1214
Subpart B—Other Provisions
SEC. 14207. REPEAL OF LIMITATION ON AMOUNT OF WAGES
SUBJECT TO HEALTH INSURANCE EMPLOY-
MENT TAX.
(a) HOSPITAL INSURANCE TAX.—
(1) Paragraph (1) of section 3121(a) (defining
wages) is amended—
(A) by inserting ‘‘in the case of the taxes
imposed by sections 3101(a) and 3111(a)’’ after
‘‘(1)’’,
(B) by striking ‘‘applicable contribution
base (as determined under subsection (x))’’
each place it appears and inserting ‘‘contribu-
tion and benefit base (as determined under sec-
tion 230 of the Social Security Act)’’, and
(C) by striking ‘‘such applicable contribu-
tion base’’ and inserting ‘‘such contribution and
benefit base’’.
(2) Section 3121 is amended by striking sub-
section (x).
(b) SELF-EMPLOYMENT TAX.—
(1) Subsection (b) of section 1402 is amend-
ed—
(A) by striking ‘‘that part of the net’’ in
paragraph (1) and inserting ‘‘in the case of the
1215
tax imposed by section 1401(a), that part of
the net’’,
(B) by striking ‘‘applicable contribution
base (as determined under subsection (k))’’ in
paragraph (1) and inserting ‘‘contribution and
benefit base (as determined under section 230
of the Social Security Act)’’,
(C) by inserting ‘‘and’’ after ‘‘section
3121(b),’’, and
(D) by striking ‘‘and (C) includes’’ and all
that follows through ‘‘3111(b)’’.
(2) Section 1402 is amended by striking sub-
section (k).
(c) RAILROAD RETIREMENT TAX.—
(1) Subparagraph (A) of section 3231(e)(2) is
amended by adding at the end thereof the following
new clause:
‘‘(iii) HOSPITAL INSURANCE TAXES.—
Clause (i) shall not apply to—
‘‘(I) so much of the rate applica-
ble under section 3201(a) or 3221(a)
as does not exceed the rate of tax in
effect under section 3101(b), and
‘‘(II) so much of the rate applica-
ble under section 3211(a)(1) as does
1216
not exceed the rate of tax in effect
under section 1402(b).’’
(2) Clause (i) of section 3231(e)(2)(B) is
amended to read as follows:
‘‘(i) TIER 1 TAXES.—Except as pro-
vided in clause (ii), the term ‘applicable
base’ means for any calendar year the con-
tribution and benefit base determined
under section 230 of the Social Security
Act for such calendar year.’’
(d) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 6413(c) is amend-
ed by striking ‘‘section 3101 or section 3201’’ and
inserting ‘‘section 3101(a) or section 3201(a) (to the
extent the rate applicable under section 3201(a) as
does not exceed the rate of tax in effect under sec-
tion 3101(a))’’.
(2) Subparagraphs (B) and (C) of section
6413(c)(2) are each amended by striking ‘‘section
3101’’ each place it appears and inserting ‘‘section
3101(a)’’.
(3) Subsection (c) of section 6413 is amended
by striking paragraph (3).
(4) Sections 3122 and 3125 of such Code are
each amended by striking ‘‘applicable contribution
1217
base limitation’’ and inserting ‘‘contribution and
benefit base limitation’’.
(e) E FFECTIVE DATE.—The amendments made by
this section shall apply to 1994 and later calendar years.
SEC. 14208. TOP ESTATE AND GIFT TAX RATES MADE PER-
MANENT.
(a) G ENERAL RULE.—The table contained in para-
graph (1) of section 2001(c) is amended by striking the
last item and inserting the following new items:
‘‘Over $2,500,000 but not over
$3,000,000.
$1,025,800, plus 53% of the excess
over $2,500,000.
Over $3,000,000 ............................
$1,290,800, plus 55% of the excess
over $3,000,000.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 2001 is amended
by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(2) Paragraph (2) of section 2001(c), as redes-
ignated by paragraph (1), is amended by striking
‘‘($18,340,000 in the case of decedents dying, and
gifts made, after 1992)’’.
(3) The last sentence of section 2101(b) is
amended by striking ‘‘section 2001(c)(3)’’ and in-
serting ‘‘section 2001(c)(2)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply in the case of decedents dying, and
gifts made, after December 31, 1992.
1218
SEC. 14209. REDUCTION IN DEDUCTIBLE PORTION OF BUSI-
NESS MEALS AND ENTERTAINMENT.
(a) GENERAL RULE.—Paragraph (1) of section
274(n) (relating to only 80 percent of meal and entertain-
ment expenses allowed as deduction) is amended by strik-
ing ‘‘80 percent’’ and inserting ‘‘50 percent’’.
(b) CONFORMING
AMENDMENT.—The subsection
heading for section 274(n) is amended by striking ‘‘80’’
and inserting ‘‘50’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 14210. ELIMINATION OF DEDUCTION FOR CLUB MEM-
BERSHIP FEES.
(a) IN GENERAL.—Subsection (a) of section 274 (re-
lating to disallowance of certain entertainment, etc., ex-
penses) is amended by adding at the end thereof the fol-
lowing new paragraph:
‘‘(3) DENIAL
OF
DEDUCTION
FOR
CLUB
DUES.—Notwithstanding the preceding provisions of
this subsection, no deduction shall be allowed under
this chapter for amounts paid or incurred for mem-
bership in any club organized for business, pleasure,
recreation, or other social purpose. The preceding
sentence shall not apply in the case of an airline or
hotel club.’’
1219
(b) EXCEPTION FOR EMPLOYEE RECREATIONAL EX-
PENSES NOT TO APPLY.—Paragraph (4) of section
274(e) is amended by adding at the end thereof the follow-
ing: ‘‘This paragraph shall not apply for purposes of sub-
section (a)(3).’’
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
SEC. 14211. DISALLOWANCE OF DEDUCTION FOR CERTAIN
EMPLOYEE REMUNERATION IN EXCESS OF
$1,000,000.
(a) GENERAL RULE.—Section 162 (relating to trade
or business expenses) is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following new subsection:
‘‘(m) C ERTAIN EXCESSIVE EMPLOYEE REMUNERA-
TION.—
‘‘(1) I N GENERAL.—In the case of any publicly
held corporation, no deduction shall be allowed
under this chapter for applicable employee remu-
neration with respect to any covered employee to the
extent that the amount of such remuneration for the
taxable year with respect to such employee exceeds
$1,000,000.
1220
‘‘(2) PUBLICLY HELD CORPORATION.—For pur-
poses of this subsection, the term ‘publicly held cor-
poration’ means any corporation issuing any class of
common equity securities required to be registered
under section 12 of the Securities Exchange Act of
1934.
‘‘(3) COVERED EMPLOYEE.—For purposes of
this subsection, the term ‘covered employee’ means
any employee of the taxpayer if—
‘‘(A) as of the close of the taxable year,
such employee is the chief executive officer of
the taxpayer or an individual acting in such a
capacity, or
‘‘(B) the total compensation for the tax-
able year of such employee is required to be re-
ported to shareholders under the Securities Ex-
change Act of 1934 by reason of such employee
being among the 4 highest compensated officers
for the taxable year (other than the chief execu-
tive officer).
‘‘(4) 
APPLICABLE
EMPLOYEE
REMUNERA-
TION.—For purposes of this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘applicable
employee remuneration’ means, with respect to
1221
any covered employee for any taxable year, the
aggregate amount allowable as a deduction
under this chapter for such taxable year (deter-
mined without regard to this subsection) for re-
muneration for services performed by such em-
ployee (whether or not during the taxable year).
‘‘(B) EXCEPTION
FOR
REMUNERATION
PAYABLE
ON
COMMISSION
BASIS.—The term
‘applicable employee remuneration’ shall not in-
clude any remuneration payable on a commis-
sion basis solely on account of income generated
directly by the individual performance of the in-
dividual to whom such remuneration is payable.
‘‘(C) OTHER PERFORMANCE-BASED COM-
PENSATION.—The term ‘applicable employee re-
muneration’ shall not include any remuneration
payable solely on account of the attainment of
one or more performance goals but only if—
‘‘(i) the performance goals are deter-
mined by a compensation committee of the
board of directors of the taxpayer which is
comprised solely of 2 or more independent
directors,
‘‘(ii) the material terms under which
the remuneration is to be paid, including
1222
the performance goals, are disclosed to
shareholders and approved by a majority of
the vote in a separate shareholder vote be-
fore the payment of such remuneration,
and
‘‘(iii) before any payment of such re-
muneration, the compensation committee
referred to in clause (i) certifies that the
performance goals and any other material
terms were in fact satisfied.
‘‘(D) EXCEPTION FOR EXISTING BINDING
CONTRACTS.—The term ‘applicable employee
remuneration’ shall not include any remunera-
tion payable under a written binding contract
which was in effect on February 17, 1993, and
which was not modified thereafter in any mate-
rial respect before such remuneration is paid.
‘‘(E) REMUNERATION.—For purposes of
this paragraph, the term ‘remuneration’ in-
cludes any remuneration (including benefits) in
any medium other than cash, but shall not in-
clude—
‘‘(i) any payment referred to in so
much of section 3121(a)(5) as precedes
subparagraph (E) thereof, and
1223
‘‘(ii) any benefit provided to or on be-
half of an employee if at the time such
benefit is provided it is reasonable to be-
lieve that the employee will be able to ex-
clude such benefit from gross income
under this chapter.
For purposes of clause (i), section 3121(a)(5)
shall be applied without regard to section
3121(v)(1).
‘‘(F) COORDINATION
WITH
DISALLOWED
GOLDEN
PARACHUTE
PAYMENTS.—The dollar
limitation contained in paragraph (1) shall be
reduced (but not below zero) by the amount (if
any) which would have been included in the ap-
plicable employee remuneration of the covered
employee for the taxable year but for being dis-
allowed under section 280G.’’
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts which would other-
wise be deductible for taxable years beginning on or after
January 1, 1994.
1224
SEC. 14212. REDUCTION IN COMPENSATION TAKEN INTO
ACCOUNT IN DETERMINING CONTRIBUTIONS
AND BENEFITS UNDER QUALIFIED RETIRE-
MENT PLANS.
(a) I N GENERAL.—Sections 401(a)(17), 404(l), and
505(b)(7) are each amended—
(1) by striking ‘‘$200,000’’ in the first sentence
and inserting ‘‘$150,000’’, and
(2) by striking the second sentence and insert-
ing ‘‘In the case of years beginning after 1994, the
Secretary shall adjust the $150,000 amount at the
same time and in the same manner as under section
415(d), except that the base period for purposes of
section 415(d)(1)(A) shall be the calendar quarter
beginning October 1, 1994.’’
(b) SIMPLIFIED EMPLOYEE PENSIONS.—
(1) IN
GENERAL.—Paragraphs (3)(C) and
(6)(D)(ii) of section 408(k) are each amended by
striking ‘‘$200,000’’ and inserting ‘‘$150,000’’.
(2) C OST-OF-LIVING.—Paragraph (8) of section
408(k) is amended to read as follows:
‘‘(8) C OST-OF-LIVING ADJUSTMENT.—The Sec-
retary shall adjust the $300 amount in paragraph
(2)(C) at the same time and in the same manner as
under section 415(d) and shall adjust the $150,000
amount in paragraphs (3)(C) and (6)(D)(ii) at the
1225
same time and by the same amount as the adjust-
ment 
to 
the 
$150,000 
amount 
in 
section
401(a)(17).’’
(c) CONFORMING AMENDMENT.—The heading for
section 505(b)(7) is amended by striking ‘‘$200,000’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to benefits accruing in plan years
beginning after December 31, 1993.
SEC. 14213. MODIFICATION TO DEDUCTION FOR CERTAIN
MOVING EXPENSES.
(a) R EPEAL OF DEDUCTION FOR QUALIFIED RESI-
DENCE SALE, ETC., EXPENSES.—
(1) IN
GENERAL.—Paragraph (1) of section
217(b) (defining moving expenses) is amended by in-
serting ‘‘or’’ at the end of subparagraph (C), by
striking ‘‘, or’’ at the end of subparagraph (D) and
inserting 
a 
period, 
and 
by 
striking
subparagraph (E).
(2) CONFORMING AMENDMENTS.—
(A) Subsection (b) of section 217 is
amended by striking paragraph (2) and redesig-
nating paragraph (3) as paragraph (2).
(B) Paragraph (2) of section 217(b) (as
redesignated by subparagraph (A)) is amend-
ed—
1226
(i) by striking the last sentence of
subparagraph (A), and
(ii) by striking ‘‘, and by’’ in subpara-
graph (B) and all that follows down
through the period at the end of subpara-
graph (B) and inserting a period.
(C) Paragraph (1) of section 217(h) is
amended by striking subparagraphs (B) and
(C) and inserting the following:
‘‘(B) subsection (b)(2)(A) shall be applied
by substituting ‘$4,500’ for ‘$1,500’, and
‘‘(C) subsection (b)(2)(B) shall be applied
as if the last sentence of such subsection read
as follows: ‘In the case of a husband and wife
filing separate returns, subparagraph (A) shall
be applied by substituting ‘‘$2,250’’ for
‘‘$4,500’’.’ ’’
(D) Section 217 is amended by striking
subsection (e).
(b) DEDUCTION
DISALLOWED
FOR
MEAL
EX-
PENSES.—Paragraph (1) of section 217(b) is amended—
(1) by striking ‘‘meals and lodging’’ in subpara-
graphs (B), (C) and (D) and inserting ‘‘lodging’’,
and
1227
(2) by adding at the end thereof the following
new sentence:
‘‘Such term shall not include any expenses for
meals.’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to expenses incurred after Decem-
ber 31, 1993.
SEC. 14214. SIMPLIFICATION OF INDIVIDUAL ESTIMATED
TAX SAFE HARBOR BASED ON LAST YEAR’S
TAX.
(a) IN GENERAL.—Paragraph (1) of section 6654(d)
(relating to amount of required estimated tax install-
ments) is amended by striking subparagraphs (C), (D),
(E), and (F) and by inserting the following new subpara-
graph:
‘‘(C) L IMITATION ON USE OF PRECEDING
YEAR’S TAX.—
‘‘(i) IN
GENERAL.—If the adjusted
gross income shown on the return of the
individual for the preceding taxable year
exceeds $150,000, clause (ii) of subpara-
graph (B) shall be applied by substituting
‘110 percent’ for ‘100 percent’.
‘‘(ii) SEPARATE
RETURNS.—In the
case of a married individual (within the
1228
meaning of section 7703) who files a sepa-
rate return for the taxable year for which
the amount of the installment is being de-
termined, clause (i) shall be applied by
substituting ‘$75,000’ for ‘$150,000’.
‘‘(iii) SPECIAL RULE.—In the case of
an estate or trust, adjusted gross income
shall be determined as provided in section
67(e).’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 6654(j)(3) is
amended by striking ‘‘and subsection (d)(1)(C)(iii)
shall not apply’’,
(2) Paragraph (4) of section 6654(l) is amend-
ed by striking ‘‘paragraphs (1)(C)(iv) and (2)(B)(i)
of 
subsection 
(d)’’ 
and 
inserting 
‘‘subsection
(d)(2)(B)(i)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 14215. SOCIAL SECURITY AND TIER 1 RAILROAD RE-
TIREMENT BENEFITS.
(a) IN GENERAL.—Subsections (a) (1) and (2) of sec-
tion 86 (relating to social security and tier 1 railroad re-
1229
tirement benefits) are each amended by striking ‘‘one-
half’’ and inserting ‘‘85 percent’’.
(b) E FFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1993.
(c) A DDITIONAL RECEIPTS RETAINED IN GENERAL
FUND.—
(1) Subsection (e) of section 121 of the Social
Security Amendments of 1983 is amended by adding
at the end the following new paragraph:
‘‘(5) C ERTAIN INCREASED RECEIPTS RETAINED
IN GENERAL FUND.—In determining the amount ap-
propriated to any payor fund under paragraph (1),
there shall be excluded any increase in tax liability
to the extent such increase is attributable to the
amendments made to section 86 of the Internal Rev-
enue Code of 1986 by the Revenue Reconciliation
Act of 1993.’’.
(2) Paragraph (4) of subsection (e) of such sec-
tion 121 is amended by redesignating subparagraphs
(A) and (B) as subparagraphs (B) and (C) and by
inserting before subparagraph (B) (as so redesig-
nated) the following new subparagraph:
‘‘(A) the total aggregate increase in tax li-
ability under chapter 1 of the Internal Revenue
1230
Code of 1986 which is attributable to the appli-
cation of sections 86 and 871(a)(3) of such
Code,’’.
PART II—PROVISIONS AFFECTING BUSINESSES
SEC. 14221. INCREASE IN TOP MARGINAL RATE UNDER SEC-
TION 11.
(a) GENERAL RULE.—Paragraph (1) of section 11(b)
(relating to amount of tax) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (B),
(2) by striking subparagraph (C) and inserting
the following:
‘‘(C) 34 percent of so much of the taxable
income as exceeds $75,000 but does not exceed
$10,000,000, and
‘‘(D) 35 percent of so much of the taxable
income as exceeds $10,000,000.’’, and
(3) by adding at the end thereof the following
new sentence: ‘‘In the case of a corporation which
has taxable income in excess of $15,000,000, the
amount of the tax determined under the foregoing
provisions of this paragraph shall be increased by an
additional amount equal to the lesser of (i) 3 percent
of such excess, or (ii) $100,000.’’.
1231
(b) CERTAIN PERSONAL SERVICE CORPORATIONS.—
Paragraph (2) of section 11(b) is amended by striking ‘‘34
percent’’ and inserting ‘‘35 percent’’.
(c) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) is
amended by striking ‘‘66 percent’’ and inserting ‘‘65
percent’’.
(2) Subsection (a) of section 1201 is amended
by striking ‘‘34 percent’’ each place it appears and
inserting ‘‘35 percent’’.
(3) Paragraphs (1) and (2) of section 1445(e)
are each amended by striking ‘‘34 percent’’ and in-
serting ‘‘35 percent’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning on or
after January 1, 1993; except that the amendment made
by subsection (c)(3) shall take effect on the date of the
enactment of this Act.
SEC. 14222. DENIAL OF DEDUCTION FOR LOBBYING EX-
PENSES.
(a) DISALLOWANCE OF DEDUCTION.—Section 162(e)
(relating to appearances, etc., with respect to legislation)
is amended to read as follows:
‘‘(e) D ENIAL OF DEDUCTION FOR CERTAIN LOBBY-
ING AND POLITICAL EXPENDITURES.—
1232
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed under subsection (a) for any amount paid or
incurred—
‘‘(A) in connection with influencing legisla-
tion,
‘‘(B) for participation in, or intervention
in, any political campaign on behalf of (or in
opposition to) any candidate for public office, or
‘‘(C) in connection with any attempt to in-
fluence the general public, or segments thereof,
with respect to elections.
‘‘(2) APPLICATION TO DUES.—
‘‘(A) I N GENERAL.—No deduction shall be
allowed under subsection (a) for the portion of
dues or other similar amounts (paid by the tax-
payer with respect to an organization) which is
allocable to the expenditures described in para-
graph (1).
‘‘(B) ALLOCATION.—
‘‘(i) IN GENERAL.—For purposes of
subparagraph (A), expenditures described
in paragraph (1) shall be treated as paid
out of dues or other similar amounts.
‘‘(ii) CARRYOVER OF LOBBYING EX-
PENDITURES IN EXCESS OF DUES.—For
1233
purposes of this paragraph, if expenditures
described in paragraph (1) exceed the dues
or other similar amounts for any calendar
year, such excess shall be treated as ex-
penditures described in paragraph (1)
which are paid or incurred by the organi-
zation during the following calendar year.
‘‘(3) INFLUENCING
LEGISLATION.—For pur-
poses of this subsection—
‘‘(A) I N GENERAL.—The term ‘influencing
legislation’ means—
‘‘(i) any attempt to influence the gen-
eral public, or segments thereof, with re-
spect to legislation, and
‘‘(ii) any attempt to influence any leg-
islation through communication with any
member or employee of the legislative
body, or with any government official or
employee who may participate in the for-
mulation of the legislation.
‘‘(B) EXCEPTION
FOR
CERTAIN
TECH-
NICAL ADVICE.—The term ‘influencing legisla-
tion’ shall not include the providing of technical
advice or assistance to a governmental body or
to a committee or other subdivision thereof in
1234
response to a specific written request by such
governmental entity to the taxpayer which
specifies the nature of the advice or assistance
requested.
