H. R. 1836—13
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2002.
SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR
CHILD CARE ASSISTANCE.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits), as amended by
section 619, is further amended by adding at the end the following:
‘‘SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the employer-
provided child care credit determined under this section for the
taxable year is an amount equal to the sum of—
‘‘(1) 25 percent of the qualified child care expenditures,
and
‘‘(2) 10 percent of the qualified child care resource and
referral expenditures,
of the taxpayer for such taxable year.
‘‘(b) DOLLAR LIMITATION.—The credit allowable under sub-
section (a) for any taxable year shall not exceed $150,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified child care
expenditure’ means any amount paid or incurred—
‘‘(i) to acquire, construct, rehabilitate, or expand
property—
‘‘(I) which is to be used as part of a qualified
child care facility of the taxpayer,
‘‘(II) with respect to which a deduction for
depreciation (or amortization in lieu of deprecia-
tion) is allowable, and
‘‘(III) which does not constitute part of the
principal residence (within the meaning of section
121) of the taxpayer or any employee of the tax-
payer,
‘‘(ii) for the operating costs of a qualified child
care facility of the taxpayer, including costs related
to the training of employees, to scholarship programs,
and to the providing of increased compensation to
employees with higher levels of child care training,
or
‘‘(iii) under a contract with a qualified child care
facility to provide child care services to employees of
the taxpayer.
‘‘(B) FAIR MARKET VALUE.—The term ‘qualified child
care expenditures’ shall not include expenses in excess
of the fair market value of such care.
‘‘(2) QUALIFIED CHILD CARE FACILITY.—
‘‘(A) IN
GENERAL.—The term ‘qualified child care
facility’ means a facility—
‘‘(i) the principal use of which is to provide child
care assistance, and
‘‘(ii) which meets the requirements of all applicable
laws and regulations of the State or local government
in which it is located, including the licensing of the
facility as a child care facility.
H. R. 1836—14
Clause (i) shall not apply to a facility which is the principal
residence (within the meaning of section 121) of the oper-
ator of the facility.
‘‘(B) SPECIAL RULES WITH RESPECT TO A TAXPAYER.—
A facility shall not be treated as a qualified child care
facility with respect to a taxpayer unless—
‘‘(i) enrollment in the facility is open to employees
of the taxpayer during the taxable year,
‘‘(ii) if the facility is the principal trade or business
of the taxpayer, at least 30 percent of the enrollees
of such facility are dependents of employees of the
taxpayer, and
‘‘(iii) the use of such facility (or the eligibility to
use such facility) does not discriminate in favor of
employees of the taxpayer who are highly compensated
employees (within the meaning of section 414(q)).
‘‘(3) QUALIFIED
CHILD
CARE
RESOURCE
AND
REFERRAL
EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified child care
resource and referral expenditure’ means any amount paid
or incurred under a contract to provide child care resource
and referral services to an employee of the taxpayer.
‘‘(B) NONDISCRIMINATION.—The services shall not be
treated as qualified unless the provision of such services
(or the eligibility to use such services) does not discriminate
in favor of employees of the taxpayer who are highly com-
pensated employees (within the meaning of section 414(q)).
‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION CREDIT.—
‘‘(1) IN GENERAL.—If, as of the close of any taxable year,
there is a recapture event with respect to any qualified child
care facility of the taxpayer, then the tax of the taxpayer
under this chapter for such taxable year shall be increased
by an amount equal to the product of—
‘‘(A) the applicable recapture percentage, and
‘‘(B) the aggregate decrease in the credits allowed
under section 38 for all prior taxable years which would
have resulted if the qualified child care expenditures of
the taxpayer described in subsection (c)(1)(A) with respect
to such facility had been zero.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN GENERAL.—For purposes of this subsection, the
applicable recapture percentage shall be determined from
the following table:
The applicable
recapture
‘‘If 
the 
recapture 
event
occurs in:
percentage is:
Years 1–3 .................................................................................
100
Year 4 .......................................................................................
Year 5 .......................................................................................
Year 6 .......................................................................................
Year 7 .......................................................................................
Year 8 .......................................................................................
Years 9 and 10 .........................................................................
Years 11 and thereafter ..........................................................
0.
‘‘(B) YEARS.—For purposes of subparagraph (A), year
1 shall begin on the first day of the taxable year in which
the qualified child care facility is placed in service by
the taxpayer.
H. R. 1836—15
‘‘(3) RECAPTURE EVENT DEFINED.—For purposes of this sub-
section, the term ‘recapture event’ means—
‘‘(A) CESSATION OF OPERATION.—The cessation of the
operation of the facility as a qualified child care facility.
‘‘(B) CHANGE IN OWNERSHIP.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii), the disposition of a taxpayer’s interest in a quali-
fied child care facility with respect to which the credit
described in subsection (a) was allowable.
‘‘(ii) 
AGREEMENT
TO
ASSUME
RECAPTURE
LIABILITY.—Clause (i) shall not apply if the person
acquiring such interest in the facility agrees in writing
to assume the recapture liability of the person dis-
posing of such interest in effect immediately before
such disposition. In the event of such an assumption,
the person acquiring the interest in the facility shall
be treated as the taxpayer for purposes of assessing
any recapture liability (computed as if there had been
no change in ownership).
‘‘(4) SPECIAL RULES.—
‘‘(A) TAX BENEFIT RULE.—The tax for the taxable year
shall be increased under paragraph (1) only with respect
to credits allowed by reason of this section which were
used to reduce tax liability. In the case of credits not
so used to reduce tax liability, the carryforwards and
carrybacks under section 39 shall be appropriately
adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any increase in tax
under this subsection shall not be treated as a tax imposed
by this chapter for purposes of determining the amount
of any credit under subpart A, B, or D of this part.
‘‘(C) NO RECAPTURE BY REASON OF CASUALTY LOSS.—
The increase in tax under this subsection shall not apply
to a cessation of operation of the facility as a qualified
child care facility by reason of a casualty loss to the extent
such loss is restored by reconstruction or replacement
within a reasonable period established by the Secretary.
‘‘(e) SPECIAL RULES.—For purposes of this section—
‘‘(1) AGGREGATION RULES.—All persons which are treated
as a single employer under subsections (a) and (b) of section
52 shall be treated as a single taxpayer.
‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS.—
Under regulations prescribed by the Secretary, rules similar
to the rules of subsection (d) of section 52 shall apply.
‘‘(3) ALLOCATION IN THE CASE OF PARTNERSHIPS.—In the
case of partnerships, the credit shall be allocated among part-
ners under regulations prescribed by the Secretary.
‘‘(f ) NO DOUBLE BENEFIT.—
‘‘(1) REDUCTION IN BASIS.—For purposes of this subtitle—
‘‘(A) IN GENERAL.—If a credit is determined under this
section with respect to any property by reason of expendi-
tures described in subsection (c)(1)(A), the basis of such
property shall be reduced by the amount of the credit
so determined.
‘‘(B) CERTAIN
DISPOSITIONS.—If, during any taxable
year, there is a recapture amount determined with respect
to any property the basis of which was reduced under
H. R. 1836—16
subparagraph (A), the basis of such property (immediately
before the event resulting in such recapture) shall be
increased by an amount equal to such recapture amount.
For purposes of the preceding sentence, the term ‘recapture
amount’ means any increase in tax (or adjustment in
carrybacks or carryovers) determined under subsection (d).
‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No deduction or
credit shall be allowed under any other provision of this chapter
with respect to the amount of the credit determined under
this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 38(b), as amended by section 619, is amended
by striking ‘‘plus’’ at the end of paragraph (13), by striking
the period at the end of paragraph (14) and inserting ‘‘, plus’’,
and by adding at the end the following:
‘‘(15) the employer-provided child care credit determined
under section 45F.’’.
(2) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end the
following:
‘‘Sec. 45F. Employer-provided child care credit.’’.
(3) Section 1016(a) is amended by striking ‘‘and’’ at the
end of paragraph (26), by striking the period at the end of
paragraph (27) and inserting ‘‘, and’’, and by adding at the
end the following:
‘‘(28) in the case of a facility with respect to which a
credit was allowed under section 45F, to the extent provided
in section 45F(f )(1).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
TITLE III—MARRIAGE PENALTY RELIEF
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUC-
TION.
(a) IN GENERAL.—Paragraph (2) of section 63(c) (relating to
standard deduction) is amended—
(1) by striking ‘‘$5,000’’ in subparagraph (A) and inserting
‘‘the applicable percentage of the dollar amount in effect under
subparagraph (C) for the taxable year’’;
(2) by adding ‘‘or’’ at the end of subparagraph (B);
(3) by striking ‘‘in the case of’’ and all that follows in
subparagraph (C) and inserting ‘‘in any other case.’’; and
(4) by striking subparagraph (D).
(b) APPLICABLE
PERCENTAGE.—Section 63(c) (relating to
standard deduction) is amended by adding at the end the following
new paragraph:
‘‘(7) APPLICABLE PERCENTAGE.—For purposes of paragraph
(2), the applicable percentage shall be determined in accordance
with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2005 .............................................................................................
174
2006 .............................................................................................
184
2007 .............................................................................................
187
2008 .............................................................................................
190
2009 and thereafter ...................................................................
200.’’.
H. R. 1836—17
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 1(f )(6) is amended by
striking ‘‘(other than with’’ and all that follows through ‘‘shall
be applied’’ and inserting ‘‘(other than with respect to sections
63(c)(4) and 151(d)(4)(A)) shall be applied’’.
(2) Paragraph (4) of section 63(c) is amended by adding
at the end the following flush sentence:
‘‘The preceding sentence shall not apply to the amount referred
to in paragraph (2)(A).’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
SEC. 
302. 
PHASEOUT 
OF 
MARRIAGE 
PENALTY 
IN 
15-PERCENT
BRACKET.
(a) IN GENERAL.—Section 1(f ) (relating to adjustments in tax
tables so that inflation will not result in tax increases) is amended
by adding at the end the following new paragraph:
‘‘(8) PHASEOUT
OF
MARRIAGE
PENALTY
IN
15-PERCENT
BRACKET.—
‘‘(A) IN GENERAL.—With respect to taxable years begin-
ning after December 31, 2004, in prescribing the tables
under paragraph (1)—
‘‘(i) the maximum taxable income in the 15-percent
rate bracket in the table contained in subsection (a)
(and the minimum taxable income in the next higher
taxable income bracket in such table) shall be the
applicable percentage of the maximum taxable income
in the 15-percent rate bracket in the table contained
in subsection (c) (after any other adjustment under
this subsection), and
‘‘(ii) the comparable taxable income amounts in
the table contained in subsection (d) shall be 1⁄2 of
the amounts determined under clause (i).
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (A), the applicable percentage shall be deter-
mined in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2005 .............................................................................................
180
2006 .............................................................................................
187
2007 .............................................................................................
193
2008 and thereafter ...................................................................
200.
‘‘(C) ROUNDING.—If any amount determined under
subparagraph (A)(i) is not a multiple of $50, such amount
shall be rounded to the next lowest multiple of $50.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (A) of section 1(f )(2) is amended by
inserting ‘‘except as provided in paragraph (8),’’ before ‘‘by
increasing’’.
(2) The heading for subsection (f ) of section 1 is amended
by inserting ‘‘PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT
BRACKET;’’ before ‘‘ADJUSTMENTS’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2004.
H. R. 1836—18
SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT;
EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUD-
IBLE IN GROSS INCOME; SIMPLIFICATION OF EARNED
INCOME CREDIT.
(a) INCREASED PHASEOUT AMOUNT.—
(1) IN
GENERAL.—Section 32(b)(2) (relating to amounts)
is amended—
(A) by striking ‘‘AMOUNTS.—The earned’’ and inserting
‘‘AMOUNTS.—
‘‘(A) IN GENERAL.—Subject to subparagraph (B), the
earned’’, and
(B) by adding at the end the following new subpara-
graph:
‘‘(B) JOINT RETURNS.—In the case of a joint return
filed by an eligible individual and such individual’s spouse,
the phaseout amount determined under subparagraph (A)
shall be increased by—
‘‘(i) $1,000 in the case of taxable years beginning
in 2002, 2003, and 2004,
‘‘(ii) $2,000 in the case of taxable years beginning
in 2005, 2006, and 2007, and
‘‘(iii) $3,000 in the case of taxable years beginning
after 2007.’’.
(2) INFLATION ADJUSTMENT.—Paragraph (1)(B) of section
32( j) (relating to inflation adjustments) is amended to read
as follows:
‘‘(B) the cost-of-living adjustment determined under
section 1(f )(3) for the calendar year in which the taxable
year begins, determined—
‘‘(i) in the case of amounts in subsections (b)(2)(A)
and (i)(1), by substituting ‘calendar year 1995’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof, and
‘‘(ii) in the case of the $3,000 amount in subsection
(b)(2)(B)(iii), by substituting ‘calendar year 2007’ for
‘calendar year 1992’ in subparagraph (B) of such sec-
tion 1.’’.
(3) ROUNDING.—Section 32( j)(2)(A) (relating to rounding)
is amended by striking ‘‘subsection (b)(2)’’ and inserting ‘‘sub-
section (b)(2)(A) (after being increased under subparagraph (B)
thereof )’’.
(b) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE
IN GROSS INCOME.—Clause (i) of section 32(c)(2)(A) (defining earned
income) is amended by inserting ‘‘, but only if such amounts are
includible in gross income for the taxable year’’ after ‘‘other
employee compensation’’.
(c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS SUBJECT
TO ALTERNATIVE MINIMUM TAX.—Section 32(h) is repealed.
(d) REPLACEMENT OF MODIFIED ADJUSTED GROSS INCOME WITH
ADJUSTED GROSS INCOME.—
(1) IN GENERAL.—Section 32(a)(2)(B) is amended by striking
‘‘modified’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 32(c) is amended by striking paragraph
(5).
(B) Section 32(f )(2)(B) is amended by striking ‘‘modi-
fied’’ each place it appears.
(e) RELATIONSHIP TEST.—
H. R. 1836—19
(1) IN GENERAL.—Clause (i) of section 32(c)(3)(B) (relating
to relationship test) is amended to read as follows:
‘‘(i) IN GENERAL.—An individual bears a relation-
ship to the taxpayer described in this subparagraph
if such individual is—
‘‘(I) a son, daughter, stepson, or stepdaughter,
or a descendant of any such individual,
‘‘(II) a brother, sister, stepbrother, or step-
sister, or a descendant of any such individual,
who the taxpayer cares for as the taxpayer’s own
child, or
‘‘(III) an eligible foster child of the taxpayer.’’.
(2) ELIGIBLE FOSTER CHILD.—
(A) IN GENERAL.—Clause (iii) of section 32(c)(3)(B) is
amended to read as follows:
‘‘(iii) ELIGIBLE
FOSTER
CHILD.—For purposes of
clause (i), the term ‘eligible foster child’ means an
individual not described in subclause (I) or (II) of clause
(i) who—
‘‘(I) is placed with the taxpayer by an author-
ized placement agency, and
‘‘(II) the taxpayer cares for as the taxpayer’s
own child.’’.
