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on the 1st day of the plan year and meets the requirements
described in subparagraphs (B), (D), and (E) of subsection
(a)(2), the Secretary of the Treasury shall provide for the
filing of a simplified annual return that is substantially
similar to the annual return required to be filed by a one-
participant retirement plan.
(c) EFFECTIVE DATE.—The provisions of this section
shall take effect on January 1, 2001.
Subtitle H—Plan Amendments
SEC. 381. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to any plan
or contract amendment—
(1) such plan or contract shall be treated as
being operated in accordance with the terms of the
plan during the period described in subsection
(b)(2)(A), and
(2) such plan shall not fail to meet the require-
ments of section 411(d)(6) of the Internal Revenue
Code of 1986 by reason of such amendment.
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to
any amendment to any plan or annuity contract
which is made—
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(A) pursuant to any amendment made by
this title, or pursuant to any regulation issued
under this title, and
(B) on or before the last day of the first
plan year beginning on or after January 1,
2003.
In the case of a government plan (as defined in sec-
tion 414(d) of the Internal Revenue Code of 1986),
this paragraph shall be applied by substituting
‘‘2005’’ for ‘‘2003’’.
(2) CONDITIONS.—This section shall not apply to
any amendment unless—
(A) during the period—
(i) beginning on the date the legislative
or regulatory amendment described in para-
graph (1)(A) takes effect (or in the case of
a plan or contract amendment not required
by such legislative or regulatory amend-
ment, the effective date specified by the
plan), and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date the
plan or contract amendment is adopted),
the plan or contract is operated as if such plan
or contract amendment were in effect, and
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(B) such plan or contract amendment ap-
plies retroactively for such period.
TITLE IV—EDUCATION TAX
RELIEF PROVISIONS
SEC. 401. ELIMINATION OF 60-MONTH LIMIT AND INCREASE
IN INCOME LIMITATION ON STUDENT LOAN
INTEREST DEDUCTION.
(a) ELIMINATION OF 60-MONTH LIMIT.—
(1) IN GENERAL.—Section 221 (relating to inter-
est on education loans) is amended by striking sub-
section (d) and by redesignating subsections (e), (f),
and (g) as subsections (d), (e), and (f), respectively.
(2) 
CONFORMING
AMENDMENT.—Section
6050S(e) is amended by striking ‘‘section 221(e)(1)’’
and inserting ‘‘section 221(d)(1)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply with respect to any
loan interest paid after December 31, 1999, in taxable
years ending after such date.
(b) INCREASE IN INCOME LIMITATION.—
(1) IN GENERAL.—Section 221(b)(2)(B) (relating
to amount of reduction) is amended by striking
clauses (i) and (ii) and inserting the following:
‘‘(i) the excess of—
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‘‘(I) the taxpayer’s modified ad-
justed gross income for such taxable
year, over
‘‘(II) $50,000 (twice such dollar
amount in the case of a joint return),
bears to
‘‘(ii) $15,000.’’.
(2) 
CONFORMING
AMENDMENT.—Section
221(g)(1) is amended by striking ‘‘$40,000 and
$60,000 amounts’’ and inserting ‘‘$50,000 amount’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years ending
after December 31, 1999.
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PRO-
GRAMS.
(a) SHORT TITLE.—This section may be cited as the
‘‘Collegiate Learning and Student Savings (CLASS) Act’’.
(b) ELIGIBLE
EDUCATIONAL
INSTITUTIONS
PER-
MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—
(1) IN
GENERAL.—Section 529(b)(1) (defining
qualified State tuition program) is amended by in-
serting ‘‘or by 1 or more eligible educational institu-
tions’’ after ‘‘maintained by a State or agency or in-
strumentality thereof ’’.
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(2) PRIVATE QUALIFIED TUITION PROGRAMS LIM-
ITED
TO
BENEFIT
PLANS.—Clause (ii) of section
529(b)(1)(A) is amended by inserting ‘‘in the case of
a program established and maintained by a State or
agency or instrumentality thereof,’’ before ‘‘may
make’’.
(3) CONFORMING AMENDMENTS.—
(A) 
Sections 
72(e)(9), 
135(c)(2)(C),
135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and
6693(a)(2)(C) are each amended by striking
‘‘qualified State tuition’’ each place it appears
and inserting ‘‘qualified tuition’’.
(B) The headings for sections 72(e)(9) and
135(c)(2)(C) are each amended by striking
‘‘QUALIFIED
STATE
TUITION’’ and inserting
‘‘QUALIFIED TUITION’’.
(C) The headings for sections 529(b) and
530(b)(2)(B) are each amended by striking
‘‘QUALIFIED
STATE
TUITION’’ and inserting
‘‘QUALIFIED TUITION’’.
(D) The heading for section 529 is amended
by striking ‘‘STATE’’.
(E) The item relating to section 529 in the
table of sections for part VIII of subchapter F of
chapter 1 is amended by striking ‘‘State’’.
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(c) EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(c)(3)(B) (relating
to distributions) is amended to read as follows:
‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGH-
ER EDUCATION EXPENSES.—For purposes of this
paragraph—
‘‘(i) 
IN-KIND
DISTRIBUTIONS.—No
amount shall be includible in gross income
under subparagraph (A) by reason of a dis-
tribution which consists of providing a ben-
efit to the distributee which, if paid for by
the distributee, would constitute payment of
a qualified higher education expense.
‘‘(ii) CASH
DISTRIBUTIONS.—In the
case of distributions not described in clause
(i), if—
‘‘(I) such distributions do not ex-
ceed the qualified higher education ex-
penses (reduced by expenses described
in clause (i)), no amount shall be in-
cludible in gross income, and
‘‘(II) in any other case, the
amount otherwise includible in gross
income shall be reduced by an amount
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which bears the same ratio to such
amount as such expenses bear to such
distributions.
‘‘(iii) EXCEPTION FOR INSTITUTIONAL
PROGRAMS.—In the case of any taxable
year beginning before January 1, 2004,
clauses (i) and (ii) shall not apply with re-
spect to any distribution during such tax-
able year under a qualified tuition program
established and maintained by 1 or more el-
igible educational institutions.
‘‘(iv) 
TREATMENT
AS
DISTRIBU-
TIONS.—Any benefit furnished to a des-
ignated beneficiary under a qualified tui-
tion program shall be treated as a distribu-
tion to the beneficiary for purposes of this
paragraph.
‘‘(v) COORDINATION WITH HOPE AND
LIFETIME
LEARNING
CREDITS.—The total
amount of qualified higher education ex-
penses with respect to an individual for the
taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
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‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
the taxpayer or any other person under
section 25A.
‘‘(vi) COORDINATION WITH EDUCATION
INDIVIDUAL
RETIREMENT
ACCOUNTS.—If,
with respect to an individual for any tax-
able year—
‘‘(I) the aggregate distributions to
which clauses (i) and (ii) and section
530(d)(2)(A) apply, exceed
‘‘(II) the total amount of qualified
higher education expenses otherwise
taken into account under clauses (i)
and (ii) (after the application of clause
(v)) for such year,
the taxpayer shall allocate such expenses
among such distributions for purposes of de-
termining the amount of the exclusion
under clauses (i) and (ii) and section
530(d)(2)(A).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 135(d)(2)(B) is amended by
striking ‘‘the exclusion under section 530(d)(2)’’
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and inserting ‘‘the exclusions under sections
529(c)(3)(B)(i) and 530(d)(2)’’.
(B) Section 221(e)(2)(A) is amended by in-
serting ‘‘529,’’ after ‘‘135,’’.
(d) COORDINATION
WITH
HOPE
AND
LIFETIME
LEARNING
CREDITS
AND
QUALIFIED
TUITION
PRO-
GRAMS.—
(1) 
IN
GENERAL.—Section 
530(d)(2)(C) 
is
amended to read as follows:
‘‘(C) COORDINATION WITH HOPE AND LIFE-
TIME LEARNING CREDITS AND QUALIFIED TUI-
TION PROGRAMS.—For purposes of subparagraph
(A)—
‘‘(i) 
CREDIT
COORDINATION.—The
total amount of qualified higher education
expenses with respect to an individual for
the taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
the taxpayer or any other person under
section 25A.
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‘‘(ii) COORDINATION WITH QUALIFIED
TUITION PROGRAMS.—If, with respect to an
individual for any taxable year—
‘‘(I) the aggregate distributions
during such year to which subpara-
graph (A) and section 529(c)(3)(B)
apply, exceed
‘‘(II) the total amount of qualified
higher education expenses otherwise
taken into account under subpara-
graph (A) (after the application of
clause (i)) for such year,
the taxpayer shall allocate such expenses
among such distributions for purposes of de-
termining the amount of the exclusion
under 
subparagraph 
(A) 
and 
section
529(c)(3)(B).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (e) of section 25A is amend-
ed to read as follows:
‘‘(e) ELECTION TO HAVE SECTION APPLY.—No credit
shall be allowed under subsection (a) for a taxable year with
respect to the qualified tuition and related expenses of an
individual unless the taxpayer elects to have this section
apply with respect to such individual for such year.’’.
