22 able to another taxpayer for a taxable year beginning

23 in the calendar year in which such individual’s tax24 able year begins.
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1 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur2 poses of this section—

3 ‘‘(1) QUALIFIED TUITION AND RELATED EX4 PENSES.—The term ‘qualified tuition and related ex5 penses’ has the meaning given such term by section

6 25A(f). Such expenses shall be reduced in the same

7 manner as under section 25A(g)(2).

8 ‘‘(2) IDENTIFICATION REQUIREMENT.—No deduc9 tion shall be allowed under subsection (a) to a tax10 payer with respect to the qualified tuition and related

11 expenses of an individual unless the taxpayer includes

12 the name and taxpayer identification number of the

13 individual on the return of tax for the taxable year.

14 ‘‘(3) LIMITATION ON TAXABLE YEAR OF DEDUC15 TION.—

16 ‘‘(A) IN GENERAL.—A deduction shall be al17 lowed under subsection (a) for qualified tuition

18 and related expenses for any taxable year only to

19 the extent such expenses are in connection with

20 enrollment at an institution of higher education

21 during the taxable year.

22 ‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—

23 Subparagraph (A) shall not apply to qualified

24 tuition and related expenses paid during a tax25 able year if such expenses are in connection with
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1 an academic term beginning during such taxable

2 year or during the first 3 months of the next tax3 able year.

4 ‘‘(4) NO DEDUCTION FOR MARRIED INDIVIDUALS

5 FILING SEPARATE RETURNS.—If the taxpayer is a

6 married individual (within the meaning of section

7 7703), this section shall apply only if the taxpayer

8 and the taxpayer’s spouse file a joint return for the

9 taxable year.

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

11 a nonresident alien individual for any portion of the

12 taxable year, this section shall apply only if such in13 dividual is treated as a resident alien of the United

14 States for purposes of this chapter by reason of an

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

16 ‘‘(6) REGULATIONS.—The Secretary may pre17 scribe such regulations as may be necessary or appro18 priate to carry out this section, including regulations

19 requiring recordkeeping and information reporting.

20 ‘‘(e) TERMINATION.—This section shall not apply to

21 taxable years beginning after December 31, 2005.’’.

22 (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED

23 GROSS INCOME.—Section 62(a) is amended by inserting

24 after paragraph (17) the following:
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1 ‘‘(18) HIGHER EDUCATION EXPENSES.—The de2 duction allowed by section 222.’’.

3 (c) CONFORMING AMENDMENTS.—

4 (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and

5 219(g)(3) are each amended by inserting ‘‘222,’’ after

6 ‘‘221,’’.

7 (2) Section 221(b)(2)(C) is amended by inserting

8 ‘‘222,’’ before ‘‘911’’.

9 (3) Section 469(i)(3)(E) is amended by striking

10 ‘‘and 221’’ and inserting ‘‘, 221, and 222’’.

11 (4) The table of sections for part VII of sub12 chapter B of chapter 1 is amended by striking the

13 item relating to section 222 and inserting the fol14 lowing:

‘‘Sec. 222. Qualified tuition and related expenses.

‘‘Sec. 223. Cross reference.’’.

15 (d) EFFECTIVE DATE.—The amendments made by this

16 section shall apply to payments made in taxable years be17 ginning after December 31, 2001.

18 SEC. 432. CREDIT FOR INTEREST ON HIGHER EDUCATION

19 LOANS.

20 (a) IN GENERAL.—Subpart A of part IV of subchapter

21 A of chapter 1 (relating to nonrefundable personal credits)

22 is amended by inserting after section 25A the following new

23 section:
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1 ‘‘SEC. 25B. INTEREST ON HIGHER EDUCATION LOANS.

2 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi3 vidual, there shall be allowed as a credit against the tax

4 imposed by this chapter for the taxable year an amount

5 equal to the interest paid by the taxpayer during the taxable

6 year on any qualified education loan.

7 ‘‘(b) MAXIMUM CREDIT.—

8 ‘‘(1) IN GENERAL.—Except as provided in para9 graph (2), the credit allowed by subsection (a) for the

10 taxable year shall not exceed $500.

11 ‘‘(2) LIMITATION BASED ON MODIFIED ADJUSTED

12 GROSS INCOME.—

13 ‘‘(A) IN GENERAL.—If the modified adjusted

14 gross income of the taxpayer for the taxable year

15 exceeds $35,000 ($70,000 in the case of a joint

16 return), the amount which would (but for this

17 paragraph) be allowable as a credit under this

18 section shall be reduced (but not below zero) by

19 the amount which bears the same ratio to the

20 amount which would be so allowable as such ex21 cess bears to $10,000 ($20,000 in the case of a

22 joint return).

23 ‘‘(B) MODIFIED ADJUSTED GROSS IN24 COME.—The term ‘modified adjusted gross in25 come’ means adjusted gross income determined

26 without regard to sections 911, 931, and 933.
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1 ‘‘(C) INFLATION ADJUSTMENT.—In the case

2 of any taxable year beginning after 2009, the

3 $35,000 and $70,000 amounts referred to in sub4 paragraph (A) shall be increased by an amount

5 equal to—

6 ‘‘(i) such dollar amount, multiplied by

7 ‘‘(ii) the cost-of-living adjustment de8 termined under section (1)(f)(3) for the cal9 endar year in which the taxable year be10 gins, by substituting ‘2008’ for ‘1992’.

11 ‘‘(D) ROUNDING.—If any amount as ad12 justed under subparagraph (C) is not a multiple

13 of $50, such amount shall be rounded to the

14 nearest multiple of $50.

15 ‘‘(c) DEPENDENTS NOT ELIGIBLE FOR CREDIT.—No

16 credit shall be allowed by this section to an individual for

17 the taxable year if a deduction under section 151 with re18 spect to such individual is allowed to another taxpayer for

19 the taxable year beginning in the calendar year in which

20 such individual’s taxable year begins.

21 ‘‘(d) LIMIT ON PERIOD CREDIT ALLOWED.—A credit

22 shall be allowed under this section only with respect to in23 terest paid on any qualified education loan during the first

24 60 months (whether or not consecutive) in which interest

25 payments are required. For purposes of this subsection, any
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1 loan and all refinancings of such loan shall be treated as

2 1 loan. Such 60 months shall be determined in the manner

3 prescribed by the Secretary in the case of multiple loans

4 which are refinanced by, or serviced as, a single loan and

5 in the case of loans incurred before January 1, 2009.

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

7 ‘‘(1) QUALIFIED EDUCATION LOAN.—The term

8 ‘qualified education loan’ has the meaning given such

9 term by section 221(e)(1).

10 ‘‘(2) DEPENDENT.—The term ‘dependent’ has the

11 meaning given such term by section 152.

12 ‘‘(f) SPECIAL RULES.—

13 ‘‘(1) DENIAL OF DOUBLE BENEFIT.—No credit

14 shall be allowed under this section if any amount of

15 interest on a qualified education loan is taken into

16 account for any deduction under any other provision

17 of this chapter for the taxable year.

18 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE19 TURN.—If the taxpayer is married at the close of the

20 taxable year, the credit shall be allowed under sub21 section (a) only if the taxpayer and the taxpayer’s

22 spouse file a joint return for the taxable year.

23 ‘‘(3) MARITAL STATUS.—Marital status shall be

24 determined in accordance with section 7703.’’.
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1 (b) CONFORMING AMENDMENT.—The table of sections

2 for subpart A of part IV of subchapter A of chapter 1 is

3 amended by inserting after the item relating to section 25A

4 the following new item:

‘‘Sec. 25B. Interest on higher education loans.’’.

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

6 section shall apply to any qualified education loan (as de7 fined in section 25B(e)(1) of the Internal Revenue Code of

8 1986, as added by this section) incurred on, before, or after

9 December 31, 2008, but only with respect to any loan inter10 est payment due in taxable years beginning after December

11 31, 2008.

12 SEC. 433. ABOVE-THE-LINE DEDUCTION FOR QUALIFIED

13 EMERGENCY RESPONSE EXPENSES OF ELIGI14 BLE EMERGENCY RESPONSE PROFES15 SIONALS.

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

17 of chapter 1 (relating to additional itemized deductions for

18 individuals), as amended by this Act, is amended by redes19 ignating section 224 as section 225 and by inserting after

20 section 223 the following new section:

21 ‘‘SEC. 224. QUALIFIED EMERGENCY RESPONSE EXPENSES.

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

23 eligible emergency response professional, there shall be al24 lowed as a deduction an amount equal to the qualified ex-
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1 penses paid or incurred by the taxpayer during the taxable

2 year.

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

4 ‘‘(1) ELIGIBLE EMERGENCY RESPONSE PROFES5 SIONAL.—The term ‘eligible emergency response pro6 fessional’ includes—

7 ‘‘(A) a full-time employee of any police de8 partment or fire department which is organized

9 and operated by a governmental entity to pro10 vide police protection, firefighting service, or

11 emergency medical services for any area within

12 the jurisdiction of a governmental entity,

13 ‘‘(B) an emergency medical technician li14 censed by a State who is employed by a State or

15 non-profit to provide emergency medical services,

16 and

17 ‘‘(C) a member of a volunteer fire depart18 ment which is organized to provide firefighting

19 or emergency medical services for any area with20 in the jurisdiction of a governmental entity

21 which is not provided with any other firefighting

22 services.

23 ‘‘(2) GOVERNMENTAL ENTITY.—The term ‘gov24 ernmental entity’ means a State (or political subdivi-
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1 sion thereof), Indian tribal (or political subdivision

2 thereof), or Federal government.

3 ‘‘(3) QUALIFIED EXPENSES.—The term ‘qualified

4 expenses’ means unreimbursed expenses for police and

5 firefighter activities, as determined by the Secretary.

6 ‘‘(c) DENIAL OF DOUBLE BENEFIT.—

7 ‘‘(1) IN GENERAL.—No other deduction or credit

8 shall be allowed under this chapter for any amount

9 taken into account for which a deduction is allowed

10 under this section.

11 ‘‘(2) COORDINATION WITH EXCLUSIONS.—A de12 duction shall be allowed under subsection (a) for

13 qualified expenses only to the extent the amount of

14 such expenses exceeds the amount excludable under

15 section 135, 529(c)(1), or 530(d)(2) for the taxable

16 year.

17 ‘‘(d) TERMINATION.—This section shall not apply to

18 taxable years beginning after December 31, 2006.’’.

19 (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED

20 GROSS INCOME.—Section 62(a) (relating to adjusted gross

21 income defined), as amended by this Act, is amended by

22 inserting after paragraph (19) the following new para23 graph:

24 ‘‘(20) QUALIFIED PROFESSIONAL DEVELOPMENT

25 EXPENSES.—The deduction allowed by section 224.’’.
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1 (c) CONFORMING AMENDMENTS.—

2 (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and

3 219(g)(3), as amended by this Act, are each amended

4 by inserting ‘‘224,’’ after ‘‘221,’’.

5 (2) Section 221(b)(2)(C), as amended by this

6 Act, is amended by inserting ‘‘224,’’ before ‘‘911’’.

7 (3) Section 469(i)(3)(E), as amended by this

8 Act, is amended by striking ‘‘and 223’’ and inserting

9 ‘‘, 223, and 224’’.

10 (4) The table of sections for part VII of sub11 chapter B of chapter 1, as amended by this Act, is

12 amended by striking the item relating to section 223

13 and inserting the following new items:

‘‘Sec. 224. Qualified emergency response expenses.

‘‘Sec. 225. Cross reference.’’.

14 (d) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to taxable years beginning after Decem16 ber 31, 2001.

17 SEC. 434. CONTRIBUTIONS OF BOOK INVENTORY.

18 (a) IN GENERAL.—Section 170(e)(3) (relating to cer19 tain contributions of ordinary income and capital gain

20 property) is amended by adding at the end the following

21 new subparagraph:

22 ‘‘(D) SPECIAL RULE FOR CONTRIBUTIONS

23 OF BOOK INVENTORY FOR EDUCATIONAL PUR24 POSES.—
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1 ‘‘(i) CONTRIBUTIONS OF BOOK INVEN2 TORY.—In determining whether a qualified

3 book contribution is a qualified contribu4 tion, subparagraph (A) shall be applied

5 without regard to whether or not—

6 ‘‘(I) the donee is an organization

7 described in the matter preceding

8 clause (i) of subparagraph (A), and

9 ‘‘(II) the property is to be used by

10 the donee solely for the care of the ill,

11 the needy, or infants.

12 ‘‘(ii) QUALIFIED BOOK CONTRIBU13 TION.—For purposes of this paragraph, the

14 term ‘qualified book contribution’ means a

15 charitable contribution of books, but only if

16 the contribution is to an organization—

17 ‘‘(I) described in subclause (I) or

18 (III) of paragraph (6)(B)(i), or

19 ‘‘(II) described in section

20 501(c)(3) and exempt from tax under

21 section 501(a) which is organized pri22 marily to make books available to the

23 general public at no cost or to operate

24 a literacy program.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to contributions made after the date of

3 the enactment of this Act.

4 Subtitle E—Miscellaneous

5 Education Provisions

6 SEC. 441. SHORT TITLE.

7 This subtitle may be cited as the ‘‘Teacher Relief Act

8 of 2001’’.

9 SEC. 442. ABOVE-THE-LINE DEDUCTION FOR QUALIFIED

10 PROFESSIONAL DEVELOPMENT EXPENSES OF

11 ELEMENTARY AND SECONDARY SCHOOL

12 TEACHERS.

13 (a) DEDUCTION ALLOWED.—Part VII of subchapter B

14 of chapter 1 (relating to additional itemized deductions for

15 individuals), as amended by section 431(a), is amended by

16 redesignating section 223 as section 224 and by inserting

17 after section 222 the following new section:

18 ‘‘SEC. 223. QUALIFIED PROFESSIONAL DEVELOPMENT EX19 PENSES.

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

21 eligible educator, there shall be allowed as a deduction an

22 amount equal to the qualified professional development ex23 penses paid or incurred by the taxpayer during the taxable

24 year.
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1 ‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed

2 under subsection (a) for any taxable year shall not exceed

3 $500.

4 ‘‘(c) QUALIFIED PROFESSIONAL DEVELOPMENT EX5 PENSES OF ELIGIBLE EDUCATORS.—For purposes of this

6 section—

7 ‘‘(1) QUALIFIED PROFESSIONAL DEVELOPMENT

8 EXPENSES.—

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

10 professional development expenses’ means ex11 penses for tuition, fees, books, supplies, equip12 ment, and transportation required for the enroll13 ment or attendance of an individual in a quali14 fied course of instruction.

15 ‘‘(B) QUALIFIED COURSE OF INSTRUC16 TION.—The term ‘qualified course of instruction’

17 means a course of instruction which—

18 ‘‘(i) is—

19 ‘‘(I) directly related to the cur20 riculum and academic subjects in

21 which an eligible educator provides in22 struction,

23 ‘‘(II) designed to enhance the abil24 ity of an eligible educator to under25 stand and use State standards for the
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1 academic subjects in which such educa2 tor provides instruction,

3 ‘‘(III) designed to provide instruc4 tion in how to teach children with dif5 ferent learning styles, particularly

6 children with disabilities and children

7 with special learning needs (including

8 children who are gifted and talented),

9 or

10 ‘‘(IV) designed to provide instruc11 tion in how best to discipline children

12 in the classroom and identify early

13 and appropriate interventions to help

14 children described in subclause (III) to

15 learn,

16 ‘‘(ii) is tied to—

17 ‘‘(I) challenging State or local

18 content standards and student per19 formance standards, or

20 ‘‘(II) strategies and programs that

21 demonstrate effectiveness in increasing

22 student academic achievement and stu23 dent performance, or substantially in24 creasing the knowledge and teaching

25 skills of an eligible educator,
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1 ‘‘(iii) is of sufficient intensity and du2 ration to have a positive and lasting impact

3 on the performance of an eligible educator

4 in the classroom (which shall not include 1-

5 day or short-term workshops and con6 ferences), except that this clause shall not

7 apply to an activity if such activity is 1

8 component described in a long-term com9 prehensive professional development plan es10 tablished by an eligible educator and the

11 educator’s supervisor based upon an assess12 ment of the needs of the educator, the stu13 dents of the educator, and the local edu14 cational agency involved, and

15 ‘‘(iv) is part of a program of profes16 sional development which is approved and

17 certified by the appropriate local edu18 cational agency as furthering the goals of

19 the preceding clauses.

20 ‘‘(C) LOCAL EDUCATIONAL AGENCY.—The

21 term ‘local educational agency’ has the meaning

22 given such term by section 14101 of the Elemen23 tary and Secondary Education Act of 1965, as

24 in effect on the date of the enactment of this sec25 tion.
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1 ‘‘(2) ELIGIBLE EDUCATOR.—

2 ‘‘(A) IN GENERAL.—The term ‘eligible edu3 cator’ means an individual who is a kinder4 garten through grade 12 teacher, instructor,

5 counselor, principal, or aide in an elementary or

6 secondary school for at least 900 hours during a

7 school year.

8 ‘‘(B) ELEMENTARY OR SECONDARY

9 SCHOOL.—The terms ‘elementary school’ and

10 ‘secondary school’ have the meanings given such

11 terms by section 14101 of the Elementary and

12 Secondary Education Act of 1965 (20 U.S.C.

13 8801), as so in effect.

14 ‘‘(d) DENIAL OF DOUBLE BENEFIT.—

15 ‘‘(1) IN GENERAL.—No other deduction or credit

16 shall be allowed under this chapter for any amount

17 taken into account for which a deduction is allowed

18 under this section.

19 ‘‘(2) COORDINATION WITH EXCLUSIONS.—A de20 duction shall be allowed under subsection (a) for

21 qualified professional development expenses only to

22 the extent the amount of such expenses exceeds the

23 amount excludable under section 135, 529(c)(1), or

24 530(d)(2) for the taxable year.’’.
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1 (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED

2 GROSS INCOME.—Section 62(a), as amended by section

3 431(b), is amended by inserting after paragraph (18) the

4 following new paragraph:

5 ‘‘(19) QUALIFIED PROFESSIONAL DEVELOPMENT

6 EXPENSES.—The deduction allowed by section 223.’’.

7 (c) CONFORMING AMENDMENTS.—

8 (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and

9 219(g)(3) are each amended by inserting ‘‘223,’’ after

10 ‘‘221,’’.

11 (2) Section 221(b)(2)(C) is amended by inserting

12 ‘‘223,’’ before ‘‘911’’.

13 (3) Section 469(i)(3)(E) is amended by striking

14 ‘‘and 221’’ and inserting ‘‘, 221, and 223’’.

15 (4) The table of sections for part VII of sub16 chapter B of chapter 1, as amended by section 431(c),

17 is amended by striking the item relating to section

18 223 and inserting the following new items:

‘‘Sec. 223. Qualified professional development expenses.

‘‘Sec. 224. Cross reference.’’.

19 (d) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to taxable years beginning after Decem21 ber 31, 2001, and shall expire on December 31, 2005.
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1 SEC. 443. CREDIT TO ELEMENTARY AND SECONDARY

2 SCHOOL TEACHERS WHO PROVIDE CLASS3 ROOM MATERIALS.

4 (a) IN GENERAL.—Subpart B of part IV of subchapter

5 A of chapter 1 (relating to other credits) is amended by

6 adding at the end the following new section:

7 ‘‘SEC. 30B. CREDIT TO ELEMENTARY AND SECONDARY

8 SCHOOL TEACHERS WHO PROVIDE CLASS9 ROOM MATERIALS.

10 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligi11 ble educator, there shall be allowed as a credit against the

12 tax imposed by this chapter for the taxable year an amount

13 equal to 50 percent of the qualified elementary and sec14 ondary education expenses which are paid or incurred by

15 the taxpayer during such taxable year.

16 ‘‘(b) MAXIMUM CREDIT.—The credit allowed by sub17 section (a) for any taxable year shall not exceed $250.

18 ‘‘(c) DEFINITIONS.—

19 ‘‘(1) ELIGIBLE EDUCATOR.—The term ‘eligible

20 educator’ has the same meaning given such term in

21 section 223(c).

22 ‘‘(2) QUALIFIED ELEMENTARY AND SECONDARY

23 EDUCATION EXPENSES.—The term ‘qualified elemen24 tary and secondary education expenses’ means ex25 penses for books, supplies (other than nonathletic sup26 plies for courses of instruction in health or physical
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1 education), computer equipment (including related

2 software and services) and other equipment, and sup3 plementary materials used by an eligible educator in

4 the classroom.

5 ‘‘(3) ELEMENTARY OR SECONDARY SCHOOL.—

6 The term ‘elementary or secondary school’ means any

7 school which provides elementary education or sec8 ondary education (through grade 12), as determined

9 under State law.

10 ‘‘(d) SPECIAL RULES.—

11 ‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduc12 tion shall be allowed under this chapter for any ex13 pense for which credit is allowed under this section.

14 ‘‘(2) APPLICATION WITH OTHER CREDITS.—The

15 credit allowable under subsection (a) for any taxable

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

17 ‘‘(A) the regular tax for the taxable year, re18 duced by the sum of the credits allowable under

19 subpart A and the preceding sections of this sub20 part, over

21 ‘‘(B) the tentative minimum tax for the tax22 able year.

23 ‘‘(e) ELECTION TO HAVE CREDIT NOT APPLY.—A tax24 payer may elect to have this section not apply for any tax25 able year.’’.
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1 (b) CLERICAL AMENDMENT.—The table of sections for

2 subpart B of part IV of subchapter A of chapter 1 is amend3 ed by adding at the end the following new item:

‘‘Sec. 30B. Credit to elementary and secondary school teachers who

provide classroom materials.’’.

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

5 section shall apply to taxable years beginning after Decem6 ber 31, 2001, and shall expire on December 31, 2005.

7 Subtitle F—Compliance With

8 Congressional Budget Act

9 SEC. 451. SUNSET OF PROVISIONS OF TITLE.

10 All provisions of, and amendments made by, this title

11 which are in effect on September 30, 2011, shall cease to

12 apply as of the close of September 30, 2011.

13 TITLE V—ESTATE, GIFT, AND

14 GENERATION-SKIPPING

15 TRANSFER TAX PROVISIONS

16 Subtitle A—Repeal of Estate and

17 Generation-Skipping Transfer

18 Taxes

19 SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING

20 TRANSFER TAXES.

21 (a) ESTATE TAX REPEAL.—Subchapter C of chapter

22 11 of subtitle B (relating to miscellaneous) is amended by

23 adding at the end the following new section:
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1 ‘‘SEC. 2210. TERMINATION.

2 ‘‘(a) IN GENERAL.—Except as provided in subsection

3 (b), this chapter shall not apply to the estates of decedents

4 dying after December 31, 2010.

5 ‘‘(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED DO6 MESTIC TRUSTS.—In applying section 2056A with respect

7 to the surviving spouse of a decedent dying before January

8 1, 2011—

9 ‘‘(1) section 2056A(b)(1)(A) shall not apply to

10 distributions made after December 31, 2021, and

11 ‘‘(2) section 2056A(b)(1)(B) shall not apply after

12 December 31, 2010.’’.

13 (b) GENERATION-SKIPPING TRANSFER TAX RE14 PEAL.—Subchapter G of chapter 13 of subtitle B (relating

15 to administration) is amended by adding at the end the

16 following new section:

17 ‘‘SEC. 2664. TERMINATION.

18 ‘‘This chapter shall not apply to generation-skipping

19 transfers made after December 31, 2010.’’.

20 (c) CONFORMING AMENDMENTS.—

21 (1) The table of sections for subchapter C of

22 chapter 11 is amended by adding at the end the fol23 lowing new item:

‘‘Sec. 2210. Termination.’’.
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1 (2) The table of sections for subchapter G of

2 chapter 13 is amended by adding at the end the fol3 lowing new item:

‘‘Sec. 2664. Termination.’’.

4 (d) EFFECTIVE DATE.—The amendments made by this

5 section shall apply to the estates of decedents dying, and

6 generation-skipping transfers made, after December 31,

7 2010.

8 Subtitle B—Reductions of Estate

9 and Gift Tax Rates

10 SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT

11 TAX RATES.

12 (a) MAXIMUM RATE OF TAX REDUCED TO 50 PER13 CENT.—The table contained in section 2001(c)(1) is amend14 ed by striking the two highest brackets and inserting the

15 following:

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

$2,500,000.’’.

16 (b) REPEAL OF PHASEOUT OF GRADUATED RATES.—

17 Subsection (c) of section 2001 is amended by striking para18 graph (2).

19 (c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF

20 TAX.—Subsection (c) of section 2001, as amended by sub21 section (b), is amended by adding at the end the following

22 new paragraph:

23 ‘‘(2) PHASEDOWN OF MAXIMUM RATE OF TAX.—
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1 ‘‘(A) IN GENERAL.—In the case of estates of

2 decedents dying, and gifts made, in calendar

3 years after 2002 and before 2011, the tentative

4 tax under this subsection shall be determined by

5 using a table prescribed by the Secretary (in lieu

6 of using the table contained in paragraph (1))

7 which is the same as such table; except that—

8 ‘‘(i) the maximum rate of tax for any

9 calendar year shall be determined in the

10 table under subparagraph (B), and

11 ‘‘(ii) the brackets and the amounts set12 ting forth the tax shall be adjusted to the ex13 tent necessary to reflect the adjustments

14 under subparagraph (A).

15 ‘‘(B) MAXIMUM RATE.—

Maximum

‘‘Calendar year: Rate:

2003 ................................................................................................ 49 percent

2004 ................................................................................................ 48 percent

2005 ................................................................................................ 47 percent

2006 ................................................................................................ 46 percent

2007, 2008, 2009, and 2010 .......................................................... 45 percent.’’.

16 (d) MAXIMUM GIFT TAX RATE REDUCED TO 40 PER17 CENT AFTER 2010.—Subsection (a) of section 2502 (relat18 ing to rate of tax) is amended to read as follows:

19 ‘‘(a) COMPUTATION OF TAX.—

20 ‘‘(1) IN GENERAL.—The tax imposed by section

21 2501 for each calendar year shall be an amount equal

22 to the excess of—
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1 ‘‘(A) a tentative tax, computed under para2 graph (2), on the aggregate sum of the taxable

3 gifts for such calendar year and for each of the

4 preceding calendar periods, over

5 ‘‘(B) a tentative tax, computed under para6 graph (2), on the aggregate sum of the taxable

7 gifts for each of the preceding calendar periods.

8 ‘‘(2) RATE SCHEDULE.—

‘‘If the amount with respect to

which

The tentative tax is:

the tentative tax to be computed 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 but not over

$750,000.

$155,800, plus 37% of the excess over

$500,000.

Over $750,000 but not over

$1,000,000.

$248,300, plus 39% of the excess over

$750,000.

Over $1,000,000 ................................ $345,800, plus 40% of the excess over

$1,000,000.’’.

9 (e) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—

10 Section 2511 (relating to transfers in general) is amended

11 by adding at the end the following new subsection:

12 ‘‘(c) TREATMENT OF CERTAIN TRANSFERS IN

13 TRUST.—Notwithstanding any other provision of this sec-
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1 tion and except as provided in regulations, a transfer in

2 trust shall be treated as a taxable gift under section 2503,

3 unless the trust is treated as wholly owned by the donor

4 or the donor’s spouse under subpart E of part I of sub5 chapter J of chapter 1.’’.

6 (f) EFFECTIVE DATES.—

7 (1) SUBSECTIONS (a) AND (b).—The amendments

8 made by subsections (a) and (b) shall apply to estates

9 of decedents dying, and gifts made, after December

10 31, 2001.

11 (2) SUBSECTION (c).—The amendment made by

12 subsection (c) shall apply to estates of decedents

13 dying, and gifts made, after December 31, 2002.

14 (3) SUBSECTIONS (d) AND (e).—The amendments

15 made by subsections (d) and (e) shall apply to gifts

16 made after December 31, 2010.

17 Subtitle C—Increase in Exemption

18 Amounts

19 SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNI20 FIED CREDIT, LIFETIME GIFTS EXEMPTION,

21 AND GST EXEMPTION AMOUNTS.

22 (a) IN GENERAL.—Subsection (c) of section 2010 (re23 lating to applicable credit amount) is amended by striking

24 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
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2004 ............................................................................ $2,000,000

2005, 2006, 2007, and 2008 ...................................... $3,000,000

2009 ............................................................................ $3,500,000

2010 ............................................................................ $4,000,000.’’.

1 (b) LIFETIME GIFT EXEMPTION INCREASED TO

2 $1,000,000.—

3 (1) FOR PERIODS BEFORE ESTATE TAX RE4 PEAL.—Paragraph (1) of section 2505(a) (relating to

5 unified credit against gift tax) is amended by insert6 ing ‘‘(determined as if the applicable exclusion

7 amount were $1,000,000)’’ after ‘‘calendar year’’.

8 (2) FOR PERIODS AFTER ESTATE TAX REPEAL.—

9 Paragraph (1) of section 2505(a) (relating to unified

10 credit against gift tax), as amended by paragraph

11 (1), is amended to read as follows:

12 ‘‘(1) the amount of the tentative tax which would

13 be determined under the rate schedule set forth in sec14 tion 2502(a)(2) if the amount with respect to which

15 such tentative tax is to be computed were $1,000,000,

16 reduced by’’.

17 (c) GST EXEMPTION.—

18 (1) IN GENERAL.—Subsection (a) of 2631 (relat19 ing to GST exemption) is amended by striking ‘‘of

20 $1,000,000’’ and inserting ‘‘amount’’.

21 (2) EXEMPTION AMOUNT.—Subsection (c) of sec22 tion 2631 is amended to read as follows:
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1 ‘‘(c) GST EXEMPTION AMOUNT.—For purposes of sub2 section (a), the GST exemption amount for any calendar

3 year shall be equal to the applicable exclusion amount

4 under section 2010(c) for such calendar year.’’.

5 (d) REPEAL OF SPECIAL BENEFIT FOR FAMILY6 OWNED BUSINESS INTERESTS.—

7 (1) IN GENERAL.—Section 2057 is hereby re8 pealed.

9 (2) CONFORMING AMENDMENTS.—

10 (A) Paragraph (10) of section 2031(c) is

11 amended by inserting ‘‘(as in effect on the day

12 before the date of the enactment of this par13 enthetical)’’ before the period.

14 (B) The table of sections for part IV of sub15 chapter A of chapter 11 is amended by striking

16 the item relating to section 2057.

17 (e) EFFECTIVE DATES.—

18 (1) IN GENERAL.—Except as provided in para19 graphs (2) and (3), the amendments made by this sec20 tion shall apply to estates of decedents dying, and

21 gifts made, after December 31, 2001.

22 (2) SUBSECTION (b)(2).—The amendments made

23 by subsection (b)(2) shall apply to gifts made after

24 December 31, 2010.
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1 (3) SUBSECTIONS (c) AND (d).—The amendments

2 made by subsections (c) and (d) shall apply to estates

3 of decedents dying, and generation-skipping transfers

4 made, after December 31, 2003.

5 Subtitle D—Credit for State Death

6 Taxes

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

8 (a) MAXIMUM CREDIT REDUCED TO 8 PERCENT.—

9 (1) IN GENERAL.—The table contained in section

10 2011(b) is amended by striking the ten highest brack11 ets and inserting the following:

‘‘Over $2,040,000 .............................. $106,800, plus 8% of the excess over

$2,040,000.’’.

12 (2) EFFECTIVE DATE.—The amendment made by

13 this subsection shall apply to estates of decedents

14 dying after December 31, 2001.

15 (b) MAXIMUM CREDIT REDUCED TO 7.2 PERCENT.—

16 (1) IN GENERAL.—The table contained in section

17 2011(b), as amended by subsection (a), is amended by

18 striking the two highest brackets and inserting the fol19 lowing:

‘‘Over $1,540,000 .............................. $70,800, plus 7.2% of the excess over

$1,540,000.’’.

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

21 this subsection shall apply to estates of decedents

22 dying after December 31, 2002.

23 (c) MAXIMUM CREDIT REDUCED TO 7.04 PERCENT.—
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1 (1) IN GENERAL.—The table contained in section

2 2011(b), as amended by subsections (a) and (b), is

3 amended by striking the highest bracket and inserting

4 the following:

‘‘Over $1,540,000 .............................. $70,800, plus 7.04% of the excess over

$1,540,000.’’.

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

6 this subsection shall apply to estates of decedents

7 dying after December 31, 2003.

8 SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED

9 WITH DEDUCTION FOR SUCH TAXES.

10 (a) REPEAL OF CREDIT.—Section 2011 (relating to

11 credit for State death taxes) is repealed.

12 (b) DEDUCTION FOR STATE DEATH TAXES.—Part IV

13 of subchapter A of chapter 11 is amended by adding at the

14 end the following new section:

15 ‘‘SEC. 2058. STATE DEATH TAXES.

16 ‘‘(a) ALLOWANCE OF DEDUCTION.—For purposes of

17 the tax imposed by section 2001, the value of the taxable

18 estate shall be determined by deducting from the value of

19 the gross estate the amount of any estate, inheritance, leg20 acy, or succession taxes actually paid to any State or the

21 District of Columbia, in respect of any property included

22 in the gross estate (not including any such taxes paid with

23 respect to the estate of a person other than the decedent).
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1 ‘‘(b) PERIOD OF LIMITATIONS.—The deduction allowed

2 by this section shall include only such taxes as were actually

3 paid and deduction therefor claimed before the later of—

4 ‘‘(1) 4 years after the filing of the return re5 quired by section 6018, or

6 ‘‘(2) if—

7 ‘‘(A) a petition for redetermination of a de8 ficiency has been filed with the Tax Court within

9 the time prescribed in section 6213(a), the expi10 ration of 60 days after the decision of the Tax

11 Court becomes final,

12 ‘‘(B) an extension of time has been granted

13 under section 6161 or 6166 for payment of the

14 tax shown on the return, or of a deficiency, the

15 date of the expiration of the period of the exten16 sion, or

17 ‘‘(C) a claim for refund or credit of an over18 payment of tax imposed by this chapter has been

19 filed within the time prescribed in section 6511,

20 the latest of the expiration of—

21 ‘‘(i) 60 days from the date of mailing

22 by certified mail or registered mail by the

23 Secretary to the taxpayer of a notice of the

24 disallowance of any part of such claim,
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1 ‘‘(ii) 60 days after a decision by any

2 court of competent jurisdiction becomes

3 final with respect to a timely suit instituted

4 upon such claim, or

5 ‘‘(iii) 2 years after a notice of the

6 waiver of disallowance is filed under section

7 6532(a)(3).

8 Notwithstanding sections 6511 and 6512, refund based on

9 the deduction may be made if the claim for refund is filed

10 within the period provided in the preceding sentence. Any

11 such refund shall be made without interest.’’.

12 (c) CONFORMING AMENDMENTS.—

13 (1) Subsection (a) of section 2012 is amended by

14 striking ‘‘the credit for State death taxes provided by

15 section 2011 and’’.

16 (2) Subparagraph (A) of section 2013(c)(1) is

17 amended by striking ‘‘2011,’’.

18 (3) Paragraph (2) of section 2014(b) is amended

19 by striking ‘‘, 2011,’’.

20 (4) Sections 2015 and 2016 are each amended by

21 striking ‘‘2011 or’’.

22 (5) Subsection (d) of section 2053 is amended to

23 read as follows:

24 ‘‘(d) CERTAIN FOREIGN DEATH TAXES.—
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1 ‘‘(1) IN GENERAL.—Notwithstanding the provi2 sions of subsection (c)(1)(B), for purposes of the tax

3 imposed by section 2001, the value of the taxable es4 tate may be determined, if the executor so elects before

5 the expiration of the period of limitation for assess6 ment provided in section 6501, by deducting from the

7 value of the gross estate the amount (as determined in

8 accordance with regulations prescribed by the Sec9 retary) of any estate, succession, legacy, or inherit10 ance tax imposed by and actually paid to any foreign

11 country, in respect of any property situated within

12 such foreign country and included in the gross estate

13 of a citizen or resident of the United States, upon a

14 transfer by the decedent for public, charitable, or reli15 gious uses described in section 2055. The determina16 tion under this paragraph of the country within

17 which property is situated shall be made in accord18 ance with the rules applicable under subchapter B

19 (sec. 2101 and following) in determining whether

20 property is situated within or without the United

21 States. Any election under this paragraph shall be ex22 ercised in accordance with regulations prescribed by

23 the Secretary.

24 ‘‘(2) CONDITION FOR ALLOWANCE OF DEDUC25 TION.—No deduction shall be allowed under para-
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1 graph (1) for a foreign death tax specified therein un2 less the decrease in the tax imposed by section 2001

3 which results from the deduction provided in para4 graph (1) will inure solely for the benefit of the pub5 lic, charitable, or religious transferees described in

6 section 2055 or section 2106(a)(2). In any case where

7 the tax imposed by section 2001 is equitably appor8 tioned among all the transferees of property included

9 in the gross estate, including those described in sec10 tions 2055 and 2106(a)(2) (taking into account any

11 exemptions, credits, or deductions allowed by this

12 chapter), in determining such decrease, there shall be

13 disregarded any decrease in the Federal estate tax

14 which any transferees other than those described in

15 sections 2055 and 2106(a)(2) are required to pay.

16 ‘‘(3) EFFECT ON CREDIT FOR FOREIGN DEATH

17 TAXES OF DEDUCTION UNDER THIS SUBSECTION.—

18 ‘‘(A) ELECTION.—An election under this

19 subsection shall be deemed a waiver of the right

20 to claim a credit, against the Federal estate tax,

21 under a death tax convention with any foreign

22 country for any tax or portion thereof in respect

23 of which a deduction is taken under this sub24 section.
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1 ‘‘(B) CROSS REFERENCE.—

‘‘See section 2014(f) for the effect of a deduction

taken under this paragraph on the credit for foreign

death taxes.’’.

2 (6) Subparagraph (A) of section 2056A(b)(10) is

3 amended—

4 (A) by striking ‘‘2011,’’, and

5 (B) by inserting ‘‘2058,’’ after ‘‘2056,’’.

6 (7)(A) Subsection (a) of section 2102 is amended

7 to read as follows:

8 ‘‘(a) IN GENERAL.—The tax imposed by section 2101

9 shall be credited with the amounts determined in accord10 ance with sections 2012 and 2013 (relating to gift tax and

11 tax on prior transfers).’’.

12 (B) Section 2102 is amended by striking sub13 section (b) and by redesignating subsection (c) as sub14 section (b).

15 (C) Section 2102(b)(5) (as redesignated by sub16 paragraph (B)) and section 2107(c)(3) are each

17 amended by striking ‘‘2011 to 2013, inclusive,’’ and

18 inserting ‘‘2012 and 2013’’.

19 (8) Subsection (a) of section 2106 is amended by

20 adding at the end the following new paragraph:

21 ‘‘(4) STATE DEATH TAXES.—The amount which

22 bears the same ratio to the State death taxes as the

23 value of the property, as determined for purposes of

24 this chapter, upon which State death taxes were paid
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1 and which is included in the gross estate under sec2 tion 2103 bears to the value of the total gross estate

3 under section 2103. For purposes of this paragraph,

4 the term ‘State death taxes’ means the taxes described

5 in section 2011(a).’’.

6 (9) Section 2201 is amended—

7 (A) by striking ‘‘as defined in section

8 2011(d)’’, and

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

10 flush sentence:

11 ‘‘For purposes of this section, the additional estate tax is

12 the difference between the tax imposed by section 2001 or

13 2101 and the amount equal to 125 percent of the maximum

14 credit provided by section 2011(b), as in effect before its

15 repeal by the Restoring Earnings To Lift Individuals and

16 Empower Families (RELIEF) Act of 2001.’’.

17 (10) Section 2604 is repealed.

18 (11) Paragraph (2) of section 6511(i) is amend19 ed by striking ‘‘2011(c), 2014(b),’’ and inserting

20 ‘‘2014(b)’’.

21 (12) Subsection (c) of section 6612 is amended

22 by striking ‘‘section 2011(c) (relating to refunds due

23 to credit for State taxes),’’.
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1 (13) The table of sections for part II of sub2 chapter A of chapter 11 is amended by striking the

3 item relating to section 2011.

4 (14) The table of sections for part IV of sub5 chapter A of chapter 11 is amended by adding at the

6 end the following new item:

‘‘Sec. 2058. State death taxes.’’.

7 (15) The table of sections for subchapter A of

8 chapter 13 is amended by striking the item relating

9 to section 2604.

10 (d) EFFECTIVE DATE.—The amendments made by this

11 section shall apply to estates of decedents dying after De12 cember 31, 2004.

13 Subtitle E—Carryover Basis at

14 Death; Other Changes Taking

15 Effect With Repeal

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

17 Section 1014 (relating to basis of property acquired

18 from a decedent) is amended by adding at the end the fol19 lowing new subsection:

20 ‘‘(f) TERMINATION.—This section shall not apply with

21 respect to decedents dying after December 31, 2010.’’.