(B) CONFORMING AMENDMENT.—Section 32(c)(3)(A)(ii)
is amended by striking ‘‘except as provided in subparagraph
(B)(iii),’’.
(f ) 
OR
MORE
CLAIMING
QUALIFYING
CHILD.—Section
32(c)(1)(C) is amended to read as follows:
‘‘(C) 2 OR MORE CLAIMING QUALIFYING CHILD.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii), if (but for this paragraph) an individual may be
claimed, and is claimed, as a qualifying child by 2
or more taxpayers for a taxable year beginning in
the same calendar year, such individual shall be
treated as the qualifying child of the taxpayer who
is—
‘‘(I) a parent of the individual, or
‘‘(II) if subclause (I) does not apply, the tax-
payer with the highest adjusted gross income for
such taxable year.
‘‘(ii) MORE THAN 1 CLAIMING CREDIT.—If the par-
ents claiming the credit with respect to any qualifying
child do not file a joint return together, such child
shall be treated as the qualifying child of—
‘‘(I) the parent with whom the child resided
for the longest period of time during the taxable
year, or
‘‘(II) if the child resides with both parents
for the same amount of time during such taxable
year, the parent with the highest adjusted gross
income.’’.
(g) EXPANSION OF MATHEMATICAL ERROR AUTHORITY.—Para-
graph (2) of section 6213(g) is amended by striking ‘‘and’’ at the
end of subparagraph (K), by striking the period at the end of
subparagraph (L) and inserting ‘‘, and’’, and by inserting after
subparagraph (L) the following new subparagraph:
H. R. 1836—20
‘‘(M) the entry on the return claiming the credit under
section 32 with respect to a child if, according to the Federal
Case Registry of Child Support Orders established under
section 453(h) of the Social Security Act, the taxpayer
is a noncustodial parent of such child.’’.
(h) CLERICAL
AMENDMENT.—Subparagraph (E) of section
32(c)(3) is amended by striking ‘‘subparagraphs (A)(ii) and
(B)(iii)(II)’’ and inserting ‘‘subparagraph (A)(ii)’’.
(i) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2001.
(2) SUBSECTION (g).—The amendment made by subsection
(g) shall take effect on January 1, 2004.
TITLE IV—AFFORDABLE EDUCATION
PROVISIONS
Subtitle A—Education Savings Incentives
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT
ACCOUNTS.
(a) MAXIMUM ANNUAL CONTRIBUTIONS.—
(1) IN
GENERAL.—Section 530(b)(1)(A)(iii) (defining edu-
cation individual retirement account) is amended by striking
‘‘$500’’ and inserting ‘‘$2,000’’.
(2) CONFORMING
AMENDMENT.—Section 4973(e)(1)(A) is
amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’.
(b) MODIFICATION OF AGI LIMITS TO REMOVE MARRIAGE PEN-
ALTY.—Section 530(c)(1) (relating to reduction in permitted contribu-
tions based on adjusted gross income) is amended—
(1) by striking ‘‘$150,000’’ in subparagraph (A)(ii) and
inserting ‘‘$190,000’’, and
(2) by striking ‘‘$10,000’’ in subparagraph (B) and inserting
‘‘$30,000’’.
(c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY
SCHOOL EXPENSES.—
(1) IN
GENERAL.—Section 530(b)(2) (defining qualified
higher education expenses) is amended to read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified education
expenses’ means—
‘‘(i) qualified higher education expenses (as defined
in section 529(e)(3)), and
‘‘(ii) qualified elementary and secondary education
expenses (as defined in paragraph (4)).
‘‘(B) QUALIFIED STATE TUITION PROGRAMS.—Such term
shall include any contribution to a qualified State tuition
program (as defined in section 529(b)) on behalf of the
designated beneficiary (as defined in section 529(e)(1)); but
there shall be no increase in the investment in the contract
for purposes of applying section 72 by reason of any portion
of such contribution which is not includible in gross income
by reason of subsection (d)(2).’’.
H. R. 1836—21
(2) QUALIFIED
ELEMENTARY
AND
SECONDARY
EDUCATION
EXPENSES.—Section 530(b) (relating to definitions and special
rules) is amended by adding at the end the following new
paragraph:
‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION
EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified elementary and
secondary education expenses’ means—
‘‘(i) expenses for tuition, fees, academic tutoring,
special needs services in the case of a special needs
beneficiary, books, supplies, and other equipment
which are incurred in connection with the enrollment
or attendance of the designated beneficiary of the trust
as an elementary or secondary school student at a
public, private, or religious school,
‘‘(ii) expenses for room and board, uniforms,
transportation, and supplementary items and services
(including extended day programs) which are required
or provided by a public, private, or religious school
in connection with such enrollment or attendance, and
‘‘(iii) expenses for the purchase of any computer
technology or equipment (as defined in section
170(e)(6)(F)(i)) or Internet access and related services,
if such technology, equipment, or services are to be
used by the beneficiary and the beneficiary’s family
during any of the years the beneficiary is in school.
Clause (iii) shall not include expenses for computer soft-
ware designed for sports, games, or hobbies unless the
software is predominantly educational in nature.
‘‘(B) SCHOOL.—The term ‘school’ means any school
which provides elementary education or secondary edu-
cation (kindergarten through grade 12), as determined
under State law.’’.
(3) CONFORMING AMENDMENTS.—Section 530 is amended—
(A) by striking ‘‘higher’’ each place it appears in sub-
sections (b)(1) and (d)(2), and
(B) by striking ‘‘HIGHER’’ in the heading for subsection
(d)(2).
(d) WAIVER OF AGE LIMITATIONS FOR CHILDREN WITH SPECIAL
NEEDS.—Section 530(b)(1) (defining education individual retirement
account) is amended by adding at the end the following flush
sentence:
‘‘The age limitations in subparagraphs (A)(ii) and (E), and
paragraphs (5) and (6) of subsection (d), shall not apply to
any designated beneficiary with special needs (as determined
under regulations prescribed by the Secretary).’’.
(e) ENTITIES PERMITTED TO CONTRIBUTE TO ACCOUNTS.—Sec-
tion 530(c)(1) (relating to reduction in permitted contributions based
on adjusted gross income) is amended by striking ‘‘The maximum
amount which a contributor’’ and inserting ‘‘In the case of a contrib-
utor who is an individual, the maximum amount the contributor’’.
(f ) TIME WHEN CONTRIBUTIONS DEEMED MADE.—
(1) IN GENERAL.—Section 530(b) (relating to definitions and
special rules), as amended by subsection (c)(2), is amended
by adding at the end the following new paragraph:
‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED MADE.—An indi-
vidual shall be deemed to have made a contribution to an
H. R. 1836—22
education individual retirement account on the last day of
the preceding taxable year if the contribution is made on
account of such taxable year and is made not later than the
time prescribed by law for filing the return for such taxable
year (not including extensions thereof ).’’.
(2) EXTENSION
OF
TIME
TO
RETURN
EXCESS
CONTRIBU-
TIONS.—Subparagraph (C) of section 530(d)(4) (relating to addi-
tional tax for distributions not used for educational expenses)
is amended—
(A) by striking clause (i) and inserting the following
new clause:
‘‘(i) such distribution is made before the first day
of the sixth month of the taxable year following the
taxable year, and’’, and
(B) by striking ‘‘DUE DATE OF RETURN’’ in the heading
and inserting ‘‘CERTAIN DATE’’.
(g) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS
AND QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 530(d)(2)(C) is amended to read
as follows:
‘‘(C) COORDINATION WITH HOPE AND LIFETIME LEARNING
CREDITS AND QUALIFIED TUITION PROGRAMS.—For purposes
of subparagraph (A)—
‘‘(i) CREDIT COORDINATION.—The total amount of
qualified higher education expenses with respect to
an individual for the taxable year shall be reduced—
‘‘(I) as provided in section 25A(g)(2), and
‘‘(II) by the amount of such expenses which
were taken into account in determining the credit
allowed to the taxpayer or any other person under
section 25A.
‘‘(ii) COORDINATION WITH QUALIFIED TUITION PRO-
GRAMS.—If, with respect to an individual for any tax-
able year—
‘‘(I) the aggregate distributions during such
year to which subparagraph (A) and section
529(c)(3)(B) apply, exceed
‘‘(II) the total amount of qualified education
expenses (after the application of clause (i)) for
such year,
the taxpayer shall allocate such expenses among such
distributions for purposes of determining the amount
of the exclusion under subparagraph (A) and section
529(c)(3)(B).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (e) of section 25A is amended to read
as follows:
‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A taxpayer may
elect not to have this section apply with respect to the qualified
tuition and related expenses of an individual for any taxable year.’’.
(B) Section 135(d)(2)(A) is amended by striking ‘‘allow-
able’’ and inserting ‘‘allowed’’.
(C) Section 530(d)(2)(D) is amended—
(i) by striking ‘‘or credit’’ and inserting ‘‘, credit,
or exclusion’’, and
H. R. 1836—23
(ii) by striking ‘‘CREDIT
OR
DEDUCTION’’ in the
heading and inserting ‘‘DEDUCTION, CREDIT, OR EXCLU-
SION’’.
(D) Section 4973(e)(1) is amended by adding ‘‘and’’
at the end of subparagraph (A), by striking subparagraph
(B), and by redesignating subparagraph (C) as subpara-
graph (B).
(h) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.
(a) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAIN-
TAIN QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(b)(1) (defining qualified State
tuition program) is amended—
(A) by inserting ‘‘or by 1 or more eligible educational
institutions’’ after ‘‘maintained by a State or agency or
instrumentality thereof ’’ in the matter preceding subpara-
graph (A), and
(B) by adding at the end the following new flush sen-
tence:
‘‘Except to the extent provided in regulations, a program estab-
lished and maintained by 1 or more eligible educational institu-
tions shall not be treated as a qualified tuition program unless
such program provides that amounts are held in a qualified
trust and such program has received a ruling or determination
that such program meets the applicable requirements for a
qualified tuition program. For purposes of the preceding sen-
tence, the term ‘qualified trust’ means a trust which is created
or organized in the United States for the exclusive benefit
of designated beneficiaries and with respect to which the
requirements of paragraphs (2) and (5) of section 408(a) are
met.’’.
(2) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BEN-
EFIT PLANS.—Clause (ii) of section 529(b)(1)(A) is amended by
inserting ‘‘in the case of a program established and maintained
by a State or agency or instrumentality thereof,’’ before ‘‘may
make’’.
(3) ADDITIONAL TAX ON NONQUALIFIED WITHDRAWALS.—Sec-
tion 529 is amended—
(A) by striking paragraph (3) of subsection (b) and
by redesignating paragraphs (4), (5), (6), and (7) of such
subsection as paragraphs (3), (4), (5), and (6), respectively,
and
(B) by adding at the end of subsection (c) the following
new paragraph:
‘‘(6) ADDITIONAL TAX.—The tax imposed by section 530(d)(4)
shall apply to any payment or distribution from a qualified
tuition program in the same manner as such tax applies to
a payment or distribution from an education individual retire-
ment account. This paragraph shall not apply to any payment
or distribution in any taxable year beginning before January
1, 2004, which is includible in gross income but used for quali-
fied higher education expenses of the designated beneficiary.’’.
(4) CONFORMING AMENDMENTS.—
(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529,
530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by
H. R. 1836—24
striking ‘‘qualified State tuition’’ each place it appears and
inserting ‘‘qualified tuition’’.
(B) The headings for sections 72(e)(9) and 135(c)(2)(C)
are amended by striking ‘‘QUALIFIED STATE TUITION’’ each
place it appears and inserting ‘‘QUALIFIED TUITION’’.
(C) The headings for sections 529(b) and 530(b)(2)(B)
are amended by striking ‘‘QUALIFIED STATE TUITION’’ each
place it appears and inserting ‘‘QUALIFIED TUITION’’.
(D) The heading for section 529 is amended by striking
‘‘STATE’’.
(E) The item relating to section 529 in the table of
sections for part VIII of subchapter F of chapter 1 is
amended by striking ‘‘State’’.
(b) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBU-
TIONS FROM QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(c)(3)(B) (relating to distribu-
tions) is amended to read as follows:
‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION
EXPENSES.—For purposes of this paragraph—
‘‘(i) IN-KIND DISTRIBUTIONS.—No amount shall be
includible in gross income under subparagraph (A) by
reason of a distribution which consists of providing
a benefit to the distributee which, if paid for by the
distributee, would constitute payment of a qualified
higher education expense.
‘‘(ii) CASH DISTRIBUTIONS.—In the case of distribu-
tions not described in clause (i), if—
‘‘(I) such distributions do not exceed the quali-
fied higher education expenses (reduced by
expenses described in clause (i)), no amount shall
be includible in gross income, and
‘‘(II) in any other case, the amount otherwise
includible in gross income shall be reduced by
an amount which bears the same ratio to such
amount as such expenses bear to such distribu-
tions.
‘‘(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS.—
In the case of any taxable year beginning before
January 1, 2004, clauses (i) and (ii) shall not apply
with respect to any distribution during such taxable
year under a qualified tuition program established and
maintained by 1 or more eligible educational institu-
tions.
‘‘(iv) TREATMENT AS DISTRIBUTIONS.—Any benefit
furnished to a designated beneficiary under a qualified
tuition program shall be treated as a distribution to
the beneficiary for purposes of this paragraph.
‘‘(v) COORDINATION
WITH
HOPE
AND
LIFETIME
LEARNING
CREDITS.—The total amount of qualified
higher education expenses with respect to an individual
for the taxable year shall be reduced—
‘‘(I) as provided in section 25A(g)(2), and
‘‘(II) by the amount of such expenses which
were taken into account in determining the credit
allowed to the taxpayer or any other person under
section 25A.
H. R. 1836—25
‘‘(vi) COORDINATION WITH EDUCATION INDIVIDUAL
RETIREMENT ACCOUNTS.—If, with respect to an indi-
vidual for any taxable year—
‘‘(I) the aggregate distributions to which
clauses (i) and (ii) and section 530(d)(2)(A) apply,
exceed
‘‘(II) the total amount of qualified higher edu-
cation expenses otherwise taken into account
under clauses (i) and (ii) (after the application
of clause (v)) for such year,
the taxpayer shall allocate such expenses among such
distributions for purposes of determining the amount
of the exclusion under clauses (i) and (ii) and section
530(d)(2)(A).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 135(d)(2)(B) is amended by striking ‘‘the
exclusion under section 530(d)(2)’’ and inserting ‘‘the exclu-
sions under sections 529(c)(3)(B) and 530(d)(2)’’.
(B) Section 221(e)(2)(A) is amended by inserting ‘‘529,’’
after ‘‘135,’’.
