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‘‘(C) OTHER RULES.—The Secretary shall
prescribe rules similar to the rules under section
417 for the form and timing of any consent re-
quired by this paragraph.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall apply to plan years beginning after De-
cember 31, 1998.
(2) PLAN AMENDMENTS.—A plan shall not be
treated as failing to meet the requirements of section
411(d)(6) of the Internal Revenue Code of 1986 or
section 204(g) of the Employee Retirement Income Se-
curity Act of 1974 merely because it is amended to
meet the requirements of section 401(k)(4)(13) of such
Code (as added by subsection (a)).
SEC. 715. SPECIAL RULES FOR CHURCH PLANS.
(a) IN GENERAL.—Section 414(e)(5) relating to spe-
cial rules for chaplains and self-employed ministers is
amended—
(1) by striking ‘‘not eligible to participate’’ in
subparagraph (C) and inserting ‘‘not otherwise par-
ticipating’’, and
(2) by adding at the end the following new sub-
paragraph:
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‘‘(E) EXCLUSION.—In the case of a con-
tribution to a church plan made on behalf of a
minister described in subparagraph (A)(i)(II),
such contribution shall not be included in the
gross income of the minister to the extent that
such contribution would not be so included if the
minister was an employee of a church.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1997.
SEC. 716. REPEAL OF APPLICATION OF UNRELATED BUSI-
NESS INCOME TAX TO ESOPS.
(a) IN GENERAL.—Section 512(e) is amended—
(1) by striking ‘‘described in section 1361(c)(7)’’
in paragraph (1) and inserting ‘‘described in section
501(c)(3) and exempt from taxation under section
501(a)’’, and
(2) by inserting ‘‘CHARITABLE ORGANIZATIONS
HOLDING STOCK IN’’ after ‘‘APPLICABLE TO’’ in the
heading.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
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SEC. 717. DIVERSIFICATION IN SECTION 401(k) PLAN IN-
VESTMENTS.
(a) LIMITATIONS ON INVESTMENT IN EMPLOYER SE-
CURITIES AND EMPLOYER REAL PROPERTY BY CASH OR
DEFERRED ARRANGEMENTS.—Section 407(d)(3) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1107(d)(3)) is amended by adding at the end the
following:
‘‘(D)(i) The term ‘eligible individual account
plan’ does not include that portion of an individual
account plan that consists of elective deferrals (as de-
fined in section 402(g)(3) of the Internal Revenue
Code of 1986) pursuant to a qualified cash or deferred
arrangement as defined in section 401(k) of the Inter-
nal Revenue Code of 1986 (and earnings allocable
thereto), if such elective deferrals (or earnings alloca-
ble thereto) are required to be invested in qualifying
employer securities or qualifying employer real prop-
erty or both pursuant to the documents and instru-
ments governing the plan or at the direction of a per-
son other than the participant on whose behalf such
elective deferrals are made to the plan (or the partici-
pant’s beneficiary).
‘‘(ii) For purposes of subsection (a), such portion
shall be treated as a separate plan.
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‘‘(iii) This subparagraph shall not apply to an
individual account plan if the fair market value of
the assets of all individual account plans maintained
by the employer equals not more than 10 percent of
the fair market value of the assets of all pension plans
maintained by the employer.
‘‘(iv) This subparagraph shall not apply to an
individual account plan that is an employee stock
ownership plan as defined in section 409(a) or
4975(e)(7) of the Internal Revenue Code.
‘‘(v) This subparagraph shall not apply to an
individual account plan if not more than 1 percent
of an employees eligible compensation deposited to the
plan as an elective deferral (as so defined) is required
to be invested in the qualifying employer securities.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to employer securities and
employer real property acquired after the beginning
of the first plan year beginning after the 90th day
after the date of enactment of this Act.
(2) SPECIAL
RULE
FOR
CERTAIN
ACQUISI-
TIONS.—Employer securities and employer real prop-
erty acquired pursuant to a binding written contract
to acquire such securities and real property in effect
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on the date of enactment of this Act and at all times
thereafter, shall be treated as acquired immediately
before such date.
Subtitle C—Revisions Relating to
Disasters
SEC. 721. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT
OF WEATHER-RELATED CONDITIONS.
(a) DEFERRAL OF INCOME INCLUSION.—Subsection
(e) of section 451 (relating to special rules for proceeds from
livestock sold on account of drought) is amended—
(1) by striking ‘‘drought conditions, and that
these drought conditions’’ in paragraph (1) and in-
serting ‘‘drought, flood, or other weather-related con-
ditions, and that such conditions’’; and
(2) by inserting ‘‘, FLOOD, OR OTHER WEATH-
ER-RELATED CONDITIONS’’ after ‘‘DROUGHT’’ in the
subsection heading.
(b) INVOLUNTARY CONVERSIONS.—Subsection (e) of
section 1033 (relating to livestock sold on account of
drought) is amended—
(1) by inserting ‘‘, flood, or other weather-related
conditions’’ before the period at the end thereof; and
(2) by inserting ‘‘, FLOOD, OR OTHER WEATH-
ER-RELATED CONDITIONS’’ after ‘‘DROUGHT’’ in the
subsection heading.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to sales and exchanges after December
31, 1996.
SEC. 722. GAIN OR LOSS FROM SALE OF LIVESTOCK DIS-
REGARDED FOR PURPOSES OF EARNED IN-
COME CREDIT.
(a) IN GENERAL.—Section 32(i)(2)(D) (relating to
disqualified income) is amended by inserting ‘‘determined
without regard to gain or loss from the sale of livestock de-
scribed in section 1231(b)(3),’’ after ‘‘taxable year,’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 723. MORTGAGE FINANCING FOR RESIDENCES LO-
CATED IN DISASTER AREAS.
Subsection (k) of section 143 (relating to mortgage rev-
enue bonds; qualified mortgage bond and qualified veteran’s
mortgage bond) is amended by adding at the end the follow-
ing new paragraph:
‘‘(11) SPECIAL
RULES
FOR
RESIDENCES
LO-
CATED IN DISASTER AREAS.—In the case of a resi-
dence located in an area determined by the President
to warrant assistance from the Federal Government
under the Disaster Relief and Emergency Assistance
Act (as in effect on the date of the enactment of the
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Revenue Reconciliation Act of 1997), this section shall
be applied with the following modifications to financ-
ing provided with respect to such residence within 1
year after the date of the disaster declaration:
‘‘(A) Subsection (d) (relating to 3-year re-
quirement) shall not apply.
‘‘(B) Subsections (e) and (f) (relating to
purchase price requirement and income require-
ment) shall be applied as if such residence were
a targeted area residence.
The preceding sentence shall apply only with respect
to bonds issued after December 31, 1996, and before
January 1, 1999.’’.
SEC. 724. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT
ACCOUNTS MAY BE USED WITHOUT PENALTY
TO REPLACE OR REPAIR PROPERTY DAM-
AGED IN PRESIDENTIALLY DECLARED DISAS-
TER AREAS.
(a) IN GENERAL.—Section 72(t)(2) (relating to excep-
tions to 10-percent additional tax on early distributions),
as amended by sections 203 and 303, is amended by adding
at the end the following new subparagraph:
‘‘(G) DISTRIBUTIONS FOR DISASTER-RELAT-
ED EXPENSES.—Distributions from an individ-
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ual retirement plan which are qualified disaster-
related distributions.’’.
(b) 
QUALIFIED
DISASTER-RELATED
DISTRIBU-
TIONS.—Section 72(t), as amended by sections 203 and 303,
is amended by adding at the end the following new para-
graph:
‘‘(9) QUALIFIED DISASTER-RELATED DISTRIBU-
TIONS.—For purposes of paragraph (2)(E)—
‘‘(A) IN GENERAL.—The term ‘qualified dis-
aster-related distribution’ means any payment
or distribution received by an individual to the
extent that the payment or distribution is used
by such individual within 60 days of the pay-
ment or distribution to pay for the repair or re-
placement of tangible property which is disaster-
damaged property.
‘‘(B) LIMITATIONS.—
‘‘(i) ONLY
DISTRIBUTIONS
WITHIN
YEARS.—The term ‘qualified disaster-related
distribution’ shall only include any pay-
ment or distribution which is made during
the 2-year period beginning on the date of
the determination referred to in subpara-
graph (D).
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‘‘(ii) DOLLAR LIMITATION.—Such term
shall not include distributions to the extent
the amount of such distributions exceeds
$10,000 during the 2-year period described
in clause (i).
‘‘(C) DISASTER-DAMAGED PROPERTY.—The
term ‘disaster-damaged property’ means prop-
erty—
‘‘(i) which was located in a disaster
area on the date of the determination re-
ferred to in subparagraph (C), and
‘‘(ii) which was destroyed or substan-
tially damaged as a result of the disaster
occurring in such area.
‘‘(D) DISASTER AREA.—The term ‘disaster
area’ means an area determined by the President
during 1997 to warrant assistance by the Fed-
eral Government under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments and distributions after De-
cember 31, 1996, with respect to disasters occurring after
such date.
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SEC. 725. ELIMINATION OF 10 PERCENT FLOOR FOR DISAS-
TER LOSSES.
(a) GENERAL RULE.—Section 165(h)(2)(A) (relating
to net casualty loss allowed only to the extent it exceeds
10 percent of adjusted gross income) is amended by striking
clauses (i) and (ii) and inserting the following new clauses:
‘‘(i) the amount of the personal cas-
ualty gains for the taxable year,
‘‘(ii) the amount of the federally de-
clared disaster losses for the taxable year
(or, if lesser, the net casualty loss), plus
‘‘(iii) the portion of the net casualty
loss which is not deductible under clause
(ii) but only to the extent such portion ex-
ceeds 10 percent of the adjusted gross in-
come of the individual.
For purposes of the preceding sentence, the term
‘net casualty loss’ means the excess of personal
casualty losses for the taxable year over personal
casualty gains.’’.
(b) FEDERALLY DECLARED DISASTER LOSS DE-
FINED.—Section 165(h)(3) (relating to treatment of cas-
ualty gains and losses) is amended by adding at the end
the following new subparagraph:
‘‘(C) 
FEDERALLY
DECLARED
DISASTER
LOSS.—
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‘‘(i) IN GENERAL.—The term ‘federally
declared disaster loss’ means any personal
casualty loss attributable to a disaster oc-
curring during 1997 in an area subse-
quently determined by the President of the
United States to warrant assistance by the
Federal Government under the Robert T.
Stafford Disaster Relief and Emergency As-
sistance Act.
‘‘(ii) DOLLAR LIMITATION.—Such term
shall not include personal casualty losses to
the extent such losses exceed $10,000 for the
taxable year.’’.
(c) CONFORMING AMENDMENT.—The heading for sec-
tion 165(h)(2) is amended by striking ‘‘NET CASUALTY
LOSS’’ and inserting ‘‘NET NONDISASTER CASUALTY LOSS’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to losses attributable to disasters occur-
ring after December 31, 1996, including for purposes of de-
termining the portion of such losses allowable in taxable
years ending before such date pursuant to an election under
section 165(i) of the Internal Revenue Code of 1986.
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SEC. 726. ABATEMENT OF INTEREST ON UNDERPAYMENTS
BY 
TAXPAYERS 
IN 
PRESIDENTIALLY 
DE-
CLARED DISASTER AREAS.
(a) IN GENERAL.—Section 6404 (relating to abate-
ments) is amended by adding at the end the following:
‘‘(h) ABATEMENT OF INTEREST ON UNDERPAYMENTS
BY TAXPAYERS IN PRESIDENTIALLY DECLARED DISASTER
AREAS.—
‘‘(1) IN GENERAL.—If the Secretary extends for
any period the time for filing income tax returns
under section 6081 and the time for paying income
tax with respect to such returns under section 6161
(and waives any penalties relating to the failure to
so file or so pay) for any individual located in a
Presidentially declared disaster area, the Secretary
shall abate for such period the assessment of any in-
terest prescribed under section 6601 on such income
tax.
‘‘(2) 
PRESIDENTIALLY
DECLARED
DISASTER
AREA.—For purposes of paragraph (1), the term
‘Presidentially declared disaster area’ means, with re-
spect to any individual, any area which the President
has determined during 1997 warrants assistance by
the Federal Government under the Robert T. Stafford
Disaster Relief and Emergency Assistance Act.
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‘‘(3) INDIVIDUAL.—For purposes of this sub-
section, the term ‘individual’ shall not include any es-
tate or trust.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to disasters declared after December 31,
1996.
Subtitle D—Provisions Relating to
Small Businesses
SEC. 731. WAIVER OF PENALTY THROUGH JUNE 30, 1998, ON
SMALL BUSINESSES FAILING TO MAKE ELEC-
TRONIC FUND TRANSFERS OF TAXES.
No penalty shall be imposed under the Internal Reve-
nue Code of 1986 solely by reason of a failure by a person
to use the electronic fund transfer system established under
section 6302(h) of such Code if—
(1) such person is a member of a class of tax-
payers first required to use such system on or after
July 1, 1997, and
(2) such failure occurs before July 1, 1998.
SEC. 732. MINIMUM TAX NOT TO APPLY TO FARMERS’ IN-
STALLMENT SALES.
(a) IN GENERAL.—Subsection (a) of section 56 is
amended by striking paragraph (6) (relating to treatment
of installment sales).
(b) EFFECTIVE DATES.—
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(1) IN GENERAL.—The amendment made by this
section shall apply to dispositions in taxable years be-
ginning after December 31, 1987.
(2) SPECIAL RULE FOR 1987.—In the case of tax-
able years beginning in 1987, the last sentence of sec-
tion 56(a)(6) of the Internal Revenue Code of 1986
(as in effect for such taxable years) shall be applied
by inserting ‘‘or in the case of a taxpayer using the
cash receipts and disbursements method of accounting,
any 
disposition 
described 
in 
section
453C(e)(1)(B)(ii)’’ after ‘‘section 453C(e)(4)’’.
SEC. 733. INCREASE IN DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—The table contained in section
162(l)(1)(B) is amended to read as follows:
‘‘For taxable years beginning
in calendar year—
The applicable percentage is—
1997 ................................................................................................
1998 ................................................................................................
1999 through 2001 .........................................................................
2002 ................................................................................................
2003 ................................................................................................
2004 ................................................................................................
2005 ................................................................................................
2006 ................................................................................................
2007 ................................................................................................
100.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
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SEC. 734. SENSE OF THE SENATE WITH RESPECT TO SELF-
EMPLOYMENT TAX OF LIMITED PARTNERS.
(a) FINDINGS.—The Senate finds that—
(1) the Department of the Treasury issued Pro-
posed Regulation 1.1402(a)–2 in January 1997 relat-
ing to the definition of a limited partner for self-em-
ployment tax purposes under section 1402(a)(13) of
the Internal Revenue Code;
(2) since 1977, section 1402(a)(13) of such Code
has provided that—
(A) a limited partner’s net earnings from
self-employment include only guaranteed pay-
ments made to the individual for services actu-
ally rendered and do not include a limited part-
ner’s distributive share of the income or loss of
the partnership, and
(B) a general partner’s net earnings from
self-employment include the partner’s distribu-
tive share;
(3) the proposed regulations provide generally—
(A) that a partner will not be treated as a
limited partner if the individual—
(i) has personal liability for partner-
ship debts,
(ii) has authority to contract on behalf
of the partnership, or
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(iii) participates in the partnership’s
trade or business for more than 500 hours
during the taxable year;
(B) that an individual meeting any one of
these three criteria will be treated as a general
partner, and net earnings from self-employment
will include the partner’s distributive share of
partnership income and loss, resulting in sub-
stantial tax liability because there is a 15.3 per-
cent tax on self-employment income below
$65,400 in 1997 and a 2.9 percent hospital in-
surance tax on self-employment income above
that amount;
(4) certain types of entities, such as limited li-
ability companies and limited liability partnerships,
were not widely used at the time the present rule re-
lating to limited partners was enacted, and that the
proposed regulations attempt to address owners of
such entities;
(5) the Senate is concerned that the proposed
change in the treatment of individuals who are lim-
ited partners under applicable State law exceeds the
regulatory authority of the Treasury Department and
would effectively change the law administratively
without congressional action; and
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(6) the proposed regulations address and raise
significant policy issues and the proposed definition
of a limited partner may have a substantial impact
on the tax liability of certain individuals and may
also affect individuals’ entitlement to social security
benefits.
(b) SENSE OF SENATE.—It is the sense of the Senate
that—
(1) the Department of the Treasury and the In-
ternal Revenue Service should withdraw Proposed
Regulation 1.1402(a)–2 which imposes a tax on lim-
ited partners; and
(2) Congress, not the Department of the Treasury
or the Internal Revenue Service, should determine the
tax law governing self-employment income for limited
partners.
Subtitle E—Foreign Provisions
PART I—GENERAL PROVISIONS
SEC. 741. TREATMENT OF COMPUTER SOFTWARE AS FSC EX-
PORT PROPERTY.
(a) IN
GENERAL.—Subparagraph (B) of section
927(a)(2) (relating to property excluded from eligibility as
FSC export property) is amended by inserting ‘‘, and other
than computer software (whether or not patented)’’ before
‘‘, for commercial or home use’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to gross receipts attributable to peri-
ods after December 31, 1997, in taxable years ending after
such date.
SEC. 742. DENIAL OF TREATY BENEFITS FOR CERTAIN PAY-
MENTS THROUGH HYBRID ENTITIES.
(a) IN GENERAL.—Section 894 (relating to income af-
fected by treaty) is amended by inserting after subsection
(b) the following new subsection:
‘‘(c) DENIAL OF TREATY BENEFITS FOR CERTAIN PAY-
MENTS THROUGH HYBRID ENTITIES.—The Secretary shall
prescribe such regulations as may be necessary or appro-
priate to determine the extent to which a taxpayer shall
be denied benefits under any income tax treaty of the Unit-
ed States with respect to any payment received by, or in-
come attributable to any activities of, an entity organized
in any jurisdiction (including the United States) that is
treated as a partnership or is otherwise treated as fiscally
transparent for United States Federal income tax purposes
(including a common investment trust under section 584,
a grantor trust, or an entity that is disregarded for United
States Federal income tax purposes) and is treated as fis-
cally nontransparent for purposes of the tax laws of the ju-
risdiction of residence of the taxpayer.’’.
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(b) EFFECTIVE DATE.—The amendments made by this
section shall apply upon the date of enactment of this Act.
SEC. 743. UNITED STATES PROPERTY NOT TO INCLUDE
CERTAIN ASSETS ACQUIRED BY DEALERS IN
ORDINARY COURSE OF TRADE OR BUSINESS.
(a) IN GENERAL.—Section 956(c)(2) is amended by
striking ‘‘and’’ at the end of subparagraph (H), by striking
the period at the end of subparagraph (I) and inserting a
semicolon, and by adding at the end the following new sub-
paragraphs:
‘‘(J) deposits of cash or securities made or
received on commercial terms in the ordinary
course of a United States or foreign person’s
business as a dealer in securities or in commod-
ities, but only to the extent such deposits are
made or received as collateral or margin for (i)
a securities loan, notional principal contract,
options contract, forward contract, or futures
contract, or (ii) any other financial transaction
in which the Secretary determines that it is cus-
tomary to post collateral or margin; and
‘‘(K) an obligation of a United States per-
son to the extent the principal amount of the ob-
ligation does not exceed the fair market value of
readily marketable securities sold or purchased
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pursuant to a sale and repurchase agreement or
otherwise posted or received as collateral for the
obligation in the ordinary course of its business
by a United States or foreign person which is a
dealer in securities or commodities.
For purposes of subparagraphs (J) and (K), the term
‘dealer in securities’ has the meaning given such term
by section 475(c)(1), and the term ‘dealer in commod-
ities’ means a futures commission merchant or any
person which would be a dealer in securities if securi-
ties under section 475(c)(2) included commodities,
evidences of an interest in commodities, and deriva-
tive instruments in respect of commodities (other than
any activity gain or loss from which is described in
section 1256(a)(3)).’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years of foreign corporations
beginning after December 31, 1997, and to taxable years
of United States shareholders with or within which such
taxable years of foreign corporations end.
SEC. 744. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) EXEMPTION FROM FOREIGN PERSONAL HOLDING
COMPANY INCOME.—Subsection (c) of section 954 is amend-
ed by adding at the end the following new paragraph:
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‘‘(4) CERTAIN INCOME DERIVED IN ACTIVE CON-
DUCT OF TRADE OR BUSINESS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), foreign personal holding company in-
come shall not include income which is—
‘‘(i) derived in or incident to the active
conduct by a controlled foreign corporation
of a banking, financing, or similar business,
but only if the corporation is predomi-
nantly engaged in the active conduct of such
business,
‘‘(ii) received from a person other than
a related person (within the meaning of
subsection (d)(3)) and derived from the in-
vestments made by a qualifying insurance
company of its unearned premiums or re-
serves ordinary and necessary for the proper
conduct of its insurance business, or
‘‘(iii) received from a person other
than a related person (within the meaning
of subsection (d)(3)) and derived from in-
vestments made by a qualifying insurance
company of an amount of its assets equal
to—
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‘‘(I) in the case of contracts regu-
lated in the country in which sold as
property, casualty, or health insurance
contracts, one-third of its premiums
earned on insurance contracts during
the taxable year (as defined in section
832(b)(4)), and
‘‘(II) in the case of contracts regu-
lated in the country in which sold as
life insurance or annuity contracts, the
greater of 10 percent of the reserves de-
scribed in clause (ii) or $10,000,000,
which are not directly or indirectly attrib-
utable to the insurance or reinsurance of
risks of persons who are related persons
(within the meaning of subsection (d)(3)).
‘‘(B) APPLICABLE PRINCIPLES.—
‘‘(i) BANKING, ETC. INCOME.—The Sec-
retary shall prescribe regulations which in-
terpret subparagraph (A)(i) in accordance
with the applicable principles of section
904(d)(2)(C), except that in prescribing
such regulations, the Secretary shall include
income from all leases in income from a
banking, financing, or similar business.
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‘‘(ii) LOOK-THRU
RULES.—The Sec-
retary shall prescribe regulations consistent
with the principles of section 904(d)(3)
which provide that dividends, interest, in-
come equivalent to interest, rents, or royal-
ties received or accrued from a related per-
son (within the meaning of subsection
(d)(3)) shall be subject to look-thru treat-
ment for purposes of this section.
‘‘(iii) SPECIAL RULE FOR BANKING OR
SECURITIES
BUSINESS.—In the case of a
corporation 
described 
in 
subparagraph
(C)(ii), the regulations under clauses (i)
and (ii) shall be consistent with the appli-
cable principles of section 1296(b) (as in ef-
fect on the day before the enactment of the
Revenue Reconciliation Act of 1997).
‘‘(C) PREDOMINANTLY ENGAGED.—For pur-
poses of subparagraph (A)(i), a corporation shall
be deemed predominantly engaged in the active
conduct of a banking, financing, or similar busi-
ness only if—
‘‘(i) more than 70 percent of its gross
income from such business is derived from
transactions with unrelated persons (as de-
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fined in subsection (d)(3)), and more than
20 percent of its gross income from that
business is derived from transactions with
unrelated persons (as so defined) located
within the country under the laws of which
the controlled foreign corporation is created
or organized, or
‘‘(ii) the corporation is—
‘‘(I) predominantly engaged in
the active conduct of a banking or se-
curities business (within the meaning
of section 1296(b), as in effect before
the enactment of the Revenue Rec-
onciliation Act of 1997), or
‘‘(II) a qualified bank affiliate or
a qualified securities affiliate for pur-
poses of section 1296(b) (as so in ef-
fect).
