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‘‘(A) the tentative minimum tax for the
taxable year, or
‘‘(B) 25 percent of so much of the regular
tax liability (reduced by the credit allowed by
section 27) as exceeds $25,000.
Rules similar to the rules of section 38(c)(3)(B)
shall apply for purposes of the preceding sentence.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 403. REPEAL OF ADJUSTMENT FOR DEPRECIATION.
(a) IN GENERAL.—Clause (i) of section 56(a)(1)(A)
is amended by inserting ‘‘and before January 1, 1999,’’
after ‘‘December 31, 1986,’’.
(b) STUDY.—
(1) IN GENERAL.—Because it is the intent of
Congress that the amendment made by subsection
(a) not have the result of permitting any corporation
with taxable income from current year operations to
pay no Federal income tax, the Secretary of the
Treasury or his delegate shall conduct a study to de-
termine whether such amendment has that result
and, if so, the policy implications of that result.
(2) REPORT.—The report of such study shall be
submitted to the Committee on Ways and Means of
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the House of Representatives and the Committee on
Finance of the Senate not later than January 1,
2001.
SEC. 404. MINIMUM TAX NOT TO APPLY TO FARMERS’ IN-
STALLMENT SALES.
(a) IN GENERAL.—The last sentence of paragraph
(6) of section 56(a) (relating to treatment of installment
sales in computing alternative minimum taxable income)
is amended to read as follows: ‘‘This paragraph shall not
apply to any disposition—
‘‘(A) in the case of a taxpayer using the
cash receipts and disbursements method of ac-
counting, described in section 453(l)(2)(A) (re-
lating to farm property), or
‘‘(B) with respect to which an election is in
effect under section 453(l)(2)(B) (relating to
timeshares and residential lots).’’.
(b) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendment made by
this section shall apply to dispositions in taxable
years beginning after December 31, 1987.
(2) SPECIAL RULE FOR 1987.—In the case of
taxable years beginning in 1987, the last sentence of
section 56(a)(6) of the Internal Revenue Code of
1986 (as in effect for such taxable years) shall be
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applied by inserting ‘‘or in the case of a taxpayer
using the cash receipts and disbursements method of
accounting, any disposition described in section
453C(e)(1)(B)(ii)’’ after ‘‘section 453C(e)(4)’’.
TITLE 
V—ESTATE, 
GIFT, 
AND
GENERATION-SKIPPING 
TAX
PROVISIONS
Subtitle A—Estate and Gift Tax
Provisions
SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ES-
TATE AND GIFT TAX PROVISIONS.
(a) INCREASE IN UNIFIED ESTATE AND GIFT TAX
CREDIT.—
(1) ESTATE TAX CREDIT.—
(A) IN GENERAL.—Subsection (a) of sec-
tion 2010 (relating to unified credit against es-
tate tax) is amended by striking ‘‘$192,800’’
and inserting ‘‘the applicable credit amount’’.
(B) APPLICABLE
CREDIT
AMOUNT.—Sec-
tion 2010 is amended by redesignating sub-
section (c) as subsection (d) and by inserting
after subsection (b) the following new sub-
section:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes
of this section—
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‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the applicable credit amount is the amount of
the tentative tax which would be determined under
the rate schedule set forth in section 2001(c) if the
amount with respect to which such tentative tax is
to be computed were the applicable exclusion amount
determined in accordance with the following table:
‘‘In the case of estates of decedents
The applicable
dying, and gifts made, during:
exclusion amount is:
1998 .......................................................................
$ 650,000
1999 .......................................................................
$ 750,000
2000 .......................................................................
$ 765,000
2001 through 2004 ...............................................
$ 775,000
2005 .......................................................................
$ 800,000
2006 .......................................................................
$ 825,000
2007 or thereafter .................................................
$1,000,000.
‘‘(2) COST-OF-LIVING
ADJUSTMENT.—In the
case of any decedent dying, and gift made, in a cal-
endar year after 2007, the $1,000,000 amount set
forth in paragraph (1) shall be increased by an
amount equal to—
‘‘(A) $1,000,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 2006’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount
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shall be rounded to the next lowest multiple of
$10,000.’’.
(C) ESTATE
TAX
RETURNS.—Paragraph
(1) of section 6018(a) is amended by striking
‘‘$600,000’’ and inserting ‘‘the applicable exclu-
sion amount in effect under section 2010(c) for
the calendar year which includes the date of
death’’.
