H. R. 2491—434
(1) in clause (iii)(III), by inserting ‘‘as in effect on September
30, 1995’’ before the period at the end; and
(2) in clause (v)—
(A) by inserting ‘‘as in effect on September 30, 1995’’
after ‘‘1820 (i)(1)’’; and
(B) by striking ‘‘1820(g)’’ and inserting ‘‘1820(e)’’.
(d) PART B AMENDMENTS RELATING TO CRITICAL ACCESS HOS-
PITALS.—
(1) 
COVERAGE.—(A) 
Section 
1861(mm) 
(42 
U.S.C.
1395x(mm)) as amended by subsection (d)(1), is amended by
adding at the end the following new paragraph:
‘‘(3) The term ‘outpatient critical access hospital services’ means
medical and other health services furnished by a critical access
hospital on an outpatient basis.’’.
(B) Section 1832(a)(2)(H) (42 U.S.C. 1395k(a)(2)(H)) is
amended by striking ‘‘rural primary care hospital services’’
and inserting ‘‘critical access hospital services’’.
(2) PAYMENT.—(A) Section 1833(a) (42 U.S.C. 1395l(a)) is
amended in paragraph (6), by striking ‘‘outpatient rural pri-
mary care hospital services’’ and inserting ‘‘outpatient critical
access hospital services’’.
(B) Section 1834(g) (42 U.S.C. 1395m(g)) is amended to
read as follows:
‘‘(g) PAYMENT
FOR OUTPATIENT CRITICAL ACCESS HOSPITAL
SERVICES.—The amount of payment under this part for outpatient
critical access hospital services is the reasonable costs of the critical
access hospital in providing such services.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to services furnished on or after October 1, 1995.
SEC. 8703. ESTABLISHMENT OF RURAL EMERGENCY ACCESS CARE
HOSPITALS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x) is amended
by adding at the end the following new subsection:
‘‘Rural Emergency Access Care Hospital; Rural Emergency Access
Care Hospital Services
‘‘(oo)(1) The term ‘rural emergency access care hospital’ means,
for a fiscal year, a facility with respect to which the Secretary
finds the following:
‘‘(A) The facility is located in a rural area (as defined
in section 1886(d)(2)(D)).
‘‘(B) The facility was a hospital under this title at any
time during the 5-year period that ends on the date of the
enactment of this subsection.
‘‘(C) The facility is in danger of closing due to low inpatient
utilization rates and operating losses, and the closure of the
facility would limit the access to emergency services of individ-
uals residing in the facility’s service area.
‘‘(D) The facility has entered into (or plans to enter into)
an agreement with a hospital with a participation agreement
in effect under section 1866(a), and under such agreement
the hospital shall accept patients transferred to the hospital
from the facility and receive data from and transmit data
to the facility.
‘‘(E) There is a practitioner who is qualified to provide
advanced cardiac life support services (as determined by the
H. R. 2491—435
State in which the facility is located) on-site at the facility
on a 24-hour basis.
‘‘(F) A physician is available on-call to provide emergency
medical services on a 24-hour basis.
‘‘(G) The facility meets such staffing requirements as would
apply under section 1861(e) to a hospital located in a rural
area, except that—
‘‘(i) the facility need not meet hospital standards relat-
ing to the number of hours during a day, or days during
a week, in which the facility must be open, except insofar
as the facility is required to provide emergency care on
a 24-hour basis under subparagraphs (E) and (F); and
‘‘(ii) the facility may provide any services otherwise
required to be provided by a full-time, on-site dietitian,
pharmacist, laboratory technician, medical technologist, or
radiological technologist on a part-time, off-site basis.
‘‘(H) The facility meets the requirements applicable to clin-
ics and facilities under subparagraphs (C) through (J) of para-
graph (2) of section 1861(aa) and of clauses (ii) and (iv) of
the second sentence of such paragraph (or, in the case of the
requirements of subparagraph (E), (F), or (J) of such paragraph,
would meet the requirements if any reference in such subpara-
graph to a ‘nurse practitioner’ or to ‘nurse practitioners’ were
deemed to be a reference to a ‘nurse practitioner or nurse’
or to ‘nurse practitioners or nurses’); except that in determining
whether a facility meets the requirements of this subparagraph,
subparagraphs (E) and (F) of that paragraph shall be applied
as if any reference to a ‘physician’ is a reference to a physician
as defined in section 1861(r)(1).
‘‘(2) The term ‘rural emergency access care hospital services’
means the following services provided by a rural emergency access
care hospital and furnished to an individual over a continuous
period not to exceed 24 hours (except that such services may be
furnished over a longer period in the case of an individual who
is unable to leave the hospital because of inclement weather):
‘‘(A) An appropriate medical screening examination (as
described in section 1867(a)).
‘‘(B) Necessary stabilizing examination and treatment serv-
ices for an emergency medical condition and labor (as described
in section 1867(b)).’’.
(b) REQUIRING RURAL EMERGENCY ACCESS CARE HOSPITALS
TO
MEET
HOSPITAL
ANTI-DUMPING
REQUIREMENTS.—Section
1867(e)(5) (42 U.S.C. 1395dd(e)(5)) is amended by striking
‘‘1861(mm)(1))’’ and inserting ‘‘1861(mm)(1)) and a rural emergency
access care hospital (as defined in section 1861(oo)(1))’’.
(c) COVERAGE AND PAYMENT FOR SERVICES.—
(1) COVERAGE.—Section 1832(a)(2) (42 U.S.C. 1395k(a)(2))
is amended—
(A) by striking ‘‘and’’ at the end of subparagraph (I);
(B) by striking the period at the end of subparagraph
(J) and inserting ‘‘; and’’; and
(C) by adding at the end the following new subpara-
graph:
‘‘(K) rural emergency access care hospital services (as
defined in section 1861(oo)(2)).’’.
(2) PAYMENT BASED ON PAYMENT FOR OUTPATIENT CRITICAL
ACCESS HOSPITAL SERVICES.—
H. R. 2491—436
(A) 
IN
GENERAL.—Section 
1833(a)(6) 
(42 
U.S.C.
1395l(a)(6)), as amended by section 8702(f)(2), is amended
by striking ‘‘services,’’ and inserting ‘‘services and rural
emergency access care hospital services,’’.
(B) 
PAYMENT
METHODOLOGY
DESCRIBED.—Section
1834(g) (42 U.S.C. 1395m(g)), as amended by section
8702(f)(2)(B), is amended—
(i) in the heading, by striking ‘‘SERVICES’’ and
inserting ‘‘SERVICES AND RURAL EMERGENCY ACCESS
CARE HOSPITAL SERVICES’’; and
(ii) by adding at the end the following new sen-
tence: ‘‘The amount of payment for rural emergency
access care hospital services provided during a year
shall be determined using the applicable method pro-
vided under this subsection for determining payment
for outpatient rural primary care hospital services dur-
ing the year.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to fiscal years beginning on or after October 1, 1995.
SEC. 8704. CLASSIFICATION OF RURAL REFERRAL CENTERS.
(a) PROHIBITING DENIAL OF REQUEST FOR RECLASSIFICATION
ON BASIS OF COMPARABILITY OF WAGES.—
(1) 
IN
GENERAL.—Section 
1886(d)(10)(D) 
(42 
U.S.C.
1395ww(d)(10)(D)) is amended—
(A) by redesignating clause (iii) as clause (iv); and
(B) by inserting after clause (ii) the following new
clause:
‘‘(iii) Under the guidelines published by the Secretary under
clause (i), in the case of a hospital which is classified by the
Secretary as a rural referral center under paragraph (5)(C), the
Board may not reject the application of the hospital under this
paragraph on the basis of any comparison between the average
hourly wage of the hospital and the average hourly wage of hospitals
in the area in which it is located.’’.
(2) 
EFFECTIVE
DATE.—Notwithstanding 
section
1886(d)(10)(C)(ii) of the Social Security Act, a hospital may
submit an application to the Medicare Geographic Classification
Review Board during the 30-day period beginning on the date
of the enactment of this Act requesting a change in its classifica-
tion for purposes of determining the area wage index applicable
to the hospital under section 1886(d)(3)(D) of such Act for
fiscal year 1997, if the hospital would be eligible for such
a change in its classification under the standards described
in section 1886(d)(10)(D) (as amended by paragraph (1)) but
for its failure to meet the deadline for applications under section
1886(d)(10)(C)(ii).
(b) CONTINUING TREATMENT OF PREVIOUSLY DESIGNATED CEN-
TERS.—Any hospital classified as a rural referral center by the
Secretary of Health and Human Services under section 1886(d)(5)(C)
of the Social Security Act for fiscal year 1994 shall be classified
as such a rural referral center for fiscal year 1996 and each subse-
quent fiscal year.
SEC. 8705. FLOOR ON AREA WAGE INDEX.
(a) IN GENERAL.—For purposes of section 1886(d)(3)(E) of the
Social Security Act for discharges occurring on or after October
1, 1995, the area wage index applicable under such section to
H. R. 2491—437
any hospital which is not located in a rural area (as defined in
section 1886(d)(2)(D) of such Act) may not be less than the average
of the area wage indices applicable under such section to hospitals
located in rural areas in the State in which the hospital is located.
(b) IMPLEMENTATION.—The Secretary of Health and Human
Services shall adjust the area wage indices referred to in subsection
(a) for hospitals not described in such subsection in a manner
which assures that the aggregate payments made under section
1886(d) of the Social Security Act in a fiscal year for the operating
costs of inpatient hospital services are not greater or less than
those which would have been made in the year if this section
did not apply.
SEC. 8706. ADDITIONAL PAYMENTS FOR PHYSICIANS’ SERVICES FUR-
NISHED IN SHORTAGE AREAS.
(a) INCREASE IN AMOUNT OF ADDITIONAL PAYMENT.—Section
1833(m) (42 U.S.C. 1395l(m)) is amended by striking ‘‘10 percent’’
and inserting ‘‘20 percent’’.
(b) RESTRICTION TO PRIMARY CARE SERVICES.—Section 1833(m)
(42 U.S.C. 1395l(m)) is amended by inserting after ‘‘physicians’
services’’ the following: ‘‘consisting of primary care services (as
defined in section 1842(i)(4))’’.
(c) EXTENSION OF PAYMENT FOR FORMER SHORTAGE AREAS.—
(1) IN GENERAL.—Section 1833(m) (42 U.S.C. 1395l(m)) is
amended by striking ‘‘area,’’ and inserting ‘‘area (or, in the
case of an area for which the designation as a health profes-
sional shortage area under such section is withdrawn, in the
case of physicians’ services furnished to such an individual
during the 3-year period beginning on the effective date of
the withdrawal of such designation),’’.
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to physicians’ services furnished in an area
for which the designation as a health professional shortage
area under section 332(a)(1)(A) of the Public Health Service
Act is withdrawn on or after January 1, 1996.
(d) REQUIRING CARRIERS TO REPORT ON SERVICES PROVIDED.—
Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (I); and
(2) by inserting after subparagraph (I) the following new
subparagraph:
‘‘(J) will provide information to the Secretary (on such
periodic basis as the Secretary may require) on the types of
providers to whom the carrier makes additional payments for
certain physicians’ services pursuant to section 1833(m),
together with a description of the services furnished by such
providers; and’’.
(e) EFFECTIVE DATE.—The amendments made by subsections
(a), (b), and (d) shall apply to physicians’ services furnished on
or after October 1, 1995.
SEC. 8707. PAYMENTS TO PHYSICIAN ASSISTANTS AND NURSE
PRACTITIONERS FOR SERVICES FURNISHED IN OUT-
PATIENT OR HOME SETTINGS.
(a) COVERAGE IN OUTPATIENT OR HOME SETTINGS FOR PHYSI-
CIAN ASSISTANTS AND NURSE PRACTITIONERS.—Section 1861(s)(2)(K)
(42 U.S.C. 1395x(s)(2)(K)) is amended—
(1) in clause (i)—
(A) by striking ‘‘or’’ at the end of subclause (II); and
H. R. 2491—438
(B) by inserting ‘‘or (IV) in an outpatient or home
setting as defined by the Secretary’’ following ‘‘shortage
area,’’; and
(2) in clause (ii)—
(A) by striking ‘‘in a skilled’’ and inserting ‘‘in (I) a
skilled’’; and
(B) by inserting ‘‘, or (II) in an outpatient or home
setting (as defined by the Secretary),’’ after ‘‘(as defined
in section 1919(a))’’.
(b) 
PAYMENTS
TO
PHYSICIAN
ASSISTANTS
AND
NURSE
PRACTITIONERS IN OUTPATIENT OR HOME SETTINGS.—
(1) IN GENERAL.—Section 1833(r)(1) (42 U.S.C. 1395l(r)(1))
is amended—
(A) 
by 
inserting 
‘‘services 
described 
in 
section
1861(s)(2)(K)(ii)(II) (relating to nurse practitioner services
furnished in outpatient or home settings), and services
described in section 1861(s)(2)(K)(i)(IV) (relating to physi-
cian assistant services furnished in an outpatient or home
setting’’ after ‘‘rural area),’’; and
(B) by striking ‘‘or clinical nurse specialist’’ and insert-
ing ‘‘clinical nurse specialist, or physician assistant’’.
(2) CONFORMING
AMENDMENT.—Section 1842(b)(6)(C) (42
U.S.C. 1395u(b)(6)(C)) is amended by striking ‘‘clauses (i), (ii),
or (iv)’’ and inserting ‘‘subclauses (I), (II), or (III) of clause
(i), clause (ii)(I), or clause (iv)’’.
(c) PAYMENT UNDER THE FEE SCHEDULE TO PHYSICIAN ASSIST-
ANTS AND NURSE PRACTITIONERS IN OUTPATIENT OR HOME SET-
TINGS.—
(1) PHYSICIAN ASSISTANTS.—Section 1842(b)(12) (42 U.S.C.
1395u(b)(12)) is amended by adding at the end the following
new subparagraph:
‘‘(C) With respect to services described in clauses (i)(IV), (ii)(II),
and (iv) of section 1861(s)(2)(K) (relating to physician assistants
and nurse practitioners furnishing services in outpatient or home
settings)—
‘‘(i) payment under this part may only be made on an
assignment-related basis; and
‘‘(ii) the amounts paid under this part shall be equal to
80 percent of (I) the lesser of the actual charge or 85 percent
of the fee schedule amount provided under section 1848 for
the same service provided by a physician who is not a specialist;
or (II) in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount that
would otherwise be recognized if performed by a physician
who is serving as an assistant at surgery.’’.
(2) CONFORMING AMENDMENT.—Section 1842(b)(12)(A) (42
U.S.C. 1395u(b)(12)(A)) is amended in the matter preceding
clause (i) by striking ‘‘(i), (ii),’’ and inserting ‘‘subclauses (I),
(II), or (III) of clause (i), or subclause (I) of clause (ii)’’.
(3) TECHNICAL
AMENDMENT.—Section 1842(b)(12)(A) (42
U.S.C. 1395u(b)(12)(A)) is amended in the matter preceding
clause (i) by striking ‘‘a physician assistants’’ and inserting
‘‘physician assistants’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to services furnished on or after October 1, 1995.
H. R. 2491—439
SEC. 8708. EXPANDING ACCESS TO NURSE AIDE TRAINING IN UNDER-
SERVED AREAS.
(a) 
IN
GENERAL.—Section 
1819(f)(2)(B)(iii)(I) 
(42 
U.S.C.
1396r(f)(2)(B)(iii)(I)) is amended in the matter preceding item (a),
by striking ‘‘by or in a nursing facility’’ and inserting ‘‘by a nursing
facility (or in such a facility, unless the State determines that
there is no other such program offered within a reasonable distance,
provides notice of the approval to the State long-term care ombuds-
man, and assures, through an oversight effort, that an adequate
environment exists for such a program)’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to nurse aide training and competency evaluation pro-
grams under section 1819 of the Social Security Act which are
offered on or after October 1, 1995.
TITLE IX—TRANSPORTATION AND
RELATED PROVISIONS
SEC. 9001. MINIMUM ALLOCATION FOR HIGHWAY PROGRAMS.
(a) TECHNICAL CORRECTION.—With respect to fiscal year 1996—
(1) the Secretary of Transportation shall determine, in
accordance with the policies established by the Intermodal Sur-
face Transportation Efficiency Act of 1991 (105 Stat. 1914)—
(A) which of the States will no longer require an appor-
tionment under section 157(a)(4) of title 23, United States
Code; and
(B) which of the States will require decreased funding
under such section 157(a)(4);
as a result of the termination of the Interstate construction
program; and
(2) as a result of the reduced number of States that may
require an apportionment under such section 157(a)(4), and
the decrease in the amount of funds some States will require
under such section 157(a)(4), the maximum amount available
for apportionment under such section 157(a)(4) shall be reduced
from the amount apportioned under such section 157(a)(4) for
fiscal year 1995 by 60.4 percent.
(b) EFFECT ON CERTAIN CALCULATIONS.—The correction made
by subsection (a) shall be made after the reduction required under
section 1003(c) of the Intermodal Surface Transportation Efficiency
Act of 1991 (105 Stat. 1921) and shall not be taken into account
in making the calculations under sections 1003(c), 1013(c), and
1015 of such Act (105 Stat. 1921, 1940, and 1943).
SEC. 9002. EXTENSION OF HIGHER VESSEL TONNAGE DUTIES.
(a) EXTENSION OF DUTIES.—Section 36 of the Act of August
5, 1909 (36 Stat. 111; 46 U.S.C. App. 121), is amended by striking
‘‘for fiscal years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998,’’
each place it appears and inserting ‘‘for fiscal years through fiscal
year 2002,’’.
(b) CONFORMING
AMENDMENT.—The Act entitled ‘‘An Act
concerning tonnage duties on vessels entering otherwise than by
sea’’, approved March 8, 1910 (36 Stat. 234; 46 U.S.C. App. 132),
is amended by striking ‘‘for fiscal years 1991, 1992, 1993, 1994,
1995, 1996, 1997, and 1998,’’ and inserting ‘‘for fiscal years through
fiscal year 2002,’’.
H. R. 2491—440
SEC. 9003. FEMA RADIOLOGICAL EMERGENCY PREPAREDNESS FEES.
(a) IN GENERAL.—The Director of the Federal Emergency
Management Agency may assess and collect fees applicable to per-
sons subject to radiological emergency preparedness regulations
issued by the Director.
(b) REQUIREMENTS.—The assessment and collection of fees by
the Director under subsection (a) shall be fair and equitable and
shall reflect the full amount of costs to the Agency of providing
radiological emergency planning, preparedness, response, and asso-
ciated services. Such fees shall be assessed by the Director in
a manner that reflects the use of resources of the Agency for
classes of regulated persons and the administrative costs of collect-
ing such fees.
(c) AMOUNT OF FEES.—The aggregate amount of fees assessed
under subsection (a) in a fiscal year shall approximate, but not
be less than, 100 percent of the amounts anticipated by the Director
to be obligated for the radiological emergency preparedness program
of the Agency for such fiscal year.
(d) DEPOSIT OF FEES IN TREASURY.—Fees received pursuant
to subsection (a) shall be deposited in the general fund of the
Treasury as offsetting receipts.
(e) EXPIRATION OF AUTHORITY.—The authority of the Director
to assess and collect fees under subsection (a) shall expire on
September 30, 2002.
TITLE X—VETERANS AND RELATED
PROVISIONS
SEC. 10001. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This title may be cited as the ‘‘Veterans
Reconciliation Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents for this title
is as follows:
Sec. 10001. Short title; table of contents.
Subtitle A—Extension of Temporary Authorities
Sec. 10011. Authority to require that certain veterans make copayments in ex-
change for receiving health-care benefits.
Sec. 10012. Medical care cost recovery authority.
Sec. 10013. Income verification authority.
Sec. 10014. Limitation on pension for certain recipients of medicaid-covered nurs-
ing home care.
Sec. 10015. Home loan fees.
Sec. 10016. Procedures applicable to liquidation sales on defaulted home loans
guaranteed by the Department of Veterans Affairs.
Sec. 10017. Enhanced loan asset sale authority.
Subtitle B—Other Matters
Sec. 10021. Revision to prescription drug copayment.
Sec. 10022. Rounding down of cost-of-living adjustments in compensation and DIC
rates.
Sec. 10023. Revised standard for liability for injuries resulting from Department of
Veterans Affairs treatment.
Sec. 10024. Withholding of payments and benefits.
H. R. 2491—441
Subtitle A—Extension of Temporary
Authorities
SEC. 10011. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE
COPAYMENTS IN EXCHANGE FOR RECEIVING HEALTH-
CARE BENEFITS.
(a) HOSPITAL AND MEDICAL CARE.—Section 8013(e) of the Omni-
bus Budget Reconciliation Act of 1990 (38 U.S.C. 1710 note) is
amended by striking out ‘‘September 30, 1998’’ and inserting in
lieu thereof ‘‘September 30, 2002’’.
(b) OUTPATIENT MEDICATIONS.—Section 1722A(c) of title 38,
United States Code, is amended by striking out ‘‘September 30,
1998’’ and inserting in lieu thereof ‘‘September 30, 2002’’.
SEC. 10012. MEDICAL CARE COST RECOVERY AUTHORITY.
Section 1729(a)(2)(E) of title 38, United States Code, is amended
by striking out ‘‘before October 1, 1998,’’ and inserting ‘‘before
October 1, 2002,’’.
SEC. 10013. INCOME VERIFICATION AUTHORITY.
Section 5317(g) of title 38, United States Code, is amended
by striking out ‘‘September 30, 1998’’ and inserting in lieu thereof
‘‘September 30, 2002’’.
SEC. 10014. LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF
MEDICAID-COVERED NURSING HOME CARE.
Section 5503(f)(7) of title 38, United States Code, is amended
by striking out ‘‘September 30, 1998’’ and inserting in lieu thereof
‘‘September 30, 2002’’.
SEC. 10015. HOME LOAN FEES.
Section 3729(a) of title 38, United States Code, is amended—
(1) in paragraph (4), by striking out ‘‘October 1, 1998’’
and inserting in lieu thereof ‘‘October 1, 2002’’; and
(2) in paragraph (5)(C), by striking out ‘‘October 1, 1998’’
and inserting in lieu thereof ‘‘October 1, 2002’’.