‘‘(C) LEGISLATION.—The term ‘legislation’
has the meaning given such term by section
4911(e)(2).
‘‘(4) EXCEPTION FOR CERTAIN TAXPAYERS.—
In the case of any taxpayer engaged in the trade or
business of conducting activities described in para-
graph (1), paragraph (1) shall not apply to expendi-
tures of the taxpayer in conducting such activities on
behalf of another person (but shall apply to pay-
ments by such other person to the taxpayer for con-
ducting such activities).
‘‘(5) CROSS REFERENCE.—
‘‘For reporting requirements related to this sub-
section, see section 6050O.’’
(b) REPORTING REQUIREMENTS.—
(1) I N GENERAL.—Subpart B of part III of
subchapter A of chapter 61 (relating to information
concerning transactions with other persons) is
amended by adding at the end the following new
section:
1235
‘‘SEC. 6050O. RETURNS RELATING TO LOBBYING EXPENDI-
TURES OF CERTAIN ORGANIZATIONS.
‘‘(a) R EQUIREMENT OF REPORTING.—Each organi-
zation referred to in section 162(e)(2) shall make a return,
according to the forms or regulations prescribed by the
Secretary, setting forth the names and addresses of per-
sons paying dues to the organization, the amount of the
dues paid by such person, and the portion of such dues
which is nondeductible under section 162(e)(2).
‘‘(b) S TATEMENTS TO BE FURNISHED TO PERSONS
WITH
RESPECT
TO
WHOM
INFORMATION
IS
FUR-
NISHED.—Any organization required to make a return
under subsection (a) shall furnish to each person whose
name is required to be set forth in such return a written
statement showing—
‘‘(1) the name and address of the organization,
and
‘‘(2) the dues paid by the person during the cal-
endar year and the portion of such dues which is
nondeductible under section 162(e)(2).
The written statement required under the preceding sen-
tence shall be furnished (either in person or in a statement
mailing by first-class mail which includes adequate notice
that the statement is enclosed) to the persons on or before
January 31 of the year following the calendar year for
which the return under subsection (a) was made and shall
1236
be in such form as the Secretary may prescribe by regula-
tions.
‘‘(c) WAIVER.—The Secretary may waive the report-
ing requirements of this section with respect to any orga-
nization or class of organizations if the Secretary deter-
mines that such reporting is not necessary to carry out
the purposes of section 162(e).
‘‘(d) D UES.—For purposes of this section, the term
‘dues’ includes other similar amounts.’’
(2) PENALTIES.—
(A) R ETURNS.—Subparagraph (A) of sec-
tion 6724(d)(1) (defining information return) is
amended by striking ‘‘or’’ at the end of clause
(xi), by striking the period at the end of the
clause (xii) relating to section 4101(d) and in-
serting a comma, by redesignating the clause
(xii) relating to section 338(h)(10) as clause
(xiii), by striking the period at the end of clause
(xiii) (as so redesignated) and inserting ‘‘, or’’,
and by adding at the end the following new
clause:
‘‘(xiv) section 6050O(a) (relating to
information on nondeductible lobbying ex-
penditures).’’
1237
(B) P AYEE STATEMENTS.—Paragraph (2)
of section 6724(d) (defining payee statement) is
amended by striking ‘‘or’’ at the end of sub-
paragraph (R), by striking the period at the
end of subparagraph (S) and inserting ‘‘, or’’,
and by adding at the end the following new sub-
paragraph:
‘‘(T) section 6050O(b) (relating to returns
on nondeductible lobbying expenditures).’’
(C) EXCESSIVE
UNDERREPORTING.—Sec-
tion 6721 (relating to failure to file correct in-
formation returns) is amended by adding at the
end the following new subsection:
‘‘(f) 
PENALTY
IN
CASE
OF
EXCESSIVE
UNDERREPORTING ON NONDEDUCTIBLE DUES.—If the
aggregate amount of nondeductible dues which is reported
on the return required to be filed under section 6050O(a)
for any calendar year is less than 75 percent of the aggre-
gate amount required to be so reported—
‘‘(1) subsections (b), (c), and (d) shall not
apply, and
‘‘(2) the penalty imposed under subsection (a)
shall be equal to the product of—
‘‘(A) the amount required to be reported
which was not so reported, and
1238
‘‘(B) the highest rate of tax imposed by
section 11 for taxable years beginning in such
calendar year.’’
(3) C ONFORMING AMENDMENT.—The table of
sections for subpart B of part III of subchapter A
of chapter 61 is amended by adding at the end the
following new item:
‘‘Sec. 6050O. Returns relating to lobbying expenditures of certain
organizations.’’
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
SEC. 14223. MARK TO MARKET ACCOUNTING METHOD FOR
SECURITIES DEALERS.
(a) G ENERAL RULE.—Subpart D of part II of sub-
chapter E of chapter 1 (relating to inventories) is amend-
ed by adding at the end thereof the following new section:
‘‘SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR
DEALERS IN SECURITIES.
‘‘(a) GENERAL RULE.—Notwithstanding any other
provision of this subpart, the following rules shall apply
to securities held by a dealer in securities:
‘‘(1) Any security which is inventory in the
hands of the dealer shall be included in inventory at
its fair market value.
1239
‘‘(2) In the case of any security which is not in-
ventory in the hands of the dealer and which is held
at the close of any taxable year—
‘‘(A) the dealer shall recognize gain or loss
as if such security were sold for its fair market
value on the last business day of such taxable
year, and
‘‘(B) any gain or loss shall be taken into
account for such taxable year.
Proper adjustment shall be made in the amount of
any gain or loss subsequently realized for gain or
loss taken into account under the preceding sen-
tence. The Secretary may provide by regulations for
the application of this paragraph at times other than
the times provided in this paragraph.
‘‘(b) EXCEPTIONS.—
‘‘(1) IN GENERAL.—Subsection (a) shall not
apply to—
‘‘(A) any security held for investment,
‘‘(B)(i) any security described in sub-
section (c)(2)(C) which is acquired (including
originated) by the taxpayer in the ordinary
course of a trade or business of the taxpayer
and which is not held for sale, and (ii) any obli-
gation to acquire a security described in clause
1240
(i) if such obligation is entered into in the ordi-
nary course of such trade or business and is not
held for sale, and
‘‘(C) any security which is a hedge with re-
spect to—
‘‘(i) a security to which subsection (a)
does not apply, or
‘‘(ii) a position, right to income, or a
liability which is not a security in the
hands of the taxpayer.
To the extent provided in regulations, subparagraph
(C) shall not apply to any security held by a person
in its capacity as a dealer in securities.
‘‘(2) IDENTIFICATION REQUIRED.—A security
shall not be treated as described in subparagraph
(A), (B), or (C) of paragraph (1), as the case may
be, unless such security is clearly identified in the
dealer’s records as being described in such subpara-
graph before the close of the day on which it was ac-
quired, originated, or entered into (or such other
time as the Secretary may by regulations prescribe).
‘‘(3) SECURITIES
SUBSEQUENTLY
NOT
EX-
EMPT.—If a security ceases to be described in para-
graph (1) at any time after it was identified as such
under paragraph (2), subsection (a) shall apply to
1241
any changes in value of the security occurring after
the cessation.
‘‘(4) S PECIAL RULE FOR PROPERTY HELD FOR
INVESTMENT.—To the extent provided in regula-
tions, subparagraph (A) of paragraph (1) shall not
apply to any security described in subparagraph (D)
or (E) of subsection (c)(2) which is held by a dealer
in such securities.
‘‘(c) D EFINITIONS.—For purposes of this section—
‘‘(1) DEALER IN SECURITIES DEFINED.—The
term ‘dealer in securities’ means a taxpayer who—
‘‘(A) regularly purchases securities from or
sells securities to customers in the ordinary
course of a trade or business; or
‘‘(B) regularly offers to enter into, assume,
offset, assign or otherwise terminate positions
in securities with customers in the ordinary
course of a trade or business.
‘‘(2) S ECURITY DEFINED.—The term ‘security’
means any—
‘‘(A) share of stock in a corporation;
‘‘(B) partnership or beneficial ownership
interest in a widely held or publicly traded part-
nership or trust;
1242
‘‘(C) note, bond, debenture, or other evi-
dence of indebtedness;
‘‘(D) interest rate, currency, or equity no-
tional principal contract;
‘‘(E) evidence of an interest in, or a deriv-
ative financial instrument in, any security de-
scribed in subparagraph (A), (B), (C), or (D),
or any currency, including any option, forward
contract, short position, and any similar finan-
cial instrument in such a security or currency;
and
‘‘(F) position which—
‘‘(i) is not a security described in sub-
paragraph (A), (B), (C), (D), or (E),
‘‘(ii) is a hedge with respect to such
a security, and
‘‘(iii) is clearly identified in the deal-
er’s records as being described in this sub-
paragraph before the close of the day on
which it was acquired or entered into (or
such other time as the Secretary may by
regulations prescribe).
Subparagraph (E) shall not include any contract to
which section 1256(a) applies.
1243
‘‘(3) HEDGE.—The term ‘hedge’ means any po-
sition which reduces the dealer’s risk of interest rate
or price changes or currency fluctuations, including
any position which is reasonably expected to become
a hedge within 60 days after the acquisition of the
position.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) COORDINATION WITH CERTAIN RULES.—
The rules of sections 263(g), 263A, and 1256(a)
shall not apply to securities to which subsection (a)
applies, and section 1091 shall not apply (and sec-
tion 1092 shall apply) to any loss recognized under
subsection (a).
‘‘(2) IMPROPER
IDENTIFICATION.—If a tax-
payer—
‘‘(A) identifies any security under sub-
section (b)(2) as being described in subsection
(b)(1) and such security is not so described, or
‘‘(B) fails under subsection (c)(2)(F)(iii) to
identify any position which is described in sub-
section (c)(2)(F) (without regard to clause (iii)
thereof) at the time such identification is re-
quired,
1244
the provisions of subsection (a) shall apply to such
security or position, except that any loss under this
section prior to the disposition of the security or po-
sition shall be recognized only to the extent of gain
previously recognized under this section (and not
previously taken into account under this paragraph)
with respect to such security or position.
‘‘(3) CHARACTER OF GAIN OR LOSS.—
‘‘(A) I N GENERAL.—Except as provided in
subparagraph (B) or section 1236(b)—
‘‘(i) IN GENERAL.—Any gain or loss
with respect to a security under subsection
(a)(2) shall be treated as ordinary income
or loss.
‘‘(ii) SPECIAL
RULE
FOR
DISPOSI-
TIONS.—If—
‘‘(I) gain or loss is recognized
with respect to a security before the
close of the taxable year, and
‘‘(II) subsection (a)(2) would
have applied if the security were held
as of the close of the taxable year,
such gain or loss shall be treated as ordi-
nary income or loss.
1245
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to any gain or loss which is allo-
cable to a period during which—
‘‘(i) the security is described in sub-
section (b)(1)(C) (without regard to sub-
section (b)(2)),
‘‘(ii) the security is held by a person
other than in connection with its activities
as a dealer in securities, or
‘‘(iii) the security is improperly identi-
fied (within the meaning of subparagraph
(A) or (B) of paragraph (2)).
‘‘(e) REGULATORY AUTHORITY.—The Secretary shall
prescribe such regulations as may be necessary or appro-
priate to carry out the purposes of this section, including
rules—
‘‘(1) to prevent the use of year-end transfers,
related parties, or other arrangements to avoid the
provisions of this section, and
‘‘(2) to provide for the application of this sec-
tion to any security which is a hedge which cannot
be identified with a specific security, position, right
to income, or liability.’’
(b) CONFORMING AMENDMENTS.—
1246
(1) Paragraph (1) of section 988(d) is amend-
ed—
(A) by striking ‘‘section 1256’’ and insert-
ing ‘‘section 475 or 1256’’, and
(B) by striking ‘‘1092 and 1256’’ and in-
serting ‘‘475, 1092, and 1256’’.
(2) The table of sections for subpart D of part
II of subchapter E of chapter 1 is amended by add-
ing at the end thereof the following new item:
‘‘Sec. 475. Mark to market accounting method for dealers in secu-
rities.’’
(c) EFFECTIVE DATE.—
(1) I N GENERAL.—The amendments made by
this section shall apply to all taxable years ending on
or after December 31, 1993.
(2) C HANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method of accounting for any taxable
year—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary, and
(C) except as provided in paragraph (3),
the net amount of the adjustments required to
be taken into account by the taxpayer under
1247
section 481 of the Internal Revenue Code of
1986 shall be taken into account ratably over
the 5-taxable year period beginning with the
first taxable year ending on or after December
31, 1993.
(3) SPECIAL
RULE
FOR
FLOOR
SPECIALISTS
AND MARKET MAKERS.—
(A) IN GENERAL.—If—
(i) a taxpayer used the last-in first-
out (LIFO) method of accounting with re-
spect to any qualified securities for its last
taxable year ending before December 31,
1993, and
(ii) any portion of the net amount de-
scribed in paragraph (2)(C) is attributable
to the use of such method of accounting,
then paragraph (2)(C) shall be applied by tak-
ing such portion into account ratably over the
20-taxable year period beginning with the first
taxable year ending on or after December 31,
1993 (or, if shorter, the period of taxable years
equal to the greater of 5 years or the number
of taxable years before such first taxable year
for which the taxpayer (or any predecessor)
used such method of accounting).
1248
(B) Q UALIFIED SECURITY.—For purposes
of this paragraph, the term ‘‘qualified security’’
means any security acquired—
(i) by a floor specialist (as defined in
section 1236(d)(2) of the Internal Revenue
Code of 1986) in connection with the spe-
cialist’s duties as a specialist on an ex-
change, but only if the security is one in
which the specialist is registered with the
exchange, or
(ii) by a taxpayer who is a market
maker in connection with the taxpayer’s
duties as a market maker, but only if—
(I) the security is included on the
National Association of Security Deal-
ers Automated Quotation System,
(II) the taxpayer is registered as
a market maker in such security with
the National Association of Security
Dealers, and
(III) as of the last day of the
taxable year preceding the taxpayer’s
first taxable year ending on or after
December 31, 1993, the taxpayer (or
any predecessor) has been actively
1249
and regularly engaged as a market
maker in such security for the 2-year
period ending on such date (or, if
shorter, the period beginning 61 days
after the security was listed in such
quotation system and ending on such
date).
SEC. 14224. CLARIFICATION OF TREATMENT OF CERTAIN
FSLIC FINANCIAL ASSISTANCE.
(a) G ENERAL RULE.—For purposes of chapter 1 of
the Internal Revenue Code of 1986—
(1) any FSLIC assistance with respect to any
loss of principal, capital, or similar amount upon the
disposition of any asset shall be taken into account
as compensation for such loss for purposes of section
165 of such Code, and
(2) any FSLIC assistance with respect to any
debt shall be taken into account for purposes of sec-
tion 166, 585, or 593 of such Code in determining
whether such debt is worthless (or the extent to
which such debt is worthless) and in determining the
amount of any addition to a reserve for bad debts
arising from the worthlessness or partial worthless-
ness of such debts.
1251
sustained or debt written off. Except as pro-
vided in the preceding sentence, this section
shall not apply to any FSLIC assistance with
respect to a loss sustained or charge-off in a
taxable year ending before March 4, 1991.
(2) E XCEPTIONS.—The provisions of this sec-
tion shall not apply to any assistance to which the
amendments made by section 1401(a)(3) of the Fi-
nancial Institutions Reform, Recovery, and Enforce-
ment Act of 1989 apply.
SEC. 14225. MODIFICATION OF CORPORATE ESTIMATED
TAX RULES.
(a) I NCREASE IN REQUIRED INSTALLMENT BASED
ON CURRENT YEAR TAX.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
6655(d)(1)(B) (relating to amount of required in-
stallment) is amended by striking ‘‘91 percent’’ each
place it appears and inserting ‘‘100 percent’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 6655 is
amended—
(i) by striking paragraph (3), and
(ii) by striking ‘‘91 PERCENT’’ in the
paragraph heading of paragraph (2) and
inserting ‘‘100 PERCENT’’.
1252
(B) Clause (ii) of section 6655(e)(2)(B) is
amended by striking the table contained therein
and inserting the following:
‘‘In the case of the following re-
The applicable
quired installments:
percentage is:
1st ............................................................................................
2nd ...........................................................................................
3rd ............................................................................................
4th ............................................................................................
100.’’
(C) Clause (i) of section 6655(e)(3)(A) is
amended by striking ‘‘91 percent’’ and inserting
‘‘100 percent’’.
(b) MODIFICATION
OF
PERIODS
FOR
APPLYING
ANNUALIZATION.—
(1) Clause (i) of section 6655(e)(2)(A) is
amended—
(A) by striking ‘‘or for the first 5 months’’
in subclause (II),
(B) by striking ‘‘or for the first 8 months’’
in subclause (III), and
(C) by striking ‘‘or for the first 11
months’’ in subclause (IV).
(2) Paragraph (2) of section 6655(e) is amend-
ed by adding at the end thereof the following new
subparagraph:
‘‘(C) 
ELECTION
FOR
DIFFERENT
ANNUALIZATION PERIODS.—
1253
‘‘(i) If the taxpayer makes an election
under this clause—
‘‘(I) subclause (I) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘2 months’ for ‘3 months’,
‘‘(II) subclause (II) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘4 months’ for ‘3 months’,
‘‘(III) subclause (III) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘7 months’ for ‘6 months’,
and
‘‘(IV) subclause (IV) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘10 months’ for ‘9 months’.
‘‘(ii) If the taxpayer makes an election
under this clause—
‘‘(I) subclause (II) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘5 months’ for ‘3 months’,
‘‘(II) subclause (III) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘8 months’ for ‘6 months’,
and
1254
‘‘(III) subclause (IV) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘11 months’ for ‘9 months’.
‘‘(iii) An election under clause (i) or
(ii) shall apply to the taxable year for
which made and such an election shall be
effective only if made on or before the date
required for the payment of the first re-
quired installment for such taxable year.’’
(3) The last sentence of section 6655(f)(3)(A)
is amended by striking ‘‘and subsection (e)(2)(A)’’
and inserting ‘‘and, except in the case of an election
under subsection (e)(2)(C), subsection (e)(2)(A)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 14226. LIMITATION ON SECTION 936 CREDIT.
(a) G ENERAL RULE.—Subsection (a) of section 936
(relating to Puerto Rico and possession tax credit) is
amended—
(1) by striking ‘‘as provided in paragraph (3)’’
in paragraph (1) and inserting ‘‘as otherwise pro-
vided in this section’’;
(2) by adding at the end thereof the following
new paragraph:
1255
‘‘(4) LIMITATIONS ON CREDIT.—
‘‘(A) CREDIT FOR ACTIVE BUSINESS IN-
COME.—The amount of the credit determined
under paragraph (1)(A) for any taxable year
shall not exceed 60 percent of the aggregate
amount of the possession corporation’s qualified
possession wages for such taxable year.
‘‘(B) CREDIT FOR INVESTMENT INCOME.—
‘‘(i) IN GENERAL.—If—
‘‘(I) the QPSII assets of the pos-
session corporation for any taxable
year, exceed
‘‘(II) 80 percent of such posses-
sion corporation’s qualified tangible
business investment for such taxable
year,
the credit determined under paragraph
(1)(B) for such taxable year shall be re-
duced by the amount determined under
clause (ii).
‘‘(ii) AMOUNT OF REDUCTION.—The
reduction determined under this clause for
any taxable year is an amount which bears
the same ratio to the credit determined
under paragraph (1)(B) for such taxable
1256
year (determined without regard to this
subparagraph) as—
‘‘(I) the excess determined under
clause (i), bears to
‘‘(II) the QPSII assets of the
possession corporation for such tax-
able year.
‘‘(C) CROSS REFERENCE.—
‘‘For definitions and special rules applicable to
this paragraph, see subsection (i).’’
(b) DEFINITIONS AND SPECIAL RULES.—Section 936
is amended by adding at the end thereof the following new
subsection:
‘‘(i) DEFINITIONS AND SPECIAL RULES RELATING
TO LIMITATIONS OF SUBSECTION (a)(4).—
‘‘(1) QUALIFIED
POSSESSION
WAGES.—For
purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘qualified
possession wages’ means wages paid or incurred
by the possession corporation during the tax-
able year to any employee for services per-
formed in a possession of the United States,
but only if such services are performed while
the principal place of employment of such em-
ployee is within such possession.
