Calendar No. 438
104TH CONGRESS
2D SESSION
H. R. 3448
[Report No. 104–281]
AN ACT
To provide tax relief for small businesses, to protect
jobs, to create opportunities, to increase the take
home pay of workers, to amend the Portal-to-
Portal Act of 1947 relating to the payment of
wages to employees who use employer owned ve-
hicles, and to amend the Fair Labor Standards
Act of 1938 to increase the minimum wage rate
and to prevent job loss by providing flexibility to
employers in complying with minimum wage and
overtime requirements under that Act.
JUNE 18, 1996
Reported with an amendment
II
Calendar No. 438
104TH CONGRESS
2D SESSION
H. R. 3448
[Report No. 104–281]
IN THE SENATE OF THE UNITED STATES
MAY 24, 1996
Received
JUNE 6, 1996
Read twice and referred to the Committee on Finance
JUNE 18, 1996
Reported by Mr. ROTH, with an amendment
[Omit the part struck through and insert the part printed in italic]
AN ACT
To provide tax relief for small businesses, to protect jobs,
to create opportunities, to increase the take home pay
of workers, to amend the Portal-to-Portal Act of 1947
relating to the payment of wages to employees who use
employer owned vehicles, and to amend the Fair Labor
Standards Act of 1938 to increase the minimum wage
rate and to prevent job loss by providing flexibility to
employers in complying with minimum wage and over-
time requirements under that Act.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Small Business Job Protection Act of 1996’’.
(b) TABLE OF CONTENTS.—
TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS
Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.
Subtitle A—Expensing; Etc.
Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of storage of product samples.
Sec. 1114. Treatment of certain charitable risk pools.
Sec. 1115. Treatment of dues paid to agricultural or horticultural organiza-
tions.
Sec. 1116. Clarification of employment tax status of certain fishermen; infor-
mation reporting.
Subtitle B—Extension of Certain Expiring Provisions
Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. FUTA exemption for alien agricultural workers.
Subtitle C—Provisions Relating to S Corporations
Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk rules al-
lowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain items of
income.
Sec. 1314. S corporations eligible for rules applicable to real property sub-
divided for sale by noncorporate taxpayers.
Sec. 1315. Effective date.
Subtitle D—Pension Simplification
CHAPTER 1—SIMPLIFIED DISTRIBUTION RULES
Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees’ death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 1404. Required distributions.
CHAPTER 2—INCREASED ACCESS TO PENSION PLANS
SUBCHAPTER A—SIMPLE SAVINGS PLANS
Sec. 1421. Establishment of savings incentive match plans for employees of
small employers.
Sec. 1422. Extension of simple plan to 401(k) arrangements.
SUBCHAPTER B—OTHER PROVISIONS
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
CHAPTER 3—NONDISCRIMINATION PROVISIONS
Sec. 1431. Definition of highly compensated employees; repeal of family aggre-
gation.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.
CHAPTER 4—MISCELLANEOUS PROVISIONS
Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State and
local governments.
Sec. 1449. Transition rule for computing maximum benefits under section 415
limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Waiver of minimum period for joint and survivor annuity expla-
nation before annuity starting date.
Sec. 1452. Repeal of limitation in case of defined benefit plan and defined con-
tribution plan for same employee; excess distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension reporting re-
quirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net earnings
from self-employment.
Sec. 1457. Date for adoption of plan amendments.
Subtitle E—Foreign Simplification
Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive as-
sets.
Subtitle F—Revenue Offsets
Sec. 1601. Termination of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire employer
securities.
Sec. 1603. Certain amounts derived from foreign corporations treated as unre-
lated business taxable income.
Sec. 1604. Depreciation under income forecast method.
Sec. 1605. Repeal of exclusion for punitive damages and for damages not at-
tributable to physical injuries or sickness.
Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered auto-
mobiles and light trucks.
Subtitle G—Technical Corrections
Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.
TITLE II—PAYMENT OF WAGES
Section 1. Short title.
Sec. 2. Proper compensation for use of employer vehicles.
Sec. 3. Effective date.
Sec. 4. Minimum wage increase.
Sec. 5. Fair Labor Standards Act Amendments.
TITLE I—SMALL BUSINESS AND
OTHER TAX PROVISIONS
SEC. 1101. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.
No addition to the tax shall be made under section
6654 or 6655 of the Internal Revenue Code of 1986 (relat-
(1) REPORTING
REQUIREMENT
NOT
CONSID-
ERED.—Subparagraph (A) of section 45B(b)(1) (re-
lating to excess employer social security tax) is
amended by inserting ‘‘(without regard to whether
such tips are reported under section 6053)’’ after
‘‘section 3121(q)’’.
(2) TAXES
PAID.—Subsection (d) of section
13443 of the Revenue Reconciliation Act of 1993 is
amended by inserting ‘‘, with respect to services per-
formed before, on, or after such date’’ after ‘‘1993’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect as if included in
the amendments made by, and the provisions of, sec-
tion 13443 of the Revenue Reconciliation Act of
1993.
(b) TIPS FOR EMPLOYEES DELIVERING FOOD OR
BEVERAGES.—
(1) IN
GENERAL.—Paragraph (2) of section
45B(b) is amended to read as follows:
‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV-
ERAGES TAKEN INTO ACCOUNT.—In applying para-
graph (1), there shall be taken into account only tips
received from customers in connection with the deliv-
ering or serving of food or beverages for consump-
tion if the tipping of employees delivering or serving
food or beverages by customers is customary.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to tips received for
services performed after December 31, 1996.
SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAM-
PLES.
(a) IN GENERAL.—Paragraph (2) of section 280A(c)
is amended by striking ‘‘inventory’’ and inserting ‘‘inven-
tory or product samples’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1995.
SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK
POOLS.
(a) GENERAL RULE.—Section 501 (relating to ex-
emption from tax on corporations, certain trusts, etc.) is
amended by redesignating subsection (n) as subsection (o)
and by inserting after subsection (m) the following new
subsection:
‘‘(n) CHARITABLE RISK POOLS.—
‘‘(1) IN GENERAL.—For purposes of this title—
‘‘(A) a qualified charitable risk pool shall
be treated as an organization organized and op-
erated exclusively for charitable purposes, and
‘‘(B) subsection (m) shall not apply to a
qualified charitable risk pool.
‘‘(2) QUALIFIED CHARITABLE RISK POOL.—For
purposes of this subsection, the term ‘qualified char-
itable risk pool’ means any organization—
‘‘(A) which is organized and operated sole-
ly to pool insurable risks of its members (other
than risks related to medical malpractice) and
to provide information to its members with re-
spect to loss control and risk management,
‘‘(B) which is comprised solely of members
that are organizations described in subsection
(c)(3) and exempt from tax under subsection
(a), and
‘‘(C) which meets the organizational re-
quirements of paragraph (3).
‘‘(3)
ORGANIZATIONAL
REQUIREMENTS.—An
organization (hereinafter in this subsection referred
to as the ‘risk pool’) meets the organizational re-
quirements of this paragraph if—
‘‘(A) such risk pool is organized as a non-
profit organization under State law provisions
authorizing risk pooling arrangements for chari-
table organizations,
‘‘(B) such risk pool is exempt from any in-
come tax imposed by the State (or will be so ex-
empt after such pool qualifies as an organiza-
tion exempt from tax under this title),
‘‘(C) such risk pool has obtained at least
$1,000,000 in startup capital from nonmember
charitable organizations,
‘‘(D) such risk pool is controlled by a
board of directors elected by its members, and
‘‘(E) the organizational documents of such
risk pool require that—
‘‘(i) each member of such pool shall at
all times be an organization described in
subsection (c)(3) and exempt from tax
under subsection (a),
‘‘(ii) any member which receives a
final determination that it no longer quali-
fies as an organization described in sub-
section (c)(3) shall immediately notify the
pool of such determination and the effec-
tive date of such determination, and
‘‘(iii) each policy of insurance issued
by the risk pool shall provide that such
policy will not cover the insured with re-
spect to events occurring after the date
such final determination was issued to the
insured.
An organization shall not cease to qualify as a quali-
fied charitable risk pool solely by reason of the fail-
ure of any of its members to continue to be an orga-
nization described in subsection (c)(3) if, within a
reasonable period of time after such pool is notified
as required under subparagraph (C)(ii), such pool
takes such action as may be reasonably necessary to
remove such member from such pool.
‘‘(4) OTHER
DEFINITIONS.—For purposes of
this subsection—
‘‘(A) STARTUP CAPITAL.—The term ‘start-
up capital’ means any capital contributed to,
and any program-related investments (within
the meaning of section 4944(c)) made in, the
risk pool before such pool commences oper-
ations.
‘‘(B) NONMEMBER
CHARITABLE
ORGANI-
ZATION.—The term ‘nonmember charitable or-
ganization’ means any organization which is de-
scribed in subsection (c)(3) and exempt from
tax under subsection (a) and which is not a
member of the risk pool and does not benefit
(directly or indirectly) from the insurance cov-
erage provided by the pool to its members.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL
OR HORTICULTURAL ORGANIZATIONS.
(a) GENERAL RULE.—Section 512 (defining unre-
lated business taxable income) is amended by adding at
the end thereof the following new subsection:
‘‘(d) TREATMENT OF DUES OF AGRICULTURAL OR
HORTICULTURAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an agricultural or horticultural orga-
nization described in section 501(c)(5) requires
annual dues to be paid in order to be a member
of such organization, and
‘‘(B) the amount of such required annual
dues does not exceed $100,
in no event shall any portion of such dues be treated
as derived by such organization from an unrelated
trade or business by reason of any benefits or privi-
leges to which members of such organization are en-
titled.
‘‘(2) INDEXATION
OF
$100
AMOUNT.—In the
case of any taxable year beginning in a calendar
year after 1995, the $100 amount in paragraph (1)
shall be increased by an amount equal to—
‘‘(A) $100, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 1994’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(3) DUES.—For purposes of this subsection,
the term ‘dues’ includes any payment required to be
made in order to be recognized by the organization
as a member of the organization.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS
OF CERTAIN FISHERMEN; INFORMATION RE-
PORTING.
(a) CLARIFICATION
OF EMPLOYMENT TAX STA-
TUS.—
(1)
AMENDMENTS
OF
INTERNAL
REVENUE
CODE OF 1986.—
(A) DETERMINATION OF SIZE OF CREW.—
Subsection (b) of section 3121 (defining em-
ployment) is amended by adding at the end
thereof the following new sentence:
‘‘For purposes of paragraph (20), the operating crew of
a boat shall be treated as normally made up of fewer than
10 individuals if the average size of the operating crew
on trips made during the preceding 4 calendar quarters
consisted of fewer than 10 individuals.’’.
(B) CERTAIN CASH REMUNERATION PER-
MITTED.—Subparagraph
(A)
of
section
3121(b)(20) is amended to read as follows:
‘‘(A) such individual does not receive any
cash remuneration other than as provided in
subparagraph (B) and other than cash remu-
neration—
‘‘(i) which does not exceed $100 per
trip;
‘‘(ii) which is contingent on a mini-
mum catch; and
‘‘(iii) which is paid solely for addi-
tional duties (such as mate, engineer, or
cook) for which additional cash remunera-
tion is traditional in the industry,’’.
(C) CONFORMING
AMENDMENT.—Section
6050A(a) is amended by striking ‘‘and’’ at the
end of paragraph (3), by striking the period at
the end of paragraph (4) and inserting ‘‘; and’’,
and by adding at the end thereof the following
new paragraph:
‘‘(5) any cash remuneration described in section
3121(b)(20)(A).’’.
(2) AMENDMENT OF SOCIAL SECURITY ACT.—
(A) DETERMINATION OF SIZE OF CREW.—
Subsection (a) of section 210 of the Social Se-
curity Act is amended by adding at the end
thereof the following new sentence:
‘‘For purposes of paragraph (20), the operating crew of
a boat shall be treated as normally made up of fewer than
10 individuals if the average size of the operating crew
on trips made during the preceding 4 calendar quarters
consisted of fewer than 10 individuals.’’.
(B) CERTAIN CASH REMUNERATION PER-
MITTED.—Subparagraph
(A)
of
section
210(a)(20) of such Act is amended to read as
follows:
‘‘(A) such individual does not receive any
additional compensation other than as provided
in subparagraph (B) and other than cash remu-
neration—
‘‘(i) which does not exceed $100 per
trip;
‘‘(ii) which is contingent on a mini-
mum catch; and
‘‘(iii) which is paid solely for addi-
tional duties (such as mate, engineer, or
cook) for which additional cash remunera-
tion is traditional in the industry,’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to remuneration
paid after December 31, 1996.
(B)
SPECIAL
RULE.—The
amendments
made by this subsection (other than paragraph
(1)(C)) shall also apply to remuneration paid
after December 31, 1984, and before January
1, 1997, unless the payor treated such remu-
neration (when paid) as being subject to tax
under chapter 21 of the Internal Revenue Code
of 1986.
(b) INFORMATION REPORTING.—
(1) IN GENERAL.—Subpart B of part III of
subchapter A of chapter 68 (relating to information
concerning
transactions
with
other
persons)
is
amended by adding at the end the following new sec-
tion:
‘‘SEC. 6050Q. RETURNS RELATING TO CERTAIN PURCHASES
OF FISH.
‘‘(a) REQUIREMENT
OF REPORTING.—Every per-
son—
‘‘(1) who is engaged in the trade or business of
purchasing fish for resale from any person engaged
in the trade or business of catching fish; and
‘‘(2) who makes payments in cash in the course
of such trade or business to such a person of $600
or more during any calendar year for the purchase
of fish,
shall make a return (at such times as the Secretary may
prescribe) described in subsection (b) with respect to each
person to whom such a payment was made during such
calendar year.
‘‘(b) RETURN.—A return is described in this sub-
section if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe, and
‘‘(2) contains—
‘‘(A) the name, address, and TIN of each
person to whom a payment described in sub-
section (a)(2) was made during the calendar
year;
‘‘(B) the aggregate amount of such pay-
ments made to such person during such cal-
endar year and the date and amount of each
such payment, and
‘‘(C) such other information as the Sec-
retary may require.
‘‘(c) STATEMENT TO BE FURNISHED WITH RE-
SPECT TO WHOM INFORMATION IS REQUIRED.—Every
person required to make a return under subsection (a)
shall furnish to each person whose name is required to
be set forth in such return a written statement showing—
‘‘(1) the name and address of the person re-
quired to make such a return, and
‘‘(2) the aggregate amount of payments to the
person required to be shown on the return.
The written statement required under the preceding sen-
tence shall be furnished to the person on or before Janu-
ary 31 of the year following the calendar year for which
the return under subsection (a) is required to be made.
‘‘(d) DEFINITIONS.—For purposes of this section:
‘‘(1) CASH.—The term ‘cash’ has the meaning
given such term by section 6050I(d).
‘‘(2) FISH.—The term ‘fish’ includes other
forms of aquatic life.’’.
(2) TECHNICAL AMENDMENTS.—
(A)
Subparagraph
(A)
of
section
6724(d)(1) is amended by striking ‘‘or’’ at the
end of clause (vi), by striking ‘‘and’’ at the end
of clause (vii) and inserting ‘‘or’’, and by add-
ing at the end the following new clause:
‘‘(viii) section 6050Q (relating to re-
turns relating to certain purchases of fish),
and’’.
(B) Paragraph (2) of section 6724(d) is
amended by redesignating subparagraphs (Q)
through (T) as subparagraphs (R) through (U),
respectively, and by inserting after subpara-
graph (P) the following new subparagraph:
‘‘(Q) section 6050Q(c) (relating to returns
relating to certain purchases of fish),’’.
(C) The table of sections for subpart B of
part III of subchapter A of chapter 68 is
amended by adding at the end the following
new item:
‘‘Sec. 6050Q. Returns relating to certain purchases of fish.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to payments made
after December 31, 1996.
Subtitle B—Extension of Certain
Expiring Provisions
SEC. 1201. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.—Subsection (a) of section
51 (relating to amount of credit) is amended by striking
‘‘40 percent’’ and inserting ‘‘35 percent’’.
(b) MEMBERS OF TARGETED GROUPS.—Subsection
(d) of section 51 is amended to read as follows:
‘‘(d) MEMBERS OF TARGETED GROUPS.—For pur-
poses of this subpart—
‘‘(1) IN GENERAL.—An individual is a member
of a targeted group if such individual is—
‘‘(A) a qualified IV–A recipient,
‘‘(B) a qualified veteran,
‘‘(C) a qualified ex-felon,
‘‘(D) a high-risk youth,
‘‘(E) a vocational rehabilitation referral, or
‘‘(F) a qualified summer youth employee.
‘‘(2) QUALIFIED IV–A RECIPIENT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
IV–A recipient’ means any individual who is
certified by the designated local agency as being
a member of a family receiving assistance under
a IV–A program for at least a 9-month period
ending during the 9-month period ending on the
hiring date.
‘‘(B) IV–A
PROGRAM.—For purposes of
this paragraph, the term ‘IV–A program’ means
any program providing assistance under a State
plan approved under part A of title IV of the
Social Security Act (relating to assistance for
needy families with minor children) and any
successor of such program.
‘‘(3) QUALIFIED VETERAN.—
‘‘(A) IN
GENERAL.—The term ‘qualified
veteran’ means any veteran who is certified by
the designated local agency as being—
‘‘(i) a member of a family receiving
assistance under a IV–A program (as de-
fined in paragraph (2)(B)) for at least a 9-
month period ending during the 12-month
period ending on the hiring date, or
‘‘(ii) a member of a family receiving
assistance under a food stamp program
under the Food Stamp Act of 1977 for at
least a 3-month period ending during the
12-month period ending on the hiring date.
‘‘(B) VETERAN.—For purposes of subpara-
graph (A), the term ‘veteran’ means any indi-
vidual who is certified by the designated local
agency as—
‘‘(i)(I) having served on active duty
(other than active duty for training) in the
Armed Forces of the United States for a
period of more than 180 days, or
‘‘(II) having been discharged or re-
leased from active duty in the Armed
Forces of the United States for a service-
connected disability, and
‘‘(ii) not having any day during the
60-day period ending on the hiring date
which was a day of extended active duty in
the Armed Forces of the United States.
For purposes of clause (ii), the term ‘extended
active duty’ means a period of more than 90
days during which the individual was on active
duty (other than active duty for training).
‘‘(4) QUALIFIED EX-FELON.—The term ‘quali-
fied ex-felon’ means any individual who is certified
by the designated local agency—
‘‘(A) as having been convicted of a felony
under any statute of the United States or any
State,
‘‘(B) as having a hiring date which is not
more than 1 year after the last date on which
such individual was so convicted or was released
from prison, and
‘‘(C) as being a member of a family which
had an income during the 6 months imme-
diately preceding the earlier of the month in
which such income determination occurs or the
month in which the hiring date occurs, which,
on an annual basis, would be 70 percent or less
of the Bureau of Labor Statistics lower living
standard.
Any determination under subparagraph (C) shall be
valid for the 45-day period beginning on the date
such determination is made.
‘‘(5) HIGH-RISK YOUTH.—
‘‘(A) IN
GENERAL.—The term ‘high-risk
youth’ means any individual who is certified by
the designated local agency—
‘‘(i) as having attained age 18 but not
age 25 on the hiring date, and
‘‘(ii) as having his principal place of
abode within an empowerment zone or en-
terprise community.
‘‘(B) YOUTH MUST CONTINUE TO RESIDE
IN ZONE.—In the case of a high-risk youth, the
term ‘qualified wages’ shall not include wages
paid or incurred for services performed while
such youth’s principal place of abode is outside
an empowerment zone or enterprise community.
‘‘(6)
VOCATIONAL
REHABILITATION
REFER-
RAL.—The term ‘vocational rehabilitation referral’
means any individual who is certified by the des-
ignated local agency as—
‘‘(A) having a physical or mental disability
which, for such individual, constitutes or results
in a substantial handicap to employment, and
‘‘(B) having been referred to the employer
upon completion of (or while receiving) rehabili-
tative services pursuant to—
‘‘(i) an individualized written rehabili-
tation plan under a State plan for voca-
tional
rehabilitation
services
approved
under the Rehabilitation Act of 1973, or
‘‘(ii) a program of vocational rehabili-
tation carried out under chapter 31 of title
38, United States Code.
‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
summer youth employee’ means any individ-
ual—
‘‘(i) who performs services for the em-
ployer between May 1 and September 15,
‘‘(ii) who is certified by the designated
local agency as having attained age 16 but
not 18 on the hiring date (or if later, on
May 1 of the calendar year involved),
‘‘(iii) who has not been an employee
of the employer during any period prior to
the 90-day period described in subpara-
graph (B)(i), and
‘‘(iv) who is certified by the des-
ignated local agency as having his principal
place of abode within an empowerment
zone or enterprise community.
‘‘(B) SPECIAL RULES FOR DETERMINING
AMOUNT OF CREDIT.—For purposes of applying
this subpart to wages paid or incurred to any
qualified summer youth employee—
‘‘(i) subsection (b)(2) shall be applied
by substituting ‘any 90-day period between
May 1 and September 15’ for ‘the 1-year
period beginning with the day the individ-
ual begins work for the employer’, and
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$3,000’ for ‘$6,000’.
The preceding sentence shall not apply to an in-
dividual who, with respect to the same em-
ployer, is certified as a member of another tar-
geted group after such individual has been a
qualified summer youth employee.
‘‘(C) YOUTH MUST CONTINUE TO RESIDE
IN
ZONE.—Paragraph (5)(B) shall apply for
purposes of this paragraph.
‘‘(8) HIRING
DATE.—The term ‘hiring date’
means the day the individual is hired by the em-
ployer.
‘‘(9) DESIGNATED LOCAL AGENCY.—The term
‘designated local agency’ means a State employment
security agency established in accordance with the
Act of June 6, 1933, as amended (29 U.S.C. 49-
49n).
‘‘(10) SPECIAL RULES FOR CERTIFICATIONS.—
‘‘(A) IN
GENERAL.—An individual shall
not be treated as a member of a targeted group
unless—
‘‘(i) on or before the day on which
such individual begins work for the em-
ployer, the employer has received a certifi-
cation from a designated local agency that
such individual is a member of a targeted
group, or
‘‘(ii)(I) on or before the day the indi-
vidual is offered employment with the em-
ployer, a pre-screening notice is completed
by the employer with respect to such indi-
vidual, and
‘‘(II) not later than the 14th day after
the individual begins work for the em-
ployer, the employer submits such notice,
signed by the employer and the individual
under penalties of perjury, to the des-
ignated local agency as part of a written
request for such a certification from such
agency.