SEC. 10016. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON
DEFAULTED 
HOME 
LOANS 
GUARANTEED 
BY 
THE
DEPARTMENT OF VETERANS AFFAIRS.
Section 3732(c)(11) of title 38, United States Code, is amended
by striking out ‘‘October 1, 1998’’ and inserting ‘‘October 1, 2002’’.
SEC. 10017. ENHANCED LOAN ASSET SALE AUTHORITY.
Section 3720(h)(2) of title 38, United States Code, is amended
by striking out ‘‘December 31, 1995’’ and inserting in lieu thereof
‘‘September 30, 2002’’.
Subtitle B—Other Matters
SEC. 10021. REVISION TO PRESCRIPTION DRUG COPAYMENT.
(a) INCREASE IN AMOUNT OF COPAYMENT.—Section 1722A(a)
of title 38, United States Code, is amended—
(1) in paragraph (1), by striking out ‘‘$2’’ and inserting
in lieu thereof ‘‘$4’’;
(2) by striking out paragraph (2); and
H. R. 2491—442
(3) by redesignating paragraph (3) as paragraph (2) and
in that paragraph—
(A) striking out ‘‘or’’ at the end of subparagraph (A);
(B) striking out the period at the end of subparagraph
(B) and inserting in lieu thereof ‘‘; or’’; and
(C) adding at the end the following new subparagraph:
‘‘(C) to a veteran who is a former prisoner of war.’’.
(b) RECOVERY OF INDEBTEDNESS.—(1) Section 5302 of such title
is amended by adding at the end the following new subsection:
‘‘(f) The Secretary may not waive under this section the recovery
of any payment or the collection of any indebtedness owed under
section 1722A of this title.’’.
(2) The amendment made by paragraph (1) shall apply with
respect to amounts that become due to the United States under
section 1722A of title 38, United States Code, on or after the
date of the enactment of this Act.
SEC. 10022. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN
COMPENSATION AND DIC RATES.
(a) FISCAL YEAR 1996 COLA.—(1) Effective as of December
1, 1995, the Secretary of Veterans Affairs shall recompute any
increase in an adjustment that is otherwise provided by law to
be effective during fiscal year 1996 in the rates of disability com-
pensation and dependency and indemnity compensation paid by
the Secretary as such rates were in effect on November 30, 1995.
The recomputation shall provide for the same percentage increase
as provided under such law, but with amounts so recomputed
(if not a whole dollar amount) rounded down to the next lower
whole dollar amount (rather than to the nearest whole dollar
amount) and with each old-law DIC rate increased by the amount
by which the new-law DIC rate is increased (rather than by a
uniform percentage).
(2) For purposes of paragraph (1):
(A) The term ‘‘old-law DIC rate’’ means a dollar amount
in effect under section 1311(a)(3) of title 38, United States
Code.
(B) The term ‘‘new-law DIC rate’’ means the dollar amount
in effect under section 1311(a)(1) of title 38, United States
Code.
(b) OUT-YEAR COMPENSATION COLAS.—(1) Chapter 11 of title
38, United States Code, is amended by inserting after section 1102
the following new section:
‘‘§ 1103. Cost-of-living adjustments
‘‘(a) In the computation of cost-of-living adjustments for fiscal
years 1997 through 2002 in the rates of, and dollar limitations
applicable to, compensation payable under this chapter, such adjust-
ments shall be made by a uniform percentage that is no more
than the percentage equal to the social security increase for that
fiscal year, with all increased monthly rates and limitations (other
than increased rates or limitations equal to a whole dollar amount)
rounded down to the next lower whole dollar amount.
‘‘(b) For purposes of this section, the term ‘social security
increase’ means the percentage by which benefit amounts payable
under title II of the Social Security Act (42 U.S.C. 401 et seq.)
are increased for any fiscal year as a result of a determination
under section 215(i) of such Act (42 U.S.C. 415(i)).’’.
H. R. 2491—443
(2) The table of sections at the beginning of such chapter
is amended by inserting after the item relating to section 1102
the following new item:
‘‘1103. Cost-of-living adjustments.’’.
(c) OUT-YEAR DIC COLAS.—(1) Chapter 13 of title 38, United
States Code, is amended by inserting after section 1302 the follow-
ing new section:
‘‘§ 1303. Cost-of-living adjustments
‘‘(a) In the computation of cost-of-living adjustments for fiscal
years 1997 through 2002 in the rates of dependency and indemnity
compensation payable under this chapter, such adjustments (except
as provided in subsection (b)) shall be made by a uniform percentage
that is no more than the percentage equal to the social security
increase for that fiscal year, with all increased monthly rates (other
than increased rates equal to a whole dollar amount) rounded
down to the next lower whole dollar amount.
‘‘(b)(1) Cost-of-living adjustments for each of fiscal years 1997
through 2002 in old-law DIC rates shall be in a whole dollar
amount that is no greater than the amount by which the new-
law DIC rate is increased for that fiscal year as determined under
subsection (a).
‘‘(2) For purposes of paragraph (1):
‘‘(A) The term ‘old-law DIC rates’ means the dollar amounts
in effect under section 1311(a)(3) of this title.
‘‘(B) The term ‘new-law DIC rate’ means the dollar amount
in effect under section 1311(a)(1) of this title.
‘‘(c) For purposes of this section, the term ‘social security
increase’ means the percentage by which benefit amounts payable
under title II of the Social Security Act (42 U.S.C. 401 et seq.)
are increased for any fiscal year as a result of a determination
under section 215(i) of such Act (42 U.S.C. 415(i)).’’.
(2) The table of sections at the beginning of such chapter
is amended by inserting after the item relating to section 1302
the following new item:
‘‘1303. Cost-of-living adjustments.’’.
SEC. 10023. REVISED STANDARD FOR LIABILITY FOR INJURIES
RESULTING FROM DEPARTMENT OF VETERANS AFFAIRS
TREATMENT.
(a) REVISED STANDARD.—Section 1151 of title 38, United States
Code, is amended—
(1) by designating the second sentence as subsection (c);
(2) by striking out the first sentence and inserting in lieu
thereof the following:
‘‘(a) Compensation under this chapter and dependency and
indemnity compensation under chapter 13 of this title shall be
awarded for a qualifying additional disability of a veteran or the
qualifying death of a veteran in the same manner as if such disabil-
ity or death were service-connected.
‘‘(b)(1) For purposes of this section, a disability or death is
a qualifying additional disability or a qualifying death only if the
disability or death—
‘‘(A) was caused by Department health care and was a
proximate result of—
‘‘(i) negligence on the part of the Department in fur-
nishing the Department health care; or
H. R. 2491—444
‘‘(ii) an event not reasonably foreseeable; or
‘‘(B) was incurred as a proximate result of the provision
of training and rehabilitation services by the Secretary (includ-
ing by a service-provider used by the Secretary for such purpose
under section 3115 of this title) as part of an approved
rehabilitation program under chapter 31 of this title.
‘‘(2) For purposes of this section, the term ‘Department health
care’ means hospital care, medical or surgical treatment, or an
examination that is furnished under any law administered by the
Secretary to a veteran by a Department employee or in a facility
over which the Secretary has direct jurisdiction.
‘‘(3) A disability or death of a veteran which is the result
of the veteran’s willful misconduct is not a qualifying disability
or death for purposes of this section.’’; and
(3) by adding at the end the following:
‘‘(d) Effective with respect to injuries, aggravations of injuries,
and deaths occurring after September 30, 2002, a disability or
death is a qualifying additional disability or a qualifying death
for purposes of this section (notwithstanding the provisions of sub-
section (b)(1)) if the disability or death—
‘‘(1) was the result of Department health care; or
‘‘(2) was the result of the pursuit of a course of vocational
rehabilitation under chapter 31 of this title.’’.
(b) CONFORMING AMENDMENTS.—Subsection (c) of such section,
as designated by subsection (a)(1), is amended—
(1) by striking out ‘‘, aggravation,’’ both places it appears;
and
(2) by striking out ‘‘sentence’’ and inserting in lieu thereof
‘‘subsection’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to any administrative or judicial determination of eligi-
bility for benefits under section 1151 of title 38, United States
Code, based on a claim that is received by the Secretary on or
after October 1, 1995, including any such determination based
on an original application or an application seeking to reopen,
revise, reconsider, or otherwise readjudicate any claim for benefits
under section 1151 of that title or any predecessor provision of
law.
SEC. 10024. WITHHOLDING OF PAYMENTS AND BENEFITS.
(a) NOTICE REQUIRED IN LIEU OF CONSENT OR COURT ORDER.—
Section 3726 of title 38, United States Code, is amended by striking
out ‘‘unless’’ and all that follows and inserting in lieu thereof
the following: ‘‘unless the Secretary provides such veteran or surviv-
ing spouse with notice by certified mail with return receipt
requested of the authority of the Secretary to waive the payment
of indebtedness under section 5302(b) of this title. If the Secretary
does not waive the entire amount of the liability, the Secretary
shall then determine whether the veteran or surviving spouse
should be released from liability under section 3713(b) of this title.
If the Secretary determines that the veteran or surviving spouse
should not be released from liability, the Secretary shall notify
the veteran or surviving spouse of that determination and provide
a notice of the procedure for appealing that determination, unless
the Secretary has previously made such determination and notified
the veteran or surviving spouse of the procedure for appealing
the determination.’’.
H. R. 2491—445
(b) CONFORMING AMENDMENT.—Section 5302(b) of such title
is amended by inserting ‘‘with return receipt requested’’ after ‘‘cer-
tified mail’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to any indebtedness to the United States
arising pursuant to chapter 37 of title 38, United States Code,
before, on, or after the date of the enactment of this Act.
TITLE XI—REVENUE PROVISIONS
SEC. 11000. SHORT TITLES; AMENDMENT OF 1986 CODE; TABLE OF
CONTENTS.
(a) REVENUE RECONCILIATION ACT.—This title may be cited
as the ‘‘Revenue Reconciliation Act of 1995’’.
(b) CONTRACT WITH AMERICA.—Subtitles A, B, C, and D of
this title may be cited as the ‘‘Contract With America Tax Relief
Act of 1995’’.
(c) 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 provision, the reference shall be considered to be made
to a section or other provision of the Internal Revenue Code of
1986.
(d) TABLE OF CONTENTS.—The table of contents for this title
is as follows:
TITLE XI—REVENUE PROVISIONS
Sec. 11000. Short titles; amendment of 1986 Code; table of contents.
Subtitle A—Family Tax Relief
Sec. 11001. Child tax credit.
Sec. 11002. Reduction in marriage penalty.
Sec. 11003. Credit for adoption expenses.
Sec. 11004. Deduction for interest on education loans.
Sec. 11005. Deduction for taxpayers with certain persons requiring custodial care
in their households.
Subtitle B—Savings and Investment Incentives
CHAPTER 1—RETIREMENT SAVINGS INCENTIVES
SUBCHAPTER A—INDIVIDUAL RETIREMENT PLANS
PART I—RESTORATION OF IRA DEDUCTION
Sec. 11011. Restoration of IRA deduction.
Sec. 11012. Inflation adjustment for deductible amount.
Sec. 11013. Homemakers eligible for full IRA deduction.
PART II—NONDEDUCTIBLE TAX-FREE IRAS
Sec. 11015. Establishment of American Dream IRA.
SUBCHAPTER B—PENALTY-FREE DISTRIBUTIONS
Sec. 11016. Distributions from certain plans may be used without penalty to pur-
chase first homes or to pay higher education or financially devastating
medical expenses.
SUBCHAPTER C—SIMPLE SAVINGS PLANS
Sec. 11018. Establishment of savings incentive match plans for employees of small
employers.
Sec. 11019. Extension of simple plan to 401(k) arrangements.
CHAPTER 2—CAPITAL GAINS REFORM
SUBCHAPTER A—TAXPAYERS OTHER THAN CORPORATIONS
Sec. 11021. Capital gains deduction.
H. R. 2491—446
Sec. 11022. Indexing of certain assets acquired after December 31, 2000, for pur-
poses of determining gain.
Sec. 11023. Modifications to exclusion of gain on certain small business stock.
SUBCHAPTER B—CORPORATE CAPITAL GAINS
Sec. 11025. Reduction of alternative capital gain tax for corporations.
SUBCHAPTER C—CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR
EXCHANGE OF PRINCIPAL RESIDENCE
Sec. 11026. Capital loss deduction allowed with respect to sale or exchange of prin-
cipal residence.
CHAPTER 3—CORPORATE ALTERNATIVE MINIMUM TAX REFORM
Sec. 11031. Modification of depreciation rules under minimum tax.
Sec. 11032. Long-term unused credits allowed against minimum tax.
CHAPTER 4—COST RECOVERY PROVISIONS
Sec. 11035. Treatment of abandonment of lessor improvements at termination of
lease.
Sec. 11036. Increase in expense treatment for small businesses.
Subtitle C—Health Related Provisions
CHAPTER 1—LONG-TERM CARE PROVISIONS
SUBCHAPTER A—LONG-TERM CARE SERVICES AND CONTRACTS
PART I—GENERAL PROVISIONS
Sec. 11041. Treatment of long-term care insurance.
Sec. 11042. Qualified long-term care services treated as medical care.
Sec. 11043. Certain exchanges of life insurance contracts for qualified long-term
care insurance contracts not taxable.
Sec. 11044. Exception from penalty tax for amounts withdrawn from certain retire-
ment plans for qualified long-term care insurance.
Sec. 11045. Reporting requirements.
PART II—CONSUMER PROTECTION PROVISIONS
Sec. 11051. Policy requirements.
Sec. 11052. Requirements for issuers of long-term care insurance policies.
Sec. 11053. Coordination with State requirements.
Sec. 11054. Effective dates.
SUBCHAPTER B—TREATMENT OF ACCELERATED DEATH BENEFITS
Sec. 11061. Treatment of accelerated death benefits by recipient.
Sec. 11062. Tax treatment of companies issuing qualified accelerated death benefit
riders.
CHAPTER 2—MEDICAL SAVINGS ACCOUNTS
Sec. 11066. Medical savings accounts.
CHAPTER 3—INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
EMPLOYED INDIVIDUALS
Sec. 11068. Increase in deduction for health insurance costs of self-employed indi-
viduals.
Subtitle D—Estate and Gift Provisions
Sec. 11071. Cost-of-living adjustments relating to estate and gift tax provisions.
Sec. 11072. Family-owned business exclusion.
Sec. 11073. Treatment of land subject to a qualified conservation easement.
Sec. 11074. Expansion of exception from generation-skipping transfer tax for trans-
fers to individuals with deceased parents.
Sec. 11075. Extension of treatment of certain rents under section 2032A to lineal
descendants.
Subtitle E—Extension of Expiring Provisions
CHAPTER 1—TEMPORARY EXTENSIONS
Sec. 11111. Work opportunity tax credit.
Sec. 11112. Employer-provided educational assistance programs.
Sec. 11113. Research credit.
H. R. 2491—447
Sec. 11114. Orphan drug tax credit.
Sec. 11115. Contributions of stock to private foundations.
Sec. 11116. Delay of tax on fuel used in commercial aviation.
Sec. 11117. Extension of airport and airway trust fund excise taxes.
Sec. 11118. Extension of Internal Revenue Service user fees.
CHAPTER 2—SUNSET OF LOW-INCOME HOUSING CREDIT
Sec. 11121. Sunset of low-income housing credit.
CHAPTER 3—EXTENSIONS OF SUPERFUND AND OIL SPILL LIABILITY TAXES
Sec. 11131. Extension of Hazardous Substance Superfund taxes.
Sec. 11132. Extension of oil spill liability tax.
CHAPTER 4—EXTENSIONS RELATING TO FUEL TAXES
Sec. 11141. Ethanol blender refunds.
Sec. 11142. Extension of binding contract date for biomass and coal facilities.
Sec. 11143. Exemption from diesel fuel dyeing requirements with respect to certain
States.
Sec. 11144. Moratorium for excise tax on diesel fuel sold for use or used in diesel-
powered motorboats.
CHAPTER 5—PERMANENT EXTENSION OF FUTA EXEMPTION FOR ALIEN
AGRICULTURAL WORKERS
Sec. 11151. FUTA exemption for alien agricultural workers.
CHAPTER 6—DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF
CERTAIN VETERANS PROGRAMS
Sec. 11161. Disclosure of return information for administration of certain veterans
programs.
Subtitle F—Taxpayer Bill of Rights 2 Provisions
Sec. 11201. Expansion of authority to abate interest.
Sec. 11202. Extension of interest-free period for payment of tax after notice and de-
mand.
Sec. 11203. Joint return may be made after separate returns without full payment
of tax.
Sec. 11204. Modifications to certain levy exemption amounts.
Sec. 11205. Offers-in-compromise.
Sec. 11206. Increased limit on attorney fees.
Sec. 11207. Award of litigation costs permitted in declaratory judgment proceed-
ings.
Sec. 11208. Increase in limit on recovery of civil damages for unauthorized collec-
tion actions.
Sec. 11209. Enrolled agents included as third-party recordkeepers.
Sec. 11210. Annual reminders to taxpayers with outstanding delinquent accounts.
Subtitle G—Casualty and Involuntary Conversion Provisions
Sec. 11251. Basis adjustment to property held by corporation where stock in cor-
poration is replacement property under involuntary conversion rules.
Sec. 11252. Expansion of requirement that involuntarily converted property be re-
placed with property acquired from an unrelated person.
Sec. 11253. Special rule for crop insurance proceeds and disaster payments.
Sec. 11254. Application of involuntary exclusion rules to presidentially declared dis-
asters.
Subtitle H—Exempt Organizations and Charitable Reforms
CHAPTER 1—EXCISE TAX ON AMOUNTS OF PRIVATE EXCESS BENEFITS
Sec. 11271. Excise taxes for failure by certain charitable organizations to meet cer-
tain qualification requirements.
Sec. 11272. Reporting of certain excise taxes and other information.
Sec. 11273. Increase in penalties on exempt organizations for failure to file com-
plete and timely annual returns.
CHAPTER 2—OTHER PROVISIONS
Sec. 11276. Cooperative service organizations for certain foundations.
Sec. 11277. Exclusion from unrelated business taxable income for certain sponsor-
ship payments.
Sec. 11278. Treatment of dues paid to agricultural or horticultural organizations.
H. R. 2491—448
Sec. 11279. Repeal of credit for contributions to community development corpora-
tions.
Subtitle I—Tax Reform and Other Provisions
CHAPTER 1—PROVISIONS RELATING TO BUSINESSES
Sec. 11301. Tax treatment of certain extraordinary dividends.
Sec. 11302. Registration of confidential corporate tax shelters.
Sec. 11303. Denial of deduction for interest on loans with respect to company-
owned insurance.
Sec. 11304. Termination of suspense accounts for family corporations required to
use accrual method of accounting.
Sec. 11305. Termination of Puerto Rico and possession tax credit.
Sec. 11306. Depreciation under income forecast method.
Sec. 11307. Transfers of excess pension assets.
Sec. 11308. Repeal of exclusion for interest on loans used to acquire employer secu-
rities.
CHAPTER 2—LEGAL REFORMS
Sec. 11311. Repeal of exclusion for punitive damages and for damages not attrib-
utable to physical injuries or sickness.
Sec. 11312. Reporting of certain payments made to attorneys.
CHAPTER 3—REFORMS RELATING TO NONRECOGNITION PROVISIONS
Sec. 11321. No rollover or exclusion of gain on sale of principal residence which is
attributable to depreciation deductions.
Sec. 11322. Nonrecognition of gain on sale of principal residence by noncitizens lim-
ited to new residences located in the United States.
CHAPTER 4—EXCISE TAX AND TAX-EXEMPT BOND PROVISIONS
Sec. 11331. Repeal of diesel fuel tax rebate to purchasers of diesel-powered auto-
mobiles and light trucks.
Sec. 11332. Modifications to excise tax on ozone-depleting chemicals.
Sec. 11333. Election to avoid tax-exempt bond penalties for local furnishers of elec-
tricity and gas.
Sec. 11334. Tax-exempt bonds for sale of Alaska Power Administration Facility.
CHAPTER 5—FOREIGN TRUST TAX COMPLIANCE
Sec. 11341. Improved information reporting on foreign trusts.
Sec. 11342. Modifications of rules relating to foreign trusts having one or more
United States beneficiaries.
Sec. 11343. Foreign persons not to be treated as owners under grantor trust rules.
Sec. 11344. Information reporting regarding foreign gifts.
Sec. 11345. Modification of rules relating to foreign trusts which are not grantor
trusts.
Sec. 11346. Residence of estates and trusts, etc.
CHAPTER 6—TREATMENT OF INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP
Sec. 11348. Revision of income, estate, and gift taxes on individuals who lose Unit-
ed States citizenship.
Sec. 11349. Information on individuals losing United States citizenship.
CHAPTER 7—FINANCIAL ASSET SECURITIZATION INVESTMENTS
Sec. 11351. Financial Asset Securitization Investment Trusts.
CHAPTER 8—DEPRECIATION PROVISIONS
Sec. 11361. Treatment of contributions in aid of construction.
Sec. 11362. Deduction for certain operating authority.
Sec. 11363. Class life for gas station convenience stores and similar structures.
CHAPTER 9—OTHER PROVISIONS
Sec. 11371. Application of failure-to-pay penalty to substitute returns.
Sec. 11372. Extension of withholding to certain gambling winnings.
Sec. 11373. Losses from foreclosure property.
Sec. 11374. Nonrecognition treatment for certain transfers by common trust funds
to regulated investment companies.
Sec. 11375. Exclusion for energy conservation subsidies limited to subsidies with
respect to dwelling units.
Sec. 11376. Election to cease status as qualified scholarship funding corporation.
Sec. 11377. Certain amounts derived from foreign corporations treated as unrelated
business taxable income.
H. R. 2491—449
Sec. 11378. Repeal of financial institution transition rule to interest allocation
rules.
Sec. 11379. Repeal of bad debt reserve method for thrift savings associations.
Sec. 11380. Newspaper distributors treated as direct sellers.