(c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT OF SAME
DESIGNATED BENEFICIARY.—Section 529(c)(3)(C) (relating to change
in beneficiaries) is amended—
(1) by striking ‘‘transferred to the credit’’ in clause (i)
and inserting ‘‘transferred—
‘‘(I) to another qualified tuition program for
the benefit of the designated beneficiary, or
‘‘(II) to the credit’’,
(2) by adding at the end the following new clause:
‘‘(iii) LIMITATION ON CERTAIN ROLLOVERS.—Clause
(i)(I) shall not apply to any transfer if such transfer
occurs within 12 months from the date of a previous
transfer to any qualified tuition program for the benefit
of the designated beneficiary.’’, and
(3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENEFICIARIES’’ in
the heading.
(d) MEMBER
OF FAMILY INCLUDES FIRST COUSIN.—Section
529(e)(2) (defining member of family) is amended by striking ‘‘and’’
at the end of subparagraph (B), by striking the period at the
end of subparagraph (C) and by inserting ‘‘; and’’, and by adding
at the end the following new subparagraph:
‘‘(D) any first cousin of such beneficiary.’’.
(e) ADJUSTMENT OF LIMITATION ON ROOM AND BOARD DISTRIBU-
TIONS.—Section 529(e)(3)(B)(ii) is amended to read as follows:
‘‘(ii) LIMITATION.—The amount treated as qualified
higher education expenses by reason of clause (i) shall
not exceed—
‘‘(I) the allowance (applicable to the student)
for room and board included in the cost of attend-
ance (as defined in section 472 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087ll), as in effect
on the date of the enactment of the Economic
Growth and Tax Relief Reconciliation Act of 2001)
as determined by the eligible educational institu-
tion for such period, or
‘‘(II) if greater, the actual invoice amount the
student residing in housing owned or operated by
H. R. 1836—26
the eligible educational institution is charged by
such institution for room and board costs for such
period.’’.
(f ) SPECIAL NEEDS SERVICES.—Subparagraph (A) of section
529(e)(3) (defining qualified higher education expenses) is amended
to read as follows:
‘‘(A) IN GENERAL.—The term ‘qualified higher education
expenses’ means—
‘‘(i) tuition, fees, books, supplies, and equipment
required for the enrollment or attendance of a des-
ignated beneficiary at an eligible educational institu-
tion; and
‘‘(ii) expenses for special needs services in the case
of a special needs beneficiary which are incurred in
connection with such enrollment or attendance.’’.
(g) 
TECHNICAL
AMENDMENTS.—Section 
529(c)(3)(D) 
is
amended—
(1) by inserting ‘‘except to the extent provided by the Sec-
retary,’’ before ‘‘all distributions’’ in clause (ii), and
(2) by inserting ‘‘except to the extent provided by the Sec-
retary,’’ before ‘‘the value’’ in clause (iii).
(h) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
Subtitle B—Educational Assistance
SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDU-
CATIONAL ASSISTANCE.
(a) IN GENERAL.—Section 127 (relating to exclusion for edu-
cational assistance programs) is amended by striking subsection
(d) and by redesignating subsection (e) as subsection (d).
(b) REPEAL OF LIMITATION ON GRADUATE EDUCATION.—The last
sentence of section 127(c)(1) is amended by striking ‘‘, and such
term also does not include any payment for, or the provision of
any benefits with respect to, any graduate level course of a kind
normally taken by an individual pursuing a program leading to
a law, business, medical, or other advanced academic or professional
degree’’.
(c) CONFORMING
AMENDMENT.—Section 51A(b)(5)(B)(iii) is
amended by striking ‘‘or would be so excludable but for section
127(d)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to expenses relating to courses beginning
after December 31, 2001.
SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME
LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.
(a) ELIMINATION OF 60-MONTH LIMIT.—
(1) IN GENERAL.—Section 221 (relating to interest on edu-
cation loans), as amended by section 402(b)(2)(B), is amended
by striking subsection (d) and by redesignating subsections
(e), (f ), and (g) as subsections (d), (e), and (f ), respectively.
(2) 
CONFORMING
AMENDMENT.—Section 
6050S(e) 
is
amended by striking ‘‘section 221(e)(1)’’ and inserting ‘‘section
221(d)(1)’’.
H. R. 1836—27
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply with respect to any loan interest paid after
December 31, 2001, in taxable years ending after such date.
(b) INCREASE IN INCOME LIMITATION.—
(1) IN GENERAL.—Section 221(b)(2)(B) (relating to amount
of reduction) is amended by striking clauses (i) and (ii) and
inserting the following:
‘‘(i) the excess of—
‘‘(I) the taxpayer’s modified adjusted gross
income for such taxable year, over
‘‘(II) $50,000 ($100,000 in the case of a joint
return), bears to
‘‘(ii) $15,000 ($30,000 in the case of a joint
return).’’.
(2) 
CONFORMING
AMENDMENT.—Section 
221(g)(1) 
is
amended by striking ‘‘$40,000 and $60,000 amounts’’ and
inserting ‘‘$50,000 and $100,000 amounts’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to taxable years ending after December
31, 2001.
SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE
NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PRO-
GRAM AND THE F. EDWARD HEBERT ARMED FORCES
HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL
ASSISTANCE PROGRAM.
(a) IN GENERAL.—Section 117(c) (relating to the exclusion from
gross income amounts received as a qualified scholarship) is
amended—
(1) by striking ‘‘Subsections (a)’’ and inserting the following:
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
subsections (a)’’, and
(2) by adding at the end the following new paragraph:
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to any
amount received by an individual under—
‘‘(A) the National Health Service Corps Scholarship
Program under section 338A(g)(1)(A) of the Public Health
Service Act, or
‘‘(B) the Armed Forces Health Professions Scholarship
and Financial Assistance program under subchapter I of
chapter 105 of title 10, United States Code.’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to amounts received in taxable years beginning
after December 31, 2001.
Subtitle C—Liberalization of Tax-Exempt
Financing Rules for Public School Con-
struction
SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION
FOR GOVERNMENTAL BONDS USED TO FINANCE EDU-
CATIONAL FACILITIES.
(a) IN GENERAL.—Section 148(f )(4)(D)(vii) (relating to increase
in exception for bonds financing public school capital expenditures)
H. R. 1836—28
is amended by striking ‘‘$5,000,000’’ the second place it appears
and inserting ‘‘$10,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to obligations issued in calendar years beginning after
December 31, 2001.
SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY
BONDS AS EXEMPT FACILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of
section 142 (relating to exempt facility bond) is amended by striking
‘‘or’’ at the end of paragraph (11), by striking the period at the
end of paragraph (12) and inserting ‘‘, or’’, and by adding at the
end the following new paragraph:
‘‘(13) qualified public educational facilities.’’.
(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—Section 142
(relating to exempt facility bond) is amended by adding at the
end the following new subsection:
‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
‘‘(1) IN GENERAL.—For purposes of subsection (a)(13), the
term ‘qualified public educational facility’ means any school
facility which is—
‘‘(A) part of a public elementary school or a public
secondary school, and
‘‘(B) owned by a private, for-profit corporation pursuant
to a public-private partnership agreement with a State
or local educational agency described in paragraph (2).
‘‘(2) 
PUBLIC-PRIVATE
PARTNERSHIP
AGREEMENT
DESCRIBED.—A 
public-private 
partnership 
agreement 
is
described in this paragraph if it is an agreement—
‘‘(A) under which the corporation agrees—
‘‘(i) to do 1 or more of the following: construct,
rehabilitate, refurbish, or equip a school facility, and
‘‘(ii) at the end of the term of the agreement,
to transfer the school facility to such agency for no
additional consideration, and
‘‘(B) the term of which does not exceed the term of
the issue to be used to provide the school facility.
‘‘(3) SCHOOL
FACILITY.—For purposes of this subsection,
the term ‘school facility’ means—
‘‘(A) any school building,
‘‘(B) any functionally related and subordinate facility
and land with respect to such building, including any sta-
dium or other facility primarily used for school events,
and
‘‘(C) any property, to which section 168 applies (or
would apply but for section 179), for use in a facility
described in subparagraph (A) or (B).
‘‘(4) PUBLIC SCHOOLS.—For purposes of this subsection, the
terms ‘elementary school’ and ‘secondary school’ have the
meanings given such terms by section 14101 of the Elementary
and Secondary Education Act of 1965 (20 U.S.C. 8801), as
in effect on the date of the enactment of this subsection.
‘‘(5) ANNUAL
AGGREGATE
FACE
AMOUNT
OF
TAX-EXEMPT
FINANCING.—
‘‘(A) IN GENERAL.—An issue shall not be treated as
an issue described in subsection (a)(13) if the aggregate
face amount of bonds issued by the State pursuant thereto
H. R. 1836—29
(when added to the aggregate face amount of bonds pre-
viously so issued during the calendar year) exceeds an
amount equal to the greater of—
‘‘(i) $10 multiplied by the State population, or
‘‘(ii) $5,000,000.
‘‘(B) ALLOCATION RULES.—
‘‘(i) IN
GENERAL.—Except as otherwise provided
in this subparagraph, the State may allocate the
amount described in subparagraph (A) for any calendar
year in such manner as the State determines appro-
priate.
‘‘(ii) RULES FOR CARRYFORWARD OF UNUSED LIMITA-
TION.—A State may elect to carry forward an unused
limitation for any calendar year for 3 calendar years
following the calendar year in which the unused limita-
tion arose under rules similar to the rules of section
146(f ), except that the only purpose for which the
carryforward may be elected is the issuance of exempt
facility bonds described in subsection (a)(13).’’.
(c) EXEMPTION FROM GENERAL STATE VOLUME CAPS.—Para-
graph (3) of section 146(g) (relating to exception for certain bonds)
is amended—
(1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or (13)’’, and
(2) by striking ‘‘and environmental enhancements of hydro-
electric generating facilities’’ and inserting ‘‘environmental
enhancements of hydroelectric generating facilities, and quali-
fied public educational facilities’’.
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND ACQUISI-
TION.—Section 147(h) (relating to certain rules not to apply to
mortgage revenue bonds, qualified student loan bonds, and qualified
501(c)(3) bonds) is amended by adding at the end the following
new paragraph:
‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED PUBLIC-PRIVATE
SCHOOLS.—Subsection (c) shall not apply to any exempt facility
bond issued as part of an issue described in section 142(a)(13)
(relating to qualified public educational facilities).’’.
(e) CONFORMING AMENDMENT.—The heading for section 147(h)
is amended by striking ‘‘MORTGAGE REVENUE BONDS, QUALIFIED
STUDENT
LOAN
BONDS, AND
QUALIFIED
501(c)(3) BONDS’’ and
inserting ‘‘CERTAIN BONDS’’.
(f ) EFFECTIVE DATE.—The amendments made by this section
shall apply to bonds issued after December 31, 2001.
Subtitle D—Other Provisions
SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED.—Part VII of subchapter B of chapter
1 (relating to additional itemized deductions for individuals) is
amended by redesignating section 222 as section 223 and by
inserting after section 221 the following:
‘‘SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an individual,
there shall be allowed as a deduction an amount equal to the
qualified tuition and related expenses paid by the taxpayer during
the taxable year.
H. R. 1836—30
‘‘(b) DOLLAR LIMITATIONS.—
‘‘(1) IN
GENERAL.—The amount allowed as a deduction
under subsection (a) with respect to the taxpayer for any tax-
able year shall not exceed the applicable dollar limit.
‘‘(2) APPLICABLE DOLLAR LIMIT.—
‘‘(A) 2002 AND 2003.—In the case of a taxable year
beginning in 2002 or 2003, the applicable dollar limit shall
be equal to—
‘‘(i) in the case of a taxpayer whose adjusted gross
income for the taxable year does not exceed $65,000
($130,000 in the case of a joint return), $3,000, and—
‘‘(ii) in the case of any other taxpayer, zero.
‘‘(B) 2004 AND 2005.—In the case of a taxable year
beginning in 2004 or 2005, the applicable dollar amount
shall be equal to—
‘‘(i) in the case of a taxpayer whose adjusted gross
income for the taxable year does not exceed $65,000
($130,000 in the case of a joint return), $4,000,
‘‘(ii) in the case of a taxpayer not described in
clause (i) whose adjusted gross income for the taxable
year does not exceed $80,000 ($160,000 in the case
of a joint return), $2,000, and
‘‘(iii) in the case of any other taxpayer, zero.
‘‘(C) ADJUSTED GROSS INCOME.—For purposes of this
paragraph, adjusted gross income shall be determined—
‘‘(i) without regard to this section and sections
911, 931, and 933, and
‘‘(ii) after application of sections 86, 135, 137, 219,
221, and 469.
‘‘(c) NO DOUBLE BENEFIT.—
‘‘(1) IN GENERAL.—No deduction shall be allowed under
subsection (a) for any expense for which a deduction is allowed
to the taxpayer under any other provision of this chapter.
‘‘(2) COORDINATION WITH OTHER EDUCATION INCENTIVES.—
‘‘(A) DENIAL OF DEDUCTION IF CREDIT ELECTED.—No
deduction shall be allowed under subsection (a) for a tax-
able year with respect to the qualified tuition and related
expenses with respect to an individual if the taxpayer
or any other person elects to have section 25A apply with
respect to such individual for such year.
‘‘(B) COORDINATION
WITH
EXCLUSIONS.—The total
amount of qualified tuition and related expenses shall be
reduced by the amount of such expenses taken into account
in determining any amount excluded under section 135,
529(c)(1), or 530(d)(2). For purposes of the preceding sen-
tence, the amount taken into account in determining the
amount excluded under section 529(c)(1) shall not include
that portion of the distribution which represents a return
of any contributions to the plan.
‘‘(3) DEPENDENTS.—No deduction shall be allowed under
subsection (a) to any individual with respect to whom a deduc-
tion under section 151 is allowable to another taxpayer for
a taxable year beginning in the calendar year in which such
individual’s taxable year begins.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
H. R. 1836—31
‘‘(1) QUALIFIED TUITION AND RELATED EXPENSES.—The term
‘qualified tuition and related expenses’ has the meaning given
such term by section 25A(f ). Such expenses shall be reduced
in the same manner as under section 25A(g)(2).
‘‘(2) IDENTIFICATION REQUIREMENT.—No deduction shall be
allowed under subsection (a) to a taxpayer with respect to
the qualified tuition and related expenses of an individual
unless the taxpayer includes the name and taxpayer identifica-
tion number of the individual on the return of tax for the
taxable year.
‘‘(3) LIMITATION ON TAXABLE YEAR OF DEDUCTION.—
‘‘(A) IN GENERAL.—A deduction shall be allowed under
subsection (a) for qualified tuition and related expenses
for any taxable year only to the extent such expenses
are in connection with enrollment at an institution of
higher education during the taxable year.
‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—Subparagraph
(A) shall not apply to qualified tuition and related expenses
paid during a taxable year if such expenses are in connec-
tion with an academic term beginning during such taxable
year or during the first 3 months of the next taxable
year.
‘‘(4) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPA-
RATE RETURNS.—If the taxpayer is a married individual (within
the meaning of section 7703), this section shall apply only
if the taxpayer and the taxpayer’s spouse file a joint return
for the taxable year.
‘‘(5) NONRESIDENT ALIENS.—If the taxpayer is a nonresident
alien individual for any portion of the taxable year, this section
shall apply only if such individual is treated as a resident
alien of the United States for purposes of this chapter by
reason of an election under subsection (g) or (h) of section
6013.
‘‘(6) REGULATIONS.—The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out
this section, including regulations requiring recordkeeping and
information reporting.
‘‘(e) TERMINATION.—This section shall not apply to taxable years
beginning after December 31, 2005.’’.
(b) DEDUCTION ALLOWED
IN COMPUTING ADJUSTED GROSS
INCOME.—Section 62(a) is amended by inserting after paragraph
(17) the following:
‘‘(18) 
HIGHER
EDUCATION
EXPENSES.—The 
deduction
allowed by section 222.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are
each amended by inserting ‘‘222,’’ after ‘‘221,’’.
(2) Section 221(b)(2)(C) is amended by inserting ‘‘222,’’
before ‘‘911’’.
(3) Section 469(i)(3)(F) is amended by striking ‘‘and 221’’
and inserting ‘‘, 221, and 222’’.
(4) The table of sections for part VII of subchapter B
of chapter 1 is amended by striking the item relating to section
222 and inserting the following:
‘‘Sec. 222. Qualified tuition and related expenses.
‘‘Sec. 223. Cross reference.’’.
H. R. 1836—32
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments made in taxable years beginning after
December 31, 2001.
TITLE V—ESTATE, GIFT, AND GENERA-
TION-SKIPPING TRANSFER TAX PRO-
VISIONS
Subtitle A—Repeal of Estate and
Generation-Skipping Transfer Taxes
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER
TAXES.
(a) ESTATE TAX REPEAL.—Subchapter C of chapter 11 of subtitle
B (relating to miscellaneous) is amended by adding at the end
the following new section:
‘‘SEC. 2210. TERMINATION.
‘‘(a) IN GENERAL.—Except as provided in subsection (b), this
chapter shall not apply to the estates of decedents dying after
December 31, 2009.
‘‘(b) CERTAIN
DISTRIBUTIONS
FROM
QUALIFIED
DOMESTIC
TRUSTS.—In applying section 2056A with respect to the surviving
spouse of a decedent dying before January 1, 2010—
‘‘(1) section 2056A(b)(1)(A) shall not apply to distributions
made after December 31, 2020, and
‘‘(2) section 2056A(b)(1)(B) shall not apply after December
31, 2009.’’.
(b) GENERATION-SKIPPING TRANSFER TAX REPEAL.—Subchapter
G of chapter 13 of subtitle B (relating to administration) is amended
by adding at the end the following new section:
‘‘SEC. 2664. TERMINATION.
‘‘This chapter shall not apply to generation-skipping transfers
after December 31, 2009.’’.
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for subchapter C of chapter 11
is amended by adding at the end the following new item:
‘‘Sec. 2210. Termination.’’.
(2) The table of sections for subchapter G of chapter 13
is amended by adding at the end the following new item:
‘‘Sec. 2664. Termination.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to the estates of decedents dying, and generation-skip-
ping transfers, after December 31, 2009.
H. R. 1836—33
Subtitle B—Reductions of Estate and Gift
Tax Rates
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT.—The
table contained in section 2001(c)(1) is amended by striking the
two highest brackets and inserting the following:
‘‘Over $2,500,000 ................................
$1,025,800, plus 50% of the excess over
$2,500,000.’’.
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—Subsection
(c) of section 2001 is amended by striking paragraph (2).
(c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF TAX.—Sub-
section (c) of section 2001, as amended by subsection (b), is amended
by adding at the end the following new paragraph:
‘‘(2) PHASEDOWN OF MAXIMUM RATE OF TAX.—
‘‘(A) IN GENERAL.—In the case of estates of decedents
dying, and gifts made, in calendar years after 2002 and
before 2010, the tentative tax under this subsection shall
be determined by using a table prescribed by the Secretary
(in lieu of using the table contained in paragraph (1))
which is the same as such table; except that—
‘‘(i) the maximum rate of tax for any calendar
year shall be determined in the table under subpara-
graph (B), and
‘‘(ii) the brackets and the amounts setting forth
the tax shall be adjusted to the extent necessary to
reflect the adjustments under subparagraph (A).
‘‘(B) MAXIMUM RATE.—
The maximum
‘‘In calendar year:
rate is:
2003 ...................................................................................................
49 percent
2004 ...................................................................................................
48 percent
2005 ...................................................................................................
47 percent
2006 ...................................................................................................
46 percent
2007, 2008, and 2009 .......................................................................
45 percent.’’.
(d) MAXIMUM GIFT TAX RATE REDUCED TO MAXIMUM INDIVIDUAL
RATE AFTER 2009.—Subsection (a) of section 2502 (relating to rate
of tax) is amended to read as follows:
‘‘(a) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by section 2501 for
each calendar year shall be an amount equal to the excess
of—
‘‘(A) a tentative tax, computed under paragraph (2),
on the aggregate sum of the taxable gifts for such calendar
year and for each of the preceding calendar periods, over
‘‘(B) a tentative tax, computed under paragraph (2),
on the aggregate sum of the taxable gifts for each of the
preceding calendar periods.
‘‘(2) RATE SCHEDULE.—
‘‘If the amount with respect to
which the tentative tax to be
computed is:
The tentative tax is:
Not over $10,000 ................................
18% of such amount.
Over $10,000 but not over $20,000 ...
$1,800, plus 20% of the excess over
$10,000.
Over $20,000 but not over $40,000 ...
$3,800, plus 22% of the excess over
$20,000.
H. R. 1836—34
‘‘If the amount with respect to
which the tentative tax to be
computed is:
The tentative tax is:
Over $40,000 but not over $60,000 ...
$8,200, plus 24% of the excess over
$40,000.
Over $60,000 but not over $80,000 ...
$13,000, plus 26% of the excess over
$60,000.
Over $80,000 but not over $100,000
$18,200, plus 28% of the excess over
$80,000.
Over $100,000 but not over $150,000
$23,800, plus 30% of the excess over
$100,000.
Over $150,000 but not over $250,000
$38,800, plus 32% of the excess over
$150,000.
Over $250,000 but not over $500,000
$70,800, plus 34% of the excess over
$250,000.
Over $500,000 ....................................
$155,800, plus 35% of the excess over
$500,000.’’.
(e) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Section 2511
(relating to transfers in general) is amended by adding at the
end the following new subsection:
‘‘(c) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Notwith-
standing any other provision of this section and except as provided
in regulations, a transfer in trust shall be treated as a taxable
gift under section 2503, unless the trust is treated as wholly owned
by the donor or the donor’s spouse under subpart E of part I
of subchapter J of chapter 1.’’.
(f ) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amendments made by
subsections (a) and (b) shall apply to estates of decedents dying,
and gifts made, after December 31, 2001.
(2) SUBSECTION (c).—The amendment made by subsection
(c) shall apply to estates of decedents dying, and gifts made,
after December 31, 2002.
(3) SUBSECTIONS (d) AND (e).—The amendments made by
subsections (d) and (e) shall apply to gifts made after December
31, 2009.
Subtitle C—Increase in Exemption
Amounts
SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT,
LIFETIME GIFTS EXEMPTION, AND GST EXEMPTION
AMOUNTS.
(a) IN GENERAL.—Subsection (c) of section 2010 (relating to
applicable credit amount) is amended by striking the table and
inserting the following new table:
‘‘In the case of estates of decedents
The applicable
dying during:
exclusion amount is:
2002 and 2003 ......................................................................
$1,000,000
2004 and 2005 ......................................................................
$1,500,000
2006, 2007, and 2008 ...........................................................
$2,000,000
2009 .......................................................................................
$3,500,000.’’.
(b) LIFETIME GIFT EXEMPTION INCREASED TO $1,000,000.—
(1) FOR PERIODS BEFORE ESTATE TAX REPEAL.—Paragraph
(1) of section 2505(a) (relating to unified credit against gift
tax) is amended by inserting ‘‘(determined as if the applicable
exclusion amount were $1,000,000)’’ after ‘‘calendar year’’.
(2) FOR PERIODS AFTER ESTATE TAX REPEAL.—Paragraph
(1) of section 2505(a) (relating to unified credit against gift
tax), as amended by paragraph (1), is amended to read as
follows:
H. R. 1836—35
‘‘(1) the amount of the tentative tax which would be deter-
mined under the rate schedule set forth in section 2502(a)(2)
if the amount with respect to which such tentative tax is
to be computed were $1,000,000, reduced by’’.
(c) GST EXEMPTION.—
(1) IN GENERAL.—Subsection (a) of 2631 (relating to GST
exemption) is amended by striking ‘‘of $1,000,000’’ and inserting
‘‘amount’’.
(2) EXEMPTION
AMOUNT.—Subsection (c) of section 2631
is amended to read as follows:
‘‘(c) GST EXEMPTION AMOUNT.—For purposes of subsection (a),
the GST exemption amount for any calendar year shall be equal
to the applicable exclusion amount under section 2010(c) for such
calendar year.’’.
(d) REPEAL OF SPECIAL BENEFIT FOR FAMILY-OWNED BUSINESS
INTERESTS.—Section 2057 (relating to family-owned business
interests) is amended by adding at the end the following new
subsection:
‘‘( j) TERMINATION.—This section shall not apply to the estates
of decedents dying after December 31, 2003.’’.
(e) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as provided in paragraphs (2)
and (3), the amendments made by this section shall apply
to estates of decedents dying, and gifts made, after December
31, 2001.
(2) SUBSECTION
(b)(2).—The amendments made by sub-
section (b)(2) shall apply to gifts made after December 31,
2009.
(3) SUBSECTIONS (c) AND (d).—The amendments made by
subsections (c) and (d) shall apply to estates of decedents dying,
and generation-skipping transfers, after December 31, 2003.
Subtitle D—Credit for State Death Taxes
SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.
(a) IN GENERAL.—Section 2011(b) (relating to amount of credit)
is amended—
(1) by striking ‘‘CREDIT.—The credit allowed’’ and inserting
‘‘CREDIT.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the credit allowed’’,
(2) by striking ‘‘For purposes’’ and inserting the following:
‘‘(3) ADJUSTED TAXABLE ESTATE.—For purposes’’, and
(3) by inserting after paragraph (1) the following new para-
graph:
‘‘(2) REDUCTION OF MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—In the case of estates of decedents
dying after December 31, 2001, the credit allowed by this
section shall not exceed the applicable percentage of the
credit otherwise determined under paragraph (1).
‘‘(B) APPLICABLE PERCENTAGE.—
‘‘In the case of estates of decedents
The applicable
dying during:
percentage is:
2002 .......................................................................................
75 percent
2003 .......................................................................................
50 percent
2004 .......................................................................................
25 percent.’’.
H. R. 1836—36
(b) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to estates of decedents dying after December
31, 2001.
SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUC-
TION FOR SUCH TAXES.
(a) REPEAL OF CREDIT.—Section 2011 (relating to credit for
State death taxes) is amended by adding at the end the following
new subsection:
‘‘(g) TERMINATION.—This section shall not apply to the estates
of decedents dying after December 31, 2004.’’.
(b) DEDUCTION
FOR STATE DEATH TAXES.—Part IV of sub-
chapter A of chapter 11 is amended by adding at the end the
following new section:
‘‘SEC. 2058. STATE DEATH TAXES.
‘‘(a) ALLOWANCE
OF DEDUCTION.—For purposes of the tax
imposed by section 2001, the value of the taxable estate shall
be determined by deducting from the value of the gross estate
the amount of any estate, inheritance, legacy, or succession taxes
actually paid to any State or the District of Columbia, in respect
of any property included in the gross estate (not including any
such taxes paid with respect to the estate of a person other than
the decedent).
‘‘(b) PERIOD OF LIMITATIONS.—The deduction allowed by this
section shall include only such taxes as were actually paid and
deduction therefor claimed before the later of—
‘‘(1) 4 years after the filing of the return required by
section 6018, or
‘‘(2) if—
‘‘(A) a petition for redetermination of a deficiency has
been filed with the Tax Court within the time prescribed
in section 6213(a), the expiration of 60 days after the
decision of the Tax Court becomes final,
‘‘(B) an extension of time has been granted under sec-
tion 6161 or 6166 for payment of the tax shown on the
return, or of a deficiency, the date of the expiration of
the period of the extension, or
‘‘(C) a claim for refund or credit of an overpayment
of tax imposed by this chapter has been filed within the
time prescribed in section 6511, the latest of the expiration
of—
‘‘(i) 60 days from the date of mailing by certified
mail or registered mail by the Secretary to the taxpayer
of a notice of the disallowance of any part of such
claim,
‘‘(ii) 60 days after a decision by any court of com-
petent jurisdiction becomes final with respect to a
timely suit instituted upon such claim, or
‘‘(iii) 2 years after a notice of the waiver of disallow-
ance is filed under section 6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on the
deduction may be made if the claim for refund is filed within
the period provided in the preceding sentence. Any such refund
shall be made without interest.’’.
(c) CONFORMING AMENDMENTS.—
H. R. 1836—37
(1) Subsection (a) of section 2012 is amended by striking
‘‘the credit for State death taxes provided by section 2011
and’’.
(2) Subparagraph (A) of section 2013(c)(1) is amended by
striking ‘‘2011,’’.
(3) Paragraph (2) of section 2014(b) is amended by striking
‘‘, 2011,’’.
(4) Sections 2015 and 2016 are each amended by striking
‘‘2011 or’’.
(5) Subsection (d) of section 2053 is amended to read as
follows:
‘‘(d) CERTAIN FOREIGN DEATH TAXES.—
‘‘(1) IN GENERAL.—Notwithstanding the provisions of sub-
section (c)(1)(B), for purposes of the tax imposed by section
2001, the value of the taxable estate may be determined, if
the executor so elects before the expiration of the period of
limitation for assessment provided in section 6501, by deducting
from the value of the gross estate the amount (as determined
in accordance with regulations prescribed by the Secretary)
of any estate, succession, legacy, or inheritance tax imposed
by and actually paid to any foreign country, in respect of
any property situated within such foreign country and included
in the gross estate of a citizen or resident of the United States,
upon a transfer by the decedent for public, charitable, or reli-
gious uses described in section 2055. The determination under
this paragraph of the country within which property is situated
shall be made in accordance with the rules applicable under
subchapter B (sec. 2101 and following) in determining whether
property is situated within or without the United States. Any
election under this paragraph shall be exercised in accordance
with regulations prescribed by the Secretary.
