H. R. 2488 
One Hundred Sixth Congress 
of the 
United States of America 
AT THE FIRST SESSION 
Begun and held at the City of Washington on Wednesday, 
the sixth day of January, one thousand nine hundred and ninety-nine 
An Act 
To provide for reconciliation pursuant to sections 105 and 211 of the concurrent 
resolution on the budget for fiscal year 2000. 
Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the ‘‘Taxpayer 
Refund and Relief Act of 1999’’. 
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section 
or other provision of the Internal Revenue Code of 1986. 
(c) SECTION 15 NOT TO APPLY.—No amendment made by this 
Act shall be treated as a change in a rate of tax for purposes 
of section 15 of the Internal Revenue Code of 1986. 
(d) TABLE OF CONTENTS.—The table of contents for this Act 
is as follows: 
Sec. 1. Short title; etc. 
TITLE I—BROAD-BASED AND FAMILY TAX RELIEF 
Subtitle A—Reduction in Individual Income Taxes 
Sec. 101. Reduction in individual income taxes. 
Subtitle B—Family Tax Relief 
Sec. 111. Elimination of marriage penalty in standard deduction. 
Sec. 112. Exclusion for foster care payments to apply to payments by qualified 
placement agencies. 
Sec. 113. Expansion of adoption credit. 
Sec. 114. Modification of dependent care credit. 
Sec. 115. Marriage penalty relief for earned income credit. 
Subtitle C—Repeal of Alternative Minimum Tax on Individuals 
Sec. 121. Repeal of alternative minimum tax on individuals. 
TITLE II—RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS 
Subtitle A—Capital Gains Tax Relief 
Sec. 201. Reduction in individual capital gain tax rates. 
Sec. 202. Indexing of certain assets acquired after December 31, 1999, for purposes 
of determining gain. 
Sec. 203. Capital gains tax rates applied to capital gains of designated settlement 
funds. 
Sec. 204. Special rule for members of uniformed services and Foreign Service, and 
other employees, in determining exclusion of gain from sale of principal 
residence. 
Sec. 205. Tax treatment of income and loss on derivatives. 
Sec. 206. Worthless securities of financial institutions. 
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H. R. 2488—2 
Subtitle B—Individual Retirement Arrangements 
Sec. 211. Modification of deduction limits for IRA contributions. 
Sec. 212. Modification of income limits on contributions and rollovers to Roth IRAs. 
Sec. 213. Deemed IRAs under employer plans. 
Sec. 214. Catchup contributions to IRAs by individuals age 50 or over. 
TITLE III—ALTERNATIVE MINIMUM TAX REFORM 
Sec. 301. Modification of alternative minimum tax on corporations. 
Sec. 302. Repeal of 90 percent limitation on foreign tax credit. 
TITLE IV—EDUCATION SAVINGS INCENTIVES 
Sec. 401. Modifications to education individual retirement accounts. 
Sec. 402. Modifications to qualified tuition programs. 
Sec. 403. Exclusion of certain amounts received under the National Health Service 
Corps Scholarship Program, the F. Edward Hebert Armed Forces 
Health Professions Scholarship and Financial Assistance Program, and 
certain other programs. 
Sec. 404. Extension of exclusion for employer-provided educational assistance. 
Sec. 405. Additional increase in arbitrage rebate exception for governmental bonds 
used to finance educational facilities. 
Sec. 406. Modification of arbitrage rebate rules applicable to public school construc-
tion bonds. 
Sec. 407. Elimination of 60-month limit and increase in income limitation on 
student loan interest deduction. 
Sec. 408. 2-percent floor on miscellaneous itemized deductions not to apply to quali-
fied professional development expenses of elementary and secondary 
school teachers. 
TITLE V—HEALTH CARE PROVISIONS 
Sec. 501. Deduction for health and long-term care insurance costs of individuals not 
participating in employer-subsidized health plans. 
Sec. 502. Long-term care insurance permitted to be offered under cafeteria plans 
and flexible spending arrangements. 
Sec. 503. Additional personal exemption for taxpayer caring for elderly family 
member in taxpayer’s home. 
Sec. 504. Expanded human clinical trials qualifying for orphan drug credit. 
Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae to list of 
taxable vaccines; reduction in per dose tax rate. 
Sec. 506. Drug benefits for medicare beneficiaries. 
TITLE VI—ESTATE TAX RELIEF 
Subtitle A—Repeal of Estate, Gift, and Generation-Skipping Taxes; Repeal of Step 
Up in Basis At Death 
Sec. 601. Repeal of estate, gift, and generation-skipping taxes. 
Sec. 602. Termination of step up in basis at death. 
Sec. 603. Carryover basis at death. 
Subtitle B—Reductions of Estate and Gift Tax Rates Prior to Repeal 
Sec. 611. Additional reductions of estate and gift tax rates. 
Subtitle C—Unified Credit Replaced With Unified Exemption Amount 
Sec. 621. Unified credit against estate and gift taxes replaced with unified exemp-
tion amount. 
Subtitle D—Modifications of Generation-Skipping Transfer Tax 
Sec. 631. Deemed allocation of gst exemption to lifetime transfers to trusts; 
retroactive allocations. 
Sec. 632. Severing of trusts. 
Sec. 633. Modification of certain valuation rules. 
Sec. 634. Relief provisions. 
Subtitle E—Conservation Easements 
Sec. 641. Expansion of estate tax rule for conservation easements. 
TITLE VII—TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES 
Subtitle A—American Community Renewal Act of 1999 
Sec. 701. Short title. 
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H. R. 2488—3 
Sec. 702. Designation of and tax incentives for renewal communities. 
Sec. 703. Extension of expensing of environmental remediation costs to renewal 
communities. 
Sec. 704. Extension of work opportunity tax credit for renewal communities. 
Sec. 705. Conforming and clerical amendments. 
Subtitle B—Farming Incentive 
Sec. 711. Production flexibility contract payments. 
Subtitle C—Oil and Gas Incentives 
Sec. 721. 5-year net operating loss carryback for losses attributable to operating 
mineral interests of independent oil and gas producers. 
Sec. 722. Deduction for delay rental payments. 
Sec. 723. Election to expense geological and geophysical expenditures. 
Sec. 724. Temporary suspension of limitation based on 65 percent of taxable 
income. 
Sec. 725. Determination of small refiner exception to oil depletion deduction. 
Subtitle D—Timber Incentives 
Sec. 731. Temporary suspension of maximum amount of amortizable reforestation 
expenditures. 
Sec. 732. Capital gain treatment under section 631(b) to apply to outright sales by 
land owner. 
TITLE VIII—RELIEF FOR SMALL BUSINESSES 
Sec. 801. Deduction for 100 percent of health insurance costs of self-employed 
individuals. 
Sec. 802. Increase in expense treatment for small businesses. 
Sec. 803. Repeal of Federal unemployment surtax. 
Sec. 804. Increased deduction for meal expenses; increased deductibility of business 
meal expenses for individuals subject to Federal limitations on hours of 
service. 
Sec. 805. Income averaging for farmers and fishermen not to increase alternative 
minimum tax liability. 
Sec. 806. Farm, fishing, and ranch risk management accounts. 
Sec. 807. Exclusion of investment securities income from passive income test for 
bank S corporations. 
Sec. 808. Treatment of qualifying director shares. 
TITLE IX—INTERNATIONAL TAX RELIEF 
Sec. 901. Interest allocation rules. 
Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902 
corporations. 
Sec. 903. Clarification of treatment of pipeline transportation income. 
Sec. 904. Subpart F treatment of income from transmission of high voltage 
electricity. 
Sec. 905. Recharacterization of overall domestic loss. 
Sec. 906. Treatment of military property of foreign sales corporations. 
Sec. 907. Treatment of certain dividends of regulated investment companies. 
Sec. 908. Repeal of special rules for applying foreign tax credit in case of foreign 
oil and gas income. 
Sec. 909. Advance pricing agreements treated as confidential taxpayer information. 
Sec. 910. Increase in dollar limitation on section 911 exclusion. 
Sec. 911. Airline mileage awards to certain foreign persons. 
TITLE X—PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS 
Sec. 1001. Exemption from income tax for State-created organizations providing 
property and casualty insurance for property for which such coverage is 
otherwise unavailable. 
Sec. 1002. Modification of special arbitrage rule for certain funds. 
Sec. 1003. Exemption procedure from taxes on self-dealing. 
Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt organizations. 
Sec. 1005. Modifications to section 512(b)(13). 
Sec. 1006. Mileage reimbursements to charitable volunteers excluded from gross 
income. 
Sec. 1007. Charitable contribution deduction for certain expenses incurred in 
support of Native Alaskan subsistence whaling. 
Sec. 1008. Simplification of lobbying expenditure limitation. 
Sec. 1009. Tax-free distributions from individual retirement accounts for charitable 
purposes. 
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H. R. 2488—4 
TITLE XI—REAL ESTATE PROVISIONS 
Subtitle A—Improvements in Low-Income Housing Credit 
Sec. 1101. Modification of State ceiling on low-income housing credit. 
Sec. 1102. Modification of criteria for allocating housing credits among projects. 
Sec. 1103. Additional responsibilities of housing credit agencies. 
Sec. 1104. Modifications to rules relating to basis of building which is eligible for 
credit. 
Sec. 1105. Other modifications. 
Sec. 1106. Carryforward rules. 
Sec. 1107. Effective date. 
Subtitle B—Provisions Relating to Real Estate Investment Trusts 
PART I—TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
SUBSIDIARIES 
Sec. 1111. Modifications to asset diversification test. 
Sec. 1112. Treatment of income and services provided by taxable REIT subsidiaries. 
Sec. 1113. Taxable REIT subsidiary. 
Sec. 1114. Limitation on earnings stripping. 
Sec. 1115. 100 percent tax on improperly allocated amounts. 
Sec. 1116. Effective date. 
PART II—HEALTH CARE REITS 
Sec. 1121. Health care REITs. 
PART III—CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES 
Sec. 1131. Conformity with regulated investment company rules. 
PART IV—CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE 
INCOME 
Sec. 1141. Clarification of exception for independent operators. 
PART V—MODIFICATION OF EARNINGS AND PROFITS RULES 
Sec. 1151. Modification of earnings and profits rules. 
Subtitle C—Modification of At-Risk Rules for Publicly Traded Nonrecourse Debt 
Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse debt. 
Subtitle D—Treatment of Certain Contributions to Capital of Retailers 
Sec. 1171. Exclusion from gross income for certain contributions to the capital of 
certain retailers. 
Subtitle E—Private Activity Bond Volume Cap 
Sec. 1181. Acceleration of phase-in of increase in volume cap on private activity 
bonds. 
Subtitle F—Deduction for Renovating Historic Homes 
Sec. 1191. Deduction for renovating historic homes. 
TITLE XII—PROVISIONS RELATING TO PENSIONS 
Subtitle A—Expanding Coverage 
Sec. 1201. Increase in benefit and contribution limits. 
Sec. 1202. Plan loans for subchapter S owners, partners, and sole proprietors. 
Sec. 1203. Modification of top-heavy rules. 
Sec. 1204. Elective deferrals not taken into account for purposes of deduction limits. 
Sec. 1205. Repeal of coordination requirements for deferred compensation plans of 
State and local governments and tax-exempt organizations. 
Sec. 1206. Elimination of user fee for requests to IRS regarding pension plans. 
Sec. 1207. Deduction limits. 
Sec. 1208. Option to treat elective deferrals as after-tax contributions. 
Sec. 1209. Reduced PBGC premium for new plans of small employers. 
Sec. 1210. Reduction of additional PBGC premium for new and small plans. 
Subtitle B—Enhancing Fairness for Women 
Sec. 1221. Catchup contributions for individuals age 50 or over. 
Sec. 1222. Equitable treatment for contributions of employees to defined contribu-
tion plans. 
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H. R. 2488—5 
Sec. 1223. Faster vesting of certain employer matching contributions. 
Sec. 1224. Simplify and update the minimum distribution rules. 
Sec. 1225. Clarification of tax treatment of division of section 457 plan benefits upon 
divorce. 
Sec. 1226. Modification of safe harbor relief for hardship withdrawals from cash or 
deferred arrangements. 
Subtitle C—Increasing Portability for Participants 
Sec. 1231. Rollovers allowed among various types of plans. 
Sec. 1232. Rollovers of IRAs into workplace retirement plans. 
Sec. 1233. Rollovers of after-tax contributions. 
Sec. 1234. Hardship exception to 60-day rule. 
Sec. 1235. Treatment of forms of distribution. 
Sec. 1236. Rationalization of restrictions on distributions. 
Sec. 1237. Purchase of service credit in governmental defined benefit plans. 
Sec. 1238. Employers may disregard rollovers for purposes of cash-out amounts. 
Sec. 1239. Minimum distribution and inclusion requirements for section 457 plans. 
Subtitle D—Strengthening Pension Security and Enforcement 
Sec. 1241. Repeal of 150 percent of current liability funding limit. 
Sec. 1242. Maximum contribution deduction rules modified and applied to all 
defined benefit plans. 
Sec. 1243. Missing participants. 