‘‘(D) QUALIFYING INSURANCE COMPANY.—
For purposes of clauses (ii) and (iii) of subpara-
graph (A), the term ‘qualifying insurance com-
pany’ means any entity which is subject to regu-
lation as an insurance company under the laws
of its country of incorporation and which real-
izes at least 50 percent of its gross income (other
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than gross income derived from investments)
from premiums written on risks situated within
its country of incorporation.
‘‘(E) APPLICATION.—This paragraph shall
apply to taxable years of foreign corporations be-
ginning after December 31, 1997, and before
January 1, 1999, and to taxable years of United
States shareholders with or within which such
taxable years of foreign corporations end.’’.
(b) EXEMPTION FROM FOREIGN BASE COMPANY SERV-
ICES INCOME.—Paragraph (2) of section 954(e) is amended
by striking ‘‘or’’ at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting
‘‘, or’’, and by adding at the end the following:
‘‘(C) in the case of taxable years described
in subsection (c)(4)(E), the active conduct by a
controlled foreign corporation of a banking, fi-
nancing, insurance, or similar business, but only
if the corporation is predominantly engaged in
the active conduct of that business (within the
meaning of subsection (c)(4)(C)).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years of foreign corporations
beginning after December 31, 1997, and before January 1,
1999, and to taxable years of United States shareholders
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with or within which such taxable years of foreign corpora-
tions end.
SEC. 745. TREATMENT OF NONRESIDENT ALIENS ENGAGED
IN INTERNATIONAL TRANSPORTATION SERV-
ICES.
(a) SOURCING RULES.—
(1) IN GENERAL.—Section 861(a)(3) is amended
by adding at the end the following new flush sentence:
‘‘In addition, compensation for labor or services per-
formed in the United States shall not be deemed to be
income from sources within the United States if the
labor or services are performed by a nonresident alien
individual in connection with the individual’s tem-
porary presence in the United States as a regular
member of the crew of a foreign vessel engaged in
transportation between the United States and a for-
eign country or a possession of the United States.’’.
(2) TRANSPORTATION
INCOME.—Subparagraph
(B) of section 863(c)(2) is amended by adding at the
end the following flush sentence:
‘‘In the case of transportation income derived
from, or in connection with, a vessel, this sub-
paragraph shall only apply if the taxpayer is a
citizen or resident alien.’’.
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(3) 
CONFORMING
AMENDMENT.—Section
410(b)(3)(C) is amended by inserting ‘‘without regard
to the last sentence thereof’’ after ‘‘section 861(a)(3)’’.
(b) EXCLUSION FROM INCOME.—Section 872(b) is
amended by redesignating paragraphs (6) and (7) as para-
graphs (7) and (8), respectively, and by inserting after
paragraph (5) the following new paragraph:
‘‘(6) PERSONAL SERVICES OF CREW MEMBERS.—
Income derived by an individual resident of a foreign
country from personal services as a regular crew
member on board a vessel to which paragraph (1) ap-
plies.’’.
(c) PRESENCE IN UNITED STATES.—
(1) IN
GENERAL.—Paragraph (7) of section
7701(b) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(D) 
CREW
MEMBERS
TEMPORARILY
PRESENT.—If an individual is temporarily
present in the United States as a regular mem-
ber of the crew of a foreign vessel engaged in
transportation between the United States and a
foreign country or a possession of the United
States, such individual shall not be treated as
present in the United States on any such day.’’.
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(2) CONFORMING
AMENDMENT.—Subparagraph
(A) of section 7701(b)(7) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C), or (D)’’.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to remuneration for services
performed in taxable years beginning after December
31, 1997.
(2) PRESENCE.—The amendment made by sub-
section (c) shall apply to taxable years beginning
after December 31, 1997.
PART II—TREATMENT OF PASSIVE FOREIGN
INVESTMENT COMPANIES
SEC. 
751. 
UNITED 
STATES 
SHAREHOLDERS 
OF 
CON-
TROLLED FOREIGN CORPORATIONS NOT SUB-
JECT TO PFIC INCLUSION.
Section 1296 is amended by adding at the end the fol-
lowing new subsection:
‘‘(e) EXCEPTION FOR UNITED STATES SHAREHOLDERS
OF CONTROLLED FOREIGN CORPORATIONS.—
‘‘(1) IN GENERAL.—For purposes of this part, a
corporation shall not be treated with respect to a
shareholder as a passive foreign investment company
during the qualified portion of such shareholder’s
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holding period with respect to stock in such corpora-
tion.
‘‘(2) QUALIFIED PORTION.—For purposes of this
subsection, the term ‘qualified portion’ means the por-
tion of the shareholder’s holding period—
‘‘(A) which is after December 31, 1997, and
‘‘(B) during which the shareholder is a
United States shareholder (as defined in section
951(b)) of the corporation and the corporation is
a controlled foreign corporation.
‘‘(3) NEW HOLDING PERIOD IF QUALIFIED POR-
TION ENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), if the qualified portion of a
shareholder’s holding period with respect to any
stock ends after December 31, 1997, solely for
purposes of this part, the shareholder’s holding
period with respect to such stock shall be treated
as beginning as of the first day following such
period.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply if such stock was, with respect to such
shareholder, stock in a passive foreign investment
company at any time before the qualified portion
of the shareholder’s holding period with respect
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to such stock and no election under section
1298(b)(1) is made.’’.
SEC. 752. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK IN PASSIVE FOREIGN INVEST-
MENT COMPANY.
(a) IN GENERAL.—Part VI of subchapter P of chapter
1 is amended by redesignating subpart C as subpart D, by
redesignating sections 1296 and 1297 as sections 1297 and
1298, respectively, and by inserting after subpart B the fol-
lowing new subpart:
‘‘Subpart C—Election of Mark to Market For
Marketable Stock
‘‘Sec. 1296. Election of mark to market for marketable stock.
‘‘SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK.
‘‘(a) GENERAL RULE.—In the case of marketable stock
in a passive foreign investment company which is owned
(or treated under subsection (g) as owned) by a United
States person at the close of any taxable year of such person,
at the election of such person—
‘‘(1) If the fair market value of such stock as of
the close of such taxable year exceeds its adjusted
basis, such United States person shall include in gross
income for such taxable year an amount equal to the
amount of such excess.
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‘‘(2) If the adjusted basis of such stock exceeds
the fair market value of such stock as of the close of
such taxable year, such United States person shall be
allowed a deduction for such taxable year equal to the
lesser of—
‘‘(A) the amount of such excess, or
‘‘(B) the unreversed inclusions with respect
to such stock.
‘‘(b) BASIS ADJUSTMENTS.—
‘‘(1) IN GENERAL.—The adjusted basis of stock
in a passive foreign investment company—
‘‘(A) shall be increased by the amount in-
cluded in the gross income of the United States
person under subsection (a)(1) with respect to
such stock, and
‘‘(B) shall be decreased by the amount al-
lowed as a deduction to the United States person
under subsection (a)(2) with respect to such
stock.
‘‘(2) SPECIAL RULE FOR STOCK CONSTRUCTIVELY
OWNED.—In the case of stock in a passive foreign in-
vestment company which the United States person is
treated as owning under subsection (g)—
‘‘(A) the adjustments under paragraph (1)
shall apply to such stock in the hands of the per-
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son actually holding such stock but only for pur-
poses of determining the subsequent treatment
under this chapter of the United States person
with respect to such stock, and
‘‘(B) similar adjustments shall be made to
the adjusted basis of the property by reason of
which the United States person is treated as
owning such stock.
‘‘(c) CHARACTER AND SOURCE RULES.—
‘‘(1) ORDINARY TREATMENT.—
‘‘(A) GAIN.—Any amount included in gross
income under subsection (a)(1), and any gain on
the sale or other disposition of marketable stock
in a passive foreign investment company (with
respect to which an election under this section is
in effect), shall be treated as ordinary income.
‘‘(B) LOSS.—Any—
‘‘(i) amount allowed as a deduction
under subsection (a)(2), and
‘‘(ii) loss on the sale or other disposi-
tion of marketable stock in a passive foreign
investment company (with respect to which
an election under this section is in effect) to
the extent that the amount of such loss does
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not exceed the unreversed inclusions with re-
spect to such stock,
shall be treated as an ordinary loss. The amount
so treated shall be treated as a deduction allow-
able in computing adjusted gross income.
‘‘(2) SOURCE.—The source of any amount in-
cluded in gross income under subsection (a)(1) (or al-
lowed as a deduction under subsection (a)(2)) shall be
determined in the same manner as if such amount
were gain or loss (as the case may be) from the sale
of stock in the passive foreign investment company.
‘‘(d) UNREVERSED INCLUSIONS.—For purposes of this
section, the term ‘unreversed inclusions’ means, with respect
to any stock in a passive foreign investment company, the
excess (if any) of—
‘‘(1) the amount included in gross income of the
taxpayer under subsection (a)(1) with respect to such
stock for prior taxable years, over
‘‘(2) the amount allowed as a deduction under
subsection (a)(2) with respect to such stock for prior
taxable years.
The amount referred to in paragraph (1) shall include any
amount which would have been included in gross income
under subsection (a)(1) with respect to such stock for any
prior taxable year but for section 1291.
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‘‘(e) MARKETABLE STOCK.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘marketable stock’
means—
‘‘(A) any stock which is regularly traded
on—
‘‘(i) a national securities exchange
which is registered with the Securities and
Exchange Commission or the national mar-
ket system established pursuant to section
11A of the Securities and Exchange Act of
1934, or
‘‘(ii) any exchange or other market
which the Secretary determines has rules
adequate to carry out the purposes of this
part,
‘‘(B) to the extent provided in regulations,
stock in any foreign corporation which is com-
parable to a regulated investment company and
which offers for sale or has outstanding any
stock of which it is the issuer and which is re-
deemable at its net asset value, and
‘‘(C) to the extent provided in regulations,
any option on stock described in subparagraph
(A) or (B).
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‘‘(2) SPECIAL
RULE
FOR
REGULATED
INVEST-
MENT COMPANIES.—In the case of any regulated in-
vestment company which is offering for sale or has
outstanding any stock of which it is the issuer and
which is redeemable at its net asset value, all stock
in a passive foreign investment company which it
owns directly or indirectly shall be treated as market-
able stock for purposes of this section. Except as pro-
vided in regulations, similar treatment as marketable
stock shall apply in the case of any other regulated
investment company which publishes net asset valu-
ations at least annually.
‘‘(f) TREATMENT OF CONTROLLED FOREIGN CORPORA-
TIONS WHICH ARE SHAREHOLDERS IN PASSIVE FOREIGN
INVESTMENT COMPANIES.—In the case of a foreign corpora-
tion which is a controlled foreign corporation and which
owns (or is treated under subsection (g) as owning) stock
in a passive foreign investment company—
‘‘(1) this section (other than subsection (c)(2))
shall apply to such foreign corporation in the same
manner as if such corporation were a United States
person, and
‘‘(2) for purposes of subpart F of part III of sub-
chapter N—
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‘‘(A) any amount included in gross income
under subsection (a)(1) shall be treated as for-
eign personal holding company income described
in section 954(c)(1)(A), and
‘‘(B) any amount allowed as a deduction
under subsection (a)(2) shall be treated as a de-
duction allocable to foreign personal holding
company income so described.
‘‘(g) STOCK OWNED THROUGH CERTAIN FOREIGN EN-
TITIES.—Except as provided in regulations—
‘‘(1) IN GENERAL.—For purposes of this section,
stock owned, directly or indirectly, by or for a foreign
partnership or foreign trust or foreign estate shall be
considered as being owned proportionately by its
partners or beneficiaries. Stock considered to be
owned by a person by reason of the application of the
preceding sentence shall, for purposes of applying
such sentence, be treated as actually owned by such
person.
‘‘(2) TREATMENT OF CERTAIN DISPOSITIONS.—
In any case in which a United States person is treat-
ed as owning stock in a passive foreign investment
company by reason of paragraph (1)—
‘‘(A) any disposition by the United States
person or by any other person which results in
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the United States person being treated as no
longer owning such stock, and
‘‘(B) any disposition by the person owning
such stock,
shall be treated as a disposition by the United States
person of the stock in the passive foreign investment
company.
‘‘(h) COORDINATION WITH SECTION 851(b).—For pur-
poses of paragraphs (2) and (3) of section 851(b), any
amount included in gross income under subsection (a) shall
be treated as a dividend.
‘‘(i) STOCK ACQUIRED FROM A DECEDENT.—In the
case of stock of a passive foreign investment company which
is acquired by bequest, devise, or inheritance (or by the dece-
dent’s estate) and with respect to which an election under
this section was in effect as of the date of the decedent’s
death, notwithstanding section 1014, the basis of such stock
in the hands of the person so acquiring it shall be the ad-
justed basis of such stock in the hands of the decedent imme-
diately before his death (or, if lesser, the basis which would
have been determined under section 1014 without regard to
this subsection).
‘‘(j) COORDINATION WITH SECTION 1291 FOR FIRST
YEAR OF ELECTION.—
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‘‘(1) TAXPAYERS OTHER THAN REGULATED IN-
VESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—If the taxpayer elects
the application of this section with respect to
any marketable stock in a corporation after the
beginning of the taxpayer’s holding period in
such stock, and if the requirements of subpara-
graph (B) are not satisfied, section 1291 shall
apply to—
‘‘(i) any distributions with respect to,
or disposition of, such stock in the first tax-
able year of the taxpayer for which such
election is made, and
‘‘(ii) any amount which, but for sec-
tion 1291, would have been included in
gross income under subsection (a) with re-
spect to such stock for such taxable year in
the same manner as if such amount were
gain on the disposition of such stock.
‘‘(B) REQUIREMENTS.—The requirements of
this subparagraph are met if, with respect to
each of such corporation’s taxable years for
which such corporation was a passive foreign in-
vestment company and which begin after Decem-
ber 31, 1986, and included any portion of the
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taxpayer’s holding period in such stock, such cor-
poration was treated as a qualified electing fund
under this part with respect to the taxpayer.
‘‘(2) SPECIAL RULES FOR REGULATED INVEST-
MENT COMPANIES.—
‘‘(A) IN GENERAL.—If a regulated invest-
ment company elects the application of this sec-
tion with respect to any marketable stock in a
corporation after the beginning of the taxpayer’s
holding period in such stock, then, with respect
to such company’s first taxable year for which
such company elects the application of this sec-
tion with respect to such stock—
‘‘(i) section 1291 shall not apply to
such stock with respect to any distribution
or disposition during, or amount included
in gross income under this section for, such
first taxable year, but
‘‘(ii) such regulated investment compa-
ny’s tax under this chapter for such first
taxable year shall be increased by the aggre-
gate amount of interest which would have
been determined under section 1291(c)(3) if
section 1291 were applied without regard to
this subparagraph.
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Clause (ii) shall not apply if for the preceding
taxable year the company elected to mark to
market the stock held by such company as of the
last day of such preceding taxable year.
‘‘(B) DISALLOWANCE
OF
DEDUCTION.—No
deduction shall be allowed to any regulated in-
vestment company for the increase in tax under
subparagraph (A)(ii).
‘‘(k) ELECTION.—This section shall apply to market-
able stock in a passive foreign investment company which
is held by a United States person only if such person elects
to apply this section with respect to such stock. Such an
election shall apply to the taxable year for which made and
all subsequent taxable years unless—
‘‘(1) such stock ceases to be marketable stock, or
‘‘(2) the Secretary consents to the revocation of
such election.
‘‘(l) TRANSITION RULE FOR INDIVIDUALS BECOMING
SUBJECT TO UNITED STATES TAX.—If any individual be-
comes a United States person in a taxable year beginning
after December 31, 1997, solely for purposes of this section,
the adjusted basis (before adjustments under subsection (b))
of any marketable stock in a passive foreign investment
company owned by such individual on the first day of such
taxable year shall be treated as being the greater of its fair
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market value on such first day or its adjusted basis on such
first day.’’.
(b) COORDINATION WITH INTEREST CHARGE, ETC.—
(1) Paragraph (1) of section 1291(d) is amended
by adding at the end the following new flush sentence:
‘‘Except as provided in section 1296(j), this section
also shall not apply if an election under section
1296(k) is in effect for the taxpayer’s taxable year.’’.
(2) The subsection heading for subsection (d) of
section 1291 is amended by striking ‘‘SUBPART B’’
and inserting ‘‘SUBPARTS B AND C’’.
(3) Subparagraph (A) of section 1291(a)(3) is
amended to read as follows:
‘‘(A) HOLDING
PERIOD.—The taxpayer’s
holding period shall be determined under section
1223; except that—
‘‘(i) for purposes of applying this sec-
tion to an excess distribution, such holding
period shall be treated as ending on the date
of such distribution, and
‘‘(ii) if section 1296 applied to such
stock with respect to the taxpayer for any
prior taxable year, such holding period shall
be treated as beginning on the first day of
the first taxable year beginning after the
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(2) Subsection (b) of section 852 is amended by
adding at the end thereof the following new para-
graph:
‘‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON
STOCK IN PASSIVE FOREIGN INVESTMENT COMPANY.—
To the extent provided in regulations, the taxable in-
come of a regulated investment company (other than
a company to which an election under section
4982(e)(4) applies) shall be computed without regard
to any net reduction in the value of any stock of a
passive foreign investment company with respect to
which an election under section 1296(k) is in effect
occurring after October 31 of the taxable year, and
any such reduction shall be treated as occurring on
the first day of the following taxable year.’’.
(3) Subsection (c) of section 852 is amended by
inserting after ‘‘October 31 of such year’’ the follow-
ing: ‘‘, without regard to any net reduction in the
value of any stock of a passive foreign investment
company with respect to which an election under sec-
tion 1296(k) is in effect occurring after October 31 of
such year,’’.
(d) CONFORMING AMENDMENTS.—
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(1) Sections 532(b)(4) and 542(c)(10) are each
amended by striking ‘‘section 1296’’ and inserting
‘‘section 1297’’.
(2) Subsection (f) of section 551 is amended by
striking ‘‘section 1297(b)(5)’’ and inserting ‘‘section
1298(b)(5)’’.
(3) Subsections (a)(1) and (d) of section 1293
are each amended by striking ‘‘section 1297(a)’’ and
inserting ‘‘section 1298(a)’’.
(4) Paragraph (3) of section 1297(b), as redesig-
nated by subsection (a), is hereby repealed.
(5) The table of sections for subpart D of part
VI of subchapter P of chapter 1, as redesignated by
subsection (a), is amended to read as follows:
‘‘Sec. 1297. Passive foreign investment company.
‘‘Sec. 1298. Special rules.’’.
(6) The table of subparts for part VI of sub-
chapter P of chapter 1 is amended by striking the last
item and inserting the following new items:
‘‘Subpart C. Election of mark to market for marketable stock.
‘‘Subpart D. General provisions.’’.
(e) CLARIFICATION
OF GAIN RECOGNITION ELEC-
TION.—The last sentence of section 1298(b)(1), as so redesig-
nated, is amended by inserting ‘‘(determined without re-
gard to the preceding sentence)’’ after ‘‘investment com-
pany’’.
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SEC. 753. EFFECTIVE DATE.
The amendments made by this part shall apply to—
(1) taxable years of United States persons begin-
ning after December 31, 1997, and
(2) taxable years of foreign corporations ending
with or within such taxable years of United States
persons.
Subtitle F—Other Provisions
SEC. 761. TAX-EXEMPT STATUS FOR CERTAIN STATE WORK-
ER’S COMPENSATION ACT COMPANIES.
(a) IN GENERAL.—Section 501(c)(27) (relating to
membership organizations under workmen’s compensation
acts) is amended by adding at the end the following:
‘‘(B) Any organization (including a mutual in-
surance company) if—
‘‘(i) such organization is created by State
law and is organized and operated under State
law exclusively to—
‘‘(I) provide workmen’s compensation
insurance which is required by State law or
with respect to which State law provides
significant disincentives if such insurance is
not purchased by an employer, and
‘‘(II) provide related coverage which is
incidental to workmen’s compensation in-
surance,
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‘‘(ii) such organization must provide work-
men’s compensation insurance to any employer
in the State (for employees in the State or tem-
porarily assigned out-of-State) which seeks such
insurance and meets other reasonable require-
ments relating thereto,
‘‘(iii)(I) the State makes a financial com-
mitment with respect to such organization either
by extending the full faith and credit of the State
to debt of such organization or by providing the
initial operating capital of such organization
and (II) in the case of periods after the date of
enactment of this subparagraph, the assets of
such organization revert to the State upon dis-
solution, and
‘‘(iv) the majority of the board of directors
or oversight body of such organization are ap-
pointed by the chief executive officer or other ex-
ecutive branch official of the State, by the State
legislature, or by both.’’.
(b) CONFORMING AMENDMENTS.—Section 501(c)(27)
of such Code is amended by inserting ‘‘(A)’’ after ‘‘(27)’’,
by redesignating subparagraphs (A), (B), and (C) as
clauses (i), (ii), and (iii), respectively, and by redesignating
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clauses (i) and (ii) of subparagraphs (B) and (C) (before
redesignation) as subclauses (I) and (II), respectively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 762. ELECTION TO CONTINUE EXCEPTION FROM
TREATMENT OF PUBLICLY TRADED PARTNER-
SHIPS AS CORPORATIONS.
(a) IN GENERAL.—Section 7704 is amended by adding
at the end thereof the following new subsection:
‘‘(g) EXCEPTION FOR EXISTING PUBLICLY TRADED
PARTNERSHIPS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to an existing publicly traded partnership
which elects the application of this subsection and
consents to the application of the tax imposed by
paragraph (3).
‘‘(2) EXISTING
PUBLICLY
TRADED
PARTNER-
SHIP.—For purposes of this section, the term ‘existing
publicly traded partnership’ means any publicly
traded partnership to which subsection (a) does not
apply as of the date of the enactment of this para-
graph (other than by reason of subsection (c)(1)).
‘‘(3) ADDITIONAL TAX ON ELECTING PUBLICLY
TRADED PARTNERSHIPS.—
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‘‘(A) IMPOSITION OF TAX.—There is hereby
imposed for each taxable year on the income of
every electing publicly traded partnership a tax
equal to 3.5 percent of the gross income for such
taxable year from the active conduct of trades
and businesses by the partnership.
‘‘(B) ELECTING
PUBLICLY
TRADED
PART-
NERSHIP.—For purposes of this paragraph, the
term ‘electing publicly traded partnership’
means any partnership for which the consent
under paragraph (1) is in effect.
‘‘(C) ADJUSTMENTS
IN
THE
CASE
OF
TIERED
PARTNERSHIPS.—For purposes of this
paragraph, if the income of the partnership in-
cludes its distributive share of income from an-
other partnership for any taxable year, the gross
income referred to in subparagraph (A) shall in-
clude the gross income of such other partnership
from the active conduct of trades and businesses
of such other partnership (in lieu of such dis-
tributive share). A similar rule shall apply in
the case of lower-tiered partnerships.
