435
Extension Act of 1991 (as in effect before the
amendments made by subsection (a)).
(2) SPECIAL RULES FOR 1992.—
(A) EMPLOYMENT TAXES.—If—
(i) an employer provided an employee
with educational assistance during the pe-
riod beginning on July 1, 1992, and end-
ing on December 31, 1992,
(ii) consistent with the provisions of
section 103(a) of the Tax Extension Act of
1991 (as so in effect), such employer treat-
ed such assistance as taxable for purposes
of any employment tax and as a result of
such treatment there was an increase in
taxable wages for purposes of such tax,
(iii) on or after the date of the enact-
ment of this Act and before January 1,
1994, such employer pays such employee
amounts which are taxable wages for pur-
poses of such tax and which equal or ex-
ceed the increase referred to in clause (ii),
and
(iv) such employee did not treat such
assistance for purposes of such employ-
ment tax (or for purposes of chapter 1 of
436
the Internal Revenue Code of 1986 in the
case of employment tax imposed by chap-
ter 24 of such Code) in a manner incon-
sistent with the employer’s treatment of
such assistance,
the amendments made by subsection (a) shall
not apply to such educational assistance for
purposes of such employment tax, but, for pur-
poses of applying such employment tax (and for
purposes of the reporting requirements imposed
by chapter 61 of such Code), the taxable wages
of the employee referred to in clause (iii) shall
be reduced by the amount of the increase re-
ferred to in clause (ii). For purposes of clause
(iv), an employer may assume that the em-
ployee treated the assistance in a manner con-
sistent with the employer’s treatment unless
such employer has actual knowledge to the con-
trary.
(B) REPORTING REQUIREMENT.—An em-
ployer shall separately report the amounts of
any reduction under subparagraph (A) as non-
taxable income on any returns or receipts re-
quired under chapter 61 of such Code for cal-
endar year 1993.
437
(C) DEFINITIONS.—For purposes of this
paragraph—
(i) EMPLOYMENT
TAX.—The term
‘‘employment tax’’ means any tax imposed
by subtitle C of such Code.
(ii) 
TAXABLE
WAGES.—The 
term
‘‘taxable wages’’means—
(I) wages (as defined in section
3121(a) of such Code) in the case of
the taxes imposed by chapter 21 of
such Code,
(II) compensation (as defined in
section 3231(e) of such Code) in the
case of the taxes imposed by chapter
22 of such Code,
(III) wages (as defined in section
3306(b) of such Code) in the case of
the taxes imposed by chapter 23 of
such Code, and
(IV) wages (as defined in section
3401(a) of such Code) in the case of
the taxes imposed by chapter 24 of
such Code.
(3) INCOME TAX TREATMENT.—If—
438
(A) subparagraph (A) of paragraph (2) ap-
plies to any educational assistance referred to
in such paragraph provided to any employee,
and
(B) such employee included such assistance
in his taxable income for purposes of the tax
imposed by chapter 1 of such Code,
the amendments made by subsection (a) shall not
apply to such assistance for purposes of such chap-
ter 1, but the amount included in the gross income
of such employee by reason of wages received from
the employer referred to in subparagraph (A) of
paragraph (2) during 1993 shall be reduced in the
manner provided in such subparagraph (A).
SEC. 14102. TARGETED JOBS CREDIT.
(a) PERMANENT EXTENSION OF CREDIT.—
(1) IN GENERAL.—Subsection (c) of section 51
(relating to amount of targeted jobs credit) is
amended by striking paragraph (4).
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to individuals who
begin work for the employer after June 30, 1992.
(b) CREDIT
FOR
PARTICIPANTS
IN
APPROVED
SCHOOL-TO-WORK PROGRAMS.—
439
(1) IN GENERAL.—Subparagraph (I) of section
51(d)(1) (defining members of targeted group) is
amended to read as follows:
‘‘(I) a qualified participant in an
approved school-to-work program, or’’.
(2) QUALIFIED PARTICIPANT IN AN APPROVED
SCHOOL-TO-WORK
PROGRAM.—Paragraph (10) of
section 51(d) is amended to read as follows:
‘‘(10) QUALIFIED
PARTICIPANT
IN
AN
AP-
PROVED SCHOOL-TO-WORK PROGRAM DEFINED.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘qualified
participant in an approved school-to-work pro-
gram’ means any individual who is certified
under an approved school-to-work program as—
‘‘(i) having attained age 16 but not
having attained age 21, and
‘‘(ii) being enrolled in and making
satisfactory progress in completing such
approved school-to-work program.
‘‘(B) LIMITATION ON NUMBER OF PARTICI-
PANTS.—
‘‘(i) IN
GENERAL.—Any individual
who begins work for the employer during
any calendar year shall not be treated as
440
a qualified participant in an approved
school-to-work program unless the individ-
ual is certified under such program as an
eligible participant with respect to such
calendar year.
‘‘(ii) 
LIMITATION
ON
CERTIFI-
CATIONS.—The aggregate number of indi-
viduals certified under an approved school-
to-work program as eligible participants
with respect to any calendar year shall not
exceed the portion of the national school-
to-work program limitation for such cal-
endar year allocated under subsection (l)
to such program.
‘‘(C) APPROVED
SCHOOL-TO-WORK
PRO-
GRAM.—The term ‘approved school-to-work pro-
gram’ means any program which—
‘‘(i) is a planned program of struc-
tured job training designed to integrate
academic instruction provided by an edu-
cational institution and work-based learn-
ing provided by an employer, and
‘‘(ii) is approved by the Secretaries of
Labor and Education.
442
‘‘(E) for calendar year 1998 and any sub-
sequent calendar year is 200,000.
‘‘(2) ALLOCATION
TO
STATES.—The national
school-to-work program limitation for any calendar
year shall be allocated among the States in propor-
tion to the number of their eligible participants that
are estimated to be served in approved school-to-
work programs for that year. Such estimates shall
be published by the Secretaries of Labor and Edu-
cation before the beginning of the calendar year to
which the allocation applies.
‘‘(3) ALLOCATION
TO
APPROVED
SCHOOL-TO-
WORK
PROGRAMS.—The portion of the national
school-to-work program limitation for any calendar
year which is allocated to any State shall be allo-
cated among the approved school-to-work programs
in such State in such manner as the Secretaries of
Labor and Education shall prescribe.’’
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply in the case of individ-
uals who begin work for the employer after Decem-
ber 31, 1993.
443
PART II—INVESTMENT INCENTIVES
Subpart A—Research Credit
SEC. 14111. PERMANENT EXTENSION OF RESEARCH CRED-
IT.
(a) IN GENERAL.—Section 41 (relating to credit for
increasing research activities) is amended by striking sub-
section (h).
(b) CONFORMING AMENDMENT.—Paragraph (1) of
section 28(b) is amended by striking subparagraph (D).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after June
30, 1992.
SEC. 14112. MODIFICATION OF FIXED BASE PERCENTAGE
FOR STARTUP COMPANIES.
(a) 
GENERAL
RULE.—Clause 
(ii) 
of 
section
41(c)(3)(B) is amended to read as follows:
‘‘(ii) FIXED-BASE PERCENTAGE.—In a
case to which this subparagraph applies,
the fixed-base percentage is—
‘‘(I) 3 percent for each of the
taxpayer’s 1st 5 taxable years begin-
ning after December 31, 1993, for
which the taxpayer has qualified re-
search expenses,
‘‘(II) in the case of the tax-
payer’s 6th such taxable year, 1/6 of
444
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 4th and 5th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(III) in the case of the tax-
payer’s 7th such taxable year, 1/3 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th and 6th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(IV) in the case of the tax-
payer’s 8th such taxable year, 1/2 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, and 7th such
taxable years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(V) in the case of the taxpayer’s
9th such taxable year, 2/3 of the per-
centage which the aggregate qualified
445
research expenses of the taxpayer for
the 5th, 6th, 7th, and 8th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(VI) in the case of the tax-
payer’s 10th such taxable year, 5/6 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, 7th, 8th, and
9th such taxable years is of the aggre-
gate gross receipts of the taxpayer for
such years, and
‘‘(VII) for taxable years there-
after, the percentage which the aggre-
gate qualified research expenses for
any 5 taxable years selected by the
taxpayer from among the 5th through
the 10th such taxable years is of the
aggregate gross receipts of the tax-
payer for such selected years.’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 41(c)(3)(B) is amend-
ed by striking ‘‘clause (i)’’ and inserting ‘‘clauses (i)
and (ii)’’.
446
(2) Subparagraph (D) of section 41(c)(3) is
amended by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘subparagraphs (A) and (B)(ii)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subpart B—Capital Gain Provisions
SEC. 14113. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
(a) GENERAL RULE.—Part I of subchapter P of
chapter 1 (relating to capital gains and losses) is amended
by adding at the end thereof the following new section:
‘‘SEC. 1202. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
‘‘(a) 50–PERCENT EXCLUSION.—In the case of a tax-
payer other than a corporation, gross income shall not in-
clude 50 percent of any gain from the sale or exchange
of qualified small business stock held for more than 5
years.
‘‘(b) PER-ISSUER LIMITATION ON TAXPAYER’S ELI-
GIBLE GAIN.—
‘‘(1) IN GENERAL.—If the taxpayer has eligible
gain for the taxable year from 1 or more dispositions
of stock issued by any corporation, the aggregate
amount of such gain from dispositions of stock is-
447
sued by such corporation which may be taken into
account under subsection (a) for the taxable year
shall not exceed the greater of—
‘‘(A) $10,000,000 reduced by the aggre-
gate amount of eligible gain taken into account
under subsection (a) for prior taxable years and
attributable to dispositions of stock issued by
such corporation, or
‘‘(B) 10 times the aggregate adjusted
bases of qualified small business stock issued by
such corporation and disposed of by the tax-
payer during the taxable year.
For purposes of subparagraph (B), the adjusted
basis of any stock shall be determined without re-
gard to any addition to basis after the date on which
such stock was originally issued.
‘‘(2) ELIGIBLE
GAIN.—For purposes of this
subsection, the term ‘eligible gain’ means any gain
from the sale or exchange of qualified small business
stock held for more than 5 years.
‘‘(3) TREATMENT OF MARRIED INDIVIDUALS.—
‘‘(A) SEPARATE RETURNS.—In the case of
a separate return by a married individual, para-
graph (1)(A) shall be applied by substituting
‘$5,000,000’ for ‘$10,000,000’.
448
‘‘(B) ALLOCATION OF EXCLUSION.—In the
case of any joint return, the amount of gain
taken into account under subsection (a) shall be
allocated equally between the spouses for pur-
poses of applying this subsection to subsequent
taxable years.
‘‘(C) MARITAL STATUS.—For purposes of
this subsection, marital status shall be deter-
mined under section 7703.
‘‘(c) QUALIFIED SMALL BUSINESS STOCK.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘qualified small busi-
ness stock’ means any stock in a C corporation
which is originally issued after December 31, 1992,
if—
‘‘(A) as of the date of issuance, such cor-
poration is a qualified small business, and
‘‘(B) except as provided in subsections (f)
and (h), such stock is acquired by the taxpayer
at its original issue (directly or through an un-
derwriter)—
‘‘(i) in exchange for money or other
property (not including stock), or
449
‘‘(ii) as compensation for services pro-
vided to such corporation (other than serv-
ices performed as an underwriter of such
stock).
‘‘(2) ACTIVE BUSINESS REQUIREMENT; ETC.—
‘‘(A) IN GENERAL.—Stock in a corporation
shall not be treated as qualified small business
stock unless, during substantially all of the tax-
payer’s holding period for such stock, such cor-
poration meets the active business requirements
of subsection (e) and such corporation is a C
corporation.
‘‘(B) SPECIAL RULE FOR CERTAIN SMALL
BUSINESS INVESTMENT COMPANIES.—
‘‘(i) WAIVER OF ACTIVE BUSINESS RE-
QUIREMENT.—Notwithstanding any provi-
sion of subsection (e), a corporation shall
be treated as meeting the active business
requirements of such subsection for any
period during which such corporation
qualifies as a specialized small business in-
vestment company.
‘‘(ii) SPECIALIZED
SMALL
BUSINESS
INVESTMENT COMPANY.—For purposes of
clause (i), the term ‘specialized small busi-
450
ness investment company’ means any eligi-
ble corporation (as defined in subsection
(e)(4)) which is licensed to operate under
section 301(d) of the Small Business In-
vestment Act of 1958 (as in effect on May
13, 1993).
‘‘(3) CERTAIN PURCHASES BY CORPORATION OF
ITS OWN STOCK.—
‘‘(A) REDEMPTIONS FROM TAXPAYER OR
RELATED PERSON.—Stock acquired by the tax-
payer shall not be treated as qualified small
business stock if, at any time during the 4–year
period beginning on the date 2 years before the
issuance of such stock, the corporation issuing
such stock purchased (directly or indirectly) any
of its stock from the taxpayer or from a person
related (within the meaning of section 267(b) or
707(b)) to the taxpayer.
‘‘(B) SIGNIFICANT
REDEMPTIONS.—Stock
issued by a corporation shall not be treated as
qualified business stock if, during the 2–year
period beginning on the date 1 year before the
issuance of such stock, such corporation made
1 or more purchases of its stock with an aggre-
gate value (as of the time of the respective pur-
451
chases) exceeding 5 percent of the aggregate
value of all of its stock as of the beginning of
such 2–year period.
‘‘(C) ACQUISITIONS
BY
RELATED
PER-
SONS.—For purposes of this paragraph, the
purchase by any person related (within the
meaning of section 267(b) or 707(b)) to the is-
suing corporation of any stock in the issuing
corporation shall be treated as a purchase by
the issuing corporation.
‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified small
business’ means any domestic corporation which is a
C corporation if—
‘‘(A) the aggregate capitalization of such
corporation (or any predecessor thereof) at all
times on or after January 1, 1993, and before
the issuance did not exceed $50,000,000,
‘‘(B) the aggregate capitalization of such
corporation immediately after the issuance (de-
termined by taking into account amounts re-
ceived in the issuance) does not exceed
$50,000,000, and
452
‘‘(C) such corporation agrees to submit
such reports to the Secretary and to sharehold-
ers as the Secretary may require to carry out
the purposes of this section.
‘‘(2) AGGREGATE
CAPITALIZATION.—For pur-
poses of paragraph (1), the term ‘aggregate capital-
ization’ means the excess of—
‘‘(A) the amount of cash and the aggregate
adjusted bases of other property held by the
corporation, over
‘‘(B) the aggregate amount of the short-
term indebtedness of the corporation.
For purposes of the preceding sentence, the term
‘short-term indebtedness’ means any indebtedness
which, when incurred, did not have a term in excess
of 1 year.
‘‘(3) LOOK-THRU IN CASE OF SUBSIDIARIES.—
In determining whether a corporation meets the re-
quirements of this subsection—
‘‘(A) stock and debt of any subsidiary (as
defined in subsection (e)(5)(C)) held by such
corporation shall be disregarded, and
‘‘(B) such corporation shall be treated as
holding its ratable share of the assets of such
453
subsidiary and as being liable for its ratable
share of the indebtedness of such subsidiary.