Sec. 1244. Excise tax relief for sound pension funding. 
Sec. 1245. Excise tax on failure to provide notice by defined benefit plans signifi-
cantly reducing future benefit accruals. 
Sec. 1246. Protection of investment of employee contributions to 401(k) plans. 
Sec. 1247. Treatment of multiemployer plans under section 415. 
Subtitle E—Reducing Regulatory Burdens 
Sec. 1251. Modification of timing of plan valuations. 
Sec. 1252. ESOP dividends may be reinvested without loss of dividend deduction. 
Sec. 1253. Repeal of transition rule relating to certain highly compensated employ-
ees. 
Sec. 1254. Employees of tax-exempt entities. 
Sec. 1255. Clarification of treatment of employer-provided retirement advice. 
Sec. 1256. Reporting simplification. 
Sec. 1257. Improvement of employee plans compliance resolution system. 
Sec. 1258. Substantial owner benefits in terminated plans. 
Sec. 1259. Modification of exclusion for employer provided transit passes. 
Sec. 1260. Repeal of the multiple use test. 
Sec. 1261. Flexibility in nondiscrimination, coverage, and line of business rules. 
Sec. 1262. Extension to international organizations of moratorium on application of 
certain nondiscrimination rules applicable to State and local plans. 
Subtitle F—Plan Amendments 
Sec. 1271. Provisions relating to plan amendments. 
TITLE XIII—MISCELLANEOUS PROVISIONS 
Subtitle A—Provisions Primarily Affecting Individuals 
Sec. 1301. Consistent treatment of survivor benefits for public safety officers killed 
in the line of duty. 
Sec. 1302. Expansion of dc homebuyer tax credit. 
Sec. 1303. No Federal income tax on amounts and lands received by Holocaust 
victims or their heirs. 
Subtitle B—Provisions Primarily Affecting Businesses 
Sec. 1311. Distributions from publicly traded partnerships treated as qualifying 
income of regulated investment companies. 
Sec. 1312. Special passive activity rule for publicly traded partnerships to apply to 
regulated investment companies. 
Sec. 1313. Large electric trucks, vans, and buses eligible for deduction for clean-fuel 
vehicles in lieu of credit. 
Sec. 1314. Modifications to special rules for nuclear decommissioning costs. 
Sec. 1315. Consolidation of life insurance companies with other corporations. 
Sec. 1316. Modification of active business definition under section 355. 
Sec. 1317. Expansion of exemption from personal holding company tax for lending 
or finance companies. 
Sec. 1318. Extension of expensing of environmental remediation costs. 
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H. R. 2488—6 
Subtitle C—Provisions Relating to Excise Taxes 
Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking Under-
ground Storage Tank Trust Fund. 
Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by railroads and 
on inland waterway transportation. 
Sec. 1323. Repeal of excise tax on fishing tackle boxes. 
Sec. 1324. Clarification of excise tax imposed on arrow components. 
Sec. 1325. Exemption from ticket taxes for certain transportation provided by small 
seaplanes. 
Sec. 1326. Modification of rural airport definition. 
Subtitle D—Other Provisions 
Sec. 1331. Tax-exempt financing of qualified highway infrastructure construction. 
Sec. 1332. Tax treatment of Alaska Native Settlement Trusts. 
Sec. 1333. Increase in threshold for Joint Committee reports on refunds and credits. 
Sec. 1334. Credit for clinical testing research expenses attributable to certain quali-
fied academic institutions including teaching hospitals. 
Sec. 1335. Payment of dividends on stock of cooperatives without reducing patron-
age dividends. 
Subtitle E—Tax Court Provisions 
Sec. 1341. Tax court filing fee in all cases commenced by filing petition. 
Sec. 1342. Expanded use of Tax Court practice fee. 
Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of equitable 
recoupment. 
TITLE XIV—EXTENSIONS OF EXPIRING PROVISIONS 
Sec. 1401. Research credit. 
Sec. 1402. Subpart F exemption for active financing income. 
Sec. 1403. Taxable income limit on percentage depletion for marginal production. 
Sec. 1404. Work opportunity credit and welfare-to-work credit. 
Sec. 1405. Extension and modification of credit for producing electricity from certain 
renewable resources. 
TITLE XV—REVENUE OFFSETS 
Sec. 1501. Returns relating to cancellations of indebtedness by organizations lending 
money. 
Sec. 1502. Extension of Internal Revenue Service user fees. 
Sec. 1503. Limitations on welfare benefit funds of 10 or more employer plans. 
Sec. 1504. Increase in elective withholding rate for nonperiodic distributions from 
deferred compensation plans. 
Sec. 1505. Controlled entities ineligible for REIT status. 
Sec. 1506. Treatment of gain from constructive ownership transactions. 
Sec. 1507. Transfer of excess defined benefit plan assets for retiree health benefits. 
Sec. 1508. Modification of installment method and repeal of installment method for 
accrual method taxpayers. 
Sec. 1509. Limitation on use of nonaccrual experience method of accounting. 
Sec. 1510. Charitable split-dollar life insurance, annuity, and endowment contracts. 
Sec. 1511. Restriction on use of real estate investment trusts to avoid estimated tax 
payment requirements. 
Sec. 1512. Modification of anti-abuse rules related to assumption of liability. 
Sec. 1513. Allocation of basis on transfers of intangibles in certain nonrecognition 
transactions. 
Sec. 1514. Distributions to a corporate partner of stock in another corporation. 
Sec. 1515. Prohibited allocations of S corporation stock held by an ESOP. 
TITLE XVI—COMPLIANCE WITH BUDGET ACT 
Sec. 1601. Compliance with Budget Act. 
TITLE I—BROAD-BASED AND FAMILY 
TAX RELIEF 
Subtitle A—Reduction in Individual 
Income Taxes 
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H. R. 2488—7 
SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES. 
(a) REGULAR INCOME TAX RATES.— 
(1) IN GENERAL.—Subsection (f ) of section 1 is amended 
by adding at the end the following new paragraph: 
‘‘(8) RATE REDUCTIONS.—The following adjustments shall 
apply in prescribing the tables under paragraph (1): 
‘‘(A) REDUCTION IN LOWEST RATE.—With respect to tax-
able years beginning after December 31, 2000, the rate 
applicable to the lowest income bracket shall be— 
‘‘(i) 14.5 percent in the case of taxable years begin-
ning during 2001 or 2002, and 
‘‘(ii) 14.0 percent in the case of taxable years begin-
ning after 2002. 
‘‘(B) REDUCTION IN OTHER RATES.—With respect to tax-
able years beginning after December 31, 2004, each rate 
(other than the rate referred to in subparagraph (A)) shall 
be reduced by 1 percentage point. 
‘‘(C) PHASEOUT
OF
MARRIAGE
PENALTY
IN
LOWEST 
BRACKET.— 
‘‘(i) IN GENERAL.—With respect to taxable years 
beginning after December 31, 2004— 
‘‘(I) the maximum taxable income in the lowest 
rate bracket in the table contained in subsection 
(a) (and the minimum taxable income in the next 
higher taxable income bracket in such table) shall 
be the applicable percentage of the maximum tax-
able income in the lowest rate bracket in the table 
contained in subsection (c) (after any other adjust-
ment under this subsection), and 
‘‘(II) the comparable taxable income amounts 
in the table contained in subsection (d) shall be 
1⁄2 of the amounts determined under subclause 
(I). 
‘‘(ii) APPLICABLE
PERCENTAGE.—For purposes of 
clause (i), the applicable percentage shall be deter-
mined in accordance with the following table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2005 .............................................................................................
173.7
2006 .............................................................................................
176.1
2007 .............................................................................................
188.1
2008 and thereafter ...................................................................
200.0.
‘‘(D) INCREASE IN MAXIMUM TAXABLE INCOME IN LOWEST 
BRACKET FOR OTHER INDIVIDUALS.— 
‘‘(i) IN GENERAL.—With respect to taxable years 
beginning after December 31, 2005, the maximum tax-
able income in the lowest rate bracket in the tables 
contained in subsections (b) and (c), after any other 
adjustment under this subsection (and the minimum 
taxable income in the next higher taxable income 
bracket in such tables, as so adjusted) shall be 
increased by $3,000. 
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—In the case of 
any taxable year beginning in any calendar year after 
2006, the $3,000 amount in clause (i) shall be increased 
by an amount equal to— 
‘‘(I) such dollar amount, multiplied by 
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H. R. 2488—8 
‘‘(II) the cost-of living adjustment determined 
under paragraph (3) for the calendar year in which 
the taxable year begins, determined by sub-
stituting ‘calendar year 2005’ for ‘calendar year 
1992’ in subparagraph (B) thereof.’’. 
‘‘(iii) Any increase under clause (ii) shall be added 
to the amount it is increasing before such amount 
is rounded under paragraph (6). 
‘‘(9) POST-2001
RATE
REDUCTIONS
CONTINGENT
ON
NO 
INCREASE IN INTEREST ON TOTAL UNITED STATES DEBT.— 
‘‘(A) IN GENERAL.—If the calendar year preceding any 
adjustment year is not a debt reduction calendar year, 
then— 
‘‘(i) such adjustment shall not take effect until 
the calendar year following the adjustment year, and 
‘‘(ii) this subparagraph shall apply to such fol-
lowing calendar year as if it were an adjustment year. 
For purposes of this subparagraph, the term ‘adjustment 
year’ means, with respect to any adjustment under 
subparagraph (A), (B), or (D) of paragraph (8), the first 
calendar year for which such adjustment takes effect with-
out regard to this paragraph. 
‘‘(B) DEBT REDUCTION CALENDAR YEAR.—For purposes 
of this paragraph, the term ‘debt reduction calendar year’ 
means any calendar year after 2000 if the Secretary of 
the Treasury (after consultation with the chairman of the 
Federal Reserve Board) determines by August 31 of such 
calendar year that the United States interest expense for 
the 12-month period ending on July 31 of such calendar 
year is not more than $1,000,000,000 greater than the 
United States interest expense for the 12-month period 
ending on July 31 of the preceding calendar year. 
‘‘(C) UNITED STATES INTEREST EXPENSE.—For purposes 
of this paragraph, the term ‘United States interest expense’ 
means interest on obligations which are subject to the 
public debt limit in section 3101 of title 31, United States 
Code.’’. 
(2) TECHNICAL AMENDMENTS.— 
(A) Subparagraph (B) of section 1(f )(2) is amended 
by inserting ‘‘except as provided in paragraph (8),’’ before 
‘‘by not changing’’. 
(B) Subparagraph (C) of section 1(f )(2) is amended 
by inserting ‘‘and the reductions under paragraph (8) in 
the rates of tax’’ before the period. 
(C) The heading for subsection (f ) of section 1 is 
amended by inserting ‘‘RATE REDUCTIONS;’’ before ‘‘ADJUST-
MENTS’’. 
(D) Section 1(g)(7)(B)(ii)(II) is amended by striking ‘‘15 
percent’’ and inserting ‘‘the percentage applicable to the 
lowest income bracket in subsection (c)’’. 
(E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) 
are each amended by striking ‘‘28 percent’’ and inserting 
‘‘27 percent’’. 
(F) Section 531 is amended by striking ‘‘39.6 percent 
of the accumulated taxable income’’ and inserting ‘‘the 
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H. R. 2488—9 
product of the accumulated taxable income and the percent-
age applicable to the highest income bracket in section 
1(c)’’. 
(G) Section 541 is amended by striking ‘‘39.6 percent 
of the undistributed personal holding company income’’ 
and inserting ‘‘the product of the undistributed personal 
holding company income and the percentage applicable to 
the highest income bracket in section 1(c)’’. 
(H) Section 3402(p)(1)(B) is amended by striking ‘‘speci-
fied is 7, 15, 28, or 31 percent’’ and all that follows and 
inserting ‘‘specified is— 
‘‘(i) 7 percent, 
‘‘(ii) a percentage applicable to one of the three 
lowest income brackets in section 1(c), or 
‘‘(iii) such other percentage as is permitted under 
regulations prescribed by the Secretary.’’. 
(I) Section 3402(p)(2) is amended by striking ‘‘15 per-
cent of such payment’’ and inserting ‘‘the product of such 
payment and the percentage applicable to the lowest 
income bracket in section 1(c)’’. 
( j) Section 3402(q)(1) is amended by striking ‘‘28 per-
cent of such payment’’ and inserting ‘‘the product of such 
payment and the percentage applicable to the next to the 
lowest income bracket in section 1(c)’’. 
(K) Section 3402(r)(3) is amended by striking ‘‘31 per-
cent’’ and inserting ‘‘the rate applicable to the third income 
bracket in such section’’. 
(L) Section 3406(a)(1) is amended by striking ‘‘31 per-
cent of such payment’’ and inserting ‘‘the product of such 
payment and the percentage applicable to the third income 
bracket in section 1(c)’’. 
(b) MINIMUM TAX RATES.—Subparagraph (A) of section 55(b)(1) 
is amended by adding at the end the following new clause: 
‘‘(iv) RATE
REDUCTION.—In the case of taxable 
years beginning after December 31, 2004, each rate 
in clause (i) shall be reduced by 1 percentage point.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000. 