(D) PHASEOUT
OF
GRADUATED
RATES
AND UNIFIED CREDIT.—Paragraph (2) of sec-
tion 
2001(c) 
is 
amended 
by 
striking
‘‘$21,040,000’’ and inserting ‘‘the amount at
which the average tax rate under this section is
55 percent’’.
(E) ESTATES OF NONRESIDENTS NOT CITI-
ZENS.—Subparagraph (A) of section 2102(c)(3)
is amended by striking ‘‘$192,800’’ and insert-
ing ‘‘the applicable credit amount in effect
under section 2010(c) for the calendar year
which includes the date of death’’.
(2) UNIFIED
GIFT
TAX
CREDIT.—Paragraph
(1) of section 2505(a) is amended by striking
‘‘$192,800’’ and inserting ‘‘the applicable credit
amount in effect under section 2010(c) for such cal-
endar year’’.
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(b) ALTERNATE VALUATION
OF CERTAIN FARM,
ETC., REAL PROPERTY.—Subsection (a) of section 2032A
is amended by adding at the end the following new para-
graph:
‘‘(3) INFLATION ADJUSTMENT.—In the case of
estates of decedents dying in a calendar year after
1998, the $750,000 amount contained in paragraph
(2) shall be increased by an amount equal to—
‘‘(A) $750,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount
shall be rounded to the next lowest multiple of
$10,000.’’.
(c) ANNUAL GIFT TAX EXCLUSION.—Subsection (b)
of section 2503 is amended—
(1) by striking the subsection heading and in-
serting the following:
‘‘(b) EXCLUSIONS FROM GIFTS.—
‘‘(1) IN GENERAL.—’’,
(2) by moving the text 2 ems to the right, and
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(3) by adding at the end the following new
paragraph:
‘‘(2) INFLATION ADJUSTMENT.—In the case of
gifts made in a calendar year after 1998, the
$10,000 amount contained in paragraph (1) shall be
increased by an amount equal to—
‘‘(A) $10,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $1,000, such amount shall
be rounded to the next lowest multiple of $1,000.’’.
(d) 
EXEMPTION
FROM
GENERATION-SKIPPING
TAX.—Section 2631 (relating to GST exemption) is
amended by adding at the end the following new sub-
section:
‘‘(c) INFLATION ADJUSTMENT.—In the case of an in-
dividual who dies in any calendar year after 1998, the
$1,000,000 amount contained in subsection (a) shall be
increased by an amount equal to—
‘‘(1) $1,000,000, multiplied by
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‘‘(2) the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year by sub-
stituting ‘calendar year 1997’ for ‘calendar year
1992’ in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence
is not a multiple of $10,000, such amount shall be round-
ed to the next lowest multiple of $10,000.’’.
(e) AMOUNT SUBJECT TO REDUCED RATE WHERE
EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX ON
CLOSELY HELD BUSINESS.—Subsection (j) of section
6601 is amended by redesignating paragraph (3) as para-
graph (4) and by inserting after paragraph (2) the follow-
ing new paragraph:
‘‘(3) INFLATION ADJUSTMENT.—In the case of
estates of decedents dying in a calendar year after
1998, the $1,000,000 amount contained in para-
graph (2)(A) shall be increased by an amount equal
to—
‘‘(A) $1,000,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
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If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount
shall be rounded to the next lowest multiple of
$10,000.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to the estates of decedents dying,
and gifts made, after December 31, 1997.
SEC. 502. 20-YEAR INSTALLMENT PAYMENT WHERE ESTATE
CONSISTS LARGELY OF INTEREST IN CLOSE-
LY HELD BUSINESS.
(a) IN GENERAL.—Section 6166(a) (relating to ex-
tension of time for payment of estate tax where estate con-
sists largely of interest in closely held business) is amend-
ed by striking ‘‘10’’ in paragraph (1) and the heading
thereof and inserting ‘‘20’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 1997.
SEC. 503. NO INTEREST ON CERTAIN PORTION OF ESTATE
TAX EXTENDED UNDER SECTION 6166, RE-
DUCED INTEREST ON REMAINING PORTION,
AND NO DEDUCTION FOR SUCH REDUCED IN-
TEREST.
(a) NO INTEREST AND REDUCED INTEREST.—
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(1) IN GENERAL.—Paragraphs (1) and (2) of
section 6601(j) (relating to 4-percent rate on certain
portion of estate tax extended under section 6166),
as amended by section 501(e), are amended to read
as follows:
‘‘(1) IN GENERAL.—If the time for payment of
an amount of tax imposed by chapter 11 is extended
as provided in section 6166, then in lieu of the an-
nual rate provided by subsection (a)—
‘‘(A) no interest shall be paid on the no-
interest portion of such amount, and
‘‘(B) interest on so much of such amount
as exceeds such no-interest portion shall be paid
at a rate equal to 45 percent of the annual rate
provided by subsection (a).