‘‘(D) TREATMENT OF TAX.—For purposes of
this title, the tax imposed by this paragraph
shall be treated as imposed by chapter 1 other
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than for purposes of determining the amount of
any credit allowable under chapter 1.
‘‘(4) ELECTION.—An election and consent under
this subsection shall apply to the taxable year for
which made and all subsequent taxable years unless
revoked by the partnership. Such revocation may be
made without the consent of the Secretary, but, once
so revoked, may not be reinstated.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 763. EXCLUSION FROM UNRELATED BUSINESS TAX-
ABLE INCOME FOR CERTAIN SPONSORSHIP
PAYMENTS.
(a) IN GENERAL.—Section 513 (relating to unrelated
trade or business income) is amended by adding at the end
the following new subsection:
‘‘(i) TREATMENT
OF CERTAIN SPONSORSHIP PAY-
MENTS.—
‘‘(1) IN GENERAL.—The term ‘unrelated trade or
business’ does not include the activity of soliciting
and receiving qualified sponsorship payments.
‘‘(2) QUALIFIED SPONSORSHIP PAYMENTS.—For
purposes of this subsection—
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‘‘(A) IN
GENERAL.—The term ‘qualified
sponsorship payment’ means any payment made
by any person engaged in a trade or business
with respect to which there is no arrangement or
expectation that such person will receive any
substantial return benefit other than the use or
acknowledgement of the name or logo (or product
lines) of such person’s trade or business in con-
nection with the activities of the organization
that receives such payment. Such a use or ac-
knowledgement does not include advertising such
person’s products or services (including messages
containing qualitative or comparative language,
price information or other indications of savings
or value, an endorsement, or an inducement to
purchase, sell, or use such products or services).
‘‘(B) LIMITATIONS.—
‘‘(i) 
CONTINGENT
PAYMENTS.—The
term ‘qualified sponsorship payment’ does
not include any payment if the amount of
such payment is contingent upon the level
of attendance at one or more events, broad-
cast ratings, or other factors indicating the
degree of public exposure to one or more
events.
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‘‘(ii) ACKNOWLEDGEMENTS OR ADVER-
TISING IN PERIODICALS.—The term ‘quali-
fied sponsorship payment’ does not include
any payment which entitles the payor to an
acknowledgement or advertising in regu-
larly scheduled and printed material pub-
lished by or on behalf of the payee organiza-
tion that is not related to and primarily
distributed in connection with a specific
event conducted by the payee organization.
‘‘(3) ALLOCATION OF PORTIONS OF SINGLE PAY-
MENT.—For purposes of this subsection, to the extent
that a portion of a payment would (if made as a sep-
arate payment) be a qualified sponsorship payment,
such portion of such payment and the other portion
of such payment shall be treated as separate pay-
ments.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to payments solicited or received after
December 31, 1997.
SEC. 764. ASSOCIATIONS OF HOLDERS OF TIMESHARE IN-
TERESTS TO BE TAXED LIKE OTHER HOME-
OWNERS ASSOCIATIONS.
(a) TIMESHARE ASSOCIATIONS INCLUDED AS HOME-
OWNER ASSOCIATIONS.—
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(1) IN
GENERAL.—Paragraph (1) of section
528(c) (defining homeowners association) is amend-
ed—
(A) by striking ‘‘or a residential real estate
management association’’ and inserting ‘‘, a res-
idential real estate management association, or a
timeshare association’’ in the material preceding
subparagraph (A),
(B) by striking ‘‘or’’ at the end of clause (i)
of subparagraph (B), by striking the period at
the end of clause (ii) of subparagraph (B) and
inserting ‘‘, or’’, and by adding at the end of
subparagraph (B) the following new clause:
‘‘(iii) owners of timeshare rights to use,
or timeshare ownership interests in, associa-
tion property in the case of a timeshare as-
sociation,’’, and
(C) by inserting ‘‘and, in the case of a
timeshare association, for activities provided to
or on behalf of members of the association’’ before
the comma at the end of subparagraph (C).
(2) TIMESHARE
ASSOCIATION
DEFINED.—Sub-
section (c) of section 528 is amended by redesignating
paragraph (4) as paragraph (5) and by inserting
after paragraph (3) the following new paragraph:
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‘‘(4) 
TIMESHARE
ASSOCIATION.—The 
term
‘timeshare association’ means any organization (other
than a condominium management association) meet-
ing the requirement of subparagraph (A) of para-
graph (1) if any member thereof holds a timeshare
right to use, or a timeshare ownership interest in,
real property constituting association property.’’.
(b) EXEMPT FUNCTION INCOME.—Paragraph (3) of
section 528(d) is amended by striking ‘‘or’’ at the end of
subparagraph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, or’’, and by adding at the
end the following new subparagraph:
‘‘(C) owners of timeshare rights to use, or
timeshare ownership interests in, real property
in the case of a timeshare association.’’.
(c) ASSOCIATION PROPERTY.—Paragraph (5) of sec-
tion 528(c), as redesignated by paragraph (2), is amended
by adding at the end the following new flush sentence:
‘‘In the case of a timeshare association, such term in-
cludes property in which the timeshare association, or
members of the association, have rights arising out of
recorded easements, covenants, or other recorded in-
struments to use property related to the timeshare
project.’’.
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(d) RATE OF TAX.—Subsection (b) of section 528 (re-
lating to certain homeowners associations) is amended by
inserting before the period ‘‘(32 percent of such income in
the case of a timeshare association)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
SEC. 765. INCREASED DEDUCTIBILITY OF BUSINESS MEAL
EXPENSES FOR INDIVIDUALS SUBJECT TO
FEDERAL HOURS OF SERVICE AND SEAFOOD
PROCESSORS.
(a) IN GENERAL.—Section 274(n) (relating to only 50
percent of meal and entertainment expenses allowed as de-
duction) is amended by adding at the end the following new
paragraph:
‘‘(3) SPECIAL RULE FOR INDIVIDUALS SUBJECT
TO FEDERAL HOURS OF SERVICE AND SEAFOOD PROC-
ESSORS.—
‘‘(A) IN GENERAL.—In the case of any ex-
penses for food or beverages consumed—
‘‘(i) while away from home (within the
meaning of section 162(a)(2)) by an indi-
vidual during, or incident to, the period of
duty subject to the hours of service limita-
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tions of the Department of Transportation,
or
‘‘(ii) by an individual in connection
with the individual’s employment at a sea-
food processing facility located in the Unit-
ed States, North of 53 degrees North lati-
tude,
paragraph (1) shall be applied by substituting
‘the applicable percentage’ for ‘50 percent’.
‘‘(B) APPLICABLE PERCENTAGE.—For pur-
poses of this paragraph, the term ‘applicable per-
centage’ means the percentage determined under
the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
1998 or 1999 ..................................................................................
2000 or 2001 ..................................................................................
2002 or 2003 ..................................................................................
2004 or 2005 ..................................................................................
2006 or 2007 ..................................................................................
2008 or thereafter ..........................................................................
80.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
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SEC. 766. DEDUCTION IN COMPUTING ADJUSTED GROSS IN-
COME FOR EXPENSES IN CONNECTION WITH
SERVICE 
PERFORMED 
BY 
CERTAIN 
OFFI-
CIALS.
(a) IN GENERAL.—Paragraph (2) of section 62(a) (de-
fining adjusted gross income) is amended by adding at the
end the following new subparagraph:
‘‘(C) CERTAIN EXPENSES OF OFFICIALS.—
The deductions allowed by section 162 which
consist of expenses paid or incurred with respect
to services performed by an official as an em-
ployee of a State or a political subdivision there-
of in a position compensated in whole or in part
on a fee basis.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to expenses paid or incurred in taxable
years beginning after December 31, 1997.
SEC. 767. INCREASE IN STANDARD MILEAGE RATE EXPENSE
DEDUCTION FOR CHARITABLE USE OF PAS-
SENGER AUTOMOBILE.
(a) IN GENERAL.—Section 170(i) (relating to stand-
ard mileage rate for use of passenger automobile) is amend-
ed to read as follows:
‘‘(i) STANDARD MILEAGE RATE FOR USE OF PAS-
SENGER AUTOMOBILE.—
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‘‘(1) GENERAL
RULE.—Except as provided in
paragraph (2), for purposes of computing the deduc-
tion under this section for use of a passenger auto-
mobile, the standard mileage rate shall be 15 cents
per mile.
‘‘(2) INDEXING AFTER 1998.—In the case of tax-
able years beginning in a calendar year after 1998,
the 15-cent amount under paragraph (1) shall be in-
creased by an amount equal to the product of such
amount and the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year, except
that subparagraph (B) thereof shall be applied by
substituting ‘1997’ for ‘1992’. If the amount as in-
creased under the preceding sentence is not a multiple
of 1 cent, such amount shall be rounded to the next
lowest multiple of 1 cent.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
SEC. 768. EXPENSING OF ENVIRONMENTAL REMEDIATION
COSTS.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 is amended by adding at the end the following new sec-
tion:
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‘‘SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION
COSTS.
‘‘(a) IN GENERAL.—A taxpayer may elect to treat any
qualified environmental remediation expenditure which is
paid or incurred by the taxpayer as an expense which is
not chargeable to capital account. Any expenditure which
is so treated shall be allowed as a deduction for the taxable
year in which it is paid or incurred.
‘‘(b) QUALIFIED ENVIRONMENTAL REMEDIATION EX-
PENDITURE.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified environ-
mental remediation expenditure’ means any expendi-
ture—
‘‘(A) which is otherwise chargeable to cap-
ital account, and
‘‘(B) which is paid or incurred in connec-
tion with the abatement or control of hazardous
substances at a qualified contaminated site.
‘‘(2) SPECIAL RULE FOR EXPENDITURES FOR DE-
PRECIABLE PROPERTY.—Such term shall not include
any expenditure for the acquisition of property of a
character subject to the allowance for depreciation
which is used in connection with the abatement or
control of hazardous substances at a qualified con-
taminated site; except that the portion of the allow-
ance under section 167 for such property which is
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otherwise allocated to such site shall be treated as a
qualified environmental remediation expenditure.
‘‘(c) QUALIFIED CONTAMINATED SITE.—For purposes
of this section—
‘‘(1) QUALIFIED CONTAMINATED SITE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
contaminated site’ means any area—
‘‘(i) which is held by the taxpayer for
use in a trade or business or for the produc-
tion of income, or which is property de-
scribed in section 1221(1) in the hands of
the taxpayer,
‘‘(ii) which is within a targeted area,
and
‘‘(iii) at or on which there has been a
release (or threat of release) or disposal of
any hazardous substance.
‘‘(B) TAXPAYER MUST RECEIVE STATEMENT
FROM STATE ENVIRONMENTAL AGENCY.—An area
shall be treated as a qualified contaminated site
with respect to expenditures paid or incurred
during any taxable year only if the taxpayer re-
ceives a statement from the appropriate agency
of the State in which such area is located that
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such area meets the requirements of clauses (ii)
and (iii) of subparagraph (A).
‘‘(C) APPROPRIATE STATE AGENCY.— For
purposes of subparagraph (B), the appropriate
agency of a State is the agency designated by the
Administrator of the Environmental Protection
Agency for purposes of this section. If no agency
of a State is designated under the preceding sen-
tence, the appropriate agency for such State shall
be the Environmental Protection Agency.
‘‘(2) TARGETED AREA.—
‘‘(A) IN
GENERAL.—The term ‘targeted
area’ means—
‘‘(i) any empowerment zone or enter-
prise community (and any supplemental
zone designated on December 21, 1994), and
‘‘(ii) any site announced before Feb-
ruary 1, 1997, as being included as a
brownfields pilot project of the Environ-
mental Protection Agency.
‘‘(B) NATIONAL PRIORITIES LISTED SITES
NOT
INCLUDED.—Such term shall not include
any site which is on, or proposed for, the na-
tional priorities list under section 105(a)(8)(B)
of the Comprehensive Environmental Response,
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Compensation, and Liability Act of 1980 (as in
effect on the date of the enactment of this sec-
tion).
‘‘(C) CERTAIN RULES TO APPLY.—For pur-
poses of this paragraph the rules of sections
1392(b)(4) and 1393(a)(9) shall apply.
‘‘(d) HAZARDOUS SUBSTANCE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘hazardous sub-
stance’ means—
‘‘(A) any substance which is a hazardous
substance as defined in section 101(14) of the
Comprehensive Environmental Response, Com-
pensation, and Liability Act of 1980, and
‘‘(B) any substance which is designated as
a hazardous substance under section 102 of such
Act.
‘‘(2) EXCEPTION.—Such term shall not include
any substance with respect to which a removal or re-
medial action is not permitted under section 104 of
such Act by reason of subsection (a)(3) thereof.
‘‘(e) DEDUCTION RECAPTURED AS ORDINARY INCOME
ON SALE, ETC.—Solely for purposes of section 1245, in the
case of property to which a qualified environmental remedi-
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ation expenditure would have been capitalized but for this
section—
‘‘(1) the deduction allowed by this section for
such expenditure shall be treated as a deduction for
depreciation, and
‘‘(2) such property (if not otherwise section 1245
property) shall be treated as section 1245 property
solely for purposes of applying section 1245 to such
deduction.
‘‘(f) COORDINATION WITH OTHER PROVISIONS.—Sec-
tions 280B and 468 shall not apply to amounts which are
treated as expenses under this section.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 198. Expensing of environmental remediation costs.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenditures paid or incurred after
the date of the enactment of this Act, in taxable years end-
ing after such date.
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SEC. 769. COMBINED EMPLOYMENT TAX REPORTING DEM-
ONSTRATION PROJECT.
(a) IN GENERAL.—The Secretary of the Treasury shall
provide for a demonstration project to assess the feasibility
and desirability of expanding combined Federal and State
tax reporting.
(b) DESCRIPTION OF DEMONSTRATION PROJECT.—The
demonstration project under subsection (a) shall be—
(1) carried out between the Internal Revenue
Service and the State of Montana for a period ending
with the date which is 5 years after the date of the
enactment of this Act,
(2) limited to the reporting of employment taxes,
and
(3) limited to the disclosure of the taxpayer iden-
tity (as defined in section 6103(b)(6) of such Code)
and the signature of the taxpayer.
Such identity and signature may be disclosed notwithstand-
ing section 6103 of the Internal Revenue Code of 1986.
SEC. 770. INCREASED MAXIMUM CAPITAL EXPENDITURE
LIMIT FOR QUALIFIED SMALL ISSUE BONDS.
(a) IN
GENERAL.—Subparagraph (A) of section
144(a)(4) (relating to $10,000,000 limit in certain cases)
is amended by adding at the end the following new flush
sentence:
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‘‘Capital expenditures which would (but for this
sentence) be taken into account under clause (ii)
shall be taken into account only to the extent
such expenditures exceed $10,000,000.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to—
(1) obligations issued after December 31, 1997,
and
(2) capital expenditures made after such date
with respect to obligations issued on or before such
date.
SEC. 771. EXTENSION OF CREDIT FOR ELECTRICITY PRO-
DUCED 
FROM 
CERTAIN 
RENEWABLE 
RE-
SOURCES.
Paragraph (3) of section 45(c) is amended by striking
‘‘July 1, 1999’’ and inserting ‘‘July 1, 2001’’.
SEC. 772. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE-
TION NOT TO APPLY TO MARGINAL PRODUC-
TION.
(a) IN GENERAL.—Paragraph (6) of section 613A(c)
is amended by adding at the end the following new subpara-
graph:
‘‘(H) EXEMPTION FROM TAXABLE INCOME
LIMIT WHERE REFERENCE PRICE BELOW $14.—
The second sentence of subsection (a) of section
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613 shall not apply to so much of the allowance
for depletion as is determined under subpara-
graph (A) for any taxable year beginning in a
calendar year for which the reference price (as
defined in section 29(d)(2)(C)) is below $14.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
SEC. 773. CLARIFICATION OF TREATMENT OF CERTAIN RE-
CEIVABLES PURCHASED BY COOPERATIVE
HOSPITAL SERVICE ORGANIZATIONS.
(a) IN
GENERAL.—Subparagraph (A) of section
501(e)(1) is amended by inserting ‘‘(including the purchase
of patron accounts receivable on a recourse basis)’’ after
‘‘billing and collection’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1996.
SEC. 774. EXCEPTION FOR BONDS GUARANTEED BY FED-
ERAL HOME LOAN BANK BOARD FROM RE-
STRICTION ON FEDERAL GUARANTEE OF
BONDS.
(a) IN GENERAL.—Clause (i) of section 149(b)(3)(A)
is amended by striking ‘‘or the Government National Mort-
gage Association’’ and inserting ‘‘the Government National
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Mortgage Association, or the Federal Home Loan Bank
Board’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to bonds issued after the date of the
enactment of this Act.
SEC. 775. INCREASED PERIOD FOR DEDUCTION FOR TRAV-
ELING EXPENSES WHILE WORKING AWAY
FROM HOME.
(a) IN GENERAL.—Section 162 (relating to trade or
business expenses) is amended—
(1) in subsection (a)—
(A) in paragraph (2), by inserting ‘‘subject
to subsection (o),’’ before ‘‘traveling expenses’’,
and
(B) by striking the last sentence, and
(2) by redesignating subsection (o) as subsection
(p) and by inserting after subsection (n) the following
new subsection:
‘‘(o) EXPENSES WHILE AWAY FROM HOME.—For pur-
poses of subsection (a)(2)—
‘‘(1) IN
GENERAL.—A taxpayer shall not be
treated as being temporarily away from home during
any period of employment if such period exceeds 1
year.
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‘‘(2) 
SPECIAL
RULES
FOR
CONSTRUCTION
PROJECTS.—
‘‘(A) 18-MONTH
PERIOD
FOR
CERTAIN
PROJECTS.—If—
‘‘(i) the employment described in para-
graph (1) is in connection with an identifi-
able construction project with a completion
date that is reasonably expected to occur
within 5 years after the starting date of
such project, and
‘‘(ii) the taxpayer continues to main-
tain a household as his principal residence
and incur duplicative expenses at such resi-
dence,
paragraph (1) shall be applied by substituting
‘18 months’ for ‘1 year’.
‘‘(B) 2-YEAR
PERIOD
FOR
PROJECTS
IN
AREAS LACKING FAMILY SUPPORT INFRASTRUC-
TURE.—If the employment described in para-
graph (1) is in connection with an identifiable
construction project described in subparagraph
(A) which is located in an area which lacks ade-
quate housing, educational, medical, or other fa-
cilities necessary for families, paragraph (1)
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shall be applied by substituting ‘2 years’ for ‘1
year’.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to costs paid or incurred in taxable
years beginning after December 31, 1997.
SEC. 776. CHARITABLE CONTRIBUTION DEDUCTION FOR
CERTAIN EXPENSES INCURRED IN SUPPORT
OF NATIVE ALASKAN SUBSISTENCE WHALING.
(a) IN GENERAL.—Section 170 (relating to charitable,
etc., contributions and gifts) is amended by redesignating
subsection (m) as subsection (n) and by inserting after sub-
section (l) the following new subsection:
‘‘(m) EXPENSES PAID BY CERTAIN WHALING CAP-
TAINS
IN SUPPORT
OF NATIVE ALASKAN SUBSISTENCE
WHALING.—
‘‘(1) IN GENERAL.—In the case of an individual
who is recognized by the Alaska Eskimo Whaling
Commission as a whaling captain charged with the
responsibility of maintaining and carrying out sanc-
tioned whaling activities and who engages in such ac-
tivities during the taxable year, the amount described
in paragraph (2) (to the extent such amount does not
exceed $7,500 for the taxable year) shall be treated for
purposes of this section as a charitable contribution.
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‘‘(2) AMOUNT
DESCRIBED.—The amount de-
scribed in this paragraph is the aggregate of the rea-
sonable and necessary whaling expenses paid by the
taxpayer during the taxable year in carrying out
sanctioned whaling activities. For purposes of the
preceding sentence, the term ‘whaling expenses’ in-
cludes expenses for—
‘‘(A) the acquisition and maintenance of
whaling boats, weapons, and gear used in sanc-
tioned whaling activities,
‘‘(B) the supplying of food for the crew and
other provisions for carrying out such activities,
and
‘‘(C) storage and distribution of the catch
from such activities.
‘‘(3) SANCTIONED
WHALING
ACTIVITIES.—For
purposes of this subsection, the term ‘sanctioned whal-
ing activities’ means subsistence bowhead whale hunt-
ing activities conducted pursuant to the management
plan of the Alaska Eskimo Whaling Commission.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years ending after the date
of the enactment of this Act.
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SEC. 777. MODIFICATION TO ELIGIBILITY CRITERIA FOR
DESIGNATION 
OF 
FUTURE 
ENTERPRISE
ZONES IN ALASKA OR HAWAII.
Section 1392 (relating to eligibility criteria) is amend-
ed by adding at the end the following new subsection:
‘‘(d) SPECIAL ELIGIBILITY FOR NOMINATED AREAS
LOCATED IN ALASKA OR HAWAII.—A nominated area in
Alaska or Hawaii shall be treated as meeting the require-
ments of paragraphs (2), (3), and (4) of subsection (a) if
for each census tract or block group within such area 20
percent or more of the families have income which is 50
percent or less of the statewide median family income (as
determined under section 143).’’.
SEC. 778. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT
RULES TO NO-CHARGE EMPLOYEE MEALS.
(a) IN GENERAL.—Paragraph (2) of section 132(e)
(defining de minimis fringe) is amended by adding at the
end the following new sentence: ‘‘For purposes of subpara-
graph (B), an employee entitled under section 119 to ex-
clude the value of a meal provided at such facility shall
be treated as having paid an amount for such meal equal
to the direct operating costs of the facility attributable to
such meal.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
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SEC. 779. CLARIFICATION OF STANDARD TO BE USED IN DE-
TERMINING EMPLOYMENT TAX STATUS OF
SECURITIES BROKERS.
(a) IN GENERAL.—In determining for purposes of
chapter 1 of the Internal Revenue Code of 1986 whether a
registered representative of a securities broker-dealer is an
employee (as defined in section 3121(d) of the Internal Rev-
enue Code of 1986), no weight shall be given to instructions
from the service recipient which are imposed only in com-
pliance with investor protection standards imposed by the
Federal Government, any State government, or a governing
body pursuant to a delegation by a Federal or State agency.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
services performed after December 31, 1997.
SEC. 780. SENSE OF THE SENATE REGARDING REFORM OF
THE INTERNAL REVENUE CODE OF 1986.
(a) FINDINGS.—The Senate finds that—
(1) the Internal Revenue Code of 1986 (‘‘tax
code’’) is unnecessarily complex, having grown from
14 pages at its inception to 3,458 pages by 1995;
(2) this complexity resulted in taxpayers spend-
ing about 5,300,000,000 hours and $225,000,000,000
trying to comply with the tax code in 1996;
(3) the current congressional budgetary process is
weighted too heavily toward tax increases, as evi-
denced by the fact that since 1954 there have been 27
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major bills enacted that increased Federal income
taxes and only 9 bills that decreased Federal income
taxes, 3 of which were de minimis decreases;
(4) the tax burden on working families has
reached an unsustainable level, as evidenced by the
fact that in 1948 the average American family with
children paid only 4.3 percent of its income to the
Federal Government in direct taxes and today the av-
erage family pays about 25 percent;
(5) the tax code unfairly penalizes saving and
investment by double taxing these activities while
only taxing income used for consumption once, and
as a result the United States has one of the lowest
saving rates, at 4.7 percent, in the industrialized
world;
(6) the tax code stifles economic growth by dis-
couraging work and capital formation through exces-
sively high tax rates;
(7) Congress and the President have found it
necessary, on 2 separate occasions, to enact laws to
protect taxpayers from the abuses of the Internal Rev-
enue Service and a third bill has been introduced in
the one hundred fifth Congress; and
(8) the complexity of the tax code has increased
the number of Internal Revenue Service employees re-
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sponsible for administering the tax laws to 110,000
and this costs the taxpayers $9,800,000,000 each year.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that—
(1) the Internal Revenue Code of 1986 needs
broad-based reform; and
(2) the President should submit to Congress a
comprehensive proposal to reform the Internal Reve-
nue Code of 1986.