22 SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A

23 DECEDENT DYING AFTER DECEMBER 31, 2010.

24 (a) GENERAL RULE.—Part II of subchapter O of chap25 ter 1 (relating to basis rules of general application) is
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1 amended by inserting after section 1021 the following new

2 section:

3 ‘‘SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A

4 DECEDENT DYING AFTER DECEMBER 31, 2010.

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

6 this section—

7 ‘‘(1) property acquired from a decedent dying

8 after December 31, 2010, shall be treated for purposes

9 of this subtitle as transferred by gift, and

10 ‘‘(2) the basis of the person acquiring property

11 from such a decedent shall be the lesser of—

12 ‘‘(A) the adjusted basis of the decedent, or

13 ‘‘(B) the fair market value of the property

14 at the date of the decedent’s death.

15 ‘‘(b) BASIS INCREASE FOR CERTAIN PROPERTY.—

16 ‘‘(1) IN GENERAL.—In the case of property to

17 which this subsection applies, the basis of such prop18 erty under subsection (a) shall be increased by its

19 basis increase under this subsection.

20 ‘‘(2) BASIS INCREASE.—For purposes of this

21 subsection—

22 ‘‘(A) IN GENERAL.—The basis increase

23 under this subsection for any property is the

24 portion of the aggregate basis increase which is
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1 allocated to the property pursuant to this sec2 tion.

3 ‘‘(B) AGGREGATE BASIS INCREASE.—In the

4 case of any estate, the aggregate basis increase

5 under this subsection is $1,300,000.

6 ‘‘(C) LIMIT INCREASED BY UNUSED BUILT7 IN LOSSES AND LOSS CARRYOVERS.—The limita8 tion under subparagraph (B) shall be increased

9 by—

10 ‘‘(i) the sum of the amount of any cap11 ital loss carryover under section 1212(b),

12 and the amount of any net operating loss

13 carryover under section 172, which would

14 (but for the decedent’s death) be carried

15 from the decedent’s last taxable year to a

16 later taxable year of the decedent, plus

17 ‘‘(ii) the sum of the amount of any

18 losses that would have been allowable under

19 section 165 if the property acquired from

20 the decedent had been sold at fair market

21 value immediately before the decedent’s

22 death.

23 ‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT

24 CITIZENS OF THE UNITED STATES.—In the case of a
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1 decedent nonresident not a citizen of the United

2 States—

3 ‘‘(A) paragraph (2)(B) shall be applied by

4 substituting ‘$60,000’ for ‘$1,300,000’, and

5 ‘‘(B) paragraph (2)(C) shall not apply.

6 ‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY AC7 QUIRED BY SURVIVING SPOUSE.—

8 ‘‘(1) IN GENERAL.—In the case of property to

9 which this subsection applies and which is qualified

10 spousal property, the basis of such property under

11 subsection (a) (as increased under subsection (b))

12 shall be increased by its spousal property basis in13 crease.

14 ‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.—For

15 purposes of this subsection—

16 ‘‘(A) IN GENERAL.—The spousal property

17 basis increase for property referred to in para18 graph (1) is the portion of the aggregate spousal

19 property basis increase which is allocated to the

20 property pursuant to this section.

21 ‘‘(B) AGGREGATE SPOUSAL PROPERTY

22 BASIS INCREASE.—In the case of any estate, the

23 aggregate spousal property basis increase is

24 $3,000,000.
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1 ‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For pur2 poses of this subsection, the term ‘qualified spousal

3 property’ means—

4 ‘‘(A) outright transfer property, and

5 ‘‘(B) qualified terminable interest property.

6 ‘‘(4) OUTRIGHT TRANSFER PROPERTY.—For pur7 poses of this subsection—

8 ‘‘(A) IN GENERAL.—The term ‘outright

9 transfer property’ means any interest in prop10 erty acquired from the decedent by the decedent’s

11 surviving spouse.

12 ‘‘(B) EXCEPTION.—Subparagraph (A) shall

13 not apply where, on the lapse of time, on the oc14 currence of an event or contingency, or on the

15 failure of an event or contingency to occur, an

16 interest passing to the surviving spouse will ter17 minate or fail—

18 ‘‘(i)(I) if an interest in such property

19 passes or has passed (for less than an ade20 quate and full consideration in money or

21 money’s worth) from the decedent to any

22 person other than such surviving spouse (or

23 the estate of such spouse), and

24 ‘‘(II) if by reason of such passing such

25 person (or his heirs or assigns) may possess
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1 or enjoy any part of such property after

2 such termination or failure of the interest so

3 passing to the surviving spouse, or

4 ‘‘(ii) if such interest is to be acquired

5 for the surviving spouse, pursuant to direc6 tions of the decedent, by his executor or by

7 the trustee of a trust.

8 For purposes of this subparagraph, an interest

9 shall not be considered as an interest which will

10 terminate or fail merely because it is the owner11 ship of a bond, note, or similar contractual obli12 gation, the discharge of which would not have the

13 effect of an annuity for life or for a term.

14 ‘‘(C) INTEREST OF SPOUSE CONDITIONAL ON

15 SURVIVAL FOR LIMITED PERIOD.—For purposes

16 of this paragraph, an interest passing to the sur17 viving spouse shall not be considered as an inter18 est which will terminate or fail on the death of

19 such spouse if—

20 ‘‘(i) such death will cause a termi21 nation or failure of such interest only if it

22 occurs within a period not exceeding 6

23 months after the decedent’s death, or only if

24 it occurs as a result of a common disaster

25 resulting in the death of the decedent and
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1 the surviving spouse, or only if it occurs in

2 the case of either such event, and

3 ‘‘(ii) such termination or failure does

4 not in fact occur.

5 ‘‘(5) QUALIFIED TERMINABLE INTEREST PROP6 ERTY.—For purposes of this subsection—

7 ‘‘(A) IN GENERAL.—The term ‘qualified ter8 minable interest property’ means property—

9 ‘‘(i) which passes from the decedent,

10 and

11 ‘‘(ii) in which the surviving spouse has

12 a qualifying income interest for life.

13 ‘‘(B) QUALIFYING INCOME INTEREST FOR

14 LIFE.—The surviving spouse has a qualifying in15 come interest for life if—

16 ‘‘(i) the surviving spouse is entitled to

17 all the income from the property, payable

18 annually or at more frequent intervals, or

19 has a usufruct interest for life in the prop20 erty, and

21 ‘‘(ii) no person has a power to appoint

22 any part of the property to any person

23 other than the surviving spouse.

24 Clause (ii) shall not apply to a power exercisable

25 only at or after the death of the surviving spouse.
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1 To the extent provided in regulations, an annu2 ity shall be treated in a manner similar to an

3 income interest in property (regardless of wheth4 er the property from which the annuity is pay5 able can be separately identified).

6 ‘‘(C) PROPERTY INCLUDES INTEREST

7 THEREIN.—The term ‘property’ includes an in8 terest in property.

9 ‘‘(D) SPECIFIC PORTION TREATED AS SEPA10 RATE PROPERTY.—A specific portion of property

11 shall be treated as separate property. For pur12 poses of the preceding sentence, the term ‘specific

13 portion’ only includes a portion determined on a

14 fractional or percentage basis.

15 ‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLICA16 TION OF SUBSECTIONS (b) AND (c).—

17 ‘‘(1) PROPERTY TO WHICH SUBSECTIONS (b) AND

18 (c) APPLY.—

19 ‘‘(A) IN GENERAL.—The basis of property

20 acquired from a decedent may be increased

21 under subsection (b) or (c) only if the property

22 was owned by the decedent at the time of death.

23 ‘‘(B) RULES RELATING TO OWNERSHIP.—

24 ‘‘(i) JOINTLY HELD PROPERTY.—In the

25 case of property which was owned by the
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1 decedent and another person as joint ten2 ants with right of survivorship or tenants

3 by the entirety—

4 ‘‘(I) if the only such other person

5 is the surviving spouse, the decedent

6 shall be treated as the owner of only 50

7 percent of the property,

8 ‘‘(II) in any case (to which sub9 clause (I) does not apply) in which the

10 decedent furnished consideration for

11 the acquisition of the property, the de12 cedent shall be treated as the owner to

13 the extent of the portion of the property

14 which is proportionate to such consid15 eration, and

16 ‘‘(III) in any case (to which sub17 clause (I) does not apply) in which the

18 property has been acquired by gift, be19 quest, devise, or inheritance by the de20 cedent and any other person as joint

21 tenants with right of survivorship and

22 their interests are not otherwise speci23 fied or fixed by law, the decedent shall

24 be treated as the owner to the extent of

25 the value of a fractional part to be de-
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1 termined by dividing the value of the

2 property by the number of joint ten3 ants with right of survivorship.

4 ‘‘(ii) REVOCABLE TRUSTS.—The dece5 dent shall be treated as owning property

6 transferred by the decedent during life to a

7 qualified revocable trust (as defined in sec8 tion 645(b)(1)).

9 ‘‘(iii) POWERS OF APPOINTMENT.—The

10 decedent shall not be treated as owning any

11 property by reason of holding a power of

12 appointment with respect to such property.

13 ‘‘(iv) COMMUNITY PROPERTY.—Prop14 erty which represents the surviving spouse’s

15 one-half share of community property held

16 by the decedent and the surviving spouse

17 under the community property laws of any

18 State or possession of the United States or

19 any foreign country shall be treated for pur20 poses of this section as owned by, and ac21 quired from, the decedent if at least one-half

22 of the whole of the community interest in

23 such property is treated as owned by, and

24 acquired from, the decedent without regard

25 to this clause.
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1 ‘‘(C) PROPERTY ACQUIRED BY DECEDENT

2 BY GIFT WITHIN 3 YEARS OF DEATH.—

3 ‘‘(i) IN GENERAL.—Subsections (b) and

4 (c) shall not apply to property acquired by

5 the decedent by gift or by inter vivos trans6 fer for less than adequate and full consider7 ation in money or money’s worth during

8 the 3-year period ending on the date of the

9 decedent’s death.

10 ‘‘(ii) EXCEPTION FOR CERTAIN GIFTS

11 FROM SPOUSE.—Clause (i) shall not apply

12 to property acquired by the decedent from

13 the decedent’s spouse unless, during such 3-

14 year period, such spouse acquired the prop15 erty in whole or in part by gift or by inter

16 vivos transfer for less than adequate and

17 full consideration in money or money’s

18 worth.

19 ‘‘(D) STOCK OF CERTAIN ENTITIES.—Sub20 sections (b) and (c) shall not apply to—

21 ‘‘(i) stock or securities a foreign per22 sonal holding company,

23 ‘‘(ii) stock of a DISC or former DISC,

24 ‘‘(iii) stock of a foreign investment

25 company, or
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1 ‘‘(iv) stock of a passive foreign invest2 ment company unless such company is a

3 qualified electing fund (as defined in section

4 1295) with respect to the decedent.

5 ‘‘(2) FAIR MARKET VALUE LIMITATION.—The ad6 justments under subsections (b) and (c) shall not in7 crease the basis of any interest in property acquired

8 from the decedent above its fair market value in the

9 hands of the decedent as of the date of the decedent’s

10 death.

11 ‘‘(3) ALLOCATION RULES.—

12 ‘‘(A) IN GENERAL.—The executor shall allo13 cate the adjustments under subsections (b) and

14 (c) on the return required by section 6018.

15 ‘‘(B) CHANGES IN ALLOCATION.—Any allo16 cation made pursuant to subparagraph (A) may

17 be changed only as provided by the Secretary.

18 ‘‘(4) INFLATION ADJUSTMENT OF BASIS ADJUST19 MENT AMOUNTS.—

20 ‘‘(A) IN GENERAL.—In the case of decedents

21 dying in a calendar year after 2011, the

22 $1,300,000, $60,000, and $3,000,000 dollar

23 amounts in subsections (b) and (c)(2)(B) shall

24 each be increased by an amount equal to the

25 product of—
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1 ‘‘(i) such dollar amount, and

2 ‘‘(ii) the cost-of-living adjustment de3 termined under section 1(f)(3) for such cal4 endar year, determined by substituting

5 ‘2010’ for ‘1992’ in subparagraph (B) there6 of.

7 ‘‘(B) ROUNDING.—If any increase deter8 mined under subparagraph (A) is not a multiple

9 of—

10 ‘‘(i) $100,000 in the case of the

11 $1,300,000 amount,

12 ‘‘(ii) $5,000 in the case of the $60,000

13 amount, and

14 ‘‘(iii) $250,000 in the case of the

15 $3,000,000 amount,

16 such increase shall be rounded to the next lowest

17 multiple thereof.

18 ‘‘(e) PROPERTY ACQUIRED FROM THE DECEDENT.—

19 For purposes of this section, the following property shall

20 be considered to have been acquired from the decedent:

21 ‘‘(1) Property acquired by bequest, devise, or in22 heritance, or by the decedent’s estate from the dece23 dent.

24 ‘‘(2) Property transferred by the decedent during

25 his lifetime—
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1 ‘‘(A) to a qualified revocable trust (as de2 fined in section 645(b)(1)), or

3 ‘‘(B) to any other trust with respect to

4 which the decedent reserved the right to make

5 any change in the enjoyment thereof through the

6 exercise of a power to alter, amend, or terminate

7 the trust.

8 ‘‘(3) Any other property passing from the dece9 dent by reason of death to the extent that such prop10 erty passed without consideration.

11 ‘‘(f) COORDINATION WITH SECTION 691.—This section

12 shall not apply to property which constitutes a right to re13 ceive an item of income in respect of a decedent under sec14 tion 691.

15 ‘‘(g) CERTAIN LIABILITIES DISREGARDED.—

16 ‘‘(1) IN GENERAL.—In determining whether gain

17 is recognized on the acquisition of property—

18 ‘‘(A) from a decedent by a decedent’s estate

19 or any beneficiary other than a tax-exempt bene20 ficiary, and

21 ‘‘(B) from the decedent’s estate by any bene22 ficiary other than a tax-exempt beneficiary,

23 and in determining the adjusted basis of such prop24 erty, liabilities in excess of basis shall be disregarded.
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1 ‘‘(2) TAX-EXEMPT BENEFICIARY.—For purposes

2 of paragraph (1)(B)—

3 ‘‘(A) IN GENERAL.—The term ‘tax-exempt

4 beneficiary’ means—

5 ‘‘(i) the United States, any State or

6 political subdivision thereof, any possession

7 of the United States, any Indian tribal gov8 ernment (within the meaning of section

9 7871), or any agency or instrumentality of

10 any of the foregoing,

11 ‘‘(ii) an organization (other than a co12 operative described in section 521) which is

13 exempt from tax imposed by chapter 1, and

14 ‘‘(iii) any foreign person or entity

15 (within the meaning of section 168(h)(2)).

16 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

17 such regulations as may be necessary to carry out the pur18 poses of this section.’’.

19 (b) INFORMATION RETURNS, ETC.—

20 (1) LARGE TRANSFERS AT DEATH.—So much of

21 subpart C of part II of subchapter A of chapter 61

22 as precedes section 6019 is amended to read as fol23 lows:
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1 ‘‘Subpart C—Returns Relating to Transfers During

2 Life or at Death

‘‘Sec. 6018. Returns relating to large transfers at death.

‘‘Sec. 6019. Gift tax returns.

3 ‘‘SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT

4 DEATH.

5 ‘‘(a) IN GENERAL.—If this section applies to property

6 acquired from a decedent, the executor of the estate of such

7 decedent shall make a return containing the information

8 specified in subsection (c) with respect to such property.

9 ‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—

10 ‘‘(1) LARGE TRANSFERS.—This section shall

11 apply to all property (other than cash) acquired from

12 a decedent if the fair market value of such property

13 acquired from the decedent exceeds the dollar amount

14 applicable under section 1022(b)(2)(B) (without re15 gard to section 1022(b)(2)(C)).

16 ‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED

17 BY DECEDENT WITHIN 3 YEARS OF DEATH.—This sec18 tion shall apply to any appreciated property acquired

19 from the decedent if—

20 ‘‘(A) subsections (b) and (c) of section 1022

21 do not apply to such property by reason of sec22 tion 1022(d)(1)(C), and
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1 ‘‘(B) such property was required to be in2 cluded on a return required to be filed under sec3 tion 6019.

4 ‘‘(3) NONRESIDENTS NOT CITIZENS OF THE

5 UNITED STATES.—In the case of a decedent who is a

6 nonresident not a citizen of the United States, para7 graphs (1) and (2) shall be applied—

8 ‘‘(A) by taking into account only—

9 ‘‘(i) tangible property situated in the

10 United States, and

11 ‘‘(ii) other property acquired from the

12 decedent by a United States person, and

13 ‘‘(B) by substituting the dollar amount ap14 plicable under section 1022(b)(3) for the dollar

15 amount referred to in paragraph (1).

16 ‘‘(4) RETURNS BY TRUSTEES OR BENE17 FICIARIES.—If the executor is unable to make a com18 plete return as to any property acquired from or

19 passing from the decedent, the executor shall include

20 in the return a description of such property and the

21 name of every person holding a legal or beneficial in22 terest therein. Upon notice from the Secretary, such

23 person shall in like manner make a return as to such

24 property.
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1 ‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—

2 The information specified in this subsection with respect

3 to any property acquired from the decedent is—

4 ‘‘(1) the name and TIN of the recipient of such

5 property,

6 ‘‘(2) an accurate description of such property,

7 ‘‘(3) the adjusted basis of such property in the

8 hands of the decedent and its fair market value at the

9 time of death,

10 ‘‘(4) the decedent’s holding period for such prop11 erty,

12 ‘‘(5) sufficient information to determine whether

13 any gain on the sale of the property would be treated

14 as ordinary income,

15 ‘‘(6) the amount of basis increase allocated to the

16 property under subsection (b) or (c) of section 1022,

17 and

18 ‘‘(7) such other information as the Secretary

19 may by regulations prescribe.

20 ‘‘(d) PROPERTY ACQUIRED FROM DECEDENT.—For

21 purposes of this section, section 1022 shall apply for pur22 poses of determining the property acquired from a decedent.

23 ‘‘(e) STATEMENTS TO BE FURNISHED TO CERTAIN

24 PERSONS.—Every person required to make a return under

25 subsection (a) shall furnish to each person whose name is
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1 required to be set forth in such return (other than the person

2 required to make such return) a written statement

3 showing—

4 ‘‘(1) the name, address, and phone number of the

5 person required to make such return, and

6 ‘‘(2) the information specified in subsection (c)

7 with respect to property acquired from, or passing

8 from, the decedent to the person required to receive

9 such statement.

10 The written statement required under the preceding sen11 tence shall be furnished not later than 30 days after the

12 date that the return required by subsection (a) is filed.’’.

13 (2) GIFTS.—Section 6019 (relating to gift tax re14 turns) is amended—

15 (A) by striking ‘‘Any individual’’ and in16 serting ‘‘(a) IN GENERAL.—Any individual’’,

17 and

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

19 subsection:

20 ‘‘(b) STATEMENTS TO BE FURNISHED TO CERTAIN

21 PERSONS.—Every person required to make a return under

22 subsection (a) shall furnish to each person whose name is

23 required to be set forth in such return (other than the person

24 required to make such return) a written statement

25 showing—
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1 ‘‘(1) the name, address, and phone number of the

2 person required to make such return, and

3 ‘‘(2) the information specified in such return

4 with respect to property received by the person re5 quired to receive such statement.

6 The written statement required under the preceding sen7 tence shall be furnished not later than 30 days after the

8 date that the return required by subsection (a) is filed.’’.

9 (3) TIME FOR FILING SECTION 6018 RETURNS.—

10 (A) RETURNS RELATING TO LARGE TRANS11 FERS AT DEATH.—Subsection (a) of section 6075

12 is amended to read as follows:

13 ‘‘(a) RETURNS RELATING TO LARGE TRANSFERS AT

14 DEATH.—The return required by section 6018 with respect

15 to a decedent shall be filed with the return of the tax im16 posed by chapter 1 for the decedent’s last taxable year or

17 such later date specified in regulations prescribed by the

18 Secretary.’’.

19 (B) CONFORMING AMENDMENTS.—Para20 graph (3) of section 6075(b) is amended—

21 (i) by striking ‘‘ESTATE TAX RETURN’’

22 in the heading and inserting ‘‘SECTION 6018

23 RETURN’’, and
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1 (ii) by striking ‘‘(relating to estate tax

2 returns)’’ and inserting ‘‘(relating to re3 turns relating to large transfers at death)’’.

4 (4) PENALTIES.—Part I of subchapter B of

5 chapter 68 (relating to assessable penalties) is amend6 ed by adding at the end the following new section:

7 ‘‘SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT

8 TO CERTAIN TRANSFERS AT DEATH AND

9 GIFTS.

10 ‘‘(a) INFORMATION REQUIRED TO BE FURNISHED TO

11 THE SECRETARY.—Any person required to furnish any in12 formation under section 6018 who fails to furnish such in13 formation on the date prescribed therefor (determined with

14 regard to any extension of time for filing) shall pay a pen15 alty of $10,000 ($500 in the case of information required

16 to be furnished under section 6018(b)(2)) for each such fail17 ure.

18 ‘‘(b) INFORMATION REQUIRED TO BE FURNISHED TO

19 BENEFICIARIES.—Any person required to furnish in writ20 ing to each person described in section 6018(e) or 6019(b)

21 the information required under such section who fails to

22 furnish such information shall pay a penalty of $50 for

23 each such failure.

24 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

25 shall be imposed under subsection (a) or (b) with respect
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1 to any failure if it is shown that such failure is due to

2 reasonable cause.

3 ‘‘(d) INTENTIONAL DISREGARD.—If any failure under

4 subsection (a) or (b) is due to intentional disregard of the

5 requirements under sections 6018 and 6019(b), the penalty

6 under such subsection shall be 5 percent of the fair market

7 value (as of the date of death or, in the case of section

8 6019(b), the date of the gift) of the property with respect

9 to which the information is required.

10 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub11 chapter B of chapter 63 (relating to deficiency procedures

12 for income, estate, gift, and certain excise taxes) shall not

13 apply in respect of the assessment or collection of any pen14 alty imposed by this section.’’.

15 (5) CLERICAL AMENDMENTS.—

16 (A) The table of sections for part I of sub17 chapter B of chapter 68 is amended by adding

18 at the end the following new item:

‘‘Sec. 6716. Failure to file information with respect to certain

transfers at death and gifts.’’.

19 (B) The item relating to subpart C in the

20 table of subparts for part II of subchapter A of

21 chapter 61 is amended to read as follows:

‘‘Subpart C. Returns relating to transfers during life or at death.’’.

22 (c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESI23 DENCE MADE AVAILABLE TO HEIR OF DECEDENT IN CER-
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1 TAIN CASES.—Subsection (d) of section 121 (relating to ex2 clusion of gain from sale of principal residence) is amended

3 by adding at the end the following new paragraph:

4 ‘‘(9) PROPERTY ACQUIRED FROM A DECEDENT.—

5 The exclusion under this section shall apply to prop6 erty sold by—

7 ‘‘(A) the estate of a decedent, and

8 ‘‘(B) any individual who acquired such

9 property from the decedent (within the meaning

10 of section 1022),

11 determined by taking into account the ownership and

12 use by the decedent.’’.

13 (d) TRANSFERS OF APPRECIATED CARRYOVER BASIS

14 PROPERTY TO SATISFY PECUNIARY BEQUEST.—

15 (1) IN GENERAL.—Section 1040 (relating to

16 transfer of certain farm, etc., real property) is

17 amended to read as follows:

18 ‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROP19 ERTY TO SATISFY PECUNIARY BEQUEST.

20 ‘‘(a) IN GENERAL.—If the executor of the estate of any

21 decedent satisfies the right of any person to receive a pecu22 niary bequest with appreciated property, then gain on such

23 exchange shall be recognized to the estate only to the extent

24 that, on the date of such exchange, the fair market value

25 of such property exceeds such value on the date of death.
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1 ‘‘(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the

2 extent provided in regulations prescribed by the Secretary,

3 a rule similar to the rule provided in subsection (a) shall

4 apply where—

5 ‘‘(1) by reason of the death of the decedent, a

6 person has a right to receive from a trust a specific

7 dollar amount which is the equivalent of a pecuniary

8 bequest, and

9 ‘‘(2) the trustee of a trust satisfies such right

10 with property.

11 ‘‘(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE

12 DESCRIBED IN SUBSECTION (a) OR (b).—The basis of prop13 erty acquired in an exchange with respect to which gain

14 realized is not recognized by reason of subsection (a) or (b)

15 shall be the basis of such property immediately before the

16 exchange increased by the amount of the gain recognized

17 to the estate or trust on the exchange.’’.

18 (2) The item relating to section 1040 in the table

19 of sections for part III of subchapter O of chapter 1

20 is amended to read as follows:

‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy

pecuniary bequest.’’.

21 (e) MISCELLANEOUS AMENDMENTS RELATED TO CAR22 RYOVER BASIS.—

23 (1) RECOGNITION OF GAIN ON TRANSFERS TO

24 NONRESIDENTS.—
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1 (A) Subsection (a) of section 684 is amend2 ed by inserting ‘‘or to a nonresident alien’’ after

3 ‘‘or trust’’.

4 (B) Subsection (b) of section 684 is amend5 ed by striking ‘‘any person’’ and inserting ‘‘any

6 United States person’’.

7 (C) The section heading for section 684 is

8 amended by inserting ‘‘AND NONRESIDENT

9 ALIENS’’ after ‘‘ESTATES’’.

10 (D) The item relating to section 684 in the

11 table of sections for subpart F of part I of sub12 chapter J of chapter 1 is amended by inserting

13 ‘‘and nonresident aliens’’ after ‘‘estates’’.

14 (2) CAPITAL GAIN TREATMENT FOR INHERITED

15 ART WORK OR SIMILAR PROPERTY.—

16 (A) IN GENERAL.—Subparagraph (C) of

17 section 1221(a)(3) (defining capital asset) is

18 amended by inserting ‘‘(other than by reason of

19 section 1022)’’ after ‘‘is determined’’.

20 (B) COORDINATION WITH SECTION 170.—

21 Paragraph (1) of section 170(e) (relating to cer22 tain contributions of ordinary income and cap23 ital gain property) is amended by adding at the

24 end the following: ‘‘For purposes of this para25 graph, the determination of whether property is
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1 a capital asset shall be made without regard to

2 the exception contained in section 1221(a)(3)(C)

3 for basis determined under section 1022.’’.

4 (3) DEFINITION OF EXECUTOR.—Section 7701(a)

5 (relating to definitions) is amended by adding at the

6 end the following:

7 ‘‘(47) EXECUTOR.—The term ‘executor’ means

8 the executor or administrator of the decedent, or, if

9 there is no executor or administrator appointed,

10 qualified, and acting within the United States, then

11 any person in actual or constructive possession of any

12 property of the decedent.’’.

13 (4) CERTAIN TRUSTS.—Subparagraph (A) of sec14 tion 4947(a)(2) is amended by inserting ‘‘642(c),’’

15 after ‘‘170(f)(2)(B),’’.

16 (5) OTHER AMENDMENTS.—

17 (A) Section 1246 is amended by striking

18 subsection (e).

19 (B) Subsection (e) of section 1291 is

20 amended—

21 (i) by striking ‘‘(e),’’; and

22 (ii) by striking ‘‘; except that’’ and all

23 that follows and inserting a period.

24 (C) Section 1296 is amended by striking

25 subsection (i).
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1 (6) CLERICAL AMENDMENT.—The table of sec2 tions for part II of subchapter O of chapter 1 is

3 amended by inserting after the item relating to sec4 tion 1021 the following new item:

‘‘Sec. 1022. Treatment of property acquired from a decedent dying

after December 31, 2010.’’.

5 (f) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as provided in para7 graph (2), the amendments made by this section shall

8 apply to estates of decedents dying after December 31,

9 2010.

10 (2) TRANSFERS TO NONRESIDENTS.—The

11 amendments made by subsection (e)(1) shall apply to

12 transfers after December 31, 2010.

13 (3) SECTION 4947.—The amendment made by

14 subsection (e)(4) shall apply to deductions for taxable

15 years beginning after December 31, 2010.

16 Subtitle F—Conservation

17 Easements

18 SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CON19 SERVATION EASEMENTS.

20 (a) REPEAL OF CERTAIN RESTRICTIONS ON WHERE

21 LAND IS LOCATED.—Clause (i) of section 2031(c)(8)(A)

22 (defining land subject to a qualified conservation easement)

23 is amended to read as follows:
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1 ‘‘(i) which is located in the United

2 States or any possession of the United

3 States,’’.

4 (b) CLARIFICATION OF DATE FOR DETERMINING

5 VALUE OF LAND AND EASEMENT.—Section 2031(c)(2) (de6 fining applicable percentage) is amended by adding at the

7 end the following new sentence: ‘‘The values taken into ac8 count under the preceding sentence shall be such values as

9 of the date of the contribution referred to in paragraph

10 (8)(B).’’.

11 (c) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to estates of decedents dying after De13 cember 31, 2000.

14 Subtitle G—Modifications of

15 Generation-Skipping Transfer Tax

16 SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO

17 LIFETIME TRANSFERS TO TRUSTS; RETRO18 ACTIVE ALLOCATIONS.

19 (a) IN GENERAL.—Section 2632 (relating to special

20 rules for allocation of GST exemption) is amended by redes21 ignating subsection (c) as subsection (e) and by inserting

22 after subsection (b) the following new subsections:

23 ‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME

24 TRANSFERS TO GST TRUSTS.—
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1 ‘‘(1) IN GENERAL.—If any individual makes an

2 indirect skip during such individual’s lifetime, any

3 unused portion of such individual’s GST exemption

4 shall be allocated to the property transferred to the ex5 tent necessary to make the inclusion ratio for such

6 property zero. If the amount of the indirect skip ex7 ceeds such unused portion, the entire unused portion

8 shall be allocated to the property transferred.

9 ‘‘(2) UNUSED PORTION.—For purposes of para10 graph (1), the unused portion of an individual’s GST

11 exemption is that portion of such exemption which

12 has not previously been—

13 ‘‘(A) allocated by such individual,

14 ‘‘(B) treated as allocated under subsection

15 (b) with respect to a direct skip occurring during

16 or before the calendar year in which the indirect

17 skip is made, or

18 ‘‘(C) treated as allocated under paragraph

19 (1) with respect to a prior indirect skip.

20 ‘‘(3) DEFINITIONS.—

21 ‘‘(A) INDIRECT SKIP.—For purposes of this

22 subsection, the term ‘indirect skip’ means any

23 transfer of property (other than a direct skip)

24 subject to the tax imposed by chapter 12 made

25 to a GST trust.
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1 ‘‘(B) GST TRUST.—The term ‘GST trust’

2 means a trust that could have a generation-skip3 ping transfer with respect to the transferor

4 unless—

5 ‘‘(i) the trust instrument provides that

6 more than 25 percent of the trust corpus

7 must be distributed to or may be withdrawn

8 by one or more individuals who are non9 skip persons—

10 ‘‘(I) before the date that the indi11 vidual attains age 46,

12 ‘‘(II) on or before one or more

13 dates specified in the trust instrument

14 that will occur before the date that

15 such individual attains age 46, or

16 ‘‘(III) upon the occurrence of an

17 event that, in accordance with regula18 tions prescribed by the Secretary, may

19 reasonably be expected to occur before

20 the date that such individual attains

21 age 46,

22 ‘‘(ii) the trust instrument provides that

23 more than 25 percent of the trust corpus

24 must be distributed to or may be withdrawn

25 by one or more individuals who are non-
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1 skip persons and who are living on the date

2 of death of another person identified in the

3 instrument (by name or by class) who is

4 more than 10 years older than such individ5 uals,

6 ‘‘(iii) the trust instrument provides

7 that, if one or more individuals who are

8 non-skip persons die on or before a date or

9 event described in clause (i) or (ii), more

10 than 25 percent of the trust corpus either

11 must be distributed to the estate or estates

12 of one or more of such individuals or is sub13 ject to a general power of appointment exer14 cisable by one or more of such individuals,

15 ‘‘(iv) the trust is a trust any portion

16 of which would be included in the gross es17 tate of a non-skip person (other than the

18 transferor) if such person died immediately

19 after the transfer,

20 ‘‘(v) the trust is a charitable lead an21 nuity trust (within the meaning of section

22 2642(e)(3)(A)) or a charitable remainder

23 annuity trust or a charitable remainder

24 unitrust (within the meaning of section

25 664(d)), or
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1 ‘‘(vi) the trust is a trust with respect

2 to which a deduction was allowed under sec3 tion 2522 for the amount of an interest in

4 the form of the right to receive annual pay5 ments of a fixed percentage of the net fair

6 market value of the trust property (deter7 mined yearly) and which is required to pay

8 principal to a non-skip person if such per9 son is alive when the yearly payments for

10 which the deduction was allowed terminate.

11 For purposes of this subparagraph, the value of

12 transferred property shall not be considered to be

13 includible in the gross estate of a non-skip per14 son or subject to a right of withdrawal by reason

15 of such person holding a right to withdraw so

16 much of such property as does not exceed the

17 amount referred to in section 2503(b) with re18 spect to any transferor, and it shall be assumed

19 that powers of appointment held by non-skip

20 persons will not be exercised.

21 ‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST

22 TRUSTS.—For purposes of this subsection, an indirect

23 skip to which section 2642(f) applies shall be deemed

24 to have been made only at the close of the estate tax

25 inclusion period. The fair market value of such trans-
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1 fer shall be the fair market value of the trust property

2 at the close of the estate tax inclusion period.

3 ‘‘(5) APPLICABILITY AND EFFECT.—

4 ‘‘(A) IN GENERAL.—An individual—

5 ‘‘(i) may elect to have this subsection

6 not apply to—

7 ‘‘(I) an indirect skip, or

8 ‘‘(II) any or all transfers made by

9 such individual to a particular trust,

10 and

11 ‘‘(ii) may elect to treat any trust as a

12 GST trust for purposes of this subsection

13 with respect to any or all transfers made by

14 such individual to such trust.

15 ‘‘(B) ELECTIONS.—

16 ‘‘(i) ELECTIONS WITH RESPECT TO IN17 DIRECT SKIPS.—An election under subpara18 graph (A)(i)(I) shall be deemed to be timely

19 if filed on a timely filed gift tax return for

20 the calendar year in which the transfer was

21 made or deemed to have been made pursu22 ant to paragraph (4) or on such later date

23 or dates as may be prescribed by the Sec24 retary.
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1 ‘‘(ii) OTHER ELECTIONS.—An election

2 under clause (i)(II) or (ii) of subparagraph

3 (A) may be made on a timely filed gift tax

4 return for the calendar year for which the

5 election is to become effective.

6 ‘‘(d) RETROACTIVE ALLOCATIONS.—

7 ‘‘(1) IN GENERAL.—If—

8 ‘‘(A) a non-skip person has an interest or a

9 future interest in a trust to which any transfer

10 has been made,

11 ‘‘(B) such person—

12 ‘‘(i) is a lineal descendant of a grand13 parent of the transferor or of a grandparent

14 of the transferor’s spouse or former spouse,

15 and

16 ‘‘(ii) is assigned to a generation below

17 the generation assignment of the transferor,

18 and

19 ‘‘(C) such person predeceases the transferor,

20 then the transferor may make an allocation of any of

21 such transferor’s unused GST exemption to any pre22 vious transfer or transfers to the trust on a chrono23 logical basis.

24 ‘‘(2) SPECIAL RULES.—If the allocation under

25 paragraph (1) by the transferor is made on a gift tax
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1 return filed on or before the date prescribed by section

2 6075(b) for gifts made within the calendar year with3 in which the non-skip person’s death occurred—

4 ‘‘(A) the value of such transfer or transfers

5 for purposes of section 2642(a) shall be deter6 mined as if such allocation had been made on a

7 timely filed gift tax return for each calendar

8 year within which each transfer was made,

9 ‘‘(B) such allocation shall be effective imme10 diately before such death, and

11 ‘‘(C) the amount of the transferor’s unused

12 GST exemption available to be allocated shall be

13 determined immediately before such death.

14 ‘‘(3) FUTURE INTEREST.—For purposes of this

15 subsection, a person has a future interest in a trust

16 if the trust may permit income or corpus to be paid

17 to such person on a date or dates in the future.’’.

18 (b) CONFORMING AMENDMENT.—Paragraph (2) of sec19 tion 2632(b) is amended by striking ‘‘with respect to a prior

20 direct skip’’ and inserting ‘‘or subsection (c)(1)’’.

21 (c) EFFECTIVE DATES.—

22 (1) DEEMED ALLOCATION.—Section 2632(c) of

23 the Internal Revenue Code of 1986 (as added by sub24 section (a)), and the amendment made by subsection

25 (b), shall apply to transfers subject to chapter 11 or
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1 12 made after December 31, 2000, and to estate tax

2 inclusion periods ending after December 31, 2000.

3 (2) RETROACTIVE ALLOCATIONS.—Section

4 2632(d) of the Internal Revenue Code of 1986 (as

5 added by subsection (a)) shall apply to deaths of non6 skip persons occurring after December 31, 2000.

7 SEC. 562. SEVERING OF TRUSTS.

8 (a) IN GENERAL.—Subsection (a) of section 2642 (re9 lating to inclusion ratio) is amended by adding at the end

10 the following new paragraph:

11 ‘‘(3) SEVERING OF TRUSTS.—

12 ‘‘(A) IN GENERAL.—If a trust is severed in

13 a qualified severance, the trusts resulting from

14 such severance shall be treated as separate trusts

15 thereafter for purposes of this chapter.

16 ‘‘(B) QUALIFIED SEVERANCE.—For pur17 poses of subparagraph (A)—

18 ‘‘(i) IN GENERAL.—The term ‘qualified

19 severance’ means the division of a single

20 trust and the creation (by any means avail21 able under the governing instrument or

22 under local law) of two or more trusts if—

23 ‘‘(I) the single trust was divided

24 on a fractional basis, and
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1 ‘‘(II) the terms of the new trusts,

2 in the aggregate, provide for the same

3 succession of interests of beneficiaries

4 as are provided in the original trust.

5 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

6 GREATER THAN ZERO.—If a trust has an

7 inclusion ratio of greater than zero and less

8 than 1, a severance is a qualified severance

9 only if the single trust is divided into two

10 trusts, one of which receives a fractional

11 share of the total value of all trust assets

12 equal to the applicable fraction of the single

13 trust immediately before the severance. In

14 such case, the trust receiving such fractional

15 share shall have an inclusion ratio of zero

16 and the other trust shall have an inclusion

17 ratio of 1.

18 ‘‘(iii) REGULATIONS.—The term

19 ‘qualified severance’ includes any other sev20 erance permitted under regulations pre21 scribed by the Secretary.

22 ‘‘(C) TIMING AND MANNER OF

23 SEVERANCES.—A severance pursuant to this

24 paragraph may be made at any time. The Sec25 retary shall prescribe by forms or regulations the
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1 manner in which the qualified severance shall be

2 reported to the Secretary.’’.

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

4 section shall apply to severances after December 31, 2000.

5 SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.

6 (a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR

7 DEEMED ALLOCATION MADE.—Paragraph (1) of section

8 2642(b) (relating to valuation rules, etc.) is amended to

9 read as follows:

10 ‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED

11 OR DEEMED ALLOCATION MADE.—If the allocation of

12 the GST exemption to any transfers of property is

13 made on a gift tax return filed on or before the date

14 prescribed by section 6075(b) for such transfer or is

15 deemed to be made under section 2632 (b)(1) or

16 (c)(1)—

17 ‘‘(A) the value of such property for purposes

18 of subsection (a) shall be its value as finally de19 termined for purposes of chapter 12 (within the

20 meaning of section 2001(f)(2)), or, in the case of

21 an allocation deemed to have been made at the

22 close of an estate tax inclusion period, its value

23 at the time of the close of the estate tax inclusion

24 period, and
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1 ‘‘(B) such allocation shall be effective on

2 and after the date of such transfer, or, in the

3 case of an allocation deemed to have been made

4 at the close of an estate tax inclusion period, on

5 and after the close of such estate tax inclusion

6 period.’’.

7 (b) TRANSFERS AT DEATH.—Subparagraph (A) of sec8 tion 2642(b)(2) is amended to read as follows:

9 ‘‘(A) TRANSFERS AT DEATH.—If property is

10 transferred as a result of the death of the trans11 feror, the value of such property for purposes of

12 subsection (a) shall be its value as finally deter13 mined for purposes of chapter 11; except that, if

14 the requirements prescribed by the Secretary re15 specting allocation of post-death changes in value

16 are not met, the value of such property shall be

17 determined as of the time of the distribution con18 cerned.’’.

19 (c) EFFECTIVE DATE.—The amendments made by this

20 section shall apply to transfers subject to chapter 11 or 12

21 of the Internal Revenue Code of 1986 made after December

22 31, 2000.

23 SEC. 564. RELIEF PROVISIONS.

24 (a) IN GENERAL.—Section 2642 is amended by adding

25 at the end the following new subsection:
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1 ‘‘(g) RELIEF PROVISIONS.—

2 ‘‘(1) RELIEF FROM LATE ELECTIONS.—

3 ‘‘(A) IN GENERAL.—The Secretary shall by

4 regulation prescribe such circumstances and pro5 cedures under which extensions of time will be

6 granted to make—

7 ‘‘(i) an allocation of GST exemption

8 described in paragraph (1) or (2) of sub9 section (b), and

10 ‘‘(ii) an election under subsection

11 (b)(3) or (c)(5) of section 2632.