‘‘(e) ACTIVE BUSINESS REQUIREMENT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(2), the requirements of this subsection are met
by a corporation for any period if during such pe-
riod—
‘‘(A) at least 80 percent (by value) of the
assets of such corporation are used by such cor-
poration in the active conduct of a qualified
trade or business, and
‘‘(B) such corporation is an eligible cor-
poration.
‘‘(2) SPECIAL
RULE
FOR
CERTAIN
ACTIVI-
TIES.—For purposes of paragraph (1), if, in connec-
tion with any future qualified trade or business, a
corporation is engaged in—
‘‘(A) start-up activities described in section
195(c)(1)(A),
‘‘(B) activities resulting in the payment or
incurring of expenditures which may be treated
as research and experimental expenditures
under section 174, or
‘‘(C) activities with respect to in-house re-
search expenses described in section 41(b)(4),
454
assets used in such activities shall be treated as used
in the active conduct of a qualified trade or busi-
ness. Any determination under this paragraph shall
be made without regard to whether a corporation
has any gross income from such activities at the
time of the determination.
‘‘(3) QUALIFIED
TRADE
OR
BUSINESS.—For
purposes of this subsection, the term ‘qualified trade
or business’ means any trade or business other
than—
‘‘(A) any trade or business involving the
performance of services in the fields of health,
law, engineering, architecture, accounting, actu-
arial science, performing arts, consulting, ath-
letics, financial services, brokerage services, or
any other trade or business where the principal
asset of such trade or business is the reputation
or skill of 1 or more of its employees,
‘‘(B) any banking, insurance, financing,
leasing, investing, or similar business,
‘‘(C) any farming business (including the
business of raising or harvesting trees),
‘‘(D) any business involving the production
or extraction of products of a character with re-
455
spect to which a deduction is allowable under
section 613 or 613A, and
‘‘(E) any business of operating a hotel,
motel, restaurant, or similar business.
‘‘(4) ELIGIBLE
CORPORATION.—For purposes
of this subsection, the term ‘eligible corporation’
means any domestic corporation; except that such
term shall not include—
‘‘(A) a DISC or former DISC,
‘‘(B) a corporation with respect to which
an election under section 936 is in effect,
‘‘(C) a regulated investment company, real
estate investment trust, or REMIC, and
‘‘(D) a cooperative.
‘‘(5) STOCK IN OTHER CORPORATIONS.—
‘‘(A) LOOK-THRU
IN
CASE
OF
SUBSIDI-
ARIES.—For purposes of this subsection, stock
and debt in any subsidiary corporation shall be
disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidi-
ary’s assets, and to conduct its ratable share of
the subsidiary’s activities.
‘‘(B) PORTFOLIO STOCK OR SECURITIES.—
A corporation shall be treated as failing to meet
the requirements of paragraph (1) for any pe-
456
riod during which more than 10 percent of the
value of its assets (in excess of liabilities) con-
sists of stock or securities in other corporations
which are not subsidiaries of such corporation
(other than assets described in paragraph (6)).
‘‘(C) SUBSIDIARY.—For purposes of this
paragraph, a corporation shall be considered a
subsidiary if the parent owns more than 50 per-
cent of the combined voting power of all classes
of stock entitled to vote, or more than 50 per-
cent in value of all outstanding stock, of such
corporation.
‘‘(6) WORKING
CAPITAL.—For purposes of
paragraph (1)(A), any assets which—
‘‘(A) are held as a part of the reasonably
required working capital needs of a qualified
trade or business of the corporation, or
‘‘(B) are held for investment and are rea-
sonably expected to be used within 2 years to
finance future research and experimentation in
a qualified trade or business or increases in
working capital needs of a qualified trade or
business,
shall be treated as used in the active conduct of a
qualified trade or business. For periods after the
457
corporation has been in existence for at least 2
years, in no event may more than 50 percent of the
assets of the corporation qualify as used in the ac-
tive conduct of a qualified trade or business by rea-
son of this paragraph.
‘‘(7) MAXIMUM
REAL
ESTATE
HOLDINGS.—A
corporation shall not be treated as meeting the re-
quirements of paragraph (1) for any period during
which more than 10 percent of the total value of its
assets consists of real property which is not used in
the active conduct of a qualified trade or business.
For purposes of the preceding sentence, the owner-
ship of, dealing in, or renting of real property shall
not be treated as the active conduct of a qualified
trade or business.
‘‘(8) COMPUTER
SOFTWARE
ROYALTIES.—For
purposes of paragraph (1), rights to computer soft-
ware which produces active business computer soft-
ware royalties (within the meaning of section
543(d)(1)) shall be treated as an asset used in the
active conduct of a trade or business.
‘‘(f) STOCK ACQUIRED ON CONVERSION OF PRE-
FERRED STOCK.—If any stock in a corporation is acquired
solely through the conversion of other stock in such cor-
458
poration which is qualified small business stock in the
hands of the taxpayer—
‘‘(1) the stock so acquired shall be treated as
qualified small business stock in the hands of the
taxpayer, and
‘‘(2) the stock so acquired shall be treated as
having been held during the period during which the
converted stock was held.
‘‘(g) TREATMENT OF PASS-THRU ENTITIES.—
‘‘(1) IN GENERAL.—If any amount included in
gross income by reason of holding an interest in a
pass-thru entity meets the requirements of para-
graph (2)—
‘‘(A) such amount shall be treated as gain
described in subsection (a), and
‘‘(B) for purposes of applying subsection
(b), such amount shall be treated as gain from
a disposition of stock in the corporation issuing
the stock disposed of by the pass-thru entity
and the taxpayer’s proportionate share of the
adjusted basis of the pass-thru entity in such
stock shall be taken into account.
‘‘(2) REQUIREMENTS.—An amount meets the
requirements of this paragraph if—
459
‘‘(A) such amount is attributable to gain
on the sale or exchange by the pass-thru entity
of stock which is qualified small business stock
in the hands of such entity (determined by
treating such entity as an individual) and which
was held by such entity for more than 5 years,
and
‘‘(B) such amount is includible in the gross
income of the taxpayer by reason of the holding
of an interest in such entity which was held by
the taxpayer on the date on which such pass-
thru entity acquired such stock and at all times
thereafter before the disposition of such stock
by such pass-thru entity.
‘‘(3) LIMITATION BASED ON INTEREST ORIGI-
NALLY HELD BY TAXPAYER.—Paragraph (1) shall
not apply to any amount to the extent such amount
exceeds the amount to which paragraph (1) would
have applied if such amount were determined by ref-
erence to the interest the taxpayer held in the pass-
thru entity on the date the qualified small business
stock was acquired.
‘‘(4) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
460
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(h) CERTAIN
TAX-FREE
AND
OTHER
TRANS-
FERS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer
described in paragraph (2), the transferee shall be
treated as—
‘‘(A) having acquired such stock in the
same manner as the transferor, and
‘‘(B) having held such stock during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) DESCRIPTION OF TRANSFERS.—A transfer
is described in this subsection if such transfer is—
‘‘(A) by gift,
‘‘(B) at death, or
‘‘(C) from a partnership to a partner of
stock with respect to which requirements simi-
lar to the requirements of subsection (g) are
met at the time of the transfer (without regard
to the 5-year holding period requirement).
461
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘(4) INCORPORATIONS AND REORGANIZATIONS
INVOLVING NONQUALIFIED STOCK.—
‘‘(A) IN GENERAL.—In the case of a trans-
action described in section 351 or a reorganiza-
tion described in section 368, if qualified small
business stock is exchanged for other stock
which would not qualify as qualified small busi-
ness stock but for this subparagraph, such
other stock shall be treated as qualified small
business stock acquired on the date on which
the exchanged stock was acquired.
‘‘(B) 
LIMITATION.—This 
section 
shall
apply to gain from the sale or exchange of stock
treated as qualified small business stock by rea-
son of subparagraph (A) only to the extent of
the gain which would have been recognized at
the time of the transfer described in subpara-
graph (A) if section 351 or 368 had not applied
at such time.
‘‘(C) SUCCESSIVE APPLICATION.—For pur-
poses of this paragraph, stock treated as quali-
fied small business stock under subparagraph
462
(A) shall be so treated for subsequent trans-
actions or reorganizations, except that the limi-
tation of subparagraph (B) shall be applied as
of the time of the first transfer to which sub-
paragraph (A) applied.
‘‘(D) CONTROL TEST.—Except in the case
of a transaction described in section 368, this
paragraph shall apply only if, immediately after
the transaction, the corporation issuing the
stock owns directly or indirectly stock rep-
resenting control (within the meaning of section
368(c)) of the corporation whose stock was ex-
changed.
‘‘(i) BASIS RULES.—For purposes of this section—
‘‘(1) STOCK EXCHANGED FOR PROPERTY.—In
the case where the taxpayer transfers property
(other than money or stock) to a corporation in ex-
change for stock in such corporation—
‘‘(A) such stock shall be treated as having
been acquired by the taxpayer on the date of
such exchange, and
‘‘(B) the basis of such stock in the hands
of the taxpayer shall in no event be less than
the fair market value of the property ex-
changed.
463
‘‘(2) TREATMENT OF CONTRIBUTIONS TO CAP-
ITAL.—If the adjusted basis of any qualified small
business stock is adjusted by reason of any contribu-
tion to capital after the date on which such stock
was originally issued, in determining the amount of
the adjustment by reason of such contribution, the
basis of the contributed property shall in no event be
treated as less than its fair market value on the date
of the contribution.
‘‘(j) TREATMENT OF CERTAIN SHORT POSITIONS.—
‘‘(1) IN GENERAL.—If the taxpayer has an off-
setting short position with respect to any qualified
small business stock, subsection (a) shall not apply
to any gain from the sale or exchange of such stock
unless—
‘‘(A) such stock was held by the taxpayer
for more than 5 years as of the first day on
which there was such a short position, and
‘‘(B) the taxpayer elects to recognize gain
as if such stock were sold on such first day for
its fair market value.
‘‘(2) OFFSETTING SHORT POSITION.—For pur-
poses of paragraph (1), the taxpayer shall be treated
as having an offsetting short position with respect to
any qualified small business stock if—
464
‘‘(A) the taxpayer has made a short sale of
substantially identical property,
‘‘(B) the taxpayer has acquired an option
to sell substantially identical property at a fixed
price, or
‘‘(C) to the extent provided in regulations,
the taxpayer has entered into any other trans-
action which substantially reduces the risk of
loss from holding such qualified small business
stock.
For purposes of the preceding sentence, any ref-
erence to the taxpayer shall be treated as including
a reference to any person who is related (within the
meaning of section 267(b) or 707(b)) to the tax-
payer.
‘‘(k) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
the avoidance of the purposes of this section through split-
ups, shell corporations, partnerships, or otherwise.’’
(b) ONE-HALF OF EXCLUSION TREATED AS PREF-
ERENCE FOR MINIMUM TAX.—
(1) IN GENERAL.—Subsection (a) of section 57
(relating to items of tax preference) is amended by
465
adding at the end thereof the following new para-
graph:
‘‘(8) EXCLUSION FOR GAINS ON SALE OF CER-
TAIN SMALL BUSINESS STOCK.—An amount equal to
one-half of the amount excluded from gross income
for the taxable year under section 1202.’’
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 53(d)(1)(B)(ii) is amended by striking
‘‘and (6)’’ and inserting ‘‘(6), and (8)’’.
(c) PENALTY FOR FAILURE TO COMPLY WITH RE-
PORTING REQUIREMENTS.—Section 6652 is amended by
inserting before the last subsection thereof the following
new subsection:
‘‘(k) FAILURE
TO
MAKE
REPORTS
REQUIRED
UNDER SECTION 1202.—In the case of a failure to make
a report required under section 1202(d)(1)(C) which con-
tains the information required by such section on the date
prescribed therefor (determined with regard to any exten-
sion of time for filing), there shall be paid (on notice and
demand by the Secretary and in the same manner as tax)
by the person failing to make such report, an amount
equal to $50 for each report with respect to which there
was such a failure. In the case of any failure due to neg-
ligence or intentional disregard, the preceding sentence
shall be applied by substituting ‘$100’ for ‘$50’. In the
466
case of a report covering periods in 2 or more years, the
penalty determined under preceding provisions of this sub-
section shall be multiplied by the number of such years.’’
(d) CONFORMING AMENDMENTS.—
(1)(A) Section 172(d)(2) (relating to modifica-
tions with respect to net operating loss deduction) is
amended to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation—
‘‘(A) the amount deductible on account of
losses from sales or exchanges of capital assets
shall not exceed the amount includable on ac-
count of gains from sales or exchanges of cap-
ital assets; and
‘‘(B) the exclusion provided by section
1202 shall not be allowed.’’
(B) Subparagraph (B) of section 172(d)(4) is
amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph
(1)’’.
(2) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain described in section
467
1202(a), proper adjustment shall be made for any
exclusion allowable to the estate or trust under sec-
tion 1202. In the case of a trust, the deduction al-
lowed by this subsection shall be subject to section
681 (relating to unrelated business income).’’
(3) Paragraph (3) of section 643(a) is amended
by adding at the end thereof the following new sen-
tence: ‘‘The exclusion under section 1202 shall not
be taken into account.’’
(4) Paragraph (4) of section 691(c) is amended
by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,
1202, and 1211’’.
(5) The second sentence of paragraph (2) of
section 871(a) is amended by inserting ‘‘such gains
and losses shall be determined without regard to sec-
tion 1202 and’’ after ‘‘except that’’.
(6) The table of sections for part I of sub-
chapter P of chapter 1 is amended by adding after
the item relating to section 1201 the following new
item:
‘‘Sec. 1202. 50-percent exclusion for gain from certain small busi-
ness stock.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after December 31,
1992.
468
SEC. 14114. ROLLOVER OF GAIN FROM SALE OF PUBLICLY
TRADED 
SECURITIES 
INTO 
SPECIALIZED
SMALL BUSINESS INVESTMENT COMPANIES.
(a) IN GENERAL.—Part III of subchapter O of chap-
ter 1 (relating to common nontaxable exchanges) is
amended by adding at the end the following new section:
‘‘SEC. 1044. ROLLOVER OF PUBLICLY TRADED SECURITIES
GAIN INTO SPECIALIZED SMALL BUSINESS
INVESTMENT COMPANIES.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of the
sale of any publicly traded securities with respect to which
the taxpayer elects the application of this section, gain
from such sale shall be recognized only to the extent that
the amount realized on such sale exceeds—
‘‘(1) the cost of any common stock or partner-
ship interest in a specialized small business invest-
ment company purchased by the taxpayer during the
60-day period beginning on the date of such sale, re-
duced by
‘‘(2) any portion of such cost previously taken
into account under this section.
This section shall not apply to any gain which is treated
as ordinary income for purposes of this subtitle.
