377
by a plan on and after the date of the enactment of
this Act.
(2) TRANSITION RULE.—In the case of a plan in
existence on the date of the enactment of this Act, a
trust need not be established by reason of the amend-
ments made by this section before January 1, 1999.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM
BENEFITS UNDER SECTION 415 LIMITATIONS.
(a) IN
GENERAL.—Subparagraph (A) of section
767(d)(3) of the Uruguay Round Agreements Act is amend-
ed to read as follows:
‘‘(A) EXCEPTION.—A plan that was adopt-
ed and in effect before December 8, 1994, shall
not be required to apply the amendments made
by subsection (b) with respect to benefits accrued
before the earlier of—
‘‘(i) the later of the date a plan amend-
ment applying the amendments made by
subsection (b) is adopted or made effective,
or
‘‘(ii) the first day of the first limita-
tion year beginning after December 31,
1999.
Determinations under section 415(b)(2)(E) of the
Internal Revenue Code of 1986 before such ear-
378
lier date shall be made with respect to such bene-
fits on the basis of such section as in effect on
December 7, 1994 (except that the modification
made by section 1449(b) of the Small Business
Job Protection Act of 1996 shall be taken into
account), and the provisions of the plan as in ef-
fect on December 7, 1994, but only if such provi-
sions of the plan meet the requirements of such
section (as so in effect).’’.
(b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD-
JUSTING BENEFITS
OF DEFINED BENEFIT PLANS
FOR
EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)
(relating to limitation on certain assumptions) is amend-
ed—
(1) by striking ‘‘Except as provided in clause
(ii), for purposes of adjusting any benefit or limita-
tion under subparagraph (B) or (C),’’ in clause (i)
and inserting ‘‘For purposes of adjusting any limita-
tion under subparagraph (C) and, except as provided
in clause (ii), for purposes of adjusting any benefit
under subparagraph (B),’’, and
(2) by striking ‘‘For purposes of adjusting the
benefit or limitation of any form of benefit subject to
section 417(e)(3),’’ in clause (ii) and inserting ‘‘For
purposes of adjusting any benefit under subparagraph
379
(B) for any form of benefit subject to section
417(e)(3),’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect as if included in the provisions of
section 767 of the Uruguay Round Agreements Act.
(d) TRANSITIONAL RULE.—In the case of a plan that
was adopted and in effect before December 8, 1994, if—
(1) a plan amendment was adopted or made ef-
fective on or before the date of the enactment of this
Act applying the amendments made by section 767 of
the Uruguay Round Agreements Act, and
(2) within 1 year after the date of the enactment
of this Act, a plan amendment is adopted which re-
peals the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be
taken into account in applying section 767(d)(3)(A) of the
Uruguay Round Agreements Act, as amended by subsection
(a).
SEC. 1450. MODIFICATIONS OF SECTION 403(b).
(a) MULTIPLE
SALARY
REDUCTION
AGREEMENTS
PERMITTED.—
(1) GENERAL
RULE.—For purposes of section
403(b) of the Internal Revenue Code of 1986, the fre-
quency that an employee is permitted to enter into a
salary reduction agreement, the salary to which such
380
an agreement may apply, and the ability to revoke
such an agreement shall be determined under the rules
applicable to cash or deferred elections under section
401(k) of such Code.
(2) CONSTRUCTIVE RECEIPT.—Section 402(e)(3)
is amended by inserting ‘‘or which is part of a salary
reduction agreement under section 403(b)’’ after ‘‘sec-
tion 401(k)(2))’’.
(3) EFFECTIVE
DATE.—This subsection shall
apply to taxable years beginning after December 31,
1995.
(b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—
(1) IN GENERAL.—Subparagraph (A) of section
403(b)(1) (relating to taxability of beneficiary under
annuity purchased by section 501(c)(3) organization
or public school) is amended by striking ‘‘or’’ at the
end of clause (i), by inserting ‘‘or’’ at the end of
clause (ii), and by adding at the end the following
new clause:
‘‘(iii) for an employee by an employer
which is an Indian tribal government (as
defined in section 7701(a)(40)), a subdivi-
sion of an Indian tribal government (deter-
mined in accordance with section 7871(d)),
an agency or instrumentality of an Indian
381
tribal government or subdivision thereof, or
a corporation chartered under Federal,
State, or tribal law which is owned in
whole or part by any of the foregoing,’’.
(2) CONFORMING AMENDMENT.—The heading for
section 403(b) is amended by striking ‘‘OR PUBLIC
SCHOOL’’ and inserting ‘‘, PUBLIC SCHOOL, OR IN-
DIAN TRIBE’’.
(3) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendments made
by this section shall apply to plan years begin-
ning after December 31, 1996.
(B) TRANSITION RULES.—
(i) IN GENERAL.—In the case of any
contract purchased in a plan year begin-
ning before January 1, 1997, section 403(b)
of the Internal Revenue Code of 1986 shall
be applied as if any reference to an em-
ployer described in section 501(c)(3) of the
Internal Revenue Code of 1986 which is ex-
empt from tax under section 501 of such
Code included a reference to an employer
which is an Indian tribal government (as
defined by section 7701(a)(40) of such
Code), a subdivision of an Indian tribal
382
government (determined in accordance with
section 7871(d) of such Code), an agency or
instrumentality of an Indian tribal govern-
ment or subdivision thereof, or a corpora-
tion chartered under Federal, State, or trib-
al law which is owned in whole or in part
by any of the foregoing.
(ii) ROLLOVERS.—Solely for purposes
of applying section 403(b)(8) of such Code
to a contract to which clause (i) applies, a
qualified cash or deferred arrangement
under section 401(k) of such Code shall be
treated as if it were a plan or contract de-
scribed in clause (ii) of section 403(b)(8)(A)
of such Code.
(c) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Subparagraph (E) of section
403(b)(1) is amended to read as follows:
‘‘(E) in the case of a contract purchased
under a salary reduction agreement, the contract
meets the requirements of section 401(a)(30),’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 1995, except a contract shall not be re-
quired to meet any change in any requirement by
383
reason of such amendment before the 90th day after
the date of the enactment of this Act.
SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND
SURVIVOR ANNUITY EXPLANATION BEFORE
ANNUITY STARTING DATE.
(a) GENERAL
RULE.—For purposes of section
417(a)(3)(A) of the Internal Revenue Code of 1986 (relating
to plan to provide written explanations), the minimum pe-
riod prescribed by the Secretary of the Treasury between
the date that the explanation referred to in such section is
provided and the annuity starting date shall not apply if
waived by the participant and, if applicable, the partici-
pant’s spouse.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
plan years beginning after December 31, 1996.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED
BENEFIT PLAN AND DEFINED CONTRIBUTION
PLAN FOR SAME EMPLOYEE; EXCESS DIS-
TRIBUTIONS.
(a) IN GENERAL.—Section 415(e) is repealed.
(b) EXCESS
DISTRIBUTIONS.—Section 4980A is
amended by adding at the end the following new subsection:
‘‘(g) LIMITATION ON APPLICATION.—This section shall
not apply to distributions during years beginning after De-
cember 31, 1996, and before January 1, 2000, and such dis-
384
tributions shall be treated as made first from amounts not
described in subsection (f).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 415(a) is amend-
ed—
(A) by adding ‘‘or’’ at the end of subpara-
graph (A),
(B) by striking ‘‘, or’’ at the end of sub-
paragraph (B) and inserting a period, and
(C) by striking subparagraph (C).
(2) Subparagraph (B) of section 415(b)(5) is
amended by striking ‘‘and subsection (e)’’.
(3) Paragraph (1) of section 415(f) is amended
by striking ‘‘subsections (b), (c), and (e)’’ and insert-
ing ‘‘subsections (b) and (c)’’.
(4) Subsection (g) of section 415 is amended by
striking ‘‘subsections (e) and (f)’’ in the last sentence
and inserting ‘‘subsection (f)’’.
(5) Clause (i) of section 415(k)(2)(A) is amended
to read as follows:
‘‘(i) any contribution made directly by
an employee under such an arrangement
shall not be treated as an annual addition
for purposes of subsection (c), and’’.
385
(6) Clause (ii) of section 415(k)(2)(A) is amend-
ed by striking ‘‘subsections (c) and (e)’’ and inserting
‘‘subsection (c)’’.
(7) Section 416 is amended by striking sub-
section (h).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to limitation years beginning after December
31, 1999.
(2) EXCESS
DISTRIBUTIONS.—The amendment
made by subsection (b) shall apply to years beginning
after December 31, 1996.
SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.
(a) IN GENERAL.—Section 4975(a) is amended by
striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to prohibited transactions occurring
after the date of the enactment of this Act.
SEC. 1454. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.—Subparagraph (C) of section
414(n)(2) (defining leased employee) is amended to read as
follows:
‘‘(C) such services are performed under pri-
mary direction or control by the recipient.’’.
386
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 1996, but shall not apply to any relationship deter-
mined under an Internal Revenue Service ruling issued be-
fore the date of the enactment of this Act pursuant to section
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in
effect on the day before such date) not to involve a leased
employee.
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO
CERTAIN 
PENSION 
REPORTING 
REQUIRE-
MENTS.
(a) PENALTIES.—
(1) STATEMENTS.—Paragraph (1) of section
6724(d) is amended by striking ‘‘and’’ at the end of
subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, and’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) any statement of the amount of pay-
ments to another person required to be made to
the Secretary under—
‘‘(i) section 408(i) (relating to reports
with respect to individual retirement ac-
counts or annuities), or
387
‘‘(ii) section 6047(d) (relating to re-
ports by employers, plan administrators,
etc.).’’.
(2) REPORTS.—Paragraph (2) of section 6724(d)
is amended by striking ‘‘or’’ at the end of subpara-
graph (S), by striking the period at the end of sub-
paragraph (T) and inserting a comma, and by insert-
ing after subparagraph (T) the following new sub-
paragraphs:
‘‘(U) section 408(i) (relating to reports with
respect to individual retirement plans) to any
person other than the Secretary with respect to
the amount of payments made to such person, or
‘‘(V) section 6047(d) (relating to reports by
plan administrators) to any person other than
the Secretary with respect to the amount of pay-
ments made to such person.’’.
(b) MODIFICATION OF REPORTABLE DESIGNATED DIS-
TRIBUTIONS.—
(1) SECTION 408.—Subsection (i) of section 408
(relating to individual retirement account reports) is
amended by inserting ‘‘aggregating $10 or more in
any calendar year’’ after ‘‘distributions’’.
(2) SECTION
6047.—Paragraph (1) of section
6047(d) (relating to reports by employers, plan ad-
388
ministrators, etc.) is amended by adding at the end
the following new sentence: ‘‘No return or report may
be required under the preceding sentence with respect
to distributions to any person during any year unless
such distributions aggregate $10 or more.’’.
(c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Section
6652(i) is amended—
(1) by striking ‘‘the $10’’ and inserting ‘‘$100’’,
and
(2) 
by 
striking 
‘‘$5,000’’ 
and 
inserting
‘‘$50,000’’.
(d) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 6047(f) is amended
to read as follows:
‘‘(1) For provisions relating to penalties for fail-
ures to file returns and reports required under this
section, see sections 6652(e), 6721, and 6722.’’.
(2) Subsection (e) of section 6652 is amended by
adding at the end the following new sentence: ‘‘This
subsection shall not apply to any return or statement
which is an information return described in section
6724(d)(1)(C)(ii) or a payee statement described in
section 6724(d)(2)(V).’’.
(3) Subsection (a) of section 6693 is amended by
adding at the end the following new sentence: ‘‘This
subsection shall not apply to any report which is an
information 
return 
described 
in 
section
389
6724(d)(1)(C)(i) or a payee statement described in
section 6724(d)(2)(U).’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns, reports, and other statements
the due date for which (determined without regard to exten-
sions) is after December 31, 1996.
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB-
JECT TO TAX ON NET EARNINGS FROM SELF-
EMPLOYMENT.
(a) IN GENERAL.—Section 1402(a)(8) (defining net
earning from self-employment) is amended by inserting ‘‘,
but shall not include in such net earnings from self-employ-
ment the rental value of any parsonage or any parsonage
allowance (whether or not excludable under section 107)
provided after the individual retires, or any other retire-
ment benefit received by such individual from a church plan
(as defined in section 414(e)) after the individual retires’’
before the semicolon at the end.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning before, on, or after
December 31, 1994.
SEC. 1457. MODEL FORMS FOR SPOUSAL CONSENT AND
QUALIFIED DOMESTIC RELATIONS FORMS.
(a) DEVELOPMENT OF FORMS.—Not later than Janu-
ary 1, 1997, the Secretary of the Treasury shall develop—
390
(1) a model form for the spousal consent required
under section 417(a)(2) of the Internal Revenue Code
of 1986 and section 205(c)(2) of the Employee Retire-
ment Income Security Act of 1974 which—
(A) is written in a manner calculated to be
understood by the average person, and
(B) discloses in plain form—
(i) whether the waiver to which the
spouse consents is irrevocable, and
(ii) whether such waiver may be re-
voked by a qualified domestic relations
order, and
(2) a model form for a qualified domestic rela-
tions order described in section 414(p)(1)(A) of such
Code and section 206(d)(3)(B)(i) of such Act which—
(A) meets the requirements contained in
such sections, and
(B) the provisions of which focus attention
on the need to consider the treatment of any
lump sum payment, qualified joint and survivor
annuity, or qualified preretirement survivor an-
nuity.
(b) PUBLICITY.—The Secretary of the Treasury shall
include publicity for the model forms developed under sub-
391
section (a) in the pension outreach efforts undertaken by
the Secretary.
SEC. 1458. TREATMENT OF LENGTH OF SERVICE AWARDS
TO VOLUNTEERS PERFORMING FIRE FIGHT-
ING OR PREVENTION SERVICES, EMERGENCY
MEDICAL SERVICES, OR AMBULANCE SERV-
ICES.
(a) IN GENERAL.—Paragraph (11) of section 457(e)
(relating to deferred compensation plans of State and local
governments and tax-exempt organizations) is amended to
read as follows:
‘‘(11) CERTAIN PLANS EXCLUDED.—
‘‘(A) IN
GENERAL.—The following plans
shall be treated as not providing for the deferral
of compensation:
‘‘(i) Any bona fide vacation leave, sick
leave, compensatory time, severance pay,
disability pay, or death benefit plan.
‘‘(ii) Any plan paying solely length of
service awards to bona fide volunteers (or
their beneficiaries) on account of qualified
services performed by such volunteers.
‘‘(B) 
SPECIAL
RULES
APPLICABLE
TO
LENGTH OF SERVICE AWARD PLANS.—
392
‘‘(i) BONA FIDE VOLUNTEER.—An in-
dividual shall be treated as a bona fide vol-
unteer for purposes of subparagraph (A)(ii)
if the only compensation received by such
individual for performing qualified services
is in the form of—
‘‘(I) reimbursement for (or a rea-
sonable allowance for) reasonable ex-
penses incurred in the performance of
such services, or
‘‘(II) reasonable benefits (includ-
ing length of service awards), and
nominal fees for such services, cus-
tomarily paid by eligible employers in
connection with the performance of
such services by volunteers.
‘‘(ii) LIMITATION
ON
ACCRUALS.—A
plan shall not be treated as described in
subparagraph 
(A)(ii) 
if 
the 
aggregate
amount of length of service awards accruing
with respect to any year of service for any
bona fide volunteer exceeds $3,000.
‘‘(C) QUALIFIED SERVICES.—For purposes
of this paragraph, the term ‘qualified services’
means fire fighting and prevention services,
393
emergency medical services, and ambulance serv-
ices.’’
(b) EXEMPTION FROM SOCIAL SECURITY TAXES.—
(1) Subsection (a)(5) of section 3121, as amend-
ed by section 1421, is amended by striking ‘‘(or)’’ at
the end of subparagraph (G), by inserting ‘‘or’’ at the
end of subparagraph (H), and by adding at the end
the following new subparagraph:
‘‘(I) under a plan described in section
457(e)(11)(A)(ii) and maintained by an eligible
employer (as defined in section 457(e)(1)).’’.
(2) Section 209(a)(4) of the Social Security Act
is amended by inserting ‘‘; or (K) under a plan de-
scribed in section 457(e)(11)(A)(ii) of the Internal
Revenue Code of 1986 and maintained by an eligible
employer (as defined in section 457(e)(1) of such
Code)’’ before the semicolon at the end thereof.
(c) EFFECTIVE DATE.—
(1) SUBSECTION (a).—The amendment made by
subsection (a) shall apply to accruals of length of
service awards after December 31, 1996.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to remuneration paid after
December 31, 1996.
394
SEC. 1459. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an
amendment to any plan or annuity contract, such amend-
ment shall not be required to be made before the first day
of the first plan year beginning on or after January 1,
1997, if—
(1) during the period after such amendment
takes effect and before such first plan year, the plan
or contract is operated in accordance with the re-
quirements of such amendment, and
(2) such amendment applies retroactively to such
period.
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this section
shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.
Subtitle E—Revenue Offsets
PART I—GENERAL PROVISIONS
SEC. 1601. MODIFICATIONS OF PUERTO RICO AND POSSES-
SION TAX CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding
at the end the following new subsection:
‘‘(j) TERMINATION OF QPSII AND REDUCED CREDIT;
REDUCTION IN ECONOMIC ACTIVITY CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this subsection, this section shall not apply to any
taxable year beginning after December 31, 1995.
395
‘‘(2) SPECIAL RULES FOR ACTIVE BUSINESS IN-
COME
CREDIT.—Except as provided in paragraph
(3)—
‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the
case of an existing credit claimant—
‘‘(i) with respect to a possession other
than Puerto Rico, and
‘‘(ii) to which subsection (a)(4)(B) does
not apply,
the credit determined under subsection (a)(1)(A)
shall be allowed for taxable years beginning after
December 31, 1995, except that in the case of
taxable years beginning after December 31, 2005,
subsection (a)(4)(A)(i) shall be applied by sub-
stituting ‘40 percent’ for ‘60 percent’.