Subtitle J—Tax Simplification
CHAPTER 1—PROVISIONS RELATING TO INDIVIDUALS
SUBCHAPTER A—PROVISIONS RELATING TO ROLLOVER OF GAIN ON SALE OF PRINCIPAL
RESIDENCE
Sec. 11401. Multiple sales within rollover period.
Sec. 11402. Special rules in case of divorce.
Sec. 11403. One-time exclusion of gain from sale of principal residence for certain
spouses.
SUBCHAPTER B—OTHER PROVISIONS
Sec. 11411. Treatment of certain reimbursed expenses of rural mail carriers.
Sec. 11412. Treatment of traveling expenses of certain Federal employees engaged
in criminal investigations.
CHAPTER 2—PENSION SIMPLIFICATION
SUBCHAPTER A—SIMPLIFIED DISTRIBUTION RULES
Sec. 11421. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 11422. Repeal of $5,000 exclusion of employees’ death benefits.
Sec. 11423. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 11424. Required distributions.
SUBCHAPTER B—INCREASED ACCESS TO PENSION PLANS
Sec. 11431. Tax-exempt organizations eligible under section 401(k).
SUBCHAPTER C—NONDISCRIMINATION PROVISIONS
Sec. 11441. Definition of highly compensated employees; repeal of family aggrega-
tion.
Sec. 11442. Modification of additional participation requirements.
Sec. 11443. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 11444. Definition of compensation for section 415 purposes.
SUBCHAPTER D—MISCELLANEOUS PROVISIONS
Sec. 11451. Plans covering self-employed individuals.
Sec. 11452. Elimination of special vesting rule for multiemployer plans.
Sec. 11453. Distributions under rural cooperative plans.
Sec. 11454. Treatment of governmental plans under section 415.
Sec. 11455. Uniform retirement age.
Sec. 11456. Contributions on behalf of disabled employees.
Sec. 11457. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 11458. Trust requirement for deferred compensation plans of State and local
governments.
Sec. 11459. Transition rule for computing maximum benefits under section 415 lim-
itations.
Sec. 11460. Modifications of section 403(b).
Sec. 11461. Waiver of minimum period for joint and survivor annuity explanation
before annuity starting date.
Sec. 11462. Repeal of limitation in case of defined benefit plan and defined con-
tribution plan for same employee; excess distributions.
Sec. 11463. Tax on prohibited transactions.
Sec. 11464. Treatment of leased employees.
CHAPTER 3—TREATMENT OF LARGE PARTNERSHIPS
Sec. 11471. Simplified flow-through for electing large partnerships.
Sec. 11472. Returns may be required on magnetic media.
CHAPTER 4—FOREIGN PROVISIONS
SUBCHAPTER A—MODIFICATIONS TO TREATMENT OF PASSIVE FOREIGN INVESTMENT
COMPANIES
Sec. 11481. United States shareholders of controlled foreign corporations not sub-
ject to PFIC inclusion.
H. R. 2491—450
Sec. 11482. Election of mark to market for marketable stock in passive foreign in-
vestment company.
Sec. 11483. Modifications to definition of passive income.
Sec. 11484. Effective date.
SUBCHAPTER B—TREATMENT OF CONTROLLED FOREIGN CORPORATIONS
Sec. 11486. Gain on certain stock sales by controlled foreign corporations treated
as dividends.
Sec. 11487. Miscellaneous modifications to subpart F.
Sec. 11488. Indirect foreign tax credit allowed for certain lower tier companies.
Sec. 11489. Repeal of inclusion of certain earnings invested in excess passive as-
sets.
CHAPTER 5—OTHER INCOME TAX PROVISIONS
SUBCHAPTER A—PROVISIONS RELATING TO S CORPORATIONS
Sec. 11501. S corporations permitted to have 75 shareholders.
Sec. 11502. Electing small business trusts.
Sec. 11503. Expansion of post-death qualification for certain trusts.
Sec. 11504. Financial institutions permitted to hold safe harbor debt.
Sec. 11505. Rules relating to inadvertent terminations and invalid elections.
Sec. 11506. Agreement to terminate year.
Sec. 11507. Expansion of post-termination transition period.
Sec. 11508. S corporations permitted to hold subsidiaries.
Sec. 11509. Treatment of distributions during loss years.
Sec. 11510. Treatment of S corporations under subchapter C.
Sec. 11511. Elimination of certain earnings and profits.
Sec. 11512. Carryover of disallowed losses and deductions under at-risk rules al-
lowed.
Sec. 11513. Adjustments to basis of inherited S stock to reflect certain items of in-
come.
Sec. 11514. S corporations eligible for rules applicable to real property subdivided
for sale by noncorporate taxpayers.
Sec. 11515. Effective date.
SUBCHAPTER B—REPEAL OF 30-PERCENT GROSS INCOME LIMITATION ON REGULATED
INVESTMENT COMPANIES
Sec. 11521. Repeal of 30-percent gross income limitation.
SUBCHAPTER C—ACCOUNTING PROVISIONS
Sec. 11551. Modifications to look-back method for long-term contracts.
Sec. 11552. Application of mark to market accounting method to traders in securi-
ties.
Sec. 11553. Modification of ruling amounts for nuclear decommissioning costs.
SUBCHAPTER D—TAX-EXEMPT BOND PROVISION
Sec. 11561. Repeal of debt service-based limitation on investment in certain
nonpurpose investments.
SUBCHAPTER E—INSURANCE PROVISIONS
Sec. 11571. Treatment of certain insurance contracts on retired lives.
Sec. 11572. Treatment of modified guaranteed contracts.
SUBCHAPTER F—OTHER PROVISIONS
Sec. 11581. Closing of partnership taxable year with respect to deceased partner,
etc.
Sec. 11582. Credit for social security taxes paid with respect to employee cash tips.
Sec. 11583. Due date for first quarter estimated tax payments by private founda-
tions.
CHAPTER 6—ESTATES AND TRUSTS
SUBCHAPTER A—INCOME TAX PROVISIONS
Sec. 11601. Certain revocable trusts treated as part of estate.
Sec. 11602. Distributions during first 65 days of taxable year of estate.
Sec. 11603. Separate share rules available to estates.
Sec. 11604. Executor of estate and beneficiaries treated as related persons for dis-
allowance of losses, etc.
Sec. 11605. Limitation on taxable year of estates.
Sec. 11606. Treatment of funeral trusts.
SUBCHAPTER B—ESTATE AND GIFT TAX PROVISIONS
Sec. 11611. Clarification of waiver of certain rights of recovery.
H. R. 2491—451
Sec. 11612. Adjustments for gifts within 3 years of decedent’s death.
Sec. 11613. Clarification of qualified terminable interest rules.
Sec. 11614. Transitional rule under section 2056A.
Sec. 11615. Opportunity to correct certain failures under section 2032A.
Sec. 11616. Gifts may not be revalued for estate tax purposes after expiration of
statute of limitations.
Sec. 11617. Clarifications relating to disclaimers.
Sec. 11618. Clarification of treatment of survivor annuities under qualified ter-
minable interest rules.
Sec. 11619. Treatment under qualified domestic trust rules of forms of ownership
which are not trusts.
SUBCHAPTER C—GENERATION-SKIPPING TAX PROVISIONS
Sec. 11631. Taxable termination not to include direct skips.
CHAPTER 7—EXCISE TAX SIMPLIFICATION
SUBCHAPTER A—PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER
Sec. 11641. Credit or refund for imported bottled distilled spirits returned to dis-
tilled spirits plant.
Sec. 11642. Fermented material from any brewery may be received at a distilled
spirits plant.
Sec. 11643. Refund of tax on wine returned to bond not limited to unmerchantable
wine.
Sec. 11644. Beer may be withdrawn free of tax for destruction.
Sec. 11645. Transfer to brewery of beer imported in bulk without payment of tax.
SUBCHAPTER B—CONSOLIDATION OF TAXES ON AVIATION GASOLINE
Sec. 11651. Consolidation of taxes on aviation gasoline.
SUBCHAPTER C—OTHER EXCISE TAX PROVISIONS
Sec. 11661. Certain combinations not treated as manufacture under retail sales tax
on heavy trucks.
CHAPTER 8—ADMINISTRATIVE PROVISION
Sec. 11671. Certain notices disregarded under provision increasing interest rate on
large corporate underpayments.
Subtitle K—Miscellaneous Provisions
Sec. 11701. Treatment of storage of product samples.
Sec. 11702. Adjustment of death benefit limits for certain policies.
Sec. 11703. Organizations subject to section 833.
Sec. 11704. Correction of inflation adjustment in luxury excise tax on automobiles.
Sec. 11705. Extension and phasedown of luxury passenger automobile tax.
Subtitle L—Generalized System of Preferences
Sec. 11801. Short title.
Sec. 11802. Generalized System of Preferences.
Sec. 11803. Retroactive application for certain liquidations and reliquidations.
Sec. 11804. Conforming amendments.
Subtitle M—Increase in Public Debt Limit
Sec. 11901. Increase in public debt limit.
Subtitle A—Family Tax Relief
SEC. 11001. CHILD TAX CREDIT.
(a) IN GENERAL.—Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is amended
by inserting after section 22 the following new section:
‘‘SEC. 23. CHILD TAX CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to $500 multiplied by the number of qualifying chil-
dren of the taxpayer.
‘‘(b) LIMITATION.—
H. R. 2491—452
‘‘(1) IN GENERAL.—The amount of the credit which would
(but for this subsection) be allowed by subsection (a) shall
be reduced (but not below zero) by $25 for each $1,000 (or
fraction thereof) by which the taxpayer’s adjusted gross income
exceeds the threshold amount.
‘‘(2) THRESHOLD AMOUNT.—For purposes of paragraph (1),
the term ‘threshold amount’ means—
‘‘(A) $110,000 in the case of a joint return,
‘‘(B) $75,000 in the case of an individual who is not
married, and
‘‘(C) $55,000 in the case of a married individual filing
a separate return.
For purposes of this paragraph, marital status shall be deter-
mined under section 7703.
‘‘(c) QUALIFYING CHILD.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualifying child’ means any
individual if—
‘‘(A) the taxpayer is allowed a deduction under section
151 with respect to such individual for such taxable year,
‘‘(B) such individual has not attained the age of 18
as of the close of the calendar year in which the taxable
year of the taxpayer begins, and
‘‘(C) such individual bears a relationship to the tax-
payer described in section 32(c)(3)(B) (determined without
regard to clause (ii) thereof).
‘‘(2) EXCEPTION
FOR
CERTAIN
NONCITIZENS.—The term
‘qualifying child’ shall not include any individual who would
not be a dependent if the first sentence of section 152(b)(3)
were applied without regard to all that follows ‘resident of
the United States’.
‘‘(d) TAXABLE YEAR MUST BE FULL TAXABLE YEAR.—Except
in the case of a taxable year closed by reason of the death of
the taxpayer, no credit shall be allowable under this section in
the case of a taxable year covering a period of less than 12 months.’’.
(b) NOTICE OF CREDIT.—The Secretary of the Treasury shall
transmit to all individual taxpayers by a separate mailing made
on or before February 1, 1996, a notice which states only the
following: ‘‘The Balanced Budget Act of 1995 was recently passed
by the Congress. The Act’s child tax credit allows taxpayers to
reduce their taxes by $500 per child. The credit is effective October
1, 1995. You may wish to check with your employer about changing
your tax withholding to take immediate advantage of the credit
to which you are entitled for the current tax year. In addition,
the Internal Revenue Service will be sending you a form in June
of this year which you may use to claim the credit to which you
are entitled for the period from October 1 through December 31,
1995 ($125 per child for 1995). In order to obtain your 1995 credit,
you should file this form by August 15, 1996. Your refund will
be sent to you sometime after October 1, 1996.’’
(c) CLERICAL AMENDMENT.—The table of sections for subpart
A of part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 22 the following new item:
‘‘Sec. 23. Child tax credit.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
(e) PAYMENT OF 1995 CHILD CREDIT AMOUNT.—
H. R. 2491—453
(1) IN GENERAL.—The Secretary shall take such actions
as are necessary to ensure that the 1995 child credit amount
is paid to taxpayers entitled to payment of such credit amount.
(2) PAYMENTS GENERALLY DURING OCTOBER 1996.—In the
case of taxpayers submitting the form referred to in paragraph
(4) before August 16, 1996, the Secretary shall take such actions
as are necessary to ensure that payments required by para-
graph (1) are mailed after September 30, 1996, and before
October 16, 1996.
(3) 1995 CHILD CREDIT AMOUNT.—For purposes of paragraph
(1), the 1995 child credit amount is an amount equal to 25
percent of the amount of the credit which would be allowed
to the taxpayer under section 23 of the Internal Revenue Code
of 1986 (as added by this section) if such section were in
effect for the taxpayer’s taxable year beginning in 1995.
(4) ENTITLEMENT TO CREDIT.—A taxpayer shall be entitled
to a 1995 child credit amount if (and only if) the taxpayer
submits to the Secretary a form which the Secretary shall
prescribe for purposes of determining such amount. The Sec-
retary shall mail such form to taxpayers on or before June
1, 1996.
(5) PAYMENT TREATED AS OVERPAYMENT.—The 1995 child
credit amount shall be treated for purposes of subtitle F of
such Code as a payment of tax for the taxpayer’s taxable
year beginning in 1995 which was made on August 15, 1996,
or, if later, the date the form referred to in paragraph (4)
is filed, and shall be refunded or credited in the same manner
as if it were an overpayment of tax for such taxable year.
No interest shall be paid under section 6611 of such Code
on amounts paid under paragraph (1) before October 16, 1996.
(6) SECRETARY.—For purposes of this subsection, the term
‘‘Secretary’’ means the Secretary of the Treasury or his delegate.
SEC. 11002. REDUCTION IN MARRIAGE PENALTY.
(a) INCREASE
IN BASIC STANDARD DEDUCTION
FOR MARRIED
INDIVIDUALS.—Section 63(c) (relating to standard deduction) is
amended—
(1) by striking ‘‘$5,000’’ in paragraph (2)(A) and inserting
‘‘the applicable dollar amount’’,
(2) by striking ‘‘$2,500’’ in paragraph (2)(D) and inserting
‘‘1⁄2 of the applicable dollar amount’’, and
(3) by inserting after paragraph (6) the following new para-
graph:
‘‘(7) APPLICABLE DOLLAR AMOUNT.—For purposes of para-
graph (2), the applicable dollar amount for any taxable year
shall be the product of the dollar amount in effect under para-
graph (2)(C) for such year multiplied by the applicable factor
determined under the following table:
‘‘For taxable years beginning in calendar year—
The
applicable
factor is—
1996 ...................................................................................................
1.68
1997 ...................................................................................................
1.71
1998 ...................................................................................................
1.72
1999 ...................................................................................................
1.73
2000 ...................................................................................................
1.75
2001 ...................................................................................................
1.77
2002 ...................................................................................................
1.78
2003 ...................................................................................................
1.88
H. R. 2491—454
‘‘For taxable years beginning in calendar year—
The
applicable
factor is—
2004 ...................................................................................................
1.91
2005 and thereafter ..........................................................................
2.00.
If the amount determined under the preceding sentence is
not a multiple of $50, such amount shall be rounded to the
nearest multiple of $50.’’
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11003. CREDIT FOR ADOPTION EXPENSES.
(a) IN GENERAL.—Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits), as amended
by section 11001, is amended by inserting after section 23 the
following new section:
‘‘SEC. 24. ADOPTION EXPENSES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year the amount of the qualified adoption expenses
paid or incurred by the taxpayer during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR LIMITATION.—The aggregate amount of quali-
fied adoption expenses which may be taken into account under
subsection (a) with respect to the adoption of a child shall
not exceed $5,000.
‘‘(2) INCOME LIMITATION.—The amount allowable as a credit
under subsection (a) for any taxable year shall be reduced
(but not below zero) by an amount which bears the same
ratio to the amount so allowable (determined without regard
to this paragraph but with regard to paragraph (1)) as—
‘‘(A) the amount (if any) by which the taxpayer’s
adjusted gross income (determined without regard to sec-
tions 911, 931, and 933) exceeds $75,000, bears to
‘‘(B) $40,000.
‘‘(3) DENIAL OF DOUBLE BENEFIT.—
‘‘(A) IN GENERAL.—No credit shall be allowed under
subsection (a) for any expense for which a deduction or
credit is allowable under any other provision of this chap-
ter.
‘‘(B) GRANTS.—No credit shall be allowed under sub-
section (a) for any expense to the extent that funds for
such expense are received under any Federal, State, or
local program. The preceding sentence shall not apply to
expenses for the adoption of a child with special needs.
‘‘(C) REIMBURSEMENT.—No credit shall be allowed
under subsection (a) for any expense to the extent that
such expense is reimbursed and the reimbursement is
excluded from gross income under section 138.
‘‘(c) CARRYFORWARDS OF UNUSED CREDIT.—If the credit allow-
able under subsection (a) for any taxable year exceeds the limitation
imposed by section 26(a) for such taxable year reduced by the
sum of the credits allowable under this subpart (other than this
section), such excess shall be carried to the succeeding taxable
year and added to the credit allowable under subsection (a) for
such taxable year. No credit may be carried forward under this
subsection to any taxable year following the fifth taxable year
H. R. 2491—455
after the taxable year in which the credit arose. For purposes
of the preceding sentence, credits shall be treated as used on a
first-in first-out basis.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED ADOPTION EXPENSES.—The term ‘qualified
adoption expenses’ means reasonable and necessary adoption
fees, court costs, attorney fees, and other expenses—
‘‘(A) which are directly related to, and the principal
purpose of which is for, the legal adoption of an eligible
child by the taxpayer, and
‘‘(B) which are not incurred in violation of State or
Federal law or in carrying out any surrogate parenting
arrangement.
Such term shall not include expenses for a foreign adoption
unless the child is actually adopted.
‘‘(2) EXPENSES
FOR
ADOPTION
OF
SPOUSE’S
CHILD
NOT
ELIGIBLE.—The term ‘qualified adoption expenses’ shall not
include any expenses in connection with the adoption by an
individual of a child who is the child of such individual’s spouse.
‘‘(3) ELIGIBLE CHILD.—The term ‘eligible child’ means any
individual—
‘‘(A) who has not attained age 18 as of the time of
the adoption, or
‘‘(B) who is physically or mentally incapable of caring
for himself.
‘‘(4) CHILD
WITH
SPECIAL
NEEDS.—The term ‘child with
special needs’ means any child if—
‘‘(A) a State has determined that the child cannot
or should not be returned to the home of his parents,
and
‘‘(B) such State has determined that there exists with
respect to the child a specific factor or condition (such
as his ethnic background, age, or membership in a minority
or sibling group, or the presence of factors such as medical
conditions or physical, mental, or emotional handicaps)
because of which it is reasonable to conclude that such
child cannot be placed with adoptive parents without
providing adoption assistance.
‘‘(e) MARRIED COUPLES MUST FILE JOINT RETURNS.—Rules simi-
lar to the rules of paragraphs (2), (3), and (4) of section 21(e)
shall apply for purposes of this section.’’.
(b) EXCLUSION
OF AMOUNTS RECEIVED UNDER EMPLOYER’S
ADOPTION ASSISTANCE PROGRAMS.—Part III of subchapter B of
chapter 1 (relating to items specifically excluded from gross income),
as amended by title VIII, is amended by redesignating section
138 as section 139 and by inserting after section 137 the following
new section:
‘‘SEC. 138. ADOPTION ASSISTANCE PROGRAMS.
‘‘(a) IN GENERAL.—Gross income of an employee does not
include amounts paid or expenses incurred by the employer for
qualified adoption expenses in connection with the adoption of
a child by an employee if such amounts are furnished pursuant
to an adoption assistance program.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR LIMITATION.—The aggregate amount exclud-
able from gross income under subsection (a) for all taxable
H. R. 2491—456
years with respect to the adoption of any single child by the
taxpayer shall not exceed $5,000.
‘‘(2) INCOME
LIMITATION.—The amount excludable from
gross income under subsection (a) for any taxable year shall
be reduced (but not below zero) by an amount which bears
the same ratio to the amount so excludable (determined without
regard to this paragraph but with regard to paragraph (1))
as—
‘‘(A) the amount (if any) by which the taxpayer’s
adjusted gross income (determined without regard to this
section and sections 911, 931, and 933) exceeds $75,000,
bears to
‘‘(B) $40,000.
‘‘(c) ADOPTION ASSISTANCE PROGRAM.—For purposes of this sec-
tion, an adoption assistance program is a plan of an employer—
‘‘(1) under which the employer provides employees with
adoption assistance, and
‘‘(2) which meets requirements similar to the requirements
of paragraphs (2), (3), and (5) of section 127(b).
An adoption reimbursement program operated under section 1052
of title 10, United States Code (relating to armed forces) or section
514 of title 14, United States Code (relating to members of the
Coast Guard) shall be treated as an adoption assistance program
for purposes of this section.
‘‘(d) QUALIFIED ADOPTION EXPENSES.—For purposes of this sec-
tion, the term ‘qualified adoption expenses’ has the meaning given
such term by section 24(d).’’.
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for subpart A of part IV of sub-
chapter A of chapter 1, as amended by section 11001, is
amended by inserting after the item relating to section 23
the following new item:
‘‘Sec. 24. Adoption expenses.’’.
(2) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
138 and inserting the following:
‘‘Sec. 138. Adoption assistance programs.
‘‘Sec. 139. Cross reference to other Acts.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11004. DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating
to additional itemized deductions for individuals) is amended by
redesignating section 220 as section 221 and by inserting after
section 219 the following new section:
‘‘SEC. 220. INTEREST ON EDUCATION LOANS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an individual,
there shall be allowed as a deduction for the taxable year an
amount equal to the interest paid by the taxpayer during the
taxable year on any qualified education loan.
‘‘(b) MAXIMUM DEDUCTION.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the deduction allowed by subsection (a) for the taxable year
shall not exceed $2,500.
H. R. 2491—457
‘‘(2) LIMITATION
BASED
ON
MODIFIED
ADJUSTED
GROSS
INCOME.—
‘‘(A) IN
GENERAL.—If the modified adjusted gross
income of the taxpayer for the taxable year exceeds $45,000
($65,000 in the case of a joint return), the amount which
would (but for this paragraph) be allowable as a deduction
under this section shall be reduced (but not below zero)
by the amount which bears the same ratio to the amount
which would be so allowable as such excess bears to
$20,000.