12 Such regulations shall include procedures for re13 questing comparable relief with respect to trans14 fers made before the date of the enactment of this

15 paragraph.

16 ‘‘(B) BASIS FOR DETERMINATIONS.—In de17 termining whether to grant relief under this

18 paragraph, the Secretary shall take into account

19 all relevant circumstances, including evidence of

20 intent contained in the trust instrument or in21 strument of transfer and such other factors as the

22 Secretary deems relevant. For purposes of deter23 mining whether to grant relief under this para24 graph, the time for making the allocation (or
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1 election) shall be treated as if not expressly pre2 scribed by statute.

3 ‘‘(2) SUBSTANTIAL COMPLIANCE.—An allocation

4 of GST exemption under section 2632 that dem5 onstrates an intent to have the lowest possible inclu6 sion ratio with respect to a transfer or a trust shall

7 be deemed to be an allocation of so much of the trans8 feror’s unused GST exemption as produces the lowest

9 possible inclusion ratio. In determining whether there

10 has been substantial compliance, all relevant cir11 cumstances shall be taken into account, including evi12 dence of intent contained in the trust instrument or

13 instrument of transfer and such other factors as the

14 Secretary deems relevant.’’.

15 (b) EFFECTIVE DATES.—

16 (1) RELIEF FROM LATE ELECTIONS.—Section

17 2642(g)(1) of the Internal Revenue Code of 1986 (as

18 added by subsection (a)) shall apply to requests pend19 ing on, or filed after, December 31, 2000.

20 (2) SUBSTANTIAL COMPLIANCE.—Section

21 2642(g)(2) of such Code (as so added) shall apply to

22 transfers subject to chapter 11 or 12 of the Internal

23 Revenue Code of 1986 made after December 31, 2000.

24 No implication is intended with respect to the avail25 ability of relief from late elections or the application
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1 of a rule of substantial compliance on or before such

2 date.

3 Subtitle H—Extension of Time for

4 Payment of Estate Tax

5 SEC. 571. EXPANSION OF AVAILABILITY OF INSTALLMENT

6 PAYMENT FOR ESTATES WITH INTERESTS

7 QUALIFYING LENDING AND FINANCE BUSI8 NESSES.

9 (a) IN GENERAL.—Section 6166(b) (relating to defini10 tions and special rules) is amended by adding at the end

11 the following new paragraph:

12 ‘‘(10) STOCK IN QUALIFYING LENDING AND FI13 NANCE BUSINESS TREATED AS STOCK IN AN ACTIVE

14 TRADE OR BUSINESS COMPANY.—

15 ‘‘(A) IN GENERAL.—If the executor elects the

16 benefits of this paragraph, then—

17 ‘‘(i) STOCK IN QUALIFYING LENDING

18 AND FINANCE BUSINESS TREATED AS STOCK

19 IN AN ACTIVE TRADE OR BUSINESS COM20 PANY.—For purposes of this section, any

21 asset used in a qualifying lending and fi22 nance business shall be treated as an asset

23 which is used in carrying on a trade or

24 business.
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1 ‘‘(ii) 5-YEAR DEFERRAL FOR PRIN2 CIPAL NOT TO APPLY.—The executor shall be

3 treated as having selected under subsection

4 (a)(3) the date prescribed by section

5 6151(a).

6 ‘‘(iii) 5 EQUAL INSTALLMENTS AL7 LOWED.—For purposes of applying sub8 section (a)(1), ‘5’ shall be substituted for

9 ‘10’.

10 ‘‘(B) DEFINITIONS.—For purposes of this

11 paragraph—

12 ‘‘(i) QUALIFYING LENDING AND FI13 NANCE BUSINESS.—The term ‘qualifying

14 lending and finance business’ means a lend15 ing and finance business, if—

16 ‘‘(I) based on all the facts and cir17 cumstances immediately before the date

18 of the decedent’s death, there was sub19 stantial activity with respect to the

20 lending and finance business, or

21 ‘‘(II) during at least 3 of the 5

22 taxable years ending before the date of

23 the decedent’s death, such business had

24 at least 1 full-time employee substan25 tially all of the services of whom were
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1 in the active management of such busi2 ness, 10 full-time, nonowner employees

3 substantially all of the services of

4 whom were directly related to such

5 business, and $5,000,000 in gross re6 ceipts from activities described in

7 clause (ii).

8 ‘‘(ii) LENDING AND FINANCE BUSI9 NESS.—The term ‘lending and finance busi10 ness’ means a trade or business of—

11 ‘‘(I) making loans,

12 ‘‘(II) purchasing or discounting

13 accounts receivable, notes, or install14 ment obligations,

15 ‘‘(III) engaging in rental and

16 leasing of real and tangible personal

17 property, including entering into leases

18 and purchasing, servicing, and dis19 posing of leases and leased assets,

20 ‘‘(IV) rendering services or mak21 ing facilities available in the ordinary

22 course of a lending or finance business,

23 and

24 ‘‘(V) rendering services or making

25 facilities available in connection with
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1 activities described in subclauses (I)

2 through (IV) carried on by the corpora3 tion rendering services or making fa4 cilities available, or another corpora5 tion which is a member of the same af6 filiated group (as defined in section

7 1504 without regard to section

8 1504(b)(3)).

9 ‘‘(iii) LIMITATION.—The term ‘quali10 fying lending and finance business’ shall

11 not include any interest in an entity, if the

12 stock or debt of such entity or a controlled

13 group (as defined in section 267(f)(1)) of

14 which such entity was a member was read15 ily tradable on an established securities

16 market or secondary market (as defined by

17 the Secretary) at any time within 3 years

18 before the date of the decedent’s death.’’.

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

20 section shall apply to estates of decedents dying after De21 cember 31, 2001.
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1 SEC. 572. CLARIFICATION OF AVAILABILITY OF INSTALL2 MENT PAYMENT.

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

4 6166(b)(8) (relating to all stock must be non-readily5 tradable stock) is amended to read as follows:

6 ‘‘(B) ALL STOCK MUST BE NON-READILY7 TRADABLE STOCK.—

8 ‘‘(i) IN GENERAL.—No stock shall be

9 taken into account for purposes of applying

10 this paragraph unless it is non-readily11 tradable stock (within the meaning of para12 graph (7)(B)).

13 ‘‘(ii) SPECIAL APPLICATION WHERE

14 ONLY HOLDING COMPANY STOCK IS NON15 READILY-TRADABLE STOCK.—If the require16 ments of clause (i) are not met, but all of

17 the stock of any holding company taken into

18 account is non-readily-tradable, then this

19 paragraph shall apply, but subsection (a)(1)

20 shall be applied by substituting ‘5’ for

21 ‘10’.’’.

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

23 section shall apply to estates of decedents dying after De24 cember 31, 2001.
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1 Subtitle I—Compliance With

2 Congressional Budget Act

3 SEC. 581. SUNSET OF PROVISIONS OF TITLE.

4 All provisions of, and amendments made by, this title

5 which are in effect on September 30, 2011, shall cease to

6 apply as of the close of September 30, 2011.

7 TITLE VI—PENSION AND INDI8 VIDUAL RETIREMENT AR9 RANGEMENT PROVISIONS

10 Subtitle A—Individual Retirement

11 Accounts

12 SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.

13 (a) INCREASE IN CONTRIBUTION LIMIT.—

14 (1) IN GENERAL.—Paragraph (1)(A) of section

15 219(b) (relating to maximum amount of deduction) is

16 amended by striking ‘‘$2,000’’ and inserting ‘‘the de17 ductible amount’’.

18 (2) DEDUCTIBLE AMOUNT.—Section 219(b) is

19 amended by adding at the end the following new

20 paragraph:

21 ‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of

22 paragraph (1)(A)—

23 ‘‘(A) IN GENERAL.—The deductible amount

24 shall be determined in accordance with the fol25 lowing table:
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‘‘For taxable years The deductible

beginning in: amount is:

2002 through 2005 ............................................................ $2,500

2006 and 2007 ................................................................... $3,000

2008 and 2009 ................................................................... $3,500

2010 .................................................................................... $4,000

2011 and thereafter ........................................................... $5,000.

1 ‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDI2 VIDUALS 50 OR OLDER.—

3 ‘‘(i) IN GENERAL.—In the case of an

4 individual who has attained the age of 50

5 before the close of the taxable year, the de6 ductible amount for such taxable year shall

7 be increased by the applicable amount.

8 ‘‘(ii) APPLICABLE AMOUNT.—For pur9 poses of clause (i), the applicable amount

10 shall be the amount determined in accord11 ance with the following table:

‘‘For taxable years The applicable

beginning in: amount is:

2002 through 2005 ............................................................ $500

2006 through 2009 ............................................................ $1,000

2010 .................................................................................... $1,500

2011 and thereafter ........................................................... $2,000.

12 ‘‘(C) COST-OF-LIVING ADJUSTMENT.—

13 ‘‘(i) IN GENERAL.—In the case of any

14 taxable year beginning in a calendar year

15 after 2011, the $5,000 amount under sub16 paragraph (A) shall be increased by an

17 amount equal to—

18 ‘‘(I) such dollar amount, multi19 plied by
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1 ‘‘(II) the cost-of-living adjustment

2 determined under section 1(f)(3) for

3 the calendar year in which the taxable

4 year begins, determined by substituting

5 ‘calendar year 2010’ for ‘calendar year

6 1992’ in subparagraph (B) thereof.

7 ‘‘(ii) ROUNDING RULES.—If any

8 amount after adjustment under clause (i) is

9 not a multiple of $500, such amount shall

10 be rounded to the next lower multiple of

11 $500.’’.

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 408(a)(1) is amended by striking ‘‘in

14 excess of $2,000 on behalf of any individual’’ and in15 serting ‘‘on behalf of any individual in excess of the

16 amount in effect for such taxable year under section

17 219(b)(1)(A)’’.

18 (2) Section 408(b)(2)(B) is amended by striking

19 ‘‘$2,000’’ and inserting ‘‘the dollar amount in effect

20 under section 219(b)(1)(A)’’.

21 (3) Section 408(b) is amended by striking

22 ‘‘$2,000’’ in the matter following paragraph (4) and

23 inserting ‘‘the dollar amount in effect under section

24 219(b)(1)(A)’’.
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1 (4) Section 408(j) is amended by striking

2 ‘‘$2,000’’.

3 (5) Section 408(p)(8) is amended by striking

4 ‘‘$2,000’’ and inserting ‘‘the dollar amount in effect

5 under section 219(b)(1)(A)’’.

6 (c) EFFECTIVE DATE.—The amendments made by this

7 section shall apply to taxable years beginning after Decem8 ber 31, 2001.

9 SEC. 602. DEEMED IRAS UNDER EMPLOYER PLANS.

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

11 retirement accounts) is amended by redesignating sub12 section (q) as subsection (r) and by inserting after sub13 section (p) the following new subsection:

14 ‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER

15 PLANS.—

16 ‘‘(1) GENERAL RULE.—If—

17 ‘‘(A) a qualified employer plan elects to

18 allow employees to make voluntary employee

19 contributions to a separate account or annuity

20 established under the plan, and

21 ‘‘(B) under the terms of the qualified em22 ployer plan, such account or annuity meets the

23 applicable requirements of this section or section

24 408A for an individual retirement account or

25 annuity,
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1 then such account or annuity shall be treated for pur2 poses of this title in the same manner as an indi3 vidual retirement plan and not as a qualified em4 ployer plan (and contributions to such account or an5 nuity as contributions to an individual retirement

6 plan and not to the qualified employer plan). For

7 purposes of subparagraph (B), the requirements of

8 subsection (a)(5) shall not apply.

9 ‘‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER

10 PLANS.—For purposes of this title, a qualified em11 ployer plan shall not fail to meet any requirement of

12 this title solely by reason of establishing and main13 taining a program described in paragraph (1).

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

15 subsection—

16 ‘‘(A) QUALIFIED EMPLOYER PLAN.—The

17 term ‘qualified employer plan’ has the meaning

18 given such term by section 72(p)(4); except such

19 term shall only include an eligible deferred com20 pensation plan (as defined in section 457(b))

21 which is maintained by an eligible employer de22 scribed in section 457(e)(1)(A).

23 ‘‘(B) VOLUNTARY EMPLOYEE CONTRIBU24 TION.—The term ‘voluntary employee contribu25 tion’ means any contribution (other than a man-
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1 datory contribution within the meaning of sec2 tion 411(c)(2)(C))—

3 ‘‘(i) which is made by an individual as

4 an employee under a qualified employer

5 plan which allows employees to elect to

6 make contributions described in paragraph

7 (1), and

8 ‘‘(ii) with respect to which the indi9 vidual has designated the contribution as a

10 contribution to which this subsection ap11 plies.’’.

12 (b) AMENDMENT OF ERISA.—

13 (1) IN GENERAL.—Section 4 of the Employee Re14 tirement Income Security Act of 1974 (29 U.S.C.

15 1003) is amended by adding at the end the following

16 new subsection:

17 ‘‘(c) If a pension plan allows an employee to elect to

18 make voluntary employee contributions to accounts and an19 nuities as provided in section 408(q) of the Internal Rev20 enue Code of 1986, such accounts and annuities (and con21 tributions thereto) shall not be treated as part of such plan

22 (or as a separate pension plan) for purposes of any provi23 sion of this title other than section 403(c), 404, or 405 (re24 lating to exclusive benefit, and fiduciary and co-fiduciary

25 responsibilities).’’.
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1 (2) CONFORMING AMENDMENT.—Section 4(a) of

2 such Act (29 U.S.C. 1003(a)) is amended by inserting

3 ‘‘or (c)’’ after ‘‘subsection (b)’’.

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

5 section shall apply to plan years beginning after December

6 31, 2002.

7 SEC. 603. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE8 TIREMENT ACCOUNTS FOR CHARITABLE PUR9 POSES.

10 (a) IN GENERAL.—Subsection (d) of section 408 (relat11 ing to individual retirement accounts) is amended by add12 ing at the end the following new paragraph:

13 ‘‘(8) DISTRIBUTIONS FOR CHARITABLE PUR14 POSES.—

15 ‘‘(A) IN GENERAL.—In the case of a quali16 fied charitable distribution from an individual

17 retirement account to an organization described

18 in section 170(c), no amount shall be includible

19 in the gross income of the account holder or bene20 ficiary.

21 ‘‘(B) SPECIAL RULES RELATING TO CHARI22 TABLE REMAINDER TRUSTS, POOLED INCOME

23 FUNDS, AND CHARITABLE GIFT ANNUITIES.—
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1 ‘‘(i) IN GENERAL.—In the case of a

2 qualified charitable distribution from an in3 dividual retirement account—

4 ‘‘(I) to a charitable remainder an5 nuity trust or a charitable remainder

6 unitrust (as such terms are defined in

7 section 664(d)),

8 ‘‘(II) to a pooled income fund (as

9 defined in section 642(c)(5)), or

10 ‘‘(III) for the issuance of a chari11 table gift annuity (as defined in sec12 tion 501(m)(5)),

13 no amount shall be includible in gross in14 come of the account holder or beneficiary.

15 The preceding sentence shall apply only if

16 no person holds any interest in the amounts

17 in the trust, fund, or annuity attributable

18 to such distribution other than one or more

19 of the following: the individual for whose

20 benefit such account is maintained, the

21 spouse of such individual, or any organiza22 tion described in section 170(c).

23 ‘‘(ii) DETERMINATION OF INCLUSION

24 OF AMOUNTS DISTRIBUTED.—In deter25 mining the amount includible in the gross
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1 income of the distributee of a distribution

2 from a trust described in clause (i)(I) or an

3 annuity described in clause (i)(III), the

4 portion of any qualified charitable distribu5 tion to such trust or for such annuity which

6 would (but for this subparagraph) have been

7 includible in gross income—

8 ‘‘(I) in the case of any such trust,

9 shall be treated as income described in

10 section 664(b)(1), or

11 ‘‘(II) in the case of any such an12 nuity, shall not be treated as an invest13 ment in the contract.

14 ‘‘(iii) NO INCLUSION FOR DISTRIBU15 TION TO POOLED INCOME FUND.—No

16 amount shall be includible in the gross in17 come of a pooled income fund (as so de18 fined) by reason of a qualified charitable

19 distribution to such fund.

20 ‘‘(C) QUALIFIED CHARITABLE DISTRIBU21 TION.—For purposes of this paragraph, the term

22 ‘qualified charitable distribution’ means any dis23 tribution from an individual retirement

24 account—
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1 ‘‘(i) which is made on or after the date

2 that the individual for whose benefit the account is maintained has attained age 701 3 ⁄2,

4 and

5 ‘‘(ii) which is a charitable contribution

6 (as defined in section 170(c)) made directly

7 from the account to—

8 ‘‘(I) an organization described in

9 section 170(c), or

10 ‘‘(II) a trust, fund, or annuity de11 scribed in subparagraph (B).

12 ‘‘(D) DENIAL OF DEDUCTION.—The amount

13 allowable as a deduction to the taxpayer for the

14 taxable year under section 170 (before the appli15 cation of section 170(b)) for qualified charitable

16 distributions shall be reduced (but not below

17 zero) by the sum of the amounts of the qualified

18 charitable distributions during such year which

19 (but for this paragraph) would have been includ20 ible in the gross income of the taxpayer for such

21 year.’’.

22 (b) EFFECTIVE DATE.—The amendment made by sub23 section (a) shall apply to taxable years beginning after De24 cember 31, 2009.
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1 Subtitle B—Expanding Coverage

2 SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIM3 ITS.

4 (a) DEFINED BENEFIT PLANS.—

5 (1) DOLLAR LIMIT.—

6 (A) Subparagraph (A) of section 415(b)(1)

7 (relating to limitation for defined benefit plans)

8 is amended by striking ‘‘$90,000’’ and inserting

9 ‘‘the applicable limit’’.

10 (B) Section 415(b) is amended by adding at

11 the end the following new paragraph:

12 ‘‘(12) APPLICABLE LIMIT.—For purposes of

13 paragraph (1)(A), the applicable limit shall be deter14 mined in accordance with the following table:

‘‘For taxable years The applicable

beginning in: limit is:

2002, 2003, and 2004 ....................................................... $150,000

2005 and thereafter ........................................................... $160,000.’’.

15 (C) Subparagraphs (C) and (D) of section

16 415(b)(2) are each amended—

17 (i) in the headings, by striking

18 ‘‘$90,000’’ and inserting ‘‘APPLICABLE’’,

19 (ii) by striking ‘‘$90,000 limitation’’

20 each place it appears and inserting ‘‘limita21 tion’’, and

22 (iii) by striking ‘‘a $90,000 annual

23 benefit’’ each place it appears and inserting
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1 ‘‘an annual benefit equal to the applicable

2 limit’’.

3 (D) Paragraph (7) of section 415(b) (relat4 ing to benefits under certain collectively bar5 gained plans) is amended by striking ‘‘the great6 er of $68,212 or one-half the amount otherwise

7 applicable for such year under paragraph (1)(A)

8 for ‘$90,000’ ’’ and inserting ‘‘one-half the

9 amount otherwise applicable for such year under

10 paragraph (1)(A) for ‘the applicable limit’ ’’.

11 (2) LIMIT REDUCED WHEN BENEFIT BEGINS BE12 FORE AGE 62.—Subparagraph (C) of section 415(b)(2)

13 is amended by striking ‘‘the social security retirement

14 age’’ each place it appears in the heading and text

15 and inserting ‘‘age 62’’ and by striking the second

16 sentence.

17 (3) LIMIT INCREASED WHEN BENEFIT BEGINS

18 AFTER AGE 65.—Subparagraph (D) of section

19 415(b)(2) is amended by striking ‘‘the social security

20 retirement age’’ each place it appears in the heading

21 and text and inserting ‘‘age 65’’.

22 (4) COST-OF-LIVING ADJUSTMENTS.—Subsection

23 (d) of section 415 (related to cost-of-living adjust24 ments) is amended—
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1 (A) by striking ‘‘$90,000’’ in paragraph

2 (1)(A) and inserting ‘‘applicable limit’’; and

3 (B) in paragraph (3)(A)—

4 (i) by striking ‘‘$90,000’’ in the head5 ing and inserting ‘‘applicable limit’’; and

6 (ii) by striking ‘‘October 1, 1986’’ and

7 inserting ‘‘July 1, 2004’’.

8 (5) CONFORMING AMENDMENTS.—

9 (A) Section 415(b)(2) is amended by strik10 ing subparagraph (F).

11 (B) Section 415(b)(9) is amended to read as

12 follows:

13 ‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE

14 PILOTS.—In the case of any participant who is a

15 commercial airline pilot, if, as of the time of the par16 ticipant’s retirement, regulations prescribed by the

17 Federal Aviation Administration require an indi18 vidual to separate from service as a commercial air19 line pilot after attaining any age occurring on or

20 after age 60 and before age 62, paragraph (2)(C) shall

21 be applied by substituting such age for age 62.’’.

22 (C) Section 415(b)(10)(C)(i) is amended by

23 striking ‘‘applied without regard to paragraph

24 (2)(F)’’.

25 (b) QUALIFIED TRUSTS.—
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1 (1) COMPENSATION LIMIT.—

2 (A) Section 401(a)(17) is amended—

3 (i) in subparagraph (A), by striking

4 ‘‘$150,000’’ and inserting ‘‘the applicable

5 dollar amount’’,

6 (ii) in subparagraph (B), by striking

7 ‘‘$150,000’’ and inserting ‘‘the applicable

8 dollar’’, and

9 (iii) by adding at the end the fol10 lowing:

11 ‘‘(C) APPLICABLE DOLLAR AMOUNT.—For

12 purposes of this paragraph, the applicable dollar

13 amount shall be determined in accordance with

14 the following table:

‘‘For taxable years The applicable

beginning in dollar amount is:

calendar year:

2002 .................................................................................... $180,000

2003 .................................................................................... $190,000

2004 or thereafter .............................................................. $200,000.’’.

15 (B) Section 404(l) is amended—

16 (i) by striking the second sentence,

17 (ii) by striking ‘‘$150,000’’ and insert18 ing ‘‘the applicable dollar amount in effect

19 under section 401(a)(17)(A)’’, and

20 (iii) by striking ‘‘the preceding sen21 tence’’ and inserting ‘‘section

22 401(a)(17)(B)’’.
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1 (C) Section 408(k) is amended—

2 (i) in each of paragraphs (3)(C) and

3 (6)(D)(ii), by striking ‘‘$150,000’’ each

4 place it appears and inserting ‘‘amount of

5 compensation equal to the applicable dollar

6 amount in effect under section

7 401(a)(17)(A)’’, and

8 (ii) in paragraph (8), by striking ‘‘and

9 shall adjust’’ and all that follows through

10 ‘‘section 401(a)(17)(B)’’.

11 (D) Section 505(b)(7) is amended—

12 (i) by striking ‘‘$150,000’’ and insert13 ing ‘‘the applicable dollar amount in effect

14 under section 401(a)(17)(A)’’, and

15 (ii) by striking the second sentence.

16 (2) BASE PERIOD AND ROUNDING OF COST-OF17 LIVING ADJUSTMENT.—Subparagraph (B) of section

18 401(a)(17) is amended—

19 (A) by striking ‘‘The Secretary’’ and insert20 ing ‘‘In calendar years beginning after 2005, the

21 Secretary’’,

22 (B) by striking ‘‘October 1, 1993’’ and in23 serting ‘‘July 1, 2005’’; and

24 (C) by striking ‘‘$10,000’’ both places it ap25 pears and inserting ‘‘$5,000’’.
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1 (c) ELECTIVE DEFERRALS.—

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

3 402(g) (relating to limitation on exclusion for elective

4 deferrals) is amended to read as follows:

5 ‘‘(1) IN GENERAL.—

6 ‘‘(A) LIMITATION.—Notwithstanding sub7 sections (e)(3) and (h)(1)(B), the elective defer8 rals of any individual for any taxable year shall

9 be included in such individual’s gross income to

10 the extent the amount of such deferrals for the

11 taxable year exceeds the applicable dollar

12 amount.

13 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—For

14 purposes of subparagraph (A), the applicable

15 dollar amount shall be the amount determined in

16 accordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount is:

calendar year:

2002 .................................................................................... $11,000

2003 .................................................................................... $11,500

2004 .................................................................................... $12,000

2005 .................................................................................... $12,500

2006 .................................................................................... $13,000

2007 .................................................................................... $13,500

2008 .................................................................................... $14,000

2009 .................................................................................... $14,500

2010 or thereafter .............................................................. $15,000.’’.

17 (2) COST-OF-LIVING ADJUSTMENT.—Paragraph

18 (5) of section 402(g) is amended to read as follows:

19 ‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case

20 of taxable years beginning after December 31, 2010,
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1 the Secretary shall adjust the $15,000 amount under

2 paragraph (1)(B) at the same time and in the same

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

4 period shall be the calendar quarter beginning July 1,

5 2009, and any increase under this paragraph which

6 is not a multiple of $500 shall be rounded to the next

7 lowest multiple of $500.’’.

8 (3) CONFORMING AMENDMENTS.—

9 (A) Section 402(g) (relating to limitation

10 on exclusion for elective deferrals), as amended

11 by paragraphs (1) and (2), is further amended

12 by striking paragraph (4) and redesignating

13 paragraphs (5), (6), (7), (8), and (9) as para14 graphs (4), (5), (6), (7), and (8), respectively.

15 (B) Paragraph (2) of section 457(c) is

16 amended by striking ‘‘402(g)(8)(A)(iii)’’ and in17 serting ‘‘402(g)(7)(A)(iii)’’.

18 (C) Clause (iii) of section 501(c)(18)(D) is

19 amended by striking ‘‘(other than paragraph (4)

20 thereof)’’.

21 (d) DEFERRED COMPENSATION PLANS OF STATE AND

22 LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZA23 TIONS.—
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1 (1) IN GENERAL.—Section 457 (relating to de2 ferred compensation plans of State and local govern3 ments and tax-exempt organizations) is amended—

4 (A) in subsections (b)(2)(A) and (c)(1) by

5 striking ‘‘$7,500’’ each place it appears and in6 serting ‘‘the applicable dollar amount’’; and

7 (B) in subsection (b)(3)(A) by striking

8 ‘‘$15,000’’ and inserting ‘‘twice the dollar

9 amount in effect under subsection (b)(2)(A)’’.

10 (2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIV11 ING ADJUSTMENT.—Paragraph (15) of section 457(e)

12 is amended to read as follows:

13 ‘‘(15) APPLICABLE DOLLAR AMOUNT.—

14 ‘‘(A) IN GENERAL.—The applicable dollar

15 amount shall be the amount determined in ac16 cordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount is:

calendar year:

2002 .................................................................................... $9,000

2003 .................................................................................... $9,500

2004 .................................................................................... $10,000

2005 .................................................................................... $10,500

2006 .................................................................................... $11,000

2007 .................................................................................... $12,000

2008 .................................................................................... $13,000

2009 .................................................................................... $14,000

2010 or thereafter .............................................................. $15,000.

17 ‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In

18 the case of taxable years beginning after Decem19 ber 31, 2010, the Secretary shall adjust the

20 $15,000 amount under subparagraph (A) at the
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1 same time and in the same manner as under sec2 tion 415(d), except that the base period shall be

3 the calendar quarter beginning July 1, 2009,

4 and any increase under this paragraph which is

5 not a multiple of $500 shall be rounded to the

6 next lowest multiple of $500.’’.

7 (e) SIMPLE RETIREMENT ACCOUNTS.—

8 (1) LIMITATION.—Clause (ii) of section

9 408(p)(2)(A) (relating to general rule for qualified

10 salary reduction arrangement) is amended by striking

11 ‘‘$6,000’’ and inserting ‘‘the applicable dollar

12 amount’’.

13 (2) APPLICABLE DOLLAR AMOUNT.—Subpara14 graph (E) of 408(p)(2) is amended to read as follows:

15 ‘‘(E) APPLICABLE DOLLAR AMOUNT; COST16 OF-LIVING ADJUSTMENT.—

17 ‘‘(i) IN GENERAL.—For purposes of

18 subparagraph (A)(ii), the applicable dollar

19 amount shall be the amount determined in

20 accordance with the following table:

‘‘For taxable years The applicable

beginning in dollar amount is:

calendar year:

2002 and 2003 ........................................................... $7,000

2004 and 2005 ........................................................... $8,000

2006 and 2007 ........................................................... $9,000

2008 or thereafter ...................................................... $10,000.

21 ‘‘(ii) COST-OF-LIVING ADJUSTMENT.—

22 In the case of a year beginning after Decem-
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1 ber 31, 2008, the Secretary shall adjust the

2 $10,000 amount under clause (i) at the

3 same time and in the same manner as

4 under section 415(d), except that the base

5 period taken into account shall be the cal6 endar quarter beginning July 1, 2007, and

7 any increase under this subparagraph

8 which is not a multiple of $500 shall be

9 rounded to the next lower multiple of

10 $500.’’.

11 (3) CONFORMING AMENDMENTS.—

12 (A) Subclause (I) of section

13 401(k)(11)(B)(i) is amended by striking

14 ‘‘$6,000’’ and inserting ‘‘the amount in effect

15 under section 408(p)(2)(A)(ii)’’.

16 (B) Section 401(k)(11) is amended by strik17 ing subparagraph (E).

18 (f) ROUNDING RULE RELATING TO DEFINED BENEFIT

19 PLANS AND DEFINED CONTRIBUTION PLANS.—Paragraph

20 (4) of section 415(d) is amended to read as follows:

21 ‘‘(4) ROUNDING.—

22 ‘‘(A) APPLICABLE LIMIT AMOUNT.—Any in23 crease under subparagraph (A) of paragraph (1)

24 which is not a multiple of $5,000 shall be round25 ed to the next lowest multiple of $5,000.
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1 ‘‘(B) $30,000 AMOUNT.—Any increase

2 under subparagraph (C) of paragraph (1) which

3 is not a multiple of $1,000 shall be rounded to

4 the next lowest multiple of $1,000.’’.

5 (g) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to years beginning after December 31,

7 2001.

8 SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PART9 NERS, AND SOLE PROPRIETORS.

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

11 4975(f)(6) (relating to exemptions not to apply to certain

12 transactions) is amended by adding at the end the following

13 new clause:

14 ‘‘(iii) LOAN EXCEPTION.—For purposes

15 of subparagraph (A)(i), the term ‘owner-em16 ployee’ shall only include a person described

17 in subclause (II) or (III) of clause (i).’’.

18 (b) AMENDMENT OF ERISA.—Section 408(d)(2) of the

19 Employee Retirement Income Security Act of 1974 (29

20 U.S.C. 1108(d)(2)) is amended by adding at the end the

21 following new subparagraph:

22 ‘‘(C) For purposes of paragraph (1)(A), the term

23 ‘owner-employee’ shall only include a person described in

24 clause (ii) or (iii) of subparagraph (A).’’.
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1 (c) EFFECTIVE DATE.—The amendment made by this

2 section shall apply to years beginning after December 31,

3 2001.

4 SEC. 613. MODIFICATION OF TOP-HEAVY RULES.

5 (a) SIMPLIFICATION OF DEFINITION OF KEY EM6 PLOYEE.—

7 (1) IN GENERAL.—Section 416(i)(1)(A) (defining

8 key employee) is amended—

9 (A) by striking ‘‘or any of the 4 preceding

10 plan years’’ in the matter preceding clause (i);

11 (B) by striking clause (i) and inserting the

12 following:

13 ‘‘(i) an officer of the employer having

14 an annual compensation greater than the

15 amount in effect under section

16 414(q)(1)(B)(i) for such plan year,’’;

17 (C) by striking clause (ii) and redesig18 nating clauses (iii) and (iv) as clauses (ii) and

19 (iii), respectively;

20 (D) by striking the second sentence in the

21 matter following clause (iii), as redesignated by

22 subparagraph (C); and

23 (E) by adding at the end the following:

24 ‘‘For purposes of this subparagraph, in the case

25 of an employee who is not employed during the
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1 preceding plan year or is employed for a portion

2 of such year, such employee shall be treated as a

3 key employee if it can be reasonably anticipated

4 that such employee will be described in 1 of the

5 preceding clauses for the current plan year.’’.

6 (2) CONFORMING AMENDMENT.—Section

7 416(i)(1)(B)(iii) is amended by striking ‘‘and sub8 paragraph (A)(ii)’’.

9 (b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT

10 FOR MINIMUM CONTRIBUTION REQUIREMENTS.—Section

11 416(c)(2)(A) (relating to defined contribution plans) is

12 amended by adding at the end the following: ‘‘Employer

13 matching contributions (as defined in section

14 401(m)(4)(A)) shall be taken into account for purposes of

15 this subparagraph.’’.

16 (c) DISTRIBUTIONS DURING LAST YEAR BEFORE DE17 TERMINATION DATE TAKEN INTO ACCOUNT.—

18 (1) IN GENERAL.—Paragraph (3) of section

19 416(g) is amended to read as follows:

20 ‘‘(3) DISTRIBUTIONS DURING LAST YEAR BEFORE

21 DETERMINATION DATE TAKEN INTO ACCOUNT.—

22 ‘‘(A) IN GENERAL.—For purposes of

23 determining—

24 ‘‘(i) the present value of the cumulative

25 accrued benefit for any employee, or
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1 ‘‘(ii) the amount of the account of any

2 employee,

3 such present value or amount shall be increased

4 by the aggregate distributions made with respect

5 to such employee under the plan during the 1-

6 year period ending on the determination date.

7 The preceding sentence shall also apply to dis8 tributions under a terminated plan which if it

9 had not been terminated would have been re10 quired to be included in an aggregation group.

11 ‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERV12 ICE DISTRIBUTION.—In the case of any distribu13 tion made for a reason other than separation

14 from service, death, or disability, subparagraph

15 (A) shall be applied by substituting ‘5-year pe16 riod’ for ‘1-year period’.’’.

17 (2) BENEFITS NOT TAKEN INTO ACCOUNT.—Sub18 paragraph (E) of section 416(g)(4) is amended—

19 (A) by striking ‘‘LAST 5 YEARS’’ in the

20 heading and inserting ‘‘LAST YEAR BEFORE DE21 TERMINATION DATE’’; and

22 (B) by striking ‘‘5-year period’’ and insert23 ing ‘‘1-year period’’.
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1 (d) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT

2 REQUIREMENT.—Subparagraph (C) of section 416(c)(1)

3 (relating to defined benefit plans) is amended—

4 (A) by striking ‘‘clause (ii)’’ in clause (i)

5 and inserting ‘‘clause (ii) or (iii)’’; and

6 (B) by adding at the end the following:

7 ‘‘(iii) EXCEPTION FOR FROZEN

8 PLAN.—For purposes of determining an em9 ployee’s years of service with the employer,

10 any service with the employer shall be dis11 regarded to the extent that such service oc12 curs during a plan year when the plan ben13 efits (within the meaning of section 410(b))

14 no key employee or former key employee.’’.

15 (e) EFFECTIVE DATE.—The amendments made by this

16 section shall apply to years beginning after December 31,

17 2001.

18 SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO AC19 COUNT FOR PURPOSES OF DEDUCTION LIM20 ITS.

21 (a) IN GENERAL.—Section 404 (relating to deduction

22 for contributions of an employer to an employees’ trust or

23 annuity plan and compensation under a deferred payment

24 plan) is amended by adding at the end the following new

25 subsection:
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1 ‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC2 COUNT FOR PURPOSES OF DEDUCTION LIMITS.—

3 ‘‘(1) IN GENERAL.—The applicable percentage of

4 the amount of any elective deferrals (as defined in

5 section 402(g)(3)) shall not be subject to any limita6 tion contained in paragraph (3), (7), or (9) of sub7 section (a), and such elective deferrals shall not be

8 taken into account in applying any such limitation

9 to any other contributions.

10 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

11 of paragraph (1), the applicable percentage shall be

12 determined in accordance with the following table:

‘‘For taxable years The applicable

beginning in: percentage is:

2002 through 2010 ................................................. 25 percent

2011 and thereafter ............................................... 100 percent.’’.

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

14 section shall apply to years beginning after December 31,

15 2001.

16 SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR

17 DEFERRED COMPENSATION PLANS OF STATE

18 AND LOCAL GOVERNMENTS AND TAX-EXEMPT

19 ORGANIZATIONS.

20 (a) IN GENERAL.—Subsection (c) of section 457 (relat21 ing to deferred compensation plans of State and local gov22 ernments and tax-exempt organizations), as amended by

23 section 611, is amended to read as follows:
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1 ‘‘(c) LIMITATION.—The maximum amount of the com2 pensation of any one individual which may be deferred

3 under subsection (a) during any taxable year shall not ex4 ceed the amount in effect under subsection (b)(2)(A) (as

5 modified by any adjustment provided under subsection

6 (b)(3)).’’.

7 (b) EFFECTIVE DATE.—The amendment made by sub8 section (a) shall apply to years beginning after December

9 31, 2001.

10 SEC. 616. DEDUCTION LIMITS.

11 (a) MODIFICATION OF LIMITS.—

12 (1) STOCK BONUS AND PROFIT SHARING

13 TRUSTS.—

14 (A) IN GENERAL.—Subclause (I) of section

15 404(a)(3)(A)(i) (relating to stock bonus and

16 profit sharing trusts) is amended by striking ‘‘15

17 percent’’ and inserting ‘‘25 percent’’.

18 (B) CONFORMING AMENDMENT.—Subpara19 graph (C) of section 404(h)(1) is amended by

20 striking ‘‘15 percent’’ each place it appears and

21 inserting ‘‘25 percent’’.

22 (2) DEFINED CONTRIBUTION PLANS.—

23 (A) IN GENERAL.—Clause (v) of section

24 404(a)(3)(A) (relating to stock bonus and profit

25 sharing trusts) is amended to read as follows:
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1 ‘‘(v) DEFINED CONTRIBUTION PLANS

2 SUBJECT TO THE FUNDING STANDARDS.—

3 Except as provided by the Secretary, a de4 fined contribution plan which is subject to

5 the funding standards of section 412 shall

6 be treated in the same manner as a stock

7 bonus or profit-sharing plan for purposes of

8 this subparagraph.’’

9 (B) CONFORMING AMENDMENTS.—

10 (i) Section 404(a)(1)(A) is amended by

11 inserting ‘‘(other than a trust to which

12 paragraph (3) applies)’’ after ‘‘pension

13 trust’’.

14 (ii) Section 404(h)(2) is amended by

15 striking ‘‘stock bonus or profit-sharing

16 trust’’ and inserting ‘‘trust subject to sub17 section (a)(3)(A)’’.

18 (iii) The heading of section 404(h)(2)

19 is amended by striking ‘‘STOCK BONUS AND

20 PROFIT-SHARING TRUST’’ and inserting

21 ‘‘CERTAIN TRUSTS’’.

22 (b) COMPENSATION.—

23 (1) IN GENERAL.—Section 404(a) (relating to

24 general rule) is amended by adding at the end the fol25 lowing:
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1 ‘‘(12) DEFINITION OF COMPENSATION.—For pur2 poses of paragraphs (3), (7), (8), and (9), the term

3 ‘compensation’ shall include amounts treated as ‘par4 ticipant’s compensation’ under subparagraph (C) or

5 (D) of section 415(c)(3).’’.

6 (2) CONFORMING AMENDMENTS.—

7 (A) Subparagraph (B) of section 404(a)(3)

8 is amended by striking the last sentence thereof.

9 (B) Clause (i) of section 4972(c)(6)(B) is

10 amended by striking ‘‘(within the meaning of

11 section 404(a))’’ and inserting ‘‘(within the

12 meaning of section 404(a) and as adjusted under

13 section 404(a)(12))’’.

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

15 section shall apply to years beginning after December 31,

16 2001.

17 SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS

18 AFTER-TAX ROTH CONTRIBUTIONS.

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

20 D of chapter 1 (relating to deferred compensation, etc.) is

21 amended by inserting after section 402 the following new

22 section:
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1 ‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER2 RALS AS ROTH CONTRIBUTIONS.

3 ‘‘(a) GENERAL RULE.—If an applicable retirement

4 plan includes a qualified Roth contribution program—

5 ‘‘(1) any designated Roth contribution made by

6 an employee pursuant to the program shall be treated

7 as an elective deferral for purposes of this chapter, ex8 cept that such contribution shall not be excludable

9 from gross income, and

10 ‘‘(2) such plan (and any arrangement which is

11 part of such plan) shall not be treated as failing to

12 meet any requirement of this chapter solely by reason

13 of including such program.

14 ‘‘(b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—

15 For purposes of this section—

16 ‘‘(1) IN GENERAL.—The term ‘qualified Roth

17 contribution program’ means a program under which

18 an employee may elect to make designated Roth con19 tributions in lieu of all or a portion of elective defer20 rals the employee is otherwise eligible to make under

21 the applicable retirement plan.

22 ‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A pro23 gram shall not be treated as a qualified Roth con24 tribution program unless the applicable retirement

25 plan—
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1 ‘‘(A) establishes separate accounts (‘des2 ignated Roth accounts’) for the designated Roth

3 contributions of each employee and any earnings

4 properly allocable to the contributions, and

5 ‘‘(B) maintains separate recordkeeping with

6 respect to each account.