‘‘(B) REDUCED CREDIT.—
‘‘(i) IN GENERAL.—In the case of an
existing credit claimant to which subsection
(a)(4)(B) applies, the credit determined
under subsection (a)(1)(A) shall be allowed
for taxable years beginning after December
31, 1995, and before January 1, 2006.
‘‘(ii) ELECTION
IRREVOCABLE
AFTER
1997.—An 
election 
under 
subsection
(a)(4)(B)(iii) which is in effect for the tax-
396
payer’s last taxable year beginning before
1997 may not be revoked unless it is re-
voked for the taxpayer’s first taxable year
beginning in 1997 and all subsequent tax-
able years.
‘‘(C) ECONOMIC
ACTIVITY
CREDIT
FOR
PUERTO RICO.—
‘‘For economic activity credit for Puerto Rico, see
section 30A.
‘‘(3) ADDITIONAL RESTRICTION ON CREDIT.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant, the aggregate amount of
taxable income taken into account under sub-
section (a)(1)(A) shall not exceed the adjusted
base period income of such claimant—
‘‘(i) in the case of the credit described
in paragraph (2)(A), for any taxable year
beginning after December 31, 2001, and
‘‘(ii) in the case of the credit described
in paragraph (2)(B), for any taxable year
beginning after December 31, 1997.
‘‘(B) COORDINATION
WITH
SUBSECTION
(a)(4).—The amount of income described in sub-
section (a)(1)(A) which is taken into account in
applying subsection (a)(4) shall be such income
as reduced under this paragraph.
397
‘‘(4) ADJUSTED
BASE
PERIOD
INCOME.—For
purposes of paragraph (3)—
‘‘(A) IN GENERAL.—The term ‘adjusted base
period income’ means the average of the infla-
tion-adjusted possession incomes of the corpora-
tion for each base period year.
‘‘(B) INFLATION-ADJUSTED POSSESSION IN-
COME.—For purposes of subparagraph (A), the
inflation-adjusted possession income of any cor-
poration for any base period year shall be an
amount equal to the sum of—
‘‘(i) the possession income of such cor-
poration for such base period year, plus
‘‘(ii) such possession income multiplied
by the inflation adjustment percentage for
such base period year.
‘‘(C) INFLATION
ADJUSTMENT
PERCENT-
AGE.—For purposes of subparagraph (B), the in-
flation adjustment percentage for any base pe-
riod year means the percentage (if any) by
which—
‘‘(i) the CPI for 1995, exceeds
‘‘(ii) the CPI for the calendar year in
which the base period year for which the de-
termination is being made ends.
398
For purposes of the preceding sentence, the CPI
for any calendar year is the CPI (as defined in
section 1(f)(5)) for such year under section
1(f)(4).
‘‘(D) INCREASE IN INFLATION ADJUSTMENT
PERCENTAGE
FOR
GROWTH
DURING
BASE
YEARS.—The inflation adjustment percentage
(determined under subparagraph (C) without re-
gard to this subparagraph) for each of the 5 tax-
able years referred to in paragraph (5)(A) shall
be increased by—
‘‘(i) 5 percentage points in the case of
a taxable year ending during the 1-year pe-
riod ending on October 13, 1995;
‘‘(ii) 10.25 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1994;
‘‘(iii) 15.76 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1993;
‘‘(iv) 21.55 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1992;
and
399
‘‘(v) 27.63 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘base period
year’ means each of 3 taxable years which are
among the 5 most recent taxable years of the cor-
poration ending before October 14, 1995, deter-
mined by disregarding—
‘‘(i) one taxable year for which the cor-
poration had the largest inflation-adjusted
possession income, and
‘‘(ii) one taxable year for which the
corporation had the smallest inflation-ad-
justed possession income.
‘‘(B) CORPORATIONS NOT HAVING SIGNIFI-
CANT POSSESSION INCOME THROUGHOUT 5-YEAR
PERIOD.—
‘‘(i) IN
GENERAL.—If a corporation
does not have significant possession income
for each of the most recent 5 taxable years
ending before October 14, 1995, then, in lieu
of applying subparagraph (A), the term
‘base period year’ means only those taxable
400
years (of such 5 taxable years) for which the
corporation has significant possession in-
come; except that, if such corporation has
significant possession income for 4 of such
5 taxable years, the rule of subparagraph
(A)(ii) shall apply.
‘‘(ii) SPECIAL RULE.—If there is no
year (of such 5 taxable years) for which a
corporation has significant possession in-
come—
‘‘(I) the term ‘base period year’
means the first taxable year ending on
or after October 14, 1995, but
‘‘(II) the amount of possession in-
come for such year which is taken into
account under paragraph (4) shall be
the amount which would be determined
if such year were a short taxable year
ending on September 30, 1995.
‘‘(iii) SIGNIFICANT
POSSESSION
IN-
COME.—For purposes of this subparagraph,
the term ‘significant possession income’
means possession income which exceeds 2
percent of the possession income of the tax-
payer for the taxable year (of the period of
401
6 taxable years ending with the first taxable
year ending on or after October 14, 1995)
having the greatest possession income.
‘‘(C) ELECTION TO USE ONE BASE PERIOD
YEAR.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, the term ‘base period year’
means—
‘‘(I) only the last taxable year of
the corporation ending in calendar
year 1992, or
‘‘(II) a deemed taxable year which
includes the first ten months of cal-
endar year 1995.
‘‘(ii) 
BASE
PERIOD
INCOME
FOR
1995.—In determining the adjusted base pe-
riod income of the corporation for the
deemed taxable year under clause (i)(II),
the possession income shall be annualized
and shall be determined without regard to
any extraordinary item.
‘‘(iii) ELECTION.—An election under
this subparagraph by any possession cor-
poration may be made only for the corpora-
tion’s first taxable year beginning after De-
402
cember 31, 1995, for which it is a possession
corporation. The rules of subclauses (II)
and (III) of subsection (a)(4)(B)(iii) shall
apply to the election under this subpara-
graph.
‘‘(D) ACQUISITIONS
AND
DISPOSITIONS.—
Rules similar to the rules of subparagraphs (A)
and (B) of section 41(f)(3) shall apply for pur-
poses of this subsection.
‘‘(6) POSSESSION INCOME.—For purposes of this
subsection, the term ‘possession income’ means, with
respect to any possession, the income referred to in
subsection (a)(1)(A) determined with respect to that
possession. In no event shall possession income be
treated as being less than zero.
‘‘(7) SHORT YEARS.—If the current year or a
base period year is a short taxable year, the applica-
tion of this subsection shall be made with such
annualizations as the Secretary shall prescribe.
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
POSSES-
SIONS.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant with respect to an applicable
possession—
403
‘‘(i) this section (other than the preced-
ing paragraphs of this subsection) shall
apply to such claimant with respect to such
applicable possession for taxable years be-
ginning after December 31, 1995, and before
January 1, 2006, and
‘‘(ii) this section (including the preced-
ing paragraphs of this subsection) shall
apply to such claimant with respect to such
applicable possession for taxable years be-
ginning after December 31, 2005.
‘‘(B) APPLICABLE POSSESSION.—For pur-
poses of this paragraph, the term ‘applicable pos-
session’ means Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘existing cred-
it claimant’ means a corporation—
‘‘(i) which was actively conducting a
trade or business in a possession on October
13, 1995, and
‘‘(ii) with respect to which an election
under this section is in effect for the cor-
404
poration’s taxable year which includes Octo-
ber 13, 1995.
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIB-
ITED.—If, after October 13, 1995, a corporation
which would (but for this subparagraph) be an
existing credit claimant adds a substantial new
line of business, such corporation shall cease to
be treated as an existing credit claimant as of
the close of the taxable year ending before the
date of such addition.
‘‘(C) BINDING
CONTRACT
EXCEPTION.—If,
on October 13, 1995, and at all times thereafter,
there is in effect with respect to a corporation a
binding contract for the acquisition of assets to
be used in, or for the sale of assets to be produced
from, a trade or business, the corporation shall
be treated for purposes of this paragraph as ac-
tively conducting such trade or business on Octo-
ber 13, 1995. The preceding sentence shall not
apply if such trade or business is not actively
conducted before January 1, 1996.
‘‘(10) SEPARATE APPLICATION TO EACH POSSES-
SION.—For purposes of determining—
‘‘(A) whether a taxpayer is an existing
credit claimant, and
405
‘‘(B) the amount of the credit allowed under
this section,
this subsection (and so much of this section as relates
to this subsection) shall be applied separately with re-
spect to each possession.’’.
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
(1) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 is amended by adding at the
end the following new section:
‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this section, if the conditions of both paragraph (1)
and paragraph (2) of subsection (b) are satisfied with
respect to a qualified domestic corporation, there shall
be allowed as a credit against the tax imposed by this
chapter an amount equal to the portion of the tax
which is attributable to the taxable income, from
sources without the United States, from—
‘‘(A) the active conduct of a trade or busi-
ness within Puerto Rico, or
‘‘(B) the sale or exchange of substantially
all of the assets used by the taxpayer in the ac-
tive conduct of such trade or business.
406
In the case of any taxable year beginning after De-
cember 31, 2001, the aggregate amount of taxable in-
come taken into account under the preceding sentence
(and in applying subsection (d)) shall not exceed the
adjusted base period income of such corporation, as
determined in the same manner as under section
936(j).
‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For
purposes of paragraph (1), the term ‘qualified domes-
tic corporation’ means a domestic corporation—
‘‘(A) which is an existing credit claimant
with respect to Puerto Rico, and
‘‘(B) 
with 
respect 
to 
which 
section
936(a)(4)(B) does not apply for the taxable year.
‘‘(3) SEPARATE APPLICATION.—For purposes of
determining—
‘‘(A) whether a taxpayer is an existing
credit claimant with respect to Puerto Rico, and
‘‘(B) the amount of the credit allowed under
this section,
this section (and so much of section 936 as relates to
this section) shall be applied separately with respect
to Puerto Rico.
‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The
conditions referred to in subsection (a) are—
407
‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of
the gross income of the qualified domestic corporation
for the 3-year period immediately preceding the close
of the taxable year (or for such part of such period
immediately preceding the close of such taxable year
as may be applicable) was derived from sources with-
in a possession of the United States (determined with-
out regard to section 904(f)).
‘‘(2) TRADE
OR
BUSINESS.—If 75 percent or
more of the gross income of the qualified domestic cor-
poration for such period or such part thereof was de-
rived from the active conduct of a trade or business
within a possession of the United States.
‘‘(c) CREDIT
NOT
ALLOWED
AGAINST
CERTAIN
TAXES.—The credit provided by subsection (a) shall not be
allowed against the tax imposed by—
‘‘(1) section 59A (relating to environmental tax),
‘‘(2) section 531 (relating to the tax on accumu-
lated earnings),
‘‘(3) section 541 (relating to personal holding
company tax), or
‘‘(4) section 1351 (relating to recoveries of for-
eign expropriation losses).
408
‘‘(d) LIMITATIONS ON CREDIT.—The amount of the
credit determined under subsection (a) for any taxable year
shall not exceed the sum of the following amounts:
‘‘(1) 60 percent (40 percent in the case of taxable
years beginning after December 31, 2005) of the sum
of—
‘‘(A) the aggregate amount of the qualified
domestic corporation’s qualified possession wages
for such taxable year, plus
‘‘(B) the allocable employee fringe benefit
expenses of the qualified domestic corporation for
such taxable year.
‘‘(2) The sum of—
‘‘(A) 15 percent of the depreciation allow-
ances for the taxable year with respect to short-
life qualified tangible property,
‘‘(B) 40 percent of the depreciation allow-
ances for the taxable year with respect to me-
dium-life qualified tangible property, and
‘‘(C) 65 percent of the depreciation allow-
ances for the taxable year with respect to long-
life qualified tangible property.
‘‘(3) If the qualified domestic corporation does
not have an election to use the method described in
section 936(h)(5)(C)(ii) (relating to profit split) in ef-
409
fect for the taxable year, the amount of the qualified
possession income taxes for the taxable year allocable
to nonsheltered income.
‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of
this title (other than section 27)—
‘‘(1) the provisions of section 936 (including any
applicable election thereunder) shall apply in the
same manner as if the credit under this section were
a credit under section 936(a)(1)(A) for a domestic
corporation to which section 936(a)(4)(A) applies,
‘‘(2) the credit under this section shall be treated
in the same manner as the credit under section 936,
and
‘‘(3) a corporation to which this section applies
shall be treated in the same manner as if it were a
corporation electing the application of section 936.
‘‘(f) DEFINITIONS.—For purposes of this section, any
term used in this section which is also used in section 936
shall have the same meaning given such term by section
936.
‘‘(g) APPLICATION OF SECTION.—This section shall
apply to taxable years beginning after December 31, 1995.’’
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 55(c) is
amended by striking ‘‘and the section 936 credit
410
allowable under section 27(b)’’ and inserting ‘‘,
the section 936 credit allowable under section
27(b), and the Puerto Rican economic activity
credit under section 30A’’.
(B) Subclause (I) of section 56(g)(4)(C)(ii)
is amended—
(i) by inserting ‘‘30A,’’ before ‘‘936’’,
and
(ii) by striking ‘‘and (i)’’ and insert-
ing ‘‘, (i), and (j)’’.
(C) Clause (iii) of section 56(g)(4)(C) is
amended by adding at the end the following new
subclause:
‘‘(VI) APPLICATION
TO
SECTION
30A CORPORATIONS.—References in this
clause to section 936 shall be treated as
including references to section 30A.’’.
(D)(i) Subsection (b) of section 59 is
amended by striking ‘‘section 936,’’ and all that
follows and inserting ‘‘section 30A or 936, alter-
native minimum taxable income shall not in-
clude any income with respect to which a credit
is determined under section 30A or 936.’’.
(ii) The heading for section 59(b) is amend-
ed by inserting ‘‘30A OR’’ before ‘‘936’’.
411
(E) The table of sections for subpart B of
part IV of subchapter A of chapter 1 is amended
by adding at the end the following new item:
‘‘Sec. 30A. Puerto Rican economic activity credit.’’.
(F)(i) The heading for subpart B of part IV
of subchapter A of chapter 1 is amended to read
as follows:
‘‘Subpart B—Other Credits’’.
(ii) The table of subparts for part IV of sub-
chapter A of chapter 1 is amended by striking
the item relating to subpart B and inserting the
following new item:
‘‘Subpart B. Other credits.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1995.
(2) SPECIAL RULE FOR QUALIFIED POSSESSION
SOURCE
INVESTMENT
INCOME.—The amendments
made by this section shall not apply to qualified pos-
session source investment income received or accrued
before July 1, 1996, without regard to the taxable
year in which received or accrued.
412
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON
LOANS USED TO ACQUIRE EMPLOYER SECU-
RITIES.
(a) IN GENERAL.—Section 133 (relating to interest on
certain loans used to acquire employer securities) is hereby
repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 291(e)(1) is
amended by striking clause (iv) and by redesignating
clause (v) as clause (iv).
(2) Section 812 is amended by striking sub-
section (g).
(3) Paragraph (5) of section 852(b) is amended
by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended
by striking subparagraph (A) and all that follows and
inserting the following:
‘‘(A) first from qualified securities to which
section 1042 applied acquired during the 3-year
period ending on the date of the disposition, be-
ginning with the securities first so acquired, and
‘‘(B) then from any other employer securi-
ties.
If subsection (d) applies to a disposition, the disposi-
tion shall be treated as made from employer securities
in the opposite order of the preceding sentence.’’.
413
(5)(A) Section 4978B (relating to tax on disposi-
tion of employer securities to which section 133 ap-
plied) is hereby repealed.
(B) The table of sections for chapter 43 is
amended by striking the item relating to section
4978B.
(6) Subsection (e) of section 6047 is amended by
striking paragraphs (1), (2), and (3) and inserting
the following new paragraphs:
‘‘(1) any employer maintaining, or the plan ad-
ministrator (within the meaning of section 414(g)) of,
an employee stock ownership plan which holds stock
with respect to which section 404(k) applies to divi-
dends paid on such stock, or
‘‘(2) both such employer or plan administrator,’’.
(7) Subsection (f) of section 7872 is amended by
striking paragraph (12).
(8) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 133.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to loans made after the date
of the enactment of this Act.
414
(2) REFINANCINGS.—The amendments made by
this section shall not apply to loans made after the
date of the enactment of this Act to refinance securi-
ties acquisition loans (determined without regard to
section 133(b)(1)(B) of the Internal Revenue Code of
1986, as in effect on the day before the date of the en-
actment of this Act) made on or before such date or
to refinance loans described in this paragraph if—
(A) the refinancing loans meet the require-
ments of section 133 of such Code (as so in ef-
fect),
(B) immediately after the refinancing the
principal amount of the loan resulting from the
refinancing does not exceed the principal amount
of the refinanced loan (immediately before the re-
financing), and
(C) the term of such refinancing loan does
not extend beyond the last day of the term of the
original securities acquisition loan.
For purposes of this paragraph, the term ‘‘securities
acquisition loan’’ includes a loan from a corporation
to an employee stock ownership plan described in sec-
tion 133(b)(3) of such Code (as so in effect).
(3) EXCEPTION.—Any loan made pursuant to a
binding written contract in effect before June 10,
415
1996, and at all times thereafter before such loan is
made, shall be treated for purposes of paragraphs (1)
and (2) as a loan made on or before the date of the
enactment of this Act.
SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.
(a) IN GENERAL.—Paragraph (2) of section 104(a)
(relating to compensation for injuries or sickness) is amend-
ed to read as follows:
‘‘(2) the amount of any damages (other than pu-
nitive damages) received (whether by suit or agree-
ment and whether as lump sums or as periodic pay-
ments) on account of personal injuries or sickness;’’.