‘‘(B) MODIFIED
ADJUSTED
GROSS
INCOME.—The term
‘modified adjusted gross income’ means adjusted gross
income determined—
‘‘(i) without regard to this section and sections
135, 911, 931, and 933, and
‘‘(ii) after application of sections 86, 219, and 469.
For purposes of sections 86, 135, 219, and 469, adjusted
gross income shall be determined without regard to the
deduction allowed under this section.
‘‘(C) INFLATION ADJUSTMENT.—In the case of any tax-
able year beginning after 1996, the $45,000 and $65,000
amounts referred to in subparagraph (A) shall be increased
by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment determined
under section (1)(f)(3) for the calendar year in which
the taxable year begins, by substituting ‘1995’ for
‘1992’.
‘‘(D) ROUNDING.—If any amount as adjusted under
subparagraph (C) is not a multiple of $50, such amount
shall be rounded to the nearest multiple of $50.
‘‘(c) DEPENDENTS NOT ELIGIBLE FOR DEDUCTION.—No deduction
shall be allowed by this section to an individual for the taxable
year if a deduction under section 151 with respect to such individual
is allowed to another taxpayer for the taxable year beginning in
the calendar year in which such individual’s taxable year begins.
‘‘(d) LIMIT ON PERIOD DEDUCTION ALLOWED.—A deduction shall
be allowed under this section only with respect to interest paid
on any qualified education loan during the first 60 months (whether
or not consecutive) in which interest payments are required. For
purposes of this paragraph, any loan and all refinancings of such
loan shall be treated as 1 loan.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED EDUCATION LOAN.—The term ‘qualified edu-
cation loan’ means any indebtedness incurred to pay qualified
higher education expenses—
‘‘(A) which are incurred on behalf of the taxpayer or
the taxpayer’s spouse,
‘‘(B) which are paid or incurred within a reasonable
period of time before or after the indebtedness is incurred,
and
‘‘(C) which are attributable to education furnished dur-
ing a period during which the recipient was at least a
half-time student.
Such term includes indebtedness used to refinance indebtedness
which qualifies as a qualified education loan. The term ‘quali-
fied education loan’ shall not include any indebtedness owed
H. R. 2491—458
to a person who is related (within the meaning of section
267(b) or 707(b)(1)) to the taxpayer.
‘‘(2) QUALIFIED HIGHER EDUCATION EXPENSES.—The term
‘qualified higher education expenses’ means the cost of attend-
ance (as defined in section 472 of the Higher Education Act
of 1965, 20 U.S.C. 1087ll, as in effect on the day before the
date of the enactment of this Act) of the taxpayer or the
taxpayer’s spouse at an eligible educational institution, reduced
by the sum of—
‘‘(A) the amount excluded from gross income under
section 135 by reason of such expenses, and
‘‘(B) the amount of the reduction described in section
135(d)(1).
For purposes of the preceding sentence, the term ‘eligible edu-
cational institution’ has the same meaning given such term
by section 135(c)(3), except that such term shall also include
an institution conducting an internship or residency program
leading to a degree or certificate awarded by an institution
of higher education, a hospital, or a health care facility which
offers postgraduate training.
‘‘(3) HALF-TIME
STUDENT.—The term ‘half-time student’
means any individual who would be a student as defined in
section 151(c)(4) if ‘half-time’ were substituted for ‘full-time’
each place it appears in such section.
‘‘(4) DEPENDENT.—The term ‘dependent’ has the meaning
given such term by section 152.
‘‘(f) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduction shall be
allowed under this section for any amount for which a deduction
is allowable under any other provision of this chapter.
‘‘(2) MARRIED COUPLES MUST FILE JOINT RETURN.—If the
taxpayer is married at the close of the taxable year, the deduc-
tion shall be allowed under subsection (a) only if the taxpayer
and the taxpayer’s spouse file a joint return for the taxable
year.
‘‘(3) MARITAL STATUS.—Marital status shall be determined
in accordance with section 7703.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES
OTHER DEDUCTIONS.—Subsection (a) of section 62 is amended by
inserting after paragraph (15) the following new paragraph:
‘‘(16) INTEREST
ON
EDUCATION
LOANS.—The deduction
allowed by section 220.’’
(c) REPORTING REQUIREMENT.—
(1) IN GENERAL.—Subpart B of part III of subchapter A
of chapter 61 (relating to information concerning transactions
with other persons) is amended by inserting after section 6050P
the following new section:
‘‘SEC. 6050Q. RETURNS RELATING TO EDUCATION LOAN INTEREST
RECEIVED IN TRADE OR BUSINESS FROM INDIVIDUALS.
‘‘(a) EDUCATION LOAN INTEREST OF $600 OR MORE.—Any per-
son—
‘‘(1) who is engaged in a trade or business, and
‘‘(2) who, in the course of such trade or business, receives
from any individual interest aggregating $600 or more for any
calendar year on 1 or more qualified education loans,
H. R. 2491—459
shall make the return described in subsection (b) with respect
to each individual from whom such interest was received at such
time as the Secretary may by regulations prescribe.
‘‘(b) FORM AND MANNER OF RETURNS.—A return is described
in this subsection if such return—
‘‘(1) is in such form as the Secretary may prescribe,
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the individual
from whom the interest described in subsection (a)(2) was
received,
‘‘(B) the amount of such interest received for the cal-
endar year, and
‘‘(C) such other information as the Secretary may pre-
scribe.
‘‘(c) APPLICATION TO GOVERNMENTAL UNITS.—For purposes of
subsection (a)—
‘‘(1) TREATED AS PERSONS.—The term ‘person’ includes any
governmental unit (and any agency or instrumentality thereof).
‘‘(2) SPECIAL RULES.—In the case of a governmental unit
or any agency or instrumentality thereof—
‘‘(A) subsection (a) shall be applied without regard
to the trade or business requirement contained therein,
and
‘‘(B) any return required under subsection (a) shall
be made by the officer or employee appropriately designated
for the purpose of making such return.
‘‘(d) STATEMENTS TO BE FURNISHED
TO INDIVIDUALS WITH
RESPECT
TO WHOM INFORMATION IS REQUIRED.—Every person
required to make a return under subsection (a) shall furnish to
each individual whose name is required to be set forth in such
return a written statement showing—
‘‘(1) the name and address of the person required to make
such return, and
‘‘(2) the aggregate amount of interest described in sub-
section (a)(2) received by the person required to make such
return from the individual to whom the statement is required
to be furnished.
The written statement required under the preceding sentence shall
be furnished on or before January 31 of the year following the
calendar year for which the return under subsection (a) was
required to be made.
‘‘(e) QUALIFIED EDUCATION LOAN DEFINED.—For purposes of
this section, except as provided in regulations prescribed by the
Secretary, the term ‘qualified education loan’ has the meaning
given such term by section 220(e)(1).
‘‘(f) RETURNS WHICH WOULD BE REQUIRED TO BE MADE BY
2 OR MORE PERSONS.—Except to the extent provided in regulations
prescribed by the Secretary, in the case of interest received by
any person on behalf of another person, only the person first receiv-
ing such interest shall be required to make the return under sub-
section (a).’’.
(2) ASSESSABLE
PENALTIES.—Section 6724(d) (relating to
definitions) is amended—
(A) by redesignating clauses (ix) through (xiv) as
clauses (x) through (xv), respectively, in paragraph (1)(B)
and by inserting after clause (viii) of such paragraph the
following new clause:
H. R. 2491—460
‘‘(ix) section 6050Q (relating to returns relating
to education loan interest received in trade or business
from individuals),’’, and
(B) by redesignating subparagraphs (Q) through (T)
as subparagraphs (R) through (U), respectively, in para-
graph (2) and by inserting after subparagraph (P) of such
paragraph the following new subparagraph:
‘‘(Q) section 6050Q (relating to returns relating to edu-
cation loan interest received in trade or business from
individuals),’’.
(d) CLERICAL AMENDMENT.—The table of sections for part VII
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following new items:
‘‘Sec. 220. Interest on education loans.
‘‘Sec. 221. Cross reference.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to any qualified education loan (as defined in section
220(e)(1) of the Internal Revenue Code of 1986, as added by this
section) incurred on, before, or after the date of the enactment
of this Act, but only with respect to any loan interest payment
due after December 31, 1995.
SEC. 11005. DEDUCTION FOR TAXPAYERS WITH CERTAIN PERSONS
REQUIRING CUSTODIAL CARE IN THEIR HOUSEHOLDS.
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 is
amended by redesignating section 221 as section 222 and by insert-
ing after section 220 the following new section:
‘‘SEC. 221. TAXPAYERS WITH CERTAIN PERSONS REQUIRING CUSTO-
DIAL CARE IN THEIR HOUSEHOLDS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an individual
who maintains a household which includes as a member one or
more qualified persons, there shall be allowed as a deduction for
the taxable year an amount equal to $1,000 for each such person.
‘‘(b) QUALIFIED PERSON.—For purposes of this section, the term
‘qualified person’ means any individual—
‘‘(1) who is a father or mother of the taxpayer, his spouse,
or his former spouse or who is an ancestor of such a father
or mother,
‘‘(2) who is physically or mentally incapable of caring for
himself,
‘‘(3) who has as his principal place of abode for more
than half of the taxable year the home of the taxpayer,
‘‘(4) over half of whose support, for the calendar year in
which the taxable year of the taxpayer begins, was received
from the taxpayer, and
‘‘(5) whose name and TIN are included on the taxpayer’s
return for the taxable year.
For purposes of paragraph (1), a stepfather or stepmother shall
be treated as a father or mother.
‘‘(c) SPECIAL RULES.—For purposes of this section, rules similar
to the rules of paragraphs (1), (2), (3), and (4) of section 21(e)
shall apply.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES
OTHER DEDUCTIONS.—Subsection (a) of section 62 is amended by
inserting after paragraph (16) the following new paragraph:
H. R. 2491—461
‘‘(17) TAXPAYERS WITH CERTAIN PERSONS REQUIRING CUSTO-
DIAL CARE IN THEIR HOUSEHOLDS.—The deduction allowed by
section 221.’’
(c) CLERICAL AMENDMENT.—The table of sections for part VII
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following new items:
‘‘Sec. 221. Taxpayers with certain persons requiring custodial care in their
households.
‘‘Sec. 222. Cross reference.’’
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
Subtitle B—Savings and Investment
Incentives
CHAPTER 1—RETIREMENT SAVINGS INCENTIVES
Subchapter A—Individual Retirement Plans
PART I—RESTORATION OF IRA DEDUCTION
SEC. 11011. RESTORATION OF IRA DEDUCTION.
(a) INCREASE IN INCOME LIMITS FOR ACTIVE PARTICIPANTS.—
(1) IN
GENERAL.—Subparagraph (B) of section 219(g)(3)
(relating to applicable dollar amount) is amended to read as
follows:
‘‘(B) 
APPLICABLE
DOLLAR
AMOUNT.—The 
term
‘applicable dollar amount’ means the following:
‘‘(i) In the case of a taxpayer filing a joint return:
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
1996 ...................................................................................................
$45,000
1997 ...................................................................................................
$50,000
1998 ...................................................................................................
$55,000
1999 ...................................................................................................
$60,000
2000 ...................................................................................................
$65,000
2001 ...................................................................................................
$70,000
2002 ...................................................................................................
$75,000
2003 ...................................................................................................
$80,000
2004 ...................................................................................................
$85,000
2005 ...................................................................................................
$90,000
2006 ...................................................................................................
$95,000
2007 and thereafter ..........................................................................
$100,000.
‘‘(ii) In the case of any other taxpayer (other than
a married individual filing a separate return):
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
1996 ...................................................................................................
$30,000
1997 ...................................................................................................
$35,000
1998 ...................................................................................................
$40,000
1999 ...................................................................................................
$45,000
2000 ...................................................................................................
$50,000
2001 ...................................................................................................
$55,000
2002 ...................................................................................................
$60,000
2003 ...................................................................................................
$65,000
2004 ...................................................................................................
$70,000
H. R. 2491—462
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
2005 ...................................................................................................
$75,000
2006 ...................................................................................................
$80,000
2007 and thereafter ..........................................................................
$85,000.
‘‘(iii) In the case of a married individual filing
a separate return, zero.’’
(2) INCREASE IN PHASEOUT RANGE FOR JOINT RETURNS.—
(A) IN
GENERAL.—Clause (ii) of section 219(g)(2)(A)
is amended by inserting ‘‘(the phaseout amount in the
case of a joint return)’’ after ‘‘$10,000’’.
(B) PHASEOUT
AMOUNT.—Paragraph (3) of section
219(g) is amended—
(i) by adding at the end the following new subpara-
graph:
‘‘(C) PHASEOUT AMOUNT.—The phaseout amount is:
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
1996 ...................................................................................................
$12,500
1997 ...................................................................................................
$15,000
1998 ...................................................................................................
$17,500
1999 and thereafter ..........................................................................
$20,000.’’,
and
(ii) by inserting ‘‘; 
PHASEOUT
AMOUNT’’ after
‘‘AMOUNT’’ in the heading.
(3) COST-OF-LIVING
ADJUSTMENTS.—Section 219(h), as
added by section 11012(a), is amended—
(A) by adding at the end the following new paragraph:
‘‘(2) PHASE-OUT RANGES.—In the case of any taxable year
beginning in a calendar year after 2007, the $100,000 and
$85,000 amounts in clauses (i) and (ii) of subsection (g)(3)(B)
shall each be increased by an amount equal to the product
of such dollar amount and the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year, except that
subparagraph (B) thereof shall be applied by substituting ‘2006’
for ‘1992’. If any amount to which either such amount is
increased is not a multiple of $1,000, such amount shall be
rounded to the next lower multiple of $1,000.’’, and
(B) by striking ‘‘In the case’’ and inserting:
‘‘(1) DEDUCTIBLE AMOUNT.—In the case’’.
(b) INDIVIDUAL NOT DISQUALIFIED
BY SPOUSE’S PARTICIPA-
TION.—Paragraph (1) of section 219(g) (relating to limitation on
deduction for active participants in certain pension plans) is
amended by striking ‘‘or the individual’s spouse’’.
(c) REPORTING REQUIREMENTS.—Section 408(i) is amended by
striking ‘‘under regulations’’ and ‘‘in such regulations’’ each place
such terms appear.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11012. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.
(a) IN GENERAL.—Section 219 is amended by redesignating
subsection (h) as subsection (i) and by inserting after subsection
(g) the following new subsection:
H. R. 2491—463
‘‘(h) COST-OF-LIVING ADJUSTMENTS.—In the case of any taxable
year beginning in a calendar year after 1996, the $2,000 amount
under subsection (b)(1)(A) shall be increased by an amount equal
to the product of $2,000 and the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year in which the
taxable year begins, except that subparagraph (B) thereof shall
be applied by substituting ‘1995’ for ‘1992’. If the amount to which
$2,000 would be increased under the preceding sentence is not
a multiple of $500, such amount shall be rounded to the next
lower multiple of $500.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in excess
of $2,000 on behalf of any individual’’ and inserting ‘‘on behalf
of any individual in excess of the amount in effect for such
taxable year under section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’
and inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
(3) Section 408(j) is amended by striking ‘‘$2,000’’.
SEC. 11013. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.
(a) SPOUSAL IRA COMPUTED ON BASIS OF COMPENSATION OF
BOTH SPOUSES.—Subsection (c) of section 219 (relating to special
rules for certain married individuals) is amended to read as follows:
‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVIDUALS.—
‘‘(1) IN GENERAL.—In the case of an individual to whom
this paragraph applies for the taxable year, the limitation of
paragraph (1) of subsection (b) shall be equal to the lesser
of—
‘‘(A) the dollar amount in effect under subsection
(b)(1)(A) for the taxable year, or
‘‘(B) the sum of—
‘‘(i) the compensation includible in such individ-
ual’s gross income for the taxable year, plus
‘‘(ii) the compensation includible in the gross
income of such individual’s spouse for the taxable year
reduced by—
‘‘(I) the amount allowed as a deduction under
subsection (a) to such spouse for such taxable year,
and
‘‘(II) the amount of any contribution on behalf
of such spouse to an AD IRA under section 408A
for such taxable year.
‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1) APPLIES.—Para-
graph (1) shall apply to any individual if—
‘‘(A) such individual files a joint return for the taxable
year, and
‘‘(B) the amount of compensation (if any) includible
in such individual’s gross income for the taxable year is
less than the compensation includible in the gross income
of such individual’s spouse for the taxable year.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 219(f) (relating to other defini-
tions and special rules) is amended by striking ‘‘subsections
(b) and (c)’’ and inserting ‘‘subsection (b)’’.
H. R. 2491—464
(2) Section 408(d)(5) is amended by striking ‘‘$2,250’’ and
inserting 
‘‘the 
dollar 
amount 
in 
effect 
under 
section
219(b)(1)(A)’’.
(3) Section 219(g)(1) is amended by striking ‘‘(c)(2)’’ and
inserting ‘‘(c)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
PART II—NONDEDUCTIBLE TAX-FREE IRAS
SEC. 11015. ESTABLISHMENT OF AMERICAN DREAM IRA.
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter
1 (relating to pension, profit-sharing, stock bonus plans, etc.) is
amended by inserting after section 408 the following new section:
‘‘SEC. 408A. AMERICAN DREAM IRA.
‘‘(a) GENERAL RULE.—Except as provided in this section, an
American Dream IRA shall be treated for purposes of this title
in the same manner as an individual retirement plan.
‘‘(b) AMERICAN DREAM IRA.—For purposes of this title, the
term ‘American Dream IRA’ or ‘AD IRA’ means an individual retire-
ment plan (as defined in section 7701(a)(37)) which is designated
at the time of the establishment of the plan as an American Dream
IRA. Such designation shall be made in such manner as the Sec-
retary may prescribe.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO
DEDUCTION
ALLOWED.—No deduction shall be
allowed under section 219 for a contribution to an AD IRA.
‘‘(2) CONTRIBUTION LIMIT.—The aggregate amount of con-
tributions for any taxable year to all AD IRAs maintained
for the benefit of an individual shall not exceed the excess
(if any) of—
‘‘(A) the maximum amount allowable as a deduction
under section 219 with respect to such individual for such
taxable year (computed without regard to subsection (g)
of such section), over
‘‘(B) the amount so allowed.
‘‘(3) CONTRIBUTIONS PERMITTED AFTER AGE 701⁄2.—Contribu-
tions to an AD IRA may be made even after the individual
for whom the account is maintained has attained age 701⁄2.
‘‘(4) MANDATORY DISTRIBUTION RULES NOT TO APPLY, ETC.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), subsections (a)(6) and (b)(3) of section 408 (relating
to required distributions) and section 4974 (relating to
excise tax on certain accumulations in qualified retirement
plans) shall not apply to any AD IRA.
‘‘(B) POST-DEATH DISTRIBUTIONS.—Rules similar to the
rules of section 401(a)(9) (other than subparagraph (A)
thereof) shall apply for purposes of this section.
‘‘(5) RULES RELATING TO ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—No rollover contribution may be
made to an AD IRA unless it is a qualified rollover contribu-
tion.
‘‘(B) COORDINATION WITH LIMIT.—A qualified rollover
contribution shall not be taken into account for purposes
of paragraph (2).
H. R. 2491—466
from an individual retirement plan (other than an AD
IRA) to an AD IRA established for the benefit of the payee
or distributee, as the case may be—
‘‘(i) sections 72(t) and 408(d)(3) shall not apply,
and
‘‘(ii) in any case where such contribution is made
before January 1, 1998, any amount required to be
included in gross income by reason of this paragraph
shall be so included ratably over the 4-taxable year
period beginning with the taxable year in which the
payment or distribution is made.
‘‘(C) ADDITIONAL REPORTING REQUIREMENTS.—The Sec-
retary shall require that trustees of AD IRAs, trustees
of individual retirement plans, or both, whichever is appro-
priate, shall include such additional information in reports
required under section 408(i) as is necessary to ensure
that amounts required to be included in gross income under
subparagraph (B) are so included.
‘‘(4) QUALIFIED SPECIAL PURPOSE DISTRIBUTION.—For pur-
poses of this section, the term ‘qualified special purpose dis-
tribution’ means any distribution to which subparagraph (B),
(D), or (E) of section 72(t)(2) applies.
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified rollover contribution’
means a rollover contribution to an AD IRA from another
such account, or from an individual retirement plan, but only
if such rollover contribution meets the requirements of section
408(d)(3). For purposes of section 408(d)(3)(B), there shall be
disregarded any qualified rollover contribution from an individ-
ual retirement plan to an AD IRA.
‘‘(2) CONVERSIONS.—The conversion of an individual retire-
ment plan to an AD IRA shall be treated as if it were a
qualified rollover contribution.’’
(b) REPEAL OF NONDEDUCTIBLE CONTRIBUTIONS.—
(1) Subsection (f) of section 219 is amended by striking
paragraph (7).
(2) Paragraph (5) of section 408(d) is amended by striking
the last sentence.
(3) Section 408(o) is amended by adding at the end the
following new paragraph:
‘‘(5) TERMINATION.—This subsection shall not apply to any
designated nondeductible contribution for any taxable year
beginning after December 31, 1995.’’
(4) Subsection (b) of section 4973 is amended by striking
the last sentence.
(c) EXCESS DISTRIBUTIONS TAX NOT TO APPLY.—Subparagraph
(B) of section 4980A(e)(1) is amended by inserting ‘‘other than
an AD IRA (as defined in section 408A(b))’’ after ‘‘retirement plan’’.
(d) EXCESS CONTRIBUTIONS.—Section 4973(b) is amended to
read as follows:
‘‘(b) EXCESS CONTRIBUTIONS.—For purposes of this section—
‘‘(1) IN
GENERAL.—In the case of individual retirement
accounts or individual retirement annuities, the term ‘excess
contributions’ means the sum of—
‘‘(A) the amount determined under paragraph (2) for
the taxable year, plus
H. R. 2491—467
‘‘(B) the carryover amount determined under paragraph
(3) for the taxable year.