7 ‘‘(c) DEFINITIONS AND RULES RELATING TO DES8 IGNATED ROTH CONTRIBUTIONS.—For purposes of this

9 section—

10 ‘‘(1) DESIGNATED ROTH CONTRIBUTION.—The

11 term ‘designated Roth contribution’ means any elec12 tive deferral which—

13 ‘‘(A) is excludable from gross income of an

14 employee without regard to this section, and

15 ‘‘(B) the employee designates (at such time

16 and in such manner as the Secretary may pre17 scribe) as not being so excludable.

18 ‘‘(2) DESIGNATION LIMITS.—The amount of elec19 tive deferrals which an employee may designate under

20 paragraph (1) shall not exceed the excess (if any) of—

21 ‘‘(A) the maximum amount of elective defer22 rals excludable from gross income of the employee

23 for the taxable year (without regard to this sec24 tion), over
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1 ‘‘(B) the aggregate amount of elective defer2 rals of the employee for the taxable year which

3 the employee does not designate under paragraph

4 (1).

5 ‘‘(3) ROLLOVER CONTRIBUTIONS.—

6 ‘‘(A) IN GENERAL.—A rollover contribution

7 of any payment or distribution from a des8 ignated Roth account which is otherwise allow9 able under this chapter may be made only if the

10 contribution is to—

11 ‘‘(i) another designated Roth account

12 of the individual from whose account the

13 payment or distribution was made, or

14 ‘‘(ii) a Roth IRA of such individual.

15 ‘‘(B) COORDINATION WITH LIMIT.—Any

16 rollover contribution to a designated Roth ac17 count under subparagraph (A) shall not be taken

18 into account for purposes of paragraph (1).

19 ‘‘(d) DISTRIBUTION RULES.—For purposes of this

20 title—

21 ‘‘(1) EXCLUSION.—Any qualified distribution

22 from a designated Roth account shall not be includ23 ible in gross income.

24 ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes

25 of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified dis2 tribution’ has the meaning given such term by

3 section 408A(d)(2)(A) (without regard to clause

4 (iv) thereof).

5 ‘‘(B) DISTRIBUTIONS WITHIN NONEXCLU6 SION PERIOD.—A payment or distribution from

7 a designated Roth account shall not be treated as

8 a qualified distribution if such payment or dis9 tribution is made within the 5-taxable-year pe10 riod beginning with the earlier of—

11 ‘‘(i) the first taxable year for which the

12 individual made a designated Roth con13 tribution to any designated Roth account

14 established for such individual under the

15 same applicable retirement plan, or

16 ‘‘(ii) if a rollover contribution was

17 made to such designated Roth account from

18 a designated Roth account previously estab19 lished for such individual under another

20 applicable retirement plan, the first taxable

21 year for which the individual made a des22 ignated Roth contribution to such pre23 viously established account.

24 ‘‘(C) DISTRIBUTIONS OF EXCESS DEFER25 RALS AND CONTRIBUTIONS AND EARNINGS
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1 THEREON.—The term ‘qualified distribution’

2 shall not include any distribution of any excess

3 deferral under section 402(g)(2) or any excess

4 contribution under section 401(k)(8), and any

5 income on the excess deferral or contribution.

6 ‘‘(3) TREATMENT OF DISTRIBUTIONS OF CERTAIN

7 EXCESS DEFERRALS.—Notwithstanding section 72, if

8 any excess deferral under section 402(g)(2) attrib9 utable to a designated Roth contribution is not dis10 tributed on or before the 1st April 15 following the

11 close of the taxable year in which such excess deferral

12 is made, the amount of such excess deferral shall—

13 ‘‘(A) not be treated as investment in the

14 contract, and

15 ‘‘(B) be included in gross income for the

16 taxable year in which such excess is distributed.

17 ‘‘(4) AGGREGATION RULES.—Section 72 shall be

18 applied separately with respect to distributions and

19 payments from a designated Roth account and other

20 distributions and payments from the plan.

21 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

22 section—

23 ‘‘(1) APPLICABLE RETIREMENT PLAN.—The term

24 ‘applicable retirement plan’ means—
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1 ‘‘(A) an employees’ trust described in sec2 tion 401(a) which is exempt from tax under sec3 tion 501(a), and

4 ‘‘(B) a plan under which amounts are con5 tributed by an individual’s employer for an an6 nuity contract described in section 403(b).

7 ‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective

8 deferral’ means any elective deferral described in sub9 paragraph (A) or (C) of section 402(g)(3).’’.

10 (b) EXCESS DEFERRALS.—Section 402(g) (relating to

11 limitation on exclusion for elective deferrals) is amended—

12 (1) by adding at the end of paragraph (1)(A) (as

13 added by section 201(c)(1)) the following new sen14 tence: ‘‘The preceding sentence shall not apply the

15 portion of such excess as does not exceed the des16 ignated Roth contributions of the individual for the

17 taxable year.’’; and

18 (2) by inserting ‘‘(or would be included but for

19 the last sentence thereof)’’ after ‘‘paragraph (1)’’ in

20 paragraph (2)(A).

21 (c) ROLLOVERS.—Subparagraph (B) of section

22 402(c)(8) is amended by adding at the end the following:

23 ‘‘If any portion of an eligible rollover distribu24 tion is attributable to payments or distributions

25 from a designated Roth account (as defined in
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1 section 402A), an eligible retirement plan with

2 respect to such portion shall include only another

3 designated Roth account and a Roth IRA.’’.

4 (d) REPORTING REQUIREMENTS.—

5 (1) W–2 INFORMATION.—Section 6051(a)(8) is

6 amended by inserting ‘‘, including the amount of des7 ignated Roth contributions (as defined in section

8 402A)’’ before the comma at the end.

9 (2) INFORMATION.—Section 6047 is amended by

10 redesignating subsection (f) as subsection (g) and by

11 inserting after subsection (e) the following new sub12 section:

13 ‘‘(f) DESIGNATED ROTH CONTRIBUTIONS.—The Sec14 retary shall require the plan administrator of each applica15 ble retirement plan (as defined in section 402A) to make

16 such returns and reports regarding designated Roth con17 tributions (as defined in section 402A) to the Secretary,

18 participants and beneficiaries of the plan, and such other

19 persons as the Secretary may prescribe.’’.

20 (e) CONFORMING AMENDMENTS.—

21 (1) Section 408A(e) is amended by adding after

22 the first sentence the following new sentence: ‘‘Such

23 term includes a rollover contribution described in sec24 tion 402A(c)(3)(A).’’.
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1 (2) The table of sections for subpart A of part I

2 of subchapter D of chapter 1 is amended by inserting

3 after the item relating to section 402 the following

4 new item:

‘‘Sec. 402A. Optional treatment of elective deferrals as Roth contributions.’’.

5 (f) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to taxable years beginning after Decem7 ber 31, 2003.

8 SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVID9 UALS FOR ELECTIVE DEFERRALS AND IRA

10 CONTRIBUTIONS.

11 (a) IN GENERAL.—Subpart A of part IV of subchapter

12 A of chapter 1 (relating to nonrefundable personal credits),

13 as amended by section 432, is amended by inserting after

14 section 25B the following new section:

15 ‘‘SEC. 25C. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS

16 BY CERTAIN INDIVIDUALS.

17 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligi18 ble individual, there shall be allowed as a credit against

19 the tax imposed by this subtitle for the taxable year an

20 amount equal to the applicable percentage of so much of

21 the qualified retirement savings contributions of the eligible

22 individual for the taxable year as do not exceed $2,000.
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1 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of this

2 section, the applicable percentage is the percentage deter3 mined in accordance with the following table:

Adjusted Gross Income

Applicable percentage

Joint return Head of a household All other cases

Over Not over Over Not over Over Not over

$0 $30,000 $0 $22,500 $0 $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

4 ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this

5 section—

6 ‘‘(1) IN GENERAL.—The term ‘eligible indi7 vidual’ means any individual if such individual has

8 attained the age of 18 as of the close of the taxable

9 year.

10 ‘‘(2) DEPENDENTS AND FULL-TIME STUDENTS

11 NOT ELIGIBLE.—The term ‘eligible individual’ shall

12 not include—

13 ‘‘(A) any individual with respect to whom

14 a deduction under section 151 is allowed to an15 other taxpayer for a taxable year beginning in

16 the calendar year in which such individual’s

17 taxable year begins, and

18 ‘‘(B) any individual who is a student (as

19 defined in section 151(c)(4)).

20 ‘‘(d) QUALIFIED RETIREMENT SAVINGS CONTRIBU21 TIONS.—For purposes of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified retire2 ment savings contributions’ means, with respect to

3 any taxable year, the sum of—

4 ‘‘(A) the amount of the qualified retirement

5 contributions (as defined in section 219(e)) made

6 by the eligible individual,

7 ‘‘(B) the amount of—

8 ‘‘(i) any elective deferrals (as defined

9 in section 402(g)(3)) of such individual,

10 and

11 ‘‘(ii) any elective deferral of compensa12 tion by such individual under an eligible

13 deferred compensation plan (as defined in

14 section 457(b)) of an eligible employer de15 scribed in section 457(e)(1)(A), and

16 ‘‘(C) the amount of voluntary employee con17 tributions by such individual to any qualified

18 retirement plan (as defined in section 4974(c)).

19 ‘‘(2) REDUCTION FOR CERTAIN DISTRIBU20 TIONS.—

21 ‘‘(A) IN GENERAL.—The qualified retire22 ment savings contributions determined under

23 paragraph (1) shall be reduced (but not below

24 zero) by the sum of—
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1 ‘‘(i) any distribution from a qualified

2 retirement plan (as defined in section

3 4974(c)), or from an eligible deferred com4 pensation plan (as defined in section

5 457(b)), received by the individual during

6 the testing period which is includible in

7 gross income, and

8 ‘‘(ii) any distribution from a Roth

9 IRA received by the individual during the

10 testing period which is not a qualified roll11 over contribution (as defined in section

12 408A(e)) to a Roth IRA.

13 ‘‘(B) TESTING PERIOD.—For purposes of

14 subparagraph (A), the testing period, with re15 spect to a taxable year, is the period which

16 includes—

17 ‘‘(i) such taxable year,

18 ‘‘(ii) the 2 preceding taxable years,

19 and

20 ‘‘(iii) the period after such taxable

21 year and before the due date (including ex22 tensions) for filing the return of tax for such

23 taxable year.
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1 ‘‘(C) EXCEPTED DISTRIBUTIONS.—There

2 shall not be taken into account under subpara3 graph (A)—

4 ‘‘(i) any distribution referred to in sec5 tion 72(p), 401(k)(8), 401(m)(6), 402(g)(2),

6 404(k), or 408(d)(4), and

7 ‘‘(ii) any distribution to which section

8 408A(d)(3) applies.

9 ‘‘(D) TREATMENT OF DISTRIBUTIONS RE10 CEIVED BY SPOUSE OF INDIVIDUAL.—For pur11 poses of determining distributions received by an

12 individual under subparagraph (A) for any tax13 able year, any distribution received by the spouse

14 of such individual shall be treated as received by

15 such individual if such individual and spouse

16 file a joint return for such taxable year and for

17 the taxable year during which the spouse receives

18 the distribution.

19 ‘‘(e) ADJUSTED GROSS INCOME.—For purposes of this

20 section, adjusted gross income shall be determined without

21 regard to sections 911, 931, and 933.

22 ‘‘(f) INVESTMENT IN THE CONTRACT.—Notwith23 standing any other provision of law, a qualified retirement

24 savings contribution shall not fail to be included in deter-
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1 mining the investment in the contract for purposes of sec2 tion 72 by reason of the credit under this section.

3 ‘‘(g) TERMINATION.—This section shall not apply to

4 taxable years beginning after December 31, 2006.’’.

5 (b) CREDIT ALLOWED AGAINST REGULAR TAX AND

6 ALTERNATIVE MINIMUM TAX.—

7 (1) IN GENERAL.—Section 25C, as added by sub8 section (a), is amended by inserting after subsection

9 (f) the following new subsection:

10 ‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The

11 aggregate credit allowed by this section for the taxable year

12 shall not exceed the sum of—

13 ‘‘(1) the taxpayer’s regular tax liability for the

14 taxable year reduced by the sum of the credits allowed

15 by sections 21, 22, 23, 24, 25, 25A, and 25B plus

16 ‘‘(2) the tax imposed by section 55 for such tax17 able year.’’

18 (2) CONFORMING AMENDMENTS.—

19 (A) Section 26(a)(1), as amended by section

20 201, is amended by inserting ‘‘or section 25C’’

21 after ‘‘section 24’’.

22 (B) Section 23(c), as amended by section

23 201, is amended by striking ‘‘sections 24’’ and

24 inserting ‘‘sections 24, 25C,’’.
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1 (C) Section 25(e)(1)(C), as amended by sec2 tion 201, is amended by inserting ‘‘25C,’’ after

3 ‘‘24,’’.

4 (D) Section 904(h), as amended by section

5 201, is amended by inserting ‘‘or 25C’’ after

6 ‘‘section 24’’.

7 (E) Section 1400C(d), as amended by sec8 tion 201, is amended by inserting ‘‘and section

9 25C’’ after ‘‘section 24’’.

10 (c) CONFORMING AMENDMENT.—The table of sections

11 for subpart A of part IV of subchapter A of chapter 1, as

12 amended by section 432, is amended by inserting after the

13 item relating to section 25B the following new item:

‘‘Sec. 25C. Elective deferrals and IRA contributions by certain individuals.’’

14 (d) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to taxable years beginning after Decem16 ber 31, 2001.

17 SEC. 619. CREDIT FOR QUALIFIED PENSION PLAN CON18 TRIBUTIONS OF SMALL EMPLOYERS.

19 (a) IN GENERAL.—Subpart D of part IV of subchapter

20 A of chapter 1 (relating to business related credits) is

21 amended by adding at the end the following new section:
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1 ‘‘SEC. 45E. SMALL EMPLOYER PENSION PLAN CONTRIBU2 TIONS.

3 ‘‘(a) GENERAL RULE.—For purposes of section 38, in

4 the case of an eligible employer, the small employer pension

5 plan contribution credit determined under this section for

6 any taxable year is an amount equal to 50 percent of the

7 amount which would (but for subsection (f)(1)) be allowed

8 as a deduction under section 404 for such taxable year for

9 qualified employer contributions made to any qualified re10 tirement plan on behalf of any employee who is not a highly

11 compensated employee.

12 ‘‘(b) CREDIT LIMITED TO 3 YEARS.—The credit allow13 able by this section shall be allowed only with respect to

14 the period of 3 taxable years beginning with the first taxable

15 year for which a credit is allowable with respect to a plan

16 under this section.

17 ‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For

18 purposes of this section—

19 ‘‘(1) DEFINED CONTRIBUTION PLANS.—In the

20 case of a defined contribution plan, the term ‘quali21 fied employer contribution’ means the amount of non22 elective and matching contributions to the plan made

23 by the employer on behalf of any employee who is not

24 a highly compensated employee to the extent such

25 amount does not exceed 3 percent of such employee’s

26 compensation from the employer for the year.
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1 ‘‘(2) DEFINED BENEFIT PLANS.—In the case of a

2 defined benefit plan, the term ‘qualified employer con3 tribution’ means the amount of employer contribu4 tions to the plan made on behalf of any employee who

5 is not a highly compensated employee to the extent

6 that the accrued benefit of such employee derived from

7 employer contributions for the year does not exceed

8 the equivalent (as determined under regulations pre9 scribed by the Secretary and without regard to con10 tributions and benefits under the Social Security Act)

11 of 3 percent of such employee’s compensation from the

12 employer for the year.

13 ‘‘(d) QUALIFIED RETIREMENT PLAN.—

14 ‘‘(1) IN GENERAL.—The term ‘qualified retire15 ment plan’ means any plan described in section

16 401(a) which includes a trust exempt from tax under

17 section 501(a) if the plan meets—

18 ‘‘(A) the contribution requirements of para19 graph (2),

20 ‘‘(B) the vesting requirements of paragraph

21 (3), and

22 ‘‘(C) the distribution requirements of para23 graph (4).

24 ‘‘(2) CONTRIBUTION REQUIREMENTS.—
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1 ‘‘(A) IN GENERAL.—The requirements of

2 this paragraph are met if, under the plan—

3 ‘‘(i) the employer is required to make

4 nonelective contributions of at least 1 per5 cent of compensation (or the equivalent

6 thereof in the case of a defined benefit plan)

7 for each employee who is not a highly com8 pensated employee who is eligible to partici9 pate in the plan, and

10 ‘‘(ii) allocations of nonelective em11 ployer contributions, in the case of a de12 fined contribution plan, are either in equal

13 dollar amounts for all employees covered by

14 the plan or bear a uniform relationship to

15 the total compensation, or the basic or reg16 ular rate of compensation, of the employees

17 covered by the plan (and an equivalent re18 quirement is met with respect to a defined

19 benefit plan).

20 ‘‘(B) COMPENSATION LIMITATION.—The

21 compensation taken into account under subpara22 graph (A) for any year shall not exceed the limi23 tation in effect for such year under section

24 401(a)(17).
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1 ‘‘(3) VESTING REQUIREMENTS.—The require2 ments of this paragraph are met if the plan satisfies

3 the requirements of either of the following subpara4 graphs:

5 ‘‘(A) 3-YEAR VESTING.—A plan satisfies the

6 requirements of this subparagraph if an em7 ployee who has completed at least 3 years of

8 service has a nonforfeitable right to 100 percent

9 of the employee’s accrued benefit derived from

10 employer contributions.

11 ‘‘(B) 5-YEAR GRADED VESTING.—A plan

12 satisfies the requirements of this subparagraph if

13 an employee has a nonforfeitable right to a per14 centage of the employee’s accrued benefit derived

15 from employer contributions determined under

16 the following table:

The nonforfeitable

‘‘Years of service: percentage is:

1 ...................................................................................................... 20

2 ...................................................................................................... 40

3 ...................................................................................................... 60

4 ...................................................................................................... 80

5 ...................................................................................................... 100.

17 ‘‘(4) DISTRIBUTION REQUIREMENTS.—In the

18 case of a profit-sharing or stock bonus plan, the re19 quirements of this paragraph are met if, under the

20 plan, qualified employer contributions are distribut21 able only as provided in section 401(k)(2)(B).
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1 ‘‘(e) OTHER DEFINITIONS.—For purposes of this

2 section—

3 ‘‘(1) ELIGIBLE EMPLOYER.—

4 ‘‘(A) IN GENERAL.—The term ‘eligible em5 ployer’ means, with respect to any year, an em6 ployer which has no more than 20 employees

7 who received at least $5,000 of compensation

8 from the employer for the preceding year.

9 ‘‘(B) REQUIREMENT FOR NEW QUALIFIED

10 EMPLOYER PLANS.—Such term shall not include

11 an employer if, during the 3-taxable year period

12 immediately preceding the 1st taxable year for

13 which the credit under this section is otherwise

14 allowable for a qualified employer plan of the

15 employer, the employer or any member of any

16 controlled group including the employer (or any

17 predecessor of either) established or maintained a

18 qualified employer plan with respect to which

19 contributions were made, or benefits were ac20 crued, for substantially the same employees as

21 are in the qualified employer plan.

22 ‘‘(2) HIGHLY COMPENSATED EMPLOYEE.—The

23 term ‘highly compensated employee’ has the meaning

24 given such term by section 414(q) (determined with25 out regard to section 414(q)(1)(B)(ii)).
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1 ‘‘(f) SPECIAL RULES.—

2 ‘‘(1) DISALLOWANCE OF DEDUCTION.—No deduc3 tion shall be allowed for that portion of the qualified

4 employer contributions paid or incurred for the tax5 able year which is equal to the credit determined

6 under subsection (a).

7 ‘‘(2) ELECTION NOT TO CLAIM CREDIT.—This

8 section shall not apply to a taxpayer for any taxable

9 year if such taxpayer elects to have this section not

10 apply for such taxable year.

11 ‘‘(3) AGGREGATION RULES.—All persons treated

12 as a single employer under subsection (a) or (b) of

13 section 52, or subsection (n) or (o) of section 414,

14 shall be treated as one person. All eligible employer

15 plans shall be treated as 1 eligible employer plan.

16 ‘‘(g) RECAPTURE OF CREDIT ON FORFEITED CON17 TRIBUTIONS.—

18 ‘‘(1) IN GENERAL.—Except as provided in para19 graph (2), if any accrued benefit which is forfeitable

20 by reason of subsection (d)(3) is forfeited, the employ21 er’s tax imposed by this chapter for the taxable year

22 in which the forfeiture occurs shall be increased by 35

23 percent of the employer contributions from which such

24 benefit is derived to the extent such contributions were
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1 taken into account in determining the credit under

2 this section.

3 ‘‘(2) REALLOCATED CONTRIBUTIONS.—Para4 graph (1) shall not apply to any contribution which

5 is reallocated by the employer under the plan to em6 ployees who are not highly compensated employees.’’.

7 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI8 NESS CREDIT.—Section 38(b) (defining current year busi9 ness credit) is amended by striking ‘‘plus’’ at the end of

10 paragraph (12), by striking the period at the end of para11 graph (13) and inserting ‘‘, plus’’, and by adding at the

12 end the following new paragraph:

13 ‘‘(14) in the case of an eligible employer (as de14 fined in section 45E(e)), the small employer pension

15 plan contribution credit determined under section

16 45E(a).’’

17 (c) CONFORMING AMENDMENTS.—

18 (1) Section 39(d) is amended by adding at the

19 end the following new paragraph:

20 ‘‘(10) NO CARRYBACK OF SMALL EMPLOYER PEN21 SION PLAN CONTRIBUTION CREDIT BEFORE JANUARY

22 1, 2003.—No portion of the unused business credit for

23 any taxable year which is attributable to the small

24 employer pension plan contribution credit determined
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1 under section 45E may be carried back to a taxable

2 year beginning before January 1, 2003.’’

3 (2) Subsection (c) of section 196 is amended by

4 striking ‘‘and’’ at the end of paragraph (8), by strik5 ing the period at the end of paragraph (9) and insert6 ing ‘‘, and’’, and by adding at the end the following

7 new paragraph:

8 ‘‘(10) the small employer pension plan contribu9 tion credit determined under section 45E(a).’’

10 (3) The table of sections for subpart D of part

11 IV of subchapter A of chapter 1 is amended by adding

12 at the end the following new item:

‘‘Sec. 45E. Small employer pension plan contributions.’’

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

14 section shall apply to contributions paid or incurred in tax15 able years beginning after December 31, 2002.

16 SEC. 620. CREDIT FOR PENSION PLAN STARTUP COSTS OF

17 SMALL EMPLOYERS.

18 (a) IN GENERAL.—Subpart D of part IV of subchapter

19 A of chapter 1 (relating to business related credits), as

20 amended by section 619, is amended by adding at the end

21 the following new section:

22 ‘‘SEC. 45F. SMALL EMPLOYER PENSION PLAN STARTUP

23 COSTS.

24 ‘‘(a) GENERAL RULE.—For purposes of section 38, in

25 the case of an eligible employer, the small employer pension
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1 plan startup cost credit determined under this section for

2 any taxable year is an amount equal to 50 percent of the

3 qualified startup costs paid or incurred by the taxpayer

4 during the taxable year.

5 ‘‘(b) DOLLAR LIMITATION.—The amount of the credit

6 determined under this section for any taxable year shall not

7 exceed—

8 ‘‘(1) $500 for the first credit year and each of the

9 2 taxable years immediately following the first credit

10 year, and

11 ‘‘(2) zero for any other taxable year.

12 ‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this

13 section—

14 ‘‘(1) IN GENERAL.—The term ‘eligible employer’

15 has the meaning given such term by section

16 408(p)(2)(C)(i).

17 ‘‘(2) REQUIREMENT FOR NEW QUALIFIED EM18 PLOYER PLANS.—Such term shall not include an em19 ployer if, during the 3-taxable year period imme20 diately preceding the 1st taxable year for which the

21 credit under this section is otherwise allowable for a

22 qualified employer plan of the employer, the employer

23 or any member of any controlled group including the

24 employer (or any predecessor of either) established or

25 maintained a qualified employer plan with respect to
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1 which contributions were made, or benefits were ac2 crued, for substantially the same employees as are in

3 the qualified employer plan.

4 ‘‘(d) OTHER DEFINITIONS.—For purposes of this

5 section—

6 ‘‘(1) QUALIFIED STARTUP COSTS.—

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

8 startup costs’ means any ordinary and necessary

9 expenses of an eligible employer which are paid

10 or incurred in connection with—

11 ‘‘(i) the establishment or administra12 tion of an eligible employer plan, or

13 ‘‘(ii) the retirement-related education

14 of employees with respect to such plan.

15 ‘‘(B) PLAN MUST HAVE AT LEAST 1 PARTICI16 PANT.—Such term shall not include any expense

17 in connection with a plan that does not have at

18 least 1 employee eligible to participate who is

19 not a highly compensated employee.

20 ‘‘(2) ELIGIBLE EMPLOYER PLAN.—The term ‘eli21 gible employer plan’ means a qualified employer plan

22 within the meaning of section 4972(d).

23 ‘‘(3) FIRST CREDIT YEAR.—The term ‘first credit

24 year’ means—
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1 ‘‘(A) the taxable year which includes the

2 date that the eligible employer plan to which

3 such costs relate becomes effective, or

4 ‘‘(B) at the election of the eligible employer,

5 the taxable year preceding the taxable year re6 ferred to in subparagraph (A).

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

8 ‘‘(1) AGGREGATION RULES.—All persons treated

9 as a single employer under subsection (a) or (b) of

10 section 52, or subsection (n) or (o) of section 414,

11 shall be treated as one person. All eligible employer

12 plans shall be treated as 1 eligible employer plan.

13 ‘‘(2) DISALLOWANCE OF DEDUCTION.—No deduc14 tion shall be allowed for that portion of the qualified

15 startup costs paid or incurred for the taxable year

16 which is equal to the credit determined under sub17 section (a).

18 ‘‘(3) ELECTION NOT TO CLAIM CREDIT.—This

19 section shall not apply to a taxpayer for any taxable

20 year if such taxpayer elects to have this section not

21 apply for such taxable year.’’

22 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI23 NESS CREDIT.—Section 38(b) (defining current year busi24 ness credit), as amended by section 619, is amended by

25 striking ‘‘plus’’ at the end of paragraph (13), by striking
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1 the period at the end of paragraph (14) and inserting ‘‘,

2 plus’’, and by adding at the end the following new para3 graph:

4 ‘‘(15) in the case of an eligible employer (as de5 fined in section 45F(c)), the small employer pension

6 plan startup cost credit determined under section

7 45F(a).’’

8 (c) CONFORMING AMENDMENTS.—

9 (1) Section 39(d), as amended by section 619(c),

10 is amended by adding at the end the following new

11 paragraph:

12 ‘‘(11) NO CARRYBACK OF SMALL EMPLOYER PEN13 SION PLAN STARTUP COST CREDIT BEFORE JANUARY

14 1, 2002.—No portion of the unused business credit for

15 any taxable year which is attributable to the small

16 employer pension plan startup cost credit determined

17 under section 45F may be carried back to a taxable

18 year beginning before January 1, 2002.’’

19 (2) Subsection (c) of section 196, as amended by

20 section 619(c), is amended by striking ‘‘and’’ at the

21 end of paragraph (9), by striking the period at the

22 end of paragraph (10) and inserting ‘‘, and’’, and by

23 adding at the end the following new paragraph:

24 ‘‘(11) the small employer pension plan startup

25 cost credit determined under section 45F(a).’’
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1 (3) The table of sections for subpart D of part

2 IV of subchapter A of chapter 1, as amended by sec3 tion 619(c), is amended by adding at the end the fol4 lowing new item:

‘‘Sec. 45F. Small employer pension plan startup costs.’’

5 (d) EFFECTIVE DATE.—The amendments made by this

6 section shall apply to costs paid or incurred in taxable

7 years beginning after December 31, 2001, with respect to

8 qualified employer plans established after such date.

9 SEC. 621. ELIMINATION OF USER FEE FOR REQUESTS TO

10 IRS REGARDING NEW PENSION PLANS.

11 (a) ELIMINATION OF CERTAIN USER FEES.—The Sec12 retary of the Treasury or the Secretary’s delegate shall not

13 require payment of user fees under the program established

14 under section 10511 of the Revenue Act of 1987 for requests

15 to the Internal Revenue Service for ruling letters, opinion

16 letters, and determination letters or similar requests with

17 respect to the qualified status of a new pension benefit plan

18 or any trust which is part of the plan.

19 (b) NEW PENSION BENEFIT PLAN.—For purposes of

20 this section—

21 (1) IN GENERAL.—The term ‘‘new pension ben22 efit plan’’ means a pension, profit-sharing, stock

23 bonus, annuity, or employee stock ownership plan

24 which is maintained by one or more eligible employ25 ers if such employer (or any predecessor employer)
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1 has not made a prior request described in subsection

2 (a) for such plan (or any predecessor plan).

3 (2) ELIGIBLE EMPLOYER.—

4 (A) IN GENERAL.—The term ‘‘eligible em5 ployer’’ means an employer which has—

6 (i) no more than 100 employees for the

7 preceding year, and

8 (ii) at least one employee who is not a

9 highly compensated employee (as defined in

10 section 414(q)) and is participating in the

11 plan.

12 (B) NEW PLAN REQUIREMENT.—The term

13 ‘‘eligible employer’’ shall not include an em14 ployer if, during the 3-taxable year period imme15 diately preceding the taxable year in which the

16 request is made, the employer or any member of

17 any controlled group including the employer (or

18 any predecessor of either) established or main19 tained a qualified employer plan with respect to

20 which contributions were made, or benefits were

21 accrued for service, for substantially the same

22 employees as are in the qualified employer plan.

23 (c) DETERMINATION OF AVERAGE FEES CHARGED.—

24 For purposes of any determination of average fees charged,
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1 any request to which subsection (a) applies shall not be

2 taken into account.

3 (d) EFFECTIVE DATE.—The provisions of this section

4 shall apply with respect to requests made after December

5 31, 2001.

6 SEC. 622. TREATMENT OF NONRESIDENT ALIENS ENGAGED

7 IN INTERNATIONAL TRANSPORTATION SERV8 ICES.

9 (a) EXCLUSION FROM INCOME SOURCING RULES.—

10 The second sentence of section 861(a)(3) (relating to gross

11 income from sources within the United States) is amended

12 by striking ‘‘except for purposes of sections 79 and 105 and

13 subchapter D,’’.

14 (b) EFFECTIVE DATE.—The amendment made by sub15 section (a) shall apply to remuneration for services per16 formed in plan years beginning after December 31, 2001.

17 Subtitle C—Enhancing Fairness for

18 Women

19 SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS

20 AGE 50 OR OVER.

21 (a) IN GENERAL.—Section 414 (relating to definitions

22 and special rules) is amended by adding at the end the fol23 lowing new subsection:

24 ‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS

25 AGE 50 OR OVER.—
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1 ‘‘(1) IN GENERAL.—An applicable employer plan

2 shall not be treated as failing to meet any require3 ment of this title solely because the plan permits an

4 eligible participant to make additional elective defer5 rals in any plan year.

6 ‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL

7 DEFERRALS.—

8 ‘‘(A) IN GENERAL.—A plan shall not permit

9 additional elective deferrals under paragraph (1)

10 for any year in an amount greater than the less11 er of—

12 ‘‘(i) the applicable dollar amount, or

13 ‘‘(ii) the excess (if any) of—

14 ‘‘(I) the participant’s compensa15 tion (as defined in section 415(c)(3))

16 for the year, over

17 ‘‘(II) any other elective deferrals

18 of the participant for such year which

19 are made without regard to this sub20 section.

21 ‘‘(B) APPLICABLE DOLLAR AMOUNT.—For

22 purposes of this paragraph, the applicable dollar

23 amount shall be determined in accordance with

24 the following table:

‘‘For taxable years The applicable

beginning in: dollar amount is:

2002, 2003, and 2004 .................................................................... $500
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‘‘For taxable years The applicable

beginning in: dollar amount is:

2005 and 2006 ............................................................................... $1,000

2007 ................................................................................................ $2,000

2008 ................................................................................................ $3,000

2009 ................................................................................................ $4,000

2010 and thereafter ........................................................................ $7,500.

1 ‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the

2 case of any contribution to a plan under paragraph

3 (1)—

4 ‘‘(A) such contribution shall not, with re5 spect to the year in which the contribution is

6 made—

7 ‘‘(i) be subject to any otherwise appli8 cable limitation contained in section 402(g),

9 402(h), 403(b), 404(a), 404(h), 408(k),

10 408(p), 415, or 457, or

11 ‘‘(ii) be taken into account in applying

12 such limitations to other contributions or

13 benefits under such plan or any other such

14 plan, and

15 ‘‘(B) such plan shall not be treated as fail16 ing to meet the requirements of section 401(a)(4),

17 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),

18 401(m), 403(b)(12), 408(k), 408(p), 408B,

19 410(b), or 416 by reason of the making of (or the

20 right to make) such contribution.

21 ‘‘(4) ELIGIBLE PARTICIPANT.—For purposes of

22 this subsection, the term ‘eligible participant’ means,
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1 with respect to any plan year, a participant in a

2 plan—

3 ‘‘(A) who has attained the age of 50 before

4 the close of the plan year, and

5 ‘‘(B) with respect to whom no other elective

6 deferrals may (without regard to this subsection)

7 be made to the plan for the plan year by reason

8 of the application of any limitation or other re9 striction described in paragraph (3) or com10 parable limitation or restriction contained in the

11 terms of the plan.

12 ‘‘(5) OTHER DEFINITIONS AND RULES.—For

13 purposes of this subsection—

14 ‘‘(A) APPLICABLE EMPLOYER PLAN.—The

15 term ‘applicable employer plan’ means—

16 ‘‘(i) an employees’ trust described in

17 section 401(a) which is exempt from tax

18 under section 501(a),

19 ‘‘(ii) a plan under which amounts are

20 contributed by an individual’s employer for

21 an annuity contract described in section

22 403(b),

23 ‘‘(iii) an eligible deferred compensation

24 plan under section 457 of an eligible em-
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1 ployer described in section 457(e)(1)(A),

2 and

3 ‘‘(iv) an arrangement meeting the re4 quirements of section 408 (k) or (p).

5 ‘‘(B) ELECTIVE DEFERRAL.—The term ‘elec6 tive deferral’ has the meaning given such term

7 by subsection (u)(2)(C).

8 ‘‘(C) EXCEPTION FOR SECTION 457 PLANS.—

9 This subsection shall not apply to an applicable

10 employer plan described in subparagraph

11 (A)(iii) for any year to which section 457(b)(3)

12 applies.’’.

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

14 section shall apply to contributions in taxable years begin15 ning after December 31, 2001.

16 SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF

17 EMPLOYEES TO DEFINED CONTRIBUTION

18 PLANS.

19 (a) EQUITABLE TREATMENT.—

20 (1) IN GENERAL.—Subparagraph (B) of section

21 415(c)(1) (relating to limitation for defined contribu22 tion plans) is amended by striking ‘‘25 percent’’ and

23 inserting ‘‘the applicable percentage’’.
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1 (2) APPLICABLE PERCENTAGE.—Section 415(c)

2 is amended by adding at the end the following new

3 paragraph:

4 ‘‘(8) APPLICABLE PERCENTAGE.—For purposes

5 of paragraph (1)(B), the applicable percentage shall

6 be determined in accordance with the following table:

‘‘For years The applicable

beginning in: percentage is:

2002 through 2010 ......................................................................... 50 percent

2011 and thereafter ........................................................................ 100 percent.’’.

7 (3) APPLICATION TO SECTION 403(b).—Section

8 403(b) is amended—

9 (A) by striking ‘‘the exclusion allowance for

10 such taxable year’’ in paragraph (1) and insert11 ing ‘‘the applicable limit under section 415’’,

12 (B) by striking paragraph (2), and

13 (C) by inserting ‘‘or any amount received

14 by a former employee after the fifth taxable year

15 following the taxable year in which such em16 ployee was terminated’’ before the period at the

17 end of the second sentence of paragraph (3).

18 (4) CONFORMING AMENDMENTS.—

19 (A) Subsection (f) of section 72 is amended

20 by striking ‘‘section 403(b)(2)(D)(iii))’’ and in21 serting ‘‘section 403(b)(2)(D)(iii), as in effect be22 fore the enactment of the Restoring Earnings to
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1 Lift Individuals and Empower Families Act of

2 2001)’’.

3 (B) Section 404(a)(10)(B) is amended by

4 striking ‘‘, the exclusion allowance under section

5 403(b)(2),’’.

6 (C) Section 415(a)(2) is amended by strik7 ing ‘‘, and the amount of the contribution for

8 such portion shall reduce the exclusion allowance

9 as provided in section 403(b)(2)’’.

10 (D) Section 415(c)(3) is amended by adding

11 at the end the following new subparagraph:

12 ‘‘(E) ANNUITY CONTRACTS.—In the case of

13 an annuity contract described in section 403(b),

14 the term ‘participant’s compensation’ means the

15 participant’s includible compensation deter16 mined under section 403(b)(3).’’.

17 (E) Section 415(c) is amended by striking

18 paragraph (4).

19 (F) Section 415(c)(7) is amended to read as

20 follows:

21 ‘‘(7) CERTAIN CONTRIBUTIONS BY CHURCH

22 PLANS NOT TREATED AS EXCEEDING LIMIT.—

23 ‘‘(A) IN GENERAL.—Notwithstanding any

24 other provision of this subsection, at the election

25 of a participant who is an employee of a church
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1 or a convention or association of churches, in2 cluding an organization described in section

3 414(e)(3)(B)(ii), contributions and other addi4 tions for an annuity contract or retirement in5 come account described in section 403(b) with re6 spect to such participant, when expressed as an

7 annual addition to such participant’s account,

8 shall be treated as not exceeding the limitation

9 of paragraph (1) if such annual addition is not

10 in excess of $10,000.

11 ‘‘(B) $40,000 AGGREGATE LIMITATION.—

12 The total amount of additions with respect to

13 any participant which may be taken into ac14 count for purposes of this subparagraph for all

15 years may not exceed $40,000.

16 ‘‘(C) ANNUAL ADDITION.—For purposes of

17 this paragraph, the term ‘annual addition’ has

18 the meaning given such term by paragraph (2).’’.

19 (G) Subparagraph (B) of section 402(g)(7)

20 (as redesignated by section 611(c)(3)) is amend21 ed by inserting before the period at the end the

22 following: ‘‘(as in effect before the enactment of

23 the Restoring Earnings to Lift Individuals and

24 Empower Families Act of 2001)’’.

25 (H) Section 664(g) is amended—
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1 (i) in paragraph (3)(E) by striking

2 ‘‘limitations under section 415(c)’’ and in3 serting ‘‘applicable limitation under para4 graph (7)’’, and

5 (ii) by adding at the end the following

6 new paragraph:

7 ‘‘(7) APPLICABLE LIMITATION.—

8 ‘‘(A) IN GENERAL.—For purposes of para9 graph (3)(E), the applicable limitation under

10 this paragraph with respect to a participant is

11 an amount equal to the lesser of—

12 ‘‘(i) $30,000, or

13 ‘‘(ii) 25 percent of the participant’s

14 compensation (as defined in section

15 415(c)(3)).

16 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—The

17 Secretary shall adjust annually the $30,000

18 amount under subparagraph (A)(i) at the same

19 time and in the same manner as under section

20 415(d), except that the base period shall be the

21 calendar quarter beginning October 1, 1993, and

22 any increase under this subparagraph which is

23 not a multiple of $5,000 shall be rounded to the

24 next lowest multiple of $5,000.’’.

25 (5) EFFECTIVE DATE.—
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1 (A) Except as provided in subparagraph

2 (B), the amendments made by this subsection

3 shall apply to years beginning after December

4 31, 2001.

5 (B) The amendments made by paragraphs

6 (3) and (4) shall apply to years beginning after

7 December 31, 2010.

8 (b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—

9 (1) IN GENERAL.—Subsection (k) of section 415

10 is amended by adding at the end the following new

11 paragraph:

12 ‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND

13 408.—For purposes of this section, any annuity con14 tract described in section 403(b) for the benefit of a

15 participant shall be treated as a defined contribution

16 plan maintained by each employer with respect to

17 which the participant has the control required under

18 subsection (b) or (c) of section 414 (as modified by

19 subsection (h)). For purposes of this section, any con20 tribution by an employer to a simplified employee

21 pension plan for an individual for a taxable year

22 shall be treated as an employer contribution to a de23 fined contribution plan for such individual for such

24 year.’’.

25 (2) EFFECTIVE DATE.—
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1 (A) IN GENERAL.—The amendment made

2 by paragraph (1) shall apply to limitation years

3 beginning after December 31, 2000.

4 (B) EXCLUSION ALLOWANCE.—Effective for

5 limitation years beginning in 2001, in the case

6 of any annuity contract described in section

7 403(b) of the Internal Revenue Code of 1986, the

8 amount of the contribution disqualified by rea9 son of section 415(g) of such Code shall reduce

10 the exclusion allowance as provided in section

11 403(b)(2) of such Code.