(b) APPLICATION
OF PRIOR LAW
FOR STATES
IN
WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN
WRONGFUL DEATH ACTIONS.—Section 104 is amended by
redesignating subsection (c) as subsection (d) and by insert-
ing after subsection (b) the following new subsection:
‘‘(c) APPLICATION
OF
PRIOR
LAW
IN
CERTAIN
CASES.—Notwithstanding subsection (a)(2), gross income
shall not include punitive damages awarded in a civil ac-
tion—
‘‘(1) which is a wrongful death action, and
‘‘(2) with respect to which applicable State law
(as in effect on September 13, 1995 and without re-
gard to any modification after such date) provides, or
416
has been construed to provide by a court of competent
jurisdiction pursuant to a decision issued on or before
September 13, 1995, that only punitive damages may
be awarded in such an action.
This subsection shall cease to apply to any civil action filed
on or after the first date on which the applicable State law
ceases to provide (or is no longer construed to provide) the
treatment described in paragraph (2).’’.
(c) CONFORMING AMENDMENT.—Section 104(a) is
amended by striking the last sentence.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to amounts received after June 30, 1996, in
taxable years ending after such date.
(2) EXCEPTION.—The amendments made by this
section shall not apply to any amount received under
a written binding agreement, court decree, or medi-
ation award in effect on (or issued on or before) Sep-
tember 13, 1995.
SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PAS-
SENGER AUTOMOBILE TAX.
(a) EXTENSION.—Subsection (f) of section 4001 is
amended by striking ‘‘1999’’ and inserting ‘‘2002’’.
417
(b) PHASEDOWN.—Section 4001 is amended by redes-
ignating subsection (f) (as amended by subsection (a) of this
section) as subsection (g) and by inserting after subsection
(e) the following new subsection:
‘‘(f) PHASEDOWN.—For sales occurring after June 30
in calendar year 1996, and in calendar years after 1996
and before 2003, subsection (a) shall be applied by sub-
stituting for ‘10 percent’ the percentage determined in ac-
cordance with the following table:
‘‘If the calendar year is:
The percentage is:
1996 .............................................................................................
9 percent
1997 .............................................................................................
8 percent
1998 .............................................................................................
7 percent
1999 .............................................................................................
6 percent
2000 .............................................................................................
5 percent
2001 .............................................................................................
4 percent
2002 .............................................................................................
3 percent.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on July 1, 1996.
SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FI-
NANCING FOR LOCAL FURNISHERS OF ELEC-
TRICITY AND GAS.
Section 142(f) (relating to local furnishing of electric
energy or gas) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(3) TERMINATION OF FUTURE FINANCING.—For
purposes of this section, no bond may be issued as
part of an issue described in subsection (a)(8) with
respect to a facility for the local furnishing of electric
418
energy or gas on or after the date of the enactment
of this paragraph unless—
‘‘(A) the facility will—
‘‘(i) be used by a person who is en-
gaged in the local furnishing of that energy
source on such date, and
‘‘(ii) be used to provide service within
the area served by such person on such date,
or
‘‘(B) the facility will be used by a successor
in interest to such person for the same use and
within the same service area as described in sub-
paragraph (A).
‘‘(4) ELECTION
TO
TERMINATE
TAX-EXEMPT
BOND FINANCING BY CERTAIN FURNISHERS.—
‘‘(A) IN GENERAL.—In the case of a facility
financed with bonds issued before the date of the
enactment of this paragraph which would cease
to be tax-exempt by reason of the failure to meet
the local furnishing requirement of subsection
(a)(8) as a result of a service area expansion,
such bonds shall not cease to be tax-exempt bonds
(and section 150(b)(4) shall not apply) if the
person engaged in such local furnishing by such
419
facility makes an election described in subpara-
graph (B).
‘‘(B) ELECTION.—An election is described
in this subparagraph if it is an election made in
such manner as the Secretary prescribes, and
such person (or its predecessor in interest) agrees
that—
‘‘(i) such election is made with respect
to all facilities for the local furnishing of
electric energy or gas, or both, by such per-
son,
‘‘(ii) no bond exempt from tax under
section 103 and described in subsection
(a)(8) may be issued on or after the date of
the enactment of this paragraph with re-
spect to all such facilities of such person,
‘‘(iii) any expansion of the service
area—
‘‘(I) is not financed with the pro-
ceeds of any exempt facility bond de-
scribed in subsection (a)(8), and
‘‘(II) is not treated as a non-
qualifying use under the rules of para-
graph (2), and
420
‘‘(iv) all outstanding bonds used to fi-
nance the facilities for such person are re-
deemed not later than 6 months after the
later of—
‘‘(I) the earliest date on which
such bonds may be redeemed, or
‘‘(II) the date of the election.
‘‘(C) RELATED PERSONS.—For purposes of
this paragraph, the term ‘person’ includes a
group of related persons (within the meaning of
section 144(a)(3)) which includes such person.’’
SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSI-
TION 
RULE 
TO 
INTEREST 
ALLOCATION
RULES.
(a) IN GENERAL.—Paragraph (5) of section 1215(c)
of the Tax Reform Act of 1986 (Public Law 99–514, 100
Stat. 2548) is hereby repealed.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST
FUND EXCISE TAXES.
(a) FUEL TAX.—
(1) Subparagraph (A) of section 4091(b)(3) is
amended to read as follows:
421
‘‘(A) The rate of tax specified in paragraph
(1) shall be 4.3 cents per gallon—
‘‘(i) after December 31, 1995, and be-
fore the date which is 7 days after the date
of the enactment of the Small Business Job
Protection Act of 1996, and
‘‘(ii) after December 31, 1996.’’
(2) Section 4081(d) is amended—
(A) by adding at the end the following new
paragraph:
‘‘(3) AVIATION GASOLINE.—After December 31,
1996, the rate of tax specified in subsection
(a)(2)(A)(i) on aviation gasoline shall be 4.3 cents per
gallon.’’, and
(B) by inserting ‘‘(other than the tax on
aviation gasoline)’’ after ‘‘subsection (a)(2)(A)’’.
(3) Section 4041(c)(5) is amended by inserting
‘‘, and during the period beginning on the date which
is 7 days after the date of the enactment of the Small
Business Job Protection Act of 1996 and ending on
December 31, 1996’’ after ‘‘December 31, 1995’’.
(b) TICKET TAXES.—Sections 4261(g) and 4271(d) are
each amended by striking ‘‘January 1, 1996’’ and inserting
‘‘January 1, 1996, and to transportation beginning on or
after the date which is 7 days after the date of the enactment
422
of the Small Business Job Protection Act of 1996 and before
January 1, 1997’’.
(c) TRANSFERS
TO AIRPORT
AND AIRWAY TRUST
FUND.—
(1) Subsection (b) of section 9502 is amended by
striking ‘‘January 1, 1996’’ each place it appears and
inserting ‘‘January 1, 1997’’.
(2) Paragraph (3) of section 9502(f) is amended
to read as follows:
‘‘(3) TERMINATION.—Notwithstanding the pre-
ceding provisions of this subsection, the Airport and
Airway Trust Fund financing rate shall be zero with
respect to—
‘‘(A) taxes imposed after December 31,
1995, and before the date which is 7 days after
the date of the enactment of the Small Business
Job Protection Act of 1996, and
‘‘(B) taxes imposed after December 31,
1996.’’
(3) Subsection (d) of section 9502 is amended by
adding at the end the following new paragraph:
‘‘(5) TRANSFERS
FROM
AIRPORT
AND
AIRWAY
TRUST FUND ON ACCOUNT OF REFUNDS OF TAXES ON
TRANSPORTATION
BY
AIR.—The Secretary of the
Treasury shall pay from time to time from the Air-
423
port and Airway Trust Fund into the general fund
of the Treasury amounts equivalent to the amounts
paid after December 31, 1995, under section 6402 (re-
lating to authority to make credits or refunds) or sec-
tion 6415 (relating to credits or refunds to persons
who collected certain taxes) in respect of taxes under
sections 4261 and 4271.’’
(d) EXCISE TAX EXEMPTION FOR CERTAIN EMER-
GENCY MEDICAL TRANSPORTATION BY AIR AMBULANCE.—
Subsection (f) of section 4261 (relating to imposition of tax
on transportation by air) is amended to read as follows:
‘‘(f) EXEMPTION FOR AIR AMBULANCES PROVIDING
CERTAIN EMERGENCY MEDICAL TRANSPORTATION.—No
tax shall be imposed under this section or section 4271 on
any air transportation for the purpose of providing emer-
gency medical services—
‘‘(1) by helicopter, or
‘‘(2) by a fixed-wing aircraft equipped for and
exclusively dedicated to acute care emergency medical
services.’’
(e) EXEMPTION FOR CERTAIN HELICOPTER USES.—
Subsection (e) of section 4261 is amended by adding at the
end the following new sentence: ‘‘In the case of helicopter
transportation described in paragraph (1), this subsection
424
shall be applied by treating each flight segment as a distinct
flight.’’
(f) FLOOR STOCKS TAXES ON AVIATION FUEL.—
(1) IMPOSITION OF TAX.—In the case of aviation
fuel on which tax was imposed under section 4091 of
the Internal Revenue Code of 1986 before the tax-in-
crease date described in paragraph (3)(A)(i) and
which is held on such date by any person, there is
hereby imposed a floor stocks tax of 17.5 cents per
gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
aviation fuel on a tax-increase date to which the
tax imposed by paragraph (1) applies shall be
liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) with respect to any tax-in-
crease date shall be paid on or before the first
day of the 7th month beginning after such tax-
increase date.
425
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) TAX INCREASE DATE.—The term ‘‘tax-
increase date’’ means the date which is 7 days
after the date of the enactment of this Act.
(B) AVIATION FUEL.—The term ‘‘aviation
fuel’’ has the meaning given such term by section
4093 of such Code.
(C) HELD
BY
A
PERSON.—Aviation fuel
shall be considered as ‘‘held by a person’’ if title
thereto has passed to such person (whether or not
delivery to the person has been made).
(D) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or his dele-
gate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax
imposed by paragraph (1) shall not apply to aviation
fuel held by any person on any tax-increase date ex-
clusively for any use for which a credit or refund of
the entire tax imposed by section 4091 of such Code
is allowable for aviation fuel purchased on or after
such tax-increase date for such use.
(5) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
426
(A) IN GENERAL.—No tax shall be imposed
by paragraph (1) on aviation fuel held on any
tax-increase date by any person if the aggregate
amount of aviation fuel held by such person on
such date does not exceed 2,000 gallons. The pre-
ceding sentence shall apply only if such person
submits to the Secretary (at the time and in the
manner required by the Secretary) such informa-
tion as the Secretary shall require for purposes
of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
from the tax imposed by paragraph (1) by rea-
son of paragraph (4).
(C) CONTROLLED GROUPS.—For purposes of
this paragraph—
(i) CORPORATIONS.—
(I) IN
GENERAL.—All persons
treated as a controlled group shall be
treated as 1 person.
(II) CONTROLLED
GROUP.—The
term ‘‘controlled group’’ has the mean-
ing given to such term by subsection
(a) of section 1563 of such Code; except
427
that for such purposes the phrase
‘‘more than 50 percent’’ shall be sub-
stituted for the phrase ‘‘at least 80 per-
cent’’ each place it appears in such
subsection.
(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, principles
similar to the principles of clause (i) shall
apply to a group of persons under common
control where 1 or more of such persons is
not a corporation.
(6) OTHER LAW APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 4091 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply with respect to the
floor stock taxes imposed by paragraph (1) to the
same extent as if such taxes were imposed by such sec-
tion 4091.
(g) EFFECTIVE DATE.—The amendments made by this
section shall take effect 7 days after the date of the enact-
ment of this Act, except that the amendment made by sub-
section (b) shall not apply to any amount paid on or before
such date.
428
SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY
CORPORATION WHERE STOCK IN CORPORA-
TION IS REPLACEMENT PROPERTY UNDER IN-
VOLUNTARY CONVERSION RULES.
(a) IN GENERAL.—Subsection (b) of section 1033 is
amended to read as follows:
‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN-
VOLUNTARY CONVERSION.—
‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(1).—If the property was acquired as the result of
a compulsory or involuntary conversion described in
subsection (a)(1), the basis shall be the same as in the
case of the property so converted—
‘‘(A) decreased in the amount of any money
received by the taxpayer which was not expended
in accordance with the provisions of law (appli-
cable to the year in which such conversion was
made) determining the taxable status of the gain
or loss upon such conversion, and
‘‘(B) increased in the amount of gain or de-
creased in the amount of loss to the taxpayer rec-
ognized upon such conversion under the law ap-
plicable to the year in which such conversion
was made.
‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(2).—In the case of property purchased by the tax-
429
payer in a transaction described in subsection (a)(2)
which resulted in the nonrecognition of any part of
the gain realized as the result of a compulsory or in-
voluntary conversion, the basis shall be the cost of
such property decreased in the amount of the gain not
so recognized; and if the property purchased consists
of more than 1 piece of property, the basis determined
under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.
‘‘(3) PROPERTY
HELD
BY
CORPORATION
THE
STOCK OF WHICH IS REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—If the basis of stock in
a corporation is decreased under paragraph (2),
an amount equal to such decrease shall also be
applied to reduce the basis of property held by
the corporation at the time the taxpayer ac-
quired 
control 
(as 
defined 
in 
subsection
(a)(2)(E)) of such corporation.
‘‘(B) LIMITATION.—Subparagraph (A) shall
not apply to the extent that it would (but for
this subparagraph) require a reduction in the
aggregate adjusted bases of the property of the
corporation below the taxpayer’s adjusted basis
of the stock in the corporation (determined im-
430
mediately after such basis is decreased under
paragraph (2)).
‘‘(C) ALLOCATION OF BASIS REDUCTION.—
The decrease required under subparagraph (A)
shall be allocated—
‘‘(i) first to property which is similar
or related in service or use to the converted
property,
‘‘(ii) second to depreciable property (as
defined in section 1017(b)(3)(B)) not de-
scribed in clause (i), and
‘‘(iii) then to other property.
‘‘(D) SPECIAL RULES.—
‘‘(i) REDUCTION NOT TO EXCEED AD-
JUSTED BASIS OF PROPERTY.—No reduction
in the basis of any property under this
paragraph shall exceed the adjusted basis of
such property (determined without regard
to such reduction).
‘‘(ii) 
ALLOCATION
OF
REDUCTION
AMONG PROPERTIES.—If more than 1 prop-
erty is described in a clause of subpara-
graph (C), the reduction under this para-
graph shall be allocated among such prop-
431
erty in proportion to the adjusted bases of
such property (as so determined).’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to involuntary conversions occurring
after the date of the enactment of this Act.
SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAM-
BLING WINNINGS.
(a) REPEAL OF EXEMPTION FOR BINGO AND KENO.—
Paragraph (5) of section 3402(q) is amended to read as fol-
lows:
‘‘(5) EXEMPTION FOR SLOT MACHINES.—The tax
imposed under paragraph (1) shall not apply to
winnings from a slot machine.’’.
(b) THRESHOLD AMOUNT.—Paragraph (3) of section
3402(q) is amended—
(1) by striking ‘‘(B) and (C)’’ in subparagraph
(A) and inserting ‘‘(B), (C), and (D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) BINGO AND KENO.—Proceeds of more
than $5,000 from a wager placed in a bingo or
keno game.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the 30th day after the date of
the enactment of this Act.
432
SEC. 1610. TREATMENT OF CERTAIN INSURANCE CON-
TRACTS ON RETIRED LIVES.
(a) GENERAL RULE.—
(1) Paragraph (2) of section 817(d) (defining
variable contract) is amended by striking ‘‘or’’ at the
end of subparagraph (A), by striking ‘‘and’’ at the
end of subparagraph (B) and inserting ‘‘or’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) provides for funding of insurance on
retired lives as described in section 807(c)(6),
and’’.
(2) Paragraph (3) of section 817(d) 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 subpara-
graph (B) the following new subparagraph:
‘‘(C) in the case of funds held under a con-
tract described in paragraph (2)(C), the amounts
paid in, or the amounts paid out, reflect the in-
vestment return and the market value of the seg-
regated asset account.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
433
SEC. 1611. TREATMENT OF CONTRIBUTIONS IN AID OF CON-
STRUCTION.
(a) TREATMENT OF CONTRIBUTIONS IN AID OF CON-
STRUCTION.—
(1) IN GENERAL.—Section 118 (relating to con-
tributions to the capital of a corporation) is amend-
ed—
(A) by redesignating subsection (c) as sub-
section (e), and
(B) by inserting after subsection (b) the fol-
lowing new subsections:
‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE
DISPOSAL UTILITIES.—
‘‘(1) GENERAL RULE.—For purposes of this sec-
tion, the term ‘contribution to the capital of the tax-
payer’ includes any amount of money or other prop-
erty received from any person (whether or not a
shareholder) by a regulated public utility which pro-
vides water or sewerage disposal services if—
‘‘(A) such amount is a contribution in aid
of construction,
‘‘(B) in the case of contribution of property
other than water or sewerage disposal facilities,
such amount meets the requirements of the ex-
penditure rule of paragraph (2), and
434
‘‘(C) such amount (or any property ac-
quired or constructed with such amount) is not
included in the taxpayer’s rate base for rate-
making purposes.
‘‘(2) EXPENDITURE
RULE.—An amount meets
the requirements of this paragraph if—
‘‘(A) an amount equal to such amount is
expended for the acquisition or construction of
tangible property described in section 1231(b)—
‘‘(i) which is the property for which
the contribution was made or is of the same
type as such property, and
‘‘(ii) which is used predominantly in
the trade or business of furnishing water or
sewerage disposal services,
‘‘(B) the expenditure referred to in subpara-
graph (A) occurs before the end of the second tax-
able year after the year in which such amount
was received, and
‘‘(C) accurate records are kept of the
amounts contributed and expenditures made, the
expenditures to which contributions are allo-
cated, and the year in which the contributions
and expenditures are received and made.
435
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) CONTRIBUTION IN AID OF CONSTRUC-
TION.—The term ‘contribution in aid of con-
struction’ shall be defined by regulations pre-
scribed by the Secretary, except that such term
shall not include amounts paid as service
charges for starting or stopping services.
‘‘(B) PREDOMINANTLY.—The term ‘pre-
dominantly’ means 80 percent or more.