‘‘(2) CURRENT YEAR.—The amount determined under this
paragraph for any taxable year is an amount equal to the
sum of—
‘‘(A) the excess (if any) of—
‘‘(i) the amount contributed for the taxable year
to the accounts or for the annuities or bonds (other
than AD IRAs), over
‘‘(ii) the amount allowable as a deduction under
section 219 for the taxable year, plus
‘‘(B) the excess (if any) of—
‘‘(i) the amount described in clause (i) (taking into
account contributions to AD IRAs) contributed for the
taxable year, over
‘‘(ii) the amount allowable as a deduction under
section 219 for the taxable year (computed without
regard to section 219(g)).
‘‘(3) CARRYOVER
AMOUNT.—The carryover amount deter-
mined under this paragraph for any taxable year is the amount
determined under paragraph (2) for the preceding taxable year,
reduced by the sum of—
‘‘(A) the distributions out of the account for the taxable
year which were included in the gross income of the payee
under section 408(d)(1),
‘‘(B) the distributions out of the account for the taxable
year to which section 408(d)(5) applies, and
‘‘(C) the excess (if any) of the amount determined under
paragraph (2)(B)(ii) over the amount determined under
paragraph (2)(B)(i).
‘‘(4) SPECIAL RULES.—For purposes of this subsection—
‘‘(A) ROLLOVER CONTRIBUTIONS.—Rollover distributions
described in sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3),
and 408A(e) shall not be taken into account.
‘‘(B) CONTRIBUTIONS RETURNED BEFORE DUE DATE.—
Any contribution which is distributed from an individual
retirement plan in a distribution to which section 408(d)(4)
applies shall not be taken into account.
‘‘(C) EXCESS
CONTRIBUTIONS
TREATED
AS
CONTRIBU-
TIONS.—In applying paragraph (3)(C), the determination
as to amounts contributed for a taxable year shall be made
without regard to section 219(f)(6).’’
(e) CLERICAL AMENDMENT.—The table of sections for subpart
A of part I of subchapter D of chapter 1 is amended by inserting
after the item relating to section 408 the following new item:
‘‘Sec. 408A. American Dream IRA.’’
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
H. R. 2491—468
Subchapter B—Penalty-Free Distributions
SEC. 11016. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED
WITHOUT PENALTY TO PURCHASE FIRST HOMES OR TO
PAY HIGHER EDUCATION OR FINANCIALLY DEVASTAT-
ING MEDICAL EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the end the
following new subparagraph:
‘‘(D) DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS
FOR FIRST-TIME HOMEBUYERS OR EDUCATIONAL EXPENSES.—Dis-
tributions to an individual from an individual retirement plan—
‘‘(i) which are qualified first-time homebuyer distribu-
tions (as defined in paragraph (6)), or
‘‘(ii) to the extent such distributions do not exceed
the qualified higher education expenses (as defined in para-
graph (7)) of the taxpayer for the taxable year.’’
(b) FINANCIALLY DEVASTATING MEDICAL EXPENSES.—
(1) IN GENERAL.—Section 72(t)(3)(A) is amended by striking
‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND ANCESTORS TREATED
AS
DEPENDENTS.—Subparagraph (B) of section 72(t)(2) is
amended by striking ‘‘medical care’’ and all that follows and
inserting ‘‘medical care determined—
‘‘(i) without regard to whether the employee item-
izes deductions for such taxable year, and
‘‘(ii) in the case of an individual retirement plan,
by treating such employee’s dependents as including—
‘‘(I) all children and grandchildren of the
employee or such employee’s spouse, and
‘‘(II) all ancestors of the employee or such
employee’s spouse.’’
(3) CONFORMING AMENDMENT.—Subparagraph (B) of section
72(t)(2) is amended by striking ‘‘or (C)’’ and inserting ‘‘, (C),
(D), or (E)’’.
(c) DEFINITIONS.—Section 72(t) is amended by adding at the
end the following new paragraphs:
‘‘(6) QUALIFIED
FIRST-TIME
HOMEBUYER
DISTRIBUTIONS.—
For purposes of paragraph (2)(D)(i)—
‘‘(A) IN GENERAL.—The term ‘qualified first-time home-
buyer distribution’ means any payment or distribution
received by an individual to the extent such payment or
distribution is used by the individual before the close of
the 60th day after the day on which such payment or
distribution is received to pay qualified acquisition costs
with respect to a principal residence of a first-time home-
buyer who is such individual, the spouse of such individual,
or any child, grandchild, or ancestor of such individual
or the individual’s spouse.
‘‘(B) LIFETIME
DOLLAR
LIMITATION.—The aggregate
amount of payments or distributions received by an individ-
ual which may be treated as qualified first-time homebuyer
distributions for any taxable year shall not exceed the
excess (if any) of—
‘‘(i) $10,000, over
H. R. 2491—469
‘‘(ii) the aggregate amounts treated as qualified
first-time homebuyer distributions with respect to such
individual for all prior taxable years.
‘‘(C) QUALIFIED ACQUISITION COSTS.—For purposes of
this paragraph, the term ‘qualified acquisition costs’ means
the costs of acquiring, constructing, or reconstructing a
residence. Such term includes any usual or reasonable
settlement, financing, or other closing costs.
‘‘(D) FIRST-TIME HOMEBUYER; OTHER DEFINITIONS.—For
purposes of this paragraph—
‘‘(i) FIRST-TIME HOMEBUYER.—The term ‘first-time
homebuyer’ means any individual if—
‘‘(I) such individual (and if married, such
individual’s spouse) had no present ownership
interest in a principal residence during the 2-year
period ending on the date of acquisition of the
principal residence to which this paragraph
applies, and
‘‘(II) subsection (h) or (k) of section 1034 did
not suspend the running of any period of time
specified in section 1034 with respect to such
individual on the day before the date the distribu-
tion is applied pursuant to subparagraph (A).
‘‘(ii) PRINCIPAL
RESIDENCE.—The term ‘principal
residence’ has the same meaning as when used in
section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The term ‘date of
acquisition’ means the date—
‘‘(I) on which a binding contract to acquire
the principal residence to which subparagraph (A)
applies is entered into, or
‘‘(II) on which construction or reconstruction
of such a principal residence is commenced.
‘‘(E) SPECIAL
RULE
WHERE
DELAY
IN
ACQUISITION.—
If any distribution from any individual retirement plan
fails to meet the requirements of subparagraph (A) solely
by reason of a delay or cancellation of the purchase or
construction of the residence, the amount of the distribution
may be contributed to an individual retirement plan as
provided in section 408(d)(3)(A)(i) (determined by substitut-
ing ‘120 days’ for ‘60 days’ in such section), except that—
‘‘(i) section 408(d)(3)(B) shall not be applied to
such contribution, and
‘‘(ii) such amount shall not be taken into account
in determining whether section 408(d)(3)(A)(i) applies
to any other amount.
‘‘(7) QUALIFIED
HIGHER
EDUCATION
EXPENSES.—For pur-
poses of paragraph (2)(D)(ii)—
‘‘(A) IN GENERAL.—The term ‘qualified higher education
expenses’ means tuition, fees, books, supplies, and equip-
ment required for the enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) any child (as defined in section 151(c)(3)),
grandchild, or ancestor of the taxpayer or the tax-
payer’s spouse,
H. R. 2491—470
at an eligible educational institution (as defined in section
135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND PROVISIONS.—
The amount of qualified higher education expenses for
any taxable year shall be reduced by any amount exclud-
able from gross income under section 135.’’
(d) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN UNEMPLOYED
INDIVIDUALS.—Paragraph (2) of section 72(t) is amended by adding
at the end the following new subparagraph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED INDIVIDUALS.—A
distribution from an individual retirement plan to an
individual after separation from employment, if—
‘‘(i) such individual has received unemployment
compensation for 12 consecutive weeks under any Fed-
eral or State unemployment compensation law by rea-
son of such separation, and
‘‘(ii) such distributions are made during any tax-
able year during which such unemployment compensa-
tion is paid or the succeeding taxable year.
To the extent provided in regulations, a self-employed
individual shall be treated as meeting the requirements
of clause (i) if, under Federal or State law, the individual
would have received unemployment compensation but for
the fact the individual was self-employed.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
Subchapter C—Simple Savings Plans
SEC. 11018. 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 subsection (p) as subsection
(q) and by inserting after subsection (o) the following new sub-
section:
‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—For purposes of this title, the term ‘sim-
ple retirement account’ means an individual retirement plan
(as defined in section 7701(a)(37))—
‘‘(A) with respect to which the requirements of para-
graphs (3), (4), and (5) are met; and
‘‘(B) with respect to which the only contributions
allowed are contributions under a qualified salary reduction
arrangement.
‘‘(2) QUALIFIED SALARY REDUCTION ARRANGEMENT.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
term ‘qualified salary reduction arrangement’ means a writ-
ten 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 contributions to a
simple retirement account 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
H. R. 2491—471
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 retirement 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) 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 percent.
‘‘(II) ELECTION
OF
LOWER
PERCENTAGE.—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 notifies the employees
of such lower percentage within a reasonable
period of time before the 60-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 ending with such year.
‘‘(III) SPECIAL RULE FOR YEARS ARRANGEMENT
NOT IN EFFECT.—If any year in the 5-year period
described in subclause (II) is a year prior to the
first year for which any qualified salary reduction
arrangement is in effect with respect to the
employer (or any predecessor), the employer shall
be treated as if the level of the employer matching
contribution was at 3 percent of compensation for
such prior year.
‘‘(C) 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 arrangement 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).
‘‘(D) 
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), except that the base period taken into account
H. R. 2491—472
shall be the calendar quarter ending September 30, 1995,
and any increase under this subparagraph which is not
a multiple of $500 shall be rounded to the next lower
multiple of $500.
‘‘(3) VESTING
REQUIREMENTS.—The requirements of this
paragraph are met with respect to a simple retirement account
if the employee’s rights to any contribution to the simple retire-
ment account are nonforfeitable. For purposes of this para-
graph, 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 simple 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 compensation from
the employer during any 2 preceding years, and
‘‘(ii) are reasonably expected to receive at least
$5,000 in compensation during the year,
are eligible to make the election under paragraph (2)(A)(i).
‘‘(B) EXCLUDABLE EMPLOYEES.—An employer may elect
to exclude from the requirement under subparagraph (A)
employees described in section 410(b)(3).
‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The requirements of
this paragraph are met with respect to any simplified retire-
ment account if, under the qualified salary reduction arrange-
ment—
‘‘(A) an employer must—
‘‘(i) make the elective employer contributions 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)
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 partici-
pation until the beginning of the next year, and
‘‘(C) each employee eligible to participate may elect,
during the 60-day period before the beginning of any year,
to participate in the arrangement, or to modify the amounts
subject to such arrangement, for such year.
‘‘(6) DEFINITIONS.—For purposes of this subsection—
‘‘(A) COMPENSATION.—
‘‘(i) IN GENERAL.—The term ‘compensation’ 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 contribu-
tion under this subsection.
‘‘(B) EMPLOYEE.—The term ‘employee’ includes an
employee as defined in section 401(c)(1).
‘‘(C) YEAR.—The term ‘year’ means the calendar year.’’
H. R. 2491—473
(b) TAX TREATMENT OF SIMPLE RETIREMENT ACCOUNTS.—
(1) DEDUCTIBILITY OF CONTRIBUTIONS BY EMPLOYEES.—
(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 respect to any amount contrib-
uted to a simple retirement 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 CONTRIBUTIONS.—Section
404 (relating to deductions for contributions of an employer
to pension, etc. plans) is amended by adding at the end the
following new subsection:
‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS.—
‘‘(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 described in para-
graph (1) shall be deductible in the taxable year of the
employer with or within which the calendar year for which
the contributions were made ends.
‘‘(B) CONTRIBUTIONS
AFTER
END
OF
YEAR.—For pur-
poses of this subsection, contributions 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
prescribed by law for filing the return for the taxable
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 ACCOUNTS.—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 adding 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 retirement
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 retirement 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.—
H. R. 2491—474
(A) EARLY
WITHDRAWALS.—Section 72(t) (relating to
additional tax in early distributions), as amended by this
Act, is amended by adding at the end the following new
paragraph:
‘‘(8) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS.—
In the case of any amount received from a simple retirement
account (within the meaning of section 408(p)) during the 2-
year period beginning on the date such individual first partici-
pated in any qualified salary reduction arrangement main-
tained by the individual’s employer under section 408(p)(2),
paragraph (1) shall be applied by substituting ‘25 percent’
for ‘10 percent’.’’
(B) FAILURE TO REPORT.—Section 6693 is amended by
redesignating subsection (c) as subsection (d) and by insert-
ing after subsection (b) the following new subsection:
‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) EMPLOYER PENALTIES.—An employer who fails to pro-
vide 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 required 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 descriptions
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)(i) 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 arrangement under subsection (p).
‘‘(B) SUMMARY DESCRIPTION.—The trustee of any simple
retirement account established pursuant to a qualified sal-
ary reduction arrangement under subsection (p) shall pro-
vide to the employer maintaining the arrangement, each
year a description containing the following information:
‘‘(i) The name and address of the employer and
the trustee.
‘‘(ii) The requirements for eligibility for participa-
tion.
‘‘(iii) The benefits provided with respect 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 employer shall
notify each employee immediately before the period for
which an election described in subsection (p)(5)(C) may
be made of the employee’s opportunity to make such elec-
H. R. 2491—475
tion. Such notice shall include a copy of the description
described in subparagraph (B).’’
(ii) Section 408(l) is amended by striking ‘‘An employer’’
and inserting—
‘‘(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 subsection (p),
only one report under this subsection shall be required to be submit-
ted each calendar year to the Secretary (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) 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 subparagraph (C) and inserting ‘‘, or’’ and by
adding after subparagraph (C) the following new subpara-
graph:
‘‘(D) a simple retirement account described in section
408(p).’’
(B) Section 402(g)(3) is amended by striking ‘‘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
subparagraph:
‘‘(D) any elective employer contribution under section
408(p)(2)(A)(i).’’
(C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of sec-
tion 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 SIMPLIFIED EMPLOYEE PENSIONS.—Section 408(k)
is amended by adding at the end the following new paragraph:
‘‘(10) TERMINATION.—This subsection shall not apply to
any years beginning after December 31, 1995. This paragraph
shall not apply to a simplified employee pension established
before January 1, 1996.’’
(d) MODIFICATIONS OF ERISA.—
(1) 
REPORTING
REQUIREMENTS.—Section 
101 
of 
the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1021) is amended by redesignating subsection (g) as subsection
H. R. 2491—476
(h) and by inserting after subsection (f) the following new
subsection:
‘‘(g) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) NO EMPLOYER REPORTS.—Except as provided in this
subsection, no report shall be required under this section by
an employer maintaining a qualified salary reduction arrange-
ment under section 408(p) of the Internal Revenue Code of
1986.
‘‘(2) SUMMARY
DESCRIPTION.—The trustee of any simple
retirement account established pursuant to a qualified salary
reduction arrangement under section 408(p) of such Code shall
provide to the employer maintaining the arrangement each
year a description containing the following information:
‘‘(A) The name and address of the employer and the
trustee.
‘‘(B) The requirements for eligibility for participation.
‘‘(C) The benefits provided with respect to the arrange-
ment.
‘‘(D) The time and method of making elections with
respect to the arrangement.
‘‘(E) The procedures for, and effects of, withdrawals
(including rollovers) from the arrangement.
‘‘(3) EMPLOYEE NOTIFICATION.—The employer shall notify
each employee immediately before the period for which an
election described in section 408(p)(5)(C) of such Code may
be made of the employee’s opportunity to make such election.
Such notice shall include a copy of the description described
in paragraph (2).’’
(2) FIDUCIARY
DUTIES.—Section 404(c) of such Act (29
U.S.C. 1104(c)) is amended by inserting ‘‘(1)’’ after ‘‘(c)’’, by
redesignating paragraphs (1) and (2) as subparagraphs (A)
and (B), respectively, and by adding at the end the following
new paragraph:
‘‘(2) In the case of a simple retirement account established
pursuant to a qualified salary reduction arrangement under
section 408(p) of the Internal Revenue Code of 1986, a partici-
pant or beneficiary shall, for purposes of paragraph (1), be
treated as exercising control over the assets in the account
upon the earliest of—
‘‘(A) an affirmative election with respect to the initial
investment of any contribution,
‘‘(B) a rollover to any other simple retirement account
or individual retirement plan, or
‘‘(C) one year after the simple retirement account is
established.
No reports, other than those required under section 101(g),
shall be required with respect to a simple retirement account
established pursuant to such a qualified salary reduction
arrangement.’’
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11019. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.
(a) ALTERNATIVE METHOD OF SATISFYING SECTION 401(k) NON-
DISCRIMINATION TESTS.—Section 401(k) (relating to cash or deferred
arrangements) is amended by adding at the end the following
new paragraph:
H. R. 2491—477
‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINA-
TION TESTS.—
‘‘(A) IN
GENERAL.—A cash or deferred arrangement
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 requirements of subpara-
graph (C), and
‘‘(iii) the vesting requirements of section 408(p)(3).
‘‘(B) CONTRIBUTION REQUIREMENTS.—The requirements
of this subparagraph are met if, under the arrangement—
‘‘(i) an employee may elect to have the employer
make elective contributions 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 employee 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 employee elects
under clause (i) as does not exceed 3 percent of com-
pensation for the year, and
‘‘(iii) no other contributions may be made other
than contributions described in clause (i) or (ii).
‘‘(C) EXCLUSIVE
BENEFIT.—The requirements of this
subparagraph are met for any year to which this paragraph
applies if no contributions were made, or benefits were
accrued, for services during such year under any qualified
plan of the employer on behalf of any employee eligible
to participate in the cash or deferred 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 SECTION 401(m) NON-
DISCRIMINATION TESTS.—Section 401(m) (relating to nondiscrimina-
tion 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 con-
tributions if the plan—
‘‘(A) meets the contribution requirements of subpara-
graph (B) of subsection (k)(11),
‘‘(B) meets the exclusive benefit requirements of sub-
section (k)(11)(C), and
‘‘(C) meets the vesting requirements of section
408(p)(3).’’
H. R. 2491—478
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to plan years beginning after December 31, 1995.
CHAPTER 2—CAPITAL GAINS REFORM
Subchapter A—Taxpayers Other Than Corporations
SEC. 11021. CAPITAL GAINS DEDUCTION.
(a) IN GENERAL.—Part I of subchapter P of chapter 1 (relating
to treatment of capital gains) is amended by redesignating section
1202 as section 1203 and by inserting after section 1201 the follow-
ing new section:
‘‘SEC. 1202. CAPITAL GAINS DEDUCTION.
‘‘(a) GENERAL RULE.—If for any taxable year a taxpayer other
than a corporation has a net capital gain, 50 percent of such
gain shall be a deduction from gross income.
‘‘(b) ESTATES AND TRUSTS.—In the case of an estate or trust,
the deduction shall be computed by excluding the portion (if any)
of the gains for the taxable year from sales or exchanges of capital
assets which, under sections 652 and 662 (relating to inclusions
of amounts in gross income of beneficiaries of trusts), is includible
by the income beneficiaries as gain derived from the sale or
exchange of capital assets.
‘‘(c) COORDINATION WITH TREATMENT OF CAPITAL GAIN UNDER
LIMITATION ON INVESTMENT INTEREST.—For purposes of this section,
the net capital gain for any taxable year shall be reduced (but
not below zero) by the amount which the taxpayer takes into
account as investment income under section 163(d)(4)(B)(iii).
‘‘(d) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(1) IN GENERAL.—The rate of tax imposed by section 1
on the excess of—
‘‘(A) the net capital gain for the taxable year deter-
mined as if section 1222(12) had not applied to any collect-
ible which is sold or exchanged during the taxable year
and the basis of which was not adjusted under section
1022(a), over
‘‘(B) the net capital gain for the taxable year,
shall not exceed 28 percent.
‘‘(2) ELECTION.—A taxpayer may elect to treat any collect-
ible specified in such election as not being an indexed asset
for purposes of section 1022. Any such election, and any speci-
fication therein, once made, shall be irrevocable.
‘‘(e) TRANSITIONAL RULE.—
‘‘(1) IN
GENERAL.—In the case of a taxable year which
includes January 1, 1995—
‘‘(A) the amount taken into account as the net capital
gain under subsection (a) shall not exceed the net capital
gain determined by only taking into account gains and
losses properly taken into account for the portion of the
taxable year on or after January 1, 1995, and
‘‘(B) the amount of the net capital gain taken into
account in applying section 1(h) for such year shall be
reduced by the amount taken into account under subpara-
graph (A) for such year.
‘‘(2) SPECIAL RULES FOR PASS-THRU ENTITIES.—
H. R. 2491—479
‘‘(A) IN
GENERAL.—In applying paragraph (1) with
respect to any pass-thru entity, the determination of when
gains and losses are properly taken into account shall
be made at the entity level.
‘‘(B) PASS-THRU
ENTITY
DEFINED.—For purposes of
subparagraph (A), the term ‘pass-thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.’’.
(b) DEDUCTION ALLOWABLE IN COMPUTING ADJUSTED GROSS
INCOME.—Subsection (a) of section 62, as amended by sections
11004 and 11005, is amended by inserting after paragraph (17)
the following new paragraph:
‘‘(18) LONG-TERM CAPITAL GAINS.—The deduction allowed
by section 1202.’’.
(c) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by inserting
after paragraph (11) the following new paragraph:
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from the sale or
exchange of a collectible shall be treated as a short-term
capital gain or loss (as the case may be), without regard
to the period such asset was held. The preceding sentence
shall apply only to the extent the gain or loss is taken
into account in computing taxable income.
‘‘(B) TREATMENT
OF
CERTAIN
SALES
OF
INTEREST
IN
PARTNERSHIP, ETC.—For purposes of subparagraph (A), any
gain from the sale or exchange of an interest in a partner-
ship, S corporation, or trust which is attributable to unreal-
ized appreciation in the value of collectibles held by such
entity shall be treated as gain from the sale or exchange
of a collectible. Rules similar to the rules of section 751(f)
shall apply for purposes of the preceding sentence.