1257
‘‘(B) L IMITATION ON AMOUNT OF WAGES
TAKEN INTO ACCOUNT.—
‘‘(i) IN
GENERAL.—The amount of
wages which may be taken into account
under subparagraph (A) with respect to
any employee for any taxable year shall
not exceed the contribution and benefit
base determined under section 230 of the
Social Security Act for the calendar year
in which such taxable year begins.
‘‘(ii) TREATMENT OF PART-TIME EM-
PLOYEES, ETC.—If—
‘‘(I) any employee is not em-
ployed by the possession corporation
on a substantially full-time basis at all
times during the taxable year, or
‘‘(II) the principal place of em-
ployment of any employee with the
possession corporation is not within a
possession at all times during the tax-
able year,
the limitation applicable under clause (i)
with respect to such employee shall be the
appropriate portion (as determined by the
1258
Secretary) of the limitation which would
otherwise be in effect under clause (i).
‘‘(C) TREATMENT OF CERTAIN EMPLOY-
EES.—The term ‘qualified possession wages’
shall not include any wages paid to employees
who are assigned by the employer to perform
services for another person, unless the principal
trade or business of the employer is to make
employees available for temporary periods to
other persons in return for compensation. All
possession corporations treated as 1 corporation
under paragraph (4) shall be treated as 1 em-
ployer for purposes of the preceding sentence.
‘‘(D) WAGES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the term ‘wages’ has
the meaning given to such term by sub-
section (b) of section 3306 (determined
without regard to any dollar limitation
contained in such section). For purposes of
the preceding sentence, such subsection (b)
shall be applied as if the term ‘United
States’ included all possessions of the
United States.
1259
‘‘(ii) SPECIAL
RULE
FOR
AGRICUL-
TURAL LABOR AND RAILWAY LABOR.—In
any case to which subparagraph (A) or (B)
of paragraph (1) of section 51(h) applies,
the term ‘wages’ has the meaning given to
such term by section 51(h)(2).
‘‘(2) QPSII ASSETS.—For purposes of this sec-
tion—
‘‘(A) IN GENERAL.—The QPSII assets of a
possession corporation for any taxable year is
the average of the amounts of the possession
corporation’s qualified investment assets as of
the close of each quarter of such taxable year.
‘‘(B) QUALIFIED INVESTMENT ASSETS.—
The term ‘qualified investment assets’ means
the aggregate adjusted bases of the assets
which are held by the possession corporation
and the income from which qualifies as quali-
fied possession source investment income. For
purposes of the preceding sentence, the ad-
justed basis of any asset shall be its adjusted
basis as determined for purposes of computing
earnings and profits.
‘‘(3) QUALIFIED TANGIBLE BUSINESS INVEST-
MENT.—For purposes of this section—
1260
‘‘(A) I N GENERAL.—The qualified tangible
business investment of any possession corpora-
tion for any taxable year is the average of the
amounts of the possession corporation’s quali-
fied possession investments as of the close of
each quarter of such taxable year.
‘‘(B) QUALIFIED
POSSESSION
INVEST-
MENTS.—The term ‘qualified possession invest-
ments’ means the aggregate adjusted bases of
tangible property used by the possession cor-
poration in a possession of the United States in
the active conduct of a trade or business within
such possession. For purposes of the preceding
sentence, the adjusted basis of any property
shall be its adjusted basis as determined for
purposes of computing earnings and profits.
‘‘(4) RELOCATED BUSINESSES.—
‘‘(A) IN GENERAL.—In determining—
‘‘(i) the possession corporation’s quali-
fied possession wages for any taxable year,
and
‘‘(ii) 
the 
possession 
corporation’s
qualified tangible business investment for
such taxable year,
1261
there shall be excluded all wages and all quali-
fied possession investments which are allocable
to a disqualified relocated business.
‘‘(B) DISQUALIFIED
RELOCATED
BUSI-
NESS.—For purposes of subparagraph (A), the
term ‘disqualified relocated business’ means any
trade or business commenced by the possession
corporation after May 13, 1993, or any addition
after such date to an existing trade or business
of such possession corporation unless—
‘‘(i) the possession corporation cer-
tifies that the commencement of such trade
or business or such addition will not result
in a decrease in employment at an existing
business operation located in the United
States, and
‘‘(ii) there is no reason to believe that
such commencement or addition was done
with the intention of closing down oper-
ations of an existing business located in
the United States.
‘‘(5) E LECTION TO COMPUTE CREDIT ON CON-
SOLIDATED BASIS.—
‘‘(A) IN GENERAL.—Any affiliated group
may elect to treat all possession corporations
1262
which would be members of such group but for
section 1504(b)(4) as 1 corporation for pur-
poses of this section. The credit determined
under this section with respect to such 1 cor-
poration shall be allocated among such posses-
sion corporations in such manner as the Sec-
retary may prescribe.
‘‘(B) ELECTION.—An election under sub-
paragraph (A) shall apply to the taxable year
for which made and all succeeding taxable years
unless revoked with the consent of the Sec-
retary.
‘‘(6) TREATMENT OF CERTAIN TAXES.—Not-
withstanding subsection (c), if—
‘‘(A) the credit determined under sub-
section (a)(1) for any taxable year is limited
under subsection (a)(4), and
‘‘(B) the possession corporation has paid
or accrued any taxes of a possession of the
United States for such taxable year which are
treated as not being income, war profits, or ex-
cess profits taxes paid or accrued to a posses-
sion of the United States by reason of sub-
section (c),
1263
such possession corporation shall be allowed a de-
duction for such taxable year equal to the portion of
such taxes which are allocable (on a pro rata basis)
to taxable income of the possession corporation the
tax on which is not offset by reason of the limita-
tions of subsection (a)(4). In determining the credit
under subsection (a) and in applying the preceding
sentence, taxable income shall be determined without
regard to the preceding sentence.
‘‘(7) POSSESSION
CORPORATION.—The term
‘possession corporation’ means a domestic corpora-
tion for which the election provided in subsection (a)
is in effect.
‘‘(8) TRANSITIONAL RULE.—If any possession
corporation elects the benefits of this paragraph for
any taxable year beginning in 1994 or 1995—
‘‘(A) subsection (a)(4) shall not apply to
such taxable year, and
‘‘(B) the credit determined under sub-
section (a)(1) for such taxable year shall be the
following percentage of the credit which would
otherwise have been determined under such
subsection:
‘‘(i) 80 percent in the case of a tax-
able year beginning in 1994.
1264
‘‘(ii) 60 percent in the case of a tax-
able year beginning in 1995.
A possession corporation which elects the bene-
fits of this paragraph shall be entitled to the
benefits of paragraph (6) for taxes allocable to
taxable income the tax on which is not offset by
reason of this paragraph.’’
(c) MINIMUM TAX TREATMENT.—
(1) IN
GENERAL.—Clause (ii) of section
56(g)(4)(C) (relating to treatment of special rule for
certain dividends) is amended by striking ‘‘sections
936 and 921’’ and inserting ‘‘sections 936 (including
subsection (a)(4) thereof) and 921’’.
(2) T REATMENT OF FOREIGN TAXES.—Clause
(iii) of section 56(g)(4)(C) is amended by adding at
the end thereof the following subclauses:
‘‘(IV) SEPARATE
APPLICATION
OF
FOREIGN
TAX
CREDIT
LIMITA-
TIONS.—In determining the alter-
native minimum foreign tax credit,
section 904(d) shall be applied as if
dividends from a corporation eligible
for the credit provided by section 936
were a separate category of income re-
1265
ferred to in a subparagraph of section
904(d)(1).
‘‘(V) C OORDINATION WITH LIMI-
TATION
ON
936
CREDIT.—Any ref-
erence in this clause to a dividend re-
ceived from a corporation eligible for
the credit provided by section 936
shall be treated as a reference to the
portion of any such dividend for which
the dividends received deduction is
disallowed under clause (i) after the
application of clause (ii)(I).’’
(d) C ONFORMING AMENDMENT.—Paragraph (4) of
section 904(b) is amended by inserting before the period
at the end thereof the following: ‘‘(without regard to sub-
section (a)(4) thereof)’’.
(e) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 14227. MODIFICATION TO LIMITATION ON DEDUCTION
FOR CERTAIN INTEREST.
(a) GENERAL RULE.—Paragraph (3) of section
163(j) (defining disqualified interest) is amended to read
as follows:
1266
‘‘(3) DISQUALIFIED INTEREST.—For purposes
of this subsection, the term ‘disqualified interest’
means—
‘‘(A) any interest paid or accrued by the
taxpayer (directly or indirectly) to a related
person if no tax is imposed by this subtitle with
respect to such interest, and
‘‘(B) any interest paid or accrued by the
taxpayer with respect to any indebtedness to a
person who is not a related person if—
‘‘(i) there is a disqualified guarantee
of such indebtedness, and
‘‘(ii) no gross basis tax is imposed by
this subtitle with respect to such interest.’’
(b) D EFINITIONS.—Paragraph (6) of section 163(j)
is amended by adding at the end thereof the following new
subparagraphs:
‘‘(D) DISQUALIFIED GUARANTEE.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the term ‘disqualified
guarantee’ means any guarantee by a re-
lated person which is—
‘‘(I) an organization exempt from
taxation under this subtitle, or
‘‘(II) a foreign person.
1267
‘‘(ii) EXCEPTIONS.—The term ‘dis-
qualified guarantee’ shall not include a
guarantee—
‘‘(I) in any circumstances identi-
fied by the Secretary by regulation,
where the interest on the indebtedness
would have been subject to a net basis
tax if the interest had been paid to
the guarantor, or
‘‘(II) if the taxpayer owns a con-
trolling interest in the guarantor.
For purposes of subclause (II), except as
provided in regulations, the term ‘a con-
trolling interest’ means direct or indirect
ownership of at least 80 percent of the
total voting power and value of all classes
of stock of a corporation, or 80 percent of
the profit and capital interests in any other
entity. For purposes of the preceding sen-
tence, the rules of paragraphs (1) and (5)
of section 267(c) shall apply; except that
such rules shall also apply to interest in
entities other than corporations.
‘‘(iii) GUARANTEE.—Except as pro-
vided in regulations, the term ‘guarantee’
1268
includes any arrangement under which a
person (directly or indirectly through an
entity or otherwise) assures, on a condi-
tional or unconditional basis, the payment
of another person’s obligation under any
indebtedness.
‘‘(E) GROSS
BASIS
AND
NET
BASIS
TAXATION.—
‘‘(i) GROSS
BASIS
TAX.—The term
‘gross basis tax’ means any tax imposed by
this subtitle which is determined by ref-
erence to the gross amount of any item of
income without any reduction for any de-
duction allowed by this subtitle.
‘‘(ii) N ET BASIS TAX.—The term ‘net
basis tax’ means any tax imposed by this
subtitle which is a not a gross basis tax.’’
(c) C ONFORMING AMENDMENT.—Subparagraph (B)
of section 163(j)(5) is amended by striking ‘‘to a related
person’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to interest paid or accrued in tax-
able years beginning after December 31, 1993.
1269
PART III—FOREIGN TAX PROVISIONS
Subpart A—Current Taxation of Certain Earnings of
Controlled Foreign Corporations
SEC. 14231. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
(a) GENERAL RULE.—Paragraph (1) of section
951(a) (relating to amounts included in gross income of
United States shareholders) is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘; and’’,
and by adding at the end thereof the following new sub-
paragraph:
‘‘(C) the amount determined under section
956A with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(3)).’’
(b) AMOUNT OF INCLUSION.—Subpart F of part III
of subchapter N of chapter 1 is amended by inserting after
section 956 the following new section:
‘‘SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this
section with respect to any United States shareholder for
any taxable year is the lesser of—
‘‘(1) the excess (if any) of—
1270
‘‘(A) such shareholder’s pro rata share of
the amount of the controlled foreign corpora-
tion’s excess passive assets for such taxable
year, over
‘‘(B) the amount of earnings and profits
described in section 959(c)(1)(B) with respect
to such shareholder, or
‘‘(2) such shareholder’s pro rata share of the
applicable earnings of such controlled foreign cor-
poration determined after the application of section
951(a)(1)(B).
‘‘(b) A PPLICABLE EARNINGS.—For purposes of this
section, the term ‘applicable earnings’ means, with respect
to any controlled foreign corporation, the amounts re-
ferred to in sections 316(a)(1) and 316(a)(2) (but reduced
by distributions made during the taxable year), reduced
by the earnings and profits described in section 959(c)(1).
‘‘(c) EXCESS PASSIVE ASSETS.—For purposes of this
section—
‘‘(1) IN GENERAL.—The excess passive assets
of any controlled foreign corporation for any taxable
year is the excess (if any) of—
‘‘(A) the average of the amounts of passive
assets held by such corporation as of the close
of each quarter of such taxable year, over
1271
‘‘(B) 25 percent of the average of the
amounts of total assets held by such corpora-
tion as of the close of each quarter of such tax-
able year.
For purposes of the preceding sentence, the amount
taken into account with respect to any asset shall be
its adjusted basis as determined for purposes of
computing earnings and profits.
‘‘(2) PASSIVE ASSET.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this section, the term ‘passive asset’
means any asset held by the controlled foreign
corporation which produces passive income (as
defined in section 1296(b)) or is held for the
production of such income.
‘‘(B) COORDINATION WITH SECTION 956.—
The term ‘passive asset’ shall not include any
United States property (as defined in section
956).
‘‘(3) L OOK-THRU RULES MADE APPLICABLE.—
For purposes of this subsection, the rules of section
1296(c) shall apply.
‘‘(4) L EASING RULES MADE APPLICABLE.—For
purposes of this subsection, the rules of section
1297(d) shall apply.
1272
‘‘(d) S PECIAL RULE WHERE CORPORATION CEASES
TO BE CONTROLLED FOREIGN CORPORATION DURING
TAXABLE YEAR.—If any foreign corporation ceases to be
a controlled foreign corporation during any taxable year—
‘‘(1) the determination of any United States
shareholder’s pro rata share shall be made on the
basis of stock owned (within the meaning of section
958(a)) by such shareholder on the last day during
the taxable year on which the foreign corporation is
a controlled foreign corporation, and
‘‘(2) the amount of such corporation’s excess
passive assets for such taxable year shall be deter-
mined by only taking into account quarters ending
on or before such last day, and
‘‘(3) in determining applicable earnings, the
amount taken into account by reason of being de-
scribed in paragraph (2) of section 316(a) shall be
the portion of the amount so described which is allo-
cable (on a pro rata basis) to the part of such year
during which the corporation is a controlled foreign
corporation.
‘‘(e) TRANSITION RULE.—In the case of any taxable
year of a controlled foreign corporation beginning after
September 30, 1993, and before October 1, 1997, the
amount determined under subsection (a) shall be the ap-
1273
plicable percentage (determined under the following table)
of the amount which would otherwise be determined under
such subsection:
‘‘In the case of a taxable year
beginning during the 1-year period
The applicable
beginning on:
percentage is:
October 1, 1993 .......................................................................
October 1, 1994 .......................................................................
October 1, 1995 .......................................................................
October 1, 1996 .......................................................................
50.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations to prevent the
avoidance of the provisions of this section through reorga-
nizations or otherwise.’’
(c) PREVIOUSLY TAXED INCOME RULES.—
(1) IN
GENERAL.—Subsection (a) of section
959 (relating to exclusion from gross income of pre-
viously taxed earnings and profits) is amended by
striking ‘‘or’’ at the end of paragraph (1), by adding
‘‘or’’ at the end of paragraph (2), and by inserting
after paragraph (2) the following new paragraph:
‘‘(3) such amounts would, but for this sub-
section, be included under section 951(a)(1)(C) in
the gross income of,’’.
(2) ALLOCATION RULES.—
(A) Subsection (a) of section 959 is
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘The rules of subsection
1274
(c) shall apply for purposes of paragraph (1) of
this subsection and the rules of subsection (f)
shall apply for purposes of paragraphs (2) and
(3) of this subsection.’’.
(B) Section 959 is amended by adding at
the end thereof the following new subsection:
‘‘(f) ALLOCATION
RULES
FOR
CERTAIN
INCLU-
SIONS.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, amounts that would be included under subpara-
graph (B) or (C) of section 951(a)(1) (determined
without regard to this section) shall be treated as at-
tributable first to earnings described in subsection
(c)(2), and then to earnings described in subsection
(c)(3).
‘‘(2) TREATMENT OF DISTRIBUTIONS.—In ap-
plying this section, actual distributions shall be
taken into account before amounts that would be in-
cluded under subparagraphs (B) and (C) of section
951(a)(1) (determined without regard to this
section).’’
(C) Paragraph (1) of section 959(c) is
amended to read as follows:
‘‘(1) first to the aggregate of—
1275
‘‘(A) earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(B) (or which would have been in-
cluded except for subsection (a)(2) of this sec-
tion), and
‘‘(B) earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(C) (or which would have been in-
cluded except for subsection (a)(3) of this
section),
with any distribution being allocated between earn-
ings and profits described in subparagraph (A) and
earnings and profits described in subparagraph (B)
proportionately on the basis of the respective
amounts of such earnings and profits,’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsections (a) and (b) of section 959
are each amended by striking ‘‘earnings and
profits for a taxable year’’ and inserting ‘‘earn-
ings and profits’’.
(B) Paragraph (2) of section 959(c) is
amended to read as follows:
‘‘(2) then to earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(A) (but reduced by amounts not included
1276
under subparagraph (B) or (C) of section 951(a)(1)
because of the exclusions in paragraphs (2) and (3)
of subsection (a) of this section), and’’
(C) Subsection (b) of section 989 is
amended by striking ‘‘section 951(a)(1)(B)’’
and inserting ‘‘subparagraph (B) or (C) of sec-
tion 951(a)(1)’’.
(d) M ODIFICATIONS TO PASSIVE FOREIGN INVEST-
MENT COMPANY RULES.—
(1) ADJUSTED BASIS USED IN CERTAIN DETER-
MINATIONS.—Subsection (a) of section 1296 is
amended by striking the material following para-
graph (2) and inserting the following:
‘‘In the case of a controlled foreign corporation (or any
other foreign corporation if such corporation so elects), the
determination under paragraph (2) shall be based on the
adjusted bases (as determined for purposes of computing
earnings and profits) of its assets in lieu of their value.
Such an election, once made, may be revoked only with
the consent of the Secretary.’’
(2) T REATMENT OF CERTAIN SUBPART F IN-
CLUSIONS.—Subsection (b) of section 1297 is
amended by adding at the end thereof the following
new paragraph:
1277
‘‘(9) T REATMENT OF CERTAIN SUBPART F IN-
CLUSIONS.—Any amount included in gross income
under subparagraph (B) or (C) of section 951(a)(1)
shall be treated as a distribution received with re-
spect to the stock.’’
(3) T REATMENT OF CERTAIN DEALERS IN SE-
CURITIES.—Subsection (b) of section 1296 is
amended by adding at the end thereof the following
new paragraph:
‘‘(3) T REATMENT OF CERTAIN DEALERS IN SE-
CURITIES.—
‘‘(A) IN GENERAL.—In the case of any for-
eign corporation which is a controlled foreign
corporation (as defined in section 957(a)), the
term ‘passive income’ does not include any in-
come derived in the active conduct of a securi-
ties business by such corporation if such cor-
poration is registered as a securities broker or
dealer under section 15(a) of the Securities Ex-
change Act of 1934 or is registered as a Gov-
ernment securities broker or dealer under sec-
tion 15C(a) of such Act. To the extent provided
in regulations, such term shall not include any
income derived in the active conduct of a securi-
1278
ties business by a controlled foreign corporation
which is not so registered.
‘‘(B) 
APPLICATION
OF
LOOK-THRU
RULES.—For purposes of paragraph (2)(C),
rules similar to the rules of subparagraph (A)
shall apply in determining whether any income
of a related person (whether or not a corpora-
tion) is passive income.
‘‘(C) LIMITATION.—The preceding provi-
sions of this paragraph shall only apply in the
case of persons who are United States share-
holders (as defined in section 951(b)) in the
controlled foreign corporation.’’
(4) LEASING RULES.—Section 1297 is amended
by redesignating subsection (d) as subsection (e) and
by inserting after subsection (c) the following new
subsection:
‘‘(d) TREATMENT
OF
CERTAIN
LEASED
PROP-
ERTY.—For purposes of this part:
‘‘(1) IN
GENERAL.—Any tangible personal
property with respect to which a foreign corporation
is the lessee under a lease with a term of at least
12 months shall be treated as an asset actually held
by such corporation.