SEC. 781. SENSE OF THE SENATE REGARDING TAX TREAT-
MENT OF STOCK OPTIONS.
(a) FINDINGS.—The Senate finds that—
(1) currently businesses can deduct the value of
stock options as a business expense on their income
tax returns, even though the stock options are not
treated as an expense on the books of those same busi-
nesses; and
(2) stock options are the only form of compensa-
tion that is treated in this way.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the Committee on Finance of the Senate should hold
hearings on the tax treatment of stock options.
SEC. 782. SENSE OF THE SENATE ON ESTATE TAXES.
(a) FINDINGS.—The Senate finds that whereas—
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(1) the Federal estate tax punishes hard working
small business owners and discourages savings and
growth;
(2) the Federal estate tax imposes an unfair eco-
nomic burden on small businesses and reduces their
ability to survive and compete with large corpora-
tions; and
(3) a reduction in Federal estate taxes for fam-
ily-owned farms and enterprises will help to prevent
the liquidation of small businesses that strengthen
American communities by providing jobs and secu-
rity.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that—
(1) the estate tax relief provided in this bill is
an important step that will enable more family-
owned farms and small businesses to survive and con-
tinue to provide economic security and job creation in
American communities; and
(2) Congress should eliminate the Federal estate
tax liability for family-owned businesses by the end of
2002 on a deficit-neutral basis.
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SEC. 783. QUALIFIED GAMES OF CHANCE.
(a) IN GENERAL.—The term ‘‘unrelated trade or busi-
ness’’ does not include the activity of qualified games of
chance.
(b) QUALIFIED GAMES OF CHANCE.—For purposes of
this subsection, the term ‘‘qualified games of chance’’ means
any game of chance, other than provided in subsection (f),
conducted by an organization if—
(1) such organization is licensed pursuant to
State law to conduct such game;
(2) only organizations which are organized as
nonprofit corporations or are exempt from tax under
section 501(a) may be so licensed to conduct such
game within the State; and
(3) the conduct of such game does not violate
State or local law.
SEC. 784. SURVIVOR BENEFITS FOR PUBLIC SAFETY OFFI-
CERS KILLED IN THE LINE OF DUTY.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 (relating to items specifically excluded from gross income)
is amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
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‘‘SEC. 138. SURVIVOR BENEFITS ATTRIBUTABLE TO SERV-
ICE BY A PUBLIC SAFETY OFFICER WHO IS
KILLED IN THE LINE OF DUTY.
‘‘(a) IN GENERAL.—Gross income shall not include
any amount paid as a survivor annuity on account of the
death of a public safety officer (as such term is defined in
section 1204 of the Omnibus Crime Control and Safe Streets
Act of 1968) killed in the line of duty—
‘‘(1) if such annuity is provided under a govern-
mental plan which meets the requirements of section
401(1) to the spouse (or a former spouse) of the public
safety officer or to a child of such officer; and
‘‘(2) to the extent such annuity is attributable to
such officer’s service as a public safety officer.
‘‘(b) EXCEPTIONS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply with respect to the death of any public safety
officer if—
‘‘(A) the death was caused by the inten-
tional misconduct of the officer or by such offi-
cer’s intention to bring about such officer’s death;
‘‘(B) the officer was voluntarily intoxicated
(as defined in section 1204 of the Omnibus
Crime Control and Safe Streets Act of 1968) at
the time of death; or
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‘‘(C) the officer was performing such offi-
cer’s duties in a grossly negligent manner at the
time of death.
‘‘(2) EXCEPTION FOR BENEFITS PAID TO CER-
TAIN INDIVIDUALS.—Subsection (a) shall not apply to
any payment to an individual whose actions were a
substantial contributing factor to the death of the offi-
cer.’’.
(b) EFFECTIVE DATE.—The amendments made by this
subsection shall apply to amounts received in taxable years
beginning after December 31, 1996, with respect to individ-
uals dying after such date.
SEC. 785. TREATMENT OF CERTAIN DISABILITY BENEFITS
RECEIVED BY FORMER POLICE OFFICERS OR
FIREFIGHTERS.
(a) GENERAL RULE.—For purposes of determining
whether any amount to which this section applies is exclud-
able from gross income under section 104(a)(1) of the Inter-
nal Revenue Code of 1986, the following conditions shall
be treated as personal injuries or sickness in the course of
employment:
(1) Heart disease.
(2) Hypertension.
(b) AMOUNTS TO WHICH SECTION APPLIES.—This
section shall apply to any amount—
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(1) which is payable—
(A) to an individual (or to the survivors of
an individual) who was a full-time employee of
any police department or fire department which
is organized and operated by a State, by any po-
litical subdivision thereof, or by any agency or
instrumentality of a State or political subdivi-
sion thereof, and
(B) under a State law (as in existence on
July 1, 1992) which irrebuttably presumed that
heart disease and hypertension are work-related
illnesses but only for employees separating from
service before such date; and
(2) which is received in calendar year 1989,
1990, or 1991.
For purposes of the preceding sentence, the term ‘‘State’’
includes the District of Columbia.
(c) WAIVER OF STATUTE OF LIMITATIONS.—If, on the
date of the enactment of this Act (or at any time within
the 1-year period beginning on such date of enactment)
credit or refund of any overpayment of tax resulting from
the provisions of this section is barred by any law or rule
of law, credit or refund of such overpayment shall, neverthe-
less, be allowed or made if claim therefore is filed before
the date 1 year after such date of enactment.
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SEC. 786. REMOVAL OF DOLLAR LIMITATION ON BENEFIT
PAYMENTS FROM A DEFINED BENEFIT PLAN
MAINTAINED FOR CERTAIN POLICE AND FIRE
EMPLOYEES.
(a) IN
GENERAL.—Subparagraph (G) of section
415(b)(2) of the Internal Revenue Code of 1986 is amended
by striking ‘‘participant—’’ and all that follows and insert-
ing ‘‘participant, subparagraphs (C) and (D) of this para-
graph and subparagraph (B) of paragraph (1) shall not
apply.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 1996.
SEC. 787. DEBATE ON A RECONCILIATION BILL.
Section 310(e)(2) of the Congressional Budget Act of
1974 is amended to read as follows:
‘‘(2) For purposes of consideration of any rec-
onciliation bill reported under subsection (b)—
‘‘(A) debate, and all amendments thereto
and debatable motions and appeals in connection
therewith, shall be limited to not more than 30
hours;
‘‘(B) time on the bill may only be yielded
back by consent and a motion to further limit
debate shall be debatable with debate limited to
1⁄2 hour equally divided;
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‘‘(C) time on amendments shall be limited
to 30 minutes to be equally divided in the usual
form and on any second degree amendment or
motion to 20 minutes to be equally divided in
the usual form, except that after the 15th hour
of consideration of a bill, time on all amend-
ments or motions shall be limited to 20 minutes;
‘‘(D) no first degree amendment may be
proposed after the 15th hour of consideration of
a bill unless it has been submitted to the Journal
Clerk prior to the expiration of the 15th hour;
‘‘(E) no second degree amendment may be
proposed after the 20th hour of consideration of
a bill unless it has been submitted to the Journal
Clerk prior to the expiration of the 20th hour;
and
‘‘(F) after no more than thirty hours of con-
sideration of the measure, the Senate shall pro-
ceed, without any further debate on any ques-
tion, to vote on the final disposition thereof to
the exclusion of all amendments not then actu-
ally pending before the Senate at that time and
to the exclusion of all motions, except a motion
to table, or to reconsider and one quorum call on
demand to establish the presence of a quorum
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(and motions required to establish a quorum)
immediately before the final vote begins.’’.
SEC. 788. EXCLUSION FROM INCOME OF SEVERANCE PAY-
MENT 
AMOUNTS; 
TIME 
PERIODS 
FOR
CARRYBACK AND CARRYFORWARD OF UN-
USED CREDITS.
(a) EXCLUSION FROM INCOME OF SEVERANCE PAY-
MENT AMOUNTS.—Part III of subchapter B of chapter 1
(relating to items specifically excluded from gross income)
is amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
‘‘SEC. 138. SEVERANCE PAYMENTS.
‘‘(a) IN GENERAL.—In the case of an individual, gross
income shall not include any qualified severance payment.
‘‘(b) LIMITATION.—The amount to which the exclusion
under subsection (a) applies shall not exceed $2,000 with
respect to any separation from employment.
‘‘(c) QUALIFIED SEVERANCE PAYMENT.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified severance
payment’ means any payment received by an individ-
ual if—
‘‘(A) such payment was paid by such indi-
vidual’s employer on account of such individ-
ual’s separation from employment,
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‘‘(B) such separation was in connection
with a reduction in the work force of the em-
ployer, and
‘‘(C) such individual does not attain em-
ployment within 6 months of the date of such
separation in which the amount of compensation
is equal to or greater than 95 percent of the
amount of compensation for the employment that
is related to such payment.
‘‘(2) LIMITATION.—Such term shall not include
any payment received by an individual if the aggre-
gate payments received with respect to the separation
from employment exceed $125,000.’’.
(b) 
TIME
PERIODS
FOR
CARRYBACK
AND
CARRYFORWARD OF UNUSED CREDITS.—Section 39(a) (re-
lating to unused credits) is amended—
(1) in paragraph (1), by striking ‘‘3’’ each place
it appears and inserting ‘‘1’’ and by striking ‘‘15’’
each place it appears and inserting ‘‘20’’; and
(2) in paragraph (2), by striking ‘‘18’’ each
place it appears and inserting ‘‘22’’ and by striking
‘‘17’’ each place it appears and inserting ‘‘21’’.
(c) CLERICAL AMENDMENT.—The table of sections for
part III of subchapter B of chapter 1 is amended by striking
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the item relating to section 138 and inserting the following
new items:
‘‘Sec. 138. Severance payments.
‘‘Sec. 139. Cross references to other Acts.’’.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
subsections (a) and (c) shall apply to taxable years
beginning after December 31, 1997, and before July
1, 2002.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to the carryback and
carryforward of credits arising in taxable years be-
ginning after December 31, 1997.
SEC. 789. CURRENT REFUNDINGS OF CERTAIN TAX-EXEMPT
BONDS.
(a) IN GENERAL.—Subsection (c) of section 10632 of
the Revenue Act of 1987 (relating to bonds issued by Indian
tribal governments) is amended by adding at the end the
following new sentence: ‘‘The amendments made by this sec-
tion shall not apply to any obligation issued after such date
if—
‘‘(1) such obligation is issued (or is part of a se-
ries of obligations issued) to refund an obligation is-
sued on or before such date,
‘‘(2) the average maturity date of the issue of
which the refunding obligation is a part is not later
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than the average maturity date of the obligations to
be refunded by such issue,
‘‘(3) the amount of the refunding obligation does
not exceed the outstanding amount of the refunded ob-
ligation, and
‘‘(4) the net proceeds of the refunding obligation
are used to redeem the refunded obligation not later
than 90 days after the date of the issuance of the re-
funding obligation.
For purposes of paragraph (2), average maturity shall be
determined in accordance with section 147(b)(2)(A) of the
Internal Revenue Code of 1986.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to refunding obligations issued after
the date of the enactment of this Act.
SEC. 790. SPECIAL RULE FOR THRIFTS WHICH BECOME
LARGE BANKS.
(a) IN GENERAL.—Section 593(g)(2) (defining appli-
cable excess reserves) is amended by adding at the end the
following new subparagraph:
‘‘(C) SPECIAL RULE FOR THRIFTS WHICH
BECAME LARGE BANKS IN 1995.—
‘‘(i) IN GENERAL.—In the case of a
bank (as defined in section 581) which be-
came a large bank (as defined in section
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585(c)(2)) for its first taxable year begin-
ning after December 31, 1994, the balance
taken into account under subparagraph
(A)(ii) shall not be less than the amount
which would be the balance of such reserves
as of the close of its last taxable year begin-
ning before January 1, 1995, if the addi-
tions to such reserves for all taxable years
had 
been 
determined 
under 
section
585(b)(2)(A).
‘‘(ii) APPLICATION OF CUT-OFF METH-
OD; ETC.—In the case of a taxpayer to
which this subparagraph applies—
‘‘(I) 
paragraph 
(5)(B) 
shall
apply, and
‘‘(II) this subparagraph shall not
apply in determining the amount
taken into account by the taxpayer
under subparagraph (A)(ii) for pur-
poses of paragraphs (5) and (6) or sub-
section (e)(1).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect as if included in the amendments
made by section 1616 of the Small Business Job Protection
Act of 1996.
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SEC. 791. SENSE OF THE SENATE REGARDING MIDDLE-
CLASS TAXPAYERS BENEFITING FROM TAX
CUTS.
(a) FINDINGS.—The Senate finds that—
(1) Congress has not provided a genuine tax cut
for America’s middle-class families since 1981;
(2) President Clinton promised middle-class tax
cuts in 1992;
(3) 
President 
Clinton 
raised 
taxes 
by
$240,000,000,000 in 1993;
(4) President Clinton vetoed middle-class tax
cuts in 1995;
(5) the middle-class American worker had to
work until May 9 in order to earn enough money to
pay all Federal, State, and local taxes in 1997;
(6) the Joint Economic Committee reports that
real total Government taxes per household in 1994 to-
taled $18,600;
(7) more than 70 percent of the tax cuts in both
the House of Representatives and the Senate tax relief
bills will go to Americans earning less than $75,000
annually;
(8) the Joint Economic Committee estimates that
a family of 4 earning $30,000 will receive 53 percent
of the tax relief under the reconciliation bill;
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(9) the earned income tax credit was already ex-
panded in President Clinton’s 1993 tax bill;
(10) the fiscal year 1998 budget resolution does
not make the $500-per-child tax credit refundable;
and
(11) those who receive the earned income tax
credit do not pay Federal income taxes but receive a
substantial cash transfer from the Federal Govern-
ment in the form of refund checks above and beyond
income tax rebates.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that America’s middle-class taxpayers shoulder the big-
gest tax burden and that only those who pay Federal income
taxes should benefit from the Federal income tax cuts con-
tained in the Revenue Reconciliation Act of 1997.
SEC. 792. AVERAGING OF FARM INCOME OVER 3 YEARS.
(a) IN GENERAL.—Subpart B of part II of subchapter
E of chapter 1 of the Internal Revenue Code of 1986 (relat-
ing to taxable year for which items of gross income in-
cluded) is amended by adding the following new section:
‘‘SEC. 460A. AVERAGING OF FARM INCOME.
‘‘(a) IN GENERAL.—At the election of a taxpayer en-
gaged in a farming business, the tax imposed by section
1 for such taxable year shall be equal to the sum of—
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‘‘(1) a tax computed under such section on tax-
able income reduced by elected farm income, plus
‘‘(2) the increase in tax which would result if
taxable income for the 3 prior taxable years were in-
creased by the elected farm income.
‘‘(b) DEFINITIONS.—In this section—
‘‘(1) ELECTED FARM INCOME.—
‘‘(A) IN GENERAL.—The term ‘elected farm
income’ means so much of the taxable income for
the taxable year—
‘‘(i) which is attributable to any farm-
ing business; and
‘‘(ii) which is specified in the election
under subsection (a).
‘‘(B) TREATMENT OF GAINS.—For purposes
of subparagraph (A), gain from the sale or other
disposition of property (other than land) regu-
larly used by the taxpayer in a farming business
for a substantial period shall be treated as at-
tributable to a farming business.
‘‘(2) FARMING
BUSINESS.—The term ‘farming
business’ has the meaning given such term by section
263A(e)(4).’’.
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(b) CLERICAL AMENDMENT.—The table of sections for
such subpart B is amended by adding at the end the follow-
ing new item:
‘‘Sec. 460A. Averaging of farm income.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act and before January 1, 2001.
TITLE VIII—REVENUES
Subtitle A—Financial Products
SEC. 801. CONSTRUCTIVE SALES TREATMENT FOR APPRE-
CIATED FINANCIAL POSITIONS.
(a) IN GENERAL.—Part IV of subchapter P of chapter
1 is amended by adding at the end the following new sec-
tion:
‘‘SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRE-
CIATED FINANCIAL POSITIONS.
‘‘(a) IN GENERAL.—If there is a constructive sale of
an appreciated financial position—
‘‘(1) the taxpayer shall recognize gain as if such
position were sold, assigned, or otherwise terminated
at its fair market value on the date of such construc-
tive sale (and any gain shall be taken into account
for the taxable year which includes such date), and
‘‘(2) for purposes of applying this title for peri-
ods after the constructive sale—
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‘‘(A) proper adjustment shall be made in
the amount of any gain or loss subsequently real-
ized with respect to such position for any gain
taken into account by reason of paragraph (1),
and
‘‘(B) the holding period of such position
shall be determined as if such position were
originally acquired on the date of such construc-
tive sale.
‘‘(b) APPRECIATED FINANCIAL POSITION.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘appreciated financial position’
means any position with respect to any stock, debt in-
strument, or partnership interest if there would be
gain were such position sold, assigned, or otherwise
terminated at its fair market value.
‘‘(2) EXCEPTIONS.—The term ‘appreciated fi-
nancial position’ shall not include—
‘‘(A) any position with respect to debt if—
‘‘(i) the interest payments (or other
similar amounts) with respect to such debt
meet the requirements of clause (i) of section
860G(a)(1)(B), and
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‘‘(ii) such debt is not convertible (di-
rectly or indirectly) into stock of the issuer
or any related person, and
‘‘(B) any position which is marked to mar-
ket under any provision of this title or the regu-
lations thereunder.
‘‘(3) POSITION.—The term ‘position’ means an
interest, including a futures or forward contract,
short sale, or option.
‘‘(c) CONSTRUCTIVE SALE.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—A taxpayer shall be treated
as having made a constructive sale of an appreciated
financial position if the taxpayer (or a related per-
son)—
‘‘(A) enters into a short sale of the same or
substantially identical property,
‘‘(B) enters into an offsetting notional prin-
cipal contract with respect to the same or sub-
stantially identical property,
‘‘(C) enters into a futures or forward con-
tract to deliver the same or substantially iden-
tical property,
‘‘(D) in the case of an appreciated financial
position that is a short sale or a contract de-
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scribed in subparagraph (B) or (C) with respect
to any property, acquires the same or substan-
tially identical property, or
‘‘(E) to the extent prescribed by the Sec-
retary in regulations, enters into 1 or more other
transactions (or acquires 1 or more positions)
that have substantially the same effect as a
transaction described in any of the preceding
subparagraphs.
‘‘(2) EXCEPTION
FOR
SALES
OF
NONPUBLICLY
TRADED
PROPERTY.—The term ‘constructive sale’
shall not include any contract for sale of any stock,
debt instrument, or partnership interest which is not
a marketable security (as defined in section 453(f)) if
the contract settles within 1 year after the date such
contract is entered into.
‘‘(3) EXCEPTION FOR CERTAIN CLOSED TRANS-
ACTIONS.—In applying this section, there shall be dis-
regarded any transaction (which would otherwise be
treated as a constructive sale) during the taxable year
if—
‘‘(A) such transaction is closed before the
end of the 30th day after the close of such taxable
year, and
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‘‘(B) in the case of a transaction which is
closed during the 90-day period ending on such
30th day—
‘‘(i) the taxpayer holds the appreciated
financial position throughout the 60-day pe-
riod beginning on the date such transaction
is closed, and
‘‘(ii) at no time during such 60-day
period is the taxpayer’s risk of loss with re-
spect to such position reduced by reason of
a circumstance which would be described in
section 246(c)(4) if references to stock in-
cluded references to such position.
If a position with respect to a transaction which is
closed during the 90-day period as described in sub-
paragraph (B) is reestablished, then such transaction
shall be disregarded in applying this section if the re-
established position is closed during such 90-day pe-
riod in a transaction which meets the requirements of
subparagraph (B).
‘‘(4) RELATED PERSON.—A person is related to
another person with respect to a transaction if—
‘‘(A) the relationship is described in section
267 or 707(b), and
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‘‘(B) such transaction is entered into with
a view toward avoiding the purposes of this sec-
tion.
‘‘(d) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) FORWARD CONTRACT.—The term ‘forward
contract’ means a contract to deliver a substantially
fixed amount of property for a substantially fixed
price.
‘‘(2) OFFSETTING
NOTIONAL
PRINCIPAL
CON-
TRACT.—The term ‘offsetting notional principal con-
tract’ means, with respect to any property, an agree-
ment which includes—
‘‘(A) a requirement to pay (or provide cred-
it for) all or substantially all of the investment
yield (including appreciation) on such property
for a specified period, and
‘‘(B) a right to be reimbursed for (or receive
credit for) all or substantially all of any decline
in the value of such property.
‘‘(e) SPECIAL RULES.—
‘‘(1) TREATMENT OF SUBSEQUENT SALE OF PO-
SITION WHICH WAS DEEMED SOLD.—If—
‘‘(A) there is a constructive sale of any ap-
preciated financial position,
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‘‘(B) such position is subsequently disposed
of, and
‘‘(C) at the time of such disposition, the
transaction resulting in the constructive sale of
such position is open with respect to the tax-
payer or any related person,
solely for purposes of determining whether the tax-
payer has entered into a constructive sale of any other
appreciated financial position held by the taxpayer,
the taxpayer shall be treated as entering into such
transaction immediately after such disposition. For
purposes of the preceding sentence, an assignment or
other termination shall be treated as a disposition.
‘‘(2) CERTAIN TRUST INSTRUMENTS TREATED AS
STOCK.—For purposes of this section, an interest in
a trust which is actively traded (within the meaning
of section 1092(d)(1)) shall be treated as stock.
‘‘(3) MULTIPLE POSITIONS IN PROPERTY.—If a
taxpayer holds multiple positions in property, the de-
termination of whether a specific transaction is a
constructive sale and, if so, which appreciated finan-
cial position is deemed sold shall be made in the same
manner as actual sales.
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‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) ELECTION OF MARK TO MARKET FOR SECURITIES
TRADERS AND FOR TRADERS AND DEALERS IN COMMOD-
ITIES.—Subsection (d) of section 475 (relating to mark to
market accounting method for dealers in securities) is
amended by adding at the end the following new paragraph:
‘‘(4) ELECTION OF MARK TO MARKET FOR SECU-
RITIES TRADERS AND FOR TRADERS AND DEALERS IN
COMMODITIES.—
‘‘(A) IN GENERAL.—In the case of a per-
son—
‘‘(i) who is engaged in a trade or busi-
ness to which this paragraph applies, and
‘‘(ii) who elects to be treated as a deal-
er in securities for purposes of this section
with respect to such trade or business,
subsections (a), (b)(3), (c)(3), and (e) and the
preceding provisions of this subsection (or, in the
case of a dealer in commodities, this section)
shall apply to all commodities and securities
held by such person in any trade or business
with respect to which such election is in effect in
the same manner as if such person were a dealer
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in securities and all references to securities in-
cluded references to commodities.