‘‘(b) LIMITATIONS.—
‘‘(1) LIMITATION
ON
INDIVIDUALS.—In the
case of an individual, the amount of gain which may
469
be excluded under subsection (a) for any taxable
year shall not exceed the lesser of—
‘‘(A) $50,000, or
‘‘(B) $500,000, reduced by the amount of
gain excluded under subsection (a) for all pre-
ceding taxable years.
‘‘(2) LIMITATION ON C CORPORATIONS.—In the
case of a C corporation, the amount of gain which
may be excluded under subsection (a) for any tax-
able year shall not exceed the lesser of—
‘‘(A) $250,000, or
‘‘(B) $1,000,000, reduced by the amount
of gain excluded under subsection (a) for all
preceding taxable years.
‘‘(3) SPECIAL RULES FOR MARRIED INDIVID-
UALS.—For purposes of this subsection—
‘‘(A) SEPARATE RETURNS.—In the case of
a separate return by a married individual, para-
graph (1) shall be applied by substituting
‘$25,000’ for ‘$50,000’ and ‘$250,000’ for
‘$500,000’.
‘‘(B) ALLOCATION OF GAIN.—In the case
of any joint return, the amount of gain ex-
cluded under subsection (a) for any taxable
year shall be allocated equally between the
470
spouses for purposes of applying this subsection
to subsequent taxable years.
‘‘(C) MARITAL STATUS.—For purposes of
this subsection, marital status shall be deter-
mined under section 7703.
‘‘(4) SPECIAL RULES FOR C CORPORATION.—
For purposes of this subsection—
‘‘(A) all corporations which are members
of the same controlled group of corporations
(within the meaning of section 52(a)) shall be
treated as 1 taxpayer, and
‘‘(B) any gain excluded under subsection
(a) by a predecessor of any C corporation shall
be treated as having been excluded by such C
corporation.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) PUBLICLY
TRADED
SECURITIES.—The
term ‘publicly traded securities’ means securities
which are traded on an established securities mar-
ket.
‘‘(2) PURCHASE.—The term ‘purchase’ has the
meaning given such term by section 1043(b)(4).
‘‘(3) SPECIALIZED
SMALL
BUSINESS
INVEST-
MENT COMPANY.—The term ‘specialized small busi-
471
ness investment company’ means any partnership or
corporation which is licensed by the Small Business
Administration under section 301(d) of the Small
Business Investment Act of 1958 (as in effect on
May 13, 1993).
‘‘(4) CERTAIN ENTITIES NOT ELIGIBLE.—This
section shall not apply to any estate, trust, partner-
ship, or S corporation.
‘‘(d) BASIS ADJUSTMENTS.—If gain from any sale is
not recognized by reason of subsection (a), such gain shall
be applied to reduce (in the order acquired) the basis for
determining gain or loss of any common stock or partner-
ship interest in any specialized small business investment
company which is purchased by the taxpayer during the
60-day period described in subsection (a). This subsection
shall not apply for purposes of section 1202.’’
(b) CONFORMING AMENDMENT.—Paragraph (24) of
section 1016(a) is amended—
(1) by striking ‘‘section 1043’’ and inserting
‘‘section 1043 or 1044’’, and
(2) by striking ‘‘section 1043(c)’’ and inserting
‘‘section 1043(c) or 1044(d), as the case may be’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter O of chapter 1 is amended by
adding at the end the following new item:
472
‘‘Sec. 1044. Rollover of publicly traded securities gain into spe-
cialized small business investment companies.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales on and after the date of
the enactment of this Act, in taxable years ending on and
after such date.
Subpart C—Modifications To Minimum Tax
Depreciation Rules
SEC. 14115. MODIFICATION TO MINIMUM TAX DEPRECIA-
TION RULES.
(a) GENERAL RULE.—Paragraph (1) of section 56(a)
(relating to depreciation) is amended by redesignating
subparagraphs (B), (C), and (D) as subparagraphs (C),
(D), and (E), respectively, and by inserting after subpara-
graph (A) the following new subparagraph:
‘‘(B) TREATMENT OF CERTAIN PERSONAL
PROPERTY PLACED IN SERVICE AFTER 1993.—
‘‘(i) IN GENERAL.—In the case of any
property to which this subparagraph ap-
plies, the depreciation deduction allowable
under section 167 shall be determined as
provided in section 168(a), except that the
method of depreciation used shall be—
‘‘(I) the 120 percent declining
balance method switching to the
straight line method for the 1st tax-
473
able year for which using the straight
line method with respect to the ad-
justed basis as of the beginning of the
year will yield a higher allowance, or
‘‘(II) the straight line method in
the case of property for which the ap-
plicable depreciation method under
section 168(a) is the straight line
method.
‘‘(ii) PROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—This subparagraph shall
apply to any tangible property placed in
service after December 31, 1993, except
that this subparagraph shall not apply
to—
‘‘(I) any residential rental prop-
erty or nonresidential real property
(within 
the 
meaning 
of 
section
168(e)), and
‘‘(II) any other property for
which the depreciation deduction pro-
vided by section 167(a) for purposes
of the regular tax is computed under
the alternative depreciation system of
section 168(g).
474
‘‘(iii) COORDINATION WITH SUBPARA-
GRAPH (A).—Subparagraph (A) shall not
apply to any property to which this sub-
paragraph applies.’’
(b) ELIMINATION OF ACE DEPRECIATION ADJUST-
MENT.—Clause (i) of section 56(g)(4)(A) (relating to de-
preciation adjustments for computing adjusted current
earnings) is amended by adding at the end thereof the
following new sentence: ‘‘The preceding sentence shall not
apply to any property to which subsection (a)(1)(B) ap-
plies, and the depreciation deduction with respect to such
property shall be determined under the rules of subsection
(a)(1)(B).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 168(b) is amended
to read as follows:
‘‘(2) SPECIAL RULE FOR DECLINING BALANCE
METHOD IN CERTAIN CASES.—
‘‘(A) 150 PERCENT METHOD FOR CERTAIN
PROPERTY.—Paragraph (1) shall be applied by
substituting ‘150 percent’ for ‘200 percent’ in
the case of—
‘‘(i) any 15-year or 20-year property,
or
475
‘‘(ii) any property used in a farming
business (within the meaning of section
263A(e)(4)).
‘‘(B) ELECTION
TO
USE
MINIMUM
TAX
METHOD.—In the case of any property (other
than property described in paragraph (3)) with
respect to which the taxpayer elects under para-
graph (5) to have the provisions of this sub-
paragraph apply, paragraph (1) shall be applied
by substituting ‘120 percent’ for ‘200 percent’
(and subparagraph (A) of this paragraph shall
not apply).’’
(2) Paragraph (5) of section 168(b) is amended
by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para-
graph (2)(B)’’.
(3) Subsection (c) of section 168 is amended—
(A) by striking paragraph (2), and
(B) by striking so much of such subsection
as precedes the table contained in paragraph
(1) and inserting the following:
‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes
of this section, the applicable recovery period shall be de-
termined in accordance with the following table:’’.
(d) EFFECTIVE DATES.—
476
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to property placed in service after De-
cember 31, 1993.
(2) 
COORDINATION
WITH
TRANSITIONAL
RULES.—The amendments made by this section
shall not apply to any property to which paragraph
(1) of section 56(a) of the Internal Revenue Code of
1986 does not apply by reason of subparagraph
(D)(i) thereof (as redesignated by subsection (a) of
this section).
Subpart D—Increase in Expense Treatment for Small
Businesses
SEC. 14116. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section
179(b) (relating to dollar limitation) is amended by strik-
ing ‘‘$10,000’’ and inserting ‘‘$25,000’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1992.
477
PART III—TAX-EXEMPT BOND PROVISIONS
SEC. 14121. HIGH-SPEED INTERCITY RAIL FACILITY BONDS
EXEMPT FROM STATE VOLUME CAP.
(a) IN GENERAL.—Paragraph (4) of section 146(g)
(relating to exemption for certain bonds) is amended by
striking ‘‘75 percent of’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after December
31, 1993.
SEC. 14122. PERMANENT EXTENSION OF QUALIFIED SMALL
ISSUE BONDS.
(a) IN
GENERAL.—Subparagraph (B) of section
144(a)(12) is amended to read as follows:
‘‘(B) BONDS
ISSUED
TO
FINANCE
MANUFACTURING
FACILITIES
AND
FARM
PROPERTY.—Subparagraph (A) shall not
apply to any bond issued as part of an
issue 95 percent or more of the net pro-
ceeds of which are to be used to provide—
‘‘(i) any manufacturing facility, or
‘‘(ii) any land or property in accord-
ance with section 147(c)(2).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after June 30,
1992.
478
PART IV—EXPANSION AND SIMPLIFICATION OF
EARNED INCOME TAX CREDIT
SEC. 14131. EXPANSION AND SIMPLIFICATION OF EARNED
INCOME TAX CREDIT.
(a) GENERAL RULE.—Section 32 (relating to earned
income credit) is amended by striking subsections (a) and
(b) and inserting the following:
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—In the case of an eligible
individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year
an amount equal to the credit percentage of so much
of the taxpayer’s earned income for the taxable year
as does not exceed the earned income amount.
‘‘(2) LIMITATION.—The amount of the credit
allowable to a taxpayer under paragraph (1) for any
taxable year shall not exceed the excess (if any) of—
‘‘(A) the credit percentage of the earned
income amount, over
‘‘(B) the phaseout percentage of so much
of the adjusted gross income (or, if greater, the
earned income) of the taxpayer for the taxable
year as exceeds the phaseout amount.
‘‘(b) PERCENTAGES AND AMOUNTS.—For purposes
of subsection (a)—
479
‘‘(1) PERCENTAGES.—The credit percentage
and the phaseout percentage shall be determined as
follows:
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an
eligible individ-
ual with:
The credit per-
centage is:
The phaseout per-
centage is:
1 qualifying child .....
34.37 ..........................
16.16
2 or more qualifying
children .................
39.66 ..........................
19.83
No qualifying chil-
dren ......................
7.65 ..........................
7.65
‘‘(B) TRANSITIONAL
PERCENTAGES.—In
the case of a taxable year beginning in 1994:
In the case of
an eligible in-
dividual with:
The credit per-
centage is:
The phaseout per-
centage is:
1 qualifying child .
26.60 ..........................
16.16
2 or more qualify-
ing children ......
31.59 ..........................
15.79
No qualifying chil-
dren .................
7.65 ..........................
7.65
‘‘(2) AMOUNTS.—The earned income amount
and the phaseout amount shall be determined as fol-
lows:
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an
eligible individ-
ual with:
The earned in-
come amount is:
The phaseout
amount is:
1 qualifying child .....
$6,000 ........................
$11,000
2 or more qualifying
children .................
$8,500 ........................
$11,000
No qualifying chil-
dren ......................
$4,000 ........................
$5,000
480
‘‘(B) TRANSITIONAL
AMOUNTS.—In the
case of a taxable year beginning in 1994:
In the case of
an eligible in-
dividual with:
The earned in-
come amount is:
The phaseout
amount is:
1 qualifying child .
$7,750 ........................
$11,000
2 or more qualify-
ing children ......
$8,500 ........................
$11,000
No qualifying chil-
dren .................
$4,000 ........................
$5,000’’.
(b) ELIGIBLE INDIVIDUAL.—Subparagraph (A) of
section 32(c)(1) (defining eligible individual) is amended
to read as follows:
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means—
‘‘(i) any individual who has a qualify-
ing child for the taxable year, or
‘‘(ii) any other individual who does
not have a qualifying child for the taxable
year, if—
‘‘(I) such individual’s principal
place of abode is in the United States
for more than one-half of such taxable
year,
‘‘(II) such individual (or, if the
individual is married, the individual’s
spouse) has attained age 22 before
the close of the taxable year, and
481
‘‘(III) such individual (or, if the
individual is married, the individual’s
spouse) is not a dependent for whom
a deduction is allowable under section
151 to another taxpayer for any tax-
able year beginning in the same cal-
endar year as such taxable year.’’
(c) INFLATION ADJUSTMENTS.—Section 32(i) (relat-
ing to inflation adjustments) is amended—
(1) by striking paragraphs (1) and (2) and in-
serting the following new paragraph:
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning after 1994, each dollar amount con-
tained in subsection (b)(2)(A) shall be increased by
an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3), for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 1993’ for ‘calendar year
1992’.’’, and
(2) by redesignating paragraph (3) as para-
graph (2).
(d) CONFORMING AMENDMENTS.—
482
(1) Subparagraph (D) of section 32(c)(3) is
amended—
(A) by striking ‘‘clause (i) or (ii)’’ in clause
(iii) and inserting ‘‘clause (i)’’,
(B) by striking clause (ii), and
(C) by redesignating clause (iii) as clause
(ii).
(2) Paragraph (3) of section 162(l) is amended
to read as follows:
‘‘(3) COORDINATION
WITH
MEDICAL
DEDUC-
TION.—Any amount paid by a taxpayer for insur-
ance to which paragraph (1) applies shall not be
taken into account in computing the amount allow-
able to the taxpayer as a deduction under section
213(a).’’
(3) Section 213 is amended by striking sub-
section (f).
(4) Subsection (b) of section 3507 is amended
by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
‘‘(2) certifies that the employee has 1 or more
qualifying children (within the meaning of section
32(c)(3)) for such taxable year,’’.
483
(5) Subparagraph (B) of section 3507(c)(2) is
amended by striking clauses (i) and (ii) and insert-
ing the following:
‘‘(i) of not more than the credit per-
centage in effect under section 32(b)(1) for
an eligible individual with 1 qualifying
child and with earned income not in excess
of the earned income amount in effect
under section 32(b)(2) for such an eligible
individual, which
‘‘(ii) phases out at the phaseout per-
centage in effect under section 32(b)(1) for
such an eligible individual between the
phaseout amount in effect under section
32(b)(2) for such an eligible individual and
the amount of earned income at which the
credit under section 32(a) phases out for
such an eligible individual, or’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
484
PART V—INCENTIVES FOR INVESTMENT IN REAL
ESTATE
Subpart A—Extension of Qualified Mortgage Bonds
and Low-Income Housing Credit
SEC. 14141. PERMANENT EXTENSION OF QUALIFIED MORT-
GAGE BONDS.
(a) IN GENERAL.—Paragraph (1) of section 143(a)
(defining qualified mortgage bond) is amended to read as
follows:
‘‘(1) QUALIFIED MORTGAGE BOND DEFINED.—
For purposes of this title, the term ‘qualified mort-
gage bond’ means a bond which is issued as part of
a qualified mortgage issue.’’
(b) MORTGAGE CREDIT CERTIFICATES.—Section 25
is amended by striking subsection (h) and by redesignat-
ing subsections (i) and (j) as subsections (h) and (i), re-
spectively.
(c) EFFECTIVE DATES.—
(1) BONDS.—The amendment made by sub-
section (a) shall apply to bonds issued after June
30, 1992.
(2) CERTIFICATES.—The amendment made by
subsection (b) shall apply to elections for periods
after June 30, 1992.