For purposes of this paragraph, the term ‘pre-
screening notice’ means a document (in such
form as the Secretary shall prescribe) which
contains information provided by the individual
on the basis of which the employer believes that
the individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified
by a designated local agency as a member
of a targeted group, and
‘‘(ii) such certification is incorrect be-
cause it was based on false information
provided by such individual,
the certification shall be revoked and wages
paid by the employer after the date on which
notice of revocation is received by the employer
shall not be treated as qualified wages.
‘‘(C) EXPLANATION
OF
DENIAL
OF
RE-
QUEST.—If a designated local agency denies a
request for certification of membership in a tar-
geted group, such agency shall provide to the
person making such request a written expla-
nation of the reasons for such denial.’’.
(c) MINIMUM EMPLOYMENT PERIOD.—Paragraph
(3) of section 51(i) (relating to certain individuals ineli-
gible) is amended to read as follows:
‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM-
PLOYMENT PERIOD.—No wages shall be taken into
account under subsection (a) with respect to any in-
dividual unless such individual either—
‘‘(A) is employed by the employer at least
180 days (20 days in the case of a qualified
summer youth employee), or
‘‘(B) has completed at least 500 hours
(120 hours in the case of a qualified summer
youth employee) of services performed for the
employer.’’.
(d) TERMINATION.—Paragraph (4) of section 51(c)
(relating to wages defined) is amended to read as follows:
‘‘(4) TERMINATION.—The term ‘wages’ shall
not include any amount paid or incurred to an indi-
vidual who begins work for the employer—
‘‘(A) after December 31, 1994, and before
July 1, 1996, or
‘‘(B) after June 30, 1997.’’.
(e) REDESIGNATION OF CREDIT.—
(1)
Sections
38(b)(2)
and
51(a)
are
each
amended by striking ‘‘targeted jobs credit’’ and in-
serting ‘‘work opportunity credit’’.
(2) The subpart heading for subpart F of part
IV of subchapter A of chapter 1 is amended by
striking ‘‘Targeted Jobs Credit’’ and inserting
‘‘Work Opportunity Credit’’.
(3) The table of subparts for such part IV is
amended by striking ‘‘targeted jobs credit’’ and in-
serting ‘‘work opportunity credit’’.
(4) The heading for paragraph (3) of section
1396(c) is amended by striking ‘‘TARGETED JOBS
CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED-
IT’’.
(f) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion
51(c)
is
amended
by
striking
‘‘,
subsection
(d)(8)(D),’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to individuals who begin work for
the employer after June 30, 1996.
SEC.
1202.
EMPLOYER-PROVIDED
EDUCATIONAL
ASSIST-
ANCE PROGRAMS.
(a) EXTENSION.—Subsection (d) of section 127 (re-
lating to educational assistance programs) is amended by
striking ‘‘December 31, 1994’’ and inserting ‘‘December
31, 1996’’.
(b) LIMITATION TO EDUCATION BELOW GRADUATE
LEVEL.—The last sentence of section 127(c)(1) is amend-
ed by inserting before the period ‘‘or at the graduate
level’’.
(c) EFFECTIVE DATES.—
(1) EXTENSION.—The amendment made by
subsection (a) shall apply to taxable years beginning
after December 31, 1994.
(2) LIMITATION.—The amendment made by
subsection (b) shall apply to taxable years beginning
after December 31, 1995.
(3) EXPEDITED PROCEDURES.—The Secretary
of the Treasury shall establish expedited procedures
for the refund of any overpayment of taxes imposed
by chapter 24 of the Internal Revenue Code of 1986
which is attributable to amounts excluded from
gross income during 1995 or 1996 under section
127 of such Code, including procedures waiving the
requirement that an employer obtain an employee’s
signature where the employer demonstrates to the
satisfaction of the Secretary that any refund col-
lected by the employer on behalf of the employee will
be paid to the employee.
SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL
WORKERS.
(a) IN GENERAL.—Subparagraph (B) of section
3306(c)(1) (defining employment) is amended by striking
‘‘before January 1, 1995,’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to services performed after De-
cember 31, 1994.
Subtitle C—Provisions Relating to
S Corporations
SEC.
1301.
S
CORPORATIONS
PERMITTED
TO
HAVE
SHAREHOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining
small business corporation) is amended by striking ‘‘35
shareholders’’ and inserting ‘‘75 shareholders’’.
SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.
(a) GENERAL RULE.—Subparagraph (A) of section
1361(c)(2) (relating to certain trusts permitted as share-
holders) is amended by inserting after clause (iv) the fol-
lowing new clause:
‘‘(v)
An
electing
small
business
trust.’’.
(b) CURRENT BENEFICIARIES TREATED AS SHARE-
HOLDERS.—Subparagraph (B) of section 1361(c)(2) is
amended by adding at the end the following new clause:
‘‘(v) In the case of a trust described
in clause (v) of subparagraph (A), each po-
tential current beneficiary of such trust
shall be treated as a shareholder; except
that, if for any period there is no potential
current beneficiary of such trust, such
trust shall be treated as the shareholder
during such period.’’.
(c) ELECTING SMALL BUSINESS TRUST DEFINED.—
Section 1361 (defining S corporation) is amended by add-
ing at the end the following new subsection:
‘‘(e)
ELECTING
SMALL
BUSINESS
TRUST
DE-
FINED.—
‘‘(1) ELECTING SMALL BUSINESS TRUST.—For
purposes of this section—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘electing small
business trust’ means any trust if—
‘‘(i) such trust does not have as a
beneficiary any person other than (I) an
individual, (II) an estate, or (III) an orga-
nization described in paragraph (2), (3),
(4), or (5) of section 170(c) which holds a
contingent interest and is not a potential
current beneficiary,
‘‘(ii) no interest in such trust was ac-
quired by purchase, and
‘‘(iii) an election under this subsection
applies to such trust.
‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—
The term ‘electing small business trust’ shall
not include—
‘‘(i) any qualified subchapter S trust
(as defined in subsection (d)(3)) if an elec-
tion under subsection (d)(2) applies to any
corporation the stock of which is held by
such trust, and
‘‘(ii) any trust exempt from tax under
this subtitle.
‘‘(C) PURCHASE.—For purposes of sub-
paragraph (A), the term ‘purchase’ means any
acquisition if the basis of the property acquired
is determined under section 1012.
‘‘(2) POTENTIAL CURRENT BENEFICIARY.—For
purposes of this section, the term ‘potential current
beneficiary’ means, with respect to any period, any
person who at any time during such period is enti-
tled to, or at the discretion of any person may re-
ceive, a distribution from the principal or income of
the trust. If a trust disposes of all of the stock which
it holds in an S corporation, then, with respect to
such corporation, the term ‘potential current bene-
ficiary’ does not include any person who first met
the requirements of the preceding sentence during
the 60-day period ending on the date of such dis-
position.
‘‘(3) ELECTION.—An election under this sub-
section shall be made by the trustee. Any such elec-
tion shall apply to the taxable year of the trust for
which made and all subsequent taxable years of such
trust unless revoked with the consent of the Sec-
retary.
‘‘(4) CROSS REFERENCE.—
‘‘For special treatment of electing small business
trusts, see section 641(d).’’.
(d)
TAXATION
OF
ELECTING
SMALL
BUSINESS
TRUSTS.—Section 641 (relating to imposition of tax on
trusts) is amended by adding at the end the following new
subsection:
‘‘(d) SPECIAL RULES FOR TAXATION OF ELECTING
SMALL BUSINESS TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter—
‘‘(A) the portion of any electing small busi-
ness trust which consists of stock in 1 or more
S corporations shall be treated as a separate
trust, and
‘‘(B) the amount of the tax imposed by
this chapter on such separate trust shall be de-
termined with the modifications of paragraph
(2).
‘‘(2) MODIFICATIONS.—For purposes of para-
graph (1), the modifications of this paragraph are
the following:
‘‘(A) Except as provided in section 1(h),
the amount of the tax imposed by section 1(e)
shall be determined by using the highest rate of
tax set forth in section 1(e).
‘‘(B) The exemption amount under section
55(d) shall be zero.
‘‘(C) The only items of income, loss, deduc-
tion, or credit to be taken into account are the
following:
‘‘(i) The items required to be taken
into account under section 1366.
‘‘(ii) Any gain or loss from the dis-
position of stock in an S corporation.
‘‘(iii) To the extent provided in regu-
lations, State or local income taxes or ad-
ministrative expenses to the extent alloca-
ble to items described in clauses (i) and
(ii).
No deduction or credit shall be allowed for any
amount not described in this paragraph, and no
item described in this paragraph shall be appor-
tioned to any beneficiary.
‘‘(D) No amount shall be allowed under
paragraph (1) or (2) of section 1211(b).
‘‘(3) TREATMENT
OF
REMAINDER
OF
TRUST
AND
DISTRIBUTIONS.—For purposes of determin-
ing—
‘‘(A) the amount of the tax imposed by
this chapter on the portion of any electing small
business trust not treated as a separate trust
under paragraph (1), and
‘‘(B) the distributable net income of the
entire trust,
the items referred to in paragraph (2)(C) shall be
excluded. Except as provided in the preceding sen-
tence, this subsection shall not affect the taxation of
any distribution from the trust.
‘‘(4)
TREATMENT
OF
UNUSED
DEDUCTIONS
WHERE TERMINATION OF SEPARATE TRUST.—If a
portion of an electing small business trust ceases to
be treated as a separate trust under paragraph (1),
any carryover or excess deduction of the separate
trust which is referred to in section 642(h) shall be
taken into account by the entire trust.
‘‘(5) ELECTING SMALL BUSINESS TRUST.—For
purposes of this subsection, the term ‘electing small
business trust’ has the meaning given such term by
section 1361(e)(1).’’.
(e) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion 1366(a) is amended by inserting ‘‘, or of a trust or
estate which terminates,’’ after ‘‘who dies’’.
SEC.
1303. EXPANSION
OF
POST-DEATH
QUALIFICATION
FOR CERTAIN TRUSTS.
Subparagraph (A) of section 1361(c)(2) (relating to
certain trusts permitted as shareholders) is amended—
(1) by striking ‘‘60-day period’’ each place it
appears in clauses (ii) and (iii) and inserting ‘‘2-year
period’’, and
(2) by striking the last sentence in clause (ii).
SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD
SAFE HARBOR DEBT.
Clause
(iii)
of
section
1361(c)(5)(B)
(defining
straight debt) is amended by striking ‘‘or a trust described
in paragraph (2)’’ and inserting ‘‘a trust described in
paragraph (2), or a person which is actively and regularly
engaged in the business of lending money’’.
SEC.
1305.
RULES
RELATING
TO
INADVERTENT
TERMI-
NATIONS AND INVALID ELECTIONS.
(a) GENERAL RULE.—Subsection (f) of section 1362
(relating to inadvertent terminations) is amended to read
as follows:
‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI-
NATIONS.—If—
‘‘(1) an election under subsection (a) by any
corporation—
‘‘(A) was not effective for the taxable year
for which made (determined without regard to
subsection (b)(2)) by reason of a failure to meet
the requirements of section 1361(b) or to ob-
tain shareholder consents, or
‘‘(B) was terminated under paragraph (2)
or (3) of subsection (d),
‘‘(2) the Secretary determines that the cir-
cumstances resulting in such ineffectiveness or ter-
mination were inadvertent,
‘‘(3) no later than a reasonable period of time
after discovery of the circumstances resulting in
such
ineffectiveness
or
termination,
steps
were
taken—
‘‘(A) so that the corporation is a small
business corporation, or
‘‘(B) to acquire the required shareholder
consents, and
‘‘(4) the corporation, and each person who was
a shareholder in the corporation at any time during
the period specified pursuant to this subsection,
agrees to make such adjustments (consistent with
the treatment of the corporation as an S corpora-
tion) as may be required by the Secretary with re-
spect to such period,
then, notwithstanding the circumstances resulting in such
ineffectiveness or termination, such corporation shall be
treated as an S corporation during the period specified
by the Secretary.’’.
(b) LATE ELECTIONS, ETC.—Subsection (b) of sec-
tion 1362 is amended by adding at the end the following
new paragraph:
‘‘(5) AUTHORITY TO TREAT LATE ELECTIONS,
ETC., AS TIMELY.—If—
‘‘(A) an election under subsection (a) is
made for any taxable year (determined without
regard to paragraph (3)) after the date pre-
scribed by this subsection for making such elec-
tion for such taxable year or no such election is
made for any taxable year, and
‘‘(B) the Secretary determines that there
was reasonable cause for the failure to timely
make such election,
the Secretary may treat such an election as timely
made for such taxable year (and paragraph (3) shall
not apply).’’.
(c) EFFECTIVE DATE.—The amendments made by
subsection (a) and (b) shall apply with respect to elections
for taxable years beginning after December 31, 1982.
SEC. 1306. AGREEMENT TO TERMINATE YEAR.
Paragraph (2) of section 1377(a) (relating to pro
rata share) is amended to read as follows:
‘‘(2) ELECTION TO TERMINATE YEAR.—
‘‘(A)
IN
GENERAL.—Under
regulations
prescribed by the Secretary, if any shareholder
terminates the shareholder’s interest in the cor-
poration during the taxable year and all af-
fected shareholders and the corporation agree
to the application of this paragraph, paragraph
(1) shall be applied to the affected shareholders
as if the taxable year consisted of 2 taxable
years the first of which ends on the date of the
termination.
‘‘(B)
AFFECTED
SHAREHOLDERS.—For
purposes of subparagraph (A), the term ‘af-
fected
shareholders’
means
the
shareholder
whose interest is terminated and all sharehold-
ers to whom such shareholder has transferred
shares during the taxable year. If such share-
holder has transferred shares to the corpora-
tion, the term ‘affected shareholders’ shall in-
clude all persons who are shareholders during
the taxable year.’’.
SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION
PERIOD.
(a) IN GENERAL.—Paragraph (1) of section 1377(b)
(relating to post-termination transition period) is amended
by striking ‘‘and’’ at the end of subparagraph (A), by re-
designating subparagraph (B) as subparagraph (C), and
by inserting after subparagraph (A) the following new sub-
paragraph:
‘‘(B) the 120-day period beginning on the
date of any determination pursuant to an audit
of the taxpayer which follows the termination of
the corporation’s election and which adjusts a
subchapter S item of income, loss, or deduction
of the corporation arising during the S period
(as defined in section 1368(e)(2)), and’’.
(b) DETERMINATION DEFINED.—Paragraph (2) of
section 1377(b) is amended by striking subparagraphs (A)
and (B), by redesignating subparagraph (C) as subpara-
graph (B), and by inserting before subparagraph (B) (as
so redesignated) the following new subparagraph:
‘‘(A) a determination as defined in section
1313(a), or’’.
(c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR
SUBCHAPTER S ITEMS.—
(1) GENERAL RULE.—Subchapter D of chapter
63 (relating to tax treatment of subchapter S items)
is hereby repealed.
(2) CONSISTENT TREATMENT REQUIRED.—Sec-
tion 6037 (relating to return of S corporation) is
amended by adding at the end the following new
subsection:
‘‘(c) SHAREHOLDER’S RETURN MUST BE CONSIST-
ENT WITH CORPORATE RETURN OR SECRETARY NOTI-
FIED OF INCONSISTENCY.—
‘‘(1) IN GENERAL.—A shareholder of an S cor-
poration shall, on such shareholder’s return, treat a
subchapter S item in a manner which is consistent
with the treatment of such item on the corporate re-
turn.
‘‘(2) NOTIFICATION OF INCONSISTENT TREAT-
MENT.—
‘‘(A) IN
GENERAL.—In the case of any
subchapter S item, if—
‘‘(i)(I) the corporation has filed a re-
turn but the shareholder’s treatment on
his return is (or may be) inconsistent with
the treatment of the item on the corporate
return, or
‘‘(II) the corporation has not filed a
return, and
‘‘(ii) the shareholder files with the
Secretary a statement identifying the in-
consistency,
paragraph (1) shall not apply to such item.
‘‘(B)
SHAREHOLDER
RECEIVING
INCOR-
RECT
INFORMATION.—A shareholder shall be
treated as having complied with clause (ii) of
subparagraph (A) with respect to a subchapter
S item if the shareholder—
‘‘(i) demonstrates to the satisfaction
of the Secretary that the treatment of the
subchapter S item on the shareholder’s re-
turn is consistent with the treatment of the
item on the schedule furnished to the
shareholder by the corporation, and
‘‘(ii) elects to have this paragraph
apply with respect to that item.
‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any
case—
‘‘(A) described in subparagraph (A)(i)(I)
of paragraph (2), and
‘‘(B) in which the shareholder does not
comply with subparagraph (A)(ii) of paragraph
(2),
any adjustment required to make the treatment of
the items by such shareholder consistent with the
treatment of the items on the corporate return shall
be treated as arising out of mathematical or clerical
errors and assessed according to section 6213(b)(1).
Paragraph (2) of section 6213(b) shall not apply to
any assessment referred to in the preceding sen-
tence.
‘‘(4) SUBCHAPTER S ITEM.—For purposes of
this subsection, the term ‘subchapter S item’ means
any item of an S corporation to the extent that reg-
ulations prescribed by the Secretary provide that, for
purposes of this subtitle, such item is more appro-
priately determined at the corporation level than at
the shareholder level.
‘‘(5) ADDITION TO TAX FOR FAILURE TO COM-
PLY WITH SECTION.—
‘‘For addition to tax in the case of a shareholder’s
negligence in connection with, or disregard of, the
requirements of this section, see part II of sub-
chapter A of chapter 68.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 1366 is amended by striking
subsection (g).
(B) Subsection (b) of section 6233 is
amended to read as follows:
‘‘(b) SIMILAR RULES IN CERTAIN CASES.—If a part-
nership return is filed for any taxable year but it is deter-
mined that there is no entity for such taxable year, to the
extent provided in regulations, rules similar to the rules
of subsection (a) shall apply.’’.
(C) The table of subchapters for chapter
63 is amended by striking the item relating to
subchapter D.
SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUB-
SIDIARIES.
(a) IN GENERAL.—Paragraph (2) of section 1361(b)
(defining ineligible corporation) is amended by striking
subparagraph (A) and by redesignating subparagraphs
(B), (C), (D), and (E) as subparagraphs (A), (B), (C),
and (D), respectively.
(b) TREATMENT OF CERTAIN WHOLLY OWNED S
CORPORATION SUBSIDIARIES.—Section 1361(b) (defining
small business corporation) is amended by adding at the
end the following new paragraph:
‘‘(3) TREATMENT OF CERTAIN WHOLLY OWNED
SUBSIDIARIES.—
‘‘(A) IN GENERAL.—For purposes of this
title—
‘‘(i) a corporation which is a qualified
subchapter S subsidiary shall not be treat-
ed as a separate corporation, and
‘‘(ii) all assets, liabilities, and items of
income, deduction, and credit of a qualified
subchapter S subsidiary shall be treated as
assets, liabilities, and such items (as the
case may be) of the S corporation.
‘‘(B) QUALIFIED SUBCHAPTER S SUBSIDI-
ARY.—For purposes of this paragraph, the term
‘qualified subchapter S subsidiary’ means any
domestic corporation which is not an ineligible
corporation (as defined in paragraph (2)), if—
‘‘(i) 100 percent of the stock of such
corporation is held by the S corporation,
and
‘‘(ii) the S corporation elects to treat
such corporation as a qualified subchapter
S subsidiary.
‘‘(C) TREATMENT
OF
TERMINATIONS
OF
QUALIFIED
SUBCHAPTER
S
SUBSIDIARY
STA-
TUS.—For purposes of this title, if any corpora-
tion which was a qualified subchapter S subsidi-
ary ceases to meet the requirements of subpara-
graph (B), such corporation shall be treated as
a new corporation acquiring all of its assets
(and assuming all of its liabilities) immediately
before such cessation from the S corporation in
exchange for its stock.’’.
(c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE
INVESTMENT INCOME.—Paragraph (3) of section 1362(d)
is amended by adding at the end the following new sub-
paragraph:
‘‘(F)
TREATMENT
OF
CERTAIN
DIVI-
DENDS.—If an S corporation holds stock in a
C corporation meeting the requirements of sec-
tion 1504(a)(2), the term ‘passive investment
income’ shall not include dividends from such C
corporation to the extent such dividends are at-
tributable to the earnings and profits of such C
corporation derived from the active conduct of
a trade or business.’’.
(d) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 1361 is amended
by striking paragraph (6).
(2) Subsection (b) of section 1504 (defining in-
cludible corporation) is amended by adding at the
end the following new paragraph:
‘‘(8) An S corporation.’’.
SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS
YEARS.
(a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO
ACCOUNT BEFORE LOSSES.—
(1) Subparagraph (A) of section 1366(d)(1)
(relating to losses and deductions cannot exceed
shareholder’s basis in stock and debt) is amended by
striking ‘‘paragraph (1)’’ and inserting ‘‘paragraphs
(1) and (2)(A)’’.
(2) Subsection (d) of section 1368 (relating to
certain adjustments taken into account) is amended
by adding at the end the following new sentence:
‘‘In the case of any distribution made during any taxable
year, the adjusted basis of the stock shall be determined
with regard to the adjustments provided in paragraph (1)
of section 1367(a) for the taxable year.’’.
(b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para-
graph (1) of section 1368(e) (relating to accumulated ad-
justments account) is amended by adding at the end the
following new subparagraph:
‘‘(C) NET LOSS FOR YEAR DISREGARDED.—
‘‘(i) IN GENERAL.—In applying this section
to distributions made during any taxable year,
the amount in the accumulated adjustments ac-
count as of the close of such taxable year shall
be determined without regard to any net nega-
tive adjustment for such taxable year.
‘‘(ii) NET
NEGATIVE
ADJUSTMENT.—For
purposes of clause (i), the term ‘net negative
adjustment’ means, with respect to any taxable
year, the excess (if any) of—
‘‘(I) the reductions in the account for
the taxable year (other than for distribu-
tions), over
‘‘(II) the increases in such account for
such taxable year.’’.
(c) CONFORMING AMENDMENTS.—Subparagraph (A)
of section 1368(e)(1) is amended—
(1) by striking ‘‘as provided in subparagraph
(B)’’ and inserting ‘‘as otherwise provided in this
paragraph’’, and
(2) by striking ‘‘section 1367(b)(2)(A)’’ and in-
serting ‘‘section 1367(a)(2)’’.
SEC. 1310. TREATMENT OF S CORPORATIONS UNDER SUB-
CHAPTER C.