‘‘(C) COLLECTIBLE.—For purposes of this paragraph,
the term ‘collectible’ means any capital asset which is a
collectible (as defined in section 408(m) without regard
to paragraph (3) thereof).’’.
(2) CHARITABLE DEDUCTION NOT AFFECTED.—
(A) Paragraph (1) of section 170(e) is amended by add-
ing at the end the following new sentence: ‘‘For purposes
of this paragraph, section 1222 shall be applied without
regard to paragraph (12) thereof (relating to special rule
for collectibles).’’.
(B) Clause (iv) of section 170(b)(1)(C) is amended by
inserting before the period at the end the following: ‘‘and
section 1222 shall be applied without regard to paragraph
(12) thereof (relating to special rule for collectibles)’’.
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection (h).
(2) Paragraph (1) of section 170(e) is amended by striking
‘‘the amount of gain’’ in the material following subparagraph
(B)(ii) and inserting ‘‘50 percent (80 percent in the case of
a corporation) of the amount of gain’’.
H. R. 2491—480
(3) Subparagraph (B) of section 172(d)(2) is amended to
read as follows:
‘‘(B) the deduction under section 1202 shall not be
allowed.’’.
(4) The last sentence of section 453A(c)(3) is amended by
striking all that follows ‘‘long-term capital gain,’’ and inserting
‘‘the maximum rate on net capital gain under section 1201
or the deduction under section 1202 (whichever is appropriate)
shall be taken into account.’’.
(5) Paragraph (4) of section 642(c) is amended to read
as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the amount other-
wise allowable as a deduction under this subsection consists
of gain from the sale or exchange of capital assets held for
more than 1 year, proper adjustment shall be made for any
deduction allowable to the estate or trust under section 1202
(relating to capital gains deduction). In the case of a trust,
the deduction allowed by this subsection shall be subject to
section 681 (relating to unrelated business income).’’.
(6) The last sentence of section 643(a)(3) is amended to
read as follows: ‘‘The deduction under section 1202 (relating
to capital gains deduction) shall not be taken into account.’’.
(7) Subparagraph (C) of section 643(a)(6) is amended by
inserting ‘‘(i)’’ before ‘‘there shall’’ and by inserting before the
period ‘‘, and (ii) the deduction under section 1202 (relating
to capital gains deduction) shall not be taken into account’’.
(8)(A) Paragraph (2) of section 904(b) is amended by strik-
ing subparagraph (A), by redesignating subparagraph (B) as
subparagraph (A), and by inserting after subparagraph (A)
(as so redesignated) the following new subparagraph:
‘‘(B) OTHER
TAXPAYERS.—In the case of a taxpayer
other than a corporation, taxable income from sources out-
side the United States shall include gain from the sale
or exchange of capital assets only to the extent of foreign
source capital gain net income.’’.
(B) Subparagraph (A) of section 904(b)(2), as so redesig-
nated, is amended—
(i) by striking all that precedes clause (i) and inserting
the following:
‘‘(A) CORPORATIONS.—In the case of a corporation—
’’, and
(ii) by striking in clause (i) ‘‘in lieu of applying subpara-
graph (A),’’.
(C) Paragraph (3) of section 904(b) is amended by striking
subparagraphs (D) and (E) and inserting the following new
subparagraph:
‘‘(D) RATE DIFFERENTIAL PORTION.—The rate differen-
tial portion of foreign source net capital gain, net capital
gain, or the excess of net capital gain from sources within
the United States over net capital gain, as the case may
be, is the same proportion of such amount as the excess
of the highest rate of tax specified in section 11(b) over
the alternative rate of tax under section 1201(a) bears
to the highest rate of tax specified in section 11(b).’’.
(D) Clause (v) of section 593(b)(2)(D) is amended—
H. R. 2491—482
ing ‘‘28 percent (or, to the extent provided in regulations,
19.8 percent)’’, and
(B) in paragraph (2) by striking ‘‘35 percent’’ and insert-
ing ‘‘28 percent’’.
(13)(A) The second sentence of section 7518(g)(6)(A) is
amended—
(i) by striking ‘‘during a taxable year to which section
1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘28 percent (34 percent’’ and inserting
‘‘19.8 percent (28 percent’’.
(B) The second sentence of section 607(h)(6)(A) of the Mer-
chant Marine Act, 1936 is amended—
(i) by striking ‘‘during a taxable year to which section
1(h) or 1201(a) of such Code applies’’, and
(ii) by striking ‘‘28 percent (34 percent’’ and inserting
‘‘19.8 percent (28 percent’’.
(e) CLERICAL AMENDMENT.—The table of sections for part I
of subchapter P of chapter 1 is amended by striking the item
relating to section 1202 and by inserting after the item relating
to section 1201 the following new items:
‘‘Sec. 1202. Capital gains deduction.
‘‘Sec. 1203. Small business stock eligible for preferential rates.’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply to
taxable years ending after December 31, 1994.
(2) COLLECTIBLES.—The amendments made by subsection
(c) shall apply to sales and exchanges after December 31, 1994.
(3) REPEAL OF SECTION 1(h).—The amendment made by
subsection (d)(1) shall apply to taxable years beginning after
January 1, 1995.
(4) CONTRIBUTIONS.—The amendment made by subsection
(d)(2) shall apply to contributions after December 31, 1994.
(5) USE OF LONG-TERM LOSSES.—The amendments made
by subsection (d)(10) shall apply to taxable years beginning
after December 31, 1995.
(6) WITHHOLDING.—The amendments made by subsection
(d)(12) shall apply only to amounts paid after the date of
the enactment of this Act.
SEC. 11022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEM-
BER 31, 2000, FOR PURPOSES OF DETERMINING GAIN.
(a) IN GENERAL.—Part II of subchapter O of chapter 1 (relating
to basis rules of general application) is amended by inserting after
section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEM-
BER 31, 2000, FOR PURPOSES OF DETERMINING GAIN.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED BASIS SUBSTITUTED FOR ADJUSTED BASIS.—
Solely for purposes of determining gain on the sale or other
disposition by a taxpayer (other than a corporation) of an
indexed asset which has been held for more than 3 years,
the indexed basis of the asset shall be substituted for its
adjusted basis.
‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—The deductions
for depreciation, depletion, and amortization shall be deter-
H. R. 2491—483
mined without regard to the application of paragraph (1) to
the taxpayer or any other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this section, the term
‘indexed asset’ means—
‘‘(A) common stock in a C corporation (other than a
foreign corporation), and
‘‘(B) tangible property,
which is a capital asset or property used in the trade or business
(as defined in section 1231(b)).
‘‘(2) STOCK IN CERTAIN FOREIGN CORPORATIONS INCLUDED.—
For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘indexed asset’ includes
common stock in a foreign corporation which is regularly
traded on an established securities market.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
to—
‘‘(i) stock of a foreign investment company (within
the meaning of section 1246(b)),
‘‘(ii) stock in a passive foreign investment company
(as defined in section 1296),
‘‘(iii) stock in a foreign corporation held by a United
States person who meets the requirements of section
1248(a)(2), and
‘‘(iv) stock in a foreign personal holding company
(as defined in section 552).
‘‘(C) TREATMENT OF AMERICAN DEPOSITORY RECEIPTS.—
An American depository receipt for common stock in a
foreign corporation shall be treated as common stock in
such corporation.
‘‘(c) INDEXED BASIS.—For purposes of this section—
‘‘(1) GENERAL RULE.—The indexed basis for any asset is—
‘‘(A) the adjusted basis of the asset, increased by
‘‘(B) the applicable inflation adjustment.
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—The applicable
inflation adjustment for any asset is an amount equal to—
‘‘(A) the adjusted basis of the asset, multiplied by
‘‘(B) the percentage (if any) by which—
‘‘(i) the gross domestic product deflator for the
last calendar quarter ending before the asset is dis-
posed of, exceeds
‘‘(ii) the gross domestic product deflator for the
last calendar quarter ending before the asset was
acquired by the taxpayer.
The percentage under subparagraph (B) shall be rounded to
the nearest 1⁄10 of 1 percentage point.
‘‘(3) GROSS
DOMESTIC
PRODUCT
DEFLATOR.—The gross
domestic product deflator for any calendar quarter is the
implicit price deflator for the gross domestic product for such
quarter (as shown in the last revision thereof released by
the Secretary of Commerce before the close of the following
calendar quarter).
‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DIMINISHED RISK
OF LOSS; TREATMENT OF SHORT SALES.—
‘‘(1) IN GENERAL.—If the taxpayer (or a related person)
enters into any transaction which substantially reduces the
risk of loss from holding any asset, such asset shall not be
H. R. 2491—484
treated as an indexed asset for the period of such reduced
risk.
‘‘(2) SHORT SALES.—
‘‘(A) IN GENERAL.—In the case of a short sale of an
indexed asset with a short sale period in excess of 3 years,
for purposes of this title, the amount realized shall be
an amount equal to the amount realized (determined with-
out regard to this paragraph) increased by the applicable
inflation adjustment. In applying subsection (c)(2) for pur-
poses of the preceding sentence, the date on which the
property is sold short shall be treated as the date of acquisi-
tion and the closing date for the sale shall be treated
as the date of disposition.
‘‘(B) SHORT SALE PERIOD.—For purposes of subpara-
graph (A), the short sale period begins on the day that
the property is sold and ends on the closing date for the
sale.
‘‘(e) TREATMENT OF REGULATED INVESTMENT COMPANIES AND
REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.—
‘‘(A) IN
GENERAL.—Except as otherwise provided in
this paragraph, the adjustment under subsection (a) shall
be allowed to any qualified investment entity (including
for purposes of determining the earnings and profits of
such entity).
‘‘(B) EXCEPTION
FOR
CORPORATE
SHAREHOLDERS.—
Under regulations—
‘‘(i) in the case of a distribution by a qualified
investment entity (directly or indirectly) to a corpora-
tion—
‘‘(I) the determination of whether such dis-
tribution is a dividend shall be made without
regard to this section, and
‘‘(II) the amount treated as gain by reason
of the receipt of any capital gain dividend shall
be increased by the percentage by which the enti-
ty’s net capital gain for the taxable year (deter-
mined without regard to this section) exceeds the
entity’s net capital gain for such year determined
with regard to this section, and
‘‘(ii) there shall be other appropriate adjustments
(including deemed distributions) so as to ensure that
the benefits of this section are not allowed (directly
or indirectly) to corporate shareholders of qualified
investment entities.
For purposes of the preceding sentence, any amount includ-
ible in gross income under section 852(b)(3)(D) shall be
treated as a capital gain dividend and an S corporation
shall not be treated as a corporation.
‘‘(C) EXCEPTION FOR QUALIFICATION PURPOSES.—This
section shall not apply for purposes of sections 851(b) and
856(c).
‘‘(D) EXCEPTION FOR CERTAIN TAXES IMPOSED AT ENTITY
LEVEL.—
‘‘(i) TAX ON FAILURE TO DISTRIBUTE ENTIRE GAIN.—
If any amount is subject to tax under section
852(b)(3)(A) for any taxable year, the amount on which
H. R. 2491—485
tax is imposed under such section shall be increased
by the percentage determined under subparagraph
(B)(i)(II). A similar rule shall apply in the case of
any amount subject to tax under paragraph (2) or
(3) of section 857(b) to the extent attributable to the
excess of the net capital gain over the deduction for
dividends paid determined with reference to capital
gain dividends only. The first sentence of this clause
shall not apply to so much of the amount subject
to tax under section 852(b)(3)(A) as is designated by
the company under section 852(b)(3)(D).
‘‘(ii) OTHER TAXES.—This section shall not apply
for purposes of determining the amount of any tax
imposed by paragraph (4), (5), or (6) of section 857(b).
‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN ENTITY.—
‘‘(A) REGULATED INVESTMENT COMPANIES.—Stock in a
regulated investment company (within the meaning of sec-
tion 851) shall be an indexed asset for any calendar quarter
in the same ratio as—
‘‘(i) the average of the fair market values of the
indexed assets held by such company at the close of
each month during such quarter, bears to
‘‘(ii) the average of the fair market values of all
assets held by such company at the close of each such
month.
‘‘(B) REAL ESTATE INVESTMENT TRUSTS.—Stock in a real
estate investment trust (within the meaning of section
856) shall be an indexed asset for any calendar quarter
in the same ratio as—
‘‘(i) the fair market value of the indexed assets
held by such trust at the close of such quarter, bears
to
‘‘(ii) the fair market value of all assets held by
such trust at the close of such quarter.
‘‘(C) RATIO OF 80 PERCENT OR MORE.—If the ratio for
any calendar quarter determined under subparagraph (A)
or (B) would (but for this subparagraph) be 80 percent
or more, such ratio for such quarter shall be 100 percent.
‘‘(D) RATIO OF 20 PERCENT OR LESS.—If the ratio for
any calendar quarter determined under subparagraph (A)
or (B) would (but for this subparagraph) be 20 percent
or less, such ratio for such quarter shall be zero.
‘‘(E) LOOK-THRU
OF
PARTNERSHIPS.—For purposes of
this paragraph, a qualified investment entity which holds
a partnership interest shall be treated (in lieu of holding
a partnership interest) as holding its proportionate share
of the assets held by the partnership.
‘‘(3) TREATMENT OF RETURN OF CAPITAL DISTRIBUTIONS.—
Except as otherwise provided by the Secretary, a distribution
with respect to stock in a qualified investment entity which
is not a dividend and which results in a reduction in the
adjusted basis of such stock shall be treated as allocable to
stock acquired by the taxpayer in the order in which such
stock was acquired.
‘‘(4) QUALIFIED INVESTMENT ENTITY.—For purposes of this
subsection, the term ‘qualified investment entity’ means—
H. R. 2491—486
‘‘(A) a regulated investment company (within the mean-
ing of section 851), and
‘‘(B) a real estate investment trust (within the meaning
of section 856).
‘‘(f) OTHER PASS-THRU ENTITIES.—
‘‘(1) PARTNERSHIPS.—
‘‘(A) IN GENERAL.—In the case of a partnership, the
adjustment made under subsection (a) at the partnership
level shall be passed through to the partners.
‘‘(B) SPECIAL RULE IN THE CASE OF SECTION 754 ELEC-
TIONS.—In the case of a transfer of an interest in a partner-
ship with respect to which the election provided in section
754 is in effect—
‘‘(i) the adjustment under section 743(b)(1) shall,
with respect to the transferor partner, be treated as
a sale of the partnership assets for purposes of applying
this section, and
‘‘(ii) with respect to the transferee partner, the
partnership’s holding period for purposes of this section
in such assets shall be treated as beginning on the
date of such adjustment.
‘‘(2) S CORPORATIONS.—In the case of an S corporation,
the adjustment made under subsection (a) at the corporate
level shall be passed through to the shareholders. This section
shall not apply for purposes of determining the amount of
any tax imposed by section 1374 or 1375.
‘‘(3) COMMON TRUST FUNDS.—In the case of a common trust
fund, the adjustment made under subsection (a) at the trust
level shall be passed through to the participants.
‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN DETERMINING
LOSS ON SALE OF INTEREST IN ENTITY.—Notwithstanding the
preceding provisions of this subsection, for purposes of deter-
mining the amount of any loss on a sale or exchange of an
interest in a partnership, S corporation, or common trust fund,
the adjustment made under subsection (a) shall not be taken
into account in determining the adjusted basis of such interest.
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply to any sale
or other disposition of property between related persons except
to the extent that the basis of such property in the hands
of the transferee is a substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For purposes of this sec-
tion, the term ‘related persons’ means—
‘‘(A) persons bearing a relationship set forth in section
267(b), and
‘‘(B) persons treated as single employer under sub-
section (b) or (c) of section 414.
‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUSTMENT.—If any
person transfers cash, debt, or any other property to another person
and the principal purpose of such transfer is to secure or increase
an adjustment under subsection (a), the Secretary may disallow
part or all of such adjustment or increase.
‘‘(i) SPECIAL RULES.—For purposes of this section—
‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If there is an
addition to the adjusted basis of any tangible property or of
any stock in a corporation during the taxable year by reason
H. R. 2491—487
of an improvement to such property or a contribution to capital
of such corporation—
‘‘(A) such addition shall never be taken into account
under subsection (c)(1)(A) if the aggregate amount thereof
during the taxable year with respect to such property or
stock is less than $1,000, and
‘‘(B) such addition shall be treated as a separate asset
acquired at the close of such taxable year if the aggregate
amount thereof during the taxable year with respect to
such property or stock is $1,000 or more.
A rule similar to the rule of the preceding sentence shall
apply to any other portion of an asset to the extent that
separate treatment of such portion is appropriate to carry out
the purposes of this section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS THROUGHOUT
HOLDING
PERIOD.—The applicable inflation adjustment shall
be appropriately reduced for periods during which the asset
was not an indexed asset.
‘‘(3) TREATMENT OF CERTAIN DISTRIBUTIONS.—A distribution
with respect to stock in a corporation which is not a dividend
shall be treated as a disposition.
‘‘(4) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION OF SUBSECTION (a)(1) WITH RESPECT TO THE TAX-
PAYER.—If there has been a prior application of subsection
(a)(1) to an asset while such asset was held by the taxpayer,
the date of acquisition of such asset by the taxpayer shall
be treated as not earlier than the date of the most recent
such prior application.
‘‘(5) COLLAPSIBLE CORPORATIONS.—The application of sec-
tion 341(a) (relating to collapsible corporations) shall be deter-
mined without regard to this section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections for part II
of subchapter O of chapter 1 is amended by inserting after the
item relating to section 1021 the following new item:
‘‘Sec. 1022. Indexing of certain assets acquired after December 31, 2000, for
purposes of determining gain.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to the disposition of any property the holding period
of which begins after December 31, 2000.
(2) CERTAIN TRANSACTIONS BETWEEN RELATED PERSONS.—
The amendments made by this section shall not apply to the
disposition of any property acquired after December 31, 2000,
from a related person (as defined in section 1022(g)(2) of the
Internal Revenue Code of 1986, as added by this section) if—
(A) such property was so acquired for a price less
than the property’s fair market value, and
(B) the amendments made by this section did not apply
to such property in the hands of such related person.
(d) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY
1, 2001.—For purposes of the Internal Revenue Code of 1986—
(1) IN GENERAL.—A taxpayer other than a corporation may
elect to treat—
H. R. 2491—488
(A) any readily tradable stock (which is an indexed
asset) held by such taxpayer on January 1, 2001, and
not sold before the next business day after such date,
as having been sold on such next business day for an
amount equal to its closing market price on such next
business day (and as having been reacquired on such next
business day for an amount equal to such closing market
price), and
(B) any other indexed asset held by the taxpayer on
January 1, 2001, as having been sold on such date for
an amount equal to its fair market value on such date
(and as having been reacquired on such date for an amount
equal to such fair market value).
(2) TREATMENT OF GAIN OR LOSS.—
(A) Any gain resulting from an election under para-
graph (1) shall be treated as received or accrued on the
date the asset is treated as sold under paragraph (1) and
shall be recognized notwithstanding any provision of the
Internal Revenue Code of 1986.
(B) Any loss resulting from an election under para-
graph (1) shall not be allowed for any taxable year.
(3) ELECTION.—An election under paragraph (1) shall be
made in such manner as the Secretary of the Treasury or
his delegate may prescribe and shall specify the assets for
which such election is made. Such an election, once made
with respect to any asset, shall be irrevocable.
(4) READILY TRADABLE STOCK.—For purposes of this sub-
section, the term ‘‘readily tradable stock’’ means any stock
which, as of January 1, 2001, is readily tradable on an estab-
lished securities market or otherwise.
(e) TREATMENT OF PRINCIPAL RESIDENCES.—Property held and
used by the taxpayer on January 1, 2001, as his principal residence
(within the meaning of section 1034 of the Internal Revenue Code
of 1986) shall be treated—
(1) for purposes of subsection (c)(1) of this section and
section 1022 of such Code, as having a holding period which
begins on January 1, 2001, and
(2) for purposes of section 1022(c)(2)(B)(ii) of such Code,
as having been acquired on January 1, 2001.
Subsection (d) shall not apply to property to which this subsection
applies.
SEC. 11023. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN
SMALL BUSINESS STOCK.
(a) REDUCED RATE IN LIEU OF EXCLUSION.—
(1) Section 1, as amended by section 11021, is amended
by adding at the end the following new subsection:
‘‘(h) MAXIMUM CAPITAL GAINS RATE FOR CERTAIN SMALL BUSI-
NESS STOCK.—
‘‘(1) IN GENERAL.—If for any taxable year a taxpayer has
gain from the sale or exchange of any qualified small business
stock held for more than 5 years, then the tax imposed by
this section shall not exceed the sum of—
‘‘(A) a tax computed on the taxable income reduced
by 1⁄2 the amount of the small business gain, at the rates
and in the manner as if this subsection had not been
enacted, plus
H. R. 2491—489
‘‘(B) a tax of 14 percent of the small business gain.
‘‘(2) SMALL BUSINESS GAIN.—For purposes of paragraph (1),
the term ‘small business gain’ means the lesser of—
‘‘(A) gain from the sale or exchange of any qualified
small business stock held for more than 5 years, or
‘‘(B) the net capital gain taken into account under
section 1202(a).
‘‘(3) QUALIFIED SMALL BUSINESS STOCK.—The term ‘quali-
fied small business stock’ has the meaning given such term
by section 1203(c).’’
(2) Subsection (a) of section 1203, as redesignated by section
11021, is amended to read as follows:
‘‘(a) APPLICATION
OF REDUCED RATES
TO QUALIFIED SMALL
BUSINESS STOCK GAINS.—
‘‘For treatment of gain on qualified small business stock held for
more than 5 years, see sections 1(h) and 1201(b).’’.
(b) REPEAL OF MINIMUM TAX PREFERENCE.—
(1) Subsection (a) of section 57 is amended by striking
paragraph (7).
(2) Subclause (II) of section 53(d)(1)(B)(ii) is amended by
striking ‘‘, (5), and (7)’’ and inserting ‘‘and (5)’’.