‘‘(C) REGULATED
PUBLIC
UTILITY.—The
term ‘regulated public utility’ has the meaning
given such term by section 7701(a)(33), except
that such term shall not include any utility
which is not required to provide water or sewer-
age disposal services to members of the general
public in its service area.
‘‘(4) DISALLOWANCE OF DEDUCTIONS AND CRED-
ITS; ADJUSTED
BASIS.—Notwithstanding any other
provision of this subtitle, no deduction or credit shall
be allowed for, or by reason of, any expenditure which
constitutes a contribution in aid of construction to
which this subsection applies. The adjusted basis of
any property acquired with contributions in aid of
436
construction to which this subsection applies shall be
zero.
‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for
any taxable year treats an amount as a contribution to the
capital of the taxpayer described in subsection (c), then—
‘‘(1) the statutory period for the assessment of
any deficiency attributable to any part of such
amount shall not expire before the expiration of 3
years from the date the Secretary is notified by the
taxpayer (in such manner as the Secretary may pre-
scribe) of—
‘‘(A) the amount of the expenditure referred
to in subparagraph (A) of subsection (c)(2),
‘‘(B) the taxpayer’s intention not to make
the expenditures referred to in such subpara-
graph, or
‘‘(C) a failure to make such expenditure
within the period described in subparagraph (B)
of subsection (c)(2), and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which
would otherwise prevent such assessment.’’.
437
(2) CONFORMING AMENDMENT.—Section 118(b)
is amended by inserting ‘‘except as provided in sub-
section (c),’’ before ‘‘the term’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts received
after June 12, 1996.
(b) RECOVERY METHOD
AND PERIOD
FOR WATER
UTILITY PROPERTY.—
(1) REQUIREMENT
TO
USE
STRAIGHT
LINE
METHOD.—Section 168(b)(3) is amended by adding
at the end the following new subparagraph:
‘‘(F) Water utility property described in
subsection (e)(5).’’.
(2) 25-YEAR RECOVERY PERIOD.—The table con-
tained in section 168(c)(1) is amended by inserting
the following item after the item relating to 20-year
property:
‘‘Water utility property .................................................................
25 years’’.
(3) WATER UTILITY PROPERTY.—
(A) IN GENERAL.—Section 168(e) is amend-
ed by adding at the end the following new para-
graph:
‘‘(5) WATER
UTILITY
PROPERTY.—The term
‘water utility property’ means property—
‘‘(A) which is an integral part of the gath-
ering, treatment, or commercial distribution of
438
water, and which, without regard to this para-
graph, would be 20-year property, and
‘‘(B) any municipal sewer.’’.
(B) CONFORMING
AMENDMENTS.—Section
168 is amended—
(i) by striking subparagraph (F) of
subsection (e)(3), and
(ii) by striking the item relating to
subparagraph (F) in the table in subsection
(g)(3).
(4) ALTERNATIVE SYSTEM.—Clause (iv) of sec-
tion 168(g)(2)(C) is amended by inserting ‘‘or water
utility property’’ after ‘‘tunnel bore’’.
(5) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after June 12, 1996, other than property
placed in service pursuant to a binding contract in
effect before June 10, 1996, and at all times thereafter
before the property is placed in service.
PART II—FINANCIAL ASSET SECURITIZATION
INVESTMENTS
SEC. 1621. FINANCIAL ASSET SECURITIZATION INVEST-
MENT TRUSTS.
(a) IN GENERAL.—Subchapter M of chapter 1 is
amended by adding at the end the following new part:
439
‘‘PART V—FINANCIAL ASSET SECURITIZATION
INVESTMENT TRUSTS
‘‘Sec. 860H. Taxation of a FASIT; other general rules.
‘‘Sec. 860I. Gain recognition on contributions to and distributions
from a FASIT and in other cases.
‘‘Sec. 860J. Non-FASIT losses not to offset certain FASIT inclu-
sions.
‘‘Sec. 860K. Treatment of transfers of high-yield interests to dis-
qualified holders.
‘‘Sec. 860L. Definitions and other special rules.
‘‘SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.
‘‘(a) TAXATION OF FASIT.—A FASIT as such shall
not be subject to taxation under this subtitle (and shall not
be treated as a trust, partnership, corporation, or taxable
mortgage pool).
‘‘(b) TAXATION OF HOLDER OF OWNERSHIP INTER-
EST.—In determining the taxable income of the holder of
the ownership interest in a FASIT—
‘‘(1) all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT shall be
treated as assets, liabilities, and such items (as the
case may be) of such holder,
‘‘(2) the constant yield method (including the
rules of section 1272(a)(6)) shall be applied under an
accrual method of accounting in determining all in-
terest, acquisition discount, original issue discount,
and market discount and all premium deductions or
adjustments with respect to all debt instruments of the
FASIT,
440
‘‘(3) there shall not be taken into account any
item of income, gain, or deduction allocable to a pro-
hibited transaction, and
‘‘(4) interest accrued by the FASIT which is ex-
empt from tax imposed by this subtitle shall, when
taken into account by such holder, be treated as ordi-
nary income.
For purposes of this subtitle, securities treated as held by
such holder under paragraph (1) shall be treated as held
for investment.
‘‘(c) TREATMENT OF REGULAR INTERESTS.—For pur-
poses of this title—
‘‘(1) a regular interest in a FASIT, if not other-
wise a debt instrument, shall be treated as a debt in-
strument,
‘‘(2) section 163(e)(5) shall not apply to such an
interest, and
‘‘(3) amounts includible in gross income with re-
spect to such an interest shall be determined under an
accrual method of accounting.
‘‘SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO
AND DISTRIBUTIONS FROM A FASIT AND IN
OTHER CASES.
‘‘(a) TREATMENT
OF
PROPERTY
ACQUIRED
BY
FASIT.—
441
‘‘(1) PROPERTY
ACQUIRED
FROM
HOLDER
OF
OWNERSHIP
INTEREST
OR
RELATED
PERSON.—If
property is sold or contributed to a FASIT by the
holder of the ownership interest in such FASIT (or by
a related person) gain (if any) shall be recognized to
such holder (or person) in an amount equal to the ex-
cess (if any) of such property’s value under subsection
(d) on the date of such sale or contribution over its
adjusted basis on such date.
‘‘(2) PROPERTY ACQUIRED OTHER THAN FROM
HOLDER OF OWNERSHIP INTEREST OR RELATED PER-
SON.—Property which is acquired by a FASIT other
than in a transaction to which paragraph (1) applies
shall be treated—
‘‘(A) as having been acquired by the holder
of the ownership interest in the FASIT for an
amount equal to the FASIT’s adjusted basis in
such property as of the date such property is ac-
quired by the FASIT, and
‘‘(B) as having been sold by such holder to
the FASIT at its value under subsection (d) on
such date.
‘‘(b) GAIN RECOGNITION
ON PROPERTY OUTSIDE
FASIT WHICH SUPPORTS REGULAR INTERESTS.—If prop-
erty held by the holder of the ownership interest in a FASIT
442
(or by any person related to such holder) supports any regu-
lar interest in such FASIT—
‘‘(1) gain shall be recognized to such holder in
the same manner as if such holder had sold such
property at its value under subsection (d) on the ear-
liest date such property supports such an interest,
and
‘‘(2) such property shall be treated as held by
such FASIT for purposes of this part.
‘‘(c) DEFERRAL OF GAIN RECOGNITION.—The Sec-
retary may prescribe regulations which—
‘‘(1) provide that gain otherwise recognized
under subsection (a) or (b) shall not be recognized be-
fore the earliest date on which such property supports
any regular interest in such FASIT or any indebted-
ness of the holder of the ownership interest (or of any
person related to such holder), and
‘‘(2) provide such adjustments to the other provi-
sions of this part to the extent appropriate in the con-
text of the treatment provided under paragraph (1).
‘‘(d) VALUATION.—For purposes of this section—
‘‘(1) IN GENERAL.—The value of any property
under this subsection shall be—
‘‘(A) in the case of a debt instrument which
is not traded on an established securities market,
443
the sum of the present values of the reasonably
expected payments under such instrument deter-
mined (in the manner provided by regulations
prescribed by the Secretary)—
‘‘(i) as of the date of the event resulting
in the gain recognition under this section,
and
‘‘(ii) by using a discount rate equal to
120 percent of the applicable Federal rate
(as defined in section 1274(d)), or such
other discount rate specified in such regula-
tions, compounded semiannually, and
‘‘(B) in the case of any other property, its
fair market value.
‘‘(2) SPECIAL RULE FOR REVOLVING LOAN AC-
COUNTS.—For purposes of paragraph (1)—
‘‘(A) each extension of credit (other than the
accrual of interest) on a revolving loan account
shall be treated as a separate debt instrument,
and
‘‘(B) payments on such extensions of credit
having substantially the same terms shall be ap-
plied to such extensions beginning with the earli-
est such extension.
‘‘(e) SPECIAL RULES.—
444
‘‘(1) NONRECOGNITION RULES NOT TO APPLY.—
Gain required to be recognized under this section
shall be recognized notwithstanding any other provi-
sion of this subtitle.
‘‘(2) BASIS
ADJUSTMENTS.—The basis of any
property on which gain is recognized under this sec-
tion shall be increased by the amount of gain so rec-
ognized.
‘‘SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN
FASIT INCLUSIONS.
‘‘(a) IN GENERAL.—The taxable income of the holder
of the ownership interest or any high-yield interest in a
FASIT for any taxable year shall in no event be less than
such holder’s taxable income determined solely with respect
to such interests.
‘‘(b) COORDINATION WITH SECTION 172.—Any in-
crease in the taxable income of any holder of the ownership
interest or a high-yield interest in a FASIT for any taxable
year by reason of subsection (a) shall be disregarded—
‘‘(1) in determining under section 172 the
amount of any net operating loss for such taxable
year, and
‘‘(2) in determining taxable income for such tax-
able year for purposes of the 2nd sentence of section
172(b)(2).
445
‘‘(c) COORDINATION WITH MINIMUM TAX.—For pur-
poses of part VI of subchapter A of this chapter—
‘‘(1) the reference in section 55(b)(2) to taxable
income shall be treated as a reference to taxable in-
come determined without regard to this section,
‘‘(2) the alternative minimum taxable income of
any holder of the ownership interest or a high-yield
interest in a FASIT for any taxable year shall in no
event be less than such holder’s taxable income deter-
mined solely with respect to such interests, and
‘‘(3) any increase in taxable income under this
section shall be disregarded for purposes of computing
the alternative tax net operating loss deduction.
‘‘SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD IN-
TERESTS TO DISQUALIFIED HOLDERS.
‘‘(a) GENERAL RULE.—In the case of any high-yield
interest which is held by a disqualified holder—
‘‘(1) the gross income of such holder shall not in-
clude any income (other than gain) attributable to
such interest, and
‘‘(2) amounts not includible in the gross income
of such holder by reason of paragraph (1) shall be in-
cluded (at the time otherwise includible under para-
graph (1)) in the gross income of the most recent
446
holder of such interest which is not a disqualified
holder.
‘‘(b) EXCEPTIONS.—Rules similar to the rules of para-
graphs (4) and (7) of section 860E(e) shall apply to the
tax imposed by reason of subsection (a).
‘‘(c) DISQUALIFIED HOLDER.—For purposes of this
section, the term ‘disqualified holder’ means any holder
other than—
‘‘(1) an eligible corporation (as defined in sec-
tion 860L(a)(2)), or
‘‘(2) a FASIT.
‘‘(d) TREATMENT OF INTERESTS HELD BY SECURI-
TIES DEALERS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to any high-yield interest held by a disqualified
holder if such holder is a dealer in securities who ac-
quired such interest exclusively for sale to customers
in the ordinary course of business (and not for invest-
ment).
‘‘(2) CHANGE IN DEALER STATUS.—
‘‘(A) IN GENERAL.—In the case of a dealer
in securities which is not an eligible corporation
(as defined in section 860L(a)(2)), if—
‘‘(i) such dealer ceases to be a dealer in
securities, or
447
‘‘(ii) such dealer commences holding
the high-yield interest for investment,
there is hereby imposed (in addition to other
taxes) an excise tax equal to the product of the
highest rate of tax specified in section 11(b)(1)
and the income of such dealer attributable to
such interest for periods after the date of such
cessation or commencement.
‘‘(B) HOLDING FOR 31 DAYS OR LESS.—For
purposes of subparagraph (A)(ii), a dealer shall
not be treated as holding an interest for invest-
ment before the 32d day after the date such deal-
er acquired such interest unless such interest is
so held as part of a plan to avoid the purposes
of this paragraph.
‘‘(C) ADMINISTRATIVE
PROVISIONS.—The
deficiency procedures of subtitle F shall apply to
the tax imposed by this paragraph.
‘‘(e) TREATMENT OF HIGH-YIELD INTERESTS IN PASS-
THRU ENTITIES.—
‘‘(1) IN GENERAL.—If a pass-thru entity (as de-
fined in section 860E(e)(6)) issues a debt or equity
interest—
‘‘(A) which is supported by any regular in-
terest in a FASIT, and
448
‘‘(B) which has an original yield to matu-
rity which is greater than each of—
‘‘(i) the sum determined under clauses
(i) and (ii) of section 163(i)(1)(B) with re-
spect to such debt or equity interest, and
‘‘(ii) the yield to maturity to such en-
tity on such regular interest (determined as
of the date such entity acquired such inter-
est),
there is hereby imposed on the pass-thru entity a tax
(in addition to other taxes) equal to the product of the
highest rate of tax specified in section 11(b)(1) and
the income of the holder of such debt or equity interest
which is properly attributable to such regular inter-
est. For purposes of the preceding sentence, the yield
to maturity of any equity interest shall be determined
under regulations prescribed by the Secretary.
‘‘(2) EXCEPTION.—The Secretary may provide
that paragraph (1) shall not apply to arrangements
not having as a principal purpose the avoidance of
the purposes of this subsection.
‘‘SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.
‘‘(a) FASIT.—
449
‘‘(1) IN GENERAL.—For purposes of this title, the
terms ‘financial asset securitization investment trust’
and ‘FASIT’ mean any entity—
‘‘(A) for which an election to be treated as
a FASIT applies for the taxable year,
‘‘(B) all of the interests in which are regu-
lar interests or the ownership interest,
‘‘(C) which has only 1 ownership interest
and such ownership interest is held directly by
an eligible corporation,
‘‘(D) as of the close of the 3rd month begin-
ning after the day of its formation and at all
times thereafter, substantially all of the assets of
which (including assets treated as held by the en-
tity under section 860I(c)(2)) consist of per-
mitted assets, and
‘‘(E) which is not described in section
851(a).
A rule similar to the rule of the last sentence of sec-
tion 860D(a) shall apply for purposes of this para-
graph.
‘‘(2) ELIGIBLE CORPORATION.—For purposes of
paragraph (1)(C), the term ‘eligible corporation’
means any domestic C corporation other than—
450
‘‘(A) a corporation which is exempt from, or
is not subject to, tax under this chapter,
‘‘(B) an entity described in section 851(a)
or 856(a),
‘‘(C) a REMIC, and
‘‘(D) an organization to which part I of
subchapter T applies.
‘‘(3) ELECTION.—An entity (otherwise meeting
the requirements of paragraph (1)) may elect to be
treated as a FASIT. Except as provided in paragraph
(5), such an election shall apply to the taxable year
for which made and all subsequent taxable years un-
less revoked with the consent of the Secretary.
‘‘(4) TERMINATION.—If any entity ceases to be a
FASIT at any time during the taxable year, such en-
tity shall not be treated as a FASIT for such taxable
year or any succeeding taxable year.
‘‘(5) INADVERTENT TERMINATIONS, ETC.—Rules
similar to the rules of section 860D(b)(2)(B) shall
apply to inadvertent failures to qualify or remain
qualified as a FASIT.
‘‘(b) INTERESTS
IN FASIT.—For purposes of this
part—
‘‘(1) REGULAR INTEREST.—
451
‘‘(A) IN GENERAL.—The term ‘regular in-
terest’ means any interest which is issued by a
FASIT after the startup date with fixed terms
and which is designated as a regular interest
if—
‘‘(i) such interest unconditionally enti-
tles the holder to receive a specified prin-
cipal amount (or other similar amount),
‘‘(ii) except as otherwise provided by
the Secretary—
‘‘(I) in the case of a FASIT which
would be treated as a REMIC if an
election under section 860D(b) had
been made, interest payments (or other
similar amounts), if any, with respect
to such interest at or before maturity
meet the requirements applicable under
clause 
(i) 
or 
(ii) 
of 
section
860G(a)(1)(B), or
‘‘(II) in the case of any other
FASIT, interest payments (or other
similar amounts), if any, with respect
to such interest are determined based
on a fixed rate, a current rate which is
reasonably expected to measure contem-
452
poraneous variations in the cost of
newly borrowed funds in the currency
in which the regular interest is de-
nominated, or any combination of such
rates,
‘‘(iii) such interest does not have a
stated 
maturity 
(including 
options 
to
renew) greater than 30 years (or such
longer period as may be permitted by regu-
lations),
‘‘(iv) the issue price of such interest
does not exceed 125 percent of its stated
principal amount, and
‘‘(v) the yield to maturity on such in-
terest is less than the sum determined under
section 163(i)(1)(B) with respect to such in-
terest.
An interest shall not fail to meet the require-
ments of clause (i) merely because the timing
(but not the amount) of the principal payments
(or other similar amounts) may be contingent on
the extent that payments on debt instruments
held by the FASIT are made in advance of an-
ticipated payments and on the amount of income
from permitted assets.
453
‘‘(B) HIGH-YIELD INTERESTS.—
‘‘(i) IN GENERAL.—The term ‘regular
interest’ includes any high-yield interest.
‘‘(ii) 
HIGH-YIELD
INTEREST.—The
term ‘high-yield interest’ means any interest
which would be described in subparagraph
(A) but for failing to meet the requirements
of one or more of clauses (i), (iv), or (v)
thereof.