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(B) Section 135(d)(2)(A) is amended by
striking ‘‘allowable’’ and inserting ‘‘allowed’’.
(C) Section 530(d)(2)(D) is amended—
(i) by striking ‘‘or credit’’, and
(ii) by striking ‘‘CREDIT OR’’ in the
heading.
(e) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT
OF
SAME
DESIGNATED
BENEFICIARY.—Section
529(c)(3)(C) (relating to change in beneficiaries) is
amended—
(1) by striking ‘‘transferred to the credit’’ in
clause (i) and inserting ‘‘transferred—
‘‘(I) to another qualified tuition
program for the benefit of the des-
ignated beneficiary, or
‘‘(II) to the credit’’,
(2) by adding at the end the following new
clause:
‘‘(iii) LIMITATION ON CERTAIN ROLL-
OVERS.—Clause (i)(I) shall not apply to
any amount transferred with respect to a
designated beneficiary if, at any time dur-
ing the 1-year period ending on the day of
such transfer, any other amount was trans-
ferred with respect to such beneficiary
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which was not includible in gross income by
reason of clause (i)(I).’’, and
(3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENE-
FICIARIES’’ in the heading.
(f) MEMBER OF FAMILY INCLUDES FIRST COUSIN.—
Section 529(e)(2) (defining member of family) is amended
by striking ‘‘and’’ at the end of subparagraph (B), by strik-
ing the period at the end of subparagraph (C) and by in-
serting ‘‘; and’’, and by adding at the end the following
new subparagraph:
‘‘(D) any first cousin of such beneficiary.’’.
(g) DEFINITION OF QUALIFIED HIGHER EDUCATION
EXPENSES.—
(1) IN GENERAL.—Subparagraph (A) of section
529(e)(3) (relating to definition of qualified higher
education expenses) is amended to read as follows:
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means—
‘‘(i) tuition and fees required for the
enrollment or attendance of a designated
beneficiary at an eligible educational insti-
tution for courses of instruction of such ben-
eficiary at such institution, and
‘‘(ii) expenses for books, supplies, and
equipment which are incurred in connection
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with such enrollment or attendance, but not
to exceed the allowance for books and sup-
plies included in the cost of attendance (as
defined in section 472 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087ll), as in
effect on the date of enactment of the Tax-
payer Refund Act of 1999) as determined by
the eligible educational institution.’’.
(2) EXCEPTION
FOR
EDUCATION
INVOLVING
SPORTS, ETC.—Paragraph (3) of section 529(e) (relat-
ing to qualified higher education expenses) is amend-
ed by adding at the end the following new subpara-
graph:
‘‘(C) EXCEPTION FOR EDUCATION INVOLV-
ING SPORTS, ETC.—The term ‘qualified higher
education expenses’ shall not include expenses
with respect to any course or other education in-
volving sports, games, or hobbies unless such
course or other education is part of the bene-
ficiary’s degree program or is taken to acquire or
improve job skills of the beneficiary.’’.
(h) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1999.
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(2) 
QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—The amendments made by subsection (g)
shall apply to amounts paid for courses beginning
after December 31, 1999.
SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
UNDER THE NATIONAL HEALTH SERVICE
CORPS SCHOLARSHIP PROGRAM AND THE F.
EDWARD HEBERT ARMED FORCES HEALTH
PROFESSIONS SCHOLARSHIP AND FINANCIAL
ASSISTANCE PROGRAM.
(a) IN GENERAL.—Section 117(c) (relating to the ex-
clusion from gross income amounts received as a qualified
scholarship) is amended—
(1) by striking ‘‘Subsections (a)’’ and inserting
the following:
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a)’’, and
(2) by adding at the end the following new para-
graph:
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to any amount received by an individual
under—
‘‘(A) the National Health Service Corps
Scholarship 
program 
under 
section
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338A(g)(1)(A) of the Public Health Service Act,
or
‘‘(B) the Armed Forces Health Professions
Scholarship and Financial Assistance program
under subchapter I of chapter 105 of title 10,
United States Code.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to amounts received in taxable years
beginning after December 31, 1993.
SEC. 404. EXTENSION OF EXCLUSION FOR EMPLOYER-PRO-
VIDED EDUCATIONAL ASSISTANCE.
(a) IN GENERAL.—Section 127(d) (relating to termi-
nation of exclusion for educational assistance programs) is
amended by striking ‘‘May 31, 2000’’ and inserting ‘‘De-
cember 31, 2003’’.
(b) REPEAL
OF LIMITATION
ON GRADUATE EDU-
CATION.—
(1) IN GENERAL.—The last sentence of section
127(c)(1) is amended by striking ‘‘, and such term
also does not include any payment for, or the provi-
sion of any benefits with respect to, any graduate
level course of a kind normally taken by an indi-
vidual pursuing a program leading to a law, busi-
ness, medical, or other advanced academic or profes-
sional degree’’.
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(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply with respect to expenses re-
lating to courses beginning after December 31, 1999.
SEC. 405. ADDITIONAL INCREASE IN ARBITRAGE REBATE
EXCEPTION 
FOR 
GOVERNMENTAL 
BONDS
USED TO FINANCE EDUCATIONAL FACILITIES.
(a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relating
to increase in exception for bonds financing public school
capital expenditures) is amended by striking ‘‘$5,000,000’’
the second place it appears and inserting ‘‘$10,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to obligations issued in calendar
years beginning after December 31, 1999.
SEC. 
406. 
TREATMENT 
OF 
QUALIFIED 
PUBLIC 
EDU-
CATIONAL FACILITY BONDS AS EXEMPT FA-
CILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND.—Sub-
section (a) of section 142 (relating to exempt facility bond)
is amended by striking ‘‘or’’ at the end of paragraph (11),
by striking the period at the end of paragraph (12) and
inserting ‘‘, or’’, and by adding at the end the following
new paragraph:
‘‘(13) qualified public educational facilities.’’.
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(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
Section 142 (relating to exempt facility bond) is amended
by adding at the end the following new subsection:
‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(13), the term ‘qualified public educational facil-
ity’ means any school facility which is—
‘‘(A) part of a public elementary school or
a public secondary school, and
‘‘(B) owned by a private, for-profit corpora-
tion pursuant to a public-private partnership
agreement with a State or local educational
agency described in paragraph (2).
‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT
DESCRIBED.—A public-private partnership agreement
is described in this paragraph if it is an agreement—
‘‘(A) under which the corporation agrees—
‘‘(i) to do 1 or more of the following:
construct, rehabilitate, refurbish, or equip a
school facility, and
‘‘(ii) at the end of the term of the
agreement, to transfer the school facility to
such agency for no additional consideration,
and
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‘‘(B) the term of which does not exceed the
last maturity date of any bond which is a part
of the issue to be used to finance the activities
described in subparagraph (A)(i).
‘‘(3) SCHOOL
FACILITY.—For purposes of this
subsection, the term ‘school facility’ means—
‘‘(A) school buildings,
‘‘(B) functionally related and subordinate
facilities and land with respect to such buildings,
including any stadium or other facility pri-
marily used for school events, and
‘‘(C) any property, to which section 168 ap-
plies (or would apply but for section 179), for
use in the facility.
‘‘(4) PUBLIC
SCHOOLS.—For purposes of this
subsection, the terms ‘elementary school’ and ‘sec-
ondary school’ have the meanings given such terms by
section 14101 of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 8801), as in effect on
the date of the enactment of this subsection.
‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-
EXEMPT FINANCING.—
‘‘(A) IN GENERAL.—An issue shall not be
treated as an issue described in subsection
(a)(13) if the aggregate face amount of bonds
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issued by the State pursuant thereto (when
added to the aggregate face amount of bonds pre-
viously so issued during the calendar year) ex-
ceeds an amount equal to the greater of—
‘‘(i) $10 multiplied by the State popu-
lation, or
‘‘(ii) $5,000,000.
‘‘(B) ALLOCATION RULES.—
‘‘(i) IN GENERAL.—Except as otherwise
provided in this subparagraph, the State
may allocate the amount described in sub-
paragraph (A) for any calendar year in
such manner as the State determines appro-
priate.
‘‘(ii) RULES FOR CARRYFORWARD OF
UNUSED LIMITATION.—A State may elect to
carry forward an unused limitation for any
calendar year for 3 calendar years following
the calendar year in which the unused limi-
tation arose under rules similar to the rules
of section 146(f), except that the only pur-
pose for which the carryforward may be
elected is the issuance of exempt facility
bonds described in subsection (a)(13).’’.
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(c) EXEMPTION FROM GENERAL STATE VOLUME
CAPS.—Paragraph (3) of section 146(g) (relating to excep-
tion for certain bonds) is amended—
(1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or
(13)’’, and
(2) by striking ‘‘and environmental enhance-
ments of hydroelectric generating facilities’’ and in-
serting ‘‘environmental enhancements of hydroelectric
generating facilities, and qualified public educational
facilities’’.