12 (3) MODIFICATION OF 403(b) EXCLUSION ALLOW13 ANCE TO CONFORM TO 415 MODIFICATION.—The Sec14 retary of the Treasury shall modify the regulations re15 garding the exclusion allowance under section

16 403(b)(2) of the Internal Revenue Code of 1986 to

17 render void the requirement that contributions to a

18 defined benefit pension plan be treated as previously

19 excluded amounts for purposes of the exclusion allow20 ance. For taxable years beginning after December 31,

21 2000, such regulations shall be applied as if such re22 quirement were void.

23 (c) DEFERRED COMPENSATION PLANS OF STATE AND

24 LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZA25 TIONS.—
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1 (1) IN GENERAL.—Subparagraph (B) of section

2 457(b)(2) (relating to salary limitation on eligible de3 ferred compensation plans) is amended by striking

‘‘331 4 ⁄3 percent’’ and inserting ‘‘the applicable percent5 age’’.

6 (2) APPLICABLE PERCENTAGE.—Section 457 is

7 amended by adding at the end the following new sub8 section:

9 ‘‘(h) APPLICABLE PERCENTAGE.—For purposes of sub10 section (b)(2)(A), the applicable percentage shall be deter11 mined in accordance with the following table:

‘‘For years The applicable

beginning in: percentage is:

2002 through 2010 ......................................................................... 50 percent

2011 and thereafter ........................................................................ 100 percent.’’.

12 (3) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply to years beginning after

14 December 31, 2001.

15 SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCH16 ING CONTRIBUTIONS.

17 (a) IN GENERAL.—Section 411(a) (relating to min18 imum vesting standards) is amended—

19 (1) in paragraph (2), by striking ‘‘A plan’’ and

20 inserting ‘‘Except as provided in paragraph (12), a

21 plan’’; and

22 (2) by adding at the end the following:
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1 ‘‘(12) FASTER VESTING FOR MATCHING CON2 TRIBUTIONS.—In the case of matching contributions

3 (as defined in section 401(m)(4)(A)), paragraph (2)

4 shall be applied—

5 ‘‘(A) by substituting ‘3 years’ for ‘5 years’

6 in subparagraph (A), and

7 ‘‘(B) by substituting the following table for

8 the table contained in subparagraph (B):

The nonforfeitable

‘‘Years of service: percentage is:

2 .......................................................................................... 20

3 .......................................................................................... 40

4 .......................................................................................... 60

5 .......................................................................................... 80

6 .......................................................................................... 100.’’.

9 (b) AMENDMENT OF ERISA.—Section 203(a) of the

10 Employee Retirement Income Security Act of 1974 (29

11 U.S.C. 1053(a)) is amended—

12 (1) in paragraph (2), by striking ‘‘A plan’’ and

13 inserting ‘‘Except as provided in paragraph (4), a

14 plan’’, and

15 (2) by adding at the end the following:

16 ‘‘(4) In the case of matching contributions (as

17 defined in section 401(m)(4)(A) of the Internal Rev18 enue Code of 1986), paragraph (2) shall be applied—

19 ‘‘(A) by substituting ‘3 years’ for ‘5 years’

20 in subparagraph (A), and

21 ‘‘(B) by substituting the following table for

22 the table contained in subparagraph (B):
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The nonforfeitable

‘‘Years of service: percentage is:

2 ...................................................................................................... 20

3 ...................................................................................................... 40

4 ...................................................................................................... 60

5 ...................................................................................................... 80

6 ...................................................................................................... 100.’’.

1 (c) EFFECTIVE DATES.—

2 (1) IN GENERAL.—Except as provided in para3 graph (2), the amendments made by this section shall

4 apply to contributions for plan years beginning after

5 December 31, 2001.

6 (2) COLLECTIVE BARGAINING AGREEMENTS.—In

7 the case of a plan maintained pursuant to one or

8 more collective bargaining agreements between em9 ployee representatives and one or more employers

10 ratified by the date of the enactment of this Act, the

11 amendments made by this section shall not apply to

12 contributions on behalf of employees covered by any

13 such agreement for plan years beginning before the

14 earlier of—

15 (A) the later of—

16 (i) the date on which the last of such

17 collective bargaining agreements terminates

18 (determined without regard to any exten19 sion thereof on or after such date of the en20 actment); or

21 (ii) January 1, 2002; or

22 (B) January 1, 2006.
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1 (3) SERVICE REQUIRED.—With respect to any

2 plan, the amendments made by this section shall not

3 apply to any employee before the date that such em4 ployee has 1 hour of service under such plan in any

5 plan year to which the amendments made by this sec6 tion apply.

7 SEC. 634. MODIFICATIONS TO MINIMUM DISTRIBUTION

8 RULES.

9 (a) LIFE EXPECTANCY TABLES.—The Secretary of the

10 Treasury shall modify the life expectancy tables under the

11 regulations relating to minimum distribution requirements

12 under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10),

13 and 457(d)(2) of the Internal Revenue Code to reflect cur14 rent life expectancy.

15 (b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD

16 BEGUN BEFORE DEATH OCCURS.—

17 (1) IN GENERAL.—Subparagraph (B) of section

18 401(a)(9) is amended by striking clause (i) and redes19 ignating clauses (ii), (iii), and (iv) as clauses (i),

20 (ii), and (iii), respectively.

21 (2) CONFORMING CHANGES.—

22 (A) Clause (i) of section 401(a)(9)(B) (as so

23 redesignated) is amended—

24 (i) by striking ‘‘FOR OTHER CASES’’ in

25 the heading; and
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1 (ii) by striking ‘‘the distribution of the

2 employee’s interest has begun in accordance

3 with subparagraph (A)(ii)’’ and inserting

4 ‘‘his entire interest has been distributed to

5 him’’.

6 (B) Clause (ii) of section 401(a)(9)(B) (as

7 so redesignated) is amended by striking ‘‘clause

8 (ii)’’ and inserting ‘‘clause (i)’’.

9 (C) Clause (iii) of section 401(a)(9)(B) (as

10 so redesignated) is amended—

11 (i) by striking ‘‘clause (iii)(I)’’ and in12 serting ‘‘clause (ii)(I)’’;

13 (ii) by striking ‘‘clause (iii)(III)’’ in

14 subclause (I) and inserting ‘‘clause

15 (ii)(III)’’;

16 (iii) by striking ‘‘the date on which the

employee would have attained age 701 17 ⁄2,’’ in

18 subclause (I) and inserting ‘‘April 1 of the

19 calendar year following the calendar year

in which the spouse attains 701 20 ⁄2,’’; and

21 (iv) by striking ‘‘the distributions to

22 such spouse begin,’’ in subclause (II) and

23 inserting ‘‘his entire interest has been dis24 tributed to him,’’.

25 (3) EFFECTIVE DATE.—
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1 (A) IN GENERAL.—Except as provided in

2 subparagraph (B), the amendments made by this

3 subsection shall apply to years beginning after

4 December 31, 2001.

5 (B) DISTRIBUTIONS TO SURVIVING

6 SPOUSE.—

7 (i) IN GENERAL.—In the case of an

8 employee described in clause (ii), distribu9 tions to the surviving spouse of the employee

10 shall not be required to commence prior to

11 the date on which such distributions would

12 have been required to begin under section

13 401(a)(9)(B) of the Internal Revenue Code

14 of 1986 (as in effect on the day before the

15 date of the enactment of this Act).

16 (ii) CERTAIN EMPLOYEES.—An em17 ployee is described in this clause if such em18 ployee dies before—

19 (I) the date of the enactment of

20 this Act, and

21 (II) the required beginning date

22 (within the meaning of section

23 401(a)(9)(C) of the Internal Revenue

24 Code of 1986) of the employee.
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1 SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION

2 OF SECTION 457 PLAN BENEFITS UPON DI3 VORCE.

4 (a) IN GENERAL.—Section 414(p)(11) (relating to ap5 plication of rules to governmental and church plans) is

6 amended—

7 (1) by inserting ‘‘or an eligible deferred com8 pensation plan (within the meaning of section

9 457(b))’’ after ‘‘subsection (e))’’; and

10 (2) in the heading, by striking ‘‘GOVERNMENTAL

11 AND CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER

12 PLANS’’.

13 (b) WAIVER OF CERTAIN DISTRIBUTION REQUIRE14 MENTS.—Paragraph (10) of section 414(p) is amended by

15 striking ‘‘and section 409(d)’’ and inserting ‘‘section

16 409(d), and section 457(d)’’.

17 (c) TAX TREATMENT OF PAYMENTS FROM A SECTION

18 457 PLAN.—Subsection (p) of section 414 is amended by

19 redesignating paragraph (12) as paragraph (13) and in20 serting after paragraph (11) the following new paragraph:

21 ‘‘(12) TAX TREATMENT OF PAYMENTS FROM A

22 SECTION 457 PLAN.—If a distribution or payment

23 from an eligible deferred compensation plan described

24 in section 457(b) is made pursuant to a qualified do25 mestic relations order, rules similar to the rules of
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1 section 402(e)(1)(A) shall apply to such distribution

2 or payment.’’.

3 (d) EFFECTIVE DATE.—

4 (1) IN GENERAL.—The amendment made by sub5 section (c) shall apply to transfers, distributions, and

6 payments made after December 31, 2001.

7 (2) AMENDMENTS RELATING TO ASSIGNMENTS IN

8 DIVORCE, ETC., PROCEEDINGS.—The amendments

9 made by subsections (a) and (b) shall take effect on

10 January 1, 2002, except that in the case of a domestic

11 relations order entered before such date, the plan

12 administrator—

13 (A) shall treat such order as a qualified do14 mestic relations order if such administrator is

15 paying benefits pursuant to such order on such

16 date, and

17 (B) may treat any other such order entered

18 before such date as a qualified domestic relations

19 order even if such order does not meet the re20 quirements of such amendments.

21 SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBU22 TIONS.

23 (a) SAFE HARBOR RELIEF.—

24 (1) IN GENERAL.—The Secretary of the Treasury

25 shall revise the regulations relating to hardship dis-
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1 tributions under section 401(k)(2)(B)(i)(IV) of the In2 ternal Revenue Code of 1986 to provide that the pe3 riod an employee is prohibited from making elective

4 and employee contributions in order for a distribu5 tion to be deemed necessary to satisfy financial need

6 shall be equal to 6 months.

7 (2) EFFECTIVE DATE.—The revised regulations

8 under this subsection shall apply to years beginning

9 after December 31, 2001.

10 (b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELI11 GIBLE ROLLOVER DISTRIBUTIONS.—

12 (1) MODIFICATION OF DEFINITION OF ELIGIBLE

13 ROLLOVER.—Subparagraph (C) of section 402(c)(4)

14 (relating to eligible rollover distribution) is amended

15 to read as follows:

16 ‘‘(C) any distribution which is made upon

17 hardship of the employee.’’.

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

19 this subsection shall apply to distributions made after

20 December 31, 2001.

21 SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBU22 TIONS FOR DOMESTIC OR SIMILAR WORKERS.

23 (a) IN GENERAL.—Section 4972(c)(6) (relating to ex24 ceptions to nondeductible contributions), as amended by sec25 tion 502, is amended by striking ‘‘or’’ at the end of subpara-
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1 graph (A), by striking the period and inserting ‘‘, or’’ at

2 the end of subparagraph (B), and by inserting after sub3 paragraph (B) the following new subparagraph:

4 ‘‘(C) so much of the contributions to a sim5 ple retirement account (within the meaning of

6 section 408(p)) or a simple plan (within the

7 meaning of section 401(k)(11)) which are not de8 ductible when contributed solely because such

9 contributions are not made in connection with a

10 trade or business of the employer.’’

11 (b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Sec12 tion 4972(c)(6), as amended by subsection (a), is amended

13 by adding at the end the following new sentence: ‘‘Subpara14 graph (C) shall not apply to contributions made on behalf

15 of the employer or a member of the employer’s family (as

16 defined in section 447(e)(1)).’’.

17 (c) NO INFERENCE.—Nothing in the amendments

18 made by this section shall be construed to infer the proper

19 treatment of nondeductible contributions under the laws in

20 effect before such amendments.

21 (d) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to taxable years beginning after Decem23 ber 31, 2001.
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1 Subtitle D—Increasing Portability

2 for Participants

3 SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF

4 PLANS.

5 (a) ROLLOVERS FROM AND TO SECTION 457 PLANS.—

6 (1) ROLLOVERS FROM SECTION 457 PLANS.—

7 (A) IN GENERAL.—Section 457(e) (relating

8 to other definitions and special rules) is amend9 ed by adding at the end the following:

10 ‘‘(16) ROLLOVER AMOUNTS.—

11 ‘‘(A) GENERAL RULE.—In the case of an el12 igible deferred compensation plan established

13 and maintained by an employer described in

14 subsection (e)(1)(A), if—

15 ‘‘(i) any portion of the balance to the

16 credit of an employee in such plan is paid

17 to such employee in an eligible rollover dis18 tribution (within the meaning of section

19 402(c)(4) without regard to subparagraph

20 (C) thereof),

21 ‘‘(ii) the employee transfers any por22 tion of the property such employee receives

23 in such distribution to an eligible retire24 ment plan described in section 402(c)(8)(B),

25 and
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1 ‘‘(iii) in the case of a distribution of

2 property other than money, the amount so

3 transferred consists of the property distrib4 uted,

5 then such distribution (to the extent so trans6 ferred) shall not be includible in gross income for

7 the taxable year in which paid.

8 ‘‘(B) CERTAIN RULES MADE APPLICABLE.—

9 The rules of paragraphs (2) through (7) and (9)

10 of section 402(c) and section 402(f) shall apply

11 for purposes of subparagraph (A).

12 ‘‘(C) REPORTING.—Rollovers under this

13 paragraph shall be reported to the Secretary in

14 the same manner as rollovers from qualified re15 tirement plans (as defined in section 4974(c)).’’.

16 (B) DEFERRAL LIMIT DETERMINED WITH17 OUT REGARD TO ROLLOVER AMOUNTS.—Section

18 457(b)(2) (defining eligible deferred compensa19 tion plan) is amended by inserting ‘‘(other than

20 rollover amounts)’’ after ‘‘taxable year’’.

21 (C) DIRECT ROLLOVER.—Paragraph (1) of

22 section 457(d) is amended by striking ‘‘and’’ at

23 the end of subparagraph (A), by striking the pe24 riod at the end of subparagraph (B) and insert-
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1 ing ‘‘, and’’, and by inserting after subpara2 graph (B) the following:

3 ‘‘(C) in the case of a plan maintained by

4 an employer described in subsection (e)(1)(A),

5 the plan meets requirements similar to the re6 quirements of section 401(a)(31).

7 Any amount transferred in a direct trustee-to-trustee

8 transfer in accordance with section 401(a)(31) shall

9 not be includible in gross income for the taxable year

10 of transfer.’’.

11 (D) WITHHOLDING.—

12 (i) Paragraph (12) of section 3401(a)

13 is amended by adding at the end the fol14 lowing:

15 ‘‘(E) under or to an eligible deferred com16 pensation plan which, at the time of such pay17 ment, is a plan described in section 457(b) which

18 is maintained by an eligible employer described

19 in section 457(e)(1)(A), or’’.

20 (ii) Paragraph (3) of section 3405(c) is

21 amended to read as follows:

22 ‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For

23 purposes of this subsection, the term ‘eligible rollover

24 distribution’ has the meaning given such term by sec25 tion 402(f)(2)(A).’’.
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1 (iii) LIABILITY FOR WITHHOLDING.—

2 Subparagraph (B) of section 3405(d)(2) is

3 amended by striking ‘‘or’’ at the end of

4 clause (ii), by striking the period at the end

5 of clause (iii) and inserting ‘‘, or’’, and by

6 adding at the end the following:

7 ‘‘(iv) section 457(b) and which is

8 maintained by an eligible employer de9 scribed in section 457(e)(1)(A).’’.

10 (2) ROLLOVERS TO SECTION 457 PLANS.—

11 (A) IN GENERAL.—Section 402(c)(8)(B)

12 (defining eligible retirement plan) is amended by

13 striking ‘‘and’’ at the end of clause (iii), by

14 striking the period at the end of clause (iv) and

15 inserting ‘‘, and’’, and by inserting after clause

16 (iv) the following new clause:

17 ‘‘(v) an eligible deferred compensation

18 plan described in section 457(b) which is

19 maintained by an eligible employer de20 scribed in section 457(e)(1)(A).’’.

21 (B) SEPARATE ACCOUNTING.—Section

22 402(c) is amended by adding at the end the fol23 lowing new paragraph:

24 ‘‘(11) SEPARATE ACCOUNTING.—Unless a plan

25 described in clause (v) of paragraph (8)(B) agrees to
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1 separately account for amounts rolled into such plan

2 from eligible retirement plans not described in such

3 clause, the plan described in such clause may not ac4 cept transfers or rollovers from such retirement

5 plans.’’.

6 (C) 10 PERCENT ADDITIONAL TAX.—Sub7 section (t) of section 72 (relating to 10-percent

8 additional tax on early distributions from quali9 fied retirement plans) is amended by adding at

10 the end the following new paragraph:

11 ‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SECTION

12 457 PLANS.—For purposes of this subsection, a dis13 tribution from an eligible deferred compensation plan

14 (as defined in section 457(b)) of an eligible employer

15 described in section 457(e)(1)(A) shall be treated as a

16 distribution from a qualified retirement plan de17 scribed in 4974(c)(1) to the extent that such distribu18 tion is attributable to an amount transferred to an el19 igible deferred compensation plan from a qualified re20 tirement plan (as defined in section 4974(c)).’’.

21 (b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b)

22 PLANS.—

23 (1) ROLLOVERS FROM SECTION 403(b) PLANS.—

24 Section 403(b)(8)(A)(ii) (relating to rollover

25 amounts) is amended by striking ‘‘such distribution’’
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1 and all that follows and inserting ‘‘such distribution

2 to an eligible retirement plan described in section

3 402(c)(8)(B), and’’.

4 (2) ROLLOVERS TO SECTION 403(b) PLANS.—Sec5 tion 402(c)(8)(B) (defining eligible retirement plan),

6 as amended by subsection (a), is amended by striking

7 ‘‘and’’ at the end of clause (iv), by striking the period

8 at the end of clause (v) and inserting ‘‘, and’’, and

9 by inserting after clause (v) the following new clause:

10 ‘‘(vi) an annuity contract described in

11 section 403(b).’’.

12 (c) EXPANDED EXPLANATION TO RECIPIENTS OF

13 ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section

14 402(f) (relating to written explanation to recipients of dis15 tributions eligible for rollover treatment) is amended by

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

17 the period at the end of subparagraph (D) and inserting

18 ‘‘, and’’, and by adding at the end the following new sub19 paragraph:

20 ‘‘(E) of the provisions under which distribu21 tions from the eligible retirement plan receiving

22 the distribution may be subject to restrictions

23 and tax consequences which are different from

24 those applicable to distributions from the plan

25 making such distribution.’’.
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1 (d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat2 ing to rollover where spouse receives distribution after death

3 of employee) is amended by striking ‘‘; except that’’ and

4 all that follows up to the end period.

5 (e) CONFORMING AMENDMENTS.—

6 (1) Section 72(o)(4) is amended by striking ‘‘and

7 408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and

8 457(e)(16)’’.

9 (2) Section 219(d)(2) is amended by striking ‘‘or

10 408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.

11 (3) Section 401(a)(31)(B) is amended by strik12 ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),

13 403(b)(8), and 457(e)(16)’’.

14 (4) Subparagraph (A) of section 402(f)(2) is

15 amended by striking ‘‘or paragraph (4) of section

16 403(a)’’ and inserting ‘‘, paragraph (4) of section

17 403(a), subparagraph (A) of section 403(b)(8), or sub18 paragraph (A) of section 457(e)(16)’’.

19 (5) Paragraph (1) of section 402(f) is amended

20 by striking ‘‘from an eligible retirement plan’’.

21 (6) Subparagraphs (A) and (B) of section

22 402(f)(1) are amended by striking ‘‘another eligible

23 retirement plan’’ and inserting ‘‘an eligible retire24 ment plan’’.
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1 (7) Subparagraph (B) of section 403(b)(8) is

2 amended to read as follows:

3 ‘‘(B) CERTAIN RULES MADE APPLICABLE.—

4 The rules of paragraphs (2) through (7) and (9)

5 of section 402(c) and section 402(f) shall apply

6 for purposes of subparagraph (A), except that

7 section 402(f) shall be applied to the payor in

8 lieu of the plan administrator.’’.

9 (8) Section 408(a)(1) is amended by striking ‘‘or

10 403(b)(8),’’ and inserting ‘‘403(b)(8), or 457(e)(16)’’.

11 (9) Subparagraphs (A) and (B) of section

12 415(b)(2) are each amended by striking ‘‘and

13 408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and

14 457(e)(16)’’.

15 (10) Section 415(c)(2) is amended by striking

16 ‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and

17 457(e)(16)’’.

18 (11) Section 4973(b)(1)(A) is amended by strik19 ing ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or

20 457(e)(16)’’.

21 (f) EFFECTIVE DATE; SPECIAL RULE.—

22 (1) EFFECTIVE DATE.—The amendments made

23 by this section shall apply to distributions after De24 cember 31, 2001.
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1 (2) SPECIAL RULE.—Notwithstanding any other

2 provision of law, subsections (h)(3) and (h)(5) of sec3 tion 1122 of the Tax Reform Act of 1986 shall not

4 apply to any distribution from an eligible retirement

5 plan (as defined in clause (iii) or (iv) of section

6 402(c)(8)(B) of the Internal Revenue Code of 1986) on

7 behalf of an individual if there was a rollover to such

8 plan on behalf of such individual which is permitted

9 solely by reason of any amendment made by this sec10 tion.

11 SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE12 MENT PLANS.

13 (a) IN GENERAL.—Subparagraph (A) of section

14 408(d)(3) (relating to rollover amounts) is amended by add15 ing ‘‘or’’ at the end of clause (i), by striking clauses (ii)

16 and (iii), and by adding at the end the following:

17 ‘‘(ii) the entire amount received (in18 cluding money and any other property) is

19 paid into an eligible retirement plan for the

20 benefit of such individual not later than the

21 60th day after the date on which the pay22 ment or distribution is received, except that

23 the maximum amount which may be paid

24 into such plan may not exceed the portion

25 of the amount received which is includible
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1 in gross income (determined without regard

2 to this paragraph).

3 For purposes of clause (ii), the term ‘eligible re4 tirement plan’ means an eligible retirement plan

5 described in clause (iii), (iv), (v), or (vi) of sec6 tion 402(c)(8)(B).’’.

7 (b) CONFORMING AMENDMENTS.—

8 (1) Paragraph (1) of section 403(b) is amended

9 by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting

10 ‘‘section 408(d)(3)(A)(ii)’’.

11 (2) Clause (i) of section 408(d)(3)(D) is amended

12 by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i) or

13 (ii)’’.

14 (3) Subparagraph (G) of section 408(d)(3) is

15 amended to read as follows:

16 ‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In

17 the case of any payment or distribution out of

18 a simple retirement account (as defined in sub19 section (p)) to which section 72(t)(6) applies,

20 this paragraph shall not apply unless such pay21 ment or distribution is paid into another simple

22 retirement account.’’.

23 (c) EFFECTIVE DATE; SPECIAL RULE.—
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1 (1) EFFECTIVE DATE.—The amendments made

2 by this section shall apply to distributions after De3 cember 31, 2001.

4 (2) SPECIAL RULE.—Notwithstanding any other

5 provision of law, subsections (h)(3) and (h)(5) of sec6 tion 1122 of the Tax Reform Act of 1986 shall not

7 apply to any distribution from an eligible retirement

8 plan (as defined in clause (iii) or (iv) of section

9 402(c)(8)(B) of the Internal Revenue Code of 1986) on

10 behalf of an individual if there was a rollover to such

11 plan on behalf of such individual which is permitted

12 solely by reason of the amendments made by this sec13 tion.

14 SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

15 (a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph

16 (2) of section 402(c) (relating to maximum amount which

17 may be rolled over) is amended by adding at the end the

18 following: ‘‘The preceding sentence shall not apply to such

19 distribution to the extent—

20 ‘‘(A) such portion is transferred in a direct

21 trustee-to-trustee transfer to a qualified trust

22 which is part of a plan which is a defined con23 tribution plan and which agrees to separately

24 account for amounts so transferred, including

25 separately accounting for the portion of such dis-
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1 tribution which is includible in gross income

2 and the portion of such distribution which is not

3 so includible, or

4 ‘‘(B) such portion is transferred to an eligi5 ble retirement plan described in clause (i) or (ii)

6 of paragraph (8)(B).’’.

7 (b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLL8 OVER DISTRIBUTIONS.—Subparagraph (B) of section

9 401(a)(31) (relating to limitation) is amended by adding

10 at the end the following: ‘‘The preceding sentence shall not

11 apply to such distribution if the plan to which such dis12 tribution is transferred—

13 ‘‘(i) agrees to separately account for

14 amounts so transferred, including sepa15 rately accounting for the portion of such

16 distribution which is includible in gross in17 come and the portion of such distribution

18 which is not so includible, or

19 ‘‘(ii) is an eligible retirement plan de20 scribed in clause (i) or (ii) of section

21 402(c)(8)(B).’’.

22 (c) RULES FOR APPLYING SECTION 72 TO IRAS.—

23 Paragraph (3) of section 408(d) (relating to special rules

24 for applying section 72) is amended by inserting at the end

25 the following:
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1 ‘‘(H) APPLICATION OF SECTION 72.—

2 ‘‘(i) IN GENERAL.—If—

3 ‘‘(I) a distribution is made from

4 an individual retirement plan, and

5 ‘‘(II) a rollover contribution is

6 made to an eligible retirement plan de7 scribed in section 402(c)(8)(B)(iii),

8 (iv), (v), or (vi) with respect to all or

9 part of such distribution,

10 then, notwithstanding paragraph (2), the

11 rules of clause (ii) shall apply for purposes

12 of applying section 72.

13 ‘‘(ii) APPLICABLE RULES.—In the case

14 of a distribution described in clause (i)—

15 ‘‘(I) section 72 shall be applied

16 separately to such distribution,

17 ‘‘(II) notwithstanding the pro

18 rata allocation of income on, and in19 vestment in, the contract to distribu20 tions under section 72, the portion of

21 such distribution rolled over to an eli22 gible retirement plan described in

23 clause (i) shall be treated as from in24 come on the contract (to the extent of

25 the aggregate income on the contract
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1 from all individual retirement plans of

2 the distributee), and

3 ‘‘(III) appropriate adjustments

4 shall be made in applying section 72 to

5 other distributions in such taxable year

6 and subsequent taxable years.’’.

7 (d) EFFECTIVE DATE.—The amendments made by this

8 section shall apply to distributions made after December 31,

9 2001.

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

11 (a) EXEMPT TRUSTS.—Paragraph (3) of section

12 402(c) (relating to transfer must be made within 60 days

13 of receipt) is amended to read as follows:

14 ‘‘(3) TRANSFER MUST BE MADE WITHIN 60 DAYS

15 OF RECEIPT.—

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

17 subparagraph (B), paragraph (1) shall not

18 apply to any transfer of a distribution made

19 after the 60th day following the day on which the

20 distributee received the property distributed.

21 ‘‘(B) HARDSHIP EXCEPTION.—The Sec22 retary may waive the 60-day requirement under

23 subparagraph (A) where the failure to waive

24 such requirement would be against equity or

25 good conscience, including casualty, disaster, or
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1 other events beyond the reasonable control of the

2 individual subject to such requirement.’’.

3 (b) IRAS.—Paragraph (3) of section 408(d) (relating

4 to rollover contributions), as amended by section 643, is

5 amended by adding after subparagraph (H) the following

6 new subparagraph:

7 ‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—

8 The Secretary may waive the 60-day require9 ment under subparagraphs (A) and (D) where

10 the failure to waive such requirement would be

11 against equity or good conscience, including cas12 ualty, disaster, or other events beyond the rea13 sonable control of the individual subject to such

14 requirement.’’.

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

16 section shall apply to distributions after December 31, 2001.

17 SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.

18 (a) PLAN TRANSFERS.—

19 (1) AMENDMENT OF INTERNAL REVENUE

20 CODE.—Paragraph (6) of section 411(d) (relating to

21 accrued benefit not to be decreased by amendment) is

22 amended by adding at the end the following:

23 ‘‘(D) PLAN TRANSFERS.—

24 ‘‘(i) IN GENERAL.—A defined contribu25 tion plan (in this subparagraph referred to
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1 as the ‘transferee plan’) shall not be treated

2 as failing to meet the requirements of this

3 subsection merely because the transferee

4 plan does not provide some or all of the

5 forms of distribution previously available

6 under another defined contribution plan (in

7 this subparagraph referred to as the ‘trans8 feror plan’) to the extent that—

9 ‘‘(I) the forms of distribution pre10 viously available under the transferor

11 plan applied to the account of a par12 ticipant or beneficiary under the

13 transferor plan that was transferred

14 from the transferor plan to the trans15 feree plan pursuant to a direct transfer

16 rather than pursuant to a distribution

17 from the transferor plan,

18 ‘‘(II) the terms of both the trans19 feror plan and the transferee plan au20 thorize the transfer described in sub21 clause (I),

22 ‘‘(III) the transfer described in

23 subclause (I) was made pursuant to a

24 voluntary election by the participant
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1 or beneficiary whose account was

2 transferred to the transferee plan,

3 ‘‘(IV) the election described in

4 subclause (III) was made after the par5 ticipant or beneficiary received a no6 tice describing the consequences of

7 making the election, and

8 ‘‘(V) the transferee plan allows the

9 participant or beneficiary described in

10 subclause (III) to receive any distribu11 tion to which the participant or bene12 ficiary is entitled under the transferee

13 plan in the form of a single sum dis14 tribution.

15 ‘‘(ii) SPECIAL RULE FOR MERGERS,

16 ETC.—Clause (i) shall apply to plan merg17 ers and other transactions having the effect

18 of a direct transfer, including consolidations

19 of benefits attributable to different employ20 ers within a multiple employer plan.’’.

21 (2) AMENDMENT OF ERISA.—Section 204(g) of

22 the Employee Retirement Income Security Act of

23 1974 (29 U.S.C. 1054(g)) is amended by adding at

24 the end the following:
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1 ‘‘(4)(A) A defined contribution plan (in this subpara2 graph referred to as the ‘transferee plan’) shall not be treat3 ed as failing to meet the requirements of this subsection

4 merely because the transferee plan does not provide some

5 or all of the forms of distribution previously available under

6 another defined contribution plan (in this subparagraph re7 ferred to as the ‘transferor plan’) to the extent that—

8 ‘‘(i) the forms of distribution previously avail9 able under the transferor plan applied to the account

10 of a participant or beneficiary under the transferor

11 plan that was transferred from the transferor plan to

12 the transferee plan pursuant to a direct transfer rath13 er than pursuant to a distribution from the transferor

14 plan;

15 ‘‘(ii) the terms of both the transferor plan and

16 the transferee plan authorize the transfer described in

17 clause (i);

18 ‘‘(iii) the transfer described in clause (i) was

19 made pursuant to a voluntary election by the partici20 pant or beneficiary whose account was transferred to

21 the transferee plan;

22 ‘‘(iv) the election described in clause (iii) was

23 made after the participant or beneficiary received a

24 notice describing the consequences of making the elec25 tion; and
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1 ‘‘(v) the transferee plan allows the participant or

2 beneficiary described in clause (iii) to receive any dis3 tribution to which the participant or beneficiary is

4 entitled under the transferee plan in the form of a

5 single sum distribution.

6 ‘‘(B) Subparagraph (A) shall apply to plan mergers

7 and other transactions having the effect of a direct transfer,

8 including consolidations of benefits attributable to different

9 employers within a multiple employer plan.’’.

10 (3) EFFECTIVE DATE.—The amendments made

11 by this subsection shall apply to years beginning after

12 December 31, 2001.

13 (b) REGULATIONS.—

14 (1) AMENDMENT OF INTERNAL REVENUE

15 CODE.—The last sentence of paragraph (6)(B) of sec16 tion 411(d) (relating to accrued benefit not to be de17 creased by amendment) is amended to read as follows:

18 ‘‘The Secretary shall by regulations provide that this

19 subparagraph shall not apply to any plan amend20 ment which reduces or eliminates benefits or subsidies

21 which create significant burdens or complexities for

22 the plan and plan participants, unless such amend23 ment adversely affects the rights of any participant in

24 a more than de minimis manner.’’.
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1 (2) AMENDMENT OF ERISA.—The last sentence of

2 section 204(g)(2) of the Employee Retirement Income

3 Security Act of 1974 (29 U.S.C. 1054(g)(2)) is

4 amended to read as follows: ‘‘The Secretary of the

5 Treasury shall by regulations provide that this para6 graph shall not apply to any plan amendment which

7 reduces or eliminates benefits or subsidies which cre8 ate significant burdens or complexities for the plan

9 and plan participants, unless such amendment ad10 versely affects the rights of any participant in a more

11 than de minimis manner.’’.

12 (3) SECRETARY DIRECTED.—Not later than De13 cember 31, 2002, the Secretary of the Treasury is di14 rected to issue regulations under section 411(d)(6) of

15 the Internal Revenue Code of 1986 and section 204(g)

16 of the Employee Retirement Income Security Act of

17 1974, including the regulations required by the

18 amendment made by this subsection. Such regulations

19 shall apply to plan years beginning after December

20 31, 2002, or such earlier date as is specified by the

21 Secretary of the Treasury.

22 SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DIS23 TRIBUTIONS.

24 (a) MODIFICATION OF SAME DESK EXCEPTION.—

25 (1) SECTION 401(k).—
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1 (A) Section 401(k)(2)(B)(i)(I) (relating to

2 qualified cash or deferred arrangements) is

3 amended by striking ‘‘separation from service’’

4 and inserting ‘‘severance from employment’’.

5 (B) Subparagraph (A) of section 401(k)(10)

6 (relating to distributions upon termination of

7 plan or disposition of assets or subsidiary) is

8 amended to read as follows:

9 ‘‘(A) IN GENERAL.—An event described in

10 this subparagraph is the termination of the plan

11 without establishment or maintenance of another

12 defined contribution plan (other than an em13 ployee stock ownership plan as defined in section

14 4975(e)(7)).’’.

15 (C) Section 401(k)(10) is amended—

16 (i) in subparagraph (B)—

17 (I) by striking ‘‘An event’’ in

18 clause (i) and inserting ‘‘A termi19 nation’’; and

20 (II) by striking ‘‘the event’’ in

21 clause (i) and inserting ‘‘the termi22 nation’’;

23 (ii) by striking subparagraph (C); and

24 (iii) by striking ‘‘OR DISPOSITION OF

25 ASSETS OR SUBSIDIARY’’ in the heading.
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1 (2) SECTION 403(b).—

2 (A) Paragraphs (7)(A)(ii) and (11)(A) of

3 section 403(b) are each amended by striking

4 ‘‘separates from service’’ and inserting ‘‘has a

5 severance from employment’’.

6 (B) The heading for paragraph (11) of sec7 tion 403(b) is amended by striking ‘‘SEPARATION

8 FROM SERVICE’’ and inserting ‘‘SEVERANCE

9 FROM EMPLOYMENT’’.

10 (3) SECTION 457.—Clause (ii) of section

11 457(d)(1)(A) is amended by striking ‘‘is separated

12 from service’’ and inserting ‘‘has a severance from

13 employment’’.

14 (b) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to distributions after December 31, 2001.

16 SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERN17 MENTAL DEFINED BENEFIT PLANS.

18 (a) 403(b) PLANS.—Subsection (b) of section 403 is

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

20 ‘‘(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO

21 PURCHASE PERMISSIVE SERVICE CREDIT.—No

22 amount shall be includible in gross income by reason

23 of a direct trustee-to-trustee transfer to a defined ben24 efit governmental plan (as defined in section 414(d))

25 if such transfer is—
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1 ‘‘(A) for the purchase of permissive service

2 credit (as defined in section 415(n)(3)(A)) under

3 such plan, or

4 ‘‘(B) a repayment to which section 415 does

5 not apply by reason of subsection (k)(3) there6 of.’’.

7 (b) 457 PLANS.—Subsection (e) of section 457, as

8 amended by section 401, is amended by adding after para9 graph (16) the following new paragraph:

10 ‘‘(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO

11 PURCHASE PERMISSIVE SERVICE CREDIT.—No

12 amount shall be includible in gross income by reason

13 of a direct trustee-to-trustee transfer to a defined ben14 efit governmental plan (as defined in section 414(d))

15 if such transfer is—

16 ‘‘(A) for the purchase of permissive service

17 credit (as defined in section 415(n)(3)(A)) under

18 such plan, or

19 ‘‘(B) a repayment to which section 415 does

20 not apply by reason of subsection (k)(3) there21 of.’’.

22 (c) EFFECTIVE DATE.—The amendments made by this

23 section shall apply to trustee-to-trustee transfers after De24 cember 31, 2001.
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1 SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR

2 PURPOSES OF CASH-OUT AMOUNTS.

3 (a) QUALIFIED PLANS.—

4 (1) AMENDMENT OF INTERNAL REVENUE

5 CODE.—Section 411(a)(11) (relating to restrictions on

6 certain mandatory distributions) is amended by add7 ing at the end the following:

8 ‘‘(D) SPECIAL RULE FOR ROLLOVER CON9 TRIBUTIONS.—A plan shall not fail to meet the

10 requirements of this paragraph if, under the

11 terms of the plan, the present value of the non12 forfeitable accrued benefit is determined without

13 regard to that portion of such benefit which is

14 attributable to rollover contributions (and earn15 ings allocable thereto). For purposes of this sub16 paragraph, the term ‘rollover contributions’

17 means any rollover contribution under sections

18 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),

19 and 457(e)(16).’’.

20 (2) AMENDMENT OF ERISA.—Section 203(e) of

21 the Employee Retirement Income Security Act of

22 1974 (29 U.S.C. 1053(c)) is amended by adding at

23 the end the following:

24 ‘‘(4) A plan shall not fail to meet the requirements of

25 this subsection if, under the terms of the plan, the present

26 value of the nonforfeitable accrued benefit is determined
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1 without regard to that portion of such benefit which is at2 tributable to rollover contributions (and earnings allocable

3 thereto). For purposes of this subparagraph, the term ‘roll4 over contributions’ means any rollover contribution under

5 sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and

6 457(e)(16) of the Internal Revenue Code of 1986.’’.

7 (b) ELIGIBLE DEFERRED COMPENSATION PLANS.—

8 Clause (i) of section 457(e)(9)(A) is amended by striking

9 ‘‘such amount’’ and inserting ‘‘the portion of such amount

10 which is not attributable to rollover contributions (as de11 fined in section 411(a)(11)(D))’’.

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

13 section shall apply to distributions after December 31, 2001.

14 SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION RE15 QUIREMENTS FOR SECTION 457 PLANS.

16 (a) MINIMUM DISTRIBUTION REQUIREMENTS.—Para17 graph (2) of section 457(d) (relating to distribution require18 ments) is amended to read as follows:

19 ‘‘(2) MINIMUM DISTRIBUTION REQUIREMENTS.—

20 A plan meets the minimum distribution requirements

21 of this paragraph if such plan meets the requirements

22 of section 401(a)(9).’’.

23 (b) INCLUSION IN GROSS INCOME.—
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1 (1) YEAR OF INCLUSION.—Subsection (a) of sec2 tion 457 (relating to year of inclusion in gross in3 come) is amended to read as follows:

4 ‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—

5 ‘‘(1) IN GENERAL.—Any amount of compensa6 tion deferred under an eligible deferred compensation

7 plan, and any income attributable to the amounts so

8 deferred, shall be includible in gross income only for

9 the taxable year in which such compensation or other

10 income—

11 ‘‘(A) is paid to the participant or other ben12 eficiary, in the case of a plan of an eligible em13 ployer described in subsection (e)(1)(A), and

14 ‘‘(B) is paid or otherwise made available to

15 the participant or other beneficiary, in the case

16 of a plan of an eligible employer described in

17 subsection (e)(1)(B).

18 ‘‘(2) SPECIAL RULE FOR ROLLOVER AMOUNTS.—

19 To the extent provided in section 72(t)(9), section

20 72(t) shall apply to any amount includible in gross

21 income under this subsection.’’.

22 (2) CONFORMING AMENDMENTS.—

23 (A) So much of paragraph (9) of section

24 457(e) as precedes subparagraph (A) is amended

25 to read as follows:
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1 ‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION

2 PLANS NOT TREATED AS MADE AVAILABLE BY REASON

3 OF CERTAIN ELECTIONS, ETC.—In the case of an eligi4 ble deferred compensation plan of an employer de5 scribed in subsection (e)(1)(B)—’’.

6 (B) Section 457(d) is amended by adding at

7 the end the following new paragraph:

8 ‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—

9 An eligible deferred compensation plan of an em10 ployer described in subsection (e)(1)(A) shall not be

11 treated as failing to meet the requirements of this sub12 section solely by reason of making a distribution de13 scribed in subsection (e)(9)(A).’’.