For purposes of this subsection, the amount of any
deficiency which is prorated to installments payable
under section 6166 shall be treated as an amount of
tax payable in installments under such section.
‘‘(2) NO-INTEREST PORTION.—For purposes of
this section, the term ‘no-interest portion’ means the
lesser of—
‘‘(A)(i) the amount of the tentative tax
which would be determined under the rate
schedule set forth in section 2001(c) if the
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amount with respect to which such tentative tax
is to be computed were the sum of $1,000,000
and the applicable exclusion amount in effect
under section 2010(c), reduced by
‘‘(ii) the applicable credit amount in effect
under section 2010(c), or
‘‘(B) the amount of the tax imposed by
chapter 11 which is extended as provided in
section 6166.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 6601(j), as amended by section
501, is amended—
(i) by striking ‘‘4-percent’’ each place
it appears in paragraph (3) and inserting
‘‘no-interest’’, and
(ii) by striking ‘‘4-PERCENT RATE ON
CERTAIN PORTION OF’’ in the heading and
inserting ‘‘RATE ON’’.
(B) Section 6166(b)(7)(A)(iii) is amended
to read as follows:
‘‘(iii) for purposes of applying section
6601(j) (relating to rate on estate tax ex-
tended under section 6166), the no-interest
portion shall be zero.’’.
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(C) Section 6166(b)(8)(A)(iii) is amended
to read as follows:
‘‘(iii) NO-INTEREST PORTION NOT TO
APPLY.—For purposes of applying section
6601(j) (relating to rate on estate tax ex-
tended under section 6166), the no-interest
portion shall be zero.’’.
(b) DISALLOWANCE OF INTEREST DEDUCTION.—
(1) ESTATE
TAX.—Paragraph (1) of section
2053(c) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(D) SECTION 6166 INTEREST.—No deduc-
tion shall be allowed under this section for any
interest payable under section 6601 on any un-
paid portion of the tax imposed by section 2001
for the period during which an extension of
time for payment of such tax is in effect under
section 6166.’’.
(2) INCOME TAX.—Subparagraph (E) of section
163(h)(2) is amended by striking ‘‘or 6166’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 1997.
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SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS
UNDER SECTION 2032A TO LINEAL DESCEND-
ANTS.
(a) GENERAL RULE.—Paragraph (7) of section
2032A(c) (relating to special rules for tax treatment of
dispositions and failures to use for qualified use) is
amended by adding at the end the following new subpara-
graph:
‘‘(E) CERTAIN RENTS TREATED AS QUALI-
FIED USE.—For purposes of this subsection, a
surviving spouse or lineal descendant of the de-
cedent shall not be treated as failing to use
qualified real property in a qualified use solely
because such spouse or descendant rents such
property to a member of the family of such
spouse or descendant on a net cash basis. For
purposes of the preceding sentence, a legally
adopted child of an individual shall be treated
as the child of such individual by blood.’’.
(b) 
CONFORMING
AMENDMENT.—Section
2032A(b)(5)(A) is amended by striking the last sentence.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to leases entered into
after December 31, 1976.
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SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGI-
BILITY FOR EXTENSION OF TIME FOR PAY-
MENT OF ESTATE TAX.
(a) IN GENERAL.—Part IV of subchapter C of chap-
ter 76 of the Internal Revenue Code of 1986 (relating to
declaratory judgments) is amended by adding at the end
the following new section:
‘‘SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELI-
GIBILITY OF ESTATE WITH RESPECT TO IN-
STALLMENT 
PAYMENTS 
UNDER 
SECTION
6166.
‘‘(a) CREATION OF REMEDY.—In a case of actual
controversy involving a determination by the Secretary of
(or a failure by the Secretary to make a determination
with respect to)—
‘‘(1) whether an election may be made under
section 6166 (relating to extension of time for pay-
ment of estate tax where estate consists largely of
interest in closely held business) with respect to an
estate, or
‘‘(2) whether the extension of time for payment
of tax provided in section 6166(a) has ceased to
apply with respect to an estate,
upon the filing of an appropriate pleading, the Tax Court
may make a declaration with respect to whether such elec-
tion may be made, whether such extension has ceased to
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apply, or the amount of such installment payments. Any
such declaration shall have the force and effect of a deci-
sion of the Tax Court and shall be reviewable as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed
under this section, with respect to any estate, only—
‘‘(A) by the executor of such estate, or
‘‘(B) by any person who has assumed an
obligation to make payments under section
6166 with respect to such estate (but only if
each other such person is joined as a party).