‘‘(2) CONDITION FOR ALLOWANCE OF DEDUCTION.—No deduc-
tion shall be allowed under paragraph (1) for a foreign death
tax specified therein unless the decrease in the tax imposed
by section 2001 which results from the deduction provided
in paragraph (1) will inure solely for the benefit of the public,
charitable, or religious transferees described in section 2055
or section 2106(a)(2). In any case where the tax imposed by
section 2001 is equitably apportioned among all the transferees
of property included in the gross estate, including those
described in sections 2055 and 2106(a)(2) (taking into account
any exemptions, credits, or deductions allowed by this chapter),
in determining such decrease, there shall be disregarded any
decrease in the Federal estate tax which any transferees other
than those described in sections 2055 and 2106(a)(2) are
required to pay.
‘‘(3) EFFECT
ON
CREDIT
FOR
FOREIGN
DEATH
TAXES
OF
DEDUCTION UNDER THIS SUBSECTION.—
‘‘(A) ELECTION.—An election under this subsection shall
be deemed a waiver of the right to claim a credit, against
the Federal estate tax, under a death tax convention with
any foreign country for any tax or portion thereof in respect
of which a deduction is taken under this subsection.
‘‘(B) CROSS REFERENCE.—
‘‘See section 2014(f ) for the effect of a deduction taken under this
paragraph on the credit for foreign death taxes.’’.
(6) Subparagraph (A) of section 2056A(b)(10) is amended—
H. R. 1836—38
(A) by striking ‘‘2011,’’, and
(B) by inserting ‘‘2058,’’ after ‘‘2056,’’.
(7)(A) Subsection (a) of section 2102 is amended to read
as follows:
‘‘(a) IN GENERAL.—The tax imposed by section 2101 shall be
credited with the amounts determined in accordance with sections
2012 and 2013 (relating to gift tax and tax on prior transfers).’’.
(B) Section 2102 is amended by striking subsection (b)
and by redesignating subsection (c) as subsection (b).
(C) Section 2102(b)(5) (as redesignated by subparagraph
(B)) and section 2107(c)(3) are each amended by striking ‘‘2011
to 2013, inclusive,’’ and inserting ‘‘2012 and 2013’’.
(8) Subsection (a) of section 2106 is amended by adding
at the end the following new paragraph:
‘‘(4) STATE DEATH TAXES.—The amount which bears the
same ratio to the State death taxes as the value of the property,
as determined for purposes of this chapter, upon which State
death taxes were paid and which is included in the gross
estate under section 2103 bears to the value of the total gross
estate under section 2103. For purposes of this paragraph,
the term ‘State death taxes’ means the taxes described in
section 2011(a).’’.
(9) Section 2201 is amended—
(A) by striking ‘‘as defined in section 2011(d)’’, and
(B) by adding at the end the following new flush sen-
tence:
‘‘For purposes of this section, the additional estate tax is the dif-
ference between the tax imposed by section 2001 or 2101 and
the amount equal to 125 percent of the maximum credit provided
by section 2011(b), as in effect before its repeal by the Economic
Growth and Tax Relief Reconciliation Act of 2001.’’.
(10) Section 2604 (relating to credit for certain State taxes)
is amended by adding at the end the following new subsection:
‘‘(c) TERMINATION.—This section shall not apply to the genera-
tion-skipping transfers after December 31, 2004.’’.
(11) Paragraph (2) of section 6511(i) is amended by striking
‘‘2011(c), 2014(b),’’ and inserting ‘‘2014(b)’’.
(12) Subsection (c) of section 6612 is amended by striking
‘‘section 2011(c) (relating to refunds due to credit for State
taxes),’’.
(13) The table of sections for part II of subchapter A of
chapter 11 is amended by striking the item relating to section
2011.
(14) The table of sections for part IV of subchapter A
of chapter 11 is amended by adding at the end the following
new item:
‘‘Sec. 2058. State death taxes.’’.
(15) The table of sections for subchapter A of chapter
13 is amended by striking the item relating to section 2604.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying, and generation-skipping
transfers, after December 31, 2004.
H. R. 1836—39
Subtitle E—Carryover Basis at Death;
Other Changes Taking Effect With Repeal
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 (relating to basis of property acquired from a
decedent) is amended by adding at the end the following new
subsection:
‘‘(f ) TERMINATION.—This section shall not apply with respect
to decedents dying after December 31, 2009.’’.
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT
DYING AFTER DECEMBER 31, 2009.
(a) GENERAL RULE.—Part II of subchapter O of chapter 1
(relating to basis rules of general application) is amended by
inserting after section 1021 the following new section:
‘‘SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT
DYING AFTER DECEMBER 31, 2009.
‘‘(a) IN
GENERAL.—Except as otherwise provided in this
section—
‘‘(1) property acquired from a decedent dying after
December 31, 2009, shall be treated for purposes of this subtitle
as transferred by gift, and
‘‘(2) the basis of the person acquiring property from such
a decedent shall be the lesser of—
‘‘(A) the adjusted basis of the decedent, or
‘‘(B) the fair market value of the property at the date
of the decedent’s death.
‘‘(b) BASIS INCREASE FOR CERTAIN PROPERTY.—
‘‘(1) IN GENERAL.—In the case of property to which this
subsection applies, the basis of such property under subsection
(a) shall be increased by its basis increase under this subsection.
‘‘(2) BASIS INCREASE.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The basis increase under this sub-
section for any property is the portion of the aggregate
basis increase which is allocated to the property pursuant
to this section.
‘‘(B) AGGREGATE BASIS INCREASE.—In the case of any
estate, the aggregate basis increase under this subsection
is $1,300,000.
‘‘(C) LIMIT INCREASED BY UNUSED BUILT-IN LOSSES AND
LOSS CARRYOVERS.—The limitation under subparagraph (B)
shall be increased by—
‘‘(i) the sum of the amount of any capital loss
carryover under section 1212(b), and the amount of
any net operating loss carryover under section 172,
which would (but for the decedent’s death) be carried
from the decedent’s last taxable year to a later taxable
year of the decedent, plus
‘‘(ii) the sum of the amount of any losses that
would have been allowable under section 165 if the
property acquired from the decedent had been sold
at fair market value immediately before the decedent’s
death.
H. R. 1836—40
‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT CITIZENS OF
THE UNITED STATES.—In the case of a decedent nonresident
not a citizen of the United States—
‘‘(A) paragraph (2)(B) shall be applied by substituting
‘$60,000’ for ‘$1,300,000’, and
‘‘(B) paragraph (2)(C) shall not apply.
‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY ACQUIRED BY
SURVIVING SPOUSE.—
‘‘(1) IN GENERAL.—In the case of property to which this
subsection applies and which is qualified spousal property,
the basis of such property under subsection (a) (as increased
under subsection (b)) shall be increased by its spousal property
basis increase.
‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The spousal property basis increase
for property referred to in paragraph (1) is the portion
of the aggregate spousal property basis increase which
is allocated to the property pursuant to this section.
‘‘(B) AGGREGATE SPOUSAL PROPERTY BASIS INCREASE.—
In the case of any estate, the aggregate spousal property
basis increase is $3,000,000.
‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For purposes of this
subsection, the term ‘qualified spousal property’ means—
‘‘(A) outright transfer property, and
‘‘(B) qualified terminable interest property.
‘‘(4) OUTRIGHT TRANSFER PROPERTY.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘outright transfer prop-
erty’ means any interest in property acquired from the
decedent by the decedent’s surviving spouse.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
where, on the lapse of time, on the occurrence of an event
or contingency, or on the failure of an event or contingency
to occur, an interest passing to the surviving spouse will
terminate or fail—
‘‘(i)(I) if an interest in such property passes or
has passed (for less than an adequate and full consider-
ation in money or money’s worth) from the decedent
to any person other than such surviving spouse (or
the estate of such spouse), and
‘‘(II) if by reason of such passing such person (or
his heirs or assigns) may possess or enjoy any part
of such property after such termination or failure of
the interest so passing to the surviving spouse, or
‘‘(ii) if such interest is to be acquired for the sur-
viving spouse, pursuant to directions of the decedent,
by his executor or by the trustee of a trust.
For purposes of this subparagraph, an interest shall not
be considered as an interest which will terminate or fail
merely because it is the ownership of a bond, note, or
similar contractual obligation, the discharge of which would
not have the effect of an annuity for life or for a term.
‘‘(C) INTEREST OF SPOUSE CONDITIONAL ON SURVIVAL
FOR LIMITED PERIOD.—For purposes of this paragraph, an
H. R. 1836—41
interest passing to the surviving spouse shall not be consid-
ered as an interest which will terminate or fail on the
death of such spouse if—
‘‘(i) such death will cause a termination or failure
of such interest only if it occurs within a period not
exceeding 6 months after the decedent’s death, or only
if it occurs as a result of a common disaster resulting
in the death of the decedent and the surviving spouse,
or only if it occurs in the case of either such event,
and
‘‘(ii) such termination or failure does not in fact
occur.
‘‘(5) QUALIFIED TERMINABLE INTEREST PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified terminable
interest property’ means property—
‘‘(i) which passes from the decedent, and
‘‘(ii) in which the surviving spouse has a qualifying
income interest for life.
‘‘(B) QUALIFYING INCOME INTEREST FOR LIFE.—The sur-
viving spouse has a qualifying income interest for life if—
‘‘(i) the surviving spouse is entitled to all the
income from the property, payable annually or at more
frequent intervals, or has a usufruct interest for life
in the property, and
‘‘(ii) no person has a power to appoint any part
of the property to any person other than the surviving
spouse.
Clause (ii) shall not apply to a power exercisable only
at or after the death of the surviving spouse. To the extent
provided in regulations, an annuity shall be treated in
a manner similar to an income interest in property (regard-
less of whether the property from which the annuity is
payable can be separately identified).
‘‘(C) PROPERTY INCLUDES INTEREST THEREIN.—The term
‘property’ includes an interest in property.
‘‘(D) SPECIFIC
PORTION
TREATED
AS
SEPARATE
PROP-
ERTY.—A specific portion of property shall be treated as
separate property. For purposes of the preceding sentence,
the term ‘specific portion’ only includes a portion deter-
mined on a fractional or percentage basis.
‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLICATION OF SUB-
SECTIONS (b) AND (c).—
‘‘(1) PROPERTY TO WHICH SUBSECTIONS (b) AND (c) APPLY.—
‘‘(A) IN GENERAL.—The basis of property acquired from
a decedent may be increased under subsection (b) or (c)
only if the property was owned by the decedent at the
time of death.
‘‘(B) RULES RELATING TO OWNERSHIP.—
‘‘(i) JOINTLY HELD PROPERTY.—In the case of prop-
erty which was owned by the decedent and another
person as joint tenants with right of survivorship or
tenants by the entirety—
‘‘(I) if the only such other person is the sur-
viving spouse, the decedent shall be treated as
the owner of only 50 percent of the property,
H. R. 1836—42
‘‘(II) in any case (to which subclause (I) does
not apply) in which the decedent furnished consid-
eration for the acquisition of the property, the
decedent shall be treated as the owner to the
extent of the portion of the property which is
proportionate to such consideration, and
‘‘(III) in any case (to which subclause (I) does
not apply) in which the property has been acquired
by gift, bequest, devise, or inheritance by the
decedent and any other person as joint tenants
with right of survivorship and their interests are
not otherwise specified or fixed by law, the
decedent shall be treated as the owner to the
extent of the value of a fractional part to be deter-
mined by dividing the value of the property by
the number of joint tenants with right of survivor-
ship.
‘‘(ii) REVOCABLE TRUSTS.—The decedent shall be
treated as owning property transferred by the decedent
during life to a qualified revocable trust (as defined
in section 645(b)(1)).
‘‘(iii) POWERS
OF
APPOINTMENT.—The decedent
shall not be treated as owning any property by reason
of holding a power of appointment with respect to
such property.
‘‘(iv) COMMUNITY PROPERTY.—Property which rep-
resents the surviving spouse’s one-half share of commu-
nity property held by the decedent and the surviving
spouse under the community property laws of any State
or possession of the United States or any foreign
country shall be treated for purposes of this section
as owned by, and acquired from, the decedent if at
least one-half of the whole of the community interest
in such property is treated as owned by, and acquired
from, the decedent without regard to this clause.
‘‘(C) PROPERTY ACQUIRED BY DECEDENT BY GIFT WITHIN
3 YEARS OF DEATH.—
‘‘(i) IN GENERAL.—Subsections (b) and (c) shall not
apply to property acquired by the decedent by gift
or by inter vivos transfer for less than adequate and
full consideration in money or money’s worth during
the 3-year period ending on the date of the decedent’s
death.
‘‘(ii) EXCEPTION FOR CERTAIN GIFTS FROM SPOUSE.—
Clause (i) shall not apply to property acquired by the
decedent from the decedent’s spouse unless, during
such 3-year period, such spouse acquired the property
in whole or in part by gift or by inter vivos transfer
for less than adequate and full consideration in money
or money’s worth.
‘‘(D) STOCK OF CERTAIN ENTITIES.—Subsections (b) and
(c) shall not apply to—
‘‘(i) stock or securities of a foreign personal holding
company,
‘‘(ii) stock of a DISC or former DISC,
‘‘(iii) stock of a foreign investment company, or
H. R. 1836—43
‘‘(iv) stock of a passive foreign investment company
unless such company is a qualified electing fund (as
defined in section 1295) with respect to the decedent.
‘‘(2) FAIR
MARKET
VALUE
LIMITATION.—The adjustments
under subsections (b) and (c) shall not increase the basis of
any interest in property acquired from the decedent above
its fair market value in the hands of the decedent as of the
date of the decedent’s death.
‘‘(3) ALLOCATION RULES.—
‘‘(A) IN
GENERAL.—The executor shall allocate the
adjustments under subsections (b) and (c) on the return
required by section 6018.
‘‘(B) CHANGES IN ALLOCATION.—Any allocation made
pursuant to subparagraph (A) may be changed only as
provided by the Secretary.
‘‘(4) 
INFLATION
ADJUSTMENT
OF
BASIS
ADJUSTMENT
AMOUNTS.—
‘‘(A) IN GENERAL.—In the case of decedents dying in
a calendar year after 2010, the $1,300,000, $60,000, and
$3,000,000 dollar amounts in subsections (b) and (c)(2)(B)
shall each be increased by an amount equal to the product
of—
‘‘(i) such dollar amount, and
‘‘(ii) the cost-of-living adjustment determined
under section 1(f )(3) for such calendar year, deter-
mined by substituting ‘2009’ for ‘1992’ in subparagraph
(B) thereof.
‘‘(B) ROUNDING.—If any increase determined under
subparagraph (A) is not a multiple of—
‘‘(i) $100,000 in the case of the $1,300,000 amount,
‘‘(ii) $5,000 in the case of the $60,000 amount,
and
‘‘(iii) $250,000 in the case of the $3,000,000
amount,
such increase shall be rounded to the next lowest multiple
thereof.