485
SEC. 14142. PERMANENT EXTENSION OF LOW-INCOME
HOUSING CREDIT.
(a) IN GENERAL.—Section 42 (relating to low-income
housing credit) is amended by striking subsection (o).
(b) HOME ASSISTANCE NOT TO RESULT IN CER-
TAIN
BUILDINGS
BEING
FEDERALLY
SUBSIDIZED.—
Paragraph (2) of section 42(i) (relating to determination
of whether building is federally subsidized) is amended by
adding at the end thereof the following new subparagraph:
‘‘(E) BUILDINGS RECEIVING HOME ASSIST-
ANCE.—Assistance provided under the HOME
Investment Partnerships Act (as in effect on
the date of the enactment of this subparagraph)
with respect to any building shall not be taken
under subparagraph (D) if 40 percent or more
of the residential units in the building are occu-
pied by individuals whose income is 50 percent
or less of area median gross income. Subsection
(d)(5)(C) shall not apply to any building to
which the preceding sentence applies.’’.
(c) EFFECTIVE DATES.—
(1) The amendment made by subsection (a)
shall apply to periods after June 30, 1992.
(2) The amendment made by subsection (b)
shall apply to periods after the date of the enact-
ment of this Act.
486
Subpart B—Modification of Passive Loss Rules
SEC. 14143. APPLICATION OF PASSIVE LOSS RULES TO
RENTAL REAL ESTATE ACTIVITIES.
(a) RENTAL REAL ESTATE ACTIVITIES OF PERSONS
IN REAL PROPERTY BUSINESS NOT AUTOMATICALLY
TREATED AS PASSIVE ACTIVITIES.—Subsection (c) of sec-
tion 469 (defining passive activity) is amended by adding
at the end thereof the following new paragraph:
‘‘(7) SPECIAL RULES FOR TAXPAYERS IN REAL
PROPERTY BUSINESS.—
‘‘(A) IN GENERAL.—If this paragraph ap-
plies to any taxpayer for a taxable year—
‘‘(i) paragraph (2) shall not apply to
any rental real estate activity of such tax-
payer for such taxable year, and
‘‘(ii) this section shall be applied as if
each interest of the taxpayer in rental real
estate were a separate activity.
Notwithstanding clause (ii), a taxpayer may
elect to treat all interests in rental real estate
as one activity. Nothing in the preceding provi-
sions of this subparagraph shall be construed as
affecting the determination of whether the tax-
payer materially participates with respect to
any interest in a limited partnership as a lim-
ited partner.
487
‘‘(B) TAXPAYERS
TO
WHOM
PARAGRAPH
APPLIES.—This paragraph shall apply to a tax-
payer for a taxable year if more than one-half
of the personal services performed in trades or
businesses by the taxpayer during such taxable
year are performed in real property trades or
businesses in which the taxpayer materially par-
ticipates.
‘‘(C) REAL
PROPERTY
TRADE
OR
BUSI-
NESS.—For purposes of this paragraph, the
term ‘real property trade or business’ means
any real property development, redevelopment,
construction, reconstruction, acquisition, con-
version, rental, operation, management, leasing,
or brokerage trade or business.
‘‘(D) SPECIAL RULES FOR SUBPARAGRAPH
(B).—
‘‘(i) CLOSELY
HELD
C
CORPORA-
TIONS.—In the case of a closely held C
corporation, the requirements of subpara-
graph (B) shall be treated as met for any
taxable year if more than 50 percent of the
gross receipts of such corporation for such
taxable year are derived from real property
488
trades or businesses in which the corpora-
tion materially participates.
‘‘(ii) PERSONAL SERVICES AS AN EM-
PLOYEE.—For purposes of subparagraph
(B), personal services performed as an em-
ployee shall not be treated as performed in
real property trades or businesses. The
preceding sentence shall not apply if such
employee is a 5-percent owner (as defined
in section 416(i)(1)(B)) in the employer.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 469(c) is amended
by striking ‘‘The’’ and inserting ‘‘Except as provided
in paragraph (7), the’’.
(2) Clause (iv) of section 469(i)(3)(E) is
amended by inserting ‘‘or any loss allowable by rea-
son of subsection (c)(7)’’ after ‘‘loss’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
489
Subpart C—Provisions Relating To Real Estate
Investments by Pension Funds
SEC. 14144. REAL ESTATE PROPERTY ACQUIRED BY A
QUALIFIED ORGANIZATION.
(a) MODIFICATIONS
OF EXCEPTIONS.—Paragraph
(9) of section 514(c) (relating to real property acquired
by a qualified organization) is amended by adding at the
end thereof the following new subparagraphs:
‘‘(G) SPECIAL RULES FOR PURPOSES OF
THE
EXCEPTIONS.—Except as otherwise pro-
vided by regulations—
‘‘(i) SMALL LEASES DISREGARDED.—
For purposes of clauses (iii) and (iv) of
subparagraph (B), a lease to a person de-
scribed in such clause (iii) or (iv) shall be
disregarded if no more than 25 percent of
the leasable floor space in a building (or
complex of buildings) is covered by the
lease and if the lease is on commercially
reasonable terms.
‘‘(ii) COMMERCIALLY REASONABLE FI-
NANCING.—Clause (v) of subparagraph (B)
shall not apply if the financing is on com-
mercially reasonable terms.
‘‘(H) QUALIFYING
SALES
BY
FINANCIAL
INSTITUTIONS.—
490
‘‘(i) IN GENERAL.—In the case of a
qualifying sale by a financial institution,
except as provided in regulations, clauses
(i) and (ii) of subparagraph (B) shall not
apply with respect to financing provided by
such institution for such sale.
‘‘(ii) QUALIFYING
SALE.—For pur-
poses of this clause, there is a qualifying
sale by a financial institution if—
‘‘(I) a qualified organization ac-
quires property described in clause
(iii) from a financial institution and
any gain recognized by the financial
institution with respect to the prop-
erty is ordinary income,
‘‘(II) the stated principal amount
of the financing provided by the finan-
cial institution does not exceed the
amount of the outstanding indebted-
ness (including accrued but unpaid in-
terest) of the financial institution with
respect to the property described in
clause (iii) immediately before the ac-
quisition referred to in clause (iii) or
(v), whichever is applicable, and
491
‘‘(III) the present value (deter-
mined as of the time of the sale and
by using the applicable Federal rate
determined under section 1274(d)) of
the maximum amount payable pursu-
ant to the financing that is deter-
mined by reference to the revenue, in-
come, or profits derived from the
property cannot exceed 30 percent of
the total purchase price of the prop-
erty (including the contingent pay-
ments).
‘‘(iii) PROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—Property is described in
this clause if such property is foreclosure
property, or is real property which—
‘‘(I) was acquired by the quali-
fied organization from a financial in-
stitution which is in conservatorship
or receivership, or from the conserva-
tor or receiver of such an institution,
and
‘‘(II) was held by the financial
institution at the time it entered into
conservatorship or receivership.
492
‘‘(iv) FINANCIAL
INSTITUTION.—For
purposes of this subparagraph, the term
‘financial institution’ means—
‘‘(I) any financial institution de-
scribed in section 581 or 591(a),
‘‘(II) any other corporation which
is a direct or indirect subsidiary of an
institution referred to in subclause (I)
but only if, by virtue of being affili-
ated with such institution, such other
corporation is subject to supervision
and examination by a Federal or
State agency which regulates institu-
tions referred to in subclause (I), and
‘‘(III) any person acting as a
conservator or receiver of an entity re-
ferred to in subclause (I) or (II) (or
any government agency or corporation
succeeding to the rights or interest of
such person).
‘‘(v) FORECLOSURE PROPERTY.—For
purposes of this subparagraph, the term
‘foreclosure property’ means any real prop-
erty acquired by the financial institution as
the result of having bid on such property
493
at foreclosure, or by operation of an agree-
ment or process of law, after there was a
default (or a default was imminent) on in-
debtedness which such property secured.’’.
(b) CONFORMING AMENDMENT.—Paragraph (9) of
section 514(c) is amended—
(1) by adding the following new sentence at the
end of subparagraph (A): ‘‘For purposes of this
paragraph, an interest in a mortgage shall in no
event be treated as real property.’’, and
(2) by striking the last sentence of subpara-
graph (B).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to acquisitions on or after
January 1, 1994.
(2) SMALL LEASES.—The provisions of section
514(c)(9)(G)(i) of the Internal Revenue Code of
1986 shall, in addition to any leases to which the
provisions apply by reason of paragraph (1), apply
to leases entered into on or after January 1, 1994.
SEC. 14145. REPEAL OF SPECIAL TREATMENT OF PUBLICLY
TREATED PARTNERSHIPS.
(a) GENERAL RULE.—Subsection (c) of section 512
is amended—
494
(1) by striking paragraph (2),
(2) by redesignating paragraph (3) as para-
graph (2), and
(3) by striking ‘‘paragraph (1) or (2)’’ in para-
graph (2) (as so redesignated) and inserting ‘‘para-
graph (1)’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to partnership years beginning
on or after January 1, 1994.
SEC. 14146. TITLE-HOLDING COMPANIES PERMITTED TO
RECEIVE SMALL AMOUNTS OF UNRELATED
BUSINESS TAXABLE INCOME.
(a) GENERAL RULE.—Paragraph (25) of section
501(c) is amended by adding at the end thereof the follow-
ing new subparagraph:
‘‘(G)(i) An organization shall not be treat-
ed as failing to be described in this paragraph
merely by reason of the receipt of any otherwise
disqualifying income which is incidentally de-
rived from the holding of real property.
‘‘(ii) Clause (i) shall not apply if the
amount of gross income described in such
clause exceeds 10 percent of the organization’s
gross income for the taxable year unless the or-
ganization establishes to the satisfaction of the
495
Secretary that the receipt of gross income de-
scribed in clause (i) in excess of such limitation
was inadvertent and reasonable steps are being
taken to correct the circumstances giving rise to
such income.’’
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 501(c) is amended by adding at the end thereof
the following new sentence: ‘‘Rules similar to the rules of
subparagraph (G) of paragraph (25) shall apply for pur-
poses of this paragraph.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning on or
after January 1, 1994.
SEC. 14147. EXCLUSION FROM UNRELATED BUSINESS TAX
OF GAINS FROM CERTAIN PROPERTY.
(a) GENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the
end thereof the following new paragraph:
‘‘(16)(A) Notwithstanding paragraph (5)(B),
there shall be excluded all gains or losses from the
sale, exchange, or other disposition of any real prop-
erty described in subparagraph (B) if—
‘‘(i) such property was acquired by the or-
ganization from—
496
‘‘(I) a financial institution described
in section 581 or 591(a) which is in
conservatorship or receivership, or
‘‘(II) the conservator or receiver of
such an institution (or any government
agency or corporation succeeding to the
rights or interests of the conservator or re-
ceiver),
‘‘(ii) such property is designated by the or-
ganization within the 9-month period beginning
on the date of its acquisition as property held
for sale, except that not more than one-half (by
value determined as of such date) of property
acquired in a single transaction may be so
designated,
‘‘(iii) such sale, exchange, or disposition
occurs before the later of—
‘‘(I) the date which is 30 months after
the date of the acquisition of such prop-
erty, or
‘‘(II) the date specified by the Sec-
retary in order to assure an orderly dis-
position of property held by persons de-
scribed in subparagraph (A), and
497
‘‘(iv) while such property was held by the
organization, the aggregate expenditures on im-
provements and development activities included
in the basis of the property are (or were) not
in excess of 20 percent of the net selling price
of such property.
‘‘(B) Property is described in this subparagraph
if it is real property which—
‘‘(i) was held by the financial institution at
the time it entered into conservatorship or re-
ceivership, or
‘‘(ii) was foreclosure property (as defined
in section 514(c)(9)(H)(v)) which secured in-
debtedness held by the financial institution at
such time.
For purposes of this subparagraph, real property in-
cludes an interest in a mortgage.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to property acquired on or after
January 1, 1994.
SEC. 14148. EXCLUSION FROM UNRELATED BUSINESS TAX
OF CERTAIN FEES AND OPTION PREMIUMS.
(a) LOAN COMMITMENT FEES.—Paragraph (1) of
section 512(b) (relating to modifications) is amended by
inserting ‘‘amounts received or accrued as consideration
498
for entering into agreements to make loans,’’ before ‘‘and
annuities’’.
(b) OPTION PREMIUMS.—The second sentence of sec-
tion 512(b)(5) is amended—
(1) by striking ‘‘all gains on’’ and inserting ‘‘all
gains or losses recognized, in connection with the or-
ganization’s investment activities, from’’,
(2) by striking ‘‘, written by the organization in
connection with its investment activities,’’ and
(3) by inserting ‘‘or real property and all gains
or losses from the forfeiture of good-faith deposits
(that are consistent with established business prac-
tice) for the purchase, sale, or lease of real property
in connection with the organization’s investment ac-
tivities’’ before the period.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received on or after
January 1, 1994.
SEC. 14149. TREATMENT OF PENSION FUND INVESTMENTS
IN REAL ESTATE INVESTMENT TRUSTS.
(a) GENERAL RULE.—Subsection (h) of section 856
(relating to closely held determinations) is amended by
adding at the end thereof the following new paragraph:
‘‘(3) TREATMENT
OF
TRUSTS
DESCRIBED
IN
SECTION 401(a).—
499
‘‘(A) LOOK-THRU TREATMENT.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in determining whether
the stock ownership requirement of section
542(a)(2) is met for purposes of paragraph
(1)(A), any stock held by a qualified trust
shall be treated as held directly by its
beneficiaries in proportion to their actuar-
ial interests in such trust and shall not be
treated as held by such trust.
‘‘(ii) CERTAIN RELATED TRUSTS NOT
ELIGIBLE.—Clause (i) shall not apply to
any qualified trust if one or more disquali-
fied 
persons 
(as 
defined 
in 
section
4975(e)(2), without regard to subpara-
graphs (B) and (I) thereof) with respect to
such qualified trust hold in the aggregate
5 percent or more in value of the interests
in the real estate investment trust and
such real estate investment trust has accu-
mulated earnings and profits attributable
to any period for which it did not qualify
as a real estate investment trust.
‘‘(B) 
COORDINATION
WITH
PERSONAL
HOLDING
COMPANY
RULES.—If any entity
500
qualifies as a real estate investment trust for
any taxable year by reason of subparagraph
(A), such entity shall not be treated as a per-
sonal holding company for such taxable year for
purposes of part II of subchapter G of this
chapter.
‘‘(C) TREATMENT FOR PURPOSES OF UN-
RELATED
BUSINESS
TAX.—If any qualified
trust holds more than 10 percent (by value) of
the interests in any pension-held REIT at any
time during a taxable year, the trust shall be
treated as having for such taxable year gross
income from an unrelated trade or business in
an amount which bears the same ratio to the
aggregate dividends paid (or treated as paid) by
the REIT to the trust for the taxable year of
the REIT with or within which the taxable year
of the trust ends (the ‘REIT year’) as—
‘‘(i) the gross income (less direct ex-
penses related thereto) of the REIT for the
REIT year from unrelated trades or busi-
nesses (determined as if the REIT were a
qualified trust), bears to
501
‘‘(ii) the gross income (less direct ex-
penses related thereto) of the REIT for the
REIT year.