‘‘(2) EXHAUSTION
OF
ADMINISTRATIVE
REM-
EDIES.—The court shall not issue a declaratory
judgment or decree under this section in any pro-
ceeding unless it determines that the petitioner has
exhausted all available administrative remedies with-
in the Internal Revenue Service. A petitioner shall
be deemed to have exhausted its administrative rem-
edies with respect to a failure of the Secretary to
make a determination at the expiration of 180 days
after the date on which the request for such deter-
mination was made if the petitioner has taken, in a
timely manner, all reasonable steps to secure such
determination.
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‘‘(3) TIME FOR BRINGING ACTION.—If the Sec-
retary sends by certified or registered mail notice of
his determination as described in subsection (a) to
the petitioner, no proceeding may be initiated under
this section unless the pleading is filed before the
91st day after the date of such mailing.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part IV of subchapter C of chapter 76 of such Code
is amended by adding at the end the following new item:
‘‘Sec. 7479. Declaratory judgments relating to eligibility of estate
with respect to installment payments under section
6166.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to the estates of decedents dying
after the date of the enactment of this Act.
SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX
PURPOSES AFTER EXPIRATION OF STATUTE
OF LIMITATIONS.
(a) IN GENERAL.—Section 2001 (relating to imposi-
tion and rate of estate tax) is amended by adding at the
end the following new subsection:
‘‘(f) VALUATION OF GIFTS.—If—
‘‘(1) the time has expired within which a tax
may be assessed under chapter 12 (or under cor-
responding provisions of prior laws) on the transfer
of property by gift made during a preceding cal-
endar period (as defined in section 2502(b)), and
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‘‘(2) the value of such gift is shown on the re-
turn for such preceding calendar period or is dis-
closed in such return, or in a statement attached to
the return, in a manner adequate to apprise the Sec-
retary of the nature of such gift,
the value of such gift shall, for purposes of computing the
tax under this chapter, be the value of such gift as finally
determined for purposes of chapter 12.’’.
(b) MODIFICATION OF APPLICATION OF STATUTE OF
LIMITATIONS.—Paragraph (9) of section 6501(c) is
amended to read as follows:
‘‘(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN
ON RETURN.—If any gift of property the value of
which (or any increase in taxable gifts required
under section 2701(d) which) is required to be
shown on a return of tax imposed by chapter 12
(without regard to section 2503(b)), and is not
shown on such return, any tax imposed by chapter
12 on such gift may be assessed, or a proceeding in
court for the collection of such tax may be begun
without assessment, at any time. The preceding sen-
tence shall not apply to any item which is disclosed
in such return, or in a statement attached to the re-
turn, in a manner adequate to apprise the Secretary
of the nature of such item. The value of any item
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which is so disclosed may not be redetermined by the
Secretary after the expiration of the period under
subsection (a).’’.
(c) DECLARATORY JUDGMENT PROCEDURE FOR DE-
TERMINING VALUE OF GIFT.—
(1) IN GENERAL.—Part IV of subchapter C of
chapter 76 is amended by inserting after section
7476 the following new section:
‘‘SEC. 7477. DECLARATORY JUDGMENTS RELATING TO
VALUE OF CERTAIN GIFTS.
‘‘(a) CREATION OF REMEDY.—In a case of an actual
controversy involving a determination by the Secretary of
the value of any gift shown on the return of tax imposed
by chapter 12 or disclosed on such return or in any state-
ment attached to such return, upon the filing of an appro-
priate pleading, the Tax Court may make a declaration
of the value of such gift. Any such declaration shall have
the force and effect of a decision of the Tax Court and
shall be reviewable as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed
under this section only by the donor.
‘‘(2) EXHAUSTION
OF
ADMINISTRATIVE
REM-
EDIES.—The court shall not issue a declaratory
judgment or decree under this section in any pro-
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ceeding unless it determines that the petitioner has
exhausted all available administrative remedies with-
in the Internal Revenue Service.
‘‘(3) TIME FOR BRINGING ACTION.—If the Sec-
retary sends by certified or registered mail notice of
his determination as described in subsection (a) to
the petitioner, no proceeding may be initiated under
this section unless the pleading is filed before the
91st day after the date of such mailing.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for such part IV is amended by inserting after
the item relating to section 7476 the following new
item:
‘‘Sec. 7477. Declaratory judgments relating to value of certain
gifts.’’.