(c) STOCK
OF LARGER BUSINESSES ELIGIBLE
FOR REDUCED
RATES.—Paragraph (1) of section 1203(d), as redesignated by section
11021, is amended by striking ‘‘$50,000,000’’ each place it appears
and inserting ‘‘$100,000,000’’.
(d) REPEAL OF PER-ISSUER LIMITATION.—Section 1203, as so
redesignated, is amended by striking subsection (b).
(e) OTHER MODIFICATIONS.—
(1) REPEAL OF WORKING CAPITAL LIMITATION.—Paragraph
(6) of section 1203(e), as so redesignated, is amended—
(A) by striking ‘‘2 years’’ in subparagraph (B) and
inserting ‘‘5 years’’, and
(B) by striking the last sentence.
(2) EXCEPTION FROM REDEMPTION RULES WHERE BUSINESS
PURPOSE.—Paragraph (3) of section 1203(c), as so redesignated,
is amended by adding at the end the following new subpara-
graph:
‘‘(D) WAIVER WHERE BUSINESS PURPOSE.—A purchase
of stock by the issuing corporation shall be disregarded
for purposes of subparagraph (B) if the issuing corporation
establishes that there was a business purpose for such
purchase and one of the principal purposes of the purchase
was not to avoid the limitations of this section.’’.
(f) CLERICAL AMENDMENT.—The section heading for section
1203, as redesignated by section 11021, is amended to read as
follows:
‘‘SEC. 1203. SMALL BUSINESS STOCK ELIGIBLE FOR PREFERENTIAL
RATES.’’
(g) EFFECTIVE DATES.—
(1) REDUCED
RATES.—The amendments made by sub-
sections (a) and (b) shall apply to taxable years beginning
after the date of the enactment of this Act.
(2) INCREASE IN SIZE.—The amendment made by subsection
(c) shall apply to stock issued after the date of the enactment
of this Act.
H. R. 2491—490
(3) OTHER RULES.—The amendments made by subsections
(d) and (e) shall apply to stock issued after August 10, 1993.
Subchapter B—Corporate Capital Gains
SEC. 11025. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR COR-
PORATIONS.
(a) IN GENERAL.—Section 1201 is amended to read as follows:
‘‘SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.
‘‘(a) GENERAL RULE.—If for any taxable year a corporation
has a net capital gain, then, in lieu of the tax imposed by sections
11, 511, and 831 (a) and (b) (whichever is applicable), there is
hereby imposed a tax (if such tax is less than the tax imposed
by such sections) which shall consist of the sum of—
‘‘(1) a tax computed on the taxable income reduced by
the amount of the net capital gain, at the rates and in the
manner as if this subsection had not been enacted, plus
‘‘(2) a tax of 28 percent of the net capital gain.
‘‘(b) SPECIAL RULES FOR QUALIFIED SMALL BUSINESS GAIN.—
‘‘(1) IN GENERAL.—If for any taxable year a corporation
has gain from the sale or exchange of any qualified small
business stock held for more than 5 years, the amount deter-
mined under subsection (a)(2) for such taxable year shall be
equal to the sum of—
‘‘(A) 21 percent of the lesser of such gain or the corpora-
tion’s net capital gain, plus
‘‘(B) 28 percent of the net capital gain reduced by
the gain taken into account under subparagraph (A).
‘‘(2) QUALIFIED SMALL BUSINESS STOCK.—For purposes of
paragraph (1), the term ‘qualified small business stock’ has
the meaning given such term by section 1203(c), except that
stock shall not be treated as qualified small business stock
if such stock was at any time held by a member of the parent-
subsidiary controlled group (as defined in section 1203(d)(3))
which includes the qualified small business.
‘‘(c) TRANSITIONAL RULE.—
‘‘(1) IN GENERAL.—In applying this section, net capital gain
for any taxable year shall not exceed the net capital gain
determined by taking into account only gains and losses prop-
erly taken into account for the portion of the taxable year
after December 31, 1994.
‘‘(2) SPECIAL
RULE
FOR
PASS-THRU
ENTITIES.—Section
1202(e)(2) shall apply for purposes of paragraph (1).
‘‘(d) CROSS REFERENCES.—
‘‘For computation of the alternative tax—
‘‘(1) in the case of life insurance companies, see section
801(a)(2),
‘‘(2) in the case of regulated investment companies and their
shareholders, see section 852(b)(3) (A) and (D), and
‘‘(3) in the case of real estate investment trusts, see section
857(b)(3)(A).’’.
(b) TECHNICAL AMENDMENT.—Clause (iii) of section 852(b)(3)(D)
is amended by striking ‘‘65 percent’’ and inserting ‘‘72 percent’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to taxable years ending after December 31, 1994.
H. R. 2491—491
(2) QUALIFIED SMALL BUSINESS STOCK.—Section 1201(b) of
the Internal Revenue Code of 1986 (as added by subsection
(a)) shall apply to gain from qualified small business stock
acquired on or after the date of the enactment of this Act.
Subchapter C—Capital Loss Deduction Allowed With
Respect to Sale or Exchange of Principal Residence
SEC. 11026. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO
SALE OR EXCHANGE OF PRINCIPAL RESIDENCE.
(a) IN GENERAL.—Subsection (c) of section 165 (relating to
limitation on losses of individuals) is amended by striking ‘‘and’’
at the end of paragraph (2), by striking the period at the end
of paragraph (3) and inserting ‘‘; and’’, and by adding at the end
the following new paragraph:
‘‘(4) losses arising from the sale or exchange of the principal
residence (within the meaning of section 1034) of the taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to sales and exchanges after December 31, 1994, in
taxable years ending after such date.
CHAPTER 3—CORPORATE ALTERNATIVE MINIMUM TAX
REFORM
SEC. 11031. MODIFICATION OF DEPRECIATION RULES UNDER MINI-
MUM TAX.
(a) IN GENERAL.—Clause (i) of section 56(a)(1)(A) is amended
by inserting ‘‘and before January 1, 1996,’’ after ‘‘December 31,
1986,’’.
(b) CONFORMING AMENDMENT.—Clause (ii) of section 56(a)(1)(A)
is amended by striking ‘‘The method’’ and inserting ‘‘In the case
of property placed in service before January 1, 1996, the method’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after December 31, 1995.
SEC. 11032. LONG-TERM UNUSED CREDITS ALLOWED AGAINST MINI-
MUM TAX.
(a) IN
GENERAL.—Section 53(c) (relating to limitation) is
amended by adding at the end the following new paragraph:
‘‘(2) SPECIAL RULE FOR TAXPAYERS WITH LONG-TERM UNUSED
CREDITS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a corporation to which section 56(g) applies
has a long-term unused minimum tax credit for a
taxable year, and
‘‘(ii) no credit would be allowable under this section
for the taxable year by reason of paragraph (1),
then there shall be allowed a credit under subsection (a)
for the taxable year in the amount determined under
subparagraph (B).
‘‘(B) AMOUNT
OF
CREDIT.—For purposes of subpara-
graph (A), the amount of the credit shall be equal to the
least of the following for the taxable year:
‘‘(i) The long-term unused minimum tax credit.
‘‘(ii) 50 percent of the taxpayer’s tentative mini-
mum tax.
H. R. 2491—492
‘‘(iii) The excess (if any) of the amount under para-
graph (1)(B) over the amount under paragraph (1)(A).
‘‘(C) LONG-TERM UNUSED MINIMUM TAX CREDIT.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The long-term unused minimum
tax credit for any taxable year is the portion of the
minimum tax credit determined under subsection (b)
attributable to the adjusted net minimum tax for tax-
able years beginning after 1986 and ending before
the 7th taxable year immediately preceding the taxable
year for which the determination is being made.
‘‘(ii) FIRST-IN, FIRST-OUT ORDERING RULE.—For pur-
poses of clause (i), credits shall be treated as allowed
under subsection (a) on a first-in, first-out basis.’’.
(b) CONFORMING AMENDMENTS.—(1) Section 53(c) (as in effect
before the amendment made by subsection (a)) is amended—
(A) by striking ‘‘The’’ and inserting:
‘‘(1) IN GENERAL.—The’’, and
(B) by redesignating paragraphs (1) and (2) as subpara-
graphs (A) and (B), respectively.
(2) Subparagraph (C) of section 108(b)(4) is amended by striking
‘‘and (G)’’ in the text and heading thereof and inserting ‘‘, (C),
and (G)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
CHAPTER 4—COST RECOVERY PROVISIONS
SEC. 11035. TREATMENT OF ABANDONMENT OF LESSOR IMPROVE-
MENTS AT TERMINATION OF LEASE.
(a) IN GENERAL.—Paragraph (8) of section 168(i) is amended
to read as follows:
‘‘(8) TREATMENT OF LEASEHOLD IMPROVEMENTS.—
‘‘(A) IN GENERAL.—In the case of any building erected
(or improvements made) on leased property, if such building
or improvement is property to which this section applies,
the depreciation deduction shall be determined under the
provisions of this section.
‘‘(B) TREATMENT OF LESSOR IMPROVEMENTS WHICH ARE
ABANDONED AT TERMINATION OF LEASE.—An improvement—
‘‘(i) which is made by the lessor of leased property
for the lessee of such property, and
‘‘(ii) which is irrevocably disposed of or abandoned
by the lessor at the termination of the lease by such
lessee,
shall be treated for purposes of determining gain or loss
under this title as disposed of by the lessor when so dis-
posed of or abandoned.’’
(b) EFFECTIVE DATE.—Subparagraph (B) of section 168(i)(8)
of the Internal Revenue Code of 1986, as added by the amendment
made by subsection (a), shall apply to improvements disposed of
or abandoned after March 13, 1995.
SEC. 
11036. 
INCREASE 
IN 
EXPENSE 
TREATMENT 
FOR 
SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section 179(b) (relating
to dollar limitation) is amended to read as follows:
H. R. 2491—493
‘‘(1) DOLLAR LIMITATION.—The aggregate cost which may
be taken into account under subsection (a) for any taxable
year shall not exceed the following applicable amount:
‘‘If the taxable year
The applicable
begins in:
amount is:
1996 .......................................................................................
$19,000
1997 .......................................................................................
20,000
1998 .......................................................................................
21,000
1999 .......................................................................................
22,000
2000 .......................................................................................
23,000
2001 .......................................................................................
24,000
2002 or thereafter ................................................................
25,000.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1995.
Subtitle C—Health Related Provisions
CHAPTER 1—LONG-TERM CARE PROVISIONS
Subchapter A—Long-Term Care Services and Contracts
PART I—GENERAL PROVISIONS
SEC. 11041. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) GENERAL RULE.—Chapter 79 (relating to definitions) is
amended by inserting after section 7702A the following new section:
‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSUR-
ANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a qualified long-term care insurance contract shall
be treated as an accident and health insurance contract,
‘‘(2) amounts (other than policyholder dividends, as defined
in section 808, or premium refunds) received under a qualified
long-term care insurance contract shall be treated as amounts
received for personal injuries and sickness and shall be treated
as reimbursement for expenses actually incurred for medical
care (as defined in section 213(d)),
‘‘(3) any plan of an employer providing coverage under
a qualified long-term care insurance contract shall be treated
as an accident and health plan with respect to such coverage,
‘‘(4) except as provided in subsection (d)(3), amounts paid
for a qualified long-term care insurance contract providing the
benefits described in subsection (b)(2)(A) shall be treated as
payments made for insurance for purposes of section
213(d)(1)(D), and
‘‘(5) a qualified long-term care insurance contract shall
be treated as a guaranteed renewable contract subject to the
rules of section 816(e).
‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE CONTRACT.—For
purposes of this title—
‘‘(1) IN GENERAL.—The term ‘qualified long-term care insur-
ance contract’ means any insurance contract if—
‘‘(A) the only insurance protection provided under such
contract is coverage of qualified long-term care services,
‘‘(B) such contract does not pay or reimburse expenses
incurred for services or items to the extent that such
H. R. 2491—494
expenses are reimbursable under title XVIII of the Social
Security Act or would be so reimbursable but for the
application of a deductible or coinsurance amount,
‘‘(C) such contract is guaranteed renewable,
‘‘(D) such contract does not provide for a cash surrender
value or other money that can be—
‘‘(i) paid, assigned, or pledged as collateral for a
loan, or
‘‘(ii) borrowed,
other than as provided in subparagraph (E) or paragraph
(2)(C),
‘‘(E) all refunds of premiums, and all policyholder divi-
dends or similar amounts, under such contract are to be
applied as a reduction in future premiums or to increase
future benefits, and
‘‘(F) such contract meets the requirements of subsection
(f).
‘‘(2) SPECIAL RULES.—
‘‘(A) PER DIEM, ETC. PAYMENTS PERMITTED.—A contract
shall not fail to be described in subparagraph (A) or (B)
of paragraph (1) by reason of payments being made on
a per diem or other periodic basis without regard to the
expenses incurred during the period to which the payments
relate.
‘‘(B) SPECIAL RULES RELATING TO MEDICARE.—
‘‘(i) Paragraph (1)(B) shall not apply to expenses
which are reimbursable under title XVIII of the Social
Security Act only as a secondary payor.
‘‘(ii) No provision of law shall be construed or
applied so as to prohibit the offering of a qualified
long-term care insurance contract on the basis that
the contract coordinates its benefits with those pro-
vided under such title.
‘‘(C) REFUNDS OF PREMIUMS.—Paragraph (1)(E) shall
not apply to any refund on the death of the insured, or
on a complete surrender or cancellation of the contract,
which cannot exceed the aggregate premiums paid under
the contract. Any refund on a complete surrender or can-
cellation of the contract shall be includible in gross income
to the extent that any deduction or exclusion was allowable
with respect to the premiums.
‘‘(c) QUALIFIED LONG-TERM CARE SERVICES.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified long-term care serv-
ices’ means necessary diagnostic, preventive, therapeutic, cur-
ing, treating, mitigating, and rehabilitative services, and
maintenance or personal care services, which—
‘‘(A) are required by a chronically ill individual, and
‘‘(B) are provided pursuant to a plan of care prescribed
by a licensed health care practitioner.
‘‘(2) CHRONICALLY ILL INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘chronically ill individual’
means any individual who has been certified by a licensed
health care practitioner as—
‘‘(i) being unable to perform (without substantial
assistance from another individual) at least 2 activities
of daily living for a period of at least 90 days due
H. R. 2491—495
to a loss of functional capacity or to cognitive impair-
ment, or
‘‘(ii) having a level of disability similar (as deter-
mined by the Secretary in consultation with the Sec-
retary of Health and Human Services) to the level
of disability described in clause (i).
Such term shall not include any individual otherwise meet-
ing the requirements of the preceding sentence unless
within the preceding 12-month period a licensed health
care practitioner has certified that such individual meets
such requirements.
‘‘(B) ACTIVITIES
OF
DAILY
LIVING.—For purposes of
subparagraph (A), each of the following is an activity of
daily living:
‘‘(i) Eating.
‘‘(ii) Toileting.
‘‘(iii) Transferring.
‘‘(iv) Bathing.
‘‘(v) Dressing.
‘‘(vi) Continence.
Nothing in this section shall be construed to require a
contract to take into account all of the preceding activities
of daily living.
‘‘(3) MAINTENANCE OR PERSONAL CARE SERVICES.—The term
‘maintenance or personal care services’ means any care the
primary purpose of which is the provision of needed assistance
with any of the disabilities as a result of which the individual
is a chronically ill individual (including the protection from
threats to health and safety due to severe cognitive impair-
ment).
‘‘(4) LICENSED
HEALTH
CARE
PRACTITIONER.—The term
‘licensed health care practitioner’ means any physician (as
defined in section 1861(r)(1) of the Social Security Act) and
any registered professional nurse, licensed social worker, or
other individual who meets such requirements as may be pre-
scribed by the Secretary.
‘‘(d) SPECIAL RULES FOR TREATMENT OF INSUREDS.—
‘‘(1) AGGREGATE PAYMENTS IN EXCESS OF LIMITS.—
‘‘(A) IN GENERAL.—If the aggregate amount of periodic
payments under all qualified long-term care insurance con-
tracts with respect to an insured for any period exceed
the dollar amount in effect for such period under subpara-
graph (C), such excess payments shall be treated as made
for qualified long-term care services only to the extent
of the costs incurred by the payee (not otherwise com-
pensated for by insurance or otherwise) for qualified long-
term care services provided during such period for such
insured.
‘‘(B) PERIODIC PAYMENTS.—For purposes of subpara-
graph (A), the term ‘periodic payment’ means any payment
(whether on a periodic basis or otherwise) made without
regard to the extent of the costs incurred by the payee
for qualified long-term care services.
‘‘(C) DOLLAR
AMOUNT.—The dollar amount in effect
under this paragraph shall be $175 per day (or the equiva-
lent amount in the case of payments on another periodic
basis).
H. R. 2491—496
‘‘(D) INFLATION ADJUSTMENT.—In the case of a calendar
year after 1996, the dollar amount contained in subpara-
graph (C) shall be increased at the same time and in
the same manner as amounts are increased pursuant to
section 213(d)(11).
‘‘(e) TREATMENT OF COVERAGE PROVIDED AS PART OF A LIFE
INSURANCE CONTRACT.—Except as otherwise provided in regulations
prescribed by the Secretary, in the case of any long-term care
insurance coverage (whether or not qualified) provided by a rider
on a life insurance contract—
‘‘(1) IN GENERAL.—This section shall apply as if the portion
of the contract providing such coverage is a separate contract.
‘‘(2) APPLICATION OF 7702.—Section 7702(c)(2) (relating to
the guideline premium limitation) shall be applied by increasing
the guideline premium limitation with respect to a life insur-
ance contract, as of any date—
‘‘(A) by the sum of any charges (but not premium
payments) against the life insurance contract’s cash surren-
der value (within the meaning of section 7702(f)(2)(A)) for
such coverage made to that date under the contract, less
‘‘(B) any such charges the imposition of which reduces
the premiums paid for the contract (within the meaning
of section 7702(f)(1)).
‘‘(3) APPLICATION OF SECTION 213.—No deduction shall be
allowed under section 213(a) for charges against the life insur-
ance contract’s cash surrender value described in paragraph
(2), unless such charges are includible in income as a result
of the application of section 72(e)(10) and the rider is a qualified
long-term care insurance contract under subsection (b).
‘‘(4) PORTION DEFINED.—For purposes of this subsection,
the term ‘portion’ means only the terms and benefits under
a life insurance contract that are in addition to the terms
and benefits under the contract without regard to the coverage
under a qualified long-term care insurance contract.’’
(b) RESERVE METHOD.—Clause (iii) of section 807(d)(3)(A) is
amended by inserting ‘‘(other than a qualified long-term care insur-
ance contract, as defined in section 7702B(b))’’ after ‘‘insurance
contract’’.
(c) LONG-TERM CARE INSURANCE NOT PERMITTED UNDER CAFE-
TERIA PLANS OR FLEXIBLE SPENDING ARRANGEMENTS.—
(1) CAFETERIA PLANS.—Section 125(f) is amended by adding
at the end the following new sentence: ‘‘Such term shall not
include any long-term care insurance contract (as defined in
section 4980C).’’
(2) FLEXIBLE SPENDING ARRANGEMENTS.—The text of sec-
tion 106 (relating to contributions by employer to accident
and health plans) is amended to read as follows:
‘‘(a) GENERAL RULE.—Except as provided in subsection (b), gross
income of an employee does not include employer-provided coverage
under an accident or health plan.
‘‘(b) INCLUSION
OF
LONG-TERM
CARE
BENEFITS
PROVIDED
THROUGH FLEXIBLE SPENDING ARRANGEMENTS.—
‘‘(1) IN GENERAL.—Effective on and after January 1, 1996,
gross income of an employee shall include employer-provided
coverage for qualified long-term care services (as defined in
section 7702B(c)) to the extent that such coverage is provided
through a flexible spending or similar arrangement.
H. R. 2491—497
‘‘(2) FLEXIBLE SPENDING ARRANGEMENT.—For purposes of
this subsection, a flexible spending arrangement is a benefit
program which provides employees with coverage under
which—
‘‘(A) specified incurred expenses may be reimbursed
(subject to reimbursement maximums and other reasonable
conditions), and
‘‘(B) the maximum amount of reimbursement which
is reasonably available to a participant for such coverage
is less than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reason-
ably available shall be determined on the basis of the underly-
ing coverage.’’
(d) CONTINUATION COVERAGE EXCISE TAX NOT TO APPLY.—
Subsection (f) of section 4980B is amended by adding at the end
the following new paragraph:
‘‘(9) CONTINUATION
OF
LONG-TERM
CARE
COVERAGE
NOT
REQUIRED.—A group health plan shall not be treated as failing
to meet the requirements of this subsection solely by reason
of failing to provide coverage under any qualified long-term
care insurance contract (as defined in section 7702B(b)).’’
(e) AMOUNTS PAID TO RELATIVES TREATED AS NOT PAID FOR
MEDICAL CARE.—Section 213(d) is amended by adding at the end
the following new paragraph:
‘‘(10) CERTAIN PAYMENTS TO RELATIVES TREATED AS NOT
PAID FOR MEDICAL CARE.—An amount paid for a qualified long-
term care service (as defined in section 7702B(c)) provided
to an individual shall be treated as not paid for medical care
if such service is provided—
‘‘(A) by a relative (directly or through a partnership,
corporation, or other entity) unless the relative is a licensed
professional with respect to such services, or
‘‘(B) by a corporation or partnership which is related
(within the meaning of section 267(b) or 707(b)) to the
individual.
For purposes of this paragraph, the term ‘relative’ means an
individual bearing a relationship to the individual which is
described in any of paragraphs (1) through (8) of section 152(a).
This paragraph shall not apply for purposes of section 105(b)
with respect to reimbursements through insurance.’’
(f) CLERICAL AMENDMENT.—The table of sections for chapter
79 is amended by inserting after the item relating to section 7702A
the following new item:
‘‘Sec. 7702B. Treatment of qualified long-term care insurance.’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to contracts issued after December 31, 1995.