Subsection (a) of section 1371 (relating to applica-
tion of subchapter C rules) is amended to read as follows:
‘‘(a) APPLICATION OF SUBCHAPTER C RULES.—Ex-
cept as otherwise provided in this title, and except to the
extent inconsistent with this subchapter, subchapter C
shall apply to an S corporation and its shareholders.’’.
SEC.
1311.
ELIMINATION
OF
CERTAIN
EARNINGS
AND
PROFITS.
(a) IN GENERAL.—If—
(1) a corporation was an electing small business
corporation under subchapter S of chapter 1 of the
Internal Revenue Code of 1986 for any taxable year
beginning before January 1, 1983, and
(2) such corporation is an S corporation under
subchapter S of chapter 1 of such Code for its first
taxable year beginning after December 31, 1996,
the amount of such corporation’s accumulated earnings
and profits (as of the beginning of such first taxable year)
shall be reduced by an amount equal to the portion (if
any) of such accumulated earnings and profits which were
accumulated in any taxable year beginning before January
1, 1983, for which such corporation was an electing small
business corporation under such subchapter S.
(b) CONFORMING AMENDMENTS.—
(1)
Paragraph
(3)
of
section
1362(d),
as
amended by section 1308, is amended—
(A) by striking ‘‘SUBCHAPTER C’’ in the
paragraph
heading
and
inserting
‘‘ACCUMU-
LATED’’,
(B) by striking ‘‘subchapter C’’ in sub-
paragraph
(A)(i)(I)
and
inserting
‘‘accumu-
lated’’, and
(C) by striking subparagraph (B) and re-
designating the following subparagraphs accord-
ingly.
(2)(A) Subsection (a) of section 1375 is amend-
ed by striking ‘‘subchapter C’’ in paragraph (1) and
inserting ‘‘accumulated’’.
(B) Paragraph (3) of section 1375(b) is amend-
ed to read as follows:
‘‘(3) PASSIVE INVESTMENT INCOME, ETC.—The
terms ‘passive investment income’ and ‘gross re-
ceipts’ have the same respective meanings as when
used in paragraph (3) of section 1362(d).’’.
(C) The section heading for section 1375 is
amended by striking ‘‘SUBCHAPTER C’’ and insert-
ing ‘‘ACCUMULATED’’.
(D) The table of sections for part III of sub-
chapter S of chapter 1 is amended by striking ‘‘sub-
chapter C’’ in the item relating to section 1375 and
inserting ‘‘accumulated’’.
(3)
Clause
(i)
of
section
1042(c)(4)(A)
is
amended by striking ‘‘section 1362(d)(3)(D)’’ and
inserting ‘‘section 1362(d)(3)(C)’’.
SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DE-
DUCTIONS UNDER AT-RISK RULES ALLOWED.
Paragraph (3) of section 1366(d) (relating to carry-
over of disallowed losses and deductions to post-termi-
nation transition period) is amended by adding at the end
the following new subparagraph:
‘‘(D) AT-RISK LIMITATIONS.—To the ex-
tent that any increase in adjusted basis de-
scribed in subparagraph (B) would have in-
creased the shareholder’s amount at risk under
section 465 if such increase had occurred on
the day preceding the commencement of the
post-termination transition period, rules similar
to the rules described in subparagraphs (A)
through (C) shall apply to any losses disallowed
by reason of section 465(a).’’.
SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK
TO REFLECT CERTAIN ITEMS OF INCOME.
(a) IN GENERAL.—Subsection (b) of section 1367
(relating to adjustments to basis of stock of shareholders,
etc.) is amended by adding at the end the following new
paragraph:
‘‘(4) ADJUSTMENTS
IN
CASE
OF
INHERITED
STOCK.—
‘‘(A) IN GENERAL.—If any person acquires
stock in an S corporation by reason of the
death of a decedent or by bequest, devise, or in-
heritance, section 691 shall be applied with re-
spect to any item of income of the S corpora-
tion in the same manner as if the decedent had
held directly his pro rata share of such item.
‘‘(B) ADJUSTMENTS TO BASIS.—The basis
determined under section 1014 of any stock in
an S corporation shall be reduced by the por-
tion of the value of the stock which is attrib-
utable to items constituting income in respect
of the decedent.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply in the case of decedents dying
after the date of the enactment of this Act.
SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLI-
CABLE TO REAL PROPERTY SUBDIVIDED FOR
SALE BY NONCORPORATE TAXPAYERS.
(a) IN GENERAL.—Subsection (a) of section 1237
(relating to real property subdivided for sale) is amended
by striking ‘‘other than a corporation’’ in the material pre-
ceding paragraph (1) and inserting ‘‘other than a C cor-
poration’’.
(b) CONFORMING AMENDMENT.—Subparagraph (A)
of section 1237(a)(2) is amended by inserting ‘‘an S cor-
poration which included the taxpayer as a shareholder,’’
after ‘‘controlled by the taxpayer,’’.
SEC. 1315. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided in
this subtitle, the amendments made by this subtitle shall
apply to taxable years beginning after December 31, 1996.
(b) TREATMENT OF CERTAIN ELECTIONS UNDER
PRIOR LAW.—For purposes of section 1362(g) of the In-
ternal Revenue Code of 1986 (relating to election after
termination), any termination under section 1362(d) of
such Code in a taxable year beginning before January 1,
1997, shall not be taken into account.
Subtitle D—Pension Simplification
CHAPTER 1—SIMPLIFIED DISTRIBUTION
RULES
SEC. 1401. REPEAL OF 5-YEAR INCOME AVERAGING FOR
LUMP-SUM DISTRIBUTIONS.
(a) IN GENERAL.—Subsection (d) of section 402 (re-
lating to taxability of beneficiary of employees’ trust) is
amended to read as follows:
‘‘(d) TAXABILITY
OF BENEFICIARY
OF CERTAIN
FOREIGN SITUS TRUSTS.—For purposes of subsections
(a), (b), and (c), a stock bonus, pension, or profit-sharing
trust which would qualify for exemption from tax under
section 501(a) except for the fact that it is a trust created
or organized outside the United States shall be treated
as if it were a trust exempt from tax under section
501(a).’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (D) of section 402(e)(4) (re-
lating to other rules applicable to exempt trusts) is
amended to read as follows:
‘‘(D) LUMP-SUM DISTRIBUTION.—For pur-
poses of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘lump
sum distribution’ means the distribution or
payment within one taxable year of the re-
cipient of the balance to the credit of an
employee which becomes payable to the re-
cipient—
‘‘(I) on account of the employee’s
death,
‘‘(II) after the employee attains
age 591⁄2,
‘‘(III) on account of the employ-
ee’s separation from service, or
‘‘(IV) after the employee has be-
come disabled (within the meaning of
section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is
exempt from tax under section 501 or from
a plan described in section 403(a). Sub-
clause (III) of this clause shall be applied
only with respect to an individual who is
an employee without regard to section
401(c)(1), and subclause (IV) shall be ap-
plied only with respect to an employee
within the meaning of section 401(c)(1).
For purposes of this clause, a distribution
to two or more trusts shall be treated as
a distribution to one recipient. For pur-
poses of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contribu-
tions under the plan (within the meaning
of section 72(o)(5)).
‘‘(ii)
AGGREGATION
OF
CERTAIN
TRUSTS AND PLANS.—For purposes of de-
termining the balance to the credit of an
employee under clause (i)—
‘‘(I) all trusts which are part of
a plan shall be treated as a single
trust, all pension plans maintained by
the employer shall be treated as a sin-
gle plan, all profit-sharing plans main-
tained by the employer shall be treat-
ed as a single plan, and all stock
bonus plans maintained by the em-
ployer shall be treated as a single
plan, and
‘‘(II) trusts which are not quali-
fied trusts under section 401(a) and
annuity contracts which do not satisfy
the requirements of section 404(a)(2)
shall not be taken into account.
‘‘(iii) COMMUNITY PROPERTY LAWS.—
The provisions of this paragraph shall be
applied without regard to community prop-
erty laws.
‘‘(iv)
AMOUNTS
SUBJECT
TO
PEN-
ALTY.—This paragraph shall not apply to
amounts described in subparagraph (A) of
section 72(m)(5) to the extent that section
72(m)(5) applies to such amounts.
‘‘(v) BALANCE
TO
CREDIT
OF
EM-
PLOYEE NOT TO INCLUDE AMOUNTS PAY-
ABLE UNDER QUALIFIED DOMESTIC RELA-
TIONS ORDER.—For purposes of this para-
graph, the balance to the credit of an em-
ployee shall not include any amount pay-
able to an alternate payee under a quali-
fied domestic relations order (within the
meaning of section 414(p)).
‘‘(vi) TRANSFERS TO COST-OF-LIVING
ARRANGEMENT
NOT
TREATED
AS
DIS-
TRIBUTION.—For purposes of this para-
graph, the balance to the credit of an em-
ployee under a defined contribution plan
shall not include any amount transferred
from such defined contribution plan to a
qualified cost-of-living arrangement (within
the meaning of section 415(k)(2)) under a
defined benefit plan.
‘‘(vii) LUMP-SUM
DISTRIBUTIONS
OF
ALTERNATE PAYEES.—If any distribution
or payment of the balance to the credit of
an employee would be treated as a lump-
sum distribution, then, for purposes of this
paragraph, the payment under a qualified
domestic relations order (within the mean-
ing of section 414(p)) of the balance to the
credit of an alternate payee who is the
spouse or former spouse of the employee
shall be treated as a lump-sum distribu-
tion. For purposes of this clause, the bal-
ance to the credit of the alternate payee
shall not include any amount payable to
the employee.’’.
(2) Section 402(c) (relating to rules applicable
to rollovers from exempt trusts) is amended by strik-
ing paragraph (10).
(3) Paragraph (1) of section 55(c) (defining
regular tax) is amended by striking ‘‘shall not in-
clude any tax imposed by section 402(d) and’’.
(4) Paragraph (8) of section 62(a) (relating to
certain portion of lump-sum distributions from pen-
sion plans taxed under section 402(d)) is hereby re-
pealed.
(5) Section 401(a)(28)(B) (relating to coordina-
tion with distribution rules) is amended by striking
clause (v).
(6) Subparagraph (B)(ii) of section 401(k)(10)
(relating to distributions that must be lump-sum dis-
tributions) is amended to read as follows:
‘‘(ii) LUMP-SUM DISTRIBUTION.—For
purposes of this subparagraph, the term
‘lump-sum distribution’ has the meaning
given such term by section 402(e)(4)(D)
(without regard to subclauses (I), (II),
(III), and (IV) of clause (i) thereof).’’.
(7) Section 406(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(8) Section 407(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(9) Section 691(c) (relating to deduction for es-
tate tax) is amended by striking paragraph (5).
(10) Paragraph (1) of section 871(b) (relating
to imposition of tax) is amended by striking ‘‘section
1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or
55’’.
(11) Subsection (b) of section 877 (relating to
alternative tax) is amended by striking ‘‘section 1,
55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.
(12) Section 4980A(c)(4) is amended—
(A) by striking ‘‘to which an election under
section
402(d)(4)(B)
applies’’
and
inserting
‘‘(as defined in section 402(e)(4)(D)) with re-
spect to which the individual elects to have this
paragraph apply’’,
(B) by adding at the end the following new
flush sentence:
‘‘An individual may elect to have this paragraph
apply to only one lump-sum distribution.’’, and
(C) by striking the heading and inserting:
‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.
(13) Section 402(e) is amended by striking
paragraph (5).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1998.
(2)
RETENTION
OF
CERTAIN
TRANSITION
RULES.—Notwithstanding any other provision of
this section, the amendments made by this section
shall not apply to any distribution for which the tax-
payer elects the benefits of section 1122 (h)(3) or
(h)(5) of the Tax Reform Act of 1986. For purposes
of the preceding sentence, the rules of sections
402(c)(10) and 402(d) of the Internal Revenue Code
of 1986 (as in effect before the amendments made
by this Act) shall apply.
SEC. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’
DEATH BENEFITS.
(a) IN GENERAL.—Subsection (b) of section 101 is
hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 101 is amended by
striking ‘‘subsection (a) or (b)’’ and inserting ‘‘sub-
section (a)’’.
(2) Sections 406(e) and 407(e) are each amend-
ed by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(3) Section 7701(a)(20) is amended by striking
‘‘, for the purpose of applying the provisions of sec-
tion 101(b) with respect to employees’ death bene-
fits’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to decedents dying
after the date of the enactment of this Act.
SEC. 1403. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS-
TRIBUTIONS
UNDER
CERTAIN
EMPLOYER
PLANS.
(a) GENERAL RULE.—Subsection (d) of section 72
(relating to annuities; certain proceeds of endowment and
life insurance contracts) is amended to read as follows:
‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER
RETIREMENT PLANS.—
‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY
PAYMENTS.—
‘‘(A) IN
GENERAL.—In the case of any
amount received as an annuity under a quali-
fied employer retirement plan—
‘‘(i) subsection (b) shall not apply,
and
‘‘(ii) the investment in the contract
shall be recovered as provided in this para-
graph.
‘‘(B) METHOD
OF
RECOVERING
INVEST-
MENT IN CONTRACT.—
‘‘(i)
IN
GENERAL.—Gross
income
shall not include so much of any monthly
annuity payment under a qualified em-
ployer retirement plan as does not exceed
the amount obtained by dividing—
‘‘(I) the investment in the con-
tract (as of the annuity starting date),
by
‘‘(II) the number of anticipated
payments determined under the table
contained in clause (iii) (or, in the
case of a contract to which subsection
(c)(3)(B)
applies,
the
number
of
monthly annuity payments under such
contract).
‘‘(ii) CERTAIN RULES MADE APPLICA-
BLE.—Rules similar to the rules of para-
graphs (2) and (3) of subsection (b) shall
apply for purposes of this paragraph.
‘‘(iii) NUMBER OF ANTICIPATED PAY-
MENTS.—
‘‘If the age of the
primary annuitant on
The number
the annuity starting
of anticipated
date is:
payments is:
Not more than 55 ................................
360
More than 55 but not more than 60 ...
310
More than 60 but not more than 65 ...
260
More than 65 but not more than 70 ...
210
More than 70 .......................................
160.
‘‘(C) ADJUSTMENT FOR REFUND FEATURE
NOT APPLICABLE.—For purposes of this para-
graph, investment in the contract shall be de-
termined under subsection (c)(1) without re-
gard to subsection (c)(2).
‘‘(D) SPECIAL
RULE
WHERE
LUMP
SUM
PAID
IN
CONNECTION
WITH
COMMENCEMENT
OF ANNUITY PAYMENTS.—If, in connection with
the commencement of annuity payments under
any qualified employer retirement plan, the tax-
payer receives a lump sum payment—
‘‘(i) such payment shall be taxable
under subsection (e) as if received before
the annuity starting date, and
‘‘(ii) the investment in the contract
for purposes of this paragraph shall be de-
termined as if such payment had been so
received.
‘‘(E) EXCEPTION.—This paragraph shall
not apply in any case where the primary annu-
itant has attained age 75 on the annuity start-
ing date unless there are fewer than 5 years of
guaranteed payments under the annuity.
‘‘(F) ADJUSTMENT WHERE ANNUITY PAY-
MENTS NOT ON MONTHLY BASIS.—In any case
where the annuity payments are not made on a
monthly basis, appropriate adjustments in the
application of this paragraph shall be made to
take into account the period on the basis of
which such payments are made.
‘‘(G) QUALIFIED EMPLOYER RETIREMENT
PLAN.—For purposes of this paragraph, the
term ‘qualified employer retirement plan’ means
any plan or contract described in paragraph
(1), (2), or (3) of section 4974(c).
‘‘(2) TREATMENT
OF
EMPLOYEE
CONTRIBU-
TIONS
UNDER
DEFINED
CONTRIBUTION
PLANS.—
For purposes of this section, employee contributions
(and any income allocable thereto) under a defined
contribution plan may be treated as a separate con-
tract.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply in cases where the annuity starting
date is after the 90th day after the date of the enactment
of this Act.
SEC. 1404. REQUIRED DISTRIBUTIONS.
(a) IN GENERAL.—Section 401(a)(9)(C) (defining re-
quired beginning date) is amended to read as follows:
‘‘(C) REQUIRED
BEGINNING
DATE.—For
purposes of this paragraph—
‘‘(i)
IN
GENERAL.—The
term
‘re-
quired beginning date’ means April 1 of
the calendar year following the later of—
‘‘(I) the calendar year in which
the employee attains age 701⁄2, or
‘‘(II) the calendar year in which
the employee retires.
‘‘(ii) EXCEPTION.—Subclause (II) of
clause (i) shall not apply—
‘‘(I) except as provided in section
409(d), in the case of an employee
who is a 5-percent owner (as defined
in section 416) with respect to the
plan year ending in the calendar year
in which the employee attains age
701⁄2, or
‘‘(II) for purposes of section 408
(a)(6) or (b)(3).
‘‘(iii) ACTUARIAL
ADJUSTMENT.—In
the case of an employee to whom clause
(i)(II) applies who retires in a calendar
year after the calendar year in which the
employee attains age 701⁄2, the employee’s
accrued benefit shall be actuarially in-
creased to take into account the period
after age 701⁄2 in which the employee was
not receiving any benefits under the plan.
‘‘(iv)
EXCEPTION
FOR
GOVERN-
MENTAL
AND
CHURCH
PLANS.—Clauses
(ii) and (iii) shall not apply in the case of
a governmental plan or church plan. For
purposes of this clause, the term ‘church
plan’ means a plan maintained by a church
for
church
employees,
and
the
term
‘church’ means any church (as defined in
section 3121(w)(3)(A)) or qualified church-
controlled organization (as defined in sec-
tion 3121(w)(3)(B)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1996.
CHAPTER 2—INCREASED ACCESS TO
PENSION PLANS
Subchapter A—Simple Savings Plans
SEC.
1421.
ESTABLISHMENT
OF
SAVINGS
INCENTIVE
MATCH PLANS FOR EMPLOYEES OF SMALL
EMPLOYERS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (p) as subsection (q) and by inserting after sub-
section (o) the following new subsection:
‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘simple retirement account’ means an indi-
vidual
retirement
plan
(as
defined
in
section
7701(a)(37))—
‘‘(A) with respect to which the require-
ments of paragraphs (3), (4), and (5) are met;
and
‘‘(B) with respect to which the only con-
tributions allowed are contributions under a
qualified salary reduction arrangement.
‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE-
MENT.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, the term ‘qualified salary reduction
arrangement’ means a written arrangement of
an eligible employer under which—
‘‘(i) an employee eligible to participate
in the arrangement may elect to have the
employer make payments—
‘‘(I) as elective employer con-
tributions to a simple retirement ac-
count on behalf of the employee, or
‘‘(II) to the employee directly in
cash,
‘‘(ii) the amount which an employee
may elect under clause (i) for any year is
required to be expressed as a percentage of
compensation and may not exceed a total
of $6,000 for any year,
‘‘(iii) the employer is required to make
a matching contribution to the simple re-
tirement
account
for
any
year
in
an
amount equal to so much of the amount
the employee elects under clause (i)(I) as
does not exceed the applicable percentage
of compensation for the year, and
‘‘(iv) no contributions may be made
other
than
contributions
described
in
clause (i) or (iii).
‘‘(B) EMPLOYER
MAY
ELECT
2-PERCENT
NONELECTIVE
CONTRIBUTION.—An
employer
shall be treated as meeting the requirements of
subparagraph (A)(iii) for any year if, in lieu of
the contributions described in such clause, the
employer elects to make nonelective contribu-
tions of 2 percent of compensation for each em-
ployee who is eligible to participate in the ar-
rangement and who has at least $5,000 of com-
pensation from the employer for the year. If an
employer makes an election under this subpara-
graph for any year, the employer shall notify
employees of such election within a reasonable
period of time before the 30-day period for such
year under paragraph (5)(C).
‘‘(C) DEFINITIONS.—For purposes of this
subsection—
‘‘(i) ELIGIBLE EMPLOYER.—The term
‘eligible employer’ means an employer who
employs 100 or fewer employees on any
day during the year.
‘‘(ii) APPLICABLE PERCENTAGE.—
‘‘(I)
IN
GENERAL.—The
term
‘applicable percentage’ means 3 per-
cent.
‘‘(II) ELECTION OF LOWER PER-
CENTAGE.—An employer may elect to
apply a lower percentage (not less
than 1 percent) for any year for all
employees eligible to participate in the
plan for such year if the employer no-
tifies the employees of such lower per-
centage within a reasonable period of
time before the 30-day election period
for such year under paragraph (5)(C).
An employer may not elect a lower
percentage under this subclause for
any year if that election would result
in
the
applicable
percentage
being
lower than 3 percent in more than 2
of the years in the 5-year period end-
ing with such year.
‘‘(III) SPECIAL RULE FOR YEARS
ARRANGEMENT
NOT
IN
EFFECT.—If
any year in the 5-year period de-
scribed in subclause (II) is a year
prior to the first year for which any
qualified
salary
reduction
arrange-
ment is in effect with respect to the
employer (or any predecessor), the
employer shall be treated as if the
level of the employer matching con-
tribution was at 3 percent of com-
pensation for such prior year.
‘‘(D) ARRANGEMENT MAY BE ONLY PLAN
OF EMPLOYER.—
‘‘(i) IN
GENERAL.—An arrangement
shall not be treated as a qualified salary
reduction arrangement for any year if the
employer (or any predecessor employer)
maintained a qualified plan with respect to
which contributions were made, or benefits
were accrued, for service in any year in the
period beginning with the year such ar-
rangement became effective and ending
with the year for which the determination
is being made.
‘‘(ii) QUALIFIED PLAN.—For purposes
of this subparagraph, the term ‘qualified
plan’ means a plan, contract, pension, or
trust described in subparagraph (A) or (B)
of section 219(g)(5).
‘‘(E) COST-OF-LIVING ADJUSTMENT.—The
Secretary shall adjust the $6,000 amount under
subparagraph (A)(ii) at the same time and in
the same manner as under section 415(d), ex-
cept that the base period taken into account
shall be the calendar quarter ending September
30, 1995, and any increase under this subpara-
graph which is not a multiple of $500 shall be
rounded to the next lower multiple of $500.
‘‘(3) VESTING
REQUIREMENTS.—The require-
ments of this paragraph are met with respect to a
simple retirement account if the employee’s rights to
any contribution to the simple retirement account
are nonforfeitable. For purposes of this paragraph,
rules similar to the rules of subsection (k)(4) shall
apply.
