I

103D CONGRESS

1ST SESSION H. R. 1960

To amend the Internal Revenue Code of 1986 to provide training and investment incentives and to provide additional revenues for deficit reduction

purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 4, 1993

Mr. ROSTENKOWSKI (by request) introduced the following bill; which was

referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

training and investment incentives and to provide additional revenues for deficit reduction purposes.

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

3 SECTION 1. SHORT TITLE; ETC.

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

5 ‘‘Revenue Reconciliation Act of 1993’’.
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1 (b) AMENDMENT TO 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

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

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 (c) SECTION 15 NOT TO APPLY.—Except in the case

8 of the amendments made by section 2201 (relating to cor9 porate rate increase), no amendment made by this Act

10 shall be treated as a change in a rate of tax for purposes

11 of section 15 of the Internal Revenue Code of 1986.

12 (d) WAIVER OF ESTIMATED TAX PENALTIES.—No

13 addition to tax shall be made under section 6654 or 6655

14 of the Internal Revenue Code of 1986 for any period be15 fore April 16, 1994 (March 16, 1994, in the case of a

16 corporation), with respect to any underpayment to the ex17 tent such underpayment was created or increased by any

18 provision of this Act.

19 (e) TABLE OF CONTENTS.—

Sec. 1. Short title; etc.

TITLE I—TRAINING AND INVESTMENT INCENTIVES

Subtitle A—Provisions Relating To Education And Training

Sec. 1101. Employer-provided educational assistance.

Sec. 1102. Targeted jobs credit.

Subtitle B—Investment Incentives

PART I—INVESTMENT TAX CREDIT

Sec. 1201. Permanent investment tax credit for small business.

Sec. 1202. Temporary incremental investment tax credit.
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PART II—RESEARCH CREDIT

Sec. 1211. Permanent extension of research credit.

Sec. 1212. Modification of fixed base percentage for startup companies.

PART III—INCENTIVE FOR INVESTMENT IN SMALL BUSINESS STOCK

Sec. 1221. 50-percent exclusion for gain from certain small business stock.

PART IV—MODIFICATIONS TO MINIMUM TAX DEPRECIATION RULES

Sec. 1231. Modification to minimum tax depreciation rules.

Subtitle C—Tax-Exempt Bond Provisions

Sec. 1301. High-speed intercity rail facility bonds exempt from State volume

cap.

Sec. 1302. Permanent extension of qualified small issue bonds.

Subtitle D—Expansion And Simplification Of Earned Income Tax Credit

Sec. 1401. Expansion and simplification of earned income tax credit.

Subtitle E—Incentives For Investment In Real Estate

PART I—EXTENSION OF QUALIFIED MORTGAGE BONDS AND LOW-INCOME

HOUSING CREDIT

Sec. 1501. Permanent extension of qualified mortgage bonds.

Sec. 1502. Permanent extension of low-income housing credit.

PART II—MODIFICATION OF PASSIVE LOSS RULES

Sec. 1511. Modification of passive loss rules.

PART III—PROVISIONS RELATING TO REAL ESTATE INVESTMENTS BY

PENSION FUNDS

Sec. 1521. Real estate property acquired by a qualified organization.

Sec. 1522. Repeal of special treatment of publicly treated partnerships.

Sec. 1523. Title-holding companies permitted to receive small amounts of unrelated business taxable income.

Sec. 1524. Exclusion from unrelated business tax of gains from certain property.

Sec. 1525. Exclusion from unrelated business tax of certain fees and option

premiums.

PART IV—INCREASE IN RECOVERY PERIOD FOR NONRESIDENTIAL REAL

PROPERTY

Sec. 1531. Increase in recovery period for nonresidential real property.

Subtitle F—Other Changes

Sec. 1601. Alternative minimum tax treatment of contributions of appreciated

property.

Sec. 1602. Certain transfers to railroad retirement account made permanent.

Sec. 1603. Temporary extension of deduction for health insurance costs of selfemployed individuals.
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TITLE II—REVENUE INCREASES

Subtitle A—Provisions Affecting Individuals

PART I—RATE INCREASES

Sec. 2101. Increase in top marginal rate under section 1.

Sec. 2102. Surtax on high-income taxpayers.

Sec. 2103. Modifications to alternative minimum tax rates and exemption

amounts.

Sec. 2104. Overall limitation on itemized deductions for high-income taxpayers

made permanent.

Sec. 2105. Phaseout of personal exemption of high-income taxpayers made permanent.

Sec. 2106. Provisions to prevent conversion of ordinary income to capital gain.

PART II—OTHER PROVISIONS

Sec. 2111. Repeal of limitation on amount of wages subject to health insurance

employment tax.

Sec. 2112. Top estate and gift tax rates made permanent.

Sec. 2113. Reduction in deductible portion of business meals and entertainment.

Sec. 2114. Elimination of deduction for club membership fees.

Sec. 2115. Disallowance of deduction for certain employee remuneration in excess of $1,000,000.

Sec. 2116. Reduction in compensation taken into account in determining contributions and benefits under qualified retirement plans.

Sec. 2117. Modification to deduction for certain moving expenses.

Subtitle B—Provisions Affecting Businesses

Sec. 2201. Increase in top marginal rate under section 11.

Sec. 2202. Denial of deduction for lobbying expenses.

Sec. 2203. Mark to market accounting method for securities dealers.

Sec. 2204. Clarification of treatment of certain FSLIC financial assistance.

Sec. 2205. Extension of corporate estimated tax rules.

Sec. 2206. Limitation on section 936 credit.

Sec. 2207. Modification to limitation on deduction for certain interest.

Subtitle C—Foreign Tax Provisions

PART I—CURRENT TAXATION OF CERTAIN EARNINGS OF CONTROLLED

FOREIGN CORPORATIONS

Sec. 2301. Earnings invested in excess passive assets.

Sec. 2302. Modification to taxation of investment in United States property.

Sec. 2303. Other modifications to subpart F.

PART II—ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES;

TREATMENT OF CERTAIN ROYALTIES

Sec. 2311. Allocation of research and experimental expenditures.

Sec. 2312. Royalties treated as passive income for purposes of separate application of foreign tax credit.

PART III—OTHER PROVISIONS
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Sec. 2321. Repeal of certain exceptions for working capital.

Sec. 2322. Modifications of accuracy-related penalty.

Sec. 2323. Denial of portfolio interest exemption for contingent interest.

Sec. 2324. Regulations dealing with conduit arrangements.

Subtitle D—Energy Tax Provisions

Sec. 2401. Imposition of energy tax based on Btu content.

Sec. 2402. Extension of motor fuel tax rates; increased deposits into highway

trust fund.

Subtitle E—Compliance Provisions

Sec. 2501. Reporting required for certain payments to corporations.

Sec. 2502. Modifications to substantial understatement and return-preparer

penalties.

Subtitle F—Miscellaneous Provisions

Sec. 2601. Substantiation requirement for deduction of certain charitable contributions.

Sec. 2602. Disclosure related to quid pro quo contributions.

Sec. 2603. Disallowance of interest on certain overpayments of tax.

Sec. 2604. Denial of deduction relating to travel expenses.

Sec. 2605. Increase in withholding from supplemental wage payments.

TITLE III—EMPOWERMENT ZONES AND ENTERPRISE

COMMUNITIES

Sec. 3101. Designation and treatment of empowerment zones and enterprise

communities.

Sec. 3102. Expansion of targeted jobs credit.

Sec. 3103. Technical and conforming amendments.

Sec. 3104. Effective date.

1 TITLE I—TRAINING AND

2 INVESTMENT INCENTIVES

3 Subtitle A—Provisions Relating To

4 Education And Training

5 SEC. 1101. EMPLOYER-PROVIDED EDUCATIONAL ASSIST6 ANCE.

7 (a) PERMANENT EXTENSION OF EXCLUSION.—

8 (1) IN GENERAL.—Section 127 (relating to edu9 cational assistance programs) is amended by striking
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1 subsection (d) and by redesignating subsection (e) as

2 subsection (d).

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

4 of section 103(a) of the Tax Extension Act of 1991

5 is hereby repealed.

6 (b) COORDINATION WITH SECTION 132.—Paragraph

7 (8) of section 132(i) is amended to read as follows:

8 ‘‘(8) APPLICATION OF SECTION TO OTHERWISE

9 TAXABLE EDUCATIONAL OR TRAINING BENEFITS.—

10 Amounts paid or expenses incurred by the employer

11 for education or training provided to the employee

12 which are not excludable from gross income under

13 section 127 shall be excluded from gross income

14 under this section if (and only if) such amounts or

15 expenses are a working condition fringe.’’

16 (c) EFFECTIVE DATES.—

17 (1) SUBSECTION (a).—The amendments made

18 by subsection (a) shall apply to taxable years ending

19 after June 30, 1992.

20 (2) SUBSECTION (b).—The amendment made

21 by subsection (b) shall apply to taxable years begin22 ning after December 31, 1988.

23 (d) TRANSITION RULES.—

24 (1) WAIVER OF INTEREST AND PENALTIES.—

25 No interest, penalty, or addition to tax shall be im-
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1 posed or required to be paid solely by reason of a

2 failure, before the date of the enactment of this Act,

3 to treat educational assistance in a manner consist4 ent with the provisions of section 103(a) of the Tax

5 Extension Act of 1991 (as in effect before the

6 amendments made by subsection (a)).

7 (2) SPECIAL RULES FOR 1992.—

8 (A) EMPLOYMENT TAXES.—If—

9 (i) an employer provided an employee

10 with educational assistance during the pe11 riod beginning on July 1, 1992, and end12 ing on December 31, 1992,

13 (ii) consistent with the provisions of

14 section 103(a) of the Tax Extension Act of

15 1991 (as so in effect), such employer treat16 ed such assistance as taxable for purposes

17 of any employment tax and as a result of

18 such treatment there was an increase in

19 taxable wages for purposes of such tax,

20 (iii) on or after the date of the enact21 ment of this Act and before January 1,

22 1994, such employer pays such employee

23 amounts which are taxable wages for pur24 poses of such tax and which equal or ex-
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1 ceed the increase referred to in clause (ii),

2 and

3 (iv) such employee did not treat such

4 assistance for purposes of such employ5 ment tax (or for purposes of chapter 1 of

6 the Internal Revenue Code of 1986 in the

7 case of employment tax imposed by chap8 ter 24 of such Code) in a manner incon9 sistent with the employer’s treatment of

10 such assistance,

11 the amendments made by subsection (a) shall

12 not apply to such educational assistance for

13 purposes of such employment tax, but, for pur14 poses of applying such employment tax (and for

15 purposes of the reporting requirements imposed

16 by chapter 61 of such Code), the taxable wages

17 of the employee referred to in clause (iii) shall

18 be reduced by the amount of the increase re19 ferred to in clause (ii). For purposes of clause

20 (iv), an employer may assume that the em21 ployee treated the assistance in a manner con22 sistent with the employer’s treatment unless

23 such employer has actual knowledge to the con24 trary.
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1 (B) REPORTING REQUIREMENT.—An em2 ployer shall separately report the amounts of

3 any reduction under subparagraph (A) as non4 taxable income on any returns or receipts re5 quired under chapter 61 of such Code for cal6 endar year 1993.

7 (C) DEFINITIONS.—For purposes of this

8 paragraph—

9 (i) EMPLOYMENT TAX.—The term

10 ‘‘employment tax’’ means any tax imposed

11 by subtitle C of such Code.

12 (ii) TAXABLE WAGES.—The term

13 ‘‘taxable wages’’ means—

14 (I) wages (as defined in section

15 3121(a) of such Code) in the case of

16 the taxes imposed by chapter 21 of

17 such Code,

18 (II) compensation (as defined in

19 section 3231(e) of such Code) in the

20 case of the taxes imposed by chapter

21 22 of such Code,

22 (III) wages (as defined in section

23 3306(b) of such Code) in the case of

24 the taxes imposed by chapter 23 of

25 such Code, and
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1 (IV) wages (as defined in section

2 3401(a) of such Code) in the case of

3 the taxes imposed by chapter 24 of

4 such Code.

5 (3) INCOME TAX TREATMENT.—If—

6 (A) subparagraph (A) of paragraph (2) ap7 plies to any educational assistance referred to

8 in such paragraph provided to any employee,

9 and

10 (B) such employee included such assistance

11 in his taxable income for purposes of the tax

12 imposed by chapter 1 of such Code,

13 the amendments made by subsection (a) shall not

14 apply to such assistance for purposes of such chap15 ter 1, but the amount included in the gross income

16 of such employee by reason of wages received from

17 the employer referred to in subparagraph (A) of

18 paragraph (2) during 1993 shall be reduced in the

19 manner provided in such subparagraph (A).

20 SEC. 1102. TARGETED JOBS CREDIT.

21 (a) PERMANENT EXTENSION OF CREDIT.—

22 (1) IN GENERAL.—Subsection (c) of section 51

23 (relating to amount of targeted jobs credit) is

24 amended by striking paragraph (4).
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1 (2) EFFECTIVE DATE.—The amendment made

2 by paragraph (1) shall apply to individuals who

3 begin work for the employer after June 30, 1992.

4 (b) CREDIT FOR PARTICIPANTS IN APPROVED

5 SCHOOL-TO-WORK PROGRAMS.—

6 (1) IN GENERAL.—Subparagraph (I) of section

7 51(d)(1) (defining members of targeted group) is

8 amended to read as follows:

9 ‘‘(I) a qualified participant in an

10 approved school-to-work program, or’’.

11 (2) QUALIFIED PARTICIPANT IN AN APPROVED

12 SCHOOL-TO-WORK PROGRAM.—Paragraph (10) of

13 section 51(d) is amended to read as follows:

14 ‘‘(10) QUALIFIED PARTICIPANT IN AN AP15 PROVED SCHOOL-TO-WORK PROGRAM DEFINED.—

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

17 provided in this paragraph, the term ‘qualified

18 participant in an approved school-to-work pro19 gram’ means any individual who is certified

20 under an approved school-to-work program as—

21 ‘‘(i) having attained age 16 but not

22 having attained age 21, and

23 ‘‘(ii) being enrolled in and making

24 satisfactory progress in completing such

25 approved school-to-work program.
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1 ‘‘(B) LIMITATION ON NUMBER OF PARTICI2 PANTS.—

3 ‘‘(i) IN GENERAL.—Any individual

4 who begins work for the employer during

5 any calendar year shall not be treated as

6 a qualified participant in an approved

7 school-to-work program unless the individ8 ual is certified under such program as an

9 eligible participant with respect to such

10 calendar year.

11 ‘‘(ii) LIMITATION ON CERTIFI12 CATIONS.—The aggregate number of indi13 viduals certified under an approved school14 to-work program as eligible participants

15 with respect to any calendar year shall not

16 exceed the portion of the national school17 to-work program limitation for such cal18 endar year allocated under subsection (l)

19 to such program.

20 ‘‘(C) APPROVED SCHOOL-TO-WORK PRO21 GRAM.—The term ‘approved school-to-work pro22 gram’ means any program which—

23 ‘‘(i) is a planned program of struc24 tured job training designed to integrate

25 academic instruction provided by an edu-
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1 cational institution and work-based learn2 ing provided by an employer, and

3 ‘‘(ii) is approved by the Secretaries of

4 Labor and Education.

5 ‘‘(D) LIMITATION ON AMOUNT OF WAGES

6 TAKEN INTO ACCOUNT.—For purposes of apply7 ing this subpart to wages paid or incurred to

8 any qualified participant in an approved school9 to-work program, subsection (b)(3) shall be ap10 plied by substituting ‘$3,000’ for ‘$6,000’.

11 ‘‘(E) WAGES.—In the case of remunera12 tion attributable to services performed while the

13 individual meets the requirements of subpara14 graph (A), wages, and unemployment insurance

15 wages, shall be determined without regard to

16 section 3306(c)(10)(C).’’

17 (3) OVERALL LIMITATIONS.—Section 51 is

18 amended by adding at the end thereof the following

19 new subsection:

20 ‘‘(l) OVERALL LIMITATION ON APPROVED SCHOOL21 TO-WORK PROGRAM PARTICIPANTS.—

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

23 (d)(10), the national school-to-work program limita24 tion—

25 ‘‘(A) for calendar year 1994 is 125,000,
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1 ‘‘(B) for calendar year 1995 is 140,000,

2 ‘‘(C) for calendar year 1996 is 160,000,

3 ‘‘(D) for calendar year 1997 is 180,000,

4 and

5 ‘‘(E) for calendar year 1998 and any sub6 sequent calendar year is 200,000.

7 ‘‘(2) ALLOCATION TO STATES.—The national

8 school-to-work program limitation for any calendar

9 year shall be allocated among the States in propor10 tion to the number of their eligible participants that

11 are estimated to be served in approved school-to12 work programs for that year. Such estimates shall

13 be published by the Secretaries of Labor and Edu14 cation before the beginning of the calendar year to

15 which the allocation applies.

16 ‘‘(3) ALLOCATION TO APPROVED SCHOOL-TO17 WORK PROGRAMS.—The portion of the national

18 school-to-work program limitation for any calendar

19 year which is allocated to any State shall be allo20 cated among the approved school-to-work programs

21 in such State in such manner as the Secretaries of

22 Labor and Education shall prescribe.’’

23 (4) EFFECTIVE DATE.—The amendments made

24 by this subsection shall apply in the case of individ-
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1 uals who begin work for the employer after Decem2 ber 31, 1993.

3 Subtitle B—Investment Incentives

4 PART I—INVESTMENT TAX CREDIT

5 SEC. 1201. PERMANENT INVESTMENT TAX CREDIT FOR

6 SMALL BUSINESS.

7 (a) ALLOWANCE OF CREDIT.—Section 46 (relating to

8 amount of investment credit) is amended by redesignating

9 paragraphs (1), (2), and (3) as paragraphs (2), (3), and

10 (4) and by inserting before paragraph (2) (as so redesig11 nated) the following new paragraph:

12 ‘‘(1) in the case of an eligible small business (as

13 defined in section 46A(b)), the small business regu14 lar credit,’’

15 (b) SMALL BUSINESS REGULAR CREDIT.—Subpart

16 E of part IV of subchapter A of chapter 1 (relating to

17 rules for computing the investment credit) is amended by

18 inserting after section 46 the following new section:

19 ‘‘SEC. 46A. SMALL BUSINESS REGULAR CREDIT.

20 ‘‘(a) DETERMINATION OF CREDIT.—For purposes of

21 section 46—

22 ‘‘(1) IN GENERAL.—In the case of an eligible

23 small business, the small business regular credit for

24 any taxable year is an amount equal to 5 percent of
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1 the taxpayer’s qualified investment in regular credit

2 property.

3 ‘‘(2) SPECIAL RULE FOR PROPERTY PLACED IN

4 SERVICE BEFORE 1995.—In the case of regular credit

5 property placed in service before January 1, 1995,

6 paragraph (1) shall be applied by substituting ‘7

7 percent’ for ‘5 percent’.

8 ‘‘(b) ELIGIBLE SMALL BUSINESS.—For purposes of

9 this section—

10 ‘‘(1) IN GENERAL.—The term ‘eligible small

11 business’ means, with respect to any taxable year, a

12 taxpayer the average annual gross receipts of which

13 for the 3-taxable-year period ending with the preced14 ing taxable year does not exceed $5,000,000.

15 ‘‘(2) APPLICABLE RULES.—

16 ‘‘(A) AGGREGATION RULES.—All persons

17 treated as a single employer under subsection

18 (a) or (b) of section 52 shall be treated as 1

19 person for purposes of paragraph (1).

20 ‘‘(B) SPECIAL RULES.—The rules of sub21 sections (c)(3) and (d)(8) of section 448 shall

22 apply for purposes of this subsection.

23 ‘‘(c) REGULAR CREDIT PROPERTY.—For purposes of

24 this subpart—
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1 ‘‘(1) IN GENERAL.—The term ‘regular credit

2 property’ means any eligible property—

3 ‘‘(A) which is property to which section

4 168 applies,

5 ‘‘(B) which is placed in service after De6 cember 3, 1992, and

7 ‘‘(C)(i) the construction, reconstruction, or

8 erection of which is completed by the taxpayer,

9 or

10 ‘‘(ii) which is acquired by the taxpayer if

11 the original use of such property commences

12 with the taxpayer.

13 ‘‘(2) ELIGIBLE PROPERTY.—For purposes of

14 this subsection—

15 ‘‘(A) IN GENERAL.—The term ‘eligible

16 property’ means—

17 ‘‘(i) tangible personal property,

18 ‘‘(ii) other tangible property (not in19 cluding a building or its structural compo20 nents), but only if such property—

21 ‘‘(I) is used as an integral part of

22 manufacturing, production, or extrac23 tion, or of furnishing transportation,

24 communications, electrical energy,
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1 gas, water, or sewage disposal serv2 ices,

3 ‘‘(II) constitutes a research facil4 ity used in connection with any of the

5 activities referred to in subclause (I),

6 or

7 ‘‘(III) constitutes a facility used

8 in connection with any of the activities

9 referred to in subclause (I) for the

10 bulk storage of fungible commodities

11 (including commodities in a liquid or

12 gaseous state),

13 ‘‘(iii) an elevator or escalator,

14 ‘‘(iv) a storage facility used in connec15 tion with the distribution of petroleum or

16 any primary product of petroleum, or

17 ‘‘(v) a single purpose agricultural or

18 horticultural structure (as defined in sec19 tion 168(i)(13)).

20 ‘‘(B) PROPERTY RECEIVING OTHER CRED21 ITS.—The term ‘eligible property’ shall not in22 clude—

23 ‘‘(i) any property to the extent the

24 basis of such property is attributable to
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1 qualified rehabilitation expenditures (as de2 fined in section 47(c)(2)),

3 ‘‘(ii) any energy property,

4 ‘‘(iii) any property to the extent the

5 basis of such property is attributable to

6 qualified enhanced oil recovery costs (as

7 defined in section 43(c)(1)), or

8 ‘‘(iv) any qualified electric vehicle (as

9 defined in section 30(c)).

10 ‘‘(C) SPECIAL RULES RELATING TO EXCEP11 TIONS.—

12 ‘‘(i) AIR AND HEATING UNITS.—The

13 term ‘eligible property’ does not include an

14 air conditioning or heating unit.

15 ‘‘(ii) STRUCTURAL COMPONENTS.—

16 For purposes of subparagraph (A)(ii), the

17 term ‘structural component’ includes, with

18 respect to any building, property which—

19 ‘‘(I) relates (in whole or in part)

20 to the operation, maintenance, or ap21 pearance of the building, and

22 ‘‘(II) is attached to the building

23 (whether or not permanently at24 tached).
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1 ‘‘(D) LIVESTOCK.—The term ‘eligible

2 property’ shall include livestock acquired by the

3 taxpayer, except—

4 ‘‘(i) such term shall not include

5 horses, and

6 ‘‘(ii) the qualified investment in such

7 livestock shall be reduced by the amount

8 realized on the sale or other disposition

9 (other than in an involuntary conversion

10 within the meaning of section 1033) of

11 substantially identical livestock during the

12 1-year period beginning 6 months before

13 such acquisition.

14 ‘‘(E) PROPERTY COMPLETED ABROAD

15 WHERE FOREIGN COUNTRY ENGAGED IN DIS16 CRIMINATORY ACTS.—The term ‘eligible prop17 erty’ shall not include property described in sec18 tion 168(g)(1)(D).

19 ‘‘(d) QUALIFIED INVESTMENT.—For purposes of this

20 section—

21 ‘‘(1) IN GENERAL.—The term ‘qualified invest22 ment’ means the applicable percentage of the basis

23 of each regular credit property placed in service by

24 the taxpayer during the taxable year.

25 ‘‘(2) ANNUAL LIMITATION.—
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1 ‘‘(A) IN GENERAL.—The aggregate bases

2 of regular credit property taken into account in

3 computing the qualified investment of a tax4 payer for any taxable year shall not exceed

5 $250,000.

6 ‘‘(B) PRO RATA ALLOCATION WHERE

7 BASES EXCEED LIMIT.—If subparagraph (A)

8 applies to a taxpayer for any taxable year, the

9 bases taken into account in computing qualified

10 investment shall be allocated among regular

11 credit properties placed in service during the

12 taxable year in proportion to their cost.

13 ‘‘(C) SPECIAL RULES.—For purposes of

14 subparagraph (A)—

15 ‘‘(i) all persons treated as 1 person

16 under subsection (a) or (b) of section 52

17 shall be treated as 1 person for purposes

18 of this paragraph, and

19 ‘‘(ii) in the case of—

20 ‘‘(I) a taxable year beginning

21 January 1, 1993, subparagraph (A)

22 shall be applied by substituting

23 ‘$270,000’ for ‘$250,000’, and

24 ‘‘(II) a taxable year which is less

25 than 12 months or which includes any
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1 period before December 4, 1992, the

2 $250,000 amount shall be ratably re3 duced to reflect the shorter taxable

4 year or such period.

5 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes

6 of paragraph (1), the applicable percentage shall be

7 determined under the following table:

‘‘In the case of property The applicable

which is: percentage is:

3-year property ..................................................... 33 percent

5-year property ..................................................... 67 percent

7-year property ..................................................... 80 percent

All other property ................................................. 100 percent.

8 For purposes of this paragraph, the terms ‘3-year

9 property’, ‘5-year property’, and ‘7-year property’

10 have the meanings given such terms by section

11 168(e).

12 ‘‘(4) RECONSTRUCTION.—In the case of regular

13 credit property the reconstruction of which is com14 pleted by the taxpayer, qualified investment shall

15 only include that portion of the basis which is prop16 erly attributable to the reconstruction by the tax17 payer.

18 ‘‘(5) SPECIAL RULE FOR CERTAIN VESSELS.—

19 For purposes of paragraph (1), the basis of any reg20 ular credit property shall not include any portion of

21 the basis which is attributable to a qualified with22 drawal from any ordinary income or capital gain ac-
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1 count (within the meaning of section 7518) of a

2 fund established under section 607 of the Merchant

3 Marine Act, 1936.

4 ‘‘(e) SPECIAL RULES RELATING TO LEASED PROP5 ERTY.—

6 ‘‘(1) IN GENERAL.—Except as provided in this

7 subsection, regular credit property shall not include

8 property subject to a lease.

9 ‘‘(2) EXCEPTION FOR QUALIFIED SHORT-TERM

10 LEASES.—

11 ‘‘(A) IN GENERAL.—Paragraph (1) shall

12 not apply to regular credit property of a lessor

13 subject to a qualified short-term lease.

14 ‘‘(B) QUALIFIED SHORT-TERM LEASE.—

15 For purposes of this subsection, the term

16 ‘qualified short-term lease’ means any lease—

17 ‘‘(i) the term of which is less than 1

18 year, and

19 ‘‘(ii) which is made in connection with

20 the active conduct by the lessor of a quali21 fied leasing trade or business.

22 ‘‘(C) QUALIFIED LEASING TRADE OR BUSI23 NESS.—For purposes of this subsection, the

24 term ‘qualified leasing trade or business’ means

25 any trade or business which normally derives at
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1 least 80 percent of its gross receipts from leases

2 of tangible personal property with terms of less

3 than 30 days.

4 ‘‘(D) LEASE TERMS.—The rules of section

5 168(i)(3) shall apply for purposes of this para6 graph.

7 ‘‘(3) EXCEPTION FOR LONGER TERM LEASES.—

8 ‘‘(A) IN GENERAL.—If regular credit prop9 erty is subject to a lease with a term of 3 years

10 or more and the original use of the property be11 gins with the lessee—

12 ‘‘(i) paragraph (1) shall not apply to

13 such property,

14 ‘‘(ii) the lessee shall be treated for

15 purposes of this section as having acquired

16 such property with a basis equal to the fair

17 market value of the property as of the be18 ginning of the lease, and

19 ‘‘(iii) if the lease term is shorter than

20 the applicable recovery period for the prop21 erty determined under section 168, the ap22 plicable percentage under subsection (d)(3)

23 shall be determined as if the recovery pe24 riod were equal to the longest such recov-
25

•J. 69–001A

1 ery period which does not exceed the lease

2 term.

3 ‘‘(B) LEASE TERM.—For purposes of this

4 paragraph, in determining any lease term—

5 ‘‘(i) options to renew shall not be

6 taken into account, and

7 ‘‘(ii) 2 or more successive leases de8 scribed in section 168(i)(3)(A)(ii) shall not

9 be treated as 1 lease.

10 ‘‘(C) SPECIAL RULE FOR PERSONS UNDER

11 COMMON CONTROL.—For purposes of subpara12 graph (A)(ii), if any property is leased by a per13 son to another person which is under common

14 control with such person (as determined under

15 subsection (a) or (b) of section 52), the basis of

16 the property shall be substituted for its fair

17 market value.

18 ‘‘(4) RECAPTURE RULES TO APPLY.—For pur19 poses of section 50(a), if a lessee of regular credit

20 property—

21 ‘‘(A) terminates the lease before the expi22 ration of its term (other than by acquiring the

23 property), or

24 ‘‘(B) sublets the property,
26

•J. 69–001A

1 the lessee shall be treated as having disposed of the

2 property on the date of the termination or sublease.

3 ‘‘(5) PRIOR LEASE RULES NOT TO APPLY.—The

4 provisions of section 50(d)(5) shall not apply for

5 purposes of this section.

6 ‘‘(f) OTHER SPECIAL RULES.—For purposes of this

7 section—

8 ‘‘(1) PARTNERSHIPS AND S CORPORATIONS.—

9 ‘‘(A) IN GENERAL.—In the case of a part10 nership or S corporation—

11 ‘‘(i) the limitation on the application

12 of this section to eligible small businesses,

13 and

14 ‘‘(ii) the limitation under subsection

15 (d)(2),

16 shall be applied at both the partnership and S

17 corporation level and at the partner and share18 holder level.

19 ‘‘(B) REPORTING REQUIREMENTS.—A

20 partnership or S corporation shall include in

21 any return or statement it is otherwise required

22 to provide to a partner or shareholder such in23 formation as the Secretary may prescribe as

24 necessary to carry out the provisions of this

25 section.
27

•J. 69–001A

1 ‘‘(2) CERTAIN ENTITIES INELIGIBLE.—Not2 withstanding paragraphs (1) and (6) of section

3 50(d), no credit shall be determined under this sec4 tion with respect to regular credit property of—

5 ‘‘(A) an estate or trust, or

6 ‘‘(B) a regulated investment company, real

7 estate investment trust, REMIC, or common

8 trust fund described in section 584.

9 ‘‘(3) NORMALIZATION RULES.—The provisions

10 of section 50(d)(2) shall apply, except that—

11 ‘‘(A) no election shall be allowed under the

12 last sentence of section 46(f)(1) or under sec13 tion 46(f)(3) (as such provisions were in effect

14 on the day before the date of the enactment of

15 the Revenue Reconciliation Act of 1990), and

16 ‘‘(B) the election under section 46(f)(2)

17 (as so in effect) shall be made by including it

18 on the taxpayer’s first return to which this sec19 tion applies.

20 ‘‘(4) TRANSITION RULES.—

21 ‘‘(A) PRE-1993 PROPERTY.—In the case of

22 a taxpayer whose taxable year is the calendar

23 year, any property placed in service after De24 cember 3, 1992, and before January 1, 1993,
28

•J. 69–001A

1 shall be treated as placed in service on January

2 1, 1993.

3 ‘‘(B) AMOUNTS ALLOCABLE TO PERIODS

4 BEFORE DECEMBER 4, 1992.—The basis of any

5 property with an actual construction period of

6 more than 2 years shall not include any amount

7 attributable to construction, reconstruction, or

8 erection by or for the taxpayer before December

9 4, 1992.

10 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

11 such regulations as may be necessary to carry out the pro12 visions of this section and section 50A, including regula13 tions providing for the determination of lease terms.’’

14 (c) CREDIT MAY OFFSET 25 PERCENT OF MINIMUM

15 TAX.—

16 (1) IN GENERAL.—Section 38(c) (relating to

17 limitation based on amount of tax) is amended by

18 redesignating paragraph (2) as paragraph (3) and

19 by inserting after paragraph (1) the following new

20 paragraph:

21 ‘‘(2) REGULAR INVESTMENT CREDIT MAY OFF22 SET 25 PERCENT OF MINIMUM TAX.—

23 ‘‘(A) IN GENERAL.—In the case of the reg24 ular investment tax credit—
29

•J. 69–001A

1 ‘‘(i) this section and section 39 shall

2 be applied separately with respect to such

3 credit, and

4 ‘‘(ii) for purposes of applying para5 graph (1) to such credit—

6 ‘‘(I) 75 percent of the tentative

7 minimum tax shall be substituted for

8 the tentative minimum tax under sub9 paragraph (A) thereof, and

10 ‘‘(II) the limitation under para11 graph (1) (as modified by subclause

12 (I)) shall be reduced by the credit al13 lowed under subsection (a) for the

14 taxable year (other than the regular

15 investment tax credit).

16 ‘‘(B) REGULAR INVESTMENT TAX CRED17 IT.—For purposes of this paragraph, the term

18 ‘regular investment tax credit’ means the por19 tion of the credit under subsection (a) which is

20 attributable to the credit determined under sec21 tion 46A. In the case of taxable years beginning

22 after December 31, 1992, the regular invest23 ment tax credit shall include any credit to

24 which section 38(c)(2) (as in effect on the day

25 before the date of the enactment of the Revenue
30

•J. 69–001A

1 Reconciliation Act of 1990) applies, and such

2 section shall not apply to such taxable years.’’

3 (2) CONFORMING AMENDMENT.—Section 38(d)

4 (relating to components of investment credit) is

5 amended by adding at the end the following new

6 paragraph:

7 ‘‘(4) SPECIAL RULE FOR SMALL BUSINESS

8 CREDIT.—Notwithstanding paragraphs (1) and (2),

9 the small business regular credit described in sub10 section (b)(1) shall be treated as used last.’’

11 (d) APPLICATION OF OTHER RULES.—

12 (1) AT-RISK RULES.—Clause (ii) of section

13 49(a)(1)(C) (defining credit base) is amended by in14 serting ‘‘or regular credit property’’ after ‘‘energy

15 property’’.

16 (2) RECAPTURE RULES.—Subparagraph (B) of

17 section 50(a)(1) (defining recapture percentage) is

18 amended by adding at the end the following new

19 sentence:

20 ‘‘In the case of regular credit property which is

21 3-year property, the recapture percentage under

22 clause (ii) shall be 67 percent, under clause (iii)

23 shall be 33 percent, and under clauses (iv) and

24 (v) shall be zero.’’

25 (3) AUTOMOBILES.—
31

•J. 69–001A

1 (A) IN GENERAL.—Section 280F(a) is

2 amended by redesignating paragraph (2) as

3 paragraph (3) and by inserting after paragraph

4 (1) the following new paragraph:

5 ‘‘(2) INVESTMENT TAX CREDIT.—The amount

6 of the credit determined under section 46A with re7 spect to any passenger automobile shall not exceed

8 $675.’’

9 (B) CONFORMING AMENDMENTS.—

10 (i) Section 280F(b)(1) is amended—

11 (I) by inserting ‘‘and such prop12 erty shall not be treated as regular

13 credit property for purposes of section

14 46A for such taxable year’’ before the

15 period, and

16 (II) by inserting ‘‘OR CREDIT’’

17 after ‘‘DEPRECIATION’’ in the heading.

18 (ii) Section 280F(c)(1) is amended by

19 inserting ‘‘(other than subsection (a)(2))’’

20 after ‘‘section’’.

21 (iii) Section 280F(d) is amended—

22 (I) by inserting ‘‘the amount of

23 any credit allowable under section 38

24 to the employee or’’ after ‘‘determin25 ing’’ in paragraph (3)(A),
32

•J. 69–001A

1 (II) by striking ‘‘subsection (a)’’

2 in paragraph (7)(A) and inserting

3 ‘‘subsection (a)(1)’’, and

4 (III) by striking ‘‘subsection

5 (a)(2)’’ in paragraphs (8) and (10)

6 and inserting ‘‘subsection (a)(3)’’.

7 (iv)(I) The heading for section 280F

8 is amended by inserting ‘‘AND CREDIT’’

9 after ‘‘DEPRECIATION’’.

10 (II) The item relating to section 280F

11 in the table of contents for part IX of sub12 chapter B of chapter 1 is amended by in13 serting ‘‘and credit’’ after ‘‘depreciation’’.

14 (e) CONFORMING AMENDMENTS.—

15 (1) Section 38(d)(3)(B)(i) is amended by strik16 ing ‘‘paragraph (1)’’ and inserting ‘‘paragraph (2)’’.

17 (2) Section 39(d) is amended by adding at the

18 end the following new paragraph:

19 ‘‘(4) INVESTMENT TAX CREDIT.—No portion of

20 the unused business credit which is attributable to

21 the credit determined under section 46A (relating to

22 the small business regular investment credit) may be

23 carried to any taxable year ending before January 1,

24 1993.’’
33

•J. 69–001A

1 (3) Section 1033(g)(3)(A) is amended by insert2 ing ‘‘with respect to which the regular credit deter3 mined under section 46A is or has been claimed or,’’

4 before ‘‘with respect to which’’.

5 (4) The table of sections for subpart E of part

6 IV of subchapter A of chapter 1 is amended by add7 ing after the item relating to section 46 the follow8 ing new item:

‘‘Sec. 46A. Small business regular credit.’’

9 (f) EFFECTIVE DATE.—

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

11 this section shall apply to property placed in service

12 after December 3, 1992.

13 (2) TRANSITION PROPERTY.—The amendments

14 made by this section shall not apply to any transi15 tion property (as defined in section 49(e) of the In16 ternal Revenue Code of 1986, as in effect on the day

17 before the date of the enactment of the Revenue

18 Reconciliation Act of 1990).

19 SEC. 1202. TEMPORARY INCREMENTAL INVESTMENT TAX

20 CREDIT.

21 (a) IN GENERAL.—Subpart E of part IV of sub22 chapter A of chapter 1 (relating to rules for computing

23 investment tax credit) is amended by inserting after sec24 tion 50 the following new section:
34

•J. 69–001A

1 ‘‘SEC. 50A. TEMPORARY INCREMENTAL INVESTMENT TAX

2 CREDIT.

3 ‘‘(a) DETERMINATION OF CREDIT.—In the case of

4 any taxable year which includes December 31 of calendar

5 year 1993 or 1994, the amount of the credit determined

6 under section 46 for such taxable year shall be increased

7 by an amount equal to 7 percent of the excess (if any)

8 of—

9 ‘‘(1) the taxpayer’s qualified net investment for

10 such calendar year, over

11 ‘‘(2) the base amount for such calendar year.

12 ‘‘(b) QUALIFIED NET INVESTMENT.—For purposes

13 of this section—

14 ‘‘(1) IN GENERAL.—The qualified net invest15 ment for any calendar year is the excess (if any)

16 of—

17 ‘‘(A) qualified investment, over

18 ‘‘(B) the sum of the amounts determined

19 by multiplying—

20 ‘‘(i) the amount realized from each

21 regular credit property—

22 ‘‘(I) the basis of which was taken

23 into account in computing qualified

24 investment under this section, and

25 ‘‘(II) which was disposed of (or

26 otherwise ceased to be regular credit
35

•J. 69–001A

1 property) during the calendar year,

2 and

3 ‘‘(ii) the applicable percentage for the

4 property.

5 ‘‘(2) QUALIFIED INVESTMENT.—

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

7 investment’ has the meaning given such term

8 by section 46A(d) (without regard to the

9 $250,000 limitation of paragraph (2) thereof

10 and by treating the calendar year as the tax11 payer’s taxable year).

12 ‘‘(B) COORDINATION WITH PROGRESS EX13 PENDITURES.—The amount which (but for this

14 subparagraph) would be taken into account

15 with respect to any regular credit property shall

16 be reduced by the excess (if any) of—

17 ‘‘(i) the qualified investment taken

18 into account under subsection (f)(2) by the

19 taxpayer or a predecessor of the taxpayer,

20 over

21 ‘‘(ii) any portion of the qualified in22 vestment described in clause (i) taken into

23 account under paragraph (1)(B).

24 ‘‘(C) SPECIAL RULE WHERE INSUFFICIENT

25 NET INVESTMENT IN 1993.—If, in calendar year
36

•J. 69–001A

1 1993, the taxpayer’s base amount exceeds

2 qualified net investment, the taxpayer’s quali3 fied net investment for calendar year 1994 shall

4 be reduced by the amount of such excess.

5 ‘‘(D) AUTOMOBILES.—The qualified in6 vestment taken into account with respect to any

7 passenger automobile (as defined in section

8 280F(d)(5)) shall not exceed $9,600.

9 ‘‘(E) INTERNATIONAL INTERMODAL CARGO

10 CONTAINERS.—

11 ‘‘(i) IN GENERAL.—In the case of any

12 international intermodal cargo container of

13 a United States person, section 50(b)(1)

14 shall not apply and 50 percent of the basis

15 of the container shall be taken into ac16 count in computing qualified investment.

17 ‘‘(ii) INTERNATIONAL INTERMODAL

18 CARGO CONTAINER.—For purposes of

19 clause (i), the term ‘international inter20 modal cargo container’ means any inter21 modal cargo container which is leased to,

22 or owned by, a container user that has one

23 or more trade routes that contact outside

24 the United States.
37

•J. 69–001A

1 ‘‘(iii) TRADE ROUTES.—For purposes

2 of clause (ii), a container user shall be

3 treated as having one or more trade routes

4 that contact outside the United States if,

5 at any time during the taxable year, such

6 user—

7 ‘‘(I) owns, operates, or charters

8 any vessel that receives or delivers any

9 intermodal cargo container outside the

10 United States, or

11 ‘‘(II) uses any intermodal cargo

12 container to ship cargo to or from the

13 United States.

14 ‘‘(c) BASE AMOUNT.—For purposes of this section—

15 ‘‘(1) IN GENERAL.—The term ‘base amount’

16 means, with respect to any computation year, an

17 amount equal to 80 percent (70 percent in the case

18 of calendar year 1993) of the average of the indexed

19 base investment for each of the base period years.

20 ‘‘(2) MINIMUM BASE AMOUNT.—In no event

21 shall the base amount for calendar year 1993 or

22 1994 be less than 50 percent of the qualified net

23 investment for the year.

24 ‘‘(3) INDEXED BASE INVESTMENT.—For pur25 poses of paragraph (1)—
38

•J. 69–001A

1 ‘‘(A) IN GENERAL.—The indexed base in2 vestment for any base period year—

3 ‘‘(i) shall be computed separately with

4 respect to each computation year, and

5 ‘‘(ii) shall be equal to the product

6 of—

7 ‘‘(I) the base investment for the

8 base period year, and

9 ‘‘(II) the applicable inflation

10 ratio for that computation year and

11 that base period year.

12 ‘‘(B) BASE INVESTMENT.—For purposes

13 of this paragraph, the base investment for any

14 base period year is an amount equal to the sum

15 of the amounts determined by applying the ap16 plicable percentage to each regular credit prop17 erty placed in service during such base period

18 year.

19 ‘‘(C) APPLICABLE INFLATION RATIO.—The

20 applicable inflation ratio for any computation

21 year and any base period year is the percentage

22 arrived at by dividing—

23 ‘‘(i) the GDP implicit price deflator

24 for the calendar year preceding the com25 putation year, by
39

•J. 69–001A

1 ‘‘(ii) such deflator for the calendar

2 year preceding the calendar year in which

3 occurs the 1st day of the base period year.