‘‘(2) OWNERSHIP INTEREST.—The term ‘owner-
ship interest’ means the interest issued by a FASIT
after the startup day which is designated as an own-
ership interest and which is not a regular interest.
‘‘(c) PERMITTED
ASSETS.—For purposes of this
part—
‘‘(1) IN GENERAL.—The term ‘permitted asset’
means—
‘‘(A) cash or cash equivalents,
‘‘(B) any debt instrument (as defined in
section 1275(a)(1)) under which interest pay-
ments (or other similar amounts), if any, at or
before maturity meet the requirements applicable
under clause (i) or (ii) of section 860G(a)(1)(B),
‘‘(C) foreclosure property,
‘‘(D) any asset—
454
‘‘(i) which is an interest rate or foreign
currency notional principal contract, letter
of credit, insurance, guarantee against pay-
ment defaults, or other similar instrument
permitted by the Secretary, and
‘‘(ii) which is reasonably required to
guarantee or hedge against the FASIT’s
risks associated with being the obligor on
interests issued by the FASIT,
‘‘(E) contract rights to acquire debt instru-
ments described in subparagraph (B) or assets
described in subparagraph (D), and
‘‘(F) any regular interest in another
FASIT.
‘‘(2) DEBT ISSUED BY HOLDER OF OWNERSHIP
INTEREST NOT PERMITTED ASSET.—The term ‘per-
mitted asset’ shall not include any debt instrument is-
sued by the holder of the ownership interest in the
FASIT or by any person related to such holder or
any direct or indirect interest in such a debt instru-
ment. The preceding sentence shall not apply to cash
equivalents and to any other investment specified in
regulations prescribed by the Secretary.
‘‘(3) FORECLOSURE PROPERTY.—The term ‘fore-
closure property’ means property—
455
‘‘(A) which would be foreclosure property
under section 856(e) (determined without regard
to paragraph (5) thereof) if acquired by a real
estate investment trust, and
‘‘(B) which is acquired in connection with
the default or imminent default of a debt instru-
ment held by the FASIT unless the security in-
terest in such property was created for the prin-
cipal purpose of permitting the FASIT to invest
in such property.
Solely for purposes of subsection (a)(1), the deter-
mination of whether any property is foreclosure prop-
erty shall be made without regard to section
856(e)(4).
‘‘(d) STARTUP DAY.—For purposes of this part—
‘‘(1) IN
GENERAL.—The term ‘startup day’
means the date designated in the election under sub-
section (a)(3) as the startup day of the FASIT. Such
day shall be the beginning of the first taxable year of
the FASIT.
‘‘(2) TREATMENT OF PROPERTY HELD ON START-
UP DAY.—All property held (or treated as held under
section 860I(c)(2)) by an entity as of the startup day
shall be treated as contributed to such entity on such
456
day by the holder of the ownership interest in such
entity.
‘‘(e) TAX ON PROHIBITED TRANSACTIONS.—
‘‘(1) IN GENERAL.—There is hereby imposed for
each taxable year of a FASIT a tax equal to 100 per-
cent of the net income derived from prohibited trans-
actions. Such tax shall be paid by the holder of the
ownership interest in the FASIT.
‘‘(2) PROHIBITED TRANSACTIONS.—For purposes
of this part, the term ‘prohibited transaction’
means—
‘‘(A) the receipt of any income derived from
any asset that is not a permitted asset,
‘‘(B) except as provided in paragraph (3),
the disposition of any permitted asset,
‘‘(C) the receipt of any income derived from
any loan originated by the FASIT, and
‘‘(D) the receipt of any income representing
a fee or other compensation for services (other
than any fee received as compensation for a
waiver, amendment, or consent under permitted
assets (other than foreclosure property) held by
the FASIT).
‘‘(3) EXCEPTION
FOR
INCOME
FROM
CERTAIN
DISPOSITIONS.—
457
‘‘(A) IN GENERAL.—Paragraph (2)(B) shall
not apply to a disposition which would not be a
prohibited transaction (as defined in section
860F(a)(2)) by reason of—
‘‘(i) clause (ii), (iii), or (iv) of section
860F(a)(2)(A), or
‘‘(ii) section 860F(a)(5),
if the FASIT were treated as a REMIC and debt
instruments described in subsection (c)(1)(B)
were treated as qualified mortgages.
‘‘(B) SUBSTITUTION
OF
DEBT
INSTRU-
MENTS; 
REDUCTION
OF
OVER-
COLLATERALIZATION.—Paragraph (2)(B) shall
not apply to—
‘‘(i) the substitution of a debt instru-
ment described in subsection (c)(1)(B) for
another debt instrument which is a per-
mitted asset, or
‘‘(ii) the distribution of a debt instru-
ment contributed by the holder of the owner-
ship interest to such holder in order to re-
duce over-collateralization of the FASIT,
but only if a principal purpose of acquiring the
debt instrument which is disposed of was not the
recognition of gain (or the reduction of a loss) as
458
a result of an increase in the market value of the
debt instrument after its acquisition by the
FASIT.
‘‘(C) LIQUIDATION OF CLASS OF REGULAR
INTERESTS.—Paragraph (2)(B) shall not apply
to the complete liquidation of any class of regu-
lar interests.
‘‘(4) NET INCOME.—For purposes of this sub-
section, net income shall be determined in accordance
with section 860F(a)(3).
‘‘(f) COORDINATION WITH WASH SALES RULES.—
Rules similar to the rules of section 860F(d) shall apply
to the ownership interest in a FASIT.
‘‘(g) RELATED PERSON.—For purposes of this part, a
person (hereinafter in this subsection referred to as the ‘re-
lated person’) is related to any person if—
‘‘(1) the related person bears a relationship to
such person specified in section 267(b) or section
707(b)(1), or
‘‘(2) the related person and such person are en-
gaged in trades or businesses under common control
(within the meaning of subsections (a) and (b) of sec-
tion 52).
459
For purposes of paragraph (1), in applying section 267(b)
or 707(b)(1), ‘20 percent’ shall be substituted for ‘50 per-
cent’.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this part, including regulations
to prevent the abuse of the purposes of this part through
transactions 
which 
are 
not 
primarily 
related 
to
securitization of debt instruments by a FASIT.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Paragraph (2) of section 26(b) is amended by
striking ‘‘and’’ at the end of subparagraph (M), by
striking the period at the end of subparagraph (N)
and inserting ‘‘, and’’, and by adding at the end the
following new subparagraph:
‘‘(O) section 860K (relating to treatment of
transfers of high-yield interests to disqualified
holders).’’.
(2) Paragraph (6) of section 56(g) is amended by
striking ‘‘or REMIC’’ and inserting ‘‘REMIC, or
FASIT’’.
(3) Clause (ii) of section 382(l)(4)(B) is amended
by striking ‘‘or a REMIC to which part IV of sub-
chapter M applies’’ and inserting ‘‘a REMIC to
460
which part IV of subchapter M applies, or a FASIT
to which part V of subchapter M applies’’.
(4) Paragraph (1) of section 582(c) is amended
by inserting ‘‘, and any regular or ownership interest
in a FASIT,’’ after ‘‘REMIC’’.
(5) Subparagraph (E) of section 856(c)(6) is
amended by adding at the end the following new sen-
tence: ‘‘The principles of the preceding provisions of
this subparagraph shall apply to regular and owner-
ship interests in a FASIT.’’.
(6) Subparagraph (C) of section 1202(e)(4) is
amended by striking ‘‘or REMIC’’ and inserting
‘‘REMIC, or FASIT’’.
(7) Clause (xi) of section 7701(a)(19)(C) is
amended to read as follows:
‘‘(xi) any regular or residual interest
in a REMIC, and any regular or ownership
interest in a FASIT, but only in the pro-
portion which the assets of such REMIC or
FASIT consist of property described in any
of the preceding clauses of this subpara-
graph; except that if 95 percent or more of
the assets of such REMIC or FASIT are as-
sets described in clauses (i) through (x), the
461
entire interest in the REMIC or FASIT
shall qualify.’’.
(8) Subparagraph (A) of section 7701(i)(2) is
amended by inserting ‘‘or a FASIT’’ after ‘‘a
REMIC’’.
(c) CLERICAL AMENDMENT.—The table of parts for
subchapter M of chapter 1 is amended by adding at the
end the following new item:
‘‘Part V. Financial asset securitization investment trusts.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
(e) TREATMENT OF EXISTING SECURITIZATION ENTI-
TIES.—
(1) IN GENERAL.—In the case of the holder of the
ownership interest in a pre-effective date FASIT—
(A) gain shall not be recognized under sec-
tion 860L(d)(2) of the Internal Revenue Code of
1986 on property deemed contributed to the
FASIT, and
(B) gain shall not be recognized under sec-
tion 860I of such Code on property contributed
to such FASIT,
until such property (or portion thereof) ceases to be
properly allocable to a pre-FASIT interest.
462
(2) ALLOCATION OF PROPERTY TO PRE-FASIT IN-
TEREST.—For purposes of paragraph (1), property
shall be allocated to a pre-FASIT interest in such
manner as the Secretary of the Treasury may pre-
scribe, except that all property in a FASIT shall be
treated as properly allocable to pre-FASIT interests if
the fair market value of all such property does not ex-
ceed 107 percent of the aggregate principal amount of
all outstanding pre-FASIT interests.
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) 
PRE-EFFECTIVE
DATE
FASIT.—The
term ‘‘pre-effective date FASIT’’ means any
FASIT if the entity (with respect to which the
election under section 860L(a)(3) of such Code
was made) was in existence on June 10, 1996.
(B) PRE-FASIT INTEREST.—The term ‘‘pre-
FASIT interest’’ means any interest in the en-
tity referred to in subparagraph (A) which was
issued before the startup day (other than any in-
terest held by the holder of the ownership interest
in the FASIT).
463
PART III—TREATMENT OF INDIVIDUALS WHO
EXPATRIATE
SEC. 1631. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL.—Subpart A of part II of subchapter
N of chapter 1 is amended by inserting after section 877
the following new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) GENERAL RULES.—For purposes of this sub-
title—
‘‘(1) MARK TO MARKET.—Except as provided in
subsection (f), all property of a covered expatriate to
which this section applies shall be treated as sold on
the expatriation date for its fair market value.
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the
case of any sale under paragraph (1)—
‘‘(A) notwithstanding any other provision of
this title, any gain arising from such sale shall
be taken into account for the taxable year of the
sale unless such gain is excluded from gross in-
come under part III of subchapter B, and
‘‘(B) any loss arising from such sale shall
be taken into account for the taxable year of the
sale to the extent otherwise provided by this title,
except that section 1091 shall not apply (and
section 1092 shall apply) to any such loss.
464
‘‘(3) EXCLUSION
FOR
CERTAIN
GAIN.—The
amount which would (but for this paragraph) be in-
cludible in the gross income of any individual by rea-
son of this section shall be reduced (but not below
zero) by $600,000. For purposes of this paragraph, al-
locable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same manner
as an amount required to be includible in gross in-
come.
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If an expatriate elects
the application of this paragraph—
‘‘(i) this section (other than this para-
graph) shall not apply to the expatriate, but
‘‘(ii) the expatriate shall be subject to
tax under this title, with respect to property
to which this section would apply but for
such election, in the same manner as if the
individual were a United States citizen.
‘‘(B) LIMITATION ON AMOUNT OF ESTATE,
GIFT, 
AND
GENERATION-SKIPPING
TRANSFER
TAXES.—The aggregate amount of taxes imposed
under subtitle B with respect to any transfer of
property by reason of an election under subpara-
465
graph (A) shall not exceed the amount of income
tax which would be due if the property were sold
for its fair market value immediately before the
time of the transfer or death (taking into account
the rules of paragraph (2)).
‘‘(C) REQUIREMENTS.—Subparagraph (A)
shall not apply to an individual unless the indi-
vidual—
‘‘(i) provides security for payment of
tax in such form and manner, and in such
amount, as the Secretary may require,
‘‘(ii) consents to the waiver of any
right of the individual under any treaty of
the United States which would preclude as-
sessment or collection of any tax which may
be imposed by reason of this paragraph,
and
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe.
‘‘(D) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to
which this section would apply but for the elec-
tion and, once made, shall be irrevocable. Such
election shall also apply to property the basis of
which is determined in whole or in part by ref-
466
erence to the property with respect to which the
election was made.
‘‘(b) ELECTION TO DEFER TAX.—
‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty—
‘‘(A) no amount shall be required to be in-
cluded in gross income under subsection (a)(1)
with respect to the gain from such property for
the taxable year of the sale, but
‘‘(B) the taxpayer’s tax for the taxable year
in which such property is disposed of shall be in-
creased by the deferred tax amount with respect
to the property.
Except to the extent provided in regulations, subpara-
graph (B) shall apply to a disposition whether or not
gain or loss is recognized in whole or in part on the
disposition.
‘‘(2) DEFERRED TAX AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘deferred tax amount’ means,
with respect to any property, an amount equal
to the sum of—
‘‘(i) the difference between the amount
of tax paid for the taxable year described in
467
paragraph (1)(A) and the amount which
would have been paid for such taxable year
if the election under paragraph (1) had not
applied to such property, plus
‘‘(ii) an amount of interest on the
amount described in clause (i) determined
for the period—
‘‘(I) beginning on the 91st day
after the expatriation date, and
‘‘(II) ending on the due date for
the taxable year described in para-
graph (1)(B),
by using the rates and method applicable
under section 6621 for underpayments of
tax for such period.
For purposes of clause (ii), the due date is the
date prescribed by law (determined without re-
gard to extension) for filing the return of the tax
imposed by this chapter for the taxable year.
‘‘(B) ALLOCATION
OF
LOSSES.—For pur-
poses of subparagraph (A), any losses described
in subsection (a)(2)(B) shall be allocated ratably
among 
the 
gains 
described 
in 
subsection
(a)(2)(A).
‘‘(3) SECURITY.—
468
‘‘(A) IN
GENERAL.—No election may be
made under paragraph (1) with respect to any
property unless adequate security is provided
with respect to such property.
‘‘(B) ADEQUATE SECURITY.—For purposes
of subparagraph (A), security with respect to
any property shall be treated as adequate secu-
rity if—
‘‘(i) it is a bond in an amount equal
to the deferred tax amount under paragraph
(2)(A) for the property, or
‘‘(ii) the taxpayer otherwise establishes
to the satisfaction of the Secretary that the
security is adequate.
‘‘(4) WAIVER OF CERTAIN RIGHTS.—No election
may be made under paragraph (1) unless the tax-
payer consents to the waiver of any right under any
treaty of the United States which would preclude as-
sessment or collection of any tax imposed by reason
of this section.
‘‘(5) DISPOSITIONS.—For purposes of this sub-
section, a taxpayer making an election under this
subsection with respect to any property shall be treat-
ed as having disposed of such property—
469
‘‘(A) immediately before death if such prop-
erty is held at such time, and
‘‘(B) at any time the security provided with
respect to the property fails to meet the require-
ments of paragraph (3) and the taxpayer does
not correct such failure within the time specified
by the Secretary.
‘‘(6) ELECTIONS.—An election under paragraph
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may
be under paragraph (1) with respect to an interest in
a trust with respect to which gain is required to be
recognized under subsection (f)(1).
‘‘(c) COVERED EXPATRIATE.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘covered expatriate’
means an expatriate—
‘‘(A) whose average annual net income tax
(as defined in section 38(c)(1)) for the period of
5 taxable years ending before the expatriation
date is greater than $100,000, or
‘‘(B) whose net worth as of such date is
$500,000 or more.
If the expatriation date is after 1996, such $100,000
and $500,000 amounts shall be increased by an
470
amount equal to such dollar amount multiplied by
the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting ‘1995’
for ‘1992’ in subparagraph (B) thereof. Any increase
under the preceding sentence shall be rounded to the
nearest multiple of $1,000.
‘‘(2) EXCEPTIONS.—An individual shall not be
treated as a covered expatriate if—
‘‘(A) the individual—
‘‘(i) became at birth a citizen of the
United States and a citizen of another
country and, as of the expatriation date,
continues to be a citizen of, and is taxed as
a resident of, such other country, and
‘‘(ii) has been a resident of the United
States 
(as 
defined 
in 
section
7701(b)(1)(A)(ii)) for not more than 8 tax-
able years during the 15-taxable year period
ending with the taxable year during which
the expatriation date occurs, or
‘‘(B)(i) the individual’s relinquishment of
United States citizenship occurs before such indi-
vidual attains age 181⁄2, and
‘‘(ii) the individual has been a resident of
the United States (as so defined) for not more
471
than 5 taxable years before the date of relin-
quishment.
‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For
purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise provided
by the Secretary, this section shall apply to—
‘‘(A) any interest in property held by a cov-
ered expatriate on the expatriation date the gain
from which would be includible in the gross in-
come of the expatriate if such interest had been
sold for its fair market value on such date in a
transaction in which gain is recognized in whole
or in part, and
‘‘(B) any other interest in a trust to which
subsection (f) applies.
‘‘(2) EXCEPTIONS.—This section shall not apply
to the following property:
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other
than stock of a United States real property hold-
ing corporation which does not, on the expatria-
tion date, meet the requirements of section
897(c)(2).
472
‘‘(B) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(i) IN GENERAL.—Any interest in a
qualified retirement plan (as defined in sec-
tion 4974(c)), other than any interest at-
tributable to contributions which are in ex-
cess of any limitation or which violate any
condition for tax-favored treatment.
‘‘(ii) FOREIGN PENSION PLANS.—
‘‘(I) IN GENERAL.—Under regula-
tions prescribed by the Secretary, in-
terests in foreign pension plans or
similar retirement arrangements or
programs.
‘‘(II) LIMITATION.—The value of
property which is treated as not sold
by reason of this subparagraph shall
not exceed $500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, or
‘‘(B) any long-term resident of the United
States who—
473
‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) commences to be treated as a resi-
dent of a foreign country under the provi-
sions of a tax treaty between the United
States and the foreign country and who
does not waive the benefits of such treaty
applicable to residents of the foreign coun-
try.