‘‘(B) APPLICATION
OF
PARAGRAPH.—This
paragraph shall apply to any active trade or
business—
‘‘(i) as a trader in securities, or
‘‘(ii) as a trader or dealer in commod-
ities.
‘‘(C) EXCEPTION
FOR
CERTAIN
HOLDINGS
OF TRADERS.—In the case of a trader in securi-
ties or commodities, subsection (a) shall not
apply to any security or commodity (to which
subsection (a) would otherwise apply solely by
reason of this paragraph) if such security or
commodity is clearly identified in the trader’s
records (before the close of the day applicable
under subsection (b)(2)) as being held other than
in a trade or business to which the election
under subparagraph (A) is in effect. A security
or commodity so identified shall be treated as de-
scribed in subsection (b)(1).
‘‘(D) COMMODITY.—For purposes of this
paragraph, the term ‘commodities’ includes only
commodities of a kind customarily dealt in on
an organized commodity exchange.
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‘‘(E) ELECTION.—An election under this
paragraph may be made separately for each
trade or business and without the consent of the
Secretary. Such an election, once made, shall
apply to the taxable year for which made and all
subsequent taxable years unless revoked with the
consent of the Secretary.’’.
(c) CLERICAL AMENDMENT.—The table of sections for
part IV of subchapter P of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 1259. Constructive sales treatment for appreciated financial
positions.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided
in this subsection, the amendments made by this sec-
tion shall apply to any constructive sale after June
8, 1997.
(2) EXCEPTION FOR SALES OF POSITIONS, ETC.
HELD BEFORE JUNE 9, 1997.—A constructive sale be-
fore June 9, 1997, and the property to which the posi-
tion involved in the transaction relates, shall not be
taken into account in determining whether any other
constructive sale after June 8, 1997, has occurred if,
within before the close of the 30-day period beginning
on the date of the enactment of this Act, such position
and property are clearly identified in the taxpayer’s
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records as offsetting. The preceding sentence shall
cease to apply as of the date the taxpayer ceases to
hold such position or property.
(3) SPECIAL RULE.—In the case of a decedent
dying after June 8, 1997, if—
(A) there was a constructive sale on or be-
fore such date of any appreciated financial posi-
tion,
(B) the transaction resulting in such con-
structive sale of such position remains open
(with respect to the decedent or any related per-
son) for not less than 2 years after the date of
such transaction (whether such period is before
or after June 8, 1997), and
(C) such transaction is not closed within the
30-day period beginning on the date of the enact-
ment of this Act,
then, for purposes of such Code, such position (and
any property related thereto, as determined under the
principles of section 1259(d)(1) of such Code (as so
added)) shall be treated as property constituting
rights to receive an item of income in respect of a de-
cedent under section 691 of such Code.
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(4) ELECTION
OF
SECURITIES
TRADERS, AND
FOR TRADERS AND DEALERS IN COMMODITIES, TO BE
TREATED AS DEALERS IN SECURITIES.—
(A) IN
GENERAL.—The amendment made
by subsection (b) shall apply to taxable years
ending after the date of the enactment of this
Act.
(B) 4-YEAR SPREAD OF ADJUSTMENTS.—In
the case of a taxpayer who elects under section
475(d)(4) of the Internal Revenue Code of 1986
(as added by this section) to change its method
of accounting for its first taxable year ending
after the date of the enactment of this Act, the
net amount of the adjustments required to be
taken into account by the taxpayer under section
481 of the Internal Revenue Code of 1986 shall
be taken into account ratably over the 4-taxable
year period beginning with such first taxable
year.
SEC. 802. LIMITATION ON EXCEPTION FOR INVESTMENT
COMPANIES UNDER SECTION 351.
(a) IN GENERAL.—Paragraph (1) of section 351(e) (re-
lating to exceptions) is amended by adding at the end the
following: ‘‘For purposes of the preceding sentence, the de-
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termination of whether a company is an investment com-
pany shall be made—
‘‘(A) by taking into account all stock and
securities held by the company, and
‘‘(B) by treating as securities—
‘‘(i) money,
‘‘(ii) stocks and other equity interests
in a corporation, evidences of indebtedness,
options, forward or futures contracts, no-
tional principal contracts and derivatives,
‘‘(iii) any foreign currency,
‘‘(iv) any interest in a real estate in-
vestment trust, a common trust fund, a reg-
ulated investment company, a publicly-
traded partnership (as defined in section
7704(b)) or any other equity interest (other
than in a corporation) which pursuant to
its terms or any other arrangement is read-
ily convertible into, or exchangeable for, any
asset described in any preceding clause, this
clause or clause (v) or (viii),
‘‘(v) except to the extent provided in
regulations prescribed by the Secretary, any
interest in a precious metal, unless such
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metal is used or held in the active conduct
of a trade or business after the contribution,
‘‘(vi) except as otherwise provided in
regulations prescribed by the Secretary, in-
terests in any entity if substantially all of
the assets of such entity consist (directly or
indirectly) of any assets described in any
preceding clause or clause (viii),
‘‘(vii) to the extent provided in regula-
tions prescribed by the Secretary, any inter-
est in any entity not described in clause
(vi), but only to the extent of the value of
such interest that is attributable to assets
listed in clauses (i) through (v) or clause
(viii), or
‘‘(viii) any other asset specified in reg-
ulations prescribed by the Secretary.
The Secretary may prescribe regulations that, under
appropriate circumstances, treat any asset described
in clauses (i) through (v) as not so listed.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to transfers after June 8, 1997,
in taxable years ending after such date.
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(2) 
BINDING
CONTRACTS.—The 
amendment
made by subsection (a) shall not apply to any trans-
fer pursuant to a written binding contract in effect
on June 8, 1997, that provides for the transfer of a
fixed amount of property, and at all times thereafter
before such transfer.
SEC. 803. GAINS AND LOSSES FROM CERTAIN TERMI-
NATIONS WITH RESPECT TO PROPERTY.
(a) APPLICATION OF CAPITAL TREATMENT TO PROP-
ERTY OTHER THAN PERSONAL PROPERTY.—
(1) IN
GENERAL.—Paragraph (1) of section
1234A (relating to gains and losses from certain ter-
minations) is amended by striking ‘‘personal property
(as defined in section 1092(d)(1))’’ and inserting
‘‘property’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to terminations more than
30 days after the date of the enactment of this Act.
(b) APPLICATION OF CAPITAL TREATMENT, ETC. TO
OBLIGATIONS ISSUED BY NATURAL PERSONS.—
(1) IN GENERAL.—Section 1271(b) is amended to
read as follows:
‘‘(b) EXCEPTION FOR CERTAIN OBLIGATIONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to—
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‘‘(A) any obligation issued by a natural
person before June 9, 1997, and
‘‘(B) any obligation issued before July 2,
1982, by an issuer which is not a corporation
and is not a government or political subdivision
thereof.
‘‘(2) TERMINATION.—Paragraph (1) shall not
apply to any obligation acquired after June 8, 1997,
unless the basis of the obligation in the hands of the
acquirer is determined solely by reference to the ad-
justed basis of the obligation in the hands of the per-
son from whom acquired.’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall take effect on the date of enact-
ment of this Act.
Subtitle B—Corporate
Organizations and Reorganizations
SEC. 811. TAX TREATMENT OF CERTAIN EXTRAORDINARY
DIVIDENDS.
(a) TREATMENT OF EXTRAORDINARY DIVIDENDS IN
EXCESS OF BASIS.—Paragraph (2) of section 1059(a) (re-
lating to corporate shareholder’s recognition of gain attrib-
utable to nontaxed portion of extraordinary dividends) is
amended to read as follows:
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‘‘(2) AMOUNTS
IN
EXCESS
OF
BASIS.—If the
nontaxed portion of such dividends exceeds such basis,
such excess shall be treated as gain from the sale or
exchange of such stock for the taxable year in which
the extraordinary dividend is received.’’.
(b) TREATMENT OF REDEMPTIONS WHERE OPTIONS
INVOLVED.—Paragraph (1) of section 1059(e) (relating to
treatment of partial liquidations and non-pro rata redemp-
tions) is amended to read as follows:
‘‘(1) TREATMENT OF PARTIAL LIQUIDATIONS AND
CERTAIN
REDEMPTIONS.—Except as otherwise pro-
vided in regulations—
‘‘(A) REDEMPTIONS.—In the case of any re-
demption of stock—
‘‘(i) which is part of a partial liquida-
tion (within the meaning of section 302(e))
of the redeeming corporation,
‘‘(ii) which is not pro rata as to all
shareholders, or
‘‘(iii) which would not have been treat-
ed (in whole or in part) as a dividend if
any options had not been taken into ac-
count under section 318(a)(4),
any amount treated as a dividend with respect
to such redemption shall be treated as an ex-
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traordinary dividend to which paragraphs (1)
and (2) of subsection (a) apply without regard
to the period the taxpayer held such stock. In the
case of a redemption described in clause (iii),
only the basis in the stock redeemed shall be
taken into account under subsection (a).
‘‘(B) 
REORGANIZATIONS, 
ETC.—An 
ex-
change described in section 356 which is treated
as a dividend shall be treated as a redemption
of stock for purposes of applying subparagraph
(A).’’.
(c) TIME FOR REDUCTION.—Paragraph (1) of section
1059(d) is amended to read as follows:
‘‘(1) TIME FOR REDUCTION.—Any reduction in
basis under subsection (a)(1) shall be treated as occur-
ring at the beginning of the ex-dividend date of the
extraordinary dividend to which the reduction re-
lates.’’.
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to distributions after May 3,
1995.
(2) TRANSITION RULE.—The amendments made
by this section shall not apply to any distribution
made pursuant to the terms of—
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(A) a written binding contract in effect on
May 3, 1995, and at all times thereafter before
such distribution, or
(B) a tender offer outstanding on May 3,
1995.
(3) CERTAIN DIVIDENDS NOT PURSUANT TO CER-
TAIN
REDEMPTIONS.—In determining whether the
amendment made by subsection (a) applies to any ex-
traordinary dividend other than a dividend treated as
an extraordinary dividend under section 1059(e)(1) of
the Internal Revenue Code of 1986 (as amended by
this Act), paragraphs (1) and (2) shall be applied by
substituting ‘‘September 13, 1995’’ for ‘‘May 3,
1995’’.
SEC. 812. APPLICATION OF SECTION 355 TO DISTRIBUTIONS
FOLLOWED 
BY 
ACQUISITIONS 
AND 
TO
INTRAGROUP TRANSACTIONS.
(a) DISTRIBUTIONS FOLLOWED BY ACQUISITIONS.—
Section 355 (relating to distribution of stock and securities
of a controlled corporation) is amended by adding at the
end the following new subsection:
‘‘(e) RECOGNITION OF GAIN WHERE CERTAIN DIS-
TRIBUTIONS OF STOCK OR SECURITIES ARE FOLLOWED BY
ACQUISITION.—
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‘‘(1) GENERAL RULE.—If there is a distribution
to which this subsection applies, the following rules
shall apply:
‘‘(A) ACQUISITION
OF
CONTROLLED
COR-
PORATION.—If there is an acquisition described
in paragraph (2)(A)(ii) with respect to any con-
trolled corporation, any stock or securities in the
controlled corporation shall not be treated as
qualified property for purposes of subsection
(c)(2) of this section or section 361(c)(2).
‘‘(B) ACQUISITION OF DISTRIBUTING COR-
PORATION.—If there is an acquisition described
in paragraph (2)(A)(ii) with respect to the dis-
tributing corporation, the controlled corporation
shall recognize gain in an amount equal to the
amount of net gain which would be recognized if
all the assets of the distributing corporation (im-
mediately after the distribution) were sold (at
such time) for fair market value. Any gain rec-
ognized under the preceding sentence shall be
treated as long-term capital gain and shall be
taken into account for the taxable year which in-
cludes the day after the date of such distribution.
‘‘(2) DISTRIBUTIONS TO WHICH SUBSECTION AP-
PLIES.—
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‘‘(A) IN
GENERAL.—This subsection shall
apply to any distribution—
‘‘(i) to which this section (or so much
of section 356 as relates to this section) ap-
plies, and
‘‘(ii) which is part of a plan (or series
of related transactions) pursuant to which 1
or more persons acquire directly or indi-
rectly stock representing a 50-percent or
greater interest in the distributing corpora-
tion or any controlled corporation.
‘‘(B) PLAN PRESUMED TO EXIST IN CER-
TAIN CASES.—If 1 or more persons acquire di-
rectly or indirectly stock representing a 50-per-
cent or greater interest in the distributing cor-
poration or any controlled corporation during
the 4-year period beginning on the date which is
2 years before the date of the distribution, such
acquisition shall be treated as pursuant to a
plan described in subparagraph (A)(ii) unless it
is established that the distribution and the acqui-
sition are not pursuant to a plan or series of re-
lated transactions.
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‘‘(C) COORDINATION
WITH
SUBSECTION
(d).—This subsection shall not apply to any dis-
tribution to which subsection (d) applies.
‘‘(3) SPECIAL
RULES
RELATING
TO
ACQUISI-
TIONS.—
‘‘(A) CERTAIN
ACQUISITIONS
NOT
TAKEN
INTO ACCOUNT.—Except as provided in regula-
tions, the following acquisitions shall not be
treated as described in paragraph (2)(A)(ii):
‘‘(i) The acquisition of stock in any
controlled corporation by the distributing
corporation.
‘‘(ii) The acquisition by a person of
stock in any controlled corporation by rea-
son of holding stock or securities in the dis-
tributing corporation.
‘‘(iii) The acquisition by a person of
stock in any successor corporation of the
distributing corporation or any controlled
corporation by reason of holding stock or se-
curities in such distributing or controlled
corporation.
‘‘(iv) The acquisition of stock in a cor-
poration if shareholders owning directly or
indirectly stock possessing—
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‘‘(I) more than 50 percent of the
total combined voting power of all
classes of stock entitled to vote, and
‘‘(II) more than 50 percent of the
total value of shares of all classes of
stock,
in the distributing corporation or any con-
trolled corporation before such acquisition
own indirectly stock possessing such vote
and value in such distributing or controlled
corporation after such acquisition.
This subparagraph shall not apply to any acqui-
sition if the stock held before the acquisition was
acquired pursuant to a plan (or series of related
transactions) described in subparagraph (A)(ii).
‘‘(B) ASSET ACQUISITIONS.—Except as pro-
vided in regulations, for purposes of this sub-
section, if the assets of the distributing corpora-
tion or any controlled corporation are acquired
by a successor corporation in a transaction de-
scribed in subparagraph (A), (C), or (D) of sec-
tion 368(a)(1) or any other transaction specified
in regulations by the Secretary, the shareholders
(immediately before the acquisition) of the cor-
poration acquiring such assets shall be treated as
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acquiring stock in the corporation from which
the assets were acquired.
‘‘(4) DEFINITION
AND
SPECIAL
RULES.—For
purposes of this subsection—
‘‘(A) 50-PERCENT
OR
GREATER
INTER-
EST.—The term ‘50-percent or greater interest’
has the meaning given such term by subsection
(d)(4).
‘‘(B) DISTRIBUTIONS IN TITLE 11 OR SIMI-
LAR CASE.—Paragraph (1) shall not apply to
any distribution made in a title 11 or similar
case (as defined in section 368(a)(3)).
‘‘(C) 
AGGREGATION
AND
ATTRIBUTION
RULES.—
‘‘(i) 
AGGREGATION.—The 
rules 
of
paragraph (7)(A) of subsection (d) shall
apply.
‘‘(ii) 
ATTRIBUTION.—Section
355(d)(8)(A) shall apply in determining
whether a person holds stock or securities in
any corporation.
‘‘(D) SUCCESSORS AND PREDECESSORS.—
For purposes of this subsection, any reference to
a controlled corporation or a distributing cor-
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poration shall include a reference to any prede-
cessor or successor of such corporation.
‘‘(E) STATUTE OF LIMITATIONS.—If there is
an acquisition to which paragraph (1) (A) or
(B) applies—
‘‘(i) the statutory period for the assess-
ment of any deficiency attributable to any
part of the gain recognized under this sub-
section by reason of such acquisition shall
not expire before the expiration of 3 years
from the date the Secretary is notified by
the taxpayer (in such manner as the Sec-
retary may by regulations prescribe) that
such acquisition occurred, and
‘‘(ii) such deficiency may be assessed
before the expiration of such 3-year period
notwithstanding the provisions of any other
law or rule of law which would otherwise
prevent such assessment.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including regula-
tions—
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‘‘(A) providing for the application of this
subsection where there is more than 1 controlled
corporation,
‘‘(B) treating 2 or more distributions as 1
distribution where necessary to prevent the
avoidance of such purposes, and
‘‘(C) providing for the application of rules
similar to the rules of subsection (d)(6) where
appropriate for purposes of paragraph (2)(B).’’.
(b) SPECIAL
RULES
FOR
CERTAIN
INTRAGROUP
TRANSACTIONS.—
(1) SECTION 355 NOT TO APPLY.—Section 355, as
amended by subsection (a), is amended by adding at
the end the following new subsection:
‘‘(f) 
SECTION
NOT
TO
APPLY
TO
CERTAIN
INTRAGROUP DISTRIBUTIONS.—Except as provided in reg-
ulations, this section (or so much of section 356 as relates
to this section) shall not apply to the distribution of stock
from 1 member of an affiliated group (as defined in section
1504(a)) to another member of such group if such distribu-
tion is part of a plan (or series of related transactions) de-
scribed in subsection (e)(2)(A)(ii).’’.
(2) ADJUSTMENTS TO BASIS.—Section 358 (re-
lating to basis to distributees) is amended by adding
at the end the following new subsection:
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‘‘(g) ADJUSTMENTS
IN INTRAGROUP TRANSACTIONS
INVOLVING SECTION 355.—In the case of an exchange to
which section 355 (or so much of section 356 as relates to
section 355) applies and which involves the distribution of
stock from 1 member of an affiliated group (as defined in
section 1504(a)) to another member of such group, the Sec-
retary may, notwithstanding any other provision of this
section, provide adjustments to the adjusted basis of any
stock which—
‘‘(1) is in a corporation which is a member of
such group, and
‘‘(2) is held by another member of such group,
to appropriately reflect the proper treatment of such dis-
tribution.’’.
(c) DETERMINATION OF CONTROL IN CERTAIN DIVI-
SIVE TRANSACTIONS.—
(1) SECTION 351 TRANSACTIONS.—Section 351(c)
(relating to special rule) is amended to read as fol-
lows:
‘‘(c) SPECIAL
RULES
WHERE
DISTRIBUTION
TO
SHAREHOLDERS.—In determining control for purposes of
this section—
‘‘(1) the fact that any corporate transferor dis-
tributes part or all of the stock in the corporation
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which it receives in the exchange to its shareholders
shall not be taken into account, and
‘‘(2) if the requirements of section 355 are met
with respect to such distribution, the shareholders
shall be treated as in control of such corporation im-
mediately after the exchange if the shareholders hold
(immediately after the distribution) stock possess-
ing—
‘‘(A) more than 50 percent of the total com-
bined voting power of all classes of stock of such
corporation entitled to vote, and
‘‘(B) more than 50 percent of the total value
of shares of all classes of stock of such corpora-
tion.’’.
(2) D REORGANIZATIONS.—Section 368(a)(2)(H)
(relating to special rule for determining whether cer-
tain transactions are qualified under paragraph
(1)(D)) is amended to read as follows:
‘‘(H) SPECIAL
RULES
FOR
DETERMINING
WHETHER CERTAIN TRANSACTIONS ARE QUALI-
FIED UNDER PARAGRAPH (1)(D).—For purposes
of determining whether a transaction qualifies
under paragraph (1)(D)—
‘‘(i) in the case of a transaction with
respect to which the requirements of sub-
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paragraphs (A) and (B) of section 354(b)(1)
are met, the term ‘control’ has the meaning
given such term by section 304(c), and
‘‘(ii) in the case of a transaction with
respect to which the requirements of section
355 are met, the shareholders described in
paragraph (1)(D) shall be treated as having
control of the corporation to which the as-
sets are transferred if such shareholders hold
(immediately after the transfer) stock pos-
sessing—
‘‘(I) more than 50 percent of the
total combined voting power of all
classes of stock of such corporation en-
titled to vote, and
‘‘(II) more than 50 percent of the
total value of shares of all classes of
stock of such corporation.’’.
(d) EFFECTIVE DATES.—
(1) SECTION 355 RULES.—The amendments made
by subsections (a) and (b) shall apply to distributions
after April 16, 1997.
(2) DIVISIVE TRANSACTIONS.—The amendments
made by subsection (c) shall apply to transfers after
the date of the enactment of this Act.
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(3) TRANSITION RULE.—The amendments made
by this section shall not apply to any distribution
pursuant to an acquisition described in section
355(e)(2)(A)(ii) of the Internal Revenue Code of 1986
(or, in the case of the amendments made by subsection
(c), any transfer) after April 16, 1997, if such acqui-
sition or transfer is—
(A) made pursuant to a written agreement
which was (subject to customary conditions)
binding on such date and at all times thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before such
date, or
(C) described on or before such date in a
public announcement or in a filing with the Se-
curities and Exchange Commission required sole-
ly by reason of the distribution.
This paragraph shall not apply to any written agree-
ment, ruling request, or public announcement or fil-
ing unless it identifies the acquirer of the distributing
corporation or any controlled corporation, or the
transfer or transferee, whichever is applicable.
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SEC. 813. TAX TREATMENT OF REDEMPTIONS INVOLVING
RELATED CORPORATIONS.
(a) STOCK
PURCHASES
BY
RELATED
CORPORA-
TIONS.—The last sentence of section 304(a)(1) (relating to
acquisition by related corporation other than subsidiary)
is amended to read as follows: ‘‘To the extent that such dis-
tribution is treated as a distribution to which section 301
applies, the transferor and the acquiring corporation shall
be treated in the same manner as if the transferor had
transferred the stock so acquired to the acquiring corpora-
tion in exchange for stock of the acquiring corporation in
a transaction to which section 351(a) applies, and then the
acquiring corporation had redeemed the stock it was treated
as issuing in such transaction.’’.
(b) COORDINATION WITH SECTION 1059.—Clause (iii)
of section 1059(e)(1)(A), as amended by this title, is amend-
ed to read as follows:
‘‘(iii) which would not have been treat-
ed (in whole or in part) as a dividend if—
‘‘(I) any options had not been
taken into account under section
318(a)(4), or
‘‘(II) section 304(a) had not ap-
plied,’’.