4 For purposes of this subparagraph, the term

5 ‘GDP implicit price deflator’ for each of the

6 years described in clauses (i) and (ii) is the

7 most recent revision of the implicit price

8 deflator for the gross domestic product, as com9 puted and published by the Department of

10 Commerce before March 15 of the computation

11 year.

12 ‘‘(4) BASE PERIOD YEAR.—For purposes of this

13 subsection, the term ‘base period year’ means any

14 taxable year—

15 ‘‘(A) beginning after December 31, 1988,

16 and before January 1, 1992, or

17 ‘‘(B) at the election of the taxpayer, begin18 ning after December 31, 1986, and before Jan19 uary 1, 1992.

20 ‘‘(5) COMPUTATION YEAR.—The term ‘com21 putation year’ means the calendar year for which the

22 excess described in subsection (a) is being deter23 mined.

24 ‘‘(6) SPECIAL RULES.—For purposes of this

25 subsection—
40

•J. 69–001A

1 ‘‘(A) REGULAR CREDIT PROPERTY DE2 FINED.—The term ‘regular credit property’ has

3 the meaning given such term by section 46A(c),

4 without regard to paragraphs (1) (B) and (C)

5 thereof (relating to requirements for original

6 use and date of placement in service) or para7 graph (2)(B) (relating to certain ineligible prop8 erty).

9 ‘‘(B) LEASES.—

10 ‘‘(i) LESSORS.—A lessor of any regu11 lar credit property placed in service during

12 any taxable year in the base period shall

13 take into account the adjusted basis of

14 such property unless the property was sub15 ject to a lease the term of which was at

16 least 3 years and the lessor did not use

17 such property during the base period other

18 than as a lessor.

19 ‘‘(ii) LESSEES.—A lessee shall not

20 take into account regular credit property

21 the use of which by the lessee began dur22 ing the base period unless the value of the

23 property as of the beginning of the lease

24 exceeded $1,000,000.

25 ‘‘(d) RECAPTURE RULES.—
41

•J. 69–001A

1 ‘‘(1) IN GENERAL.—If, for calendar year 1994,

2 1995, 1996, or 1997, the base amount exceeds the

3 qualified net investment of the taxpayer, then the

4 tax under this chapter for the taxable year in which

5 the last day of the calendar year occurs shall be in6 creased by the least of—

7 ‘‘(A) 7 percent of such excess,

8 ‘‘(B) the balance in the credit recapture

9 account as of the close of the taxable year, or

10 ‘‘(C) the aggregate increase in the credits

11 allowed under section 38 by reason of the credit

12 determined under this section (reduced by prior

13 amounts taken into account under this subpara14 graph).

15 ‘‘(2) SPECIAL RULE FOR BASE AMOUNT.—For

16 purposes of paragraph (1), if the limitation of sub17 section (c)(2) applied for 1993 or 1994, the base

18 amount shall be determined as if the base invest19 ment for each of the taxable years in the base period

20 were equal to the greater of—

21 ‘‘(A) the amount determined without re22 gard to this paragraph, or

23 ‘‘(B) in the case of a taxpayer for which a

24 base amount was determined under subsection

25 (c)(2)—
42

•J. 69–001A

1 ‘‘(i) if the taxpayer’s base amount for

2 both calendar years 1993 and 1994 was so

3 determined, the lesser of such base

4 amounts, or

5 ‘‘(ii) if the taxpayer’s base amount for

6 only one of such calendar years was so de7 termined, the base amount for that year.

8 ‘‘(3) CREDIT RECAPTURE ACCOUNT.—

9 ‘‘(A) OPENING BALANCE.—The opening

10 balance of the credit recapture account shall be

11 zero.

12 ‘‘(B) ACCOUNT INCREASED BY CREDIT AL13 LOWED.—The credit recapture account shall be

14 increased as of the close of any calendar year

15 by the credit determined under this section for

16 the calendar year.

17 ‘‘(C) VESTING OF CREDIT.—

18 ‘‘(i) IN GENERAL.—If the credit re19 capture account is increased under sub20 paragraph (B) for any calendar year, the

21 account shall be reduced—

22 ‘‘(I) in the case of the credit de23 termined for 1993, as of the close of

24 each of the 4 succeeding calendar
43

•J. 69–001A

1 years by an amount equal to 25 per2 cent of such increase, and

3 ‘‘(II) in the case of the credit de4 termined for 1994, as of the close of

5 each of the 3 succeeding years by an

amount equal to 331 6 ⁄3 percent of such

7 increase.

8 ‘‘(ii) CREDIT STOPS BEING VESTED

9 WHEN RECAPTURED.—If an increase in tax

10 under paragraph (1) for any calendar year

11 is properly allocable to any portion of the

12 credit to which clause (i) applies, no reduc13 tion shall be made under clause (i) with re14 spect to such portion for any succeeding

15 calendar year. Any such increase shall be

16 allocated to credits on a first-in first-out

17 basis.

18 ‘‘(D) REDUCTION FOR TAX INCREASE.—

19 The credit recapture account as of the begin20 ning of any calendar year shall be equal to the

21 balance as of the close of the preceding cal22 endar year, reduced by any increase in tax for

23 the preceding calendar year under paragraph

24 (1).
44

•J. 69–001A

1 ‘‘(4) CARRYBACKS AND CARRYOVERS AD2 JUSTED.—If subparagraph (C) of paragraph (1) ap3 plies for any taxable year, the carrybacks and

4 carryovers under section 39 shall be adjusted by rea5 son of any increase in tax under paragraph (1)

6 which would have occurred but for such subpara7 graph.

8 ‘‘(5) TAX.—Any increase in tax under para9 graph (1) shall not be treated as tax imposed by this

10 chapter for purposes of determining the amount of

11 any credit allowable under subpart A, B, D, or G or

12 the amount of the regular tax for purposes of

13 section 55.

14 ‘‘(e) DISPOSITIONS.—For purposes of this section—

15 ‘‘(1) CERTAIN EVENTS TREATED AS DISPOSI16 TIONS.—

17 ‘‘(A) IN GENERAL.—If, during any cal18 endar year—

19 ‘‘(i) regular credit property ceases to

20 be regular credit property with respect to

21 the taxpayer, or

22 ‘‘(ii) any property to which subsection

23 (f)(2) applied ceases (by reason of sale or

24 other disposition, cancellation or abandon25 ment of contract, or otherwise) to be, with
45

•J. 69–001A

1 respect to the taxpayer, property which will

2 be regular credit property when placed in

3 service,

4 such property shall be treated as having been

5 disposed of during the calendar year.

6 ‘‘(B) SPECIAL RULES FOR LEASES.—

7 ‘‘(i) LESSOR.—A lessor of regular

8 credit property with respect to which a

9 credit is determined under this section by

10 reason of subsection (e)(2) of section 46A

11 shall be treated as having disposed of regu12 lar credit property if the taxpayer leases

13 such property in a lease other than a quali14 fied short-term lease (as defined in sub15 section (e)(2)(B) of section 46A).

16 ‘‘(ii) LESSEES.—If a credit is allowed

17 to a lessee with respect to any property by

18 reason of subsection (e)(3) of section 46A,

19 the rules of section 46A(e)(4) shall apply

20 in determining when the lessee disposed of

21 the property.

22 ‘‘(2) AMOUNT REALIZED.—The amount realized

23 in the case of any disposition under paragraph (1)

24 shall be equal to—
46

•J. 69–001A

1 ‘‘(A) in the case described in paragraph

2 (1) (A)(i) or (B)(i), the fair market value of the

3 property as of the time of cessation or lease,

4 ‘‘(B) in the case described in paragraph

5 (1)(A)(ii), the increase in qualified investment

6 with respect to the property for preceding tax7 able years under subsection (f)(2), or

8 ‘‘(C) in the case described in paragraph

9 (1)(B)(ii), the fair market value of the property

10 as of the time of the disposition.

11 ‘‘(3) EXCEPTIONS FOR CERTAIN CASES.—

12 ‘‘(A) IN GENERAL.—The following shall

13 not be treated as a disposition:

14 ‘‘(i) A transfer by reason of death.

15 ‘‘(ii) A transaction to which section

16 381(a) applies.

17 ‘‘(iii) A disposition with respect to

18 which gain is not recognized under section

19 1031 or 1033, but only to the extent of an

20 amount which bears the same ratio to the

21 amount realized as the gain not recognized

22 bears to the gain realized.

23 ‘‘(iv) A transfer described in section

24 1041(a).
47

•J. 69–001A

1 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

2 Property shall not be treated as ceasing to be

3 regular credit property with respect to the tax4 payer by reason of a mere change in the form

5 of conducting the trade or business so long as

6 the property is retained in such trade or busi7 ness as regular credit property and the tax8 payer retains a substantial interest in such

9 trade or business.

10 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur11 poses of this section—

12 ‘‘(1) DEFINITIONS.—Except as otherwise pro13 vided, the terms ‘applicable percentage’ and ‘regular

14 credit property’ have the meanings given such terms

15 by section 46A.

16 ‘‘(2) QUALIFIED PROGRESS EXPENDITURES.—

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

18 progress expenditure property which is regular

19 credit property, qualified progress expenditures

20 shall be taken into account in computing quali21 fied investment but only to the extent attrib22 utable to periods after December 3, 1992.

23 ‘‘(B) TERMS.—For purposes of subpara24 graph (A), the terms ‘progress expenditure

25 property’ and ‘qualified progress expenditures’
48

•J. 69–001A

1 shall be determined under rules similar to the

2 rules of section 47(d), except that—

3 ‘‘(i) paragraph (5) thereof shall not

4 apply, and

5 ‘‘(ii) in the case of non-self-con6 structed property, amounts chargeable to

7 capital account before December 4, 1992,

8 with respect to the property shall be treat9 ed as qualified progress expenditures made

10 before such date (whether or not paid be11 fore such date).

12 ‘‘(3) PRE-1993 PROPERTY AND EXPENDI13 TURES.—Any property placed in service (or any

14 qualified progress expenditures described in para15 graph (2) made) during the period beginning De16 cember 4, 1992, and ending December 31, 1992,

17 shall be treated as placed in service (or made) on

18 January 1, 1993.

19 ‘‘(4) COORDINATION WITH SECTION 46A.—

20 ‘‘(A) LEASING RULES.—The rules of sec21 tion 46A(e) shall apply.

22 ‘‘(B) REPORTING REQUIREMENTS.—The

23 rules of section 46A(f)(1)(B) shall apply.

24 ‘‘(C) CERTAIN ENTITIES INELIGIBLE.—

25 The rule of section 46A(f)(2) shall apply.
49

•J. 69–001A

1 ‘‘(D) NORMALIZATION RULES APPLY.—

2 The rules of section 46A(f)(3) shall apply.

3 ‘‘(5) RESEARCH CREDIT RULES APPLICABLE.—

4 Rules similar to the rules of section 41 (f) and (g)

5 shall apply.

6 ‘‘(6) CERTAIN LEASING RULES NOT TO

7 APPLY.—Section 50(d)(5) shall not apply.

8 ‘‘(g) CREDIT ELECTIVE.—Subsection (a) shall apply

9 to a taxpayer for a taxable year only if the taxpayer elects

10 to have subsection (a) apply and in the case of an eligible

11 small business (as defined in section 46A(b)), elects not

12 to have section 46A apply.’’

13 (b) INCREASE IN INCOME TO REFLECT CREDIT.—

14 (1) IN GENERAL.—Part II of subchapter B of

15 chapter 1 (relating to items specifically included in

16 gross income) is amended by adding at the end the

17 following new section:

18 ‘‘SEC. 91. INCOME INCLUSION RELATING TO TEMPORARY

19 INVESTMENT TAX CREDIT.

20 ‘‘(a) GENERAL RULE.—The amount of the current

21 year business credit under section 38 for any taxable year

22 which is determined under section 50A shall be included

23 in gross income ratably—

24 ‘‘(1) in the case of the credit determined for

25 1993, over the 4-taxable-year period beginning with
50

•J. 69–001A

1 the taxable year following the taxable year for which

2 the credit was determined, and

3 ‘‘(2) in the case of the credit determined for

4 1994, over the 3-taxable-year period beginning with

5 the taxable year following the taxable year for which

6 the credit was determined.

7 ‘‘(b) RECAPTURED AMOUNTS.—If any increase in tax

8 under section 50A(d)(1) is properly allocable (as deter9 mined under section 50A(d)(3)(C)(ii)) to any portion of

10 any credit described in subsection (a) for any taxable year,

11 subsection (a) shall cease to apply to such portion for the

12 taxable year of recapture and for any succeeding taxable

13 year.’’

14 (2) CONFORMING AMENDMENT.—Paragraph (1)

15 of section 50(c) (relating to basis adjustment) is

16 amended by inserting ‘‘(other than regular credit

17 property to which section 50A applies)’’ after ‘‘any

18 property’’.

19 (c) CREDIT ALLOWED AGAINST MINIMUM TAX.—

20 Subparagraph (B) of section 38(c)(2) (relating to regular

21 investment credit may offset minimum tax), as added by

22 section 1201(c)(1), is amended by inserting ‘‘or 50A’’

23 after ‘‘section 46A’’.

24 (d) APPLICATION OF OTHER RULES.—

25 (1) AT-RISK RULES.—
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•J. 69–001A

1 (A) Clause (ii) of section 49(a)(1)(C) (de2 fining credit base), as amended by section

3 1201(d)(1), is amended by inserting ‘‘to which

4 section 46A or 50A applies’’ after ‘‘regular

5 credit property’’.

6 (B) Section 49(b)(1) is amended by adding

7 at the end the following new sentence: ‘‘For

8 purposes of section 50A(b)(1)(B), any increase

9 during any taxable year in nonqualified

10 nonrecourse financing with respect to any regu11 lar credit property shall be treated as an

12 amount realized during such taxable year with

13 respect to the disposition of such property.’’.

14 (2) RECAPTURE RULES.—Subparagraph (A) of

15 section 50(a)(5) (defining investment credit prop16 erty) is amended by adding at the end the following

17 new sentence: ‘‘Such term does not include regular

18 credit property to which section 50A applies.’’.

19 (e) CONFORMING AMENDMENTS.—

20 (1) Section 39(d)(4), as added by section

21 1201(e)(2), is amended by inserting ‘‘or 50A (relat22 ing to incremental investment credit)’’ after ‘‘cred23 it)’’.

24 (2) Section 55(c)(1) is amended by striking

25 ‘‘49(b)’’ and inserting ‘‘50A(d), 49(b),’’.
52

•J. 69–001A

1 (3) Section 1033(g)(3)(A), as amended by sec2 tion 1201(e)(3), is amended by inserting ‘‘or 50A’’

3 after ‘‘section 46A’’.

4 (4) Section 1371(d)(3) is amended by striking

5 ‘‘49(b)’’ and inserting ‘‘50A(d), 49(b),’’.

6 (5) The table of sections for subpart E of part

7 IV of subchapter A of chapter 1 is amended by add8 ing after the item relating to section 50 the follow9 ing new item:

‘‘Sec. 50A. Temporary incremental investment tax credit.’’

10 (6) The table of sections for part II of sub11 chapter B of chapter 1 is amended by adding at the

12 end the following new item:

‘‘Sec. 91. Income inclusion relating to temporary investment tax

credit.’’

13 (f) EFFECTIVE DATE.—

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

15 this section shall apply to property placed in service

16 after December 3, 1992.

17 (2) TRANSITION PROPERTY.—The amendments

18 made by this section shall not apply to any transi19 tion property (as defined in section 49(e) of the In20 ternal Revenue Code of 1986, as in effect on the day

21 before the date of the enactment of the Revenue

22 Reconciliation Act of 1990). This paragraph shall
53

•J. 69–001A

1 not apply for purposes of section 50A(c) of the In2 ternal Revenue Code of 1986.

3 PART II—RESEARCH CREDIT

4 SEC. 1211. PERMANENT EXTENSION OF RESEARCH CREDIT.

5 (a) IN GENERAL.—Section 41 (relating to credit for

6 increasing research activities) is amended by striking sub7 section (h).

8 (b) CONFORMING AMENDMENT.—Paragraph (1) of

9 section 28(b) is amended by striking subparagraph (D).

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

11 this section shall apply to taxable years ending after June

12 30, 1992.

13 SEC. 1212. MODIFICATION OF FIXED BASE PERCENTAGE

14 FOR STARTUP COMPANIES.

15 (a) GENERAL RULE.—Clause (ii) of section

16 41(c)(3)(B) is amended to read as follows:

17 ‘‘(ii) FIXED-BASE PERCENTAGE.—In a

18 case to which this subparagraph applies,

19 the fixed-base percentage is—

20 ‘‘(I) 3 percent for each of the

21 taxpayer’s 1st 5 taxable years begin22 ning after December 31, 1993, for

23 which the taxpayer has qualified re24 search expenses,
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•J. 69–001A

1 ‘‘(II) in the case of the taxpayer’s 6th such taxable year, 1 2 ⁄6 of

3 the percentage which the aggregate

4 qualified research expenses of the tax5 payer for the 4th and 5th such tax6 able years is of the aggregate gross

7 receipts of the taxpayer for such

8 years,

9 ‘‘(III) in the case of the taxpayer’s 7th such taxable year, 1 10 ⁄3 of

11 the percentage which the aggregate

12 qualified research expenses of the tax13 payer for the 5th and 6th such tax14 able years is of the aggregate gross

15 receipts of the taxpayer for such

16 years,

17 ‘‘(IV) in the case of the taxpayer’s 8th such taxable year, 1 18 ⁄2 of

19 the percentage which the aggregate

20 qualified research expenses of the tax21 payer for the 5th, 6th, and 7th such

22 taxable years is of the aggregate gross

23 receipts of the taxpayer for such

24 years,
55

•J. 69–001A

1 ‘‘(V) in the case of the taxpayer’s

9th such taxable year, 2 2 ⁄3 of the per3 centage which the aggregate qualified

4 research expenses of the taxpayer for

5 the 5th, 6th, 7th, and 8th such tax6 able years is of the aggregate gross

7 receipts of the taxpayer for such

8 years,

9 ‘‘(VI) in the case of the taxpayer’s 10th such taxable year, 5 10 ⁄6 of

11 the percentage which the aggregate

12 qualified research expenses of the tax13 payer for the 5th, 6th, 7th, 8th, and

14 9th such taxable years is of the aggre15 gate gross receipts of the taxpayer for

16 such years, and

17 ‘‘(VII) for taxable years there18 after, the percentage which the aggre19 gate qualified research expenses for

20 any 5 taxable years selected by the

21 taxpayer from among the 5th through

22 the 10th such taxable years is of the

23 aggregate gross receipts of the tax24 payer for such selected years.’’

25 (b) CONFORMING AMENDMENTS.—
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•J. 69–001A

1 (1) Clause (iii) of section 41(c)(3)(B) is amend2 ed by striking ‘‘clause (i)’’ and inserting ‘‘clauses (i)

3 and (ii)’’.

4 (2) Subparagraph (D) of section 41(c)(3) is

5 amended by striking ‘‘subparagraph (A)’’ and insert6 ing ‘‘subparagraphs (A) and (B)(ii)’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1993.

10 PART III—INCENTIVE FOR INVESTMENT IN

11 SMALL BUSINESS STOCK

12 SEC. 1221. 50-PERCENT EXCLUSION FOR GAIN FROM CER13 TAIN SMALL BUSINESS STOCK.

14 (a) GENERAL RULE.—Part I of subchapter P of

15 chapter 1 (relating to capital gains and losses) is amended

16 by adding at the end thereof the following new section:

17 ‘‘SEC. 1202. 50-PERCENT EXCLUSION FOR GAIN FROM CER18 TAIN SMALL BUSINESS STOCK.

19 ‘‘(a) 50–PERCENT EXCLUSION.—In the case of a tax20 payer other than a corporation, gross income shall not in21 clude 50 percent of any gain from the sale or exchange

22 of qualified small business stock held for more than 5

23 years.

24 ‘‘(b) PER-ISSUER LIMITATION ON TAXPAYER’S ELI25 GIBLE GAIN.—
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•J. 69–001A

1 ‘‘(1) IN GENERAL.—If the taxpayer has eligible

2 gain for the taxable year from 1 or more dispositions

3 of stock issued by any corporation, the aggregate

4 amount of such gain from dispositions of stock is5 sued by such corporation which may be taken into

6 account under subsection (a) for the taxable year

7 shall not exceed the greater of—

8 ‘‘(A) $10,000,000 reduced by the aggre9 gate amount of eligible gain taken into account

10 under subsection (a) for prior taxable years and

11 attributable to dispositions of stock issued by

12 such corporation, or

13 ‘‘(B) 10 times the aggregate adjusted

14 bases of qualified small business stock issued by

15 such corporation and disposed of by the tax16 payer during the taxable year.

17 For purposes of subparagraph (B), the adjusted

18 basis of any stock shall be determined without re19 gard to any addition to basis after the date on which

20 such stock was originally issued.

21 ‘‘(2) ELIGIBLE GAIN.—For purposes of this

22 subsection, the term ‘eligible gain’ means any gain

23 from the sale or exchange of qualified small business

24 stock held for more than 5 years.

25 ‘‘(3) TREATMENT OF MARRIED INDIVIDUALS.—
58

•J. 69–001A

1 ‘‘(A) SEPARATE RETURNS.—In the case of

2 a separate return by a married individual, para3 graph (1)(A) shall be applied by substituting

4 ‘$5,000,000’ for ‘$10,000,000’.

5 ‘‘(B) ALLOCATION OF EXCLUSION.—In the

6 case of any joint return, the amount of gain

7 taken into account under subsection (a) shall be

8 allocated equally between the spouses for pur9 poses of applying this subsection to subsequent

10 taxable years.

11 ‘‘(C) MARITAL STATUS.—For purposes of

12 this subsection, marital status shall be deter13 mined under section 7703.

14 ‘‘(c) QUALIFIED SMALL BUSINESS STOCK.—For pur15 poses of this section—

16 ‘‘(1) IN GENERAL.—Except as otherwise pro17 vided in this section, the term ‘qualified small busi18 ness stock’ means any stock in a C corporation

19 which is originally issued after December 31, 1992,

20 if—

21 ‘‘(A) as of the date of issuance, such cor22 poration is a qualified small business, and

23 ‘‘(B) except as provided in subsections (f)

24 and (h), such stock is acquired by the taxpayer
59

•J. 69–001A

1 at its original issue (directly or through an un2 derwriter)—

3 ‘‘(i) in exchange for money or other

4 property (not including stock), or

5 ‘‘(ii) as compensation for services pro6 vided to such corporation (other than serv7 ices performed as an underwriter of such

8 stock).

9 ‘‘(2) ACTIVE BUSINESS REQUIREMENT; ETC.—

10 Stock in a corporation shall not be treated as quali11 fied small business stock unless, during substantially

12 all of the taxpayer’s holding period for such stock,

13 such corporation meets the active business require14 ments of subsection (e) and such corporation is a C

15 corporation.

16 ‘‘(3) CERTAIN PURCHASES BY CORPORATION OF

17 ITS OWN STOCK.—

18 ‘‘(A) REDEMPTIONS FROM TAXPAYER OR

19 RELATED PERSON.—Stock acquired by the tax20 payer shall not be treated as qualified small

21 business stock if, at any time during the 4-year

22 period beginning on the date 2 years before the

23 issuance of such stock, the corporation issuing

24 such stock purchased (directly or indirectly) any

25 of its stock from the taxpayer or from a person
60

•J. 69–001A

1 related (within the meaning of section 267(b) or

2 707(b)) to the taxpayer.

3 ‘‘(B) SIGNIFICANT REDEMPTIONS.—Stock

4 issued by a corporation shall not be treated as

5 qualified business stock if, during the 2-year pe6 riod beginning on the date 1 year before the is7 suance of such stock, such corporation made 1

8 or more purchases of its stock with an aggre9 gate value (as of the time of the respective pur10 chases) exceeding 5 percent of the aggregate

11 value of all of its stock as of the beginning of

12 such 2-year period.

13 ‘‘(C) ACQUISITIONS BY RELATED PER14 SONS.—For purposes of this paragraph, the

15 purchase by any person related (within the

16 meaning of section 267(b) or 707(b)) to the is17 suing corporation of any stock in the issuing

18 corporation shall be treated as a purchase by

19 the issuing corporation.

20 ‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of

21 this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualified small

23 business’ means any domestic corporation which is a

24 C corporation if—
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•J. 69–001A

1 ‘‘(A) the aggregate capitalization of such

2 corporation (or any predecessor thereof) at all

3 times on or after January 1, 1993, and before

4 the issuance did not exceed $50,000,000,

5 ‘‘(B) the aggregate capitalization of such

6 corporation immediately after the issuance (de7 termined by taking into account amounts re8 ceived in the issuance) does not exceed

9 $50,000,000, and

10 ‘‘(C) such corporation agrees to submit

11 such reports to the Secretary and to sharehold12 ers as the Secretary may require to carry out

13 the purposes of this section.

14 ‘‘(2) AGGREGATE CAPITALIZATION.—For pur15 poses of paragraph (1), the term ‘aggregate capital16 ization’ means the excess of—

17 ‘‘(A) the amount of cash and the aggregate

18 adjusted bases of other property held by the

19 corporation, over

20 ‘‘(B) the aggregate amount of the short21 term indebtedness of the corporation.

22 For purposes of the preceding sentence, the term

23 ‘short-term indebtedness’ means any indebtedness

24 which, when incurred, did not have a term in excess

25 of 1 year.
62

•J. 69–001A

1 ‘‘(3) LOOK-THRU IN CASE OF SUBSIDIARIES.—

2 In determining whether a corporation meets the re3 quirements of this subsection—

4 ‘‘(A) stock and debt of any subsidiary (as

5 defined in subsection (e)(5)(C)) held by such

6 corporation shall be disregarded, and

7 ‘‘(B) such corporation shall be treated as

8 holding its ratable share of the assets of such

9 subsidiary and as being liable for its ratable

10 share of the indebtedness of such subsidiary.

11 ‘‘(e) ACTIVE BUSINESS REQUIREMENT.—

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

13 (c)(2), the requirements of this subsection are met

14 by a corporation for any period if during such pe15 riod—

16 ‘‘(A) at least 80 percent (by value) of the

17 assets of such corporation are used by such cor18 poration in the active conduct of a qualified

19 trade or business, and

20 ‘‘(B) such corporation is an eligible cor21 poration.

22 ‘‘(2) SPECIAL RULE FOR CERTAIN ACTIVI23 TIES.—For purposes of paragraph (1), if, in connec24 tion with any future qualified trade or business, a

25 corporation is engaged in—
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•J. 69–001A

1 ‘‘(A) start-up activities described in section

2 195(c)(1)(A),

3 ‘‘(B) activities resulting in the payment or

4 incurring of expenditures which may be treated

5 as research and experimental expenditures

6 under section 174, or

7 ‘‘(C) activities with respect to in-house re8 search expenses described in section 41(b)(4),

9 assets used in such activities shall be treated as used

10 in the active conduct of a qualified trade or busi11 ness. Any determination under this paragraph shall

12 be made without regard to whether a corporation

13 has any gross income from such activities at the

14 time of the determination.

15 ‘‘(3) QUALIFIED TRADE OR BUSINESS.—For

16 purposes of this subsection, the term ‘qualified trade

17 or business’ means any trade or business other

18 than—

19 ‘‘(A) any trade or business involving the

20 performance of services in the fields of health,

21 law, engineering, architecture, accounting, actu22 arial science, performing arts, consulting, ath23 letics, financial services, brokerage services, or

24 any other trade or business where the principal
64

•J. 69–001A

1 asset of such trade or business is the reputation

2 or skill of 1 or more of its employees,

3 ‘‘(B) any banking, insurance, financing, in4 vesting, or similar business,

5 ‘‘(C) any farming business (including the

6 business of raising or harvesting trees),

7 ‘‘(D) any business involving the production

8 or extraction of products of a character with re9 spect to which a deduction is allowable under

10 section 613 or 613A, and

11 ‘‘(E) any business of operating a hotel,

12 motel, restaurant, or similar business.

13 ‘‘(4) ELIGIBLE CORPORATION.—For purposes

14 of this subsection, the term ‘eligible corporation’

15 means any domestic corporation; except that such

16 term shall not include—

17 ‘‘(A) a DISC or former DISC,

18 ‘‘(B) a corporation with respect to which

19 an election under section 936 is in effect,

20 ‘‘(C) a regulated investment company, real

21 estate investment trust, or REMIC, and

22 ‘‘(D) a cooperative.

23 ‘‘(5) STOCK IN OTHER CORPORATIONS.—

24 ‘‘(A) LOOK-THRU IN CASE OF SUBSIDI25 ARIES.—For purposes of this subsection, stock
65

•J. 69–001A

1 and debt in any subsidiary corporation shall be

2 disregarded and the parent corporation shall be

3 deemed to own its ratable share of the subsidi4 ary’s assets, and to conduct its ratable share of

5 the subsidiary’s activities.

6 ‘‘(B) PORTFOLIO STOCK OR SECURITIES.—

7 A corporation shall be treated as failing to meet

8 the requirements of paragraph (1) for any pe9 riod during which more than 10 percent of the

10 value of its assets (in excess of liabilities) con11 sist of stock or securities in other corporations

12 which are not subsidiaries of such corporation

13 (other than assets described in paragraph (6)).

14 ‘‘(C) SUBSIDIARY.—For purposes of this

15 paragraph, a corporation shall be considered a

16 subsidiary if the parent owns more than 50 per17 cent of the combined voting power of all classes

18 of stock entitled to vote, or more than 50 per19 cent in value of all outstanding stock, of such

20 corporation.

21 ‘‘(6) WORKING CAPITAL.—For purposes of

22 paragraph (1)(A), any assets which—

23 ‘‘(A) are held as a part of the reasonably

24 required working capital needs of a qualified

25 trade or business of the corporation, or
66

•J. 69–001A

1 ‘‘(B) are held for investment and are rea2 sonably expected to be used within 2 years to

3 finance future research and experimentation in

4 a qualified trade or business or increases in

5 working capital needs of a qualified trade or

6 business,

7 shall be treated as used in the active conduct of a

8 qualified trade or business. For periods after the

9 corporation has been in existence for at least 2

10 years, in no event may more than 50 percent of the

11 assets of the corporation qualify as used in the ac12 tive conduct of a qualified trade or business by rea13 son of this paragraph.

14 ‘‘(7) MAXIMUM REAL ESTATE HOLDINGS.—A

15 corporation shall not be treated as meeting the re16 quirements of paragraph (1) for any period during

17 which more than 10 percent of the total value of its

18 assets consists of real property which is not used in

19 the active conduct of a qualified trade or business.

20 For purposes of the preceding sentence, the owner21 ship of, dealing in, or renting of real property shall

22 not be treated as the active conduct of a qualified

23 trade or business.

24 ‘‘(8) COMPUTER SOFTWARE ROYALTIES.—For

25 purposes of paragraph (1), rights to computer soft-
67

•J. 69–001A

1 ware which produces active business computer soft2 ware royalties (within the meaning of section

3 543(d)(1)) shall be treated as an asset used in the

4 active conduct of a trade or business.

5 ‘‘(f) STOCK ACQUIRED ON CONVERSION OF PRE6 FERRED STOCK.—If any stock in a corporation is acquired

7 solely through the conversion of other stock in such cor8 poration which is qualified small business stock in the

9 hands of the taxpayer—

10 ‘‘(1) the stock so acquired shall be treated as

11 qualified small business stock in the hands of the

12 taxpayer, and

13 ‘‘(2) the stock so acquired shall be treated as

14 having been held during the period during which the

15 converted stock was held.

16 ‘‘(g) TREATMENT OF PASS-THRU ENTITIES.—

17 ‘‘(1) IN GENERAL.—If any amount included in

18 gross income by reason of holding an interest in a

19 pass-thru entity meets the requirements of para20 graph (2)—

21 ‘‘(A) such amount shall be treated as gain

22 described in subsection (a), and

23 ‘‘(B) for purposes of applying subsection

24 (b), such amount shall be treated as gain from

25 a disposition of stock in the corporation issuing
68

•J. 69–001A

1 the stock disposed of by the pass-thru entity

2 and the taxpayer’s proportionate share of the

3 adjusted basis of the pass-thru entity in such

4 stock shall be taken into account.

5 ‘‘(2) REQUIREMENTS.—An amount meets the

6 requirements of this paragraph if—

7 ‘‘(A) such amount is attributable to gain

8 on the sale or exchange by the pass-thru entity

9 of stock which is qualified small business stock

10 in the hands of such entity (determined by

11 treating such entity as an individual) and which

12 was held by such entity for more than 5 years,

13 and

14 ‘‘(B) such amount is includible in the gross

15 income of the taxpayer by reason of the holding

16 of an interest in such entity which was held by

17 the taxpayer on the date on which such pass18 thru entity acquired such stock and at all times

19 thereafter before the disposition of such stock

20 by such pass-thru entity.

21 ‘‘(3) LIMITATION BASED ON INTEREST ORIGI22 NALLY HELD BY TAXPAYER.—Paragraph (1) shall

23 not apply to any amount to the extent such amount

24 exceeds the amount to which paragraph (1) would

25 have applied if such amount were determined by ref-
69

•J. 69–001A

1 erence to the interest the taxpayer held in the pass2 thru entity on the date the qualified small business

3 stock was acquired.

4 ‘‘(4) PASS-THRU ENTITY.—For purposes of this

5 subsection, the term ‘pass-thru entity’ means—

6 ‘‘(A) any partnership,

7 ‘‘(B) any S corporation,

8 ‘‘(C) any regulated investment company,

9 and

10 ‘‘(D) any common trust fund.

11 ‘‘(h) CERTAIN TAX-FREE AND OTHER TRANS12 FERS.—For purposes of this section—

13 ‘‘(1) IN GENERAL.—In the case of a transfer

14 described in paragraph (2), the transferee shall be

15 treated as—

16 ‘‘(A) having acquired such stock in the

17 same manner as the transferor, and

18 ‘‘(B) having held such stock during any

19 continuous period immediately preceding the

20 transfer during which it was held (or treated as

21 held under this subsection) by the transferor.

22 ‘‘(2) DESCRIPTION OF TRANSFERS.—A transfer

23 is described in this subsection if such transfer is—

24 ‘‘(A) by gift,

25 ‘‘(B) at death, or
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•J. 69–001A

1 ‘‘(C) from a partnership to a partner of

2 stock with respect to which requirements simi3 lar to the requirements of subsection (g) are

4 met at the time of the transfer (without regard

5 to the 5-year holding period requirement).

6 ‘‘(3) CERTAIN RULES MADE APPLICABLE.—

7 Rules similar to the rules of section 1244(d)(2) shall

8 apply for purposes of this section.

9 ‘‘(4) INCORPORATIONS AND REORGANIZATIONS

10 INVOLVING NONQUALIFIED STOCK.—

11 ‘‘(A) IN GENERAL.—In the case of a trans12 action described in section 351 or a reorganiza13 tion described in section 368, if qualified small

14 business stock is exchanged for other stock

15 which would not qualify as qualified small busi16 ness stock but for this subparagraph, such

17 other stock shall be treated as qualified small

18 business stock acquired on the date on which

19 the exchanged stock was acquired.

20 ‘‘(B) LIMITATION.—This section shall

21 apply to gain from the sale or exchange of stock

22 treated as qualified small business stock by rea23 son of subparagraph (A) only to the extent of

24 the gain which would have been recognized at

25 the time of the transfer described in subpara-
71

•J. 69–001A

1 graph (A) if section 351 or 368 had not applied

2 at such time.

3 ‘‘(C) SUCCESSIVE APPLICATION.—For pur4 poses of this paragraph, stock treated as quali5 fied small business stock under subparagraph

6 (A) shall be so treated for subsequent trans7 actions or reorganizations, except that the limi8 tation of subparagraph (B) shall be applied as

9 of the time of the first transfer to which sub10 paragraph (A) applied.

11 ‘‘(D) CONTROL TEST.—Except in the case

12 of a transaction described in section 368, this

13 paragraph shall apply only if, immediately after

14 the transaction, the corporation issuing the

15 stock owns directly or indirectly stock rep16 resenting control (within the meaning of section

17 368(c)) of the corporation whose stock was ex18 changed.

19 ‘‘(i) BASIS RULES.—For purposes of this section—

20 ‘‘(1) STOCK EXCHANGED FOR PROPERTY.—In

21 the case where the taxpayer transfers property

22 (other than money or stock) to a corporation in ex23 change for stock in such corporation—
72

•J. 69–001A

1 ‘‘(A) such stock shall be treated as having

2 been acquired by the taxpayer on the date of

3 such exchange, and

4 ‘‘(B) the basis of such stock in the hands

5 of the taxpayer shall in no event be less than

6 the fair market value of the property ex7 changed.

8 ‘‘(2) TREATMENT OF CONTRIBUTIONS TO CAP9 ITAL.—If the adjusted basis of any qualified small

10 business stock is adjusted by reason of any contribu11 tion to capital after the date on which such stock

12 was originally issued, in determining the amount of

13 the adjustment by reason of such contribution, the

14 basis of the contributed property shall in no event be

15 treated as less than its fair market value on the date

16 of the contribution.

17 ‘‘(j) TREATMENT OF CERTAIN SHORT POSITIONS.—

18 ‘‘(1) IN GENERAL.—If the taxpayer has an off19 setting short position with respect to any qualified

20 small business stock, subsection (a) shall not apply

21 to any gain from the sale or exchange of such stock

22 unless—

23 ‘‘(A) such stock was held by the taxpayer

24 for more than 5 years as of the first day on

25 which there was such a short position, and
73

•J. 69–001A

1 ‘‘(B) the taxpayer elects to recognize gain

2 as if such stock were sold on such first day for

3 its fair market value.

4 ‘‘(2) OFFSETTING SHORT POSITION.—For pur5 poses of paragraph (1), the taxpayer shall be treated

6 as having an offsetting short position with respect to

7 any qualified small business stock if—

8 ‘‘(A) the taxpayer has made a short sale of

9 substantially identical property,

10 ‘‘(B) the taxpayer has acquired an option

11 to sell substantially identical property at a fixed

12 price, or

13 ‘‘(C) to the extent provided in regulations,

14 the taxpayer has entered into any other trans15 action which substantially reduces the risk of

16 loss from holding such qualified small business

17 stock.

18 For purposes of the preceding sentence, any ref19 erence to the taxpayer shall be treated as including

20 a reference to any person who is related (within the

21 meaning of section 267(b) or 707(b)) to the tax22 payer.

23 ‘‘(k) REGULATIONS.—The Secretary shall prescribe

24 such regulations as may be appropriate to carry out the

25 purposes of this section, including regulations to prevent
74

•J. 69–001A

1 the avoidance of the purposes of this section through split2 ups, shell corporations, partnerships, or otherwise.’’

3 (b) ONE-HALF OF EXCLUSION TREATED AS PREF4 ERENCE FOR MINIMUM TAX.—

5 (1) IN GENERAL.—Subsection (a) of section 57

6 (relating to items of tax preference) is amended by

7 adding at the end thereof the following new para8 graph:

9 ‘‘(8) EXCLUSION FOR GAINS ON SALE OF CER10 TAIN SMALL BUSINESS STOCK.—An amount equal to

11 one-half of the amount excluded from gross income

12 for the taxable year under section 1202.’’

13 (2) CONFORMING AMENDMENT.—Subclause (II)

14 of section 53(d)(1)(B)(ii) is amended by striking

15 ‘‘and (6)’’ and inserting ‘‘(6), and (8)’’.

16 (c) PENALTY FOR FAILURE TO COMPLY WITH RE17 PORTING REQUIREMENTS.—Section 6652 is amended by

18 inserting before the last subsection thereof the following

19 new subsection:

20 ‘‘(l) FAILURE TO MAKE REPORTS REQUIRED UNDER

21 SECTION 1202.—In the case of a failure to make a report

22 required under section 1202(d)(1)(C) which contains the

23 information required by such section on the date pre24 scribed therefor (determined with regard to any extension

25 of time for filing), there shall be paid (on notice and de-
75

•J. 69–001A

1 mand by the Secretary and in the same manner as tax)

2 by the person failing to make such report, an amount

3 equal to $50 for each report with respect to which there

4 was such a failure. In the case of any failure due to neg5 ligence or intentional disregard, the preceding sentence

6 shall be applied by substituting ‘$100’ for ‘$50’. In the

7 case of a report covering periods in 2 or more years, the

8 penalty determined under preceding provisions of this sub9 section shall be multiplied by the number of such years.’’

10 (d) CONFORMING AMENDMENTS.—

11 (1)(A) Section 172(d)(2) (relating to modifica12 tions with respect to net operating loss deduction) is

13 amended to read as follows:

14 ‘‘(2) CAPITAL GAINS AND LOSSES OF TAX15 PAYERS OTHER THAN CORPORATIONS.—In the case

16 of a taxpayer other than a corporation—

17 ‘‘(A) the amount deductible on account of

18 losses from sales or exchanges of capital assets

19 shall not exceed the amount includable on ac20 count of gains from sales or exchanges of cap21 ital assets; and

22 ‘‘(B) the exclusion provided by section

23 1202 shall not be allowed.’’
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1 (B) Subparagraph (B) of section 172(d)(4) is

2 amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph

3 (1)’’.

4 (2) Paragraph (4) of section 642(c) is amended

5 to read as follows:

6 ‘‘(4) ADJUSTMENTS.—To the extent that the

7 amount otherwise allowable as a deduction under

8 this subsection consists of gain described in section

9 1202(a), proper adjustment shall be made for any

10 exclusion allowable to the estate or trust under sec11 tion 1202. In the case of a trust, the deduction al12 lowed by this subsection shall be subject to section

13 681 (relating to unrelated business income).’’

14 (3) Paragraph (3) of section 643(a) is amended

15 by adding at the end thereof the following new sen16 tence: ‘‘The exclusion under section 1202 shall not

17 be taken into account.’’.

18 (4) Paragraph (4) of section 691(c) is amended

19 by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,

20 1202, and 1211’’.

21 (5) The second sentence of paragraph (2) of

22 section 871(a) is amended by inserting ‘‘such gains

23 and losses shall be determined without regard to sec24 tion 1202 and’’ after ‘‘except that’’.
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1 (6) The table of sections for part I of sub2 chapter P of chapter 1 is amended by adding after

3 the item relating to section 1201 the following new

4 item:

‘‘Sec. 1202. 50-percent exclusion for gain from certain small business stock.’’

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

6 this section shall apply to stock issued after December 31,

7 1992.

8 PART IV—MODIFICATIONS TO MINIMUM TAX

9 DEPRECIATION RULES

10 SEC. 1231. MODIFICATION TO MINIMUM TAX DEPRECIA11 TION RULES.

12 (a) GENERAL RULE.—Paragraph (1) of section 56(a)

13 (relating to depreciation) is amended by redesignating

14 subparagraphs (B), (C), and (D) as subparagraphs (C),

15 (D), and (E), respectively, and by inserting after subpara16 graph (A) the following new subparagraph:

17 ‘‘(B) TREATMENT OF CERTAIN PERSONAL

18 PROPERTY PLACED IN SERVICE AFTER 1993.—

19 ‘‘(i) IN GENERAL.—In the case of any

20 property to which this subparagraph ap21 plies, the depreciation deduction allowable

22 under section 167 shall be determined as

23 provided in section 168(a), except that the

24 method of depreciation used shall be—
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1 ‘‘(I) the 120 percent declining

2 balance method switching to the

3 straight line method for the 1st tax4 able year for which using the straight

5 line method with respect to the ad6 justed basis as of the beginning of the

7 year will yield a higher allowance, or

8 ‘‘(II) the straight line method in

9 the case of property for which the ap10 plicable depreciation method under

11 section 168(a) is the straight line

12 method.