‘‘(2) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event described
in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A citi-
zen shall be treated as relinquishing his United States
citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant to
paragraph (5) of section 349(a) of the Immigra-
tion and Nationality Act (8 U.S.C. 1481(a)(5)),
474
‘‘(B) the date the individual furnishes to the
United States Department of State a signed
statement of voluntary relinquishment of United
States nationality confirming the performance of
an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Im-
migration and Nationality Act (8 U.S.C.
1481(a)(1)–(4)),
‘‘(C) the date the United States Department
of State issues to the individual a certificate of
loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of natu-
ralization.
Subparagraph (A) or (B) shall not apply to any in-
dividual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance to
the individual of a certificate of loss of nationality by
the United States Department of State.
‘‘(4) LONG-TERM RESIDENT.—
‘‘(A) IN
GENERAL.—The term ‘long-term
resident’ means any individual (other than a cit-
izen of the United States) who is a lawful per-
manent resident of the United States in at least
8 taxable years during the period of 15 taxable
475
years ending with the taxable year during which
the expatriation date occurs. For purposes of the
preceding sentence, an individual shall not be
treated as a lawful permanent resident for any
taxable year if such individual is treated as a
resident of a foreign country for the taxable year
under the provisions of a tax treaty between the
United States and the foreign country and does
not waive the benefits of such treaty applicable
to residents of the foreign country.
‘‘(B) SPECIAL RULE.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count—
‘‘(i) any taxable year during which
any prior sale is treated under subsection
(a)(1) as occurring, or
‘‘(ii) any taxable year prior to the tax-
able year referred to in clause (i).
‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’
INTERESTS IN TRUST.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust—
‘‘(A) the individual shall not be treated as
having sold such interest,
476
‘‘(B) such interest shall be treated as a sep-
arate share in the trust, and
‘‘(C)(i) such separate share shall be treated
as a separate trust consisting of the assets alloca-
ble to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets immediately before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the indi-
vidual as of such time, and
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii).
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
‘‘(A) IN GENERAL.—If the trust interest de-
scribed in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such in-
477
terest a tax in the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of tax
under subparagraph (A)(ii) shall be equal to the
lesser of—
‘‘(i) the highest rate of tax imposed by
section 1(e) for the taxable year in which
the expatriation date occurs, multiplied by
the amount of the distribution, or
‘‘(ii) the balance in the deferred tax ac-
count immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th
day preceding the distribution.
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)—
‘‘(i) OPENING BALANCE.—The opening
balance in a deferred tax account with re-
spect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
with respect to the trust interest if such
gain had been included in gross income
under subsection (a).
478
‘‘(ii) INCREASE
FOR
INTEREST.—The
balance in the deferred tax account shall be
increased by the amount of interest deter-
mined (on the balance in the account at the
time the interest accrues), for periods after
the 90th day after the expatriation date, by
using the rates and method applicable
under section 6621 for underpayments of
tax for such periods.
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced—
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any dis-
tribution to the person holding the
trust interest, and
‘‘(II) in the case of a person hold-
ing a nonvested interest, to the extent
provided in regulations, by the amount
of taxes imposed by subparagraph (A)
on distributions from the trust with re-
spect to nonvested interests not held by
such person.
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For
purposes of this paragraph, the allocable expa-
479
triation gain with respect to any beneficiary’s
interest in a trust is the amount of gain which
would be allocable to such beneficiary’s vested
and nonvested interests in the trust if the bene-
ficiary held directly all assets allocable to such
interests.
‘‘(E) TAX DEDUCTED AND WITHHELD.—
‘‘(i) IN GENERAL.—The tax imposed by
subparagraph (A)(ii) shall be deducted and
withheld by the trustees from the distribu-
tion to which it relates.
‘‘(ii) EXCEPTION WHERE FAILURE TO
WAIVE TREATY RIGHTS.—If an amount may
not be deducted and withheld under clause
(i) by reason of the distributee failing to
waive any treaty right with respect to such
distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
480
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expatri-
ate disposes of an interest in a qualified trust,
or a covered expatriate holding an interest in a
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the expatriation date were
the date of such cessation, disposition, or
death, whichever is applicable, or
‘‘(ii) the balance in the tax deferred ac-
count immediately before such date.
Such tax shall be imposed on the trust and each
trustee shall be personally liable for the amount
of such tax and any other beneficiary of the trust
shall be entitled to recover from the covered expa-
triate or the estate the amount of such tax im-
posed on the other beneficiary.
‘‘(G) DEFINITIONS
AND
SPECIAL
RULE.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust—
481
‘‘(I) which is organized under,
and governed by, the laws of the Unit-
ed States or a State, and
‘‘(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a do-
mestic corporation.
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
as of the expatriation date, is vested in the
beneficiary.
‘‘(iii) 
NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
trust which is not a vested interest. Such
interest shall be determined by assuming the
maximum exercise of discretion in favor of
the beneficiary and the occurrence of all
contingencies in favor of the beneficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
account, and the timing of such adjust-
482
ments, in order to ensure that gain is taxed
only once.
‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER-
EST IN TRUST.—
‘‘(A) DETERMINATIONS UNDER PARAGRAPH
(1).—For purposes of paragraph (1), a bene-
ficiary’s interest in a trust shall be based upon
all relevant facts and circumstances, including
the terms of the trust instrument and any letter
of wishes or similar document, historical pat-
terns of trust distributions, and the existence of
and functions performed by a trust protector or
any similar advisor.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a
beneficiary of a trust is a corporation, part-
nership, trust, or estate, the shareholders,
partners, or beneficiaries shall be deemed to
be the trust beneficiaries for purposes of this
section.
‘‘(ii) TAXPAYER RETURN POSITION.—A
taxpayer shall clearly indicate on its in-
come tax return—
483
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a dif-
ferent methodology to determine such
beneficiary’s trust interest under this
section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the date
any property held by an individual is treated as sold under
subsection (a), notwithstanding any other provision of this
title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate, and
‘‘(2) any extension of time for payment of tax
shall cease to apply and the unpaid portion of such
tax shall be due and payable at the time and in the
manner prescribed by the Secretary.
‘‘(h) IMPOSITION OF TENTATIVE TAX.—
‘‘(1) IN GENERAL.—If an individual is required
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a tax
in an amount equal to the amount of tax which
484
would be imposed if the taxable year were a short tax-
able year ending on the expatriation date.
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after the
expatriation date.
‘‘(3) TREATMENT OF TAX.—Any tax paid under
paragraph (1) shall be treated as a payment of the
tax imposed by this chapter for the taxable year to
which subsection (a) applies.
‘‘(4) DEFERRAL OF TAX.—The provisions of sub-
section (b) shall apply to the tax imposed by this sub-
section to the extent attributable to gain includible in
gross income by reason of this section.
‘‘(i) 
COORDINATION
WITH
ESTATE
AND
GIFT
TAXES.—If subsection (a) applies to property held by an
individual for any taxable year and—
‘‘(1) such property is includible in the gross es-
tate of such individual solely by reason of section
2107, or
‘‘(2) section 2501 applies to a transfer of such
property by such individual solely by reason of sec-
tion 2501(a)(3),
then there shall be allowed as a credit against the additional
tax imposed by section 2101 or 2501, whichever is applica-
ble, solely by reason of section 2107 or 2501(a)(3) an
485
amount equal to the increase in the tax imposed by this
chapter for such taxable year by reason of this section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions—
‘‘(1) to prevent double taxation by ensuring
that—
‘‘(A) appropriate adjustments are made to
basis to reflect gain recognized by reason of sub-
section (a) and the exclusion provided by sub-
section (a)(3), and
‘‘(B) any gain by reason of a deemed sale
under subsection (a) of an interest in a corpora-
tion, partnership, trust, or estate is reduced to
reflect that portion of such gain which is attrib-
utable to an interest in a trust which a share-
holder, partner, or beneficiary is treated as hold-
ing directly under subsection (f)(3)(B)(i), and
‘‘(2) which provide for the proper allocation of
the exclusion under subsection (a)(3) to property to
which this section applies.
486
‘‘(k) CROSS REFERENCE.—
‘‘For income tax treatment of individuals who ter-
minate 
United 
States 
citizenship, 
see 
section
7701(a)(47).’’.
(b) INCLUSION IN INCOME OF GIFTS AND INHERIT-
ANCES FROM COVERED EXPATRIATES.—Section 102 (relat-
ing to gifts, etc. not included in gross income) is amended
by adding at the end the following new subsection:
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—Subsection (a) shall not exclude from gross in-
come the value of any property acquired by gift, bequest,
devise, or inheritance from a covered expatriate after the
expatriation date. For purposes of this subsection, any term
used in this subsection which is also used in section 877A
shall have the same meaning as when used in section
877A.’’.
(c) DEFINITION OF TERMINATION OF UNITED STATES
CITIZENSHIP.—Section 7701(a) is amended by adding at
the end the following new paragraph:
‘‘(47) TERMINATION OF UNITED STATES CITIZEN-
SHIP.—An individual shall not cease to be treated as
a United States citizen before the date on which the
individual’s citizenship is treated as relinquished
under section 877A(e)(3).’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 877 is amended by adding at the end
the following new subsection:
487
‘‘(f) APPLICATION.—This section shall not apply to
any individual who relinquishes (within the meaning of
section 877A(e)(3)) United States citizenship on or after
February 6, 1995.’’.
(2) Section 2107(c) is amended by adding at the
end the following new paragraph:
‘‘(3) CROSS REFERENCE.—For credit against the
tax imposed by subsection (a) for expatriation tax, see
section 877A(i).’’.
(3) Section 2501(a)(3) is amended by adding at
the end the following new flush sentence:
‘‘For credit against the tax imposed under this section
by reason of this paragraph, see section 877A(i).’’.
(4) Paragraph (10) of section 7701(b) is amend-
ed by adding at the end the following new sentence:
‘‘This paragraph shall not apply to any long-term
resident of the United States who is an expatriate (as
defined in section 877A(e)(1)).’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart A of part II of subchapter N of chapter 1 is amend-
ed by inserting after the item relating to section 877 the
following new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this
subsection, the amendments made by this section shall
488
apply to expatriates (within the meaning of section
877A(e) of the Internal Revenue Code of 1986, as
added by this section) whose expatriation date (as so
defined) occurs on or after February 6, 1995.
(2) GIFTS AND BEQUESTS.—Section 102(d) of
the Internal Revenue Code of 1986 (as added by sub-
section (b)) shall apply to amounts received from ex-
patriates (as so defined) whose expatriation date (as
so defined) occurs on and after February 6, 1995.
(3) SPECIAL RULES RELATING TO CERTAIN ACTS
OCCURRING BEFORE FEBRUARY 6, 1995.—In the case
of an individual who took an act of expatriation spec-
ified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a) (1)–(4)) before February 6, 1995, but
whose expatriation date (as so defined) occurs after
February 6, 1995—
(A) the amendment made by subsection (c)
shall not apply,
(B) the amendment made by subsection
(d)(1) shall not apply for any period prior to the
expatriation date, and
(C) the other amendments made by this sec-
tion shall apply as of the expatriation date.
489
(4) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(2) of such Code shall in
no event occur before the 90th day after the date of
the enactment of this Act.
SEC. 1632. INFORMATION ON INDIVIDUALS EXPATRIATING.
(a) IN GENERAL.—Subpart A of part III of subchapter
A of chapter 61 is amended by inserting after section 6039E
the following new section:
‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT-
ING.
‘‘(a) REQUIREMENT.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of law, any expatriate (within the meaning
of section 877A(e)(1)) shall provide a statement which
includes the information described in subsection (b).
‘‘(2) TIMING.—
‘‘(A) CITIZENS.—In the case of an expatri-
ate described in section 877(e)(1)(A), such state-
ment shall be—
‘‘(i) provided not later than the expa-
triation date (within the meaning of section
877A(e)(2)), and
‘‘(ii) provided to the person or court
referred to in section 877A(e)(3).
490
‘‘(B) NONCITIZENS.—In the case of an ex-
patriate described in section 877A(e)(1)(B), such
statement shall be provided to the Secretary with
the return of tax imposed by chapter 1 for the
taxable year during which the event described in
such section occurs.
‘‘(b) INFORMATION TO BE PROVIDED.—Information
required under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,
‘‘(2) the mailing address of such individual’s
principal foreign residence,
‘‘(3) the foreign country in which such individ-
ual is residing,
‘‘(4) the foreign country of which such individual
is a citizen,
‘‘(5) in the case of an individual having a net
worth of at least the dollar amount applicable under
section 877A(c)(1)(B), information detailing the as-
sets and liabilities of such individual, and
‘‘(6) such other information as the Secretary
may prescribe.
‘‘(c) PENALTY.—Any individual failing to provide a
statement required under subsection (a) shall be subject to
a penalty for each year during any portion of which such
failure continues in an amount equal to the greater of—
491
‘‘(1) 5 percent of the additional tax required to
be paid under section 877A for such year, or
‘‘(2) $1,000,
unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
‘‘(d) INFORMATION
TO
BE
PROVIDED
TO
SEC-
RETARY.—Notwithstanding any other provision of law—
‘‘(1) any Federal agency or court which collects
(or is required to collect) the statement under sub-
section (a) shall provide to the Secretary—
‘‘(A) a copy of any such statement, and
‘‘(B) the name (and any other identifying
information) of any individual refusing to com-
ply with the provisions of subsection (a),
‘‘(2) the Secretary of State shall provide to the
Secretary a copy of each certificate as to the loss of
American nationality under section 358 of the Immi-
gration and Nationality Act which is approved by the
Secretary of State, and
‘‘(3) the Federal agency primarily responsible for
administering the immigration laws shall provide to
the Secretary the name of each lawful permanent resi-
dent of the United States (within the meaning of sec-
tion 7701(b)(6)) whose status as such has been re-
492
voked or has been administratively or judicially de-
termined to have been abandoned.
Notwithstanding any other provision of law, not later than
30 days after the close of each calendar quarter, the Sec-
retary shall publish in the Federal Register the name of
each individual relinquishing United States citizenship
(within the meaning of section 877A(e)(3)) with respect to
whom the Secretary receives information under the preced-
ing sentence during such quarter.
‘‘(e) EXEMPTION.—The Secretary may by regulations
exempt any class of individuals from the requirements of
this section if the Secretary determines that applying this
section to such individuals is not necessary to carry out
the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such subpart A is amended by inserting after the item relat-
ing to section 6039E the following new item:
‘‘Sec. 6039F. Information on individuals expatriating.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to individuals to whom section 877A
of the Internal Revenue Code of 1986 applies and whose
expatriation date (as defined in section 877A(e)(2)) occurs
on or after February 6, 1995, except that no statement shall
be required by such amendments before the 90th day after
the date of the enactment of this Act.
493
SEC. 1633. REPORT ON TAX COMPLIANCE BY UNITED
STATES CITIZENS AND RESIDENTS LIVING
ABROAD.
Not later than 90 days after the date of the enactment
of this Act, the Secretary of the Treasury shall prepare and
submit to the Committee on Ways and Means of the House
of Representatives and the Committee on Finance of the
Senate a report—
(1) describing the compliance with subtitle A of
the Internal Revenue Code of 1986 by citizens and
lawful permanent residents of the United States
(within the meaning of section 7701(b)(6) of such
Code) residing outside the United States, and
(2) recommending measures to improve such
compliance (including improved coordination between
executive branch agencies).
Subtitle F—Technical Corrections
SEC. 1701. COORDINATION WITH OTHER SUBTITLES.
For purposes of applying the amendments made by
any subtitle of this title other than this subtitle, the provi-
sions of this subtitle shall be treated as having been enacted
immediately before the provisions of such other subtitles.
SEC. 1702. AMENDMENTS 
RELATED 
TO 
REVENUE 
REC-
ONCILIATION ACT OF 1990.
(a) AMENDMENTS RELATED TO SUBTITLE A.—
494
(1) Subparagraph (B) of section 59(j)(3) is
amended by striking ‘‘section 1(i)(3)(B)’’ and insert-
ing ‘‘section 1(g)(3)(B)’’.
(2) Clause (i) of section 151(d)(3)(C) is amended
by striking ‘‘joint of a return’’ and inserting ‘‘joint
return’’.
(b) AMENDMENTS RELATED TO SUBTITLE B.—
(1) Paragraph (1) of section 11212(e) of the Rev-
enue Reconciliation Act of 1990 is amended by strik-
ing ‘‘Paragraph (1) of section 6724(d)’’ and inserting
‘‘Subparagraph (B) of section 6724(d)(1)’’.
(2)(A) Subparagraph (B) of section 4093(c)(2),
as in effect before the amendments made by the Reve-
nue Reconciliation Act of 1993, is amended by insert-
ing before the period ‘‘unless such fuel is sold for ex-
clusive use by a State or any political subdivision
thereof’’.
(B) Paragraph (4) of section 6427(l), as in effect
before the amendments made by the Revenue Rec-
onciliation Act of 1993, is amended by inserting be-
fore the period ‘‘unless such fuel was used by a State
or any political subdivision thereof’’.
(3) Paragraph (1) of section 6416(b) is amended
by striking ‘‘chapter 32 or by section 4051’’ and in-
serting ‘‘chapter 31 or 32’’.
495
(4) Section 7012 is amended—
(A) by striking ‘‘production or importation
of gasoline’’ in paragraph (3) and inserting
‘‘taxes on gasoline and diesel fuel’’, and
(B) by striking paragraph (4) and redesig-
nating paragraphs (5) and (6) as paragraphs
(4) and (5), respectively.
(5) Subsection (c) of section 5041 is amended by
striking paragraph (6) and by inserting the following
new paragraphs:
‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—
‘‘(A) wine produced by any person would be
eligible for any credit under paragraph (1) if re-
moved by such person during the calendar year,
‘‘(B) wine produced by such person is re-
moved during such calendar year by any other
person (hereafter in this paragraph referred to as
the ‘transferee’) to whom such wine was trans-
ferred in bond and who is liable for the tax im-
posed by this section with respect to such wine,
and
‘‘(C) such producer holds title to such wine
at the time of its removal and provides to the
transferee such information as is necessary to
496
properly determine the transferee’s credit under
this paragraph,
then, the transferee (and not the producer) shall be al-
lowed the credit under paragraph (1) which would be
allowed to the producer if the wine removed by the
transferee had been removed by the producer on that
date.