Subtitle B—Family Tax Relief 
SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUC-
TION. 
(a) IN GENERAL.—Paragraph (2) of section 63(c) (relating to 
standard deduction) is amended— 
(1) by striking ‘‘$5,000’’ in subparagraph (A) and inserting 
‘‘200 percent of the dollar amount in effect under subparagraph 
(C) for the taxable year’’, 
(2) by adding ‘‘or’’ at the end of subparagraph (B), 
(3) by striking ‘‘in the case of’’ and all that follows in 
subparagraph (C) and inserting ‘‘in any other case.’’, and 
(4) by striking subparagraph (D). 
(b) PHASE-IN.—Subsection (c) of section 63 is amended by 
adding at the end the following new paragraph: 
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H. R. 2488—10 
‘‘(7) PHASE-IN
OF
INCREASE
IN
BASIC
STANDARD
DEDUC-
TION.—In the case of taxable years beginning before January 
1, 2005— 
‘‘(A) paragraph (2)(A) shall be applied by substituting 
for ‘200 percent’— 
‘‘(i) ‘172.8 percent’ in the case of taxable years 
beginning during 2001, 
‘‘(ii) ‘180.1 percent’ in the case of taxable years 
beginning during 2002, 
‘‘(iii) ‘187.0 percent’ in the case of taxable years 
beginning during 2003, and 
‘‘(iv) ‘193.5 percent’ in the case of taxable years 
beginning during 2004, and 
‘‘(B) the basic standard deduction for a married indi-
vidual filing a separate return shall be one-half of the 
amount applicable under paragraph (2)(A). 
If any amount determined under subparagraph (A) is not a 
multiple of $50, such amount shall be rounded to the next 
lowest multiple of $50.’’. 
(c) TECHNICAL AMENDMENTS.— 
(1) Subparagraph (B) of section 1(f )(6) is amended by 
striking ‘‘(other than with’’ and all that follows through ‘‘shall 
be applied’’ and inserting ‘‘(other than with respect to sections 
63(c)(4) and 151(d)(4)(A)) shall be applied’’. 
(2) Paragraph (4) of section 63(c) is amended by adding 
at the end the following flush sentence: 
‘‘The preceding sentence shall not apply to the amount referred 
to in paragraph (2)(A).’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000. 
SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO 
PAYMENTS BY QUALIFIED PLACEMENT AGENCIES. 
(a) IN GENERAL.—The matter preceding subparagraph (B) of 
section 131(b)(1) (defining qualified foster care payment) is amended 
to read as follows: 
‘‘(1) IN GENERAL.—The term ‘qualified foster care payment’ 
means any payment made pursuant to a foster care program 
of a State or political subdivision thereof— 
‘‘(A) which is paid by— 
‘‘(i) the State or political subdivision thereof, or 
‘‘(ii) a qualified foster care placement agency, and’’. 
(b) QUALIFIED FOSTER INDIVIDUALS TO INCLUDE INDIVIDUALS 
PLACED BY QUALIFIED PLACEMENT AGENCIES.—Subparagraph (B) 
of section 131(b)(2) (defining qualified foster individual) is amended 
to read as follows: 
‘‘(B) a qualified foster care placement agency.’’. 
(c) QUALIFIED FOSTER CARE PLACEMENT AGENCY DEFINED.— 
Subsection (b) of section 131 is amended by redesignating paragraph 
(3) as paragraph (4) and by inserting after paragraph (2) the fol-
lowing new paragraph: 
‘‘(3) QUALIFIED
FOSTER
CARE
PLACEMENT
AGENCY.—The 
term ‘qualified foster care placement agency’ means any place-
ment agency which is licensed or certified by— 
‘‘(A) a State or political subdivision thereof, or 
‘‘(B) an entity designated by a State or political subdivi-
sion thereof, 
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H. R. 2488—11 
for the foster care program of such State or political subdivision 
to make foster care payments to providers of foster care.’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999. 
SEC. 113. EXPANSION OF ADOPTION CREDIT. 
(a) IN GENERAL.—Section 23(a)(1) (relating to allowance of 
credit) is amended to read as follows: 
‘‘(1) IN GENERAL.—In the case of an individual, there shall 
be allowed as a credit against the tax imposed by this chapter— 
‘‘(A) in the case of an adoption of a child other than 
a child with special needs, the amount of the qualified 
adoption expenses paid or incurred by the taxpayer, and 
‘‘(B) in the case of an adoption of a child with special 
needs, $10,000.’’. 
(b) DOLLAR LIMITATION.—Section 23(b)(1) is amended— 
(1) by striking ‘‘($6,000, in the case of a child with special 
needs)’’, and 
(2) by striking ‘‘subsection (a)’’ and inserting ‘‘subsection 
(a)(1)’’. 
(c) YEAR CREDIT ALLOWED.—Section 23(a)(2) is amended by 
adding at the end the following new flush sentence: 
‘‘In the case of the adoption of a child with special needs, 
the credit allowed under paragraph (1) shall be allowed for 
the taxable year in which the adoption becomes final.’’. 
(d) DEFINITION OF ELIGIBLE CHILD.— 
(1) IN GENERAL.—Section 23(d)(2) is amended to read as 
follows: 
‘‘(2) ELIGIBLE CHILD.—The term ‘eligible child’ means any 
individual who— 
‘‘(A) has not attained age 18, or 
‘‘(B) is physically or mentally incapable of caring for 
himself.’’. 
(2) 
CLARIFICATION
OF
TERMINATION.—Section 
is 
amended by adding at the end the following new subsection: 
‘‘(i) TERMINATION FOR CHILDREN WITHOUT SPECIAL NEEDS.— 
Except in the case of a child with special needs, this section shall 
not apply to expenses paid or incurred after December 31, 2001.’’. 
(e) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000. 
SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT. 
(a) INCREASE
IN
PERCENTAGE
OF
EMPLOYMENT-RELATED 
EXPENSES TAKEN INTO ACCOUNT.—Subsection (a)(2) of section 21 
(relating to expenses for household and dependent care services 
necessary for gainful employment) is amended— 
(1) by striking ‘‘30 percent’’ and inserting ‘‘35 percent (40 
percent in the case of taxable years beginning after December 
31, 2005)’’, 
(2) by striking ‘‘$2,000’’ and inserting ‘‘$1,000’’, and 
(3) by striking ‘‘$10,000’’ and inserting ‘‘$30,000’’. 
(b) INDEXING OF LIMIT ON EMPLOYMENT-RELATED EXPENSES.— 
Section 21(c) (relating to dollar limit on amount creditable) is 
amended to read as follows: 
‘‘(c) DOLLAR LIMIT ON AMOUNT CREDITABLE.— 
‘‘(1) IN GENERAL.—The amount of the employment-related 
expenses incurred during any taxable year which may be taken 
into account under subsection (a) shall not exceed— 
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H. R. 2488—12 
‘‘(A) an amount equal to 50 percent of the amount 
determined under subparagraph (B) if there is one quali-
fying individual with respect to the taxpayer for such tax-
able year, or 
‘‘(B) $4,800 if there are two or more qualifying individ-
uals with respect to the taxpayer for such taxable year. 
The amount determined under subparagraph (A) or (B) (which-
ever is applicable) shall be reduced by the aggregate amount 
excludable from gross income under section 129 for the taxable 
year. 
‘‘(2) COST-OF-LIVING ADJUSTMENT.— 
‘‘(A) IN GENERAL.—In the case of a taxable year begin-
ning after 2001, the $4,800 amount under paragraph (1)(B) 
shall be increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment determined 
under section 1(f )(3) for the calendar year in which 
the taxable year begins, determined by substituting 
‘calendar year 2000’ for ‘calendar year 1992’ in 
subparagraph (B) thereof. 
‘‘(B) ROUNDING RULES.—If any amount after adjust-
ment under subparagraph (A) is not a multiple of $50, 
such amount shall be rounded to the next lower multiple 
of $50.’’. 
(c) MINIMUM DEPENDENT CARE CREDIT ALLOWED FOR STAY- 
AT-HOME PARENTS.—Section 21(e) (relating to special rules) is 
amended by adding at the end the following: 
‘‘(11) MINIMUM CREDIT ALLOWED FOR STAY-AT-HOME PAR-
ENTS.— 
‘‘(A) IN GENERAL.—Notwithstanding subsection (d), in 
the case of any taxpayer with one or more qualifying 
individuals described in subsection (b)(1)(A) under the age 
of 1, such taxpayer shall be deemed to have employment- 
related expenses for the taxable year with respect to each 
such qualifying individual in an amount equal to the sum 
of— 
‘‘(i) $200 for each month in such taxable year 
during which such qualifying individual is under the 
age of 1, and 
‘‘(ii) the amount of employment-related expenses 
otherwise incurred for such qualifying individual for 
the taxable year (determined under this section with-
out regard to this paragraph). 
‘‘(B) ELECTION TO NOT APPLY THIS PARAGRAPH.—This 
paragraph shall not apply with respect to any qualifying 
individual for any taxable year if the taxpayer elects to 
not have this paragraph apply to such qualifying individual 
for such taxable year.’’. 
(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001. 
(2) SUBSECTION (C).—The amendment made by subsection 
(c) shall apply to taxable years beginning after December 31, 
2005. 
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H. R. 2488—13 
SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT. 
(a) IN GENERAL.—Paragraph (2) of section 32(b) (relating to 
percentages and amounts) is amended— 
(1) by striking ‘‘AMOUNTS.—The earned’’ and inserting 
‘‘AMOUNTS.— 
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the 
earned’’, and 
(2) by adding at the end the following new subparagraph: 
‘‘(B) JOINT RETURNS.—In the case of a joint return, 
the phaseout amount determined under subparagraph (A) 
shall be increased by $2,000.’’. 
(b) INFLATION ADJUSTMENT.—Paragraph (1)(B) of section 32( j) 
(relating to inflation adjustments) is amended to read as follows: 
‘‘(B) the cost-of-living adjustment determined under 
section 1(f )(3) for the calendar year in which the taxable 
year begins, determined— 
‘‘(i) in the case of amounts in subsections (b)(1)(A) 
and (i)(1), by substituting ‘calendar year 1995’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof, and 
‘‘(ii) in the case of the $2,000 amount in subsection 
(b)(1)(B), by substituting ‘calendar year 2005’ for ‘cal-
endar year 1992’ in subparagraph (B) of such section 
1.’’. 
(c) ROUNDING.—Section 32( j)(2)(A) (relating to rounding) is 
amended by striking ‘‘subsection (b)(2)’’ and inserting ‘‘subsection 
(b)(2)(A) (after being increased under subparagraph (B) thereof)’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2005. 
Subtitle C—Repeal of Alternative 
Minimum Tax on Individuals 
SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. 
(a) IN GENERAL.—Subsection (a) of section 55 is amended by 
adding at the end the following new flush sentence: 
‘‘For purposes of this title, the tentative minimum tax on any 
taxpayer other than a corporation for any taxable year beginning 
after December 31, 2007, shall be zero.’’. 
(b) REDUCTION OF TAX ON INDIVIDUALS PRIOR TO REPEAL.— 
Section 55 is amended by adding at the end the following new 
subsection: 
‘‘(f ) PHASEOUT OF TAX ON INDIVIDUALS.— 
‘‘(1) IN GENERAL.—The tax imposed by this section on a 
taxpayer other than a corporation for any taxable year begin-
ning after December 31, 2004, and before January 1, 2008, 
shall be the applicable percentage of the tax which would 
be imposed but for this subsection. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph 
(1), the applicable percentage shall be determined in accordance 
with the following table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2005 ....................................................................................................
2006 ....................................................................................................
2007 ....................................................................................................
60.’’.
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H. R. 2488—14 
(c) NONREFUNDABLE
PERSONAL
CREDITS
FULLY
ALLOWED 
AGAINST REGULAR TAX LIABILITY.— 
(1) IN GENERAL.—Subsection (a) of section 26 (relating to 
limitation based on amount of tax) is amended to read as 
follows: 
‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The aggregate 
amount of credits allowed by this subpart for the taxable year 
shall not exceed the taxpayer’s regular tax liability for the taxable 
year.’’. 
(2) CHILD CREDIT.—Subsection (d) of section 24 is amended 
by striking paragraph (2) and by redesignating paragraph (3) 
as paragraph (2). 
(d) LIMITATION ON USE OF CREDIT FOR PRIOR YEAR MINIMUM 
TAX LIABILITY.—Subsection (c) of section 53 is amended to read 
as follows: 
‘‘(c) LIMITATION.— 
‘‘(1) IN GENERAL.—Except as otherwise provided in this 
subsection, the credit allowable under subsection (a) for any 
taxable year shall not exceed the excess (if any) of— 
‘‘(A) the regular tax liability of the taxpayer for such 
taxable year reduced by the sum of the credits allowable 
under subparts A, B, D, E, and F of this part, over 
‘‘(B) the tentative minimum tax for the taxable year. 