(c) SPECIAL RULE FOR ACQUISITIONS BY FOREIGN
CORPORATIONS.—Section 304(b) (relating to special rules
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for application of subsection (a)) is amended by adding at
the end the following new paragraph:
‘‘(5) 
ACQUISITIONS
BY
FOREIGN
CORPORA-
TIONS.—
‘‘(A) IN GENERAL.—In the case of any ac-
quisition to which subsection (a) applies in
which the acquiring corporation is a foreign cor-
poration, the only earnings and profits taken
into account under paragraph (2)(A) shall be
those earnings and profits—
‘‘(i) which are attributable (under reg-
ulations prescribed by the Secretary) to
stock of the acquiring corporation owned
(within the meaning of section 958(a)) by a
corporation or individual which is—
‘‘(I) a United States shareholder
(within the meaning of section 951(b))
of the acquiring corporation, and
‘‘(II) the transferor or a person
who bears a relationship to the trans-
feror described in section 267(b) or
707(b), and
‘‘(ii) which were accumulated during
the period or periods such stock was owned
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by such person while the acquiring corpora-
tion was a controlled foreign corporation.
‘‘(B) APPLICATION OF SECTION 1248.—For
purposes of subparagraph (A), the rules of sec-
tion 1248(d) shall apply except to the extent oth-
erwise provided by the Secretary.
‘‘(C) REGULATIONS.—The Secretary shall
prescribe such regulations as are appropriate to
carry out the purposes of this paragraph.’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to distributions and acquisi-
tions after June 8, 1997.
(2) TRANSITION RULE.—The amendments made
by this section shall not apply to any distribution or
acquisition after June 8, 1997, if such distribution or
acquisition is—
(A) made pursuant to a written agreement
which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before such
date, or
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(C) described in a public announcement or
filing with the Securities and Exchange Commis-
sion on or before such date.
SEC. 814. MODIFICATION OF HOLDING PERIOD APPLICABLE
TO DIVIDENDS RECEIVED DEDUCTION.
(a) IN
GENERAL.—Subparagraph (A) of section
246(c)(1) is amended to read as follows:
‘‘(A) which is held by the taxpayer for 45
days or less during the 90-day period beginning
on the date which is 45 days before the date on
which such share becomes ex-dividend with re-
spect to such dividend, or’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 246(c) is amended
to read as follows:
‘‘(2) 90-DAY RULE IN THE CASE OF CERTAIN
PREFERENCE DIVIDENDS.—In the case of stock having
preference in dividends, if the taxpayer receives divi-
dends with respect to such stock which are attrib-
utable to a period or periods aggregating in excess of
366 days, paragraph (1)(A) shall be applied—
‘‘(A) by substituting ‘90 days’ for ‘45 days’
each place it appears, and
‘‘(B) by substituting ‘180-day period’ for
‘90-day period’.’’.
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(2) Paragraph (3) of section 246(c) is amended
by adding ‘‘and’’ at the end of subparagraph (A), by
striking subparagraph (B), and by redesignating sub-
paragraph (C) as subparagraph (B).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to dividends received or ac-
crued after the 30th day after the date of the enact-
ment of this Act.
(2) TRANSITIONAL
RULE.—The amendments
made by this section shall not apply to dividends re-
ceived or accrued during the 2-year period beginning
on the date of the enactment of this Act if—
(A) the dividend is paid with respect to
stock held by the taxpayer on June 8, 1997, and
all times thereafter until the dividend is received,
(B) such stock is continuously subject to a
position described in section 246(c)(4) of the In-
ternal Revenue Code of 1986 on June 8, 1997,
and all times thereafter until the dividend is re-
ceived, and
(C) such stock and position are clearly iden-
tified in the taxpayer’s records within 30 days
after the date of the enactment of this Act.
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Stock shall not be treated as meeting the requirement
of subparagraph (B) if the position is sold, closed, or
otherwise terminated and reestablished.
Subtitle C—Other Corporate
Provisions
SEC. 821. REGISTRATION AND OTHER PROVISIONS RELAT-
ING 
TO 
CONFIDENTIAL 
CORPORATE 
TAX
SHELTERS.
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended by redesignating subsections
(d) and (e) as subsections (e) and (f), respectively, and by
inserting after subsection (c) the following new subsection:
‘‘(d) CERTAIN CONFIDENTIAL ARRANGEMENTS TREAT-
ED AS TAX SHELTERS.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘tax shelter’ includes any entity, plan, ar-
rangement, or transaction—
‘‘(A) a significant purpose of the structure
of which is the avoidance or evasion of Federal
income tax for a direct or indirect participant
which is a corporation,
‘‘(B) which is offered to any potential par-
ticipant under conditions of confidentiality, and
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‘‘(C) for which the tax shelter promoters
may receive fees in excess of $100,000 in the ag-
gregate.
‘‘(2) CONDITIONS
OF
CONFIDENTIALITY.—For
purposes of paragraph (1)(B), an offer is under con-
ditions of confidentiality if—
‘‘(A) the potential participant to whom the
offer is made (or any other person acting on be-
half of such participant) has an understanding
or agreement with or for the benefit of any pro-
moter of the tax shelter that such participant (or
such other person) will limit disclosure of the tax
shelter or any significant tax features of the tax
shelter, or
‘‘(B) any promoter of the tax shelter—
‘‘(i) claims, knows, or has reason to
know,
‘‘(ii) knows or has reason to know that
any other person (other than the potential
participant) claims, or
‘‘(iii) causes another person to claim,
that the tax shelter (or any aspect thereof) is
proprietary to any person other than the poten-
tial participant or is otherwise protected from
disclosure to or use by others.
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For purposes of this subsection, the term ‘promoter’
means any person or any related person (within the
meaning of section 267 or 707) who participates in
the organization, management, or sale of the tax shel-
ter.
‘‘(3) PERSONS
OTHER
THAN
PROMOTER
RE-
QUIRED TO REGISTER IN CERTAIN CASES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the requirements of subsection (a)
are not met with respect to any tax shelter
(as defined in paragraph (1)) by any tax
shelter promoter, and
‘‘(ii) no tax shelter promoter is a Unit-
ed States person,
then each United States person who discussed
participation in such shelter shall register such
shelter under subsection (a).
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to a United States person who dis-
cussed participation in a tax shelter if—
‘‘(i) such person notified the promoter
in writing (not later than the close of the
90th day after the day on which such dis-
cussions began) that such person would not
participate in such shelter, and
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‘‘(ii) such person does not participate
in such shelter.
‘‘(4) OFFER TO PARTICIPATE TREATED AS OFFER
FOR SALE.—For purposes of subsections (a) and (b),
an offer to participate in a tax shelter (as defined in
paragraph (1)) shall be treated as an offer for sale.’’.
(b) PENALTY.—Subsection (a) of section 6707 (relating
to failure to furnish information regarding tax shelters) is
amended by adding at the end the following new paragraph:
‘‘(3) CONFIDENTIAL ARRANGEMENTS.—
‘‘(A) IN GENERAL.—In the case of a tax
shelter (as defined in section 6111(d)), the pen-
alty imposed under paragraph (1) shall be an
amount equal to the greater of—
‘‘(i) 50 percent of the fees paid to all
promoters of the tax shelter with respect to
offerings made before the date such shelter is
registered under section 6111, or
‘‘(ii) $10,000.
Clause (i) shall be applied by substituting ‘75
percent’ for ‘50 percent’ in the case of an inten-
tional failure or act described in paragraph (1).
‘‘(B) SPECIAL RULE FOR PARTICIPANTS RE-
QUIRED TO REGISTER SHELTER.—In the case of
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a person required to register such a tax shelter
by reason of section 6111(d)(3)—
‘‘(i) such person shall be required to
pay the penalty under paragraph (1) only
if such person actually participated in such
shelter,
‘‘(ii) the amount of such penalty shall
be determined by taking into account under
subparagraph (A)(i) only the fees paid by
such person, and
‘‘(iii) such penalty shall be in addition
to the penalty imposed on any other person
for failing to register such shelter.’’.
(c) MODIFICATIONS TO SUBSTANTIAL UNDERSTATE-
MENT PENALTY.—
(1) RESTRICTION
ON
REASONABLE
BASIS
FOR
CORPORATE
UNDERSTATEMENT
OF
INCOME
TAX.—
Subparagraph (B) of section 6662(d)(2) is amended
by adding at the end the following new flush sentence:
‘‘For purposes of clause (ii)(II), in no event shall
a corporation be treated as having a reasonable
basis for its tax treatment of an item attrib-
utable to a multiple-party financing transaction
if such treatment does not clearly reflect the in-
come of the corporation.’’.
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(2) MODIFICATION TO DEFINITION OF TAX SHEL-
TER.—Clause (iii) of section 6662(d)(2)(C) is amend-
ed by striking ‘‘the principal purpose’’ and inserting
‘‘a significant purpose’’.
(d) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6707(a) is amended
by striking ‘‘The penalty’’ and inserting ‘‘Except as
provided in paragraph (3), the penalty’’.
(2) Subparagraph (A) of section 6707(a)(1) is
amended by striking ‘‘paragraph (2)’’ and inserting
‘‘paragraph (2) or (3), as the case may be’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to any tax shelter (as defined in section
6111(d) of the Internal Revenue Code of 1986, as
amended by this section) interests in which are of-
fered to potential participants after the Secretary of
the Treasury prescribes guidance with respect to meet-
ing requirements added by such amendments.
(2) MODIFICATIONS
TO
SUBSTANTIAL
UNDER-
STATEMENT
PENALTY.—The amendments made by
subsection (c) shall apply to items with respect to
transactions entered into after the date of the enact-
ment of this Act.
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SEC. 822. CERTAIN PREFERRED STOCK TREATED AS BOOT.
(a) SECTION 351.—Section 351 (relating to transfer
to corporation controlled by transferor) is amended by re-
designating subsection (g) as subsection (h) and by insert-
ing after subsection (f) the following new subsection:
‘‘(g) NONQUALIFIED PREFERRED STOCK NOT TREAT-
ED AS STOCK.—
‘‘(1) IN GENERAL.—For purposes of subsections
(a) and (b), the term ‘stock’ shall not include non-
qualified preferred stock.
‘‘(2) NONQUALIFIED
PREFERRED
STOCK.—For
purposes of paragraph (1)—
‘‘(A) IN GENERAL.—The term ‘nonqualified
preferred stock’ means preferred stock if—
‘‘(i) the holder of such stock has the
right to require the issuer or a related per-
son to redeem or purchase the stock,
‘‘(ii) the issuer or a related person is
required to redeem or purchase such stock,
‘‘(iii) the issuer or a related person has
the right to redeem or purchase the stock
and, as of the issue date, it is more likely
than not that such right will be exercised, or
‘‘(iv) the dividend rate on such stock
varies in whole or in part (directly or indi-
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rectly) with reference to interest rates, com-
modity prices, or other similar indices.
‘‘(B) LIMITATIONS.—Clauses (i), (ii), and
(iii) of subparagraph (A) shall apply only if the
right or obligation referred to therein may be ex-
ercised within the 20-year period beginning on
the issue date of such stock and such right or ob-
ligation is not subject to a contingency which, as
of the issue date, makes remote the likelihood of
the redemption or purchase.
‘‘(C) EXCEPTIONS FOR CERTAIN RIGHTS OR
OBLIGATIONS.—
‘‘(i) IN GENERAL.—A right or obliga-
tion shall not be treated as described in
clause (i), (ii), or (iii) of subparagraph (A)
if—
‘‘(I) it may be exercised only
upon the death, disability, or mental
incompetency of the holder, or
‘‘(II) in the case of a right or obli-
gation to redeem or purchase stock
transferred in connection with the per-
formance of services for the issuer or a
related person (and which represents
reasonable compensation), it may be
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exercised only upon the holder’s sepa-
ration from service from the issuer or
a related person.
‘‘(ii) EXCEPTION.—Clause (i)(I) shall
not apply if the stock relinquished in the ex-
change, or the stock acquired in the ex-
change is in—
‘‘(I) a corporation if any class of
stock in such corporation or a related
party is readily tradable on an estab-
lished securities market or otherwise,
or
‘‘(II) any other corporation if
such exchange is part of a transaction
or series of transactions in which such
corporation is to become a corporation
described in subclause (I).
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) PREFERRED STOCK.—The term ‘pre-
ferred stock’ means stock which is limited and
preferred as to dividends and does not partici-
pate (including through a conversion privilege)
in corporate growth to any significant extent.
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‘‘(B) RELATED PERSON.—A person shall be
treated as related to another person if they bear
a relationship to such other person described in
section 267(b) or 707(b).
‘‘(4) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary or appro-
priate to carry out the purposes of this subsection and
sections 354(a)(2)(C), 355(a)(3)(D), and 356(e). The
Secretary may also prescribe regulations, consistent
with the treatment under this subsection and such sec-
tions, for the treatment of nonqualified preferred stock
under other provisions of this title.’’.
(b) SECTION 354.—Paragraph (2) of section 354(a)
(relating to exchanges of stock and securities in certain re-
organizations) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(C) NONQUALIFIED PREFERRED STOCK.—
‘‘(i) IN GENERAL.—Nonqualified pre-
ferred stock (as defined in section 351(g)(2))
received in exchange for stock other than
nonqualified preferred stock (as so defined)
shall not be treated as stock or securities.
‘‘(ii) RECAPITALIZATIONS OF FAMILY-
OWNED CORPORATIONS.—
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‘‘(I) IN
GENERAL.—Clause (i)
shall not apply in the case of a recapi-
talization under section 368(a)(1)(E)
of a family-owned corporation.
‘‘(II) FAMILY-OWNED
CORPORA-
TION.—For purposes of this clause, ex-
cept as provided in regulations, the
term ‘family-owned corporation’ means
any corporation which is described in
clause (i) of section 447(d)(2)(C)
throughout the 8-year period beginning
on the date which is 5 years before the
date of the recapitalization. For pur-
poses of the preceding sentence, stock
shall not be treated as owned by a fam-
ily member during any period de-
scribed in section 355(d)(6)(B).’’.
(c) SECTION 355.—Paragraph (3) of section 355(a) is
amended by adding at the end the following new subpara-
graph:
‘‘(D) NONQUALIFIED PREFERRED STOCK.—
Nonqualified preferred stock (as defined in sec-
tion 351(g)(2)) received in a distribution with
respect to stock other than nonqualified preferred
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stock (as so defined) shall not be treated as stock
or securities.’’.
(d) SECTION 356.—Section 356 is amended by redesig-
nating subsections (e) and (f) as subsections (f) and (g),
respectively, and by inserting after subsection (d) the follow-
ing new subsection:
‘‘(e) NONQUALIFIED PREFERRED STOCK TREATED AS
OTHER PROPERTY.—For purposes of this section—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘other property’ includes non-
qualified preferred stock (as defined in section
351(g)(2)).
‘‘(2) EXCEPTION.—The term ‘other property’
does not include nonqualified preferred stock (as so
defined) to the extent that, under section 354 or 355,
such preferred stock would be permitted to be received
without the recognition of gain.’’.
(e) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 354(a)(2) and
subparagraph (C) of section 355(a)(3)(C) are each
amended by inserting ‘‘(including nonqualified pre-
ferred stock, as defined in section 351(g)(2))’’ after
‘‘stock’’.
(2) Subparagraph (A) of section 354(a)(3) and
subparagraph (A) of section 355(a)(4) are each
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amended by inserting ‘‘nonqualified preferred stock
and’’ after ‘‘including’’.
(3) Section 1036 is amended by redesignating
subsection (b) as subsection (c) and by inserting after
subsection (a) the following new subsection:
‘‘(b) NONQUALIFIED PREFERRED STOCK NOT TREAT-
ED AS STOCK.—For purposes of this section, nonqualified
preferred stock (as defined in section 351(g)(2)) shall be
treated as property other than stock.’’.
(f) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to transactions after June 8,
1997.
(2) TRANSITION RULE.—The amendments made
by this section shall not apply to any transaction
after June 8, 1997, if such transaction is—
(A) made pursuant to a written agreement
which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted
to the Internal Revenue Service on or before such
date, or
(C) described on or before such date in a
public announcement or in a filing with the Se-
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curities and Exchange Commission required sole-
ly by reason of the transaction.
Subtitle D—Administrative
Provisions
SEC. 831. DECREASE OF THRESHOLD FOR REPORTING PAY-
MENTS 
TO 
CORPORATIONS 
PERFORMING
SERVICES FOR FEDERAL AGENCIES.
(a) IN GENERAL.—Subsection (d) of section 6041A (re-
lating to returns regarding payments of remuneration for
services and direct sales) is amended by adding at the end
the following new paragraph:
‘‘(3) PAYMENTS TO CORPORATIONS BY FEDERAL
EXECUTIVE AGENCIES.—
‘‘(A) IN
GENERAL.—Notwithstanding any
regulation prescribed by the Secretary before the
date of the enactment of this paragraph, sub-
section (a) shall apply to remuneration paid to
a corporation by any Federal executive agency
(as defined in section 6050M(b)).
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to—
‘‘(i) services under contracts described
in section 6050M(e)(3) with respect to
which 
the 
requirements 
of 
section
6050M(e)(2) are met, and
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‘‘(ii) such other services as the Sec-
retary may specify in regulations prescribed
after the date of the enactment of this para-
graph.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to returns the due date for which (deter-
mined without regard to any extension) is more than 90
days after the date of the enactment of this Act.
SEC. 832. DISCLOSURE OF RETURN INFORMATION FOR AD-
MINISTRATION OF CERTAIN VETERANS PRO-
GRAMS.
(a) GENERAL RULE.—Subparagraph (D) of section
6103(l)(7) (relating to disclosure of return information to
Federal, State, and local agencies administering certain
programs) is amended by striking ‘‘Clause (viii) shall not
apply after September 30, 1998.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
SEC. 833. RETURNS OF BENEFICIARIES OF ESTATES AND
TRUSTS REQUIRED TO FILE RETURNS CON-
SISTENT WITH ESTATE OR TRUST RETURN OR
TO NOTIFY SECRETARY OF INCONSISTENCY.
(a) DOMESTIC ESTATES AND TRUSTS.—Section 6034A
(relating to information to beneficiaries of estates and
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trusts) is amended by adding at the end the following new
subsection:
‘‘(c) BENEFICIARY’S RETURN MUST BE CONSISTENT
WITH ESTATE OR TRUST RETURN OR SECRETARY NOTI-
FIED OF INCONSISTENCY.—
‘‘(1) IN GENERAL.—A beneficiary of any estate
or trust to which subsection (a) applies shall, on such
beneficiary’s return, treat any reported item in a
manner which is consistent with the treatment of such
item on the applicable entity’s return.
‘‘(2) NOTIFICATION
OF
INCONSISTENT
TREAT-
MENT.—
‘‘(A) IN GENERAL.—In the case of any re-
ported item, if—
‘‘(i)(I) the applicable entity has filed a
return but the beneficiary’s treatment on
such beneficiary’s return is (or may be) in-
consistent with the treatment of the item on
the applicable entity’s return, or
‘‘(II) the applicable entity has not filed
a return, and
‘‘(ii) the beneficiary files with the Sec-
retary a statement identifying the inconsist-
ency,
paragraph (1) shall not apply to such item.
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‘‘(B) BENEFICIARY
RECEIVING
INCORRECT
INFORMATION.—A beneficiary shall be treated as
having complied with clause (ii) of subpara-
graph (A) with respect to a reported item if the
beneficiary—
‘‘(i) demonstrates to the satisfaction of
the Secretary that the treatment of the re-
ported item on the beneficiary’s return is
consistent with the treatment of the item on
the statement furnished under subsection (a)
to the beneficiary by the applicable entity,
and
‘‘(ii) elects to have this paragraph
apply with respect to that item.
‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any
case—
‘‘(A) described in subparagraph (A)(i)(I) of
paragraph (2), and
‘‘(B) in which the beneficiary does not com-
ply with subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the
items by such beneficiary consistent with the treat-
ment of the items on the applicable entity’s return
shall be treated as arising out of mathematical or
clerical errors and assessed according to section
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6213(b)(1). Paragraph (2) of section 6213(b) shall not
apply to any assessment referred to in the preceding
sentence.
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) REPORTED ITEM.—The term ‘reported
item’ means any item for which information is
required to be furnished under subsection (a).
‘‘(B) APPLICABLE ENTITY.—The term ‘ap-
plicable entity’ means the estate or trust of which
the taxpayer is the beneficiary.
‘‘(5) ADDITION TO TAX FOR FAILURE TO COMPLY
WITH SECTION.—For addition to tax in the case of a
beneficiary’s negligence in connection with, or dis-
regard of, the requirements of this section, see part II
of subchapter A of chapter 68.’’.
(b) FOREIGN TRUSTS.—Subsection (d) of section 6048
(relating to information with respect to certain foreign
trusts) is amended by adding at the end the following new
paragraph:
‘‘(5) UNITED STATES PERSON’S RETURN MUST
BE CONSISTENT WITH TRUST RETURN OR SECRETARY
NOTIFIED OF INCONSISTENCY.—Rules similar to the
rules of section 6034A(c) shall apply to items reported
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by a trust under subsection (b)(1)(B) and to United
States persons referred to in such subsection.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns of beneficiaries and owners
filed after the date of the enactment of this Act.
SEC. 834. CONTINUOUS LEVY ON CERTAIN PAYMENTS.
(a) IN GENERAL.—Section 6331 (relating to levy and
distraint) is amended—
(1) by redesignating subsection (h) as subsection
(i), and
(2) by inserting after subsection (g) the following
new subsection:
‘‘(h) CONTINUING LEVY ON CERTAIN PAYMENTS.—
‘‘(1) IN GENERAL.—The effect of a levy on speci-
fied payments to or received by a taxpayer shall be
continuous from the date such levy is first made until
such levy is released. Notwithstanding section 6334,
such continuous levy shall attach to up to 15 percent
of any specified payment due to the taxpayer.
‘‘(2) SPECIFIED PAYMENT.—For the purposes of
paragraph (1), the term ‘specified payment’ means—
‘‘(A) any Federal payment other than a
payment for which eligibility is based on the in-
come or assets (or both) of a payee, and
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‘‘(B) any payment described in paragraph
(4), (7), (9), or (11) of section 6334(a).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to levies issued after the date of the
enactment of this Act.
SEC. 835. MODIFICATION OF LEVY EXEMPTION.
(a) IN GENERAL.—Section 6334 (relating to property
exempt from levy) is amended by redesignating subsection
(f) as subsection (g) and by inserting after subsection (e)
the following new subsection:
‘‘(f) LEVY ALLOWED ON CERTAIN SPECIFIED PAY-
MENTS.—Any payment described in subparagraph (B) of
section 6331(h)(2) shall not be exempt from levy if the Sec-
retary approves the levy thereon under section 6331(h).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to levies issued after the date of the
enactment of this Act.
SEC. 836. CONFIDENTIALITY AND DISCLOSURE OF RE-
TURNS AND RETURN INFORMATION.
(a) IN GENERAL.—Subsection (k) of section 6103 is
amended by adding at the end the following new paragraph:
‘‘(8) LEVIES
ON
CERTAIN
GOVERNMENT
PAY-
MENTS.—
‘‘(A) DISCLOSURE OF RETURN INFORMATION
IN
LEVIES
ON
FINANCIAL
MANAGEMENT
SERV-
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ICE.—In serving a notice of levy, or release of
such levy, with respect to any applicable govern-
ment payment, the Secretary may disclose to of-
ficers and employees of the Financial Manage-
ment Service—
‘‘(i) return information, including tax-
payer identity information,
‘‘(ii) the amount of any unpaid liabil-
ity under this title (including penalties and
interest), and
‘‘(iii) the type of tax and tax period to
which such unpaid liability relates.