‘‘(e) PROPERTY ACQUIRED FROM THE DECEDENT.—For purposes
of this section, the following property shall be considered to have
been acquired from the decedent:
‘‘(1) Property acquired by bequest, devise, or inheritance,
or by the decedent’s estate from the decedent.
‘‘(2) Property transferred by the decedent during his
lifetime—
‘‘(A) to a qualified revocable trust (as defined in section
645(b)(1)), or
‘‘(B) to any other trust with respect to which the
decedent reserved the right to make any change in the
enjoyment thereof through the exercise of a power to alter,
amend, or terminate the trust.
‘‘(3) Any other property passing from the decedent by rea-
son of death to the extent that such property passed without
consideration.
‘‘(f ) COORDINATION WITH SECTION 691.—This section shall not
apply to property which constitutes a right to receive an item
of income in respect of a decedent under section 691.
‘‘(g) CERTAIN LIABILITIES DISREGARDED.—
H. R. 1836—44
‘‘(1) IN GENERAL.—In determining whether gain is recog-
nized on the acquisition of property—
‘‘(A) from a decedent by a decedent’s estate or any
beneficiary other than a tax-exempt beneficiary, and
‘‘(B) from the decedent’s estate by any beneficiary other
than a tax-exempt beneficiary,
and in determining the adjusted basis of such property, liabil-
ities in excess of basis shall be disregarded.
‘‘(2) TAX-EXEMPT BENEFICIARY.—For purposes of paragraph
(1), the term ‘tax-exempt beneficiary’ means—
‘‘(A) the United States, any State or political subdivi-
sion thereof, any possession of the United States, any
Indian tribal government (within the meaning of section
7871), or any agency or instrumentality of any of the fore-
going,
‘‘(B) an organization (other than a cooperative
described in section 521) which is exempt from tax imposed
by chapter 1,
‘‘(C) any foreign person or entity (within the meaning
of section 168(h)(2)), and
‘‘(D) to the extent provided in regulations, any person
to whom property is transferred for the principal purpose
of tax avoidance.
‘‘(h) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section.’’.
(b) INFORMATION RETURNS, ETC.—
(1) LARGE TRANSFERS AT DEATH.—So much of subpart C
of part II of subchapter A of chapter 61 as precedes section
6019 is amended to read as follows:
‘‘Subpart C—Returns Relating to Transfers
During Life or at Death
‘‘Sec. 6018. Returns relating to large transfers at death.
‘‘Sec. 6019. Gift tax returns.
‘‘SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.
‘‘(a) IN GENERAL.—If this section applies to property acquired
from a decedent, the executor of the estate of such decedent shall
make a return containing the information specified in subsection
(c) with respect to such property.
‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—
‘‘(1) LARGE TRANSFERS.—This section shall apply to all prop-
erty (other than cash) acquired from a decedent if the fair
market value of such property acquired from the decedent
exceeds 
the 
dollar 
amount 
applicable 
under 
section
1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED BY DECEDENT
WITHIN 3 YEARS OF DEATH.—This section shall apply to any
appreciated property acquired from the decedent if—
‘‘(A) subsections (b) and (c) of section 1022 do not
apply to such property by reason of section 1022(d)(1)(C),
and
‘‘(B) such property was required to be included on
a return required to be filed under section 6019.
‘‘(3) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES.—
In the case of a decedent who is a nonresident not a citizen
of the United States, paragraphs (1) and (2) shall be applied—
H. R. 1836—45
‘‘(A) by taking into account only—
‘‘(i) tangible property situated in the United States,
and
‘‘(ii) other property acquired from the decedent
by a United States person, and
‘‘(B) by substituting the dollar amount applicable under
section 1022(b)(3) for the dollar amount referred to in para-
graph (1).
‘‘(4) RETURNS
BY
TRUSTEES
OR
BENEFICIARIES.—If the
executor is unable to make a complete return as to any property
acquired from or passing from the decedent, the executor shall
include in the return a description of such property and the
name of every person holding a legal or beneficial interest
therein. Upon notice from the Secretary, such person shall
in like manner make a return as to such property.
‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—The informa-
tion specified in this subsection with respect to any property
acquired from the decedent is—
‘‘(1) the name and TIN of the recipient of such property,
‘‘(2) an accurate description of such property,
‘‘(3) the adjusted basis of such property in the hands of
the decedent and its fair market value at the time of death,
‘‘(4) the decedent’s holding period for such property,
‘‘(5) sufficient information to determine whether any gain
on the sale of the property would be treated as ordinary income,
‘‘(6) the amount of basis increase allocated to the property
under subsection (b) or (c) of section 1022, and
‘‘(7) such other information as the Secretary may by regula-
tions prescribe.
‘‘(d) PROPERTY ACQUIRED FROM DECEDENT.—For purposes of
this section, section 1022 shall apply for purposes of determining
the property acquired from a decedent.
‘‘(e) STATEMENTS TO BE FURNISHED TO CERTAIN PERSONS.—
Every person required to make a return under subsection (a) shall
furnish to each person whose name is required to be set forth
in such return (other than the person required to make such return)
a written statement showing—
‘‘(1) the name, address, and phone number of the person
required to make such return, and
‘‘(2) the information specified in subsection (c) with respect
to property acquired from, or passing from, the decedent to
the person required to receive such statement.
The written statement required under the preceding sentence shall
be furnished not later than 30 days after the date that the return
required by subsection (a) is filed.’’.
(2) GIFTS.—Section 6019 (relating to gift tax returns) is
amended—
(A) by striking ‘‘Any individual’’ and inserting ‘‘(a) IN
GENERAL.—Any individual’’, and
(B) by adding at the end the following new subsection:
‘‘(b) STATEMENTS TO BE FURNISHED TO CERTAIN PERSONS.—
Every person required to make a return under subsection (a) shall
furnish to each person whose name is required to be set forth
in such return (other than the person required to make such return)
a written statement showing—
‘‘(1) the name, address, and phone number of the person
required to make such return, and
H. R. 1836—46
‘‘(2) the information specified in such return with respect
to property received by the person required to receive such
statement.
The written statement required under the preceding sentence shall
be furnished not later than 30 days after the date that the return
required by subsection (a) is filed.’’.
(3) TIME FOR FILING SECTION 6018 RETURNS.—
(A) RETURNS
RELATING
TO
LARGE
TRANSFERS
AT
DEATH.—Subsection (a) of section 6075 is amended to read
as follows:
‘‘(a) RETURNS RELATING
TO LARGE TRANSFERS
AT DEATH.—
The return required by section 6018 with respect to a decedent
shall be filed with the return of the tax imposed by chapter 1
for the decedent’s last taxable year or such later date specified
in regulations prescribed by the Secretary.’’.
(B) CONFORMING AMENDMENTS.—Paragraph (3) of sec-
tion 6075(b) is amended—
(i) by striking ‘‘ESTATE TAX RETURN’’ in the heading
and inserting ‘‘SECTION 6018 RETURN’’, and
(ii) by striking ‘‘(relating to estate tax returns)’’
and inserting ‘‘(relating to returns relating to large
transfers at death)’’.
(4) PENALTIES.—Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end the following new section:
‘‘SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CER-
TAIN TRANSFERS AT DEATH AND GIFTS.
‘‘(a) INFORMATION REQUIRED TO BE FURNISHED TO THE SEC-
RETARY.—Any person required to furnish any information under
section 6018 who fails to furnish such information on the date
prescribed therefor (determined with regard to any extension of
time for filing) shall pay a penalty of $10,000 ($500 in the case
of information required to be furnished under section 6018(b)(2))
for each such failure.
‘‘(b) INFORMATION REQUIRED TO BE FURNISHED
TO BENE-
FICIARIES.—Any person required to furnish in writing to each person
described in section 6018(e) or 6019(b) the information required
under such section who fails to furnish such information shall
pay a penalty of $50 for each such failure.
‘‘(c) REASONABLE
CAUSE
EXCEPTION.—No penalty shall be
imposed under subsection (a) or (b) with respect to any failure
if it is shown that such failure is due to reasonable cause.
‘‘(d) INTENTIONAL DISREGARD.—If any failure under subsection
(a) or (b) is due to intentional disregard of the requirements under
sections 6018 and 6019(b), the penalty under such subsection shall
be 5 percent of the fair market value (as of the date of death
or, in the case of section 6019(b), the date of the gift) of the
property with respect to which the information is required.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B
of chapter 63 (relating to deficiency procedures for income, estate,
gift, and certain excise taxes) shall not apply in respect of the
assessment or collection of any penalty imposed by this section.’’.
(5) CLERICAL AMENDMENTS.—
H. R. 1836—47
(A) The table of sections for part I of subchapter B
of chapter 68 is amended by adding at the end the following
new item:
‘‘Sec. 6716. Failure to file information with respect to certain transfers at
death and gifts.’’.
(B) The item relating to subpart C in the table of
subparts for part II of subchapter A of chapter 61 is
amended to read as follows:
‘‘Subpart C. Returns relating to transfers during life or at death.’’.
(c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE MADE
AVAILABLE TO HEIR OF DECEDENT IN CERTAIN CASES.—Subsection
(d) of section 121 (relating to exclusion of gain from sale of principal
residence) is amended by adding at the end the following new
paragraph:
‘‘(9) PROPERTY ACQUIRED FROM A DECEDENT.—The exclusion
under this section shall apply to property sold by—
‘‘(A) the estate of a decedent,
‘‘(B) any individual who acquired such property from
the decedent (within the meaning of section 1022), and
‘‘(C) a trust which, immediately before the death of
the decedent, was a qualified revocable trust (as defined
in section 645(b)(1)) established by the decedent,
determined by taking into account the ownership and use by
the decedent.’’.
(d) TRANSFERS OF APPRECIATED CARRYOVER BASIS PROPERTY
TO SATISFY PECUNIARY BEQUEST.—
(1) IN GENERAL.—Section 1040 (relating to transfer of cer-
tain farm, etc., real property) is amended to read as follows:
‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO
SATISFY PECUNIARY BEQUEST.
‘‘(a) IN GENERAL.—If the executor of the estate of any decedent
satisfies the right of any person to receive a pecuniary bequest
with appreciated property, then gain on such exchange shall be
recognized to the estate only to the extent that, on the date of
such exchange, the fair market value of such property exceeds
such value on the date of death.
‘‘(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the extent pro-
vided in regulations prescribed by the Secretary, a rule similar
to the rule provided in subsection (a) shall apply where—
‘‘(1) by reason of the death of the decedent, a person has
a right to receive from a trust a specific dollar amount which
is the equivalent of a pecuniary bequest, and
‘‘(2) the trustee of a trust satisfies such right with property.
‘‘(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE DESCRIBED
IN SUBSECTION (a) OR (b).—The basis of property acquired in an
exchange with respect to which gain realized is not recognized
by reason of subsection (a) or (b) shall be the basis of such property
immediately before the exchange increased by the amount of the
gain recognized to the estate or trust on the exchange.’’.
(2) The item relating to section 1040 in the table of sections
for part III of subchapter O of chapter 1 is amended to read
as follows:
‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy pecuniary
bequest.’’.
(e) AMENDMENTS RELATED TO CARRYOVER BASIS.—
H. R. 1836—48
(1) RECOGNITION
OF
GAIN
ON
TRANSFERS
TO
NON-
RESIDENTS.—
(A) Subsection (a) of section 684 is amended by
inserting ‘‘or to a nonresident alien’’ after ‘‘or trust’’.
(B) Subsection (b) of section 684 is amended to read
as follows:
‘‘(b) EXCEPTIONS.—
‘‘(1) TRANSFERS TO CERTAIN TRUSTS.—Subsection (a) shall
not apply to a transfer to a trust by a United States person
to the extent that any United States person is treated as
the owner of such trust under section 671.
‘‘(2) LIFETIME TRANSFERS TO NONRESIDENT ALIENS.—Sub-
section (a) shall not apply to a lifetime transfer to a nonresident
alien.’’.
(C) The section heading for section 684 is amended
by inserting ‘‘AND NONRESIDENT ALIENS’’ after ‘‘ESTATES’’.
(D) The item relating to section 684 in the table of
sections for subpart F of part I of subchapter J of chapter
1 is amended by inserting ‘‘and nonresident aliens’’ after
‘‘estates’’.
(2) CAPITAL
GAIN
TREATMENT
FOR
INHERITED
ART
WORK
OR SIMILAR PROPERTY.—
(A) 
IN
GENERAL.—Subparagraph 
(C) 
of 
section
1221(a)(3) (defining capital asset) is amended by inserting
‘‘(other than by reason of section 1022)’’ after ‘‘is deter-
mined’’.
(B) COORDINATION WITH SECTION 170.—Paragraph (1)
of section 170(e) (relating to certain contributions of ordi-
nary income and capital gain property) is amended by
adding at the end the following: ‘‘For purposes of this
paragraph, the determination of whether property is a
capital asset shall be made without regard to the exception
contained in section 1221(a)(3)(C) for basis determined
under section 1022.’’.
(3) DEFINITION
OF
EXECUTOR.—Section 7701(a) (relating
to definitions) is amended by adding at the end the following:
‘‘(47) EXECUTOR.—The term ‘executor’ means the executor
or administrator of the decedent, or, if there is no executor
or administrator appointed, qualified, and acting within the
United States, then any person in actual or constructive posses-
sion of any property of the decedent.’’.
(4) 
CERTAIN
TRUSTS.—Subparagraph 
(A) 
of 
section
4947(a)(2) is amended by inserting ‘‘642(c),’’ after ‘‘170(f )(2)(B),’’.
(5) OTHER AMENDMENTS.—
(A) Section 1246 is amended by striking sub-
section (e).
(B) Subsection (e) of section 1291 is amended—
(i) by striking ‘‘(e),’’; and
(ii) by striking ‘‘; except that’’ and all that follows
and inserting a period.
(C) Section 1296 is amended by striking sub-
section (i).
H. R. 1836—49
(6) CLERICAL AMENDMENT.—The table of sections for part
II of subchapter O of chapter 1 is amended by inserting after
the item relating to section 1021 the following new item:
‘‘Sec. 1022. Treatment of property acquired from a decedent dying after
December 31, 2009.’’.
(f ) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to estates of
decedents dying after December 31, 2009.
(2) TRANSFERS TO NONRESIDENTS.—The amendments made
by subsection (e)(1) shall apply to transfers after December
31, 2009.
(3) SECTION
4947.—The amendment made by subsection
(e)(4) shall apply to deductions for taxable years beginning
after December 31, 2009.
Subtitle F—Conservation Easements
SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASE-
MENTS.
(a) REPEAL
OF CERTAIN RESTRICTIONS
ON WHERE LAND IS
LOCATED.—Clause (i) of section 2031(c)(8)(A) (defining land subject
to a qualified conservation easement) is amended to read as follows:
‘‘(i) which is located in the United States or any
possession of the United States,’’.