‘‘(2) TAXABLE YEARS BEGINNING AFTER 2007.—In the case 
of any taxable year beginning after 2007, the credit allowable 
under subsection (a) to a taxpayer other than a corporation 
for any taxable year shall not exceed 90 percent of the excess 
(if any) of— 
‘‘(A) regular tax liability of the taxpayer for such tax-
able year, over 
‘‘(B) the sum of the credits allowable under subparts 
A, B, D, E, and F of this part.’’. 
(e) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1998. 
TITLE II—RELIEF FROM TAXATION ON 
SAVINGS AND INVESTMENTS 
Subtitle A—Capital Gains Tax Relief 
SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES. 
(a) IN GENERAL.— 
(1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended 
by striking ‘‘10 percent’’ and inserting ‘‘8 percent’’. 
(2) The following sections are each amended by striking 
‘‘20 percent’’ and inserting ‘‘18 percent’’: 
(A) Section 1(h)(1)(C). 
(B) Section 55(b)(3)(C). 
(C) Section 1445(e)(1). 
(D) The second sentence of section 7518(g)(6)(A). 
(E) The second sentence of section 607(h)(6)(A) of the 
Merchant Marine Act, 1936. 
(3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended 
by striking ‘‘25 percent’’ and inserting ‘‘23 percent’’. 
(b) CONFORMING AMENDMENTS.— 
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H. R. 2488—15 
(1) Section 311 of the Taxpayer Relief Act of 1997 is 
amended by striking subsection (e). 
(2) Section 1(h) is amended— 
(A) by striking paragraphs (2), (9), and (13), 
(B) by redesignating paragraphs (3) through (8) as 
paragraphs (2) through (7), respectively, and 
(C) by redesignating paragraphs (10), (11), and (12) 
as paragraphs (8), (9), and (10), respectively. 
(3) Paragraph (3) of section 55(b) is amended by striking 
‘‘In the case of taxable years beginning after December 31, 
2000, rules similar to the rules of section 1(h)(2) shall apply 
for purposes of subparagraphs (B) and (C).’’. 
(4) Paragraph (7) of section 57(a) is amended— 
(A) by striking ‘‘42 percent’’ and inserting ‘‘28 percent’’, 
and 
(B) by striking the last sentence. 
(c) EFFECTIVE DATES.— 
(1) IN
GENERAL.—Except as otherwise provided by this 
subsection, the amendments made by this section shall apply 
to taxable years beginning after December 31, 1998. 
(2) WITHHOLDING.—The amendment made by subsection 
(a)(2)(C) shall apply to amounts paid after the date of the 
enactment of this Act. 
SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 
31, 1999, FOR PURPOSES OF DETERMINING GAIN. 
(a) IN GENERAL.—Part II of subchapter O of chapter 1 (relating 
to basis rules of general application) is amended by inserting after 
section 1021 the following new section: 
‘‘SEC. 
1022. 
INDEXING 
OF 
CERTAIN 
ASSETS 
ACQUIRED 
AFTER 
DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING 
GAIN. 
‘‘(a) GENERAL RULE.— 
‘‘(1) INDEXED BASIS SUBSTITUTED FOR ADJUSTED BASIS.— 
Solely for purposes of determining gain on the sale or other 
disposition by a taxpayer (other than a corporation) of an 
indexed asset which has been held for more than 1 year, the 
indexed basis of the asset shall be substituted for its adjusted 
basis. 
‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—The deductions 
for depreciation, depletion, and amortization shall be deter-
mined without regard to the application of paragraph (1) to 
the taxpayer or any other person. 
‘‘(3) EXCEPTION FOR PRINCIPAL RESIDENCES.—Paragraph (1) 
shall not apply to any disposition of the principal residence 
(within the meaning of section 121) of the taxpayer . 
‘‘(b) INDEXED ASSET.— 
‘‘(1) IN GENERAL.—For purposes of this section, the term 
‘indexed asset’ means— 
‘‘(A) common stock in a C corporation (other than a 
foreign corporation), and 
‘‘(B) tangible property, 
which is a capital asset or property used in the trade or business 
(as defined in section 1231(b)). 
‘‘(2) STOCK IN CERTAIN FOREIGN CORPORATIONS INCLUDED.— 
For purposes of this section— 
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H. R. 2488—16 
‘‘(A) IN GENERAL.—The term ‘indexed asset’ includes 
common stock in a foreign corporation which is regularly 
traded on an established securities market. 
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply 
to— 
‘‘(i) stock of a foreign investment company (within 
the meaning of section 1246(b)), 
‘‘(ii) stock in a passive foreign investment company 
(as defined in section 1296), 
‘‘(iii) stock in a foreign corporation held by a United 
States person who meets the requirements of section 
1248(a)(2), and 
‘‘(iv) stock in a foreign personal holding company 
(as defined in section 552). 
‘‘(C) TREATMENT OF AMERICAN DEPOSITORY RECEIPTS.— 
An American depository receipt for common stock in a 
foreign corporation shall be treated as common stock in 
such corporation. 
‘‘(c) INDEXED BASIS.—For purposes of this section— 
‘‘(1) GENERAL RULE.—The indexed basis for any asset is— 
‘‘(A) the adjusted basis of the asset, increased by 
‘‘(B) the applicable inflation adjustment. 
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—The applicable 
inflation adjustment for any asset is an amount equal to— 
‘‘(A) the adjusted basis of the asset, multiplied by 
‘‘(B) the percentage (if any) by which— 
‘‘(i) the chain-type price index for GDP for the 
last calendar quarter ending before the asset is dis-
posed of, exceeds 
‘‘(ii) the chain-type price index for GDP for the 
last calendar quarter ending before the asset was 
acquired by the taxpayer. 
The percentage under subparagraph (B) shall be rounded to 
the nearest 1⁄10 of 1 percentage point. 
‘‘(3) CHAIN-TYPE PRICE INDEX FOR GDP.—The chain-type 
price index for GDP for any calendar quarter is such index 
for such quarter (as shown in the last revision thereof released 
by the Secretary of Commerce before the close of the following 
calendar quarter). 
‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DIMINISHED RISK 
OF LOSS; TREATMENT OF SHORT SALES.— 
‘‘(1) IN GENERAL.—If the taxpayer (or a related person) 
enters into any transaction which substantially reduces the 
risk of loss from holding any asset, such asset shall not be 
treated as an indexed asset for the period of such reduced 
risk. 
‘‘(2) SHORT SALES.— 
‘‘(A) IN GENERAL.—In the case of a short sale of an 
indexed asset with a short sale period in excess of 1 year, 
for purposes of this title, the amount realized shall be 
an amount equal to the amount realized (determined with-
out regard to this paragraph) increased by the applicable 
inflation adjustment. In applying subsection (c)(2) for pur-
poses of the preceding sentence, the date on which the 
property is sold short shall be treated as the date of acquisi-
tion and the closing date for the sale shall be treated 
as the date of disposition. 
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H. R. 2488—17 
‘‘(B) SHORT SALE PERIOD.—For purposes of subpara-
graph (A), the short sale period begins on the day that 
the property is sold and ends on the closing date for the 
sale. 
‘‘(e) TREATMENT OF REGULATED INVESTMENT COMPANIES AND 
REAL ESTATE INVESTMENT TRUSTS.— 
‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.— 
‘‘(A) IN
GENERAL.—Except as otherwise provided in 
this paragraph, the adjustment under subsection (a) shall 
be allowed to any qualified investment entity (including 
for purposes of determining the earnings and profits of 
such entity). 
‘‘(B) EXCEPTION
FOR
CORPORATE
SHAREHOLDERS.— 
Under regulations— 
‘‘(i) in the case of a distribution by a qualified 
investment entity (directly or indirectly) to a corpora-
tion— 
‘‘(I) the determination of whether such dis-
tribution is a dividend shall be made without 
regard to this section, and 
‘‘(II) the amount treated as gain by reason 
of the receipt of any capital gain dividend shall 
be increased by the percentage by which the 
entity’s net capital gain for the taxable year (deter-
mined without regard to this section) exceeds the 
entity’s net capital gain for such year determined 
with regard to this section, and 
‘‘(ii) there shall be other appropriate adjustments 
(including deemed distributions) so as to ensure that 
the benefits of this section are not allowed (directly 
or indirectly) to corporate shareholders of qualified 
investment entities. 
For purposes of the preceding sentence, any amount includ-
ible in gross income under section 852(b)(3)(D) shall be 
treated as a capital gain dividend and an S corporation 
shall not be treated as a corporation. 
‘‘(C) EXCEPTION FOR QUALIFICATION PURPOSES.—This 
section shall not apply for purposes of sections 851(b) and 
856(c). 
‘‘(D) EXCEPTION FOR CERTAIN TAXES IMPOSED AT ENTITY 
LEVEL.— 
‘‘(i) TAX ON FAILURE TO DISTRIBUTE ENTIRE GAIN.— 
If any amount is subject to tax under section 
852(b)(3)(A) for any taxable year, the amount on which 
tax is imposed under such section shall be increased 
by the percentage determined under subparagraph 
(B)(i)(II). A similar rule shall apply in the case of 
any amount subject to tax under paragraph (2) or 
(3) of section 857(b) to the extent attributable to the 
excess of the net capital gain over the deduction for 
dividends paid determined with reference to capital 
gain dividends only. The first sentence of this clause 
shall not apply to so much of the amount subject 
to tax under section 852(b)(3)(A) as is designated by 
the company under section 852(b)(3)(D). 
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H. R. 2488—18 
‘‘(ii) OTHER TAXES.—This section shall not apply 
for purposes of determining the amount of any tax 
imposed by paragraph (4), (5), or (6) of section 857(b). 
‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN ENTITY.— 
‘‘(A) REGULATED INVESTMENT COMPANIES.—Stock in a 
regulated investment company (within the meaning of sec-
tion 851) shall be an indexed asset for any calendar quarter 
in the same ratio as— 
‘‘(i) the average of the fair market values of the 
indexed assets held by such company at the close of 
each month during such quarter, bears to 
‘‘(ii) the average of the fair market values of all 
assets held by such company at the close of each such 
month. 
‘‘(B) REAL ESTATE INVESTMENT TRUSTS.—Stock in a real 
estate investment trust (within the meaning of section 
856) shall be an indexed asset for any calendar quarter 
in the same ratio as— 
‘‘(i) the fair market value of the indexed assets 
held by such trust at the close of such quarter, bears 
to 
‘‘(ii) the fair market value of all assets held by 
such trust at the close of such quarter. 
‘‘(C) RATIO OF 80 PERCENT OR MORE.—If the ratio for 
any calendar quarter determined under subparagraph (A) 
or (B) would (but for this subparagraph) be 80 percent 
or more, such ratio for such quarter shall be 100 percent. 
‘‘(D) RATIO OF 20 PERCENT OR LESS.—If the ratio for 
any calendar quarter determined under subparagraph (A) 
or (B) would (but for this subparagraph) be 20 percent 
or less, such ratio for such quarter shall be zero. 
‘‘(E) LOOK-THRU
OF
PARTNERSHIPS.—For purposes of 
this paragraph, a qualified investment entity which holds 
a partnership interest shall be treated (in lieu of holding 
a partnership interest) as holding its proportionate share 
of the assets held by the partnership. 
‘‘(3) TREATMENT OF RETURN OF CAPITAL DISTRIBUTIONS.— 
Except as otherwise provided by the Secretary, a distribution 
with respect to stock in a qualified investment entity which 
is not a dividend and which results in a reduction in the 
adjusted basis of such stock shall be treated as allocable to 
stock acquired by the taxpayer in the order in which such 
stock was acquired. 
‘‘(4) QUALIFIED INVESTMENT ENTITY.—For purposes of this 
subsection, the term ‘qualified investment entity’ means— 
‘‘(A) a regulated investment company (within the 
meaning of section 851), and 
‘‘(B) a real estate investment trust (within the meaning 
of section 856). 
‘‘(f ) OTHER PASS-THRU ENTITIES.— 
‘‘(1) PARTNERSHIPS.— 
‘‘(A) IN GENERAL.—In the case of a partnership, the 
adjustment made under subsection (a) at the partnership 
level shall be passed through to the partners. 
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H. R. 2488—19 
‘‘(B) SPECIAL RULE IN THE CASE OF SECTION 754 ELEC-
TIONS.—In the case of a transfer of an interest in a partner-
ship with respect to which the election provided in section 
754 is in effect— 
‘‘(i) the adjustment under section 743(b)(1) shall, 
with respect to the transferor partner, be treated as 
a sale of the partnership assets for purposes of applying 
this section, and 
‘‘(ii) with respect to the transferee partner, the 
partnership’s holding period for purposes of this section 
in such assets shall be treated as beginning on the 
date of such adjustment. 
‘‘(2) S CORPORATIONS.—In the case of an S corporation, 
the adjustment made under subsection (a) at the corporate 
level shall be passed through to the shareholders. This section 
shall not apply for purposes of determining the amount of 
any tax imposed by section 1374 or 1375. 
‘‘(3) COMMON TRUST FUNDS.—In the case of a common trust 
fund, the adjustment made under subsection (a) at the trust 
level shall be passed through to the participants. 
‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN DETERMINING 
LOSS ON SALE OF INTEREST IN ENTITY.—Notwithstanding the 
preceding provisions of this subsection, for purposes of deter-
mining the amount of any loss on a sale or exchange of an 
interest in a partnership, S corporation, or common trust fund, 
the adjustment made under subsection (a) shall not be taken 
into account in determining the adjusted basis of such interest. 
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.— 
‘‘(1) IN GENERAL.—This section shall not apply to any sale 
or other disposition of property between related persons except 
to the extent that the basis of such property in the hands 
of the transferee is a substituted basis. 
‘‘(2) RELATED PERSONS DEFINED.—For purposes of this sec-
tion, the term ‘related persons’ means— 
‘‘(A) persons bearing a relationship set forth in section 
267(b), and 
‘‘(B) persons treated as single employer under sub-
section (b) or (c) of section 414. 
‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUSTMENT.—If any 
person transfers cash, debt, or any other property to another person 
and the principal purpose of such transfer is to secure or increase 
an adjustment under subsection (a), the Secretary may disallow 
part or all of such adjustment or increase. 
‘‘(i) SPECIAL RULES.—For purposes of this section— 
‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If there is an 
addition to the adjusted basis of any tangible property or of 
any stock in a corporation during the taxable year by reason 
of an improvement to such property or a contribution to capital 
of such corporation— 
‘‘(A) such addition shall never be taken into account 
under subsection (c)(1)(A) if the aggregate amount thereof 
during the taxable year with respect to such property or 
stock is less than $1,000, and 
‘‘(B) such addition shall be treated as a separate asset 
acquired at the close of such taxable year if the aggregate 
amount thereof during the taxable year with respect to 
such property or stock is $1,000 or more. 
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H. R. 2488—20 
A rule similar to the rule of the preceding sentence shall 
apply to any other portion of an asset to the extent that 
separate treatment of such portion is appropriate to carry out 
the purposes of this section. 
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS THROUGHOUT 
HOLDING
PERIOD.—The applicable inflation adjustment shall 
be appropriately reduced for periods during which the asset 
was not an indexed asset. 
‘‘(3) TREATMENT OF CERTAIN DISTRIBUTIONS.—A distribution 
with respect to stock in a corporation which is not a dividend 
shall be treated as a disposition. 
‘‘(4) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR 
APPLICATION OF SUBSECTION (a)(1) WITH RESPECT TO THE TAX-
PAYER.—If there has been a prior application of subsection 
(a)(1) to an asset while such asset was held by the taxpayer, 
the date of acquisition of such asset by the taxpayer shall 
be treated as not earlier than the date of the most recent 
such prior application. 
‘‘(5) COLLAPSIBLE CORPORATIONS.—The application of sec-
tion 341(a) (relating to collapsible corporations) shall be deter-
mined without regard to this section. 
‘‘( j) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes 
of this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for part II 
of subchapter O of chapter 1 is amended by inserting after the 
item relating to section 1021 the following new item: 
‘‘Sec. 1022. Indexing of certain assets acquired after December 31, 1999, for 
purposes of determining gain.’’. 
(c) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to the disposition of any property the holding period 
of which begins after December 31, 1999. 
(2) CERTAIN TRANSACTIONS BETWEEN RELATED PERSONS.— 
The amendments made by this section shall not apply to the 
disposition of any property acquired after December 31, 1999, 
from a related person (as defined in section 1022(g)(2) of the 
Internal Revenue Code of 1986, as added by this section) if— 
(A) such property was so acquired for a price less 
than the property’s fair market value, and 
(B) the amendments made by this section did not apply 
to such property in the hands of such related person. 
(d) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY 
1, 2000.—For purposes of the Internal Revenue Code of 1986— 
(1) IN GENERAL.—A taxpayer other than a corporation may 
elect to treat— 
(A) any readily tradable stock (which is an indexed 
asset) held by such taxpayer on January 1, 2000, and 
not sold before the next business day after such date, 
as having been sold on such next business day for an 
amount equal to its closing market price on such next 
business day (and as having been reacquired on such next 
business day for an amount equal to such closing market 
price), and 
(B) any other indexed asset held by the taxpayer on 
January 1, 2000, as having been sold on such date for 
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H. R. 2488—21 
an amount equal to its fair market value on such date 
(and as having been reacquired on such date for an amount 
equal to such fair market value). 
(2) TREATMENT OF GAIN OR LOSS.— 
(A) Any gain resulting from an election under para-
graph (1) shall be treated as received or accrued on the 
date the asset is treated as sold under paragraph (1) and 
shall be recognized notwithstanding any provision of the 
Internal Revenue Code of 1986. 
(B) Any loss resulting from an election under para-
graph (1) shall not be allowed for any taxable year. 
(3) ELECTION.—An election under paragraph (1) shall be 
made in such manner as the Secretary of the Treasury or 
his delegate may prescribe and shall specify the assets for 
which such election is made. Such an election, once made 
with respect to any asset, shall be irrevocable. 
(4) READILY TRADABLE STOCK.—For purposes of this sub-
section, the term ‘‘readily tradable stock’’ means any stock 
which, as of January 1, 2000, is readily tradable on an estab-
lished securities market or otherwise. 
SEC. 203. CAPITAL GAINS TAX RATES APPLIED TO CAPITAL GAINS 
OF DESIGNATED SETTLEMENT FUNDS. 
(a) IN GENERAL.—Paragraph (1) of section 468B(b) (relating 
to taxation of designated settlement funds) is amended by inserting 
‘‘(subject to section 1(h))’’ after ‘‘maximum rate’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to taxable years beginning after December 31, 1999. 
SEC. 204. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES 
AND FOREIGN SERVICE, AND OTHER EMPLOYEES, IN 
DETERMINING EXCLUSION OF GAIN FROM SALE OF PRIN-
CIPAL RESIDENCE. 
(a) IN GENERAL.—Subsection (d) of section 121 (relating to 
exclusion of gain from sale of principal residence) is amended by 
adding at the end the following new paragraphs: 
‘‘(9) MEMBERS
OF
UNIFORMED
SERVICES
AND
FOREIGN 
SERVICE.— 
‘‘(A) IN GENERAL.—The running of the 5-year period 
described in subsection (a) shall be suspended with respect 
to an individual during any time that such individual or 
such individual’s spouse is serving on qualified official 
extended duty as a member of the uniformed services or 
of the Foreign Service. 
‘‘(B) QUALIFIED OFFICIAL EXTENDED DUTY.—For pur-
poses of this paragraph— 
‘‘(i) IN
GENERAL.—The term ‘qualified official 
extended duty’ means any period of extended duty 
as a member of the uniformed services or a member 
of the Foreign Service during which the member serves 
at a duty station which is at least 50 miles from 
such property or is under Government orders to reside 
in Government quarters. 
‘‘(ii) UNIFORMED SERVICES.—The term ‘uniformed 
services’ has the meaning given such term by section 
101(a)(5) of title 10, United States Code, as in effect 
on the date of the enactment of the Taxpayer Refund 
and Relief Act of 1999. 
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H. R. 2488—22 
‘‘(iii) FOREIGN SERVICE OF THE UNITED STATES.— 
The term ‘member of the Foreign Service’ has the 
meaning given the term ‘member of the Service’ by 
paragraph (1), (2), (3), (4), or (5) of section 103 of 
the Foreign Service Act of 1980, as in effect on the 
date of the enactment of the Taxpayer Refund and 
Relief Act of 1999. 
‘‘(iv) EXTENDED DUTY.—The term ‘extended duty’ 
means any period of active duty pursuant to a call 
or order to such duty for a period in excess of 90 
days or for an indefinite period. 
‘‘(10) OTHER EMPLOYEES.— 
‘‘(A) IN GENERAL.—The running of the 5-year period 
described in subsection (a) shall be suspended with respect 
to an individual during any time that such individual or 
such individual’s spouse is serving as an employee for 
a period in excess of 90 days in an assignment by such 
employee’s employer outside the United States. 
‘‘(B) LIMITATIONS AND SPECIAL RULES.— 
‘‘(i) 
MAXIMUM
PERIOD
OF
SUSPENSION.—The 
suspension under subparagraph (A) with respect to 
a principal residence shall not exceed (in the aggregate) 
5 years. 
‘‘(ii) MEMBERS OF UNIFORMED SERVICES AND FOR-
EIGN SERVICE.—Subparagraph (A) shall not apply to 
an individual to whom paragraph (9) applies. 
‘‘(iii) SELF-EMPLOYED INDIVIDUAL NOT CONSIDERED 
AN EMPLOYEE.—For purposes of this paragraph, the 
term ‘employee’ does not include an individual who 
is an employee within the meaning of section 401(c)(1) 
(relating to self-employed individuals).’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to sales and exchanges after the date of the enactment 
of this Act. 
SEC. 205. TAX TREATMENT OF INCOME AND LOSS ON DERIVATIVES. 
(a) IN GENERAL.—Section 1221 (defining capital assets) is 
amended— 
(1) by striking ‘‘For purposes’’ and inserting the following: 
‘‘(a) IN GENERAL.—For purposes’’, 
(2) by striking the period at the end of paragraph (5) 
and inserting a semicolon, and 
(3) by adding at the end the following: 
‘‘(6) any commodities derivative financial instrument held 
by a commodities derivatives dealer, unless— 
‘‘(A) it is established to the satisfaction of the Secretary 
that such instrument has no connection to the activities 
of such dealer as a dealer, and 
‘‘(B) such instrument is clearly identified in such 
dealer’s records as being described in subparagraph (A) 
before the close of the day on which it was acquired, origi-
nated, or entered into (or such other time as the Secretary 
may by regulations prescribe); 
‘‘(7) any hedging transaction which is clearly identified 
as such before the close of the day on which it was acquired, 
originated, or entered into (or such other time as the Secretary 
may by regulations prescribe); or 
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H. R. 2488—23 
‘‘(8) supplies of a type regularly used or consumed by 
the taxpayer in the ordinary course of a trade or business 
of the taxpayer. 
‘‘(b) DEFINITIONS AND SPECIAL RULES.— 
‘‘(1) COMMODITIES DERIVATIVE FINANCIAL INSTRUMENTS.— 
For purposes of subsection (a)(6)— 
‘‘(A) COMMODITIES
DERIVATIVES
DEALER.—The term 
‘commodities derivatives dealer’ means a person which 
regularly offers to enter into, assume, offset, assign, or 
terminate positions in commodities derivative financial 
instruments with customers in the ordinary course of a 
trade or business. 
‘‘(B) 
COMMODITIES
DERIVATIVE
FINANCIAL 
INSTRUMENT.— 
‘‘(i) IN GENERAL.—The term ‘commodities deriva-
tive financial instrument’ means any contract or finan-
cial instrument with respect to commodities (other than 
a share of stock in a corporation, a beneficial interest 
in a partnership or trust, a note, bond, debenture, 
or other evidence of indebtedness, or a section 1256 
contract (as defined in section 1256(b)), the value or 
settlement price of which is calculated by or deter-
mined by reference to a specified index. 
‘‘(ii) SPECIFIED INDEX.—The term ‘specified index’ 
means any one or more or any combination of— 
‘‘(I) a fixed rate, price, or amount, or 
‘‘(II) a variable rate, price, or amount, 
which is based on any current, objectively determinable 
financial or economic information with respect to 
commodities which is not within the control of any 
of the parties to the contract or instrument and is 
not unique to any of the parties’ circumstances. 
‘‘(2) HEDGING TRANSACTION.— 
‘‘(A) IN GENERAL.—For purposes of this section, the 
term ‘hedging transaction’ means any transaction entered 
into by the taxpayer in the normal course of the taxpayer’s 
trade or business primarily— 
‘‘(i) to manage risk of price changes or currency 
fluctuations with respect to ordinary property which 
is held or to be held by the taxpayer, 
‘‘(ii) to manage risk of interest rate or price changes 
or currency fluctuations with respect to borrowings 
made or to be made, or ordinary obligations incurred 
or to be incurred, by the taxpayer, or 
‘‘(iii) to manage such other risks as the Secretary 
may prescribe in regulations. 
‘‘(B) TREATMENT OF NONIDENTIFICATION OR IMPROPER 
IDENTIFICATION
OF
HEDGING
TRANSACTIONS.—Notwith-
standing subsection (a)(7), the Secretary shall prescribe 
regulations to properly characterize any income, gain, 
expense, or loss arising from a transaction— 
‘‘(i) which is a hedging transaction but which was 
not identified as such in accordance with subsection 
(a)(7), or 
‘‘(ii) which was so identified but is not a hedging 
transaction. 
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H. R. 2488—24 
‘‘(3) REGULATIONS.—The Secretary shall prescribe such 
regulations as are appropriate to carry out the purposes of 
paragraph (6) and (7) of subsection (a) in the case of trans-
actions involving related parties.’’. 
(b) MANAGEMENT OF RISK.— 
(1) Section 475(c)(3) is amended by striking ‘‘reduces’’ and 
inserting ‘‘manages’’. 
(2) Section 871(h)(4)(C)(iv) is amended by striking ‘‘to 
reduce’’ and inserting ‘‘to manage’’. 
(3) Clauses (i) and (ii) of section 988(d)(2)(A) are each 
amended by striking ‘‘to reduce’’ and inserting ‘‘to manage’’. 