‘‘(4) PARTICIPATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any sim-
ple retirement account for a year only if, under
the qualified salary reduction arrangement, all
employees of the employer who—
‘‘(i) received at least $5,000 in com-
pensation from the employer during any 2
preceding years, and
‘‘(ii) are reasonably expected to re-
ceive at least $5,000 in compensation dur-
ing the year,
are eligible to make the election under para-
graph (2)(A)(i) or receive the nonelective con-
tribution described in paragraph (2)(B).
‘‘(B) EXCLUDABLE EMPLOYEES.—An em-
ployer may elect to exclude from the require-
ment under subparagraph (A) employees de-
scribed in section 410(b)(3).
‘‘(5)
ADMINISTRATIVE
REQUIREMENTS.—The
requirements of this paragraph are met with respect
to any simplified retirement account if, under the
qualified salary reduction arrangement—
‘‘(A) an employer must—
‘‘(i) make the elective employer con-
tributions under paragraph (2)(A)(i) not
later than the close of the 30-day period
following the last day of the month with
respect to which the contributions are to
be made, and
‘‘(ii) make the matching contributions
under
paragraph
(2)(A)(iii)
or the
nonelective contributions under paragraph
(2)(B) not
later than the date described
in section 404(m)(2)(B),
‘‘(B) an employee may elect to terminate
participation in such arrangement at any time
during the year, except that if an employee so
terminates, the arrangement may provide that
the employee may not elect to resume participa-
tion until the beginning of the next year, and
‘‘(C) each employee eligible to participate
may elect, during the 30-day period before the
beginning of any year (and the 30-day period
before the first day such employee is eligible to
participate), to participate in the arrangement,
or to modify the amounts subject to such ar-
rangement, for such year.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) COMPENSATION.—
‘‘(i) IN
GENERAL.—The term ‘com-
pensation’ means amounts described in
paragraphs (3) and (8) of section 6051(a).
‘‘(ii) SELF-EMPLOYED.—In the case
of an employee described in subparagraph
(B), the term ‘compensation’ means net
earnings from self-employment determined
under section 1402(a) without regard to
any contribution under this subsection.
‘‘(B) EMPLOYEE.—The term ‘employee’ in-
cludes
an
employee
as
defined
in
section
401(c)(1).
‘‘(C) YEAR.—The term ‘year’ means the
calendar year.’’.
(b) TAX TREATMENT OF SIMPLE RETIREMENT AC-
COUNTS.—
(1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM-
PLOYEES.—
(A) Section 219(b) (relating to maximum
amount of deduction) is amended by adding at
the end the following new paragraph:
‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT
ACCOUNTS.—This section shall not apply with re-
spect to any amount contributed to a simple retire-
ment account established under section 408(p).’’.
(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (iv) and by adding at the end the
following new clause:
‘‘(vi) any simple retirement account
(within the meaning of section 408(p)),
or’’.
(2) DEDUCTIBILITY OF EMPLOYER CONTRIBU-
TIONS.—Section 404 (relating to deductions for con-
tributions of an employer to pension, etc. plans) is
amended by adding at the end the following new
subsection:
‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC-
COUNTS.—
‘‘(1) IN GENERAL.—Employer contributions to
a simple retirement account shall be treated as if
they are made to a plan subject to the requirements
of this section.
‘‘(2) TIMING.—
‘‘(A)
DEDUCTION.—Contributions
de-
scribed in paragraph (1) shall be deductible in
the taxable year of the employer with or within
which the calendar year for which the contribu-
tions were made ends.
‘‘(B)
CONTRIBUTIONS
AFTER
END
OF
YEAR.—For purposes of this subsection, con-
tributions shall be treated as made for a taxable
year if they are made on account of the taxable
year and are made not later than the time pre-
scribed by law for filing the return for the tax-
able year (including extensions thereof).’’.
(3) CONTRIBUTIONS AND DISTRIBUTIONS.—
(A) Section 402 (relating to taxability of
beneficiary of employees’ trust) is amended by
adding at the end the following new subsection:
‘‘(k) TREATMENT
OF SIMPLE RETIREMENT AC-
COUNTS.—Rules similar to the rules of paragraphs (1)
and (3) of subsection (h) shall apply to contributions and
distributions with respect to a simple retirement account
under section 408(p).’’.
(B) Section 408(d)(3) is amended by add-
ing at the end the following new subparagraph:
‘‘(G) SIMPLE
RETIREMENT
ACCOUNTS.—
This paragraph shall not apply to any amount
paid or distributed out of a simple retirement
account (as defined in section 408(p)) unless—
‘‘(i) it is paid into another simple re-
tirement account, or
‘‘(ii) in the case of any payment or
distribution to which section 72(t)(8) does
not apply, it is paid into an individual re-
tirement plan.’’.
(C) Clause (i) of section 457(c)(2)(B) is
amended by striking ‘‘section 402(h)(1)(B)’’
and inserting ‘‘section 402(h)(1)(B) or (k)’’.
(4) PENALTIES.—
(A) EARLY WITHDRAWALS.—Section 72(t)
(relating to additional tax in early distribu-
tions), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT
ACCOUNTS.—In the case of any amount received
from a simple retirement account (within the mean-
ing of section 408(p)) during the 2-year period be-
ginning on the date such individual first participated
in any qualified salary reduction arrangement main-
tained by the individual’s employer under section
408(p)(2), paragraph (1) shall be applied by sub-
stituting ‘25 percent’ for ‘10 percent’.’’.
(B) FAILURE TO REPORT.—Section 6693
is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection
(b) the following new subsection:
‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT
ACCOUNTS.—
‘‘(1) EMPLOYER PENALTIES.—An employer who
fails to provide 1 or more notices required by section
408(l)(2)(C) shall pay a penalty of $50 for each day
on which such failures continue.
‘‘(2)
TRUSTEE
PENALTIES.—A
trustee
who
fails—
‘‘(A) to provide 1 or more statements re-
quired by the last sentence of section 408(i)
shall pay a penalty of $50 for each day on
which such failures continue, or
‘‘(B) to provide 1 or more summary de-
scriptions required by section 408(l)(2)(B) shall
pay a penalty of $50 for each day on which
such failures continue.
‘‘(3)
REASONABLE
CAUSE
EXCEPTION.—No
penalty shall be imposed under this subsection with
respect to any failure which the taxpayer shows was
due to reasonable cause.’’.
(5) REPORTING REQUIREMENTS.—
(A) Section 408(l) is amended by adding
at the end the following new paragraph:
‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(A) NO EMPLOYER REPORTS.—Except as
provided in this paragraph, no report shall be
required under this section by an employer
maintaining a qualified salary reduction ar-
rangement under subsection (p).
‘‘(B) SUMMARY DESCRIPTION.—The trust-
ee of any simple retirement account established
pursuant to a qualified salary reduction ar-
rangement under subsection (p) shall provide to
the
employer
maintaining
the
arrangement,
each year a description containing the following
information:
‘‘(i) The name and address of the em-
ployer and the trustee.
‘‘(ii) The requirements for eligibility
for participation.
‘‘(iii) The benefits provided with re-
spect to the arrangement.
‘‘(iv) The time and method of making
elections with respect to the arrangement.
‘‘(v) The procedures for, and effects
of, withdrawals (including rollovers) from
the arrangement.
‘‘(C) EMPLOYEE NOTIFICATION.—The em-
ployer shall notify each employee immediately
before the period for which an election de-
scribed in subsection (p)(5)(C) may be made of
the employee’s opportunity to make such elec-
tion. Such notice shall include a copy of the de-
scription described in subparagraph (B).’’.
(B) Section 408(l) is amended by striking
‘‘An employer’’ and inserting the following:
‘‘(1) IN GENERAL.—An employer’’.
(6)
REPORTING
REQUIREMENTS.—Section
408(i) is amended by adding at the end the following
new flush sentence:
‘‘In the case of a simple retirement account under sub-
section (p), only one report under this subsection shall be
required to be submitted each calendar year to the Sec-
retary (at the time provided under paragraph (2)) but, in
addition to the report under this subsection, there shall
be furnished, within 30 days after each calendar year, to
the individual on whose behalf the account is maintained
a statement with respect to the account balance as of the
close of, and the account activity during, such calendar
year.’’.
(7)
EXEMPTION
FROM
TOP-HEAVY
PLAN
RULES.—Section 416(g)(4) (relating to special rules
for top-heavy plans) is amended by adding at the
end the following new subparagraph:
‘‘(G) SIMPLE
RETIREMENT
ACCOUNTS.—
The term ‘top-heavy plan’ shall not include a
simple
retirement
account
under
section
408(p).’’.
(8) EMPLOYMENT TAXES.—
(A) Paragraph (5) of section 3121(a) is
amended by striking ‘‘or’’ at the end of sub-
paragraph (F), by inserting ‘‘or’’ at the end of
subparagraph (G), and by adding at the end
the following new subparagraph:
‘‘(H) under an arrangement to which sec-
tion 408(p) applies, other than any elective con-
tributions under paragraph (2)(A)(i) thereof,’’.
(B) Section 209(a)(4) of the Social Security
Act is amended by inserting ‘‘, or (J) under an ar-
rangement to which section 408(p) of such Code ap-
plies, other than any elective contributions under
paragraph (2)(A)(i) thereof’’ before the semicolon at
the end thereof.
(C) Paragraph (5) of section 3306(b) is amend-
ed by striking ‘‘or’’ at the end of subparagraph (F),
by inserting ‘‘or’’ at the end of subparagraph (G),
and by adding at the end the following new subpara-
graph:
‘‘(H) under an arrangement to which sec-
tion 408(p) applies, other than any elective con-
tributions under paragraph (2)(A)(i) thereof,’’.
(D)
Paragraph
(12)
of
section
3401(a)
is
amended by adding the following new subparagraph:
‘‘(D) under an arrangement to which sec-
tion 408(p) applies; or’’.
(9) CONFORMING AMENDMENTS.—
(A) Section 280G(b)(6) is amended by
striking ‘‘or’’ at the end of subparagraph (B),
by striking the period at the end of subpara-
graph (C) and inserting ‘‘, or’’ and by adding
after subparagraph (C) the following new sub-
paragraph:
‘‘(D) a simple retirement account described
in section 408(p).’’.
(B) Section 402(g)(3) is amended by strik-
ing ‘‘and’’ at the end of subparagraph (B), by
striking the period at the end of subparagraph
(C) and inserting ‘‘, and’’, and by adding after
subparagraph (C) the following new subpara-
graph:
‘‘(D) any elective employer contribution
under section 408(p)(2)(A)(i).’’.
(C) Subsections (b), (c), (m)(4)(B), and
(n)(3)(B) of section 414 are each amended by
inserting ‘‘408(p),’’ after ‘‘408(k),’’.
(D) Section 4972(d)(1)(A) is amended by
striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and
inserting ‘‘, and’’, and by adding after clause
(iii) the following new clause:
‘‘(iv) any simple retirement account
(within the meaning of section 408(p)).’’.
(c) REPEAL OF SALARY REDUCTION SIMPLIFIED EM-
PLOYEE PENSIONS.—Section 408(k)(6) is amended by
adding at the end the following new subparagraph:
‘‘(H)
TERMINATION.—This
paragraph
shall not apply to years beginning after Decem-
ber 31, 1996. The preceding sentence shall not
apply to a simplified employee pension if the
terms of such pension, as in effect on December
31, 1996, provide that an employee may make
the election described in subparagraph (A).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) AR-
RANGEMENTS.
(a) ALTERNATIVE METHOD OF SATISFYING SECTION
401(k) NONDISCRIMINATION TESTS.—Section 401(k) (re-
lating to cash or deferred arrangements) is amended by
adding at the end the following new paragraph:
‘‘(11) ADOPTION
OF
SIMPLE
PLAN
TO
MEET
NONDISCRIMINATION TESTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement maintained by an eligible employer
shall be treated as meeting the requirements of
paragraph
(3)(A)(ii)
if
such
arrangement
meets—
‘‘(i) the contribution requirements of
subparagraph (B),
‘‘(ii)
the
exclusive
benefit
require-
ments of subparagraph (C), and
‘‘(iii) the vesting requirements of sec-
tion 408(p)(3).
‘‘(B) CONTRIBUTION REQUIREMENTS.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met if, under the
arrangement—
‘‘(I) an employee may elect to
have the employer make elective con-
tributions for the year on behalf of
the employee to a trust under the plan
in an amount which is expressed as a
percentage of compensation of the em-
ployee but which in no event exceeds
$6,000,
‘‘(II) the employer is required to
make a matching contribution to the
trust for the year in an amount equal
to so much of the amount the em-
ployee elects under subclause (I) as
does not exceed 3 percent of com-
pensation for the year, and
‘‘(III) no other contributions may
be made other than contributions de-
scribed in subclause (I) or (II).
‘‘(ii) EMPLOYER
MAY
ELECT
2-PER-
CENT
NONELECTIVE
CONTRIBUTION.—An
employer shall be treated as meeting the
requirements of clause (i)(II) for any year
if, in lieu of the contributions described in
such clause, the employer elects (pursuant
to the terms of the arrangement) to make
nonelective contributions of 2 percent of
compensation for each employee who is eli-
gible to participate in the arrangement and
who has at least $5,000 of compensation
from the employer for the year. If an em-
ployer makes an election under this sub-
paragraph for any year, the employer shall
notify employees of such election within a
reasonable period of time before the 30th
day before the beginning of such year.
‘‘(C) EXCLUSIVE BENEFIT.—The require-
ments of this subparagraph are met for any
year to which this paragraph applies if no con-
tributions were made, or benefits were accrued,
for services during such year under any quali-
fied plan of the employer on behalf of any em-
ployee eligible to participate in the cash or de-
ferred arrangement, other than contributions
described in subparagraph (B).
‘‘(D) DEFINITIONS AND SPECIAL RULE.—
‘‘(i) DEFINITIONS.—For purposes of
this paragraph, any term used in this
paragraph which is also used in section
408(p) shall have the meaning given such
term by such section.
‘‘(ii) COORDINATION WITH TOP-HEAVY
RULES.—A plan meeting the requirements
of this paragraph for any year shall not be
treated as a top-heavy plan under section
416 for such year.’’.
(b) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(m)
NONDISCRIMINATION
TESTS.—Section
401(m) (relating to nondiscrimination test for matching
contributions and employee contributions) is amended by
redesignating paragraph (10) as paragraph (11) and by
adding after paragraph (9) the following new paragraph:
‘‘(10) ALTERNATIVE METHOD OF SATISFYING
TESTS.—A defined contribution plan shall be treated
as meeting the requirements of paragraph (2) with
respect to matching contributions if the plan—
‘‘(A) meets the contribution requirements
of subparagraph (B) of subsection (k)(11),
‘‘(B) meets the exclusive benefit require-
ments of subsection (k)(11)(C), and
‘‘(C) meets the vesting requirements of
section 408(p)(3).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 1996.
Subchapter B—Other Provisions
SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER
SECTION 401(k).
(a) IN GENERAL.—Subparagraph (B) of section
401(k)(4) is amended to read as follows:
‘‘(B) ELIGIBILITY OF STATE AND LOCAL
GOVERNMENTS
AND
TAX-EXEMPT
ORGANIZA-
TIONS.—
‘‘(i)
TAX-EXEMPTS
ELIGIBLE.—Ex-
cept as provided in clause (ii), any organi-
zation exempt from tax under this subtitle
may include a qualified cash or deferred
arrangement as part of a plan maintained
by it.
‘‘(ii) GOVERNMENTS INELIGIBLE.—A
cash or deferred arrangement shall not be
treated as a qualified cash or deferred ar-
rangement if it is part of a plan main-
tained by a State or local government or
political subdivision thereof, or any agency
or
instrumentality
thereof.
This
clause
shall not apply to a rural cooperative plan
or to a plan of an employer described in
clause (iii).
‘‘(iii) TREATMENT OF INDIAN TRIBAL
GOVERNMENTS.—An employer which is an
Indian tribal government (as defined in
section 7701(a)(40)), a subdivision of an
Indian tribal government (determined in
accordance with section 7871(d)), an agen-
cy or instrumentality of an Indian tribal
government or subdivision thereof, or a
corporation
chartered
under
Federal,
State, or tribal law which is owned in
whole or in part by any of the foregoing
shall be treated as an organization exempt
from tax under this subtitle for purposes
of clause (i).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to plan years beginning after De-
cember 31, 1996, but shall not apply to any cash or de-
ferred
arrangement
to
which
clause
(i)
of
section
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.
CHAPTER 3—NONDISCRIMINATION
PROVISIONS
SEC.
1431.
DEFINITION
OF
HIGHLY
COMPENSATED
EM-
PLOYEES; REPEAL OF FAMILY AGGREGATION.
(a) IN GENERAL.—Paragraph (1) of section 414(q)
(defining highly compensated employee) is amended to
read as follows:
‘‘(1) IN
GENERAL.—The term ‘highly com-
pensated employee’ means any employee who—
‘‘(A) was a 5-percent owner at any time
during the year or the preceding year, or
‘‘(B) for the preceding year—
‘‘(i) had compensation from the em-
ployer in excess of $80,000, and
‘‘(ii) was in the top-paid group of the
employer.
The Secretary shall adjust the $80,000 amount
under subparagraph (B) at the same time and in the
same manner as under section 415(d), except that
the base period shall be the calendar quarter ending
September 30, 1996.’’.
(b) REPEAL OF FAMILY AGGREGATION RULES.—
(1) IN
GENERAL.—Paragraph (6) of section
414(q) is hereby repealed.
(2) COMPENSATION LIMIT.—Paragraph (17)(A)
of section 401(a) is amended by striking the last
sentence.
(3) DEDUCTION.—Subsection (l) of section 404
is amended by striking the last sentence.
(c) CONFORMING AMENDMENTS.—
(1)(A) Subsection (q) of section 414 is amended
by striking paragraphs (2), (5), (8), and (12) and by
redesignating paragraphs (3), (4), (7), (9), (10), and
(11) as paragraphs (2) through (7), respectively.
(B)
Sections
129(d)(8)(B),
401(a)(5)(D)(ii),
408(k)(2)(C), and 416(i)(1)(D) are each amended
by striking ‘‘section 414(q)(7)’’ and inserting ‘‘sec-
tion 414(q)(4)’’.
(C) Section 416(i)(1)(A) is amended by striking
‘‘section
414(q)(8)’’
and
inserting
‘‘section
414(r)(9)’’.
(2)(A) Section 414(r) is amended by adding at
the end the following new paragraph:
‘‘(9) EXCLUDED EMPLOYEES.—For purposes of
this subsection, the following employees shall be ex-
cluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
‘‘(C) Employees who normally work not
more than 6 months during any year.
‘‘(D) Employees who have not attained the
age of 21.
‘‘(E) Except to the extent provided in reg-
ulations, employees who are included in a unit
of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee rep-
resentatives and the employer.
Except as provided by the Secretary, the employer
may elect to apply subparagraph (A), (B), (C), or
(D) by substituting a shorter period of service,
smaller number of hours or months, or lower age for
the period of service, number of hours or months, or
age (as the case may be) specified in such subpara-
graph.’’.
(B) Subparagraph (A) of section 414(r)(2) is
amended by striking ‘‘subsection (q)(8)’’ and insert-
ing ‘‘paragraph (9)’’.
(3) Section 1114(c)(4) of the Tax Reform Act
of 1986 is amended by adding at the end the follow-
ing new sentence: ‘‘Any reference in this paragraph
to section 414(q) shall be treated as a reference to
such section as in effect on the day before the date
of the enactment of the Small Business Job Protec-
tion Act of 1996.’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 1996, except that in determining wheth-
er an employee is a highly compensated employee for
years beginning in 1997, such amendments shall be
treated as having been in effect for years beginning
in 1996.
(2) FAMILY AGGREGATION.—The amendments
made by subsection (b) shall apply to years begin-
ning after December 31, 1996.
SEC. 1432. MODIFICATION OF ADDITIONAL PARTICIPATION
REQUIREMENTS.
(a) GENERAL RULE.—Section 401(a)(26)(A) (relat-
ing to additional participation requirements) is amended
to read as follows:
‘‘(A) IN GENERAL.—In the case of a trust
which is a part of a defined benefit plan, such
trust shall not constitute a qualified trust under
this subsection unless on each day of the plan
year such trust benefits at least the lesser of—
‘‘(i) 50 employees of the employer, or
‘‘(ii) the greater of—
‘‘(I) 40 percent of all employees
of the employer, or
‘‘(II) 2 employees (or if there is
only 1 employee, such employee).’’.
(b) SEPARATE LINE OF BUSINESS TEST.—Section
401(a)(26)(G) (relating to separate line of business) is
amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para-
graph (2)(A) or (7)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(k)
NONDISCRIMINATION
TESTS.—Section
401(k) (relating to cash or deferred arrangements), as
amended by section 1422, is amended by adding at the
end the following new paragraph:
‘‘(12) ALTERNATIVE
METHODS
OF
MEETING
NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if such ar-
rangement—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C), and
‘‘(ii) meets the notice requirements of
subparagraph (D).
‘‘(B) MATCHING CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met if, under the
arrangement, the employer makes match-
ing contributions on behalf of each em-
ployee who is not a highly compensated
employee in an amount equal to—
‘‘(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee’s
compensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee’s compensa-
tion.
‘‘(ii)
RATE
FOR
HIGHLY
COM-
PENSATED
EMPLOYEES.—The
require-
ments of this subparagraph are not met if,
under the arrangement, the rate of match-
ing contribution with respect to any elec-
tive contribution of a highly compensated
employee at any rate of elective contribu-
tion is greater than that with respect to an
employee who is not a highly compensated
employee.
‘‘(iii) ALTERNATIVE PLAN DESIGNS.—
If the rate of any matching contribution
with respect to any rate of elective con-
tribution is not equal to the percentage re-
quired under clause (i), an arrangement
shall not be treated as failing to meet the
requirements of clause (i) if—
‘‘(I) the rate of an employer’s
matching contribution does not in-
crease as an employee’s rate of elec-
tive contributions increase, and
‘‘(II) the aggregate amount of
matching contributions at such rate of
elective contribution is at least equal
to the aggregate amount of matching
contributions which would be made if
matching contributions were made on
the basis of the percentages described
in clause (i).
‘‘(C)
NONELECTIVE
CONTRIBUTIONS.—
The requirements of this subparagraph are met
if, under the arrangement, the employer is re-
quired, without regard to whether the employee
makes an elective contribution or employee con-
tribution, to make a contribution to a defined
contribution plan on behalf of each employee
who is not a highly compensated employee and
who is eligible to participate in the arrangement
100
in an amount equal to at least 3 percent of the
employee’s compensation.