(d) CONFORMING AMENDMENT.—Subsection (c) of
section 2504 is amended by striking ‘‘, and if a tax under
this chapter or under corresponding provisions of prior
laws has been assessed or paid for such preceding calendar
period’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
subsections (a) and (c) shall apply to gifts made
after the date of the enactment of this Act.
(2) SUBSECTION (b)—The amendment made by
subsection (b) shall apply to gifts made in calendar
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years ending after the date of the enactment of this
Act.
SEC. 507. TERMINATION OF THROWBACK RULES FOR DO-
MESTIC TRUSTS.
(a) ACCUMULATION DISTRIBUTIONS.—
(1) IN GENERAL.—Section 665 is amended by
adding at the end the following new subsection:
‘‘(f) SPECIAL RULE FOR UNITED STATES TRUSTS.—
For purposes of this subpart, in the case of a trust other
than a foreign trust, any distribution in any taxable year
beginning after the date of the enactment of this sub-
section shall be computed without regard to any undistrib-
uted net income.’’.
(2) CONFORMING AMENDMENT.—Subsection (b)
of section 665 is amended by inserting ‘‘except as
provided in subsection (f),’’ after ‘‘subpart,’’.
(b) PROPERTY TRANSFERRED
TO TRUSTS.—Sub-
section (e) of section 644 is amended by striking ‘‘or’’ at
the end of paragraph (3), by striking the period at the
end of paragraph (4) and inserting ‘‘, or ’’, and by adding
at the end the following new paragraph:
‘‘(5) in the case of a trust other than a foreign
trust, any sale or exchange of property after the
date of the enactment of this paragraph.’’.
(c) EFFECTIVE DATES.—
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(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to distributions in taxable years begin-
ning after the date of the enactment of this Act.
(2) TRANSFERRED
PROPERTY.—The amend-
ments made by subsection (b) shall apply to sales or
exchanges after the date of the enactment of this
Act.
SEC. 508. UNIFIED CREDIT OF DECEDENT INCREASED BY
UNIFIED CREDIT OF SPOUSE USED ON SPLIT
GIFT INCLUDED IN DECEDENT’S GROSS ES-
TATE.
(a) IN GENERAL.—Section 2010 (relating to unified
credit against estate tax) is amended by adding at the end
the following new subsection:
‘‘(d) TREATMENT OF UNIFIED CREDIT USED BY
SPOUSE
ON
SPLIT-GIFT
INCLUDED
IN
DECEDENT’S
GROSS ESTATE.—If—
‘‘(1) the decedent was the donor of any gift
one-half of which was considered under section 2513
as made by the decedent’s spouse, and
‘‘(2) the amount of such gift is includible in the
gross estate of the decedent by reason of section
2035, 2036, 2037, or 2038,
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the amount of the credit allowable by subsection (a) to
the estate of the decedent shall be increased by the amount
of the unified credit allowed against the tax imposed by
section 2501 on the amount of such gift considered under
section 2513 as made by such spouse.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to gifts made after the date of
the enactment of this Act.
SEC. 509. REFORMATION OF DEFECTIVE BEQUESTS, ETC.,
TO SPOUSE OF DECEDENT.
(a) IN GENERAL.—Subsection (b) of section 2056
(relating to bequests, etc., to surviving spouse) is amended
by adding at the end the following new paragraph:
‘‘(11) REFORMATIONS PERMITTED.—
‘‘(A) IN GENERAL.—In the case of any in-
terest in property with respect to which a de-
duction would be allowable under subsection (a)
but for a provision of this subsection, if—
‘‘(i) the surviving spouse is entitled to
all of the income from the property for life,
‘‘(ii) no person other than such spouse
is entitled to any distribution of such prop-
erty during such spouse’s life, and
‘‘(iii) there is a change of a governing
instrument (by reformation, amendment,
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construction, or otherwise) as of the appli-
cable date which results in the satisfaction
of the requirements of such provision as of
the date of the decedent’s death,
the determination of whether such deduction is
allowable shall be made as of the applicable
date.
‘‘(B) SPECIAL RULE WHERE TIMELY COM-
MENCEMENT
OF
REFORMATION.—Clauses (i)
and (ii) of subparagraph (A) shall not apply to
any interest if, not later than the date described
in subparagraph (C)(i), a judicial proceeding is
commenced to change such interest into an in-
terest which satisfies the requirements of the
provision by reason of which (but for this para-
graph) a deduction would not be allowable
under subsection (a) for such interest.