(4) Paragraph (2) of section 1256(e) is amended to read 
as follows: 
‘‘(2) DEFINITION OF HEDGING TRANSACTION.—For purposes 
of this subsection, the term ‘hedging transaction’ means any 
hedging transaction (as defined in section 1221(b)(2)(A)) if, 
before the close of the day on which such transaction was 
entered into (or such earlier time as the Secretary may pre-
scribe by regulations), the taxpayer clearly identifies such trans-
action as being a hedging transaction.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Each of the following sections are amended by striking 
‘‘section 1221’’ and inserting ‘‘section 1221(a)’’: 
(A) Section 170(e)(3)(A). 
(B) Section 170(e)(4)(B). 
(C) Section 367(a)(3)(B)(i). 
(D) Section 818(c)(3). 
(E) Section 865(i)(1). 
(F) Section 1092(a)(3)(B)(ii)(II). 
(G) Subparagraphs (C) and (D) of section 1231(b)(1). 
(H) Section 1234(a)(3)(A). 
(2) Each of the following sections are amended by striking 
‘‘section 1221(1)’’ and inserting ‘‘section 1221(a)(1)’’: 
(A) Section 198(c)(1)(A)(i). 
(B) Section 263A(b)(2)(A). 
(C) Clauses (i) and (iii) of section 267(f )(3)(B). 
(D) Section 341(d)(3). 
(E) Section 543(a)(1)(D)(i). 
(F) Section 751(d)(1). 
(G) Section 775(c). 
(H) Section 856(c)(2)(D). 
(I) Section 856(c)(3)(C). 
(J) Section 856(e)(1). 
(K) Section 856( j)(2)(B). 
(L) Section 857(b)(4)(B)(i). 
(M) Section 857(b)(6)(B)(iii). 
(N) Section 864(c)(4)(B)(iii). 
(O) Section 864(d)(3)(A). 
(P) Section 864(d)(6)(A). 
(Q) Section 954(c)(1)(B)(iii). 
(R) Section 995(b)(1)(C). 
(S) Section 1017(b)(3)(E)(i). 
(T) Section 1362(d)(3)(C)(ii). 
(U) Section 4662(c)(2)(C). 
(V) Section 7704(c)(3). 
(W) Section 7704(d)(1)(D). 
(X) Section 7704(d)(1)(G). 
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H. R. 2488—25 
(Y) Section 7704(d)(5). 
(3) Section 818(b)(2) is amended by striking ‘‘section 
1221(2)’’ and inserting ‘‘section 1221(a)(2)’’. 
(4) Section 1397B(e)(2) is amended by striking ‘‘section 
1221(4)’’ and inserting ‘‘section 1221(a)(4)’’. 
(d) EFFECTIVE DATE.—The amendments made by this section 
shall apply to any instrument held, acquired, or entered into, any 
transaction entered into, and supplies held or acquired on or after 
the date of the enactment of this Act. 
SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS. 
(a) 
IN
GENERAL.—The 
first 
sentence 
following 
section 
165(g)(3)(B) (relating to securities of affiliated corporation) is 
amended to read as follows: ‘‘In computing gross receipts for pur-
poses of the preceding sentence, (i) gross receipts from sales or 
exchanges of stocks and securities shall be taken into account 
only to the extent of gains therefrom, and (ii) gross receipts from 
royalties, rents, dividends, interest, annuities, and gains from sales 
or exchanges of stocks and securities derived from (or directly 
related to) the conduct of an active trade or business of an insurance 
company subject to tax under subchapter L or a qualified financial 
institution (as defined in subsection (l)(3)) shall be treated as from 
such sources other than royalties, rents, dividends, interest, annu-
ities, and gains.’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to securities which become worthless in taxable years 
beginning after December 31, 1999. 
Subtitle B—Individual Retirement 
Arrangements 
SEC. 211. MODIFICATION OF DEDUCTION LIMITS FOR IRA CONTRIBU-
TIONS. 
(a) INCREASE IN CONTRIBUTION LIMIT.— 
(1) IN
GENERAL.—Paragraph (1)(A) of section 219(b) 
(relating to maximum amount of deduction) is amended by 
striking ‘‘$2,000’’ and inserting ‘‘the deductible amount’’. 
(2) DEDUCTIBLE AMOUNT.—Section 219(b) is amended by 
adding at the end the following new paragraph: 
‘‘(5) DEDUCTIBLE
AMOUNT.—For purposes of paragraph 
(1)(A)— 
‘‘(A) IN
GENERAL.—The deductible amount shall be 
determined in accordance with the following table: 
‘‘For taxable years 
The 
deductible 
beginning in: 
amount is: 
2001, 2002, and 2003 .......................................................................
$3,000
2004 and 2005 ..................................................................................
$4,000
2006 and thereafter ..........................................................................
$5,000. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.— 
‘‘(i) IN GENERAL.—In the case of any taxable year 
beginning in a calendar year after 2006, the $5,000 
amount under subparagraph (A) shall be increased 
by an amount equal to— 
‘‘(I) such dollar amount, multiplied by 
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H. R. 2488—26 
‘‘(II) the cost-of-living adjustment determined 
under section 1(f )(3) for the calendar year in which 
the taxable year begins, determined by sub-
stituting ‘calendar year 2005’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(ii) ROUNDING RULES.—If any amount after adjust-
ment under clause (i) is not a multiple of $100, such 
amount shall be rounded to the next lower multiple 
of $100.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 408(a)(1) is amended by striking ‘‘in excess 
of $2,000 on behalf of any individual’’ and inserting ‘‘on behalf 
of any individual in excess of the amount in effect for such 
taxable year under section 219(b)(1)(A)’’. 
(2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’ 
and inserting ‘‘the dollar amount in effect under section 
219(b)(1)(A)’’. 
(3) Section 408(b) is amended by striking ‘‘$2,000’’ in the 
matter following paragraph (4) and inserting ‘‘the dollar amount 
in effect under section 219(b)(1)(A)’’. 
(4) Section 408( j) is amended by striking ‘‘$2,000’’. 
(5) Section 408(p)(8) is amended by striking ‘‘$2,000’’ and 
inserting 
‘‘the 
dollar 
amount 
in 
effect 
under 
section 
219(b)(1)(A)’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000. 
SEC. 212. MODIFICATION OF INCOME LIMITS ON CONTRIBUTIONS AND 
ROLLOVERS TO ROTH IRAS. 
(a) REPEAL
OF
AGI LIMIT
ON
CONTRIBUTIONS.—Section 
408A(c)(3) (relating to limits based on modified adjusted gross 
income) is amended— 
(1) by striking clause (ii) of subparagraph (A) and inserting: 
‘‘(ii) $10,000.’’, and 
(2) by striking clause (ii) of subparagraph (C) and inserting: 
‘‘(ii) the applicable dollar amount is— 
‘‘(I) $200,000 in the case of a taxpayer filing 
a joint return, and 
‘‘(II) $100,000 in the case of any other tax-
payer.’’. 
(b) INCREASE IN AGI LIMIT FOR ROLLOVER CONTRIBUTIONS.— 
Section 408A(c)(3)(B) (relating to rollover from IRA) is amended 
to read as follows: 
‘‘(B) ROLLOVER FROM IRA.—A taxpayer shall not be 
allowed to make a qualified rollover contribution from an 
individual retirement plan other than a Roth IRA during 
any taxable year if, for the taxable year of the distribution 
to which the contribution relates, the taxpayer’s adjusted 
gross income exceeds $100,000 ($200,000 in the case of 
a taxpayer filing a joint return).’’. 
(c) EFFECTIVE DATES.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002. 
SEC. 213. DEEMED IRAS UNDER EMPLOYER PLANS. 
(a) IN GENERAL.—Section 408 (relating to individual retirement 
accounts) is amended by redesignating subsection (q) as subsection 
(r) and by inserting after subsection (p) the following new sub-
section: 
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H. R. 2488—27 
‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.— 
‘‘(1) GENERAL RULE.—If— 
‘‘(A) a qualified employer plan elects to allow employees 
to make voluntary employee contributions to a separate 
account or annuity established under the plan, and 
‘‘(B) under the terms of the qualified employer plan, 
such account or annuity meets the applicable requirements 
of this section or section 408A for an individual retirement 
account or annuity, 
then such account or annuity shall be treated for purposes 
of this title in the same manner as an individual retirement 
plan (and contributions to such account or annuity as contribu-
tions to an individual retirement plan). For purposes of 
subparagraph (B), the requirements of subsection (a)(5) shall 
not apply. 
‘‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For 
purposes of this title— 
‘‘(A) a qualified employer plan shall not fail to meet 
any requirement of this title solely by reason of establishing 
and maintaining a program described in paragraph (1), 
and 
‘‘(B) any account or annuity described in paragraph 
(1), and any contribution to the account or annuity, shall 
not be subject to any requirement of this title applicable 
to a qualified employer plan or taken into account in 
applying any such requirement to any other contributions 
under the plan. 
‘‘(3) DEFINITIONS.—For purposes of this subsection— 
‘‘(A) QUALIFIED EMPLOYER PLAN.—The term ‘qualified 
employer plan’ has the meaning given such term by section 
72(p)(4). 
‘‘(B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The term 
‘voluntary employee contribution’ means any contribution 
(other than a mandatory contribution within the meaning 
of section 411(c)(2)(C))— 
‘‘(i) which is made by an individual as an employee 
under a qualified employer plan which allows 
employees to elect to make contributions described in 
paragraph (1), and 
‘‘(ii) with respect to which the individual has des-
ignated the contribution as a contribution to which 
this subsection applies.’’. 
(b) AMENDMENT OF ERISA.— 
(1) IN GENERAL.—Section 4 of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1003) is amended by 
adding at the end the following new subsection: 
‘‘(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as pro-
vided in section 408(q) of the Internal Revenue Code of 1986, 
such accounts and annuities (and contributions thereto) shall not 
be treated as part of such plan (or as a separate pension plan) 
for purposes of any provision of this title other than section 403(c), 
404, or 405 (relating to exclusive benefit, and fiduciary and co- 
fiduciary responsibilities).’’. 
(2) CONFORMING
AMENDMENT.—Section 4(a) of such Act 
(29 U.S.C. 1003(a)) is amended by inserting ‘‘or (c)’’ after ‘‘sub-
section (b)’’. 
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H. R. 2488—28 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to plan years beginning after December 31, 1999. 
SEC. 214. CATCHUP CONTRIBUTIONS TO IRAS BY INDIVIDUALS AGE 
50 OR OVER. 
(a) IN GENERAL.—Section 219(b), as amended by section 211, 
is amended by adding at the end the following new paragraph: 
‘‘(6) CATCHUP CONTRIBUTIONS.— 
‘‘(A) IN GENERAL.—In the case of an individual who 
has attained the age of 50 before the close of the taxable 
year, the dollar amount in effect under paragraph (1)(A) 
for such taxable year shall be equal to the applicable 
percentage of such amount determined without regard to 
this paragraph. 
‘‘(B) APPLICABLE PERCENTAGE.—For purposes of this 
paragraph, the applicable percentage shall be determined 
in accordance with the following table: 
‘‘For taxable years 
The 
applicable 
beginning in: 
percentage is: 
2001 ...................................................................................................
110 percent
2002 ...................................................................................................
120 percent
2003 ...................................................................................................
130 percent
2004 ...................................................................................................
140 percent
2005 and thereafter ..........................................................................
150 percent.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2000. 
TITLE III—ALTERNATIVE MINIMUM TAX 
REFORM 
SEC. 301. MODIFICATION OF ALTERNATIVE MINIMUM TAX ON COR-
PORATIONS. 
(a) LIMITATION ON USE OF CREDIT FOR PRIOR YEAR MINIMUM 
TAX LIABILITY.—Subsection (c) of section 53, as amended by section 
121, is amended by redesignating paragraph (2) as paragraph (3) 
and by inserting after paragraph (1) the following new paragraph: 
‘‘(2) CORPORATIONS FOR TAXABLE YEARS BEGINNING AFTER 
2004.—In the case of a corporation for any taxable year begin-
ning after 2004, the limitation under paragraph (1) shall be 
increased by the lesser of— 
‘‘(A) 50 percent of the tentative minimum tax for the 
taxable year, or 
‘‘(B) the excess (if any) of the tentative minimum tax 
for the taxable year over the regular tax for the taxable 
year.’’. 
(b) REPEAL OF 90 PERCENT LIMITATION ON NOL DEDUCTION.— 
Section 56(d)(1)(A) is amended by striking ‘‘90 percent’’ and 
inserting ‘‘90 percent (100 percent in the case of a corporation)’’. 
(c) EFFECTIVE DATES.— 
(1) SUBSECTION (a).—The amendment made by subsection 
(a) shall apply to taxable years beginning after December 31, 
2004. 
(2) SUBSECTION (b).—The amendment made by subsection 
(b) shall apply to taxable years beginning after December 31, 
2001. 
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H. R. 2488—29 
SEC. 302. REPEAL OF 90 PERCENT LIMITATION ON FOREIGN TAX 
CREDIT. 