13 ‘‘(ii) PROPERTY TO WHICH SUBPARA14 GRAPH APPLIES.—This subparagraph shall

15 apply to any tangible property placed in

16 service after December 31, 1993, except

17 that this subparagraph shall not apply

18 to—

19 ‘‘(I) any residential rental prop20 erty or nonresidential real property

21 (within the meaning of section

22 168(e)), and

23 ‘‘(II) any other property for

24 which the depreciation deduction pro25 vided by section 167(a) for purposes
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1 of the regular tax is computed under

2 the alternative depreciation system of

3 section 168(g).

4 ‘‘(iii) COORDINATION WITH SUBPARA5 GRAPH (A).—Subparagraph (A) shall not

6 apply to any property to which this sub7 paragraph applies.’’

8 (b) ELIMINATION OF ACE DEPRECIATION ADJUST9 MENT.—Clause (i) of section 56(g)(4)(A) (relating to de10 preciation adjustments for computing adjusted current

11 earnings) is amended by adding at the end thereof the

12 following new sentence: ‘‘The preceding sentence shall not

13 apply to any property to which subsection (a)(1)(B) ap14 plies, and the depreciation deduction with respect to such

15 property shall be determined under the rules of subsection

16 (a)(1)(B).’’.

17 (c) CONFORMING AMENDMENTS.—

18 (1) Paragraph (2) of section 168(b) is amended

19 to read as follows:

20 ‘‘(2) SPECIAL RULE FOR DECLINING BALANCE

21 METHOD IN CERTAIN CASES.—

22 ‘‘(A) 150 PERCENT METHOD FOR CERTAIN

23 PROPERTY.—Paragraph (1) shall be applied by

24 substituting ‘150 percent’ for ‘200 percent’ in

25 the case of—
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1 ‘‘(i) any 15-year or 20-year property,

2 or

3 ‘‘(ii) any property used in a farming

4 business (within the meaning of section

5 263A(e)(4)).

6 ‘‘(B) ELECTION TO USE MINIMUM TAX

7 METHOD.—In the case of any property (other

8 than property described in paragraph (3)) with

9 respect to which the taxpayer elects under para10 graph (5) to have the provisions of this sub11 paragraph apply, paragraph (1) shall be applied

12 by substituting ‘120 percent’ for ‘200 percent’

13 (and subparagraph (A) of this paragraph shall

14 not apply).’’

15 (2) Paragraph (5) of section 168(b) is amended

16 by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para17 graph (2)(B)’’.

18 (3) Subsection (c) of section 168 is amended—

19 (A) by striking paragraph (2), and

20 (B) by striking so much of such subsection

21 as precedes the table contained in paragraph

22 (1) and inserting the following:

23 ‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes

24 of this section, the applicable recovery period shall be de25 termined in accordance with the following table:’’.
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1 (d) EFFECTIVE DATES.—

2 (1) IN GENERAL.—Except as provided in para3 graph (2), the amendments made by this section

4 shall apply to property placed in service after De5 cember 31, 1993.

6 (2) COORDINATION WITH TRANSITIONAL

7 RULES.—The amendments made by this section

8 shall not apply to any property to which paragraph

9 (1) of section 56(a) of the Internal Revenue Code of

10 1986 does not apply by reason of subparagraph

11 (D)(i) thereof (as redesignated by subsection (a) of

12 this section).

13 Subtitle C—Tax-Exempt Bond

14 Provisions

15 SEC. 1301. HIGH-SPEED INTERCITY RAIL FACILITY BONDS

16 EXEMPT FROM STATE VOLUME CAP.

17 (a) IN GENERAL.—Paragraph (4) of section 146(g)

18 (relating to exemption for certain bonds) is amended by

19 striking ‘‘75 percent of’’.

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

21 subsection (a) shall apply to bonds issued after December

22 31, 1993.
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1 SEC. 1302. PERMANENT EXTENSION OF QUALIFIED SMALL

2 ISSUE BONDS.

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

4 144(a)(12) is amended to read as follows:

5 ‘‘(B) BONDS ISSUED TO FINANCE

6 MANUFACTURING FACILITIES AND FARM

7 PROPERTY.—Subparagraph (A) shall not

8 apply to any bond issued as part of an

9 issue 95 percent or more of the net pro10 ceeds of which are to be used to provide—

11 ‘‘(i) any manufacturing facility, or

12 ‘‘(ii) any land or property in accord13 ance with section 147(c)(2).’’

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

15 subsection (a) shall apply to bonds issued after June 30,

16 1992.

17 Subtitle D—Expansion And Sim18 plification Of Earned Income

19 Tax Credit

20 SEC. 1401. EXPANSION AND SIMPLIFICATION OF EARNED

21 INCOME TAX CREDIT.

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

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

24 (b) and inserting the following:

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

2 individual, there shall be allowed as a credit against

3 the tax imposed by this subtitle for the taxable year

4 an amount equal to the credit percentage of so much

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

6 as does not exceed the earned income amount.

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

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

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

10 ‘‘(A) the credit percentage of the earned

11 income amount, over

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

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

14 earned income) of the taxpayer for the taxable

15 year as exceeds the phaseout amount.

16 ‘‘(b) PERCENTAGES AND AMOUNTS.—For purposes

17 of subsection (a)—

18 ‘‘(1) PERCENTAGES.—The credit percentage

19 and the phaseout percentage shall be determined as

20 follows:

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

22 years beginning after 1994:

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

is:

The phaseout percentage is:

1 qualifying child ..... 34.37 .......................... 16.16
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In the case of an eligible individual with:The credit percentage

is:

The phaseout percentage is:

2 or more qualifying

children ................. 39.66 .......................... 19.83

No qualifying children ...................... 7.65 .......................... 7.65

1 ‘‘(B) TRANSITIONAL PERCENTAGES.—In

2 the case of a taxable year beginning in 1994:

In the case of an

eligible individual

with:

The credit percentage

is:

The phaseout percentage is:

1 qualifying child . 26.60 .......................... 16.16

2 or more qualifying children ...... 31.59 .......................... 15.79

No qualifying children .................. 7.65 .......................... 7.65

3 ‘‘(2) AMOUNTS.—The earned income amount

4 and the phaseout amount shall be determined as fol5 lows:

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

7 years beginning after 1994:

In the case of an eligible individual with:The earned income

amount is:

The phaseout amount

is:

1 qualifying child ..... $6,000 ........................ $11,000

2 or more qualifying

children ................. $8,500 ........................ $11,000

No qualifying children ...................... $4,000 ........................ $5,000

8 ‘‘(B) TRANSITIONAL AMOUNTS.—In the

9 case of a taxable year beginning in 1994:

In the case of an

eligible individual

with:

The earned income

amount is:

The phaseout amount

is:

1 qualifying child . $7,750 ........................ $11,000

2 or more qualifying children ...... $8,500 ........................ $11,000

No qualifying children .................. $4,000 ........................ $5,000’’.
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1 (b) ELIGIBLE INDIVIDUAL.—Subparagraph (A) of

2 section 32(c)(1) (defining eligible individual) is amended

3 to read as follows:

4 ‘‘(A) IN GENERAL.—The term ‘eligible in5 dividual’ means—

6 ‘‘(i) any individual who has a qualify7 ing child for the taxable year, or

8 ‘‘(ii) any other individual who does

9 not have a qualifying child for the taxable

10 year, if—

11 ‘‘(I) such individual’s principal

12 place of abode is in the United States

13 for more than one-half of such taxable

14 year,

15 ‘‘(II) such individual (or, if the

16 individual is married, the individual’s

17 spouse) has attained age 22 before

18 the close of the taxable year, and

19 ‘‘(III) such individual (or, if the

20 individual is married, the individual’s

21 spouse) is not a dependent for whom

22 a deduction is allowable under section

23 151 to another taxpayer for any tax24 able year beginning in the same cal25 endar year as such taxable year.’’
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1 (c) INFLATION ADJUSTMENTS.—Section 32(i) (relat2 ing to inflation adjustments) is amended—

3 (1) by striking paragraphs (1) and (2) and in4 serting the following new paragraph:

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

6 year beginning after 1994, each dollar amount con7 tained in subsection (b)(2)(A) shall be increased by

8 an amount equal to—

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

10 ‘‘(B) the cost-of-living adjustment deter11 mined under section 1(f)(3), for the calendar

12 year in which the taxable year begins, by sub13 stituting ‘calendar year 1993’ for ‘calendar year

14 1992’.’’, and

15 (2) by redesignating paragraph (3) as para16 graph (2).

17 (d) CONFORMING AMENDMENTS.—

18 (1) Subparagraph (D) of section 32(c)(3) is

19 amended—

20 (A) by striking ‘‘clause (i) or (ii)’’ in clause

21 (iii) and inserting ‘‘clause (i)’’,

22 (B) by striking clause (ii), and

23 (C) by redesignating clause (iii) as clause

24 (ii).
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•J. 69–001A

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

2 to read as follows:

3 ‘‘(3) COORDINATION WITH MEDICAL DEDUC4 TION.—Any amount paid by a taxpayer for insur5 ance to which paragraph (1) applies shall not be

6 taken into account in computing the amount allow7 able to the taxpayer as a deduction under section

8 213(a).’’

9 (3) Section 213 is amended by striking sub10 section (f).

11 (4) Subsection (b) of section 3507 is amended

12 by redesignating paragraphs (2) and (3) as para13 graphs (3) and (4), respectively, and by inserting

14 after paragraph (1) the following new paragraph:

15 ‘‘(2) certifies that the employee has 1 or more

16 qualifying children (within the meaning of section

17 32(c)(3)) for such taxable year,’’.

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

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

21 ‘‘(i) of not more than the credit per22 centage in effect under section 32(b)(1) for

23 an eligible individual with 1 qualifying

24 child and with earned income not in excess

25 of the earned income amount in effect
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1 under section 32(b)(2) for such an eligible

2 individual, which

3 ‘‘(ii) phases out at the phaseout per4 centage in effect under section 32(b)(1) for

5 such an eligible individual between the

6 phaseout amount in effect under section

7 32(b)(2) for such an eligible individual and

8 the amount of earned income at which the

9 credit under section 32(a) phases out for

10 such an eligible individual, or’’.

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

12 this section shall apply to taxable years beginning after

13 December 31, 1993.

14 Subtitle E—Incentives For

15 Investment In Real Estate

16 PART I—EXTENSION OF QUALIFIED MORTGAGE

17 BONDS AND LOW-INCOME HOUSING CREDIT

18 SEC. 1501. PERMANENT EXTENSION OF QUALIFIED MORT19 GAGE BONDS.

20 (a) IN GENERAL.—Paragraph (1) of section 143(a)

21 (defining qualified mortgage bond) is amended to read as

22 follows:

23 ‘‘(1) QUALIFIED MORTGAGE BOND DEFINED.—

24 For purposes of this title, the term ‘qualified mort-
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•J. 69–001A

1 gage bond’ means a bond which is issued as part of

2 a qualified mortgage issue.’’

3 (b) MORTGAGE CREDIT CERTIFICATES.—Section 25

4 is amended by striking subsection (h) and by redesignat5 ing subsections (i) and (j) as subsections (h) and (i), re6 spectively.

7 (c) EFFECTIVE DATES.—

8 (1) BONDS.—The amendment made by sub9 section (a) shall apply to bonds issued after June

10 30, 1992.

11 (2) CERTIFICATES.—The amendment made by

12 subsection (b) shall apply to elections for periods

13 after June 30, 1992.

14 SEC. 1502. PERMANENT EXTENSION OF LOW-INCOME HOUS15 ING CREDIT.

16 (a) IN GENERAL.—Section 42 (relating to low-income

17 housing credit) is amended by striking subsection (o).

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

19 subsection (a) shall apply to periods after June 30, 1992.

20 PART II—MODIFICATION OF PASSIVE LOSS

21 RULES

22 SEC. 1511. MODIFICATION OF PASSIVE LOSS RULES.

23 (a) GENERAL RULE.—Section 469 (relating to pas24 sive activity losses and credits limited) is amended by re25 designating subsections (l) and (m) as subsections (m) and
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1 (n), respectively, and by inserting after subsection (k) the

2 following new subsection:

3 ‘‘(l) SPECIAL RULES FOR REAL ESTATE ACTIVI4 TIES.—

5 ‘‘(1) LOSS FROM CERTAIN RENTAL REAL ES6 TATE ACTIVITIES TREATED AS NOT PASSIVE.—If the

7 taxpayer meets the requirements of paragraph (2)

8 for the taxable year, subsection (a) shall not apply

9 to so much of the passive activity loss for such tax10 able year as does not exceed the least of—

11 ‘‘(A) the net loss for such taxable year

12 from rental real estate activities in which the

13 taxpayer materially participates,

14 ‘‘(B) the net income of the taxpayer for

15 the taxable year from real property trade or

16 business activities which are not passive activi17 ties, or

18 ‘‘(C) the taxable income of the taxpayer

19 for the taxable year determined without regard

20 to this subsection.

21 A similar rule shall apply to any passive activity

22 credit.

23 ‘‘(2) REQUIREMENTS.—The taxpayer meets the

24 requirements of this paragraph for any taxable year

25 if more than one-half of the personal services per-
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•J. 69–001A

1 formed in trades or businesses by the taxpayer dur2 ing such taxable year are performed in real property

3 trades or businesses in which the taxpayer materially

4 participates.

5 ‘‘(3) REAL PROPERTY TRADE OR BUSINESS.—

6 For purposes of this paragraph, the term ‘real prop7 erty trade or business’ means any real property de8 velopment, redevelopment, construction, reconstruc9 tion, acquisition, conversion, rental, operation, man10 agement, leasing, or brokerage trade or business.

11 ‘‘(4) SPECIAL RULES.—

12 ‘‘(A) PERSONAL SERVICES AS AN EM13 PLOYEE.—For purposes of paragraph (2), per14 sonal services performed as an employee shall

15 not be treated as performed in real property

16 trades or businesses. The preceding sentence

17 shall not apply if such employee is a 5-percent

18 owner (as defined in section 416(i)(1)(B)) in

19 the employer.

20 ‘‘(B) CLOSELY HELD C CORPORATIONS.—

21 This subsection shall not apply to any interests

22 held by a closely held C corporation.

23 ‘‘(5) COORDINATION WITH SUBSECTION (i).—
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•J. 69–001A

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

2 be applied after the application of subsection

3 (i).

4 ‘’(B) AMOUNTS ALLOWED UNDER SUB5 SECTION (i).—For purposes of this sub6 section—

7 ‘‘(i) the passive activity loss and pas8 sive activity credit, and

9 ‘‘(ii) the net loss referred to in para10 graph (1)(A),

11 shall not include any amount allowed under

12 subsection (i).’’

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

14 this section shall apply to taxable years beginning after

15 December 31, 1993.

16 PART III—PROVISIONS RELATING TO REAL

17 ESTATE INVESTMENTS BY PENSION FUNDS

18 SEC. 1521. REAL ESTATE PROPERTY ACQUIRED BY A

19 QUALIFIED ORGANIZATION.

20 (a) MODIFICATIONS OF EXCEPTIONS.—Paragraph

21 (9) of section 514(c) (relating to real property acquired

22 by a qualified organization) is amended by adding at the

23 end thereof the following new subparagraphs:
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•J. 69–001A

1 ‘‘(G) SPECIAL RULES FOR PURPOSES OF

2 THE EXCEPTIONS.—Except as otherwise pro3 vided by regulations—

4 ‘‘(i) SMALL LEASES DISREGARDED.—

5 For purposes of clauses (iii) and (iv) of

6 subparagraph (B), a lease to a person de7 scribed in such clause (iii) or (iv) shall be

8 disregarded if no more than 25 percent of

9 the leasable floor space in a building (or

10 complex of buildings) is covered by the

11 lease and if the lease is on commercially

12 reasonable terms.

13 ‘‘(ii) COMMERCIALLY REASONABLE FI14 NANCING.—Clause (v) of subparagraph (B)

15 shall not apply if the financing is on com16 mercially reasonable terms.

17 ‘‘(H) QUALIFYING SALES BY FINANCIAL

18 INSTITUTIONS.—

19 ‘‘(i) IN GENERAL.—In the case of a

20 qualifying sale by a financial institution,

21 except as provided in regulations, clauses

22 (i) and (ii) of subparagraph (B) shall not

23 apply with respect to financing provided by

24 such institution for such sale.
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1 ‘‘(ii) QUALIFYING SALE.—For pur2 poses of this clause, there is a qualifying

3 sale by a financial institution if—

4 ‘‘(I) a qualified organization ac5 quires property described in clause

6 (iii) from a financial institution and

7 any gain recognized by the financial

8 institution with respect to the prop9 erty is ordinary income,

10 ‘‘(II) the stated principal amount

11 of the financing provided by the finan12 cial institution does not exceed the

13 amount of the outstanding indebted14 ness (including accrued but unpaid in15 terest) of the financial institution with

16 respect to the property described in

17 clause (iii) immediately before the ac18 quisition referred to in clause (iii) or

19 (v), whichever is applicable, and

20 ‘‘(III) the present value (deter21 mined as of the time of the sale and

22 by using the applicable Federal rate

23 determined under section 1274(d)) of

24 the maximum amount payable pursu25 ant to the financing that is deter-
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1 mined by reference to the revenue, in2 come, or profits derived from the

3 property cannot exceed 30 percent of

4 the total purchase price of the prop5 erty (including the contingent pay6 ments).

7 ‘‘(iii) PROPERTY TO WHICH SUBPARA8 GRAPH APPLIES.—Property is described in

9 this clause if such property is foreclosure

10 property, or is real property which—

11 ‘‘(I) was acquired by the quali12 fied organization from a financial in13 stitution which is in conservatorship

14 or receivership, or from the conserva15 tor or receiver of such an institution,

16 and

17 ‘‘(II) was held by the financial

18 institution at the time it entered into

19 conservatorship or receivership.

20 ‘‘(iv) FINANCIAL INSTITUTION.—For

21 purposes of this subparagraph, the term

22 ‘financial institution’ means—

23 ‘‘(I) any financial institution de24 scribed in section 581 or 591(a),
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•J. 69–001A

1 ‘‘(II) any other corporation which

2 is a direct or indirect subsidiary of an

3 institution referred to in subclause (I)

4 but only if, by virtue of being affili5 ated with such institution, such other

6 corporation is subject to supervision

7 and examination by a Federal or

8 State agency which regulates institu9 tions referred to in subclause (I), and

10 ‘‘(III) any person acting as a

11 conservator or receiver of an entity re12 ferred to in subclause (I) or (II) (or

13 any government agency or corporation

14 succeeding to the rights or interest of

15 such person).

16 ‘‘(v) FORECLOSURE PROPERTY.—For

17 purposes of this subparagraph, the term

18 ‘foreclosure property’ means any real prop19 erty acquired by the financial institution as

20 the result of having bid on such property

21 at foreclosure, or by operation of an agree22 ment or process of law, after there was a

23 default (or a default was imminent) on in24 debtedness which such property secured.’’
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1 (b) CONFORMING AMENDMENT.—Paragraph (9) of

2 section 514(c) is amended—

3 (1) by adding the following new sentence at the

4 end of subparagraph (A): ‘‘For purposes of this

5 paragraph, an interest in a mortgage shall in no

6 event be treated as real property.’’, and

7 (2) by striking the last sentence of subpara8 graph (B).

9 (c) EFFECTIVE DATES.—

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

11 this section shall apply to acquisitions on or after

12 January 1, 1994.

13 (2) SMALL LEASES.—The provisions of section

14 514(c)(9)(G)(i) of the Internal Revenue Code of

15 1986 shall, in addition to any leases to which the

16 provisions apply by reason of paragraph (1), apply

17 to leases entered into on or after January 1, 1994.

18 SEC. 1522. REPEAL OF SPECIAL TREATMENT OF PUBLICLY

19 TREATED PARTNERSHIPS.

20 (a) GENERAL RULE.—Subsection (c) of section 512

21 is amended—

22 (1) by striking paragraph (2),

23 (2) by redesignating paragraph (3) as para24 graph (2), and
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•J. 69–001A

1 (3) by striking ‘‘paragraph (1) or (2)’’ in para2 graph (2) (as so redesignated) and inserting ‘‘para3 graph (1)’’.

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

5 subsection (a) shall apply to partnership years beginning

6 on or after January 1, 1994.

7 SEC. 1523. TITLE-HOLDING COMPANIES PERMITTED TO RE8 CEIVE SMALL AMOUNTS OF UNRELATED

9 BUSINESS TAXABLE INCOME.

10 (a) GENERAL RULE.—Paragraph (25) of section

11 501(c) is amended by adding at the end thereof the follow12 ing new subparagraph:

13 ‘‘(G)(i) An organization shall not be treat14 ed as failing to be described in this paragraph

15 merely by reason of the receipt of any otherwise

16 disqualifying income which is incidentally de17 rived from the holding of real property.

18 ‘‘(ii) Clause (i) shall not apply if the

19 amount of gross income described in such

20 clause exceeds 10 percent of the organization’s

21 gross income for the taxable year unless the or22 ganization establishes to the satisfaction of the

23 Secretary that the receipt of gross income de24 scribed in clause (i) in excess of such limitation

25 was inadvertent and reasonable steps are being
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1 taken to correct the circumstances giving rise to

2 such income.’’

3 (b) CONFORMING AMENDMENT.—Paragraph (2) of

4 section 501(c) is amended by adding at the end thereof

5 the following new sentence: ‘‘Rules similar to the rules of

6 subparagraph (G) of paragraph (25) shall apply for pur7 poses of this paragraph.’’

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

9 this section shall apply to taxable years beginning on or

10 after January 1, 1994.

11 SEC. 1524. EXCLUSION FROM UNRELATED BUSINESS TAX

12 OF GAINS FROM CERTAIN PROPERTY.

13 (a) GENERAL RULE.—Subsection (b) of section 512

14 (relating to modifications) is amended by adding at the

15 end thereof the following new paragraph:

16 ‘‘(16)(A) Notwithstanding paragraph (5)(B),

17 there shall be excluded all gains or losses from the

18 sale, exchange, or other disposition of any real prop19 erty described in subparagraph (B) if—

20 ‘‘(i) such property was acquired by the or21 ganization from—

22 ‘‘(I) a financial institution described

23 in section 581 or 591(a) which is in

24 conservatorship or receivership, or
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1 ‘‘(II) the conservator or receiver of

2 such an institution (or any government

3 agency or corporation succeeding to the

4 rights or interests of the conservator or re5 ceiver),

6 ‘‘(ii) such property is designated by the or7 ganization within the 9-month period beginning

8 on the date of its acquisition as property held

9 for sale, except that not more than one-half (by

10 value determined as of such date) of property

11 acquired in a single transaction may be so

12 designated,

13 ‘‘(iii) such sale, exchange, or disposition

14 occurs before the later of—

15 ‘‘(I) the date which is 30 months after

16 the date of the acquisition of such prop17 erty, or

18 ‘‘(II) the date specified by the Sec19 retary in order to assure an orderly dis20 position of property held by persons de21 scribed in subparagraph (A), and

22 ‘‘(iv) while such property was held by the

23 organization, the aggregate expenditures on im24 provements and development activities included

25 in the basis of the property are (or were) not
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1 in excess of 20 percent of the net selling price

2 of such property.

3 ‘‘(B) Property is described in this subparagraph

4 if it is real property which—

5 ‘‘(i) was held by the financial institution at

6 the time it entered into conservatorship or re7 ceivership, or

8 ‘‘(ii) was foreclosure property (as defined

9 in section 514(c)(9)(H)(v)) which secured in10 debtedness held by the financial institution at

11 such time.

12 For purposes of this subparagraph, real property in13 cludes an interest in a mortgage.’’

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

15 subsection (a) shall apply to property acquired on or after

16 January 1, 1994.

17 SEC. 1525. EXCLUSION FROM UNRELATED BUSINESS TAX

18 OF CERTAIN FEES AND OPTION PREMIUMS.

19 (a) LOAN COMMITMENT FEES.—Paragraph (1) of

20 section 512(b) (relating to modifications) is amended by

21 inserting ‘‘amounts received or accrued as consideration

22 for entering into agreements to make loans,’’ before ‘‘and

23 annuities’’.

24 (b) OPTION PREMIUMS.—The second sentence of sec25 tion 512(b)(5) is amended—
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1 (1) by striking ‘‘all gains on’’ and inserting ‘‘all

2 gains or losses recognized, in connection with the or3 ganization’s investment activities, from’’,

4 (2) by striking ‘‘, written by the organization in

5 connection with its investment activities,’’ and

6 (3) by inserting ‘‘or real property and all gains

7 or losses from the forfeiture of good-faith deposits

8 (that are consistent with established business prac9 tice) for the purchase, sale, or lease of real property

10 in connection with the organization’s investment ac11 tivities’’ before the period.

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

13 this section shall apply to amounts received on or after

14 January 1, 1994.

15 PART IV—INCREASE IN RECOVERY PERIOD FOR

16 NONRESIDENTIAL REAL PROPERTY

17 SEC. 1531. INCREASE IN RECOVERY PERIOD FOR

18 NONRESIDENTIAL REAL PROPERTY.

19 (a) GENERAL RULE.—Paragraph (1) of section

20 168(c) (relating to applicable recovery period) is amended

21 by striking the item relating to nonresidential real prop22 erty and inserting the following:

‘‘Nonresidential real property .................................................. 37 years.’’.

23 (b) EFFECTIVE DATE.—

24 (1) IN GENERAL.—Except as provided in para25 graph (2), the amendment made by subsection (a)
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1 shall apply to property placed in service by the tax2 payer on or after February 25, 1993.

3 (2) EXCEPTION.—The amendments made by

4 this section shall not apply to property placed in

5 service by the taxpayer before January 1, 1994, if—

6 (A) the taxpayer or a qualified person en7 tered into a binding written contract to pur8 chase or construct such property before Feb9 ruary 25, 1993, or

10 (B) the construction of such property was

11 commenced by or for the taxpayer or a quali12 fied person before February 25, 1993.

13 For purposes of this paragraph, the term ‘‘qualified

14 person’’ means any person who transfers his rights

15 in such a contract or such property to the taxpayer

16 but only if the property is not placed in service by

17 such person before such rights are transferred to the

18 taxpayer.

19 Subtitle F—Other Changes

20 SEC. 1601. ALTERNATIVE MINIMUM TAX TREATMENT OF

21 CONTRIBUTIONS OF APPRECIATED PROP22 ERTY.

23 (a) REPEAL OF TAX PREFERENCE.—Subsection (a)

24 of section 57 (as amended by section 1221) is amended

25 by striking paragraph (6) (relating to appreciated prop-
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1 erty charitable deduction) and by redesignating para2 graphs (7) and (8) as paragraphs (6) and (7), respectively.

3 (b) EFFECT ON ADJUSTED CURRENT EARNINGS.—

4 Paragraph (4) of section 56(g) is amended by adding at

5 the end thereof the following new subparagraph:

6 ‘‘(J) TREATMENT OF CHARITABLE CON7 TRIBUTIONS.—Notwithstanding subparagraphs

8 (B) and (C), no adjustment related to the earn9 ings and profits effects of any charitable con10 tribution shall be made in computing adjusted

11 current earnings.’’

12 (c) CONFORMING AMENDMENT.—Subclause (II) of

13 section 53(d)(1)(B)(ii) (as amended by section 1221) is

14 amended by striking ‘‘(5), (6), and (8)’’ and inserting

15 ‘‘(5), and (7)’’.

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

17 this section shall apply to contributions made after June

18 30, 1992, except that in the case of any contribution of

19 capital gain property which is not tangible personal prop20 erty, such amendments shall apply only if the contribution

21 is made after December 31, 1992.

22 SEC. 1602. CERTAIN TRANSFERS TO RAILROAD RETIRE23 MENT ACCOUNT MADE PERMANENT.

24 Subsection (c)(1)(A) of section 224 of the Railroad

25 Retirement Solvency Act of 1983 (relating to section 72(r)
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1 revenue increase transferred to certain railroad accounts)

2 is amended by striking ‘‘with respect to benefits received

3 before October 1, 1992’’.

4 SEC. 1603. TEMPORARY EXTENSION OF DEDUCTION FOR

5 HEALTH INSURANCE COSTS OF SELF-EM6 PLOYED INDIVIDUALS.

7 (a) IN GENERAL.—

8 (1) EXTENSION.—Paragraph (6) of section

9 162(l) (relating to special rules for health insurance

10 costs of self-employed individuals) is amended by

11 striking ‘‘June 30, 1992’’ and inserting ‘‘December

12 31, 1993’’.

13 (2) CONFORMING AMENDMENT.—Paragraph (2)

14 of section 110(a) of the Tax Extension Act of 1991

15 is hereby repealed.

16 (3) EFFECTIVE DATE.—The amendments made

17 by this subsection shall apply to taxable years end18 ing after June 30, 1992.

19 (b) DETERMINATION OF ELIGIBILITY FOR EM20 PLOYER-SPONSORED HEALTH PLAN.—

21 (1) IN GENERAL.—Paragraph (2)(B) of section

22 162(l) is amended to read as follows:

23 ‘‘(B) OTHER COVERAGE.—Paragraph (1)

24 shall not apply to any taxpayer for any calendar

25 month for which the taxpayer is eligible to
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1 particpate in any subsidized health plan main2 tained by any employer of the taxpayer or of

3 the spouse of the taxpayer.’’

4 (2) EFFECTIVE DATE.—The amendment made

5 by paragraph (1) shall apply to taxable years begin6 ning after December 31, 1992.

7 TITLE II—REVENUE INCREASES

8 Subtitle A—Provisions Affecting

9 Individuals

10 PART I—RATE INCREASES

11 SEC. 2101. INCREASE IN TOP MARGINAL RATE UNDER SEC12 TION 1.

13 (a) GENERAL RULE.—Section 1 (relating to tax im14 posed) is amended by striking subsections (a) through (e)

15 and inserting the following:

16 ‘‘(a) MARRIED INDIVIDUALS FILING JOINT RETURNS

17 AND SURVIVING SPOUSES.—There is hereby imposed on

18 the taxable income of—

19 ‘‘(1) every married individual (as defined in sec20 tion 7703) who makes a single return jointly with

21 his spouse under section 6013, and

22 ‘‘(2) every surviving spouse (as defined in sec23 tion 2(a)),

24 a tax determined in accordance with the following table:

‘‘If taxable income is: The tax is:

Not over $36,900 .......................... 15% of taxable income.
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‘‘If taxable income is: The tax is:

Over $36,900 but not over

$89,150.

$5,535, plus 28% of the excess over

$36,900.

Over $89,150 but not over

$140,000.

$20,165, plus 31% of the excess over

$89,150.

Over $140,000 ............................... $35,928.50, plus 36% of the excess

over $140,000.

1 ‘‘(b) HEADS OF HOUSEHOLDS.—There is hereby im2 posed on the taxable income of every head of a household

3 (as defined in section 2(b)) a tax determined in accordance

4 with the following table:

‘‘If taxable income is: The tax is:

Not over $29,600 .......................... 15% of taxable income.

Over $29,600 but not over

$76,400.

$4,440, plus 28% of the excess over

$29,600.

Over $76,400 but not over

$127,500.

$17,544, plus 31% of the excess over

$76,400.

Over $127,500 ............................... $33,385, plus 36% of the excess over

$127,500.

5 ‘‘(c) UNMARRIED INDIVIDUALS (OTHER THAN SUR6 VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—There

7 is hereby imposed on the taxable income of every individ8 ual (other than a surviving spouse as defined in section

9 2(a) or the head of a household as defined in section 2(b))

10 who is not a married individual (as defined in section

11 7703) a tax determined in accordance with the following

12 table:

‘‘If taxable income is: The tax is:

Not over $22,100 .......................... 15% of taxable income.

Over $22,100 but not over

$53,500.

$3,315, plus 28% of the excess over

$22,100.

Over $53,500 but not over

$115,000.

$12,107, plus 31% of the excess over

$53,500.

Over $115,000 ............................... $31,172, plus 36% of the excess over

$115,000.

13 ‘‘(d) MARRIED INDIVIDUALS FILING SEPARATE RE14 TURNS.—There is hereby imposed on the taxable income
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1 of every married individual (as defined in section 7703)

2 who does not make a single return jointly with his spouse

3 under section 6013, a tax determined in accordance with

4 the following table:

‘‘If taxable income is: The tax is:

Not over $18,450 .......................... 15% of taxable income.

Over $18,450 but not over

$44,575.

$2,767.50, plus 28% of the excess

over $18,450.

Over $44,575 but not over

$70,000.

$10,082.50, plus 31% of the excess

over $44,575.

Over $70,000 ................................. $17,964.25, plus 36% of the excess

over $70,000.

5 ‘‘(e) ESTATES AND TRUSTS.—There is hereby im6 posed on the taxable income of—

7 ‘‘(1) every estate, and

8 ‘‘(2) every trust,

9 taxable under this subsection a tax determined in accord10 ance with the following table:

‘‘If taxable income is: The tax is:

Not over $1,500 ............................ 15% of taxable income.

Over $1,500 but not over $3,500 .. $225, plus 28% of the excess over

$1,500.

Over $3,500 but not over $5,500 .. $785, plus 31% of the excess over

$3,500.

Over $5,500 ................................... $1,405, plus 36% of the excess over

$5,500.’’

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 531 is amended by striking ‘‘28

13 percent’’ and inserting ‘‘36 percent’’.

14 (2) Section 541 is amended by striking ‘‘28

15 percent’’ and inserting ‘‘36 percent’’.

16 (3)(A) Subsection (f) of section 1 is amended—
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1 (i) by striking ‘‘1990’’ in paragraph (1)

2 and inserting ‘‘1993’’, and

3 (ii) by striking ‘‘1989’’ in paragraph

4 (3)(B) and inserting ‘‘1992’’.

5 (B) Subparagraph (C) of section 41(e)(5) is

6 amended by striking ‘‘1989’’ each place it appears

7 and inserting ‘‘1992’’.

8 (C) Subparagraph (B) of section 63(c)(4) is

9 amended by striking ‘‘1989’’ and inserting ‘‘1992’’.

10 (D) Subparagraph (B) of section 68(b)(2) is

11 amended by striking ‘‘1989’’ and inserting ‘‘1992’’.

12 (E) Subparagraph (B) of section 132(f)(6) is

13 amended by striking ‘‘, determined by substituting’’

14 and all that follows down through the period at the

15 end thereof and inserting a period.

16 (F) Subparagraphs (A)(ii) and (B)(ii) of section

17 151(d)(4) are each amended by striking ‘‘1989’’ and

18 inserting ‘‘1992’’.

19 (G) Clause (ii) of section 513(h)(2)(C) is

20 amended by striking ‘‘1989’’ and inserting ‘‘1992’’.

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

22 this section shall apply to taxable years beginning after

23 December 31, 1992.

24 SEC. 2102. SURTAX ON HIGH-INCOME TAXPAYERS.

25 (a) GENERAL RULE.—
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1 (1) Subsection (a) of section 1 (as amended by

2 section 2101) is amended by striking the last item

3 in the table contained therein and inserting the

4 following:

Over $140,000 but not over

$250,000.

$35,928.50, plus 36% of the excess

over $140,000.

Over $250,000 ............................... $75,528.50, plus 39.6% of the excess

over $250,000.’’

5 (2) Subsection (b) of section 1 (as so amended)

6 is amended by striking the last item in the table

7 contained therein and inserting the following:

Over $127,500 but not over

$250,000.

$33,385, plus 36% of the excess over

$127,500.

Over $250,000 ............................... $77,485, plus 39.6% of the excess

over $250,000.’’

8 (3) Subsection (c) of section 1 (as so amended)

9 is amended by striking the last item in the table

10 contained therein and inserting the following:

Over $115,000 but not over

$250,000.

$31,172, plus 36% of the excess over

$115,000.

Over $250,000 ............................... $79,772, plus 39.6% of the excess

over $250,000.’’

11 (4) Subsection (d) of section 1 (as so amended)

12 is amended by striking the last item in the table

13 contained therein and inserting the following:

Over $70,000 but not over

$125,000.

$17,964.25, plus 36% of the excess

over $70,000.

Over $125,000 ............................... $37,764.25, plus 39.6% of the excess

over $125,000.’’

14 (5) Subsection (e) of section 1 (as so amended)

15 is amended by striking the last item in the table

16 contained therein and inserting the following:
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Over $5,500 but not over $7,500 .. $1,405, plus 36% of the excess over

$5,500.

Over $7,500 ................................... $2,125, plus 39.6% of the excess over

$7,500.’’

1 (b) TECHNICAL AMENDMENT.—Sections 531 and

2 541 (as amended by section 2101) are each amended by

3 striking ‘‘36 percent’’ and inserting ‘‘39.6 percent’’.

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

5 this section shall apply to taxable years beginning after

6 December 31, 1992.

7 SEC. 2103. MODIFICATIONS TO ALTERNATIVE MINIMUM

8 TAX RATES AND EXEMPTION AMOUNTS.

9 (a) INCREASE IN RATE.—Paragraph (1) of section

10 55(b) (defining tentative minimum tax) is amended to

11 read as follows:

12 ‘‘(1) AMOUNT OF TENTATIVE TAX.—

13 ‘‘(A) NONCORPORATE TAXPAYERS.—

14 ‘‘(i) IN GENERAL.—In the case of a

15 taxpayer other than a corporation, the ten16 tative minimum tax for the taxable year is

17 the sum of—

18 ‘‘(I) 26 percent of so much of the

19 taxable excess as does not exceed

20 $175,000, plus

21 ‘‘(II) 28 percent of so much of

22 the taxable excess as exceeds

23 $175,000.
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1 The amount determined under the preced2 ing sentence shall be reduced by the alter3 native minimum tax foreign tax credit for

4 the taxable year.

5 ‘‘(ii) TAXABLE EXCESS.—For pur6 poses of clause (i), the term ‘taxable ex7 cess’ means so much of the alternative

8 minimum taxable income for the taxable

9 year as exceeds the exemption amount.

10 ‘‘(iii) MARRIED INDIVIDUAL FILING

11 SEPARATE RETURN.—In the case of a mar12 ried individual filing a separate return,

13 clause (i) shall be applied by substituting

14 ‘$87,500’ for ‘$175,000’ each place it ap15 pears. For purposes of the preceding sen16 tence, marital status shall be determined

17 under section 7703.

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

19 corporation, the tentative minimum tax for the

20 taxable year is—

21 ‘‘(i) 20 percent of so much of the al22 ternative minimum taxable income for the

23 taxable year as exceeds the exemption

24 amount, reduced by
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1 ‘‘(ii) the alternative minimum tax for2 eign tax credit for the taxable year.’’

3 (b) INCREASE IN EXEMPTION AMOUNTS.—Para4 graph (1) of section 55(d) (defining exemption amount)

5 is amended—

6 (1) by striking ‘‘$40,000’’ in subparagraph (A)

7 and inserting ‘‘$45,000’’,

8 (2) by striking ‘‘$30,000’’ in subparagraph (B)

9 and inserting ‘‘$33,750’’, and

10 (3) by striking ‘‘$20,000’’ in subparagraph (C)

11 and inserting ‘‘$22,500’’.

12 (c) CONFORMING AMENDMENTS.—

13 (1) The last sentence of section 55(d)(3) is

14 amended by striking ‘‘$155,000 or (ii) $20,000’’ and

15 inserting ‘‘$165,000 or (ii) $22,500’’.

16 (2)(A) Subparagraph (A) of section 897(a)(2)

17 is amended by striking ‘‘the amount determined

18 under section 55(b)(1)(A) shall not be less than 21

19 percent of’’ and inserting ‘‘the taxable excess for

20 purposes of section 55(b)(1)(A) shall not be less

21 than’’.

22 (B) The heading for paragraph (2) of section

23 897(a) is amended by striking ‘‘21-PERCENT’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1992.

4 SEC. 2104. OVERALL LIMITATION ON ITEMIZED DEDUC5 TIONS FOR HIGH-INCOME TAXPAYERS MADE

6 PERMANENT.

7 Subsection (f) of section 68 (relating to overall limita8 tion on itemized deductions) is hereby repealed.

9 SEC. 2105. PHASEOUT OF PERSONAL EXEMPTION OF HIGH10 INCOME TAXPAYERS MADE PERMANENT.

11 Section 151(d)(3) (relating to phaseout of personal

12 exemption) is amended by striking subparagraph (E).

13 SEC. 2106. PROVISIONS TO PREVENT CONVERSION OF OR14 DINARY INCOME TO CAPITAL GAIN.

15 (a) INTEREST EMBEDDED IN FINANCIAL TRANS16 ACTIONS.—

17 (1) IN GENERAL.—Part IV of subchapter P of

18 chapter 1 (relating to special rules for determining

19 capital gains and losses) is amended by adding at

20 the end thereof the following new section:

21 ‘‘SEC. 1258. RECHARACTERIZATION OF GAIN FROM CER22 TAIN FINANCIAL TRANSACTIONS.

23 ‘‘(a) GENERAL RULE.—In the case of any gain—
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1 ‘‘(1) which (but for this section) would be treat2 ed as gain from the sale or exchange of a capital

3 asset, and

4 ‘‘(2) which is recognized on the disposition of

5 any property which was held as part of a conversion

6 transaction,

7 such gain (to the extent such gain does not exceed the

8 applicable imputed income amount) shall be treated as

9 ordinary income.

10 ‘‘(b) APPLICABLE IMPUTED INCOME AMOUNT.—For

11 purposes of subsection (a), the term ‘applicable imputed

12 income amount’ means, with respect to any disposition re13 ferred to in subsection (a), an amount equal to—

14 ‘‘(1) the amount of interest which would have

15 accrued on the taxpayer’s net investment in the con16 version transaction for the period ending on the date

17 of such disposition (or, if earlier, the date on which

18 the requirements of subsection (c) ceased to be satis19 fied) at a rate equal to 120 percent of the applicable

20 rate, reduced by

21 ‘‘(2) the amount treated as ordinary income

22 under subsection (a) with respect to any prior dis23 position of property which was held as a part of

24 such transaction.
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1 ‘‘(c) CONVERSION TRANSACTION.—For purposes of

2 this section, the term ‘conversion transaction’ means any

3 of the following where substantially all of the taxpayer’s

4 expected net return from the transaction is attributable

5 to the time value of the taxpayer’s net investment in such

6 transaction:

7 ‘‘(1) The holding of any property (whether or

8 not actively traded), and the entering into a contract

9 to sell such property (or substantially identical prop10 erty) at a price determined in accordance with such

11 contract, but only if such property was acquired and

12 such contract was entered into on a substantially

13 contemporaneous basis.

14 ‘‘(2) Any applicable straddle.

15 ‘‘(3) Any other transaction which is marketed

16 or sold as producing capital gains.

17 ‘‘(4) Any other transaction specified in regula18 tions prescribed by the Secretary.

19 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur20 poses of this section—

21 ‘‘(1) APPLICABLE STRADDLE.—The term ‘appli22 cable straddle’ means any straddle (within the mean23 ing of section 1092(c)); except that—

24 ‘‘(A) the term ‘personal property’ shall in25 clude stock, and
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1 ‘‘(B) paragraph (4) of section 1092(c)

2 shall not apply.

3 ‘‘(2) APPLICABLE RATE.—The term ‘applicable

4 Federal rate’ means—

5 ‘‘(A) the applicable Federal rate deter6 mined under section 1274(d) (compounded

7 semiannually) as if the conversion transaction

8 were a debt instrument, or

9 ‘‘(B) if the term of the conversion trans10 action is indefinite, the Federal short-term

11 rates in effect under section 6621(b) during the

12 period of the conversion transaction

13 (compounded daily).