(b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND
AND EASEMENT.—Section 2031(c)(2) (defining applicable percentage)
is amended by adding at the end the following new sentence:
‘‘The values taken into account under the preceding sentence shall
be such values as of the date of the contribution referred to in
paragraph (8)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after December 31, 2000.
Subtitle G—Modifications of Generation-
Skipping Transfer Tax
SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME
TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.
(a) IN GENERAL.—Section 2632 (relating to special rules for
allocation of GST exemption) is amended by redesignating sub-
section (c) as subsection (e) and by inserting after subsection (b)
the following new subsections:
‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO
GST TRUSTS.—
‘‘(1) IN GENERAL.—If any individual makes an indirect skip
during such individual’s lifetime, any unused portion of such
individual’s GST exemption shall be allocated to the property
transferred to the extent necessary to make the inclusion ratio
for such property zero. If the amount of the indirect skip
exceeds such unused portion, the entire unused portion shall
be allocated to the property transferred.
H. R. 1836—50
‘‘(2) UNUSED PORTION.—For purposes of paragraph (1), the
unused portion of an individual’s GST exemption is that portion
of such exemption which has not previously been—
‘‘(A) allocated by such individual,
‘‘(B) treated as allocated under subsection (b) with
respect to a direct skip occurring during or before the
calendar year in which the indirect skip is made, or
‘‘(C) treated as allocated under paragraph (1) with
respect to a prior indirect skip.
‘‘(3) DEFINITIONS.—
‘‘(A) INDIRECT SKIP.—For purposes of this subsection,
the term ‘indirect skip’ means any transfer of property
(other than a direct skip) subject to the tax imposed by
chapter 12 made to a GST trust.
‘‘(B) GST TRUST.—The term ‘GST trust’ means a trust
that could have a generation-skipping transfer with respect
to the transferor unless—
‘‘(i) the trust instrument provides that more than
25 percent of the trust corpus must be distributed
to or may be withdrawn by one or more individuals
who are non-skip persons—
‘‘(I) before the date that the individual attains
age 46,
‘‘(II) on or before one or more dates specified
in the trust instrument that will occur before the
date that such individual attains age 46, or
‘‘(III) upon the occurrence of an event that,
in accordance with regulations prescribed by the
Secretary, may reasonably be expected to occur
before the date that such individual attains age
46,
‘‘(ii) the trust instrument provides that more than
25 percent of the trust corpus must be distributed
to or may be withdrawn by one or more individuals
who are non-skip persons and who are living on the
date of death of another person identified in the
instrument (by name or by class) who is more than
10 years older than such individuals,
‘‘(iii) the trust instrument provides that, if one
or more individuals who are non-skip persons die on
or before a date or event described in clause (i) or
(ii), more than 25 percent of the trust corpus either
must be distributed to the estate or estates of one
or more of such individuals or is subject to a general
power of appointment exercisable by one or more of
such individuals,
‘‘(iv) the trust is a trust any portion of which
would be included in the gross estate of a non-skip
person (other than the transferor) if such person died
immediately after the transfer,
‘‘(v) the trust is a charitable lead annuity trust
(within the meaning of section 2642(e)(3)(A)) or a chari-
table 
remainder 
annuity 
trust 
or 
a 
charitable
remainder unitrust (within the meaning of section
664(d)), or
‘‘(vi) the trust is a trust with respect to which
a deduction was allowed under section 2522 for the
H. R. 1836—51
amount of an interest in the form of the right to
receive annual payments of a fixed percentage of the
net fair market value of the trust property (determined
yearly) and which is required to pay principal to a
non-skip person if such person is alive when the yearly
payments for which the deduction was allowed termi-
nate.
For purposes of this subparagraph, the value of transferred
property shall not be considered to be includible in the
gross estate of a non-skip person or subject to a right
of withdrawal by reason of such person holding a right
to withdraw so much of such property as does not exceed
the amount referred to in section 2503(b) with respect
to any transferor, and it shall be assumed that powers
of appointment held by non-skip persons will not be exer-
cised.
‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS.—
For purposes of this subsection, an indirect skip to which section
2642(f ) applies shall be deemed to have been made only at
the close of the estate tax inclusion period. The fair market
value of such transfer shall be the fair market value of the
trust property at the close of the estate tax inclusion period.
‘‘(5) APPLICABILITY AND EFFECT.—
‘‘(A) IN GENERAL.—An individual—
‘‘(i) may elect to have this subsection not apply
to—
‘‘(I) an indirect skip, or
‘‘(II) any or all transfers made by such indi-
vidual to a particular trust, and
‘‘(ii) may elect to treat any trust as a GST trust
for purposes of this subsection with respect to any
or all transfers made by such individual to such trust.
‘‘(B) ELECTIONS.—
‘‘(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS.—
An election under subparagraph (A)(i)(I) shall be
deemed to be timely if filed on a timely filed gift
tax return for the calendar year in which the transfer
was made or deemed to have been made pursuant
to paragraph (4) or on such later date or dates as
may be prescribed by the Secretary.
‘‘(ii) OTHER ELECTIONS.—An election under clause
(i)(II) or (ii) of subparagraph (A) may be made on
a timely filed gift tax return for the calendar year
for which the election is to become effective.
‘‘(d) RETROACTIVE ALLOCATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a non-skip person has an interest or a future
interest in a trust to which any transfer has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grandparent of
the transferor or of a grandparent of the transferor’s
spouse or former spouse, and
‘‘(ii) is assigned to a generation below the genera-
tion assignment of the transferor, and
‘‘(C) such person predeceases the transferor,
H. R. 1836—52
then the transferor may make an allocation of any of such
transferor’s unused GST exemption to any previous transfer
or transfers to the trust on a chronological basis.
‘‘(2) SPECIAL
RULES.—If the allocation under paragraph
(1) by the transferor is made on a gift tax return filed on
or before the date prescribed by section 6075(b) for gifts made
within the calendar year within which the non-skip person’s
death occurred—
‘‘(A) the value of such transfer or transfers for purposes
of section 2642(a) shall be determined as if such allocation
had been made on a timely filed gift tax return for each
calendar year within which each transfer was made,
‘‘(B) such allocation shall be effective immediately
before such death, and
‘‘(C) the amount of the transferor’s unused GST exemp-
tion available to be allocated shall be determined imme-
diately before such death.
‘‘(3) FUTURE INTEREST.—For purposes of this subsection,
a person has a future interest in a trust if the trust may
permit income or corpus to be paid to such person on a date
or dates in the future.’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 2632(b)
is amended by striking ‘‘with respect to a prior direct skip’’ and
inserting ‘‘or subsection (c)(1)’’.
(c) EFFECTIVE DATES.—
(1) DEEMED ALLOCATION.—Section 2632(c) of the Internal
Revenue Code of 1986 (as added by subsection (a)), and the
amendment made by subsection (b), shall apply to transfers
subject to chapter 11 or 12 made after December 31, 2000,
and to estate tax inclusion periods ending after December 31,
2000.
(2) RETROACTIVE
ALLOCATIONS.—Section 2632(d) of the
Internal Revenue Code of 1986 (as added by subsection (a))
shall apply to deaths of non-skip persons occurring after
December 31, 2000.
SEC. 562. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642 (relating to
inclusion ratio) is amended by adding at the end the following
new paragraph:
‘‘(3) SEVERING OF TRUSTS.—
‘‘(A) IN GENERAL.—If a trust is severed in a qualified
severance, the trusts resulting from such severance shall
be treated as separate trusts thereafter for purposes of
this chapter.
‘‘(B) QUALIFIED SEVERANCE.—For purposes of subpara-
graph (A)—
‘‘(i) IN GENERAL.—The term ‘qualified severance’
means the division of a single trust and the creation
(by 
any 
means 
available 
under 
the 
governing
instrument or under local law) of two or more trusts
if—
‘‘(I) the single trust was divided on a fractional
basis, and
‘‘(II) the terms of the new trusts, in the aggre-
gate, provide for the same succession of interests
H. R. 1836—53
of beneficiaries as are provided in the original
trust.
‘‘(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN
ZERO.—If a trust has an inclusion ratio of greater
than zero and less than 1, a severance is a qualified
severance only if the single trust is divided into two
trusts, one of which receives a fractional share of the
total value of all trust assets equal to the applicable
fraction of the single trust immediately before the
severance. In such case, the trust receiving such frac-
tional share shall have an inclusion ratio of zero and
the other trust shall have an inclusion ratio of 1.
‘‘(iii) REGULATIONS.—The term ‘qualified severance’
includes any other severance permitted under regula-
tions prescribed by the Secretary.
‘‘(C) TIMING AND MANNER OF SEVERANCES.—A sever-
ance pursuant to this paragraph may be made at any
time. The Secretary shall prescribe by forms or regulations
the manner in which the qualified severance shall be
reported to the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to severances after December 31, 2000.
SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED
ALLOCATION MADE.—Paragraph (1) of section 2642(b) (relating to
valuation rules, etc.) is amended to read as follows:
‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED
ALLOCATION
MADE.—If the allocation of the GST exemption
to any transfers of property is made on a gift tax return
filed on or before the date prescribed by section 6075(b) for
such transfer or is deemed to be made under section 2632
(b)(1) or (c)(1)—
‘‘(A) the value of such property for purposes of sub-
section (a) shall be its value as finally determined for
purposes of chapter 12 (within the meaning of section
2001(f )(2)), or, in the case of an allocation deemed to have
been made at the close of an estate tax inclusion period,
its value at the time of the close of the estate tax inclusion
period, and
‘‘(B) such allocation shall be effective on and after
the date of such transfer, or, in the case of an allocation
deemed to have been made at the close of an estate tax
inclusion period, on and after the close of such estate
tax inclusion period.’’.
(b) TRANSFERS
AT
DEATH.—Subparagraph (A) of section
2642(b)(2) is amended to read as follows:
‘‘(A) TRANSFERS AT DEATH.—If property is transferred
as a result of the death of the transferor, the value of
such property for purposes of subsection (a) shall be its
value as finally determined for purposes of chapter 11;
except that, if the requirements prescribed by the Secretary
respecting allocation of post-death changes in value are
not met, the value of such property shall be determined
as of the time of the distribution concerned.’’.
H. R. 1836—54
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers subject to chapter 11 or 12 of the Internal
Revenue Code of 1986 made after December 31, 2000.
SEC. 564. RELIEF PROVISIONS.
(a) IN GENERAL.—Section 2642 is amended by adding at the
end the following new subsection:
‘‘(g) RELIEF PROVISIONS.—
‘‘(1) RELIEF FROM LATE ELECTIONS.—
‘‘(A) IN GENERAL.—The Secretary shall by regulation
prescribe such circumstances and procedures under which
extensions of time will be granted to make—
‘‘(i) an allocation of GST exemption described in
paragraph (1) or (2) of subsection (b), and
‘‘(ii) an election under subsection (b)(3) or (c)(5)
of section 2632.
Such regulations shall include procedures for requesting
comparable relief with respect to transfers made before
the date of the enactment of this paragraph.
‘‘(B) BASIS
FOR
DETERMINATIONS.—In determining
whether to grant relief under this paragraph, the Secretary
shall take into account all relevant circumstances,
including evidence of intent contained in the trust
instrument or instrument of transfer and such other factors
as the Secretary deems relevant. For purposes of deter-
mining whether to grant relief under this paragraph, the
time for making the allocation (or election) shall be treated
as if not expressly prescribed by statute.
‘‘(2) SUBSTANTIAL
COMPLIANCE.—An allocation of GST
exemption under section 2632 that demonstrates an intent
to have the lowest possible inclusion ratio with respect to
a transfer or a trust shall be deemed to be an allocation
of so much of the transferor’s unused GST exemption as pro-
duces the lowest possible inclusion ratio. In determining
whether there has been substantial compliance, all relevant
circumstances shall be taken into account, including evidence
of intent contained in the trust instrument or instrument of
transfer and such other factors as the Secretary deems rel-
evant.’’.
(b) EFFECTIVE DATES.—
(1) RELIEF FROM LATE ELECTIONS.—Section 2642(g)(1) of
the Internal Revenue Code of 1986 (as added by subsection
(a)) shall apply to requests pending on, or filed after, December
31, 2000.
(2) SUBSTANTIAL COMPLIANCE.—Section 2642(g)(2) of such
Code (as so added) shall apply to transfers subject to chapter
11 or 12 of the Internal Revenue Code of 1986 made after
December 31, 2000. No implication is intended with respect
to the availability of relief from late elections or the application
of a rule of substantial compliance on or before such date.
H. R. 1836—55
Subtitle H—Extension of Time for Payment
of Estate Tax
SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND
SHAREHOLDERS IN CLOSELY HELD BUSINESSES.
(a) 
IN
GENERAL.—Paragraphs 
(1)(B)(ii), 
(1)(C)(ii), 
and
(9)(B)(iii)(I) of section 6166(b) (relating to definitions and special
rules) are each amended by striking ‘‘15’’ and inserting ‘‘45’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after December 31, 2001.
SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT
FOR ESTATES WITH INTERESTS QUALIFYING LENDING
AND FINANCE BUSINESSES.
(a) IN GENERAL.—Section 6166(b) (relating to definitions and
special rules) is amended by adding at the end the following new
paragraph:
‘‘(10) STOCK IN QUALIFYING LENDING AND FINANCE BUSINESS
TREATED AS STOCK IN AN ACTIVE TRADE OR BUSINESS COMPANY.—
‘‘(A) IN GENERAL.—If the executor elects the benefits
of this paragraph, then—
‘‘(i) STOCK IN QUALIFYING LENDING AND FINANCE
BUSINESS TREATED AS STOCK IN AN ACTIVE TRADE OR
BUSINESS COMPANY.—For purposes of this section, any
asset used in a qualifying lending and finance business
shall be treated as an asset which is used in carrying
on a trade or business.
‘‘(ii) 5-YEAR
DEFERRAL
FOR
PRINCIPAL
NOT
TO
APPLY.—The executor shall be treated as having
selected under subsection (a)(3) the date prescribed
by section 6151(a).
‘‘(iii) 5 EQUAL INSTALLMENTS ALLOWED.—For pur-
poses of applying subsection (a)(1), ‘5’ shall be sub-
stituted for ‘10’.
‘‘(B) DEFINITIONS.—For purposes of this paragraph—
‘‘(i) QUALIFYING LENDING AND FINANCE BUSINESS.—
The term ‘qualifying lending and finance business’
means a lending and finance business, if—
‘‘(I) based on all the facts and circumstances
immediately before the date of the decedent’s
death, there was substantial activity with respect
to the lending and finance business, or
‘‘(II) during at least 3 of the 5 taxable years
ending before the date of the decedent’s death,
such business had at least 1 full-time employee
substantially all of whose services were the active
management of such business, 10 full-time, non-
owner employees substantially all of whose serv-
ices were directly related to such business, and
$5,000,000 
in 
gross 
receipts 
from 
activities
described in clause (ii).