‘‘(2) DETERMINATION OF ADJUSTED BASIS.—
1279
‘‘(A) I N GENERAL.—The adjusted basis of
any asset to which paragraph (1) applies shall
be the unamortized portion (as determined
under regulations prescribed by the Secretary)
of the present value of the payments under the
lease for the use of such property.
‘‘(B) PRESENT VALUE.—For purposes of
subparagraph (A), the present value of pay-
ments described in subparagraph (A) shall be
determined in the manner provided in regula-
tions prescribed by the Secretary—
‘‘(i) as of the beginning of the lease
term, and
‘‘(ii) except as provided in such regu-
lations, by using a discount rate equal to
the applicable Federal rate determined
under section 1274(d)—
‘‘(I) by substituting the lease
term for the term of the debt instru-
ment, and
‘‘(II) without regard to para-
graph (2) or (3) thereof.
‘‘(3) EXCEPTIONS.—This subsection shall not
apply in any case where—
1280
‘‘(A) the lessor is a related person (as de-
fined in section 954(d)(3)) with respect to the
foreign corporation, or
‘‘(B) a principal purpose of leasing the
property was to avoid the provisions of this
section.’’
(e) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of foreign corpora-
tions beginning after September 30, 1993, and to taxable
years of United States shareholders in which or with which
such taxable years of foreign corporations end.
SEC. 14232. MODIFICATION TO TAXATION OF INVESTMENT
IN UNITED STATES PROPERTY.
(a) G ENERAL RULE.—Section 956 (relating to in-
vestment of earnings in United States property) is amend-
ed—
(1) by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively, and
(2) by striking subsection (a) and inserting the
following:
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this
section with respect to any United States shareholder for
any taxable year is the lesser of—
‘‘(1) the excess (if any) of—
1281
‘‘(A) such shareholder’s pro rata share of
the average of the amounts of United States
property held (directly or indirectly) by the con-
trolled foreign corporation as of the close of
each quarter of such taxable year, over
‘‘(B) the amount of earnings and profits
described in section 959(c)(1)(A) with respect
to such shareholder, or
‘‘(2) such shareholder’s pro rata share of the
applicable earnings of such controlled foreign cor-
poration.
The amount taken into account under paragraph (1) with
respect to any property shall be its adjusted basis as deter-
mined for purposes of computing earnings and profits, re-
duced by any liability to which the property is subject.
‘‘(b) A DJUSTMENTS FOR CERTAIN DISTRIBUTIONS;
OTHER SPECIAL RULES.—
‘‘(1) A PPLICABLE EARNINGS.—For purposes of
this section, the term ‘applicable earnings’ has the
meaning given to such term by section 956A(b).
‘‘(2) SPECIAL
RULE
WHERE
CORPORATION
CEASES
TO
BE
CONTROLLED
FOREIGN
CORPORA-
TION.—Rules similar to the rules of section 956A(d)
shall apply for purposes of this section.’’
(b) CONFORMING AMENDMENTS.—
1282
(1) Subparagraph (B) of section 951(a)(1) is
amended to read as follows:
‘‘(B) the amount determined under section
956 with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(2)); and’’
(2) Subsection (a) of section 951 is amended by
striking paragraph (4).
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of controlled for-
eign corporations beginning after September 30, 1993,
and to taxable years of United States shareholders in
which or with which such taxable years of controlled for-
eign corporations end.
(d) STUDY OF INVESTMENTS BY CONTROLLED FOR-
EIGN CORPORATIONS IN UNITED STATES PROPERTY.—
(1) I N GENERAL.—The Secretary of the Treas-
ury shall conduct a study of the tax treatment of in-
vestments by controlled foreign corporations in obli-
gations of United States persons other than corpora-
tions. Such study shall include the Secretary’s views
as to whether the treatment of such investments
should be changed, along with a discussion of the
merits and consequences of any such change.
1283
(2) REPORT.—Not later than December 31,
1993, the Secretary of the Treasury shall submit to
the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of
the Senate a report on the study conducted under
this subsection, together with such recommendations
as he may deem advisable.
SEC. 14233. OTHER MODIFICATIONS TO SUBPART F.
(a) S AME COUNTRY EXCEPTION NOT TO APPLY TO
CERTAIN DIVIDENDS.—
(1) IN
GENERAL.—Paragraph (3) of section
954(c) (relating to certain income received from re-
lated persons) is amended by adding at the end
thereof the following new subparagraph:
‘‘(C) EXCEPTION
FOR
CERTAIN
DIVI-
DENDS.—Subparagraph (A)(i) shall not apply
to any dividend with respect to any stock which
is attributable to earnings and profits of the
distributing corporation accumulated during
any period during which the person receiving
such dividend did not hold such stock.’’
(2) E FFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years of con-
trolled foreign corporations beginning after Septem-
ber 30, 1993, and to taxable years of United States
1284
shareholders in which or with which such taxable
years of controlled foreign corporations end.
(b) SIMPLIFICATION OF SECTION 960(b).—
(1) IN
GENERAL.—Subsection (b) of section
960 is amended—
(A) by redesignating paragraphs (3) and
(4) as paragraphs (4) and (5), respectively, and
(B) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
‘‘(1) I NCREASE IN SECTION 904 LIMITATION.—
In the case of any taxpayer who—
‘‘(A) either (i) chose to have the benefits
of subpart A of this part for a taxable year be-
ginning after September 30, 1993, in which he
was required under section 951(a) to include
any amount in his gross income, or (ii) did not
pay or accrue for such taxable year any income,
war profits, or excess profits taxes to any for-
eign country or to any possession of the United
States,
‘‘(B) chooses to have the benefits of sub-
part A of this part for any taxable year in
which he receives 1 or more distributions or
amounts which are excludable from gross in-
come under section 959(a) and which are at-
1285
tributable to amounts included in his gross in-
come for taxable years referred to in subpara-
graph (A), and
‘‘(C) for the taxable year in which such
distributions or amounts are received, pays, or
is deemed to have paid, or accrues income, war
profits, or excess profits taxes to a foreign
country or to any possession of the United
States with respect to such distributions or
amounts,
the limitation under section 904 for the taxable year
in which such distributions or amounts are received
shall be increased by the lesser of the amount of
such taxes paid, or deemed paid, or accrued with re-
spect to such distributions or amounts or the
amount in the excess limitation account as of the be-
ginning of such taxable year.
‘‘(2) EXCESS LIMITATION ACCOUNT.—
‘‘(A) ESTABLISHMENT
OF
ACCOUNT.—
Each taxpayer meeting the requirements of
paragraph (1)(A) shall establish an excess limi-
tation account. The opening balance of such ac-
count shall be zero.
‘‘(B) INCREASES IN ACCOUNT.—For each
taxable year beginning after September 30,
1286
1993, the taxpayer shall increase the amount in
the excess limitation account by the excess (if
any) of—
‘‘(i) the amount by which the limita-
tion under section 904(a) for such taxable
year was increased by reason of the total
amount of the inclusions in gross income
under section 951(a) for such taxable year,
over
‘‘(ii) the amount of any income, war
profits, and excess profits taxes paid, or
deemed paid, or accrued to any foreign
country or possession of the United States
which were allowable as a credit under sec-
tion 901 for such taxable year and which
would not have been allowable but for the
inclusions in gross income described in
clause (i).
Proper reductions in the amount added to the
account under the preceding sentence for any
taxable year shall be made for any increase in
the credit allowable under section 901 for such
taxable year by reason of a carryback if such
increase would not have been allowable but for
1287
the inclusions in gross income described in
clause (i).
‘‘(C) D ECREASES IN ACCOUNT.—For each
taxable year beginning after September 30,
1993, for which the limitation under section
904 was increased under paragraph (1), the
taxpayer shall reduce the amount in the excess
limitation account by the amount of such in-
crease.
‘‘(3) DISTRIBUTIONS OF INCOME PREVIOUSLY
TAXED IN YEARS BEGINNING BEFORE OCTOBER 1,
1993.—If the taxpayer receives a distribution or
amount in a taxable year beginning after September
30, 1993, which is excluded from gross income
under section 959(a) and is attributable to any
amount included in gross income under section
951(a) for a taxable year beginning before October
1, 1993, the limitation under section 904 for the
taxable year in which such amount or distribution is
received shall be increased by the amount deter-
mined under this subsection as in effect on the day
before the date of the enactment of the Revenue
Reconcilation Act of 1993.’’
1288
(2) E FFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after September 30, 1993.
Subpart B—Allocation of Research and Experimental
Expenditures
SEC. 14234. ALLOCATION OF RESEARCH AND EXPERI-
MENTAL EXPENDITURES.
(a) G ENERAL RULE.—Subparagraph (B) of section
864(f)(1) (relating to allocation of research and experi-
mental expenditures) is amended by striking ‘‘64 percent’’
each place it appears and inserting ‘‘50 percent’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 864 is amended by
striking paragraph (5) and inserting the following:
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out the purposes of this subsection, including
regulations relating to the determination of whether
any expenses are attributable to activities conducted
in the United States or outside the United States
and regulations providing such adjustments to the
provisions of this subsection as may be appropriate
in the case of cost-sharing arrangements and con-
tract research.’’
1289
(2) Subparagraph (D) of section 864(f)(4) is
amended by striking ‘‘subparagraph (C)’’ and insert-
ing ‘‘subparagraph (B) or (C)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act; except that such amend-
ments shall not apply in the case of any taxable year to
which Revenue Procedure 92–56 applies or would apply
if the taxpayer elected the benefits of such Revenue Proce-
dure.
Subpart C—Other Provisions
SEC. 14235. REPEAL OF CERTAIN EXCEPTIONS FOR WORK-
ING CAPITAL.
(a) P ROVISIONS RELATING TO OIL AND GAS IN-
COME.—
(1) AMENDMENTS TO SECTION 907.—
(A) Paragraph (1) of section 907(c) is
amended by adding at the end thereof the fol-
lowing new flush sentence:
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(B) Paragraph (2) of section 907(c) is
amended by adding at the end thereof the fol-
lowing new flush sentence:
1290
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(2) S EPARATE APPLICATION OF FOREIGN TAX
CREDIT.—Clause (iii) of section 904(d)(2)(A) is
amended by inserting ‘‘and’’ at the end of subclause
(II), by striking ‘‘, and’’ at the end of subclause
(III) and inserting a period, and by striking
subclause (IV).
(3) TREATMENT UNDER SUBPART F.—
(A) Paragraph (1) of section 954(g) is
amended by adding at the end thereof the fol-
lowing new flush sentence:
Such term shall not include any foreign personal holding
company income (as defined in subsection (c)).’’.
(B) Paragraph (8) of section 954(b) is
amended by striking ‘‘(1),’’.
(b) T REATMENT OF SHIPPING INCOME.—Subsection
(f) of section 954 is amended by adding at the end thereof
the following new sentence: ‘‘Such term shall not include
any dividend or interest income which is foreign personal
holding company income (as defined in subsection (c)).’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
1291
SEC. 14236. MODIFICATIONS OF ACCURACY-RELATED PEN-
ALTY.
(a) T HRESHOLD REQUIREMENT.—Clause (ii) of sec-
tion 6662(e)(1)(B) (relating to substantial valuation
misstatement under chapter 1) is amended to read as
follows:
‘‘(ii) the net section 482 transfer price
adjustment for the taxable year exceeds
the lesser of $5,000,000 or 10 percent of
the taxpayer’s gross receipts.’’
(b) C ERTAIN ADJUSTMENTS EXCLUDED IN DETER-
MINING
THRESHOLD.—Subparagraph (B) of section
6662(e)(3) is amended to read as follows:
‘‘(B) CERTAIN ADJUSTMENTS EXCLUDED
IN DETERMINING THRESHOLD.—For purposes
of determining whether the threshold require-
ments of paragraph (1)(B)(ii) are met, the fol-
lowing shall be excluded:
‘‘(i) Any portion of the net increase in
taxable income referred to in subparagraph
(A) which is attributable to any redeter-
mination of a price if—
‘‘(I) it is established that the tax-
payer determined such price in ac-
cordance with a specific pricing meth-
od set forth in the regulations pre-
1292
scribed under section 482 and that
the taxpayer’s use of such method was
reasonable,
‘‘(II) the taxpayer has docu-
mentation (which was in existence as
of the time of filing the return) which
sets forth the determination of such
price in accordance with such a meth-
od and which establishes that the use
of such method was reasonable, and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of a request for such docu-
mentation.
‘‘(ii) Any portion of the net increase
in taxable income referred to in subpara-
graph (A) which is attributable to a rede-
termination of price where such price was
not determined in accordance with such a
specific pricing method if—
‘‘(I) the taxpayer establishes that
none of such pricing methods was
likely to result in a price that would
clearly reflect income, the taxpayer
used another pricing method to deter-
1293
mine such price, and such other pric-
ing method was likely to result in a
price that would clearly reflect in-
come,
‘‘(II) the taxpayer has docu-
mentation (which was in existence as
of the time of filing the return) which
sets forth the determination of such
price in accordance with such other
method and which establishes that the
requirements of subclause (I) were
satisfied, and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of request for such docu-
mentation.
‘‘(iii) Any portion of such net increase
which is attributable to any transaction
solely between foreign corporations unless,
in the case of any such corporations, the
treatment of such transaction affects the
determination of income from sources with-
in the United States or taxable income ef-
fectively connected with the conduct of a
1294
trade or business within the United
States.’’
(b) C OORDINATION WITH REASONABLE CAUSE EX-
CEPTION.—Paragraph (3) of section 6662(e) is amended
by adding at the end thereof the following new sub-
paragraph:
‘‘(D) COORDINATION
WITH
REASONABLE
CAUSE
EXCEPTION.—For purposes of section
6664(c) the taxpayer shall not be treated as
having reasonable cause for any portion of an
underpayment attributable to a net section 482
transfer price adjustment unless such taxpayer
meets the requirements of clause (i), (ii), or (iii)
of subparagraph (B) with respect to such por-
tion.’’
(c) C ONFORMING AMENDMENT.—Clause (iii) of sec-
tion 6662(h)(2)(A) is amended to read as follows:
‘‘(iii) in paragraph (1)(B)(ii)—
‘‘(I) 
‘$20,000,000’ 
for
‘$5,000,000’, and
‘‘(II) ‘20 percent’ for ‘10 per-
cent’.’’
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
1295
SEC. 14237. DENIAL OF PORTFOLIO INTEREST EXEMPTION
FOR CONTINGENT INTEREST.
(a) GENERAL RULE.—
(1) Subsection (h) of section 871 (relating to
repeal of tax on interest of nonresident alien individ-
uals received from certain portfolio debt invest-
ments) is amended by redesignating paragraphs (4),
(5), and (6) as paragraphs (5), (6), and (7), respec-
tively, and by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE
CERTAIN CONTINGENT INTEREST.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘portfolio
interest’ shall not include—
‘‘(i) any interest if the amount of such
interest is determined by reference to—
‘‘(I) any receipts, sales or other
cash flow of the debtor or a related
person,
‘‘(II) any income or profits of the
debtor or a related person,
‘‘(III) any change in value of any
property of the debtor or a related
person, or
1296
‘‘(IV) any dividend, partnership
distributions, or similar payments
made by the debtor or a related per-
son, or
‘‘(ii) any other type of contingent in-
terest that is identified by the Secretary by
regulation, where a denial of the portfolio
interest exemption is necessary or appro-
priate to prevent avoidance of Federal in-
come tax.
‘‘(B) R ELATED PERSON.—The term ‘relat-
ed person’ means any person who is related to
the debtor within the meaning of section 267(b)
or 707(b)(1), or who is a party to any arrange-
ment undertaken for a purpose of avoiding the
application of this paragraph.
‘‘(C) EXCEPTIONS.—Subparagraph (A)(i)
shall not apply to—
‘‘(i) any amount of interest solely by
reason of the fact that the timing of any
interest or principal payment is subject to
a contingency,
‘‘(ii) any amount of interest solely by
reason of the fact that the interest is paid
1297
with respect to nonrecourse or limited re-
course indebtedness,
‘‘(iii) any amount of interest all or
substantially all of which is determined by
reference to any other amount of interest
not described in subparagraph (A) (or by
reference to the principal amount of in-
debtedness on which such other interest is
paid),
‘‘(iv) any amount of interest solely by
reason of the fact that the debtor or a re-
lated person enters into a hedging trans-
action to reduce the risk of interest rate or
currency fluctuations with respect to such
interest,
‘‘(v) any amount of interest deter-
mined by reference to—
‘‘(I) changes in the value of prop-
erty (including stock) that is actively
traded (within the meaning of section
1092(d)) other than property de-
scribed in section 897(c)(1) or (g),
‘‘(II) the yield on property de-
scribed in subclause (I), other than a
debt instrument that pays interest de-
1298
scribed in subparagraph (A), or stock
or other property that represents a
beneficial interest in the debtor or a
related person, or
‘‘(III) changes in any index of
the value of property described in
subclause (I) or of the yield on prop-
erty described in subclause (II), and
‘‘(vi) any other type of interest identi-
fied by the Secretary by regulation.
‘‘(D) EXCEPTION FOR CERTAIN EXISTING
INDEBTEDNESS.—Subparagraph (A) shall not
apply to any interest paid or accrued with re-
spect to any indebtedness with a fixed term—
‘‘(i) which was issued on or before
April 7, 1993, or
‘‘(ii) which was issued after such date
pursuant to a written binding contract in
effect on such date and at all times there-
after before such indebtedness was issued.’’
(2) Subsection (c) of section 881 is amended by
redesignating paragraphs (4), (5), and (6) as para-
graphs (5), (6), and (7), respectively, and by insert-
ing after paragraph (3) the following new para-
graph:
1299
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE
CERTAIN CONTINGENT INTEREST.—For purposes of
this subsection, the term ‘portfolio interest’ shall not
include any interest which is treated as not being
portfolio interest under the rules of section
871(h)(4).’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (ii) of section 871(h)(2)(B) is
amended by striking ‘‘paragraph (4)’’ and inserting
‘‘paragraph (5)’’.
(2) Clause (ii) of section 881(c)(2)(B) is
amended by striking ‘‘section 871(h)(4)’’ and insert-
ing ‘‘section 871(h)(5)’’.
(3) Paragraph (6) of section 881(c) (as redesig-
nated by subsection (a)) is amended by striking
‘‘section 871(h)(5)’’ each place it appears and in-
serting ‘‘section 871(h)(6)’’.
(4) Paragraph (9) of section 1441(c) is amend-
ed by striking ‘‘section 871(h)(3)’’ and inserting
‘‘section 871(h)(3) or (4)’’.
(5) Subsection (a) of section 1442 is amend-
ed—
(A) by striking ‘‘871(h)(3)’’ and inserting
‘‘871(h)(3) or (4)’’, and
1300
(B) by striking ‘‘881(c)(3)’’ and inserting
‘‘881(c)(3) or (4)’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to interest received after December
31, 1993.
SEC. 14238. REGULATIONS DEALING WITH CONDUIT AR-
RANGEMENTS.
Section 7701 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k)
the following new subsection:
‘‘(l) REGULATIONS RELATING
TO CONDUIT AR-
RANGEMENTS.—The Secretary may prescribe regulations
recharacterizing any multiple-party financing transaction
as a transaction directly among any 2 or more of such
parties where the Secretary determines that such
recharacterization is appropriate to prevent avoidance of
any tax imposed by this title.’’
PART IV—ENERGY TAX PROVISIONS
Subpart A—Energy Tax Based on Btu Content
SEC. 14241. IMPOSITION OF ENERGY TAX BASED ON BTU
CONTENT.
(a) IN GENERAL.—Chapter 36 (relating to other ex-
cise taxes) is amended by redesignating subchapters A and
B as subchapters B and C, respectively, and by inserting
1301
before subchapter B (as so redesignated) the following
new subchapter:
‘‘SUBCHAPTER A—ENERGY TAXES
‘‘Part I. Imposition of tax on refined petroleum products.
‘‘Part II. Imposition of taxes on natural gas, coal, and electricity.
‘‘Part III. Tax rates.
‘‘Part IV. Use taxes; floor stocks taxes; administrative provisions;
definitions and special rules.
‘‘Part V. Tax on imported products with high embedded energy
costs.
‘‘PART I—IMPOSITION OF TAX ON REFINED
PETROLEUM PRODUCTS
‘‘Sec. 4441. Taxable refined petroleum products.
‘‘Sec. 4442. Tax-free transfers and uses; refunds for certain sales
and uses.
‘‘SEC. 4441. TAXABLE REFINED PETROLEUM PRODUCTS.