14 ‘‘(3) TREATMENT OF PROPERTY WITH BUILT-IN

15 LOSS.—

16 ‘‘(A) IN GENERAL.—If any property with a

17 built-in loss becomes part of a conversion trans18 action—

19 ‘‘(i) for purposes of applying this sub20 title to such property for periods after such

21 property becomes part of such transaction,

22 the adjusted basis of such property shall be

23 its fair market value as of the time it be24 came part of such transaction, except that
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1 ‘‘(ii) upon the disposition of such

2 property in a transaction in which gain or

3 loss is recognized, such built-in loss shall

4 be recognized and shall have a character

5 determined without regard to this section.

6 ‘‘(B) BUILT-IN LOSS.—For purposes of

7 subparagraph (A), the term ‘built-in loss’

8 means the excess (if any) of the adjusted basis

9 of any property over its fair market value.

10 ‘‘(4) PROPERTY TAKEN INTO ACCOUNT AT FAIR

11 MARKET VALUE.—In determining the taxpayer’s net

12 investment in any conversion transaction, there shall

13 be included the fair market value of any property

14 which becomes part of such transaction (determined

15 as of the date on which such property became part

16 of such transaction).’’

17 (2) CLERICAL AMENDMENT.—The table of sec18 tions for part IV of subchapter P of chapter 1 is

19 amended by adding at the end thereof the following

20 new item:

‘‘Sec. 1258. Recharacterization of gain from certain financial

transactions.’’

21 (3) EFFECTIVE DATE.—The amendments made

22 by this section shall apply to conversion transactions

23 entered into after April 30, 1993.
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1 (b) REPEAL OF CERTAIN EXCEPTIONS TO MARKET

2 DISCOUNT RULES.—

3 (1) MARKET DISCOUNT BONDS ISSUED ON OR

4 BEFORE JULY 18, 1984.—The following provisions

5 are hereby repealed:

6 (A) Section 1276(e).

7 (B) Section 1277(d).

8 (2) TAX-EXEMPT OBLIGATIONS.—

9 (A) IN GENERAL.—Paragraph (1) of sec10 tion 1278(a) (defining market discount bond) is

11 amended—

12 (i) by striking clause (ii) of subpara13 graph (B) and redesignating subclauses

14 (iii) and (iv) of such subparagraph as

15 clauses (ii) and (iii), respectively,

16 (ii) by redesignating subparagraph

17 (C) as subparagraph (D), and

18 (iii) by inserting after subparagraph

19 (B) the following new subparagraph:

20 ‘‘(C) SECTION 1277 NOT APPLICABLE TO

21 TAX-EXEMPT OBLIGATIONS.—For purposes of

22 section 1277, the term ‘market discount bond’

23 shall not include any tax-exempt obligation (as

24 defined in section 1275(a)(3)).’’
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1 (B) CONFORMING AMENDMENT.—Sections

2 1276(a)(4) and 1278(b)(1) are each amended

3 by striking ‘‘sections 871(a)’’ and inserting

4 ‘‘sections 103, 871(a),’’.

5 (3) EFFECTIVE DATE.—The amendments made

6 by this section shall apply to obligations purchased

7 (within the meaning of section 1272(d)(1) of the In8 ternal Revenue Code of 1986) after April 30, 1993.

9 (c) TREATMENT OF STRIPPED PREFERRED

10 STOCK.—

11 (1) IN GENERAL.—Section 305 is amended by

12 redesignating subsection (e) as subsection (f) and by

13 inserting after subsection (d) the following new sub14 section:

15 ‘‘(e) TREATMENT OF PURCHASER OF STRIPPED PRE16 FERRED STOCK.—

17 ‘‘(1) IN GENERAL.—If any person purchases

18 after April 30, 1993 any stripped preferred stock,

19 then such person, while holding such stock, shall in20 clude in gross income amounts equal to the amounts

21 which would have been so includible if such stripped

22 preferred stock were a bond issued on the purchase

23 date and having original issue discount equal to the

24 excess, if any, of—
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1 ‘‘(A) the redemption price for such stock,

2 over

3 ‘‘(B) the price at which such person pur4 chased such stock.

5 The preceding sentence shall also apply in the case

6 of any person whose basis in such stock is deter7 mined by reference to the basis in the hands of such

8 purchaser.

9 ‘‘(2) BASIS ADJUSTMENTS.—Appropriate ad10 justments to basis shall be made for amounts includ11 ible in gross income under paragraph (1).

12 ‘‘(3) TAX TREATMENT OF PERSON STRIPPING

13 STOCK.—If any person strips the rights to 1 or more

14 dividends from any stock described in paragraph

15 (5)(B) and after April 30, 1993 disposes of such

16 dividend rights, for purposes of paragraph (1), such

17 person shall be treated as having purchased the

18 stripped preferred stock on the date of such disposi19 tion for a purchase price equal to such person’s ad20 justed basis in such stripped preferred stock.

21 ‘‘(4) AMOUNTS TREATED AS ORDINARY IN22 COME.—Any amount included in gross income under

23 paragraph (1) shall be treated as ordinary income.

24 ‘‘(5) STRIPPED PREFERRED STOCK.—For pur25 poses of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘stripped

2 preferred stock’ means any stock described in

3 subparagraph (B) if there has been a separa4 tion in ownership between such stock and any

5 dividend on such stock which has not become

6 payable.

7 ‘‘(B) DESCRIPTION OF STOCK.—Stock is

8 described in this subsection if such stock—

9 ‘‘(i) is limited and preferred as to

10 dividends and does not participate in cor11 porate growth to any significant extent,

12 and

13 ‘‘(ii) has a fixed redemption price.

14 ‘‘(6) PURCHASE.—For purposes of this sub15 section, the term ‘purchase’ means—

16 ‘‘(A) any acquisition of stock, where

17 ‘‘(B) the basis of such stock is not deter18 mined in whole or in part by the reference to

19 the adjusted basis of such stock in the hands of

20 the person from whom acquired.’’

21 (2) COORDINATION WITH SECTION 167(e).—

22 Paragraph (2) of section 167(e) is amended to read

23 as follows:

24 ‘‘(2) COORDINATION WITH OTHER PROVI25 SIONS.—
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1 ‘‘(A) SECTION 273.—This subsection shall

2 not apply to any term interest to which section

3 273 applies.

4 ‘‘(B) SECTION 305(e).—This subsection

5 shall not apply to the holder of the dividend

6 rights which were separated from any stripped

7 preferred stock to which section 305(e)(1) ap8 plies.’’

9 (3) EFFECTIVE DATE.—The amendments made

10 by this subsection shall take effect on April 30,

11 1993.

12 (d) TREATMENT OF CAPITAL GAIN UNDER LIMITA13 TION ON INVESTMENT INTEREST.—

14 (1) IN GENERAL.—Subparagraph (B) of section

15 163(d)(4) (defining investment income) is amended

16 to read as follows:

17 ‘‘(B) INVESTMENT INCOME.—The term

18 ‘investment income’ means the sum of—

19 ‘‘(i) gross income from property held

20 for investment (other than any gain taken

21 into account under clause (ii)(I)),

22 ‘‘(ii) the excess (if any) of—

23 ‘‘(I) the net gain attributable to

24 the disposition of property held for in25 vestment, over
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1 ‘‘(II) the net capital gain deter2 mined by only taking into account

3 gains and losses from dispositions of

4 property held for investment, plus

5 ‘‘(iii) so much of the net capital gain

6 referred to in clause (ii)(II) (or, if lesser,

7 the net gain referred to in clause (ii)(I)) as

8 the taxpayer elects to take into account

9 under this clause.’’

10 (2) COORDINATION WITH SPECIAL CAPITAL

11 GAINS RATE.—Subsection (h) of section 1 is amend12 ed by adding at the end thereof the following new

13 sentence:

14 ‘‘For purposes of the preceding sentence, the net capital

15 gain for any taxable year shall be reduced (but not below

16 zero) by the amount which the taxpayer elects to take into

17 account as investment income for the taxable year under

18 section 163(d)(4)(B)(iii).’’

19 (3) EFFECTIVE DATE.—The amendments made

20 by this subsection shall apply to taxable years begin21 ning after December 31, 1992.

22 (e) TREATMENT OF CERTAIN APPRECIATED INVEN23 TORY.—

24 (1) Paragraph (1) of section 751(d) is amended

25 to read as follows:
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1 ‘‘(1) SUBSTANTIAL APPRECIATION.—

2 ‘‘(A) IN GENERAL.—Inventory items of the

3 partnership shall be considered to have appre4 ciated substantially in income if their fair mar5 ket value exceeds 120 percent of the adjusted

6 basis to the partnership of such property.

7 ‘‘(B) CERTAIN PROPERTY EXCLUDED.—

8 For purposes of subparagraph (A), there shall

9 be excluded any inventory property if a prin10 cipal purpose for acquiring such property was

11 to avoid the provisions of this section relating

12 to inventory items.’’

13 (2) EFFECTIVE DATE.—The amendment made

14 by paragraph (1) shall apply to sales, exchanges,

15 and distributions after April 30, 1993.

16 PART II—OTHER PROVISIONS

17 SEC. 2111. REPEAL OF LIMITATION ON AMOUNT OF WAGES

18 SUBJECT TO HEALTH INSURANCE EMPLOY19 MENT TAX.

20 (a) HOSPITAL INSURANCE TAX.—

21 (1) Paragraph (1) of section 3121(a) (defining

22 wages) is amended—

23 (A) by inserting ‘‘in the case of the taxes

24 imposed by sections 3101(a) and 3111(a)’’ after

25 ‘‘(1)’’,
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1 (B) by striking ‘‘applicable contribution

2 base (as determined under subsection (x))’’

3 each place it appears and inserting ‘‘contribu4 tion and benefit base (as determined under sec5 tion 230 of the Social Security Act)’’, and

6 (C) by striking ‘‘such applicable contribu7 tion base’’ and inserting ‘‘such contribution and

8 benefit base’’.

9 (2) Section 3121 is amended by striking sub10 section (x).

11 (b) SELF-EMPLOYMENT TAX.—

12 (1) Subsection (b) of section 1402 is amend13 ed—

14 (A) by striking ‘‘that part of the net’’ in

15 paragraph (1) and inserting ‘‘in the case of the

16 tax imposed by section 1401(a), that part of

17 the net’’,

18 (B) by striking ‘‘applicable contribution

19 base (as determined under subsection (k))’’ in

20 paragraph (1) and inserting ‘‘contribution and

21 benefit base (as determined under section 230

22 of the Social Security Act)’’,

23 (C) by inserting ‘‘and’’ after ‘‘section

24 3121(b),’’, and
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1 (D) by striking ‘‘and (C) includes’’ and all

2 that follows through ‘‘3111(b)’’.

3 (2) Section 1402 is amended by striking sub4 section (k).

5 (c) RAILROAD RETIREMENT TAX.—

6 (1) Subparagraph (A) of section 3231(e)(2) is

7 amended by adding at the end thereof the following

8 new clause:

9 ‘‘(iii) HOSPITAL INSURANCE TAXES.—

10 Clause (i) shall not apply to—

11 ‘‘(I) so much of the rate applica12 ble under section 3201(a) or 3221(a)

13 as does not exceed the rate of tax in

14 effect under section 3101(b), and

15 ‘‘(II) so much of the rate applica16 ble under section 3211(a)(1) as does

17 not exceed the rate of tax in effect

18 under section 1402(b).’’

19 (2) Clause (i) of section 3231(e)(2)(B) is

20 amended to read as follows:

21 ‘‘(i) TIER 1 TAXES.—Except as pro22 vided in clause (ii), the term ‘applicable

23 base’ means for any calendar year the con24 tribution and benefit base determined
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1 under section 230 of the Social Security

2 Act for such calendar year.’’

3 (d) TECHNICAL AMENDMENTS.—

4 (1) Paragraph (1) of section 6413(c) is amend5 ed by striking ‘‘section 3101 or section 3201’’ and

6 inserting ‘‘section 3101(a) or section 3201(a) (to the

7 extent the rate applicable under section 3201(a) as

8 does not exceed the rate of tax in effect under sec9 tion 3101(a))’’.

10 (2) Subparagraphs (B) and (C) of section

11 6413(c)(2) are each amended by striking ‘‘section

12 3101’’ each place it appears and inserting ‘‘section

13 3101(a)’’.

14 (3) Subsection (c) of section 6413 is amended

15 by striking paragraph (3).

16 (4) Sections 3122 and 3125 of such Code are

17 each amended by striking ‘‘applicable contribution

18 base limitation’’ and inserting ‘‘contribution and

19 benefit base limitation’’.

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

21 this section shall apply to 1994 and later calendar years.
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1 SEC. 2112. TOP ESTATE AND GIFT TAX RATES MADE PERMA2 NENT.

3 (a) GENERAL RULE.—The table contained in para4 graph (1) of section 2001(c) is amended by striking the

5 last item and inserting the following new items:

‘‘Over $2,500,000 but not over

$3,000,000.

$1,025,800, plus 53% of the excess

over $2,500,000.

Over $3,000,000 ............................ $1,290,800, plus 55% of the excess

over $3,000,000.’’

6 (b) CONFORMING AMENDMENTS.—

7 (1) Subsection (c) of section 2001 is amended

8 by striking paragraph (2) and by redesignating

9 paragraph (3) as paragraph (2).

10 (2) Paragraph (2) of section 2001(c), as redes11 ignated by paragraph (1), is amended by striking

12 ‘‘($18,340,000 in the case of decedents dying, and

13 gifts made, after 1992)’’.

14 (3) The last sentence of section 2101(b) is

15 amended by striking ‘‘section 2001(c)(3)’’ and in16 serting ‘‘section 2001(c)(2)’’.

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

18 this section shall apply in the case of decedents dying, and

19 gifts made, after December 31, 1992.

20 SEC. 2113. REDUCTION IN DEDUCTIBLE PORTION OF BUSI21 NESS MEALS AND ENTERTAINMENT.

22 (a) GENERAL RULE.—Paragraph (1) of section

23 274(n) (relating to only 80 percent of meal and entertain-
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1 ment expenses allowed as deduction) is amended by strik2 ing ‘‘80 percent’’ and inserting ‘‘50 percent’’.

3 (b) CONFORMING AMENDMENT.—The subsection

4 heading for section 274(n) is amended by striking ‘‘80’’

5 and inserting ‘‘50’’.

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

7 this section shall apply to taxable years beginning after

8 December 31, 1993.

9 SEC. 2114. ELIMINATION OF DEDUCTION FOR CLUB MEM10 BERSHIP FEES.

11 (a) IN GENERAL.—Subsection (a) of section 274 (re12 lating to disallowance of certain entertainment, etc., ex13 penses) is amended by adding at the end thereof the

14 following new paragraph:

15 ‘‘(3) DENIAL OF DEDUCTION FOR CLUB

16 DUES.—Notwithstanding the preceding provisions of

17 this subsection, no deduction shall be allowed under

18 this chapter for amounts paid or incurred for mem19 bership in any club organized for business, pleasure,

20 recreation, or other social purpose.

21 (b) EXCEPTION FOR EMPLOYEE RECREATIONAL EX22 PENSES NOT TO APPLY.—Paragraph (4) of section

23 274(e) is amended by adding at the end thereof the follow24 ing: ‘‘This paragraph shall not apply for purposes of sub25 section (a)(3).’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to amounts paid or incurred after

3 December 31, 1993.

4 SEC. 2115. DISALLOWANCE OF DEDUCTION FOR CERTAIN

5 EMPLOYEE REMUNERATION IN EXCESS OF

6 $1,000,000.

7 (a) GENERAL RULE.—Section 162 (relating to trade

8 or business expenses) is amended by redesignating sub9 section (m) as subsection (n) and by inserting after sub10 section (l) the following new subsection:

11 ‘‘(m) CERTAIN EXCESSIVE EMPLOYEE REMUNERA12 TION.—

13 ‘‘(1) IN GENERAL.—In the case of any publicly

14 held corporation, no deduction shall be allowed

15 under this chapter for applicable employee remu16 neration with respect to any covered employee to the

17 extent that the amount of such remuneration for the

18 taxable year with respect to such employee exceeds

19 $1,000,000.

20 ‘‘(2) PUBLICLY HELD CORPORATION.—For pur21 poses of this subsection, the term ‘publicly held cor22 poration’ means any corporation issuing any class of

23 common equity securities required to be registered

24 under section 12 of the Securities Exchange Act of

25 1934.
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1 ‘‘(3) COVERED EMPLOYEE.—For purposes of

2 this subsection, the term ‘covered employee’ means

3 any employee of the taxpayer if—

4 ‘‘(A) as of the close of the taxable year,

5 such employee is the chief executive officer of

6 the taxpayer or an individual acting in such a

7 capacity, or

8 ‘‘(B) the total compensation for the tax9 able year of such employee is required to be re10 ported to shareholders under the Securities Ex11 change Act of 1934 by reason of such employee

12 being among the 4 highest compensated officers

13 for the taxable year (other than the chief execu14 tive officer).

15 ‘‘(4) APPLICABLE EMPLOYEE REMUNERA16 TION.—For purposes of this subsection—

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

18 provided in this paragraph, the term ‘applicable

19 employee remuneration’ means, with respect to

20 any covered employee for any taxable year, the

21 aggregate amount allowable as a deduction

22 under this chapter for such taxable year (deter23 mined without regard to this subsection) for re24 muneration for services performed by such em25 ployee (whether or not during the taxable year).
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1 ‘‘(B) EXCEPTION FOR REMUNERATION

2 PAYABLE ON COMMISSION BASIS.—The term

3 ‘applicable employee remuneration’ shall not in4 clude any remuneration payable on a commis5 sion basis solely on account of income generated

6 directly by the individual performance of the in7 dividual to whom such remuneration is payable.

8 ‘‘(C) OTHER PERFORMANCE-BASED COM9 PENSATION.—The term ‘applicable employee re10 muneration’ shall not include any remuneration

11 payable solely on account of the attainment of

12 one or more performance goals but only if—

13 ‘‘(i) the performance goals are deter14 mined by a compensation committee of the

15 board of directors of the taxpayer which is

16 comprised solely of 2 or more independent

17 directors,

18 ‘‘(ii) the material terms under which

19 the remuneration is to be paid, including

20 the performance goals, are disclosed to

21 shareholders and approved by a majority of

22 the vote in a separate shareholder vote be23 fore the payment of such remuneration,

24 and
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1 ‘‘(iii) before any payment of such re2 muneration, the compensation committee

3 referred to in clause (i) certifies that the

4 performance goals and any other material

5 terms were in fact satisfied.

6 ‘‘(D) EXCEPTION FOR EXISTING BINDING

7 CONTRACTS.—The term ‘applicable employee

8 remuneration’ shall not include any remunera9 tion payable under a written binding contract

10 which was in effect on February 17, 1993, and

11 which was not modified thereafter in any mate12 rial respect before such remuneration is paid.

13 ‘‘(E) REMUNERATION.—For purposes of

14 this paragraph, the term ‘remuneration’ in15 cludes any remuneration (including benefits) in

16 any medium other than cash, but shall not in17 clude—

18 ‘‘(i) any payment referred to in so

19 much of section 3121(a)(5) as precedes

20 subparagraph (E) thereof, and

21 ‘‘(ii) any benefit provided to or on be22 half of an employee if at the time such

23 benefit is provided it is reasonable to be24 lieve that the employee will be able to ex-
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1 clude such benefit from gross income

2 under this chapter.

3 For purposes of clause (i), section 3121(a)(5)

4 shall be applied without regard to section

5 3121(v)(1).

6 ‘‘(F) COORDINATION WITH DISALLOWED

7 GOLDEN PARACHUTE PAYMENTS.—The dollar

8 limitation contained in paragraph (1) shall be

9 reduced (but not below zero) by the amount (if

10 any) which would have been included in the ap11 plicable employee remuneration of the covered

12 employee for the taxable year but for being dis13 allowed under section 280G.’’

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

15 subsection (a) shall apply to amounts which would other16 wise be deductible for taxable years beginning on or after

17 January 1, 1994.

18 SEC. 2116. REDUCTION IN COMPENSATION TAKEN INTO AC19 COUNT IN DETERMINING CONTRIBUTIONS

20 AND BENEFITS UNDER QUALIFIED RETIRE21 MENT PLANS.

22 (a) IN GENERAL.—Sections 401(a)(17), 404(l), and

23 505(b)(7) are each amended—

24 (1) by striking ‘‘$200,000’’ in the first sentence

25 and inserting ‘‘$150,000’’, and
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1 (2) by striking the second sentence and insert2 ing ‘‘In the case of years beginning after 1994, the

3 Secretary shall adjust the $150,000 amount at the

4 same time and in the same manner as under section

5 415(d), except that the base period for purposes of

6 section 415(d)(1)(A) shall be the calendar quarter

7 beginning October 1, 1994.’’

8 (b) SIMPLIFIED EMPLOYEE PENSIONS.—

9 (1) IN GENERAL.—Paragraphs (3)(C) and

10 (6)(D)(ii) of section 408(k) are each amended by

11 striking ‘‘$200,000’’ and inserting ‘‘$150,000’’.

12 (2) COST-OF-LIVING.—Paragraph (8) of section

13 408(k) is amended to read as follows:

14 ‘‘(8) COST-OF-LIVING ADJUSTMENT.—The Sec15 retary shall adjust the $300 amount in paragraph

16 (2)(C) at the same time and in the same manner as

17 under section 415(d) and shall adjust the $150,000

18 amount in paragraphs (3)(C) and (6)(D)(ii) at the

19 same time and by the same amount as the adjust20 ment to the $150,000 amount in section

21 401(a)(17).’’

22 (c) CONFORMING AMENDMENT.—The heading for

23 section 505(b)(7) is amended by striking ‘‘$200,000’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to benefits accruing in plan years

3 beginning after December 31, 1993.

4 SEC. 2117. MODIFICATION TO DEDUCTION FOR CERTAIN

5 MOVING EXPENSES.

6 (a) REPEAL OF DEDUCTION FOR QUALIFIED RESI7 DENCE SALE, ETC., EXPENSES.—

8 (1) IN GENERAL.—Paragraph (1) of section

9 217(b) (defining moving expenses) is amended by in10 serting ‘‘or’’ at the end of subparagraph (C), by

11 striking ‘‘, or’’ at the end of subparagraph (D) and

12 inserting a period, and by striking

13 subparagraph (E).

14 (2) CONFORMING AMENDMENTS.—

15 (A) Subsection (b) of section 217 is

16 amended by striking paragraph (2) and redesig17 nating paragraph (3) as paragraph (2).

18 (B) Paragraph (2) of section 217(b) (as

19 redesignated by subparagraph (A)) is amend20 ed—

21 (i) by striking the last sentence of

22 subparagraph (A), and

23 (ii) by striking ‘‘, and by’’ in subpara24 graph (B) and all that follows down
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1 through the period at the end of subpara2 graph (B) and inserting a period.

3 (C) Paragraph (1) of section 217(h) is

4 amended by striking subparagraphs (B) and

5 (C) and inserting the following:

6 ‘‘(B) subsection (b)(2)(A) shall be applied

7 by substituting ‘$4,500’ for ‘$1,500’, and

8 ‘‘(C) subsection (b)(2)(B) shall be applied

9 as if the last sentence of such subsection read

10 as follows: ‘In the case of a husband and wife

11 filing separate returns, subparagraph (A) shall

12 be applied by substituting ‘‘$2,250’’ for

13 ‘‘$4,500’’.’ ’’

14 (D) Section 217 is amended by striking

15 subsection (e).

16 (b) DEDUCTION DISALLOWED FOR MEAL EX17 PENSES.—Paragraph (1) of section 217(b) is amended—

18 (1) by striking ‘‘meals and lodging’’ in subpara19 graphs (B), (C) and (D) and inserting ‘‘lodging’’,

20 and

21 (2) by adding at the end thereof the following

22 new sentence:

23 ‘‘Such term shall not include any expenses for

24 meals.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to expenses incurred after Decem3 ber 31, 1993.

4 Subtitle B—Provisions Affecting

5 Businesses

6 SEC. 2201. INCREASE IN TOP MARGINAL RATE UNDER SEC7 TION 11.

8 (a) GENERAL RULE.—Paragraph (1) of section 11(b)

9 (relating to amount of tax) is amended—

10 (1) by striking ‘‘and’’ at the end of subpara11 graph (B),

12 (2) by striking subparagraph (C) and inserting

13 the following:

14 ‘‘(C) 34 percent of so much of the taxable

15 income as exceeds $75,000 but does not exceed

16 $10,000,000, and

17 ‘‘(D) 36 percent of so much of the taxable

18 income as exceeds $10,000,000.’’, and

19 (3) by adding at the end thereof the following

20 new sentence: ‘‘In the case of a corporation which

21 has taxable income in excess of $15,000,000, the

22 amount of the tax determined under the foregoing

23 provisions of this paragraph shall be increased by an

24 additional amount equal to the lesser of (i) 3 percent

25 of such excess, or (ii) $200,000.’’.
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1 (b) CERTAIN PERSONAL SERVICE CORPORATIONS.—

2 Paragraph (2) of section 11(b) is amended by striking ‘‘34

3 percent’’ and inserting ‘‘36 percent’’.

4 (c) CONFORMING AMENDMENTS.—

5 (1) Clause (iii) of section 852(b)(3)(D) is

6 amended by striking ‘‘66 percent’’ and inserting ‘‘64

7 percent’’.

8 (2) Subsection (a) of section 1201 is amended

9 by striking ‘‘34 percent’’ each place it appears and

10 inserting ‘‘36 percent’’.

11 (3) Paragraphs (1) and (2) of section 1445(e)

12 are each amended by striking ‘‘34 percent’’ and in13 serting ‘‘36 percent’’.

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

15 this section shall apply to taxable years beginning on or

16 after January 1, 1993; except that the amendment made

17 by subsection (c)(3) shall take effect on the date of the

18 enactment of this Act.

19 SEC. 2202. DENIAL OF DEDUCTION FOR LOBBYING EX20 PENSES.

21 (a) DISALLOWANCE OF DEDUCTION.—Section 162(e)

22 (relating to appearances, etc., with respect to legislation)

23 is amended to read as follows:

24 ‘‘(e) DENIAL OF DEDUCTION FOR CERTAIN LOBBY25 ING AND POLITICAL EXPENDITURES.—
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1 ‘‘(1) IN GENERAL.—No deduction shall be al2 lowed under subsection (a) for any amount paid or

3 incurred—

4 ‘‘(A) in connection with influencing legisla5 tion,

6 ‘‘(B) for participation in, or intervention

7 in, any political campaign on behalf of (or in

8 opposition to) any candidate for public office, or

9 ‘‘(C) in connection with any attempt to in10 fluence the general public, or segments thereof,

11 with respect to elections.

12 ‘‘(2) APPLICATION TO DUES.—

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

14 allowed under subsection (a) for the portion of

15 dues or other similar amounts (paid by the tax16 payer with respect to an organization) which is

17 allocable to the expenditures described in para18 graph (1).

19 ‘‘(B) ALLOCATION.—

20 ‘‘(i) IN GENERAL.—For purposes of

21 subparagraph (A), expenditures described

22 in paragraph (1) shall be treated as paid

23 out of dues or other similar amounts.

24 ‘‘(ii) CARRYOVER OF LOBBYING EX25 PENDITURES IN EXCESS OF DUES.—For
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1 purposes of this paragraph, if expenditures

2 described in paragraph (1) exceed the dues

3 or other similar amounts for any calendar

4 year, such excess shall be treated as ex5 penditures described in paragraph (1)

6 which are paid or incurred by the organi7 zation during the following calendar year.

8 ‘‘(3) INFLUENCING LEGISLATION.—For pur9 poses of this subsection—

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

11 legislation’ means—

12 ‘‘(i) any attempt to influence the gen13 eral public, or segments thereof, with re14 spect to legislation, and

15 ‘‘(ii) any attempt to influence any leg16 islation through communication with any

17 member or employee of the legislative

18 body, or with any government official or

19 employee who may participate in the for20 mulation of the legislation.

21 ‘‘(B) EXCEPTION FOR CERTAIN TECH22 NICAL ADVICE.—The term ‘influencing legisla23 tion’ shall not include the providing of technical

24 advice or assistance to a governmental body or

25 to a committee or other subdivision thereof in
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1 response to a specific written request by such

2 governmental entity to the taxpayer which

3 specifies the nature of the advice or assistance

4 requested.

5 ‘‘(C) LEGISLATION.—The term ‘legislation’

6 has the meaning given such term by section

7 4911(e)(2).

8 ‘‘(4) EXCEPTION FOR CERTAIN TAXPAYERS.—

9 In the case of any taxpayer engaged in the trade or

10 business of conducting activities described in para11 graph (1), paragraph (1) shall not apply to expendi12 tures of the taxpayer in conducting such activities on

13 behalf of another person (but shall apply to pay14 ments by such other person to the taxpayer for con15 ducting such activities).

16 ‘‘(5) CROSS REFERENCE.—

‘‘For reporting requirements related to this subsection, see section 6050O.’’

17 (b) REPORTING REQUIREMENTS.—

18 (1) IN GENERAL.—Subpart B of part III of

19 subchapter A of chapter 61 (relating to information

20 concerning transactions with other persons) is

21 amended by adding at the end the following new

22 section:
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1 ‘‘SEC. 6050O. RETURNS RELATING TO LOBBYING EXPENDI2 TURES OF CERTAIN ORGANIZATIONS.

3 ‘‘(a) REQUIREMENT OF REPORTING.—Each organi4 zation referred to in section 162(e)(2) shall make a return,

5 according to the forms or regulations prescribed by the

6 Secretary, setting forth the names and addresses of per7 sons paying dues to the organization, the amount of the

8 dues paid by such person, and the portion of such dues

9 which is nondeductible under section 162(e)(2).

10 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

11 WITH RESPECT TO WHOM INFORMATION IS FUR12 NISHED.—Any organization required to make a return

13 under subsection (a) shall furnish to each person whose

14 name is required to be set forth in such return a written

15 statement showing—

16 ‘‘(1) the name and address of the organization,

17 and

18 ‘‘(2) the dues paid by the person during the cal19 endar year and the portion of such dues which is

20 nondeductible under section 162(e)(2).

21 The written statement required under the preceding sen22 tence shall be furnished (either in person or in a statement

23 mailing by first-class mail which includes adequate notice

24 that the statement is enclosed) to the persons on or before

25 January 31 of the year following the calendar year for

26 which the return under subsection (a) was made and shall
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1 be in such form as the Secretary may prescribe by regula2 tions.

3 ‘‘(c) WAIVER.—The Secretary may waive the report4 ing requirements of this section with respect to any orga5 nization or class of organizations if the Secretary deter6 mines that such reporting is not necessary to carry out

7 the purposes of section 162(e).

8 ‘‘(d) DUES.—For purposes of this section, the term

9 ‘dues’ includes other similar amounts.’’

10 (2) PENALTIES.—

11 (A) RETURNS.—Subparagraph (A) of sec12 tion 6724(d)(1) (defining information return) is

13 amended by striking ‘‘or’’ at the end of clause

14 (xi), by striking the period at the end of the

15 clause (xii) relating to section 4101(d) and in16 serting a comma, by redesignating the clause

17 (xii) relating to section 338(h)(10) as clause

18 (xiii), by striking the period at the end of clause

19 (xiii) (as so redesignated) and inserting ‘‘, or’’,

20 and by adding at the end the following new

21 clause:

22 ‘‘(xiv) section 6050O(a) (relating to

23 information on nondeductible lobbying ex24 penditures).’’
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1 (B) PAYEE STATEMENTS.—Paragraph (2)

2 of section 6724(d) (defining payee statement) is

3 amended by striking ‘‘or’’ at the end of sub4 paragraph (R), by striking the period at the

5 end of subparagraph (S) and inserting ‘‘, or’’,

6 and by adding at the end the following new sub7 paragraph:

8 ‘‘(T) section 6050O(b) (relating to returns

9 on nondeductible lobbying expenditures).’’

10 (C) EXCESSIVE UNDERREPORTING.—Sec11 tion 6721 (relating to failure to file correct in12 formation returns) is amended by adding at the

13 end the following new subsection:

14 ‘‘(f) PENALTY IN CASE OF EXCESSIVE

15 UNDERREPORTING ON NONDEDUCTIBLE DUES.—If the

16 aggregate amount of nondeductible dues which is reported

17 on the return required to be filed under section 6050O(a)

18 for any calendar year is less than 75 percent of the aggre19 gate amount required to be so reported—

20 ‘‘(1) subsections (b), (c), and (d) shall not

21 apply, and

22 ‘‘(2) the penalty imposed under subsection (a)

23 shall be equal to the product of—

24 ‘‘(A) the amount required to be reported

25 which was not so reported, and
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1 ‘‘(B) the highest rate of tax imposed by

2 section 11 for taxable years beginning in such

3 calendar year.’’

4 (3) CONFORMING AMENDMENT.—The table of

5 sections for subpart B of part III of subchapter A

6 of chapter 61 is amended by adding at the end the

7 following new item:

‘‘Sec. 6050O. Returns relating to lobbying expenditures of certain

organizations.’’

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

9 this section shall apply to amounts paid or incurred after

10 December 31, 1993.

11 SEC. 2203. MARK TO MARKET ACCOUNTING METHOD FOR

12 SECURITIES DEALERS.

13 (a) GENERAL RULE.—Subpart D of part II of sub14 chapter E of chapter 1 (relating to inventories) is amend15 ed by adding at the end thereof the following new section:

16 ‘‘SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR

17 DEALERS IN SECURITIES.

18 ‘‘(a) GENERAL RULE.—Notwithstanding any other

19 provision of this subpart, the following rules shall apply

20 to securities held by a dealer in securities:

21 ‘‘(1) Any security which is inventory in the

22 hands of the dealer shall be included in inventory at

23 its fair market value.
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1 ‘‘(2) In the case of any security which is not in2 ventory in the hands of the dealer and which is held

3 at the close of any taxable year—

4 ‘‘(A) the dealer shall recognize gain or loss

5 as if such security were sold for its fair market

6 value on the last business day of such taxable

7 year, and

8 ‘‘(B) any gain or loss shall be taken into

9 account for such taxable year.

10 Proper adjustment shall be made in the amount of

11 any gain or loss subsequently realized for gain or

12 loss taken into account under the preceding sen13 tence. The Secretary may provide by regulations for

14 the application of this paragraph at times other than

15 the times provided in this paragraph.

16 ‘‘(b) EXCEPTIONS.—

17 ‘‘(1) IN GENERAL.—Subsection (a) shall not

18 apply to—

19 ‘‘(A) any security held for investment,

20 ‘‘(B)(i) any security described in sub21 section (c)(2)(C) which is acquired (including

22 originated) by the taxpayer in the ordinary

23 course of a trade or business of the taxpayer

24 and which is not held for sale, and (ii) any obli25 gation to acquire a security described in clause
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1 (i) if such obligation is entered into in the ordi2 nary course of such trade or business and is not

3 held for sale, and

4 ‘‘(C) any security which is a hedge with re5 spect to—

6 ‘‘(i) a security to which subsection (a)

7 does not apply, or

8 ‘‘(ii) a position, right to income, or a

9 liability which is not a security in the

10 hands of the taxpayer.

11 To the extent provided in regulations, subparagraph

12 (C) shall not apply to any security held by a person

13 in its capacity as a dealer in securities.

14 ‘‘(2) IDENTIFICATION REQUIRED.—A security

15 shall not be treated as described in subparagraph

16 (A), (B), or (C) of paragraph (1), as the case may

17 be, unless such security is clearly identified in the

18 dealer’s records as being described in such subpara19 graph before the close of the day on which it was ac20 quired, originated, or entered into (or such other

21 time as the Secretary may by regulations prescribe).

22 ‘‘(3) SECURITIES SUBSEQUENTLY NOT EX23 EMPT.—If a security ceases to be described in para24 graph (1) at any time after it was identified as such

25 under paragraph (2), subsection (a) shall apply to
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1 any changes in value of the security occurring after

2 the cessation.

3 ‘‘(4) SPECIAL RULE FOR PROPERTY HELD FOR

4 INVESTMENT.—To the extent provided in regula5 tions, subparagraph (A) of paragraph (1) shall not

6 apply to any security described in subparagraph (D)

7 or (E) of subsection (c)(2) which is held by a dealer

8 in such securities.

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

10 ‘‘(1) DEALER IN SECURITIES DEFINED.—The

11 term ‘dealer in securities’ means a taxpayer who—

12 ‘‘(A) regularly purchases securities from or

13 sells securities to customers in the ordinary

14 course of a trade or business; or

15 ‘‘(B) regularly offers to enter into, assume,

16 offset, assign or otherwise terminate positions

17 in securities with customers in the ordinary

18 course of a trade or business.

19 ‘‘(2) SECURITY DEFINED.—The term ‘security’

20 means any—

21 ‘‘(A) share of stock in a corporation;

22 ‘‘(B) partnership or beneficial ownership

23 interest in a widely held or publicly traded part24 nership or trust;
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1 ‘‘(C) note, bond, debenture, or other evi2 dence of indebtedness;

3 ‘‘(D) interest rate, currency, or equity no4 tional principal contract;

5 ‘‘(E) evidence of an interest in, or a deriv6 ative financial instrument in, any security de7 scribed in subparagraph (A), (B), (C), or (D),

8 or any currency, including any option, forward

9 contract, short position, and any similar finan10 cial instrument in such a security or currency;

11 and

12 ‘‘(F) position which—

13 ‘‘(i) is not a security described in sub14 paragraph (A), (B), (C), (D), or (E),

15 ‘‘(ii) is a hedge with respect to such

16 a security, and

17 ‘‘(iii) is clearly identified in the deal18 er’s records as being described in this sub19 paragraph before the close of the day on

20 which it was acquired or entered into (or

21 such other time as the Secretary may by

22 regulations prescribe).

23 Subparagraph (E) shall not include any contract to

24 which section 1256(a) applies.
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1 ‘‘(3) HEDGE.—The term ‘hedge’ means any po2 sition which reduces the dealer’s risk of interest rate

3 or price changes or currency fluctuations, including

4 any position which is reasonably expected to become

5 a hedge within 60 days after the acquisition of the

6 position.

7 ‘‘(d) SPECIAL RULES.—For purposes of this sec8 tion—

9 ‘‘(1) COORDINATION WITH CERTAIN RULES.—

10 The rules of sections 263(g), 263A, and 1256(a)

11 shall not apply to securities to which subsection (a)

12 applies, and section 1091 shall not apply (and sec13 tion 1092 shall apply) to any loss recognized under

14 subsection (a).

15 ‘‘(2) IMPROPER IDENTIFICATION.—If a tax16 payer—

17 ‘‘(A) identifies any security under sub18 section (b)(2) as being described in subsection

19 (b)(1) and such security is not so described, or

20 ‘‘(B) fails under subsection (c)(2)(F)(iii) to

21 identify any position which is described in sub22 section (c)(2)(F) (without regard to clause (iii)

23 thereof) at the time such identification is re24 quired,
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1 the provisions of subsection (a) shall apply to such

2 security or position, except that any loss under this

3 section prior to the disposition of the security or po4 sition shall be recognized only to the extent of gain

5 previously recognized under this section (and not

6 previously taken into account under this paragraph)

7 with respect to such security or position.

8 ‘‘(3) CHARACTER OF GAIN OR LOSS.—

9 ‘‘(A) IN GENERAL.—Except as provided in

10 subparagraph (B) or section 1236(b)—

11 ‘‘(i) IN GENERAL.—Any gain or loss

12 with respect to a security under subsection

13 (a)(2) shall be treated as ordinary income

14 or loss.

15 ‘‘(ii) SPECIAL RULE FOR DISPOSI16 TIONS.—If—

17 ‘‘(I) gain or loss is recognized

18 with respect to a security before the

19 close of the taxable year, and

20 ‘‘(II) subsection (a)(2) would

21 have applied if the security were held

22 as of the close of the taxable year,

23 such gain or loss shall be treated as ordi24 nary income or loss.
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1 ‘‘(B) EXCEPTION.—Subparagraph (A)

2 shall not apply to any gain or loss which is allo3 cable to a period during which—

4 ‘‘(i) the security is described in sub5 section (b)(1)(C) (without regard to sub6 section (b)(2)),

7 ‘‘(ii) the security is held by a person

8 other than in connection with its activities

9 as a dealer in securities, or

10 ‘‘(iii) the security is improperly identi11 fied (within the meaning of subparagraph

12 (A) or (B) of paragraph (2)).

13 ‘‘(e) REGULATORY AUTHORITY.—The Secretary shall

14 prescribe such regulations as may be necessary or appro15 priate to carry out the purposes of this section, including

16 rules—

17 ‘‘(1) to prevent the use of year-end transfers,

18 related parties, or other arrangements to avoid the

19 provisions of this section, and

20 ‘‘(2) to provide for the application of this sec21 tion to any security which is a hedge which cannot

22 be identified with a specific security, position, right

23 to income, or liability.’’

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Paragraph (1) of section 988(d) is amend2 ed—

3 (A) by striking ‘‘section 1256’’ and insert4 ing ‘‘section 475 or 1256’’, and

5 (B) by striking ‘‘1092 and 1256’’ and in6 serting ‘‘475, 1092, and 1256’’.

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

8 II of subchapter E of chapter 1 is amended by add9 ing at the end thereof the following new item:

‘‘Sec. 475. Mark to market accounting method for dealers in securities.’’

10 (c) EFFECTIVE DATE.—

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

12 this section shall apply to all taxable years ending on

13 or after December 31, 1993.

14 (2) CHANGE IN METHOD OF ACCOUNTING.—In

15 the case of any taxpayer required by this section to

16 change its method of accounting for any taxable

17 year—

18 (A) such change shall be treated as initi19 ated by the taxpayer,

20 (B) such change shall be treated as made

21 with the consent of the Secretary, and

22 (C) except as provided in paragraph (3),

23 the net amount of the adjustments required to

24 be taken into account by the taxpayer under
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1 section 481 of the Internal Revenue Code of

2 1986 shall be taken into account ratably over

3 the 5-taxable year period beginning with the

4 first taxable year ending on or after December

5 31, 1993.

6 (3) SPECIAL RULE FOR FLOOR SPECIALISTS

7 AND MARKET MAKERS.—

8 (A) IN GENERAL.—If—

9 (i) a taxpayer used the last-in first10 out (LIFO) method of accounting with re11 spect to any qualified securities for its last

12 taxable year ending before December 31,

13 1993, and

14 (ii) any portion of the net amount de15 scribed in paragraph (2)(C) is attributable

16 to the use of such method of accounting,

17 then paragraph (2)(C) shall be applied by tak18 ing such portion into account ratably over the

19 20-taxable year period beginning with the first

20 taxable year ending on or after December 31,

21 1993 (or, if shorter, the period of taxable years

22 equal to the greater of 5 years or the number

23 of taxable years before such first taxable year

24 for which the taxpayer (or any predecessor)

25 used such method of accounting).
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1 (B) QUALIFIED SECURITY.—For purposes

2 of this paragraph, the term ‘‘qualified security’’

3 means any security acquired—

4 (i) by a floor specialist (as defined in

5 section 1236(d)(2) of the Internal Revenue

6 Code of 1986) in connection with the spe7 cialist’s duties as a specialist on an ex8 change, but only if the security is one in

9 which the specialist is registered with the

10 exchange, or

11 (ii) by a taxpayer who is a market

12 maker in connection with the taxpayer’s

13 duties as a market maker, but only if—

14 (I) the security is included on the

15 National Association of Security Deal16 ers Automated Quotation System,

17 (II) the taxpayer is registered as

18 a market maker in such security with

19 the National Association of Security

20 Dealers, and

21 (III) as of the last day of the

22 taxable year preceding the taxpayer’s

23 first taxable year ending on or after

24 December 31, 1993, the taxpayer (or

25 any predecessor) has been actively
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1 and regularly engaged as a market

2 maker in such security for the 2-year

3 period ending on such date (or, if

4 shorter, the period beginning 61 days

5 after the security was listed in such

6 quotation system and ending on such

7 date).