14 (c) MODIFICATION OF TRANSITION RULES FOR EXIST15 ING 457 PLANS.—

16 (1) IN GENERAL.—Section 1107(c)(3)(B) of the

17 Tax Reform Act of 1986 is amended by striking ‘‘or’’

18 at the end of clause (i), by striking the period at the

19 end of clause (ii) and inserting ‘‘, or’’ and by insert20 ing after clause (ii) the following new clause:

21 ‘‘(iii) are deferred pursuant to an

22 agreement with an individual covered by an

23 agreement described in clause (ii), to the ex24 tent the annual amount under such agree25 ment with the individual does not exceed—
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1 ‘‘(I) the amount described in

2 clause (ii)(II), multiplied by

3 ‘‘(II) the cumulative increase in

4 the Consumer Price Index (as pub5 lished by the Bureau of Labor Statis6 tics of the Department of Labor).’’.

7 (2) CONFORMING AMENDMENT.—The fourth sen8 tence of section 1107(c)(3)(B) of the Tax Reform Act

9 of 1986 is amended by striking ‘‘This subparagraph’’

10 and inserting ‘‘Clauses (i) and (ii) of this subpara11 graph’’.

12 (3) EFFECTIVE DATE.—The amendments made

13 by this subsection shall apply to taxable years ending

14 after the date of the enactment of this Act with respect

15 to increases in the Consumer Price Index after Sep16 tember 30, 1993.

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

18 subsections (a) and (b) shall apply to distributions after

19 December 31, 2001.
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1 Subtitle E—Strengthening Pension

2 Security and Enforcement

3 PART I—GENERAL PROVISIONS

4 SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY

5 FUNDING LIMIT.

6 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

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

8 amended—

9 (1) by striking ‘‘the applicable percentage’’ in

10 subparagraph (A)(i)(I) and inserting ‘‘in the case of

11 plan years beginning before January 1, 2005, the ap12 plicable percentage’’; and

13 (2) by amending subparagraph (F) to read as

14 follows:

15 ‘‘(F) APPLICABLE PERCENTAGE.—For pur16 poses of subparagraph (A)(i)(I), the applicable

17 percentage shall be determined in accordance

18 with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2002 .................................................................................... 160

2003 .................................................................................... 165

2004 .................................................................................... 170.’’.

19 (b) AMENDMENT OF ERISA.—Section 302(c)(7) of the

20 Employee Retirement Income Security Act of 1974 (29

21 U.S.C. 1082(c)(7)) is amended—

22 (1) by striking ‘‘the applicable percentage’’ in

23 subparagraph (A)(i)(I) and inserting ‘‘in the case of
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1 plan years beginning before January 1, 2005, the ap2 plicable percentage’’, and

3 (2) by amending subparagraph (F) to read as

4 follows:

5 ‘‘(F) APPLICABLE PERCENTAGE.—For pur6 poses of subparagraph (A)(i)(I), the applicable

7 percentage shall be determined in accordance

8 with the following table:

‘‘In the case of any plan year The applicable

beginning in— percentage is—

2002 .................................................................................... 160

2003 .................................................................................... 165

2004 .................................................................................... 170.’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to plan years beginning after December

11 31, 2001.

12 SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES

13 MODIFIED AND APPLIED TO ALL DEFINED

14 BENEFIT PLANS.

15 (a) IN GENERAL.—Subparagraph (D) of section

16 404(a)(1) (relating to special rule in case of certain plans)

17 is amended to read as follows:

18 ‘‘(D) SPECIAL RULE IN CASE OF CERTAIN

19 PLANS.—

20 ‘‘(i) IN GENERAL.—In the case of any

21 defined benefit plan, except as provided in

22 regulations, the maximum amount deduct23 ible under the limitations of this paragraph
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1 shall not be less than the unfunded termi2 nation liability (determined as if the pro3 posed termination date referred to in section

4 4041(b)(2)(A)(i)(II) of the Employee Retire5 ment Income Security Act of 1974 were the

6 last day of the plan year).

7 ‘‘(ii) PLANS WITH LESS THAN 100 PAR8 TICIPANTS.—For purposes of this subpara9 graph, in the case of a plan which has less

10 than 100 participants for the plan year,

11 termination liability shall not include the

12 liability attributable to benefit increases for

13 highly compensated employees (as defined

14 in section 414(q)) resulting from a plan

15 amendment which is made or becomes effec16 tive, whichever is later, within the last 2

17 years before the termination date.

18 ‘‘(iii) RULE FOR DETERMINING NUM19 BER OF PARTICIPANTS.—For purposes of de20 termining whether a plan has more than

21 100 participants, all defined benefit plans

22 maintained by the same employer (or any

23 member of such employer’s controlled group

24 (within the meaning of section

25 412(l)(8)(C))) shall be treated as one plan,
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1 but only employees of such member or em2 ployer shall be taken into account.

3 ‘‘(iv) PLANS MAINTAINED BY PROFES4 SIONAL SERVICE EMPLOYERS.—Clause (i)

5 shall not apply to a plan described in sec6 tion 4021(b)(13) of the Employee Retire7 ment Income Security Act of 1974.’’.

8 (b) CONFORMING AMENDMENT.—Paragraph (6) of sec9 tion 4972(c) is amended to read as follows:

10 ‘‘(6) EXCEPTIONS.—In determining the amount

11 of nondeductible contributions for any taxable year,

12 there shall not be taken into account so much of the

13 contributions to one or more defined contribution

14 plans which are not deductible when contributed sole15 ly because of section 404(a)(7) as does not exceed the

16 greater of—

17 ‘‘(A) the amount of contributions not in ex18 cess of 6 percent of compensation (within the

19 meaning of section 404(a)) paid or accrued (dur20 ing the taxable year for which the contributions

21 were made) to beneficiaries under the plans, or

22 ‘‘(B) the sum of—

23 ‘‘(i) the amount of contributions de24 scribed in section 401(m)(4)(A), plus
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1 ‘‘(ii) the amount of contributions de2 scribed in section 402(g)(3)(A).

3 For purposes of this paragraph, the deductible limits

4 under section 404(a)(7) shall first be applied to

5 amounts contributed to a defined benefit plan and

6 then to amounts described in subparagraph (B).’’.

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

8 section shall apply to plan years beginning after December

9 31, 2001.

10 SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUND11 ING.

12 (a) IN GENERAL.—Subsection (c) of section 4972 (re13 lating to nondeductible contributions) is amended by add14 ing at the end the following new paragraph:

15 ‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In

16 determining the amount of nondeductible contribu17 tions for any taxable year, an employer may elect for

18 such year not to take into account any contributions

19 to a defined benefit plan except to the extent that such

20 contributions exceed the full-funding limitation (as

21 defined in section 412(c)(7), determined without re22 gard to subparagraph (A)(i)(I) thereof). For purposes

23 of this paragraph, the deductible limits under section

24 404(a)(7) shall first be applied to amounts contrib25 uted to defined contribution plans and then to
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1 amounts described in this paragraph. If an employer

2 makes an election under this paragraph for a taxable

3 year, paragraph (6) shall not apply to such employer

4 for such taxable year.’’.

5 (b) EFFECTIVE DATE.—The amendment made by this

6 section shall apply to years beginning after December 31,

7 2001.

8 SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER

9 SECTION 415.

10 (a) COMPENSATION LIMIT.—

11 (1) IN GENERAL.—Paragraph (11) of section

12 415(b) (relating to limitation for defined benefit

13 plans) is amended to read as follows:

14 ‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN15 MENTAL AND MULTIEMPLOYER PLANS.—In the case of

16 a governmental plan (as defined in section 414(d)) or

17 a multiemployer plan (as defined in section 414(f)),

18 subparagraph (B) of paragraph (1) shall not apply.’’.

19 (2) CONFORMING AMENDMENT.—Section

20 415(b)(7) (relating to benefits under certain collec21 tively bargained plans) is amended by inserting

22 ‘‘(other than a multiemployer plan)’’ after ‘‘defined

23 benefit plan’’ in the matter preceding subparagraph

24 (A).

25 (b) COMBINING AND AGGREGATION OF PLANS.—
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1 (1) COMBINING OF PLANS.—Subsection (f) of sec2 tion 415 (relating to combining of plans) is amended

3 by adding at the end the following:

4 ‘‘(3) EXCEPTION FOR MULTIEMPLOYER PLANS.—

5 Notwithstanding paragraph (1) and subsection (g), a

6 multiemployer plan (as defined in section 414(f))

7 shall not be combined or aggregated with any other

8 plan maintained by an employer for purposes of ap9 plying subsection (b)(1)(B) to such plan or any other

10 such plan.’’.

11 (2) CONFORMING AMENDMENT FOR AGGREGATION

12 OF PLANS.—Subsection (g) of section 415 (relating to

13 aggregation of plans) is amended by striking ‘‘The

14 Secretary’’ and inserting ‘‘Except as provided in sub15 section (f)(3), the Secretary’’.

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

17 section shall apply to years beginning after December 31,

18 2001.

19 SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE

20 CONTRIBUTIONS TO 401(k) PLANS.

21 (a) IN GENERAL.—Section 1524(b) of the Taxpayer

22 Relief Act of 1997 is amended to read as follows:

23 ‘‘(b) EFFECTIVE DATE.—

24 ‘‘(1) IN GENERAL.—Except as provided in para25 graph (2), the amendments made by this section shall
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1 apply to elective deferrals for plan years beginning

2 after December 31, 1998.

3 ‘‘(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED

4 PROPERTY.—The amendments made by this section

5 shall not apply to any elective deferral which is in6 vested in assets consisting of qualifying employer se7 curities, qualifying employer real property, or both, if

8 such assets were acquired before January 1, 1999.’’.

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

10 section shall apply as if included in the provision of the

11 Taxpayer Relief Act of 1997 to which it relates.

12 SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S COR13 PORATION ESOP.

14 (a) IN GENERAL.—Section 409 (relating to qualifica15 tions for tax credit employee stock ownership plans) is

16 amended by redesignating subsection (p) as subsection (q)

17 and by inserting after subsection (o) the following new sub18 section:

19 ‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN

20 S CORPORATION.—

21 ‘‘(1) IN GENERAL.—An employee stock ownership

22 plan holding employer securities consisting of stock in

23 an S corporation shall provide that no portion of the

24 assets of the plan attributable to (or allocable in lieu

25 of) such employer securities may, during a nonalloca-
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1 tion year, accrue (or be allocated directly or indi2 rectly under any plan of the employer meeting the re3 quirements of section 401(a)) for the benefit of any

4 disqualified person.

5 ‘‘(2) FAILURE TO MEET REQUIREMENTS.—

6 ‘‘(A) IN GENERAL.—If a plan fails to meet

7 the requirements of paragraph (1), the plan shall

8 be treated as having distributed to any disquali9 fied person the amount allocated to the account

10 of such person in violation of paragraph (1) at

11 the time of such allocation.

12 ‘‘(B) CROSS REFERENCE.—

‘‘For excise tax relating to violations of paragraph

(1) and ownership of synthetic equity, see section

4979A.

13 ‘‘(3) NONALLOCATION YEAR.—For purposes of

14 this subsection—

15 ‘‘(A) IN GENERAL.—The term ‘nonalloca16 tion year’ means any plan year of an employee

17 stock ownership plan if, at any time during such

18 plan year—

19 ‘‘(i) such plan holds employer securi20 ties consisting of stock in an S corporation,

21 and

22 ‘‘(ii) disqualified persons own at least

23 50 percent of the number of shares of stock

24 in the S corporation.
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1 ‘‘(B) ATTRIBUTION RULES.—For purposes

2 of subparagraph (A)—

3 ‘‘(i) IN GENERAL.—The rules of section

4 318(a) shall apply for purposes of deter5 mining ownership, except that—

6 ‘‘(I) in applying paragraph (1)

7 thereof, the members of an individual’s

8 family shall include members of the

9 family described in paragraph (4)(D),

10 and

11 ‘‘(II) paragraph (4) thereof shall

12 not apply.

13 ‘‘(ii) DEEMED-OWNED SHARES.—Not14 withstanding the employee trust exception

15 in section 318(a)(2)(B)(i), an individual

16 shall be treated as owning deemed-owned

17 shares of the individual.

18 Solely for purposes of applying paragraph (5),

19 this subparagraph shall be applied after the at20 tribution rules of paragraph (5) have been ap21 plied.

22 ‘‘(4) DISQUALIFIED PERSON.—For purposes of

23 this subsection—

24 ‘‘(A) IN GENERAL.—The term ‘disqualified

25 person’ means any person if—
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1 ‘‘(i) the aggregate number of deemed2 owned shares of such person and the mem3 bers of such person’s family is at least 20

4 percent of the number of deemed-owned

5 shares of stock in the S corporation, or

6 ‘‘(ii) in the case of a person not de7 scribed in clause (i), the number of deemed8 owned shares of such person is at least 10

9 percent of the number of deemed-owned

10 shares of stock in such corporation.

11 ‘‘(B) TREATMENT OF FAMILY MEMBERS.—

12 In the case of a disqualified person described in

13 subparagraph (A)(i), any member of such per14 son’s family with deemed-owned shares shall be

15 treated as a disqualified person if not otherwise

16 treated as a disqualified person under subpara17 graph (A).

18 ‘‘(C) DEEMED-OWNED SHARES.—

19 ‘‘(i) IN GENERAL.—The term ‘deemed20 owned shares’ means, with respect to any

21 person—

22 ‘‘(I) the stock in the S corporation

23 constituting employer securities of an

24 employee stock ownership plan which
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1 is allocated to such person under the

2 plan, and

3 ‘‘(II) such person’s share of the

4 stock in such corporation which is held

5 by such plan but which is not allocated

6 under the plan to participants.

7 ‘‘(ii) PERSON’S SHARE OF

8 UNALLOCATED STOCK.—For purposes of

9 clause (i)(II), a person’s share of

10 unallocated S corporation stock held by

11 such plan is the amount of the unallocated

12 stock which would be allocated to such per13 son if the unallocated stock were allocated to

14 all participants in the same proportions as

15 the most recent stock allocation under the

16 plan.

17 ‘‘(D) MEMBER OF FAMILY.—For purposes of

18 this paragraph, the term ‘member of the family’

19 means, with respect to any individual—

20 ‘‘(i) the spouse of the individual,

21 ‘‘(ii) an ancestor or lineal descendant

22 of the individual or the individual’s spouse,

23 ‘‘(iii) a brother or sister of the indi24 vidual or the individual’s spouse and any
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1 lineal descendant of the brother or sister,

2 and

3 ‘‘(iv) the spouse of any individual de4 scribed in clause (ii) or (iii).

5 A spouse of an individual who is legally sepa6 rated from such individual under a decree of di7 vorce or separate maintenance shall not be treat8 ed as such individual’s spouse for purposes of

9 this subparagraph.

10 ‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For

11 purposes of paragraphs (3) and (4), in the case of a

12 person who owns synthetic equity in the S corpora13 tion, except to the extent provided in regulations, the

14 shares of stock in such corporation on which such

15 synthetic equity is based shall be treated as out16 standing stock in such corporation and deemed-owned

17 shares of such person if such treatment of synthetic

18 equity of 1 or more such persons results in—

19 ‘‘(A) the treatment of any person as a dis20 qualified person, or

21 ‘‘(B) the treatment of any year as a non22 allocation year.

23 For purposes of this paragraph, synthetic equity shall

24 be treated as owned by a person in the same manner

25 as stock is treated as owned by a person under the
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1 rules of paragraphs (2) and (3) of section 318(a). If,

2 without regard to this paragraph, a person is treated

3 as a disqualified person or a year is treated as a non4 allocation year, this paragraph shall not be construed

5 to result in the person or year not being so treated.

6 ‘‘(6) DEFINITIONS.—For purposes of this

7 subsection—

8 ‘‘(A) EMPLOYEE STOCK OWNERSHIP

9 PLAN.—The term ‘employee stock ownership

10 plan’ has the meaning given such term by sec11 tion 4975(e)(7).

12 ‘‘(B) EMPLOYER SECURITIES.—The term

13 ‘employer security’ has the meaning given such

14 term by section 409(l).

15 ‘‘(C) SYNTHETIC EQUITY.—The term ‘syn16 thetic equity’ means any stock option, warrant,

17 restricted stock, deferred issuance stock right, or

18 similar interest or right that gives the holder the

19 right to acquire or receive stock of the S corpora20 tion in the future. Except to the extent provided

21 in regulations, synthetic equity also includes a

22 stock appreciation right, phantom stock unit, or

23 similar right to a future cash payment based on

24 the value of such stock or appreciation in such

25 value.
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1 ‘‘(7) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out the purposes of this subsection.’’.

4 (b) COORDINATION WITH SECTION 4975(e)(7).—The

5 last sentence of section 4975(e)(7) (defining employee stock

6 ownership plan) is amended by inserting ‘‘, section 409(p),’’

7 after ‘‘409(n)’’.

8 (c) EXCISE TAX.—

9 (1) APPLICATION OF TAX.—Subsection (a) of sec10 tion 4979A (relating to tax on certain prohibited allo11 cations of employer securities) is amended—

12 (A) by striking ‘‘or’’ at the end of para13 graph (1), and

14 (B) by striking all that follows paragraph

15 (2) and inserting the following:

16 ‘‘(3) there is any allocation of employer securi17 ties which violates the provisions of section 409(p), or

18 a nonallocation year described in subsection (e)(2)(C)

19 with respect to an employee stock ownership plan, or

20 ‘‘(4) any synthetic equity is owned by a dis21 qualified person in any nonallocation year,

22 there is hereby imposed a tax on such allocation or owner23 ship equal to 50 percent of the amount involved.’’.

24 (2) LIABILITY.—Section 4979A(c) (defining li25 ability for tax) is amended to read as follows:
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1 ‘‘(c) LIABILITY FOR TAX.—The tax imposed by this

2 section shall be paid—

3 ‘‘(1) in the case of an allocation referred to in

4 paragraph (1) or (2) of subsection (a), by—

5 ‘‘(A) the employer sponsoring such plan, or

6 ‘‘(B) the eligible worker-owned cooperative,

7 which made the written statement described in section

8 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case

9 may be), and

10 ‘‘(2) in the case of an allocation or ownership re11 ferred to in paragraph (3) or (4) of subsection (a), by

12 the S corporation the stock in which was so allocated

13 or owned.’’.

14 (3) DEFINITIONS.—Section 4979A(e) (relating to

15 definitions) is amended to read as follows:

16 ‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur17 poses of this section—

18 ‘‘(1) DEFINITIONS.—Except as provided in para19 graph (2), terms used in this section have the same

20 respective meanings as when used in sections 409 and

21 4978.

22 ‘‘(2) SPECIAL RULES RELATING TO TAX IMPOSED

23 BY REASON OF PARAGRAPH (3) OR (4) OF SUBSECTION

24 (a).—
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1 ‘‘(A) PROHIBITED ALLOCATIONS.—The

2 amount involved with respect to any tax imposed

3 by reason of subsection (a)(3) is the amount allo4 cated to the account of any person in violation

5 of section 409(p)(1).

6 ‘‘(B) SYNTHETIC EQUITY.—The amount in7 volved with respect to any tax imposed by reason

8 of subsection (a)(4) is the value of the shares on

9 which the synthetic equity is based.

10 ‘‘(C) SPECIAL RULE DURING FIRST NON11 ALLOCATION YEAR.—For purposes of subpara12 graph (A), the amount involved for the first non13 allocation year of any employee stock ownership

14 plan shall be determined by taking into account

15 the total value of all the deemed-owned shares of

16 all disqualified persons with respect to such

17 plan.

18 ‘‘(D) STATUTE OF LIMITATIONS.—The stat19 utory period for the assessment of any tax im20 posed by this section by reason of paragraph (3)

21 or (4) of subsection (a) shall not expire before the

22 date which is 3 years from the later of—

23 ‘‘(i) the allocation or ownership re24 ferred to in such paragraph giving rise to

25 such tax, or
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1 ‘‘(ii) the date on which the Secretary is

2 notified of such allocation or ownership.’’.

3 (d) EFFECTIVE DATES.—

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

5 this section shall apply to plan years beginning after

6 December 31, 2002.

7 (2) EXCEPTION FOR CERTAIN PLANS.—In the

8 case of any—

9 (A) employee stock ownership plan estab10 lished after July 11, 2000, or

11 (B) employee stock ownership plan estab12 lished on or before such date if employer securi13 ties held by the plan consist of stock in a cor14 poration with respect to which an election under

15 section 1362(a) of the Internal Revenue Code of

16 1986 is not in effect on such date,

17 the amendments made by this section shall apply to

18 plan years ending after July 11, 2000.

19 SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDA20 TORY DISTRIBUTIONS.

21 (a) DIRECT TRANSFERS OF MANDATORY DISTRIBU22 TIONS.—

23 (1) IN GENERAL.—Section 401(a)(31) (relating

24 to optional direct transfer of eligible rollover distribu25 tions), as amended by section 643, is amended by re-
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1 designating subparagraphs (B), (C), and (D) as sub2 paragraphs (C), (D), and (E), respectively, and by

3 inserting after subparagraph (A) the following new

4 subparagraph:

5 ‘‘(B) CERTAIN MANDATORY DISTRIBU6 TIONS.—

7 ‘‘(i) IN GENERAL.—In case of a trust

8 which is part of an eligible plan, such trust

9 shall not constitute a qualified trust under

10 this section unless the plan of which such

11 trust is a part provides that if—

12 ‘‘(I) a distribution described in

13 clause (ii) in excess of $1,000 is made,

14 and

15 ‘‘(II) the distributee does not make

16 an election under subparagraph (A)

17 and does not elect to receive the dis18 tribution directly,

19 the plan administrator shall make such

20 transfer to an individual retirement ac21 count or annuity of a designated trustee or

22 issuer and shall notify the distributee in

23 writing (either separately or as part of the

24 notice under section 402(f)) that the dis25 tribution may be transferred without cost or
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1 penalty to another individual account or

2 annuity.

3 ‘‘(ii) ELIGIBLE PLAN.—For purposes of

4 clause (i), the term ‘eligible plan’ means a

5 plan which provides that any nonforfeitable

6 accrued benefit for which the present value

7 (as determined under section 411(a)(11))

8 does not exceed $5,000 shall be immediately

9 distributed to the participant.’’.

10 (2) CONFORMING AMENDMENTS.—

11 (A) The heading of section 401(a)(31) is

12 amended by striking ‘‘OPTIONAL DIRECT’’ and

13 inserting ‘‘DIRECT’’.

14 (B) Section 401(a)(31)(C), as redesignated

15 by paragraph (1), is amended by striking ‘‘Sub16 paragraph (A)’’ and inserting ‘‘Subparagraphs

17 (A) and (B)’’.

18 (b) NOTICE REQUIREMENT.—Section 402(f)(1) (relat19 ing to written explanation to recipients of distributions eli20 gible for rollover treatment) is amended by striking ‘‘and’’

21 at the end of subparagraph (C), by striking the period at

22 the end of subparagraph (D), and by adding at the end

23 the following new subparagraph:

24 ‘‘(E) if applicable, of the provision requir25 ing a direct trustee-to-trustee transfer of a dis-
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1 tribution under section 401(a)(31)(B) unless the

2 recipient elects otherwise.’’.

3 (c) FIDUCIARY RULES.—

4 (1) IN GENERAL.—Section 404(c) of the Em5 ployee Retirement Income Security Act of 1974 (29

6 U.S.C. 1104(c)) is amended by adding at the end the

7 following new paragraph:

8 ‘‘(3) In the case of a pension plan which makes

9 a transfer to an individual retirement account or an10 nuity of a designated trustee or issuer under section

11 401(a)(31)(B) of the Internal Revenue Code of 1986,

12 the participant or beneficiary shall, for purposes of

13 paragraph (1), be treated as exercising control over

14 the assets in the account or annuity upon the earlier

15 of—

16 ‘‘(A) a rollover of all or a portion of the

17 amount to another individual retirement account

18 or annuity; or

19 ‘‘(B) one year after the transfer is made.’’.

20 (2) REGULATIONS.—

21 (A) AUTOMATIC ROLLOVER SAFE HAR22 BOR.—The Secretary of Labor shall promulgate

23 regulations to provide guidance regarding meet24 ing the fiduciary requirements of section 404(a)

25 of the Employee Retirement Income Security Act
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1 of 1974 (29 U.S.C. 1104(a)) in the case of a pen2 sion plan which makes a transfer under section

3 401(a)(31)(B) of the Internal Revenue Code of

4 1986.

5 (B) USE OF LOW-COST INDIVIDUAL RETIRE6 MENT PLANS.—The Secretary of the Treasury

7 and the Secretary of Labor shall promulgate

8 such regulations as necessary to encourage the

9 use of low-cost individual retirement plans for

10 purposes of transfers under section 401(a)(31)(B)

11 of the Internal Revenue Code of 1986 and for

12 other uses as appropriate to promote the preser13 vation of assets for retirement income purposes.

14 (d) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to distributions made after final regula16 tions implementing subsection (c) are prescribed.

17 SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBU18 TIONS TO MULTIEMPLOYER PLAN.

19 (a) NOT CONSIDERED METHOD OF ACCOUNTING.—For

20 purposes of section 446 of the Internal Revenue Code of

21 1986, a determination under section 404(a)(6) of such Code

22 regarding the taxable year with respect to which a contribu23 tion to a multiemployer pension plan is deemed made shall

24 not be treated as a method of accounting of the taxpayer.

25 No deduction shall be allowed for any taxable year for any
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1 contribution to a multiemployer pension plan with respect

2 to which a deduction was previously allowed.

3 (b) REGULATIONS.—The Secretary of the Treasury

4 shall promulgate such regulations as necessary to clarify

5 that a taxpayer shall not be allowed, with respect to any

6 taxable year, an aggregate amount of deductions for con7 tributions to a multiemployer pension plan which exceeds

8 the amount of such contributions made or deemed made

9 under section 404(a)(6) of the Internal Revenue Code of

10 1986 to such plan.

11 (c) EFFECTIVE DATE.—Subsection (a), and any regu12 lations promulgated under subsection (b), shall be effective

13 for years ending after the date of the enactment of this Act.

14 PART II—TREATMENT OF PLAN AMENDMENTS

15 REDUCING FUTURE BENEFIT ACCRUALS

16 SEC. 659. NOTICE REQUIRED FOR PENSION PLAN AMEND17 MENTS HAVING THE EFFECT OF SIGNIFI18 CANTLY REDUCING FUTURE BENEFIT ACCRU19 ALS.

20 (a) EXCISE TAX.—

21 (1) IN GENERAL.—Chapter 43 (relating to quali22 fied pension, etc., plans) is amended by adding at the

23 end the following new section:
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1 ‘‘SEC. 4980F. FAILURE TO PROVIDE NOTICE OF PENSION

2 PLAN AMENDMENTS REDUCING BENEFIT AC3 CRUALS.

4 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed a

5 tax on the failure of an applicable pension plan to meet

6 the requirements of subsection (e) with respect to any appli7 cable individual.

8 ‘‘(b) AMOUNT OF TAX.—

9 ‘‘(1) IN GENERAL.—The amount of the tax im10 posed by subsection (a) on any failure with respect to

11 any applicable individual shall be $100 for each day

12 in the noncompliance period with respect to such fail13 ure.

14 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes of

15 this section, the term ‘noncompliance period’ means,

16 with respect to any failure, the period beginning on

17 the date the failure first occurs and ending on the

18 date the notice to which the failure relates is provided

19 or the failure is otherwise corrected.

20 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

21 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

22 DISCOVERED AND REASONABLE DILIGENCE EXER23 CISED.—No tax shall be imposed by subsection (a) on

24 any failure during any period for which it is estab25 lished to the satisfaction of the Secretary that any

26 person subject to liability for the tax under subsection
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1 (d) did not know that the failure existed and exercised

2 reasonable diligence to meet the requirements of sub3 section (e).

4 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR5 RECTED WITHIN 30 DAYS.—No tax shall be imposed

6 by subsection (a) on any failure if—

7 ‘‘(A) any person subject to liability for the

8 tax under subsection (d) exercised reasonable

9 diligence to meet the requirements of subsection

10 (e), and

11 ‘‘(B) such person provides the notice de12 scribed in subsection (e) during the 30-day pe13 riod beginning on the first date such person

14 knew, or exercising reasonable diligence would

15 have known, that such failure existed.

16 ‘‘(3) OVERALL LIMITATION FOR UNINTENTIONAL

17 FAILURES.—

18 ‘‘(A) IN GENERAL.—If the person subject to

19 liability for tax under subsection (d) exercised

20 reasonable diligence to meet the requirements of

21 subsection (e), the tax imposed by subsection (a)

22 for failures during the taxable year of the em23 ployer (or, in the case of a multiemployer plan,

24 the taxable year of the trust forming part of the

25 plan) shall not exceed $500,000. For purposes of
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1 the preceding sentence, all multiemployer plans

2 of which the same trust forms a part shall be

3 treated as 1 plan.

4 ‘‘(B) TAXABLE YEARS IN THE CASE OF CER5 TAIN CONTROLLED GROUPS.—For purposes of

6 this paragraph, if all persons who are treated as

7 a single employer for purposes of this section do

8 not have the same taxable year, the taxable years

9 taken into account shall be determined under

10 principles similar to the principles of section

11 1561.

12 ‘‘(4) WAIVER BY SECRETARY.—In the case of a

13 failure which is due to reasonable cause and not to

14 willful neglect, the Secretary may waive part or all

15 of the tax imposed by subsection (a) to the extent that

16 the payment of such tax would be excessive or other17 wise inequitable relative to the failure involved.

18 ‘‘(d) LIABILITY FOR TAX.—The following shall be lia19 ble for the tax imposed by subsection (a):

20 ‘‘(1) In the case of a plan other than a multiem21 ployer plan, the employer.

22 ‘‘(2) In the case of a multiemployer plan, the

23 plan.

24 ‘‘(e) NOTICE REQUIREMENTS FOR PLAN AMENDMENTS

25 SIGNIFICANTLY REDUCING BENEFIT ACCRUALS.—
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1 ‘‘(1) IN GENERAL.—If the sponsor of an applica2 ble pension plan adopts an amendment which has the

3 effect of significantly reducing the rate of future ben4 efit accrual of 1 or more participants, the plan ad5 ministrator shall, not later than the 45th day before

6 the effective date of the amendment, provide written

7 notice to each applicable individual (and to each em8 ployee organization representing applicable individ9 uals) which—

10 ‘‘(A) sets forth a summary of the plan

11 amendment and the effective date of the amend12 ment,

13 ‘‘(B) includes a statement that the plan

14 amendment is expected to significantly reduce

15 the rate of future benefit accrual,

16 ‘‘(C) includes a description of the classes of

17 employees reasonably expected to be affected by

18 the reduction in the rate of future benefit ac19 crual,

20 ‘‘(D) sets forth examples illustrating how

21 the plan will change benefits for such classes of

22 employees,

23 ‘‘(E) if paragraph (2) applies to the plan

24 amendment, includes a notice that the plan ad25 ministrator will provide a benefit estimation tool
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1 kit described in paragraph (2)(B) to each appli2 cable individual no later than the date required

3 under paragraph (2)(A), and

4 ‘‘(F) includes a notice of each applicable in5 dividual’s right under Federal law to receive,

6 and of the procedures for requesting, an annual

7 benefit statement.

8 ‘‘(2) REQUIREMENT TO PROVIDE BENEFIT ESTI9 MATION TOOL KIT.—

10 ‘‘(A) IN GENERAL.—If a plan amendment

11 results in the significant restructuring of the

12 plan benefit formula (as determined under regu13 lations prescribed by the Secretary), the plan ad14 ministrator shall, not later than the 15th day be15 fore the effective date of the amendment, provide

16 a benefit estimation tool kit described in sub17 paragraph (B) to each applicable individual. If

18 such plan amendment occurs within 12 months

19 of an event described in section 410(b)(6)(C), the

20 plan administrator shall in no event be required

21 to provide the benefit estimation tool kit to ap22 plicable individuals affected by the event before

23 the date which is 12 months after the date on

24 which notice under paragraph (1) is given to

25 such applicable individuals.
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1 ‘‘(B) BENEFIT ESTIMATION TOOL KIT.—The

2 benefit estimation tool kit described in this sub3 paragraph shall include the following informa4 tion:

5 ‘‘(i) Sufficient information to enable

6 an applicable individual to estimate the in7 dividual’s projected benefits under the terms

8 of the plan in effect both before and after the

9 adoption of the amendment.

10 ‘‘(ii) The formulas and actuarial as11 sumptions necessary to estimate under both

12 such plan terms a single life annuity at ap13 propriate ages, and, when available, a lump

14 sum distribution.

15 ‘‘(iii) The interest rate used to compute

16 a lump sum distribution and information

17 as to whether the value of any early retire18 ment benefit or retirement-type subsidy

19 (within the meaning of section

20 411(d)(6)(B)(i)) is included in the lump

21 sum distribution.

22 ‘‘(3) NOTICE TO DESIGNEE.—Any notice under

23 paragraph (1) or (2) may be provided to a person

24 designated, in writing, by the person to which it

25 would otherwise be provided.
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1 ‘‘(4) FORM OF EXPLANATION.—The information

2 required to be provided under this subsection shall be

3 provided in a manner calculated to be reasonably un4 derstood by the average plan participant.

5 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur6 poses of this section—

7 ‘‘(1) APPLICABLE INDIVIDUAL.—

8 ‘‘(A) IN GENERAL.—The term ‘applicable

9 individual’ means, with respect to any plan

10 amendment—

11 ‘‘(i) each participant in the plan, and

12 ‘‘(ii) any beneficiary who is an alter13 nate payee (within the meaning of section

14 414(p)(8)) under an applicable qualified

15 domestic relations order (within the mean16 ing of section 414(p)(1)(A)),

17 whose rate of future benefit accrual under the

18 plan may reasonably be expected to be signifi19 cantly reduced by such plan amendment.

20 ‘‘(B) EXCEPTION FOR PARTICIPANTS WITH

21 LESS THAN 1 YEAR OF PARTICIPATION.—Such

22 term shall not include a participant who has less

23 than 1 year of participation (within the mean24 ing of section 411(b)(4)) under the plan as of the

25 effective date of the plan amendment.
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1 ‘‘(2) APPLICABLE PENSION PLAN.—The term ‘ap2 plicable pension plan’ means—

3 ‘‘(A) a defined benefit plan, or

4 ‘‘(B) an individual account plan which is

5 subject to the funding standards of section 412.

6 Such term shall not include a governmental plan

7 (within the meaning of section 414(d)), a church plan

8 (within the meaning of section 414(e)) with respect to

9 which an election under section 410(d) has not been

10 made, or any other plan to which section 204(h) of

11 the Employee Retirement Income Security Act of

12 1974 does not apply.

13 ‘‘(3) EARLY RETIREMENT.—A plan amendment

14 which eliminates or significantly reduces any early

15 retirement benefit or retirement-type subsidy (within

16 the meaning of section 411(d)(6)(B)(i)) shall be treat17 ed as having the effect of significantly reducing the

18 rate of future benefit accrual.

19 ‘‘(g) REGULATIONS.—The Secretary shall, not later

20 than 1 year after the date of the enactment of this section,

21 issue—

22 ‘‘(1) the regulations described in subsection

23 (e)(2)(A) and section 204(h)(2)(A) of the Employee

24 Retirement Income Security Act of 1974, and
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1 ‘‘(2) guidance for both of the examples described

2 in subsection (e)(1)(D) and section 204(h)(1)(D) of

3 the Employee Retirement Income Security Act of

4 1974 and the benefit estimation tool kit described in

5 subsection (e)(2)(B) and section 204(h)(2)(B) of the

6 Employee Retirement Income Security Act of 1974.

7 ‘‘(h) NEW TECHNOLOGIES.—The Secretary may by

8 regulation allow any notice under paragraph (1) or (2) of

9 subsection (e) to be provided by using new technologies.

10 Such regulations shall ensure that at least one option for

11 providing such notice is not dependent on new tech12 nologies.’’

13 (2) CONFORMING AMENDMENT.—The table of sec14 tions for chapter 43 is amended by adding at the end

15 the following new item:

‘‘Sec. 4980F. Failure to provide notice of pension plan amendments

reducing benefit accruals.’’

16 (b) AMENDMENT OF ERISA.—Section 204(h) of the

17 Employee Retirement Income Security Act of 1974 (29

18 U.S.C. 1054(h)) is amended to read as follows:

19 ‘‘(h)(1) If an applicable pension plan is amended so

20 as to provide a significant reduction in the rate of future

21 benefit accrual of 1 or more participants, the plan adminis22 trator shall, not later than the 45th day before the effective

23 date of the amendment, provide written notice to each ap-
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1 plicable individual (and to each employee organization rep2 resenting applicable individuals) which—

3 ‘‘(A) sets forth a summary of the plan amend4 ment and the effective date of the amendment,

5 ‘‘(B) includes a statement that the plan amend6 ment is expected to significantly reduce the rate of fu7 ture benefit accrual,

8 ‘‘(C) includes a description of the classes of em9 ployees reasonably expected to be affected by the re10 duction in the rate of future benefit accrual,

11 ‘‘(D) sets forth examples illustrating how the

12 plan will change benefits for such classes of employees,

13 ‘‘(E) if paragraph (2) applies to the plan

14 amendment, includes a notice that the plan adminis15 trator will provide a benefit estimation tool kit de16 scribed in paragraph (2)(B) to each applicable indi17 vidual no later than the date required under para18 graph (2)(A), and

19 ‘‘(F) includes a notice of each applicable individ20 ual’s right under Federal law to receive, and of the

21 procedures for requesting, an annual benefit state22 ment.

23 ‘‘(2)(A) If a plan amendment results in the significant

24 restructuring of the plan benefit formula (as determined

25 under regulations prescribed by the Secretary of the Treas-
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1 ury), the plan administrator shall, not later than the 15th

2 day before the effective date of the amendment, provide a

3 benefit estimation tool kit described in subparagraph (B)

4 to each applicable individual. If such plan amendment oc5 curs within 12 months of an event described in section

6 410(b)(6)(C) of the Internal Revenue Code of 1986, the plan

7 administrator shall in no event be required to provide the

8 benefit estimation tool kit to applicable individuals affected

9 by the event before the date which is 12 months after the

10 date on which notice under paragraph (1) is given to such

11 applicable individuals.

12 ‘‘(B) The benefit estimation tool kit described in this

13 subparagraph shall include the following information:

14 ‘‘(i) Sufficient information to enable an applica15 ble individual to estimate the individual’s projected

16 benefits under the terms of the plan in effect both be17 fore and after the adoption of the amendment.

18 ‘‘(ii) The formulas and actuarial assumptions

19 necessary to estimate under both such plan terms a

20 single life annuity at appropriate ages, and, when

21 available, a lump sum distribution.

22 ‘‘(iii) The interest rate used to compute a lump

23 sum distribution and information as to whether the

24 value of any early retirement benefit or retirement-
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1 type subsidy (within the meaning of subsection

2 (g)(2)(A)) is included in the lump sum distribution.

3 ‘‘(3) Any notice under paragraph (1) or (2) may be

4 provided to a person designated, in writing, by the person

5 to which it would otherwise be provided.

6 ‘‘(4) The information required to be provided under

7 this subsection shall be provided in a manner calculated

8 to be reasonably understood by the average participant.

9 ‘‘(5)(A) In the case of any failure to exercise due dili10 gence in meeting any requirement of this subsection with

11 respect to any plan amendment, the provisions of the appli12 cable pension plan shall be applied as if such plan amend13 ment entitled all applicable individuals to the greater of—

14 ‘‘(i) the benefits to which they would have been

15 entitled without regard to such amendment, or

16 ‘‘(ii) the benefits under the plan with regard to

17 such amendment.

18 ‘‘(B) For purposes of subparagraph (A), there is a fail19 ure to exercise due diligence in meeting the requirements

20 of this subsection if such failure is within the control of

21 the plan sponsor and is—

22 ‘‘(i) an intentional failure (including any failure

23 to promptly provide the required notice or informa24 tion after the plan administrator discovers an unin-
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1 tentional failure to meet the requirements of this sub2 section),

3 ‘‘(ii) a failure to provide most of the individuals

4 with most of the information they are entitled to re5 ceive under this subsection, or

6 ‘‘(iii) a failure to exercise due diligence which is

7 determined under regulations prescribed by the Sec8 retary of the Treasury.

9 ‘‘(C) For excise tax on failure to meet requirements,

10 see section 4980F of the Internal Revenue Code of 1986.

11 ‘‘(5)(A) For purposes of this subsection, the term ‘ap12 plicable individual’ means, with respect to any plan

13 amendment—

14 ‘‘(i) each participant in the plan, and

15 ‘‘(ii) any beneficiary who is an alternate payee

16 (within the meaning of section 206(d)(3)(K)) under

17 an applicable qualified domestic relations order

18 (within the meaning of section 206(d)(3)(B)),

19 whose rate of future benefit accrual under the plan may

20 reasonably be expected to be significantly reduced by such

21 plan amendment.

22 ‘‘(B) Such term shall not include a participant who

23 has less than 1 year of participation (within the meaning

24 of subsection (b)(4)) under the plan as of the effective date

25 of the plan amendment.
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1 ‘‘(6) For purposes of this subsection, the term ‘applica2 ble pension plan’ means—

3 ‘‘(A) a defined benefit plan, or

4 ‘‘(B) an individual account plan which is subject

5 to the funding standards of section 302.