This subparagraph shall apply only if the ratio
determined under the preceding sentence is at
least 5 percent.
‘‘(D) PENSION-HELD REIT.—The purposes
of subparagraph (C)—
‘‘(i) IN GENERAL.—A real estate in-
vestment trust is a pension-held REIT if
such trust would not have qualified as a
real estate investment trust but for the
provisions of this paragraph and if such
trust is predominantly held by qualified
trusts.
‘‘(ii) PREDOMINANTLY
HELD.—For
purposes of clause (i), a real estate invest-
ment trust is predominantly held by quali-
fied trusts if—
‘‘(I) at least 1 qualified trust
holds more than 25 percent (by value)
of the interests in such real estate in-
vestment trust, or
‘‘(II) 1 or more qualified trusts
(each of whom own more than 10 per-
502
cent by value of the interests in such
real estate investment trust) hold in
the aggregate more than 50 percent
(by value) of the interests in such real
estate investment trust.
‘‘(E) QUALIFIED TRUST.—For purposes of
this paragraph, the term ‘qualified trust’ means
any trust described in section 401(a) and ex-
empt from tax under section 501(a).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subpart D—Discharge of Indebtedness
SEC. 14150. EXCLUSION FROM GROSS INCOME FOR IN-
COME 
FROM 
DISCHARGE 
OF 
QUALIFIED
REAL PROPERTY BUSINESS INDEBTEDNESS.
(a) IN GENERAL.—Paragraph (1) of section 108(a)
(relating to income from discharge of indebtedness) is
amended by striking ‘‘or’’ at the end of subparagraph (B),
by striking the period at the end of subparagraph (C) and
inserting ‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(D) in the case of a taxpayer other than a C
corporation, the indebtedness discharged is qualified
real property business indebtedness.’’
503
(b) QUALIFIED REAL PROPERTY BUSINESS INDEBT-
EDNESS.—Section 108 is amended by inserting after sub-
section (b) the following new subsection:
‘‘(c) TREATMENT
OF DISCHARGE
OF QUALIFIED
REAL PROPERTY BUSINESS INDEBTEDNESS.—
‘‘(1) BASIS REDUCTION.—
‘‘(A) IN GENERAL.—The amount excluded
from gross income under subparagraph (D) of
subsection (a)(1) shall be applied to reduce the
basis of the depreciable real property of the tax-
payer.
‘‘(B) CROSS REFERENCE.—For provisions
making the reduction described in subpara-
graph (A), see section 1017.
‘‘(2) LIMITATIONS.—
‘‘(A) 
INDEBTEDNESS
IN
EXCESS
OF
VALUE.—The amount excluded under subpara-
graph (D) of subsection (a)(1) with respect to
any qualified real property business indebted-
ness shall not exceed the excess (if any) of—
‘‘(i) the outstanding principal amount
of such indebtedness (immediately before
the discharge), over
‘‘(ii) the fair market value of the real
property described in paragraph (3)(A) (as
504
of such time), reduced by the outstanding
principal amount of any other qualified
real property business indebtedness se-
cured by such property (as of such time).
‘‘(B) OVERALL LIMITATION.—The amount
excluded under subparagraph (D) of subsection
(a)(1) shall not exceed the aggregate adjusted
bases of depreciable real property (determined
after any reductions under subsections (b) and
(g)) held by the taxpayer immediately before
the discharge (other than depreciable real prop-
erty acquired in contemplation of such dis-
charge).
‘‘(3) QUALIFIED REAL PROPERTY BUSINESS IN-
DEBTEDNESS.—The term ‘qualified real property
business indebtedness’ means indebtedness which—
‘‘(A) was incurred or assumed by the tax-
payer in connection with real property used in
a trade or business and is secured by such real
property,
‘‘(B) was incurred or assumed before Jan-
uary 1, 1993, or if incurred or assumed on or
after such date, is qualified acquisition indebt-
edness, and
505
‘‘(C) with respect to which such taxpayer
makes an election to have this paragraph apply.
Such term shall not include qualified farm indebted-
ness. Indebtedness under subparagraph (B) shall in-
clude indebtedness resulting from the refinancing of
indebtedness under subparagraph (B) (or this sen-
tence), but only to the extent it does not exceed the
amount of the indebtedness being refinanced.
‘‘(4) 
QUALIFIED
ACQUISITION
INDEBTED-
NESS.—For purposes of paragraph (3)(B), the term
‘qualified acquisition indebtedness’ means, with re-
spect to any real property described in paragraph
(3)(A), indebtedness incurred or assumed to acquire,
construct, reconstruct, or substantially improve such
property.
‘‘(5) REGULATIONS.—The Secretary shall issue
such regulations as are necessary to carry out this
subsection, including regulations preventing the
abuse 
of 
this 
subsection 
through 
cross-
collateralization or other means.’’
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (A) of section 108(a)(2) is
amended by striking ‘‘and (C)’’ and inserting ‘‘, (C),
and (D)’’.
506
(2) Subparagraph (B) of section 108(a)(2) is
amended to read as follows:
‘‘(B) 
INSOLVENCY
EXCLUSION
TAKES
PRECEDENCE OVER QUALIFIED FARM EXCLU-
SION
AND
QUALIFIED
REAL
PROPERTY
BUSI-
NESS EXCLUSION.—Subparagraphs (C) and (D)
of paragraph (1) shall not apply to a discharge
to the extent the taxpayer is insolvent.’’
(3) Subsection (d) of section 108 is amended—
(A) by striking ‘‘subsections (a), (b), and
(g)’’ in paragraphs (6) and (7)(A) and inserting
‘‘subsections (a), (b), (c), and (g)’’,
(B) by striking ‘‘SUBSECTIONS (a), (b),
AND (g)’’ in the subsection heading and insert-
ing ‘‘CERTAIN PROVISIONS’’, and
(C) by striking ‘‘SUBSECTIONS (a), (b),
AND (g)’’ in the headings of paragraphs (6) and
(7)(A) and inserting ‘‘CERTAIN PROVISIONS’’.
(4) Subparagraph (B) of section 108(d)(7) is
amended by adding at the end thereof the following
new sentence: ‘‘The preceding sentence shall not
apply to any discharge to the extent that subsection
(a)(1)(D) applies to such discharge.’’
507
(5) Subparagraph (A) of section 108(d)(9) is
amended by inserting ‘‘or under paragraph (3)(B) of
subsection (c)’’ after ‘‘subsection (b)’’.
(6) Paragraph (2) of section 1017(a) is amend-
ed by striking ‘‘or (b)(5)’’ and inserting ‘‘, (b)(5), or
(c)(1)’’.
(7) Subparagraph (A) of section 1017(b)(3) is
amended by inserting ‘‘or (c)(1)’’ after ‘‘subsection
(b)(5)’’.
(8) Section 1017(b)(3) is amended by adding at
the end the following new subparagraph:
‘‘(F) SPECIAL
RULES
FOR
QUALIFIED
REAL
PROPERTY
BUSINESS
INDEBTEDNESS.—
In the case of any amount which under section
108(c)(1) is to be applied to reduce basis—
‘‘(i) depreciable property shall only in-
clude depreciable real property for pur-
poses of subparagraphs (A) and (C),
‘‘(ii) subparagraph (E) shall not
apply, and
‘‘(iii) in the case of property taken
into account under section 108(c)(2)(B),
the reduction with respect to such property
shall be made as of the time immediately
508
before disposition if earlier than the time
under subsection (a).’’
(9) Paragraph (1) of section 703(b) is amended
by striking ‘‘subsection (b)(5)’’ and inserting ‘‘sub-
section (b)(5) or (c)(3)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to discharges after December 31,
1992, in taxable years ending after such date.
Subpart E—Increase in Recovery Period for
Nonresidential Real Property
SEC. 
14151. INCREASE 
IN 
RECOVERY 
PERIOD 
FOR
NONRESIDENTIAL REAL PROPERTY.
(a) GENERAL RULE.—Paragraph (1) of section
168(c) (relating to applicable recovery period) is amended
by striking the item relating to nonresidential real prop-
erty and inserting the following:
‘‘Nonresidential real property ..................................................
39 years.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendment made by subsection (a)
shall apply to property placed in service by the tax-
payer on or after February 25, 1993.
(2) EXCEPTION.—The amendments made by
this section shall not apply to property placed in
service by the taxpayer before January 1, 1994, if—
509
(A) the taxpayer or a qualified person en-
tered into a binding written contract to pur-
chase or construct such property before Feb-
ruary 25, 1993, or
(B) the construction of such property was
commenced by or for the taxpayer or a quali-
fied person before February 25, 1993.
For purposes of this paragraph, the term ‘‘qualified
person’’ means any person who transfers his rights
in such a contract or such property to the taxpayer
but only if the property is not placed in service by
such person before such rights are transferred to the
taxpayer.
PART VI—LUXURY TAX
SEC. 14161. REPEAL OF LUXURY EXCISE TAXES OTHER
THAN ON PASSENGER VEHICLES.
(a) IN GENERAL.—Subchapter A of chapter 31 (re-
lating to retail excise taxes) is amended to read as follows:
‘‘Subchapter A—Luxury Passenger Automobiles
‘‘Sec. 4001. Imposition of tax.
‘‘Sec. 4002. 1st retail sale; uses, etc. treated as sales; determina-
tion of price.
‘‘Sec. 4003. Special rules.
‘‘SEC. 4001. IMPOSITION OF TAX.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
on the 1st retail sale of any passenger vehicle a tax equal
510
to 10 percent of the price for which so sold to the extent
such price exceeds $30,000.
‘‘(b) PASSENGER VEHICLE.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, the term ‘passenger vehicle’ means any 4-
wheeled vehicle—
‘‘(A) which is manufactured primarily for
use on public streets, roads, and highways, and
‘‘(B) which is rated at 6,000 pounds un-
loaded gross vehicle weight or less.
‘‘(2) SPECIAL RULES.—
‘‘(A) TRUCKS AND VANS.—In the case of a
truck or van, paragraph (1)(B) shall be applied
by substituting ‘gross vehicle weight’ for ‘un-
loaded gross vehicle weight’.
‘‘(B) LIMOUSINES.—In the case of a lim-
ousine, paragraph (1) shall be applied without
regard to subparagraph (B) thereof.
‘‘(c) EXCEPTIONS FOR TAXICABS, ETC.—The tax im-
posed by this section shall not apply to the sale of any
passenger vehicle for use by the purchaser exclusively in
the active conduct of a trade or business of transporting
persons or property for compensation or hire.
511
‘‘(d) EXEMPTION FOR LAW ENFORCEMENT USES,
ETC.—No tax shall be imposed by this section on the sale
of any passenger vehicle—
‘‘(1) to the Federal Government, or a State or
local government, for use exclusively in police, fire-
fighting, search and rescue, or other law enforce-
ment or public safety activities, or in public works
activities, or
‘‘(2) to any person for use exclusively in provid-
ing emergency medical services.
‘‘(e) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any calendar
year after 1992, the $30,000 amount in subsection
(a) and section 4003(a) shall be increased by an
amount equal to—
‘‘(A) $30,000, multiplied by
‘‘(B) the cost-of-living adjustment under
section 1(f)(3) for such calendar year, deter-
mined by substituting ‘calendar year 1991’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $100, such
amount shall be rounded to the nearest multiple of
$100 (or, if such amount is a multiple of $50 and
512
not of $100, such amount shall be rounded to the
next highest multiple of $100).
‘‘(f) TERMINATION.—The tax imposed by this section
shall not apply to any sale or use after December 31,
1999.
‘‘SEC. 4002. 1ST RETAIL SALE; USES, ETC. TREATED AS
SALES; DETERMINATION OF PRICE.
‘‘(a) 1ST RETAIL SALE.—For purposes of this sub-
chapter, the term ‘1st retail sale’ means the 1st sale, for
a purpose other than resale, after manufacture, produc-
tion, or importation.
‘‘(b) USE TREATED AS SALE.—
‘‘(1) IN GENERAL.—If any person uses a pas-
senger vehicle (including any use after importation)
before the 1st retail sale of such vehicle, then such
person shall be liable for tax under this subchapter
in the same manner as if such vehicle were sold at
retail by him.
‘‘(2) EXEMPTION
FOR
FURTHER
MANUFAC-
TURE.—Paragraph (1) shall not apply to use of a
vehicle as material in the manufacture or production
of, or as a component part of, another vehicle tax-
able under this subchapter to be manufactured or
produced by him.
513
‘‘(3) EXEMPTION FOR DEMONSTRATION USE.—
Paragraph (1) shall not apply to any use of a pas-
senger vehicle as a demonstrator.
‘‘(4) EXCEPTION FOR USE AFTER IMPORTATION
OF
CERTAIN
VEHICLES.—Paragraph (1) shall not
apply to the use of a vehicle after importation if the
user or importer establishes to the satisfaction of the
Secretary that the 1st use of the vehicle occurred be-
fore January 1, 1991, outside the United States.
‘‘(5) COMPUTATION OF TAX.—In the case of
any person made liable for tax by paragraph (1), the
tax shall be computed on the price at which similar
vehicles are sold at retail in the ordinary course of
trade, as determined by the Secretary.
‘‘(c) LEASES CONSIDERED AS SALES.—For purposes
of this subchapter—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the lease of a vehicle (in-
cluding any renewal or any extension of a lease or
any subsequent lease of such vehicle) by any person
shall be considered a sale of such vehicle at retail.
‘‘(2) 
SPECIAL
RULES
FOR
LONG-TERM
LEASES.—
‘‘(A) TAX
NOT
IMPOSED
ON
SALE
FOR
LEASING IN A QUALIFIED LEASE.—The sale of
514
a passenger vehicle to a person engaged in a
passenger vehicle leasing or rental trade or
business for leasing by such person in a long-
term lease shall not be treated as the 1st retail
sale of such vehicle.
‘‘(B) LONG-TERM
LEASE.—For purposes
of subparagraph (A), the term ‘long-term lease’
means any long-term lease (as defined in sec-
tion 4052).
‘‘(C) SPECIAL RULES.—In the case of a
long-term lease of a vehicle which is treated as
the 1st retail sale of such vehicle—
‘‘(i) DETERMINATION OF PRICE.—The
tax under this subchapter shall be com-
puted on the lowest price for which the ve-
hicle is sold by retailers in the ordinary
course of trade.
‘‘(ii) PAYMENT OF TAX.—Rules simi-
lar to the rules of section 4217(e)(2) shall
apply.
‘‘(iii) NO TAX WHERE EXEMPT USE
BY LESSEE.—No tax shall be imposed on
any lease payment under a long-term lease
if the lessee’s use of the vehicle under such
515
lease is an exempt use (as defined in sec-
tion 4003(b)) of such vehicle.