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND
ACQUISITION.—Section 147(h) (relating to certain rules not
to apply to mortgage revenue bonds, qualified student loan
bonds, and qualified 501(c)(3) bonds) is amended by adding
at the end the following new paragraph:
‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED
PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not
apply to any exempt facility bond issued as part of
an issue described in section 142(a)(13) (relating to
qualified public educational facilities).’’.
(e) CONFORMING AMENDMENT.—The heading for sec-
tion 147(h) is amended by striking ‘‘MORTGAGE REVENUE
BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALI-
FIED 501(c)(3) BONDS’’ and inserting ‘‘CERTAIN BONDS’’.
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(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to bonds issued after December 31, 1999.
SEC. 407. FEDERAL GUARANTEE OF SCHOOL CONSTRUC-
TION 
BONDS 
BY 
FEDERAL 
HOME 
LOAN
BANKS.
(a) IN GENERAL.—Section 149(b)(3) (relating to ex-
ceptions) is amended by adding at the end the following
new subparagraph:
‘‘(E) CERTAIN GUARANTEED SCHOOL CON-
STRUCTION BONDS.—Any bond issued as part of
an issue 95 percent or more of the net proceeds
of which are used for public school construction
shall not be treated as federally guaranteed by
reason of any guarantee by any Federal Home
Loan Bank under the Federal Home Loan Bank
Act (12 U.S.C. 1421 et seq.), to the extent the
Federal Housing Finance Board allocates au-
thority to such Bank to so guarantee such bond.
For purposes of the preceding sentence, the ag-
gregate face amount of such bonds which may be
so guaranteed may not exceed $500,000,000 in
any calendar year.’’.
(b) EFFECTIVE DATE.—Subparagraph (E) of section
149(b)(3) of the Internal Revenue Code of 1986, as added
by the amendment made by subsection (a), shall take effect
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upon the enactment, after the date of the enactment of this
Act, of legislation authorizing the Federal Housing Finance
Board to allocate authority to Federal Home Loan Banks
to guarantee any bond described in such subparagraph, but
only if such legislation makes specific reference to such sub-
paragraph.
SEC. 408. CERTAIN EDUCATIONAL BENEFITS PROVIDED BY
AN EMPLOYER TO CHILDREN OF EMPLOYEES
EXCLUDABLE FROM GROSS INCOME AS A
SCHOLARSHIP.
(a) IN GENERAL.—Section 117 (relating to qualified
scholarships) is amended by adding at the end the following:
‘‘(e) EMPLOYER-PROVIDED EDUCATIONAL BENEFITS
PROVIDED TO CHILDREN OF EMPLOYEES.—
‘‘(1) IN GENERAL.—In determining whether any
amount is a qualified scholarship for purposes of sub-
section (a), the fact that such amount is provided in
connection with an employment relationship shall be
disregarded if—
‘‘(A) such amount is provided by the em-
ployer to a child (as defined in section 161(c)(3))
of an employee of such employer,
‘‘(B) such amount is provided pursuant to
a plan which meets the nondiscrimination re-
quirements of subsection (d)(3), and
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‘‘(C) amounts provided under such plan are
in addition to any other compensation payable
to employees and such plan does not provide em-
ployees with a choice between such amounts and
any other benefit.
For purposes of subparagraph (C), the business prac-
tices of the employer (as well as such plan) shall be
taken into account.
‘‘(2) DOLLAR LIMITATIONS.—
‘‘(A) PER
CHILD.—The amount excluded
from the gross income of the employee by reason
of paragraph (1) for a taxable year with respect
to amounts provided to each child of such em-
ployee shall not exceed $2,000.
‘‘(B) AGGREGATE LIMIT.—The amount ex-
cluded from the gross income of the employee by
reason of paragraph (1) for a taxable year (after
the application of subparagraph (A)) shall not
exceed the excess of the dollar amount contained
in section 127(a)(2) over the amount excluded
from the employee’s gross income under section
127 for such year.
‘‘(3) PRINCIPAL SHAREHOLDERS AND OWNERS.—
Paragraph (1) shall not apply to any amount pro-
vided to any child of any individual if such indi-
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vidual (or such individual’s spouse) owns (on any
day of the year) more than 5 percent of the stock or
of the capital or profits interest in the employer.
‘‘(4) DEGREE REQUIREMENT NOT TO APPLY.—In
the case of an amount which is treated as a qualified
scholarship by reason of this subsection, subsection (a)
shall be applied without regard to the requirement
that the recipient be a candidate for a degree.
‘‘(5) CERTAIN OTHER RULES TO APPLY.—Rules
similar to the rules of paragraphs (4), (5), and (7)
of section 127(c) shall apply for purposes of this sub-
section.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of enactment of this Act.
TITLE V—HEALTH CARE TAX
RELIEF PROVISIONS
SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE
INSURANCE COSTS OF INDIVIDUALS NOT
PARTICIPATING 
IN 
EMPLOYER-SUBSIDIZED
HEALTH PLANS.
(a) IN GENERAL.—Part VII of subchapter B of chapter
1 is amended by redesignating section 222 as section 223
and by inserting after section 221 the following new section:
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‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE
COSTS.
‘‘(a) IN GENERAL.—In the case of an individual, there
shall be allowed as a deduction an amount equal to the ap-
plicable percentage of the amount paid during the taxable
year for insurance which constitutes medical care for the
taxpayer and the taxpayer’s spouse and dependents.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of sub-
section (a), the applicable percentage shall be determined
in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2001, 2002, 2003 ................................................................................
2004 and 2005 ...................................................................................
2006 and thereafter ............................................................................
100.
‘‘(c) LIMITATION BASED ON OTHER COVERAGE.—
‘‘(1) COVERAGE
UNDER
CERTAIN
SUBSIDIZED
EMPLOYER PLANS.—
‘‘(A) IN GENERAL.—Subsection (a) shall not
apply to any taxpayer for any calendar month
for which the taxpayer participates in any
health plan maintained by any employer of the
taxpayer or of the spouse of the taxpayer if 50
percent or more of the cost of coverage under
such plan (determined under section 4980B and
without regard to payments made with respect to
any coverage described in subsection (e)) is paid
or incurred by the employer.
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‘‘(B) EMPLOYER CONTRIBUTIONS TO CAFE-
TERIA
PLANS, FLEXIBLE
SPENDING
ARRANGE-
MENTS, AND MEDICAL SAVINGS ACCOUNTS.—Em-
ployer contributions to a cafeteria plan, a flexi-
ble spending or similar arrangement, or a med-
ical savings account which are excluded from
gross income under section 106 shall be treated
for purposes of subparagraph (A) as paid by the
employer.
‘‘(C) AGGREGATION
OF
PLANS
OF
EM-
PLOYER.—A health plan which is not otherwise
described in subparagraph (A) shall be treated as
described in such subparagraph if such plan
would be so described if all health plans of per-
sons treated as a single employer under sub-
sections (b), (c), (m), or (o) of section 414 were
treated as one health plan.
‘‘(D) SEPARATE APPLICATION TO HEALTH
INSURANCE AND LONG-TERM CARE INSURANCE.—
Subparagraphs (A) and (C) shall be applied sep-
arately with respect to—
‘‘(i) plans which include primarily
coverage for qualified long-term care serv-
ices or are qualified long-term care insur-
ance contracts, and
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‘‘(ii) plans which do not include such
coverage and are not such contracts.
‘‘(2) COVERAGE UNDER CERTAIN FEDERAL PRO-
GRAMS.—
‘‘(A) IN GENERAL.—Subsection (a) shall not
apply to any amount paid for any coverage for
an individual for any calendar month if, as of
the first day of such month, the individual is
covered under any medical care program de-
scribed in—
‘‘(i) title XVIII, XIX, or XXI of the So-
cial Security Act,
‘‘(ii) chapter 55 of title 10, United
States Code,
‘‘(iii) chapter 17 of title 38, United
States Code,
‘‘(iv) chapter 89 of title 5, United
States Code, or
‘‘(v) the Indian Health Care Improve-
ment Act.
‘‘(B) EXCEPTIONS.—
‘‘(i) QUALIFIED
LONG-TERM
CARE.—
Subparagraph (A) shall not apply to
amounts paid for coverage under a qualified
long-term care insurance contract.
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‘‘(ii) CONTINUATION
COVERAGE
OF
FEHBP.—Subparagraph (A)(iv) shall not
apply to coverage which is comparable to
continuation coverage under section 4980B.
‘‘(d) LONG-TERM CARE DEDUCTION LIMITED
TO
QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.—
In the case of a qualified long-term care insurance contract,
only eligible long-term care premiums (as defined in section
213(d)(10)) may be taken into account under subsection (a).
‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF
ANCILLARY COVERAGE PREMIUMS.—Any amount paid as
a premium for insurance which provides for—
‘‘(1) coverage for accidents, disability, dental
care, vision care, or a specified illness, or
‘‘(2) making payments of a fixed amount per
day (or other period) by reason of being hospitalized.
shall not be taken into account under subsection (a).
‘‘(f) SPECIAL RULES.—
‘‘(1) COORDINATION
WITH
DEDUCTION
FOR
HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.—The amount taken into account by the tax-
payer in computing the deduction under section
162(l) shall not be taken into account under this sec-
tion.