‘‘(D)
NOTICE
REQUIREMENT.—An
ar-
rangement meets the requirements of this para-
graph if, under the arrangement, each employee
eligible to participate is, within a reasonable pe-
riod before any year, given written notice of the
employee’s rights and obligations under the ar-
rangement which—
‘‘(i) is sufficiently accurate and com-
prehensive to appraise the employee of
such rights and obligations, and
‘‘(ii) is written in a manner calculated
to be understood by the average employee
eligible to participate.
‘‘(E) OTHER REQUIREMENTS.—
‘‘(i) WITHDRAWAL AND VESTING RE-
STRICTIONS.—An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) of this paragraph
unless the requirements of subparagraphs
(B) and (C) of paragraph (2) are met with
respect to all employer contributions (in-
cluding matching contributions) taken into
account in determining whether the re-
101
quirements of subparagraphs (B) and (C)
of this paragraph are met.
‘‘(ii) SOCIAL SECURITY AND SIMILAR
CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT.—An
arrangement
shall
not
be
treated as meeting the requirements of
subparagraph (B) or (C) unless such re-
quirements are met without regard to sub-
section (l), and, for purposes of subsection
(l), employer contributions under subpara-
graph (B) or (C) shall not be taken into
account.
‘‘(F)
OTHER
PLANS.—An
arrangement
shall be treated as meeting the requirements
under subparagraph (A)(i) if any other plan
maintained by the employer meets such require-
ments with respect to employees eligible under
the arrangement.’’.
(b) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(m)
NONDISCRIMINATION
TESTS.—Section
401(m) (relating to nondiscrimination test for matching
contributions and employee contributions), as amended by
this Act, is amended by redesignating paragraph (11) as
paragraph (12) and by adding after paragraph (10) the
following new paragraph:
102
‘‘(11) ALTERNATIVE METHOD OF SATISFYING
TESTS.—
‘‘(A) IN GENERAL.—A defined contribution
plan shall be treated as meeting the require-
ments of paragraph (2) with respect to match-
ing contributions if the plan—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C) of sub-
section (k)(12),
‘‘(ii) meets the notice requirements of
subsection (k)(12)(D), and
‘‘(iii) meets the requirements of sub-
paragraph (B).
‘‘(B)
LIMITATION
ON
MATCHING
CON-
TRIBUTIONS.—The requirements of this sub-
paragraph are met if—
‘‘(i) matching contributions on behalf
of any employee may not be made with re-
spect to an employee’s contributions or
elective deferrals in excess of 6 percent of
the employee’s compensation,
‘‘(ii) the rate of an employer’s match-
ing contribution does not increase as the
rate of an employee’s contributions or elec-
tive deferrals increase, and
103
‘‘(iii) the matching contribution with
respect to any highly compensated em-
ployee at any rate of an employee contribu-
tion or rate of elective deferral is not
greater than that with respect to an em-
ployee who is not a highly compensated
employee.’’.
(c)
YEAR
FOR
COMPUTING
NONHIGHLY
COM-
PENSATED EMPLOYEE PERCENTAGE.—
(1) CASH
OR
DEFERRED
ARRANGEMENTS.—
Clause (ii) of section 401(k)(3)(A) is amended—
(A) by striking ‘‘such year’’ and inserting
‘‘the plan year’’,
(B) by striking ‘‘for such plan year’’ and
inserting ‘‘for the preceding plan year’’, and
(C) by adding at the end the following new
sentence: ‘‘An arrangement may apply this
clause by using the plan year rather than the
preceding plan year if the employer so elects,
except that if such an election is made, it may
not be changed except as provided by the Sec-
retary.’’.
(2)
MATCHING
AND
EMPLOYEE
CONTRIBU-
TIONS.—Section 401(m)(2)(A) is amended—
104
(A) by inserting ‘‘for such plan year’’ after
‘‘highly compensated employees’’,
(B) by inserting ‘‘for the preceding plan
year’’ after ‘‘eligible employees’’ each place it
appears in clause (i) and clause (ii), and
(C) by adding at the end the following
flush sentence: ‘‘This subparagraph may be ap-
plied by using the plan year rather than the
preceding plan year if the employer so elects,
except that if such an election is made, it may
not be changed except as provided the Sec-
retary.’’.
(d) SPECIAL RULE FOR DETERMINING AVERAGE DE-
FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—
(1) Paragraph (3) of section 401(k) is amended
by adding at the end the following new subpara-
graph:
‘‘(E) For purposes of this paragraph, in
the case of the first plan year of any plan
(other than a successor plan), the amount taken
into account as the actual deferral percentage
of nonhighly compensated employees for the
preceding plan year shall be—
‘‘(i) 3 percent, or
105
‘‘(ii) if the employer makes an election
under this subclause, the actual deferral
percentage of nonhighly compensated em-
ployees
determined
for
such
first
plan
year.’’.
(2) Paragraph (3) of section 401(m) is amend-
ed by adding at the end the following: ‘‘Rules similar
to the rules of subsection (k)(3)(E) shall apply for
purposes of this subsection.’’.
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND
EXCESS AGGREGATE CONTRIBUTIONS.—
(1) Subparagraph (C) of section 401(k)(8) (re-
lating to arrangement not disqualified if excess con-
tributions distributed) is amended by striking ‘‘on
the basis of the respective portions of the excess con-
tributions attributable to each of such employees’’
and inserting ‘‘on the basis of the amount of con-
tributions by, or on behalf of, each of such employ-
ees’’.
(2) Subparagraph (C) of section 401(m)(6) (re-
lating to method of distributing excess aggregate
contributions) is amended by striking ‘‘on the basis
of the respective portions of such amounts attrib-
utable to each of such employees’’ and inserting ‘‘on
106
the basis of the amount of contributions on behalf
of, or by, each such employee’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 1998.
(2) EXCEPTIONS.—The amendments made by
subsections (c), (d), and (e) shall apply to years be-
ginning after December 31, 1996.
SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION
415 PURPOSES.
(a) GENERAL RULE.—Section 415(c)(3) (defining
participant’s compensation) is amended by adding at the
end the following new subparagraph:
‘‘(D) CERTAIN
DEFERRALS
INCLUDED.—
The term ‘participant’s compensation’ shall in-
clude—
‘‘(i) any elective deferral (as defined
in section 402(g)(3)), and
‘‘(ii) any amount which is contributed
by the employer at the election of the em-
ployee and which is not includible in the
gross income of the employee under section
125 or 457.’’.
(b) CONFORMING AMENDMENTS.—
107
(1) Section 414(q)(4), as redesignated by sec-
tion 1431, is amended to read as follows:
‘‘(4) COMPENSATION.—For purposes of this
subsection, the term ‘compensation’ has the meaning
given such term by section 415(c)(3).’’.
(2) Section 414(s)(2) is amended by inserting
‘‘not’’ after ‘‘elect’’ in the text and heading thereof.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1997.
CHAPTER 4—MISCELLANEOUS
PROVISIONS
SEC.
1441.
PLANS
COVERING
SELF-EMPLOYED
INDIVID-
UALS.
(a) AGGREGATION RULES.—Section 401(d) (relating
to additional requirements for qualification of trusts and
plans benefiting owner-employees) is amended to read as
follows:
‘‘(d) CONTRIBUTION LIMIT
ON OWNER-EMPLOY-
EES.—A trust forming part of a pension or profit-sharing
plan which provides contributions or benefits for employ-
ees some or all of whom are owner-employees shall con-
stitute a qualified trust under this section only if, in addi-
tion to meeting the requirements of subsection (a), the
plan provides that contributions on behalf of any owner-
108
employee may be made only with respect to the earned
income of such owner-employee which is derived from the
trade or business with respect to which such plan is estab-
lished.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1996.
SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR
MULTIEMPLOYER PLANS.
(a) IN GENERAL.—Paragraph (2) of section 411(a)
(relating to minimum vesting standards) is amended—
(1) by striking ‘‘subparagraph (A), (B), or (C)’’
and inserting ‘‘subparagraph (A) or (B)’’; and
(2) by striking subparagraph (C).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning on or after
the earlier of—
(1) the later of—
(A) January 1, 1997, or
(B) the date on which the last of the col-
lective
bargaining
agreements
pursuant
to
which the plan is maintained terminates (deter-
mined without regard to any extension thereof
after the date of the enactment of this Act), or
(2) January 1, 1999.
109
Such amendments shall not apply to any individual who
does not have more than 1 hour of service under the plan
on or after the 1st day of the 1st plan year to which such
amendments apply.
SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE
PLANS.
(a) DISTRIBUTIONS
FOR HARDSHIP
OR AFTER
A
CERTAIN AGE.—Section 401(k)(7) is amended by adding
at the end the following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
DIS-
TRIBUTIONS.—A rural cooperative plan which
includes a qualified cash or deferred arrange-
ment shall not be treated as violating the re-
quirements of section 401(a) or of paragraph
(2) merely by reason of a hardship distribution
or a distribution to a participant after attain-
ment of age 591⁄2. For purposes of this section,
the term ‘hardship distribution’ means a dis-
tribution described in paragraph (2)(B)(i)(IV)
(without regard to the limitation of its applica-
tion to profit-sharing or stock bonus plans).’’.
(b) PUBLIC UTILITY DISTRICTS.—Clause (i) of sec-
tion 401(k)(7)(B) (defining rural cooperative) is amended
to read as follows:
‘‘(i) any organization which—
110
‘‘(I) is engaged primarily in pro-
viding electric service on a mutual or
cooperative basis, or
‘‘(II) is engaged primarily in pro-
viding electric service to the public in
its area of service and which is ex-
empt from tax under this subtitle or
which is a State or local government
(or
an
agency
or
instrumentality
thereof), other than a municipality (or
an agency or instrumentality there-
of),’’.
(c) EFFECTIVE DATES.—
(1) DISTRIBUTIONS.—The amendments made
by subsection (a) shall apply to distributions after
the date of the enactment of this Act.
(2) RURAL
COOPERATIVE.—The amendments
made by subsection (b) shall apply to plan years be-
ginning after December 31, 1996.
SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—Subsection (b) of sec-
tion 415 is amended by adding immediately after para-
graph (10) the following new paragraph:
111
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL
PLANS.—In the case of a governmental
plan (as defined in section 414(d)), subparagraph
(B) of paragraph (1) shall not apply.’’.
(b) TREATMENT
OF CERTAIN EXCESS BENEFIT
PLANS.—
(1) IN GENERAL.—Section 415 is amended by
adding at the end the following new subsection:
‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL
EXCESS BENEFIT ARRANGEMENTS.—
‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—
In determining whether a governmental plan (as de-
fined in section 414(d)) meets the requirements of
this section, benefits provided under a qualified gov-
ernmental excess benefit arrangement shall not be
taken into account. Income accruing to a govern-
mental plan (or to a trust that is maintained solely
for the purpose of providing benefits under a quali-
fied governmental excess benefit arrangement) in re-
spect of a qualified governmental excess benefit ar-
rangement shall constitute income derived from the
exercise of an essential governmental function upon
which such governmental plan (or trust) shall be ex-
empt from tax under section 115.
112
‘‘(2) TAXATION
OF
PARTICIPANT.—For pur-
poses of this chapter—
‘‘(A) the taxable year or years for which
amounts in respect of a qualified governmental
excess benefit arrangement are includible in
gross income by a participant, and
‘‘(B) the treatment of such amounts when
so includible by the participant,
shall be determined as if such qualified govern-
mental excess benefit arrangement were treated as a
plan for the deferral of compensation which is main-
tained by a corporation not exempt from tax under
this chapter and which does not meet the require-
ments for qualification under section 401.
‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BEN-
EFIT
ARRANGEMENT.—For purposes of this sub-
section, the term ‘qualified governmental excess ben-
efit arrangement’ means a portion of a governmental
plan if—
‘‘(A) such portion is maintained solely for
the purpose of providing to participants in the
plan that part of the participant’s annual bene-
fit otherwise payable under the terms of the
plan that exceeds the limitations on benefits im-
posed by this section,
113
‘‘(B) under such portion no election is pro-
vided at any time to the participant (directly or
indirectly) to defer compensation, and
‘‘(C) benefits described in subparagraph
(A) are not paid from a trust forming a part
of such governmental plan unless such trust is
maintained solely for the purpose of providing
such benefits.’’.
(2) COORDINATION WITH SECTION 457.—Sub-
section (e) of section 457 is amended by adding at
the end the following new paragraph:
‘‘(14)
TREATMENT
OF
QUALIFIED
GOVERN-
MENTAL
EXCESS
BENEFIT
ARRANGEMENTS.—Sub-
sections (b)(2) and (c)(1) shall not apply to any
qualified governmental excess benefit arrangement
(as defined in section 415(m)(3)), and benefits pro-
vided under such an arrangement shall not be taken
into account in determining whether any other plan
is an eligible deferred compensation plan.’’.
(3) CONFORMING AMENDMENT.—Paragraph (2)
of section 457(f) is amended by striking ‘‘and’’ at
the end of subparagraph (C), by striking the period
at the end of subparagraph (D) and inserting ‘‘,
and’’, and by inserting immediately thereafter the
following new subparagraph:
114
‘‘(E) a qualified governmental excess bene-
fit arrangement described in section 415(m).’’.
(c) EXEMPTION
FOR SURVIVOR
AND DISABILITY
BENEFITS.—Paragraph (2) of section 415(b) is amended
by adding at the end the following new subparagraph:
‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY BENEFITS PROVIDED UNDER GOVERN-
MENTAL
PLANS.—Subparagraph
(C)
of
this
paragraph and paragraph (5) shall not apply
to—
‘‘(i) income received from a govern-
mental plan (as defined in section 414(d))
as a pension, annuity, or similar allowance
as the result of the recipient becoming dis-
abled by reason of personal injuries or
sickness, or
‘‘(ii) amounts received from a govern-
mental plan by the beneficiaries, survivors,
or the estate of an employee as the result
of the death of the employee.’’.
(d) REVOCATION OF GRANDFATHER ELECTION.—
(1) IN GENERAL.—Subparagraph (C) of section
415(b)(10) is amended by adding at the end the fol-
lowing new clause:
115
‘‘(ii) REVOCATION OF ELECTION.—An
election under clause (i) may be revoked
not later than the last day of the third
plan year beginning after the date of the
enactment of this clause. The revocation
shall apply to all plan years to which the
election applied and to all subsequent plan
years. Any amount paid by a plan in a tax-
able year ending after the revocation shall
be includible in income in such taxable
year under the rules of this chapter in ef-
fect for such taxable year, except that, for
purposes of applying the limitations im-
posed by this section, any portion of such
amount which is attributable to any tax-
able year during which the election was in
effect shall be treated as received in such
taxable year.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(C) of section 415(b)(10) is amended by striking
‘‘This’’ and inserting:
‘‘(i) IN GENERAL.—This’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b), and (c) shall apply to years be-
116
ginning after December 31, 1994. The amendments
made by subsection (d) shall apply with respect to
revocations adopted after the date of the enactment
of this Act.
(2) TREATMENT
FOR
YEARS
BEGINNING
BE-
FORE
JANUARY
1,
1995.—Nothing in the amend-
ments made by this section shall be construed to
infer that a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986) fails
to satisfy the requirements of section 415 of such
Code for any taxable year beginning before January
1, 1995.
SEC. 1445. UNIFORM RETIREMENT AGE.
(a) DISCRIMINATION TESTING.—Paragraph (5) of
section 401(a) (relating to special rules relating to non-
discrimination requirements) is amended by adding at the
end the following new subparagraph:
‘‘(F)
SOCIAL
SECURITY
RETIREMENT
AGE.—For purposes of testing for discrimina-
tion under paragraph (4)—
‘‘(i) the social security retirement age
(as defined in section 415(b)(8)) shall be
treated as a uniform retirement age, and
‘‘(ii) subsidized early retirement bene-
fits and joint and survivor annuities shall
118
SEC.
1447.
TREATMENT
OF
DEFERRED
COMPENSATION
PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—
Paragraph (9) of section 457(e) (relating to other defini-
tions and special rules) is amended to read as follows:
‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL-
ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—
‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500
OR LESS.—The total amount payable to a par-
ticipant under the plan shall not be treated as
made available merely because the participant
may elect to receive such amount (or the plan
may distribute such amount without the partici-
pant’s consent) if—
‘‘(i) such amount does not exceed
$3,500, and
‘‘(ii) such amount may be distributed
only if—
‘‘(I) no amount has been deferred
under the plan with respect to such
participant during the 2-year period
ending on the date of the distribution,
and
‘‘(II) there has been no prior dis-
tribution under the plan to such par-
119
ticipant to which this subparagraph
applied.
A plan shall not be treated as failing to meet
the distribution requirements of subsection (d)
by reason of a distribution to which this sub-
paragraph applies.
‘‘(B) ELECTION
TO
DEFER
COMMENCE-
MENT OF DISTRIBUTIONS.—The total amount
payable to a participant under the plan shall
not be treated as made available merely because
the participant may elect to defer commence-
ment of distributions under the plan if—
‘‘(i)
such
election
is
made
after
amounts may be available under the plan
in accordance with subsection (d)(1)(A)
and before commencement of such dis-
tributions, and
‘‘(ii) the participant may make only 1
such election.’’.
(b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE-
FERRAL AMOUNT.—Subsection (e) of section 457, as
amended by section 1444(b)(2) (relating to governmental
plans), is amended by adding at the end the following new
paragraph:
120
‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXI-
MUM DEFERRAL AMOUNT.—The Secretary shall ad-
just the $7,500 amount specified in subsections
(b)(2) and (c)(1) at the same time and in the same
manner as under section 415(d), except that the
base period shall be the calendar quarter ending
September 30, 1994, and any increase under this
paragraph which is not a multiple of $500 shall be
rounded to the next lowest multiple of $500.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM-
PENSATION
PLANS
OF
STATE
AND
LOCAL
GOVERNMENTS.
(a) IN GENERAL.—Section 457 is amended by adding
at the end the following new subsection:
‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-
ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—
‘‘(1) IN GENERAL.—A plan maintained by an
eligible employer described in subsection (e)(1)(A)
shall not be treated as an eligible deferred com-
pensation plan unless all assets and income of the
plan described in subsection (b)(6) are held in trust
121
for the exclusive benefit of participants and their
beneficiaries.
‘‘(2) TAXABILITY
OF
TRUSTS
AND
PARTICI-
PANTS.—For purposes of this title—
‘‘(A) a trust described in paragraph (1)
shall be treated as an organization exempt from
taxation under section 501(a), and
‘‘(B) notwithstanding any other provision
of this title, amounts in the trust shall be in-
cludible in the gross income of participants and
beneficiaries only to the extent, and at the time,
provided in this section.
‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—
For purposes of this subsection, custodial accounts
and contracts described in section 401(f) shall be
treated as trusts under rules similar to the rules
under section 401(f).’’.
(b) CONFORMING AMENDMENT.—Paragraph (6) of
section 457(b) is amended by inserting ‘‘except as pro-
vided in subsection (g),’’ before ‘‘which provides that’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to assets and income described in section
457(b)(6) of the Internal Revenue Code of 1986
122
held by a plan on and after the date of the enact-
ment of this Act.
(2) TRANSITION RULE.—In the case of assets
and income described in paragraph (1) held by a
plan on the date of the enactment of this Act, a
trust need not be established by reason of the
amendments made by this section before January 1,
1999.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM
BENEFITS UNDER SECTION 415 LIMITATIONS.
(a) IN GENERAL.—Subparagraph (A) of section
767(d)(3) of the Uruguay Round Agreements Act is
amended to read as follows:
‘‘(A) EXCEPTION.—A plan that was adopt-
ed and in effect before December 8, 1994, shall
not be required to apply the amendments made
by subsection (b) with respect to benefits ac-
crued before the earlier of—
‘‘(i) the later of the date a plan
amendment applying such amendment is
adopted or made effective, or
‘‘(ii) the first day of the first limita-
tion year beginning after December 31,
1999.
123
Determinations under section 415(b)(2)(E) of
the Internal Revenue Code of 1986 before such
earlier date shall be made with respect to such
benefits on the basis of such section as in effect
on December 7, 1994 (except that the modifica-
tion made by section 1449(b) of the Small
Business Job Protection Act of 1996 shall be
taken into account), and the provisions of the
plan as in effect on December 7, 1994, but only
if such provisions of the plan meet the require-
ments of such section (as so in effect).’’.
(b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR
ADJUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR
EARLY
RETIREES.—Subparagraph
(E)
of
section
415(b)(2) (relating to limitation on certain assumptions)
is amended—
(1) by striking ‘‘Except as provided in clause
(ii), for purposes of adjusting any benefit or limita-
tion under subparagraph (B) or (C),’’ in clause (i)
and inserting ‘‘For purposes of adjusting any limita-
tion under subparagraph (C) and, except as provided
in clause (ii), for purposes of adjusting any benefit
under subparagraph (B),’’, and
(2) by striking ‘‘For purposes of adjusting the
benefit or limitation of any form of benefit subject
124
to section 417(e)(3),’’ in clause (ii) and inserting
‘‘For purposes of adjusting any benefit under sub-
paragraph (B) for any form of benefit subject to sec-
tion 417(e)(3),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the provisions
of section 767 of the Uruguay Round Agreements Act.
(d) TRANSITIONAL RULE.—In the case of a plan that
was adopted and in effect before December 8, 1994, if—
(1) a plan amendment was adopted or made ef-
fective on or before the date of the enactment of this
Act applying the amendments made by section 767
of the Uruguay Round Agreements Act, and
(2) within 1 year after the date of the enact-
ment of this Act, a plan amendment is adopted
which repeals the amendment referred to in para-
graph (1),
the amendment referred to in paragraph (1) shall not be
taken into account in applying section 767(d)(3)(A) of the
Uruguay Round Agreements Act, as amended by sub-
section (a).
SEC. 1450. MODIFICATIONS OF SECTION 403(b).
(a) MULTIPLE SALARY REDUCTION AGREEMENTS
PERMITTED.—
125
(1) GENERAL RULE.—For purposes of section
403(b) of the Internal Revenue Code of 1986, the
frequency that an employee is permitted to enter
into a salary reduction agreement, the salary to
which such an agreement may apply, and the ability
to revoke such an agreement shall be determined
under the rules applicable to cash or deferred elec-
tions under section 401(k) of such Code.