8 SEC. 2204. CLARIFICATION OF TREATMENT OF CERTAIN

9 FSLIC FINANCIAL ASSISTANCE.

10 (a) GENERAL RULE.—For purposes of chapter 1 of

11 the Internal Revenue Code of 1986—

12 (1) any FSLIC assistance with respect to any

13 loss of principal, capital, or similar amount upon the

14 disposition of any asset shall be taken into account

15 as compensation for such loss for purposes of section

16 165 of such Code, and

17 (2) any FSLIC assistance with respect to any

18 debt shall be taken into account for purposes of sec19 tion 166, 585, or 593 of such Code in determining

20 whether such debt is worthless (or the extent to

21 which such debt is worthless) and in determining the

22 amount of any addition to a reserve for bad debts

23 arising from the worthlessness or partial worthless24 ness of such debts.
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1 (b) FSLIC ASSISTANCE.—For purposes of this sec2 tion, the term ‘‘FSLIC assistance’’ means any assistance

3 (or right to assistance) with respect to a domestic building

4 and loan association (as defined in section 7701(a)(19) of

5 such Code without regard to subparagraph (C) thereof)

6 under section 406(f) of the National Housing Act or sec7 tion 21A of the Federal Home Loan Bank Act (or under

8 any similar provision of law).

9 (c) EFFECTIVE DATE.—

10 (1) IN GENERAL.—Except as otherwise pro11 vided in this subsection—

12 (A) The provisions of this section shall

13 apply to taxable years ending on or after March

14 4, 1991, but only with respect to FSLIC assist15 ance not credited before March 4, 1991.

16 (B) If any FSLIC assistance not credited

17 before March 4, 1991, is with respect to a loss

18 sustained or charge-off in a taxable year ending

19 before March 4, 1991, for purposes of deter20 mining the amount of any net operating loss

21 carryover to a taxable year ending on or after

22 March 4, 1991, the provisions of this section

23 shall apply to such assistance for purposes of

24 determining the amount of the net operating

25 loss for the taxable year in which such loss was
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1 sustained or debt written off. Except as pro2 vided in the preceding sentence, this section

3 shall not apply to any FSLIC assistance with

4 respect to a loss sustained or charge-off in a

5 taxable year ending before March 4, 1991.

6 (2) EXCEPTIONS.—The provisions of this sec7 tion shall not apply to any assistance to which the

8 amendments made by section 1401(a)(3) of the Fi9 nancial Institutions Reform, Recovery, and Enforce10 ment Act of 1989 apply.

11 SEC. 2205. EXTENSION OF CORPORATE ESTIMATED TAX

12 RULES.

13 (a) GENERAL RULE.—Clause (i) of section

14 6655(d)(1)(B) (relating to amount of required install15 ment) is amended by striking ‘‘91 percent’’ each place it

16 appears and inserting ‘‘97 percent’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) Subsection (d) of section 6655 is amend19 ed—

20 (A) by striking paragraph (3), and

21 (B) by striking ‘‘91 PERCENT’’ in the para22 graph heading of paragraph (2) and inserting

23 ‘‘97 PERCENT’’.
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1 (2) Clause (ii) of section 6655(e)(2)(B) is

2 amended by striking the table contained therein and

3 inserting the following:

‘‘In the case of the following required installments:The applicable percentage

is:

1st ............................................................................................ 24.25

2nd ........................................................................................... 48.50

3rd ............................................................................................ 72.75

4th ............................................................................................ 97. ’’

4 (3) Clause (i) of section 6655(e)(3)(A) is

5 amended by striking ‘‘91 percent’’ and inserting ‘‘97

6 percent’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1993.

10 SEC. 2206. LIMITATION ON SECTION 936 CREDIT.

11 (a) GENERAL RULE.—Subsection (a) of section 936

12 (relating to Puerto Rico and possession tax credit) is

13 amended—

14 (1) by striking ‘‘as provided in paragraph (3)’’

15 in paragraph (1) and inserting ‘‘as otherwise pro16 vided in this section’’;

17 (2) by adding at the end thereof the following

18 new paragraph:

19 ‘‘(4) LIMITATIONS ON CREDIT.—

20 ‘‘(A) CREDIT FOR ACTIVE BUSINESS IN21 COME.—The amount of the credit determined

22 under paragraph (1)(A) for any taxable year
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1 shall not exceed 60 percent of the aggregate

2 amount of the possession corporation’s qualified

3 possession wages for such taxable year.

4 ‘‘(B) CREDIT FOR INVESTMENT INCOME.—

5 ‘‘(i) IN GENERAL.—If—

6 ‘‘(I) the QPSII assets of the pos7 session corporation for any taxable

8 year, exceed

9 ‘‘(II) 80 percent of such posses10 sion corporation’s qualified tangible

11 business investment for such taxable

12 year,

13 the credit determined under paragraph

14 (1)(B) for such taxable year shall be re15 duced by the amount determined under

16 clause (ii).

17 ‘‘(ii) AMOUNT OF REDUCTION.—The

18 reduction determined under this clause for

19 any taxable year is an amount which bears

20 the same ratio to the credit determined

21 under paragraph (1)(B) for such taxable

22 year (determined without regard to this

23 subparagraph) as—

24 ‘‘(I) the excess determined under

25 clause (i), bears to
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1 ‘‘(II) the QPSII assets of the

2 possession corporation for such tax3 able year.

4 ‘‘(C) CROSS REFERENCE.—

‘‘For definitions and special rules applicable to

this paragraph, see subsection (i).’’

5 (b) DEFINITIONS AND SPECIAL RULES.—Section 936

6 is amended by adding at the end thereof the following new

7 subsection:

8 ‘‘(i) DEFINITIONS AND SPECIAL RULES RELATING

9 TO LIMITATIONS OF SUBSECTION (a)(4).—

10 ‘‘(1) QUALIFIED POSSESSION WAGES.—For

11 purposes of this section—

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

13 possession wages’ means wages paid or incurred

14 by the possession corporation during the tax15 able year to any employee for services per16 formed in a possession of the United States,

17 but only if such services are performed while

18 the principal place of employment of such em19 ployee is within such possession.

20 ‘‘(B) LIMITATION ON AMOUNT OF WAGES

21 TAKEN INTO ACCOUNT.—

22 ‘‘(i) IN GENERAL.—The amount of

23 wages which may be taken into account

24 under subparagraph (A) with respect to
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1 any employee for any taxable year shall

2 not exceed the contribution and benefit

3 base determined under section 230 of the

4 Social Security Act for the calendar year

5 in which such taxable year begins.

6 ‘‘(ii) TREATMENT OF PART-TIME EM7 PLOYEES, ETC.—If—

8 ‘‘(I) any employee is not em9 ployed by the possession corporation

10 on a substantially full-time basis at all

11 times during the taxable year, or

12 ‘‘(II) the principal place of em13 ployment of any employee with the

14 possession corporation is not within a

15 possession at all times during the tax16 able year,

17 the limitation applicable under clause (i)

18 with respect to such employee shall be the

19 appropriate portion (as determined by the

20 Secretary) of the limitation which would

21 otherwise be in effect under clause (i).

22 ‘‘(C) TREATMENT OF CERTAIN EMPLOY23 EES.—The term ‘qualified possession wages’

24 shall not include any wages paid to employees

25 who are assigned by the employer to perform
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1 services for another person, unless the principal

2 trade or business of the employer is to make

3 employees available for temporary periods to

4 other persons in return for compensation. All

5 possession corporations treated as 1 corporation

6 under paragraph (4) shall be treated as 1 em7 ployer for purposes of the preceding sentence.

8 ‘‘(D) WAGES.—

9 ‘‘(i) IN GENERAL.—Except as pro10 vided in clause (ii), the term ‘wages’ has

11 the meaning given to such term by sub12 section (b) of section 3306 (determined

13 without regard to any dollar limitation

14 contained in such section). For purposes of

15 the preceding sentence, such subsection (b)

16 shall be applied as if the term ‘United

17 States’ included all possessions of the

18 United States.

19 ‘‘(ii) SPECIAL RULE FOR AGRICUL20 TURAL LABOR AND RAILWAY LABOR.—In

21 any case to which subparagraph (A) or (B)

22 of paragraph (1) of section 51(h) applies,

23 the term ‘wages’ has the meaning given to

24 such term by section 51(h)(2).
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1 ‘‘(2) QPSII ASSETS.—For purposes of this sec2 tion—

3 ‘‘(A) IN GENERAL.—The QPSII assets of a

4 possession corporation for any taxable year is

5 the average of the amounts of the possession

6 corporation’s qualified investment assets as of

7 the close of each quarter of such taxable year.

8 ‘‘(B) QUALIFIED INVESTMENT ASSETS.—

9 The term ‘qualified investment assets’ means

10 the aggregate adjusted bases of the assets

11 which are held by the possession corporation

12 and the income from which qualifies as quali13 fied possession source investment income. For

14 purposes of the preceding sentence, the ad15 justed basis of any asset shall be its adjusted

16 basis as determined for purposes of computing

17 earnings and profits.

18 ‘‘(3) QUALIFIED TANGIBLE BUSINESS INVEST19 MENT.—For purposes of this section—

20 ‘‘(A) IN GENERAL.—The qualified tangible

21 business investment of any possession corpora22 tion for any taxable year is the average of the

23 amounts of the possession corporation’s quali24 fied possession investments as of the close of

25 each quarter of such taxable year.
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1 ‘‘(B) QUALIFIED POSSESSION INVEST2 MENTS.—The term ‘qualified possession invest3 ments’ means the aggregate adjusted bases of

4 tangible property used by the possession cor5 poration in a possession of the United States in

6 the active conduct of a trade or business within

7 such possession. For purposes of the preceding

8 sentence, the adjusted basis of any property

9 shall be its adjusted basis as determined for

10 purposes of computing earnings and profits.

11 ‘‘(4) ELECTION TO COMPUTE CREDIT ON CON12 SOLIDATED BASIS.—

13 ‘‘(A) IN GENERAL.—Any affiliated group

14 may elect to treat all possession corporations

15 which would be members of such group but for

16 section 1504(b)(4) as 1 corporation for pur17 poses of this section. The credit determined

18 under this section with respect to such 1 cor19 poration shall be allocated among such posses20 sion corporations in such manner as the Sec21 retary may prescribe.

22 ‘‘(B) ELECTION.—An election under sub23 paragraph (A) shall apply to the taxable year

24 for which made and all succeeding taxable years
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1 unless revoked with the consent of the Sec2 retary.

3 ‘‘(5) TREATMENT OF CERTAIN TAXES.—Not4 withstanding subsection (c), if—

5 ‘‘(A) the credit determined under sub6 section (a)(1) for any taxable year is limited

7 under subsection (a)(4), and

8 ‘‘(B) the possession corporation has paid

9 or accrued any taxes of a possession of the

10 United States for such taxable year which are

11 treated as not being income, war profits, or ex12 cess profits taxes paid or accrued to a posses13 sion of the United States by reason of sub14 section (c),

15 such possession corporation shall be allowed a de16 duction for such taxable year equal to the portion of

17 such taxes which are allocable (on a pro rata basis)

18 to taxable income of the possession corporation the

19 tax on which is not offset by reason of the limita20 tions of subsection (a)(4). In determining the credit

21 under subsection (a) and in applying the preceding

22 sentence, taxable income shall be determined without

23 regard to the preceding sentence.

24 ‘‘(6) POSSESSION CORPORATION.—The term

25 ‘possession corporation’ means a domestic corpora-
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1 tion for which the election provided in subsection (a)

2 is in effect.

3 ‘‘(7) TRANSITIONAL RULE.—If any possession

4 corporation elects the benefits of this paragraph for

5 any taxable year beginning in 1994 or 1995—

6 ‘‘(A) subsection (a)(4) shall not apply to

7 such taxable year, and

8 ‘‘(B) the credit determined under sub9 section (a)(1) for such taxable year shall be the

10 following percentage of the credit which would

11 otherwise have been determined under such

12 subsection:

13 ‘‘(i) 80 percent in the case of a tax14 able year beginning in 1994.

15 ‘‘(ii) 60 percent in the case of a tax16 able year beginning in 1995.

17 A possession corporation which elects the bene18 fits of this paragraph shall be entitled to the

19 benefits of paragraph (5) for taxes allocable to

20 taxable income the tax on which is not offset by

21 reason of this paragraph.’’

22 (c) MINIMUM TAX TREATMENT.—

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

24 56(g)(4)(C) (relating to treatment of special rule for

25 certain dividends) is amended by striking ‘‘sections
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•J. 69–001A

1 936 and 921’’ and inserting ‘‘sections 936 (including

2 subsection (a)(4) thereof) and 921’’.

3 (2) TREATMENT OF FOREIGN TAXES.—Clause

4 (iii) of section 56(g)(4)(C) is amended by adding at

5 the end thereof the following subclauses:

6 ‘‘(IV) SEPARATE APPLICATION

7 OF FOREIGN TAX CREDIT LIMITA8 TIONS.—In determining the alter9 native minimum foreign tax credit,

10 section 904(d) shall be applied as if

11 dividends from a corporation eligible

12 for the credit provided by section 936

13 were a separate category of income re14 ferred to in a subparagraph of section

15 904(d)(1).

16 ‘‘(V) COORDINATION WITH LIMI17 TATION ON 936 CREDIT.—Any ref18 erence in this clause to a dividend re19 ceived from a corporation eligible for

20 the credit provided by section 936

21 shall be treated as a reference to the

22 portion of any such dividend for which

23 the dividends received deduction is

24 disallowed under clause (i) after the

25 application of clause (ii)(I).’’
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1 (d) CONFORMING AMENDMENT.—Paragraph (4) of

2 section 904(b) is amended by inserting before the period

3 at the end thereof the following: ‘‘(without regard to sub4 section (a)(4) thereof)’’.

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

6 this section shall apply to taxable years beginning after

7 December 31, 1993.

8 SEC. 2207. MODIFICATION TO LIMITATION ON DEDUCTION

9 FOR CERTAIN INTEREST.

10 (a) GENERAL RULE.—Paragraph (3) of section

11 163(j) (defining disqualified interest) is amended to read

12 as follows:

13 ‘‘(3) DISQUALIFIED INTEREST.—For purposes

14 of this subsection, the term ‘disqualified interest’

15 means—

16 ‘‘(A) any interest paid or accrued by the

17 taxpayer (directly or indirectly) to a related

18 person if no tax is imposed by this subtitle with

19 respect to such interest, and

20 ‘‘(B) any interest paid or accrued by the

21 taxpayer with respect to any indebtedness to a

22 person who is not a related person if—

23 ‘‘(i) there is a disqualified guarantee

24 of such indebtedness, and
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1 ‘‘(ii) no gross basis tax is imposed by

2 this subtitle with respect to such interest.’’

3 (b) DEFINITIONS.—Paragraph (6) of section 163(j)

4 is amended by adding at the end thereof the following new

5 subparagraphs:

6 ‘‘(D) DISQUALIFIED GUARANTEE.—

7 ‘‘(i) IN GENERAL.—Except as pro8 vided in clause (ii), the term ‘disqualified

9 guarantee’ means any guarantee by a re10 lated person which is—

11 ‘‘(I) an organization exempt from

12 taxation under this subtitle, or

13 ‘‘(II) a foreign person.

14 ‘‘(ii) EXCEPTIONS.—The term ‘dis15 qualified guarantee’ shall not include a

16 guarantee—

17 ‘‘(I) in any circumstances identi18 fied by the Secretary by regulation,

19 where the interest on the indebtedness

20 would have been subject to a net basis

21 tax if the interest had been paid to

22 the guarantor, or

23 ‘‘(II) if the taxpayer owns a con24 trolling interest in the guarantor.
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1 For purposes of subclause (II), except as

2 provided in regulations, the term ‘a con3 trolling interest’ means direct or indirect

4 ownership of at least 80 percent of the

5 total voting power and value of all classes

6 of stock of a corporation, or 80 percent of

7 the profit and capital interests in any other

8 entity. For purposes of the preceding sen9 tence, the rules of paragraphs (1) and (5)

10 of section 267(c) shall apply; except that

11 such rules shall also apply to interest in

12 entities other than corporations.

13 ‘‘(iii) GUARANTEE.—Except as pro14 vided in regulations, the term ‘guarantee’

15 includes any arrangement under which a

16 person (directly or indirectly through an

17 entity or otherwise) assures, on a condi18 tional or unconditional basis, the payment

19 of another person’s obligation under any

20 indebtedness.

21 ‘‘(E) GROSS BASIS AND NET BASIS TAX22 ATION.—

23 ‘‘(i) GROSS BASIS TAX.—The term

24 ‘gross basis tax’ means any tax imposed by

25 this subtitle which is determined by ref-
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1 erence to the gross amount of any item of

2 income without any reduction for any de3 duction allowed by this subtitle.

4 ‘‘(ii) NET BASIS TAX.—The term ‘net

5 basis tax’ means any tax imposed by this

6 subtitle which is a not a gross basis tax.’’

7 (c) CONFORMING AMENDMENT.—Subparagraph (B)

8 of section 163(j)(5) is amended by striking ‘‘to a related

9 person’’.

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

11 this section shall apply to interest paid or accrued in tax12 able years beginning after December 31, 1993.

13 Subtitle C—Foreign Tax Provisions

14 PART I—CURRENT TAXATION OF CERTAIN EARN15 INGS OF CONTROLLED FOREIGN CORPORA16 TIONS

17 SEC. 2301. EARNINGS INVESTED IN EXCESS PASSIVE AS18 SETS.

19 (a) GENERAL RULE.—Paragraph (1) of section

20 951(a) (relating to amounts included in gross income of

21 United States shareholders) is amended by striking ‘‘and’’

22 at the end of subparagraph (A), by striking the period

23 at the end of subparagraph (B) and inserting ‘‘; and’’,

24 and by adding at the end thereof the following new sub25 paragraph:
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1 ‘‘(C) the amount determined under section

2 956A with respect to such shareholder for such

3 year (but only to the extent not excluded from

4 gross income under section 959(a)(3)).’’

5 (b) AMOUNT OF INCLUSION.—Subpart F of part III

6 of subchapter N of chapter 1 is amended by inserting after

7 section 956 the following new section:

8 ‘‘SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE AS9 SETS.

10 ‘‘(a) GENERAL RULE.—In the case of any controlled

11 foreign corporation, the amount determined under this

12 section with respect to any United States shareholder for

13 any taxable year is the lesser of—

14 ‘‘(1) the excess (if any) of—

15 ‘‘(A) such shareholder’s pro rata share of

16 the amount of the controlled foreign corpora17 tion’s excess passive assets for such taxable

18 year, over

19 ‘‘(B) the aggregate amount previously in20 cluded under section 951(a)(1)(C) (or which

21 would have been included but for section

22 959(a)(3)) in the gross income of such share23 holder (or of any other United States person

24 from whom such shareholder acquired any por25 tion of his interest in the controlled foreign cor-
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1 poration, but only to the extent attributable to

2 the acquired interest and subject to such proof

3 of the identity of such interest as the Secretary

4 may require), or

5 ‘‘(2) such shareholder’s pro rata share of the

6 applicable earnings of such controlled foreign cor7 poration determined after the application of section

8 951(a)(1)(B).

9 ‘‘(b) ADJUSTMENT FOR CERTAIN DISTRIBUTIONS OF

10 PREVIOUSLY TAXED INCOME.—The amount determined

11 under subsection (a)(1)(B) shall be reduced by the amount

12 of any distribution excluded from gross income under sec13 tion 959 and treated as a distribution out of earnings and

14 profits referred to in section 959(c)(1)(B).

15 ‘‘(c) APPLICABLE EARNINGS.—For purposes of this

16 section, the term ‘applicable earnings’ means, with respect

17 to any controlled foreign corporation, the amounts re18 ferred to in sections 316(a)(1) and 316(a)(2) (but reduced

19 by distributions made during the taxable year), reduced

20 by any portion of such amounts which, if distributed,

21 would not be treated as a dividend by reason of section

22 955 and further reduced by the earnings and profits de23 scribed in section 959(c)(1).

24 ‘‘(d) EXCESS PASSIVE ASSETS.—For purposes of this

25 section—
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1 ‘‘(1) IN GENERAL.—The excess passive assets

2 of any controlled foreign corporation for any taxable

3 year is the excess (if any) of—

4 ‘‘(A) the average of the amounts of passive

5 assets held by such corporation as of the close

6 of each quarter of such taxable year, over

7 ‘‘(B) 25 percent of the average of the

8 amounts of total assets held by such corpora9 tion as of the close of each quarter of such tax10 able year.

11 For purposes of the preceding sentence, the amount

12 taken into account with respect to any asset shall be

13 its adjusted basis as determined for purposes of

14 computing earnings and profits.

15 ‘‘(2) PASSIVE ASSET.—

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

17 provided in this section, the term ‘passive asset’

18 means any asset held by the controlled foreign

19 corporation which produces passive income (as

20 defined in section 1296(b)) or is held for the

21 production of such income.

22 ‘‘(B) COORDINATION WITH SECTION 956.—

23 The term ‘passive asset’ shall not include any

24 United States property (as defined in section

25 956).
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1 ‘‘(3) LOOK-THRU RULES MADE APPLICABLE.—

2 For purposes of this subsection, the rules of section

3 1296(c) shall apply.

4 ‘‘(4) LEASING RULES MADE APPLICABLE.—For

5 purposes of this subsection, the rules of section

6 1297(d) shall apply.

7 ‘‘(e) SPECIAL RULE WHERE CORPORATION CEASES

8 TO BE CONTROLLED FOREIGN CORPORATION DURING

9 TAXABLE YEAR.—If any foreign corporation ceases to be

10 a controlled foreign corporation during any taxable year—

11 ‘‘(1) the determination of any United States

12 shareholder’s pro rata share shall be made on the

13 basis of stock owned (within the meaning of section

14 958(a)) by such shareholder on the last day during

15 the taxable year on which the foreign corporation is

16 a controlled foreign corporation, and

17 ‘‘(2) the amount of such corporation’s excess

18 passive assets for such taxable year shall be deter19 mined by only taking into account quarters ending

20 on or before such last day, and

21 ‘‘(3) in determining applicable earnings, the

22 amount taken into account by reason of being de23 scribed in paragraph (2) of section 316(a) shall be

24 the portion of the amount so described which is allo25 cable (on a pro rata basis) to the part of such year
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1 during which the corporation is a controlled foreign

2 corporation.

3 ‘‘(f) TRANSITION RULE.—In the case of any taxable

4 year of a controlled foreign corporation beginning after

5 September 30, 1993, and before October 1, 1997, the

6 amount determined under subsection (a) shall be the ap7 plicable percentage (determined under the following table)

8 of the amount which would otherwise be determined under

9 such subsection:

‘‘In the case of a taxable year

beginning during the 1-year The applicable

period beginning on: percentage is:

October 1, 1993 ........................................................ 20

October 1, 1994 ........................................................ 25

October 1, 1995 ........................................................ 35

October 1, 1996 ........................................................ 50.

10 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

11 such regulations as may be necessary to carry out the pur12 poses of this section, including regulations to prevent the

13 avoidance of the provisions of this section through reorga14 nizations or otherwise.’’.

15 (c) PREVIOUSLY TAXED INCOME RULES.—

16 (1) IN GENERAL.—Subsection (a) of section

17 959 (relating to exclusion from gross income of pre18 viously taxed earnings and profits) is amended by

19 striking ‘‘or’’ at the end of paragraph (1), by adding

20 ‘‘or’’ at the end of paragraph (2), and by inserting

21 after paragraph (2) the following new paragraph:
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1 ‘‘(3) such amounts would, but for this sub2 section, be included under section 951(a)(1)(C) in

3 the gross income of,’’.

4 (2) ALLOCATION RULES.—

5 (A) Subsection (a) of section 959 is

6 amended by adding at the end thereof the fol7 lowing new sentence: ‘‘The rules of subsection

8 (c) shall apply for purposes of paragraph (1) of

9 this subsection and the rules of subsection (f)

10 shall apply for purposes of paragraphs (2) and

11 (3) of this subsection.’’.

12 (B) Section 959 is amended by adding at

13 the end thereof the following new subsection:

14 ‘‘(f) ALLOCATION RULES FOR CERTAIN INCLU15 SIONS.—For purposes of this section, amounts that would

16 be included under subparagraph (B) or (C) of section

17 951(a)(1) (determined without regard to this section) shall

18 be treated as attributable first to earnings described in

19 subsection (c)(2), and then to earnings described in sub20 section (c)(3).’’

21 (C) Paragraph (1) of section 959(c) is

22 amended to read as follows:

23 ‘‘(1) first to the aggregate of—

24 ‘‘(A) earnings and profits attributable to

25 amounts included in gross income under section
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•J. 69–001A

1 951(a)(1)(B) (or which would have been in2 cluded except for subsection (a)(2) of this sec3 tion), and

4 ‘‘(B) earnings and profits attributable to

5 amounts included in gross income under section

6 951(a)(1)(C) (or which would have been in7 cluded except for subsection (a)(3) of this sec8 tion),

9 with any distribution being allocated between earn10 ings and profits described in subparagraph (A) and

11 earnings and profits described in subparagraph (B)

12 proportionately on the basis of the respective

13 amounts of such earnings and profits,’’.

14 (3) CONFORMING AMENDMENTS.—

15 (A) Subsections (a) and (b) of section 959

16 are each amended by striking ‘‘earnings and

17 profits for a taxable year’’ and inserting ‘‘earn18 ings and profits’’.

19 (B) Paragraph (2) of section 959(c) is

20 amended to read as follows:

21 ‘‘(2) then to earnings and profits attributable to

22 amounts included in gross income under section

23 951(a)(1)(A) (but reduced by amounts not included

24 under subparagraph (B) or (C) of section 951(a)(1)
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1 because of the exclusions in paragraphs (2) and (3)

2 of subsection (a) of this section), and’’

3 (d) MODIFICATIONS TO PASSIVE FOREIGN INVEST4 MENT COMPANY RULES.—

5 (1) ADJUSTED BASIS USED IN CERTAIN DETER6 MINATIONS.—Subsection (a) of section 1296 is

7 amended by striking the material following para8 graph (2) and inserting the following:

9 ‘‘In the case of a controlled foreign corporation (or any

10 other foreign corporation if such corporation so elects), the

11 determination under paragraph (2) shall be based on the

12 adjusted bases (as determined for purposes of computing

13 earnings and profits) of its assets in lieu of their value.

14 Such an election, once made, may be revoked only with

15 the consent of the Secretary.’’

16 (2) TREATMENT OF CERTAIN SUBPART F IN17 CLUSIONS.—Subsection (b) of section 1297 is

18 amended by adding at the end thereof the following

19 new paragraph:

20 ‘‘(9) TREATMENT OF CERTAIN SUBPART F IN21 CLUSIONS.—The term ‘distribution’ includes any

22 amount included in gross income under subpara23 graph (B) or (C) of section 951(a)(1).’’

24 (3) TREATMENT OF CERTAIN DEALERS IN SE25 CURITIES.—Subsection (b) of section 1296 is
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1 amended by adding at the end thereof the following

2 new paragraph:

3 ‘‘(3) TREATMENT OF CERTAIN DEALERS IN SE4 CURITIES.—In the case of any foreign corporation

5 which is a controlled foreign corporation (as defined

6 in section 957(a)), the term ‘passive income’ does

7 not include any income derived in the active conduct

8 of a securities business by such corporation if such

9 corporation is registered as a securities broker or

10 dealer under section 15(a) of the Securities Ex11 change Act of 1934 or is registered as a Government

12 securities broker or dealer under section 15C(a) of

13 such Act. To the extent provided in regulations, such

14 term shall not include any income derived in the ac15 tive conduct of a securities business by a controlled

16 foreign corporation which is not so registered. The

17 preceding provisions of this paragraph shall only

18 apply in the case of persons who are United States

19 shareholders (as defined in section 951(b)) in the

20 controlled foreign corporation.’’

21 (4) LEASING RULES.—Section 1297 is amended

22 by redesignating subsection (d) as subsection (e) and

23 by inserting after subsection (c) the following new

24 subsection:
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1 ‘‘(d) TREATMENT OF CERTAIN LEASED PROP2 ERTY.—For purposes of this part—

3 ‘‘(1) IN GENERAL.—Any tangible personal

4 property with respect to which a foreign corporation

5 is the lessee under a lease with a term of at least

6 12 months shall be treated as an asset actually held

7 by such corporation.

8 ‘‘(2) DETERMINATION OF ADJUSTED BASIS.—

9 ‘‘(A) IN GENERAL.—The adjusted basis of

10 any asset to which paragraph (1) applies shall

11 be the unamortized portion (as determined

12 under regulations prescribed by the Secretary)

13 of the present value of the payments under the

14 lease for the use of such property.

15 ‘‘(B) PRESENT VALUE.—For purposes of

16 subparagraph (A), the present value of pay17 ments described in subparagraph (A) shall be

18 determined in the manner provided in regula19 tions prescribed by the Secretary—

20 ‘‘(i) as of the beginning of the lease

21 term, and

22 ‘‘(ii) except as provided in such regu23 lations, by using a discount rate equal to

24 the applicable Federal rate determined

25 under section 1274(d)—
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1 ‘‘(I) by substituting the lease

2 term for the term of the debt instru3 ment, and

4 ‘‘(II) without regard to para5 graph (2) or (3) thereof.

6 ‘‘(3) EXCEPTIONS.—This subsection shall not

7 apply in any case where—

8 ‘‘(A) the lessor is a related person (as de9 fined in section 954(d)(3)) with respect to the

10 foreign corporation, or

11 ‘‘(B) a principal purpose of leasing the

12 property was to avoid the provisions of this sec13 tion.’’

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

15 this section shall apply to taxable years of controlled for16 eign corporations beginning after September 30, 1993,

17 and to taxable years of United States shareholders in

18 which or with which such taxable years of controlled for19 eign corporations end.

20 SEC. 2302. MODIFICATION TO TAXATION OF INVESTMENT

21 IN UNITED STATES PROPERTY.

22 (a) GENERAL RULE.—Section 956 (relating to in23 vestment of earnings in United States property) is amend24 ed—
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1 (1) by redesignating subsections (b) and (c) as

2 subsections (c) and (d), respectively, and

3 (2) by striking subsection (a) and inserting the

4 following:

5 ‘‘(a) GENERAL RULE.—In the case of any controlled

6 foreign corporation, the amount determined under this

7 section with respect to any United States shareholder for

8 any taxable year is the lesser of—

9 ‘‘(1) the excess (if any) of—

10 ‘‘(A) such shareholder’s pro rata share of

11 the average of the amounts of United States

12 property held (directly or indirectly) by the con13 trolled foreign corporation as of the close of

14 each quarter of such taxable year, over

15 ‘‘(B) the aggregate amount previously in16 cluded under section 951(a)(1)(B) (or which

17 would have been included but for section

18 959(a)(2)) in the gross income of such share19 holder (or of any other United States person

20 from whom such shareholder acquired any por21 tion of his interest in the controlled foreign cor22 poration, but only to the extent attributable to

23 the acquired interest and subject to such proof

24 of the identity of such interest as the Secretary

25 may require), or
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1 ‘‘(2) such shareholder’s pro rata share of the

2 applicable earnings of such controlled foreign cor3 poration.

4 The amount taken into account under paragraph (1) with

5 respect to any property shall be its adjusted basis as deter6 mined for purposes of computing earnings and profits, re7 duced by any liability to which the property is subject.

8 ‘‘(b) ADJUSTMENTS FOR CERTAIN DISTRIBUTIONS;

9 OTHER SPECIAL RULES.—

10 ‘‘(1) ADJUSTMENT FOR CERTAIN DISTRIBU11 TIONS OF PREVIOUSLY TAXED INCOME.—The

12 amount determined under subsection (a)(1)(B) shall

13 be reduced by the amount of any distribution ex14 cluded from gross income under section 959 and

15 treated as a distribution out of earnings and profits

16 described in section 959(c)(1)(A).

17 ‘‘(2) APPLICABLE EARNINGS.—For purposes of

18 this section, the term ‘applicable earnings’ has the

19 meaning given to such term by section 956A(c).

20 ‘‘(3) SPECIAL RULE WHERE CORPORATION

21 CEASES TO BE CONTROLLED FOREIGN CORPORA22 TION.—Rules similar to the rules of section 956A(e)

23 shall apply for purposes of this section.

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (B) of section 951(a)(1) is

2 amended to read as follows:

3 ‘‘(B) the amount determined under section

4 956 with respect to such shareholder for such

5 year (but only to the extent not excluded from

6 gross income under section 959(a)(2)); and’’

7 (2) Subsection (a) of section 951 is amended by

8 striking paragraph (4).

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

10 this section shall apply to taxable years of controlled for11 eign corporations beginning after September 30, 1993,

12 and to taxable years of United States shareholders in

13 which or with which such taxable years of controlled for14 eign corporations end.

15 SEC. 2303. OTHER MODIFICATIONS TO SUBPART F.

16 (a) SAME COUNTRY EXCEPTION NOT TO APPLY TO

17 CERTAIN DIVIDENDS.—

18 (1) IN GENERAL.—Paragraph (3) of section

19 954(c) (relating to certain income received from re20 lated persons) is amended by adding at the end

21 thereof the following new subparagraph:

22 ‘‘(C) EXCEPTION FOR CERTAIN DIVI23 DENDS.—Subparagraph (A)(i) shall not apply

24 to any dividend with respect to any stock which

25 is attributable to earnings and profits of the
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1 distributing corporation accumulated during

2 any period during which the person receiving

3 such dividend did not hold such stock.’’

4 (2) EFFECTIVE DATE.—The amendment made

5 by paragraph (1) shall apply to taxable years of con6 trolled foreign corporations beginning after Septem7 ber 30, 1993, and to taxable years of United States

8 shareholders in which or with which such taxable

9 years of controlled foreign corporations end.

10 (b) SIMPLIFICATION OF SECTION 960(b).—

11 (1) IN GENERAL.—Subsection (b) of section

12 960 is amended—

13 (A) by redesignating paragraphs (3) and

14 (4) as paragraphs (4) and (5), respectively, and

15 (B) by striking paragraphs (1) and (2) and

16 inserting the following new paragraphs:

17 ‘‘(1) INCREASE IN SECTION 904 LIMITATION.—

18 In the case of any taxpayer who—

19 ‘‘(A) either (i) chose to have the benefits

20 of subpart A of this part for a taxable year be21 ginning after September 30, 1993, in which he

22 was required under section 951(a) to include

23 any amount in his gross income, or (ii) did not

24 pay or accrue for such taxable year any income,

25 war profits, or excess profits taxes to any for-
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1 eign country or to any possession of the United

2 States,

3 ‘‘(B) chooses to have the benefits of sub4 part A of this part for any taxable year in

5 which he receives 1 or more distributions or

6 amounts which are excludable from gross in7 come under section 959(a) and which are at8 tributable to amounts included in his gross in9 come for taxable years referred to in subpara10 graph (A), and

11 ‘‘(C) for the taxable year in which such

12 distributions or amounts are received, pays, or

13 is deemed to have paid, or accrues income, war

14 profits, or excess profits taxes to a foreign

15 country or to any possession of the United

16 States with respect to such distributions or

17 amounts,

18 the limitation under section 904 for the taxable year

19 in which such distributions or amounts are received

20 shall be increased by the lesser of the amount of

21 such taxes paid, or deemed paid, or accrued with re22 spect to such distributions or amounts or the

23 amount in the excess limitation account as of the be24 ginning of such taxable year.

25 ‘‘(2) EXCESS LIMITATION ACCOUNT.—
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1 ‘‘(A) ESTABLISHMENT OF ACCOUNT.—

2 Each taxpayer meeting the requirements of

3 paragraph (1)(A) shall establish an excess limi4 tation account. The opening balance of such ac5 count shall be zero.

6 ‘‘(B) INCREASES IN ACCOUNT.—For each

7 taxable year beginning after September 30,

8 1993, the taxpayer shall increase the amount in

9 the excess limitation account by the excess (if

10 any) of—

11 ‘‘(i) the amount by which the limita12 tion under section 904(a) for such taxable

13 year was increased by reason of the total

14 amount of the inclusions in gross income

15 under section 951(a) for such taxable year,

16 over

17 ‘‘(ii) the amount of any income, war

18 profits, and excess profits taxes paid, or

19 deemed paid, or accrued to any foreign

20 country or possession of the United States

21 which were allowable as a credit under sec22 tion 901 for such taxable year and which

23 would not have been allowable but for the

24 inclusions in gross income described in

25 clause (i).
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1 Proper reductions in the amount added to the

2 account under the preceding sentence for any

3 taxable year shall be made for any increase in

4 the credit allowable under section 901 for such

5 taxable year by reason of a carryback if such

6 increase would not have been allowable but for

7 the inclusions in gross income described in

8 clause (i).

9 ‘‘(C) DECREASES IN ACCOUNT.—For each

10 taxable year beginning after September 30,

11 1993, for which the limitation under section

12 904 was increased under paragraph (1), the

13 taxpayer shall reduce the amount in the excess

14 limitation account by the amount of such in15 crease.

16 ‘‘(3) DISTRIBUTIONS OF INCOME PREVIOUSLY

17 TAXED IN YEARS BEGINNING BEFORE OCTOBER 1,

18 1993.—If the taxpayer receives a distribution or

19 amount in a taxable year beginning after September

20 30, 1993, which is excluded from gross income

21 under section 959(a) and is attributable to any

22 amount included in gross income under section

23 951(a) for a taxable year beginning before October

24 1, 1993, the limitation under section 904 for the

25 taxable year in which such amount or distribution is
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1 received shall be increased by the amount deter2 mined under this subsection as in effect on the day

3 before the date of the enactment of the Revenue

4 Reconcilation Act of 1993.’’

5 (2) EFFECTIVE DATE.—The amendment made

6 by paragraph (1) shall apply to taxable years begin7 ning after September 30, 1993.

8 PART II—ALLOCATION OF RESEARCH AND EX9 PERIMENTAL EXPENDITURES; TREATMENT

10 OF CERTAIN ROYALTIES

11 SEC. 2311. ALLOCATION OF RESEARCH AND EXPERI12 MENTAL EXPENDITURES.

13 (a) GENERAL RULE.—Paragraph (1) of section

14 864(f) (relating to allocation of research and experimental

15 expenditures) is amended by striking subparagraphs (B)

16 and (C) and inserting the following:

17 ‘‘(B) In the case of any qualified research

18 and experimental expenditures (not allocated

19 under subparagraph (A))—

20 ‘‘(i) to the extent such expenditures

21 are attributable to activities conducted in

22 the United States, 100 percent of such ex23 penditures shall be allocated and appor24 tioned to income from sources within the

25 United States and deducted from such in-
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1 come in determining the amount of taxable

2 income from sources within the United

3 States, and

4 ‘‘(ii) to the extent such expenditures

5 are attributable to activities conducted out6 side the United States, such expenditures

7 shall be allocated and apportioned on the

8 basis of gross sales.’’

9 (b) CONFORMING AMENDMENTS.—

10 (1) Subsection (f) of section 864 is amended by

11 striking paragraph (5) and inserting the following:

12 ‘‘(5) REGULATIONS.—The Secretary shall pre13 scribe such regulations as may be appropriate to

14 carry out the purposes of this subsection, including

15 regulations relating to the determination of whether

16 any expenses are attributable to activities conducted

17 in the United States or outside the United States

18 and regulations providing such adjustments to the

19 provisions of this subsection as may be appropriate

20 in the case of cost-sharing arrangements and con21 tract research.’’

22 (2) Subparagraph (D) of section 864(f)(4) is

23 amended by striking ‘‘subparagraph (C)’’ and insert24 ing ‘‘subparagraph (B) or (C)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1993.

4 SEC. 2312. ROYALTIES TREATED AS PASSIVE INCOME FOR

5 PURPOSES OF SEPARATE APPLICATION OF

6 FOREIGN TAX CREDIT.

7 (a) GENERAL RULE.—Subparagraph (A) of section

8 904(d)(2) (defining passive income) is amended by redes9 ignating clauses (iii) and (iv) as clauses (iv) and (v), re10 spectively, and by inserting after clause (ii) the following

11 new clause:

12 ‘‘(iii) INCLUSION OF ROYALTIES.—Ex13 cept as provided in clause (iv), the term

14 ‘passive income’ includes—

15 ‘‘(I) any royalty in respect of any

16 intangible property described in sec17 tion 936(h)(3)(B) (whether or not the

18 requirements of paragraph (2)(A) or

19 (3)(A)(ii) of section 954(c) are met),

20 and

21 ‘‘(II) any other payment for the

22 use of, or for the right or privilege to

23 use, any intangible property so de24 scribed and any payment made in con25 sideration of a sale or other disposi-
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1 tion of any such intangible property to

2 the extent that such payment is con3 tingent on the productivity, use, or

4 disposition of such property.’’

5 (b) DETERMINATION OF WHETHER ROYALTIES ARE

6 HIGH-TAXED INCOME.—Subparagraph (F) of section

7 904(d)(2) is amended by adding at the end thereof the

8 following new sentence: ‘‘For purposes of this subpara9 graph, all items of income described in clause (iii) of sub10 paragraph (A) shall be treated as 1 item of income.’’.

11 (c) LOOK-THRU RULES NOT APPLICABLE TO CER12 TAIN ROYALTIES.—Paragraph (3) of section 904(d) is

13 amended by adding at the end thereof the following new

14 subparagraph:

15 ‘‘(J) LOOK-THRU RULES NOT APPLICABLE

16 TO CERTAIN ROYALTIES.—For purposes of this

17 paragraph, the term ‘royalty’ shall not include

18 any royalty in respect of intangible property de19 scribed in section 936(h)(3)(B).’’

20 (d) CONFORMING AMENDMENTS.—

21 (1) Clause (ii) of section 904(d)(2)(A) is

22 amended by striking ‘‘clause (iii)’’ and inserting

23 ‘‘clause (iv)’’.
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1 (2) Subclause (II) of section 904(d)(2)(C)(i) is

2 amended by striking ‘‘subparagraph (A)(iii)’’ and in3 serting ‘‘subparagraph (A)(iv)’’.

4 (3) Subclause (I) of section 904(d)(3)(F)(ii) is

5 amended by striking ‘‘paragraph (2)(A)(iii)’’ and in6 serting ‘‘paragraph (2)(A)(iv)’’.

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

8 this section shall apply to taxable years beginning after

9 December 31, 1993.

10 PART III—OTHER PROVISIONS

11 SEC. 2321. REPEAL OF CERTAIN EXCEPTIONS FOR WORK12 ING CAPITAL.

13 (a) PROVISIONS RELATING TO OIL AND GAS IN14 COME.—

15 (1) AMENDMENTS TO SECTION 907.—

16 (A) Paragraph (1) of section 907(c) is

17 amended by adding at the end thereof the fol18 lowing new flush sentence:

19 ‘‘Such term does not include any dividend or interest in20 come which is passive income (as defined in section

21 904(d)(2)(A)).’’.