‘‘(B) RESTRICTION ON USE OF DISCLOSED
INFORMATION.—Return 
information 
disclosed
under subparagraph (A) may be used by officers
and employees of the Financial Management
Service only for the purpose of, and to the extent
necessary in, transferring levied funds in satis-
faction of the levy, maintaining appropriate
agency records in regard to such levy or the re-
lease thereof, notifying the taxpayer and the
agency certifying such payment that the levy has
been honored, or in the defense of any litigation
ensuing from the honor of such levy.
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‘‘(C) 
APPLICABLE
GOVERNMENT
PAY-
MENT.—For purposes of this paragraph, the
term ‘applicable government payment’ means—
‘‘(i) any Federal payment (other than
a payment for which eligibility is based on
the income or assets (or both) of a payee)
certified to the Financial Management
Service for disbursement, and
‘‘(ii) any other payment which is cer-
tified to the Financial Management Service
for disbursement and which the Secretary
designates by published notice.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 6301(p) is amended—
(A) in paragraph (3)(A), by striking ‘‘(2),
or (6)’’ and inserting ‘‘(2), (6), or (8)’’, and
(B) in paragraph (4), by inserting ‘‘(k)(8),’’
after ‘‘(j) (1) or (2),’’ each place it appears.
(2) Section 552a(a)(8)(B) of title 5, United
States Code, is amended by striking ‘‘or’’ at the end
of clause (v), by adding ‘‘or’’ at the end of clause (vi),
and by adding at the end the following new clause:
‘‘(vii) matches performed incident to a
levy described in section 6103(k)(8) of the
Internal Revenue Code of 1986;’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to levies issued after the date of the en-
actment of this Act.
Subtitle E—Excise Tax Provisions
SEC. 841. EXTENSION AND MODIFICATION OF AIRPORT AND
AIRWAY TRUST FUND TAXES.
(a) FUEL TAXES.—
(1) AVIATION
FUEL.—Clause (ii) of section
4091(b)(3)(A) is amended by striking ‘‘September 30,
1997’’ and inserting ‘‘September 30, 2007’’.
(2) AVIATION GASOLINE.—Subparagraph (B) of
section 4081(d)(2) is amended by striking ‘‘September
30, 1997’’ and inserting ‘‘September 30, 2007’’.
(3) NONCOMMERCIAL AVIATION.—Subparagraph
(B) of section 4041(c)(3) is amended by striking
‘‘September 30, 1997’’ and inserting ‘‘September 30,
2007’’.
(b) TICKET TAXES.—
(1) 
PERSONS.—Clause 
(ii) 
of 
section
4261(g)(1)(A) is amended by striking ‘‘September 30,
1997’’ and inserting ‘‘September 30, 2007’’.
(2) 
PROPERTY.—Clause 
(ii) 
of 
section
4271(d)(1)(A) is amended by striking ‘‘September 30,
1997’’ and inserting ‘‘September 30, 2007’’.
(c) MODIFICATIONS.—
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(1) USE
OF
INTERNATIONAL
TRAVEL
FACILI-
TIES.—Subsection (c) of section 4261 is amended to
read as follows:
‘‘(c) USE OF INTERNATIONAL TRAVEL FACILITIES.—
‘‘(1) IN GENERAL.—There is hereby imposed a
tax of $8 on any amount paid (whether within or
without the United States) for any transportation of
any person by air, if such transportation begins or
ends in the United States.
‘‘(2) EXCEPTION
FOR
TRANSPORTATION
EN-
TIRELY TAXABLE UNDER SUBSECTION (a).—This sub-
section shall not apply to any transportation all of
which is taxable under subsection (a) (determined
without regard to sections 4281 and 4282).
‘‘(3) SPECIAL RULE FOR ALASKA AND HAWAII.—
In any case in which the tax imposed by paragraph
(1) applies to a segment between the continental
United States and Alaska or Hawaii or between Alas-
ka and Hawaii, such tax shall apply only to depar-
tures and shall be at the rate of $6.’’.
(2) SPECIAL RULES.—Section 4261 is amended
by redesignating subsections (e), (f), and (g), as sub-
sections (f), (g), and (h), respectively, and by insert-
ing after subsection (d) the following new subsection:
‘‘(e) SPECIAL RULES.—
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‘‘(1) APPLICATION OF SUBSECTION (a) TO DO-
MESTIC
SEGMENTS
OF
INTERNATIONAL
TRANSPOR-
TATION.—
‘‘(A) IN GENERAL.—In the case of taxable
transportation described in section 4262(a)(2),
the tax imposed by subsection (a) shall be ap-
plied by taking into account only an amount
which bears the same ratio to the amount paid
for such transportation as the number of speci-
fied miles in the domestic segments of such trans-
portation bears to the total number of specified
miles in such transportation.
‘‘(B) SPECIFIED MILES.—For purposes of
subparagraph (A), the term ‘specified miles’
means the great circle miles (as specified by the
Secretary) between the 2 points of each segment.
The Secretary may specify mileage which shall
apply in lieu of the mileage determined under
the preceding sentence with respect to any 2
points if the Secretary determines that the mile-
age on the route customarily traveled by air be-
tween such points is different from the mileage
determined under the preceding sentence.
‘‘(C) DOMESTIC SEGMENT.—For purposes of
this section, the term ‘domestic segment’ means
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any segment which is taxable transportation de-
scribed in section 4262(a)(1).
‘‘(2) REDUCED RATE OF TAX FOR SEGMENTS TO
AND FROM RURAL AIRPORTS.—
‘‘(A) IN GENERAL.—Subsections (a) and (b)
shall be applied by substituting ‘7.5 percent’ for
‘10 percent’ in the case of any segment beginning
or ending at an airport which is a rural airport
for the calendar year in which such segment be-
gins or ends (as the case may be).
‘‘(B) RURAL
AIRPORT.—For purposes of
subparagraph (A), the term ‘rural airport’
means, with respect to any calendar year, any
airport if—
‘‘(i) there were fewer than 100,000
commercial passengers departing by air
during the second preceding calendar year
from such airport, and
‘‘(ii) such airport—
‘‘(I) is not located within 75 miles
of another airport which is not de-
scribed in clause (i), or
‘‘(II) is receiving essential air
service subsidies as of the date of the
enactment of this paragraph.
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‘‘(C) TRANSPORTATION
INVOLVING
MUL-
TIPLE SEGMENTS.—In the case of transportation
involving more than 1 segment at least 1 of
which does not begin or end at a rural airport,
subparagraph (A) shall be applied by taking into
account only an amount which bears the same
ratio to the amount paid for such transportation
as the number of specified miles in segments
which begin or end at a rural airport bears to
the total number of specified miles in such trans-
portation.
‘‘(3) AMOUNTS PAID FOR RIGHT TO AWARD FREE
OR
REDUCED
RATE
AIR
TRANSPORTATION.—Any
amount paid (or other benefit provided) to an air
carrier (or any related person) for the right to pro-
vide mileage awards for (or other reductions in the
cost of) any transportation of persons by air shall be
treated for purposes of subsection (a) as an amount
paid for taxable transportation, and such amount
shall be taxable under subsection (a) without regard
to any other provision of this subchapter. The Sec-
retary shall prescribe rules which reallocate items of
income, deduction, credit, exclusion, or other allow-
ance to the extent necessary to prevent the avoidance
of tax imposed by reason of this paragraph.’’.
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(3) SECONDARY LIABILITY OF CARRIER FOR UN-
PAID TAX.—Subsection (c) of section 4263 is amended
by striking ‘‘subchapter—’’ and all that follows and
inserting ‘‘subchapter, such tax shall be paid by the
carrier providing the initial segment of such trans-
portation which begins or ends in the United States.’’.
(4) TECHNICAL AMENDMENTS.—
(A) Paragraph (2) of section 4262(a) is
amended by striking ‘‘United States, but’’ and
all that follows and inserting ‘‘United States.’’.
(B) Subsection (c) of section 4262 is amend-
ed by striking paragraph (3).
(d) EFFECTIVE DATES.—
(1) FUEL
TAXES.—The amendments made by
subsection (a) shall apply take effect on October 1,
1997.
(2) TICKET TAXES.—
(A) IN GENERAL.—Except as otherwise pro-
vided in this paragraph, the amendments made
by subsections (b) and (c) shall apply to trans-
portation beginning on or after October 1, 1997.
(B) TREATMENT
OF
AMOUNTS
PAID
FOR
TICKETS PURCHASED BEFORE DATE OF ENACT-
MENT.—The amendments made by subsection (c)
shall not apply to amounts paid for a ticket pur-
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chased before the date of the enactment of this
Act for a specified flight beginning on or after
October 1, 1997.
(C) AMOUNTS PAID FOR RIGHT TO AWARD
MILEAGE AWARDS.—
(i) IN
GENERAL.—Paragraph (2) of
section 4261(e) of the Internal Revenue
Code of 1986 (as added by the amendment
made by subsection (c)) shall apply to
amounts paid after September 30, 1997.
(ii) PAYMENTS
WITHIN
CONTROLLED
GROUP.—For purposes of clause (i), any
amount paid after June 16, 1997, and be-
fore October 1, 1997, by 1 member of a con-
trolled group for a right which is described
in such section 4261(e)(2) and is furnished
by another member of such group after Sep-
tember 30, 1997, shall be treated as paid
after September 30, 1997. For purposes of
the preceding sentence, all persons treated
as a single employer under subsection (a) or
(b) of section 52 of such Code shall be treat-
ed as members of a controlled group.
(e) DELAYED DEPOSITS OF AIRLINE TICKET TAX REV-
ENUES.—In the case of deposits of taxes imposed by section
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4261 of the Internal Revenue Code of 1986, the due date
for any such deposit which would (but for this subsection)
be required to be made—
(1) after August 14, 1997, and before October 1,
1997, shall be October 10, 1997, and
(2) after July 1, 2001, and before October 1,
2001, shall be October 10, 2001.
SEC. 842. RESTORATION OF LEAKING UNDERGROUND
STORAGE TANK TRUST FUND TAXES.
Paragraph (3) of section 4081(d) is amended by strik-
ing ‘‘shall not apply after December 31, 1995’’ and insert-
ing ‘‘shall apply after September 30, 1997, and before Octo-
ber 1, 2007’’.
SEC. 843. APPLICATION OF COMMUNICATIONS TAX TO
LONG-DISTANCE 
PREPAID 
TELEPHONE
CARDS.
(a) IN GENERAL.—Section 4251 is amended by adding
at the end the following new subsection:
‘‘(d) TREATMENT OF PREPAID TELEPHONE CARDS.—
‘‘(1) IN
GENERAL.—For purposes of this sub-
chapter, in the case of communications services ac-
quired by means of a prepaid telephone card—
‘‘(A) the purchase of such card shall not be
treated as an amount paid for communications
services, but
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‘‘(B) the amount paid to any telephone car-
rier from any person who is not such a provider
on account of the use of such a card to acquire
communications services shall be treated as an
amount paid for such communications services.
‘‘(2) PREPAID TELEPHONE CARD.—For purposes
of paragraph (1), the term ‘prepaid telephone card’
means any card or other similar arrangement which
permits its holder to obtain communications services
and pay for such services in advance.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid on or after the date
of the enactment of this Act.
SEC. 844. UNIFORM RATE OF TAX ON VACCINES.
(a) IN GENERAL.—Subsection (b) of section 4131 is
amended to read as follows:
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) shall be 84 cents per dose of
any taxable vaccine.
‘‘(2) COMBINATIONS OF VACCINES.—If any tax-
able vaccine is described in more than 1 subpara-
graph of section 4132(a)(1), the amount of the tax
imposed by subsection (a) on such vaccine shall be the
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sum of the amounts for the vaccines which are so in-
cluded.’’.
(b) TAXABLE VACCINES.—Paragraph (1) of section
4132(a) is amended to read as follows:
‘‘(1) TAXABLE VACCINE.—The term ‘taxable vac-
cine’ means any of the following vaccines which are
manufactured or produced in the United States or en-
tered into the United States for consumption, use, or
warehousing:
‘‘(A) Any vaccine containing diphtheria
toxoid.
‘‘(B) Any vaccine containing tetanus toxoid.
‘‘(C) Any vaccine containing pertussis bac-
teria, extracted or partial cell bacteria, or spe-
cific pertussis antigens.
‘‘(D) Any vaccine against measles.
‘‘(E) Any vaccine against mumps.
‘‘(F) Any vaccine against rubella.
‘‘(G) Any vaccine containing polio virus.
‘‘(H) Any HIB vaccine.
‘‘(I) Any vaccine against hepatitis B.
‘‘(J) Any vaccine against chicken pox.’’.
(c) CONFORMING AMENDMENT.—Subsection (a) of sec-
tion 4132 is amended by striking paragraphs (2), (3), and
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(4) and by redesignating paragraphs (5) through (8) as
paragraphs (2) through (5), respectively.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on October 1, 1997.
(e) LIMITATION ON CERTAIN CREDITS OR REFUNDS.—
For purposes of applying section 4132(b) of the Internal
Revenue Code of 1986 with respect to any claim for credit
or refund filed before April 1, 1998, the amount of tax taken
into account shall not exceed the tax computed under the
rate in effect on October 1, 1997.
SEC. 845. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF
VALUE OF TIRES IN COMPUTING PRICE.
(a) IN GENERAL.—Subsection (e) of section 4051 is
amended to read as follows:
‘‘(e) CREDIT AGAINST TAX FOR TIRE TAX.—If—
‘‘(1) tires are sold on or in connection with the
sale of any article, and
‘‘(2) tax is imposed by this subchapter on the
sale of such tires,
there shall be allowed as a credit against the tax imposed
by this subchapter an amount equal to the tax (if any) im-
posed by section 4071 on such tires.’’.
(b) CONFORMING AMENDMENT.—Subparagraph (B) of
section 4052(b)(1) is amended by striking clause (iii), by
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adding ‘‘and’’ at the end of clause (ii), and by redesignating
clause (iv) as clause (iii).
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on January 1, 1998.
SEC. 846. INCREASE IN EXCISE TAXES ON TOBACCO PROD-
UCTS.
(a) CIGARETTES.—Subsection (b) of section 5701 is
amended—
(1) by striking ‘‘$12 per thousand ($10 per thou-
sand on cigarettes removed during 1991 or 1992)’’ in
paragraph (1) and inserting ‘‘$22 per thousand’’, and
(2) by striking ‘‘$25.20 per thousand ($21 per
thousand on cigarettes removed during 1991 or
1992)’’ in paragraph (2) and inserting ‘‘$46.20 per
thousand’’.
(b) CIGARS.—Subsection (a) of section 5701 is amend-
ed—
(1) by striking ‘‘$1.125 cents per thousand
(93.75 cents per thousand on cigars removed during
1991 or 1992)’’ in paragraph (1) and inserting
‘‘$2.063 cents per thousand’’, and
(2) by striking ‘‘equal to’’ and all that follows in
paragraph (2) and inserting ‘‘equal to 23.375 percent
of the price for which sold but not more than $55 per
thousand.’’.
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(c) CIGARETTE PAPERS.—Subsection (c) of section
5701 is amended by striking ‘‘0.75 cent (0.625 cent on ciga-
rette papers removed during 1991 or 1992)’’ and inserting
‘‘1.38 cents’’.
(d) CIGARETTE TUBES.—Subsection (d) of section
5701 is amended by striking ‘‘1.5 cents (1.25 cents on ciga-
rette tubes removed during 1991 or 1992)’’ and inserting
‘‘2.75 cents’’.
(e) SMOKELESS TOBACCO.—Subsection (e) of section
5701 is amended—
(1) by striking ‘‘36 cents (30 cents on snuff re-
moved during 1991 or 1992)’’ in paragraph (1) and
inserting ‘‘66 cents’’, and
(2) by striking ‘‘12 cents (10 cents on chewing
tobacco removed during 1991 or 1992)’’ in paragraph
(2) and inserting ‘‘22 cents’’.
(f) PIPE TOBACCO.—Subsection (f) of section 5701 is
amended by striking ‘‘67.5 cents (56.25 cents on pipe to-
bacco removed during 1991 or 1992)’’ and inserting
‘‘$1.2375 cents’’.
(g) IMPOSITION OF EXCISE TAX ON MANUFACTURE OR
IMPORTATION OF ROLL-YOUR-OWN TOBACCO.—
(1) IN GENERAL.—Section 5701 (relating to rate
of tax) is amended by redesignating subsection (g) as
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subsection (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g) ROLL-YOUR-OWN TOBACCO.—On roll-your-own
tobacco, manufactured in or imported into the United
States, there shall be imposed a tax of 66 cents per pound
(and a proportionate tax at the like rate on all fractional
parts of a pound).’’.
(2) ROLL-YOUR-OWN
TOBACCO.—Section 5702
(relating to definitions) is amended by adding at the
end the following new subsection:
‘‘(p) ROLL-YOUR-OWN TOBACCO.—The term ‘roll-
your-own tobacco’ means any tobacco which, because of its
appearance, type, packaging, or labeling, is suitable for use
and likely to be offered to, or purchased by, consumers as
tobacco for making cigarettes.’’.
(3) TECHNICAL AMENDMENTS.—
(A) Subsection (c) of section 5702 is amend-
ed by striking ‘‘and pipe tobacco’’ and inserting
‘‘pipe tobacco, and roll-your-own tobacco’’.
(B) Subsection (d) of section 5702 is
amended—
(i) in the material preceding para-
graph (1), by striking ‘‘or pipe tobacco’’
and inserting ‘‘pipe tobacco, or roll-your-
own tobacco’’, and
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(ii) by striking paragraph (1) and in-
serting the following new paragraph:
‘‘(1) a person who produces cigars, cigarettes,
smokeless tobacco, pipe tobacco, or roll-your-own to-
bacco solely for the person’s own personal consump-
tion or use, and’’.
(C) The chapter heading for chapter 52 is
amended to read as follows:
‘‘CHAPTER 52—TOBACCO PRODUCTS AND
CIGARETTE PAPERS AND TUBES’’.
(D) The table of chapters for subtitle E is
amended by striking the item relating to chapter
52 and inserting the following new item:
‘‘CHAPTER 52. Tobacco products and cigarette papers and tubes.’’.
(h) MODIFICATIONS OF CERTAIN TOBACCO TAX PROVI-
SIONS.—
(1) EXEMPTION FOR EXPORTED TOBACCO PROD-
UCTS AND CIGARETTE PAPERS AND TUBES TO APPLY
ONLY TO ARTICLES MARKED FOR EXPORT.—
(A) Subsection (b) of section 5704 is amend-
ed by adding at the end the following new sen-
tence: ‘‘Tobacco products and cigarette papers
and tubes may not be transferred or removed
under this subsection unless such products or pa-
pers and tubes bear such marks, labels, or notices
as the Secretary shall by regulations prescribe.’’.
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(B) Section 5761 is amended by redesignat-
ing subsections (c) and (d) as subsections (d)
and (e), respectively, and by inserting after sub-
section (b) the following new subsection:
‘‘(c) SALE OF TOBACCO PRODUCTS AND CIGARETTE
PAPERS AND TUBES FOR EXPORT.—Except as provided in
subsections (b) and (d) of section 5704—
‘‘(1) every person who sells, relands, or receives
within the jurisdiction of the United States any to-
bacco products or cigarette papers or tubes which
have been labeled or shipped for exportation under
this chapter,
‘‘(2) every person who sells or receives such re-
landed tobacco products or cigarette papers or tubes,
and
‘‘(3) every person who aids or abets in such sell-
ing, relanding, or receiving,
shall, in addition to the tax and any other penalty provided
in this title, be liable for a penalty equal to the greater of
$1,000 or 5 times the amount of the tax imposed by this
chapter. All tobacco products and cigarette papers and tubes
relanded within the jurisdiction of the United States, and
all vessels, vehicles, and aircraft used in such relanding or
in removing such products, papers, and tubes from the place
where relanded, shall be forfeited to the United States.’’.
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(C) Subsection (a) of section 5761 is
amended by striking ‘‘subsection (b)’’ and insert-
ing ‘‘subsection (b) or (c)’’.
(D) Subsection (d) of section 5761, as redes-
ignated by subparagraph (B), is amended by
striking ‘‘The penalty imposed by subsection (b)’’
and inserting ‘‘The penalties imposed by sub-
sections (b) and (c)’’.
(E)(i) Subpart F of chapter 52 is amended
by adding at the end the following new section:
‘‘SEC. 5754. RESTRICTION ON IMPORTATION OF PRE-
VIOUSLY EXPORTED TOBACCO PRODUCTS.
‘‘(a) IN GENERAL.—Tobacco products and cigarette
papers and tubes previously exported from the United
States may be imported or brought into the United States
only as provided in section 5704(d). For purposes of this
section, section 5704(d), section 5761, and such other provi-
sions as the Secretary may specify by regulations, references
to exportation shall be treated as including a reference to
shipment to the Commonwealth of Puerto Rico.
‘‘(b) CROSS REFERENCE.—
‘‘For penalty for the sale of tobacco products and
cigarette papers and tubes in the United States
which are labeled for export, see section 5761(c).’’.
(ii) The table of sections for subpart F of
chapter 52 is amended by adding at the end the
following new item:
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(5) AUTHORITY TO PRESCRIBE MINIMUM MANU-
FACTURING ACTIVITY REQUIREMENTS.—Section 5712
is amended by striking ‘‘or’’ at the end of paragraph
(1), by redesignating paragraph (2) as paragraph (3),
and by inserting after paragraph (1) the following
new paragraph:
‘‘(2) the activity proposed to be carried out at
such premises does not meet such minimum capacity
or activity requirements as the Secretary may pre-
scribe, or’’.
(i) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to articles removed (as defined
in section 5702(k) of the Internal Revenue Code of
1986, as amended by this section) after September 30,
1997.
(2) TRANSITIONAL RULE.—Any person who—
(A) on the date of the enactment of this Act
is engaged in business as a manufacturer of roll-
your-own tobacco or as an importer of tobacco
products or cigarette papers and tubes, and
(B) before October 1, 1997, submits an ap-
plication under subchapter B of chapter 52 of
such Code to engage in such business,
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may, notwithstanding such subchapter B, continue to
engage in such business pending final action on such
application. Pending such final action, all provisions
of such chapter 52 shall apply to such applicant in
the same manner and to the same extent as if such
applicant were a holder of a permit under such chap-
ter 52 to engage in such business.
(j) FLOOR STOCKS TAXES.—
(1) IMPOSITION OF TAX.—On tobacco products
and cigarette papers and tubes manufactured in or
imported into the United States which are removed
before October 1, 1997, and held on such date for sale
by any person, there is hereby imposed a tax in an
amount equal to the excess of—
(A) the tax which would be imposed under
section 5701 of the Internal Revenue Code of
1986 on the article if the article had been re-
moved on such date, over
(B) the prior tax (if any) imposed under
section 5701 of such Code on such article.
(2) AUTHORITY TO EXEMPT CIGARETTES HELD
IN VENDING MACHINES.—To the extent provided in
regulations prescribed by the Secretary, no tax shall
be imposed by paragraph (1) on cigarettes held for re-
tail sale on October 1, 1997, by any person in any
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vending machine. If the Secretary provides such a
benefit with respect to any person, the Secretary may
reduce the $500 amount in paragraph (3) with re-
spect to such person.
(3) CREDIT AGAINST TAX.—Each person shall be
allowed as a credit against the taxes imposed by
paragraph (1) an amount equal to $500. Such credit
shall not exceed the amount of taxes imposed by para-
graph (1) on October 1, 1997, for which such person
is liable.