(2) EFFECTIVE
DATE.—This subsection shall
apply to taxable years beginning after December 31,
1995.
(b)
TREATMENT
OF
INDIAN
TRIBAL
GOVERN-
MENTS.—
(1) IN GENERAL.—In the case of any contract
purchased in a plan year beginning before January
1, 1995, section 403(b) of the Internal Revenue
Code of 1986 shall be applied as if any reference to
an employer described in section 501(c)(3) of the In-
ternal Revenue Code of 1986 which is exempt from
tax under section 501 of such Code included a ref-
erence to an employer which is an Indian tribal gov-
ernment (as defined by section 7701(a)(40) of such
Code), a subdivision of an Indian tribal government
(determined in accordance with section 7871(d) of
such Code), an agency or instrumentality of an In-
126
dian tribal government or subdivision thereof, or a
corporation chartered under Federal, State, or tribal
law which is owned in whole or in part by any of the
foregoing.
(2) ROLLOVERS.—Solely for purposes of apply-
ing section 403(b)(8) of such Code to a contract to
which paragraph (1) applies, a qualified cash or de-
ferred arrangement under section 401(k) of such
Code shall be treated as if it were a plan or contract
described in clause (ii) of section 403(b)(8)(A) of
such Code.
(c) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Subparagraph (E) of section
403(b)(1) is amended to read as follows:
‘‘(E) in the case of a contract purchased
under a salary reduction agreement, the con-
tract
meets
the
requirements
of
section
401(a)(30),’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 1995, except a contract shall not
be required to meet any change in any requirement
by reason of such amendment before the 90th day
after the date of the enactment of this Act.
127
SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND
SURVIVOR ANNUITY EXPLANATION BEFORE
ANNUITY STARTING DATE.
(a)
GENERAL
RULE.—For
purposes
of
section
417(a)(3)(A) of the Internal Revenue Code of 1986 (relat-
ing to plan to provide written explanations), the minimum
period prescribed by the Secretary of the Treasury be-
tween the date that the explanation referred to in such
section is provided and the annuity starting date shall not
apply if waived by the participant and, if applicable, the
participant’s spouse.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
plan years beginning after December 31, 1996.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED
BENEFIT PLAN AND DEFINED CONTRIBUTION
PLAN
FOR
SAME
EMPLOYEE;
EXCESS
DIS-
TRIBUTIONS.
(a) IN GENERAL.—Section 415(e) is repealed.
(b)
EXCESS
DISTRIBUTIONS.—Section
4980A
is
amended by adding at the end the following new sub-
section:
‘‘(g) LIMITATION
ON APPLICATION.—This section
shall not apply to distributions during years beginning
after December 31, 1995, and before January 1, 1999,
and such distributions shall be treated as made first from
amounts not described in subsection (f).’’.
128
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 415(a) is amend-
ed—
(A) by adding ‘‘or’’ at the end of subpara-
graph (A),
(B) by striking ‘‘, or’’ at the end of sub-
paragraph (B) and inserting a period, and
(C) by striking subparagraph (C).
(2) Subparagraph (B) of section 415(b)(5) is
amended by striking ‘‘and subsection (e)’’.
(3) Paragraph (1) of section 415(f) is amended
by striking ‘‘subsections (b), (c), and (e)’’ and in-
serting ‘‘subsections (b) and (c)’’.
(4) Subsection (g) of section 415 is amended by
striking ‘‘subsections (e) and (f)’’ in the last sen-
tence and inserting ‘‘subsection (f)’’.
(5) Clause (i) of section 415(k)(2)(A) is amend-
ed to read as follows:
‘‘(i) any contribution made directly by
an employee under such an arrangement
shall not be treated as an annual addition
for purposes of subsection (c), and’’.
(6)
Clause
(ii)
of
section
415(k)(2)(A)
is
amended by striking ‘‘subsections (c) and (e)’’ and
inserting ‘‘subsection (c)’’.
129
(7) Section 416 is amended by striking sub-
section (h).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to limitation years beginning after De-
cember 31, 1998.
(2) EXCESS DISTRIBUTIONS.—The amendment
made by subsection (b) shall apply to years begin-
ning after December 31, 1995.
SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.
(a) IN GENERAL.—Section 4975(a) is amended by
striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to prohibited transactions occur-
ring after the date of the enactment of this Act.
SEC. 1454. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.—Subparagraph (C) of section
414(n)(2) (defining leased employee) is amended to read
as follows:
‘‘(C) such services are performed under
primary direction or control by the recipient.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1996, but shall not apply to any relationship deter-
130
mined under an Internal Revenue Service ruling issued be-
fore the date of the enactment of this Act pursuant to
section 414(n)(2)(C) of the Internal Revenue Code of
1986 (as in effect on the day before such date) not to
involve a leased employee.
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO
CERTAIN
PENSION
REPORTING
REQUIRE-
MENTS.
(a) PENALTIES.—
(1) STATEMENTS.—Paragraph (1) of section
6724(d) is amended by striking ‘‘and’’ at the end of
subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, and’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) any statement of the amount of pay-
ments to another person required to be made to
the Secretary under—
‘‘(i) section 408(i) (relating to reports
with respect to individual retirement ac-
counts or annuities), or
‘‘(ii) section 6047(d) (relating to re-
ports by employers, plan administrators,
etc.).’’.
131
(2)
REPORTS.—Paragraph
(2)
of
section
6724(d), as amended by section 1116, is amended
by striking ‘‘or’’ at the end of subparagraph (T), by
striking the period at the end of subparagraph (U)
and inserting a comma, and by inserting after sub-
paragraph (U) the following new subparagraphs:
‘‘(V) section 408(i) (relating to reports
with respect to individual retirement plans) to
any person other than the Secretary with re-
spect to the amount of payments made to such
person, or
‘‘(W) section 6047(d) (relating to reports
by plan administrators) to any person other
than the Secretary with respect to the amount
of payments made to such person.’’.
(b) MODIFICATION
OF REPORTABLE DESIGNATED
DISTRIBUTIONS.—
(1) SECTION 408.—Subsection (i) of section 408
(relating to individual retirement account reports) is
amended by inserting ‘‘aggregating $10 or more in
any calendar year’’ after ‘‘distributions’’.
(2) SECTION 6047.—Paragraph (1) of section
6047(d) (relating to reports by employers, plan ad-
ministrators, etc.) is amended by adding at the end
the following new sentence: ‘‘No return or report
132
may be required under the preceding sentence with
respect to distributions to any person during any
year unless such distributions aggregate $10 or
more.’’.
(c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec-
tion 6652(i) is amended—
(1)
by
striking
‘‘the
$10’’
and
inserting
‘‘$100’’, and
(2)
by
striking
‘‘$5,000’’
and
inserting
‘‘$50,000’’.
(d) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 6047(f) is amend-
ed to read as follows:
‘‘(1) For provisions relating to penalties for fail-
ures to file returns and reports required under this
section, see sections 6652(e), 6721, and 6722.’’.
(2) Subsection (e) of section 6652 is amended
by adding at the end the following new sentence:
‘‘This subsection shall not apply to any return or
statement which is an information return described
in section 6724(d)(1)(C)(ii) or a payee statement de-
scribed in section 6724(d)(2)(W).’’.
(3) Subsection (a) of section 6693 is amended
by adding at the end the following new sentence:
‘‘This subsection shall not apply to any report which
is
an
information
return
described
in
section
133
6724(d)(1)(C)(i) or a payee statement described in
section 6724(d)(2)(V).’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns, reports, and other
statements the due date for which (determined without re-
gard to extensions) is after December 31, 1996.
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB-
JECT TO TAX ON NET EARNINGS FROM SELF-
EMPLOYMENT.
(a) IN GENERAL.—Section 1402(a)(8) (defining net
earning from self-employment) is amended by inserting ‘‘,
but shall not include in such net earnings from self-em-
ployment the rental value of any parsonage (whether or
not excludable under section 107) provided after the indi-
vidual retires, or any other retirement benefit received by
such individual from a church plan (as defined in section
414(e)) after the individual retires’’ before the semicolon
at the end.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning before, on, or
after December 31, 1994.
SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an
amendment to any plan or annuity contract, such amend-
ment shall not be required to be made before the first day
134
of the first plan year beginning on or after January 1,
1997, if—
(1) during the period after such amendment
takes effect and before such first plan year, the plan
or contract is operated in accordance with the re-
quirements of such amendment, and
(2) such amendment applies retroactively to
such period.
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this section
shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.
Subtitle E—Foreign Simplification
SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS
INVESTED IN EXCESS PASSIVE ASSETS.
(a) IN GENERAL.—
(1) REPEAL OF INCLUSION.—Paragraph (1) of
section 951(a) (relating to amounts included in
gross income of United States shareholders) is
amended by striking subparagraph (C), by striking
‘‘; and’’ at the end of subparagraph (B) and insert-
ing a period, and by adding ‘‘and’’ at the end of
subparagraph (A).
(2) REPEAL OF INCLUSION AMOUNT.—Section
956A (relating to earnings invested in excess passive
assets) is repealed.
135
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 956(b) is amended
to read as follows:
‘‘(1) APPLICABLE EARNINGS.—For purposes of
this section, the term ‘applicable earnings’ means,
with respect to any controlled foreign corporation,
the sum of—
‘‘(A) the amount (not including a deficit)
referred to in section 316(a)(1), and
‘‘(B) the amount referred to in section
316(a)(2),
but reduced by distributions made during the tax-
able year.’’.
(2) Paragraph (3) of section 956(b) is amended
to read as follows:
‘‘(3)
SPECIAL
RULE
WHERE
CORPORATION
CEASES
TO
BE
CONTROLLED
FOREIGN
CORPORA-
TION.—If any foreign corporation ceases to be a
controlled foreign corporation during any taxable
year—
‘‘(A)
the
determination
of
any
United
States shareholder’s pro rata share shall be
made on the basis of stock owned (within the
meaning of section 958(a)) by such shareholder
on the last day during the taxable year on
136
which the foreign corporation is a controlled
foreign corporation,
‘‘(B) the average referred to in subsection
(a)(1)(A) for such taxable year shall be deter-
mined by only taking into account quarters end-
ing on or before such last day, and
‘‘(C) in determining applicable earnings,
the amount taken into account by reason of
being described in paragraph (2) of section
316(a) shall be the portion of the amount so
described which is allocable (on a pro rata
basis) to the part of such year during which the
corporation is a controlled foreign corpora-
tion.’’.
(3) Subsection (a) of section 959 (relating to
exclusion from gross income of previously taxed
earnings and profits) is amended by adding ‘‘or’’ at
the end of paragraph (1), by striking ‘‘or’’ at the
end of paragraph (2), and by striking paragraph (3).
(4) Subsection (a) of section 959 is amended by
striking ‘‘paragraphs (2) and (3)’’ in the last sen-
tence and inserting ‘‘paragraph (2)’’.
(5) Subsection (c) of section 959 is amended by
adding at the end the following flush sentence:
137
‘‘References in this subsection to section 951(a)(1)(C) and
subsection (a)(3) shall be treated as references to such
provisions as in effect on the day before the date of the
enactment of the Small Business Job Protection Act of
1996.’’.
(6) Paragraph (1) of section 959(f) is amended
to read as follows:
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, amounts that would be included under subpara-
graph (B) of section 951(a)(1) (determined without
regard to this section) shall be treated as attrib-
utable first to earnings described in subsection
(c)(2), and then to earnings described in subsection
(c)(3).’’.
(7) Paragraph (2) of section 959(f) is amended
by striking ‘‘subparagraphs (B) and (C) of section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(8) Subsection (b) of section 989 is amended by
striking
‘‘subparagraph
(B)
or
(C)
of
section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(9) Paragraph (9) of section 1297(b) is amend-
ed by striking ‘‘subparagraph (B) or (C) of section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
138
(10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of
section 1297 are each amended by striking ‘‘or sec-
tion 956A’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart F of part III of subchapter N of chapter 1
is amended by striking the item relating to section 956A.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 1996, and to taxable
years of United States shareholders within which or with
which such taxable years of foreign corporations end.
Subtitle F—Revenue Offsets
SEC. 1601. TERMINATION OF PUERTO RICO AND POSSES-
SION TAX CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding
at the end the following new subsection:
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, this section shall not apply
to any taxable year beginning after December 31,
1995.
‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS
INCOME CREDIT.—Except as provided in paragraph
(3)—
139
‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the
case of an existing credit claimant—
‘‘(i) with respect to a possession other
than Puerto Rico, and
‘‘(ii) to which subsection (a)(4)(B)
does not apply,
the
credit
determined
under
subsection
(a)(1)(A) shall be allowed for taxable years be-
ginning after December 31, 1995, and before
January 1, 2002.
‘‘(B) SPECIAL RULE FOR REDUCED CRED-
IT.—
‘‘(i) IN GENERAL.—In the case of an
existing
credit
claimant
to
which
sub-
section (a)(4)(B) applies, the credit deter-
mined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after
December 31, 1995, and before January 1,
1998.
‘‘(ii) ELECTION IRREVOCABLE AFTER
1997.—An
election
under
subsection
(a)(4)(B)(iii) which is in effect for the tax-
payer’s last taxable year beginning before
1997 may not be revoked unless it is re-
voked for the taxpayer’s first taxable year
140
beginning in 1997 and all subsequent tax-
able years.
‘‘(C)
ECONOMIC
ACTIVITY
CREDIT
FOR
PUERTO RICO.—
‘‘For economic activity credit for Puerto Rico, see
section 30A.
‘‘(3) ADDITIONAL RESTRICTED CREDIT.—
‘‘(A) IN GENERAL.—In the case of an ex-
isting credit claimant—
‘‘(i)
the
credit
under
subsection
(a)(1)(A) shall be allowed for the period
beginning with the first taxable year after
the last taxable year to which subpara-
graph (A) or (B) of paragraph (2), which-
ever is appropriate, applied and ending
with the last taxable year beginning before
January 1, 2006, except that
‘‘(ii) the aggregate amount of taxable
income
taken
into
account
under
sub-
section (a)(1)(A) for any such taxable year
shall not exceed the adjusted base period
income of such claimant.
‘‘(B)
COORDINATION
WITH
SUBSECTION
(a)(4).—The amount of income described in sub-
section (a)(1)(A) which is taken into account in
141
applying subsection (a)(4) shall be such income
as reduced under this paragraph.
‘‘(4) ADJUSTED
BASE
PERIOD
INCOME.—For
purposes of paragraph (3)—
‘‘(A) IN
GENERAL.—The term ‘adjusted
base period income’ means the average of the
inflation-adjusted possession incomes of the cor-
poration for each base period year.
‘‘(B)
INFLATION-ADJUSTED
POSSESSION
INCOME.—For purposes of subparagraph (A),
the inflation-adjusted possession income of any
corporation for any base period year shall be an
amount equal to the sum of—
‘‘(i) the possession income of such
corporation for such base period year, plus
‘‘(ii) such possession income multi-
plied by the inflation adjustment percent-
age for such base period year.
‘‘(C) INFLATION
ADJUSTMENT
PERCENT-
AGE.—For purposes of subparagraph (B), the
inflation adjustment percentage for any base
period year means the percentage (if any) by
which—
‘‘(i) the CPI for 1995, exceeds
142
‘‘(ii) the CPI for the calendar year in
which the base period year for which the
determination is being made ends.
For purposes of the preceding sentence, the
CPI for any calendar year is the CPI (as de-
fined in section 1(f)(5)) for such year under
section 1(f)(4).
‘‘(D) INCREASE
IN
INFLATION
ADJUST-
MENT PERCENTAGE FOR GROWTH DURING BASE
YEARS.—The inflation adjustment percentage
(determined under subparagraph (C) without
regard to this subparagraph) for each of the 5
taxable years referred to in paragraph (5)(A)
shall be increased by—
‘‘(i) 5 percentage points in the case of
a taxable year ending during the 1-year pe-
riod ending on October 13, 1995;
‘‘(ii) 10.25 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1994;
‘‘(iii) 15.76 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1993;
‘‘(iv) 21.55 percentage points in the
case of a taxable year ending during the 1-
143
year period ending on October 13, 1992;
and
‘‘(v) 27.63 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘base period
year’ means each of 3 taxable years which are
among the 5 most recent taxable years of the
corporation ending before October 14, 1995, de-
termined by disregarding—
‘‘(i) one taxable year for which the
corporation had the largest inflation-ad-
justed possession income, and
‘‘(ii) one taxable year for which the
corporation had the smallest inflation-ad-
justed possession income.
‘‘(B) CORPORATIONS NOT HAVING SIGNIFI-
CANT
POSSESSION
INCOME
THROUGHOUT
5-
YEAR PERIOD.—
‘‘(i) IN
GENERAL.—If a corporation
does not have significant possession income
for each of the most recent 5 taxable years
ending before October 14, 1995, then, in
144
lieu of applying subparagraph (A), the
term ‘base period year’ means only those
taxable years (of such 5 taxable years) for
which the corporation has significant pos-
session income; except that, if such cor-
poration has significant possession income
for 4 of such 5 taxable years, the rule of
subparagraph (A)(ii) shall apply.
‘‘(ii) SPECIAL RULE.—If there is no
year (of such 5 taxable years) for which a
corporation has significant possession in-
come—
‘‘(I) the term ‘base period year’
means the first taxable year ending on
or after October 14, 1995, but
‘‘(II) the amount of possession
income for such year which is taken
into
account
under
paragraph
(4)
shall be the amount which would be
determined if such year were a short
taxable year ending on September 30,
1995.
‘‘(iii)
SIGNIFICANT
POSSESSION
IN-
COME.—For
purposes
of
this
subpara-
graph, the term ‘significant possession in-
145
come’ means possession income which ex-
ceeds 2 percent of the possession income of
the taxpayer for the taxable year (of the
period of 6 taxable years ending with the
first taxable year ending on or after Octo-
ber 14, 1995) having the greatest posses-
sion income.
‘‘(C) ELECTION TO USE ONE BASE PERIOD
YEAR.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, the term ‘base period year’
means—
‘‘(I) only the last taxable year of
the corporation ending in calendar
year 1992, or
‘‘(II)
a
deemed
taxable
year
which includes the first ten months of
calendar year 1995.
‘‘(ii)
BASE
PERIOD
INCOME
FOR
1995.—In determining the adjusted base
period income of the corporation for the
deemed taxable year under clause (i)(II),
the possession income shall be annualized
and shall be determined without regard to
any extraordinary item.
146
‘‘(iii) ELECTION.—An election under
this subparagraph by any possession cor-
poration may be made only for the cor-
poration’s
first
taxable
year
beginning
after December 31, 1995, for which it is a
possession corporation. The rules of sub-
clauses
(II)
and
(III)
of
subsection
(a)(4)(B)(iii) shall apply to the election
under this subparagraph.
‘‘(D) ACQUISITIONS AND DISPOSITIONS.—
Rules similar to the rules of subparagraphs (A)
and (B) of section 41(f)(3) shall apply for pur-
poses of this subsection.
‘‘(6) POSSESSION
INCOME.—For purposes of
this subsection, the term ‘possession income’ means,
with respect to any possession, the income referred
to in subsection (a)(1)(A) determined with respect to
that possession. In no event shall possession income
be treated as being less than zero.
‘‘(7) SHORT YEARS.—If the current year or a
base period year is a short taxable year, the applica-
tion of this subsection shall be made with such
annualizations as the Secretary shall prescribe.
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
POSSES-
SIONS.—
147
‘‘(A) IN GENERAL.—In the case of an ex-
isting credit claimant with respect to an appli-
cable possession, this section (other than the
preceding paragraphs of this subsection) shall
apply to such claimant with respect to such ap-
plicable possession for taxable years beginning
after December 31, 1995, and before January
1, 2006.
‘‘(B) APPLICABLE POSSESSION.—For pur-
poses of this paragraph, the term ‘applicable
possession’ means Guam, American Samoa, and
the Commonwealth of the Northern Mariana Is-
lands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘existing
credit claimant’ means a corporation—
‘‘(i) which was actively conducting a
trade or business in a possession on Octo-
ber 13, 1995, and
‘‘(ii) with respect to which an election
under this section is in effect for the cor-
poration’s taxable year which includes Oc-
tober 13, 1995.
148
‘‘(B) NEW LINES OF BUSINESS PROHIB-
ITED.—If, after October 13, 1995, a corpora-
tion which would (but for this subparagraph) be
an existing credit claimant adds a substantial
new line of business, such corporation shall
cease to be treated as an existing credit claim-
ant as of the close of the taxable year ending
before the date of such addition.
‘‘(C) BINDING CONTRACT EXCEPTION.—If,
on October 13, 1995, and at all times there-
after, there is in effect with respect to a cor-
poration a binding contract for the acquisition
of assets to be used in, or for the sale of assets
to be produced from, a trade or business, the
corporation shall be treated for purposes of this
paragraph as actively conducting such trade or
business on October 13, 1995. The preceding
sentence shall not apply if such trade or busi-
ness is not actively conducted before January 1,
1996.
‘‘(10) SEPARATE APPLICATION TO EACH POS-
SESSION.—For purposes of determining—
‘‘(A) whether a taxpayer is an existing
credit claimant, and
149
‘‘(B) the amount of the credit allowed
under this section,
this subsection (and so much of this section as re-
lates to this subsection) shall be applied separately
with respect to each possession.’’.
(b)
ECONOMIC
ACTIVITY
CREDIT
FOR
PUERTO
RICO.—
(1) IN GENERAL.—Subpart B of part IV of
subchapter A of chapter 1 is amended by adding at
the end the following new section:
‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, if the conditions of both para-
graph (1) and paragraph (2) of subsection (b) are
satisfied with respect to a qualified domestic cor-
poration, there shall be allowed as a credit against
the tax imposed by this chapter an amount equal to
the portion of the tax which is attributable to the
taxable income, from sources without the United
States, from—
‘‘(A) the active conduct of a trade or busi-
ness within Puerto Rico, or
150
‘‘(B) the sale or exchange of substantially
all of the assets used by the taxpayer in the ac-
tive conduct of such trade or business.
In the case of any taxable year beginning after De-
cember 31, 2001, the aggregate amount of taxable
income taken into account under the preceding sen-
tence (and in applying subsection (d)) shall not ex-
ceed the adjusted base period income of such cor-
poration, as determined in the same manner as
under section 936(j).
‘‘(2) QUALIFIED
DOMESTIC
CORPORATION.—
For purposes of paragraph (1), the term ‘qualified
domestic corporation’ means a domestic corpora-
tion—
‘‘(A) which is an existing credit claimant
with respect to Puerto Rico, and
‘‘(B)
with
respect
to
which
section
936(a)(4)(B) does not apply for the taxable
year.