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‘‘(2) COORDINATION
WITH
MEDICAL
EXPENSE
DEDUCTION.—The amount taken into account by the
taxpayer in computing the deduction under this sec-
tion shall not be taken into account under section
213.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section, including regulations requiring employers to report
to their employees and the Secretary such information as
the Secretary determines to be appropriate.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 is amended by inserting after paragraph (17)
the following new item:
‘‘(18) HEALTH
AND
LONG-TERM
CARE
INSUR-
ANCE
COSTS.—The deduction allowed by section
222.’’.
(c) CLERICAL AMENDMENT.—The table of sections for
part VII of subchapter B of chapter 1 is amended by strik-
ing the last item and inserting the following new items:
‘‘Sec. 222. Health and long-term care insurance costs.
‘‘Sec. 223. Cross reference.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
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SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE
OFFERED UNDER CAFETERIA PLANS AND
FLEXIBLE SPENDING ARRANGEMENTS.
(a) CAFETERIA PLANS.—
(1) IN GENERAL.—Subsection (f) of section 125
(defining qualified benefits) is amended by inserting
before the period at the end ‘‘; except that such term
shall include the payment of premiums for any quali-
fied long-term care insurance contract (as defined in
section 7702B) to the extent the amount of such pay-
ment does not exceed the eligible long-term care pre-
miums (as defined in section 213(d)(10)) for such
contract.’’.
(b) FLEXIBLE SPENDING ARRANGEMENTS.—Section
106 (relating to contributions by employer to accident and
health plans) is amended by striking subsection (c).
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
SEC. 503. ADDITIONAL PERSONAL EXEMPTION FOR TAX-
PAYER CARING FOR ELDERLY FAMILY MEM-
BER IN TAXPAYER’S HOME.
(a) IN GENERAL.—Section 151 (relating to allowance
of deductions for personal exemptions) is amended by add-
ing at the end redesignating subsection (e) as subsection (f)
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and by inserting after subsection (d) the following new sub-
section:
‘‘(e) ADDITIONAL EXEMPTION FOR CERTAIN ELDERLY
FAMILY MEMBERS RESIDING WITH TAXPAYER.—
‘‘(1) IN GENERAL.—An exemption of the exemp-
tion amount for each qualified family member of the
taxpayer.
‘‘(2) QUALIFIED FAMILY MEMBER.—For purposes
of this subsection, the term ‘qualified family member’
means, with respect to any taxable year, any
individual—
‘‘(A) who is—
‘‘(i) the father or mother, or an ances-
tor of either, or
‘‘(ii) a stepfather or stepmother,
of the taxpayer or of the taxpayer’s spouse or
former spouse,
‘‘(B) who is a member for the entire taxable
year of a household maintained by the taxpayer,
and
‘‘(C) who has been certified, before the due
date for filing the return of tax for the taxable
year (without extensions), by a physician (as de-
fined in section 1861(r)(1) of the Social Security
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Act) as being an individual with long-term care
needs described in paragraph (3) for a period—
‘‘(i) which is at least 180 consecutive
days, and
‘‘(ii) a portion of which occurs within
the taxable year.
Such term shall not include any individual oth-
erwise meeting the requirements of the preceding
sentence unless within the 391⁄2 month period
ending on such due date (or such other period as
the Secretary prescribes) a physician (as so de-
fined) has certified that such individual meets
such requirements.
‘‘(3) 
INDIVIDUALS
WITH
LONG-TERM
CARE
NEEDS.—An individual is described in this para-
graph if the individual—
‘‘(A) is unable to perform (without substan-
tial assistance from another individual) at least
2 activities of daily living (as defined in section
7702B(c)(2)(B)) due to a loss of functional ca-
pacity, or
‘‘(B) requires substantial supervision to
protect such individual from threats to health
and safety due to severe cognitive impairment
and is unable to perform, without reminding or
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cuing assistance, at least 1 activity of at least 1
activity of daily living (as so defined) or to the
extent provided in regulations prescribed by the
Secretary (in consultation with the Secretary of
Health and Human Services), is unable to en-
gage in age appropriate activities.
‘‘(4) SPECIAL RULES.—Rules similar to the rules
of paragraphs (1), (2), (3), (4), and (5) of section
21(e) shall apply for purposes of this subsection.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
SEC. 504. INCLUSION OF CERTAIN VACCINES AGAINST
STREPTOCOCCUS PNEUMONIAE TO LIST OF
TAXABLE 
VACCINES; 
REDUCTION 
IN 
PER
DOSE TAX RATE.
(a) INCLUSION OF VACCINES.—
(1) IN GENERAL.—Section 4132(a)(1) (defining
taxable vaccine) is amended by adding at the end the
following new subparagraph:
‘‘(L) Any conjugate vaccine against strepto-
coccus pneumoniae.’’.
(2) EFFECTIVE DATE.—
(A) SALES.—The amendment made by this
subsection shall apply to vaccine sales beginning
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on the day after the date on which the Centers
for Disease Control makes a final recommenda-
tion for routine administration to children of
any conjugate vaccine against streptococcus
pneumoniae, but shall not take effect if sub-
section (c) does not take effect.
(B) DELIVERIES.—For purposes of sub-
paragraph (A), in the case of sales on or before
the date described in such subparagraph for
which delivery is made after such date, the deliv-
ery date shall be considered the sale date.
(b) REDUCTION IN PER DOSE TAX RATE.—
(1) IN GENERAL.—Section 4131(b)(1) (relating
to amount of tax) is amended by striking ‘‘75 cents’’
and inserting ‘‘25 cents’’.
(2) EFFECTIVE DATE.—
(A) SALES.—The amendment made by this
subsection shall apply to vaccine sales after De-
cember 31, 2004, but shall not take effect if sub-
section (c) does not take effect.
(B) DELIVERIES.—For purposes of sub-
paragraph (A), in the case of sales on or before
the date described in such subparagraph for
which delivery is made after such date, the deliv-
ery date shall be considered the sale date.
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(3) LIMITATION ON CERTAIN CREDITS OR RE-
FUNDS.—For purposes of applying section 4132(b) of
the Internal Revenue Code of 1986 with respect to
any claim for credit or refund filed after August 31,
2004, the amount of tax taken into account shall not
exceed the tax computed under the rate in effect on
January 1, 2005.
(c) VACCINE TAX AND TRUST FUND AMENDMENTS.—
(1) Sections 1503 and 1504 of the Vaccine In-
jury Compensation Program Modification Act (and
the amendments made by such sections) are hereby re-
pealed.
(2) Subparagraph (A) of section 9510(c)(1) is
amended by striking ‘‘August 5, 1997’’ and inserting
‘‘October 21, 1998’’.
(3) The amendments made by this subsection
shall take effect as if included in the provisions of the
Tax and Trade Relief Extension Act of 1998 to which
they relate.
(d) REPORT.—Not later than 1 year after the date of
the enactment of this Act, the Comptroller General of the
United States shall prepare and submit a report to the
Committee on Ways and Means of the House of Representa-
tives and the Committee on Finance of the Senate on the
operation the Vaccine Injury Compensation Trust Fund
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and on the adequacy of such Fund to meet future claims
made under the Vaccine Injury Compensation Program.
TITLE VI—SMALL BUSINESS TAX
RELIEF PROVISIONS
SEC. 601. DEDUCTION FOR 100 PERCENT OF HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l) is
amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of
an individual who is an employee within the mean-
ing of section 401(c)(1), there shall be allowed as a
deduction under this section an amount equal to 100
percent of the amount paid during the taxable year
for insurance which constitutes medical care for the
taxpayer and the taxpayer’s spouse and dependents.’’.
(b) CLARIFICATION OF LIMITATIONS ON OTHER COV-
ERAGE.—The first sentence of section 162(l)(2)(B) of the In-
ternal Revenue Code of 1986 is amended to read as follows:
‘‘Paragraph (1) shall not apply to any taxpayer for any
calendar month for which the taxpayer participates in any
subsidized health plan maintained by any employer (other
than an employer described in section 401(c)(4)) of the tax-
payer or the spouse of the taxpayer.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
SEC. 602. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) IN GENERAL.—Paragraph (1) of section 179(b)
(relating to dollar limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection (a)
for any taxable year shall not exceed $30,000.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
SEC. 603. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.
Section 3301 (relating to rate of Federal unemploy-
ment tax) is amended—
(1) by striking ‘‘2007’’ and inserting ‘‘2004’’,
and
(2) by striking ‘‘2008’’ and inserting ‘‘2005’’.
SEC. 604. INCOME AVERAGING FOR FARMERS AND FISHER-
MEN NOT TO INCREASE ALTERNATIVE MIN-
IMUM TAX LIABILITY.
(a) IN GENERAL.—Section 55(c) (defining regular tax)
is amended by redesignating paragraph (2) as paragraph
(3) and by inserting after paragraph (1) the following:
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‘‘(2) COORDINATION
WITH
INCOME
AVERAGING
FOR FARMERS AND FISHERMEN.—Solely for purposes
of this section, section 1301 (relating to averaging of
farm and fishing income) shall not apply in com-
puting the regular tax.’’.