‘‘(a) IMPOSITION OF TAX.—
‘‘(1) I N GENERAL.—There is hereby imposed a
tax on any taxable refined petroleum product—
‘‘(A) removed from any refinery in the
United States,
‘‘(B) removed from any terminal in the
United States,
‘‘(C) entered into the United States for
consumption, use, or warehousing, and
‘‘(D) sold to any person who is not reg-
istered under section 4453(d).
No tax shall be imposed by subparagraph (D) if
there was a prior taxable removal or entry under
subparagraph (A), (B), or (C).
1302
‘‘(2) EXCEPTION
FOR
BULK
TRANSFERS
TO
REGISTERED REFINERIES OR TERMINALS.—The tax
imposed by paragraph (1) shall not apply to any re-
moval or entry of any taxable refined petroleum
product transferred in bulk to a refinery or terminal
if the person removing or entering such product and
the operator of such refinery or terminal are reg-
istered under section 4453(d).
‘‘(b) RATE OF TAX.—
‘‘(1) I N GENERAL.—The amount of the tax im-
posed by subsection (a) on each barrel of any tax-
able refined petroleum product shall be the sum of—
‘‘(A) the base rate, and
‘‘(B) the supplemental rate,
multiplied by the applicable per unit Btu factor for
such product.
‘‘(2) O NLY BASE RATE APPLIES TO QUALIFIED
HEATING OIL, DIESEL FUEL USED ON FARMS, AND
LIQUEFIED PETROLEUM GASES.—
‘‘(A) I N GENERAL.—Subparagraph (B) of
paragraph (1) shall not apply to—
‘‘(i) qualified heating oil,
‘‘(ii) qualified farm diesel fuel, and
‘‘(iii) any liquefied petroleum gas.
1303
‘‘(B) Q UALIFIED HEATING OIL.—For pur-
poses of subparagraph (A), the term ‘qualified
heating oil’ means No. 2 distillate fuel oil (in-
cluding any kerosene in a mixture with such oil)
which—
‘‘(i) is indelibly dyed (or dyed and
marked) in accordance with regulations
that the Secretary shall prescribe, and
‘‘(ii) is delivered (or is to be delivered)
to any building to heat the building.
‘‘(C) QUALIFIED
FARM
DIESEL
FUEL.—
For purposes of subparagraph (A), the term
‘qualified farm diesel fuel’ means any diesel fuel
which—
‘‘(i) is indelibly dyed (or dyed and
marked) in accordance with regulations
that the Secretary shall prescribe, and
‘‘(ii) is used (or to be used) on a farm
for farming purposes (determined under
section 6420(c)).
‘‘(c) LIABILITY FOR TAX.—The determination of who
is liable for the tax imposed by subsection (a) shall be
made under the rules applicable in determining liability
for the tax imposed by section 4081. Section 4103 shall
1304
apply to the tax imposed by subsection (a) in the same
manner as it applies to the tax imposed by section 4081.
‘‘(d) TAXABLE REFINED PETROLEUM PRODUCT.—
For purposes of this subchapter, the term ‘taxable refined
petroleum product’ means—
‘‘(1) aviation gasoline,
‘‘(2) motor gasoline (including blending compo-
nents of gasoline),
‘‘(3) kerosene-type jet fuel,
‘‘(4) naphtha-type jet fuel,
‘‘(5) distillate fuel oil,
‘‘(6) kerosene,
‘‘(7) residual fuel oil,
‘‘(8) petroleum coke,
‘‘(9) butane,
‘‘(10) propane,
‘‘(11) ethanol,
‘‘(12) methanol, and
‘‘(13) to the extent provided in regulations pre-
scribed by the Secretary, any other refined petro-
leum product.
‘‘(e) APPLICABLE PER UNIT BTU FACTOR.—For
purposes of this subchapter—
‘‘(1) IN GENERAL.—
1305
The applicable per unit
Btu factor is the follow-
‘‘In the case of:
ing amount per barrel:
Aviation gasoline ............................................
5.048
Motor gasoline (including blending compo-
nents of gasoline) ...........................................
5.267
Kerosene-type jet fuel ....................................
5.670
Naphtha-type jet fuel .....................................
5.355
Distillate fuel oil ............................................
5.852
Kerosene ........................................................
5.670
Residual fuel oil .............................................
6.486
Petroleum coke ..............................................
6.024
Ethanol ..........................................................
3.500
Methanol ........................................................
3.500
Butane ...........................................................
4.326
Propane ..........................................................
3.836
‘‘(2) MIXTURES.—Any mixture which includes a
taxable refined petroleum product shall be treated as
specified in paragraph (1) and—
‘‘(A) if more than 1 such product is in-
cluded in such mixture, the applicable per unit
Btu factor shall be the weighted average of the
applicable per unit Btu factors for the taxable
refined petroleum products included in the mix-
ture, and
‘‘(B) if any substance is included in the
mixture which is not a taxable refined petro-
leum product, the applicable per unit Btu factor
for the portion of such mixture’s volume which
is attributable to such substance shall be zero.
‘‘(3) CROSS REFERENCE.—
‘‘For authority to adjust per unit Btu amounts, see
section 4453(e).
1306
‘‘(f) OTHER DEFINITIONS.—For purposes of this
subchapter—
‘‘(1) REFINERY.—The term ‘refinery’ means
any facility—
‘‘(A) at which crude oil or any petroleum
product is refined,
‘‘(B) which is a natural gas processing or
fractionation plant, or
‘‘(C) at which ethanol or methanol is pro-
duced for use as a fuel.
‘‘(2) 
BLENDING
COMPONENTS.—The 
term
‘blending components’ does not include ethanol or
methanol.
‘‘(3) ETHANOL
AND
METHANOL.—The terms
‘ethanol’ and ‘methanol’ include ether derivatives of
ethanol and methanol, respectively.
‘‘(4) BARREL.—The term ‘barrel’ means 42
United States gallons determined with such tem-
perature adjustments as the Secretary may pre-
scribe. In the case of a taxable refined petroleum
product which is not a liquid, the term ‘barrel’
means a volume determined under regulations pre-
scribed by the Secretary on the basis of an equiva-
lence to a barrel of oil.
1307
‘‘(g) R EFUNDS IN CERTAIN CASES.—Under regula-
tions prescribed by the Secretary, if any person who paid
the tax imposed by this section with respect to any taxable
refined petroleum product establishes to the satisfaction
of the Secretary that a prior tax was paid (and not cred-
ited or refunded) with respect to such product, then an
amount equal to the tax paid by such person shall be al-
lowed as a refund (without interest) to such person in the
same manner as if it were an overpayment of tax imposed
by this section.
‘‘SEC. 4442. TAX-FREE TRANSFERS AND USES; REFUNDS
FOR CERTAIN SALES AND USES.
‘‘(a) TAX-FREE SALES, ETC.—
‘‘(1) IN GENERAL.—No tax shall be imposed by
section 4441—
‘‘(A) on any taxable refined petroleum
product which is used in an exempt use by the
person otherwise liable for such tax, or
‘‘(B) by reason of a removal, entry, or sale
of such product for an exempt use by the per-
son receiving the product.
‘‘(2) E XEMPT USE.—For purposes of this sub-
section, the term ‘exempt use’ means—
‘‘(A) export,
1308
‘‘(B) any use in the generation of elec-
tricity,
‘‘(C) any qualified feedstock use, and
‘‘(D) any use in the manufacture or pro-
duction of synthetic natural gas or any other
synthetic fuel specified in regulations prescribed
by the Secretary.
‘‘(3) QUALIFIED FEEDSTOCK USE.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—In the case of any
qualified feedstock use, only the exempt per-
centage of any taxable refined petroleum prod-
uct shall be exempt from tax under paragraph
(1).
‘‘(B) QUALIFIED
FEEDSTOCK
USE.—The
term ‘qualified feedstock use’ means use of any
taxable refined petroleum product in the manu-
facture or production of any substance.
‘‘(C) EXEMPT
PERCENTAGE.—For pur-
poses of subparagraph (A), the term ‘exempt
percentage’ means the percentage (determined
on the basis of chemical structure) of the tax-
able refined petroleum product which is incor-
porated into the substance manufactured or
produced.
1309
‘‘(4) REGISTRATION REQUIREMENTS.—To the
extent provided by the Secretary, paragraph (1)
shall not apply to any taxable event unless—
‘‘(A) such persons with respect to such
event as the Secretary may specify are reg-
istered under section 4453(d), and
‘‘(B) in the case of a sale, the purchaser’s
name and address, and the purchaser’s reg-
istration number for purposes of this sub-
chapter, are provided to the seller.
‘‘(5) REFUNDS OF PRODUCTS PURCHASED TAX-
PAID.—If tax was imposed under section 4441 with
respect to any taxable refined petroleum product and
such product is used by any person in an exempt
use, the Secretary shall pay to such person an
amount equal to the tax so imposed (or, in the case
of a qualified feedstock use, the exempt percentage
of the tax so imposed).
‘‘(6) CROSS REFERENCE.—
‘‘For tax on fuel used to produce steam at facility
which also generates electricity, see section 4451(e).
‘‘(b) REFUNDS TO ULTIMATE VENDORS IN CERTAIN
CASES.—Under regulations prescribed by the Secretary—
‘‘(1) HEATING OIL.—If the supplemental rate
of tax was imposed under section 4441 with respect
to any No. 2 distillate fuel oil (including any ker-
1310
osene in a mixture with such oil) and such fuel oil
is delivered to any building to heat the building, the
Secretary shall pay to the ultimate vendor of such
fuel oil an amount equal to the product of the sup-
plemental rate and the applicable per unit Btu fac-
tor per barrel of the fuel oil (and kerosene) so deliv-
ered.
‘‘(2) I NTERNATIONAL COMMERCIAL TRANSPOR-
TATION.—
‘‘(A) IN GENERAL.—If tax was imposed
under section 4441 with respect to any taxable
refined petroleum product and such product is
sold for use or used by the purchaser for inter-
national commercial transportation, the Sec-
retary shall pay to the ultimate vendor of such
product an amount equal to the tax so imposed.
‘‘(B) 
INTERNATIONAL
COMMERCIAL
TRANSPORTATION.—For purposes of subpara-
graph (A), the term ‘international commercial
transportation’ means transportation in the
trade or business of transporting persons or
property for hire—
‘‘(i) by any vessel actually engaged in
foreign trade or trade between the United
States and any of its possessions, or
1311
‘‘(ii) by aircraft from a point within
the United States to a point outside the
United States and outside the 225-mile
zone (as defined in section 4262(c)(2)).
‘‘(3) VENDOR
REQUIREMENTS.—A payment
may be made under this subsection to a vendor only
if the vendor establishes that such vendor—
‘‘(A)(i) has not included the tax in the
price of the product, and
‘‘(ii) has not collected the tax from the
purchaser of such product, or
‘‘(B) has agreed to repay the tax to the
purchaser.
‘‘(c) P RODUCTION OF CALCINED COKE.—If tax was
imposed under section 4441 with respect to any petroleum
product and such product is used by any person to
produce calcined coke, the Secretary shall pay to such per-
son an amount equal to the sum of the base rate and the
supplemental rate for each million Btu’s of the actual Btu
content of the coke produced.
‘‘(d) CROSS REFERENCE.—
‘‘For refunds of gasoline and diesel fuel used on
farms, see sections 6420(a) and 6427(m).
‘‘PART II—IMPOSITION OF TAXES ON NATURAL
GAS, COAL, AND ELECTRICITY
‘‘Sec. 4444. Natural gas.
1312
‘‘Sec. 4445. Coal.
‘‘Sec. 4446. Electricity.
‘‘SEC. 4444. NATURAL GAS.
‘‘(a) IMPOSITION OF TAX.—
‘‘(1) I N GENERAL.—There is hereby imposed a
tax on natural gas—
‘‘(A) removed from any pipeline in the
United States,
‘‘(B) entered into the United States for
consumption, use, or warehousing, and
‘‘(C) entered into any pipeline the operator
of which is not registered under section
4453(d).
‘‘(2) EXCEPTION
FOR
TRANSFERS
TO
REG-
ISTERED PIPELINES.—
‘‘(A) PIPELINE
TO
PIPELINE
TRANS-
FERS.—The tax imposed by paragraph (1) shall
not apply to any removal from a pipeline to an-
other pipeline if the operators of both pipelines
are registered under section 4453(d).
‘‘(B) ENTRY
INTO
UNITED
STATES
TO
PIPELINE
TRANSFERS.—The tax imposed by
paragraph (1) shall not apply to any entry into
the United States if—
‘‘(i) pursuant to such entry the natu-
ral gas is entered into any pipeline, and
1313
‘‘(ii) the operator of such pipeline is
registered under section 4453(d).
‘‘(b) RATE OF TAX.—
‘‘(1) I N GENERAL.—The amount of the tax im-
posed by subsection (a) on each MCF of natural gas
shall be the base rate multiplied by the applicable
per unit Btu factor.
‘‘(2) AUTHORITY TO USE ACTUAL BTU CON-
TENT.—To the extent provided in regulations pre-
scribed by the Secretary, the amount of the tax im-
posed by subsection (a) shall be the base rate for
each million Btu’s of the actual Btu content of the
natural gas.
‘‘(c) L IABILITY FOR, AND COLLECTION OF, T AX.—
‘‘(1) IN GENERAL.—The tax imposed by sub-
section (a)(1)(A)—
‘‘(A) shall be paid by the person receiving
the natural gas, and
‘‘(B) shall be collected by the operator of
the pipeline.
‘‘(2) I MPORTATION.—The tax imposed by sub-
section (a)(1)(B) shall be paid by the person enter-
ing the natural gas into the United States for con-
sumption, use, or warehousing.
1314
‘‘(3) ENTRY INTO UNREGISTERED PIPELINES.—
The tax imposed by subsection (a)(1)(C) shall be
paid by the person entering the natural gas.
‘‘(4) COLLECTION OF TAX.—
‘‘(A) I N GENERAL.—In the case of natural
gas removed from a local distribution system,
the operator shall also be liable for any tax im-
posed by subsection (a) which is not collected
from the person receiving the natural gas.
‘‘(B) E XCEPTION FOR LARGE USERS FROM
LOCAL DISTRIBUTION SYSTEMS.—Subparagraph
(A) shall not apply to natural gas received by
any person during any month from a local dis-
tribution system if the value (exclusive of taxes)
of the natural gas received by such person from
such system during the 12-month period ending
before such month exceeded $3,500,000.
‘‘(d) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) APPLICABLE PER UNIT BTU FACTOR.—
‘‘(A) IN
GENERAL.—The applicable per
unit Btu factor with respect to natural gas is
1.031 per MCF.
‘‘(B) CROSS REFERENCE.—
‘‘For authority to adjust per unit Btu amounts, see
section 4453(e).
1315
‘‘(2) P IPELINE.—The term ‘pipeline’ includes a
local distribution system. To the extent provided in
regulations prescribed by the Secretary, such term
includes a gathering system.
‘‘(3) NATURAL GAS.—The term ‘natural gas’
includes synthetic natural gas produced from coal or
from any petroleum product.
‘‘(4) MCF.—The term ‘MCF’ means 1,000
cubic feet of natural gas measured at a pressure of
14.73 pounds per square inch (absolute) and a tem-
perature of 60 degrees Fahrenheit.
‘‘(e) E XEMPTION FROM TAX FOR CERTAIN USES.—
‘‘(1) IN GENERAL.—No tax shall be imposed by
subparagraph (A) or (B) of subsection (a)(1)—
‘‘(A) on any natural gas which is used in
an exempt natural gas use by the person other-
wise liable for such tax, or
‘‘(B) by reason of a removal or entry of
natural gas for an exempt natural gas use by
the person receiving the natural gas.
‘‘(2) EXEMPT NATURAL GAS USE.—For pur-
poses of this subsection, the term ‘exempt natural
gas use’ means—
‘‘(A) use in the generation of electricity,
‘‘(B) any qualified feedstock use, or
1316
‘‘(C) use in enhanced heavy oil recovery.
‘‘(3) QUALIFIED FEEDSTOCK USE.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—In the case of any
qualified feedstock use, only the exempt per-
centage of the natural gas shall be exempt from
tax under paragraph (1).
‘‘(B) QUALIFIED
FEEDSTOCK
USE; EX-
EMPT PERCENTAGE.—The terms ‘qualified feed-
stock use’ and ‘exempt percentage’ have the re-
spective meanings given such terms by section
4442(a)(3) determined by substituting ‘natural
gas’ for ‘taxable refined petroleum product’
each place it appears.
‘‘(4) ENHANCED HEAVY OIL RECOVERY.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—Natural gas shall be
treated as used in enhanced heavy oil recovery
if such gas is used in an enhanced oil recovery
project in the United States for the recovery of
oil having a weighted average gravity of 20 de-
grees API or less (corrected to 60 degrees
Fahrenheit).
‘‘(B) 
ENHANCED
OIL
RECOVERY
PROJECT.—For purposes of subparagraph (A),
1317
the term ‘enhanced oil recovery project’ means
any project which involves the application (in
accordance with sound engineering principles)
of 1 or more tertiary recovery methods (as de-
fined in section 193(b)(3)) which can reason-
ably be expected to result in more than an in-
significant increase in the amount of crude oil
which will ultimately be recovered.
‘‘(5) REGISTRATION REQUIREMENTS.—To the
extent provided by the Secretary, paragraph (1)
shall not apply to any taxable event unless the re-
quirements of section 4442(a)(4) are met with re-
spect to such event.
‘‘(6) REFUNDS OF NATURAL GAS PURCHASED
TAX-PAID.—If tax was imposed by this section with
respect to any natural gas and such gas is used by
any person in an exempt natural gas use, the Sec-
retary shall pay to such person an amount equal to
the tax so imposed (or, in the case of a qualified
feedstock use, the exempt percentage of the tax so
imposed).
‘‘(7) CROSS REFERENCE.—
‘‘For tax on fuel used to produce steam at facility
which also generates electricity, see section 4451(e).
‘‘(f) METHANE RECOVERED FROM BIOMASS
OR
COAL MINING.—
1318
‘‘(1) IN GENERAL.—If—
‘‘(A) methane is recovered from biomass or
in conjunction with room and pillar or long wall
coal mining operations, and
‘‘(B) such methane is entered into any nat-
ural gas pipeline,
the Secretary shall pay to the person so entering
such methane an amount equal to the amount of tax
which would be imposed under this section on such
methane if such entry were a taxable event under
such section.
‘‘(2) RECAPTURE
OF
CREDIT
FOR
METHANE
RECOVERED
FROM
COAL
MINING
IN
CERTAIN
CASES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the Secretary has made a pay-
ment under paragraph (1) to any person
with respect to methane recovered from
coal mining operations before the date the
actual mining commences, and
‘‘(ii)(I) such person disposes of his in-
terest in such coal mining operations, or
‘‘(II) the actual mining commences
more than 10 years after the date such
methane was first recovered,
1319
then the tax under chapter 1 of such person for
the taxable year in which such disposition oc-
curs (or, in a case to which clause (ii)(II) ap-
plies, such 10th year ends) shall be increased
by the aggregate of such payments to such per-
son plus interest at the underpayment rate
under section 6621 for the periods beginning on
the dates such payments were made.
‘‘(B) N O FURTHER PAYMENTS UNTIL MIN-
ING COMMENCES.—If there is an increase in tax
under subparagraph (A) with respect to any
payments for methane recovered from any site,
no further payments shall be made under this
subsection with respect to methane recovered
from such site until actual mining commences
at such site.
‘‘(C) NO CREDITS AGAINST TAX, ETC.—
Any increase in tax under this paragraph shall
not be taken into account in determining the
amount of any credit allowable under part IV of
subchapter A of chapter 1 or in determining the
amount of the tax imposed by section 55.
‘‘(D) CHANGES IN FORM OF BUSINESS DIS-
REGARDED.—A person shall not be treated as
disposing of an interest in coal mining oper-
1320
ations by reason of a mere change in the form
of conducting the trade or business so long as
the coal mining operations are retained in such
trade or business and the taxpayer retains a
substantial interest in such trade or business.
‘‘(g) R EFUNDS IN CERTAIN CASES.—A rule similar
to the rule of section 4441(g) shall apply to the tax im-
posed by this section.
‘‘SEC. 4445. COAL.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on coal received at any facility in the United States
for use as a fuel at such facility.
‘‘(b) RATE OF TAX.—The amount of the tax imposed
by subsection (a) shall be the base rate for each million
Btu’s of the actual Btu content of the coal. For purposes
of the preceding sentence, the actual Btu content of any
coal shall be determined under procedures prescribed by
the Secretary.