‘‘(3) SEPARATE APPLICATION.—For purposes of
determining—
‘‘(A) whether a taxpayer is an existing
credit claimant with respect to Puerto Rico, and
‘‘(B) the amount of the credit allowed
under this section,
151
this section (and so much of section 936 as relates
to this section) shall be applied separately with re-
spect to Puerto Rico.
‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—
The conditions referred to in subsection (a) are—
‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of
the gross income of the qualified domestic corpora-
tion for the 3-year period immediately preceding the
close of the taxable year (or for such part of such
period immediately preceding the close of such tax-
able year as may be applicable) was derived from
sources within a possession (determined without re-
gard to section 904(f)).
‘‘(2) TRADE OR BUSINESS.—If 75 percent or
more of the gross income of the qualified domestic
corporation for such period or such part thereof was
derived from the active conduct of a trade or busi-
ness within a possession.
‘‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN
TAXES.—The credit provided by subsection (a) shall not
be allowed against the tax imposed by—
‘‘(1) section 59A (relating to environmental
tax),
‘‘(2) section 531 (relating to the tax on accu-
mulated earnings),
152
‘‘(3) section 541 (relating to personal holding
company tax), or
‘‘(4) section 1351 (relating to recoveries of for-
eign expropriation losses).
‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSI-
NESS INCOME.—The amount of the credit determined
under subsection (a) for any taxable year shall not exceed
the sum of the following amounts:
‘‘(1) 60 percent of the sum of—
‘‘(A) the aggregate amount of the qualified
domestic
corporation’s
qualified
possession
wages for such taxable year, plus
‘‘(B) the allocable employee fringe benefit
expenses of the qualified domestic corporation
for such taxable year.
‘‘(2) The sum of—
‘‘(A) 15 percent of the deprecation allow-
ances for the taxable year with respect to short-
life qualified tangible property,
‘‘(B) 40 percent of the depreciation allow-
ances for the taxable year with respect to me-
dium-life qualified tangible property, and
‘‘(C) 65 percent of the depreciation allow-
ances for the taxable year with respect to long-
life qualified tangible property.
153
‘‘(3) If the qualified domestic corporation does
not have an election to use the method described in
section 936(h)(5)(C)(ii) (relating to profit split) in
effect for the taxable year, the amount of the quali-
fied possession income taxes for the taxable year al-
locable to nonsheltered income.
‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of
this title—
‘‘(1) the provisions of section 936 (including
any applicable election thereunder) shall apply in the
same manner as if the credit under this section were
a credit under section 936(a)(1)(A) for a domestic
corporation to which section 936(a)(4)(A) applies,
‘‘(2) the credit under this section shall be treat-
ed in the same manner as the credit under section
936, and
‘‘(3) a corporation to which this section applies
shall be treated in the same manner as if it were a
corporation electing the application of section 936.
‘‘(f) DEFINITIONS.—For purposes of this section, any
term used in this section which is also used in section 936
shall have the same meaning given such term by section
936.
154
‘‘(g) APPLICATION OF SECTION.—This section shall
apply to taxable years beginning after December 31, 1995,
and before January 1, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 55(c) is
amended by striking ‘‘and the section 936 cred-
it allowable under section 27(b)’’ and inserting
‘‘, the section 936 credit allowable under section
27(b), and the Puerto Rican economic activity
credit under section 30A’’.
(B) Subclause (I) of section 56(g)(4)(C)(ii)
is amended—
(i) by inserting ‘‘30A,’’ before ‘‘936’’,
and
(ii) by striking ‘‘and (i)’’ and inserting
‘‘, (i), and (j)’’.
(C) Clause (iii) of section 56(g)(4)(C) is
amended by adding at the end the following
new subclause:
‘‘(VI) APPLICATION TO SECTION
30A
CORPORATIONS.—References
in
this clause to section 936 shall be
treated as including references to sec-
tion 30A.’’.
155
(D) Subsection (b) of section 59 is amend-
ed by striking ‘‘section 936,’’ and all that fol-
lows and inserting ‘‘section 30A or 936, alter-
native minimum taxable income shall not in-
clude any income with respect to which a credit
is determined under section 30A or 936.’’.
(E) The table of sections for subpart B of
part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following new item:
‘‘Sec. 30A. Puerto Rican economic activity credit.’’.
(F)(i) The heading for subpart B of part
IV of subchapter A of chapter 1 is amended to
read as follows:
‘‘Subpart B—Other Credits’’.
(ii) The table of subparts for part IV of
subchapter A of chapter 1 is amended by strik-
ing the item relating to subpart B and inserting
the following new item:
‘‘Subpart B. Other credits.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
156
SEC.
1602.
REPEAL
OF
EXCLUSION
FOR
INTEREST
ON
LOANS USED TO ACQUIRE EMPLOYER SECU-
RITIES.
(a) IN GENERAL.—Section 133 (relating to interest
on certain loans used to acquire employer securities) is
hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 291(e)(1) is
amended by striking clause (iv) and by redesignating
clause (v) as clause (iv).
(2) Section 812 is amended by striking sub-
section (g).
(3) Paragraph (5) of section 852(b) is amended
by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amend-
ed by striking subparagraph (A) and all that follows
and inserting the following:
‘‘(A)
first
from
qualified
securities
to
which section 1042 applied acquired during the
3-year period ending on the date of the disposi-
tion, beginning with the securities first so ac-
quired, and
‘‘(B) then from any other employer securi-
ties.
If subsection (d) applies to a disposition, the disposi-
tion shall be treated as made from employer securi-
157
ties in the opposite order of the preceding sen-
tence.’’.
(5)(A) Section 4978B (relating to tax on dis-
position of employer securities to which section 133
applied) is hereby repealed.
(B) The table of sections for chapter 43 is
amended by striking the item relating to section
4978B.
(6) Subsection (e) of section 6047 is amended
by striking paragraphs (1), (2), and (3) and insert-
ing the following new paragraphs:
‘‘(1) any employer maintaining, or the plan ad-
ministrator (within the meaning of section 414(g))
of, an employee stock ownership plan which holds
stock with respect to which section 404(k) applies to
dividends paid on such stock, or
‘‘(2) both such employer or plan adminis-
trator,’’.
(7) Subsection (f) of section 7872 is amended
by striking paragraph (12).
(8) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 133.
(c) EFFECTIVE DATE.—
158
(1) IN GENERAL.—The amendments made by
this section shall apply to loans made after October
13, 1995.
(2) REFINANCINGS.—The amendments made by
this section shall not apply to loans made after Octo-
ber 13, 1995, to refinance securities acquisition
loans
(determined
without
regard
to
section
133(b)(1)(B) of the Internal Revenue Code of 1986,
as in effect on the day before the date of the enact-
ment of this Act) made on or before such date or
to refinance loans described in this paragraph if—
(A) the refinancing loans meet the require-
ments of section 133 of such Code (as so in ef-
fect),
(B) immediately after the refinancing the
principal amount of the loan resulting from the
refinancing
does
not
exceed
the
principal
amount of the refinanced loan (immediately be-
fore the refinancing), and
(C) the term of such refinancing loan does
not extend beyond the last day of the term of
the original securities acquisition loan.
For purposes of this paragraph, the term ‘‘securities
acquisition loan’’ includes a loan from a corporation
159
to an employee stock ownership plan described in
section 133(b)(3) of such Code (as so in effect).
(3) EXCEPTION.—Any loan made pursuant to a
binding written contract in effect on October 13,
1995, and at all times thereafter before such loan is
made, shall be treated for purposes of paragraphs
(1) and (2) as a loan made before such date.
SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN
CORPORATIONS
TREATED
AS
UNRELATED
BUSINESS TAXABLE INCOME.
(a) GENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the
end the following new paragraph:
‘‘(17) TREATMENT OF CERTAIN AMOUNTS DE-
RIVED FROM FOREIGN CORPORATIONS.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (1), any amount included in gross income
under section 951(a)(1)(A) shall be included as
an item of gross income derived from an unre-
lated
trade
or
business
to
the
extent
the
amount so included is attributable to insurance
income (as defined in section 953) which, if de-
rived directly by the organization, would be
treated as gross income from an unrelated
trade or business. There shall be allowed all de-
160
ductions directly connected with amounts in-
cluded in gross income under the preceding sen-
tence.
‘‘(B)
EXCEPTION.—Subparagraph
(A)
shall not apply to income attributable to a pol-
icy of insurance or reinsurance with respect to
which the person (directly or indirectly) insured
is—
‘‘(i) such organization,
‘‘(ii) an affiliate of such organization
which is exempt from tax under section
501(a), or
‘‘(iii) a director or officer of, or an in-
dividual who (directly or indirectly) per-
forms services for, such organization or af-
filiate but only if the insurance covers pri-
marily risks associated with the perform-
ance of services in connection with such or-
ganization or affiliate.
For purposes of this subparagraph, the deter-
mination as to whether an entity is an affiliate
of an organization shall be made under rules
similar to the rules of section 168(h)(4)(B).
‘‘(C) REGULATIONS.—The Secretary shall
prescribe such regulations as may be necessary
161
or appropriate to carry out the purposes of this
paragraph, including regulations for the appli-
cation of this paragraph in the case of income
paid through 1 or more entities or between 2 or
more chains of entities.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to amounts included in gross in-
come in any taxable year beginning after December 31,
1995.
SEC.
1604.
DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.
(a) GENERAL RULE.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (g) as
subsection (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g)
DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduc-
tion allowable under this section to any taxpayer
with respect to any property is determined under the
income forecast method or any similar method—
‘‘(A) the income from the property to be
taken into account in determining the deprecia-
tion deduction under such method shall be
equal to the amount of income earned in con-
162
nection with the property before the close of the
10th taxable year following the taxable year in
which the property was placed in service,
‘‘(B) the adjusted basis of the property
shall only include amounts with respect to
which the requirements of section 461(h) are
satisfied,
‘‘(C) the depreciation deduction under such
method for the 10th taxable year beginning
after the taxable year in which the property was
placed in service shall be equal to the adjusted
basis of such property as of the beginning of
such 10th taxable year, and
‘‘(D) such taxpayer shall pay (or be enti-
tled to receive) interest computed under the
look-back method of paragraph (2) for any re-
computation year.
‘‘(2) LOOK-BACK METHOD.—The interest com-
puted under the look-back method of this paragraph
for any recomputation year shall be determined by—
‘‘(A) first determining the depreciation de-
ductions under this section with respect to such
property which would have been allowable for
prior taxable years if the determination of the
amounts so allowable had been made on the
163
basis of the sum of the following (instead of the
estimated income from such property)—
‘‘(i) the actual income earned in con-
nection with such property for periods be-
fore the close of the recomputation year,
and
‘‘(ii) an estimate of the future income
to be earned in connection with such prop-
erty for periods after the recomputation
year and before the close of the 10th tax-
able year following the taxable year in
which the property was placed in service,
‘‘(B) second, determining (solely for pur-
poses of computing such interest) the overpay-
ment or underpayment of tax for each such
prior taxable year which would result solely
from the application of subparagraph (A), and
‘‘(C) then using the adjusted overpayment
rate
(as
defined
in
section
460(b)(7)),
compounded
daily,
on
the
overpayment
or
underpayment determined under subparagraph
(B).
For purposes of the preceding sentence, any cost in-
curred after the property is placed in service (which
is not treated as a separate property under para-
164
graph (5)) shall be taken into account by discount-
ing (using the Federal mid-term rate determined
under section 1274(d) as of the time such cost is in-
curred) such cost to its value as of the date the
property is placed in service. The taxpayer may elect
with respect to any property to have the preceding
sentence not apply to such property.
‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—
Paragraph (1)(D) shall not apply with respect to
any property which, when placed in service by the
taxpayer, had a basis of $100,000 or less.
‘‘(4) RECOMPUTATION YEAR.—For purposes of
this subsection, except as provided in regulations,
the term ‘recomputation year’ means, with respect to
any property, the 3d and the 10th taxable years be-
ginning after the taxable year in which the property
was placed in service, unless the actual income
earned in connection with the property for the pe-
riod before the close of such 3d or 10th taxable year
is within 10 percent of the income earned in connec-
tion with the property for such period which was
taken into account under paragraph (1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN COSTS TREATED AS SEPA-
RATE
PROPERTY.—For purposes of this sub-
165
section, the following costs shall be treated as
separate properties:
‘‘(i) Any costs incurred with respect
to any property after the 10th taxable year
beginning after the taxable year in which
the property was placed in service.
‘‘(ii) Any costs incurred after the
property is placed in service and before the
close of such 10th taxable year if such
costs are significant and give rise to a sig-
nificant increase in the income from the
property which was not included in the es-
timated income from the property.
‘‘(B) SYNDICATION INCOME FROM TELE-
VISION SERIES.—In the case of property which
is an episode in a television series, income from
syndicating such series shall not be required to
be taken into account under this subsection be-
fore the earlier of—
‘‘(i) the 4th taxable year beginning
after the date the first episode in such se-
ries is placed in service, or
‘‘(ii) the earliest taxable year in which
the taxpayer has an arrangement relating
to the future syndication of such series.
166
‘‘(C) SPECIAL RULES FOR FINANCIAL EX-
PLOITATION OF CHARACTERS, ETC.—For pur-
poses of this subsection, in the case of television
and motion picture films, the income from the
property shall include income from the exploi-
tation of characters, designs, scripts, scores,
and other incidental income associated with
such films, but only to the extent that such in-
come is earned in connection with the ultimate
use of such items by, or the ultimate sale of
merchandise to, persons who are not related
persons (within the meaning of section 267(b))
to the taxpayer.
‘‘(D)
COLLECTION
OF
INTEREST.—For
purposes of subtitle F (other than sections
6654 and 6655), any interest required to be
paid by the taxpayer under paragraph (1) for
any recomputation year shall be treated as an
increase in the tax imposed by this chapter for
such year.
‘‘(E) DETERMINATIONS.—For purposes of
paragraph (2), determinations of the amount of
income earned in connection with any property
shall be made in the same manner as for pur-
poses of applying the income forecast method;
167
except that any income from the disposition of
such property shall be taken into account.
‘‘(F) TREATMENT
OF
PASS-THRU
ENTI-
TIES.—Rules similar to the rules of section
460(b)(4) shall apply for purposes of this sub-
section.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
subsection (a) shall apply to property placed in serv-
ice after September 13, 1995.
(2)
BINDING
CONTRACTS.—The
amendment
made by subsection (a) shall not apply to any prop-
erty produced or acquired by the taxpayer pursuant
to a written contract which was binding on Septem-
ber 13, 1995, and at all times thereafter before such
production or acquisition.
SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES
AND FOR DAMAGES NOT ATTRIBUTABLE TO
PHYSICAL INJURIES OR SICKNESS.
(a) IN GENERAL.—Paragraph (2) of section 104(a)
(relating to compensation for injuries or sickness) is
amended to read as follows:
‘‘(2) the amount of any damages (other than
punitive damages) received (whether by suit or
agreement and whether as lump sums or as periodic
168
payments) on account of personal physical injuries
or physical sickness;’’.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS
NOT PHYSICAL INJURY OR PHYSICAL SICKNESS.—Sec-
tion 104(a) is amended by striking the last sentence and
inserting the following new sentence: ‘‘For purposes of
paragraph (2), emotional distress shall not be treated as
a physical injury or physical sickness. The preceding sen-
tence shall not apply to an amount of damages not in ex-
cess of the amount paid for medical care (described in sub-
paragraph (A) or (B) of section 213(d)(1)) attributable
to emotional distress.’’.
(c) APPLICATION OF PRIOR LAW FOR STATES IN
WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN
WRONGFUL DEATH ACTIONS.—Section 104 is amended
by redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
‘‘(c) APPLICATION
OF PRIOR LAW
IN CERTAIN
CASES.—The phrase ‘(other than punitive damages)’ shall
not apply to punitive damages awarded in a civil action—
‘‘(1) which is a wrongful death action, and
‘‘(2) with respect to which applicable State law
(as in effect on September 13, 1995 and without re-
gard to any modification after such date) provides,
or has been construed to provide by a court of com-
169
petent jurisdiction pursuant to a decision issued on
or before September 13, 1995, that only punitive
damages may be awarded in such an action.
This subsection shall cease to apply to any civil action filed
on or after the first date on which the applicable State
law ceases to provide (or is no longer construed to provide)
the treatment described in paragraph (2).’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to amounts received after June 30, 1996,
in taxable years ending after such date.
(2) EXCEPTION.—The amendments made by
this section shall not apply to any amount received
under a written binding agreement, court decree, or
mediation award in effect on (or issued on or before)
September 13, 1995.
SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR-
CHASERS
OF
DIESEL-POWERED
AUTO-
MOBILES AND LIGHT TRUCKS.
(a) IN GENERAL.—Section 6427 (relating to fuels
not used for taxable purposes) is amended by striking sub-
section (g).
(b) CONFORMING AMENDMENTS.—
170
(1) Paragraph (3) of section 34(a) is amended
to read as follows:
‘‘(3) under section 6427 with respect to fuels
used for nontaxable purposes or resold during the
taxable year (determined without regard to section
6427(k)).’’.
(2)
Paragraphs
(1)
and
(2)(A)
of
section
6427(i) are each amended—
(A) by striking ‘‘(g),’’, and
(B) by striking ‘‘(or a qualified diesel pow-
ered highway vehicle purchased)’’ each place it
appears.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to vehicles purchased after the date
of the enactment of this Act.
Subtitle G—Technical Corrections
SEC. 1701. COORDINATION WITH OTHER SUBTITLES.
For purposes of applying the amendments made by
any subtitle of this title other than this subtitle, the provi-
sions of this subtitle shall be treated as having been en-
acted immediately before the provisions of such other sub-
titles.
SEC. 1702. AMENDMENTS
RELATED
TO
REVENUE
REC-
ONCILIATION ACT OF 1990.
(a) AMENDMENTS RELATED TO SUBTITLE A.—
171
(1) Subparagraph (B) of section 59(j)(3) is
amended by striking ‘‘section 1(i)(3)(B)’’ and insert-
ing ‘‘section 1(g)(3)(B)’’.
(2) Clause (i) of section 151(d)(3)(C) is amend-
ed by striking ‘‘joint of a return’’ and inserting
‘‘joint return’’.
(b) AMENDMENTS RELATED TO SUBTITLE B.—
(1) Paragraph (1) of section 11212(e) of the
Revenue Reconciliation Act of 1990 is amended by
striking ‘‘Paragraph (1) of section 6724(d)’’ and in-
serting ‘‘Subparagraph (B) of section 6724(d)(1)’’.
(2)(A) Subparagraph (B) of section 4093(c)(2),
as in effect before the amendments made by the
Revenue Reconciliation Act of 1993, is amended by
inserting before the period ‘‘unless such fuel is sold
for exclusive use by a State or any political subdivi-
sion thereof’’.
(B) Paragraph (4) of section 6427(l), as in ef-
fect before the amendments made by the Revenue
Reconciliation Act of 1993, is amended by inserting
before the period ‘‘unless such fuel was used by a
State or any political subdivision thereof’’.
(3) Paragraph (1) of section 6416(b) is amend-
ed by striking ‘‘chapter 32 or by section 4051’’ and
inserting ‘‘chapter 31 or 32’’.
172
(4) Section 7012 is amended—
(A) by striking ‘‘production or importation
of gasoline’’ in paragraph (3) and inserting
‘‘taxes on gasoline and diesel fuel’’, and
(B) by striking paragraph (4) and redesig-
nating paragraphs (5) and (6) as paragraphs
(4) and (5), respectively.
(5) Subsection (c) of section 5041 is amended
by striking paragraph (6) and by inserting the fol-
lowing new paragraphs:
‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—
‘‘(A) wine produced by any person would
be eligible for any credit under paragraph (1)
if removed by such person during the calendar
year,
‘‘(B) wine produced by such person is re-
moved during such calendar year by any other
person (hereafter in this paragraph referred to
as the ‘transferee’) to whom such wine was
transferred in bond and who is liable for the tax
imposed by this section with respect to such
wine, and
‘‘(C) such producer holds title to such wine
at the time of its removal and provides to the
transferee such information as is necessary to
173
properly determine the transferee’s credit under
this paragraph,
then, the transferee (and not the producer) shall be
allowed the credit under paragraph (1) which would
be allowed to the producer if the wine removed by
the transferee had been removed by the producer on
that date.
‘‘(7) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including regula-
tions—
‘‘(A) to prevent the credit provided in this
subsection from benefiting any person who pro-
duces more than 250,000 wine gallons during a
calendar year, and
‘‘(B) to assure proper reduction of such
credit for persons producing more than 150,000
wine gallons of wine during a calendar year.’’.
(6) Paragraph (3) of section 5061(b) is amend-
ed to read as follows:
‘‘(3) section 5041(f),’’.
(7) Section 5354 is amended by inserting ‘‘(tak-
ing into account the appropriate amount of credit
with respect to such wine under section 5041(c))’’
after ‘‘any one time’’.
174
(c) AMENDMENTS RELATED TO SUBTITLE C.—
(1) Paragraph (4) of section 56(g) is amended
by redesignating subparagraphs (I) and (J) as sub-
paragraphs (H) and (I), respectively.
(2) Subparagraph (B) of section 6724(d)(1) is
amended—
(A) by striking ‘‘or’’ at the end of clause
(xii), and
(B) by striking the period at the end of
clause (xiii) and inserting ‘‘, or’’.
(3) Subsection (g) of section 6302 is amended
by inserting ‘‘, 22,’’ after ‘‘chapters 21’’.
(4) The earnings and profits of any insurance
company to which section 11305(c)(3) of the Reve-
nue Reconciliation Act of 1990 applies shall be de-
termined without regard to any deduction allowed
under such section; except that, for purposes of ap-
plying sections 56 and 902, and subpart F of part
III of subchapter N of chapter 1 of the Internal
Revenue Code of 1986, such deduction shall be
taken into account.
(5) Subparagraph (D) of section 6038A(e)(4) is
amended—
179
family member’ includes any lineal descendant
of any parent of the transferor or the transfer-
or’s spouse.’’.
(B) Section 2701(e)(3) is amended—
(i) by striking subparagraph (B), and
(ii) by striking so much of paragraph (3)
as precedes ‘‘shall be treated as holding’’ and
inserting:
‘‘(3)
ATTRIBUTION
OF
INDIRECT
HOLDINGS
AND TRANSFERS.—An individual’’.