‘‘(d) DETERMINATION OF PRICE.—
‘‘(1) IN
GENERAL.—In determining price for
purposes of this subchapter—
‘‘(A) there shall be included any charge in-
cident to placing the article in condition ready
for use,
‘‘(B) there shall be excluded—
‘‘(i) the amount of the tax imposed by
this subchapter,
‘‘(ii) if stated as a separate charge,
the amount of any retail sales tax imposed
by any State or political subdivision there-
of or the District of Columbia, whether the
liability for such tax is imposed on the ven-
dor or vendee, and
‘‘(iii) the value of any component of
such article if—
‘‘(I) such component is furnished
by the 1st user of such article, and
‘‘(II) such component has been
used before such furnishing, and
‘‘(C) the price shall be determined without
regard to any trade-in.
516
‘‘(2) OTHER RULES.—Rules similar to the rules
of paragraphs (2) and (4) of section 4052(b) shall
apply for purposes of this subchapter.
‘‘SEC. 4003. SPECIAL RULES.
‘‘(a) SEPARATE PURCHASE OF VEHICLE AND PARTS
AND ACCESSORIES THEREFOR.—Under regulations pre-
scribed by the Secretary—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if—
‘‘(A) the owner, lessee, or operator of any
passenger vehicle installs (or causes to be in-
stalled) any part or accessory on such vehicle,
and
‘‘(B) such installation is not later than the
date 6 months after the date the vehicle was
1st placed in service,
then there is hereby imposed on such installation a
tax equal to 10 percent of the price of such part or
accessory and its installation.
‘‘(2) LIMITATION.—The tax imposed by para-
graph (1) on the installation of any part or acces-
sory shall not exceed 10 percent of the excess (if
any) of—
‘‘(A) the sum of—
517
‘‘(i) the price of such part or acces-
sory and its installation,
‘‘(ii) the aggregate price of the parts
and accessories (and their installation) in-
stalled before such part or accessory, plus
‘‘(iii) the price for which the pas-
senger vehicle was sold, over
‘‘(B) $30,000.
‘‘(3) EXCEPTIONS.—Paragraph (1) shall not
apply if—
‘‘(A) the part or accessory installed is a re-
placement part or accessory,
‘‘(B) the part or accessory is installed to
enable or assist an individual with a disability
to operate the vehicle, or to enter or exit the ve-
hicle, by compensating for the effect of such
disability, or
‘‘(C) the aggregate price of the parts and
accessories (and their installation) described in
paragraph (1) with respect to the vehicle does
not exceed $200 (or such other amount or
amounts as the Secretary may by regulation
prescribe).
The price of any part or accessory (and its installa-
tion) to which paragraph (1) does not apply by rea-
518
son of this paragraph shall not be taken into ac-
count under paragraph (2)(A).
‘‘(4) INSTALLERS
SECONDARILY
LIABLE
FOR
TAX.—The owners of the trade or business installing
the parts or accessories shall be secondarily liable
for the tax imposed by this subsection.
‘‘(b) IMPOSITION OF TAX ON SALES, ETC., WITHIN
2 YEARS OF VEHICLES PURCHASED TAX-FREE.—
‘‘(1) IN GENERAL.—If—
‘‘(A) no tax was imposed under this sub-
chapter on the 1st retail sale of any passenger
vehicle by reason of its exempt use, and
‘‘(B) within 2 years after the date of such
1st retail sale, such vehicle is resold by the pur-
chaser or such purchaser makes a substantial
nonexempt use of such vehicle,
then such sale or use of such vehicle by such pur-
chaser shall be treated as the 1st retail sale of such
vehicle for a price equal to its fair market value at
the time of such sale or use.
‘‘(2) EXEMPT USE.—For purposes of this sub-
section, the term ‘exempt use’ means any use of a
vehicle if the 1st retail sale of such vehicle is not
taxable under this subchapter by reason of such use.
519
‘‘(c) PARTS AND ACCESSORIES SOLD WITH TAXABLE
ARTICLE.—Parts and accessories sold on, in connection
with, or with the sale of any passenger vehicle shall be
treated as part of the vehicle.
‘‘(d) PARTIAL PAYMENTS, ETC.—In the case of a
contract, sale, or arrangement described in paragraph (2),
(3), or (4) of section 4216(c), rules similar to the rules
of section 4217(e)(2) shall apply for purposes of this sub-
chapter.’’
(b) TECHNICAL AMENDMENTS.—
(1) Subsection (c) of section 4221 is amended
by striking ‘‘4002(b), 4003(c), 4004(a)’’ and insert-
ing ‘‘4001(d)’’.
(5) Subsection (d) of section 4222 is amended
by striking ‘‘4002(b), 4003(c), 4004(a)’’ and insert-
ing ‘‘4001(d)’’.
(3) The table of subchapters for chapter 31 is
amended by striking the item relating to subchapter
A and inserting the following:
‘‘Subchapter A. Luxury passenger vehicles.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1993.
520
SEC. 14162. EXEMPTION FROM LUXURY EXCISE TAX FOR
CERTAIN EQUIPMENT INSTALLED ON PAS-
SENGER VEHICLES FOR USE BY DISABLED IN-
DIVIDUALS.
(a) IN GENERAL.—Paragraph (3) of section 4004(b)
(relating to separate purchase of article and parts and ac-
cessories therefor), as in effect on the day before the date
of the enactment of this Act, is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(A),
(2) by redesignating subparagraph (B) as sub-
paragraph (C),
(3) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
‘‘(B) the part or accessory is installed on
a passenger vehicle to enable or assist an indi-
vidual with a disability to operate the vehicle, or
to enter or exit the vehicle, by compensating for
the effect of such disability, or’’, and
(4) by inserting after subparagraph (C) the fol-
lowing flush sentence:
‘‘The price of any part or accessory (and its installa-
tion) to which paragraph (1) does not apply by rea-
son of this paragraph shall not be taken into ac-
count under paragraph (2)(A).’’
521
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 11221(a) of the Omnibus Budget
Reconciliation Act of 1990.
(c) PERIOD FOR FILING CLAIMS.—If refund or credit
of any overpayment of tax resulting from the application
of the amendments made by this section is prevented at
any time before the close of the 1-year period beginning
on the date of the enactment of this Act by the operation
of any law or rule of law (including res judicata), refund
or credit of such overpayment (to the extent attributable
to such amendments) may, nevertheless, be made or al-
lowed if claim therefor is filed before the close of such
1-year period.
SEC. 14163. TAX ON DIESEL FUEL USED IN NONCOMMER-
CIAL BOATS.
(a) GENERAL RULE.—
(1) Paragraph (2) of section 4092(a) (defining
diesel fuel) is amended by striking ‘‘or a diesel-pow-
ered train’’ and inserting ‘‘, a diesel-powered train,
or a diesel-powered boat’’.
(2) Paragraph (1) of section 4041(a) is amend-
ed—
(A) by striking ‘‘diesel-powered highway
vehicle’’ each place it appears and inserting
522
‘‘diesel-powered highway vehicle or diesel-pow-
ered boat’’, and
(B) by striking ‘‘such vehicle’’ and insert-
ing ‘‘such vehicle or boat’’.
(3) Subparagraph (B) of section 4092(b)(1) is
amended by striking ‘‘commercial and noncommer-
cial vessels’’ each place it appears and inserting
‘‘vessels for use in an off-highway business use (as
defined in section 6421(e)(2)(B))’’.
(b) EXEMPTION FOR USE IN FISHERIES OR COM-
MERCIAL NAVIGATION.—Subparagraph (B) of section
6421(e)(2) is amended to read as follows:
‘‘(B) USES IN BOATS.—The term ‘off-high-
way business use’ does not include any use in
a motorboat; except that such term shall in-
clude any use in—
‘‘(i) a vessel employed in the fisheries
or in the whaling business, and
‘‘(ii) in the case of diesel fuel, a boat
in the active conduct of—
‘‘(I) a trade or business of com-
mercial fishing or transporting per-
sons or property for compensation or
hire, or
523
‘‘(II) any other trade or business
unless the boat is used predominantly
in any activity which is of a type gen-
erally considered to constitute enter-
tainment, amusement or recreation.’’
(c) RETENTION OF TAXES IN GENERAL FUND.—
(1) TAXES IMPOSED AT HIGHWAY TRUST FUND
FINANCING
RATE.—Paragraph 
(4) 
of 
section
9503(b) (relating to transfers to Highway Trust
Fund) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A),
(B) by striking the period at the end of
subparagraph (B) and inserting ‘‘, and’’, and
(C) by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(C) there shall not be taken into account
the taxes imposed by sections 4041 and 4091
on diesel fuel sold for use or used as fuel in a
diesel-powered boat.’’
(2) TAXES
IMPOSED
AT
LEAKING
UNDER-
GROUND STORAGE TANK TRUST FUND FINANCING
RATE.—Subsection (b) of section 9508 (relating to
transfers to Leaking Underground Storage Tank
Trust Fund) is amended by adding at the end there-
524
of the following new sentence: ‘‘For purposes of this
subsection, there shall not be taken into account the
taxes imposed by sections 4041 and 4091 on diesel
fuel sold for use or used as fuel in a diesel-powered
boat.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1994.
PART VII—OTHER CHANGES
SEC. 14171. ALTERNATIVE MINIMUM TAX TREATMENT OF
CONTRIBUTIONS 
OF 
APPRECIATED 
PROP-
ERTY.
(a) REPEAL OF TAX PREFERENCE.—Subsection (a)
of section 57 (as amended by section 14113) is amended
by striking paragraph (6) (relating to appreciated prop-
erty charitable deduction) and by redesignating para-
graphs (7) and (8) as paragraphs (6) and (7), respectively.
(b) EFFECT ON ADJUSTED CURRENT EARNINGS.—
Paragraph (4) of section 56(g) is amended by adding at
the end thereof the following new subparagraph:
‘‘(J) TREATMENT
OF
CHARITABLE
CON-
TRIBUTIONS.—Notwithstanding subparagraphs
(B) and (C), no adjustment related to the earn-
ings and profits effects of any charitable con-
tribution shall be made in computing adjusted
current earnings.’’
525
(c) CONFORMING AMENDMENT.—Subclause (II) of
section 53(d)(1)(B)(ii) (as amended by section 14113) is
amended by striking ‘‘(5), (6), and (8)’’ and inserting
‘‘(5), and (7)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made after June
30, 1992, except that in the case of any contribution of
capital gain property which is not tangible personal prop-
erty, such amendments shall apply only if the contribution
is made after December 31, 1992.
(e) REPORT
ON
ADVANCE
DETERMINATION
OF
VALUE OF CHARITABLE GIFTS.—Not later than 1 year
after the date of the enactment of this Act, the Secretary
of the Treasury shall report to the Committee on Finance
of the Senate and the Committee on Ways and Means of
the House of Representatives on the development of a pro-
cedure under which taxpayers may elect to seek an agree-
ment with the Secretary as to the value of tangible per-
sonal property prior to the donation of such property to
a qualifying charitable organization if the time limits for
the donation and other conditions contained in the agree-
ment are satisfied. Such report shall address the setting
of possible threshold amounts for claimed value (and the
payment of fees) by a taxpayer in order to seek agreement
under the procedure, possible limitations on applying the
526
procedure only to items with significant artistic or cultural
value, and recommendations for legislative action needed
to implement the proposed procedure.
SEC. 14172. CERTAIN TRANSFERS TO RAILROAD RETIRE-
MENT ACCOUNT MADE PERMANENT.
Subsection (c)(1)(A) of section 224 of the Railroad
Retirement Solvency Act of 1983 (relating to section 72(r)
revenue increase transferred to certain railroad accounts)
is amended by striking ‘‘with respect to benefits received
before October 1, 1992’’.
SEC. 14173. TEMPORARY EXTENSION OF DEDUCTION FOR
HEALTH INSURANCE COSTS OF SELF-EM-
PLOYED INDIVIDUALS.
(a) IN GENERAL.—
(1) EXTENSION.—Paragraph (6) of section
162(l) (relating to special rules for health insurance
costs of self-employed individuals) is amended by
striking ‘‘June 30, 1992’’ and inserting ‘‘December
31, 1993’’.
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 110(a) of the Tax Extension Act of 1991
is hereby repealed.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years end-
ing after June 30, 1992.
527
(b) DETERMINATION
OF
ELIGIBILITY
FOR
EM-
PLOYER-SPONSORED HEALTH PLAN.—
(1) IN GENERAL.—Paragraph (2)(B) of section
162(l) is amended to read as follows:
‘‘(B) OTHER
COVERAGE.—Paragraph (1)
shall not apply to any taxpayer for any calendar
month for which the taxpayer is eligible to par-
ticipate in any subsidized health plan main-
tained by any employer of the taxpayer or of
the spouse of the taxpayer.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1992.
Subtitle B—Revenue Increases
PART I—PROVISIONS AFFECTING INDIVIDUALS
Subpart A—Rate Increases
SEC. 14201. INCREASE IN TOP MARGINAL RATE UNDER SEC-
TION 1.
(a) GENERAL RULE.—Section 1 (relating to tax im-
posed) is amended by striking subsections (a) through (e)
and inserting the following:
‘‘(a) MARRIED INDIVIDUALS FILING JOINT RETURNS
AND SURVIVING SPOUSES.—There is hereby imposed on
the taxable income of—
528
‘‘(1) every married individual (as defined in sec-
tion 7703) who makes a single return jointly with
his spouse under section 6013, and
‘‘(2) every surviving spouse (as defined in sec-
tion 2(a)),
a tax determined in accordance with the following table:
‘‘If taxable income is:
The tax is:
Not over $36,900 ..........................
15% of taxable income.
Over 
$36,900 
but 
not 
over
$89,150.
$5,535, plus 28% of the excess over
$36,900.
Over 
$89,150 
but 
not 
over
$140,000.
$20,165, plus 31% of the excess over
$89,150.
Over $140,000 ...............................
$35,928.50, plus 36% of the excess
over $140,000.
‘‘(b) HEADS OF HOUSEHOLDS.—There is hereby im-
posed on the taxable income of every head of a household
(as defined in section 2(b)) a tax determined in accordance
with the following table:
‘‘If taxable income is:
The tax is:
Not over $29,600 ..........................
15% of taxable income.
Over 
$29,600 
but 
not 
over
$76,400.
$4,440, plus 28% of the excess over
$29,600.
Over 
$76,400 
but 
not 
over
$127,500.
$17,544, plus 31% of the excess over
$76,400.
Over $127,500 ...............................
$33,385, plus 36% of the excess over
$127,500.
‘‘(c) UNMARRIED INDIVIDUALS (OTHER THAN SUR-
VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—There
is hereby imposed on the taxable income of every individ-
ual (other than a surviving spouse as defined in section
2(a) or the head of a household as defined in section 2(b))
who is not a married individual (as defined in section
529
7703) a tax determined in accordance with the following
table:
‘‘If taxable income is:
The tax is:
Not over $22,100 ..........................
15% of taxable income.
Over 
$22,100 
but 
not 
over
$53,500.
$3,315, plus 28% of the excess over
$22,100.