‘‘(c) LIABILITY FOR TAX.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the tax imposed by sub-
section (a) shall be paid by the operator of the facil-
ity.
‘‘(2) C OAL RECEIVED AT SMALL FACILITIES.—
If the ultimate vendor of coal received at a facility
1321
receives a certificate from the operator of such facil-
ity (or otherwise determines) that such facility re-
ceived less than 1,000 tons of coal during the pre-
ceding calendar year, the tax imposed by subsection
(a) shall be paid by the ultimate vendor.
‘‘(3) RESIDENTIAL PROPERTY.—
‘‘(A) IN GENERAL.—In the case of coal re-
ceived at a residential property, the tax imposed
by subsection (a) shall be paid by the ultimate
vendor.
‘‘(B) RESIDENTIAL PROPERTY.—For pur-
poses of this paragraph, the term ‘residential
property’ means any building which contains 1
or more dwelling units used for residential pur-
poses other than on a transient basis.
‘‘(d) EXEMPTION FROM TAX FOR CERTAIN USES.—
‘‘(1) IN GENERAL.—No tax shall be imposed by
subsection (a) on coal received for—
‘‘(A) use in the generation of electricity,
‘‘(B) any qualified feedstock use,
‘‘(C) use in enhanced heavy oil recovery
(as determined under section 4444(e)(4) by
substituting ‘coal’ for ‘natural gas’),
‘‘(D) use in the manufacture or production
of synthetic natural gas or any other synthetic
1322
fuel specified in regulations prescribed by the
Secretary, or
‘‘(E) any use in a vessel used in inter-
national commercial transportation (as defined
in section 4442(b)(2)(B)(i)).
‘‘(2) QUALIFIED FEEDSTOCK USE.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—In the case of any
qualified feedstock use, only the exempt per-
centage of the coal shall be exempt from tax
under paragraph (1).
‘‘(B) QUALIFIED
FEEDSTOCK
USE; EX-
EMPT PERCENTAGE.—The terms ‘qualified feed-
stock use’ and ‘exempt percentage’ have the re-
spective meanings given such terms by section
4442(a)(3) determined by substituting ‘coal’ for
‘taxable refined petroleum product’ each place it
appears.
‘‘(3) CROSS REFERENCE.—
‘‘For tax on fuel used to produce steam at facility
which also generates electricity, see section 4451(e).
‘‘(e) PRODUCTION OF COKE FOR STEEL.—If tax was
imposed under this subchapter with respect to any coal
and such coal is used by any person to produce coke for
use in the reduction of iron-bearing ores in the iron and
steel process, the Secretary shall pay to such person an
1323
amount equal to the base rate for each million Btu’s of
the actual Btu content of the coke produced.
‘‘SEC. 4446. ELECTRICITY.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on—
‘‘(1) the sale of electricity to ultimate users in
the United States, and
‘‘(2) the use of electricity in the United States
which was not subject to tax under paragraph (1).
‘‘(b) RATE OF TAX.—The amount of the tax imposed
by subsection (a) on each kilowatt hour of electricity sold
or used during any month shall be the deemed Btu tax
per kilowatt hour applicable for such month—
‘‘(1) to the seller in the case of the tax imposed
by subsection (a)(1), and
‘‘(2) to the user in the case of the tax imposed
by subsection (a)(2).
‘‘(c) L IABILITY FOR, AND COLLECTION OF, T AX.—
‘‘(1) SALES.—The tax imposed by subsection
(a)(1)—
‘‘(A) shall be paid by the person to whom
the electricity is sold, and
‘‘(B) shall be collected by the seller.
1324
‘‘(2) USES.—The tax imposed by subsection
(a)(2) shall be paid by the person using the elec-
tricity.
‘‘(3) COLLECTION OF TAX.—
‘‘(A) IN GENERAL.—The seller shall also
be liable for the tax imposed by subsection
(a)(1) which is not collected from the person to
whom the electricity is sold.
‘‘(B) EXCEPTION
FOR
LARGE
USERS.—
Subparagraph (A) shall not apply to electricity
sold to any person during any month by the
seller if the amount paid by such person for
electricity (exclusive of taxes) sold by such sell-
er during the 12-month period ending before
such month exceeded $3,500,000.
‘‘(d) DEEMED BTU TAXES.—For purposes of this
section—
‘‘(1) I N GENERAL.—The deemed Btu taxes per
kilowatt hour of electricity applicable to any person
for any month shall be the weighted average of—
‘‘(A) the deemed Btu taxes per kilowatt
hour of electricity generated at each facility of
the person during the base period, and
1325
‘‘(B) the deemed Btu taxes per kilowatt
hour of electricity purchased by such person
during the base period.
For purposes of this paragraph, the term ‘base pe-
riod’ means, with respect to any month, the 2d
month preceding such month.
‘‘(2) D EEMED BTU TAXES PER FACILITY.—The
deemed Btu taxes per kilowatt hour of electricity
generated at any facility during any month shall be
determined by dividing—
‘‘(A) the deemed Btu taxes on fuels used
at such facility to generate electricity during
such month by
‘‘(B) the aggregate kilowatt hours of elec-
tricity generated at such facility during such
month.
‘‘(3) DEEMED BTU TAXES.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘deemed
Btu taxes’ means, with respect to electricity,
the aggregate taxes which would have been im-
posed by this subchapter on the fuels used to
generate such electricity—
‘‘(i) but for the exemption of such
fuels from such taxes, and
1326
‘‘(ii) determined as of the month for
which the rate of the tax imposed by sub-
section (a) is being determined.
‘‘(B) ELECTRICITY
GENERATED
BY
HY-
DROPOWER OR NUCLEAR POWER.—The deemed
Btu taxes per kilowatt hour of electricity gen-
erated by hydropower or nuclear power shall be
equal to the base rate multiplied by a fraction
the numerator of which is 10,335 and the de-
nominator of which is 1,000,000.
‘‘(C) IMPORTED ELECTRICITY.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the deemed Btu taxes
per kilowatt hour of electricity transmitted
into the United States shall be determined
as if such electricity were generated by hy-
dropower.
‘‘(ii) LOWER DEEMED BTU TAX MAY
BE ESTABLISHED.—If the importer estab-
lishes to the satisfaction of the Secretary
the amount which would be the deemed
Btu taxes per kilowatt hour of the elec-
tricity if the electricity were generated in
the United States, such amount shall be
used in lieu of the amount under clause (i).
1327
‘‘(D) ELECTRICITY
GENERATED
BY
RE-
NEWABLE
SOURCES.—The deemed Btu taxes
per kilowatt hour of electricity generated from
any renewable source shall be zero. For pur-
poses of the preceding sentence, the term ‘re-
newable source’ means solar energy, wind en-
ergy, any geothermal deposit, biomass, munici-
pal solid waste, and tires.
‘‘(4) SELLERS
TO
SPECIFY
DEEMED
BTU
TAXES.—
‘‘(A) IN GENERAL.—In the case of elec-
tricity which is sold other than to the ultimate
user, the seller shall certify to the purchaser the
deemed Btu taxes per kilowatt hour of the elec-
tricity sold.
‘‘(B) F AILURE TO CERTIFY.—If the seller
fails to so certify—
‘‘(i) the tax imposed by subsection (a)
shall apply to such sale at the rate speci-
fied in subparagraph (C),
‘‘(ii) the tax imposed by subsection (a)
shall apply to any subsequent sale or use
without regard to clause (i), and
‘‘(iii) the rate specified in subpara-
graph (C) shall be the deemed Btu taxes
1328
per kilowatt hour of such electricity for
purposes of determining the tax imposed
by subsection (a) on any subsequent sale
or use of such electricity.
‘‘(C) RATE.—The rate specified in this
subparagraph is, for each kilowatt hour, the
product of—
‘‘(i) the sum of the base rate and the
supplemental rate, multiplied by
‘‘(ii) a fraction the numerator of
which is 10,335 and the denominator of
which is 1,000,000.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out this subsection, including reg-
ulations—
‘‘(A) prescribing a base period to be used
by any person not in existence during the base
period, and
‘‘(B) prescribing such other modifications
to the application of this subsection as are nec-
essary to carry out the purposes of this sub-
section.
‘‘(e) EXCEPTIONS.—
1330
and the ease of administration for both taxpayers
and the Secretary.
‘‘PART III—TAX RATES
‘‘Sec. 4448. Tax rates.
‘‘SEC. 4448. TAX RATES.
‘‘(a) BASE
RATE.—For purposes of this sub-
chapter—
‘‘(1) PHASE-IN RATES.—Effective during—
‘‘(A) the 1-year period beginning on July
1, 1994, the base rate is 8.9 cents, and
‘‘(B) the 1-year period beginning on July
1, 1995, the base rate is 17.9 cents.
‘‘(2) PERMANENT
UNINDEXED
RATE.—Effec-
tive on and after July 1, 1996, the base rate is 26.8
cents.
‘‘(3) INDEXED RATES.—
‘‘(A) IN GENERAL.—Effective during any
calendar year after 1997, the base rate under
paragraph (2) shall be increased by an amount
equal to—
‘‘(i) 26.8 cents, multiplied by
‘‘(ii) the inflation adjustment for such
calendar year.
‘‘(B) I NFLATION ADJUSTMENT.—For pur-
poses of subparagraph (A), the inflation adjust-
1331
ment for any calendar year is the percentage (if
any) by which—
‘‘(i) the GDP deflator for the preced-
ing calendar year, exceeds
‘‘(ii) the GDP deflator for 1996.
‘‘(C) GDP DEFLATOR
FOR
CALENDAR
YEAR.—For purposes of subparagraph (B), the
GDP deflator for any calendar year is the GDP
deflator for the second calendar quarter of such
year.
‘‘(D) GDP DEFLATOR.—For purposes of
subparagraph (C), the term ‘GDP deflator’
means the most recent revision of the implicit
price deflator for the gross domestic product as
computed and published by the Department of
Commerce before November 15 of the calendar
year referred to in subparagraph (B)(i).
‘‘(b) SUPPLEMENTAL RATE.—For purposes of this
subchapter—
‘‘(1) PHASE-IN RATES.—Effective during—
‘‘(A) the 1-year period beginning on July
1, 1994, the supplemental rate is 11.4 cents,
and
‘‘(B) the 1-year period beginning on July
1, 1995, the supplemental rate is 22.8 cents.
1332
‘‘(2) PERMANENT
UNINDEXED
RATE.—Effec-
tive on and after July 1, 1996, the supplemental
rate is 34.2 cents.
‘‘(3) INDEXED
RATES.—Effective during any
calendar year after 1997, the supplemental rate
under paragraph (2) shall be increased by an
amount equal to—
‘‘(A) 34.2 cents, multiplied by
‘‘(B) the inflation adjustment for such cal-
endar 
year 
determined 
under 
subsection
(a)(3)(B).
‘‘(c) R OUNDING.—If any increase determined under
subsection (a)(3) or (b)(3) is not a multiple of 0.1 cent,
such increase shall be rounded to the nearest multiple of
0.1 cent.
‘‘PART IV—USE TAXES; FLOOR STOCKS TAXES;
ADMINISTRATIVE PROVISIONS; DEFINITIONS
AND SPECIAL RULES
‘‘Sec. 4451. Tax on certain uses.
‘‘Sec. 4452. Floor stocks taxes.
‘‘Sec. 4453. Administrative provisions.
‘‘Sec. 4454. Definitions and special rules.
‘‘SEC. 4451. TAX ON CERTAIN USES.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on the use of any fossil fuel—
‘‘(1) in the manufacture or production in the
United States of a fuel other than at a refinery, or
1333
‘‘(2) as a fuel.
The preceding sentence shall not apply if tax was imposed
under this subchapter before such use and such tax is not
credited or refunded.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the amount of tax imposed
by subsection (a) shall be the amount which would
be imposed under the appropriate section of part I
or II if such use were a taxable event under such
section.
‘‘(2) CRUDE OIL AND OTHER PRODUCTS NOT
TAXED
ON
REMOVAL
OR
IMPORTATION.—The
amount of the tax imposed by subsection (a) on
crude oil or other product not subject to tax under
part I or II shall be the base rate (increased by the
supplemental rate in the case of crude oil or any pe-
troleum product other than any liquefied petroleum
gas, isopentane, and natural gasoline) for each mil-
lion Btu’s of the Btu content of such oil or product.
‘‘(3) AUTHORITY TO PRESCRIBE APPLICABLE
PER UNIT BTU FACTORS.—In the case of crude oil
or any other product for which an applicable per
unit Btu factor is not prescribed for purposes of
part I or II, the Secretary may prescribe such a fac-
1334
tor, and, if so prescribed, such factor shall apply for
purposes of paragraph (2).
‘‘(c) LIABILITY FOR TAX.—The taxes imposed by
subsection (a) shall be paid by the person using the fuel.
‘‘(d) EXCEPTIONS.—
‘‘(1) I N GENERAL.—Except as provided in sub-
section (e), the tax imposed by this section shall not
apply to—
‘‘(A) any use to which section 4442, sec-
tion 4444(e), or subsection (d) or (e) of section
4445 applies, or
‘‘(B) any use of methane described in sec-
tion 4444(f)(1)(A).
‘‘(2) USE ON PRODUCTION PREMISES.—The tax
imposed by this section shall not apply to any use
of crude oil or natural gas for producing crude oil
or natural gas if—
‘‘(A) in the case of crude oil, it is used be-
fore entry at the lease automatic custody trans-
fer point (or its manual equivalent), and
‘‘(B) in the case of natural gas, it is used
before entry into an interstate or intrastate
transmission pipeline.
‘‘(3) CRUDE OIL USED AT REFINERY, ETC.—
The tax imposed by this section shall not apply to—
1335
‘‘(A) any use of crude oil at a facility at
which crude oil is refined or any use at such fa-
cility of any product produced at such facility,
‘‘(B) any use of natural gas at a natural
gas processing or fractionation plant or any use
at such plant of any product produced at such
plant, or
‘‘(C) any use of ethanol at a facility at
which ethanol is produced for use as a fuel.
‘‘(4) O THERWISE TAXABLE EVENT OCCURRING
BEFORE
EFFECTIVE
DATE.—The tax imposed by
this section shall not apply to any use if no tax
would be imposed by this section on such use were
this subchapter in effect for all periods before July
1, 1994.
‘‘(e) G ENERATION OF STEAM AND ELECTRICITY.—
‘‘(1) IN GENERAL.—In the case of a facility
which uses any taxable refined petroleum product,
natural gas, or coal—
‘‘(A) to generate electricity, and
‘‘(B) to produce steam which is used or
which is furnished or sold in the trade or busi-
ness of the furnishing or sale of steam,
the tax imposed by subsection (a) shall apply to the
use of such product, gas, or coal at such facility to
1336
the extent such use is attributable (determined on
the basis of the proportionate Btu content of the
electricity and the steam) to the production of steam
which is so used, furnished, or sold.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to steam used for any purpose if tax would not
be imposed under this subchapter on the fuel used
to produce the steam had such fuel been used di-
rectly for such purpose.
‘‘(f) TREATMENT OF NATURAL GAS LOST IN TRANS-
MISSION.—For purposes of this section, natural gas lost
in transmission by a pipeline shall be treated as used as
a fuel for such pipeline.
‘‘SEC. 4452. FLOOR STOCKS TAXES.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on any taxable fuel which on any tax-increase date
is held in the United States by any person.
‘‘(b) A MOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any taxable fuel with respect
to any tax-increase date shall be equal to the excess (if
any) of—
‘‘(1) the amount of tax which would be imposed
under part I or II if a taxable event with respect to
such fuel had occurred on such date, over
1337
‘‘(2) the prior tax (if any) imposed by this sub-
chapter on such fuel.
‘‘(c) L IABILITY FOR TAX.—The person holding the
taxable fuel on any tax-increase date shall pay the tax im-
posed by subsection (a).
‘‘(d) E XCEPTIONS.—The tax imposed by subsection
(a) shall not apply to—
‘‘(1) any taxable fuel held before the point
where it would otherwise be subject to tax under
part I or II, or
‘‘(2) any taxable fuel held by any person exclu-
sively for any use by such person to the extent a
credit or refund (or other payment) of the tax im-
posed by this section would be allowable or payable
if such tax were imposed by part I or II.
‘‘(e) CREDIT AGAINST TAX.—
‘‘(1) IN GENERAL.—Each person shall be al-
lowed $200 as a credit against the taxes imposed by
subsection (a) with respect to each tax-increase date.
Such credit shall not exceed the amount of taxes im-
posed by subsection (a) for which such person is lia-
ble with respect to such date.
‘‘(2) CONTROLLED GROUPS.—For purposes of
paragraph (1)—
1338
‘‘(A) all persons who are treated as a sin-
gle employer under subsection (a) or (b) of sec-
tion 52 shall be treated as 1 taxpayer, and
‘‘(B) the $200 amount specified in para-
graph (1) shall be apportioned among such per-
sons under regulations prescribed by the Sec-
retary.
‘‘(f) D EFINITIONS.—For purposes of this section—
‘‘(1) T AXABLE FUEL.—The term ‘taxable fuel’
means any taxable refined petroleum product, natu-
ral gas, or coal.
‘‘(2) TAX-INCREASE DATE.—The term ‘tax-in-
crease date’ means—
‘‘(A) July 1, 1994,
‘‘(B) July 1, 1995,
‘‘(C) July 1, 1996, and
‘‘(D) January 1 of each calendar year for
which there is an increase in a rate of tax by
reason of subsection (a)(3) or (b)(3) of section
4448 (relating to inflation adjustment).
‘‘(g) DUE DATE.—The tax imposed by subsection (a)
shall be paid on or before the close of the 7-month period
beginning on the tax-increase date.
1339
‘‘SEC. 4453. ADMINISTRATIVE PROVISIONS.
‘‘(a) R ULES RELATING TO REFUNDS FOR EXEMPT
AND OTHER USES.—
‘‘(1) PERIOD
FOR
FILING
CLAIMS.—No pay-
ment shall be made under section 4442, 4444(f), or
4445(e) unless, within 2 years after the date that
the event occurs giving rise to a right to such pay-
ment, a claim therefor is filed by the person entitled
to such payment.
‘‘(2) DENIAL OF INTEREST.—Except as pro-
vided in paragraph (3), no interest shall be paid on
claims for payments under section 4442, 4444(f), or
4445(e).
‘‘(3) MINIMUM
AMOUNTS
AND
PERIODS.—In
the case of persons who meet such requirements as
the Secretary may prescribe, if—
‘‘(A) a claim for payment is filed under
section 4442, 4444(f), or 4445(e) for any pe-
riod for which more than $1,000 is payable and
which is not less than 1 week, and
‘‘(B) the Secretary has not paid such claim
within 20 days after the date the claim was
filed,
such claim shall be paid with interest from such date
using the overpayment rate and method under sec-
tion 6621. The preceding sentence shall not apply to
1340
a claim filed under section 4442(b)(1). Nothing in
section 6611(e) shall bar interest payable under this
paragraph.
‘‘(4) HEATING OIL.—
‘‘(A) I N GENERAL.—Except as provided in
subparagraph (B), not more than 1 claim may
be filed under section 4442(b)(1) by any person
with respect to fuel oil sold by such person dur-
ing any calendar year.
‘‘(B) EXCEPTION.—If $1,000 or more is
payable under section 4442(b)(1) to any person
with respect to fuel oil sold during any of the
1st 3 quarters of the calendar year, a claim
may be filed under section 4442(b)(1) with re-
spect to fuel oil sold during such quarter. No
claim filed under this subparagraph shall be al-
lowed unless filed on or before the last day of
the 1st quarter following the quarter for which
the claim is filed.
‘‘(5) APPLICABLE LAWS.—
‘‘(A) I N GENERAL.—All provisions of law,
including penalties, applicable in respect of the
tax imposed by this subchapter shall, insofar as
applicable and not inconsistent with this sub-
section and section 4442, 4444(f), or 4445(e),
1341
apply in respect of payments provided for in
such section to the same extent as if such pay-
ments constituted refunds of overpayments of
the tax so imposed.
‘‘(B) EXAMINATION OF BOOKS AND WIT-
NESSES.—For the purpose of ascertaining the
correctness of any claim made under section
4442, 4444(f), or 4445(e), or the correctness of
any payment made in respect of such claim, the
Secretary shall have the authority granted by
paragraphs (1), (2), and (3) of section 7602(a)
(relating to examination of books and wit-
nesses) as if the claimant were the person liable
for tax.