(C) Section 2704(c)(3) is amended by striking
‘‘section
2701(e)(3)(A)’’
and
inserting
‘‘section
2701(e)(3)’’.
(4)
Clause
(i)
of
section
2701(c)(1)(B)
is
amended to read as follows:
‘‘(i) a right to distributions with re-
spect to any interest which is junior to the
rights of the transferred interest,’’.
(5)(A) Clause (i) of section 2701(c)(3)(C) is
amended to read as follows:
‘‘(i) IN
GENERAL.—Payments under
any interest held by a transferor which
(without regard to this subparagraph) are
qualified payments shall be treated as
qualified payments unless the transferor
180
elects not to treat such payments as quali-
fied payments. Payments described in the
preceding sentence which are held by an
applicable family member shall be treated
as qualified payments only if such member
elects to treat such payments as qualified
payments.’’.
(B)
The
first
sentence
of
section
2701(c)(3)(C)(ii) is amended to read as follows: ‘‘A
transferor or applicable family member holding any
distribution right which (without regard to this sub-
paragraph) is not a qualified payment may elect to
treat such right as a qualified payment, to be paid
in the amounts and at the times specified in such
election.’’.
(C) The time for making an election under the
second sentence of section 2701(c)(3)(C)(i) of the
Internal Revenue Code of 1986 (as amended by sub-
paragraph (A)) shall not expire before the due date
(including extensions) for filing the transferor’s re-
turn of the tax imposed by section 2501 of such
Code for the first calendar year ending after the
date of enactment.
(6) Section 2701(d)(3)(A)(iii) is amended by
striking ‘‘the period ending on the date of’’.
181
(7) Subclause (I) of section 2701(d)(3)(B)(ii) is
amended by inserting ‘‘or the exclusion under sec-
tion 2503(b),’’ after ‘‘section 2523,’’.
(8) Section 2701(e)(5) is amended—
(A) by striking ‘‘such contribution to cap-
ital or such redemption, recapitalization, or
other change’’ in subparagraph (A) and insert-
ing ‘‘such transaction’’, and
(B) by striking ‘‘the transfer’’ in subpara-
graph (B) and inserting ‘‘such transaction’’.
(9) Section 2701(d)(4) is amended by adding at
the end thereof the following new subparagraph:
‘‘(C)
TRANSFER
TO
TRANSFERORS.—In
the case of a taxable event described in para-
graph (3)(A)(ii) involving a transfer of an ap-
plicable retained interest from an applicable
family member to a transferor, this subsection
shall continue to apply to the transferor during
any period the transferor holds such interest.’’.
(10) Section 2701(e)(6) is amended by insert-
ing ‘‘or to reflect the application of subsection (d)’’
before the period at the end thereof.
(11)(A) Section 2702(a)(3)(A) is amended—
(i) by striking ‘‘to the extent’’ and insert-
ing ‘‘if’’ in clause (i),
182
(ii) by striking ‘‘or’’ at the end of clause
(i),
(iii) by striking the period at the end of
clause (ii) and inserting ‘‘, or’’, and
(iv) by adding at the end thereof the fol-
lowing new clause:
‘‘(iii) to the extent that regulations
provide that such transfer is not inconsist-
ent with the purposes of this section.’’.
(B)(i) Section 2702(a)(3) is amended by strik-
ing ‘‘incomplete transfer’’ each place it appears and
inserting ‘‘incomplete gift’’.
(ii) The heading for section 2702(a)(3)(B) is
amended by striking ‘‘INCOMPLETE TRANSFER’’ and
inserting ‘‘INCOMPLETE GIFT’’.
(g) AMENDMENTS RELATED TO SUBTITLE G.—
(1)(A)
Subsection
(a)
of
section
1248
is
amended—
(i) by striking ‘‘, or if a United States per-
son receives a distribution from a foreign cor-
poration which, under section 302 or 331, is
treated as an exchange of stock’’ in paragraph
(1), and
(ii) by adding at the end thereof the follow-
ing new sentence: ‘‘For purposes of this section,
183
a United States person shall be treated as hav-
ing sold or exchanged any stock if, under any
provision of this subtitle, such person is treated
as realizing gain from the sale or exchange of
such stock.’’.
(B) Paragraph (1) of section 1248(e) is amend-
ed by striking ‘‘, or receives a distribution from a
domestic corporation which, under section 302 or
331, is treated as an exchange of stock’’.
(C) Subparagraph (B) of section 1248(f)(1) is
amended by striking ‘‘or 361(c)(1)’’ and inserting
‘‘355(c)(1), or 361(c)(1)’’.
(D) Paragraph (1) of section 1248(i) is amend-
ed to read as follows:
‘‘(1) IN GENERAL.—If any shareholder of a 10-
percent corporate shareholder of a foreign corpora-
tion exchanges stock of the 10-percent corporate
shareholder for stock of the foreign corporation,
such 10-percent corporate shareholder shall recog-
nize gain in the same manner as if the stock of the
foreign corporation received in such exchange had
been—
‘‘(A) issued to the 10-percent corporate
shareholder, and
184
‘‘(B) then distributed by the 10-percent
corporate shareholder to such shareholder in re-
demption or liquidation (whichever is appro-
priate).
The amount of gain recognized by such 10-percent
corporate shareholder under the preceding sentence
shall not exceed the amount treated as a dividend
under this section.’’.
(2) Section 897 is amended by striking sub-
section (f).
(3)
Paragraph
(13)
of
section
4975(d)
is
amended by striking ‘‘section 408(b)’’ and inserting
‘‘section 408(b)(12)’’.
(4)
Clause
(iii)
of
section
56(g)(4)(D)
is
amended by inserting ‘‘, but only with respect to
taxable years beginning after December 31, 1989’’
before the period at the end thereof.
(5)(A) Paragraph (11) of section 11701(a) of
the Revenue Reconciliation Act of 1990 (and the
amendment made by such paragraph) are hereby re-
pealed, and section 7108(r)(2) of the Revenue Rec-
onciliation Act of 1989 shall be applied as if such
paragraph (and amendment) had never been en-
acted.
185
(B) Subparagraph (A) shall not apply to any
building if the owner of such building establishes to
the satisfaction of the Secretary of the Treasury or
his delegate that such owner reasonably relied on the
amendment made by such paragraph (11).
(h) AMENDMENTS RELATED TO SUBTITLE H.—
(1)(A) Clause (vi) of section 168(e)(3)(B) is
amended by striking ‘‘or’’ at the end of subclause
(I), by striking the period at the end of subclause
(II) and inserting ‘‘, or’’, and by adding at the end
thereof the following new subclause:
‘‘(III)
is
described
in
section
48(l)(3)(A)(ix) (as in effect on the
day before the date of the enactment
of the Revenue Reconciliation Act of
1990).’’.
(B) Subparagraph (B) of section 168(e)(3) (re-
lating to 5-year property) is amended by adding at
the end the following flush sentence:
‘‘Nothing in any provision of law shall be con-
strued to treat property as not being described
in clause (vi)(I) (or the corresponding provi-
sions of prior law) by reason of being public
utility property (within the meaning of section
48(a)(3)).’’.
186
(C) Subparagraph (K) of section 168(g)(4) is
amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and
inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the
day before the date of the enactment of the Revenue
Reconciliation Act of 1990)’’.
(2)
Clause
(ii)
of
section
172(b)(1)(E)
is
amended by striking ‘‘subsection (m)’’ and inserting
‘‘subsection (h)’’.
(3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),
and 832(b)(5)(D)(ii)(II) are each amended by strik-
ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.
(4) Subparagraph (A) of section 243(b)(3) is
amended by inserting ‘‘of’’ after ‘‘In the case’’.
(5) The subsection heading for subsection (a) of
section 280F is amended by striking ‘‘INVESTMENT
TAX CREDIT AND’’.
(6)
Clause
(i)
of
section
1504(c)(2)(B)
is
amended by inserting ‘‘section’’ before ‘‘243(b)(2)’’.
(7) Paragraph (3) of section 341(f) is amended
by striking ‘‘351, 361, 371(a), or 374(a)’’ and in-
serting ‘‘351, or 361’’.
(8) Paragraph (2) of section 243(b) is amended
to read as follows:
‘‘(2) AFFILIATED GROUP.—For purposes of this
subsection:
187
‘‘(A) IN
GENERAL.—The term ‘affiliated
group’ has the meaning given such term by sec-
tion 1504(a), except that for such purposes sec-
tions 1504(b)(2), 1504(b)(4), and 1504(c) shall
not apply.
‘‘(B) GROUP
MUST
BE
CONSISTENT
IN
FOREIGN TAX TREATMENT.—The requirements
of paragraph (1)(A) shall not be treated as
being met with respect to any dividend received
by a corporation if, for any taxable year which
includes the day on which such dividend is re-
ceived—
‘‘(i) 1 or more members of the affili-
ated group referred to in paragraph (1)(A)
choose to any extent to take the benefits of
section 901, and
‘‘(ii) 1 or more other members of such
group claim to any extent a deduction for
taxes otherwise creditable under section
901.’’.
(9)
The
amendment
made
by
section
11813(b)(17) of the Revenue Reconciliation Act of
1990 shall be applied as if the material stricken by
such amendment included the closing parenthesis
after ‘‘section 48(a)(5)’’.
188
(10) Paragraph (1) of section 179(d) is amend-
ed by striking ‘‘in a trade or business’’ and inserting
‘‘a trade or business’’.
(11) Subparagraph (E) of section 50(a)(2) is
amended by striking ‘‘section 48(a)(5)(A)’’ and in-
serting ‘‘section 48(a)(5)’’.
(12)
The
amendment
made
by
section
11801(c)(9)(G)(ii) of the Revenue Reconciliation Act
of 1990 shall be applied as if it struck ‘‘Section
422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.
(13) Subparagraph (B) of section 424(c)(3) is
amended by striking ‘‘a qualified stock option, an in-
centive stock option, an option granted under an em-
ployee stock purchase plan, or a restricted stock op-
tion’’ and inserting ‘‘an incentive stock option or an
option granted under an employee stock purchase
plan’’.
(14) Subparagraph (E) of section 1367(a)(2) is
amended by striking ‘‘section 613A(c)(13)(B)’’ and
inserting ‘‘section 613A(c)(11)(B)’’.
(15) Subparagraph (B) of section 460(e)(6) is
amended by striking ‘‘section 167(k)’’ and inserting
‘‘section 168(e)(2)(A)(ii)’’.
189
(16) Subparagraph (C) of section 172(h)(4) is
amended by striking ‘‘subsection (b)(1)(M)’’ and in-
serting ‘‘subsection (b)(1)(E)’’.
(17) Section 6503 is amended—
(A) by redesignating the subsection relat-
ing to extension in case of certain summonses
as subsection (j), and
(B) by redesignating the subsection relat-
ing to cross references as subsection (k).
(18) Paragraph (4) of section 1250(e) is hereby
repealed.
(i) EFFECTIVE DATE.—Except as otherwise expressly
provided—
(1) the amendments made by this section shall
be treated as amendments to the Internal Revenue
Code of 1986 as amended by the Revenue Reconcili-
ation Act of 1993; and
(2) any amendment made by this section shall
apply to periods before the date of the enactment of
this section in the same manner as if it had been in-
cluded in the provision of the Revenue Reconciliation
Act of 1990 to which such amendment relates.
190
SEC.
1703.
AMENDMENTS
RELATED
TO
REVENUE
REC-
ONCILIATION ACT OF 1993.
(a) AMENDMENT RELATED TO SECTION 13114.—
Paragraph (2) of section 1044(c) is amended to read as
follows:
‘‘(2) PURCHASE.—The taxpayer shall be consid-
ered to have purchased any property if, but for sub-
section (d), the unadjusted basis of such property
would be its cost within the meaning of section
1012.’’.
(b) AMENDMENTS RELATED TO SECTION 13142.—
(1) Subparagraph (B) of section 13142(b)(6) of
the Revenue Reconciliation Act of 1993 is amended
to read as follows:
‘‘(B) FULL-TIME STUDENTS, WAIVER AU-
THORITY, AND PROHIBITED DISCRIMINATION.—
The amendments made by paragraphs (2), (3),
and (4) shall take effect on the date of the en-
actment of this Act.’’.
(2) Subparagraph (C) of section 13142(b)(6) of
such Act is amended by striking ‘‘paragraph (2)’’
and inserting ‘‘paragraph (5)’’.
(c) AMENDMENT RELATED TO SECTION 13161.—
(1) IN
GENERAL.—Subsection (e) of section
4001 (relating to inflation adjustment) is amended
to read as follows:
191
‘‘(e) INFLATION ADJUSTMENT.—
‘‘(1) IN
GENERAL.—The $30,000 amount in
subsection (a) and section 4003(a) shall be increased
by an amount equal to—
‘‘(A) $30,000, multiplied by
‘‘(B) the cost-of-living adjustment under
section 1(f)(3) for the calendar year in which
the vehicle is sold, determined by substituting
‘calendar year 1990’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(2) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $2,000,
such amount shall be rounded to the next lowest
multiple of $2,000.’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act.
(d) AMENDMENT RELATED TO SECTION 13201.—
Clause (ii) of section 135(b)(2)(B) is amended by insert-
ing before the period at the end thereof the following: ‘‘,
determined by substituting ‘calendar year 1989’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof’’.
(e) AMENDMENTS RELATED TO SECTION 13203.—
Subsection (a) of section 59 is amended—
192
(1) by striking ‘‘the amount determined under
section
55(b)(1)(A)’’
in
paragraph
(1)(A)
and
(2)(A)(i) and inserting ‘‘the pre-credit tentative min-
imum tax’’,
(2)
by
striking
‘‘specified
in
section
55(b)(1)(A)’’ in paragraph (1)(C) and inserting
‘‘specified in subparagraph (A)(i) or (B)(i) of section
55(b)(1) (whichever applies)’’,
(3) by striking ‘‘which would be determined
under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)
and inserting ‘‘which would be the pre-credit ten-
tative minimum tax’’, and
(4) by adding at the end thereof the following
new paragraph:
‘‘(3) PRE-CREDIT TENTATIVE MINIMUM TAX.—
For purposes of this subsection, the term ‘pre-credit
tentative minimum tax’ means—
‘‘(A) in the case of a taxpayer other than
a corporation, the amount determined under the
first sentence of section 55(b)(1)(A)(i), or
‘‘(B) in the case of a corporation, the
amount
determined
under
section
55(b)(1)(B)(i).’’.
(f) AMENDMENT RELATED TO SECTION 13221.—
Sections 1201(a) and 1561(a) are each amended by strik-
193
ing ‘‘last sentence’’ each place it appears and inserting
‘‘last 2 sentences’’.
(g) AMENDMENTS RELATED TO SECTION 13222.—
(1) Subparagraph (B) of section 6033(e)(1) is
amended by adding at the end thereof the following
new clause:
‘‘(iii) COORDINATION
WITH
SECTION
527(f).—This subsection shall not apply to
any amount on which tax is imposed by
reason of section 527(f).’’.
(2)
Clause
(i)
of
section
6033(e)(1)(B)
is
amended by striking ‘‘this subtitle’’ and inserting
‘‘section 501’’.
(h) AMENDMENT RELATED TO SECTION 13225.—
Paragraph (3) of section 6655(g) is amended by striking
all that follows ‘‘ ‘3rd month’ ’’ in the sentence following
subparagraph (C) and inserting ‘‘, subsection (e)(2)(A)
shall be applied by substituting ‘2 months’ for ‘3 months’
in clause (i)(I), the election under clause (i) of subsection
(e)(2)(C) may be made separately for each installment,
and clause (ii) of subsection (e)(2)(C) shall not apply.’’.
(i) AMENDMENTS RELATED TO SECTION 13231.—
(1) Subparagraph (G) of section 904(d)(3) is
amended by striking ‘‘section 951(a)(1)(B)’’ and in-
194
serting
‘‘subparagraph
(B)
or
(C)
of
section
951(a)(1)’’.
(2) Paragraph (1) of section 956A(b) is amend-
ed to read as follows:
‘‘(1) the amount (not including a deficit) re-
ferred to in section 316(a)(1) to the extent such
amount was accumulated in prior taxable years be-
ginning after September 30, 1993, and’’.
(3) Subsection (f) of section 956A is amended
by inserting before the period at the end thereof:
‘‘and regulations coordinating the provisions of sub-
sections (c)(3)(A) and (d)’’.
(4) Subsection (b) of section 958 is amended by
striking ‘‘956(b)(2)’’ each place it appears and in-
serting ‘‘956(c)(2)’’.
(5)(A) Subparagraph (A) of section 1297(d)(2)
is amended by striking ‘‘The adjusted basis of any
asset’’ and inserting ‘‘The amount taken into ac-
count under section 1296(a)(2) with respect to any
asset’’.
(B) The paragraph heading of paragraph (2) of
section 1297(d) is amended to read as follows:
‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.
195
(6) Subsection (e) of section 1297 is amended
by inserting ‘‘For purposes of this part—’’ after the
subsection heading.
(j) AMENDMENT RELATED TO SECTION 13241.—
Subparagraph (B) of section 40(e)(1) is amended to read
as follows:
‘‘(B) for any period before January 1,
2001, during which the rates of tax under sec-
tion 4081(a)(2)(A) are 4.3 cents per gallon.’’.
(k) AMENDMENT RELATED TO SECTION 13261.—
Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec-
onciliation Act of 1993 is amended by striking ‘‘by the
taxpayer’’ and inserting ‘‘by the taxpayer or a related
person’’.
(l) AMENDMENT RELATED TO SECTION 13301.—
Subparagraph (B) of section 1397B(d)(5) is amended by
striking ‘‘preceding’’.
(m) CLERICAL AMENDMENTS.—
(1) Subsection (d) of section 39 is amended—
(A) by striking ‘‘45’’ in the heading of
paragraph (5) and inserting ‘‘45A’’, and
(B) by striking ‘‘45’’ in the heading of
paragraph (6) and inserting ‘‘45B’’.
196
(2) Subparagraph (A) of section 108(d)(9) is
amended by striking ‘‘paragraph (3)(B)’’ and insert-
ing ‘‘paragraph (3)(C)’’.
(3) Subparagraph (C) of section 143(d)(2) is
amended by striking the period at the end thereof
and inserting a comma.
(4) Clause (ii) of section 163(j)(6)(E) is amend-
ed by striking ‘‘which is a’’ and inserting ‘‘which is’’.
(5) Subparagraph (A) of section 1017(b)(4) is
amended by striking ‘‘subsection (b)(2)(D)’’ and in-
serting ‘‘subsection (b)(2)(E)’’.
(6) So much of section 1245(a)(3) as precedes
subparagraph (A) thereof is amended to read as
follows:
‘‘(3) SECTION 1245 PROPERTY.—For purposes
of this section, the term ‘section 1245 property’
means any property which is or has been property
of a character subject to the allowance for deprecia-
tion provided in section 167 and is either—’’.
(7) Paragraph (2) of section 1394(e) is amend-
ed—
(A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,
and
(B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.
197
(8) Subsection (m) of section 6501 (as redesig-
nated by section 1602) is amended by striking ‘‘or
51(j)’’ and inserting ‘‘45B, or 51(j)’’.
(9)(A) The section 6714 added by section
13242(b)(1) of the Revenue Reconciliation Act of
1993 is hereby redesignated as section 6715.
(B) The table of sections for part I of sub-
chapter B of chapter 68 is amended by striking
‘‘6714’’
in
the
item
added
by
such
section
13242(b)(2) of such Act and inserting ‘‘6715’’.
(10)
Paragraph
(2)
of
section
9502(b)
is
amended by inserting ‘‘and before’’ after ‘‘1982,’’.
(11) Subsection (a)(3) of section 13206 of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘this section’’ and inserting ‘‘this sub-
section’’.
(12) Paragraph (1) of section 13215(c) of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘Public Law 92–21’’ and inserting ‘‘Public
Law 98–21’’.
(13) Paragraph (2) of section 13311(e) of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section
1393(a)(2)’’.
241
amended by inserting ‘‘(without regard to whether
such tips are reported under section 6053)’’ after ‘‘sec-
tion 3121(q)’’.
(2) TAXES
PAID.—Subsection (d) of section
13443 of the Revenue Reconciliation Act of 1993 is
amended by inserting ‘‘, with respect to services per-
formed before, on, or after such date’’ after ‘‘1993’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect as if included in
the amendments made by, and the provisions of, sec-
tion 13443 of the Revenue Reconciliation Act of 1993.
(b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEV-
ERAGES.—
(1) IN
GENERAL.—Paragraph (2) of section
45B(b) is amended to read as follows:
‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV-
ERAGES TAKEN INTO ACCOUNT.—In applying para-
graph (1), there shall be taken into account only tips
received from customers in connection with the deliv-
ering or serving of food or beverages for consumption
if the tipping of employees delivering or serving food
or beverages by customers is customary.’’
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to tips received for services
performed after December 31, 1996.
265
‘‘(ii)(I) on or before the day the indi-
vidual is offered employment with the em-
ployer, a pre-screening notice is completed
by the employer with respect to such indi-
vidual, and
‘‘(II) not later than the 21st day after
the individual begins work for the employer,
the employer submits such notice, signed by
the employer and the individual under pen-
alties of perjury, to the designated local
agency as part of a written request for such
a certification from such agency.
For purposes of this paragraph, the term ‘pre-
screening notice’ means a document (in such
form as the Secretary shall prescribe) which con-
tains information provided by the individual on
the basis of which the employer believes that the
individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified by
a designated local agency as a member of a
targeted group, and
‘‘(ii) such certification is incorrect be-
cause it was based on false information pro-
vided by such individual,
342
in lieu of the contributions described in
such clause, the employer elects (pursuant to
the terms of the arrangement) to make non-
elective contributions of 2 percent of com-
pensation for each employee who is eligible
to participate in the arrangement and who
has at least $5,000 of compensation from
the employer for the year. If an employer
makes an election under this subparagraph
for any year, the employer shall notify em-
ployees of such election within a reasonable
period of time before the 60th day before the
beginning of such year.
‘‘(C) EXCLUSIVE PLAN REQUIREMENT.—The
requirements of this subparagraph are met for
any year to which this paragraph applies if no
contributions were made, or benefits were ac-
crued, for services during such year under any
qualified plan of the employer on behalf of any
employee eligible to participate in the cash or de-
ferred arrangement, other than contributions de-
scribed in subparagraph (B).
‘‘(D) DEFINITIONS AND SPECIAL RULE.—
‘‘(i) DEFINITIONS.—For purposes of
this paragraph, any term used in this para-