(b) ALLOWING INCOME AVERAGING
FOR FISHER-
MEN.—(1) Section 1301(a) of the Internal Revenue Code
of 1986 is amended by striking ‘‘farming business’’ and in-
serting ‘‘farming business or fishing business,’’.
(2) Section 1301(b)(1)(A)(i) is amended by striking
‘‘and’’ and inserting ‘‘or’’, and by striking subsection
(b)(1)(A)(ii) and replacing it with ‘‘(b)(1)(A)(ii) a fishing
business; and’’ and by redesignating subsection (b)(1)(A)(ii)
as subsection (b)(1)(A)(iii).
(3) Section 1301(b) is amended by inserting the fol-
lowing paragraph after subsection (b)(3):
‘‘(4) FISHING BUSINESS.—The term fishing busi-
ness means the conduct of commercial fishing as de-
fined in section 3 of the Magnuson-Stevens Fishery
Conservation and Management Act (16 U.S.C.
1802).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
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SEC. 605. FARM, FISHING, AND RANCH RISK MANAGEMENT
ACCOUNTS.
(a) IN GENERAL.—Subpart C of part II of subchapter
E of chapter 1 (relating to taxable year for which deduc-
tions taken) is amended by inserting after section 468B the
following:
‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC-
COUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual engaged in an eligible farming business or commer-
cial fishing, there shall be allowed as a deduction for any
taxable year the amount paid in cash by the taxpayer dur-
ing the taxable year to a Farm, Fishing, and Ranch Risk
Management Account (hereinafter referred to as the
‘FFARRM Account’).
‘‘(b) LIMITATION.—(1) The amount which a taxpayer
may pay into the FFARRM Account for any taxable year
shall not exceed 20 percent of so much of the taxable income
of the taxpayer (determined without regard to this section)
which is attributable (determined in the manner applicable
under section 1301) to any eligible farming business or
commercial fishing.
‘‘(2) Distributions from a FFARRM Account may not
be used to purchase, lease, or finance any new fishing vessel,
add capacity to any fishery, or otherwise contribute to the
overcapitalization of any fishery. The Secretary of Com-
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merce shall implement regulations to enforce this para-
graph.
‘‘(c) ELIGIBLE FARMING BUSINESS.—(1) For purposes
of this section, the term ‘eligible farming business’ means
any farming business (as defined in section 263A(e)(4))
which is not a passive activity (within the meaning of sec-
tion 469(c)) of the taxpayer.
‘‘(2) COMMERCIAL FISHING.—For purposes of this sec-
tion, the term ‘commercial fishing’ is defined under section
(3) of the Magnuson-Stevens Fishery Conservation and
Management Act (16 U.S.C. 1802).
‘‘(d) FFARRM ACCOUNT.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘FFARRM Ac-
count’ means a trust created or organized in the
United States for the exclusive benefit of the taxpayer,
but only if the written governing instrument creating
the trust meets the following requirements:
‘‘(A) No contribution will be accepted for
any taxable year in excess of the amount allowed
as a deduction under subsection (a) for such
year.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary that
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the manner in which such person will admin-
ister the trust will be consistent with the require-
ments of this section.
‘‘(C) The assets of the trust consist entirely
of cash or of obligations which have adequate
stated interest (as defined in section 1274(c)(2))
and which pay such interest not less often than
annually.
‘‘(D) All income of the trust is distributed
currently to the grantor.
‘‘(E) The assets of the trust will not be com-
mingled with other property except in a common
trust fund or common investment fund.
‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—The
grantor of a FFARRM Account shall be treated for
purposes of this title as the owner of such Account
and shall be subject to tax thereon in accordance with
subpart E of part I of subchapter J of this chapter
(relating to grantors and others treated as substantial
owners).
‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), there shall be includible in the gross in-
come of the taxpayer for any taxable year—
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‘‘(A) any amount distributed from a
FFARRM Account of the taxpayer during such
taxable year, and
‘‘(B) any deemed distribution under—
‘‘(i) subsection (f)(1) (relating to de-
posits not distributed within 5 years),
‘‘(ii) subsection (f)(2) (relating to ces-
sation in eligible farming business), and
‘‘(iii) subparagraph (A) or (B) of sub-
section (f)(3) (relating to prohibited trans-
actions and pledging account as security).
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not
apply to—
‘‘(A) any distribution to the extent attrib-
utable to income of the Account, and
‘‘(B) the distribution of any contribution
paid during a taxable year to a FFARRM Ac-
count to the extent that such contribution exceeds
the limitation applicable under subsection (b) if
requirements similar to the requirements of sec-
tion 408(d)(4) are met.
For purposes of subparagraph (A), distributions shall
be treated as first attributable to income and then to
other amounts.
‘‘(f) SPECIAL RULES.—
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‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH ARE
NOT DISTRIBUTED WITHIN 5 YEARS.—
‘‘(A) IN GENERAL.—If, at the close of any
taxable year, there is a nonqualified balance in
any FFARRM Account—
‘‘(i) there shall be deemed distributed
from such Account during such taxable year
an amount equal to such balance, and
‘‘(ii) the taxpayer’s tax imposed by
this chapter for such taxable year shall be
increased by 10 percent of such deemed dis-
tribution.
The preceding sentence shall not apply if an
amount equal to such nonqualified balance is
distributed from such Account to the taxpayer
before the due date (including extensions) for fil-
ing the return of tax imposed by this chapter for
such year (or, if earlier, the date the taxpayer
files such return for such year).
‘‘(B) NONQUALIFIED
BALANCE.—For pur-
poses of subparagraph (A), the term ‘non-
qualified balance’ means any balance in the Ac-
count on the last day of the taxable year which
is attributable to amounts deposited in such Ac-
count before the 4th preceding taxable year.
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‘‘(C) ORDERING
RULE.—For purposes of
this paragraph, distributions from a FFARRM
Account (other than distributions of current in-
come) shall be treated as made from deposits in
the order in which such deposits were made, be-
ginning with the earliest deposits.
‘‘(2) CESSATION IN ELIGIBLE BUSINESS.—At the
close of the first disqualification period after a period
for which the taxpayer was engaged in an eligible
farming business or commercial fishing, there shall be
deemed distributed from the FFARRM Account of the
taxpayer an amount equal to the balance in such Ac-
count (if any) at the close of such disqualification pe-
riod. For purposes of the preceding sentence, the term
‘disqualification period’ means any period of 2 con-
secutive taxable years for which the taxpayer is not
engaged in an eligible farming business or commer-
cial fishing.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 220(f)(8) (relating to treat-
ment on death).
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‘‘(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages
in prohibited transaction).
‘‘(C) Section 408(e)(4) (relating to effect of
pledging account as security).
‘‘(D) Section 408(g) (relating to community
property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—
For purposes of this section, a taxpayer shall be
deemed to have made a payment to a FFARRM Ac-
count on the last day of a taxable year if such pay-
ment is made on account of such taxable year and is
made on or before the due date (without regard to ex-
tensions) for filing the return of tax for such taxable
year.
‘‘(5) INDIVIDUAL.—For purposes of this section,
the term ‘individual’ shall not include an estate or
trust.
‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM-
PLOYMENT TAX.—The deduction allowable by reason
of subsection (a) shall not be taken into account in
determining an individual’s net earnings from self-
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employment (within the meaning of section 1402(a))
for purposes of chapter 2.
‘‘(g) REPORTS.—The trustee of a FFARRM Account
shall make such reports regarding such Account to the Sec-
retary and to the person for whose benefit the Account is
maintained with respect to contributions, distributions, and
such other matters as the Secretary may require under regu-
lations. The reports required by this subsection shall be filed
at such time and in such manner and furnished to such
persons at such time and in such manner as may be re-
quired by such regulations.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) Subsection (a) of section 4973 (relating to
tax on excess contributions to certain tax-favored ac-
counts and annuities), as amended by section
304(b)(1), is amended by striking ‘‘or’’ at the end of
paragraph (4), by redesignating paragraphs (4) and
(5) as paragraphs (5) and (6), respectively, and by
inserting after paragraph (3) the following:
‘‘(4) a FFARRM Account (within the meaning
of section 468C(d)), or’’.
(2) Section 4973, as amended by section
304(b)(2), is amended by adding at the end the fol-
lowing:
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ed by inserting after the item relating to section 468B the
following:
‘‘Sec. 468C. Farm, Fishing and Ranch Risk Management Ac-
counts.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2000.
SEC. 606. EXCLUSION OF INVESTMENT SECURITIES INCOME
FROM PASSIVE INCOME TEST FOR BANK S
CORPORATIONS.