6 ‘‘(7) For purposes of this subsection, a plan amend7 ment which eliminates or significantly reduces any early

8 retirement benefit or retirement-type subsidy (within the

9 meaning of section 204(g)(2)(A)) shall be treated as having

10 the effect of significantly reducing the rate of future benefit

11 accrual.

12 ‘‘(8) The Secretary of the Treasury may by regulation

13 allow any notice under this subsection to be provided by

14 using new technologies. Such regulation shall ensure that

15 at least one option for providing such notice is not depend16 ent on new technologies.’’

17 (c) REGULATIONS RELATING TO EARLY RETIREMENT

18 SUBSIDIES.—The Secretary of the Treasury or the Sec19 retary’s delegate shall, not later than 1 year after the date

20 of the enactment of this Act, issue regulations relating to

21 early retirement benefits or retirement-type subsidies de22 scribed in section 411(d)(6)(B)(i) of the Internal Revenue

23 Code of 1986 and section 204(g)(2)(A) of the Employee Re24 tirement Income Security Act of 1974.

25 (d) EFFECTIVE DATES.—
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1 (1) IN GENERAL.—The amendments made by

2 this section shall apply to plan amendments taking

3 effect on or after the date of the enactment of this Act.

4 (2) TRANSITION.—Until such time as the Sec5 retary of the Treasury issues regulations under sec6 tion 4980F(e)(2) of the Internal Revenue Code of

7 1986 and section 204(h)(2) of the Employee Retire8 ment Income Security Act of 1974 (as added by the

9 amendments made by this section), a plan shall be

10 treated as meeting the requirements of such sections

11 if it makes a good faith effort to comply with such re12 quirements.

13 (3) SPECIAL NOTICE RULES.—The period for

14 providing any notice required by the amendments

15 made by this section shall not end before the date

16 which is 3 months after the date of the enactment of

17 this Act.

18 (d) STUDY.—The Secretary of the Treasury shall pre19 pare a report on the effects of significant restructurings of

20 plan benefit formulas of traditional defined benefit plans.

21 Such study shall examine the effects of such restructurings

22 on longer service participants, including the incidence and

23 effects of ‘‘wear away’’ provisions under which participants

24 earn no additional benefits for a period of time after re25 structuring. As soon as practicable, but not later than one
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1 year after the date of enactment of this Act, the Secretary

2 shall submit such report, together with recommendations

3 thereon, to the Committee on Ways and Means and the

4 Committee on Education and the Workforce of the House

5 of Representatives and the Committee on Finance and the

6 Committee on Health, Education, Labor, and Pensions of

7 the Senate.

8 Subtitle F—Reducing Regulatory

9 Burdens

10 SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS.

11 (a) IN GENERAL.—Paragraph (9) of section 412(c) (re12 lating to annual valuation) is amended to read as follows:

13 ‘‘(9) ANNUAL VALUATION.—

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

15 section, a determination of experience gains and

16 losses and a valuation of the plan’s liability

17 shall be made not less frequently than once every

18 year, except that such determination shall be

19 made more frequently to the extent required in

20 particular cases under regulations prescribed by

21 the Secretary.

22 ‘‘(B) VALUATION DATE.—

23 ‘‘(i) CURRENT YEAR.—Except as pro24 vided in clause (ii), the valuation referred

25 to in subparagraph (A) shall be made as of
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1 a date within the plan year to which the

2 valuation refers or within one month prior

3 to the beginning of such year.

4 ‘‘(ii) ELECTION TO USE PRIOR YEAR

5 VALUATION.—The valuation referred to in

6 subparagraph (A) may be made as of a date

7 within the plan year prior to the year to

8 which the valuation refers if—

9 ‘‘(I) an election is in effect under

10 this clause with respect to the plan,

11 and

12 ‘‘(II) as of such date, the value of

13 the assets of the plan are not less than

14 125 percent of the plan’s current liabil15 ity (as defined in paragraph (7)(B)).

16 ‘‘(iii) ADJUSTMENTS.—Information

17 under clause (ii) shall, in accordance with

18 regulations, be actuarially adjusted to re19 flect significant differences in participants.

20 ‘‘(iv) ELECTION.—An election under

21 clause (ii), once made, shall be irrevocable

22 without the consent of the Secretary.’’.

23 (b) AMENDMENT OF ERISA.—Paragraph (9) of sec24 tion 302(c) of the Employee Retirement Income Security

25 Act of 1974 (29 U.S.C. 1053(c)) is amended—
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1 (1) by inserting ‘‘(A)’’ after ‘‘(9)’’, and

2 (2) by adding at the end the following:

3 ‘‘(B)(i) Except as provided in clause (ii), the valuation

4 referred to in subparagraph (A) shall be made as of a date

5 within the plan year to which the valuation refers or within

6 one month prior to the beginning of such year.

7 ‘‘(ii) The valuation referred to in subparagraph (A)

8 may be made as of a date within the plan year prior to

9 the year to which the valuation refers if—

10 ‘‘(I) an election is in effect under this clause

11 with respect to the plan, and

12 ‘‘(II) as of such date, the value of the assets of

13 the plan are not less than 125 percent of the plan’s

14 current liability (as defined in paragraph (7)(B)).

15 ‘‘(iii) Information under clause (ii) shall, in accord16 ance with regulations, be actuarially adjusted to reflect sig17 nificant differences in participants.

18 ‘‘(iv) An election under clause (ii), once made, shall

19 be irrevocable without the consent of the Secretary of the

20 Treasury.’’.

21 (c) EFFECTIVE DATE.—The amendments made by this

22 section shall apply to plan years beginning after December

23 31, 2001.
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1 SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT

2 LOSS OF DIVIDEND DEDUCTION.

3 (a) IN GENERAL.—Section 404(k)(2)(A) (defining ap4 plicable dividends) is amended by striking ‘‘or’’ at the end

5 of clause (ii), by redesignating clause (iii) as clause (iv),

6 and by inserting after clause (ii) the following new clause:

7 ‘‘(iii) is, at the election of such partici8 pants or their beneficiaries—

9 ‘‘(I) payable as provided in clause

10 (i) or (ii), or

11 ‘‘(II) paid to the plan and rein12 vested in qualifying employer securi13 ties, or’’.

14 (b) LIMITATION ON AMOUNT OF DEDUCTION.—Section

15 404(k)(1) (relating to deduction for dividends paid on cer16 tain employer securities) is amended to read as follows:

17 ‘‘(1) DEDUCTION ALLOWED.—

18 ‘‘(A) IN GENERAL.—In the case of a C cor19 poration, there shall be allowed as a deduction

20 for the taxable year an amount equal to—

21 ‘‘(i) the amount of any applicable divi22 dend described in clause (i), (ii), or (iv) of

23 paragraph (2)(A), and

24 ‘‘(ii) the applicable percentage of any

25 applicable dividend described in clause (iii),
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1 paid in cash by such corporation during the tax2 able year with respect to applicable employer se3 curities. Such deduction shall be in addition to

4 the deduction allowed subsection (a).

5 ‘‘(B) APPLICABLE PERCENTAGE.—For pur6 poses of subparagraph (A), the applicable per7 centage shall be determined in accordance with

8 the following table:

‘‘For taxable years The applicable

beginning in: percentage is:

2002, 2003, and 2004 ............................................ 25 percent

2005, 2006, and 2007 ............................................ 50 percent

2008, 2009, and 2010 ............................................ 75 percent

2011 and thereafter ............................................... 100 percent.’’.

9 (c) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to taxable years beginning after Decem11 ber 31, 2001.

12 SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CER13 TAIN HIGHLY COMPENSATED EMPLOYEES.

14 (a) IN GENERAL.—Paragraph (4) of section 1114(c)

15 of the Tax Reform Act of 1986 is hereby repealed.

16 (b) EFFECTIVE DATE.—The repeal made by subsection

17 (a) shall apply to plan years beginning after December 31,

18 2001.

19 SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES.

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

21 modify Treasury Regulations section 1.410(b)–6(g) to pro22 vide that employees of an organization described in section
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1 403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who

2 are eligible to make contributions under section 403(b) of

3 such Code pursuant to a salary reduction agreement may

4 be treated as excludable with respect to a plan under section

5 401(k) or (m) of such Code that is provided under the same

6 general arrangement as a plan under such section 401(k),

7 if—

8 (1) no employee of an organization described in

9 section 403(b)(1)(A)(i) of such Code is eligible to par10 ticipate in such section 401(k) plan or section 401(m)

11 plan; and

12 (2) 95 percent of the employees who are not em13 ployees of an organization described in section

14 403(b)(1)(A)(i) of such Code are eligible to partici15 pate in such plan under such section 401(k) or (m).

16 (b) EFFECTIVE DATE.—The modification required by

17 subsection (a) shall apply as of the same date set forth in

18 section 1426(b) of the Small Business Job Protection Act

19 of 1996.

20 SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER21 PROVIDED RETIREMENT ADVICE.

22 (a) IN GENERAL.—Subsection (a) of section 132 (relat23 ing to exclusion from gross income) is amended by striking

24 ‘‘or’’ at the end of paragraph (5), by striking the period
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1 at the end of paragraph (6) and inserting ‘‘, or’’, and by

2 adding at the end the following new paragraph:

3 ‘‘(7) qualified retirement planning services.’’.

4 (b) QUALIFIED RETIREMENT PLANNING SERVICES DE5 FINED.—Section 132 is amended by redesignating sub6 section (m) as subsection (n) and by inserting after sub7 section (l) the following:

8 ‘‘(m) QUALIFIED RETIREMENT PLANNING SERV9 ICES.—

10 ‘‘(1) IN GENERAL.—For purposes of this section,

11 the term ‘qualified retirement planning services’

12 means any retirement planning advice or informa13 tion provided to an employee and his spouse by an

14 employer maintaining a qualified employer plan.

15 ‘‘(2) NONDISCRIMINATION RULE.—Subsection

16 (a)(7) shall apply in the case of highly compensated

17 employees only if such services are available on sub18 stantially the same terms to each member of the group

19 of employees normally provided education and infor20 mation regarding the employer’s qualified employer

21 plan.

22 ‘‘(3) QUALIFIED EMPLOYER PLAN.—For purposes

23 of this subsection, the term ‘qualified employer plan’

24 means a plan, contract, pension, or account described

25 in section 219(g)(5).’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to years beginning after December 31,

3 2001.

4 SEC. 666. REPORTING SIMPLIFICATION.

5 (a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR

6 OWNERS AND THEIR SPOUSES.—

7 (1) IN GENERAL.—The Secretary of the Treasury

8 shall modify the requirements for filing annual re9 turns with respect to one-participant retirement plans

10 to ensure that such plans with assets of $250,000 or

11 less as of the close of the plan year and each plan

12 year beginning on or after January 1, 1994, need not

13 file a return for that year.

14 (2) ONE-PARTICIPANT RETIREMENT PLAN DE15 FINED.—For purposes of this subsection, the term

16 ‘‘one-participant retirement plan’’ means a retire17 ment plan that—

18 (A) on the first day of the plan year—

19 (i) covered only the employer (and the

20 employer’s spouse) and the employer owned

21 the entire business (whether or not incor22 porated); or

23 (ii) covered only one or more partners

24 (and their spouses) in a business partner-
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1 ship (including partners in an S or C cor2 poration);

3 (B) meets the minimum coverage require4 ments of section 410(b) of the Internal Revenue

5 Code of 1986 without being combined with any

6 other plan of the business that covers the employ7 ees of the business;

8 (C) does not provide benefits to anyone ex9 cept the employer (and the employer’s spouse) or

10 the partners (and their spouses);

11 (D) does not cover a business that is a

12 member of an affiliated service group, a con13 trolled group of corporations, or a group of busi14 nesses under common control; and

15 (E) does not cover a business that leases em16 ployees.

17 (3) OTHER DEFINITIONS.—Terms used in para18 graph (2) which are also used in section 414 of the

19 Internal Revenue Code of 1986 shall have the respec20 tive meanings given such terms by such section.

21 (b) EFFECTIVE DATE.—The provisions of this section

22 shall take effect on January 1, 2002.
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1 SEC. 667. IMPROVEMENT OF EMPLOYEE PLANS COMPLI2 ANCE RESOLUTION SYSTEM.

3 The Secretary of the Treasury shall continue to update

4 and improve the Employee Plans Compliance Resolution

5 System (or any successor program) giving special attention

6 to—

7 (1) increasing the awareness and knowledge of

8 small employers concerning the availability and use

9 of the program;

10 (2) taking into account special concerns and cir11 cumstances that small employers face with respect to

12 compliance and correction of compliance failures;

13 (3) extending the duration of the self-correction

14 period under the Self-Correction Program for signifi15 cant compliance failures;

16 (4) expanding the availability to correct insig17 nificant compliance failures under the Self-Correction

18 Program during audit; and

19 (5) assuring that any tax, penalty, or sanction

20 that is imposed by reason of a compliance failure is

21 not excessive and bears a reasonable relationship to

22 the nature, extent, and severity of the failure.

23 SEC. 668. REPEAL OF THE MULTIPLE USE TEST.

24 (a) IN GENERAL.—Paragraph (9) of section 401(m) is

25 amended to read as follows:
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1 ‘‘(9) REGULATIONS.—The Secretary shall pre2 scribe such regulations as may be necessary to carry

3 out the purposes of this subsection and subsection (k),

4 including regulations permitting appropriate aggre5 gation of plans and contributions.’’.

6 (b) EFFECTIVE DATE.—The amendment made by this

7 section shall apply to years beginning after December 31,

8 2001.

9 SEC. 669. FLEXIBILITY IN NONDISCRIMINATION, COV10 ERAGE, AND LINE OF BUSINESS RULES.

11 (a) NONDISCRIMINATION.—

12 (1) IN GENERAL.—The Secretary of the Treasury

13 shall, by regulation, provide that a plan shall be

14 deemed to satisfy the requirements of section

15 401(a)(4) of the Internal Revenue Code of 1986 if

16 such plan satisfies the facts and circumstances test

17 under section 401(a)(4) of such Code, as in effect be18 fore January 1, 1994, but only if—

19 (A) the plan satisfies conditions prescribed

20 by the Secretary to appropriately limit the

21 availability of such test; and

22 (B) the plan is submitted to the Secretary

23 for a determination of whether it satisfies such

24 test.
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1 Subparagraph (B) shall only apply to the extent pro2 vided by the Secretary.

3 (2) EFFECTIVE DATES.—

4 (A) REGULATIONS.—The regulation re5 quired by paragraph (1) shall apply to years be6 ginning after December 31, 2001.

7 (B) CONDITIONS OF AVAILABILITY.—Any

8 condition of availability prescribed by the Sec9 retary under paragraph (1)(A) shall not apply

10 before the first year beginning not less than 120

11 days after the date on which such condition is

12 prescribed.

13 (b) COVERAGE TEST.—

14 (1) IN GENERAL.—Section 410(b)(1) (relating to

15 minimum coverage requirements) is amended by add16 ing at the end the following:

17 ‘‘(D) In the case that the plan fails to meet

18 the requirements of subparagraphs (A), (B) and

19 (C), the plan—

20 ‘‘(i) satisfies subparagraph (B), as in

21 effect immediately before the enactment of

22 the Tax Reform Act of 1986,

23 ‘‘(ii) is submitted to the Secretary for

24 a determination of whether it satisfies the

25 requirement described in clause (i), and
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1 ‘‘(iii) satisfies conditions prescribed by

2 the Secretary by regulation that appro3 priately limit the availability of this sub4 paragraph.

5 Clause (ii) shall apply only to the extent pro6 vided by the Secretary.’’.

7 (2) EFFECTIVE DATES.—

8 (A) IN GENERAL.—The amendment made

9 by paragraph (1) shall apply to years beginning

10 after December 31, 2001.

11 (B) CONDITIONS OF AVAILABILITY.—Any

12 condition of availability prescribed by the Sec13 retary under regulations prescribed by the Sec14 retary under section 410(b)(1)(D) of the Internal

15 Revenue Code of 1986 shall not apply before the

16 first year beginning not less than 120 days after

17 the date on which such condition is prescribed.

18 (c) LINE OF BUSINESS RULES.—The Secretary of the

19 Treasury shall, on or before December 31, 2001, modify the

20 existing regulations issued under section 414(r) of the Inter21 nal Revenue Code of 1986 in order to expand (to the extent

22 that the Secretary determines appropriate) the ability of

23 a pension plan to demonstrate compliance with the line of

24 business requirements based upon the facts and cir25 cumstances surrounding the design and operation of the
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1 plan, even though the plan is unable to satisfy the mechan2 ical tests currently used to determine compliance.

3 SEC. 670. EXTENSION TO ALL GOVERNMENTAL PLANS OF

4 MORATORIUM ON APPLICATION OF CERTAIN

5 NONDISCRIMINATION RULES APPLICABLE TO

6 STATE AND LOCAL PLANS.

7 (a) IN GENERAL.—

8 (1) Subparagraph (G) of section 401(a)(5) and

9 subparagraph (H) of section 401(a)(26) are each

10 amended by striking ‘‘section 414(d))’’ and all that

11 follows and inserting ‘‘section 414(d)).’’.

12 (2) Subparagraph (G) of section 401(k)(3) and

13 paragraph (2) of section 1505(d) of the Taxpayer Re14 lief Act of 1997 are each amended by striking ‘‘main15 tained by a State or local government or political

16 subdivision thereof (or agency or instrumentality

17 thereof)’’.

18 (b) CONFORMING AMENDMENTS.—

19 (1) The heading for subparagraph (G) of section

20 401(a)(5) is amended to read as follows: ‘‘GOVERN21 MENTAL PLANS’’.

22 (2) The heading for subparagraph (H) of section

23 401(a)(26) is amended to read as follows: ‘‘EXCEP24 TION FOR GOVERNMENTAL PLANS’’.
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1 (3) Subparagraph (G) of section 401(k)(3) is

2 amended by inserting ‘‘GOVERNMENTAL PLANS.—’’

3 after ‘‘(G)’’.

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

5 section shall apply to years beginning after December 31,

6 2001.

7 Subtitle G—Other ERISA Provisions

8 SEC. 681. MISSING PARTICIPANTS.

9 (a) IN GENERAL.—Section 4050 of the Employee Re10 tirement Income Security Act of 1974 (29 U.S.C. 1350) is

11 amended by redesignating subsection (c) as subsection (e)

12 and by inserting after subsection (b) the following new sub13 section:

14 ‘‘(c) MULTIEMPLOYER PLANS.—The corporation shall

15 prescribe rules similar to the rules in subsection (a) for mul16 tiemployer plans covered by this title that terminate under

17 section 4041A.

18 ‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—

19 ‘‘(1) TRANSFER TO CORPORATION.—The plan ad20 ministrator of a plan described in paragraph (4) may

21 elect to transfer a missing participant’s benefits to the

22 corporation upon termination of the plan.

23 ‘‘(2) INFORMATION TO THE CORPORATION.—To

24 the extent provided in regulations, the plan adminis25 trator of a plan described in paragraph (4) shall,
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1 upon termination of the plan, provide the corporation

2 information with respect to benefits of a missing par3 ticipant if the plan transfers such benefits—

4 ‘‘(A) to the corporation, or

5 ‘‘(B) to an entity other than the corporation

6 or a plan described in paragraph (4)(B)(ii).

7 ‘‘(3) PAYMENT BY THE CORPORATION.—If bene8 fits of a missing participant were transferred to the

9 corporation under paragraph (1), the corporation

10 shall, upon location of the participant or beneficiary,

11 pay to the participant or beneficiary the amount

12 transferred (or the appropriate survivor benefit)

13 either—

14 ‘‘(A) in a single sum (plus interest), or

15 ‘‘(B) in such other form as is specified in

16 regulations of the corporation.

17 ‘‘(4) PLANS DESCRIBED.—A plan is described in

18 this paragraph if—

19 ‘‘(A) the plan is a pension plan (within the

20 meaning of section 3(2))—

21 ‘‘(i) to which the provisions of this sec22 tion do not apply (without regard to this

23 subsection), and
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1 ‘‘(ii) which is not a plan described in

2 paragraphs (2) through (11) of section

3 4021(b), and

4 ‘‘(B) at the time the assets are to be distrib5 uted upon termination, the plan—

6 ‘‘(i) has missing participants, and

7 ‘‘(ii) has not provided for the transfer

8 of assets to pay the benefits of all missing

9 participants to another pension plan (with10 in the meaning of section 3(2)).

11 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—Sub12 sections (a)(1) and (a)(3) shall not apply to a plan

13 described in paragraph (4).’’.

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

15 section shall apply to distributions made after final regula16 tions implementing subsections (c) and (d) of section 4050

17 of the Employee Retirement Income Security Act of 1974

18 (as added by subsection (a)), respectively, are prescribed.

19 SEC. 682. REDUCED PBGC PREMIUM FOR NEW PLANS OF

20 SMALL EMPLOYERS.

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

22 4006(a)(3) of the Employee Retirement Income Security

23 Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended—

24 (1) in clause (i), by inserting ‘‘other than a new

25 single-employer plan (as defined in subparagraph
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1 (F)) maintained by a small employer (as so de2 fined),’’ after ‘‘single-employer plan,’’,

3 (2) in clause (iii), by striking the period at the

4 end and inserting ‘‘, and’’, and

5 (3) by adding at the end the following new

6 clause:

7 ‘‘(iv) in the case of a new single-employer plan

8 (as defined in subparagraph (F)) maintained by a

9 small employer (as so defined) for the plan year, $5

10 for each individual who is a participant in such plan

11 during the plan year.’’.

12 (b) DEFINITION OF NEW SINGLE-EMPLOYER PLAN.—

13 Section 4006(a)(3) of the Employee Retirement Income Se14 curity Act of 1974 (29 U.S.C. 1306(a)(3)) is amended by

15 adding at the end the following new subparagraph:

16 ‘‘(F)(i) For purposes of this paragraph, a single-em17 ployer plan maintained by a contributing sponsor shall be

18 treated as a new single-employer plan for each of its first

19 5 plan years if, during the 36-month period ending on the

20 date of the adoption of such plan, the sponsor or any mem21 ber of such sponsor’s controlled group (or any predecessor

22 of either) did not establish or maintain a plan to which

23 this title applies with respect to which benefits were accrued

24 for substantially the same employees as are in the new sin25 gle-employer plan.
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1 ‘‘(ii)(I) For purposes of this paragraph, the term

2 ‘small employer’ means an employer which on the first day

3 of any plan year has, in aggregation with all members of

4 the controlled group of such employer, 100 or fewer employ5 ees.

6 ‘‘(II) In the case of a plan maintained by two or more

7 contributing sponsors that are not part of the same con8 trolled group, the employees of all contributing sponsors and

9 controlled groups of such sponsors shall be aggregated for

10 purposes of determining whether any contributing sponsor

11 is a small employer.’’.

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

13 section shall apply to plans established after December 31,

14 2001.

15 SEC. 683. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR

16 NEW AND SMALL PLANS.

17 (a) NEW PLANS.—Subparagraph (E) of section

18 4006(a)(3) of the Employee Retirement Income Security

19 Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by add20 ing at the end the following new clause:

21 ‘‘(v) In the case of a new defined benefit plan, the

22 amount determined under clause (ii) for any plan year

23 shall be an amount equal to the product of the amount de24 termined under clause (ii) and the applicable percentage.
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1 For purposes of this clause, the term ‘applicable percentage’

2 means—

3 ‘‘(I) 0 percent, for the first plan year.

4 ‘‘(II) 20 percent, for the second plan year.

5 ‘‘(III) 40 percent, for the third plan year.

6 ‘‘(IV) 60 percent, for the fourth plan year.

7 ‘‘(V) 80 percent, for the fifth plan year.

8 For purposes of this clause, a defined benefit plan (as de9 fined in section 3(35)) maintained by a contributing spon10 sor shall be treated as a new defined benefit plan for each

11 of its first 5 plan years if, during the 36-month period end12 ing on the date of the adoption of the plan, the sponsor

13 and each member of any controlled group including the

14 sponsor (or any predecessor of either) did not establish or

15 maintain a plan to which this title applies with respect

16 to which benefits were accrued for substantially the same

17 employees as are in the new plan.’’.

18 (b) SMALL PLANS.—Paragraph (3) of section 4006(a)

19 of the Employee Retirement Income Security Act of 1974

20 (29 U.S.C. 1306(a)), as amended by section 682(b), is

21 amended—

22 (1) by striking ‘‘The’’ in subparagraph (E)(i)

23 and inserting ‘‘Except as provided in subparagraph

24 (G), the’’, and
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1 (2) by inserting after subparagraph (F) the fol2 lowing new subparagraph:

3 ‘‘(G)(i) In the case of an employer who has 25 or fewer

4 employees on the first day of the plan year, the additional

5 premium determined under subparagraph (E) for each par6 ticipant shall not exceed $5 multiplied by the number of

7 participants in the plan as of the close of the preceding plan

8 year.

9 ‘‘(ii) For purposes of clause (i), whether an employer

10 has 25 or fewer employees on the first day of the plan year

11 is determined taking into consideration all of the employees

12 of all members of the contributing sponsor’s controlled

13 group. In the case of a plan maintained by two or more

14 contributing sponsors, the employees of all contributing

15 sponsors and their controlled groups shall be aggregated for

16 purposes of determining whether the 25-or-fewer-employees

17 limitation has been satisfied.’’.

18 (c) EFFECTIVE DATES.—

19 (1) SUBSECTION (a).—The amendments made by

20 subsection (a) shall apply to plans established after

21 December 31, 2001.

22 (2) SUBSECTION (b).—The amendments made by

23 subsection (b) shall apply to plan years beginning

24 after December 31, 2001.
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1 SEC. 684. AUTHORIZATION FOR PBGC TO PAY INTEREST ON

2 PREMIUM OVERPAYMENT REFUNDS.

3 (a) IN GENERAL.—Section 4007(b) of the Employment

4 Retirement Income Security Act of 1974 (29 U.S.C.

5 1307(b)) is amended—

6 (1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’, and

7 (2) by inserting at the end the following new

8 paragraph:

9 ‘‘(2) The corporation is authorized to pay, subject to

10 regulations prescribed by the corporation, interest on the

11 amount of any overpayment of premium refunded to a des12 ignated payor. Interest under this paragraph shall be cal13 culated at the same rate and in the same manner as interest

14 is calculated for underpayments under paragraph (1).’’.

15 (b) EFFECTIVE DATE.—The amendment made by sub16 section (a) shall apply to interest accruing for periods be17 ginning not earlier than the date of the enactment of this

18 Act.

19 SEC. 685. SUBSTANTIAL OWNER BENEFITS IN TERMINATED

20 PLANS.

21 (a) MODIFICATION OF PHASE-IN OF GUARANTEE.—

22 Section 4022(b)(5) of the Employee Retirement Income Se23 curity Act of 1974 (29 U.S.C. 1322(b)(5)) is amended to

24 read as follows:

25 ‘‘(5)(A) For purposes of this paragraph, the term ‘ma26 jority owner’ means an individual who, at any time during
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1 the 60-month period ending on the date the determination

2 is being made—

3 ‘‘(i) owns the entire interest in an unincor4 porated trade or business,

5 ‘‘(ii) in the case of a partnership, is a partner

6 who owns, directly or indirectly, 50 percent or more

7 of either the capital interest or the profits interest in

8 such partnership, or

9 ‘‘(iii) in the case of a corporation, owns, directly

10 or indirectly, 50 percent or more in value of either the

11 voting stock of that corporation or all the stock of that

12 corporation.

13 For purposes of clause (iii), the constructive ownership

14 rules of section 1563(e) of the Internal Revenue Code of

15 1986 shall apply (determined without regard to section

16 1563(e)(3)(C)).

17 ‘‘(B) In the case of a participant who is a majority

18 owner, the amount of benefits guaranteed under this section

19 shall equal the product of—

20 ‘‘(i) a fraction (not to exceed 1) the numerator

21 of which is the number of years from the later of the

22 effective date or the adoption date of the plan to the

23 termination date, and the denominator of which is

24 10, and
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1 ‘‘(ii) the amount of benefits that would be guar2 anteed under this section if the participant were not

3 a majority owner.’’.

4 (b) MODIFICATION OF ALLOCATION OF ASSETS.—

5 (1) Section 4044(a)(4)(B) of the Employee Re6 tirement Income Security Act of 1974 (29 U.S.C.

7 1344(a)(4)(B)) is amended by striking ‘‘section

8 4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(B)’’.

9 (2) Section 4044(b) of such Act (29 U.S.C.

10 1344(b)) is amended—

11 (A) by striking ‘‘(5)’’ in paragraph (2) and

12 inserting ‘‘(4), (5),’’, and

13 (B) by redesignating paragraphs (3)

14 through (6) as paragraphs (4) through (7), re15 spectively, and by inserting after paragraph (2)

16 the following new paragraph:

17 ‘‘(3) If assets available for allocation under

18 paragraph (4) of subsection (a) are insufficient to sat19 isfy in full the benefits of all individuals who are de20 scribed in that paragraph, the assets shall be allocated

21 first to benefits described in subparagraph (A) of that

22 paragraph. Any remaining assets shall then be allo23 cated to benefits described in subparagraph (B) of

24 that paragraph. If assets allocated to such subpara25 graph (B) are insufficient to satisfy in full the bene-
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1 fits described in that subparagraph, the assets shall be

2 allocated pro rata among individuals on the basis of

3 the present value (as of the termination date) of their

4 respective benefits described in that subparagraph.’’.

5 (c) CONFORMING AMENDMENTS.—

6 (1) Section 4021 of the Employee Retirement In7 come Security Act of 1974 (29 U.S.C. 1321) is

8 amended—

9 (A) in subsection (b)(9), by striking ‘‘as de10 fined in section 4022(b)(6)’’, and

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

12 subsection:

13 ‘‘(d) For purposes of subsection (b)(9), the term ‘sub14 stantial owner’ means an individual who, at any time dur15 ing the 60-month period ending on the date the determina16 tion is being made—

17 ‘‘(1) owns the entire interest in an unincor18 porated trade or business,

19 ‘‘(2) in the case of a partnership, is a partner

20 who owns, directly or indirectly, more than 10 per21 cent of either the capital interest or the profits inter22 est in such partnership, or

23 ‘‘(3) in the case of a corporation, owns, directly

24 or indirectly, more than 10 percent in value of either
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1 the voting stock of that corporation or all the stock of

2 that corporation.

3 For purposes of paragraph (3), the constructive ownership

4 rules of section 1563(e) of the Internal Revenue Code of

5 1986 shall apply (determined without regard to section

6 1563(e)(3)(C)).’’.

7 (2) Section 4043(c)(7) of such Act (29 U.S.C.

8 1343(c)(7)) is amended by striking ‘‘section

9 4022(b)(6)’’ and inserting ‘‘section 4021(d)’’.

10 (d) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall

13 apply to plan terminations—

14 (A) under section 4041(c) of the Employee

15 Retirement Income Security Act of 1974 (29

16 U.S.C. 1341(c)) with respect to which notices of

17 intent to terminate are provided under section

18 4041(a)(2) of such Act (29 U.S.C. 1341(a)(2))

19 after December 31, 2001, and

20 (B) under section 4042 of such Act (29

21 U.S.C. 1342) with respect to which proceedings

22 are instituted by the corporation after such date.

23 (2) CONFORMING AMENDMENTS.—The amend24 ments made by subsection (c) shall take effect on Jan25 uary 1, 2002.
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1 Subtitle H—Miscellaneous

2 Provisions

3 SEC. 691. TAX TREATMENT AND INFORMATION REQUIRE4 MENTS OF ALASKA NATIVE SETTLEMENT

5 TRUSTS.

6 (a) TREATMENT OF ALASKA NATIVE SETTLEMENT

7 TRUSTS.—Subpart A of part I of subchapter J of chapter

8 1 (relating to general rules for taxation of trusts and es9 tates) is amended by adding at the end the following new

10 section:

11 ‘‘SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE

12 SETTLEMENT TRUSTS.

13 ‘‘(a) IN GENERAL.—If an election under this section

14 is in effect with respect to any Settlement Trust, the provi15 sions of this section shall apply in determining the income

16 tax treatment of the Settlement Trust and its beneficiaries

17 with respect to the Settlement Trust.

18 ‘‘(b) TAXATION OF INCOME OF TRUST.—Except as pro19 vided in subsection (f)(1)(B)(ii)—

20 ‘‘(1) IN GENERAL.—There is hereby imposed on

21 the taxable income of an electing Settlement Trust,

22 other than its net capital gain, a tax at the lowest

23 rate specified in section 1(c).

24 ‘‘(2) CAPITAL GAIN.—In the case of an electing

25 Settlement Trust with a net capital gain for the tax-
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1 able year, a tax is hereby imposed on such gain at

2 the rate of tax which would apply to such gain if the

3 taxpayer were subject to a tax on its other taxable in4 come at only the lowest rate specified in section 1(c).

5 Any such tax shall be in lieu of the income tax otherwise

6 imposed by this chapter on such income or gain.

7 ‘‘(c) ONE-TIME ELECTION.—

8 ‘‘(1) IN GENERAL.—A Settlement Trust may

9 elect to have the provisions of this section apply to the

10 trust and its beneficiaries.

11 ‘‘(2) TIME AND METHOD OF ELECTION.—An elec12 tion under paragraph (1) shall be made by the trustee

13 of such trust—

14 ‘‘(A) on or before the due date (including

15 extensions) for filing the Settlement Trust’s re16 turn of tax for the first taxable year of such trust

17 ending after the date of the enactment of this sec18 tion, and

19 ‘‘(B) by attaching to such return of tax a

20 statement specifically providing for such election.

21 ‘‘(3) PERIOD ELECTION IN EFFECT.—Except as

22 provided in subsection (f), an election under this

23 subsection—
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1 ‘‘(A) shall apply to the first taxable year de2 scribed in paragraph (2)(A) and all subsequent

3 taxable years, and

4 ‘‘(B) may not be revoked once it is made.

5 ‘‘(d) CONTRIBUTIONS TO TRUST.—

6 ‘‘(1) BENEFICIARIES OF ELECTING TRUST NOT

7 TAXED ON CONTRIBUTIONS.—In the case of an elect8 ing Settlement Trust, no amount shall be includible

9 in the gross income of a beneficiary of such trust by

10 reason of a contribution to such trust.

11 ‘‘(2) EARNINGS AND PROFITS.—The earnings

12 and profits of the sponsoring Native Corporation shall

13 not be reduced on account of any contribution to such

14 Settlement Trust:

15 ‘‘(e) TAX TREATMENT OF DISTRIBUTIONS TO BENE16 FICIARIES.—Amounts distributed by an electing Settlement

17 Trust during any taxable year shall be considered as having

18 the following characteristics in the hands of the recipient

19 beneficiary:

20 ‘‘(1) First, as amounts excludable from gross in21 come for the taxable year to the extent of the taxable

22 income of such trust for such taxable year (decreased

23 by any income tax paid by the trust with respect to

24 the income) plus any amount excluded from gross in25 come of the trust under section 103.
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1 ‘‘(2) Second, as amounts excludable from gross

2 income to the extent of the amount described in para3 graph (1) for all taxable years for which an election

4 is in effect under subsection (c) with respect to the

5 trust, and not previously taken into account under

6 paragraph (1).

7 ‘‘(3) Third, as amounts distributed by the spon8 soring Native Corporation with respect to its stock

9 (within the meaning of section 301(a)) during such

10 taxable year and taxable to the recipient beneficiary

11 as amounts described in section 301(c)(1), to the ex12 tent of current or accumulated earnings and profits

13 of the sponsoring Native Corporation as of the close

14 of such taxable year after proper adjustment is made

15 for all distributions made by the sponsoring Native

16 Corporation during such taxable year.

17 ‘‘(4) Fourth, as amounts distributed by the trust

18 in excess of the distributable net income of such trust

19 for such taxable year.

20 Amounts distributed to which paragraph (3) applies shall

21 not be treated as a corporate distribution subject to section

22 311(b), and for purposes of determining the amount of a

23 distribution for purposes of paragraph (3) and the basis

24 to the recipients, section 643(e) and not section 301(b) or

25 (d) shall apply.
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1 ‘‘(f) SPECIAL RULES WHERE TRANSFER RESTRIC2 TIONS MODIFIED.—

3 ‘‘(1) TRANSFER OF BENEFICIAL INTERESTS.—If,

4 at any time, a beneficial interest in an electing Set5 tlement Trust may be disposed of to a person in a

6 manner which would not be permitted by section 7(h)

7 of the Alaska Native Claims Settlement Act (43

8 U.S.C. 1606(h)) if such interest were Settlement Com9 mon Stock—

10 ‘‘(A) no election may be made under sub11 section (c) with respect to such trust, and

12 ‘‘(B) if such an election is in effect as of

13 such time—

14 ‘‘(i) such election shall cease to apply

15 as of the first day of the taxable year in

16 which such disposition is first permitted,

17 ‘‘(ii) the provisions of this section shall

18 not apply to such trust for such taxable

19 year and all taxable years thereafter, and

20 ‘‘(iii) the distributable net income of

21 such trust shall be increased by the current

22 or accumulated earnings and profits of the

23 sponsoring Native Corporation as of the

24 close of such taxable year after proper ad25 justment is made for all distributions made
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1 by the sponsoring Native Corporation dur2 ing such taxable year.

3 In no event shall the increase under clause (iii) exceed

4 the fair market value of the trust’s assets as of the

5 date the beneficial interest of the trust first becomes

6 so disposable. The earnings and profits of the spon7 soring Native Corporation shall be adjusted as of the

8 last day of such taxable year by the amount of earn9 ings and profits so included in the distributable net

10 income of the trust.

11 ‘‘(2) STOCK IN CORPORATION.—If—

12 ‘‘(A) stock in the sponsoring Native Cor13 poration may be disposed of to a person in a

14 manner which would not be permitted by section

15 7(h) of the Alaska Native Claims Settlement Act

16 (43 U.S.C. 1606(h)) if such stock were Settlement

17 Common Stock, and

18 ‘‘(B) at any time after such disposition of

19 stock is first permitted, such corporation trans20 fers assets to a Settlement Trust,

21 paragraph (1)(B) shall be applied to such trust on

22 and after the date of the transfer in the same manner

23 as if the trust permitted dispositions of beneficial in24 terests in the trust in a manner not permitted by

25 such section 7(h).
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1 ‘‘(3) CERTAIN DISTRIBUTIONS.—For purposes of

2 this section, the surrender of an interest in a Native

3 Corporation or an electing Settlement Trust in order

4 to accomplish the whole or partial redemption of the

5 interest of a shareholder or beneficiary in such cor6 poration or trust, or to accomplish the whole or par7 tial liquidation of such corporation or trust, shall be

8 deemed to be a transfer permitted by section 7(h) of

9 the Alaska Native Claims Settlement Act.

10 ‘‘(g) TAXABLE INCOME.—For purposes of this title, the

11 taxable income of an electing Settlement Trust shall be de12 termined under section 641(b) without regard to any deduc13 tion under section 651 or 661.

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

15 ‘‘(1) ELECTING SETTLEMENT TRUST.—The term

16 ‘electing Settlement Trust’ means a Settlement Trust

17 which has made the election, effective for a taxable

18 year, described in subsection (c).

19 ‘‘(2) NATIVE CORPORATION.—The term ‘Native

20 Corporation’ has the meaning given such term by sec21 tion 3(m) of the Alaska Native Claims Settlement Act

22 (43 U.S.C. 1602(m)).

23 ‘‘(3) SETTLEMENT COMMON STOCK.—The term

24 ‘Settlement Common Stock’ has the meaning given
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1 such term by section 3(p) of the Alaska Native Claims

2 Settlement Act (43 U.S.C. 1602(p)).

3 ‘‘(4) SETTLEMENT TRUST.—The term ‘Settlement

4 Trust’ means a trust that constitutes a settlement

5 trust under section 3(t) of the Alaska Native Claims

6 Settlement Act (43 U.S.C. 1602(t)).

7 ‘‘(5) SPONSORING NATIVE CORPORATION.—The

8 term ‘sponsoring Native Corporation’ means the Na9 tive Corporation which transfers assets to an electing

10 Settlement Trust.

11 ‘‘(i) SPECIAL LOSS DISALLOWANCE RULE.—Any loss

12 that would otherwise be recognized by a shareholder upon

13 a disposition of a share of stock of a sponsoring Native Cor14 poration shall be reduced (but not below zero) by the per

15 share loss adjustment factor. The per share loss adjustment

16 factor shall be the aggregate of all contributions to all elect17 ing Settlement Trusts sponsored by such Native Corpora18 tion made on or after the first day each trust is treated

19 as an electing Settlement Trust expressed on a per share

20 basis and determined as of the day of each such contribu21 tion.

22 ‘‘(j) CROSS REFERENCE.—

‘‘For information required with respect to electing

Settlement Trusts and sponsoring Native Corporations, see section 6039H.’’.