22 (B) Paragraph (2) of section 907(c) is

23 amended by adding at the end thereof the fol24 lowing new flush sentence:
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1 ‘‘Such term does not include any dividend or interest in2 come which is passive income (as defined in section

3 904(d)(2)(A)).’’.

4 (2) SEPARATE APPLICATION OF FOREIGN TAX

5 CREDIT.—Clause (iii) of section 904(d)(2)(A) is

6 amended by inserting ‘‘and’’ at the end of subclause

7 (II), by striking ‘‘, and’’ at the end of subclause

8 (III) and inserting a period, and by striking

9 subclause (IV).

10 (3) TREATMENT UNDER SUBPART F.—

11 (A) Paragraph (1) of section 954(g) is

12 amended by adding at the end thereof the fol13 lowing new flush sentence:

14 ‘‘Such term shall not include any foreign personal holding

15 company income (as defined in subsection (c)).’’.

16 (B) Paragraph (8) of section 954(b) is

17 amended by striking ‘‘(1),’’.

18 (b) TREATMENT OF SHIPPING INCOME.—Subsection

19 (f) of section 954 is amended by adding at the end thereof

20 the following new sentence: ‘‘Such term shall not include

21 any dividend or interest income which is foreign personal

22 holding company income (as defined in subsection (c)).’’.

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

24 this section shall apply to taxable years beginning after

25 December 31, 1992.
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1 SEC. 2322. MODIFICATIONS OF ACCURACY-RELATED PEN2 ALTY.

3 (a) THRESHOLD REQUIREMENT.—Clause (ii) of sec4 tion 6662(e)(1)(B) (relating to substantial valuation

5 misstatement under chapter 1) is amended to read as fol6 lows:

7 ‘‘(ii) the net section 482 transfer price

8 adjustment for the taxable year exceeds

9 the lesser of $5,000,000 or 10 percent of

10 the taxpayer’s gross receipts.’’

11 (b) CERTAIN ADJUSTMENTS EXCLUDED IN DETER12 MINING THRESHOLD.—Subparagraph (B) of section

13 6662(e)(3) is amended to read as follows:

14 ‘‘(B) CERTAIN ADJUSTMENTS EXCLUDED

15 IN DETERMINING THRESHOLD.—For purposes

16 of determining whether the threshold require17 ments of paragraph (1)(B)(ii) are met, the fol18 lowing shall be excluded:

19 ‘‘(i) Any portion of the net increase in

20 taxable income referred to in subparagraph

21 (A) which is attributable to any redeter22 mination of a price if—

23 ‘‘(I) it is established that the tax24 payer determined such price in ac25 cordance with a specific pricing meth26 od set forth in the regulations pre-
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1 scribed under section 482 and that

2 the taxpayer’s use of such method was

3 reasonable,

4 ‘‘(II) the taxpayer has docu5 mentation (which was in existence as

6 of the time of filing the return) which

7 sets forth the determination of such

8 price in accordance with such a meth9 od and which establishes that the use

10 of such method was reasonable, and

11 ‘‘(III) the taxpayer provides such

12 documentation to the Secretary within

13 30 days of a request for such docu14 mentation.

15 ‘‘(ii) Any portion of the net increase

16 in taxable income referred to in subpara17 graph (A) which is attributable to a rede18 termination of price where such price was

19 not determined in accordance with such a

20 specific pricing method if—

21 ‘‘(I) the taxpayer establishes that

22 none of such pricing methods was

23 likely to result in a price that would

24 clearly reflect income, the taxpayer

25 used another pricing method to deter-
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1 mine such price, and such other pric2 ing method was likely to result in a

3 price that would clearly reflect in4 come,

5 ‘‘(II) the taxpayer has docu6 mentation (which was in existence as

7 of the time of filing the return) which

8 sets forth the determination of such

9 price in accordance with such other

10 method and which establishes that the

11 requirements of subclause (I) were

12 satisfied, and

13 ‘‘(III) the taxpayer provides such

14 documentation to the Secretary within

15 30 days of request for such docu16 mentation.

17 ‘‘(iii) Any portion of such net increase

18 which is attributable to any transaction

19 solely between foreign corporations unless,

20 in the case of any such corporations, the

21 treatment of such transaction affects the

22 determination of income from sources with23 in the United States or taxable income ef24 fectively connected with the conduct of a
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1 trade or business within the United

2 States.’’

3 (b) COORDINATION WITH REASONABLE CAUSE EX4 CEPTION.—Paragraph (3) of section 6662(e) is amended

5 by adding at the end thereof the following new subpara6 graph:

7 ‘‘(D) COORDINATION WITH REASONABLE

8 CAUSE EXCEPTION.—For purposes of section

9 6664(c) the taxpayer shall not be treated as

10 having reasonable cause for any portion of an

11 underpayment attributable to a net section 482

12 transfer price adjustment unless such taxpayer

13 meets the requirements of clause (i), (ii), or (iii)

14 of subparagraph (B) with respect to such por15 tion.’’

16 (c) CONFORMING AMENDMENT.—Clause (iii) of sec17 tion 6662(h)(2)(A) is amended to read as follows:

18 ‘‘(iii) in paragraph (1)(B)(ii)—

19 ‘‘(I) ‘$20,000,000’ for

20 ‘$5,000,000’, and

21 ‘‘(II) ‘20 percent’ for ‘10 per22 cent’.’’

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

24 this section shall apply to taxable years beginning after

25 December 31, 1993.
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1 SEC. 2323. DENIAL OF PORTFOLIO INTEREST EXEMPTION

2 FOR CONTINGENT INTEREST.

3 (a) GENERAL RULE.—

4 (1) Subsection (h) of section 871 (relating to

5 repeal of tax on interest of nonresident alien individ6 uals received from certain portfolio debt invest7 ments) is amended by redesignating paragraphs (4),

8 (5), and (6) as paragraphs (5), (6), and (7), respec9 tively, and by inserting after paragraph (3) the fol10 lowing new paragraph:

11 ‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE

12 CERTAIN CONTINGENT INTEREST.—For purposes of

13 this subsection—

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

15 provided in this paragraph, the term ‘portfolio

16 interest’ shall not include—

17 ‘‘(i) any interest if the amount of such

18 interest is determined by reference to—

19 ‘‘(I) any receipts, sales or other

20 cash flow of the debtor or a related

21 person,

22 ‘‘(II) any income or profits of the

23 debtor or a related person,

24 ‘‘(III) any change in value of any

25 property of the debtor or a related

26 person, or
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1 ‘‘(IV) any dividend, partnership

2 distributions, or similar payments

3 made by the debtor or a related per4 son, or

5 ‘‘(ii) any other type of contingent in6 terest that is identified by the Secretary by

7 regulation, where a denial of the portfolio

8 interest exemption is necessary or appro9 priate to prevent avoidance of Federal in10 come tax.

11 ‘‘(B) RELATED PERSON.—The term ‘relat12 ed person’ means any person who is related to

13 the debtor within the meaning of section 267(b)

14 or 707(b)(1), or who is a party to any arrange15 ment undertaken for a purpose of avoiding the

16 application of this paragraph.

17 ‘‘(C) EXCEPTIONS.—Subparagraph (A)(i)

18 shall not apply to—

19 ‘‘(i) any amount of interest solely by

20 reason of the fact that the timing of any

21 interest or principal payment is subject to

22 a contingency,

23 ‘‘(ii) any amount of interest solely by

24 reason of the fact that the interest is paid
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1 with respect to nonrecourse or limited re2 course indebtedness,

3 ‘‘(iii) any amount of interest all or

4 substantially all of which is determined by

5 reference to any other amount of interest

6 not described in subparagraph (A) (or by

7 reference to the principal amount of in8 debtedness on which such other interest is

9 paid),

10 ‘‘(iv) any amount of interest solely by

11 reason of the fact that the debtor or a re12 lated person enters into a hedging trans13 action to reduce the risk of interest rate or

14 currency fluctuations with respect to such

15 interest,

16 ‘‘(v) any amount of interest deter17 mined by reference to—

18 ‘‘(I) changes in the value of prop19 erty (including stock) that is actively

20 traded (within the meaning of section

21 1092(d)) other than property de22 scribed in section 897(c)(1) or (g),

23 ‘‘(II) the yield on property de24 scribed in subclause (I), other than a

25 debt instrument that pays interest de-
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•J. 69–001A

1 scribed in subparagraph (A), or stock

2 or other property that represents a

3 beneficial interest in the debtor or a

4 related person, or

5 ‘‘(III) changes in any index of

6 the value of, or yield on, property de7 scribed in subclause (I), and

8 ‘‘(vi) any other type of interest identi9 fied by the Secretary by regulation.

10 ‘‘(D) EXCEPTION FOR CERTAIN EXISTING

11 INDEBTEDNESS.—Subparagraph (A) shall not

12 apply to any interest paid or accrued with re13 spect to any indebtedness with a fixed term—

14 ‘‘(i) which was issued on or before

15 April 7, 1993, or

16 ‘‘(ii) which was issued after such date

17 pursuant to a written binding contract in

18 effect on such date and at all times there19 after before such indebtedness was issued.’’

20 (2) Subsection (c) of section 881 is amended by

21 redesignating paragraphs (4), (5), and (6) as para22 graphs (5), (6), and (7), respectively, and by insert23 ing after paragraph (3) the following new para24 graph:
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1 ‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE

2 CERTAIN CONTINGENT INTEREST.—For purposes of

3 this subsection, the term ‘portfolio interest’ shall not

4 include any interest which is treated as not being

5 portfolio interest under the rules of section

6 871(h)(4).’’

7 (b) CONFORMING AMENDMENTS.—

8 (1) Clause (ii) of section 871(h)(2)(B) is

9 amended by striking ‘‘paragraph (4)’’ and inserting

10 ‘‘paragraph (5)’’.

11 (2) Clause (ii) of section 881(c)(2)(B) is

12 amended by striking ‘‘section 871(h)(4)’’ and insert13 ing ‘‘section 871(h)(5)’’.

14 (3) Paragraph (6) of section 881(c) (as redesig15 nated by subsection (a)) is amended by striking

16 ‘‘section 871(h)(5)’’ each place it appears and in17 serting ‘‘section 871(h)(6)’’.

18 (4) Paragraph (9) of section 1441(c) is amend19 ed by striking ‘‘section 871(h)(3)’’ and inserting

20 ‘‘section 871(h)(3) or (4)’’.

21 (5) Subsection (a) of section 1442 is amend22 ed—

23 (A) by striking ‘‘871(h)(3)’’ and inserting

24 ‘‘871(h)(3) or (4)’’, and
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1 (B) by striking ‘‘881(c)(3)’’ and inserting

2 ‘‘881(c)(3) or (4)’’.

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

4 this section shall apply to interest received after December

5 31, 1993.

6 SEC. 2324. REGULATIONS DEALING WITH CONDUIT AR7 RANGEMENTS.

8 Section 7701 is amended by redesignating subsection

9 (l) as subsection (m) and by inserting after subsection (k)

10 the following new subsection:

11 ‘‘(l) REGULATIONS RELATING TO CONDUIT AR12 RANGEMENTS.—The Secretary may prescribe regulations

13 recharacterizing any multiple-party financing transaction

14 as a transaction directly among any 2 or more of such

15 parties where the Secretary determines that such

16 recharacterization is appropriate to prevent avoidance of

17 any tax imposed by this title.’’

18 Subtitle D—Energy Tax Provision

19 SEC. 2401. IMPOSITION OF ENERGY TAX BASED ON BTU

20 CONTENT.

21 (a) IN GENERAL.—Chapter 36 (relating to other ex22 cise taxes) is amended by redesignating subchapters A and

23 B as subchapters B and C, respectively, and by inserting

24 before subchapter B (as so redesignated) the following

25 new subchapter:
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•J. 69–001A

1 ‘‘SUBCHAPTER A—ENERGY TAXES

‘‘Part I. Imposition of taxes.

‘‘Part II. Tax rates; applicable Btu factors.

‘‘Part III. Tax-free sales; refunds of tax for certain sales and

uses.

‘‘Part IV. Use taxes; floor stocks taxes; administrative provisions;

definitions and special rules.

2 ‘‘Part I—Imposition of Taxes

‘‘Sec. 4441. Taxable refined petroleum products.

‘‘Sec. 4442. Natural gas.

‘‘Sec. 4443. Coal.

‘‘Sec. 4444. Certain electricity.

3 ‘‘SEC. 4441. TAXABLE REFINED PETROLEUM PRODUCTS.

4 ‘‘(a) GENERAL RULE.—There is hereby imposed a

5 tax on any taxable refined petroleum product—

6 ‘‘(1) removed from any United States refinery,

7 or

8 ‘‘(2) entered into the United States for con9 sumption, use, or warehousing.

10 ‘‘(b) RATE OF TAX.—

11 ‘‘(1) IN GENERAL.—The amount of the tax im12 posed by subsection (a) on each barrel of any tax13 able refined petroleum product shall be the sum of—

14 ‘‘(A) the base rate, and

15 ‘‘(B) the supplemental rate,

16 multiplied by the applicable Btu factor for such

17 product.

18 ‘‘(2) ONLY BASE RATE APPLIES TO LIQUEFIED

19 PETROLEUM GASES.—In the case of any liquefied
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1 petroleum gas, subparagraph (B) of paragraph (1)

2 shall not apply.

3 ‘‘(c) LIABILITY FOR TAX.—

4 ‘‘(1) REMOVAL.—

5 ‘‘(A) IN GENERAL.—Except as provided in

6 paragraph (2), the tax imposed by subsection

7 (a)(1) shall be paid by the operator of the

8 United States refinery.

9 ‘‘(B) PRODUCTS REMOVED FROM NATURAL

10 GAS PROCESSING OR FRACTIONATION

11 PLANTS.—In the case of a product removed

12 from a natural gas processing or fractionation

13 plant, the tax imposed by subsection (a)(1)

14 shall be paid by the person receiving the prod15 uct at the time of removal, and the operator of

16 such plant shall collect such tax from such

17 person.

18 ‘‘(2) IMPORTATION.—The tax imposed by sub19 section (a)(2) shall be paid by the person entering

20 the product into the United States for consumption,

21 use, or warehousing.

22 ‘‘(d) TAXABLE REFINED PETROLEUM PRODUCT.—

23 For purposes of this subchapter, the term ‘taxable refined

24 petroleum product’ means—

25 ‘‘(1) aviation gasoline,
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1 ‘‘(2) motor gasoline (including blending compo2 nents of gasoline),

3 ‘‘(3) kerosene-type jet fuel,

4 ‘‘(4) naphtha-type jet fuel,

5 ‘‘(5) distillate fuel oil,

6 ‘‘(6) kerosene,

7 ‘‘(7) residual fuel oil,

8 ‘‘(8) petroleum coke,

9 ‘‘(9) butane,

10 ‘‘(10) propane, and

11 ‘‘(11) to the extent provided in regulations

12 prescribed by the Secretary, any other petroleum

13 product.

14 ‘‘(e) CREDIT OR REFUND WHERE PRIOR TAX IM15 POSED.—If tax was imposed under this section with re16 spect to any taxable refined petroleum product and such

17 product is received at any United States refinery other

18 than for use as a fuel, credit or refund (without interest)

19 of such tax shall be allowed or made to the operator of

20 such refinery.

21 ‘‘(f) OTHER DEFINITIONS.—For purposes of this

22 subchapter—

23 ‘‘(1) UNITED STATES REFINERY.—The term

24 ‘United States refinery’ means any facility in the

25 United States—
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1 ‘‘(A) at which crude oil or any petroleum

2 product is refined, or

3 ‘‘(B) which is a natural gas processing or

4 fractionation plant.

5 ‘‘(2) BARREL.—The term ‘barrel’ means 42

6 United States gallons measured at 60 degrees Fahr7 enheit. In the case of a taxable refined petroleum

8 product which is not a liquid at such temperature,

9 the term ‘barrel’ means a volume determined under

10 regulations prescribed by the Secretary on the basis

11 of an equivalence to a barrel of oil.

12 ‘‘SEC. 4442. NATURAL GAS.

13 ‘‘(a) GENERAL RULE.—There is hereby imposed a

14 tax on natural gas removed in the United States from any

15 pipeline (not part of a local distribution system)—

16 ‘‘(1) for transmission to ultimate users through

17 a local distribution system, or

18 ‘‘(2) for use prior to entry into a local distribu19 tion system.

20 ‘‘(b) RATE OF TAX.—

21 ‘‘(1) IN GENERAL.—The amount of the tax im22 posed by subsection (a) on each MCF of natural gas

23 shall be the base rate multiplied by the applicable

24 Btu factor.
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1 ‘‘(2) AUTHORITY TO USE ACTUAL BTU CON2 TENT.—To the extent provided in regulations pre3 scribed by the Secretary, the amount of the tax im4 posed by subsection (a) shall be the base rate for

5 each million Btu’s of the actual Btu content of the

6 natural gas.

7 ‘‘(c) LIABILITY FOR, AND COLLECTION OF, TAX.—

8 ‘‘(1) LIABILITY FOR TAX.—

9 ‘‘(A) The tax imposed by subsection (a)(1)

10 shall be paid by the operator of the local dis11 tribution system.

12 ‘‘(B) The tax imposed by subsection (a)(2)

13 shall be paid by the person receiving the natu14 ral gas at the time of removal.

15 ‘‘(2) COLLECTION OF TAX.—The operator of

16 the pipeline shall collect the tax imposed by sub17 section (a) from the person liable for payment of

18 such tax.

19 ‘‘(d) DEFINITIONS.—For purposes of this sub20 chapter—

21 ‘‘(1) NATURAL GAS.—The term ‘natural gas’

22 includes synthetic natural gas produced from coal or

23 from natural gas liquids.

24 ‘‘(2) MCF.—The term ‘MCF’ means 1,000

25 cubic feet of natural gas measured at a pressure of
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1 14.73 pounds per square inch (absolute) and a tem2 perature of 60 degrees Fahrenheit.

3 ‘‘(e) TAX ON ENTRY INTO LOCAL DISTRIBUTION

4 SYSTEM WHERE NO PRIOR TAX.—

5 ‘‘(1) IN GENERAL.—There is hereby imposed a

6 tax (computed as provided in subsection (b)) on the

7 entry of natural gas into any local distribution sys8 tem in the United States if no tax has been imposed

9 by subsection (a) before such entry.

10 ‘‘(2) LIABILITY FOR TAX.—The tax imposed by

11 this subsection shall be paid by the operator of the

12 local distribution system.

13 ‘‘SEC. 4443. COAL.

14 ‘‘(a) GENERAL RULE.—There is hereby imposed a

15 tax on coal received at any facility in the United States

16 for use as a fuel at such facility.

17 ‘‘(b) RATE OF TAX.—The amount of the tax imposed

18 by subsection (a) shall be the base rate for each million

19 Btu’s of the actual Btu content of the coal. For purposes

20 of the preceding sentence, the actual Btu content of any

21 coal shall be determined under procedures prescribed by

22 the Secretary.

23 ‘‘(c) LIABILITY FOR TAX.—
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1 ‘‘(1) IN GENERAL.—Except as provided in this

2 subsection, the tax imposed by subsection (a) shall

3 be paid by the operator of the facility.

4 ‘‘(2) COAL RECEIVED AT SMALL FACILITIES.—

5 If the ultimate vendor of coal received at a facility

6 receives a certificate from the operator of such facil7 ity (or otherwise determines) that such facility re8 ceived less than 1,000 tons of coal during the pre9 ceding calendar year, the tax imposed by subsection

10 (a) shall be paid by the ultimate vendor.

11 ‘‘(3) RESIDENTIAL PROPERTY.—In the case of

12 coal received at a residential property (as defined in

13 section 4448(b)(1)(B)), the tax imposed by sub14 section (a) shall be paid by the ultimate vendor.

15 ‘‘(d) EXCEPTION FOR COAL USED TO PRODUCE SYN16 THETIC NATURAL GAS.—The tax imposed by this section

17 shall not apply to coal received for use in the manufacture

18 or production of synthetic natural gas or any other syn19 thetic fuel specified in regulations prescribed by the Sec20 retary.

21 ‘‘SEC. 4444. CERTAIN ELECTRICITY.

22 ‘‘(a) GENERAL RULE.—There is hereby imposed a

23 tax on—
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1 ‘‘(1) the entry of any electricity generated at a

2 hydropower or nuclear power facility in the United

3 States—

4 ‘‘(A) into a transmission system, or

5 ‘‘(B) into a distribution system if not pre6 viously entered into a transmission system,

7 ‘‘(2) the use of electricity generated in the

8 United States which was not subject to tax under

9 paragraph (1), and

10 ‘‘(3) the transmission into the United States of

11 electricity which is generated outside the United

12 States.

13 ‘‘(b) RATES OF TAX.—

14 ‘‘(1) IN GENERAL.—Except as provided in para15 graph (2), the amount of the tax imposed by sub16 section (a) on each kilowatt hour of electricity shall

17 be the base rate multiplied by the applicable Btu

18 factor for electricity.

19 ‘‘(2) IMPORTED ELECTRICITY.—If the person

20 liable for the tax imposed by subsection (a)(3) estab21 lishes to the satisfaction of the Secretary that—

22 ‘‘(A) the electricity was not generated by

23 hydropower or nuclear power, and

24 ‘‘(B) the average Btu content per kilowatt

25 hour of the fuel used to generate the electricity
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1 was less than the applicable per unit Btu

2 amount otherwise applicable,

3 such lesser amount shall be used for purposes of

4 paragraph (1).

5 ‘‘(c) LIABILITY FOR TAX.—

6 ‘‘(1) ENTRY OR USE.—The taxes imposed by

7 paragraphs (1) and (2) of subsection (a) shall be

8 paid by the operator of the generating facility.

9 ‘‘(2) IMPORTATION.—The tax imposed by sub10 section (a)(3) shall be paid by the contract pur11 chaser of the electricity as of the time of trans12 mission into the United States.

13 ‘‘(d) EXCEPTIONS.—

14 ‘‘(1) CERTAIN IMPORTED ELECTRICITY.—The

15 tax imposed by subsection (a)(3) shall not apply to

16 electricity transmitted into the United States if the

17 person otherwise liable for such tax establishes to

18 the satisfaction of the Secretary that such electricity

19 was not generated using any fossil fuel, hydropower,

20 or nuclear power.

21 ‘‘(2) ELECTRICITY GENERATED FROM PUMPED

22 STORAGE, ETC.—The tax imposed by this section

23 shall not apply to electricity generated in the United

24 States from any hydropower source created by elec25 tricity.
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1 ‘‘(3) USE TAX EXCEPTION.—The Secretary may

2 provide by regulations that the tax imposed by sub3 section (a)(2) shall not apply in cases where the Sec4 retary determines that such an exception is war5 ranted, after taking into account the protection of

6 revenues to the United States from this subchapter

7 and the ease of administration for both taxpayers

8 and the Secretary.

9 ‘‘(e) CROSS REFERENCE.—

‘‘For special rules relating to independent power

producers, see section 4454(b).

10 ‘‘Part II—Tax Rates; Applicable Btu Factors

‘‘Sec. 4446. Tax rates.

‘‘Sec. 4447. Applicable Btu factors.

11 ‘‘SEC. 4446. TAX RATES.

12 ‘‘(a) BASE RATE.—For purposes of this sub13 chapter—

14 ‘‘(1) PHASE-IN RATES.—Effective during—

15 ‘‘(A) the 1-year period beginning on July

16 1, 1994, the base rate is 8.6 cents, and

17 ‘‘(B) the 1-year period beginning on July

18 1, 1995, the base rate is 17.2 cents.

19 ‘‘(2) PERMANENT UNINDEXED RATE.—Effec20 tive on and after July 1, 1996, the base rate is 25.7

21 cents.

22 ‘‘(3) INDEXED RATES.—
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1 ‘‘(A) IN GENERAL.—Effective during any

2 calendar year after 1997, the base rate under

3 paragraph (2) shall be increased by an amount

4 equal to—

5 ‘‘(i) 25.7 cents, multiplied by

6 ‘‘(ii) the inflation adjustment for such

7 calendar year.

8 ‘‘(B) INFLATION ADJUSTMENT.—For pur9 poses of subparagraph (A), the inflation adjust10 ment for any calendar year is the percentage (if

11 any) by which—

12 ‘‘(i) the GDP deflator for the preced13 ing calendar year, exceeds

14 ‘‘(ii) the GDP deflator for 1996.

15 ‘‘(C) GDP DEFLATOR FOR CALENDAR

16 YEAR.—For purposes of subparagraph (B), the

17 GDP deflator for any calendar year is the GDP

18 deflator for the second calendar quarter of such

19 year.

20 ‘‘(D) GDP DEFLATOR.—For purposes of

21 subparagraph (C), the term ‘GDP deflator’

22 means the most recent revision of the implicit

23 price deflator for the gross domestic product as

24 computed and published by the Department of
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1 Commerce before November 15 of the calendar

2 year referred to in subparagraph (B)(i).

3 ‘‘(b) SUPPLEMENTAL RATE.—For purposes of this

4 subchapter—

5 ‘‘(1) PHASE-IN RATES.—Effective during—

6 ‘‘(A) the 1-year period beginning on July

7 1, 1994, the supplemental rate is 11.4 cents,

8 and

9 ‘‘(B) the 1-year period beginning on July

10 1, 1995, the supplemental rate is 22.8 cents.

11 ‘‘(2) PERMANENT UNINDEXED RATE.—Effec12 tive on and after July 1, 1996, the supplemental

13 rate is 34.2 cents.

14 ‘‘(3) INDEXED RATES.—Effective during any

15 calendar year after 1997, the supplemental rate

16 under paragraph (2) shall be increased by an

17 amount equal to—

18 ‘‘(A) 34.2 cents, multiplied by

19 ‘‘(B) the inflation adjustment for such cal20 endar year determined under subsection

21 (a)(3)(B).

22 ‘‘(c) ROUNDING.—If any increase determined under

23 subsection (a)(3) or (b)(3) is not a multiple of 0.1 cent,

24 such increase shall be rounded to the nearest multiple of

25 0.1 cent.
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1 ‘‘SEC. 4447. APPLICABLE BTU FACTORS.

2 ‘‘(a) IN GENERAL.—For purposes of this subchapter,

3 the applicable Btu factor with respect to any petroleum

4 product, natural gas, or electricity is—

5 ‘‘(1) the applicable per unit Btu amount deter6 mined under subsection (b), divided by

7 ‘‘(2) 1,000,000.

8 ‘‘(b) APPLICABLE PER UNIT BTU AMOUNT.—For

9 purposes of this subchapter—

10 ‘‘(1) PETROLEUM PRODUCTS.—

11 ‘‘(A) IN GENERAL.—

The applicable per unit

Btu amount is the follow-

‘‘In the case of: ing amount per barrel:

Aviation gasoline ............................................ 5,048,000

Motor gasoline (including blending components of gasoline) ........................................... 5,267,000

Kerosene-type jet fuel .................................... 5,670,000

Naphtha-type jet fuel ..................................... 5,355,000

Distillate fuel oil ............................................ 5,852,000

Kerosene ........................................................ 5,670,000

Residual fuel oil ............................................. 6,486,000

Petroleum coke .............................................. 6,024,000

Butane ........................................................... 4,326,000

Propane .......................................................... 3,836,000.

12 ‘‘(B) MIXTURES.—Any mixture which in13 cludes a taxable refined petroleum product shall

14 be treated as specified in subparagraph (A)

15 and—

16 ‘‘(i) if more than 1 such product is in17 cluded in such mixture, the applicable per

18 unit Btu amount shall be the weighted av19 erage of the applicable per unit Btu
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1 amounts for the taxable refined petroleum

2 products included in the mixture, and

3 ‘‘(ii) if any substance is included in

4 the mixture which is not a taxable refined

5 petroleum product, the Btu content of such

6 product shall be disregarded for purposes

7 of subsection (c) and its volume shall be

8 disregarded.

9 ‘‘(2) NATURAL GAS.—In the case of natural

10 gas, the applicable per unit Btu amount is

11 1,031,000 per MCF.

12 ‘‘(3) ELECTRICITY.—In the case of electricity,

13 the applicable Btu amount is 10,335 per kilowatt

14 hour.

15 ‘‘(c) ADJUSTMENTS TO PER UNIT BTU AMOUNTS.—

16 ‘‘(1) PETROLEUM AND NATURAL GAS.—

17 ‘‘(A) IN GENERAL.—If the Secretary deter18 mines that the applicable per unit Btu amount

19 then in effect for any petroleum product or nat20 ural gas does not properly reflect the Btu con21 tent per unit for such substance (in the cir22 cumstances where taxable events under this

23 subchapter occur with respect to such sub24 stance), the Secretary may modify the applica25 ble per unit Btu amount for such substance.
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•J. 69–001A

1 Any such modification shall be effective as of

2 the date prescribed by the Secretary.

3 ‘‘(B) MODIFICATION OF LIST OF PETRO4 LEUM PRODUCTS.—The Secretary may modify,

5 as appropriate, the list of petroleum products

6 for which applicable per unit Btu amounts are

7 separately determined.

8 ‘‘(2) ELECTRICITY.—If the Secretary deter9 mines that the applicable per unit Btu amount then

10 in effect for electricity differs by more than 1 per11 cent from the national average Btu content per kilo12 watt hour of fossil fuel used to generate electricity,

13 such national average shall be the applicable per

14 unit Btu amount for such electricity effective as of

15 the date prescribed by the Secretary.

16 ‘‘Part III—Tax-Free Exports; Refunds of Tax for

17 Certain Sales and Uses

‘‘Sec. 4448. Tax-free exports; refunds for certain sales and uses.

18 ‘‘SEC. 4448. TAX-FREE EXPORTS; REFUNDS FOR CERTAIN

19 SALES AND USES.

20 ‘‘(a) EXPORTS.—No tax shall be imposed under part

21 I on any taxable energy source which is exported by the

22 person otherwise liable for such tax.

23 ‘‘(b) REFUNDS TO ULTIMATE VENDORS IN CERTAIN

24 CASES.—Under regulations prescribed by the Secretary—
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1 ‘‘(1) HOME HEATING OIL.—

2 ‘‘(A) IN GENERAL.—If tax was imposed

3 under this subchapter with respect to any No.

4 2 distillate fuel oil and such fuel oil is delivered

5 to any residential property for use in heating

6 such property, the Secretary shall pay to the ul7 timate vendor of such fuel oil an amount equal

8 to the product of the supplemental rate and the

9 applicable Btu factor per barrel of the fuel oil

10 so delivered.

11 ‘‘(B) RESIDENTIAL PROPERTY.—For pur12 poses of this paragraph, the term ‘residential

13 property’ means any building which consists

14 primarily of 1 or more dwelling units used for

15 residential purposes other than on a transient

16 basis.

17 ‘‘(2) INTERNATIONAL COMMERCIAL TRANSPOR18 TATION.—

19 ‘‘(A) IN GENERAL.—If tax was imposed

20 under this subchapter with respect to any tax21 able refined petroleum product and such prod22 uct is sold for use by the purchaser for inter23 national commercial transportation, the Sec24 retary shall pay to the ultimate vendor of such

25 product an amount equal to the tax so imposed.
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•J. 69–001A

1 ‘‘(B) INTERNATIONAL COMMERCIAL

2 TRANSPORTATION.—For purposes of subpara3 graph (A), the term ‘international commercial

4 transportation’ means transportation in the

5 trade or business of transporting persons or

6 property for hire—

7 ‘‘(i) by any vessel actually engaged in

8 foreign trade or trade between the United

9 States and any of its possessions, or

10 ‘‘(ii) by aircraft from a point within

11 the United States to a point outside the

12 United States and outside the 225-mile

13 zone (as defined in section 4262(c)(2)).

14 ‘‘(3) VENDOR REQUIREMENTS.—A payment

15 may be made under this subsection to a vendor only

16 if the vendor establishes that such vendor—

17 ‘‘(A) has not included the tax in the price

18 of the product, and

19 ‘‘(B) has not collected the tax from the

20 purchaser of such product.

21 ‘‘(c) REFUNDS TO ULTIMATE USERS IN CERTAIN

22 CASES.—Under regulations prescribed by the Secretary—

23 ‘‘(1) IN GENERAL.—If tax was imposed under

24 this subchapter with respect to any taxable energy

25 source and such source is used by any person in an
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•J. 69–001A

1 exempt use, the Secretary shall pay to such person

2 an amount equal to the tax so imposed.

3 ‘‘(2) EXEMPT USE.—For purposes of this sub4 section, the term ‘exempt use’ means—

5 ‘‘(A) export,

6 ‘‘(B) in the case of any taxable refined pe7 troleum product or natural gas—

8 ‘‘(i) any qualified nonfuel use, or

9 ‘‘(ii) use (other than as a fuel) in the

10 manufacture or production of methanol or

11 ether derivatives of ethanol or methanol,

12 ‘‘(C) the use of natural gas or coal in en13 hanced heavy oil recovery, and

14 ‘‘(D) the use of any taxable refined petro15 leum product in the production of synthetic nat16 ural gas or other synthetic fuels identified in

17 regulations prescribed by the Secretary.

18 ‘‘(3) SPECIAL RULE FOR EXPORTED ELEC19 TRICITY.—For purposes of this subsection, in the

20 case of electricity—

21 ‘‘(A) this subsection shall apply to all elec22 tricity exported from the United States which

23 was generated using hydropower, nuclear

24 power, or any fossil fuel, and
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•J. 69–001A

1 ‘‘(B) the rate of tax taken into account

2 under paragraph (1) shall be the rate applicable

3 under section 4444(b)(1).

4 ‘‘(4) QUALIFIED NONFUEL USE.—For purposes

5 of this subsection, the term ‘qualified nonfuel use’

6 means any use other than use—

7 ‘‘(A) as a fuel, or

8 ‘‘(B) in the manufacture or production of

9 any fuel.

10 ‘‘(5) ENHANCED HEAVY OIL RECOVERY.—For

11 purposes of this subsection, natural gas or coal shall

12 be treated as used in enhanced heavy oil recovery if

13 such gas or coal is used in a qualified enhanced oil

14 recovery project (as defined in section 43(c)(2) with15 out regard to subparagraph (A)(iii) thereof) for the

16 recovery of oil having a weighted average gravity of

17 20 degrees API or less (corrected to 60 degrees

18 Fahrenheit). In the case of natural gas or coal which

19 is used to produce both steam and electricity subject

20 to tax under section 4444(a)(1), only the portion of

21 the natural gas or coal not allocable to the produc22 tion of such electricity (determined on the basis of

23 the proportionate Btu content of the electricity and

24 the steam) shall be treated as used in such project.
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•J. 69–001A

1 ‘‘(d) METHANE RECOVERED FROM BIOMASS OR

2 COAL MINING.—

3 ‘‘(1) IN GENERAL.—If—

4 ‘‘(A) methane is recovered from biomass or

5 in conjunction with room and pillar or long wall

6 coal mining operations, and

7 ‘‘(B) such methane is entered into any

8 pipeline the removal from which would subject

9 such methane to the tax imposed by section

10 4442(a),

11 the Secretary shall pay to the person so entering

12 such methane an amount equal to the amount of tax

13 which would be imposed under section 4442(a) on

14 such methane if such entry were a taxable event

15 under such section.

16 ‘‘(2) RECAPTURE OF CREDIT FOR METHANE

17 RECOVERED FROM COAL MINING IN CERTAIN

18 CASES.—

19 ‘‘(A) IN GENERAL.—If—

20 ‘‘(i) the Secretary has made a pay21 ment under paragraph (1) with respect to

22 methane recovered from coal mining oper23 ations before the date the actual mining

24 commences, and
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•J. 69–001A

1 ‘‘(ii) the actual mining commences

2 more than 10 years after the date such

3 methane was first recovered,

4 then the tax under this chapter of the person

5 to whom such payments were made for the tax6 able year in which such 10th year ends shall be

7 increased by the aggregate of such payments to

8 such person plus interest at the underpayment

9 rate under section 6621 for the periods begin10 ning on the dates such payments were made.

11 ‘‘(B) NO FURTHER PAYMENTS UNTIL MIN12 ING COMMENCES.—If there is an increase in tax

13 under subparagraph (A) with respect to any

14 payments for methane recovered from any site,

15 no further payments shall be made under this

16 subsection with respect to methane recovered

17 from such site until actual mining commences

18 at such site.

19 ‘‘(C) NO CREDITS AGAINST TAX, ETC.—

20 Any increase in tax under this paragraph shall

21 not be taken into account in determining the

22 amount of any credit allowable under part IV of

23 subchapter A of chapter 1 or in determining the

24 amount of the tax imposed by section 55.
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•J. 69–001A

1 ‘‘(e) PRODUCTION OF COKE FOR STEEL.—If tax was

2 imposed under this subchapter with respect to any coal

3 and such coal is used by any person to produce coke for

4 use in the reduction of iron-bearing ores in the iron and

5 steel process, the Secretary shall pay to such person an

6 amount equal to the base rate for each million Btu’s of

7 the actual Btu content of the coke produced.

8 ‘‘(f) PRODUCTION OF CALCINED COKE.—If tax was

9 imposed under this subchapter with respect to any petro10 leum product and such product is used by any person to

11 produce calcined coke, the Secretary shall pay to such per12 son an amount equal to the base rate for each million

13 Btu’s of the actual Btu content of the coke produced.

14 ‘‘Part IV—Use Taxes; Floor Stocks Taxes; Administra15 tive Provisions; Definitions and Special Rules

‘‘Sec. 4451. Tax on certain uses.

‘‘Sec. 4452. Floor stocks taxes.

‘‘Sec. 4453. Administrative provisions.

‘‘Sec. 4454. Definitions and special rules.

16 ‘‘SEC. 4451. TAX ON CERTAIN USES.

17 ‘‘(a) GENERAL RULE.—There is hereby imposed a

18 tax on the use of any fossil fuel (other than coal)—

19 ‘‘(1) in the manufacture or production of a fuel

20 other than at a United States refinery, or

21 ‘‘(2) as a fuel.
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•J. 69–001A

1 The preceding sentence shall not apply if tax was imposed

2 under this subchapter before such use and such tax is not

3 credited or refunded.

4 ‘‘(b) RATE OF TAX.—

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, the amount of tax imposed

7 by subsection (a) shall be the amount which would

8 be imposed under the appropriate section of part I

9 if such use were a taxable event under such section.

10 ‘‘(2) CRUDE OIL AND OTHER PRODUCTS NOT

11 TAXED ON REMOVAL OR IMPORTATION.—The

12 amount of the tax imposed by subsection (a) on

13 crude oil or other product not subject to tax under

14 part I shall be the base rate (increased by the sup15 plemental rate in the case of crude oil or any petro16 leum product other than any liquefied petroleum

17 gas, isopentane, and natural gasoline) for each mil18 lion Btu’s of the Btu content of such oil or product.

19 ‘‘(3) AUTHORITY TO PRESCRIBE APPLICABLE

20 PER UNIT BTU AMOUNTS.—In the case of crude oil

21 or any other product for which an applicable per

22 unit Btu amount is not prescribed for purposes of

23 part I, the Secretary may prescribe such an amount,

24 and, if so prescribed, such amount shall apply for

25 purposes of paragraph (2).
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•J. 69–001A

1 ‘‘(c) LIABILITY FOR TAX.—The taxes imposed by

2 subsection (a) shall be paid by the person using the fuel.

3 ‘‘(d) EXCEPTIONS.—

4 ‘‘(1) IN GENERAL.—The tax imposed by this

5 section shall not apply to—

6 ‘‘(A) any use to which paragraph (1) or

7 (2) of section 4448(b) applies,

8 ‘‘(B) any exempt use (as defined in section

9 4448(c)),

10 ‘‘(C) any methane for which a payment

11 may be made under section 4448(d),

12 ‘‘(D) any use to which section 4448(e) ap13 plies, and

14 ‘‘(E) any use to which section 4448(f) ap15 plies.

16 ‘‘(2) USE ON PRODUCTION PREMISES.—

17 ‘‘(A) IN GENERAL.—The tax imposed by

18 this section shall not apply to any use of crude

19 oil or natural gas on the premises where pro20 duced for producing crude oil or natural gas.

21 ‘‘(B) CRUDE OIL USED ON PREMISES.—

22 For purposes of subparagraph (A), crude oil

23 shall be treated as used on the premises where

24 produced if it is used before entry at the lease
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•J. 69–001A

1 automatic custody transfer point (or its manual

2 equivalent).

3 ‘‘(C) NATURAL GAS USED ON PREMISES.—

4 For purposes of subparagraph (A), natural gas

5 shall be treated as used on the premises where

6 produced if it is used before entry into a natu7 ral gas processing or fractionation plant or into

8 an interstate or intrastate transmission pipe9 line.

10 ‘‘(3) CRUDE OIL USED AT REFINERY, ETC.—

11 The tax imposed by this section shall not apply to—

12 ‘‘(A) any use of crude oil or any petroleum

13 product (other than natural gas) at a United

14 States refinery, or

15 ‘‘(B) any use of natural gas at a natural

16 gas processing or fractionation plant.

17 ‘‘(4) OTHERWISE TAXABLE EVENT OCCURRING

18 BEFORE EFFECTIVE DATE.—The tax imposed by

19 this section shall not apply to any use if no tax

20 would be imposed by this section on such use were

21 this subchapter in effect for all periods before

22 July 1, 1994.

23 ‘‘(e) TREATMENT OF NATURAL GAS LOST IN TRANS24 MISSION.—For purposes of this section, natural gas lost
234

•J. 69–001A

1 in transmission by pipeline shall be treated as used as a

2 fuel for such pipeline.

3 ‘‘SEC. 4452. FLOOR STOCKS TAXES.

4 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

5 a tax on any taxable fuel which on any tax-increase date

6 is held in the United States by any person.

7 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im8 posed by subsection (a) on any taxable fuel with respect

9 to any tax-increase date shall be equal to the excess (if

10 any) of—

11 ‘‘(1) the amount of tax which would be imposed

12 under part I if a taxable event with respect to such

13 fuel had occurred on such date, over

14 ‘‘(2) the prior tax (if any) imposed by this sub15 chapter on such fuel.

16 ‘‘(c) LIABILITY FOR TAX.—The person holding the

17 taxable fuel on any tax-increase date shall pay the tax im18 posed by subsection (a).

19 ‘‘(d) EXCEPTIONS.—The tax imposed by subsection

20 (a) shall not apply to—

21 ‘‘(1) any taxable refined petroleum product—

22 ‘‘(A) held (other than for use as a fuel)

23 within a United States refinery, or
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•J. 69–001A

1 ‘‘(B) held for use by the holder in inter2 national commercial transportation (as defined

3 in section 4448(b)(2)),

4 ‘‘(2) any natural gas which has not been re5 moved as described in section 4442(a) and which is

6 not held in any local distribution system, and

7 ‘‘(3) any coal held other than at the facility

8 where it is to be used as a fuel.

9 ‘‘(e) CREDIT AGAINST TAX.—

10 ‘‘(1) IN GENERAL.—Each person shall be al11 lowed $200 as a credit against the taxes imposed by

12 subsection (a) with respect to each tax-increase date.

13 Such credit shall not exceed the amount of taxes im14 posed by subsection (a) for which such person is lia15 ble with respect to such date.

16 ‘‘(2) CONTROLLED GROUPS.—For purposes of

17 paragraph (1)—

18 ‘‘(A) all persons who are treated as a sin19 gle employer under subsection (a) or (b) of sec20 tion 52 shall be treated as 1 taxpayer, and

21 ‘‘(B) the $200 amount specified in para22 graph (1) shall be apportioned among such per23 sons under regulations prescribed by the Sec24 retary.