(a) IN GENERAL.—Section 1362(d)(3)(C) (defining
passive investment income) is amended by adding at the
end the following:
‘‘(v) EXCEPTION FOR BANKS; ETC.—In
the case of a bank (as defined in section
581), a bank holding company (as defined
in section 246A(c)(3)(B)(ii)), or a qualified
subchapter S subsidiary bank, the term
‘passive 
investment 
income’ 
shall 
not
include—
‘‘(I) interest income earned by
such bank, bank holding company, or
qualified 
subchapter 
S 
subsidiary
bank, or
‘‘(II) dividends on assets required
to be held by such bank, bank holding
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company, or qualified subchapter S
subsidiary bank to conduct a banking
business, including stock in the Federal
Reserve Bank, the Federal Home Loan
Bank, or the Federal Agricultural
Mortgage Bank or participation cer-
tificates issued by a Federal Inter-
mediate Credit Bank.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
SEC. 607. TREATMENT OF QUALIFYING DIRECTOR SHARES.
(a) IN GENERAL.—Section 1361 is amended by adding
at the end the following:
‘‘(f) 
TREATMENT
OF
QUALIFYING
DIRECTOR
SHARES.—
‘‘(1) 
IN
GENERAL.—For 
purposes 
of 
this
subchapter—
‘‘(A) qualifying director shares shall not be
treated as a second class of stock, and
‘‘(B) no person shall be treated as a share-
holder of the corporation by reason of holding
qualifying director shares.
‘‘(2) QUALIFYING DIRECTOR SHARES DEFINED.—
For purposes of this subsection, the term ‘qualifying
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director shares’ means any shares of stock in a bank
(as defined in section 581) or in a bank holding com-
pany registered as such with the Federal Reserve
System—
‘‘(i) which are held by an individual
solely by reason of status as a director of
such bank or company or its controlled sub-
sidiary; and
‘‘(ii) which are subject to an agreement
pursuant to which the holder is required to
dispose of the shares of stock upon termi-
nation of the holder’s status as a director at
the same price as the individual acquired
such shares of stock.
‘‘(3) DISTRIBUTIONS.—A distribution (not in
part or full payment in exchange for stock) made by
the corporation with respect to qualifying director
shares shall be includible as ordinary income of the
holder and deductible to the corporation as an expense
in computing taxable income under section 1363(b) in
the year such distribution is received.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1361(b)(1) is amended by inserting
‘‘, except as provided in subsection (f),’’ before ‘‘which
does not’’.
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(2) Section 1366(a) is amended by adding at the
end the following:
‘‘(3) ALLOCATION WITH RESPECT TO QUALIFYING
DIRECTOR SHARES.—The holders of qualifying direc-
tor shares (as defined in section 1361(f)) shall not,
with respect to such shares of stock, be allocated any
of the items described in paragraph (1).’’.
(3) Section 1373(a) is amended by striking
‘‘and’’ at the end of paragraph (1), by striking the pe-
riod at the end of paragraph (2) and inserting ‘‘,
and’’, and adding at the end the following:
‘‘(3) no amount of an expense deductible under
this subchapter by reason of section 1361(f)(3) shall
be apportioned or allocated to such income.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1999.
SEC. 608. INCREASE IN ESTATE TAX DEDUCTION FOR FAM-
ILY-OWNED BUSINESS INTEREST.
(a) IN GENERAL.—Section 2057(a)(2) (relating to
maximum deduction) is amended by striking ‘‘$675,000’’
and inserting ‘‘$1,975,000’’.
(b) 
CONFORMING
AMENDMENTS.—Section
2057(a)(3)(B) (relating to coordination with unified credit)
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is amended by striking ‘‘$675,000’’ each place it appears
in the text and heading and inserting ‘‘$1,975,000’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 2000.
SEC. 609. CREDIT FOR EMPLOYEE HEALTH INSURANCE EX-
PENSES.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits) is
amended by adding at the end the following:
‘‘SEC. 45E. EMPLOYEE HEALTH INSURANCE EXPENSES.
‘‘(a) GENERAL RULE.—For purposes of section 38, in
the case of a small employer, the employee health insurance
expenses credit determined under this section is an amount
equal to the applicable percentage of the amount paid by
the taxpayer during the taxable year for qualified employee
health insurance expenses.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of sub-
section (a), the applicable percentage is equal to—
‘‘(1) 60 percent in the case of self-only coverage,
and
‘‘(2) 70 percent in the case of family coverage (as
defined in section 220(c)(5)).
‘‘(c) PER
EMPLOYEE
DOLLAR
LIMITATION.—The
amount of qualified employee health insurance expenses
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taken into account under subsection (a) with respect to any
qualified employee for any taxable year shall not exceed—
‘‘(1) $1,000 in the case of self-only coverage, and
‘‘(2) $1,715 in the case of family coverage (as so
defined).
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) SMALL EMPLOYER.—
‘‘(A) IN
GENERAL.—The term ‘small em-
ployer’ means, with respect to any calendar
year, any employer if such employer employed
an average of 9 or fewer employees on business
days during either of the 2 preceding calendar
years. For purposes of the preceding sentence, a
preceding calendar year may be taken into ac-
count only if the employer was in existence
throughout such year.
‘‘(B) EMPLOYERS
NOT
IN
EXISTENCE
IN
PRECEDING YEAR.—In the case of an employer
which was not in existence throughout the 1st
preceding calendar year, the determination
under subparagraph (A) shall be based on the
average number of employees that it is reason-
ably expected such employer will employ on busi-
ness days in the current calendar year.
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‘‘(2) QUALIFIED EMPLOYEE HEALTH INSURANCE
EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified em-
ployee health insurance expenses’ means any
amount paid by an employer for health insur-
ance coverage to the extent such amount is at-
tributable to coverage provided to any employee
while such employee is a qualified employee.
‘‘(B) 
EXCEPTION
FOR
AMOUNTS
PAID
UNDER
SALARY
REDUCTION
ARRANGEMENTS.—
No amount paid or incurred for health insurance
coverage pursuant to a salary reduction arrange-
ment shall be taken into account under subpara-
graph (A).
‘‘(C) HEALTH INSURANCE COVERAGE.—The
term ‘health insurance coverage’ has the meaning
given such term by section 9832(b)(1).
‘‘(3) QUALIFIED EMPLOYEE.—
‘‘(A) IN GENERAL.—The term ‘qualified em-
ployee’ means, with respect to any period, an
employee of an employer if the total amount of
wages paid or incurred by such employer to such
employee at an annual rate during the taxable
year exceeds $5,000 but does not exceed $16,000.
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‘‘(B) TREATMENT
OF
CERTAIN
EMPLOY-
EES.—For purposes of subparagraph (A), the
term ‘employee’—
‘‘(i) shall not include an employee
within the meaning of section 401(c)(1), but
‘‘(ii) shall include a leased employee
within the meaning of section 414(n).
‘‘(C) WAGES.—The term ‘wages’ has the
meaning given such term by section 3121(a) (de-
termined without regard to any dollar limitation
contained in such section).
‘‘(D) INFLATION ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 2001, the $16,000 amount contained
in subparagraph (A) shall be increased by
an amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjustment
under section 1(f)(3) for the calendar
year in which the taxable year begins,
determined by substituting ‘calendar
year 2000’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
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‘‘(ii) ROUNDING.—If any increase de-
termined under clause (i) is not a multiple
of $100, such amount shall be rounded to
the nearest multiple of $100.
‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur-
poses of this section, rules similar to the rules of section
52 shall apply.
‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction or
credit under any other provision of this chapter shall be
allowed with respect to qualified employee health insurance
expenses taken into account under subsection (a).’’.
(b) CREDIT TO BE PART OF GENERAL BUSINESS
CREDIT.—Section 38(b) (relating to current year business
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (13), by striking the period at the end of paragraph
(14) and inserting ‘‘, plus’’, and by adding at the end the
following:
‘‘(15) the employee health insurance expenses
credit determined under section 45E.’’.
(c) NO CARRYBACKS.—Subsection (d) of section 39 (re-
lating to carryback and carryforward of unused credits) is
amended by adding at the end the following:
‘‘(10) NO CARRYBACK OF SECTION 45E CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
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utable to the employee health insurance expenses cred-
it determined under section 45E may be carried back
to a taxable year ending before January 1, 2001.’’.
(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following:
‘‘Sec. 45E. Employee health insurance expenses.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred in taxable
years beginning after December 31, 2000.
TITLE VII—ESTATE AND GIFT
TAX RELIEF PROVISIONS
Subtitle A—Reductions of Estate,
Gift, and Generation-Skipping
Transfer Taxes
SEC. 701. REDUCTIONS OF ESTATE, GIFT, AND GENERA-
TION-SKIPPING TRANSFER TAXES.
(a) MAXIMUM RATE OF TAX REDUCED TO 53 PER-
CENT.—The table contained in section 2001(c)(1) is amend-
ed by striking the 2 highest brackets and inserting the fol-
lowing:
‘‘Over $2,500,000 ..............................
$1,025,800, plus 53% of the excess over
$2,500,000.’’.
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—
Subsection (c) of section 2001 is amended by striking para-
graph (2).
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(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by
subsection (a) shall apply to estates of decedents
dying, and gifts made, after December 31, 2000.
(2) SUBSECTION (b).—The amendment made by
subsection (b) shall apply to estates of decedents
dying, and gifts made, after December 31, 2003.