Over 
$53,500 
but 
not 
over
$115,000.
$12,107, plus 31% of the excess over
$53,500.
Over $115,000 ...............................
$31,172, plus 36% of the excess over
$115,000.
‘‘(d) MARRIED INDIVIDUALS FILING SEPARATE RE-
TURNS.—There is hereby imposed on the taxable income
of every married individual (as defined in section 7703)
who does not make a single return jointly with his spouse
under section 6013, a tax determined in accordance with
the following table:
‘‘If taxable income is:
The tax is:
Not over $18,450 ..........................
15% of taxable income.
Over 
$18,450 
but 
not 
over
$44,575.
$2,767.50, plus 28% of the excess
over $18,450.
Over 
$44,575 
but 
not 
over
$70,000.
$10,082.50, plus 31% of the excess
over $44,575.
Over $70,000 .................................
$17,964.25, plus 36% of the excess
over $70,000.
‘‘(e) ESTATES AND TRUSTS.—There is hereby im-
posed on the taxable income of—
‘‘(1) every estate, and
‘‘(2) every trust,
taxable under this subsection a tax determined in accord-
ance with the following table:
‘‘If taxable income is:
The tax is:
Not over $1,500 ............................
15% of taxable income.
Over $1,500 but not over $3,500 ..
$225, plus 28% of the excess over
$1,500.
530
‘‘If taxable income is:
The tax is:
Over $3,500 but not over $5,500 ..
$785, plus 31% of the excess over
$3,500.
Over $5,500 ...................................
$1,405, plus 36% of the excess over
$5,500.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 531 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(2) Section 541 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(3)(A) Subsection (f) of section 1 is amended—
(i) by striking ‘‘1990’’ in paragraph (1)
and inserting ‘‘1993’’, and
(ii) by striking ‘‘1989’’ in paragraph
(3)(B) and inserting ‘‘1992’’.
(B) Subsection (f) of section 1 is amended by
adding at the end thereof the following new para-
graph:
‘‘(7) SPECIAL RULE FOR CERTAIN BRACKETS.—
‘‘(A) CALENDAR YEAR 1994.—In prescrib-
ing the tables under paragraph (1) which apply
with respect to taxable years beginning in cal-
endar year 1994, the Secretary shall make no
adjustment to the dollar amounts at which the
36 percent rate bracket begins or at which the
39.6 percent rate begins under any table con-
tained in subsection (a), (b), (c), (d), or (e).
531
‘‘(B) LATER CALENDAR YEARS.—In pre-
scribing tables under paragraph (1) which apply
with respect to taxable years beginning in a cal-
endar year after 1994, the cost-of-living adjust-
ment used in making adjustments to the dollar
amounts referred to in subparagraph (A) shall
be determined under paragraph (3) by sub-
stituting ‘1993’ for ‘1992’.’’
(C) Subparagraph (C) of section 41(e)(5) is
amended by striking ‘‘1989’’ each place it appears
and inserting ‘‘1992’’.
(D) Subparagraph (B) of section 63(c)(4) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(E) Subparagraph (B) of section 68(b)(2) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(F) Subparagraph (B) of section 132(f)(6) is
amended by striking ‘‘, determined by substituting’’
and all that follows down through the period at the
end thereof and inserting a period.
(G) Subparagraphs (A)(ii) and (B)(ii) of sec-
tion 151(d)(4) are each amended by striking ‘‘1989’’
and inserting ‘‘1992’’.
(H) Clause (ii) of section 513(h)(2)(C) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
532
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14202. SURTAX ON HIGH-INCOME TAXPAYERS.
(a) GENERAL RULE.—
(1) Subsection (a) of section 1 (as amended by
section 14201) is amended by striking the last item
in the table contained therein and inserting the fol-
lowing:
Over 
$140,000 
but 
not 
over
$250,000.
$35,928.50, plus 36% of the excess
over $140,000.
Over $250,000 ...............................
$75,528.50, plus 39.6% of the excess
over $250,000.’’
(2) Subsection (b) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$127,500 
but 
not 
over
$250,000.
$33,385, plus 36% of the excess over
$127,500.
Over $250,000 ...............................
$77,485, plus 39.6% of the excess
over $250,000.’’
(3) Subsection (c) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$115,000 
but 
not 
over
$250,000.
$31,172, plus 36% of the excess over
$115,000.
Over $250,000 ...............................
$79,772, plus 39.6% of the excess
over $250,000.’’
(4) Subsection (d) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
533
Over 
$70,000 
but 
not 
over
$125,000.
$17,964.25, plus 36% of the excess
over $70,000.
Over $125,000 ...............................
$37,764.25, plus 39.6% of the excess
over $125,000.’’
(5) Subsection (e) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over $5,500 but not over $7,500 ..
$1,405, plus 36% of the excess over
$5,500.
Over $7,500 ...................................
$2,125, plus 39.6% of the excess over
$7,500.’’
(b) TECHNICAL AMENDMENT.—Sections 531 and
541 (as amended by section 14201) are each amended by
striking ‘‘36 percent’’ and inserting ‘‘39.6 percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14203. MODIFICATIONS TO ALTERNATIVE MINIMUM
TAX RATES AND EXEMPTION AMOUNTS.
(a) INCREASE IN RATE.—Paragraph (1) of section
55(b) (defining tentative minimum tax) is amended to
read as follows:
‘‘(1) AMOUNT OF TENTATIVE TAX.—
‘‘(A) NONCORPORATE TAXPAYERS.—
‘‘(i) IN GENERAL.—In the case of a
taxpayer other than a corporation, the ten-
tative minimum tax for the taxable year is
the sum of—
534
‘‘(I) 26 percent of so much of the
taxable excess as does not exceed
$175,000, plus
‘‘(II) 28 percent of so much of
the 
taxable 
excess 
as 
exceeds
$175,000.
The amount determined under the preced-
ing sentence shall be reduced by the alter-
native minimum tax foreign tax credit for
the taxable year.
‘‘(ii) TAXABLE
EXCESS.—For pur-
poses of clause (i), the term ‘taxable ex-
cess’ means so much of the alternative
minimum taxable income for the taxable
year as exceeds the exemption amount.
‘‘(iii) MARRIED
INDIVIDUAL
FILING
SEPARATE RETURN.—In the case of a mar-
ried individual filing a separate return,
clause (i) shall be applied by substituting
‘$87,500’ for ‘$175,000’ each place it ap-
pears. For purposes of the preceding sen-
tence, marital status shall be determined
under section 7703.
535
‘‘(B) CORPORATIONS.—In the case of a
corporation, the tentative minimum tax for the
taxable year is—
‘‘(i) 20 percent of so much of the al-
ternative minimum taxable income for the
taxable year as exceeds the exemption
amount, reduced by
‘‘(ii) the alternative minimum tax for-
eign tax credit for the taxable year.’’
(b) INCREASE
IN EXEMPTION AMOUNTS.—Para-
graph (1) of section 55(d) (defining exemption amount)
is amended—
(1) by striking ‘‘$40,000’’ in subparagraph (A)
and inserting ‘‘$45,000’’,
(2) by striking ‘‘$30,000’’ in subparagraph (B)
and inserting ‘‘$33,750’’, and
(3) by striking ‘‘$20,000’’ in subparagraph (C)
and inserting ‘‘$22,500’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 55(d)(3) is
amended by striking ‘‘$155,000 or (ii) $20,000’’ and
inserting ‘‘$165,000 or (ii) $22,500’’.
(2)(A) Subparagraph (A) of section 897(a)(2)
is amended by striking ‘‘the amount determined
under section 55(b)(1)(A) shall not be less than 21
536
percent of’’ and inserting ‘‘the taxable excess for
purposes of section 55(b)(1)(A) shall not be less
than’’.
(B) The heading for paragraph (2) of section
897(a) is amended by striking ‘‘21-PERCENT’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14204. OVERALL LIMITATION ON ITEMIZED DEDUC-
TIONS FOR HIGH-INCOME TAXPAYERS MADE
PERMANENT.
Subsection (f) of section 68 (relating to overall limita-
tion on itemized deductions) is hereby repealed.
SEC. 14205. PHASEOUT OF PERSONAL EXEMPTION OF HIGH-
INCOME TAXPAYERS MADE PERMANENT.
Section 151(d)(3) (relating to phaseout of personal
exemption) is amended by striking subparagraph (E).
SEC. 14206. PROVISIONS TO PREVENT CONVERSION OF OR-
DINARY INCOME TO CAPITAL GAIN.
(a) INTEREST EMBEDDED
IN FINANCIAL TRANS-
ACTIONS.—
(1) IN GENERAL.—Part IV of subchapter P of
chapter 1 (relating to special rules for determining
capital gains and losses) is amended by adding at
the end thereof the following new section:
537
‘‘SEC. 1258. RECHARACTERIZATION OF GAIN FROM CER-
TAIN FINANCIAL TRANSACTIONS.
‘‘(a) GENERAL RULE.—In the case of any gain—
‘‘(1) which (but for this section) would be treat-
ed as gain from the sale or exchange of a capital
asset, and
‘‘(2) which is recognized on the disposition of
any property which was held as part of a conversion
transaction,
such gain (to the extent such gain does not exceed the
applicable imputed income amount) shall be treated as or-
dinary income.
‘‘(b) APPLICABLE IMPUTED INCOME AMOUNT.—For
purposes of subsection (a), the term ‘applicable imputed
income amount’ means, with respect to any disposition re-
ferred to in subsection (a), an amount equal to—
‘‘(1) the amount of interest which would have
accrued on the taxpayer’s net investment in the con-
version transaction for the period ending on the date
of such disposition (or, if earlier, the date on which
the requirements of subsection (c) ceased to be satis-
fied) at a rate equal to 120 percent of the applicable
rate, reduced by
‘‘(2) the amount treated as ordinary income
under subsection (a) with respect to any prior dis-
538
position of property which was held as a part of
such transaction.
The Secretary shall by regulations provide for such reduc-
tions in the applicable imputed income amount as may be
appropriate by reason of amounts capitalized under sec-
tion 263(g), ordinary income received, or otherwise.
‘‘(c) CONVERSION TRANSACTION.—For purposes of
this section, the term ‘conversion transaction’ means any
of the following where substantially all of the taxpayer’s
expected return from the transaction is attributable to the
time value of the taxpayer’s net investment in such trans-
action:
‘‘(1) The holding of any property (whether or
not actively traded), and the entering into a contract
to sell such property (or substantially identical prop-
erty) at a price determined in accordance with such
contract, but only if such property was acquired and
such contract was entered into on a substantially
contemporaneous basis.
‘‘(2) Any applicable straddle.
‘‘(3) Any other transaction which is marketed
or sold as producing capital gains.
‘‘(4) Any other transaction specified in regula-
tions prescribed by the Secretary.
539
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE STRADDLE.—The term ‘appli-
cable straddle’ means any straddle (within the mean-
ing of section 1092(c)); except that the term ‘per-
sonal property’ shall include stock.
‘‘(2) APPLICABLE RATE.—The term ‘applicable
rate’ means—
‘‘(A) the applicable Federal rate deter-
mined under section 1274(d) (compounded
semiannually) as if the conversion transaction
were a debt instrument, or
‘‘(B) if the term of the conversion trans-
action is indefinite, the Federal short-term
rates in effect under section 6621(b) during the
period 
of 
the 
conversion 
transaction
(compounded daily).
‘‘(3) TREATMENT OF PROPERTY WITH BUILT-IN
LOSS.—
‘‘(A) IN GENERAL.—If any property with a
built-in loss becomes part of a conversion trans-
action—
‘‘(i) for purposes of applying this sub-
title to such property for periods after such
property becomes part of such transaction,
540
the adjusted basis of such property shall be
its fair market value as of the time it be-
came part of such transaction, except that
‘‘(ii) upon the disposition of such
property in a transaction in which gain or
loss is recognized, such built-in loss shall
be recognized and shall have a character
determined without regard to this section.
‘‘(B) BUILT-IN
LOSS.—For purposes of
subparagraph (A), the term ‘built-in loss’
means the excess (if any) of the adjusted basis
of any property over its fair market value (de-
termined as of the date on which such property
became part of such transaction).
‘‘(4) PROPERTY TAKEN INTO ACCOUNT AT FAIR
MARKET VALUE.—In determining the taxpayer’s net
investment in any conversion transaction, there shall
be included the fair market value of any property
which becomes part of such transaction (determined
as of the date on which such property became part
of such transaction).’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part IV of subchapter P of chapter 1 is
541
amended by adding at the end thereof the following
new item:
‘‘Sec. 1258. Recharacterization of gain from certain financial
transactions.’’
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to conversion transactions
entered into after April 30, 1993.
(b) REPEAL OF CERTAIN EXCEPTIONS TO MARKET
DISCOUNT RULES.—
(1) MARKET DISCOUNT BONDS ISSUED ON OR
BEFORE
JULY
18, 1984.—The following provisions
are hereby repealed:
(A) Section 1276(e).
(B) Section 1277(d).
(2) TAX-EXEMPT OBLIGATIONS.—
(A) IN GENERAL.—Paragraph (1) of sec-
tion 1278(a) (defining market discount bond) is
amended—
(i) by striking clause (ii) of subpara-
graph (B) and redesignating subclauses
(iii) and (iv) of such subparagraph as
clauses (ii) and (iii), respectively,
(ii) by redesignating subparagraph
(C) as subparagraph (D), and
(iii) by inserting after subparagraph
(B) the following new subparagraph:
542
‘‘(C) SECTION 1277 NOT APPLICABLE TO
TAX-EXEMPT
OBLIGATIONS.—For purposes of
section 1277, the term ‘market discount bond’
shall not include any tax-exempt obligation (as
defined in section 1275(a)(3)).’’
(B) CONFORMING AMENDMENT.—Sections
1276(a)(4) and 1278(b)(1) are each amended
by striking ‘‘sections 871(a)’’ and inserting
‘‘sections 103, 871(a),’’.
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to obligations purchased
(within the meaning of section 1272(d)(1) of the In-
ternal Revenue Code of 1986) after April 30, 1993.
(c) 
TREATMENT
OF
STRIPPED
PREFERRED
STOCK.—
(1) IN GENERAL.—Section 305 is amended by
redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new sub-
section:
‘‘(e) TREATMENT OF PURCHASER OF STRIPPED PRE-
FERRED STOCK.—
‘‘(1) IN
GENERAL.—If any person purchases
after April 30, 1993 any stripped preferred stock,
then such person, while holding such stock, shall in-
clude in gross income amounts equal to the amounts
543
which would have been so includible if such stripped
preferred stock were a bond issued on the purchase
date and having original issue discount equal to the
excess, if any, of—
‘‘(A) the redemption price for such stock,
over
‘‘(B) the price at which such person pur-
chased such stock.
The preceding sentence shall also apply in the case
of any person whose basis in such stock is deter-
mined by reference to the basis in the hands of such
purchaser.
‘‘(2) BASIS
ADJUSTMENTS.—Appropriate ad-
justments to basis shall be made for amounts includ-
ible in gross income under paragraph (1).