23 (b) REPORTING.—Subpart A of part III of subchapter

24 A of chapter 61 of subtitle F (relating to information con-
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1 cerning persons subject to special provisions) is amended

2 by inserting after section 6039G the following new section:

3 ‘‘SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NA4 TIVE SETTLEMENT TRUSTS AND SPONSORING

5 NATIVE CORPORATIONS.

6 ‘‘(a) REQUIREMENT.—The fiduciary of an electing

7 Settlement Trust (as defined in section 646(h)(1)) shall in8 clude with the return of income of the trust a statement

9 containing the information required under subsection (c).

10 ‘‘(b) APPLICATION WITH OTHER REQUIREMENTS.—

11 The filing of any statement under this section shall be in

12 lieu of the reporting requirements under section 6034A to

13 furnish any statement to a beneficiary regarding amounts

14 distributed to such beneficiary (and such other reporting

15 rules as the Secretary deems appropriate).

16 ‘‘(c) REQUIRED INFORMATION.—The information re17 quired under this subsection shall include—

18 ‘‘(1) the amount of distributions made during

19 the taxable year to each beneficiary,

20 ‘‘(2) the treatment of such distribution under the

21 applicable provision of section 646, including the

22 amount that is excludable from the recipient bene23 ficiary’s gross income under section 646, and

24 ‘‘(3) the amount (if any) of any distribution

25 during such year that is deemed to have been made
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1 by the sponsoring Native Corporation (as defined in

2 section 646(h)(5)).

3 ‘‘(d) SPONSORING NATIVE CORPORATION.—

4 ‘‘(1) IN GENERAL.—The electing Settlement

5 Trust shall, on or before the date on which the state6 ment under subsection (a) is required to be filed, fur7 nish such statement to the sponsoring Native Corpora8 tion (as so defined).

9 ‘‘(2) DISTRIBUTEES.—The sponsoring Native

10 Corporation shall furnish each recipient of a distribu11 tion described in section 646(e)(3) a statement con12 taining the amount deemed to have been distributed

13 to such recipient by such corporation for the taxable

14 year.’’.

15 (c) CLERICAL AMENDMENT.—

16 (1) The table of sections for subpart A of part I

17 of subchapter J of chapter 1 of such Code is amended

18 by adding at the end the following new item:

‘‘Sec. 646. Tax treatment of electing Alaska Native Settlement

Trusts.’’.

19 (2) The table of sections for subpart A of part III

20 of subchapter A of chapter 61 of subtitle F of such

21 Code is amended by inserting after the item relating

22 to section 6039G the following new item:

‘‘Sec. 6039H. Information with respect to Alaska Native Settlement

Trusts and sponsoring Native Corporations.’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years ending after the date

3 of the enactment of this Act and to contributions made to

4 electing Settlement Trusts for such year or any subsequent

5 year.

6 Subtitle I—Compliance With

7 Congressional Budget Act

8 SEC. 695. SUNSET OF PROVISIONS OF TITLE.

9 All provisions of, and amendments made by, this title

10 which are in effect on September 30, 2011, shall cease to

11 apply as of the close of September 30, 2011.

12 TITLE VII—ALTERNATIVE

13 MINIMUM TAX

14 Subtitle A—In General

15 SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EX16 EMPTION.

17 (a) IN GENERAL.—

18 (1) Subparagraph (A) of section 55(d)(1) (relat19 ing to exemption amount for taxpayers other than

20 corporations) is amended by striking ‘‘$45,000’’ and

21 inserting ‘‘$45,000 ($49,000 in the case of taxable

22 years beginning in 2001, 2002, 2003, 2004, 2005, and

23 2006)’’.

24 (2) Subparagraph (B) of section 55(d)(1) (relat25 ing to exemption amount for taxpayers other than
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1 corporations) is amended by striking ‘‘$33,750’’ and

2 inserting ‘‘$33,750 ($35,750 in the case of taxable

3 years beginning in 2001, 2002, 2003, 2004, 2005, and

4 2006)’’.

5 (b) CONFORMING AMENDMENTS.—

6 (1) Paragraph (1) of section 55(d) is amended

7 by striking ‘‘and’’ at the end of subparagraph (B), by

8 striking subparagraph (C), and by inserting after

9 subparagraph (B) the following new subparagraphs:

10 ‘‘(C) 50 percent of the dollar amount appli11 cable under paragraph (1)(A) in the case of a

12 married individual who files a separate return,

13 and

14 ‘‘(D) $22,500 in the case of an estate or

15 trust.’’.

16 (2) Subparagraph (C) of section 55(d)(3) is

17 amended by striking ‘‘paragraph (1)(C)’’ and insert18 ing ‘‘subparagraph (C) or (D) of paragraph (1)’’.

19 (3) The last sentence of section 55(d)(3) is

20 amended—

21 (A) by striking ‘‘paragraph (1)(C)(i)’’ and

22 inserting ‘‘paragraph (1)(C)’’; and

23 (B) by striking ‘‘$165,000 or (ii) $22,500’’

24 and inserting ‘‘the minimum amount of such in25 come (as so determined) for which the exemption
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1 amount under paragraph (1)(C) is zero, or (ii)

2 such exemption amount (determined without re3 gard to this paragraph)’’.

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

5 section title shall apply to taxable years beginning after De6 cember 31, 2000.

7 Subtitle B—Compliance With

8 Congressional Budget Act

9 SEC. 711. SUNSET OF PROVISIONS OF TITLE.

10 All provisions of, and amendments made by, this title

11 which are in effect on September 30, 2011, shall cease to

12 apply as of the close of September 30, 2011.

13 TITLE VIII—OTHER PROVISIONS

14 Subtitle A—In General

15 SEC. 801. TIME FOR PAYMENT OF CORPORATE ESTIMATED

16 TAXES.

17 Notwithstanding section 6655 of the Internal Revenue

18 Code of 1986—

19 (1) 70 percent of the amount of any required in20 stallment of corporate estimated tax which is other21 wise due in September 2001 shall not be due until Oc22 tober 1, 2001; and

23 (2) 20 percent of the amount of any required in24 stallment of corporate estimated tax which is other-
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1 wise due in September 2004 shall not be due until Oc2 tober 1, 2004.

3 SEC. 802. EXPANSION OF AUTHORITY TO POSTPONE CER4 TAIN TAX-RELATED DEADLINES BY REASON

5 OF PRESIDENTIALLY DECLARED DISASTER.

6 (a) IN GENERAL.—Section 7508A (relating to author7 ity to postpone certain tax-related deadlines by reason of

8 presidentially declared disaster) is amended by adding at

9 the end the following new subsection:

10 ‘‘(c) DUTIES OF DISASTER RESPONSE TEAM.—The

11 Secretary shall establish as a permanent office in the na12 tional office of the Internal Revenue Service a disaster re13 sponse team which, in coordination with the Federal Emer14 gency Management Agency, shall assist taxpayers in clari15 fying and resolving Federal tax matters associated with or

16 resulting from any Presidentially declared disaster (as so

17 defined). One of the duties of the disaster response team

18 shall be to extend in appropriate cases the 90-day period

19 described in subsection (a) by not more than 30 days.’’.

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

21 section shall take effect on the date of enactment of this Act.
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1 SEC. 803. NO FEDERAL INCOME TAX ON RESTITUTION RE2 CEIVED BY VICTIMS OF THE NAZI REGIME OR

3 THEIR HEIRS OR ESTATES.

4 (a) IN GENERAL.—For purposes of the Internal Rev5 enue Code of 1986, any excludable restitution payments re6 ceived by an eligible individual (or the individual’s heirs

7 or estate)—

8 (1) shall not be included in gross income; and

9 (2) shall not be taken into account for purposes

10 of applying any provision of such Code which takes

11 into account excludable income in computing adjusted

12 gross income, including section 86 of such Code (relat13 ing to taxation of social security benefits).

14 For purposes of such Code, the basis of any property re15 ceived by an eligible individual (or the individual’s heirs

16 or estate) as part of an excludable restitution payment shall

17 be the fair market value of such property as of the time

18 of the receipt.

19 (b) COORDINATION WITH FEDERAL MEANS-TESTED

20 PROGRAMS.—

21 (1) IN GENERAL.—Any excludable restitution

22 payment shall be disregarded in determining eligi23 bility for, and the amount of benefits or services to be

24 provided under, any Federal or federally assisted pro25 gram which provides benefits or service based, in

26 whole or in part, on need.
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1 (2) PROHIBITION AGAINST RECOVERY OF VALUE

2 OF EXCESSIVE BENEFITS OR SERVICES.—No officer,

3 agency, or instrumentality of any government may

4 attempt to recover the value of excessive benefits or

5 services provided under a program described in sub6 section (a) before January 1, 2000, by reason of any

7 failure to take account of excludable restitution pay8 ments received before such date.

9 (3) NOTICE REQUIRED.—Any agency of govern10 ment that has taken into account excludable restitu11 tion payments in determining eligibility for a pro12 gram described in subsection (a) before January 1,

13 2000, shall make a good faith effort to notify any in14 dividual who may have been denied eligibility for

15 benefits or services under the program of the potential

16 eligibility of the individual for such benefits or serv17 ices.

18 (4) COORDINATION WITH 1994 ACT.—Nothing in

19 this Act shall be construed to override any right or re20 quirement under ‘‘An Act to require certain payments

21 made to victims of Nazi persecution to be disregarded

22 in determining eligibility for and the amount of bene23 fits or services based on need’’, approved August 1,

24 1994 (Public Law 103–286; 42 U.S.C. 1437a note),
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1 and nothing in that Act shall be construed to override

2 any right or requirement under this Act.

3 (c) ELIGIBLE INDIVIDUAL.—For purposes of this sec4 tion, the term ‘‘eligible individual’’ means a person who

5 was persecuted for racial or religious reasons by Nazi Ger6 many, any other Axis regime, or any other Nazi-controlled

7 or Nazi-allied country.

8 (d) EXCLUDABLE RESTITUTION PAYMENT.—For pur9 poses of this section, the term ‘‘excludable restitution pay10 ment’’ means any payment or distribution to an individual

11 (or the individual’s heirs or estate) which—

12 (1) is payable by reason of the individual’s sta13 tus as an eligible individual, including any amount

14 payable by any foreign country, the United States of

15 America, or any other foreign or domestic entity, or

16 a fund established by any such country or entity, any

17 amount payable as a result of a final resolution of a

18 legal action, and any amount payable under a law

19 providing for payments or restitution of property;

20 (2) constitutes the direct or indirect return of, or

21 compensation or reparation for, assets stolen or hid22 den from, or otherwise lost to, the individual before,

23 during, or immediately after World War II by reason

24 of the individual’s status as an eligible individual,

25 including any proceeds of insurance under policies
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1 issued on eligible individuals by European insurance

2 companies immediately before and during World War

3 II; or

4 (3) consists of interest which is payable as part

5 of any payment or distribution described in para6 graph (1) or (2).

7 (e) EFFECTIVE DATE.—

8 (1) IN GENERAL.—This section shall apply to

9 any amount received on or after January 1, 2000.

10 (2) NO INFERENCE.—Nothing in this Act shall

11 be construed to create any inference with respect to

12 the proper tax treatment of any amount received be13 fore January 1, 2000.

14 SEC. 804. REMOVAL OF LIMITATION.

15 (a) IN GENERAL.—Section 101(h) of the Internal Rev16 enue Code of 1986 (relating to exclusion of survivor benefits

17 from gross income) is amended by adding after paragraph

18 (2) the following new paragraph:

19 ‘‘(3) APPLICATION.—This subsection shall apply

20 to amounts received after December 31, 2000.’’.

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

22 section shall take effect on the date of the enactment of this

23 Act.
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1 SEC. 805. CIRCUIT BREAKER.

2 (a) IN GENERAL.—In any fiscal year beginning with

3 fiscal year 2004, if the level of debt held by the public at

4 the end of that fiscal year (as projected by the Office of

5 Management and Budget sequestration update report on

6 August 20th preceding the beginning of that fiscal year)

7 would exceed the level of debt held by the public for that

8 fiscal year set forth in the concurrent resolution on the

9 budget for fiscal year 2002 (H. Con. Res. 83, 107th Con10 gress), any Member of Congress may move to proceed to a

11 bill that would make changes in law to reduce discretionary

12 spending and direct spending (except for changes in social

13 security, medicare and COLA’s) and increase revenues in

14 a manner that would reduce the debt held by the public

15 for the fiscal year to a level not exceeding the level provided

16 in that concurrent resolution for that fiscal year.

17 (b) CONSIDERATION OF LEGISLATION.—A bill consid18 ered under subsection (a) shall be considered as provided

19 in section 310(e) of the Congressional Budget Act of 1974

20 (2 U.S.C. 641(e)).

21 (c) PROCEDURE.—It shall not be in order in the Sen22 ate to consider any bill, joint resolution, motion, amend23 ment, or conference report, pursuant to this section, that

24 contains any provisions other than those enumerated in sec25 tions 310(a)(1) and 310(a)(2) of the Congressional Budget

26 Act of 1974. This point of order may be waived or sus-
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1 pended in the Senate only by the affirmative vote of three2 fifths of the Members duly chosen and sworn. An affirmative

3 vote of three-fifths of the Members duly chosen and sworn,

4 shall be required in the Senate to sustain an appeal of the

5 ruling of the Chair on a point of order raised under this

6 paragraph.

7 SEC. 806. DEDUCTION FOR HEALTH INSURANCE COSTS OF

8 SELF-EMPLOYED INDIVIDUALS INCREASED.

9 (a) IN GENERAL.—Section 162(l)(1) (relating to spe10 cial rules for health insurance costs of self-employed indi11 viduals) is amended to read as follows:

12 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of

13 an individual who is an employee within the mean14 ing of section 401(c)(1), there shall be allowed as a

15 deduction under this section an amount equal to the

16 amount paid during the taxable year for insurance

17 which constitutes medical care for the taxpayer, the

18 taxpayer’s spouse, and dependents.’’.

19 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV20 ERAGE.—The first sentence of section 162(l)(2)(B) (relating

21 to other coverage) is amended to read as follows: ‘‘Para22 graph (1) shall not apply to any taxpayer for any calendar

23 month for which the taxpayer participates in any sub24 sidized health plan maintained by any employer (other
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1 than an employer described in section 401(c)(4)) of the tax2 payer or the spouse of the taxpayer.’’.

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

4 section shall apply to taxable years beginning after Decem5 ber 31, 2001.

6 SEC. 807. DEDUCTION FOR HEALTH INSURANCE COSTS OF

7 SELF-EMPLOYED INDIVIDUALS INCREASED.

8 (a) IN GENERAL.—Section 162(l)(1) (relating to spe9 cial rules for health insurance costs of self-employed indi10 viduals) is amended to read as follows:

11 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of

12 an individual who is an employee within the mean13 ing of section 401(c)(1), there shall be allowed as a

14 deduction under this section an amount equal to the

15 amount paid during the taxable year for insurance

16 which constitutes medical care for the taxpayer, the

17 taxpayer’s spouse, and dependents.’’.

18 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV19 ERAGE.—The first sentence of section 162(l)(2)(B) (relating

20 to other coverage) is amended to read as follows: ‘‘Para21 graph (1) shall not apply to any taxpayer for any calendar

22 month for which the taxpayer participates in any sub23 sidized health plan maintained by any employer (other

24 than an employer described in section 401(c)(4)) of the tax25 payer or the spouse of the taxpayer.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this

2 section shall apply to taxable years beginning after Decem3 ber 31, 2001.

4 SEC. 808. CHARITABLE CONTRIBUTIONS OF CERTAIN ITEMS

5 CREATED BY THE TAXPAYER.

6 (a) IN GENERAL.—Subsection (e) of section 170 (relat7 ing to certain contributions of ordinary income and capital

8 gain property) is amended by adding at the end the fol9 lowing new paragraph:

10 ‘‘(7) SPECIAL RULE FOR CERTAIN CONTRIBU11 TIONS OF LITERARY, MUSICAL, OR ARTISTIC COMPOSI12 TIONS.—

13 ‘‘(A) IN GENERAL.—In the case of a quali14 fied artistic charitable contribution—

15 ‘‘(i) the amount of such contribution

16 shall be the fair market value of the prop17 erty contributed (determined at the time of

18 such contribution), and

19 ‘‘(ii) no reduction in the amount of

20 such contribution shall be made under

21 paragraph (1).

22 ‘‘(B) QUALIFIED ARTISTIC CHARITABLE

23 CONTRIBUTION.—For purposes of this para24 graph, the term ‘qualified artistic charitable con25 tribution’ means a charitable contribution of any
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1 literary, musical, artistic, or scholarly composi2 tion, or similar property, or the copyright there3 on (or both), but only if—

4 ‘‘(i) such property was created by the

5 personal efforts of the taxpayer making such

6 contribution no less than 18 months prior

7 to such contribution,

8 ‘‘(ii) the taxpayer—

9 ‘‘(I) has received a qualified ap10 praisal of the fair market value of such

11 property in accordance with the regu12 lations under this section, and

13 ‘‘(II) attaches to the taxpayer’s

14 income tax return for the taxable year

15 in which such contribution was made a

16 copy of such appraisal,

17 ‘‘(iii) the donee is an organization de18 scribed in subsection (b)(1)(A),

19 ‘‘(iv) the use of such property by the

20 donee is related to the purpose or function

21 constituting the basis for the donee’s exemp22 tion under section 501 (or, in the case of a

23 governmental unit, to any purpose or func24 tion described under subsection (c)),
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1 ‘‘(v) the taxpayer receives from the

2 donee a written statement representing that

3 the donee’s use of the property will be in ac4 cordance with the provisions of clause (iv),

5 and

6 ‘‘(vi) the written appraisal referred to

7 in clause (ii) includes evidence of the extent

8 (if any) to which property created by the

9 personal efforts of the taxpayer and of the

10 same type as the donated property is or has

11 been—

12 ‘‘(I) owned, maintained, and dis13 played by organizations described in

14 subsection (b)(1)(A), and

15 ‘‘(II) sold to or exchanged by per16 sons other than the taxpayer, donee, or

17 any related person (as defined in sec18 tion 465(b)(3)(C)).

19 ‘‘(C) MAXIMUM DOLLAR LIMITATION; NO

20 CARRYOVER OF INCREASED DEDUCTION.—The

21 increase in the deduction under this section by

22 reason of this paragraph for any taxable year—

23 ‘‘(i) shall not exceed the artistic ad24 justed gross income of the taxpayer for such

25 taxable year, and
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1 ‘‘(ii) shall not be taken into account in

2 determining the amount which may be car3 ried from such taxable year under sub4 section (d).

5 ‘‘(D) ARTISTIC ADJUSTED GROSS INCOME.—

6 For purposes of this paragraph, the term ‘artis7 tic adjusted gross income’ means that portion of

8 the adjusted gross income of the taxpayer for the

9 taxable year attributable to—

10 ‘‘(i) income from the sale or use of

11 property created by the personal efforts of

12 the taxpayer which is of the same type as

13 the donated property, and

14 ‘‘(ii) income from teaching, lecturing,

15 performing, or similar activity with respect

16 to property described in clause (i).

17 ‘‘(E) PARAGRAPH NOT TO APPLY TO CER18 TAIN CONTRIBUTIONS.—Subparagraph (A) shall

19 not apply to any charitable contribution of any

20 letter, memorandum, or similar property which

21 was written, prepared, or produced by or for an

22 individual while the individual is an officer or

23 employee of any person (including any govern24 ment agency or instrumentality) unless such let-
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1 ter, memorandum, or similar property is en2 tirely personal.

3 ‘‘(F) COPYRIGHT TREATED AS SEPARATE

4 PROPERTY FOR PARTIAL INTEREST RULE.—In

5 the case of a qualified artistic charitable con6 tribution, the tangible literary, musical, artistic,

7 or scholarly composition, or similar property

8 and the copyright on such work shall be treated

9 as separate properties for purposes of this para10 graph and subsection (f)(3).’’.

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

12 section shall apply to contributions made after the date of

13 the enactment of this Act in taxable years ending after such

14 date.

15 SEC. 809. WAIVER OF STATUTE OF LIMITATION FOR TAXES

16 ON CERTAIN FARM VALUATIONS.

17 If on the date of the enactment of this Act (or at any

18 time within 1 year after the date of the enactment) a refund

19 or credit of any overpayment of tax resulting from the ap20 plication of section 2032A(c)(7)(E) of the Internal Revenue

21 Code of 1986 is barred by any law or rule of law, the refund

22 or credit of such overpayment shall, nevertheless, be made

23 or allowed if claim therefor is filed before the date 1 year

24 after the date of the enactment of this Act.
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1 SEC. 810. RESEARCH CREDIT.

2 (a) PERMANENT EXTENSION OF RESEARCH CREDIT.—

3 (1) IN GENERAL.—Section 41 (relating to credit

4 for increasing research activities) is amended by

5 striking subsection (h).

6 (2) CONFORMING AMENDMENT.—Paragraph (1)

7 of section 45C(b) is amended by striking subpara8 graph (D).

9 (3) EFFECTIVE DATE.—The amendments made

10 by this subsection shall apply to amounts paid or in11 curred after the date of the enactment of this Act.

12 (b) INCREASES IN RATES OF ALTERNATIVE INCRE13 MENTAL CREDIT.—

14 (1) IN GENERAL.—Subparagraph (A) of section

15 41(c)(4) (relating to election of alternative incre16 mental credit) is amended—

17 (A) by striking ‘‘2.65 percent’’ and insert18 ing ‘‘3 percent’’,

19 (B) by striking ‘‘3.2 percent’’ and inserting

20 ‘‘4 percent’’, and

21 (C) by striking ‘‘3.75 percent’’ and insert22 ing ‘‘5 percent’’.

23 (2) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply to taxable years ending

25 after the date of the enactment of this Act.
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1 SEC. 811. CREDIT FOR MEDICAL RESEARCH RELATED TO

2 DEVELOPING VACCINES AGAINST WIDE3 SPREAD DISEASES.

4 (a) IN GENERAL.—Subpart D of part IV of subchapter

5 A of chapter 1 (relating to business related credits), as

6 amended by section 620, is amended by adding at the end

7 the following new section:

8 ‘‘SEC. 45G. CREDIT FOR MEDICAL RESEARCH RELATED TO

9 DEVELOPING VACCINES AGAINST WIDE10 SPREAD DISEASES.

11 ‘‘(a) GENERAL RULE.—For purposes of section 38, the

12 vaccine research credit determined under this section for the

13 taxable year is an amount equal to 30 percent of the quali14 fied vaccine research expenses for the taxable year.

15 ‘‘(b) QUALIFIED VACCINE RESEARCH EXPENSES.—

16 For purposes of this section—

17 ‘‘(1) QUALIFIED VACCINE RESEARCH EX18 PENSES.—

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

20 provided in this paragraph, the term ‘qualified

21 vaccine research expenses’ means the amounts

22 which are paid or incurred by the taxpayer dur23 ing the taxable year which would be described in

24 subsection (b) of section 41 if such subsection

25 were applied with the modifications set forth in

26 subparagraph (B).
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1 ‘‘(B) MODIFICATIONS; INCREASED INCEN2 TIVE FOR CONTRACT RESEARCH PAYMENTS.—For

3 purposes of subparagraph (A), subsection (b) of

4 section 41 shall be applied—

5 ‘‘(i) by substituting ‘vaccine research’

6 for ‘qualified research’ each place it appears

7 in paragraphs (2) and (3) of such sub8 section, and

9 ‘‘(ii) by substituting ‘100 percent’ for

10 ‘65 percent’ in paragraph (3)(A) of such

11 subsection.

12 ‘‘(C) EXCLUSION FOR AMOUNTS FUNDED BY

13 GRANTS, ETC.—The term ‘qualified vaccine re14 search expenses’ shall not include any amount to

15 the extent such amount is funded by any grant,

16 contract, or otherwise by another person (or any

17 governmental entity).

18 ‘‘(2) VACCINE RESEARCH.—The term ‘vaccine re19 search’ means research to develop vaccines and

20 microbicides for—

21 ‘‘(A) malaria,

22 ‘‘(B) tuberculosis,

23 ‘‘(C) HIV, or

24 ‘‘(D) any infectious disease (of a single eti25 ology) which, according to the World Health Or-
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1 ganization, causes over 1,000,000 human deaths

2 annually.

3 ‘‘(c) COORDINATION WITH CREDIT FOR INCREASING

4 RESEARCH EXPENDITURES.—

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), any qualified vaccine research expenses for

7 a taxable year to which an election under this section

8 applies shall not be taken into account for purposes

9 of determining the credit allowable under section 41

10 for such taxable year.

11 ‘‘(2) EXPENSES INCLUDED IN DETERMINING

12 BASE PERIOD RESEARCH EXPENSES.—Any qualified

13 vaccine research expenses for any taxable year which

14 are qualified research expenses (within the meaning of

15 section 41(b)) shall be taken into account in deter16 mining base period research expenses for purposes of

17 applying section 41 to subsequent taxable years.

18 ‘‘(d) SPECIAL RULES.—

19 ‘‘(1) LIMITATIONS ON FOREIGN TESTING.—No

20 credit shall be allowed under this section with respect

21 to any vaccine research (other than human clinical

22 testing) conducted outside the United States.

23 ‘‘(2) PRE-CLINICAL RESEARCH.—No credit shall

24 be allowed under this section for pre-clinical research

25 unless such research is pursuant to a research plan
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1 an abstract of which has been filed with the Secretary

2 before the beginning of such year. The Secretary, in

3 consultation with the Secretary of Health and

4 Human Services, shall prescribe regulations speci5 fying the requirements for such plans and procedures

6 for filing under this paragraph.

7 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—Rules

8 similar to the rules of paragraphs (1) and (2) of sec9 tion 41(f) shall apply for purposes of this section.

10 ‘‘(4) ELECTION.—This section (other than sub11 section (e)) shall apply to any taxpayer for any tax12 able year only if such taxpayer elects to have this sec13 tion apply for such taxable year.’’.

14 (b) INCLUSION IN GENERAL BUSINESS CREDIT.—

15 (1) IN GENERAL.—Section 38(b), as amended by

16 section 620, is amended by striking ‘‘plus’’ at the end

17 of paragraph (14), by striking the period at the end

18 of paragraph (15) and inserting ‘‘, plus’’, and by

19 adding at the end the following new paragraph:

20 ‘‘(16) the vaccine research credit determined

21 under section 45G.’’.

22 (2) TRANSITION RULE.—Section 39(d), as

23 amended by section 620, is amended by adding at the

24 end the following new paragraph:
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1 ‘‘(12) NO CARRYBACK OF SECTION 45G CREDIT

2 BEFORE ENACTMENT.—No portion of the unused busi3 ness credit for any taxable year which is attributable

4 to the vaccine research credit determined under sec5 tion 45G may be carried back to a taxable year end6 ing before the date of the enactment of section 45G.’’.

7 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C is

8 amended by adding at the end the following new subsection:

9 ‘‘(d) CREDIT FOR QUALIFIED VACCINE RESEARCH EX10 PENSES.—

11 ‘‘(1) IN GENERAL.—No deduction shall be al12 lowed for that portion of the qualified vaccine re13 search expenses (as defined in section 45G(b)) other14 wise allowable as a deduction for the taxable year

15 which is equal to the amount of the credit determined

16 for such taxable year under section 45G(a).

17 ‘‘(2) CERTAIN RULES TO APPLY.—Rules similar

18 to the rules of paragraphs (2), (3), and (4) of sub19 section (c) shall apply for purposes of this sub20 section.’’.

21 (d) DEDUCTION FOR UNUSED PORTION OF CREDIT.—

22 Section 196(c) (defining qualified business credits) is

23 amended by striking ‘‘and’’ at the end of paragraph (8),

24 by striking the period at the end of paragraph (9) and in-
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1 serting ‘‘, and’’, and by adding at the end the following

2 new paragraph:

3 ‘‘(10) the vaccine research credit determined

4 under section 45G(a) (other than such credit deter5 mined under the rules of section 280C(d)(2)).’’.

6 (e) TECHNICAL AMENDMENTS.—

7 (1) Section 1324(b)(2) of title 31, United States

8 Code, is amended by inserting ‘‘or from section

9 45G(e) of such Code,’’ after ‘‘1978,’’.

10 (2) The table of sections for subpart D of part

11 IV of subchapter A of chapter 1, as amended by sec12 tion 620, is amended by adding at the end the fol13 lowing new item:

‘‘Sec. 45G. Credit for medical research related to developing vaccines against widespread diseases.’’.

14 (f) EFFECTIVE DATE.—The amendments made by this

15 section shall apply to taxable years ending after the date

16 of the enactment of this Act.

17 SEC. 812. ACCELERATION OF BENEFITS OF WAGE TAX CRED18 ITS FOR EMPOWERMENT ZONES.

19 Section 113(d) of the Community Renewal Tax Relief

20 Act of 2000 is amended by striking ‘‘December 31, 2001’’

21 and inserting ‘‘the earlier of—

22 ‘‘(1) the date of the enactment of the Restoring

23 Earnings To Lift Individuals and Empower Families

24 (RELIEF) Act of 2001, or
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1 ‘‘(2) July 1, 2001’’.

2 SEC. 813. TREATMENT OF CERTAIN HOSPITAL SUPPORT OR3 GANIZATIONS AS QUALIFIED ORGANIZATIONS

4 FOR PURPOSES OF DETERMINING ACQUISI5 TION INDEBTEDNESS.

6 (a) IN GENERAL.—Subparagraph (C) of section

7 514(c)(9) (relating to real property acquired by a qualified

8 organization) is amended by striking ‘‘or’’ at the end of

9 clause (ii), by striking the period at the end of clause (iii)

10 and inserting ‘‘; or’’, and by adding at the end the following

11 new clause:

12 ‘‘(iv) a qualified hospital support

13 organization (as defined in subpara14 graph (I)).’’.

15 (b) QUALIFIED HOSPITAL SUPPORT ORGANIZA16 TIONS.—Paragraph (9) of section 514(c) is amended by

17 adding at the end the following new subparagraph:

18 ‘‘(I) QUALIFIED HOSPITAL SUPPORT ORGA19 NIZATIONS.—For purposes of subparagraph

20 (C)(iv), the term ‘qualified hospital support or21 ganization’ means, with respect to any eligible

22 indebtedness (including any qualified refi23 nancing of such eligible indebtedness), a support

24 organization (as defined in section 509(a)(3))
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1 which supports a hospital described in section

2 119(d)(4)(B) and with respect to which—

3 ‘‘(i) more than half of its assets

4 (by value) at any time since its

5 organization—

6 ‘‘(I) were acquired, directly

7 or indirectly, by gift or devise,

8 and

9 ‘‘(II) consisted of real prop10 erty, and

11 ‘‘(ii) the fair market value of the

12 organization’s real estate acquired, di13 rectly or indirectly, by gift or devise,

14 exceeded 10 percent of the fair market

15 value of all investment assets held by

16 the organization immediately prior to

17 the time that the eligible indebtedness

18 was incurred.

19 For purposes of this subparagraph, the term ‘eli20 gible indebtedness’ means indebtedness secured by

21 real property acquired by the organization, di22 rectly or indirectly, by gift or devise, the pro23 ceeds of which are used exclusively to acquire

24 any leasehold interest in such real property or

25 for improvements on, or repairs to, such real
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1 property. A determination under clauses (i) and

2 (ii) of this subparagraph shall be made each

3 time such an eligible indebtedness (or the quali4 fied refinancing of such an eligible indebtedness)

5 is incurred. For purposes of this subparagraph,

6 a refinancing of such an eligible indebtedness

7 shall be considered qualified if such refinancing

8 does not exceed the amount of the refinanced eli9 gible indebtedness immediately before the refi10 nancing.’’.

11 (c) EFFECTIVE DATE.—The amendments made by this

12 section shall apply to indebtedness incurred after December

13 31, 2003.

14 SEC. 814. TAX-EXEMPT BOND AUTHORITY FOR TREATMENT

15 FACILITIES REDUCING ARSENIC LEVELS IN

16 DRINKING WATER.

17 (a) IN GENERAL.—Section 142(e) (relating to facilities

18 for the furnishing of water) is amended—

19 (1) by redesignating paragraphs (1) and (2) as

20 subparagraphs (A) and (B), respectively,

21 (2) by striking ‘‘For purposes’’ and inserting the

22 following:

23 ‘‘(1) IN GENERAL.—For purposes’’, and

24 (3) by adding at the end the following:
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1 ‘‘(2) FACILITIES REDUCING ARSENIC LEVELS IN2 CLUDED.—Such term includes improvements to facili3 ties in order to comply with the 10 parts per billion

4 arsenic standard recommended by the National Acad5 emy of Sciences.’’.

6 (b) FACILITIES NOT SUBJECT TO STATE CAP.—Sec7 tion 146(g) (relating to exception for certain bonds) is

8 amended—

9 (1) by striking ‘‘and’’ at the end of paragraph

10 (3),

11 (2) by striking the period at the end of para12 graph (4) and inserting ‘‘, and’’, and

13 (3) by inserting after paragraph (4), the fol14 lowing new paragraph:

15 ‘‘(5) any exempt facility bond issued as part of

16 an issue described in section 142(a)(4) (relating to fa17 cilities for the furnishing of water), but only to the

18 extent the property to be financed by the net proceeds

19 of the issue is described in section 142(e)(2).’’.

20 (c) EXEMPT FROM AMT.—Section 57(a)(5)(C) (relat21 ing to tax-exempt interest of specified private activity

22 bonds) is amended by adding at the end the following new

23 clause:

24 ‘‘(v) EXCEPTION FOR CERTAIN WATER

25 FACILITY BONDS.—For purposes of clause
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1 (i), the term ‘private activity bond’ shall

2 not include any exempt facility bond issued

3 as part of an issue described in section

4 142(a)(4) (relating to facilities for the fur5 nishing of water), but only to the extent the

6 property to be financed by the net proceeds

7 of the issue is described in section

8 142(e)(2).’’.

9 (d) EFFECTIVE DATE.—The amendments made by this

10 section shall apply to bonds issued after the date of the en11 actment of this Act.

12 SEC. 815. TIME FOR PAYMENT OF CORPORATE ESTIMATED

13 TAX PAYMENTS DUE IN 2011.

14 Notwithstanding section 6655 of the Internal Revenue

15 Code of 1986, the amount of any required installment of

16 any corporate estimated tax payment due under such sec17 tion in July, August, or September of 2011 shall be equal

18 to 170 percent of the amount of such installment determined

19 without regard to this section.

20 SEC. 816. DISCLOSURE OF TAX INFORMATION TO FACILI21 TATE COMBINED EMPLOYMENT TAX REPORT22 ING.

23 Section 6103(d)(5) is amended to read as follows:

24 ‘‘(5) DISCLOSURE FOR COMBINED EMPLOYMENT

25 TAX REPORTING.—The Secretary may disclose tax-
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1 payer identity information and signatures to any

2 agency, body, or commission of any State for the pur3 pose of carrying out with such agency, body, or com4 mission a combined Federal and State employment

5 tax reporting program approved by the Secretary.

6 Subsections (a)(2) and (p)(4) and sections 7213 and

7 7213A shall not apply with respect to disclosures or

8 inspections made pursuant to this paragraph.’’.

9 Subtitle B—Compliance With

10 Congressional Budget Act

11 SEC. 821. SUNSET OF PROVISIONS OF TITLE.

12 All provisions of, and amendments made by, this title

13 which are in effect on September 30, 2011, shall cease to

14 apply as of the close of September 30, 2011.

15 TITLE IX—SECTION 527 POLIT16 ICAL ORGANIZATION REPORT17 ING REQUIREMENTS

18 SEC. 901. EXEMPTION FOR STATE AND LOCAL CANDIDATE

19 COMMITTEES FROM NOTIFICATION REQUIRE20 MENTS.

21 (a) EXEMPTION FROM NOTIFICATION REQUIRE22 MENTS.—Paragraph (5) of section 527(i) (relating to orga23 nizations must notify Secretary that they are section 527

24 organizations) is amended by striking ‘‘or’’ at the end of

25 subparagraph (A), by striking the period at the end of sub-
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1 paragraph (B) and inserting ‘‘, or’’, and by adding at the

2 end the following:

3 ‘‘(C) which is a political committee of a

4 State or local candidate.’’.

5 (b) EFFECTIVE DATE.—The amendment made by sub6 section (a) shall take effect as if included in the amendments

7 made by Public Law 106–230.

8 SEC. 902. EXEMPTION FOR CERTAIN STATE AND LOCAL PO9 LITICAL COMMITTEES FROM REPORTING AND

10 ANNUAL RETURN REQUIREMENTS.

11 (a) EXEMPTION FROM REPORTING REQUIREMENTS.—

12 (1) IN GENERAL.—Section 527(j)(5) (relating to

13 coordination with other requirements) is amended by

14 striking ‘‘or’’ at the end of subparagraph (D), by

15 striking the period at the end of subparagraph (E)

16 and inserting ‘‘, or’’, and by adding at the end the

17 following:

18 ‘‘(F) to any organization described in para19 graph (7), but only if, during the calendar

20 year—

21 ‘‘(i) such organization is required by

22 State or local law to report, and such orga23 nization reports, information regarding

24 each separate expenditure and contribution

25 (including information regarding the person
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1 who makes such contribution or receives

2 such expenditure) with respect to which in3 formation would otherwise be required to be

4 reported under this subsection, and

5 ‘‘(ii) such information is made public

6 by the agency with which such information

7 is filed and is publicly available for inspec8 tion in a manner similar to reports under

9 section 6104(d)(1).

10 An organization shall not be treated as failing to

11 meet the requirements of subparagraph (F)(i) solely

12 because the minimum amount of any expenditure or

13 contribution required to be reported under State or

14 local law is greater (but not by more than $100) than

15 the minimum amount required under this sub16 section.’’.

17 (2) DESCRIPTION OF ORGANIZATION.—Section

18 527(j) is amended by adding at the end the following:

19 ‘‘(7) CERTAIN ORGANIZATIONS.—An organiza20 tion is described in this paragraph if—

21 ‘‘(A) such organization is not described in

22 subparagraph (A), (B), (C), or (D) of paragraph

23 (5),

24 ‘‘(B) such organization does not engage in

25 any exempt function activities other than activi-
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1 ties for the purpose of influencing or attempting

2 to influence the selection, nomination, election,

3 or appointment of any individual to any State

4 or local public office or office in a State or local

5 political organization, and

6 ‘‘(C) no candidate for Federal office or indi7 vidual holding Federal office—

8 ‘‘(i) controls or materially participates

9 in the direction of such organization,

10 ‘‘(ii) solicits any contributions to such

11 organization, or

12 ‘‘(iii) directs, in whole or in part, any

13 expenditure made by such organization.’’.

14 (b) EXEMPTION FROM REQUIREMENTS FOR ANNUAL

15 RETURN BASED ON GROSS RECEIPTS.—Paragraph (6) of

16 section 6012(a) (relating to persons required to make re17 turns of income) is amended by striking ‘‘organization,

18 which’’ and all that follows through ‘‘section)’’ and insert19 ing ‘‘organization—

20 ‘‘(A) which has political organization tax21 able income (within the meaning of section

22 527(c)(1)) for the taxable year, or

23 ‘‘(B) which—

24 ‘‘(i) is not a political committee of a

25 State or local candidate or an organization
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1 to which section 527 applies solely by rea2 son of subsection (f)(1) of such section, and

3 ‘‘(ii) has gross receipts of—

4 ‘‘(I) in the case of political orga5 nization described in section

6 527(j)(5)(F), $100,000 or more for the

7 taxable year, and

8 ‘‘(II) in the case of any other po9 litical organization, $25,000 or more

10 for the taxable year’’.

11 (c) EFFECTIVE DATE.—The amendments made by this

12 section shall take effect as if included in the amendments

13 made by Public Law 106–230.

14 SEC. 903. NOTIFICATION OF INTERACTION OF REPORTING

15 REQUIREMENTS.

16 (a) IN GENERAL.—The Secretary of the Treasury, in

17 consultation with the Federal Election Commission, shall

18 publicize—

19 (1) the effect of the amendments made by this

20 title, and

21 (2) the interaction of requirements to file a noti22 fication or report under section 527 of the Internal

23 Revenue Code of 1986 and reports under the Federal

24 Election Campaign Act of 1971.
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1 (b) INFORMATION.—Information provided under sub2 section (a) shall be included in any appropriate form, in3 struction, notice, or other guidance issued to the public by

4 the Secretary of the Treasury or the Federal Election Com5 mission regarding reporting requirements of political orga6 nizations (as defined in section 527 of the Internal Revenue

7 Code of 1986) or reporting requirements under the Federal

8 Election Campaign Act of 1971.

9 SEC. 904. WAIVER OF PENALTIES.

10 (a) WAIVER OF FILING PENALTIES.—Section 527 is

11 amended by adding at the end the following:

12 ‘‘(k) AUTHORITY TO WAIVE.—The Secretary may

13 waive all or any portion of the—

14 ‘‘(1) tax assessed on an organization by reason

15 of the failure of the organization to give notice under

16 subsection (i), or

17 ‘‘(2) penalty imposed under subsection (j) for a

18 failure to file a report,

19 on a showing that such failure was due to reasonable cause

20 and not due to willful neglect.’’.
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1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to any tax assessed or penalty im3 posed after June 30, 2000.

Attest:

Secretary.
107TH CONGRESS

1ST SESSION H. R. 1836

AMENDMENT
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