25 ‘‘(f) DEFINITIONS.—For purposes of this section—
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•J. 69–001A

1 ‘‘(1) TAXABLE FUEL.—The term ‘taxable fuel’

2 means any taxable refined petroleum product, natu3 ral gas, or coal.

4 ‘‘(2) TAX-INCREASE DATE.—The term ‘tax-in5 crease date’ means—

6 ‘‘(A) July 1, 1994,

7 ‘‘(B) July 1, 1995,

8 ‘‘(C) July 1, 1996, and

9 ‘‘(D) January 1 of each calendar year for

10 which there is an increase in a rate of tax by

11 reason of subsection (a)(3) or (b)(3) of section

12 4446 (relating to inflation adjustment).

13 ‘‘(f) DUE DATE.—The tax imposed by subsection (a)

14 shall be paid on or before the close of the 7-month period

15 beginning on the tax-increase date.

16 ‘‘SEC. 4453. ADMINISTRATIVE PROVISIONS.

17 ‘‘(a) RULES RELATING TO REFUNDS FOR EXEMPT

18 AND OTHER USES.—

19 ‘‘(1) PERIOD FOR FILING CLAIMS.—No pay20 ment shall be made under section 4448 unless, with21 in 2 years after the date that the event occurs giving

22 rise to a right to such payment, a claim therefor is

23 filed by the person entitled to such payment.
237

•J. 69–001A

1 ‘‘(2) DENIAL OF INTEREST.—Except as pro2 vided in paragraph (3), no interest shall be paid on

3 claims for payments under section 4448.

4 ‘‘(3) MINIMUM AMOUNTS AND PERIODS.—In

5 the case of persons who meet such requirements as

6 the Secretary may prescribe, if—

7 ‘‘(A) a claim for payment is filed under

8 section 4448 for any period for which more

9 than $1,000 is payable and which is not less

10 than 1 week, and

11 ‘‘(B) the Secretary has not paid such claim

12 within 20 days after the date the claim was

13 filed,

14 such claim shall be paid with interest from such date

15 using the overpayment rate and method under sec16 tion 6621.

17 ‘‘(3) APPLICABLE LAWS.—

18 ‘‘(A) IN GENERAL.—All provisions of law,

19 including penalties, applicable in respect of the

20 tax imposed by this subchapter shall, insofar as

21 applicable and not inconsistent with this sub22 section and section 4448, apply in respect of

23 payments provided for in section 4448 to the

24 same extent as if such payments constituted re25 funds of overpayments of the tax so imposed.
238

•J. 69–001A

1 ‘‘(B) EXAMINATION OF BOOKS AND WIT2 NESSES.—For the purpose of ascertaining the

3 correctness of any claim made under section

4 4448, or the correctness of any payment made

5 in respect of such claim, the Secretary shall

6 have the authority granted by paragraphs (1),

7 (2), and (3) of section 7602(a) (relating to ex8 amination of books and witnesses) as if the

9 claimant were the person liable for tax.

10 ‘‘(b) PAYMENT OF TAX TO PERSONS REQUIRED TO

11 COLLECT TAX.—

12 ‘‘(1) IN GENERAL.—In the case of the taxes im13 posed by sections 4441 and 4442 which are required

14 to be collected by another person, the person liable

15 for such tax shall remit the tax to such other person

16 within 30 days after the date of the taxable event.

17 ‘‘(2) RELIEF FROM PENALTY FOR CERTAIN

18 FAILURES TO COLLECT TAX.—No penalty shall be

19 imposed under this title on the failure of any person

20 to collect the taxes referred to in paragraph (1) if—

21 ‘‘(A) during the 30-day period referred to

22 in paragraph (1), such person exercises due dili23 gence in attempting to collect such tax, and

24 ‘‘(B) such person notifies the Secretary,

25 within 15 days after such 30th day, of the fail-
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•J. 69–001A

1 ure to collect such tax and provides such other

2 information as the Secretary may require.

3 ‘‘(c) INFORMATION REPORTING.—The Secretary may

4 require—

5 ‘‘(1) information reporting by each remitter of

6 tax imposed by this subchapter, and

7 ‘‘(2) information reporting by, and registration

8 of, such other persons as the Secretary deems nec9 essary to carry out this subchapter.

10 ‘‘SEC. 4454. DEFINITIONS AND SPECIAL RULES.

11 ‘‘(a) DEFINITIONS.—For purposes of this sub12 chapter—

13 ‘‘(1) TAXABLE ENERGY SOURCE.—The term

14 ‘taxable energy source’ means any taxable refined

15 petroleum product, natural gas, coal, and electricity

16 (within the meaning of such terms under part I).

17 ‘‘(2) FOSSIL FUEL.—The term ‘fossil fuel’

18 means crude oil, any petroleum product, natural gas,

19 any natural gas product, and coal.

20 ‘‘(3) CRUDE OIL.—The term ‘crude oil’ includes

21 condensates from crude oil.

22 ‘‘(4) COAL.—The term ‘coal’ includes lignite.

23 ‘‘(5) UNITED STATES.—The term ‘United

24 States’ means the 50 States, the District of Colum-
240

•J. 69–001A

1 bia, and the foreign trade zones of the United

2 States.

3 ‘‘(6) PERSON.—The term ‘person’ includes the

4 United States, any State or political subdivision

5 thereof, the District of Columbia, and any agency or

6 instrumentality of any of the foregoing.

7 ‘‘(b) SPECIAL RULES FOR INDEPENDENT POWER

8 PRODUCERS SELLING ELECTRICITY UNDER FIXED-PRICE

9 CONTRACTS.—

10 ‘‘(1) ELECTRICITY GENERATED USING FOSSIL

11 FUELS.—If electricity is generated by an independ12 ent power producer using any fossil fuel and is sold

13 pursuant to a qualified fixed-price contract—

14 ‘‘(A) such use of fossil fuel shall be treated

15 for purposes of this subchapter as an exempt

16 use (as defined in section 4448), and

17 ‘‘(B) a tax is hereby imposed on the con18 tract purchaser of such electricity equal to the

19 amount payable under subparagraph (A) on the

20 fossil fuel used to generate such electricity.

21 ‘‘(2) OTHER ELECTRICITY.—In the case of elec22 tricity generated by an independent power producer

23 which is subject to the tax imposed by section 4444

24 and which is sold pursuant to a qualified fixed-price
241

•J. 69–001A

1 contract, the tax imposed by section 4444(a)(1) shall

2 be paid by the contract purchaser of the electricity.

3 ‘‘(3) INDEPENDENT POWER PRODUCER.—For

4 purposes of this subsection, electricity shall be treat5 ed as generated by an independent power producer

6 if such electricity is generated—

7 ‘‘(A) at a facility—

8 ‘‘(i) which is a qualifying small power

9 production facility or a qualifying cogen10 eration facility (as such terms are defined

11 under section 3(17) of the Federal Power

12 Act on the date of the enactment of this

13 section), and

14 ‘‘(ii) which is exempt from the laws

15 referred to in section 210(e) of the Public

16 Utility Regulatory Policies Act of 1978 (as

17 so in effect), or

18 ‘‘(B) by an exempt wholesale generator (as

19 defined in section 32(a)(1) of the Public Utility

20 Holding Company Act of 1935).

21 ‘‘(4) QUALIFIED FIXED-PRICE CONTRACT.—For

22 purposes of this subsection, the term ‘qualified fixed23 price contract’ means any contract entered into be24 fore the date of the enactment of this section except

25 to the extent the contract purchaser of the electricity
242

•J. 69–001A

1 establishes to the satisfaction of the Secretary that

2 the price paid for electricity is determined under a

3 formula which directly or indirectly includes the

4 taxes imposed by this subchapter.

5 ‘‘(5) FUEL USED TO PRODUCE ELECTRICITY

6 AND STEAM.—In the case of a facility which pro7 duces both steam and electricity, only the portion of

8 the fuel allocable to the production of electricity (de9 termined on the basis of the proportionate Btu con10 tent of the electricity and steam) shall be treated as

11 an exempt use under paragraph (1)(A).

12 ‘‘(c) FRACTIONAL PART OF UNIT.—In the case of a

13 fraction of a unit, the tax imposed by this subchapter shall

14 be the same fraction of the amount of such tax imposed

15 on a whole unit.

16 ‘‘(d) SPECIAL RULES RELATING TO PUERTO RICO

17 AND THE VIRGIN ISLANDS.—

18 ‘‘(1) LIKE TAX ON ARTICLES BROUGHT INTO

19 THE UNITED STATES FROM PUERTO RICO OR THE

20 VIRGIN ISLANDS.—For purposes of this subchapter,

21 articles brought into the United States from the

22 Commonwealth of Puerto Rico or the Virgin Islands

23 shall be treated as entered into the United States at

24 the time brought into the United States.
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•J. 69–001A

1 ‘‘(2) DISPOSITION OF REVENUES.—The provi2 sions of subsections (a)(3) and (b)(3) of section

3 7652 shall not apply to any tax imposed by this sub4 chapter.

5 ‘‘(e) NO EXEMPTION FROM TAX.—No person shall

6 be exempt from any tax imposed by this subchapter except

7 to the extent provided in this subchapter or in any provi8 sion of law enacted after the date of the enactment of this

9 subchapter which grants a specific exemption, by reference

10 to this subchapter, from a tax imposed by this subchapter.

11 ‘‘(f) NORMALIZATION OF TAX.—For purposes of sec12 tion 168, a taxpayer shall not be treated as using a nor13 malization method of accounting unless—

14 ‘‘(1) not later than the 1st ratemaking order

15 taking effect after the date of the enactment of this

16 subchapter, the ratemaking body permits the full

17 amount of—

18 ‘‘(A) the taxes imposed by this subchapter

19 on natural gas,

20 ‘‘(B) the taxes imposed by section 4444

21 and subsection (b) of this section on any elec22 tricity, and

23 ‘‘(C) the taxes imposed by this subchapter

24 on fuels used to generate electricity,
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•J. 69–001A

1 to be added to the otherwise permitted rate for the

2 furnishing or sale of the natural gas or electricity,

3 and

4 ‘‘(2) any amount of such tax which was not

5 fully reflected as provided in paragraph (1) by rea6 son of being imposed before the 1st ratemaking

7 order taking effect after the date of the enactment

8 of this subchapter is added to the base to which the

9 taxpayer’s rate of return for ratemaking purposes is

10 applied in such 1st order.

11 In determining for purposes of the preceding sentence

12 whether a ratemaking order is the 1st ratemaking order

13 referred to therein, there shall be taken into account only

14 ratemaking orders from proceedings in which the recovery

15 of tax expense is an issue that may be considered.’’

16 (b) TECHNICAL AMENDMENTS.—

17 (1)(A) Subsection (a) of section 6675 is amend18 ed by inserting ‘‘section 4448 (relating to refunds of

19 Btu tax for certain sales and uses),’’ before ‘‘section

20 6420’’.

21 (B) Subsection (b) of section 6675 is amended

22 by inserting ‘‘4448,’’ before ‘‘6420’’.

23 (2) Section 6206 is amended—

24 (A) by inserting ‘‘(a) FUEL TAXES.—’’ be25 fore ‘‘Any portion of’’, and
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1 (B) by adding at the end thereof the fol2 lowing new subsection:

3 ‘‘(b) BTU TAXES.—Any portion of a payment made

4 under section 4448 which constitutes an excessive amount

5 (as defined in section 6675(b)), and any civil penalty pro6 vided by section 6675, may be assessed and collected as

7 if it were a tax imposed by subchapter A of chapter 36

8 and as if the person who made the claim were liable for

9 such tax. The period for assessing any such portion, and

10 for assessing any such penalty, shall be 3 years from the

11 last day prescribed for filing a claim under section 4448.’’

12 (3)(A) The section heading for section 6206 is

13 amended by striking ‘‘UNDER SECTIONS 6420, 6421,

14 and 6427’’ and inserting ‘‘FOR CERTAIN FUELS TAX

15 REFUNDS AND ENERGY TAX REFUNDS’’.

16 (B) The item relating to section 6206 in the

17 table of sections for subchapter A of chapter 63 is

18 amended by striking ‘‘under sections 6420, 6421,

19 and 6427’’ and inserting ‘‘for certain fuels tax re20 funds and energy tax refunds’’.

21 (4) Subparagraph (B) of section 6724(d)(1) is

22 amended—

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

24 (xi),
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1 (B) by striking the period at the end of the

2 clause (xii) relating to section 4101(d) and in3 serting a comma,

4 (C) by redesignating the clause (xii) relat5 ing to section 338(h)(10)(C) as clause (xiii) and

6 by striking the period at the end thereof and in7 serting ‘‘, or’’, and

8 (D) by inserting after clause (xiii), as so

9 redesignated, the following new clause:

10 ‘‘(xiv) section 4453(c) (relating to in11 formation reporting with respect to energy

12 taxes).’’

13 (5) Sections 7210, section 7603, subsections (b)

14 and (c)(2) of section 7604, section 7605, and

15 7610(c) are each amended by inserting

16 ‘‘4453(a)(3)(B),’’ before ‘‘6420(e)(2)’’ each place it

17 appears.

18 (6) Subparagraph (A) of section 9505(c)(3) is

19 amended by striking ‘‘subchapter A’’ and inserting

20 ‘‘subchapter B’’.

21 (7) The table of subchapters for chapter 36 is

22 amended by striking the items relating to sub23 chapters A and B and inserting the following:

‘‘Subchapter A. Energy taxes.

‘‘Subchapter B. Harbor maintenance tax.

‘‘Subchapter C. Transportation by water.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect on July 1, 1994.

3 SEC. 2402. EXTENSION OF MOTOR FUEL TAX RATES; IN4 CREASED DEPOSITS INTO HIGHWAY TRUST

5 FUND.

6 (a) GASOLINE AND SPECIAL MOTOR FUELS.—

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

8 4081(a)(2)(B) is amended by striking ‘‘11.5 cents’’

9 and inserting ‘‘14 cents’’.

10 (2) CONFORMING AMENDMENTS.—

11 (A) Subparagraph (A) of section

12 4081(c)(4) is amended to read as follows:

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

14 Highway Trust Fund financing rate, the term

15 ‘otherwise applicable rate’ means—

16 ‘‘(i) 8.6 cents a gallon for 10 percent

17 alcohol,

18 ‘‘(ii) 9.842 cents a gallon for 7.7 per19 cent alcohol,

20 ‘‘(iii) 10.922 cents a gallon for 5.7

21 percent alcohol.

22 In the case of gasohol none of the alcohol in which

23 consists of ethanol, clauses (i), (ii), and (iii) shall be

24 applied by substituting ‘8.0 cents’ for ‘8.6 cents’,
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1 ‘9.38 cents’ for ‘9.842 cents’, and ‘10.58 cents’ for

2 ‘10.922’.’’

3 (B) Subparagraph (A) of section

4 4041(m)(1) is amended to read as follows:

5 ‘‘(A) under subsection (a)(2) the Highway

6 Trust Fund financing shall be 7 cents per gal7 lon, and’’.

8 (b) DIESEL FUEL.—

9 (1) IN GENERAL.—Paragraph (2) of section

10 4091(a) is amended by striking ‘‘17.5 cents’’ and in11 serting ‘‘20 cents’’.

12 (2) FUEL USED IN TRAINS.—Subparagraph (B)

13 of section 4093(c)(2) is amended—

14 (A) by striking ‘‘the diesel fuel deficit re15 duction rate’’ and inserting ‘‘2.5 cents per gal16 lon of the Highway Trust Fund financing

17 rate’’, and

18 (B) by striking from the subparagraph

19 heading ‘‘DEFICIT REDUCTION TAX ON’’.

20 (3) CONFORMING AMENDMENTS.—

21 (A) Subsection (c) of section 4091 is

22 amended—

23 (i) by striking ‘‘12.1 cents’’ each place

24 it appears and inserting ‘‘14.6 cents’’, and
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1 (ii) by striking ‘‘13.44 cents’’ in para2 graph (1)(B) and inserting ‘‘16.22’’.

3 (B) Paragraph (4) of section 6427(l) is

4 amended—

5 (i) by striking ‘‘the diesel fuel deficit

6 reduction rate’’ and inserting ‘‘2.5 cents

7 per gallon of the Highway Trust Fund fi8 nancing rate’’, and

9 (ii) by striking ‘‘DEFICIT REDUCTION

10 TAX’’ and inserting ‘‘PORTION OF TAX’’.

11 (C) Subsection (b) of section 9503 is

12 amended by adding at the end thereof the fol13 lowing new paragraph:

14 ‘‘(6) RETENTION OF CERTAIN TAXES IN GEN15 ERAL FUND.—

16 ‘‘(A) IN GENERAL.—There shall not be

17 taken into account under paragraphs (1) and

18 (2)—

19 ‘‘(i) the tax imposed by section 4091

20 on diesel fuel used in any train, and

21 ‘‘(ii) so much of the following taxes as

22 are attributable to 2.5 cents of the High23 way Trust fund financing rate:

24 ‘‘(I) Motorboat fuel taxes (as de25 fined in subsection (c)(4)(D)).
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1 ‘‘(II) Small-engine fuel taxes (as

2 defined in subsection (c)(5)(B)).

3 ‘‘(III) Nonhighway recreational

4 fuel taxes (as defined in subsection

5 (c)(6)(D)).

6 ‘‘(B) TRANSFERS FROM HIGHWAY TRUST

7 FUND.—For purposes of determining the

8 amount paid from the Highway Trust Fund

9 under paragraphs (4), (5), and (6) of sub10 section (c), the Highway Trust Fund financing

11 rates shall be treated as being 2.5 cents less

12 than the otherwise applicable rates.’’

13 (c) INCREASE IN DEPOSITS IN MASS TRANSIT AC14 COUNT.—Paragraph (2) of section 9503(e) is amended by

15 striking ‘‘1.5 cents’’ and inserting ‘‘2 cents’’.

16 (d) REPEAL OF EXPIRED PROVISIONS.—

17 (1) Subparagraph (A) of section 4081(a)(2)

18 (relating to rate of tax) is amended—

19 (A) by adding ‘‘and’’ at the end of clause

20 (i),

21 (B) by striking ‘‘, and’’ at the end of

22 clause (ii) and inserting a period, and

23 (C) by striking clause (iii).

24 (2) Subparagraph (B) of section 4081(a)(2) is

25 amended—
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1 (A) by adding ‘‘and’’ at the end of clause

2 (i),

3 (B) by striking ‘‘, and’’ at the end of

4 clause (ii) and inserting a period, and

5 (C) by striking clause (iii).

6 (3) Subsection (d) of section 4081 is amended

7 by striking paragraph (3).

8 (4) Clause (i) of section 4091(b)(1)(A) is

9 amended by striking ‘‘and the diesel fuel deficit re10 duction rate’’.

11 (5) Subsection (b) of section 4091 is amended

12 by striking paragraph (4) and by redesignating

13 paragraphs (5) and (6) as paragraphs (4) and (5),

14 respectively.

15 (6) Paragraph (5) of section 4091(b), as redes16 ignated by paragraph (5), is amended by striking

17 subparagraph (D).

18 (7) Paragraphs (1) and (2) of section 4041(a),

19 and paragraph (3) of section 4041(c), are each

20 amended by striking ‘‘the sum of the Highway Trust

21 Fund financing rate and the diesel fuel deficit reduc22 tion rate’’ and by inserting ‘‘the Highway Trust

23 Fund financing rate’’.

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

25 this section shall take effect October 1, 1995, but the
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1 amendment made by subsection (c) shall apply only to

2 amounts attributable to taxes imposed on or after such

3 date.

4 Subtitle E—Compliance Provisions

5 SEC. 2501. REPORTING REQUIRED FOR CERTAIN PAY6 MENTS TO CORPORATIONS.

7 (a) SECTION 6041.—Section 6041 (relating to infor8 mation at source) is amended by adding at the end thereof

9 the following new subsection:

10 ‘‘(f) SPECIAL RULES FOR PAYMENTS FOR SERV11 ICES.—No payment for the performance of services shall

12 be exempt from the requirements of this section merely

13 because it is a payment to a corporation.’’

14 (b) SECTION 6041A(a).—Subsection (a) of section

15 6041A is amended by adding at the end thereof the follow16 ing new sentence: ‘‘A payment shall not be exempt from

17 the requirements of this subsection merely because it is

18 a payment to a corporation.’’.

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

20 this section shall apply to payments after December 31,

21 1993.

22 SEC. 2502. MODIFICATIONS TO SUBSTANTIAL UNDERSTATE23 MENT AND RETURN-PREPARER PENALTIES.

24 (a) REASONABLE BASIS REQUIRED.—
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1 (1) SUBSTANTIAL UNDERSTATEMENT PEN2 ALTY.—Clause (ii) of section 6662(d)(2)(B) (relat3 ing to reduction for understatement due to position

4 of taxpayer or disclosed item) is amended to read as

5 follows:

6 ‘‘(ii) any item if—

7 ‘‘(I) the relevant facts affecting

8 the item’s tax treatment are ade9 quately disclosed in the return or in a

10 statement attached to the return, and

11 ‘‘(II) there is a reasonable basis

12 for the tax treatment of such item by

13 the taxpayer.’’

14 (2) RETURN PREPARER PENALTY.—Paragraph

15 (3) of section 6694(a) (relating to understatement of

16 taxpayer’s liability by income tax return preparer) is

17 amended to read as follows:

18 ‘‘(3) the requirements of subclauses (I) and (II)

19 of section 6662(d)(2)(B)(ii) are not satisfied with

20 respect to such position,’’.

21 (b) SPECIAL TAX SHELTER RULE.—Subclause (II)

22 of section 6662(d)(2)(C)(i) (relating to special rules for

23 tax shelters) is amended by inserting before the period at

24 the end thereof the following: ‘‘and the reasonably antici25 pated after-tax benefits from the taxpayer’s investment in
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1 such shelter do not significantly exceed the reasonably an2 ticipated pre-tax economic profit or loss from such invest3 ment’’.

4 (c) REASONABLE CAUSE EXCEPTION.—Paragraph

5 (1) of section 6664(c) is revised by striking ‘‘this part’’

6 and inserting ‘‘section 6662’’.

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

8 this section shall apply to returns the due dates for which

9 (determined without regard to extensions) are after De10 cember 31, 1993.

11 Subtitle F—Miscellaneous

12 Provisions

13 SEC. 2601. SUBSTANTIATION REQUIREMENT FOR DEDUC14 TION OF CERTAIN CHARITABLE CONTRIBU15 TIONS.

16 (a) SUBSTANTIATION REQUIREMENT.—Section

17 170(f) (providing special rules relating to the deduction

18 of charitable contributions and gifts) is amended by add19 ing at the end the following new paragraph:

20 ‘‘(8) SUBSTANTIATION REQUIREMENT FOR CER21 TAIN CONTRIBUTIONS.—

22 ‘‘(A) GENERAL RULE.—No deduction shall

23 be allowed under subsection (a) for any con24 tribution of $750 or more unless the taxpayer

25 substantiates the contribution by a contempora-
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1 neous written acknowledgment of the contribu2 tion by the donee organization that meets the

3 requirements of subparagraph (B).

4 ‘‘(B) CONTENT OF ACKNOWLEDGMENT.—

5 An acknowledgment meets the requirements of

6 this subparagraph if it provides information

7 sufficient to substantiate the amount of the de8 ductible contribution. If the contribution was

9 made by means of a payment part of which con10 stituted consideration for goods or services pro11 vided by the donee organization, the acknowl12 edgment must provide a good faith estimate of

13 the value of such goods or services.

14 ‘‘(C) CONTEMPORANEOUS.—For purposes

15 of subparagraph (A), an acknowledgment shall

16 be considered to be contemporaneous if the tax17 payer obtains the acknowledgment on or before

18 the earlier of—

19 ‘‘(i) the date on which the taxpayer

20 files a return for the taxable year in which

21 the contribution was made, or

22 ‘‘(ii) the due date (including exten23 sions) for filing such return.

24 ‘‘(D) SUBSTANTIATION NOT REQUIRED

25 FOR CONTRIBUTIONS REPORTED BY THE
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1 DONEE ORGANIZATION.—Subparagraph (A)

2 shall not apply to a contribution if the donee

3 organization files a return, on such form and in

4 accordance with such regulations as the Sec5 retary may prescribe, which includes the infor6 mation described in subparagraph (B) with re7 spect to the contribution.

8 ‘‘(E) REGULATIONS.—The Secretary shall

9 prescribe such regulations as may be necessary

10 or appropriate to carry out the purposes of this

11 paragraph, including regulations that may pro12 vide that some or all of the requirements of this

13 paragraph do not apply in appropriate cases.’’

14 (b) EFFECTIVE DATE.—The provisions of this sec15 tion shall apply to contributions made on or after January

16 1, 1994.

17 SEC. 2602. DISCLOSURE RELATED TO QUID PRO QUO

18 CONTRIBUTIONS.

19 (a) DISCLOSURE REQUIREMENT.—Subchapter B of

20 chapter 61 (relating to information and returns) is amend21 ed by redesignating section 6115 as section 6116 and by

22 inserting after section 6114 the following new section:
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1 ‘‘SEC. 6115. DISCLOSURE RELATED TO QUID PRO QUO CON2 TRIBUTIONS.

3 ‘‘(a) DISCLOSURE REQUIREMENT.—If an organiza4 tion described in section 170(c) (other than paragraph (1)

5 thereof) receives a quid pro quo contribution, the organi6 zation shall, in connection with the solicitation or receipt

7 of the contribution—

8 ‘‘(1) inform the donor that the amount of the

9 contribution that is deductible for Federal income

10 tax purposes is limited to the excess of the amount

11 of any money and the value of any property other

12 than money contributed by the donor over the value

13 of the goods or services provided by the organiza14 tion, and

15 ‘‘(2) provide the donor with a good faith esti16 mate of the value of such goods or services.

17 ‘‘(b) QUID PRO QUO CONTRIBUTION.—For purposes

18 of this section, the term ‘quid pro quo contribution’ means

19 a payment made partly as a contribution and partly in

20 consideration for goods or services provided to the payor

21 by the donee organization.’’

22 (b) PENALTY FOR FAILURE TO DISCLOSE.—Part I

23 of subchapter B of chapter 68 (relating to assessable pen24 alties) is amended by inserting after section 6713 the fol25 lowing new section:
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1 ‘‘SEC. 6714. FAILURE TO MEET DISCLOSURE REQUIRE2 MENTS APPLICABLE TO QUID PRO QUO CON3 TRIBUTIONS.

4 ‘‘(a) IMPOSITION OF PENALTY.—If an organization

5 fails to meet the disclosure requirement of section 6115

6 with respect to a quid pro quo contribution, such organiza7 tion shall pay a penalty of $10 for each contribution in

8 respect of which the organization fails to make the re9 quired disclosure, except that the total penalty imposed

10 by this subsection with respect to a particular fundraising

11 event or mailing shall not exceed $5,000.

12 ‘‘(b) REASONABLE CAUSE EXCEPTION.—No penalty

13 shall be imposed under this section with respect to any

14 failure if it is shown that such failure is due to reasonable

15 cause.’’

16 (c) CLERICAL AMENDMENTS.—

17 (1) The table for subchapter B of chapter 61

18 is amended by striking the item relating to section

19 6115 and inserting the following new item:

‘‘Sec. 6115. Disclosure related to quid pro quo contributions.

‘‘Sec. 6116. Cross reference.’’

20 (2) The table for part I of subchapter B of

21 chapter 68 is amended by inserting after the item

22 for section 6713 the following new item:

‘‘Sec. 6714. Failure to meet disclosure requirements applicable to

quid pro quo contributions.’’
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1 (d) EFFECTIVE DATE.—The provisions of this sec2 tion shall apply to quid pro quo contributions made on

3 or after January 1, 1994.

4 SEC. 2603. DISALLOWANCE OF INTEREST ON CERTAIN

5 OVERPAYMENTS OF TAX.

6 (a) GENERAL RULE.—Subsection (e) of section 6611

7 is amended to read as follows:

8 ‘‘(e) DISALLOWANCE OF INTEREST ON CERTAIN

9 OVERPAYMENTS.—

10 ‘‘(1) REFUNDS WITHIN 45 DAYS AFTER RETURN

11 IS FILED.—If any overpayment of tax imposed by

12 this title is refunded within 45 days after the last

13 day prescribed for filing the return of such tax (de14 termined without regard to any extension of time for

15 filing the return) or, in the case of a return filed

16 after such last date, is refunded within 45 days after

17 the date the return is filed, no interest shall be al18 lowed under subsection (a) on such overpayment.

19 ‘‘(2) REFUNDS AFTER CLAIM FOR CREDIT OR

20 REFUND.—If—

21 ‘‘(A) the taxpayer files a claim for a credit

22 or refund for any overpayment of tax imposed

23 by this title, and

24 ‘‘(B) such overpayment is refunded within

25 45 days after such claim is filed,
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1 no interest shall be allowed on such overpayment

2 from the date the claim is filed until the day the re3 fund is made.

4 ‘‘(3) IRS INITIATED ADJUSTMENTS.—If an ad5 justment initiated by the Secretary, results in a re6 fund or credit of an overpayment, interest on such

7 overpayment shall be computed by subtracting 45

8 days from the number of days interest would other9 wise be allowed with respect to such overpayment.’’

10 (b) EFFECTIVE DATES.—

11 (1) Paragraph (1) of section 6611(e) of the In12 ternal Revenue Code of 1986 (as amended by sub13 section (a)) shall apply in the case of returns the

14 due date for which (determined without regard to

15 extensions) is on or after January 1, 1994.

16 (2) Paragraph (2) of section 6611(e) of such

17 Code (as so amended) shall apply in the case of

18 claims for credit or refund of any overpayment filed

19 on or after January 1, 1995, regardless of the tax20 able period to which such refund relates.

21 (3) Paragraph (3) of section 6611(e) of such

22 Code (as so amended) shall apply in the case of any

23 refund paid on or after January 1, 1995, regardless

24 of the taxable period to which such refund relates.
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1 SEC. 2604. DENIAL OF DEDUCTION RELATING TO TRAVEL

2 EXPENSES.

3 (a) IN GENERAL.—Section 274(m) (relating to addi4 tional limitations on travel expenses) is amended by add5 ing at the end thereof the following new paragraph:

6 ‘‘(3) TRAVEL EXPENSES OF SPOUSE, DEPEND7 ENT, OR OTHERS.—No deduction shall be allowed

8 under this chapter (other than section 217) for trav9 el expenses paid or incurred with respect to a

10 spouse, dependent, or other individual accompanying

11 the taxpayer (or an officer or employee of the tax12 payer) on business travel, unless—

13 ‘‘(A) the spouse, dependent, or other indi14 vidual is an employee of the taxpayer,

15 ‘‘(B) the travel of the spouse, dependent,

16 or other individual is for a bona fide business

17 purpose, and

18 ‘‘(C) such expenses would otherwise be de19 ductible by the spouse, dependent, or other indi20 vidual.’’

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

22 this section shall apply to amounts paid or incurred after

23 December 31, 1993.
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1 SEC. 2605. INCREASE IN WITHHOLDING FROM SUPPLE2 MENTAL WAGE PAYMENTS.

3 If an employer elects under Treasury Regulation

4 31.3402 (g)–1 to determine the amount to be deducted

5 and withheld from any supplemental wage payment by

6 using a flat percentage rate, the rate to be used in deter7 mining the amount to be so deducted and withheld shall

8 not be less than 28 percent. The preceding sentence shall

9 apply to payments made after December 31, 1993.

10 TITLE III—EMPOWERMENT

11 ZONES AND ENTERPRISE

12 COMMUNITIES

13 SEC. 3101. DESIGNATION AND TREATMENT OF

14 EMPOWERMENT ZONES AND ENTERPRISE

15 COMMUNITIES.

16 (a) IN GENERAL.—Chapter 1 (relating to normal

17 taxes and surtaxes) is amended by inserting after sub18 chapter T the following new subchapter:

19 ‘‘Subchapter U—Designation and Treatment

20 of Empowerment Zones and Enterprise

21 Communities

‘‘Part I. Designation.

‘‘Part II. Incentives for empowerment zones and enterprise communities.

‘‘Part III. Additional incentives for empowerment zones.

‘‘Part IV. Regulations.

22 ‘‘PART I—DESIGNATION

‘‘Sec. 1391. Designation procedure.
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‘‘Sec. 1392. Eligibility criteria.

‘‘Sec. 1393. Definitions and special rules.

1 ‘‘SEC. 1391. DESIGNATION PROCEDURE.

2 ‘‘(a) IN GENERAL.—From among the areas nomi3 nated for designation under this section, the appropriate

4 Secretaries may, in consultation with the Enterprise

5 Board, designate empowerment zones and enterprise com6 munities.

7 ‘‘(b) NUMBER OF DESIGNATIONS.—

8 ‘‘(1) ENTERPRISE COMMUNITIES.—The appro9 priate Secretaries may designate in the aggregate

10 100 nominated areas as enterprise communities

11 under this section, subject to the availability of eligi12 ble nominated areas. Of that number, not more than

13 65 may be designated in urban areas, not more than

14 30 may be designated in rural areas, and not more

15 than 5 may be designated by the Secretary of the

16 Interior in Indian reservations.

17 ‘‘(2) EMPOWERMENT ZONES.—The appropriate

18 Secretaries may designate in the aggregate 10 nomi19 nated areas as empowerment zones under this sec20 tion, subject to the availability of eligible nominated

21 areas. Of that number, not more than 6 may be des22 ignated in urban areas, not more than 3 may be des23 ignated in rural areas, and not more than 1 may be

24 designated by the Secretary of the Interior in an In-
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1 dian reservation. If 6 empowerment zones are des2 ignated in urban areas, no less than 1 shall be des3 ignated in an urban area whose most populous city

4 has a population of 500,000 or less. The Secretary

5 of Housing and Urban Development shall designate

6 empowerment zones located in urban areas in such

7 a manner that the aggregate population of all such

8 zones does not exceed 750,000.

9 ‘‘(c) PERIOD DESIGNATIONS MAY BE MADE.—A des10 ignation may be made under this section only after 1993

11 and before 1996.

12 ‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF13 FECT.—

14 ‘‘(1) IN GENERAL.—Any designation under this

15 section shall remain in effect during the period be16 ginning on the date of the designation and ending

17 on the earliest of—

18 ‘‘(A) the close of the 10th calendar year

19 beginning on or after such date of designation,

20 ‘‘(B) the termination date designated by

21 the State and local governments as provided for

22 in their nomination, or

23 ‘‘(C) the date the appropriate Secretary re24 vokes the designation.

25 ‘‘(2) REVOCATION OF DESIGNATION.—
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1 ‘‘(A) IN GENERAL.—The appropriate Sec2 retary, in consultation with the Enterprise

3 Board, may revoke the designation under this

4 section of an area if such Secretary determines

5 that the local government or the State in which

6 it is located—

7 ‘‘(i) has modified the boundaries of

8 the area, or

9 ‘‘(ii) is not complying substantially

10 with, or fails to make progress in achieving

11 the benchmarks set forth in, the strategic

12 plan under subsection (f)(2).

13 ‘‘(B) APPLICABLE PROCEDURES.—A des14 ignation may be revoked by the appropriate

15 Secretary under subparagraph (A) only after a

16 hearing on the record involving officials of the

17 State or local government involved.

18 ‘‘(e) LIMITATIONS ON DESIGNATIONS.—An area may

19 be designated under subsection (a) only if—

20 ‘‘(1) the area is nominated by 1 or more local

21 governments and the State or States in which it is

22 located for designation under this section,

23 ‘‘(2) such State or States and the local govern24 ments have the authority—
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1 ‘‘(A) to nominate the area for designation

2 under this section, and

3 ‘‘(B) to provide the assurances described in

4 paragraph (3),

5 ‘‘(3) such State or States and the local govern6 ments provide written assurances satisfactory to the

7 appropriate Secretary that the strategic plan de8 scribed in the application under subsection (f)(2) for

9 such area will be implemented,

10 ‘‘(4) the appropriate Secretary determines that

11 any information furnished is reasonably accurate,

12 and

13 ‘‘(5) such State or States and local govern14 ments certify that no portion of the area nominated

15 is already included in an empowerment zone or in an

16 enterprise community or in an area otherwise nomi17 nated to be designated under this section.

18 ‘‘(f) APPLICATION.—An application for designation

19 as an empowerment zone or as an enterprise community

20 shall—

21 ‘‘(1) demonstrate that the nominated area sat22 isfies the eligibility criteria described in section

23 1392,

24 ‘‘(2) include a strategic plan for accomplishing

25 the purposes of this subchapter that—
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1 ‘‘(A) describes the coordinated economic,

2 human, community, and physical development

3 plan and related activities proposed for the

4 nominated area,

5 ‘‘(B) describes the process by which the af6 fected community is a full partner in the proc7 ess of developing and implementing the plan

8 and the extent to which local institutions and

9 organizations have contributed to the planning

10 process,

11 ‘‘(C) identifies the amount of State, local,

12 and private resources that will be available in

13 the nominated area and the private/public part14 nerships to be used, which may include partici15 pation by, and cooperation with, universities,

16 medical centers, and other private and public

17 entities,

18 ‘‘(D) identifies the funding requested

19 under any Federal program in support of the

20 proposed economic, human, community, and

21 physical development and related activities,

22 ‘‘(E) identifies baselines, methods, and

23 benchmarks for measuring the success of carry24 ing out the strategic plan, including the extent

25 to which poor persons and families will be em-
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1 powered to become economically self-sufficient,

2 and

3 ‘‘(F) does not include any action to assist

4 any establishment in relocating from one area

5 outside the nominated area to the nominated

6 area, except that assistance for the expansion of

7 an existing business entity through the estab8 lishment of a new branch, affiliate, or subsidi9 ary is permitted if—

10 ‘‘(i) the establishment of the new

11 branch, affiliate, or subsidiary will not re12 sult in a decrease in employment in the

13 area of original location or in any other

14 area where the existing business entity

15 conducts business operations, and

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

17 the new branch, affiliate, or subsidiary is

18 being established with the intention of clos19 ing down the operations of the existing

20 business entity in the area of its original

21 location or in any other area where the ex22 isting business entity conducts business op23 eration, and
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1 ‘‘(3) include such other information as may be

2 required by the appropriate Secretary or the Enter3 prise Board.

4 ‘‘SEC. 1392. ELIGIBILITY CRITERIA.

5 ‘‘(a) IN GENERAL.—A nominated area shall be eligi6 ble for designation under section 1391 only if it meets the

7 following criteria:

8 ‘‘(1) POPULATION.—The nominated area has a

9 maximum population of—

10 ‘‘(A) in the case of an urban area, the

11 lesser of—

12 ‘‘(i) 200,000, or

13 ‘‘(ii) the greater of 50,000 or 10 per14 cent of the population of the most popu15 lous city located within the nominated

16 area, and

17 ‘‘(B) in the case of a rural area, 30,000.

18 ‘‘(2) DISTRESS.—The nominated area is one of

19 pervasive poverty, unemployment, and general dis20 tress.

21 ‘‘(3) SIZE.—The nominated area—

22 ‘‘(A) does not exceed 20 square miles if an

23 urban area or 1,000 square miles if a rural

24 area or an Indian reservation,
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1 ‘‘(B) has a boundary which is continuous,

2 or, except in the case of a rural area located in

3 more than 1 State, consists of not more than

4 3 noncontiguous parcels,

5 ‘‘(C)(i) in the case of an urban area, is lo6 cated entirely within no more than 2 contiguous

7 States, and

8 ‘‘(ii) in the case of a rural area, is located

9 entirely within no more than 3 contiguous

10 States, and

11 ‘‘(D) does not include any portion of a

12 central business district (as such term is used

13 for purposes of the most recent Census of Re14 tail Trade) unless the poverty rate for each

15 population census tract in such district is not

16 less than 35 percent.

17 ‘‘(4) POVERTY RATE.—The poverty rate—

18 ‘‘(A) for each population census tract with19 in the nominated area is not less than 20 per20 cent,

21 ‘‘(B) for at least 90 percent of the popu22 lation census tracts within the nominated area

23 is not less than 25 percent, and
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1 ‘‘(C) for at least 50 percent of the popu2 lation census tracts within the nominated area

3 is not less than 35 percent.

4 ‘‘(b) SPECIAL RULES RELATING TO DETERMINATION

5 OF POVERTY RATE.—For purposes of subsection (a)(4)—

6 ‘‘(1) TREATMENT OF CENSUS TRACTS WITH

7 SMALL POPULATIONS.—

8 ‘‘(A) TRACTS WITH NO POPULATION.—In

9 the case of a population census tract with no

10 population—

11 ‘‘(i) such tract shall be treated as hav12 ing a poverty rate which meets the require13 ments of subparagraphs (A) and (B) of

14 subsection (a)(4), but

15 ‘‘(ii) such tract shall be treated as

16 having a zero poverty rate for purposes of

17 applying subparagraph (C) thereof.

18 ‘‘(B) TRACTS WITH POPULATIONS OF LESS

19 THAN 2,000.—A population census tract with a

20 population of less than 2,000 shall be treated as

21 having a poverty rate which meets the require22 ments of subparagraphs (A) and (B) of sub23 section (a)(4) if more than 75 percent of such

24 tract is zoned for commercial or industrial use.
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1 ‘‘(2) DISCRETION TO ADJUST REQUIRE2 MENTS.—Where necessary to carry out the purposes

3 of this subchapter, the appropriate Secretary may

4 reduce by 5 percentage points one of the following

5 thresholds for not more than 10 percent of the popu6 lation census tracts (or, if fewer, 5 population cen7 sus tracts) in the nominated area:

8 ‘‘(A) The 20 percent threshold in sub9 section (a)(4)(A).

10 ‘‘(B) The 25 percent threshold in sub11 section (a)(4)(B).

12 ‘‘(C) The 35 percent threshold in sub13 section (a)(4)(C).

14 ‘‘(3) EACH NONCONTIGUOUS AREA MUST SAT15 ISFY POVERTY RATE RULE.—A nominated area may

16 not include a noncontiguous parcel unless such par17 cel separately meets (subject to paragraphs (1) and

18 (2)) the criteria set forth in subsection (a)(4).

19 ‘‘(4) AREAS NOT WITHIN CENSUS TRACTS.—In

20 the case of an area which is not tracted for popu21 lation census tracts, the equivalent county divisions

22 (as defined by the Bureau of the Census for pur23 poses of defining poverty areas) shall be used for

24 purposes of determining poverty rates.
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1 ‘‘(c) FACTORS TO CONSIDER.—From among the

2 nominated areas eligible for designation under section

3 1391 by the appropriate Secretary, such appropriate Sec4 retary shall make designations of empowerment zones and

5 enterprise communities on the basis of—

6 ‘‘(1) the effectiveness of the strategic plan sub7 mitted pursuant to section 1391(f)(2) and the assur8 ances made pursuant to section 1391(e)(3), and

9 ‘‘(2) criteria specified by the Enterprise Board.

10 ‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.

11 ‘‘(a) IN GENERAL.—For purposes of this sub12 chapter—

13 ‘‘(1) APPROPRIATE SECRETARY.—The term ‘ap14 propriate Secretary’ means—

15 ‘‘(A) the Secretary of Housing and Urban

16 Development in the case of any nominated area

17 which is located in an urban area,

18 ‘‘(B) the Secretary of Agriculture in the

19 case of any nominated area which is located in

20 a rural area, and

21 ‘‘(C) the Secretary of the Interior in the

22 case of any nominated area which is located in

23 an Indian reservation.