‘‘(C) APPLICABLE DATE.—For purposes of
subparagraph (A), the term ‘applicable date’
means—
‘‘(i) the last date (including exten-
sions) for filing the return of tax imposed
by this chapter, or
‘‘(ii) if a judicial proceeding is com-
menced to comply with such provision, the
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time when the changes pursuant to such
proceeding are made.
‘‘(D) SPECIAL RULE.—If the change re-
ferred to in subparagraph (A)(iii) is to qualify
the passage of the interest under paragraph
(7), subparagraph (A) shall apply only if the
election under paragraph (7)(B) is made.
‘‘(E) STATUTE OF LIMITATIONS.—If a ju-
dicial proceeding described in subparagraph
(C)(ii) is commenced with respect to any inter-
est, the period for assessing any deficiency of
tax attributable to such interest shall not expire
before the date 1 year after the date on which
the Secretary is notified that such provision has
been complied with or that such proceeding has
been terminated.’’.
(b) COMPARABLE RULE FOR GIFT TAX.—Section
2523 (relating to gift to spouse) is amended by adding
at the end the following new subsection:
‘‘(j) REFORMATIONS PERMITTED.—Rules similar to
the rules of section 2056(b)(11) shall apply for purposes
of this section.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying, and
gifts made, after the date of the enactment of this Act.
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Subtitle B—Generation-Skipping
Tax Provisions
SEC. 511. SEVERING OF TRUSTS HOLDING PROPERTY HAV-
ING AN INCLUSION RATIO OF GREATER THAN
ZERO.
(a) IN GENERAL.—Subsection (a) of section 2642
(relating to inclusion ratio) is amended by adding at the
end the following new paragraph:
‘‘(3) SEVERING OF TRUSTS HOLDING PROPERTY
HAVING AN INCLUSION RATIO OF GREATER THAN
ZERO.—
‘‘(A) IN
GENERAL.—If a trust holding
property having an inclusion ratio of greater
than zero is severed in a qualified severance, at
the election of the trustee of such trust, the
trusts resulting from such severance shall be
treated as separate trusts for purposes of this
chapter and 1 such trust shall have an inclusion
ratio of 1 and the other such trust shall have
an inclusion ratio of zero.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A), the term ‘qualified
severance’ means the creation of 2 trusts from
a single trust if each property held by the single
trust was divided between the 2 created trusts
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such that one trust received an interest in each
such property equal to the applicable fraction of
the single trust. Such term includes any other
severance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) ELECTION.—The election under this
paragraph shall be made at the time prescribed
by the Secretary. Such an election, once made,
shall be irrevocable.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to severances after the date of
the enactment of this Act.
SEC. 512. EXPANSION OF EXCEPTION FROM GENERATION-
SKIPPING TRANSFER TAX FOR TRANSFERS
TO INDIVIDUALS WITH DECEASED PARENTS.
(a) IN GENERAL.—Section 2651 (relating to genera-
tion assignment) is amended by redesignating subsection
(e) as subsection (f), and by inserting after subsection (d)
the following new subsection:
‘‘(e) SPECIAL RULE
FOR PERSONS WITH
A DE-
CEASED PARENT.—
‘‘(1) IN GENERAL.—For purposes of determin-
ing whether any transfer is a generation-skipping
transfer, if—
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‘‘(A) an individual is a descendant of a
parent of the transferor (or the transferor’s
spouse or former spouse), and
‘‘(B) such individual’s parent who is a lin-
eal descendant of the parent of the transferor
(or the transferor’s spouse or former spouse) is
dead at the time the transfer (from which an
interest of such individual is established or de-
rived) is subject to a tax imposed by chapter 11
or 12 upon the transferor (and if there shall be
more than 1 such time, then at the earliest
such time),
such individual shall be treated as if such individual
were a member of the generation which is 1 genera-
tion below the lower of the transferor’s generation or
the generation assignment of the youngest living an-
cestor of such individual who is also a descendant of
the parent of the transferor (or the transferor’s
spouse or former spouse), and the generation assign-
ment of any descendant of such individual shall be
adjusted accordingly.
‘‘(2) LIMITED APPLICATION OF SUBSECTION TO
COLLATERAL
HEIRS.—This subsection shall not
apply with respect to a transfer to any individual
who is not a lineal descendant of the transferor (or
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the transferor’s spouse or former spouse) if, at the
time of the transfer, such transferor has any living
lineal descendant.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 2612(c) (defining direct skip) is
amended by striking paragraph (2) and by redesig-
nating paragraph (3) as paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is
amended by striking ‘‘section 2651(e)(2)’’ and in-
serting ‘‘section 2651(f)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to terminations, distributions, and
transfers occurring after December 31, 1997.