‘‘(7) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including regula-
tions—
‘‘(A) to prevent the credit provided in this
subsection from benefiting any person who pro-
duces more than 250,000 wine gallons of wine
during a calendar year, and
‘‘(B) to assure proper reduction of such
credit for persons producing more than 150,000
wine gallons of wine during a calendar year.’’.
(6) Paragraph (3) of section 5061(b) is amended
to read as follows:
‘‘(3) section 5041(f),’’.
(7) Section 5354 is amended by inserting ‘‘(tak-
ing into account the appropriate amount of credit
with respect to such wine under section 5041(c))’’
after ‘‘any one time’’.
497
(c) AMENDMENTS RELATED TO SUBTITLE C.—
(1) Paragraph (4) of section 56(g) is amended by
redesignating subparagraphs (I) and (J) as subpara-
graphs (H) and (I), respectively.
(2) Subparagraph (B) of section 6724(d)(1) is
amended—
(A) by striking ‘‘or’’ at the end of clause
(xii), and
(B) by striking the period at the end of
clause (xiii) and inserting ‘‘, or’’.
(3) Subsection (g) of section 6302 is amended by
inserting ‘‘, 22,’’ after ‘‘chapters 21’’.
(4) The earnings and profits of any insurance
company to which section 11305(c)(3) of the Revenue
Reconciliation Act of 1990 applies shall be deter-
mined without regard to any deduction allowed under
such section; except that, for purposes of applying sec-
tions 56 and 902, and subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code
of 1986, such deduction shall be taken into account.
(5) Subparagraph (D) of section 6038A(e)(4) is
amended—
(A) by striking ‘‘any transaction to which
the summons relates’’ and inserting ‘‘any af-
fected taxable year’’, and
498
(B) by adding at the end thereof the follow-
ing new sentence: ‘‘For purposes of this subpara-
graph, the term ‘affected taxable year’ means
any taxable year if the determination of the
amount of tax imposed for such taxable year is
affected by the treatment of the transaction to
which the summons relates.’’.
(6) Subparagraph (A) of section 6621(c)(2) is
amended by adding at the end thereof the following
new flush sentence:
‘‘The preceding sentence shall be applied without
regard to any such letter or notice which is with-
drawn by the Secretary.’’.
(7) Clause (i) of section 6621(c)(2)(B) is amend-
ed by striking ‘‘this subtitle’’ and inserting ‘‘this
title’’.
(d) AMENDMENTS RELATED TO SUBTITLE D.—
(1) Notwithstanding section 11402(c) of the Rev-
enue Reconciliation Act of 1990, the amendment
made by section 11402(b)(1) of such Act shall apply
to taxable years ending after December 31, 1989.
(2) Clause (ii) of section 143(m)(4)(C) is amend-
ed—
499
(A) by striking ‘‘any month of the 10-year
period’’ and inserting ‘‘any year of the 4-year
period’’,
(B) by striking ‘‘succeeding months’’ and
inserting ‘‘succeeding years’’, and
(C) by striking ‘‘over the remainder of such
period (or, if lesser, 5 years)’’ and inserting ‘‘to
zero over the succeeding 5 years’’.
(e) AMENDMENTS RELATED TO SUBTITLE E.—
(1)(A) Clause (ii) of section 56(d)(1)(B) is
amended to read as follows:
‘‘(ii) appropriate adjustments in the
application of section 172(b)(2) shall be
made to take into account the limitation of
subparagraph (A).’’.
(B) For purposes of applying sections 56(g)(1)
and 56(g)(3) of the Internal Revenue Code of 1986
with respect to taxable years beginning in 1991 and
1992, the reference in such sections to the alternative
tax net operating loss deduction shall be treated as
including a reference to the deduction under section
56(h) of such Code as in effect before the amendments
made by section 1915 of the Energy Policy Act of
1992.
500
(2) Clause (i) of section 613A(c)(3)(A) is amend-
ed by striking ‘‘the table contained in’’.
(3) Section 6501 is amended—
(A) by striking subsection (m) (relating to
deficiency attributable to election under section
44B) and by redesignating subsections (n) and
(o) as subsections (m) and (n), respectively, and
(B) by striking ‘‘section 40(f) or 51(j)’’ in
subsection (m) (as redesignated by subparagraph
(A)) and inserting ‘‘section 40(f), 43, or 51(j)’’.
(4) Subparagraph (C) of section 38(c)(2) (as in
effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990) is amended
by inserting before the period at the end of the first
sentence the following: ‘‘and without regard to the de-
duction under section 56(h)’’.
(5) 
The 
amendment 
made 
by 
section
1913(b)(2)(C)(i) of the Energy Policy Act of 1992
shall apply to taxable years beginning after December
31, 1990.
(f) AMENDMENTS RELATED TO SUBTITLE F.—
(1)(A) Section 2701(a)(3) is amended by adding
at the end thereof the following new subparagraph:
‘‘(C) VALUATION OF QUALIFIED PAYMENTS
WHERE NO LIQUIDATION, ETC. RIGHTS.—In the
501
case of an applicable retained interest which is
described in subparagraph (B)(i) but not sub-
paragraph (B)(ii), the value of the distribution
right shall be determined without regard to this
section.’’.
(B) Section 2701(a)(3)(B) is amended by insert-
ing ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the heading
thereof.
(C) Sections 2701 (d)(1) and (d)(4) are each
amended by striking ‘‘subsection (a)(3)(B)’’ and in-
serting ‘‘subsection (a)(3) (B) or (C)’’.
(2) Clause (i) of section 2701(a)(4)(B) is amend-
ed by inserting ‘‘(or, to the extent provided in regula-
tions, the rights as to either income or capital)’’ after
‘‘income and capital’’.
(3)(A) Section 2701(e)(3) is amended—
(i) by striking subparagraph (B), and
(ii) by striking so much of paragraph (3) as
precedes ‘‘shall be treated as holding’’ and insert-
ing:
‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS AND
TRANSFERS.—An individual’’.
(B) Section 2704(c)(3) is amended by striking
‘‘section 
2701(e)(3)(A)’’ 
and 
inserting 
‘‘section
2701(e)(3)’’.
502
(4) Clause (i) of section 2701(c)(1)(B) is amend-
ed to read as follows:
‘‘(i) a right to distributions with re-
spect to any interest which is junior to the
rights of the transferred interest,’’.
(5)(A) Clause (i) of section 2701(c)(3)(C) is
amended to read as follows:
‘‘(i) IN
GENERAL.—Payments under
any interest held by a transferor which
(without regard to this subparagraph) are
qualified payments shall be treated as
qualified payments unless the transferor
elects not to treat such payments as quali-
fied payments. Payments described in the
preceding sentence which are held by an ap-
plicable family member shall be treated as
qualified payments only if such member
elects to treat such payments as qualified
payments.’’.
(B) The first sentence of section 2701(c)(3)(C)(ii)
is amended to read as follows: ‘‘A transferor or appli-
cable family member holding any distribution right
which (without regard to this subparagraph) is not a
qualified payment may elect to treat such right as a
503
qualified payment, to be paid in the amounts and at
the times specified in such election.’’.
(C) The time for making an election under the
second sentence of section 2701(c)(3)(C)(i) of the In-
ternal Revenue Code of 1986 (as amended by sub-
paragraph (A)) shall not expire before the due date
(including extensions) for filing the transferor’s re-
turn of the tax imposed by section 2501 of such Code
for the first calendar year ending after the date of en-
actment.
(6) Section 2701(d)(3)(A)(iii) is amended by
striking ‘‘the period ending on the date of’’.
(7) Subclause (I) of section 2701(d)(3)(B)(ii) is
amended by inserting ‘‘or the exclusion under section
2503(b),’’ after ‘‘section 2523,’’.
(8) Section 2701(e)(5) is amended—
(A) by striking ‘‘such contribution to cap-
ital or such redemption, recapitalization, or
other change’’ in subparagraph (A) and insert-
ing ‘‘such transaction’’, and
(B) by striking ‘‘the transfer’’ in subpara-
graph (B) and inserting ‘‘such transaction’’.
(9) Section 2701(d)(4) is amended by adding at
the end thereof the following new subparagraph:
504
‘‘(C) TRANSFER TO TRANSFERORS.—In the
case of a taxable event described in paragraph
(3)(A)(ii) involving a transfer of an applicable
retained interest from an applicable family
member to a transferor, this subsection shall con-
tinue to apply to the transferor during any pe-
riod the transferor holds such interest.’’.
(10) Section 2701(e)(6) is amended by inserting
‘‘or to reflect the application of subsection (d)’’ before
the period at the end thereof.
(11)(A) Section 2702(a)(3)(A) is amended—
(i) by striking ‘‘to the extent’’ and inserting
‘‘if’’ in clause (i),
(ii) by striking ‘‘or’’ at the end of clause (i),
(iii) by striking the period at the end of
clause (ii) and inserting ‘‘, or’’, and
(iv) by adding at the end thereof the follow-
ing new clause:
‘‘(iii) to the extent that regulations
provide that such transfer is not inconsist-
ent with the purposes of this section.’’.
(B)(i) Section 2702(a)(3) is amended by striking
‘‘incomplete transfer’’ each place it appears and in-
serting ‘‘incomplete gift’’.
505
(ii) The heading for section 2702(a)(3)(B) is
amended by striking ‘‘INCOMPLETE TRANSFER’’ and
inserting ‘‘INCOMPLETE GIFT’’.
(g) AMENDMENTS RELATED TO SUBTITLE G.—
(1)(A) Subsection (a) of section 1248 is amend-
ed—
(i) by striking ‘‘, or if a United States per-
son receives a distribution from a foreign cor-
poration which, under section 302 or 331, is
treated as an exchange of stock’’ in paragraph
(1), and
(ii) by adding at the end thereof the follow-
ing new sentence: ‘‘For purposes of this section,
a United States person shall be treated as having
sold or exchanged any stock if, under any provi-
sion of this subtitle, such person is treated as re-
alizing gain from the sale or exchange of such
stock.’’.
(B) Paragraph (1) of section 1248(e) is amended
by striking ‘‘, or receives a distribution from a domes-
tic corporation which, under section 302 or 331, is
treated as an exchange of stock’’.
(C) Subparagraph (B) of section 1248(f)(1) is
amended by striking ‘‘or 361(c)(1)’’ and inserting
‘‘355(c)(1), or 361(c)(1)’’.
506
(D) Paragraph (1) of section 1248(i) is amended
to read as follows:
‘‘(1) IN GENERAL.—If any shareholder of a 10-
percent corporate shareholder of a foreign corporation
exchanges stock of the 10-percent corporate share-
holder for stock of the foreign corporation, such 10-
percent corporate shareholder shall recognize gain in
the same manner as if the stock of the foreign cor-
poration received in such exchange had been—
‘‘(A) issued to the 10-percent corporate
shareholder, and
‘‘(B) then distributed by the 10-percent cor-
porate shareholder to such shareholder in re-
demption or liquidation (whichever is appro-
priate).
The amount of gain recognized by such 10-percent
corporate shareholder under the preceding sentence
shall not exceed the amount treated as a dividend
under this section.’’.
(2) Section 897 is amended by striking sub-
section (f).
(3) Paragraph (13) of section 4975(d) is amend-
ed by striking ‘‘section 408(b)’’ and inserting ‘‘section
408(b)(12)’’.
507
(4) Clause (iii) of section 56(g)(4)(D) is
amended by inserting ‘‘, but only with respect to tax-
able years beginning after December 31, 1989’’ before
the period at the end thereof.
(5)(A) Paragraph (11) of section 11701(a) of the
Revenue Reconciliation Act of 1990 (and the amend-
ment made by such paragraph) are hereby repealed,
and section 7108(r)(2) of the Revenue Reconciliation
Act of 1989 shall be applied as if such paragraph
(and amendment) had never been enacted.
(B) Subparagraph (A) shall not apply to any
building if the owner of such building establishes to
the satisfaction of the Secretary of the Treasury or his
delegate that such owner reasonably relied on the
amendment made by such paragraph (11).
(h) AMENDMENTS RELATED TO SUBTITLE H.—
(1)(A) Clause (vi) of section 168(e)(3)(B) is
amended by striking ‘‘or’’ at the end of subclause (I),
by striking the period at the end of subclause (II) and
inserting ‘‘, or’’, and by adding at the end thereof the
following new subclause:
‘‘(III) is described in section
48(l)(3)(A)(ix) (as in effect on the day
before the date of the enactment of the
Revenue Reconciliation Act of 1990).’’.
508
(B) Subparagraph (B) of section 168(e)(3) (re-
lating to 5-year property) is amended by adding at
the end the following flush sentence:
‘‘Nothing in any provision of law shall be con-
strued to treat property as not being described in
clause (vi)(I) (or the corresponding provisions of
prior law) by reason of being public utility
property 
(within 
the 
meaning 
of 
section
48(a)(3)).’’.
(C) Subparagraph (K) of section 168(g)(4) is
amended by striking ‘‘section 48(a)(3)(A)(iii)’’ and
inserting ‘‘section 48(l)(3)(A)(ix) (as in effect on the
day before the date of the enactment of the Revenue
Reconciliation Act of 1990)’’.
(2) Clause (ii) of section 172(b)(1)(E) is amend-
ed by striking ‘‘subsection (m)’’ and inserting ‘‘sub-
section (h)’’.
(3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II),
and 832(b)(5)(D)(ii)(II) are each amended by strik-
ing ‘‘243(b)(5)’’ and inserting ‘‘243(b)(2)’’.
(4) Subparagraph (A) of section 243(b)(3) is
amended by inserting ‘‘of’’ after ‘‘In the case’’.
(5) The subsection heading for subsection (a) of
section 280F is amended by striking ‘‘INVESTMENT
TAX CREDIT AND’’.
509
(6) Clause (i) of section 1504(c)(2)(B) is amend-
ed by inserting ‘‘section’’ before ‘‘243(b)(2)’’.
(7) Paragraph (3) of section 341(f) is amended
by striking ‘‘351, 361, 371(a), or 374(a)’’ and insert-
ing ‘‘351, or 361’’.
(8) Paragraph (2) of section 243(b) is amended
to read as follows:
‘‘(2) AFFILIATED GROUP.—For purposes of this
subsection:
‘‘(A) IN
GENERAL.—The term ‘affiliated
group’ has the meaning given such term by sec-
tion 1504(a), except that for such purposes sec-
tions 1504(b)(2), 1504(b)(4), and 1504(c) shall
not apply.
‘‘(B) GROUP MUST BE CONSISTENT IN FOR-
EIGN
TAX
TREATMENT.—The requirements of
paragraph (1)(A) shall not be treated as being
met with respect to any dividend received by a
corporation if, for any taxable year which in-
cludes the day on which such dividend is re-
ceived—
‘‘(i) 1 or more members of the affili-
ated group referred to in paragraph (1)(A)
choose to any extent to take the benefits of
section 901, and
510
‘‘(ii) 1 or more other members of such
group claim to any extent a deduction for
taxes otherwise creditable under section
901.’’.
(9) 
The 
amendment 
made 
by 
section
11813(b)(17) of the Revenue Reconciliation Act of
1990 shall be applied as if the material stricken by
such amendment included the closing parenthesis
after ‘‘section 48(a)(5)’’.
(10) Paragraph (1) of section 179(d) is amended
by striking ‘‘in a trade or business’’ and inserting ‘‘a
trade or business’’.
(11) Subparagraph (E) of section 50(a)(2) is
amended by striking ‘‘section 48(a)(5)(A)’’ and in-
serting ‘‘section 48(a)(5)’’.
(12) 
The 
amendment 
made 
by 
section
11801(c)(9)(G)(ii) of the Revenue Reconciliation Act
of 1990 shall be applied as if it struck ‘‘Section
422A(c)(2)’’ and inserted ‘‘Section 422(c)(2)’’.
(13) Subparagraph (B) of section 424(c)(3) is
amended by striking ‘‘a qualified stock option, an in-
centive stock option, an option granted under an em-
ployee stock purchase plan, or a restricted stock op-
tion’’ and inserting ‘‘an incentive stock option or an
511
option granted under an employee stock purchase
plan’’.
(14) Subparagraph (E) of section 1367(a)(2) is
amended by striking ‘‘section 613A(c)(13)(B)’’ and
inserting ‘‘section 613A(c)(11)(B)’’.
(15) Subparagraph (B) of section 460(e)(6) is
amended by striking ‘‘section 167(k)’’ and inserting
‘‘section 168(e)(2)(A)(ii)’’.
(16) Subparagraph (C) of section 172(h)(4) is
amended by striking ‘‘subsection (b)(1)(M)’’ and in-
serting ‘‘subsection (b)(1)(E)’’.
(17) Section 6503 is amended—
(A) by redesignating the subsection relating
to extension in case of certain summonses as sub-
section (j), and
(B) by redesignating the subsection relating
to cross references as subsection (k).
(18) Paragraph (4) of section 1250(e) is hereby
repealed.
(19) Paragraph (1) of section 179(d) is amended
by adding at the end the following new sentence:
‘‘Such term shall not include any property described
in section 50(b) and shall not include air condi-
tioning or heating units.’’.
512
(i) EFFECTIVE DATE.—Except as otherwise expressly
provided—
(1) the amendments made by this section shall be
treated as amendments to the Internal Revenue Code
of 1986 as amended by the Revenue Reconciliation
Act of 1993; and
(2) any amendment made by this section shall
apply to periods before the date of the enactment of
this section in the same manner as if it had been in-
cluded in the provision of the Revenue Reconciliation
Act of 1990 to which such amendment relates.
SEC. 1703. AMENDMENTS RELATED TO REVENUE REC-
ONCILIATION ACT OF 1993.