‘‘(b) P AYMENT OF TAX TO PERSONS REQUIRED TO
COLLECT TAX.—
‘‘(1) P AYMENT WITHIN 30 DAYS.—In the case
of the taxes imposed by sections 4444 and 4446
which are required to be collected by another person,
the person liable for such tax shall remit the tax to
such other person within 30 days after the date of
the taxable event.
‘‘(2) RELIEF
FROM
PENALTY
FOR
CERTAIN
FAILURES TO COLLECT TAX.—No penalty shall be
1342
imposed under this title on the failure of any person
to collect the taxes referred to in paragraph (1) if—
‘‘(A) during the 30-day period referred to
in paragraph (1), such person exercises due dili-
gence in attempting to collect such tax, and
‘‘(B) such person notifies the Secretary,
within 15 days after the close of the month in
which such 30-day period ends, of the failure to
collect such tax and provides such other infor-
mation as the Secretary may require.
‘‘(3) E XCEPTION FOR PERSONS WITH SECOND-
ARY LIABILITY.—Paragraphs (1) and (2) shall not
apply if the person required to collect the tax is re-
quired to pay any portion of such tax which is not
paid by the person primarily liable for such tax.
‘‘(c) INFORMATION REPORTING.—The Secretary may
require—
‘‘(1) information reporting by each remitter of
tax imposed by this subchapter, and
‘‘(2) information reporting by, and registration
of, such other persons as the Secretary deems nec-
essary to carry out this subchapter.
‘‘(d) REGISTRATION.—
‘‘(1) IN GENERAL.—Every person required by
the Secretary to register under this subsection with
1343
respect to any tax imposed by this subchapter shall
register with the Secretary at such time, in such
form and manner, and subject to such terms and
conditions, as the Secretary may by regulations pre-
scribe. A registration under this subsection may be
used only in accordance with regulations prescribed
under this section.
‘‘(2) OTHER RULES.—Rules similar to the rules
of section 4101(b) and 4222(c) shall apply for pur-
poses of this subsection.
‘‘(e) A DJUSTMENTS TO PER UNIT BTU FACTORS.—
‘‘(1) IN GENERAL.—If the Secretary determines
that the applicable per unit Btu factor then in effect
for any taxable refined petroleum product or natural
gas does not, when multiplied by 1,000,000, properly
reflect the Btu content per unit for such substance
(in the circumstances where taxable events under
this subchapter occur with respect to such sub-
stance), the Secretary may modify the applicable per
unit Btu factor for such substance. Any such modi-
fication shall be effective as of the date prescribed
by the Secretary.
‘‘(2) M ODIFICATION OF LIST OF REFINED PE-
TROLEUM PRODUCTS.—The Secretary may modify,
as appropriate, the list of refined petroleum products
1344
in section 4441 for which applicable per unit Btu
factors are separately determined.
‘‘SEC. 4454. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) FOSSIL
FUEL.—The term ‘fossil fuel’
means crude oil, any petroleum product, natural gas,
any natural gas product, and coal.
‘‘(2) CRUDE OIL.—The term ‘crude oil’ includes
condensates from crude oil.
‘‘(3) COAL.—The term ‘coal’ includes lignite.
‘‘(4) UNITED
STATES.—The term ‘United
States’ means the 50 States, the District of Colum-
bia, and the foreign trade zones of the United
States.
‘‘(5) P ERSON.—The term ‘person’ includes the
United States, any State or political subdivision
thereof, the District of Columbia, and any agency or
instrumentality of any of the foregoing.
‘‘(c) F RACTIONAL PART OF UNIT.—In the case of a
fraction of a unit, the tax imposed by this subchapter shall
be the same fraction of the amount of such tax imposed
on a whole unit.
‘‘(d) S PECIAL RULES RELATING TO PUERTO RICO
AND THE VIRGIN ISLANDS.—
1345
‘‘(1) LIKE TAX ON ARTICLES BROUGHT INTO
THE UNITED STATES FROM PUERTO RICO OR THE
VIRGIN ISLANDS.—For purposes of this subchapter,
articles brought into the United States from the
Commonwealth of Puerto Rico or the Virgin Islands
shall be treated as entered into the United States at
the time brought into the United States.
‘‘(2) DISPOSITION OF REVENUES.—The provi-
sions of subsections (a)(3) and (b)(3) of section
7652 shall not apply to any tax imposed by this sub-
chapter.
‘‘(e) N O EXEMPTION FROM TAX.—No person shall
be exempt from any tax imposed by this subchapter except
to the extent provided in this subchapter or in any provi-
sion of law enacted after the date of the enactment of this
subchapter which grants a specific exemption, by reference
to this subchapter, from a tax imposed by this subchapter.
‘‘PART V—TAX ON IMPORTED HIGH-ENERGY
PRODUCTS
‘‘Sec. 4456. Imposition of tax.
‘‘Sec. 4457. Definitions and special rules.
‘‘SEC. 4456. IMPOSITION OF TAX.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on any taxable high-energy product entered into the
United States for consumption, use, or warehousing.
1346
‘‘(b) A MOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any taxable high-energy prod-
uct shall be the imputed Btu tax with respect to such
product.
‘‘(c) LIABILITY FOR TAX.—The tax imposed by sub-
section (a) shall be paid by the person entering the prod-
uct for consumption, use, or warehousing.
‘‘SEC. 4457. DEFINITIONS AND SPECIAL RULES.
‘‘(a) T AXABLE HIGH-ENERGY PRODUCT.—For pur-
poses of this part—
‘‘(1) I N GENERAL.—The term ‘taxable high-en-
ergy product’ means any product which, at the time
entered into the United States for consumption, use,
or warehousing, is listed as a taxable high-energy
product by the Secretary.
‘‘(2) 
DETERMINATION
OF
PRODUCTS
ON
LIST.—A product shall be listed under paragraph
(1) if the product is produced in an industry identi-
fied (using 4-digit SIC codes) in the most recent
census of manufacturing as producing products
which on average have more than 2 percent of their
value attributable to direct energy inputs (exclusive
of the tax imposed by parts I and II) of taxable en-
ergy sources.
1347
‘‘(3) TAXABLE
ENERGY
SOURCE.—The term
‘taxable energy source’ means any taxable refined
petroleum product, natural gas, coal, and electricity.
‘‘(b) IMPUTED BTU TAX.—For purposes of this
part—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘imputed Btu tax’
means, with respect to any taxable high-energy prod-
uct, the amount of tax which would have been im-
posed by parts I and II on taxable energy sources
directly used in the manufacture or production of
the product if—
‘‘(A) such product were manufactured or
produced using the predominant method of
manufacture or production of such product in
the United States, and
‘‘(B) such taxable energy sources had been
subject to tax under such parts on the date of
the entry of the product into the United States
for consumption, use, or warehousing.
‘‘(2) T AX WHERE INFORMATION FURNISHED.—
If the person liable for the tax imposed by section
4456 with respect to any product furnishes to the
Secretary (at such time and in such manner as the
Secretary shall prescribe) sufficient information to
1348
determine the imputed Btu tax with respect to such
product, the imputed Btu tax determined using such
information shall apply in lieu of the amount deter-
mined under paragraph (1).
‘‘(c) REQUESTS TO CHANGE LIST.—If any importer
or producer of any product requests that the Secretary
determine whether—
‘‘(1) such product should be listed as a taxable
high-energy product under subsection (a)(1) or be
removed from such listing, or
‘‘(2) the imputed Btu tax for such product
under subsection (b)(1),
the Secretary shall make such determination within 180
days after the date the request was filed.’’
(b) R EFUNDS FOR FARM USE OF GASOLINE AND
DIESEL FUEL.—
(1) GASOLINE.—
(A) Subsection (a) of section 6420 is
amended by adding at the end thereof the fol-
lowing new flush sentence:
‘‘If the supplemental rate of the tax imposed by section
4441 was imposed on such gasoline, the Secretary shall
also pay (without interest) to such ultimate purchaser an
amount equal to the product of such supplemental rate
1349
and the applicable per unit Btu factor per barrel (deter-
mined under section 4441) of the gasoline so used.’’
(B) Subsection (h) of section 6420 is
amended by inserting ‘‘and taxes imposed by
section 4441’’ after ‘‘financing rate’’.
(2) DIESEL FUEL.—
(A) Section 6427 is amended by redesig-
nating subsections (m) through (r) as sub-
sections (n) through (s), respectively, and by in-
serting after subsection (l) the following new
subsection:
‘‘(m) R EFUNDS OF SUPPLEMENTAL RATE OF BTU
TAX ON FARM USE OF DIESEL FUEL.—Except as pro-
vided in subsection (k), if the supplemental rate of the
tax imposed by section 4441 was imposed on diesel fuel
used on a farm for farming purposes (within the meaning
of section 6420(c)), the Secretary shall pay (without inter-
est) to the ultimate purchaser of such fuel an amount
equal to the product of such supplemental rate and the
applicable per unit Btu factor per barrel (determined
under section 4441) of the diesel fuel so used.’’
(B) Paragraph (1) of section 6427(i) is
amended by inserting ‘‘(m),’’ after ‘‘(l),’’.
(C) Paragraph (4) of section 6427(i), as
amended by subpart B, is amended—
1350
(i) by striking ‘‘OR 4091’’ in the para-
graph heading and inserting ‘‘, 4091, OR
4441’’, and
(ii) by striking ‘‘subsection (l)’’ each
place it appears and inserting ‘‘subsections
(l) and (m)’’.
(c) CIVIL PENALTY FOR USING REDUCED-RATE
FUEL FOR TAXABLE USE.—
(1) I N GENERAL.—Part I of subchapter B of
chapter 68 (relating to assessable penalties) is
amended by adding at the end thereof the following
new section:
‘‘SEC. 6714. DYED FUEL SOLD FOR USE OR USED IN TAX-
ABLE USE.
‘‘(a) I MPOSITION OF PENALTY.—If any dyed fuel—
‘‘(1) is sold by any person for any use which
such person knows or has reason to know is not a
reduced-tax use of such fuel, or
‘‘(2) is used by any person for a use other than
a reduced-tax use and such person knew, or had rea-
son to know, that such fuel was so dyed,
then, in addition to the tax, such person shall pay a pen-
alty on such sale or use.
1351
‘‘(b) AMOUNT OF PENALTY.—The amount of the
penalty under subsection (a) on any sale or use shall be
the greater of—
‘‘(1) $1,000, or
‘‘(2) an amount equal to twice the excess of the
aggregate taxes which should have been imposed
under section 4441 on the fuel so sold or used over
the prior taxes (if any) imposed on such fuel under
such section which have not been credited or re-
funded.
‘‘(c) D EFINITIONS.—For purposes of this section—
‘‘(1) DYED
FUEL.—The term ‘dyed fuel’
means—
‘‘(A) qualified heating oil (as defined in
section 4441(b)(2)(B)), and
‘‘(B) diesel fuel dyed in accordance with
section 4441(b)(2)(C).
‘‘(2) REDUCED-TAX USE.—The term ‘reduced-
tax use’ means, with respect to any fuel, the use for
which such fuel was dyed.’’
(2) C LERICAL AMENDMENT.—The table of sec-
tions for such part I is amended by adding at the
end thereof the following new item:
‘‘Sec. 6714. Dyed fuel sold for use or used in taxable use.’’
(d) TECHNICAL AMENDMENTS.—
1352
(1)(A) Subsection (a) of section 6675 is amend-
ed by inserting ‘‘section 4442 (relating to refunds of
petroleum tax for certain sales and uses), section
4444(f) (relating to methane recovered from biomass
or coal mining), section 4445(e) (relating to coal
used in production of coke for steel),’’ before ‘‘sec-
tion 6420’’.
(B) Subsection (b) of section 6675 is amended
by inserting ‘‘4442, 4444(f), 4445(e),’’ before
‘‘6420’’.
(2) Section 6206 is amended—
(A) by inserting ‘‘(a) FUEL TAXES.—’’ be-
fore ‘‘Any portion of’’, and
(B) by adding at the end thereof the fol-
lowing new subsection:
‘‘(b) B TU TAXES.—Any portion of a payment made
under section 4442, 4444(f), or 4445(e) which constitutes
an excessive amount (as defined in section 6675(b)), and
any civil penalty provided by section 6675, may be as-
sessed and collected as if it were a tax imposed by sub-
chapter A of chapter 36 and as if the person who made
the claim were liable for such tax. The period for assessing
any such portion, and for assessing any such penalty, shall
be 3 years from the last day prescribed for filing a claim
under section 4442, 4444(f), or 4445(e).’’
1353
(3)(A) The section heading for section 6206 is
amended by striking ‘‘UNDER SECTIONS 6420, 6421,
and 6427’’ and inserting ‘‘FOR CERTAIN FUELS TAX
REFUNDS AND ENERGY TAX REFUNDS’’.
(B) The item relating to section 6206 in the
table of sections for subchapter A of chapter 63 is
amended by striking ‘‘under sections 6420, 6421,
and 6427’’ and inserting ‘‘for certain fuels tax re-
funds and energy tax refunds’’.
(4) Subparagraph (B) of section 6724(d)(1) is
amended—
(A) by striking ‘‘or’’ at the end of clause
(xi),
(B) by striking the period at the end of the
clause (xii) relating to section 4101(d) and in-
serting a comma,
(C) by redesignating the clause (xii) relat-
ing to section 338(h)(10)(C) as clause (xiii) and
by striking the period at the end thereof and in-
serting ‘‘, or’’, and
(D) by inserting after clause (xiii), as so
redesignated, the following new clause:
‘‘(xiv) section 4453(c) (relating to in-
formation reporting with respect to energy
taxes).’’
1354
(5) Sections 7210, section 7603, subsections (b)
and (c)(2) of section 7604, section 7605, and
7610(c) 
are 
each 
amended 
by 
inserting
‘‘4453(a)(5)(B),’’ before ‘‘6420(e)(2)’’ each place it
appears.
(6) Subparagraph (A) of section 9505(c)(3) is
amended by striking ‘‘subchapter A’’ and inserting
‘‘subchapter B’’.
(7) The table of subchapters for chapter 36 is
amended by striking the items relating to sub-
chapters A and B and inserting the following:
‘‘Subchapter A. Energy taxes.
‘‘Subchapter B. Harbor maintenance tax.
‘‘Subchapter C. Transportation by water.’’
(e) E FFECTIVE DATE.—The amendments made by
this section shall take effect on July 1, 1994.
Subpart B—Modifications to Tax on Diesel Fuel
SEC. 14242. MODIFICATIONS TO TAX ON DIESEL FUEL.
(a) I N GENERAL.—Subparts A and B of part III of
subchapter A of chapter 32 (relating to manufacturers ex-
cise taxes) are amended to read as follows:
‘‘Subpart A—Gasoline and Diesel Fuel
‘‘Sec. 4081. Imposition of tax.
‘‘Sec. 4082. Exemptions for diesel fuel.
‘‘Sec. 4083. Definitions and special rule.
‘‘Sec. 4084. Cross references.
‘‘SEC. 4081. IMPOSITION OF TAX.
‘‘(a) TAX IMPOSED.—
1355
‘‘(1) TAX ON REMOVAL, ENTRY, OR SALE.—
‘‘(A) IN GENERAL.—There is hereby im-
posed a tax at the rate specified in paragraph
(2) on—
‘‘(i) the removal of a taxable fuel from
any refinery,
‘‘(ii) the removal of a taxable fuel
from any terminal,
‘‘(iii) the entry into the United States
of any taxable fuel for consumption, use,
or warehousing, and
‘‘(iv) the sale of a taxable fuel to any
person who is not registered under section
4101 unless there was a prior taxable re-
moval or entry of such fuel under clause
(i), (ii), or (iii).
‘‘(B) EXEMPTION FOR BULK TRANSFERS
TO REGISTERED TERMINALS.—The tax imposed
by this paragraph shall not apply to any re-
moval or entry of a taxable fuel transferred in
bulk to a terminal if the person removing or en-
tering the taxable fuel and the operator of such
terminal are registered under section 4101.
‘‘(2) RATES OF TAX.—
1356
‘‘(A) IN GENERAL.—The rate of the tax
imposed by this section is the sum of—
‘‘(i) the Highway Trust Fund financ-
ing rate,
‘‘(ii) the Leaking Underground Stor-
age Tank Trust Fund financing rate, and
‘‘(iii) the deficit reduction rate.
‘‘(B) RATES.—For purposes of subpara-
graph (A)—
‘‘(i) the Highway Trust Fund financ-
ing rate is—
‘‘(I) 11.5 cents per gallon in the
case of gasoline, and
‘‘(II) 17.5 cents per gallon in the
case of diesel fuel,
‘‘(ii) the Leaking Underground Stor-
age Tank Trust Fund financing rate is 0.1
cent per gallon, and
‘‘(iii) the deficit reduction rate is 2.5
cents per gallon.
‘‘(b) TREATMENT OF REMOVAL OR SUBSEQUENT
SALE BY BLENDER.—
‘‘(1) I N GENERAL.—There is hereby imposed a
tax at the rate specified in subsection (a) on taxable
fuel removed or sold by the blender thereof.
1357
‘‘(2) CREDIT FOR TAX PREVIOUSLY PAID.—If—
‘‘(A) tax is imposed on the removal or sale
of a taxable fuel by reason of paragraph (1),
and
‘‘(B) the blender establishes the amount of
the tax paid with respect to such fuel by reason
of subsection (a),
the amount of the tax so paid shall be allowed as a
credit against the tax imposed by reason of para-
graph (1).
‘‘(c) TAXABLE FUELS MIXED WITH ALCOHOL AT
REFINERY, ETC.—
‘‘(1) REDUCED RATES.—
‘‘(A) IN
GENERAL.—Under regulations
prescribed by the Secretary, subsection (a) shall
be applied by substituting rates which are the
applicable fraction of the otherwise applicable
rates in the case of the removal or entry of any
taxable fuel for use in producing at the time of
such removal or entry a qualified alcohol mix-
ture. Subject to such terms and conditions as
the Secretary may prescribe (including the ap-
plication of section 4101), the treatment under
the preceding sentence also shall apply to use in
1358
producing such a mixture after the time of such
removal or entry.
‘‘(B) APPLICABLE
FRACTION.—For pur-
poses of subparagraph (A), the applicable frac-
tion is—
‘‘(i) in the case of a qualified alcohol
mixture which contains gasoline, the frac-
tion the numerator of which is 10 and the
denominator of which is—
‘‘(I) 9 in the case of 10 percent
gasohol,
‘‘(II) 9.23 in the case of 7.7 per-
cent gasohol, and
‘‘(III) 9.43 in the case of 5.7 per-
cent gasohol, and
‘‘(ii) in the case of a qualified alcohol
mixture which does not contain gasoline,
10⁄9.
‘‘(2) LATER
SEPARATION
OF
FUEL
FROM
QUALIFIED ALCOHOL MIXTURE.—If any person sep-
arates the taxable fuel from a qualified alcohol mix-
ture on which tax was imposed under subsection (a)
at the otherwise applicable Highway Trust Fund fi-
nancing rate (or its equivalent) by reason of this
subsection (or with respect to which a credit or pay-
1359
ment was allowed or made by reason of section
6427(f)(1)), such person shall be treated as the re-
finer of such taxable fuel. The amount of tax im-
posed on any removal of such fuel by such person
shall be reduced by the amount of tax imposed (and
not credited or refunded) on any prior removal or
entry of such fuel.
‘‘(3) ALCOHOL; 
QUALIFIED
ALCOHOL
MIX-
TURE.—For purposes of this subsection—
‘‘(A) ALCOHOL.—The term ‘alcohol’ in-
cludes methanol and ethanol but does not in-
clude alcohol produced from petroleum, natural
gas, or coal (including peat). Such term does
not include alcohol with a proof of less than
190 (determined without regard to any added
denaturants).
‘‘(B) QUALIFIED
ALCOHOL
MIXTURE.—
The term ‘qualified alcohol mixture’ means—
‘‘(i) any mixture of gasoline with alco-
hol if at least 5.7 percent of such mixture
is alcohol, and
‘‘(ii) any mixture of diesel fuel with
alcohol if at least 10 percent of such mix-
ture is alcohol.