(2) CONTINUATION OF EXISTING POLICIES.—In the case of
any contract issued before January 1, 1996, which met the
long-term care insurance requirements of the State in which
the contract was issused at the time the contract was issued—
(A) such contract shall be treated for purposes of the
Internal Revenue Code of 1986 as a qualified long-term
care insurance contract (as defined in section 7702B(b)
of such Code), and
H. R. 2491—498
(B) services provided under, or reimbursed by, such
contract shall be treated for such purposes as qualified
long-term care services (as defined in section 7702B(c) of
such Code).
(3) EXCHANGES OF EXISTING POLICIES.—If, after the date
of enactment of this Act and before January 1, 1997, a contract
providing for long-term care insurance coverage is exchanged
solely for a qualified long-term care insurance contract (as
defined in section 7702B(b) of such Code), no gain or loss
shall be recognized on the exchange. If, in addition to a qualified
long-term care insurance contract, money or other property
is received in the exchange, then any gain shall be recognized
to the extent of the sum of the money and the fair market
value of the other property received. For purposes of this para-
graph, the cancellation of a contract providing for long-term
care insurance coverage and reinvestment of the cancellation
proceeds in a qualified long-term care insurance contract within
60 days thereafter shall be treated as an exchange.
(4) ISSUANCE OF CERTAIN RIDERS PERMITTED.—For purposes
of applying sections 101(f), 7702, and 7702A of the Internal
Revenue Code of 1986 to any contract—
(A) the issuance of a rider which is treated as a quali-
fied long-term care insurance contract under section 7702B,
and
(B) the addition of any provision required to conform
any other long-term care rider to be so treated,
shall not be treated as a modification or material change of
such contract.
SEC. 11042. QUALIFIED LONG-TERM CARE SERVICES TREATED AS
MEDICAL CARE.
(a) GENERAL RULE.—Paragraph (1) of section 213(d) (defining
medical care) is amended by striking ‘‘or’’ at the end of subpara-
graph (B), by redesignating subparagraph (C) as subparagraph
(D), and by inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) for qualified long-term care services (as defined
in section 7702B(c)), or’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (D) of section 213(d)(1) (as redesignated
by subsection (a)) is amended by striking ‘‘subparagraphs (A)
and (B)’’ and inserting ‘‘subparagraphs (A), (B), and (C)’’.
(2)(A) Paragraph (1) of section 213(d) is amended by adding
at the end the following new flush sentence:
‘‘In the case of a qualified long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (11)) shall be taken into
account under subparagraph (D).’’
(B) Subsection (d) of section 213 is amended by adding
at the end the following new paragraph:
‘‘(11) ELIGIBLE LONG-TERM CARE PREMIUMS.—
‘‘(A) IN GENERAL.—For purposes of this section, the
term ‘eligible long-term care premiums’ means the amount
paid during a taxable year for any qualified long-term
care insurance contract (as defined in section 7702B(b))
covering an individual, to the extent such amount does
H. R. 2491—499
not exceed the limitation determined under the following
table:
‘‘In the case of an individual
with an attained age before the
The limitation
close of the taxable year of:
is:
40 or less ....................................................................
$200
More than 40 but not more than 50 ........................
375
More than 50 but not more than 60 ........................
750
More than 60 but not more than 70 ........................
2,000
More than 70 .............................................................
2,500.
‘‘(B) INDEXING.—
‘‘(i) IN GENERAL.—In the case of any taxable year
beginning in a calendar year after 1996, each dollar
amount contained in subparagraph (A) shall be
increased by the medical care cost adjustment of such
amount for such calendar year. If any increase deter-
mined under the preceding sentence is not a multiple
of $10, such increase shall be rounded to the nearest
multiple of $10.
‘‘(ii) MEDICAL CARE COST ADJUSTMENT.—For pur-
poses of clause (i), the medical care cost adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(I) the medical care component of the
Consumer Price Index (as defined in section 1(f)(5))
for August of the preceding calendar year, exceeds
‘‘(II) such component for August of 1995.
The Secretary shall, in consultation with the Secretary
of Health and Human Services, prescribe an adjust-
ment which the Secretary determines is more appro-
priate for purposes of this paragraph than the adjust-
ment described in the preceding sentence, and the
adjustment so prescribed shall apply in lieu of the
adjustment described in the preceding sentence.’’
(3) Paragraph (6) of section 213(d) is amended—
(A) by striking ‘‘subparagraphs (A) and (B)’’ and insert-
ing ‘‘subparagraphs (A), (B), and (C)’’, and
(B) by striking ‘‘paragraph (1)(C)’’ in subparagraph (A)
and inserting ‘‘paragraph (1)(D)’’.
(4) Paragraph (7) of section 213(d) is amended by striking
‘‘subparagraphs (A) and (B)’’ and inserting ‘‘subparagraphs (A),
(B), and (C)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11043. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS
FOR QUALIFIED LONG-TERM CARE INSURANCE CON-
TRACTS NOT TAXABLE.
(a) IN GENERAL.—Subsection (a) of section 1035 (relating to
certain exchanges of insurance contracts) is amended by striking
the period at the end of paragraph (3) and inserting ‘‘; or’’, and
by adding at the end the following new paragraph:
‘‘(4) a contract of life insurance or an endowment or annuity
contract for a qualified long-term care insurance contract (as
defined in section 7702B(b)).’’
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1995.
H. R. 2491—500
SEC. 11044. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITH-
DRAWN FROM CERTAIN RETIREMENT PLANS FOR QUALI-
FIED LONG-TERM CARE INSURANCE.
(a) IN GENERAL.—Paragraph (2) of section 72(t) is amended
by adding at the end the following new subparagraph:
‘‘(F) PREMIUMS FOR QUALIFIED LONG-TERM CARE INSUR-
ANCE CONTRACTS.—Distributions to an individual from an
individual retirement plan, or from amounts attributable
to employer contributions made pursuant to elective defer-
rals described in subparagraph (A) or (C) of section
402(g)(3), to the extent such distributions do not exceed
the premiums for a qualified long-term care insurance con-
tract (as defined in section 7702B(b)) for such individual
or the spouse of such individual. In applying subparagraph
(B), such premiums shall be treated as amounts not paid
for medical care.’’
(b) DISTRIBUTIONS PERMITTED FROM CERTAIN PLANS TO PAY
LONG-TERM CARE PREMIUMS.—
(1) Section 401(k)(2)(B)(i) is amended by striking ‘‘or’’ at
the end of subclause (III), by striking ‘‘and’’ at the end of
subclause (IV) and inserting ‘‘or’’, and by inserting after
subclause (IV) the following new subclause:
‘‘(V) the date distributions for premiums for
a long-term care insurance contract (as defined
in section 7702B(b)) for coverage of such individual
or the spouse of such individual are made, and’’.
(2) Section 403(b)(11) is amended by striking ‘‘or’’ at the
end of subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, or’’, and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) for the payment of premiums for a long-term care
insurance contract (as defined in section 7702B(b)) for cov-
erage of the employee or the spouse of the employee.’’
(3) Subparagraph (A) of section 457(d)(1) is amended by
striking ‘‘or’’ at the end of clause (ii), by striking ‘‘and’’ at
the end of clause (iii) and inserting ‘‘or’’, and by inserting
after clause (iii) the following new clause:
‘‘(iv) the date distributions for premiums for a
long-term care insurance contract (as defined in section
7702B(b)) for coverage of such individual or the spouse
of such individual are made, and’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments and distributions after December 31, 1995.
SEC. 11045. REPORTING REQUIREMENTS.
(a) IN GENERAL.—Subpart B of part III of subchapter A of
chapter 61, as amended by section 11004, is amended by adding
at the end the following new section:
‘‘SEC. 6050R. CERTAIN LONG-TERM CARE BENEFITS.
‘‘(a) REQUIREMENT OF REPORTING.—Any person who pays long-
term care benefits shall make a return, according to the forms
or regulations prescribed by the Secretary, setting forth—
‘‘(1) the aggregate amount of such benefits paid by such
person to any individual during any calendar year, and
‘‘(2) the name, address, and TIN of such individual.
H. R. 2491—501
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT
TO WHOM INFORMATION IS REQUIRED.—Every person required to
make a return under subsection (a) shall furnish to each individual
whose name is required to be set forth in such return a written
statement showing—
‘‘(1) the name of the person making the payments, and
‘‘(2) the aggregate amount of long-term care benefits paid
to the individual which are required to be shown on such
return.
The written statement required under the preceding sentence shall
be furnished to the individual on or before January 31 of the
year following the calendar year for which the return under sub-
section (a) was required to be made.
‘‘(c) LONG-TERM CARE BENEFITS.—For purposes of this section,
the term ‘long-term care benefit’ means any amount paid under
a long-term care insurance policy (within the meaning of section
4980C(e)).’’.
(b) PENALTIES.—
(1) Subparagraph (B) of section 6724(d)(1), as amended
by section 11004, is amended by redesignating clauses (x)
through (xv) as clauses (xi) through (xvi), respectively, and
by inserting after clause (ix) the following new clause:
‘‘(x) section 6050R (relating to certain long-term
care benefits),’’.
(2) Paragraph (2) of section 6724(d), as amended by section
11004, is amended by redesignating subparagraphs (R) through
(U) as subparagraphs (S) through (V), respectively, and by
inserting after subparagraph (P) the following new subpara-
graph:
‘‘(R) section 6050R(b) (relating to certain long-term
care benefits),’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart
B of part III of subchapter A of chapter 61 is amended by adding
at the end the following new item:
‘‘Sec. 6050R. Certain long-term care benefits.’’
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to benefits paid after December 31, 1995.
PART II—CONSUMER PROTECTION
PROVISIONS
SEC. 11051. POLICY REQUIREMENTS.
Section 7702B (as added by section 11041) is amended by
adding at the end the following new subsection:
‘‘(f) CONSUMER PROTECTION PROVISIONS.—
‘‘(1) IN GENERAL.—The requirements of this subsection are
met with respect to any contract if any long-term care insurance
policy issued under the contract meets—
‘‘(A) the requirements of the model regulation and
model Act described in paragraph (2),
‘‘(B) the disclosure requirement of paragraph (3), and
‘‘(C) the requirements relating to nonforfeitability
under paragraph (4).
‘‘(2) REQUIREMENTS OF MODEL REGULATION AND ACT.—
H. R. 2491—503
policyholder, 
including 
any 
group 
policyholder, 
a
nonforfeiture provision meeting the requirements of
subparagraph (B).
‘‘(B) REQUIREMENTS OF PROVISION.—The nonforfeiture
provision required under subparagraph (A) shall meet the
following requirements:
‘‘(i) The nonforfeiture provision shall be appro-
priately captioned.
‘‘(ii) The nonforfeiture provision shall provide for
a benefit available in the event of a default in the
payment of any premiums and the amount of the bene-
fit may be adjusted subsequent to being initially
granted only as necessary to reflect changes in claims,
persistency, and interest as reflected in changes in
rates for premium paying policies approved by the
Secretary for the same policy form.
‘‘(iii) The nonforfeiture provision shall provide at
least one of the following:
‘‘(I) Reduced paid-up insurance.
‘‘(II) Extended term insurance.
‘‘(III) Shortened benefit period.
‘‘(IV) Other similar offerings approved by the
Secretary.
‘‘(5) LONG-TERM
CARE
INSURANCE
POLICY
DEFINED.—For
purposes of this subsection, the term ‘long-term care insurance
policy’ has the meaning given such term by section 4980C(e).’’.
SEC. 11052. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE INSUR-
ANCE POLICIES.
(a) IN GENERAL.—Chapter 43 is amended by adding at the
end the following new section:
‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE
INSURANCE POLICIES.
‘‘(a) GENERAL RULE.—There is hereby imposed on any person
failing to meet the requirements of subsection (c) or (d) a tax
in the amount determined under subsection (b).
‘‘(b) AMOUNT.—
‘‘(1) IN GENERAL.—The amount of the tax imposed by sub-
section (a) shall be $100 per policy for each day any require-
ments of subsection (c) or (d) are not met with respect to
each long-term care insurance policy.
‘‘(2) WAIVER.—In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may
waive part or all of the tax imposed by subsection (a) to the
extent that payment of the tax would be excessive relative
to the failure involved.
‘‘(c) RESPONSIBILITIES.—The requirements of this subsection are
as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
‘‘(A) MODEL REGULATION.—The following requirements
of the model regulation must be met:
‘‘(i) Section 13 (relating to application forms and
replacement coverage).
‘‘(ii) Section 14 (relating to reporting require-
ments), except that the issuer shall also report at
least annually the number of claims denied during
the reporting period for each class of business
H. R. 2491—504
(expressed as a percentage of claims denied), other
than claims denied for failure to meet the waiting
period or because of any applicable preexisting condi-
tion.
‘‘(iii) Section 20 (relating to filing requirements
for marketing).
‘‘(iv) Section 21 (relating to standards for market-
ing), including inaccurate completion of medical his-
tories, other than sections 21C(1) and 21C(6) thereof,
except that—
‘‘(I) in addition to such requirements, no per-
son shall, in selling or offering to sell a long-
term care insurance policy, misrepresent a mate-
rial fact; and
‘‘(II) no such requirements shall include a
requirement to inquire or identify whether a
prospective applicant or enrollee for long-term care
insurance has accident and sickness insurance.
‘‘(v) Section 22 (relating to appropriateness of rec-
ommended purchase).
‘‘(vi) Section 24 (relating to standard format outline
of coverage).
‘‘(vii) Section 25 (relating to requirement to deliver
shopper’s guide).
‘‘(B) MODEL ACT.—The following requirements of the
model Act must be met:
‘‘(i) Section 6F (relating to right to return), except
that such section shall also apply to denials of applica-
tions and any refund shall be made within 30 days
of the return or denial.
‘‘(ii) Section 6G (relating to outline of coverage).
‘‘(iii) Section 6H (relating to requirements for cer-
tificates under group plans).
‘‘(iv) Section 6I (relating to policy summary).
‘‘(v) Section 6J (relating to monthly reports on
accelerated death benefits).
‘‘(vi) Section 7 (relating to incontestability period).
‘‘(C) DEFINITIONS.—For purposes of this paragraph, the
terms ‘model regulation’ and ‘model Act’ have the meanings
given such terms by section 7702B(f)(2)(B).
‘‘(2) DELIVERY OF POLICY.—If an application for a long-
term care insurance policy (or for a certificate under a group
long-term care insurance policy) is approved, the issuer shall
deliver to the applicant (or policyholder or certificateholder)
the policy (or certificate) of insurance not later than 30 days
after the date of the approval.
‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—If a claim under
a long-term care insurance policy is denied, the issuer shall,
within 60 days of the date of a written request by the policy-
holder or certificateholder (or representative)—
‘‘(A) provide a written explanation of the reasons for
the denial, and
‘‘(B) make available all information directly relating
to such denial.
‘‘(d) DISCLOSURE.—The requirements of this subsection are met
if the issuer of a long-term care insurance policy discloses in such
policy and in the outline of coverage required under subsection
H. R. 2491—505
(c)(1)(B)(ii) that the policy is intended to be a qualified long-term
care insurance contract under section 7702B(b).
‘‘(e) LONG-TERM CARE INSURANCE POLICY DEFINED.—For pur-
poses of this section, the term ‘long-term care insurance policy’
means any product which is advertised, marketed, or offered as
long-term care insurance.’’.
(b) CONFORMING AMENDMENT.—The table of sections for chapter
43 is amended by adding at the end the following new item:
‘‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’’.
SEC. 11053. COORDINATION WITH STATE REQUIREMENTS.
Nothing in this part shall prevent a State from establishing,
implementing, or continuing in effect standards related to the
protection of policyholders of long-term care insurance policies (as
defined in section 4980C(e) of the Internal Revenue Code of 1986),
if such standards are not in conflict with or inconsistent with
the standards established under such Code.
SEC. 11054. EFFECTIVE DATES.
(a) IN GENERAL.—The provisions of, and amendments made
by, this part shall apply to contracts issued after December 31,
1995. The provisions of section 11041(g) of this Act (relating to
transition rule) shall apply to such contracts.
(b) ISSUERS.—The amendments made by section 11052 shall
apply to actions taken after December 31, 1995.
Subchapter B—Treatment of Accelerated Death Benefits
SEC. 11061. TREATMENT OF ACCELERATED DEATH BENEFITS BY
RECIPIENT.
(a) IN GENERAL.—Section 101 (relating to certain death bene-
fits) is amended by adding at the end the following new subsection:
‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this section, the follow-
ing amounts shall be treated as an amount paid by reason
of the death of an insured:
‘‘(A) Any amount received under a life insurance con-
tract on the life of an insured who is a terminally ill
individual.
‘‘(B) Any amount received under a life insurance con-
tract on the life of an insured who is a chronically ill
individual (as determined in such manner as the Secretary
may prescribe) but only if such amount is received under
a rider or other provision of such contract which is treated
as a qualified long-term care insurance contract under
section 7702B.
‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.—
‘‘(A) IN GENERAL.—In the case of a life insurance con-
tract on the life of an insured described in paragraph
(1), if—
‘‘(i) any portion of such contract is sold to any
viatical settlement provider, or
‘‘(ii) any portion of the death benefit is assigned
to such a provider,
the amount paid for such sale or assignment shall be
treated as an amount paid under the life insurance contract
by reason of the death of such insured.
H. R. 2491—506
‘‘(B) 
VIATICAL
SETTLEMENT
PROVIDER.—The 
term
‘viatical settlement provider’ means any person regularly
engaged in the trade or business of purchasing, or taking
assignments of, life insurance contracts on the lives of
insureds described in paragraph (1) if—
‘‘(i) such person is licensed for such purposes in
the State in which the insured resides, or
‘‘(ii) in the case of an insured who resides in a
State not requiring the licensing of such persons for
such purposes—
‘‘(I) such person meets the requirements of
sections 8 and 9 of the Viatical Settlements Model
Act of the National Association of Insurance
Commissioners, and
‘‘(II) meets the requirements of the Model
Regulations of the National Association of Insur-
ance Commissioners (relating to standards for
evaluation of reasonable payments) in determining
amounts paid by such person in connection with
such purchases or assignments.
‘‘(3) DEFINITIONS.—For purposes of this subsection—
‘‘(A) TERMINALLY
ILL
INDIVIDUAL.—The term ‘termi-
nally ill individual’ means an individual who has been
certified by a physician as having an illness or physical
condition which can reasonably be expected to result in
death in 24 months or less after the date of the certification.
‘‘(B) PHYSICIAN.—The term ‘physician’ has the meaning
given to such term by section 1861(r)(1) of the Social Secu-
rity Act (42 U.S.C. 1395x(r)(1)).
‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLICIES.—This sub-
section shall not apply in the case of any amount paid to
any taxpayer other than the insured if such taxpayer has
an insurable interest with respect to the life of the insured
by reason of the insured being a director, officer, or employee
of the taxpayer or by reason of the insured being financially
interested in any trade or business carried on by the taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to amounts received after December 31, 1995.
SEC. 11062. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED
ACCELERATED DEATH BENEFIT RIDERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED
AS LIFE INSURANCE.—Section 818 (relating to other definitions and
special rules) is amended by adding at the end the following new
subsection:
‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED
AS LIFE INSURANCE.—For purposes of this part—
‘‘(1) IN GENERAL.—Any reference to a life insurance contract
shall be treated as including a reference to a qualified acceler-
ated death benefit rider on such contract.
‘‘(2) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS.—For
purposes of this subsection, the term ‘qualified accelerated
death benefit rider’ means any rider on a life insurance contract
if the only payments under the rider are payments meeting
the requirements of section 101(g).
H. R. 2491—872
for Foods Used in Schools and Institutions for March,
April, and May of each year.
‘‘(ii) METHOD OF ADJUSTMENTS.—Except as other-
wise provided in this subparagraph, in the case of
each school year, the Secretary shall—
‘‘(I) base the adjustment made under clause
(i) on the amount of the unrounded adjustment
for the preceding school year;
‘‘(II) adjust the resulting amount in accordance
with clause (i); and
‘‘(III) round the result to the nearest lower
cent increment.
‘‘(iii) ADJUSTMENT ON JANUARY 1, 1996.—On Janu-
ary 1, 1996, the Secretary shall adjust the value of
food assistance for all meals for the remainder of the
school year by rounding the previously established
value of food assistance to the nearest lower cent incre-
ment.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection
(a)(1) shall become effective on July 1, 1996.
SEC. 12904. REDUCED PRICE LUNCHES.
(a) MAXIMUM PRICE.—Section 9(b)(3) of the National School
Lunch Act (42 U.S.C. 1758(b)(3)) is amended—
(1) in the last sentence, by striking ‘‘The’’ and inserting
‘‘Except as provided in the succeeding 2 sentences, the’’; and
(2) by adding at the end the following: ‘‘In the case of
the school year beginning July 1, 2000, the price charged for
a reduced price lunch shall not exceed 45 cents. In the case
of the school year beginning July 1, 2001, and each school
year thereafter, the price charged for a reduced price lunch
shall not exceed 50 cents.’’.
(b) REDUCED PRICE MEAL PAYMENT.—Section 11(a)(2) of the
Act (42 U.S.C. 1759a(a)(2)) is amended—
(1) by striking ‘‘cents and the’’ and inserting ‘‘cents. Except
as provided in the succeeding 2 sentences, the’’; and
(2) by adding at the end the following: ‘‘In the case of
the school year beginning July 1, 2000, the special assistance
factor for reduced price lunches shall be 45 cents less than
the special assistance factor for free lunches. In the case of
the school year beginning July 1, 2001, and each school year
thereafter, the special assistance factor for reduced price
lunches shall be 50 cents less than the special assistance factor
for free lunches.’’.
SEC. 12905. LUNCHES, BREAKFASTS, AND SUPPLEMENTS.
(a) IN GENERAL.—Section 11(a)(3)(B) of the National School
Lunch Act (42 U.S.C. 1759a(a)(3)(B)) is amended—
(1) by designating the second and third sentences as sub-
paragraphs (C) and (D), respectively; and
(2) by striking subparagraph (D) (as so designated) and
inserting the following:
‘‘(D) ROUNDING.—Except as otherwise provided in this
paragraph, in the case of each school year, the Secretary
shall—
‘‘(i) base the adjustment made under this para-
graph on the amount of the unrounded adjustment
for the preceding school year;