24 ‘‘(2) ENTERPRISE BOARD.—The term ‘Enter25 prise Board’ means any board hereafter established
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1 and designated for purposes of this subchapter as

2 the ‘Enterprise Board’.

3 ‘‘(3) RURAL AREA.—The term ‘rural area’

4 means any area which is—

5 ‘‘(A) outside of a metropolitan statistical

6 area (within the meaning of section

7 143(k)(2)(B)), or

8 ‘‘(B) determined by the Secretary of Agri9 culture, after consultation with the Secretary of

10 Commerce, to be a rural area.

11 ‘‘(4) URBAN AREA.—The term ‘urban area’

12 means an area which is not a rural area.

13 ‘‘(5) INDIAN RESERVATION.—

14 ‘‘(A) IN GENERAL.—The term ‘Indian res15 ervation’ means a reservation as defined in—

16 ‘‘(i) section 3(d) of the Indian Financ17 ing Act of 1974 (25 U.S.C. 1452(d)), or

18 ‘‘(ii) section 4(10) of the Indian Child

19 Welfare Act of 1978 (25 U.S.C. 1903(10).

20 ‘‘(B) GOVERNMENTS.—In the case of an

21 area in an Indian reservation, the reservation

22 governing body (as determined by the Secretary

23 of the Interior) shall be deemed to be both the

24 State and local governments with respect to

25 such area.
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1 ‘‘(6) LOCAL GOVERNMENT.—The term ‘local

2 government’ means—

3 ‘‘(A) any county, city, town, township, par4 ish, village, or other general purpose political

5 subdivision of a State, and

6 ‘‘(B) any combination of political subdivi7 sions described in subparagraph (A) recognized

8 by the appropriate Secretary.

9 ‘‘(7) NOMINATED AREA.—The term ‘nominated

10 area’ means an area which is nominated by 1 or

11 more local governments and the State or States in

12 which it is located for designation under section

13 1391.

14 ‘‘(8) GOVERNMENTS.—If more than 1 State or

15 local government seeks to nominate an area as a tax

16 enterprise zone, any reference to, or requirement of,

17 this subchapter shall apply to all such governments.

18 ‘‘(9) SPECIAL RULE.—An area shall be treated

19 as nominated by a State and a local government if

20 it is nominated by such other entity as may be speci21 fied by the Enterprise Board.

22 ‘‘(10) USE OF CENSUS DATA.—Population and

23 poverty rate shall be determined by the most recent

24 decennial census data available.
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1 ‘‘(b) EMPOWERMENT ZONE; ENTERPRISE COMMU2 NITY.—For purposes of this title, the terms ‘empowerment

3 zone’ and ‘enterprise community’ mean areas designated

4 as such under section 1391.

5 ‘‘PART II—INCENTIVES FOR EMPOWERMENT

6 ZONES AND ENTERPRISE COMMUNITIES

‘‘Sec. 1394. Zone resident empowerment savings credit.

‘‘Sec. 1395. Additional benefits.

7 ‘‘SEC. 1394. ZONE RESIDENT EMPOWERMENT SAVINGS

8 CREDIT.

9 ‘‘(a) GENERAL RULE.—For purposes of section 38,

10 the amount of the zone resident empowerment savings

11 credit determined under this section with respect to any

12 employer for any taxable year is 50 percent of the quali13 fied savings contributions for the taxable year.

14 ‘‘(b) QUALIFIED SAVINGS CONTRIBUTIONS.—For

15 purposes of this section—

16 ‘‘(1) IN GENERAL.—The term ‘qualified savings

17 contribution’ means any contribution by an employer

18 to a defined contribution plan—

19 ‘‘(A) which is made on behalf of an em20 ployee in connection with services performed by

21 such employee while such employee is a quali22 fied zone employee, and

23 ‘‘(B) with respect to which the employee

24 has a nonforfeitable right.
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1 ‘‘(2) LIMITATION BASED ON COMPENSATION.—

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

3 contributions taken into account with respect to

4 any qualified zone employee for any taxable

5 year shall not exceed an amount equal to 2 per6 cent of so much of the employee’s compensation

7 (as defined in section 414(s)) as does not

8 exceed $35,000.

9 ‘‘(B) ZONE DESIGNATION IN EFFECT FOR

10 PARTIAL YEAR.—If a designation of an area as

11 an empowerment zone or an enterprise commu12 nity is in effect for less than the entire taxable

13 year, the $35,000 amount under subparagraph

14 (A) shall be ratably reduced to reflect the por15 tion of the year such designation is not in

16 effect.

17 ‘‘(3) CERTAIN CONTRIBUTIONS EXCLUDED.—

18 The term ‘qualified savings contribution’ shall not

19 include any contribution—

20 ‘‘(A) to a plan subject to the funding re21 quirements of section 412,

22 ‘‘(B) to a tax credit employee stock owner23 ship plan (as defined in section 409(a)) or to an

24 employee stock ownership plan (as defined in

25 section 4975(e)(7)),
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1 ‘‘(C) to a stock bonus plan, or

2 ‘‘(D) which is an elective deferral (within

3 the meaning of section 402(g)(3)).

4 ‘‘(4) SIMPLIFIED EMPLOYEE PENSION.—A con5 tribution to an individual savings plan pursuant to

6 a simplified employee pension (as defined in section

7 408(k)) shall be treated as a contribution to a de8 fined contribution plan.

9 ‘‘(c) EMPLOYER REQUIREMENTS.—This section shall

10 apply to an employer for any taxable year only if—

11 ‘‘(1) the employer elects the application of this

12 section, and

13 ‘‘(2) the plan pursuant to which any qualified

14 savings contribution is made provides that any con15 tribution to such plan (whether or not a qualified

16 savings contribution) may be withdrawn by a quali17 fied zone employee for the purposes described in sec18 tion 72(t)(2) (B) or (D).

19 ‘‘(d) DEFINITIONS.—For purposes of this section—

20 ‘‘(1) QUALIFIED ZONE EMPLOYEE.—The term

21 ‘qualified zone employee’ has the meaning given such

22 term by section 1396(d), except that the references

23 to empowerment zones shall be treated as including

24 references to enterprise communities.
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1 ‘‘(2) DEFINED CONTRIBUTION PLAN.—The

2 term ‘defined contribution plan’ means a defined

3 contribution plan (as defined in section 414(i))

4 which is described in section 401(a) and includes a

5 trust exempt from tax under section 501(a).

6 ‘‘(e) TREATMENT OF PLANS.—A plan shall not be

7 treated as failing to meet any requirement of part I of

8 subchapter D of chapter 1 by reason of permitting with9 drawals for the purposes described in section 72(t)(2) (B)

10 or (D).

11 ‘‘SEC. 1395. ADDITIONAL BENEFITS.

12 ‘‘(a) INCREASE IN LOW INCOME HOUSING CREDIT.—

13 For purposes of section 42(d)(5)(C), a building shall be

14 treated as located in a qualified census tract if—

15 ‘‘(1) such building is located in a census tract

16 having a poverty rate of at least 30 percent (deter17 mined in accordance with section 1393(a)(10)), and

18 ‘‘(2) such building is located in an

19 empowerment zone or an enterprise community.

20 ‘‘(b) TAX EXEMPT ENTERPRISE ZONE FACILITY

21 BONDS.—

22 ‘‘(1) IN GENERAL.—For purposes of part IV of

23 subchapter B of chapter 1 (relating to tax exemption

24 requirements for State and local bonds), the term

25 ‘exempt facility bond’ includes any bond issued as
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1 part of an issue 95 percent or more of the net pro2 ceeds (as defined in section 150(a)(3)) of which are

3 to be used to provide any enterprise zone facility.

4 ‘‘(2) ENTERPRISE ZONE FACILITY.—For pur5 poses of this subsection—

6 ‘‘(A) IN GENERAL.—The term ‘enterprise

7 zone facility’ means any qualified zone property

8 the principal user of which is an enterprise zone

9 business (as defined in section 1399A), and any

10 land which is functionally related and subordi11 nated to such property.

12 ‘‘(B) QUALIFIED ZONE PROPERTY.—The

13 term ‘qualified zone property’ has the meaning

14 given such term by section 1398(c); except

15 that—

16 ‘‘(i) section 1398(c)(3) shall not

17 apply, and

18 ‘‘(ii) the references to empowerment

19 zones shall be treated as including ref20 erences to enterprise communities.

21 ‘‘(3) LIMITATION ON AMOUNT OF BONDS.—

22 ‘‘(A) IN GENERAL.—Paragraph (1) shall

23 not apply to any issue if the aggregate amount

24 of outstanding enterprise zone facility bonds al-
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1 locable to any enterprise zone business (taking

2 into account such issue) exceeds—

3 ‘‘(i) $3,000,000 with respect to any 1

4 empowerment zone or enterprise commu5 nity, or

6 ‘‘(ii) $20,000,000 with respect to all

7 empowerment zones and enterprise com8 munities.

9 ‘‘(B) AGGREGATE ENTERPRISE ZONE FA10 CILITY BOND BENEFIT.—For purposes of sub11 paragraph (A), the aggregate amount of out12 standing enterprise zone facility bonds allocable

13 to any business shall be determined under rules

14 similar to the rules of section 144(a)(10), tak15 ing into account only bonds to which paragraph

16 (1) applies.

17 ‘‘(4) ACQUISITION OF LAND AND EXISTING

18 PROPERTY PERMITTED.—The requirements of sec19 tions 147(c)(1)(A) and 147(d) shall not apply to any

20 bond described in paragraph (1).

21 ‘‘(5) PARTIAL EXEMPTION FROM VOLUME

22 CAP.—Only for purposes of section 146, the term

23 ‘private activity bond’ shall not include 50 percent of

24 any bond issued as part of an issue described in

25 paragraph (1).
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1 ‘‘(6) PENALTY FOR CEASING TO MEET RE2 QUIREMENTS.—

3 ‘‘(A) FAILURES CORRECTED.—An issue

4 which fails to meet 1 or more of the require5 ments of paragraphs (1) and (2) shall be

6 treated as meeting such requirements if—

7 ‘‘(i) the issuer and any principal user

8 in good faith attempted to meet such re9 quirements, and

10 ‘‘(ii) any failure to meet such require11 ments is corrected within a reasonable pe12 riod after such failure is first discovered.

13 ‘‘(B) LOSS OF DEDUCTIONS WHERE FACIL14 ITY CEASES TO BE QUALIFIED.—No deduction

15 shall be allowed under this chapter for interest

16 on any financing provided from any bond to

17 which paragraph (1) applies with respect to any

18 facility to the extent such interest accrues dur19 ing the period beginning on the first day of the

20 calendar year which includes the date on

21 which—

22 ‘‘(i) substantially all of the facility

23 with respect to which the financing was

24 provided ceases to be used in an
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1 empowerment zone or enterprise commu2 nity, or

3 ‘‘(ii) the principal user of such facility

4 ceases to be an enterprise zone business

5 (as defined in section 1399A, but treating

6 references to empowerment zones as in7 cluding references to enterprise commu8 nities).

9 ‘‘(C) EXCEPTION IF ZONE CEASES.—Sub10 paragraphs (A) and (B) shall not apply solely

11 by reason of the termination or revocation of a

12 designation as an empowerment zone or an en13 terprise community.

14 ‘‘(D) EXCEPTION FOR BANKRUPTCY.—

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

16 any cessation resulting from bankruptcy.

17 ‘‘(c) ENTERPRISE ZONE FACILITY BONDS NOT SUB18 JECT TO INTEREST DEDUCTION LIMITATIONS ON FINAN19 CIAL INSTITUTIONS.—Any tax-exempt bond described in

20 paragraph (1)—

21 ‘‘(1) shall be treated as acquired before August

22 8, 1986, for purposes of sections 265(b) and

23 291(e)(1)(B), and
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1 ‘‘(2) shall not be taken into account in deter2 mining whether any issuer is a qualified small issuer

3 for purposes of section 265(b).

4 ‘‘PART III—ADDITIONAL INCENTIVES FOR

5 EMPOWERMENT ZONES

‘‘SUBPART A. Empowerment zone employment credit.

‘‘SUBPART B. Depreciation and other incentives.

6 ‘‘Subpart A—Empowerment Zone Employment Credit

‘‘Sec. 1396. Empowerment zone employment credit.

‘‘Sec. 1397. Other definitions and special rules.

7 ‘‘SEC. 1396. EMPOWERMENT ZONE EMPLOYMENT CREDIT.

8 ‘‘(a) AMOUNT OF CREDIT.—For purposes of section

9 38, the amount of the empowerment zone employment

10 credit determined under this section with respect to any

11 employer for any taxable year is the applicable percentage

12 of the qualified zone wages paid or incurred during the

13 calendar year which ends with or within such taxable year.

14 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

15 this section, the term ‘applicable percentage’ means the

16 percentage determined in accordance with the following

17 table:

‘‘In the case of wages paid or The applicable

incurred during calendar year: percentage is:

1994 through 2000 ........................................ 25

2001 ............................................................... 20

2002 ............................................................... 15

2003 ............................................................... 10

2004 ............................................................... 5

18 ‘‘(c) QUALIFIED ZONE WAGES.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘qualified zone wages’ means any

3 wages paid or incurred by an employer for services

4 performed by an employee while such employee is a

5 qualified zone employee.

6 ‘‘(2) ONLY FIRST $20,000 OF WAGES PER YEAR

7 TAKEN INTO ACCOUNT.—With respect to each quali8 fied zone employee, the amount of qualified zone

9 wages which may be taken into account for a cal10 endar year shall not exceed $20,000.

11 ‘‘(3) COORDINATION WITH TARGETED JOBS

12 CREDIT.—

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

14 zone wages’ shall not include wages attributable

15 to service rendered during the 1-year period be16 ginning with the day the individual begins work

17 for the employer if any portion of such wages

18 is taken into account in determining the credit

19 under section 51.

20 ‘‘(B) COORDINATION WITH PARAGRAPH

21 (2).—In the case of the calendar year in which

22 the 1-year period referred to in subparagraph

23 (A) ends, the $20,000 amount in paragraph (2)

24 shall be reduced by the amount of wages attrib25 utable to service rendered during the portion of
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1 such 1-year period which is within such cal2 endar year.

3 ‘‘(d) QUALIFIED ZONE EMPLOYEE.—For purposes of

4 this section—

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, the term ‘qualified zone em7 ployee’ means, with respect to any period, any em8 ployee of an employer if—

9 ‘‘(A) substantially all of the services per10 formed during such period by such employee for

11 such employer are performed within an

12 empowerment zone in a trade or business of the

13 employer, and

14 ‘‘(B) the principal place of abode of such

15 employee while performing such services is

16 within such empowerment zone.

17 ‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—

18 The term ‘qualified zone employee’ shall not in19 clude—

20 ‘‘(A) any individual described in subpara21 graph (A), (B), or (C) of section 51(i)(1),

22 ‘‘(B) any 5-percent owner (as defined in

23 section 416(i)(1)(B)),

24 ‘‘(C) any individual employed by the em25 ployer for less than 90 days,
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1 ‘‘(D) any individual employed by the em2 ployer at any facility described in section

3 144(c)(6)(B), and

4 ‘‘(E) any individual employed by the em5 ployer in a trade or business the principal activ6 ity of which is farming (within the meaning of

7 subparagraphs (A) or (B) of section

8 2032A(e)(5)), but only if, as of the close of the

9 taxable year, the sum of—

10 ‘‘(i) the aggregate unadjusted bases

11 (or, if greater, the fair market value) of

12 the assets owned by the employer which

13 are used in such a trade or business, and

14 ‘‘(ii) the aggregate value of assets

15 leased by the employer which are used in

16 such a trade or business (as determined

17 under regulations prescribed by the Sec18 retary),

19 exceeds $500,000.

20 ‘‘(3) SPECIAL RULES RELATED TO TERMI21 NATION OF EMPLOYMENT.—

22 ‘‘(A) IN GENERAL.—Paragraph (2)(C)

23 shall not apply to—

24 ‘‘(i) a termination of employment of

25 an individual who before the close of the
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1 period referred to in paragraph (2)(C) be2 comes disabled to perform the services of

3 such employment unless such disability is

4 removed before the close of such period

5 and the taxpayer fails to offer reemploy6 ment to such individual, or

7 ‘‘(ii) a termination of employment of

8 an individual if it is determined under the

9 applicable State unemployment compensa10 tion law that the termination was due to

11 the misconduct of such individual.

12 ‘‘(B) CHANGES IN FORM OF BUSINESS.—

13 For purposes of paragraph (2)(C), the employ14 ment relationship between the taxpayer and an

15 employee shall not be treated as terminated—

16 ‘‘(i) by a transaction to which section

17 381(a) applies if the employee continues to

18 be employed by the acquiring corporation,

19 or

20 ‘‘(ii) by reason of a mere change in

21 the form of conducting the trade or busi22 ness of the taxpayer if the employee con23 tinues to be employed in such trade or

24 business and the taxpayer retains a sub25 stantial interest in such trade or business.
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1 ‘‘SEC. 1397. OTHER DEFINITIONS AND SPECIAL RULES.

2 ‘‘(a) WAGES.—For purposes of this subpart—

3 ‘‘(1) IN GENERAL.—The term ‘wages’ has the

4 same meaning as when used in section 51.

5 ‘‘(2) CERTAIN TRAINING AND EDUCATIONAL

6 BENEFITS.—

7 ‘‘(A) IN GENERAL.—The following

8 amounts shall be treated as wages paid to an

9 employee:

10 ‘‘(i) Any amount paid or incurred by

11 an employer which is excludable from the

12 gross income of an employee under section

13 127, but only to the extent paid or in14 curred to a person not related to the em15 ployer.

16 ‘‘(ii) In the case of an employee who

17 has not attained the age of 19, any

18 amount paid or incurred by an employer

19 for any youth training program operated

20 by such employer in conjunction with local

21 education officials.

22 ‘‘(B) RELATED PERSON.—A person is re23 lated to any other person if the person bears a

24 relationship to such other person specified in

25 section 267(b) or 707(b)(1), or such person and

26 such other person are engaged in trades or
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1 businesses under common control (within the

2 meaning of subsections (a) and (b) of section

3 52). For purposes of the preceding sentence, in

4 applying section 267(b) or 707(b)(1), ‘10 per5 cent’ shall be substituted for ‘50 percent’.

6 ‘‘(b) CONTROLLED GROUPS.—For purposes of this

7 subpart—

8 ‘‘(1) all employers treated as a single employer

9 under subsection (a) or (b) of section 52 shall be

10 treated as a single employer for purposes of this

11 subpart, and

12 ‘‘(2) the credit (if any) determined under sec13 tion 1396 with respect to each such employer shall

14 be its proportionate share of the wages giving rise

15 to such credit.

16 ‘‘(c) CERTAIN OTHER RULES MADE APPLICABLE.—

17 For purposes of this subpart, rules similar to the rules

18 of section 51(k) and subsections (c), (d), and (e) of section

19 52 shall apply.

20 ‘‘(d) NOTICE OF AVAILABILITY OF ADVANCE PAY21 MENT OF EARNED INCOME CREDIT.—Each employer

22 shall take reasonable steps to notify all qualified zone em23 ployees of the availability to eligible individuals of receiv24 ing advanced payments of the credit under section 32 (re25 lating to the earned income credit).
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1 ‘‘Subpart B—Depreciation and Other Incentives

‘‘Sec. 1398. Depreciation benefits.

‘‘Sec. 1399. Additional exclusion from volume cap for certain enterprise zone facility bonds.

‘‘Sec. 1399A. Enterprise zone business.

2 ‘‘SEC. 1398. DEPRECIATION BENEFITS.

3 ‘‘(a) INCREASE IN EXPENSING UNDER SECTION

4 179.—

5 ‘‘(1) IN GENERAL.—In the case of an enterprise

6 zone business, for purposes of section 179—

7 ‘‘(A) qualified zone property shall be treat8 ed as section 179 property,

9 ‘‘(B) the limitation under section

10 179(b)(1) shall be increased by the lesser of—

11 ‘‘(i) $65,000, or

12 ‘‘(ii) the cost of qualified zone prop13 erty placed in service during the taxable

14 year, and

15 ‘‘(C) section 179(b)(2) shall be applied by

16 substituting ‘by one-half of the amount by

17 which the cost of qualified zone property (other

18 than real property)’ for ‘by the amount by

19 which the cost of section 179 property’.

20 ‘‘(b) ACCELERATED DEPRECIATION.—

21 ‘‘(1) IN GENERAL.—For purposes of section

22 168(a), with respect to qualified zone property of an

23 enterprise zone business, the applicable recovery pe-
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1 riod shall be determined in accordance with the table

2 contained in paragraph (2) in lieu of the table con3 tained in section 168(c).

4 ‘‘(2) APPLICABLE RECOVERY PERIOD FOR

5 QUALIFIED ZONE PROPERTY.—For purposes of para6 graph (1)—

The applicable

‘‘In the case of: recovery period is:

3-year property ........................................................................ 2 years

5-year property ........................................................................ 3 years

7-year property ........................................................................ 4 years

10-year property ...................................................................... 6 years

15-year property ...................................................................... 9 years

20-year property ...................................................................... 12 years

Nonresidential real property .................................................... 22 years.

7 ‘‘(3) DEDUCTION ALLOWED IN COMPUTING

8 MINIMUM TAX.—Paragraph (1) shall apply for pur9 poses of determining alternative minimum taxable

10 income under section 55.

11 ‘‘(4) COORDINATION WITH INVESTMENT CRED12 IT.—This subsection shall not apply to any property

13 with respect to which a credit is determined under

14 section 46A or 50A. If the lessee of any property is

15 treated as the owner of such property for purposes

16 of such credit, this subsection shall not apply to

17 such property in the hands of the lessor.

18 ‘‘(c) QUALIFIED ZONE PROPERTY.—For purposes of

19 this section—
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1 ‘‘(1) IN GENERAL.—The term ‘qualified zone

2 property’ means any property to which section 168

3 applies (or would apply but for section 179) if—

4 ‘‘(A) such property was acquired by the

5 taxpayer by purchase (as defined in section

6 179(d)(2)) after the date on which the designa7 tion of the empowerment zone took effect,

8 ‘‘(B) the original use of which in an

9 empowerment zone commences with the tax10 payer, and

11 ‘‘(C) substantially all of the use of which

12 is in an empowerment zone and is in the active

13 conduct of a trade or business by the taxpayer

14 in such zone.

15 ‘‘(2) SPECIAL RULE FOR SUBSTANTIAL REN16 OVATIONS.—In the case of any property which is

17 substantially renovated by the taxpayer, the require18 ments of subparagraphs (A) and (B) of paragraph

19 (1) shall be treated as satisfied. For purposes of the

20 preceding sentence, property shall be treated as sub21 stantially renovated by the taxpayer if, during any

22 24-month period beginning after the date on which

23 the designation of the empowerment zone took ef24 fect, additions to basis with respect to such property

25 in the hands of the taxpayer exceed the greater of
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1 (i) an amount equal to the adjusted basis at the be2 ginning of such 24-month period in the hands of the

3 taxpayer, or (ii) $5,000.

4 ‘‘(3) EXCEPTION FOR ALTERNATIVE DEPRECIA5 TION PROPERTY.—The term ‘qualified zone prop6 erty’ does not include any property to which the al7 ternative depreciation system under section 168(g)

8 applies, determined—

9 ‘‘(A) without regard to section 168(g)(7)

10 (relating to election to use alternative deprecia11 tion system), and

12 ‘‘(B) after the application of section

13 280F(b) (relating to listed property with limited

14 business use).

15 ‘‘(d) SPECIAL RULES FOR SALE-LEASEBACKS.—For

16 purposes of subsection (c)(1)(B), if property is sold and

17 leased back by the taxpayer within 3 months after the date

18 such property was originally placed in service, such prop19 erty shall be treated as originally placed in service not ear20 lier than the date on which such property is used under

21 the leaseback.

22 ‘‘(e) RECAPTURE.—Rules similar to the rules under

23 section 179(d)(10) shall apply with respect to any quali24 fied zone property of any business which ceases to be an

25 enterprise zone business.
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1 ‘‘SEC. 1399. ADDITIONAL EXCLUSION FROM VOLUME CAP

2 FOR CERTAIN ENTERPRISE ZONE FACILITY

3 BONDS.

4 ‘‘(a) IN GENERAL.—Section 1395(b)(5) shall be ap5 plied by substituting ‘75 percent’ for ‘50 percent’ in the

6 case of any bond described in section 1395(b)(1) issued

7 as part of an issue 95 percent or more of the net proceeds

8 (as defined in section 150(a)(3)) of which are used to pro9 vide qualified zone property the principal user of which

10 is any enterprise zone business if the ownership require11 ments of subsection (b) are met with respect to such busi12 ness.

13 ‘‘(b) OWNERSHIP REQUIREMENTS.—The ownership

14 requirements of this subsection are met with respect to

15 an enterprise zone business if—

16 ‘‘(1) in the case of a sole proprietorship, the

17 principal place of abode of the proprietor is in an

18 empowerment zone,

19 ‘‘(2) in the case of a corporation, more than 50

20 percent of the stock (by vote and value) in the cor21 poration is owned by individuals whose principal

22 place of abode is in an empowerment zone, and

23 ‘‘(3) in the case of a partnership, more than 50

24 percent of the capital and profits interests in the

25 partnership is owned by individuals whose principal

26 place of abode is in an empowerment zone.
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1 ‘‘SEC. 1399A. ENTERPRISE ZONE BUSINESS DEFINED.

2 ‘‘(a) IN GENERAL.—For purposes of this subpart, the

3 term ‘enterprise zone business’ means—

4 ‘‘(1) any qualified business entity, and

5 ‘‘(2) any qualified proprietorship.

6 ‘‘(b) QUALIFIED BUSINESS ENTITY.—For purposes

7 of this section, the term ‘qualified business entity’ means,

8 with respect to any taxable year, any corporation or part9 nership if for such year—

10 ‘‘(1) every trade or business of such entity is

11 the active conduct of a qualified business within an

12 empowerment zone,

13 ‘‘(2) at least 80 percent of the total gross in14 come of such entity is derived from the active con15 duct of such business,

16 ‘‘(3) substantially all of the use of the tangible

17 property of such entity (whether owned or leased) is

18 within an empowerment zone,

19 ‘‘(4) substantially all of the intangible property

20 of such entity is used in, and exclusively related to,

21 the active conduct of any such business,

22 ‘‘(5) substantially all of the services performed

23 for such entity by its employees are performed in an

24 empowerment zone,

25 ‘‘(6) at least 35 percent of its employees are

26 residents of an empowerment zone,
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1 ‘‘(7) less than 5 percent of the average of the

2 aggregate unadjusted bases of the property of such

3 entity is attributable to collectibles (as defined in

4 section 408(m)(2)) other than collectibles that are

5 held primarily for sale to customers in the ordinary

6 course of such business, and

7 ‘‘(8) less than 5 percent of the average of the

8 aggregate unadjusted bases of the property of such

9 entity is attributable to nonqualified financial prop10 erty.

11 ‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of

12 this section, the term ‘qualified proprietorship’ means,

13 with respect to any taxable year, any qualified business

14 carried on by an individual as a proprietorship if for such

15 year—

16 ‘‘(1) at least 80 percent of the total gross in17 come of such individual from such business is de18 rived from the active conduct of such business in an

19 empowerment zone,

20 ‘‘(2) substantially all of the use of the tangible

21 property of such individual in such business (wheth22 er owned or leased) is within an empowerment zone,

23 ‘‘(3) substantially all of the intangible property

24 of such business is used in, and exclusively related

25 to, the active conduct of such business,
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1 ‘‘(4) substantially all of the services performed

2 for such individual in such business by employees of

3 such business are performed in an empowerment

4 zone,

5 ‘‘(5) at least 35 percent of such employees are

6 residents of an empowerment zone,

7 ‘‘(6) less than 5 percent of the average of the

8 aggregate unadjusted bases of the property of such

9 individual which is used in such business is attrib10 utable to collectibles (as defined in section

11 408(m)(2)) other than collectibles that are held pri12 marily for sale to customers in the ordinary course

13 of such business, and

14 ‘‘(7) less than 5 percent of the average of the

15 aggregate unadjusted bases of the property of such

16 individual which is used in such business is attrib17 utable to nonqualified financial property.

18 For purposes of this subsection, the term ‘employee’ in19 cludes the proprietor.

20 ‘‘(d) QUALIFIED BUSINESS.—For purposes of this

21 section—

22 ‘‘(1) IN GENERAL.—Except as otherwise pro23 vided in this subsection, the term ‘qualified business’

24 means any trade or business.
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1 ‘‘(2) RENTAL OF REAL PROPERTY.—The rental

2 to others of real property located in an

3 empowerment zone shall be treated as a qualified

4 business if and only if—

5 ‘‘(A) the property is not residential rental

6 property (as defined in section 168(e)(2)), and

7 ‘‘(B) at least 50 percent of the gross rental

8 income from the real property is from enter9 prise zone businesses.

10 ‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP11 ERTY.—The rental to others of tangible personal

12 property shall be treated as a qualified business if

13 and only if substantially all of the rental of such

14 property is by enterprise zone businesses or by resi15 dents of an empowerment zone.

16 ‘‘(4) TREATMENT OF BUSINESS HOLDING IN17 TANGIBLES.—The term ‘qualified business’ shall not

18 include any trade or business consisting predomi19 nantly of the development or holding of intangibles

20 for sale or license.

21 ‘‘(5) CERTAIN BUSINESSES EXCLUDED.—The

22 term ‘qualified business’ shall not include—

23 ‘‘(A) any trade or business consisting of

24 the operation of any facility described in section

25 144(c)(6)(B), and
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1 ‘‘(B) any trade or business the principal

2 activity of which is farming (within the meaning

3 of subparagraphs (A) or (B) of section

4 2032A(e)(5)), but only if, as of the close of the

5 preceding taxable year, the sum of—

6 ‘‘(i) the aggregate unadjusted bases

7 (or, if greater, the fair market value) of

8 the assets owned by the taxpayer which are

9 used in such a trade or business, and

10 ‘‘(ii) the aggregate value of assets

11 leased by the taxpayer which are used in

12 such a trade or business,

13 exceeds $500,000.

14 For purposes of subparagraph (B), rules similar to

15 the rules of section 1397(b) shall apply.

16 ‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For

17 purposes of this section, the term ‘nonqualified financial

18 property’ means debt, stock, partnership interests, op19 tions, futures contracts, forward contracts, warrants, no20 tional principal contracts, annuities, and other similar

21 property specified in regulations; except that such term

22 shall not include—

23 ‘‘(1) reasonable amounts of working capital

24 held in cash, cash equivalents, or debt instruments

25 with a term of 18 months or less, or
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1 ‘‘(2) debt instruments described in section

2 1221(4).

3 ‘‘PART IV—REGULATIONS

‘‘Sec. 1399B. Regulations.

4 ‘‘SEC. 1399B. REGULATIONS.

5 ‘‘The Secretary shall prescribe such regulations as

6 may be necessary or appropriate to carry out the purposes

7 of parts II and III, including—

8 ‘‘(1) regulations limiting the benefit of parts II

9 and III in circumstances where such benefits, in

10 combination with benefits provided under other Fed11 eral programs, would result in an activity being 100

12 percent or more subsidized by the Federal Govern13 ment,

14 ‘‘(2) regulations preventing abuse of the provi15 sions of parts II and III, and

16 ‘‘(3) regulations dealing with inadvertent fail17 ures of entities to be enterprise zone businesses.’’

18 (b) CLERICAL AMENDMENT.—The table of sub19 chapters for chapter 1 is amended by inserting after the

20 item relating to subchapter T the following new item:

‘‘Subchapter U. Designation and treatment of empowerment

zones and enterprise communities.’’

21 SEC. 3102. EXPANSION OF TARGETED JOBS CREDIT.

22 (a) ALLOWANCE OF CREDIT FOR HIRING

23 EMPOWERMENT ZONE RESIDENT.—Paragraph (1) of sec-
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1 tion 51(d) (defining members of targeted groups) is

2 amended by striking ‘‘or’’ at the end of subparagraph (I),

3 by striking the period at the end of subparagraph (J) and

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

5 new subparagraph:

6 ‘‘(K) an empowerment zone resident.’’

7 (b) EMPOWERMENT ZONE RESIDENT.—Section

8 51(d) is amended by redesignating paragraphs (13)

9 through (16) as paragraphs (14) through (17), respec10 tively, and by inserting after paragraph (12) the following

11 new paragraph:

12 ‘‘(13) EMPOWERMENT ZONE RESIDENT.—The

13 term ‘empowerment zone resident’ means an individ14 ual whose principal place of abode while performing

15 services for the employer is within an empowerment

16 zone.’’

17 (c) CONFORMING AMENDMENT.—Subparagraph (C)

18 of section 51(d)(12) is amended by striking ‘‘paragraph

19 (11)’’ and inserting ‘‘paragraph (12)’’.

20 SEC. 3103. TECHNICAL AND CONFORMING AMENDMENTS.

21 (a) CERTAIN CREDITS PART OF GENERAL BUSINESS

22 CREDIT.—

23 (1) Subsection (b) of section 38 (relating to

24 current year business credit) is amended by striking

25 ‘‘plus’’ at the end of paragraph (7), by striking the
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1 period at the end of paragraph (8) and inserting a

2 comma, and by adding at the end the following new

3 paragraphs:

4 ‘‘(9) the zone resident empowerment savings

5 credit determined under section 1394, plus

6 ‘‘(10) the empowerment zone employment credit

7 determined under section 1396(a).’’

8 (2) Subsection (d) of section 39, as amended by

9 section 1201(e)(2), is amended by adding at the end

10 the following new paragraph:

11 ‘‘(5) ENTERPRISE ZONE CREDITS.—No portion

12 of the unused business credit which is attributable to

13 the credit determined under section 1394 (relating

14 to zone resident empowerment savings credit) or sec15 tion 1396 (relating to empowerment zone employ16 ment credit) may be carried to any taxable year end17 ing before January 1, 1994.’’

18 (b) DENIAL OF DEDUCTION FOR PORTION OF WAGES

19 EQUAL TO EMPOWERMENT ZONE EMPLOYMENT CRED20 IT.—

21 (1) Subsection (a) of section 280C (relating to

22 rule for targeted jobs credit) is amended—

23 (A) by striking ‘‘the amount of the credit

24 determined for the taxable year under section

25 51(a)’’ and inserting ‘‘the sum of the credits
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1 determined for the taxable year under sections

2 51(a) and 1396(a)’’, and

3 (B) by striking ‘‘TARGETED JOBS CRED4 IT’’ in the subsection heading and inserting

5 ‘‘EMPLOYMENT CREDITS’’.

6 (2) Subsection (c) of section 196 (relating to

7 deduction for certain unused business credits) is

8 amended by striking ‘‘and’’ at the end of paragraph

9 (4), by striking the period at the end of paragraph

10 (5) and inserting ‘‘, and’’, and by adding at the end

11 the following new paragraph:

12 ‘‘(6) the empowerment zone employment credit

13 determined under section 1396(a).’’

14 (c) EMPLOYMENT AND SAVINGS CREDITS MAY OFF15 SET 25 PERCENT OF MINIMUM TAX.—

16 (1) Subparagraph (A) of section 38(c)(2), as

17 added by section 1201(c) of this Act, is amended—

18 (A) by inserting ‘‘and the empowerment

19 zone credits’’ after ‘‘the regular investment tax

20 credit’’ each place it appears, and

21 (B) by striking ‘‘such credit’’ in clause (ii)

22 and inserting ‘‘such credits’’.

23 (2) Paragraph (2) of section 38(c), as so added,

24 is amended by adding at the end thereof the follow25 ing new subparagraph:
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1 ‘‘(C) EMPOWERMENT ZONE CREDITS.—For

2 purposes of this paragraph, the term

3 ‘empowerment zone credits’ means the portion

4 of the credit under subsection (a) which is at5 tributable to the credits determined under sec6 tion 1394 (relating to zone resident

7 empowerment savings credit) and section 1396

8 (relating to empowerment zone employment

9 credit).’’

10 (d) CHANGES RELATING TO EMPOWERMENT ZONE

11 RESIDENT EMPOWERMENT SAVINGS CREDIT.—

12 (1) DISALLOWANCE OF DEDUCTION.—Section

13 404 (relating to deduction for certain employer con14 tributions) is amended by adding at the end the fol15 lowing new subsection:

16 ‘‘(m) COORDINATION WITH EMPOWERMENT ZONE

17 CREDIT.—No deduction shall be allowed under this sec18 tion for any qualified employer contribution taken into ac19 count in computing the credit determined under section

20 1394.’’

21 (2) PENALTY-FREE DISTRIBUTIONS.—

22 (A) IN GENERAL.—Paragraph (2) of sec23 tion 72(t) (relating to exceptions to 10-percent

24 additional tax on early distributions from quali25 fied retirement plans) is amended by adding at
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1 the end thereof the following new subpara2 graph:

3 ‘‘(D) DISTRIBUTIONS FROM CERTAIN

4 PLANS FOR FIRST HOME PURCHASES OR EDU5 CATIONAL EXPENSES.—

6 ‘‘(i) IN GENERAL.—Distributions to

7 an individual from a qualified retirement

8 plan—

9 ‘‘(I) which are qualified first-time

10 homebuyer distributions (as defined in

11 paragraph (6)),

12 ‘‘(II) to the extent such distribu13 tions do not exceed the qualified high14 er education expenses (as defined in

15 paragraph (7)) of the taxpayer for the

16 taxable year, or

17 ‘‘(III) to the extent such distribu18 tions do not exceed an amount equal

19 to the aggregate investment made by

20 the taxpayer during the taxable year

21 in any enterprise zone business (as

22 defined in section 1399A) that meets

23 the ownership requirements of section

24 1399(b).
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1 ‘‘(ii) LIMITATION.—Clause (i) shall

2 not apply to the extent that the aggregate

3 amount of the distributions described in

4 clause (i) are greater than the excess of—

5 ‘‘(I) the qualified retirement con6 tributions (as defined in section

7 1394(b)) of the taxpayer, and any

8 earnings thereon, over

9 ‘‘(II) the aggregate amounts to

10 which clause (i) and the last sentence

11 of paragraph (3)(A) applied for pre12 ceding taxable years.’’

13 (B) DEFINITIONS.—Section 72(t) is

14 amended by adding at the end thereof the fol15 lowing new paragraphs:

16 ‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS17 TRIBUTIONS.—For purposes of paragraph

18 (2)(D)(i)(I)—

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

20 first-time homebuyer distribution’ means any

21 payment or distribution received by an individ22 ual to the extent such payment or distribution

23 is used by the individual before the close of the

24 60th day after the day on which such payment

25 or distribution is received to pay qualified ac-
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1 quisition costs with respect to a principal resi2 dence of a first-time homebuyer who is such in3 dividual or the spouse of such individual.

4 ‘‘(B) QUALIFIED ACQUISITION COSTS.—

5 For purposes of this paragraph, the term

6 ‘qualified acquisition costs’ means the costs of

7 acquiring, constructing, or reconstructing a res8 idence. Such term includes any usual or reason9 able settlement, financing, or other closing

10 costs.

11 ‘‘(C) FIRST-TIME HOMEBUYER; OTHER

12 DEFINITIONS.—For purposes of this para13 graph—

14 ‘‘(i) FIRST-TIME HOMEBUYER.—The

15 term ‘first-time homebuyer’ means any in16 dividual if—

17 ‘‘(I) such individual (and if mar18 ried, such individual’s spouse) had no

19 present ownership interest in a prin20 cipal residence during the 3-year pe21 riod ending on the date of acquisition

22 of the principal residence to which

23 this paragraph applies, and

24 ‘‘(II) subsection (a)(6), (h), or

25 (k) of section 1034 did not suspend
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1 the running of any period of time

2 specified in section 1034 with respect

3 to such individual on the day before

4 the date the distribution is applied

5 pursuant to subparagraph (A)(ii).

6 ‘‘(ii) PRINCIPAL RESIDENCE.—The

7 term ‘principal residence’ has the same

8 meaning as when used in section 1034.

9 ‘‘(iii) DATE OF ACQUISITION.—The

10 term ‘date of acquisition’ means the date—

11 ‘‘(I) on which a binding contract

12 to acquire the principal residence to

13 which subparagraph (A) applies is en14 tered into, or

15 ‘‘(II) on which construction or re16 construction of such a principal resi17 dence is commenced.

18 ‘‘(D) SPECIAL RULE WHERE DELAY IN AC19 QUISITION.—If any distribution from any quali20 fied retirement plan fails to meet the require21 ments of subparagraph (A) solely by reason of

22 a delay or cancellation of the purchase or con23 struction of the residence, the amount of the

24 distribution may be recontributed to the plan
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1 from which it was distributed within 120 days

2 after the date of such distribution.

3 ‘‘(7) QUALIFIED HIGHER EDUCATION EX4 PENSES.—For purposes of paragraph

5 (2)(D)(ii)(II)—

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

7 higher education expenses’ means tuition, fees,

8 books, supplies, and equipment required for the

9 enrollment or attendance of—

10 ‘‘(i) the taxpayer,

11 ‘‘(ii) the taxpayer’s spouse, or

12 ‘‘(iii) the taxpayer’s child (as defined

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

14 at an eligible educational institution (as defined

15 in section 135(c)(3)).

16 ‘‘(B) COORDINATION WITH SAVINGS BOND

17 PROVISIONS.—The amount of qualified higher

18 education expenses for any taxable year shall be

19 reduced by any amount excludable from gross

20 income under section 135.’’

21 (C) CONFORMING AMENDMENTS.—

22 (i) Subparagraph (B) of section

23 72(t)(2) is amended by striking ‘‘or (C)’’

24 and inserting ‘‘, (C), or (D)’’.
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1 (ii) Section 401(k)(2)(B)(i) is amend2 ed by striking ‘‘or’’ at the end of subclause

3 (III), by striking ‘‘and’’ at the end of

4 subclause (IV) and inserting ‘‘or’’, and by

5 inserting after subclause (IV) the following

6 new subclause:

7 ‘‘(V) subject to the limitation of

8 section 72(t)(2)(D)(ii), the date on

9 which qualified first-time homebuyer

10 distributions (as defined in section

11 72(t)(6)), distributions for qualified

12 higher education expenses (as defined

13 in section 72(t)(7)), or distributions

14 for investments described in section

15 72(t)(2)(D)(i)(III) are made, and’’.

16 (e) AMENDMENT OF TARGETED JOBS CREDIT.—

17 Subparagraph (A) of section 51(i)(1) is amended by in18 serting ‘‘, or, if the taxpayer is an entity other than a

19 corporation, to any individual who owns, directly or indi20 rectly, more than 50 percent of the capital and profits in21 terests in the entity,’’ after ‘‘of the corporation’’.

22 (f) CARRYOVERS.—Subsection (c) of section 381 (re23 lating to carryovers in certain corporate acquisitions) is

24 amended by adding at the end the following new para25 graph:
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1 ‘‘(26) ENTERPRISE ZONE PROVISIONS.—The

2 acquiring corporation shall take into account (to the

3 extent proper to carry out the purposes of this sec4 tion and subchapter U, and under such regulations

5 as may be prescribed by the Secretary) the items re6 quired to be taken into account for purposes of sub7 chapter U in respect of the distributor or transferor

8 corporation.’’

9 SEC. 3104. EFFECTIVE DATE.

10 The amendments made by this title shall take effect

11 on the date of the enactment of this Act.

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