1360
‘‘(4) O THERWISE APPLICABLE RATES FOR GAS-
OLINE
MIXTURES.—For purposes of this sub-
section—
‘‘(A) IN
GENERAL.—In the case of the
Highway Trust Fund financing rate, the other-
wise applicable rate for gasoline in a qualified
alcohol mixture is—
‘‘(i) 6.1 cents a gallon for 10 percent
gasohol,
‘‘(ii) 7.342 cents a gallon for 7.7 per-
cent gasohol, and
‘‘(iii) 8.422 cents a gallon for 5.7 per-
cent gasohol.
In the case of a mixture none of the alcohol in
which consists of ethanol, clauses (i), (ii), and
(iii) shall be applied by substituting ‘5.5 cents’
for ‘6.1 cents’, ‘6.88 cents’ for ‘7.342 cents’,
and ‘8.08 cents’ for ‘8.422 cents’.
‘‘(B) 10 PERCENT GASOHOL.—The term
‘10 percent gasohol’ means any mixture of gas-
oline with alcohol if at least 10 percent of such
mixture is alcohol.
‘‘(C) 7.7 PERCENT GASOHOL.—The term
‘7.7 percent gasohol’ means any mixture of gas-
oline with alcohol if at least 7.7 percent, but
1361
not 10 percent or more, of such mixture is alco-
hol.
‘‘(D) 5.7 PERCENT GASOHOL.—The term
‘5.7 percent gasohol’ means any mixture of gas-
oline with alcohol if at least 5.7 percent, but
not 7.7 percent or more, of such mixture is al-
cohol.
‘‘(5) O THERWISE APPLICABLE RATES FOR DIE-
SEL FUEL MIXTURES.—For purposes of this sub-
section, in the case of the Highway Trust Fund fi-
nancing rate, the otherwise applicable rate for diesel
fuel in a qualified alcohol mixture is 12.1 cents per
gallon (11.5 cents per gallon in the case of a quali-
fied alcohol mixture none of the alcohol in which
consists of ethanol).
‘‘(6) TERMINATION.—Paragraph (1) shall not
apply to any removal or sale after September 30,
2000.
‘‘(d) TERMINATION.—
‘‘(1) 
HIGHWAY
TRUST
FUND
FINANCING
RATE.—On and after October 1, 1999, the Highway
Trust Fund financing rate under subsection (a)(2)
shall not apply.
‘‘(2) LEAKING UNDERGROUND STORAGE TANK
TRUST FUND FINANCING RATE.—The Leaking Un-
1362
derground Storage Tank Trust Fund financing rate
under subsection (a)(2) shall not apply after Decem-
ber 31, 1995.
‘‘(3) DEFICIT REDUCTION RATE.—On and after
October 1, 1995, the deficit reduction rate under
subsection (a)(2) shall not apply.
‘‘(e) R EFUNDS IN CERTAIN CASES.—Under regula-
tions prescribed by the Secretary, if any person who paid
the tax imposed by this section with respect to any taxable
fuel establishes to the satisfaction of the Secretary that
a prior tax was paid (and not credited or refunded) with
respect to such taxable fuel, then an amount equal to the
tax paid by such person shall be allowed as a refund (with-
out interest) to such person in the same manner as if it
were an overpayment of tax imposed by this section.
‘‘SEC. 4082. EXEMPTIONS FOR DIESEL FUEL.
‘‘(a) IN GENERAL.—The tax imposed by section 4081
shall not apply to diesel fuel—
‘‘(1) which the Secretary determines is destined
for a nontaxable use,
‘‘(2) which is indelibly dyed in accordance with
regulations which the Secretary shall prescribe, and
‘‘(3) which meets such marking requirements
(if any) as may be prescribed by the Secretary in
regulations.
1363
‘‘(b) N ONTAXABLE USE.—For purposes of this sec-
tion, the term ‘nontaxable use’ means—
‘‘(1) any use which is exempt from the tax im-
posed by section 4041(a)(1) other than by reason of
the imposition of tax on any sale thereof,
‘‘(2) any use in a train, and
‘‘(3) any use described in section 6427(b)(1).
‘‘(c) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out this
section, including regulations requiring the conspicuous la-
beling of retail diesel fuel pumps and other delivery facili-
ties to assure that persons are aware of which fuel is avail-
able only for nontaxable uses.
‘‘(d) CROSS REFERENCE.—
‘‘For tax on train, motorboat, and certain bus uses
of fuel purchased tax-free, see section 4041(a)(1).
‘‘SEC. 4083. DEFINITIONS AND SPECIAL RULE.
‘‘(a) TAXABLE FUEL.—For purposes of this sub-
part—
‘‘(1) IN
GENERAL.—The term ‘taxable fuel’
means—
‘‘(A) gasoline, and
‘‘(B) diesel fuel.
‘‘(2) G ASOLINE.—The term ‘gasoline’ includes,
to the extent prescribed in regulations—
‘‘(A) gasoline blend stocks, and
1364
‘‘(B) products commonly used as additives
in gasoline.
For purposes of subparagraph (A), the term ‘gaso-
line blend stock’ means any petroleum product com-
ponent of gasoline.
‘‘(3) DIESEL
FUEL.—The term ‘diesel fuel’
means any liquid (other than gasoline) which is suit-
able for use as a fuel in a diesel-powered highway
vehicle, a diesel-powered train, or a diesel-powered
boat.
‘‘(b) CERTAIN USES DEFINED AS REMOVAL.—If any
person uses taxable fuel (other than in the production of
gasoline, diesel fuel, or special fuels referred to in section
4041), such use shall for the purposes of this chapter be
considered a removal.
‘‘SEC. 4084. CROSS REFERENCES.
‘‘(1) For provisions to relieve farmers from excise
tax in the case of gasoline used on the farm for
farming purposes, see section 6420.
‘‘(2) For provisions to relieve purchasers of gaso-
line from excise tax in the case of gasoline used for
certain nonhighway purposes, used by local transit
systems, or sold for certain exempt purposes, see
section 6421.
‘‘(3) For provisions to relieve purchasers from ex-
cise tax in the case of taxable fuel not used for tax-
able purposes, see section 6427.
‘‘Subpart B—Aviation Fuel
‘‘Sec. 4091. Imposition of tax.
‘‘Sec. 4092. Exemptions.
‘‘Sec. 4093. Definitions.
1365
‘‘SEC. 4091. IMPOSITION OF TAX.
‘‘(a) I N GENERAL.—There is hereby imposed a tax
on the sale of aviation fuel by the producer or the importer
thereof or by any producer of aviation fuel.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—The rate of the tax im-
posed by subsection (a) shall be the sum of—
‘‘(A) the Airport and Airway Trust Fund
financing rate, and
‘‘(B) the Leaking Underground Storage
Tank Trust Fund financing rate.
‘‘(2) AIRPORT AND AIRWAY TRUST FUND FI-
NANCING RATE.—For purposes of paragraph (1),
the Airport and Airway Trust Fund financing rate
is 17.5 cents per gallon.
‘‘(3) LEAKING UNDERGROUND STORAGE TANK
TRUST FUND FINANCING RATE.—For purposes of
paragraph (1), the Leaking Underground Storage
Tank Trust Fund financing rate is 0.1 cent per gal-
lon.
‘‘(4) TERMINATION OF RATES.—
‘‘(A) The Airport and Airway Trust Fund
financing rate shall not apply on and after Jan-
uary 1, 1996.
‘‘(B) The Leaking Underground Storage
Tank Fund financing rate shall not apply dur-
1366
ing any period during which the Leaking Un-
derground Storage Tank Trust Fund financing
rate under section 4081 does not apply.
‘‘(c) R EDUCED RATE OF TAX FOR AVIATION FUEL
IN ALCOHOL MIXTURE, ETC.—
‘‘(1) IN GENERAL.—The Airport and Airway
Trust Fund financing rate shall be—
‘‘(A) 4.1 cents per gallon in the case of the
sale of any mixture of aviation fuel if—
‘‘(i) at least 10 percent of such mix-
ture consists of alcohol (as defined in sec-
tion 4081(c)(3)), and
‘‘(ii) the aviation fuel in such mixture
was not taxed under subparagraph (B),
and
‘‘(B) 4.56 cents per gallon in the case of
the sale of aviation fuel for use (at the time of
such sale) in producing a mixture described in
subparagraph (A).
In the case of a sale described in subparagraph (B),
the Leaking Underground Storage Tank Trust Fund
financing rate shall be 1⁄9 cent per gallon.
‘‘(2) L ATER SEPARATION.—If any person sepa-
rates the aviation fuel from a mixture of the aviation
fuel and alcohol on which tax was imposed under
1367
subsection (a) at the Airport and Airway Trust
Fund financing rate equivalent to 4.1 cents per gal-
lon by reason of this subsection (or with respect to
which a credit or payment was allowed or made by
reason of section 6427(f)(1)), such person shall be
treated as the producer of such aviation fuel. The
amount of tax imposed on any sale of such aviation
fuel by such person shall be reduced by the amount
of tax imposed (and not credited or refunded) on
any prior sale of such fuel.
‘‘(3) TERMINATION.—Paragraph (1) shall not
apply to any sale after September 30, 2000.
‘‘(d) LOWER RATES OF TAX ON ALCOHOL MIXTURES
NOT MADE FROM ETHANOL.—In the case of a mixture
described in subsection (c)(1)(A)(i) none of the alcohol in
which is ethanol—
‘‘(1) subsections (c)(1)(A) and (c)(2) shall each
be applied by substituting rates which are 0.6 cents
less than the rates contained therein, and
‘‘(2) subsection (c)(1)(B) shall be applied by
substituting rates which are 10⁄9 of the rates deter-
mined under paragraph (1).
‘‘SEC. 4092. EXEMPTIONS.
‘‘(a) N ONTAXABLE USES.—The Airport and Airway
Trust Fund financing rate under section 4091 shall not
1368
apply to aviation fuel sold by a producer or importer for
use by the purchaser in a nontaxable use (as defined in
section 6427(l)(2)(B)).
‘‘(b) S ALES TO PRODUCER.—Under regulations pre-
scribed by the Secretary, the tax imposed by section 4091
shall not apply to aviation fuel sold to a producer of such
fuel.
‘‘(c) SUPPLIES
FOR VESSELS
AND AIRCRAFT.—
Under regulations prescribed by the Secretary, the Leak-
ing Underground Storage Tank Trust Fund financing rate
under section 4091 shall not apply to aviation fuel sold
for use or used as supplies for vessels or aircraft (within
the meaning of section 4221(d)(3)).
‘‘SEC. 4093. DEFINITIONS.
‘‘(a) AVIATION FUEL.—For purposes of this subpart,
the term ‘aviation fuel’ means any liquid (other than any
product taxable under section 4081) which is suitable for
use as a fuel in an aircraft.
‘‘(b) PRODUCER.—For purposes of this subpart—
‘‘(1) C ERTAIN PERSONS TREATED AS PRODUC-
ERS.—
‘‘(A) IN GENERAL.—The term ‘producer’
includes any person described in subparagraph
(B) and registered under section 4101 with re-
spect to the tax imposed by section 4091.
1369
‘‘(B) PERSONS DESCRIBED.—A person is
described in this subparagraph if such person
is—
‘‘(i) a refiner, blender, or wholesale
distributor of aviation fuel, or
‘‘(ii) a dealer selling aviation fuel ex-
clusively to producers of aviation fuel.
‘‘(C) REDUCED RATE PURCHASERS TREAT-
ED AS PRODUCERS.—Any person to whom avia-
tion fuel is sold at a reduced rate under this
subpart shall be treated as the producer of such
fuel.
‘‘(2) WHOLESALE DISTRIBUTOR.—For purposes
of paragraph (1), the term ‘wholesale distributor’ in-
cludes any person who sells aviation fuel to produc-
ers, retailers, or to users who purchase in bulk quan-
tities and deliver into bulk storage tanks. Such term
does not include any person who (excluding the term
‘wholesale distributor’ from paragraph (1)) is a pro-
ducer or importer.’’
(b) CIVIL PENALTY FOR USING REDUCED-RATE
FUEL FOR TAXABLE USE.—
(1) Paragraph (1) of section 6714(c), as added
by subpart A, is amended by striking ‘‘and’’ at the
end of subparagraph (A), by striking the period at
1370
the end of subparagraph (B) and inserting ‘‘, and’’,
and by adding at the end thereof the following new
subparagraph:
‘‘(C) diesel fuel dyed in accordance with
section 4082.’’
(2) Paragraph (2) of section 6714(b), as added
by subpart A, is amended by striking ‘‘section 4441’’
and inserting ‘‘sections 4081 and 4441’’ and by
striking ‘‘such section’’ and inserting ‘‘such sec-
tions’’.
(c) T ECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 40 is amended by
striking ‘‘, section 4081(c), or section 4091(c)’’ and
inserting ‘‘or section 4081(c)’’.
(2) Subsection (a) of section 4101 is amended
by striking ‘‘4081’’ and inserting ‘‘4041(a)(1),
4081,’’.
(3) Section 4102 is amended by striking ‘‘gaso-
line’’ and inserting ‘‘any taxable fuel (as defined in
section 4083)’’.
(4) Paragraph (1) of section 4041(a) is amend-
ed to read as follows:
‘‘(1) TAX
ON
DIESEL
FUEL
IN
CERTAIN
CASES.—
1371
‘‘(A) IN GENERAL.—There is hereby im-
posed a tax on any liquid other than gasoline
(as defined in section 4083)—
‘‘(i) sold by any person to an owner,
lessee, or other operator of a diesel-pow-
ered highway vehicle, a diesel-powered
train, or a diesel-powered boat for use as
a fuel in such vehicle, train, or boat, or
‘‘(ii) used by any person as a fuel in
a diesel-powered highway vehicle, a diesel-
powered train, or a diesel-powered boat un-
less there was a taxable sale of such fuel
under clause (i).
‘‘(B) E XEMPTION FOR PREVIOUSLY TAXED
FUEL.—No tax shall be imposed by this para-
graph on the sale or use of diesel fuel if there
was a taxable sale of such fuel under section
4081 and the tax thereon was not credited or
refunded.
‘‘(C) RATE OF TAX.—
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the
rate of the tax imposed by this paragraph
shall be the sum of the Highway Trust
Fund financing rate on diesel fuel and the
1372
deficit reduction rate in effect under sec-
tion 4081 at the time of such sale or use.
‘‘(ii) HIGHWAY RATE NOT TO APPLY
TO TRAINS.—The Highway Trust Fund fi-
nancing rate shall not apply to any sale for
use, or use, of fuel in a train.
‘‘(iii) CERTAIN BUS USES.—If the lim-
itation in section 6427(b)(2)(A) applies to
fuel sold for use or used in an automobile
bus, the Highway Trust Fund financing
rate shall be 3 cents per gallon and the
deficit reduction rate shall not apply.’’
(5) Paragraph (2) of section 4041(a) is amend-
ed by striking ‘‘or paragraph (1) of this subsection’’
and by inserting ‘‘on gasoline’’ after ‘‘Highway
Trust Fund financing rate’’.
(6) Paragraph (2) of section 4041(c) is amend-
ed by striking ‘‘any product taxable under section
4081’’ and inserting ‘‘gasoline (as defined in section
4083)’’.
(7) Paragraph (2) of section 4041(d) is amend-
ed—
(A) by striking ‘‘(other than a product tax-
able under section 4081)’’ and inserting ‘‘(other
1373
than gasoline (as defined in section 4083))’’,
and
(B) by striking ‘‘section 4091’’ and insert-
ing ‘‘section 4081’’.
(8) Paragraph (3) of section 4041(d) is amend-
ed by striking ‘‘(other than any product taxable
under section 4081)’’ and inserting ‘‘(other than
gasoline (as defined in section 4083))’’.
(9) Subparagraph (A) of section 4041(k)(1) is
amended by striking ‘‘sections 4081(c) and 4091(c),
as the case may be’’ and inserting ‘‘section
4081(c)’’.
(10) Subparagraph (B) of section 4041(m)(1)
is amended by striking ‘‘section 4091(d)(1)’’ and in-
serting ‘‘section 4091(c)(1)’’.
(11) Section 6206 is amended by striking
‘‘4041 or 4091’’ and inserting ‘‘4041, 4081, or
4091’’.
(12) Paragraph (1) of section 6302(f) is
amended by inserting ‘‘on gasoline’’ after ‘‘section
4081’’ and after ‘‘such tax’’.
(13) Paragraph (1) of section 6412(a) is
amended by striking ‘‘gasoline’’ each place it ap-
pears (including the heading) and inserting ‘‘taxable
fuel’’.
1394
‘‘(B) which is held in connection with the
conduct of a trade or business or an activity de-
scribed in section 212.
‘‘(2) EXCLUSION OF SELF-CREATED INTANGI-
BLES, ETC.—The term ‘amortizable section 197 in-
tangible’ shall not include any section 197 intangi-
ble—
‘‘(A) which is not described in subpara-
graph (D), (E), or (F) of subsection (d)(1), and
‘‘(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is
created in connection with a transaction (or series of
related transactions) involving the acquisition of as-
sets constituting a trade or business or substantial
portion thereof.
‘‘(3) ANTI-CHURNING RULES.—
‘‘For exclusion of intangibles acquired in certain
transactions, see subsection (f)(9).
‘‘(d) SECTION 197 I NTANGIBLE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘section 197 intangi-
ble’ means—
‘‘(A) goodwill,
‘‘(B) going concern value,
‘‘(C) any of the following intangible items:
1424
(b) E FFECTIVE DATE.—The amendment made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
SEC. 14275. INCREASE IN WITHHOLDING FROM SUPPLE-
MENTAL WAGE PAYMENTS.
If an employer elects under Treasury Regulation
31.3402 (g)–1 to determine the amount to be deducted
and withheld from any supplemental wage payment by
using a flat percentage rate, the rate to be used in deter-
mining the amount to be so deducted and withheld shall
not be less than 28 percent. The preceding sentence shall
apply to payments made after December 31, 1993.
Subtitle C—Empowerment Zones
and Enterprise Communities, Etc.
PART I—EMPOWERMENT ZONES AND
ENTERPRISE COMMUNITIES
SEC. 
14301. 
DESIGNATION 
AND 
TREATMENT 
OF
EMPOWERMENT 
ZONES 
AND 
ENTERPRISE
COMMUNITIES.
(a) I N GENERAL.—Chapter 1 (relating to normal
taxes and surtaxes) is amended by inserting after sub-
chapter T the following new subchapter:
1445
‘‘(4) AREAS
LOCATED
IN
MORE
THAN
STATE.—In the case of an empowerment zone or en-
terprise community which is located in more than 1
State, the $818,000 amount shall be allocated
among such States in proportion to the population
of such zone or community which is within each
such State.
‘‘(5) ZONES
LOCATED
IN
CONSTITUTIONAL
HOME RULE CITIES.—If any empowerment zone or
enterprise community is located in a constitutional
home rule city (as defined in section 42(h)(4)(E)),
the additional amount received under paragraph (1)
shall be allocated to such city and shall not be taken
into account in determining such city’s share of the
State 
housing 
credit 
ceiling 
under 
section
42(h)(4)(E).
‘‘PART III—ADDITIONAL INCENTIVES FOR
EMPOWERMENT ZONES
‘‘SUBPART A. Empowerment zone employment credit.
‘‘SUBPART B. Zone resident empowerment savings credit.
‘‘SUBPART C. Depreciation and other incentives.
‘‘Subpart A—Empowerment Zone Employment Credit
‘‘Sec. 1396. Empowerment zone employment credit.
‘‘Sec. 1397. Other definitions and special rules.
‘‘SEC. 1396. EMPOWERMENT ZONE EMPLOYMENT CREDIT.
‘‘(a) A MOUNT OF CREDIT.—For purposes of section
38, the amount of the empowerment zone employment
1446
credit determined under this section with respect to any
employer for any taxable year is the applicable percentage
of the qualified zone wages paid or incurred during the
calendar year which ends with or within such taxable year.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the term ‘applicable percentage’ means the
percentage determined in accordance with the following
table:
‘‘In the case of wages paid or
The applicable
incurred during calendar year:
percentage is:
1994 through 2000 ........................................
2001 ...............................................................
2002 ...............................................................
2003 ...............................................................
2004 ...............................................................
‘‘(c) QUALIFIED ZONE WAGES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified zone wages’ means any
wages paid or incurred by an employer for services
performed by an employee while such employee is a
qualified zone employee.
‘‘(2) O NLY FIRST $20,000 OF WAGES PER YEAR
TAKEN INTO ACCOUNT.—With respect to each quali-
fied zone employee, the amount of qualified zone
wages which may be taken into account for a cal-
endar year shall not exceed $20,000.
‘‘(3) COORDINATION
WITH
TARGETED
JOBS
CREDIT.—