‘‘(3) TAX TREATMENT OF PERSON STRIPPING
STOCK.—If any person strips the rights to 1 or more
dividends from any stock described in paragraph
(5)(B) and after April 30, 1993 disposes of such
dividend rights, for purposes of paragraph (1), such
person shall be treated as having purchased the
stripped preferred stock on the date of such disposi-
tion for a purchase price equal to such person’s ad-
justed basis in such stripped preferred stock.
544
‘‘(4) AMOUNTS
TREATED
AS
ORDINARY
IN-
COME.—Any amount included in gross income under
paragraph (1) shall be treated as ordinary income.
‘‘(5) STRIPPED PREFERRED STOCK.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘stripped
preferred stock’ means any stock described in
subparagraph (B) if there has been a separa-
tion in ownership between such stock and any
dividend on such stock which has not become
payable.
‘‘(B) DESCRIPTION OF STOCK.—Stock is
described in this subsection if such stock—
‘‘(i) is limited and preferred as to
dividends and does not participate in cor-
porate growth to any significant extent,
and
‘‘(ii) has a fixed redemption price.
‘‘(6) PURCHASE.—For purposes of this sub-
section, the term ‘purchase’ means—
‘‘(A) any acquisition of stock, where
‘‘(B) the basis of such stock is not deter-
mined in whole or in part by the reference to
the adjusted basis of such stock in the hands of
the person from whom acquired.’’
545
(2) COORDINATION
WITH
SECTION
167(e).—
Paragraph (2) of section 167(e) is amended to read
as follows:
‘‘(2) COORDINATION
WITH
OTHER
PROVI-
SIONS.—
‘‘(A) SECTION 273.—This subsection shall
not apply to any term interest to which section
273 applies.
‘‘(B) SECTION
305(e).—This subsection
shall not apply to the holder of the dividend
rights which were separated from any stripped
preferred stock to which section 305(e)(1) ap-
plies.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on April 30,
1993.
(d) TREATMENT OF CAPITAL GAIN UNDER LIMITA-
TION ON INVESTMENT INTEREST.—
(1) IN GENERAL.—Subparagraph (B) of section
163(d)(4) (defining investment income) is amended
to read as follows:
‘‘(B) INVESTMENT
INCOME.—The term
‘investment income’ means the sum of—
546
‘‘(i) gross income from property held
for investment (other than any gain taken
into account under clause (ii)(I)),
‘‘(ii) the excess (if any) of—
‘‘(I) the net gain attributable to
the disposition of property held for in-
vestment, over
‘‘(II) the net capital gain deter-
mined by only taking into account
gains and losses from dispositions of
property held for investment, plus
‘‘(iii) so much of the net capital gain
referred to in clause (ii)(II) (or, if lesser,
the net gain referred to in clause (ii)(I)) as
the taxpayer elects to take into account
under this clause.’’
(2) COORDINATION
WITH
SPECIAL
CAPITAL
GAINS RATE.—Subsection (h) of section 1 is amend-
ed by adding at the end thereof the following new
sentence:
‘‘For purposes of the preceding sentence, the net capital
gain for any taxable year shall be reduced (but not below
zero) by the amount which the taxpayer elects to take into
account as investment income for the taxable year under
section 163(d)(4)(B)(iii).’’
547
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1992.
(e) TREATMENT OF CERTAIN APPRECIATED INVEN-
TORY.—
(1) Paragraph (1) of section 751(d) is amended
to read as follows:
‘‘(1) SUBSTANTIAL APPRECIATION.—
‘‘(A) IN GENERAL.—Inventory items of the
partnership shall be considered to have appre-
ciated substantially in value if their fair market
value exceeds 120 percent of the adjusted basis
to the partnership of such property.
‘‘(B) CERTAIN
PROPERTY
EXCLUDED.—
For purposes of subparagraph (A), there shall
be excluded any inventory property if a prin-
cipal purpose for acquiring such property was
to avoid the provisions of this section relating
to inventory items.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to sales, exchanges,
and distributions after April 30, 1993.
548
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
549
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
550
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
551
base limitation’’ and inserting ‘‘contribution and
benefit base limitation’’.
(e) EFFECTIVE 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) GENERAL 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)’’.
552
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply in the case of decedents dying, and
gifts made, after December 31, 1992.
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) EFFECTIVE 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-
553
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.’’
(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) EFFECTIVE 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) CERTAIN EXCESSIVE EMPLOYEE REMUNERA-
TION.—
‘‘(1) IN 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
554
extent that the amount of such remuneration for the
taxable year with respect to such employee exceeds
$1,000,000.
‘‘(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—
555
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘applicable
employee remuneration’ means, with respect to
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
556
comprised solely of 2 or more independent
directors,
‘‘(ii) the material terms under which
the remuneration is to be paid, including
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
557
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
‘‘(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) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts which would other-
558
wise be deductible for taxable years beginning on or after
January 1, 1994.
SEC. 14212. REDUCTION IN COMPENSATION TAKEN INTO
ACCOUNT IN DETERMINING CONTRIBUTIONS
AND BENEFITS UNDER QUALIFIED RETIRE-
MENT PLANS.
(a) IN 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) COST-OF-LIVING.—Paragraph (8) of section
408(k) is amended to read as follows:
‘‘(8) COST-OF-LIVING ADJUSTMENT.—The Sec-
retary shall adjust the $300 amount in paragraph
559
(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
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) EFFECTIVE 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) REPEAL 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).
560
(B) Paragraph (2) of section 217(b) (as
redesignated by subparagraph (A)) is amend-
ed—
(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—
561
(1) by striking ‘‘meals and lodging’’ in subpara-
graphs (B), (C) and (D) and inserting ‘‘lodging’’,
and
(2) by adding at the end thereof the following
new sentence:
‘‘Such term shall not include any expenses for
meals.’’.
(c) EFFECTIVE 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) LIMITATION 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-
562
graph (B) shall be applied by substituting
‘110 percent’ for ‘100 percent’.
‘‘(ii) SEPARATE
RETURNS.—In the
case of a married individual (within the
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) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
563
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-
tirement benefits) are each amended by striking ‘‘one-
half’’ and inserting ‘‘85 percent’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1993.
(c) ADDITIONAL 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) CERTAIN 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
564
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
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
565
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.’’.
(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) EFFECTIVE 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.
566
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) DENIAL OF DEDUCTION FOR CERTAIN LOBBY-
ING AND POLITICAL EXPENDITURES.—
‘‘(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) IN 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.—
567
‘‘(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
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) IN 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
568
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
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.—
569
(1) IN 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 sec-
tion:
‘‘SEC. 6050O. RETURNS RELATING TO LOBBYING EXPENDI-
TURES OF CERTAIN ORGANIZATIONS.
‘‘(a) REQUIREMENT 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) STATEMENTS 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).
570
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
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) DUES.—For purposes of this section, the term
‘dues’ includes other similar amounts.’’
(2) PENALTIES.—
(A) RETURNS.—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’’,
571
and by adding at the end the following new
clause:
‘‘(xiv) section 6050O(a) (relating to
information on nondeductible lobbying ex-
penditures).’’
(B) PAYEE 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—
572
‘‘(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
‘‘(B) the highest rate of tax imposed by
section 11 for taxable years beginning in such
calendar year.’’
(3) CONFORMING 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) EFFECTIVE 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) GENERAL 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:
573
‘‘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.
‘‘(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—
574
‘‘(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
(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-
575
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
any changes in value of the security occurring after
the cessation.
‘‘(4) SPECIAL 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) DEFINITIONS.—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.
576
‘‘(2) SECURITY 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;
‘‘(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
577
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.
‘‘(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
578
‘‘(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,
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) IN 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
579
‘‘(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.
‘‘(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
580
‘‘(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.—
(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) IN GENERAL.—The amendments made by
this section shall apply to all taxable years ending on
or after December 31, 1993.
(2) CHANGE 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,
581
(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
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,
582
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).
(B) QUALIFIED 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
583
(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
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) GENERAL 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
584
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.
(b) FSLIC ASSISTANCE.—For purposes of this sec-
tion, the term ‘‘FSLIC assistance’’ means any assistance
(or right to assistance) with respect to a domestic building
and loan association (as defined in section 7701(a)(19) of
such Code without regard to subparagraph (C) thereof)
under section 406(f) of the National Housing Act or sec-
tion 21A of the Federal Home Loan Bank Act (or under
any similar provision of law).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection—
(A) The provisions of this section shall
apply to taxable years ending on or after March
4, 1991, but only with respect to FSLIC assist-
ance not credited before March 4, 1991.
(B) If any FSLIC assistance not credited
before March 4, 1991, is with respect to a loss
sustained or charge-off in a taxable year ending
before March 4, 1991, for purposes of deter-
mining the amount of any net operating loss
carryover to a taxable year ending on or after
585
March 4, 1991, the provisions of this section
shall apply to such assistance for purposes of
determining the amount of the net operating
loss for the taxable year in which such loss was
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) EXCEPTIONS.—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) INCREASE 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—
586
(i) by striking paragraph (3), and
(ii) by striking ‘‘91 PERCENT’’ in the
paragraph heading of paragraph (2) and
inserting ‘‘100 PERCENT’’.
(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-
quired installments:
The applicable 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).
587
(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.—
‘‘(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’,
588
‘‘(II) subclause (III) of subpara-
graph (A)(i) shall be applied by sub-
stituting ‘8 months’ for ‘6 months’,
and
‘‘(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) EFFECTIVE 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) GENERAL RULE.—Subsection (a) of section 936
(relating to Puerto Rico and possession tax credit) is
amended—
589
(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:
‘‘(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).
590
‘‘(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
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-
591
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.
‘‘(B) LIMITATION 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,
592
the limitation applicable under clause (i)
with respect to such employee shall be the
appropriate portion (as determined by the
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
593
States’ included all possessions of the
United States.
‘‘(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.
594
‘‘(3) QUALIFIED TANGIBLE BUSINESS INVEST-
MENT.—For purposes of this section—
‘‘(A) IN 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
595
‘‘(ii) 
the 
possession 
corporation’s
qualified tangible business investment for
such taxable year,
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.
596
‘‘(5) ELECTION TO COMPUTE CREDIT ON CON-
SOLIDATED BASIS.—
‘‘(A) IN GENERAL.—Any affiliated group
may elect to treat all possession corporations
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-
597
cess profits taxes paid or accrued to a posses-
sion of the United States by reason of sub-
section (c),
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
598
otherwise have been determined under such
subsection:
‘‘(i) 80 percent in the case of a tax-
able year beginning in 1994.
‘‘(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) TREATMENT 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
599
dividends from a corporation eligible
for the credit provided by section 936
were a separate category of income re-
ferred to in a subparagraph of section
904(d)(1).
‘‘(V) COORDINATION 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) CONFORMING 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) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
600
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:
‘‘(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) DEFINITIONS.—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
601
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.
‘‘(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)
602
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’
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 TAX-
ATION.—
‘‘(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) NET BASIS TAX.—The term ‘net
basis tax’ means any tax imposed by this
subtitle which is not a gross basis tax.’’
(c) CONFORMING AMENDMENT.—Subparagraph (B)
of section 163(j)(5) is amended by striking ‘‘to a related
person’’.
603
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest paid or accrued in tax-
able years beginning after December 31, 1993.
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:
604
‘‘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—
‘‘(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) APPLICABLE 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—
605
‘‘(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
‘‘(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).
606
‘‘(3) LOOK-THRU RULES MADE APPLICABLE.—
For purposes of this subsection, the rules of section
1296(c) shall apply.
‘‘(4) LEASING RULES MADE APPLICABLE.—For
purposes of this subsection, the rules of section
1297(d) shall apply.
‘‘(d) SPECIAL 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
607
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-
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 be-
ginning during the 1-year pe-
The applicable
riod 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:
608
‘‘(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
(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-
609
cluded under subparagraphs (B) and (C) of section
951(a)(1) (determined without regard to this sec-
tion).’’
(C) Paragraph (1) of section 959(c) is
amended to read as follows:
‘‘(1) first to the aggregate of—
‘‘(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 sec-
tion),
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
610
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
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) MODIFICATIONS 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.
611
Such an election, once made, may be revoked only with
the consent of the Secretary.’’
(2) TREATMENT OF CERTAIN SUBPART F IN-
CLUSIONS.—Subsection (b) of section 1297 is
amended by adding at the end thereof the following
new paragraph:
‘‘(9) TREATMENT 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) TREATMENT OF CERTAIN DEALERS IN SE-
CURITIES.—Subsection (b) of section 1296 is
amended by adding at the end thereof the following
new paragraph:
‘‘(3) TREATMENT 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-
612
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-
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—
613
‘‘(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.—
‘‘(A) IN 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)—
614
‘‘(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—
‘‘(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 sec-
tion.’’
(e) EFFECTIVE 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) GENERAL 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
615
(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—
‘‘(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) ADJUSTMENTS FOR CERTAIN DISTRIBUTIONS;
OTHER SPECIAL RULES.—
616
‘‘(1) APPLICABLE 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.—
(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) EFFECTIVE 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.—
617
(1) IN 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.
(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) SAME 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
618
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) EFFECTIVE 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
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) INCREASE 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,
619
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-
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.
620
‘‘(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,
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
621
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
the inclusions in gross income described in
clause (i).
‘‘(C) DECREASES 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
622
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.’’
(2) EFFECTIVE 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) GENERAL 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
623
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.’’
(2) Subparagraph (D) of section 864(f)(4) is
amended by striking ‘‘subparagraph (C)’’ and insert-
ing ‘‘subparagraph (B) or (C)’’.
(c) EFFECTIVE 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) PROVISIONS 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:
624
‘‘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:
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(2) SEPARATE 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) TREATMENT OF SHIPPING INCOME.—Subsection
(f) of section 954 is amended by adding at the end thereof
625
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) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14236. MODIFICATIONS OF ACCURACY-RELATED PEN-
ALTY.
(a) THRESHOLD REQUIREMENT.—Clause (ii) of sec-
tion 6662(e)(1)(B) (relating to substantial valuation
misstatement under chapter 1) is amended to read as fol-
lows:
‘‘(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) CERTAIN 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:
626
‘‘(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-
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-
627
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-
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.
628
‘‘(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
trade or business within the United
States.’’
(b) COORDINATION WITH REASONABLE CAUSE EX-
CEPTION.—Paragraph (3) of section 6662(e) is amended
by adding at the end thereof the following new subpara-
graph:
‘‘(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) CONFORMING AMENDMENT.—Clause (iii) of sec-
tion 6662(h)(2)(A) is amended to read as follows:
629
‘‘(iii) in paragraph (1)(B)(ii)—
‘‘(I) 
‘$20,000,000’ 
for
‘$5,000,000’, and
‘‘(II) ‘20 percent’ for ‘10 per-
cent’.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
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—
630
‘‘(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
‘‘(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) RELATED 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-
631
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
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,
632
‘‘(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-
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—
633
‘‘(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:
‘‘(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)’’.