SEC. 702. UNIFIED CREDIT AGAINST ESTATE AND GIFT
TAXES REPLACED WITH UNIFIED EXEMPTION
AMOUNT.
(a) IN GENERAL.—
(1) ESTATE TAX.—Part IV of subchapter A of
chapter 11 is amended by inserting after section 2051
the following new section:
‘‘SEC. 2052. EXEMPTION.
‘‘(a) IN GENERAL.—For purposes of the tax imposed
by section 2001, the value of the taxable estate shall be deter-
mined by deducting from the value of the gross estate an
amount equal to the excess (if any) of—
‘‘(1) the exemption amount for the calendar year
in which the decedent died, over
‘‘(2) the sum of—
‘‘(A) the aggregate amount allowed as an
exemption under section 2521 with respect to
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gifts made by the decedent after December 31,
2003, and
‘‘(B) the aggregate amount of gifts made by
the decedent for which credit was allowed by sec-
tion 2505 (as in effect on the day before the date
of the enactment of the Taxpayer Refund Act of
1999).
Gifts which are includible in the gross estate of the decedent
shall not be taken into account in determining the amounts
under paragraph (2).
‘‘(b) EXEMPTION AMOUNT.—For purposes of sub-
section (a), the term ‘exemption amount’ means the amount
determined in accordance with the following table:
‘‘In the case of
The exemption
calendar year:
amount is:
2004 ............................................................................
$850,000
2005 ............................................................................
$950,000
2006 ............................................................................
$1,000,000
2007 or thereafter .......................................................
$1,500,000.’’.
(2) GIFT TAX.—Subchapter C of chapter 12 (re-
lating to deductions) is amended by inserting before
section 2522 the following new section:
‘‘SEC. 2521. EXEMPTION.
‘‘(a) IN GENERAL.—In computing taxable gifts for any
calendar year, there shall be allowed as a deduction in the
case of a citizen or resident of the United States an amount
equal to the excess of—
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‘‘(1) the exemption amount determined under
section 2052 for such calendar year, over
‘‘(2) the sum of—
‘‘(A) the aggregate amount allowed as an
exemption under this section for all preceding
calendar years after 2003, and
‘‘(B) the aggregate amount of gifts for which
credit was allowed by section 2505 (as in effect
on the day before the date of the enactment of the
Taxpayer Refund Act of 1999).’’.
(b) REPEAL OF UNIFIED CREDITS.—
(1) Section 2010 (relating to unified credit
against estate tax) is hereby repealed.
(2) Section 2505 (relating to unified credit
against gift tax) is hereby repealed.
(c) CONFORMING AMENDMENTS.—
(1)(A) Subparagraph (B) of section 2001(b)(1) is
amended by inserting before the comma ‘‘reduced by
the amount described in section 2052(a)(2)’’.
(B) Subsection (b) of section 2001 is amended by
adding at the end the following new sentence: ‘‘For
purposes of paragraph (2), the amount of the tax pay-
able under chapter 12 shall be determined without re-
gard to the credit provided by section 2505 (as in ef-
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fect on the day before the date of the enactment of the
Taxpayer Refund Act of 1999).’’.
(2) Subsection (f) of section 2011 is amended by
striking ‘‘, reduced by the amount of the unified cred-
it provided by section 2010’’.
(3) Subsection (a) of section 2012 is amended by
striking ‘‘and the unified credit provided by section
2010’’.
(4) Subsection (b) of section 2013 is amended by
inserting before the period at the end of the first sen-
tence ‘‘and increased by the exemption allowed under
section 2052 or 2106(a)(4) (or the corresponding pro-
visions of prior law) in determining the taxable estate
of the transferor for purposes of the estate tax’’.
(5) Subparagraph (A) of section 2013(c)(1) is
amended by striking ‘‘2010,’’.
(6) Paragraph (2) of section 2014(b) is amended
by striking ‘‘2010,’’.
(7) Clause (ii) of section 2056A(b)(12)(C) is
amended to read as follows:
‘‘(ii) to treat any reduction in the tax
imposed by paragraph (1)(A) by reason of
the credit allowable under section 2010 (as
in effect on the day before the date of the en-
actment of the Taxpayer Refund Act of
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1999) or the exemption allowable under sec-
tion 2052 with respect to the decedent as
such a credit or exemption (as the case may
be) allowable to such surviving spouse for
purposes of determining the amount of the
exemption allowable under section 2521
with respect to taxable gifts made by the
surviving spouse during the year in which
the spouse becomes a citizen or any subse-
quent year,’’.
(8) Section 2102 is amended by striking sub-
section (c).
(9) Subsection (a) of section 2106 is amended by
adding at the end the following new paragraph:
‘‘(4) EXEMPTION.—
‘‘(A) 
IN
GENERAL.—An 
exemption 
of
$60,000.
‘‘(B) RESIDENTS OF POSSESSIONS OF THE
UNITED STATES.—In the case of a decedent who
is considered to be a nonresident not a citizen of
the United States under section 2209, the exemp-
tion under this paragraph shall be the greater
of—
‘‘(i) $60,000, or
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‘‘(ii) that proportion of $175,000
which the value of that part of the dece-
dent’s gross estate which at the time of his
death is situated in the United States bears
to the value of his entire gross estate wher-
ever situated.
‘‘(C) SPECIAL RULES.—
‘‘(i) COORDINATION WITH TREATIES.—
To the extent required under any treaty ob-
ligation of the United States, the exemption
allowed under this paragraph shall be equal
to the amount which bears the same ratio to
the exemption amount under section 2052
(for the calendar year in which the decedent
died) as the value of the part of the dece-
dent’s gross estate which at the time of his
death is situated in the United States bears
to the value of his entire gross estate wher-
ever situated. For purposes of the preceding
sentence, property shall not be treated as
situated in the United States if such prop-
erty is exempt from the tax imposed by this
subchapter under any treaty obligation of
the United States.
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‘‘(ii) COORDINATION
WITH
GIFT
TAX
EXEMPTION
AND
UNIFIED
CREDIT.—If an
exemption has been allowed under section
2521 (or a credit has been allowed under
section 2505 as in effect on the day before
the date of the enactment of the Taxpayer
Refund Act of 1999) with respect to any gift
made by the decedent, each dollar amount
contained in subparagraph (A) or (B) or
the exemption amount applicable under
clause (i) of this subparagraph (whichever
applies) shall be reduced by the exemption
so allowed under 2521 (or, in the case of
such a credit, by the amount of the gift for
which the credit was so allowed).’’.
(10) Subsection (c) of section 2107 is amended—
(A) by striking paragraph (1) and by redes-
ignating paragraphs (2) and (3) as paragraphs
(1) and (2), respectively, and
(B) by striking the second sentence of para-
graph (2) (as so redesignated).
(11) Section 2206 is amended by striking ‘‘the
taxable estate’’ in the first sentence and inserting ‘‘the
sum of the taxable estate and the amount of the ex-
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emption allowed under section 2052 or 2106(a)(4) in
computing the taxable estate’’.
(12) Section 2207 is amended by striking ‘‘the
taxable estate’’ in the first sentence and inserting ‘‘the
sum of the taxable estate and the amount of the ex-
emption allowed under section 2052 or 2106(a)(4) in
computing the taxable estate’’.
(13) Subparagraph (B) of section 2207B(a)(1) is
amended to read as follows:
‘‘(B) the sum of the taxable estate and the
amount of the exemption allowed under section
2052 or 2106(a)(4) in computing the taxable es-
tate.’’.
(14) Subsection (a) of section 2503 is amended
by striking ‘‘section 2522’’ and inserting ‘‘section
2521’’.
(15) Paragraph (1) of section 6018(a) is amend-
ed by striking ‘‘the applicable exclusion amount’’ and
inserting ‘‘the exemption amount under section 2052
for the calendar year which includes the date of
death’’.
(16) Subparagraph (A) of section 6601(j)(2) is
amended to read as follows:
‘‘(A)(i) the amount of the tax which would
be imposed by chapter 11 on an amount of tax-
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able estate equal to the sum of $1,000,000 and
the exemption amount allowable under section
2052, reduced by
‘‘(ii) the amount of tax which would be so
imposed if the taxable estate equaled such exemp-
tion amount, or’’.
(17) The table of sections for part II of sub-
chapter A of chapter 11 is amended by striking the
item relating to section 2010.
(18) The table of sections for subchapter A of
chapter 12 is amended by striking the item relating
to section 2505.
(d) EFFECTIVE DATE.—The amendments made by this
section—
(1) insofar as they relate to the tax imposed by
chapter 11 of the Internal Revenue Code of 1986, shall
apply to estates of decedents dying after December 31,
2003, and
(2) insofar as they relate to the tax imposed by
chapter 12 of such Code, shall apply to gifts made
after December 31, 2003.
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Subtitle B—Conservation
Easements
SEC. 711. EXPANSION OF ESTATE TAX RULE FOR CON-
SERVATION EASEMENTS.
(a) WHERE LAND IS LOCATED.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
2031(c)(8)(A) (defining land subject to a conservation
easement) is amended—
(A) by striking ‘‘25 miles’’ both places it
appears and inserting ‘‘50 miles’’, and
(B) striking ‘‘10 miles’’ and inserting ‘‘25
miles’’.