(a) AMENDMENT RELATED
TO SECTION 13114.—
Paragraph (2) of section 1044(c) is amended to read as fol-
lows:
‘‘(2) PURCHASE.—The taxpayer shall be consid-
ered to have purchased any property if, but for sub-
section (d), the unadjusted basis of such property
would be its cost within the meaning of section
1012.’’.
(b) AMENDMENTS RELATED TO SECTION 13142.—
(1) Subparagraph (B) of section 13142(b)(6) of
the Revenue Reconciliation Act of 1993 is amended to
read as follows:
513
‘‘(B) FULL-TIME
STUDENTS, WAIVER
AU-
THORITY, AND PROHIBITED DISCRIMINATION.—
The amendments made by paragraphs (2), (3),
and (4) shall take effect on the date of the enact-
ment of this Act.’’.
(2) Subparagraph (C) of section 13142(b)(6) of
such Act is amended by striking ‘‘paragraph (2)’’ and
inserting ‘‘paragraph (5)’’.
(c) AMENDMENT RELATED TO SECTION 13161.—
(1) IN GENERAL.—Subsection (e) of section 4001
(relating to inflation adjustment) is amended to read
as follows:
‘‘(e) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—The $30,000 amount in sub-
section (a) and section 4003(a) shall be increased by
an amount equal to—
‘‘(A) $30,000, multiplied by
‘‘(B) the cost-of-living adjustment under sec-
tion 1(f)(3) for the calendar year in which the
vehicle is sold, determined by substituting ‘cal-
endar year 1990’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(2) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $2,000, such
514
amount shall be rounded to the next lowest multiple
of $2,000.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall take effect on the date of the en-
actment of this Act.
(d) AMENDMENT RELATED
TO SECTION 13201.—
Clause (ii) of section 135(b)(2)(B) is amended by inserting
before the period at the end thereof the following: ‘‘, deter-
mined by substituting ‘calendar year 1989’ for ‘calendar
year 1992’ in subparagraph (B) thereof’’.
(e) AMENDMENTS RELATED TO SECTION 13203.—Sub-
section (a) of section 59 is amended—
(1) by striking ‘‘the amount determined under
section 55(b)(1)(A)’’ in paragraph (1)(A) and
(2)(A)(i) and inserting ‘‘the pre-credit tentative mini-
mum tax’’,
(2) by striking ‘‘specified in section 55(b)(1)(A)’’
in paragraph (1)(C) and inserting ‘‘specified in sub-
paragraph (A)(i) or (B)(i) of section 55(b)(1) (which-
ever applies)’’,
(3) by striking ‘‘which would be determined
under section 55(b)(1)(A)’’ in paragraph (2)(A)(ii)
and inserting ‘‘which would be the pre-credit tentative
minimum tax’’, and
515
(4) by adding at the end thereof the following
new paragraph:
‘‘(3) PRE-CREDIT
TENTATIVE
MINIMUM
TAX.—
For purposes of this subsection, the term ‘pre-credit
tentative minimum tax’ means—
‘‘(A) in the case of a taxpayer other than a
corporation, the amount determined under the
first sentence of section 55(b)(1)(A)(i), or
‘‘(B) in the case of a corporation, the
amount 
determined 
under 
section
55(b)(1)(B)(i).’’.
(f) AMENDMENT RELATED TO SECTION 13221.—Sec-
tions 1201(a) and 1561(a) are each amended by striking
‘‘last sentence’’ each place it appears and inserting ‘‘last
2 sentences’’.
(g) AMENDMENTS RELATED TO SECTION 13222.—
(1) Subparagraph (B) of section 6033(e)(1) is
amended by adding at the end thereof the following
new clause:
‘‘(iii) COORDINATION
WITH
SECTION
527(f).—This subsection shall not apply to
any amount on which tax is imposed by
reason of section 527(f).’’.
516
(2) Clause (i) of section 6033(e)(1)(B) is amend-
ed by striking ‘‘this subtitle’’ and inserting ‘‘section
501’’.
(h) AMENDMENT RELATED TO SECTION 13225.—Para-
graph (3) of section 6655(g) is amended by striking all that
follows ‘‘ ‘3rd month’ ’’ in the sentence following subpara-
graph (C) and inserting ‘‘, subsection (e)(2)(A) shall be ap-
plied by substituting ‘2 months’ for ‘3 months’ in clause
(i)(I), the election under clause (i) of subsection (e)(2)(C)
may be made separately for each installment, and clause
(ii) of subsection (e)(2)(C) shall not apply.’’.
(i) AMENDMENTS RELATED TO SECTION 13231.—
(1) Subparagraph (G) of section 904(d)(3) is
amended by striking ‘‘section 951(a)(1)(B)’’ and in-
serting 
‘‘subparagraph 
(B) 
or 
(C) 
of 
section
951(a)(1)’’.
(2) Paragraph (1) of section 956A(b) is amended
to read as follows:
‘‘(1) the amount (not including a deficit) re-
ferred to in section 316(a)(1) to the extent such
amount was accumulated in prior taxable years be-
ginning after September 30, 1993, and’’.
(3) Subsection (f) of section 956A is amended by
inserting before the period at the end thereof: ‘‘and
517
regulations coordinating the provisions of subsections
(c)(3)(A) and (d)’’.
(4) Subsection (b) of section 958 is amended by
striking ‘‘956(b)(2)’’ each place it appears and insert-
ing ‘‘956(c)(2)’’.
(5)(A) Subparagraph (A) of section 1297(d)(2) is
amended by striking ‘‘The adjusted basis of any
asset’’ and inserting ‘‘The amount taken into account
under section 1296(a)(2) with respect to any asset’’.
(B) The paragraph heading of paragraph (2) of
section 1297(d) is amended to read as follows:
‘‘(2) AMOUNT TAKEN INTO ACCOUNT.—’’.
(6) Subsection (e) of section 1297 is amended by
inserting ‘‘For purposes of this part—’’ after the sub-
section heading.
(j) AMENDMENT RELATED TO SECTION 13241.—Sub-
paragraph (B) of section 40(e)(1) is amended to read as
follows:
‘‘(B) for any period before January 1, 2001,
during which the rates of tax under section
4081(a)(2)(A) are 4.3 cents per gallon.’’.
(k) AMENDMENT RELATED TO SECTION 13242.—Para-
graph (4) of section 6427(f) is amended by striking ‘‘1995’’
and inserting ‘‘1999’’.
518
(l) AMENDMENT RELATED
TO SECTION 13261.—
Clause (iii) of section 13261(g)(2)(A) of the Revenue Rec-
onciliation Act of 1993 is amended by striking ‘‘by the tax-
payer’’ and inserting ‘‘by the taxpayer or a related person’’.
(m) AMENDMENT RELATED TO SECTION 13301.—Sub-
paragraph (B) of section 1397B(d)(5) is amended by strik-
ing ‘‘preceding’’.
(n) CLERICAL AMENDMENTS.—
(1) Subsection (d) of section 39 is amended—
(A) by striking ‘‘45’’ in the heading of
paragraph (5) and inserting ‘‘45A’’, and
(B) by striking ‘‘45’’ in the heading of
paragraph (6) and inserting ‘‘45B’’.
(2) Subparagraph (A) of section 108(d)(9) is
amended by striking ‘‘paragraph (3)(B)’’ and insert-
ing ‘‘paragraph (3)(C)’’.
(3) Subparagraph (C) of section 143(d)(2) is
amended by striking the period at the end thereof and
inserting a comma.
(4) Clause (ii) of section 163(j)(6)(E) is amended
by striking ‘‘which is a’’ and inserting ‘‘which is’’.
(5) Subparagraph (A) of section 1017(b)(4) is
amended by striking ‘‘subsection (b)(2)(D)’’ and in-
serting ‘‘subsection (b)(2)(E)’’.
519
(6) So much of section 1245(a)(3) as precedes
subparagraph (A) thereof is amended to read as fol-
lows:
‘‘(3) SECTION 1245 PROPERTY.—For purposes of
this section, the term ‘section 1245 property’ means
any property which is or has been property of a char-
acter subject to the allowance for depreciation pro-
vided in section 167 and is either—’’.
(7) Paragraph (2) of section 1394(e) is amend-
ed—
(A) by striking ‘‘(i)’’ and inserting ‘‘(A)’’,
and
(B) by striking ‘‘(ii)’’ and inserting ‘‘(B)’’.
(8) Subsection (m) of section 6501 (as redesig-
nated by section 1602) is amended by striking ‘‘or
51(j)’’ and inserting ‘‘45B, or 51(j)’’.
(9)(A) The section 6714 added by section
13242(b)(1) of the Revenue Reconciliation Act of 1993
is hereby redesignated as section 6715.
(B) The table of sections for part I of subchapter
B of chapter 68 is amended by striking ‘‘6714’’ in the
item added by such section 13242(b)(2) of such Act
and inserting ‘‘6715’’.
(10) Paragraph (2) of section 9502(b) is amend-
ed by inserting ‘‘and before’’ after ‘‘1982,’’.
520
(11) Subsection (a)(3) of section 13206 of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘this section’’ and inserting ‘‘this sub-
section’’.
(12) Paragraph (1) of section 13215(c) of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘Public Law 92–21’’ and inserting ‘‘Public
Law 98–21’’.
(13) Paragraph (2) of section 13311(e) of the
Revenue Reconciliation Act of 1993 is amended by
striking ‘‘section 1393(a)(3)’’ and inserting ‘‘section
1393(a)(2)’’.
(14) Subparagraph (B) of section 117(d)(2) is
amended by striking ‘‘section 132(f)’’ and inserting
‘‘section 132(h)’’.
(o) EFFECTIVE DATE.—Any amendment made by this
section shall take effect as if included in the provision of
the Revenue Reconciliation Act of 1993 to which such
amendment relates.
SEC. 1704. MISCELLANEOUS PROVISIONS.
(a) APPLICATION OF AMENDMENTS MADE BY TITLE
XII OF
OMNIBUS
BUDGET
RECONCILIATION
ACT
OF
1990.—Except as otherwise expressly provided, whenever in
title XII of the Omnibus Budget Reconciliation Act of 1990
an amendment or repeal is expressed in terms of an amend-
521
ment to, or repeal of, a section or other provision, the ref-
erence shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(b) TREATMENT
OF
CERTAIN
AMOUNTS
UNDER
HEDGE BOND RULES.—
(1) Clause (iii) of section 149(g)(3)(B) is amend-
ed to read as follows:
‘‘(iii) AMOUNTS HELD PENDING REIN-
VESTMENT OR REDEMPTION.—Amounts held
for not more than 30 days pending reinvest-
ment or bond redemption shall be treated as
invested in bonds described in clause (i).’’.
(2) The amendment made by paragraph (1) shall
take effect as if included in the amendments made by
section 7651 of the Omnibus Budget Reconciliation
Act of 1989.
(c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER
SECTION 1445.—
(1) IN
GENERAL.—Paragraph (3) of section
1445(e) is amended by adding at the end thereof the
following new sentence: ‘‘Rules similar to the rules of
the preceding provisions of this paragraph shall
apply in the case of any distribution to which section
301 applies and which is not made out of the earn-
ings and profits of such a domestic corporation.’’.
522
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to distributions after the
date of the enactment of this Act.
(d) TREATMENT OF CERTAIN CREDITS UNDER SEC-
TION 469.—
(1) IN GENERAL.—Subparagraph (B) of section
469(c)(3) is amended by adding at the end thereof the
following new sentence: ‘‘If the preceding sentence ap-
plies to the net income from any property for any
taxable year, any credits allowable under subpart B
(other than section 27(a)) or D of part IV of sub-
chapter A for such taxable year which are attributable
to such property shall be treated as credits not from
a passive activity to the extent the amount of such
credits does not exceed the regular tax liability of the
taxpayer for the taxable year which is allocable to
such net income.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to taxable years beginning
after December 31, 1986.
(e) TREATMENT OF DISPOSITIONS UNDER PASSIVE
LOSS RULES.—
(1) IN GENERAL.—Subparagraph (A) of section
469(g)(1) is amended to read as follows:
523
‘‘(A) IN GENERAL.—If all gain or loss real-
ized on such disposition is recognized, the excess
of—
‘‘(i) any loss from such activity for
such taxable year (determined after the ap-
plication of subsection (b)), over
‘‘(ii) any net income or gain for such
taxable year from all other passive activities
(determined after the application of sub-
section (b)),
shall be treated as a loss which is not from a
passive activity.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to taxable years beginning
after December 31, 1986.
(f) MISCELLANEOUS AMENDMENTS TO FOREIGN PRO-
VISIONS.—
(1) COORDINATION
OF
UNIFIED
ESTATE
TAX
CREDIT WITH TREATIES.—Subparagraph (A) of sec-
tion 2102(c)(3) is amended by adding at the end
thereof the following new sentence: ‘‘For purposes of
the preceding sentence, property shall not be treated
as situated in the United States if such property is
exempt from the tax imposed by this subchapter
under any treaty obligation of the United States.’’.
524
(2) TREATMENT OF CERTAIN INTEREST PAID TO
RELATED PERSON.—
(A) Subparagraph (B) of section 163(j)(1)
is amended by inserting before the period at the
end thereof the following: ‘‘(and clause (ii) of
paragraph (2)(A) shall not apply for purposes of
applying this subsection to the amount so treat-
ed)’’.
(B) Subsection (j) of section 163 is amended
by redesignating paragraph (7) as paragraph
(8) and by inserting after paragraph (6) the fol-
lowing new paragraph:
‘‘(7) COORDINATION WITH PASSIVE LOSS RULES,
ETC.—This subsection shall be applied before sections
465 and 469.’’.
(C) The amendments made by this para-
graph shall apply as if included in the amend-
ments made by section 7210(a) of the Revenue
Reconciliation Act of 1989.
(3) TREATMENT
OF
INTEREST
ALLOCABLE
TO
EFFECTIVELY CONNECTED INCOME.—
(A) IN GENERAL.—
(i) 
Subparagraph 
(B) 
of 
section
884(f)(1) is amended by striking ‘‘to the ex-
tent’’ and all that follows down through
525
‘‘subparagraph (A)’’ and inserting ‘‘to the
extent that the allocable interest exceeds the
interest described in subparagraph (A)’’.
(ii) The second sentence of section
884(f)(1) is amended by striking ‘‘reason-
ably expected’’ and all that follows down
through the period at the end thereof and
inserting ‘‘reasonably expected to be alloca-
ble interest.’’
(iii) Paragraph (2) of section 884(f) is
amended to read as follows:
‘‘(2) ALLOCABLE
INTEREST.—For purposes of
this subsection, the term ‘allocable interest’ means any
interest which is allocable to income which is effec-
tively connected (or treated as effectively connected)
with the conduct of a trade or business in the United
States.’’.
(B) EFFECTIVE
DATE.—The amendments
made by subparagraph (A) shall take effect as if
included in the amendments made by section
1241(a) of the Tax Reform Act of 1986.
(4) CLARIFICATION OF SOURCE RULE.—
(A) IN GENERAL.—Paragraph (2) of section
865(b) is amended by striking ‘‘863(b)’’ and in-
serting ‘‘863’’.
526
(B) EFFECTIVE
DATE.—The amendment
made by subparagraph (A) shall take effect as if
included in the amendments made by section
1211 of the Tax Reform Act of 1986.
(5) REPEAL OF OBSOLETE PROVISIONS.—
(A) Paragraph (1) of section 6038(a) is
amended by striking ‘‘, and’’ at the end of sub-
paragraph (E) and inserting a period, and by
striking subparagraph (F).
(B) Subsection (b) of section 6038A is
amended by adding ‘‘and’’ at the end of para-
graph (2), by striking ‘‘, and’’ at the end of
paragraph (3) and inserting a period, and by
striking paragraph (4).
(g) TREATMENT
OF ASSIGNMENT
OF INTEREST
IN
CERTAIN BOND-FINANCED FACILITIES.—
(1) IN GENERAL.—Subparagraph (A) of section
1317(3) of the Tax Reform Act of 1986 is amended
by adding at the end thereof the following new sen-
tence: ‘‘A facility shall not fail to be treated as de-
scribed in this subparagraph by reason of an assign-
ment (or an agreement to an assignment) by the gov-
ernmental unit on whose behalf the bonds are issued
of any part of its interest in the property financed by
such bonds to another governmental unit.’’.
527
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall take effect as if included in such
section 1317 on the date of the enactment of the Tax
Reform Act of 1986.
(h) CLARIFICATION OF TREATMENT OF MEDICARE EN-
TITLEMENT UNDER COBRA PROVISIONS.—
(1) IN GENERAL.—
(A) 
Subclause 
(V) 
of 
section
4980B(f)(2)(B)(i) is amended to read as follows:
‘‘(V) 
MEDICARE
ENTITLEMENT
FOLLOWED BY QUALIFYING EVENT.—In
the case of a qualifying event described
in paragraph (3)(B) that occurs less
than 18 months after the date the cov-
ered employee became entitled to bene-
fits under title XVIII of the Social Se-
curity Act, the period of coverage for
qualified beneficiaries other than the
covered employee shall not terminate
under this clause before the close of the
36-month period beginning on the date
the covered employee became so enti-
tled.’’.
528
(B) Clause (v) of section 602(2)(A) of the
Employee Retirement Income Security Act of
1974 is amended to read as follows:
‘‘(v) MEDICARE
ENTITLEMENT
FOL-
LOWED BY QUALIFYING EVENT.—In the case
of a qualifying event described in section
603(2) that occurs less than 18 months after
the date the covered employee became enti-
tled to benefits under title XVIII of the So-
cial Security Act, the period of coverage for
qualified beneficiaries other than the covered
employee shall not terminate under this
subparagraph before the close of the 36-
month period beginning on the date the cov-
ered employee became so entitled.’’.
(C) Clause (iv) of section 2202(2)(A) of the
Public Health Service Act is amended to read as
follows:
‘‘(iv) MEDICARE
ENTITLEMENT
FOL-
LOWED BY QUALIFYING EVENT.—In the case
of a qualifying event described in section
2203(2) that occurs less than 18 months
after the date the covered employee became
entitled to benefits under title XVIII of the
Social Security Act, the period of coverage