(4) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
cigarettes on October 1, 1997, to which any tax
imposed by paragraph (1) applies shall be liable
for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe by regu-
lations.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) shall be paid on or before Jan-
uary 2, 1998.
(5) ARTICLES IN FOREIGN TRADE ZONES.—Not-
withstanding the Act of June 18, 1934 (48 Stat. 998,
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19 U.S.C. 81a) and any other provision of law, any
article which is located in a foreign trade zone on Oc-
tober 1, 1997, shall be subject to the tax imposed by
paragraph (1) if—
(A) internal revenue taxes have been deter-
mined, or customs duties liquidated, with respect
to such article before such date pursuant to a re-
quest made under the 1st proviso of section 3(a)
of such Act, or
(B) such article is held on such date under
the supervision of a customs officer pursuant to
the 2d proviso of such section 3(a).
(6) DEFINITIONS.—For purposes of this sub-
section—
(A) IN GENERAL.—Terms used in this sub-
section which are also used in section 5702 of the
Internal Revenue Code of 1986 shall have the re-
spective meanings such terms have in such sec-
tion, as amended by this Act.
(B) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or the Sec-
retary’s delegate.
(7) CONTROLLED GROUPS.—Rules similar to the
rules of section 5061(e)(3) of such Code shall apply
for purposes of this subsection.
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(8) OTHER LAWS APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 5701 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply to the floor stocks
taxes imposed by paragraph (1), to the same extent
as if such taxes were imposed by such section 5701.
The Secretary may treat any person who bore the ul-
timate burden of the tax imposed by paragraph (1)
as the person to whom a credit or refund under such
provisions may be allowed or made.
Subtitle F—Provisions Relating to
Tax-Exempt Entities
SEC. 851. EXPANSION OF LOOK-THRU RULE FOR INTEREST,
ANNUITIES, ROYALTIES, AND RENTS DERIVED
BY SUBSIDIARIES OF TAX-EXEMPT ORGANIZA-
TIONS.
(a) IN GENERAL.—Paragraph (13) of section 512(b)
is amended to read as follows:
‘‘(13) SPECIAL RULES FOR CERTAIN AMOUNTS
RECEIVED FROM CONTROLLED ENTITIES.—
‘‘(A) IN GENERAL.—If an organization (in
this paragraph referred to as the ‘controlling or-
ganization’) receives (directly or indirectly) a
specified payment from another entity which it
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controls (in this paragraph referred to as the
‘controlled entity’), notwithstanding paragraphs
(1), (2), and (3), the controlling organization
shall include such payment as an item of gross
income derived from an unrelated trade or busi-
ness to the extent such payment reduces the net
unrelated income of the controlled entity (or in-
creases any net unrelated loss of the controlled
entity). There shall be allowed all deductions of
the controlling organization directly connected
with amounts treated as derived from an unre-
lated trade or business under the preceding sen-
tence.
‘‘(B) NET UNRELATED INCOME OR LOSS.—
For purposes of this paragraph—
‘‘(i) NET
UNRELATED
INCOME.—The
term ‘net unrelated income’ means—
‘‘(I) in the case of a controlled en-
tity which is not exempt from tax
under section 501(a), the portion of
such entity’s taxable income which
would be unrelated business taxable in-
come if such entity were exempt from
tax under section 501(a) and had the
same exempt purposes (as defined in
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section 513A(a)(5)(A)) as the control-
ling organization, or
‘‘(II) in the case of a controlled
entity which is exempt from tax under
section 501(a), the amount of the unre-
lated business taxable income of the
controlled entity.
‘‘(ii) NET
UNRELATED
LOSS.—The
term ‘net unrelated loss’ means the net oper-
ating loss adjusted under rules similar to
the rules of clause (i).
‘‘(C) SPECIFIED PAYMENT.—For purposes of
this paragraph, the term ‘specified payment’
means any interest, annuity, royalty, or rent.
‘‘(D) DEFINITION OF CONTROL.—For pur-
poses of this paragraph—
‘‘(i) CONTROL.—The term ‘control’
means—
‘‘(I) in the case of a corporation,
ownership (by vote or value) of more
than 50 percent of the stock in such
corporation,
‘‘(II) in the case of a partnership,
ownership of more than 50 percent of
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the profits interests or capital interests
in such partnership, or
‘‘(III) in any other case, owner-
ship of more than 50 percent of the
beneficial interests in the entity.
‘‘(ii) 
CONSTRUCTIVE
OWNERSHIP.—
Section 318 (relating to constructive owner-
ship of stock) shall apply for purposes of de-
termining ownership of stock in a corpora-
tion. Similar principles shall apply for
purposes of determining ownership of inter-
ests in any other entity.
‘‘(E) RELATED
PERSONS.—The Secretary
shall prescribe such rules as may be necessary or
appropriate to prevent avoidance of the purposes
of this paragraph through the use of related per-
sons.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after the date of the
enactment of this Act.
(2) CONTROL TEST.—In the case of taxable years
beginning before January 1, 1999, an organization
shall be treated as controlling another organization
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for purposes of section 512(b)(13) of the Internal Rev-
enue Code of 1986 (as amended by this section) only
if it controls such organization within the meaning of
such section, determined by substituting ‘‘80 percent’’
for ‘‘50 percent’’ each place it appears in subpara-
graph (D) thereof.
SEC. 852. LIMITATION ON INCREASE IN BASIS OF PROP-
ERTY RESULTING FROM SALE BY TAX-EXEMPT
ENTITY TO A RELATED PERSON.
(a) IN GENERAL.—Part IV of subchapter O of chapter
1 (relating to special rules for gain or loss on disposition
of property) is amended by redesignating section 1061 as
section 1062 and by inserting after section 1060 the follow-
ing new section:
‘‘SEC. 1061. BASIS LIMITATION FOR SALE OR EXCHANGE OF
PROPERTY BY TAX-EXEMPT ENTITY TO RE-
LATED PERSON.
‘‘(a) GENERAL RULE.—In the case of a sale or ex-
change of property directly or indirectly between a tax-ex-
empt entity and a related person, the basis of the related
person in the property acquired shall not exceed the ad-
justed basis of such property (immediately before the ex-
change) in the hands of the tax-exempt entity, increased by
the amount of gain recognized to the tax-exempt entity on
the transfer which is subject to tax under section 511.
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‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) TAX-EXEMPT
ENTITY.—The term ‘tax-ex-
empt entity’ has the meaning given such term by sec-
tion 168(h)(2) determined without regard to subpara-
graph (A)(iii) thereof.
‘‘(2) RELATED PERSON.—The term ‘related per-
son’ means any person bearing a relationship to the
tax-exempt entity which is described in section 267(b)
or 707(b)(1). For purposes of applying section
267(b)(2) under the preceding sentence, such an entity
shall be treated as if it were an individual.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part IV of subchapter O of chapter 1 is amended by striking
the last item and inserting the following:
‘‘Sec. 1061. Basis limitation for sale or exchange of property by
tax-exempt entity to related person.
‘‘Sec. 1062. Cross references.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to sales and exchanges after
June 8, 1997.
(2) BINDING
CONTRACTS.—The amendments
made by this section shall not apply to any sale or
exchange pursuant to a written contract which was
binding on June 8, 1997, and at all times thereafter
before the sale or exchange.
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SEC. 853. TERMINATION OF EXCEPTION FROM RULES RE-
LATING TO EXEMPT ORGANIZATIONS WHICH
PROVIDE COMMERCIAL-TYPE INSURANCE.
(a) IN
GENERAL.—Subparagraph (A) of section
1012(c)(4) of the Tax Reform Act of 1986 shall not apply
to any taxable year beginning after December 31, 1997.
(b) SPECIAL RULES.—In the case of an organization
to which section 501(m) of the Internal Revenue Code of
1986 applies solely by reason of the amendment made by
subsection (a)—
(1) no adjustment shall be made under section
481 (or any other provision) of such Code on account
of a change in its method of accounting for its first
taxable year beginning after December 31, 1997, and
(2) for purposes of determining gain or loss, the
adjusted basis of any asset held on the 1st day of such
taxable year shall be treated as equal to its fair mar-
ket value as of such day.
(c) RESERVE WEAKENING AFTER JUNE 8, 1997.—Any
reserve weakening after June 8, 1997, by an organization
described in subsection (b) shall be treated as occurring in
such organizations 1st taxable year beginning after Decem-
ber 31, 1997.
(d) REGULATIONS.—The Secretary of the Treasury or
his delegate may prescribe rules for providing proper ad-
justments for organizations described in subsection (b) with
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respect to short taxable years which begin during 1998 by
reason of section 843 of the Internal Revenue Code of 1986.
Subtitle G—Foreign Provisions
SEC. 861. DEFINITION OF FOREIGN PERSONAL HOLDING
COMPANY INCOME.
(a) INCOME FROM NOTIONAL PRINCIPAL CONTRACTS
AND PAYMENTS IN LIEU OF DIVIDENDS.—
(1) IN
GENERAL.—Paragraph (1) of section
954(c) (defining foreign personal holding company
income) is amended by adding at the end the follow-
ing new subparagraphs:
‘‘(F) INCOME
FROM
NOTIONAL
PRINCIPAL
CONTRACTS.—Net income from notional prin-
cipal contracts. Any item of income, gain, deduc-
tion, or loss from a notional principal contract
entered into for purposes of hedging any item de-
scribed in any preceding subparagraph shall not
be taken into account for purposes of this sub-
paragraph but shall be taken into account under
such other subparagraph.
‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.—
Payments in lieu of dividends which are made
pursuant to an agreement to which section 1058
applies.’’.
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(2) CONFORMING
AMENDMENT.—Subparagraph
(B) of section 954(c)(1) is amended—
(A) by striking the second sentence, and
(B) by striking ‘‘also’’ in the last sentence.
(b) EXCEPTION FOR DEALERS.—Paragraph (2) of sec-
tion 954(c) is amended by adding at the end the following
new subparagraph:
‘‘(C) EXCEPTION FOR DEALERS.—Except as
provided in subparagraph (A), (E), or (G) of
paragraph (1) or by regulations, in the case of
a regular dealer in property (within the mean-
ing of paragraph (1)(B)), forward contracts, op-
tion contracts, or similar financial instruments
(including notional principal contracts and all
instruments referenced to commodities), there
shall not be taken into account in computing for-
eign personal holding income any item of in-
come, gain, deduction, or loss from any trans-
action (including hedging transactions) entered
into in the ordinary course of such dealer’s trade
or business as such a dealer.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 862. PERSONAL PROPERTY USED PREDOMINANTLY IN
THE UNITED STATES TREATED AS NOT PROP-
ERTY OF A LIKE KIND WITH RESPECT TO
PROPERTY USED PREDOMINANTLY OUTSIDE
THE UNITED STATES.
(a) IN GENERAL.—Subsection (h) of section 1031 (re-
lating to exchange of property held for productive use or
investment) is amended to read as follows:
‘‘(h) SPECIAL RULES FOR FOREIGN REAL AND PER-
SONAL PROPERTY.—For purposes of this section—
‘‘(1) REAL PROPERTY.—Real property located in
the United States and real property located outside
the United States are not property of a like kind.
‘‘(2) PERSONAL PROPERTY.—
‘‘(A) IN GENERAL.—Personal property used
predominantly within the United States and
personal property used predominantly outside
the United States are not property of a like kind.
‘‘(B) PREDOMINANT USE.—Except as pro-
vided in subparagraph (C) and (D), the pre-
dominant use of any property shall be deter-
mined based on—
‘‘(i) in the case of the property relin-
quished in the exchange, the 2-year period
ending on the date of such relinquishment,
and
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‘‘(ii) in the case of the property ac-
quired in the exchange, the 2-year period
beginning on the date of such acquisition.
‘‘(C) PROPERTY HELD FOR LESS THAN 2
YEARS.—Except in the case of an exchange
which is part of a transaction (or series of trans-
actions) structured to avoid the purposes of this
subsection—
‘‘(i) only the periods the property was
held by the person relinquishing the prop-
erty (or any related person) shall be taken
into account under subparagraph (B)(i),
and
‘‘(ii) only the periods the property was
held by the person acquiring the property
(or any related person) shall be taken into
account under subparagraph (B)(ii).
‘‘(D) SPECIAL RULE FOR CERTAIN PROP-
ERTY.—Property described in any subparagraph
of section 168(g)(4) shall be treated as used pre-
dominantly in the United States.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall apply to transfers after June 8, 1997, in
taxable years ending after such date.
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(2) 
BINDING
CONTRACTS.—The 
amendment
made by this section shall not apply to any transfer
pursuant to a written binding contract in effect on
June 8, 1997, and at all times thereafter before the
disposition of property. A contract shall not fail to
meet the requirements of the preceding sentence solely
because—
(A) it provides for a sale in lieu of an ex-
change, or
(B) the property to be acquired as replace-
ment property was not identified under such
contract before June 9, 1997.
SEC. 863. HOLDING PERIOD REQUIREMENT FOR CERTAIN
FOREIGN TAXES.
(a) IN GENERAL.—Section 901 is amended by redesig-
nating subsection (k) as subsection (l) and by inserting
after subsection (j) the following new subsection:
‘‘(k) MINIMUM
HOLDING
PERIOD
FOR
CERTAIN
TAXES.—
‘‘(1) WITHHOLDING TAXES.—
‘‘(A) IN
GENERAL.—In no event shall a
credit be allowed under subsection (a) for any
withholding tax on a dividend with respect to
stock in a corporation if—
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‘‘(i) such stock is held by the recipient
of the dividend for 15 days or less during
the 30-day period beginning on the date
which is 15 days before the date on which
such share becomes ex-dividend with respect
to such dividend, or
‘‘(ii) to the extent that the recipient of
the dividend is under an obligation (wheth-
er pursuant to a short sale or otherwise) to
make related payments with respect to posi-
tions in substantially similar or related
property.
‘‘(B) WITHHOLDING TAX.—For purposes of
this paragraph, the term ‘withholding tax’ in-
cludes any tax determined on a gross basis; but
does not include any tax which is in the nature
of a prepayment of a tax imposed on a net basis.
‘‘(2) DEEMED PAID TAXES.—In the case of in-
come, war profits, or excess profits taxes deemed paid
under section 853, 902, or 960 through a chain of
ownership of stock in 1 or more corporations, no cred-
it shall be allowed under subsection (a) for such taxes
if—
‘‘(A) any stock of any corporation in such
chain (the ownership of which is required to ob-
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tain credit under subsection (a) for such taxes)
is held for less than the period described in para-
graph (1)(A)(i), or
‘‘(B) the corporation holding the stock is
under an obligation referred to in paragraph
(1)(A)(ii).
‘‘(3) 45-DAY RULE IN THE CASE OF CERTAIN
PREFERENCE DIVIDENDS.—In the case of stock having
preference in dividends and dividends with respect to
such stock which are attributable to a period or peri-
ods aggregating in excess of 366 days, paragraph
(1)(A)(i) shall be applied—
‘‘(A) by substituting ‘45 days’ for ‘15 days’
each place it appears, and
‘‘(B) by substituting ‘90-day period’ for ‘30-
day period’.
‘‘(4) EXCEPTION FOR CERTAIN TAXES PAID BY
SECURITIES DEALERS.—
‘‘(A) IN GENERAL.—Paragraphs (1) and (2)
shall not apply to any qualified tax with respect
to any security held in the active conduct in a
foreign country of a securities business of any
person—
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‘‘(i) who is registered as a securities
broker or dealer under section 15(a) of the
Securities Exchange Act of 1934,
‘‘(ii) who is registered as a Govern-
ment securities broker or dealer under sec-
tion 15C(a) of such Act, or
‘‘(iii) who is licensed or authorized in
such foreign country to conduct securities
activities in such country and is subject to
bona fide regulation by a securities regulat-
ing authority of such country.
‘‘(B) QUALIFIED TAX.—For purposes of sub-
paragraph (A), the term ‘qualified tax’ means a
tax paid to a foreign country (other than the for-
eign country referred to in subparagraph (A))
if—
‘‘(i) the dividend to which such tax is
attributable is subject to taxation on a net
basis by the country referred to in subpara-
graph (A), and
‘‘(ii) such country allows a credit
against its net basis tax for the full amount
of the tax paid to such other foreign coun-
try.
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‘‘(C) REGULATIONS.—The Secretary may
prescribe such regulations as may be appropriate
to prevent the abuse of the exception provided by
this paragraph.
‘‘(5) CERTAIN RULES TO APPLY.—For purposes
of this subsection, the rules of paragraphs (3) and (4)
of section 246(c) shall apply.
‘‘(6) TREATMENT OF BONA FIDE SALES.—If a
person’s holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any
contract for the bona fide sale of stock, the determina-
tion of whether such person’s holding period meets the
requirements of paragraph (2) with respect to taxes
deemed paid under section 902 or 960 shall be made
as of the date such contract is entered into.
‘‘(7) TAXES
ALLOWED
AS
DEDUCTION, ETC.—
Sections 275 and 78 shall not apply to any tax which
is not allowable as a credit under subsection (a) by
reason of this subsection.’’.
(b) NOTICE OF WITHHOLDING TAXES PAID BY REGU-
LATED INVESTMENT COMPANY.—Subsection (c) of section
853 (relating to foreign tax credit allowed to shareholders)
is amended by adding at the end the following new sentence:
‘‘Such notice shall also include the amount of such taxes
which (without regard to the election under this section)
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would not be allowable as a credit under section 901(a) to
the regulated investment company by reason of section
901(k).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to dividends paid or accrued more than
30 days after the date of the enactment of this Act.
SEC. 864. SOURCE RULES FOR INVENTORY PROPERTY.
(a) IN GENERAL.—Section 865(b) is amended by add-
ing at the end the following new paragraph:
‘‘(2) CERTAIN
SALES
FOR
USE
IN
UNITED
STATES.—If—
‘‘(A) a United States resident sells (directly
or indirectly) inventory property to another
United States resident for use, consumption, or
disposition in the United States, and
‘‘(B) such sale is not attributable to an of-
fice or other fixed place of business maintained
by the seller outside the United States,
any income of such United States resident (or any re-
lated person) from such sale shall be sourced in the
United States.’’.
(b) CONFORMING AMENDMENTS.—Section 865(b) is
amended—
(1) by striking ‘‘In the case of’’ and inserting:
‘‘(1) IN GENERAL.—In the case of’’, and
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(2) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 865. INTEREST ON UNDERPAYMENTS NOT REDUCED
BY FOREIGN TAX CREDIT CARRYBACKS.
(a) IN GENERAL.—Subsection (d) of section 6601 is
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—If any
credit allowed for any taxable year is increased by
reason of a carryback of tax paid or accrued to for-
eign countries or possessions of the United States,
such increase shall not affect the computation of in-
terest under this section for the period ending with
the filing date for the taxable year in which such
taxes were in fact paid or accrued, or, with respect
to any portion of such credit carryback from a tax-
able year attributable to a net operating loss
carryback or a capital loss carryback from a subse-
quent taxable year, such increase shall not affect the
computation of interest under this section for the pe-
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riod ending with the filing date for such subsequent
taxable year.’’.
(b) CONFORMING AMENDMENT TO REFUNDS ATTRIB-
UTABLE TO FOREIGN TAX CREDIT CARRYBACKS.—
(1) IN GENERAL.—Subsection (f) of section 6611
is amended by redesignating paragraphs (2) and (3)
as paragraphs (3) and (4), respectively, and by in-
serting after paragraph (1) the following new para-
graph:
‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—For
purposes of subsection (a), if any overpayment of tax
imposed by subtitle A results from a carryback of tax
paid or accrued to foreign countries or possessions of
the United States, such overpayment shall be deemed
not to have been made before the filing date for the
taxable year in which such taxes were in fact paid or
accrued, or, with respect to any portion of such credit
carryback from a taxable year attributable to a net
operating loss carryback or a capital loss carryback
from a subsequent taxable year, such overpayment
shall be deemed not to have been made before the fil-
ing date for such subsequent taxable year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (4) of section 6611(f) (as so
redesignated) is amended—
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(i) by striking ‘‘PARAGRAPHS (1) AND
(2)’’ and inserting ‘‘PARAGRAPHS
(1), (2),
AND (3)’’, and
(ii) by striking ‘‘paragraph (1) or (2)’’
each place it appears and inserting ‘‘para-
graph (1), (2), or (3)’’.
(B) Clause (ii) of section 6611(f)(4)(B) (as
so redesignated) is amended by striking ‘‘and’’ at
the end of subclause (I), by redesignating sub-
clause (II) as subclause (III), and by inserting
after subclause (I) the following new subclause:
‘‘(II) in the case of a carryback of
taxes paid or accrued to foreign coun-
tries or possessions of the United
States, the taxable year in which such
taxes were in fact paid or accrued (or,
with respect to any portion of such
carryback from a taxable year attrib-
utable 
to 
a 
net 
operating 
loss
carryback or a capital loss carryback
from a subsequent taxable year, such
subsequent taxable year), and’’.
(C) 
Subclause 
(III) 
of 
section
6611(f)(4)(B)(ii) (as so redesignated) is amended
by inserting ‘‘(as defined in paragraph (3)(B))’’
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after ‘‘credit carryback’’ the first place it ap-
pears.
(D) Section 6611 is amended by striking
subsection (g) and by redesignating subsections
(h) and (i) as subsections (g) and (h), respec-
tively.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to carrybacks arising in taxable years
beginning after the date of the enactment of this Act.
SEC. 866. CLARIFICATION OF PERIOD OF LIMITATIONS ON
CLAIM FOR CREDIT OR REFUND ATTRIB-
UTABLE 
TO 
FOREIGN 
TAX 
CREDIT
CARRYFORWARD.
(a) IN
GENERAL.—Subparagraph (A) of section
6511(d)(3) is amended by striking ‘‘for the year with re-
spect to which the claim is made’’ and inserting ‘‘for the
year in which such taxes were actually paid or accrued’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxes paid or accrued in taxable
years beginning after the date of the enactment of this Act.
SEC. 
867. 
MODIFICATION 
TO 
FOREIGN 
TAX 
CREDIT
CARRYBACK AND CARRYOVER PERIODS.
(a) IN GENERAL.—Subsection (c) of section 904 (relat-
ing to limitation on credit) is amended—
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(1) by striking ‘‘in the second preceding taxable
year,’’, and
(2) by striking ‘‘or fifth’’ and inserting ‘‘fifth,
sixth, or seventh’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to credits arising in taxable years
beginning after December 31, 1997.
SEC. 868. REPEAL OF EXCEPTION TO ALTERNATIVE MINI-
MUM FOREIGN TAX CREDIT LIMIT.
(a) IN GENERAL.—Section 59(a)(2) (relating to limi-
tation to 90 percent of tax) is amended by striking subpara-
graph (C).
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
Subtitle H—Other Revenue
Provisions
SEC. 871. TERMINATION OF SUSPENSE ACCOUNTS FOR
FAMILY CORPORATIONS REQUIRED TO USE
ACCRUAL METHOD OF ACCOUNTING.
(a) IN GENERAL.—Subsection (i) of section 447 (relat-
ing to method of accounting for corporations engaged in
farming) is amended by striking paragraph (3), by redesig-
nating paragraphs (4), (5), and (6) as paragraphs (3), (4),