(a) IN GENERAL.—Section 59(a) (relating to alternative min-
imum tax foreign tax credit) is amended by striking paragraph 
(2) and by redesignating paragraphs (3) and (4) as paragraphs 
(2) and (3), respectively. 
(b) CONFORMING
AMENDMENT.—Section 53(d)(1)(B)(i)(II) is 
amended by striking ‘‘and if section 59(a)(2) did not apply’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2001. 
TITLE IV—EDUCATION SAVINGS 
INCENTIVES 
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT 
ACCOUNTS. 
(a) MAXIMUM ANNUAL CONTRIBUTIONS.— 
(1) IN
GENERAL.—Section 530(b)(1)(A)(iii) (defining edu-
cation individual retirement account) is amended by striking 
‘‘$500’’ and inserting ‘‘$2,000’’. 
(2) CONFORMING
AMENDMENT.—Section 4973(e)(1)(A) is 
amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’. 
(b) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY 
SCHOOL EXPENSES.— 
(1) IN
GENERAL.—Section 530(b)(2) (defining qualified 
higher education expenses) is amended to read as follows: 
‘‘(2) QUALIFIED EDUCATION EXPENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified education 
expenses’ means— 
‘‘(i) qualified higher education expenses (as defined 
in section 529(e)(3)), and 
‘‘(ii) qualified elementary and secondary education 
expenses (as defined in paragraph (4)). 
‘‘(B) QUALIFIED STATE TUITION PROGRAMS.—Such term 
shall include any contribution to a qualified State tuition 
program (as defined in section 529(b)) on behalf of the 
designated beneficiary (as defined in section 529(e)(1)); but 
there shall be no increase in the investment in the contract 
for purposes of applying section 72 by reason of any portion 
of such contribution which is not includible in gross income 
by reason of subsection (d)(2).’’. 
(2) QUALIFIED
ELEMENTARY
AND
SECONDARY
EDUCATION 
EXPENSES.—Section 530(b) (relating to definitions and special 
rules) is amended by adding at the end the following new 
paragraph: 
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION 
EXPENSES.— 
‘‘(A) IN GENERAL.—The term ‘qualified elementary and 
secondary education expenses’ means— 
‘‘(i) expenses for tuition, fees, academic tutoring, 
special needs services, books, supplies, computer equip-
ment (including related software and services), and 
other equipment which are incurred in connection with 
the enrollment or attendance of the designated bene-
ficiary of the trust as an elementary or secondary 
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H. R. 2488—30 
school student at a public, private, or religious school, 
and 
‘‘(ii) expenses for room and board, uniforms, 
transportation, and supplementary items and services 
(including extended day programs) which are required 
or provided by a public, private, or religious school 
in connection with such enrollment or attendance. 
‘‘(B) SPECIAL RULE FOR HOMESCHOOLING.—Such term 
shall include expenses described in subparagraph (A)(i) 
in connection with education provided by homeschooling 
if the requirements of any applicable State or local law 
are met with respect to such education. 
‘‘(C) SCHOOL.—The term ‘school’ means any school 
which provides elementary education or secondary edu-
cation (kindergarten through grade 12), as determined 
under State law.’’. 
(3) CONFORMING AMENDMENTS.—Section 530 is amended— 
(A) by striking ‘‘higher’’ each place it appears in sub-
sections (b)(1) and (d)(2), and 
(B) by striking ‘‘HIGHER’’ in the heading for subsection 
(d)(2). 
(c) WAIVER OF AGE LIMITATIONS FOR CHILDREN WITH SPECIAL 
NEEDS.—Section 530(b)(1) (defining education individual retirement 
account) is amended by adding at the end the following flush 
sentence: 
‘‘The age limitations in subparagraphs (A)(ii) and (E) and para-
graphs (5) and (6) of subsection (d) shall not apply to any 
designated beneficiary with special needs (as determined under 
regulations prescribed by the Secretary).’’. 
(d) ENTITIES PERMITTED TO CONTRIBUTE TO ACCOUNTS.—Sec-
tion 530(c)(1) (relating to reduction in permitted contributions based 
on adjusted gross income) is amended by striking ‘‘The maximum 
amount which a contributor’’ and inserting ‘‘In the case of a contrib-
utor who is an individual, the maximum amount the contributor’’. 
(e) TIME WHEN CONTRIBUTIONS DEEMED MADE.— 
(1) IN GENERAL.—Section 530(b) (relating to definitions and 
special rules), as amended by subsection (b)(2), is amended 
by adding at the end the following new paragraph: 
‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED MADE.—An indi-
vidual shall be deemed to have made a contribution to an 
education individual retirement account on the last day of 
the preceding taxable year if the contribution is made on 
account of such taxable year and is made not later than the 
time prescribed by law for filing the return for such taxable 
year (not including extensions thereof).’’. 
(2) EXTENSION
OF
TIME
TO
RETURN
EXCESS
CONTRIBU-
TIONS.—Subparagraph (C) of section 530(d)(4) (relating to addi-
tional tax for distributions not used for educational expenses) 
is amended— 
(A) by striking clause (i) and inserting the following 
new clause: 
‘‘(i) such distribution is made before the first day 
of the sixth month of the taxable year following the 
taxable year, and’’, and 
(B) by striking ‘‘DUE DATE OF RETURN’’ in the heading 
and inserting ‘‘CERTAIN DATE’’. 
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H. R. 2488—31 
(f ) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS 
AND QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 530(d)(2)(C) is amended to read 
as follows: 
‘‘(C) COORDINATION WITH HOPE AND LIFETIME LEARNING 
CREDITS AND QUALIFIED TUITION PROGRAMS.—For purposes 
of subparagraph (A)— 
‘‘(i) CREDIT COORDINATION.—The total amount of 
qualified higher education expenses with respect to 
an individual for the taxable year shall be reduced— 
‘‘(I) as provided in section 25A(g)(2), and 
‘‘(II) by the amount of such expenses which 
were taken into account in determining the credit 
allowed to the taxpayer or any other person under 
section 25A. 
‘‘(ii) COORDINATION WITH QUALIFIED TUITION PRO-
GRAMS.—If, with respect to an individual for any tax-
able year— 
‘‘(I) the aggregate distributions during such 
year to which subparagraph (A) and section 
529(c)(3)(B) apply, exceed 
‘‘(II) the total amount of qualified education 
expenses (after the application of clause (i)) for 
such year, 
the taxpayer shall allocate such expenses among such 
distributions for purposes of determining the amount 
of the exclusion under subparagraph (A) and section 
529(c)(3)(B).’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Subsection (e) of section 25A is amended to read 
as follows: 
‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A taxpayer may 
elect not to have this section apply with respect to the qualified 
tuition and related expenses of an individual for any taxable year.’’. 
(B) Section 135(d)(2)(A) is amended by striking ‘‘allow-
able’’ and inserting ‘‘allowed’’. 
(C) Section 530(d)(2)(D) is amended— 
(i) by striking ‘‘or credit’’, and 
(ii) by striking ‘‘CREDIT OR’’ in the heading. 
(D) Section 4973(e)(1) is amended by adding ‘‘and’’ 
at the end of subparagraph (A), by striking subparagraph 
(B), and by redesignating subparagraph (C) as subpara-
graph (B). 
(g) RENAMING EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS 
AS EDUCATION SAVINGS ACCOUNTS.— 
(1) IN GENERAL.— 
(A) Section 530 (as amended by the preceding provi-
sions of this section) is amended by striking ‘‘education 
individual retirement account’’ each place it appears and 
inserting ‘‘education savings account’’. 
(B) The heading for paragraph (1) of section 530(b) 
is amended by striking ‘‘EDUCATION INDIVIDUAL RETIRE-
MENT
ACCOUNT’’ and inserting ‘‘EDUCATION
SAVINGS 
ACCOUNT’’. 
(C) The heading for section 530 is amended to read 
as follows: 
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H. R. 2488—32 
‘‘SEC. 530. EDUCATION SAVINGS ACCOUNTS.’’. 
(D) The item in the table of contents for part VII 
of subchapter F of chapter 1 relating to section 530 is 
amended to read as follows: 
‘‘Sec. 530. Education savings accounts.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) The following provisions are each amended by 
striking ‘‘education individual retirement’’ each place it 
appears and inserting ‘‘education savings’’: 
(i) Section 25A(e)(2). 
(ii) Section 26(b)(2)(E). 
(iii) Section 72(e)(9). 
(iv) Section 135(c)(2)(C). 
(v) Subsections (a) and (e) of section 4973. 
(vi) Subsections (c) and (e) of section 4975. 
(vii) Section 6693(a)(2)(D). 
(B) The headings for each of the following provisions 
are amended by striking ‘‘EDUCATION INDIVIDUAL RETIRE-
MENT ACCOUNTS’’ each place it appears and inserting ‘‘EDU-
CATION SAVINGS ACCOUNTS’’. 
(i) Section 72(e)(9). 
(ii) Section 135(c)(2)(C). 
(iii) Section 4973(e). 
(iv) Section 4975(c)(5). 
(h) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by this section shall apply to taxable years 
beginning after December 31, 2000. 
(2) SUBSECTION (g).—The amendments made by subsection 
(g) shall take effect on the date of the enactment of this Act. 
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS. 
(a) SHORT TITLE.—This section may be cited as the ‘‘Collegiate 
Learning and Student Savings (CLASS) Act’’. 
(b) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAIN-
TAIN QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 529(b)(1) (defining qualified State 
tuition program) is amended by inserting ‘‘or by one or more 
eligible educational institutions’’ after ‘‘maintained by a State 
or agency or instrumentality thereof ’’. 
(2) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BEN-
EFIT PLANS.—Clause (ii) of section 529(b)(1)(A) is amended by 
inserting ‘‘in the case of a program established and maintained 
by a State or agency or instrumentality thereof,’’ before ‘‘may 
make’’. 
(3) CONFORMING AMENDMENTS.— 
(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are each amended 
by striking ‘‘qualified State tuition’’ each place it appears 
and inserting ‘‘qualified tuition’’. 
(B) The headings for sections 72(e)(9) and 135(c)(2)(C) 
are each amended by striking ‘‘QUALIFIED STATE TUITION’’ 
and inserting ‘‘QUALIFIED TUITION’’. 
(C) The headings for sections 529(b) and 530(b)(2)(B) 
are each amended by striking ‘‘QUALIFIED STATE TUITION’’ 
and inserting ‘‘QUALIFIED TUITION’’. 
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H. R. 2488—33 
(D) The heading for section 529 is amended by striking 
‘‘STATE’’. 
(E) The item relating to section 529 in the table of 
sections for part VIII of subchapter F of chapter 1 is 
amended by striking ‘‘State’’. 
(c) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBU-
TIONS FROM QUALIFIED TUITION PROGRAMS.— 
(1) IN GENERAL.—Section 529(c)(3)(B) (relating to distribu-
tions) is amended to read as follows: 
‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION 
EXPENSES.—For purposes of this paragraph— 
‘‘(i) IN-KIND DISTRIBUTIONS.—No amount shall be 
includible in gross income under subparagraph (A) by 
reason of a distribution which consists of providing 
a benefit to the distributee which, if paid for by the 
distributee, would constitute payment of a qualified 
higher education expense. 
‘‘(ii) CASH DISTRIBUTIONS.—In the case of distribu-
tions not described in clause (i), if— 
‘‘(I) such distributions do not exceed the quali-
fied higher education expenses (reduced by 
expenses described in clause (i)), no amount shall 
be includible in gross income, and 
‘‘(II) in any other case, the amount otherwise 
includible in gross income shall be reduced by 
an amount which bears the same ratio to such 
amount as such expenses bear to such distribu-
tions. 
‘‘(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS.— 
In the case of any taxable year beginning before 
January 1, 2004, clauses (i) and (ii) shall not apply 
with respect to any distribution during such taxable 
year under a qualified tuition program established and 
maintained by one or more eligible educational institu-
tions. 
‘‘(iv) TREATMENT AS DISTRIBUTIONS.—Any benefit 
furnished to a designated beneficiary under a qualified 
tuition program shall be treated as a distribution to 
the beneficiary for purposes of this paragraph. 
‘‘(v) COORDINATION
WITH
HOPE
AND
LIFETIME 
LEARNING
CREDITS.—The total amount of qualified 
higher education expenses with respect to an individual 
for the taxable year shall be reduced— 
‘‘(I) as provided in section 25A(g)(2), and 
‘‘(II) by the amount of such expenses which 
were taken into account in determining the credit 
allowed to the taxpayer or any other person under 
section 25A. 
‘‘(vi) COORDINATION WITH EDUCATION INDIVIDUAL 
RETIREMENT ACCOUNTS.—If, with respect to an indi-
vidual for any taxable year— 
‘‘(I) the aggregate distributions to which 
clauses (i) and (ii) and section 530(d)(2)(A) apply, 
exceed 
‘‘(II) the total amount of qualified higher edu-
cation expenses otherwise taken into account 
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H. R. 2488—34 
under clauses (i) and (ii) (after the application 
of clause (v)) for such year, 
the taxpayer shall allocate such expenses among such 
distributions for purposes of determining the amount 
of the exclusion under clauses (i) and (ii) and section 
530(d)(2)(A).’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 135(d)(2)(B) is amended by striking ‘‘the 
exclusion under section 530(d)(2)’’ and inserting ‘‘the exclu-
sions under sections 529(c)(3)(B)(i) and 530(d)(2)’’. 