TITLE VI—EXTENSIONS
SEC. 601. RESEARCH TAX CREDIT.
(a) IN GENERAL.—Paragraph (1) of section 41(h)
(relating to termination) is amended—
(1) by striking ‘‘May 31, 1997’’ and inserting
‘‘December 31, 1998’’, and
(2) by striking in the last sentence ‘‘during the
first 11 months of such taxable year.’’ and inserting
‘‘during the 30-month period beginning with the
first month of such year. The 30 months referred to
in the preceding sentence shall be reduced by the
number of full months after June 1996 (and before
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the first month of such first taxable year) during
which the taxpayer paid or incurred any amount
which is taken into account in determining the credit
under this section.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 41(c)(4) is
amended to read as follows:
‘‘(B) ELECTION.—An election under this
paragraph shall apply to the taxable year for
which made and all succeeding taxable years
unless revoked with the consent of the Sec-
retary.’’.
(2) Paragraph (1) of section 45C(b) is amended
by striking ‘‘May 31, 1997’’ and inserting ‘‘Decem-
ber 31, 1998’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
May 31, 1997.
SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDA-
TIONS.
(a) 
IN
GENERAL.—Clause 
(ii) 
of 
section
170(e)(5)(D) (relating to termination) is amended by
striking ‘‘May 31, 1997’’ and inserting ‘‘December 31,
1998’’.
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(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to contributions made after May
31, 1997.
SEC. 603. WORK OPPORTUNITY TAX CREDIT.
(a) EXTENSION.—
(1) IN GENERAL.—Subparagraph (B) of section
51(c)(4) (relating to termination) is amended by
striking ‘‘September 30, 1997’’ and inserting ‘‘Sep-
tember 30, 1998’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to individuals who
begin work for the employer after September 30,
1997.
(b) 
WORK
OPPORTUNITY
CREDIT
ALLOWED
AGAINST MINIMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
(relating to limitation based on amount of tax) is
amended by redesignating paragraph (3) as para-
graph (4) and by inserting after paragraph (2) the
following new paragraph:
‘‘(3) SPECIAL RULES FOR WORK OPPORTUNITY
CREDIT.—
‘‘(A) IN
GENERAL.—In the case of the
work opportunity credit—
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‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) subparagraph (A) shall not
apply, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
taxable year (other than the work op-
portunity credit).
‘‘(B) WORK
OPPORTUNITY
CREDIT.—For
purposes of this subsection, the term ‘work op-
portunity credit’ means the credit allowable
under subsection (a) by reason of section
51(a).’’.
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) is amended by inserting
‘‘or the work opportunity credit’’ after ‘‘employment
credit’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1997.
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(c) PERCENTAGE OF WAGES ALLOWED AS CRED-
IT.—
(1) IN GENERAL.—Subsection (a) of section 51
(relating to determination of amount) is amended by
striking ‘‘35 percent’’ and inserting ‘‘40 percent’’.
(2) APPLICATION OF CREDIT FOR INDIVIDUALS
PERFORMING
FEWER
THAN
400
HOURS
OF
SERV-
ICES.—Paragraph (3) of section 51(i) is amended to
read as follows:
‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM-
PLOYMENT PERIODS.—
‘‘(A) REDUCTION OF CREDIT FOR INDIVID-
UALS PERFORMING FEWER THAN 400 HOURS OF
SERVICES.—In the case of an individual who
has completed at least 120 hours, but less than
400 hours, of services performed for the em-
ployer, subsection (a) shall be applied by sub-
stituting ‘25 percent’ for ‘40 percent’.
‘‘(B) DENIAL OF CREDIT FOR INDIVIDUALS
PERFORMING
FEWER
THAN
120
HOURS
OF
SERVICES.—No wages shall be taken into ac-
count under subsection (a) with respect to any
individual unless such individual has completed
at least 120 hours of services performed for the
employer.’’.
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(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
begin work for the employer after September 30,
1997.
(d) MODIFICATION OF ELIGIBILITY REQUIREMENT
BASED ON PERIOD ON WELFARE.—
(1) IN GENERAL.—Subparagraph (A) of section
51(d)(2) (defining qualified IV–A recipient) is
amended by striking all that follows ‘‘a IV–A pro-
gram’’ and inserting ‘‘for any 9 months during the
18-month period ending on the hiring date.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(A) of section 51(d)(3) is amended to read as fol-
lows:
‘‘(A) IN
GENERAL.—The term ‘qualified
veteran’ means any veteran who is certified by
the designated local agency as being 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 dur-
ing the 12-month period ending on the hiring
date.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
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begin work for the employer after September 30,
1997.