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to estates of decedents
dying after December 31, 1999.
(b) CLARIFICATION
OF
DATE
FOR
DETERMINING
VALUE OF LAND AND EASEMENT.—
(1) IN GENERAL.—Section 2031(c)(2) (defining
applicable percentage) is amended by adding at the
end the following new sentence: ‘‘The values taken
into account under the preceding sentence shall be
such values as of the date of the contribution referred
to in paragraph (8)(B).’’.
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(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to estates of decedents
dying after December 31, 1997.
Subtitle C—Annual Gift Exclusion
SEC. 721. INCREASE IN ANNUAL GIFT EXCLUSION.
(a) IN GENERAL.—Section 2503(b) (relating to exclu-
sions from gifts) is amended—
(1) by striking the following:
‘‘(b) EXCLUSIONS FROM GIFTS.—
‘‘(1) IN GENERAL.—In the case of gifts’’,
(2) by inserting the following:
‘‘(b) EXCLUSIONS FROM GIFTS.—In the case of gifts’’,
(3) by striking paragraph (2), and
(4) 
by 
striking 
‘‘$10,000’’ 
and 
inserting
‘‘$20,000’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to gifts made after December 31, 2004.
Subtitle D—Simplification of
Generation-Skipping Transfer Tax
SEC. 731. RETROACTIVE ALLOCATION OF GST EXEMPTION.
(a) IN GENERAL.—Section 2632 (relating to special
rules for allocation of GST exemption) is amended by redes-
ignating subsection (c) as subsection (d) and by inserting
after subsection (b) the following new subsection:
‘‘(c) RETROACTIVE ALLOCATIONS.—
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‘‘(1) IN GENERAL.—If—
‘‘(A) a non-skip person has an interest or a
future interest in a trust to which any transfer
has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grand-
parent of the transferor or of a grandparent
of the transferor’s spouse, and
‘‘(ii) is assigned to a generation below
the generation assignment of the transferor,
and
‘‘(C) such person predeceases the transferor,
then the transferor may make an allocation of any of
such transferor’s unused GST exemption to any pre-
vious transfer or transfers to the trust on a chrono-
logical basis.
‘‘(2) SPECIAL RULES.—If the allocation under
paragraph (1) by the transferor is made on a gift tax
return filed on or before the date prescribed by section
6075(b) for gifts made within the calendar year with-
in which the non-skip person’s death occurred—
‘‘(A) the value of such transfer or transfers
for purposes of section 2642(a) shall be deter-
mined as if such allocation had been made on a
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timely filed gift tax return for each calendar
year within which each transfer was made,
‘‘(B) such allocation shall be effective imme-
diately before such death, and
‘‘(C) the amount of the transferor’s unused
GST exemption available to be allocated shall be
determined immediately before such death.
‘‘(3) FUTURE INTEREST.—For purposes of this
subsection, a person has a future interest in a trust
if the trust may permit income or corpus to be paid
to such person on a date or dates in the future.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to deaths of non-skip persons occurring
after the date of the enactment of this Act.
SEC. 732. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642 (re-
lating to inclusion ratio) is amended by adding at the end
the following new paragraph:
‘‘(3) SEVERING OF TRUSTS.—
‘‘(A) IN GENERAL.—If a trust is severed in
a qualified severance, the trusts resulting from
such severance shall be treated as separate trusts
thereafter for purposes of this chapter.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A)—
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‘‘(i) IN GENERAL.—The term ‘qualified
severance’ means the division of a single
trust and the creation (by any means avail-
able under the governing instrument or
under local law) of 2 or more trusts if—
‘‘(I) the single trust was divided
on a fractional basis, and
‘‘(II) the terms of the new trusts,
in the aggregate, provide for the same
succession of interests of beneficiaries
as are provided in the original trust.
‘‘(ii) TRUSTS WITH INCLUSION RATIO
GREATER THAN ZERO.—If a trust has an
inclusion ratio of greater than zero and less
than 1, a severance is a qualified severance
only if the single trust is divided into 2
trusts, one of which receives a fractional
share of the total value of all trust assets
equal to the applicable fraction of the single
trust immediately before the severance. In
such case, the trust receiving such fractional
share shall have an inclusion ratio of zero
and the other trust shall have an inclusion
ratio of 1.
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‘‘(iii) 
REGULATIONS.—The 
term
‘qualified severance’ includes any other sev-
erance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) 
TIMING
AND
MANNER
OF
SEVERANCES.—A severance pursuant to this
paragraph may be made at any time. The Sec-
retary shall prescribe by forms or regulations the
manner in which the qualified severance shall be
reported to the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to severances after the date of the enact-
ment of this Act.
SEC. 733. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR
DEEMED ALLOCATION MADE.—Paragraph (1) of section
2642(b) (relating to valuation rules, etc.) is amended to
read as follows:
‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED
OR DEEMED ALLOCATION MADE.—If the allocation of
the GST exemption to any transfers of property is
made on a gift tax return filed on or before the date
prescribed by section 6075(b) for such transfer or is
deemed to be made under section 2632(b)(1)—
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‘‘(B)(i) An entity described in clause (ii) shall be
disregarded as a separate entity and treated as part
of the association described in subparagraph (A) from
which it receives remittances described in clause (ii)
if an election is made within 30 days after the date
that such association is determined to be exempt from
tax.
‘‘(ii) An entity is described in this clause if it
is an entity or fund created before January 1, 1999,
pursuant to State law and organized and operated
exclusively to receive, hold, and invest remittances
from an association described in subparagraph (A)
and exempt from tax under subsection (a) and to
make disbursements to pay claims on insurance con-
tracts issued by such association, and to make dis-
bursements to support governmental programs to pre-
pare for or mitigate the effects of natural catastrophic
events.’’.
(b) UNRELATED BUSINESS TAXABLE INCOME.—Sub-
section (a) of section 512 (relating to unrelated business
taxable income) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA-
TIONS DESCRIBED IN SECTION 501(C)(28).—In the case
of an organization described in section 501(c)(28), the
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term ‘unrelated business taxable income’ means tax-
able income for a taxable year computed without the
application of section 501(c)(28) if, at the end of the
immediately preceding taxable year, the organiza-
tion’s net equity exceeded 15 percent of the total cov-
erage in force under insurance contracts issued by the
organization and outstanding at the end of such pre-
ceding year.’’.
(c) TRANSITIONAL RULE.—No income or gain shall be
recognized by an association as a result of a change in sta-
tus to that of an association described by section 501(c)(28)
of the Internal Revenue Code of 1986, as amended by sub-
section (a).
(d) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1999.
SEC. 802. MODIFICATIONS TO SECTION 512(b)(13).
(a) IN GENERAL.—Paragraph (13) of section 512(b)
is amended by redesignating subparagraph (E) as subpara-
graph (F) and by inserting after subparagraph (D) the fol-
lowing new paragraph:
‘‘(E) PARAGRAPH TO APPLY ONLY TO EX-
CESS PAYMENTS.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall apply only to the portion of a speci-
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(5) a total of more than 250 economically dis-
tressed urban and rural communities competed for the
20 new empowerment zones and 20 new rural enter-
prise communities, and those areas designated as
zones and communities should be provided with the
Federal incentives and encouragement they need to
attract new businesses, and the jobs they provide, in
order to stimulate economic growth and improvement;
(6) unfortunately, those areas that are designated
EZs or ECs under the 1997 and 1998 laws or rural
economic area partnerships (REAPs) by the Depart-
ment of Agriculture, are not given the full advantage
of Social Services Block Grant funds, tax credits, and
some other Federal incentives that Congress provided
to the first round of empowerment zones and enter-
prise communities authorized pursuant to 1993 budg-
et legislation;
(7) Congress should act swiftly to provide such
designated areas an equal share of tax incentives,
grant benefits, and other Federal support at aggregate
levels of at least that provided by Congress to dis-
tressed urban and rural empowerment zones and en-
terprise communities pursuant to the 1993 omnibus
budget reconciliation bill; and
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HR 2488 EAS
‘‘(ii) which meets the requirements of
clauses 
(ii) 
and 
(iii)(II) 
of 
section
170(h)(4)(A),
‘‘(iii) which exceeds the requirements of
relevant environmental and land use stat-
utes and regulations, and
‘‘(iv) which obligates the owner of the
land to pay the costs incurred by the holder
of the conservation restriction in moni-
toring compliance with such restriction,
‘‘(C) a management plan which meets the
requirements of the statutes and regulations re-
ferred to in subparagraph (B)(iii) is developed
for the conservation of the renewable resources,
and
‘‘(D) such bond would be a qualified
501(c)(3) bond (after the application of para-
graph (2)) but for the failure to use revenues de-
rived by the 501(c)(3) organization from the sale,
lease, or other use of such resource as otherwise
required by this part,
such bond shall not fail to be a qualified 501(c)(3)
bond by reason of the failure to so use such revenues
if the revenues which are not used as otherwise re-
quired by this part are used in a manner consistent