(B) Section 221(e)(2)(A) is amended by inserting ‘‘529,’’ 
after ‘‘135,’’. 
(d) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT OF SAME 
DESIGNATED BENEFICIARY.—Section 529(c)(3)(C) (relating to change 
in beneficiaries) is amended— 
(1) by striking ‘‘transferred to the credit’’ in clause (i) 
and inserting ‘‘transferred— 
‘‘(I) to another qualified tuition program for 
the benefit of the designated beneficiary, or 
‘‘(II) to the credit’’, 
(2) by adding at the end the following new clause: 
‘‘(iii) LIMITATION ON CERTAIN ROLLOVERS.—Clause 
(i)(I) shall not apply to any amount transferred with 
respect to a designated beneficiary if, at any time 
during the 1-year period ending on the day of such 
transfer, any other amount was transferred with 
respect to such beneficiary which was not includible 
in gross income by reason of clause (i)(I).’’, and 
(3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENEFICIARIES’’ in 
the heading. 
(e) MEMBER
OF FAMILY INCLUDES FIRST COUSIN.—Section 
529(e)(2) (defining member of family) is amended by striking ‘‘and’’ 
at the end of subparagraph (B), by striking the period at the 
end of subparagraph (C) and by inserting ‘‘; and’’, and by adding 
at the end the following new subparagraph: 
‘‘(D) any first cousin of such beneficiary.’’. 
(f ) DEFINITION OF QUALIFIED HIGHER EDUCATION EXPENSES.— 
(1) IN
GENERAL.—Subparagraph (A) of section 529(e)(3) 
(relating to definition of qualified higher education expenses) 
is amended to read as follows: 
‘‘(A) IN GENERAL.—The term ‘qualified higher education 
expenses’ means— 
‘‘(i) tuition and fees required for the enrollment 
or attendance of a designated beneficiary at an eligible 
educational institution for courses of instruction of such 
beneficiary at such institution, and 
‘‘(ii) expenses for books, supplies, and equipment 
which are incurred in connection with such enrollment 
or attendance, but not to exceed the allowance for 
books and supplies included in the cost of attendance 
(as defined in section 472 of the Higher Education 
Act of 1965 (20 U.S.C. 1087ll), as in effect on the 
date of the enactment of the Taxpayer Refund and 
Relief Act of 1999) as determined by the eligible edu-
cational institution.’’. 
(2) EXCEPTION FOR EDUCATION INVOLVING SPORTS, ETC.— 
Paragraph (3) of section 529(e) (relating to qualified higher 
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H. R. 2488—35 
education expenses) is amended by adding at the end the fol-
lowing new subparagraph: 
‘‘(C) EXCEPTION
FOR
EDUCATION
INVOLVING
SPORTS, 
ETC.—The term ‘qualified higher education expenses’ shall 
not include expenses with respect to any course or other 
education involving sports, games, or hobbies unless such 
course or other education is part of the beneficiary’s degree 
program or is taken to acquire or improve job skills of 
the beneficiary.’’. 
(g) EFFECTIVE DATES.— 
(1) IN GENERAL.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 1999. 
(2) QUALIFIED HIGHER EDUCATION EXPENSES.—The amend-
ments made by subsection (f ) shall apply to amounts paid 
for courses beginning after December 31, 1999. 
SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE 
NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PRO-
GRAM, THE F. EDWARD HEBERT ARMED FORCES HEALTH 
PROFESSIONS SCHOLARSHIP AND FINANCIAL ASSIST-
ANCE PROGRAM, AND CERTAIN OTHER PROGRAMS. 
(a) IN GENERAL.—Section 117(c) (relating to the exclusion from 
gross income amounts received as a qualified scholarship) is 
amended— 
(1) by striking ‘‘Subsections (a)’’ and inserting the following: 
‘‘(1) IN GENERAL.—Except as provided in paragraph (2), 
subsections (a)’’, and 
(2) by adding at the end the following new paragraph: 
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to any 
amount received by an individual under— 
‘‘(A) the National Health Service Corps Scholarship 
program under section 338A(g)(1)(A) of the Public Health 
Service Act, 
‘‘(B) the Armed Forces Health Professions Scholarship 
and Financial Assistance program under subchapter I of 
chapter 105 of title 10, United States Code, 
‘‘(C) the National Institutes of Health Undergraduate 
Scholarship program under section 487D of the Public 
Health Service Act, or 
‘‘(D) any State program determined by the Secretary 
to have substantially similar objectives as such programs.’’. 
(b) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by subsection (a) shall apply to amounts 
received in taxable years beginning after December 31, 1993. 
(2) STATE PROGRAMS.—Section 117(c)(2)(D) of the Internal 
Revenue Code of 1986 (as added by the amendments made 
by subsection (a)) shall apply to amounts received in taxable 
years beginning after December 31, 1999. 
SEC. 404. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDU-
CATIONAL ASSISTANCE. 
Section 127(d) (relating to termination of exclusion for edu-
cational assistance programs) is amended by striking ‘‘May 31, 
2000’’ and inserting ‘‘December 31, 2003’’. 
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H. R. 2488—36 
SEC. 405. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION 
FOR GOVERNMENTAL BONDS USED TO FINANCE EDU-
CATIONAL FACILITIES. 
(a) IN GENERAL.—Section 148(f )(4)(D)(vii) (relating to increase 
in exception for bonds financing public school capital expenditures) 
is amended by striking ‘‘$5,000,000’’ the second place it appears 
and inserting ‘‘$10,000,000’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply to obligations issued in calendar years beginning after 
December 31, 1999. 
SEC. 406. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE 
TO PUBLIC SCHOOL CONSTRUCTION BONDS. 
(a) IN GENERAL.—Subparagraph (C) of section 148(f )(4) is 
amended by adding at the end the following new clause: 
‘‘(xviii) 4-YEAR SPENDING REQUIREMENT FOR PUBLIC 
SCHOOL CONSTRUCTION ISSUE.— 
‘‘(I) IN GENERAL.—In the case of a public school 
construction issue, the spending requirements of 
clause (ii) shall be treated as met if at least 10 
percent of the available construction proceeds of 
the construction issue are spent for the govern-
mental purposes of the issue within the 1-year 
period beginning on the date the bonds are issued, 
30 percent of such proceeds are spent for such 
purposes within the 2-year period beginning on 
such date, 60 percent of such proceeds are spent 
for such purposes within the 3-year period begin-
ning on such date, and 100 percent of such pro-
ceeds are spent for such purposes within the 4- 
year period beginning on such date. 
‘‘(II) PUBLIC SCHOOL CONSTRUCTION ISSUE.— 
For purposes of this clause, the term ‘public school 
construction issue’ means any construction issue 
if no bond which is part of such issue is a private 
activity bond and all of the available construction 
proceeds of such issue are to be used for the 
construction (as defined in clause (iv)) of public 
school facilities to provide education or training 
below the postsecondary level or for the acquisition 
of land that is functionally related and subordinate 
to such facilities. 
‘‘(III) OTHER RULES TO APPLY.—Rules similar 
to the rules of the preceding provisions of this 
subparagraph which apply to clause (ii) also apply 
to this clause.’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to obligations issued after December 31, 1999. 
SEC. 407. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME 
LIMITATION ON STUDENT LOAN INTEREST DEDUCTION. 
(a) ELIMINATION OF 60-MONTH LIMIT.— 
(1) IN GENERAL.—Section 221 (relating to interest on edu-
cation loans) is amended by striking subsection (d) and by 
redesignating subsections (e), (f ), and (g) as subsections (d), 
(e), and (f ), respectively. 
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H. R. 2488—37 
(2) 
CONFORMING
AMENDMENT.—Section 
6050S(e) 
is 
amended by striking ‘‘section 221(e)(1)’’ and inserting ‘‘section 
221(d)(1)’’. 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply with respect to any loan interest paid after 
December 31, 1999, in taxable years ending after such date. 
(b) INCREASE IN INCOME LIMITATION.— 
(1) IN GENERAL.—Section 221(b)(2)(B) (relating to amount 
of reduction) is amended by striking clauses (i) and (ii) and 
inserting the following: 
‘‘(i) the excess of— 
‘‘(I) the taxpayer’s modified adjusted gross 
income for such taxable year, over 
‘‘(II) $45,000 ($90,000 in the case of a joint 
return), bears to 
‘‘(ii) $15,000.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
221(g)(1) 
is 
amended by striking ‘‘$40,000 and $60,000 amounts’’ and 
inserting ‘‘$45,000 and $90,000 amounts’’. 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to taxable years ending after December 
31, 1999. 
SEC. 408. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED DEDUC-
TIONS NOT TO APPLY TO QUALIFIED PROFESSIONAL 
DEVELOPMENT EXPENSES OF ELEMENTARY AND SEC-
ONDARY SCHOOL TEACHERS. 
(a) IN GENERAL.—Section 67(b) (defining miscellaneous itemized 
deductions) is amended by striking ‘‘and’’ at the end of paragraph 
(11), by striking the period at the end of paragraph (12) and 
inserting ‘‘, and’’, and by adding at the end the following new 
paragraph: 
‘‘(13) any deduction allowable for the qualified professional 
development expenses of an eligible teacher.’’. 
(b) DEFINITIONS.—Section 67 (relating to 2-percent floor on 
miscellaneous itemized deductions) is amended by adding at the 
end the following new subsection: 
‘‘(g) QUALIFIED
PROFESSIONAL
DEVELOPMENT
EXPENSES
OF 
ELIGIBLE TEACHERS.—For purposes of subsection (b)(13)— 
‘‘(1) QUALIFIED PROFESSIONAL DEVELOPMENT EXPENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified professional 
development expenses’ means expenses in an amount not 
to exceed $1,000 for any taxable year— 
‘‘(i) for tuition, fees, books, supplies, equipment, 
and transportation required for the enrollment or 
attendance of an individual in a qualified course of 
instruction, and 
‘‘(ii) with respect to which a deduction is allowable 
under section 162 (determined without regard to this 
section). 
‘‘(B) QUALIFIED
COURSE
OF
INSTRUCTION.—The term 
‘qualified course of instruction’ means a course of instruc-
tion which— 
‘‘(i) is— 
‘‘(I) at an institution of higher education (as 
defined in section 481 of the Higher Education 
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H. R. 2488—38 
Act of 1965 (20 U.S.C. 1088), as in effect on the 
date of the enactment of this subsection), or 
‘‘(II) a professional conference, and 
‘‘(ii) is part of a program of professional develop-
ment which is approved and certified by the appro-
priate local educational agency as furthering the 
individual’s teaching skills. 
‘‘(C) LOCAL EDUCATIONAL AGENCY.—The term ‘local edu-
cational agency’ has the meaning given such term by section 
14101 of the Elementary and Secondary Education Act of 1965, 
as so in effect. 
‘‘(2) ELIGIBLE TEACHER.— 
‘‘(A) IN GENERAL.—The term ‘eligible teacher’ means 
an individual who is a kindergarten through grade 12 
classroom teacher, instructor, counselor, aide, or principal 
in an elementary or secondary school. 
‘‘(B) ELEMENTARY OR SECONDARY SCHOOL.—The terms 
‘elementary school’ and ‘secondary school’ have the 
meanings given such terms by section 14101 of the 
Elementary and Secondary Education Act of 1965 (20 
U.S.C. 8801), as so in effect.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000, 
and ending before January 1, 2005. 
TITLE V—HEALTH CARE PROVISIONS 
SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE 
COSTS 
OF 
INDIVIDUALS 
NOT 
PARTICIPATING 
IN 
EMPLOYER-SUBSIDIZED HEALTH PLANS. 
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 is 
amended by redesignating section 222 as section 223 and by 
inserting after section 221 the following new section: 
‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS. 
‘‘(a) IN GENERAL.—In the case of an individual, there shall 
be allowed as a deduction an amount equal to the applicable 
percentage of the amount paid during the taxable year for insurance 
which constitutes medical care for the taxpayer and the taxpayer’s 
spouse and dependents. 
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of subsection (a), 
the applicable percentage shall be determined in accordance with 
the following table: 
‘‘For taxable years beginning 
The applicable 
in calendar year— 
percentage is— 
2002, 2003, and 2004 ...............................................................................
2005 ...........................................................................................................
2006 ...........................................................................................................
2007 and thereafter ..................................................................................
100.
‘‘(c) LIMITATION BASED ON OTHER COVERAGE.— 
‘‘(1) COVERAGE
UNDER
CERTAIN
SUBSIDIZED
EMPLOYER 
PLANS.— 
‘‘(A) IN GENERAL.—Subsection (a) shall not apply to 
any taxpayer for any calendar month for which the tax-
payer participates in any health plan maintained by any 
employer of the taxpayer or of the spouse of the taxpayer 
if 50 percent or more of the cost of coverage under such 
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