SEC. 604. ORPHAN DRUG TAX CREDIT.
(a) IN GENERAL.—Section 45C (relating to clinical
testing expenses for certain drugs for rare diseases or con-
ditions) is amended by striking subsection (e).
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts paid or incurred
after May 31, 1997.
SEC. 605. BUDGETARY TREATMENT OF EXPIRING PREF-
ERENTIAL EXCISE TAX RATES WHICH ARE
DEDICATED TO TRUST FUNDS.
(a) IN GENERAL.—Subparagraph (C) of section
257(b)(2) of the Balanced Budget and Emergency Deficit
Control Act of 1985 (relating to the baseline) is amended
by inserting before the period ‘‘; except that any expiring
preferential rate (and any credit or refund related thereto)
shall be assumed not to be extended’’.
(b) ESTIMATE OF REVENUE GAIN FROM CORRECT-
ING BASELINE.—For purposes of estimating revenues
under budget reconciliation, the impact of the amendment
made by subsection (a) on the calculation of the baseline
shall be determined in the same manner as if such amend-
ment were an amendment to the Internal Revenue Code
of 1986.
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fying the requirements of sections 401(a)(3),
401(a)(4), 
401(a)(26), 
401(k), 
401(m), 
403
(b)(1)(D) and (b)(12), and 410 of such Code for all
taxable years beginning before the date of enactment
of this Act.
SEC. 913. TREATMENT OF CERTAIN DISABILITY BENEFITS
RECEIVED BY FORMER POLICE OFFICERS OR
FIREFIGHTERS.
(a) GENERAL RULE.—For purposes of determining
whether any amount to which this section applies is ex-
cludable from gross income under section 104(a)(1) of the
Internal Revenue Code of 1986, the following conditions
shall be treated as personal injuries or sickness in the
course of employment:
(1) Heart disease.
(2) Hypertension.
(b) AMOUNTS TO WHICH SECTION APPLIES.—This
section shall apply to any amount—
(1) which is payable—
(A) to an individual (or to the survivors of
an individual) who was a full-time employee of
any police department or fire department which
is organized and operated by a State, by any
political subdivision thereof, or by any agency
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‘‘(D) The term ‘textile or apparel article’
means any article referred to in paragraph
(1)(A) that is a good listed in Appendix 1.1 of
the Annex.
‘‘(E) The term ‘transition period’ means,
with respect to a partnership country, the pe-
riod that begins on January 1, 1998, and ends
on the earlier of—
‘‘(i) December 31, 1998; or
‘‘(ii) the date on which—
‘‘(I) the United States first ap-
plies the NAFTA to the partnership
country upon its accession to the
NAFTA, or
‘‘(II) there enters into force with
respect to the United States and the
partnership country a free trade
agreement comparable to the NAFTA
that makes substantial progress in
achieving the negotiating objectives
set forth in section 108(b)(5) of the
North American Free Trade Agree-
ment Implementation Act (19 U.S.C.
3317(b)(5)).
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(1) IN
GENERAL.—Subsection (a) of section
6046A (relating to returns as to interests in foreign
partnerships) is amended by adding at the end the
following new sentence: ‘‘Paragraphs (1) and (2)
shall apply to any acquisition or disposition only if
the United States person directly or indirectly holds
at least a 10-percent interest in such partnership ei-
ther before or after such acquisition or disposition,
and paragraph (3) shall apply to any change only if
the change is equivalent to at least a 10-interest in
such partnership.’’.
(2) 10-PERCENT INTEREST.—Section 6046A is
amended by redesignating subsection (d) as sub-
section (e) and by inserting after subsection (c) the
following new subsection:
‘‘(d) 10-PERCENT INTEREST.—For purposes of sub-
section (a), a 10-percent interest in a partnership is an
interest described in section 6038(e)(3)(C).’’.
(b) MODIFICATION OF PENALTY ON FAILURE TO RE-
PORT CHANGES IN OWNERSHIP INTERESTS IN FOREIGN
CORPORATIONS AND PARTNERSHIPS.—Subsection (a) of
section 6679 (relating to failure to file returns, etc., with
respect to foreign corporations or foreign partnerships) is
amended to read as follows:
‘‘(a) CIVIL PENALTY.—