‘‘(ii) LENDING AND FINANCE BUSINESS.—The term
‘lending and finance business’ means a trade or busi-
ness of—
‘‘(I) making loans,
H. R. 1836—56
‘‘(II) 
purchasing 
or 
discounting 
accounts
receivable, notes, or installment obligations,
‘‘(III) engaging in rental and leasing of real
and tangible personal property, including entering
into leases and purchasing, servicing, and dis-
posing of leases and leased assets,
‘‘(IV) rendering services or making facilities
available in the ordinary course of a lending or
finance business, and
‘‘(V) rendering services or making facilities
available in connection with activities described
in subclauses (I) through (IV) carried on by the
corporation rendering services or making facilities
available, or another corporation which is a
member of the same affiliated group (as defined
in 
section 
1504 
without 
regard 
to 
section
1504(b)(3)).
‘‘(iii) LIMITATION.—The term ‘qualifying lending
and finance business’ shall not include any interest
in an entity, if the stock or debt of such entity or
a controlled group (as defined in section 267(f )(1)) of
which such entity was a member was readily tradable
on an established securities market or secondary
market (as defined by the Secretary) at any time within
3 years before the date of the decedent’s death.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after December 31, 2001.
SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAY-
MENT.
(a) IN
GENERAL.—Subparagraph (B) of section 6166(b)(8)
(relating to all stock must be non-readily-tradable stock) is amended
to read as follows:
‘‘(B) ALL
STOCK
MUST
BE
NON-READILY-TRADABLE
STOCK.—
‘‘(i) IN
GENERAL.—No stock shall be taken into
account for purposes of applying this paragraph unless
it is non-readily-tradable stock (within the meaning
of paragraph (7)(B)).
‘‘(ii) SPECIAL APPLICATION WHERE ONLY HOLDING
COMPANY STOCK IS NON-READILY-TRADABLE STOCK.—If
the requirements of clause (i) are not met, but all
of the stock of each holding company taken into account
is non-readily-tradable, then this paragraph shall
apply, but subsection (a)(1) shall be applied by sub-
stituting ‘5’ for ‘10’.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after December 31, 2001.
Subtitle I—Other Provisions
SEC. 581. WAIVER OF STATUTE OF LIMITATION FOR TAXES ON CERTAIN
FARM VALUATIONS.
If on the date of the enactment of this Act (or at any time
within 1 year after the date of the enactment) a refund or credit
of any overpayment of tax resulting from the application of section
H. R. 1836—58
amount shall be rounded to the next lower multiple
of $500.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in excess
of $2,000 on behalf of any individual’’ and inserting ‘‘on behalf
of any individual in excess of the amount in effect for such
taxable year under section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking ‘‘$2,000’’
and inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
(3) Section 408(b) is amended by striking ‘‘$2,000’’ in the
matter following paragraph (4) and inserting ‘‘the dollar amount
in effect under section 219(b)(1)(A)’’.
(4) Section 408( j) is amended by striking ‘‘$2,000’’.
(5) Section 408(p)(8) is amended by striking ‘‘$2,000’’ and
inserting 
‘‘the 
dollar 
amount 
in 
effect 
under 
section
219(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
SEC. 602. DEEMED IRAs UNDER EMPLOYER PLANS.
(a) IN GENERAL.—Section 408 (relating to individual retirement
accounts) is amended by redesignating subsection (q) as subsection
(r) and by inserting after subsection (p) the following new sub-
section:
‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS.—
‘‘(1) GENERAL RULE.—If—
‘‘(A) a qualified employer plan elects to allow employees
to make voluntary employee contributions to a separate
account or annuity established under the plan, and
‘‘(B) under the terms of the qualified employer plan,
such account or annuity meets the applicable requirements
of this section or section 408A for an individual retirement
account or annuity,
then such account or annuity shall be treated for purposes
of this title in the same manner as an individual retirement
plan and not as a qualified employer plan (and contributions
to such account or annuity as contributions to an individual
retirement plan and not to the qualified employer plan). For
purposes of subparagraph (B), the requirements of subsection
(a)(5) shall not apply.
‘‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS.—For
purposes of this title, a qualified employer plan shall not fail
to meet any requirement of this title solely by reason of estab-
lishing and maintaining a program described in paragraph
(1).
‘‘(3) DEFINITIONS.—For purposes of this subsection—
‘‘(A) QUALIFIED EMPLOYER PLAN.—The term ‘qualified
employer plan’ has the meaning given such term by section
72(p)(4); except such term shall not include a government
plan which is not a qualified plan unless the plan is an
eligible deferred compensation plan (as defined in section
457(b)).
‘‘(B) VOLUNTARY EMPLOYEE CONTRIBUTION.—The term
‘voluntary employee contribution’ means any contribution
(other than a mandatory contribution within the meaning
of section 411(c)(2)(C))—
H. R. 1836—59
‘‘(i) which is made by an individual as an employee
under a qualified employer plan which allows
employees to elect to make contributions described in
paragraph (1), and
‘‘(ii) with respect to which the individual has des-
ignated the contribution as a contribution to which
this subsection applies.’’.
(b) AMENDMENT OF ERISA.—
(1) IN GENERAL.—Section 4 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1003) is amended by
adding at the end the following new subsection:
‘‘(c) If a pension plan allows an employee to elect to make
voluntary employee contributions to accounts and annuities as pro-
vided in section 408(q) of the Internal Revenue Code of 1986,
such accounts and annuities (and contributions thereto) shall not
be treated as part of such plan (or as a separate pension plan)
for purposes of any provision of this title other than section 403(c),
404, or 405 (relating to exclusive benefit, and fiduciary and co-
fiduciary responsibilities).’’.
(2) CONFORMING
AMENDMENT.—Section 4(a) of such Act
(29 U.S.C. 1003(a)) is amended by inserting ‘‘or (c)’’ after ‘‘sub-
section (b)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to plan years beginning after December 31, 2002.
Subtitle B—Expanding Coverage
SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) DEFINED BENEFIT PLANS.—
(1) DOLLAR LIMIT.—
(A) Subparagraph (A) of section 415(b)(1) (relating to
limitation for defined benefit plans) is amended by striking
‘‘$90,000’’ and inserting ‘‘$160,000’’.
(B) Subparagraphs (C) and (D) of section 415(b)(2)
are each amended in the headings and the text, by striking
‘‘$90,000’’ and inserting ‘‘$160,000’’,
(C) Paragraph (7) of section 415(b) (relating to benefits
under certain collectively bargained plans) is amended by
striking ‘‘the greater of $68,212 or one-half the amount
otherwise applicable for such year under paragraph (1)(A)
for ‘$90,000’ ’’ and inserting ‘‘one-half the amount otherwise
applicable for such year under paragraph (1)(A) for
‘$160,000’ ’’.
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62.—
Subparagraph (C) of section 415(b)(2) is amended by striking
‘‘the social security retirement age’’ each place it appears in
the heading and text and inserting ‘‘age 62’’ and by striking
the second sentence.
(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65.—
Subparagraph (D) of section 415(b)(2) is amended by striking
‘‘the social security retirement age’’ each place it appears in
the heading and text and inserting ‘‘age 65’’.
(4) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section
415 (related to cost-of-living adjustments) is amended—
(A) by striking ‘‘$90,000’’ in paragraph (1)(A) and
inserting ‘‘$160,000’’; and
H. R. 1836—60
(B) in paragraph (3)(A)—
(i) by striking ‘‘$90,000’’ in the heading and
inserting ‘‘$160,000’’; and
(ii) by striking ‘‘October 1, 1986’’ and inserting
‘‘July 1, 2001’’.
(5) CONFORMING AMENDMENTS.—
(A) Section 415(b)(2) is amended by striking subpara-
graph (F).
(B) Section 415(b)(9) is amended to read as follows:
‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), in the case of any participant who is a commercial
airline pilot, if, as of the time of the participant’s retire-
ment, regulations prescribed by the Federal Aviation
Administration require an individual to separate from
service as a commercial airline pilot after attaining any
age occurring on or after age 60 and before age 62, para-
graph (2)(C) shall be applied by substituting such age for
age 62.
‘‘(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE
AGE 60.—If a participant described in subparagraph (A)
separates from service before age 60, the rules of paragraph
(2)(C) shall apply.’’.
(C) Section 415(b)(10)(C)(i) is amended by striking
‘‘applied without regard to paragraph (2)(F)’’.
(b) DEFINED CONTRIBUTION PLANS.—
(1) DOLLAR LIMIT.—Subparagraph (A) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ‘‘$30,000’’ and inserting ‘‘$40,000’’.
(2) COST-OF-LIVING ADJUSTMENTS.—Subsection (d) of section
415 (related to cost-of-living adjustments) is amended—
(A) by striking ‘‘$30,000’’ in paragraph (1)(C) and
inserting ‘‘$40,000’’; and
(B) in paragraph (3)(D)—
(i) by striking ‘‘$30,000’’ in the heading and
inserting ‘‘$40,000’’; and
(ii) by striking ‘‘October 1, 1993’’ and inserting
‘‘July 1, 2001’’.
(c) QUALIFIED TRUSTS.—
(1) COMPENSATION
LIMIT.—Sections 401(a)(17), 404(l),
408(k), and 505(b)(7) are each amended by striking ‘‘$150,000’’
each place it appears and inserting ‘‘$200,000’’.
(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUST-
MENT.—Subparagraph (B) of section 401(a)(17) is amended—
(A) by striking ‘‘October 1, 1993’’ and inserting ‘‘July
1, 2001’’; and
(B) by striking ‘‘$10,000’’ both places it appears and
inserting ‘‘$5,000’’.
(d) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Paragraph (1) of section 402(g) (relating
to limitation on exclusion for elective deferrals) is amended
to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) LIMITATION.—Notwithstanding subsections (e)(3)
and (h)(1)(B), the elective deferrals of any individual for
any taxable year shall be included in such individual’s
H. R. 1836—61
gross income to the extent the amount of such deferrals
for the taxable year exceeds the applicable dollar amount.
‘‘(B) APPLICABLE
DOLLAR
AMOUNT.—For purposes of
subparagraph (A), the applicable dollar amount shall be
the amount determined in accordance with the following
table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 ............................................................................................. $11,000
2003 ............................................................................................. $12,000
2004 ............................................................................................. $13,000
2005 ............................................................................................. $14,000
2006 or thereafter ...................................................................... $15,000.’’.
(2) COST-OF-LIVING ADJUSTMENT.—Paragraph (5) of section
402(g) is amended to read as follows:
‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case of taxable
years beginning after December 31, 2006, the Secretary shall
adjust the $15,000 amount under paragraph (1)(B) at the same
time and in the same manner as under section 415(d), except
that the base period shall be the calendar quarter beginning
July 1, 2005, and any increase under this paragraph which
is not a multiple of $500 shall be rounded to the next lowest
multiple of $500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation on exclusion
for elective deferrals), as amended by paragraphs (1) and
(2), is further amended by striking paragraph (4) and
redesignating paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is amended by
striking ‘‘402(g)(8)(A)(iii)’’ and inserting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is amended
by striking ‘‘(other than paragraph (4) thereof )’’.
(e) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.—
(1) IN GENERAL.—Section 457 (relating to deferred com-
pensation plans of State and local governments and tax-exempt
organizations) is amended—
(A) in subsections (b)(2)(A) and (c)(1) by striking
‘‘$7,500’’ each place it appears and inserting ‘‘the applicable
dollar amount’’; and
(B) in subsection (b)(3)(A) by striking ‘‘$15,000’’ and
inserting ‘‘twice the dollar amount in effect under sub-
section (b)(2)(A)’’.
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUST-
MENT.—Paragraph (15) of section 457(e) is amended to read
as follows:
‘‘(15) APPLICABLE DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—The applicable dollar amount shall
be the amount determined in accordance with the following
table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2002 .............................................................................................
$11,000
2003 .............................................................................................
$12,000
2004 .............................................................................................
$13,000
H. R. 1836—62
2005 .............................................................................................
$14,000
2006 or thereafter ......................................................................
$15,000.
‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In the case of tax-
able years beginning after December 31, 2006, the Sec-
retary shall adjust the $15,000 amount under subpara-
graph (A) at the same time and in the same manner
as under section 415(d), except that the base period shall
be the calendar quarter beginning July 1, 2005, and any
increase under this paragraph which is not a multiple
of $500 shall be rounded to the next lowest multiple of
$500.’’.
(f ) SIMPLE RETIREMENT ACCOUNTS.—
(1) LIMITATION.—Clause (ii) of section 408(p)(2)(A) (relating
to general rule for qualified salary reduction arrangement)
is amended by striking ‘‘$6,000’’ and inserting ‘‘the applicable
dollar amount’’.
(2) APPLICABLE
DOLLAR
AMOUNT.—Subparagraph (E) of
408(p)(2) is amended to read as follows:
‘‘(E) APPLICABLE
DOLLAR
AMOUNT; 
COST-OF-LIVING
ADJUSTMENT.—
‘‘(i) IN GENERAL.—For purposes of subparagraph
(A)(ii), the applicable dollar amount shall be the
amount determined in accordance with the following
table:
‘‘For years
The applicable
beginning in
dollar amount:
calendar year:
2002 ......................................................................................
$7,000
2003 ......................................................................................
$8,000
2004 ......................................................................................
$9,000
2005 or thereafter ...............................................................
$10,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—In the case of
a year beginning after December 31, 2005, the Sec-
retary shall adjust the $10,000 amount under clause
(i) at the same time and in the same manner as under
section 415(d), except that the base period taken into
account shall be the calendar quarter beginning July
1, 2004, and any increase under this subparagraph
which is not a multiple of $500 shall be rounded to
the next lower multiple of $500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Subclause (I) of section 401(k)(11)(B)(i) is amended
by striking ‘‘$6,000’’ and inserting ‘‘the amount in effect
under section 408(p)(2)(A)(ii)’’.
(B) Section 401(k)(11) is amended by striking subpara-
graph (E).
(g) CERTAIN COMPENSATION LIMITS.—
(1) IN
GENERAL.—Subparagraph (A) of section 401(c)(2)
(defining earned income) is amended by adding at the end
thereof the following new sentence: ‘‘For purposes of this part
only (other than sections 419 and 419A), this subparagraph
shall be applied as if the term ‘trade or business’ for purposes
of section 1402 included service described in section 1402(c)(6).’’.
(2) SIMPLE RETIREMENT ACCOUNTS.—Clause (ii) of section
408(p)(6)(A) (defining self-employed) is amended by adding at
the end the following new sentence: ‘‘The preceding sentence
shall be applied as if the term ‘trade or business’ for purposes
of section 1402 included service described in section 1402(c)(6).’’.
H. R. 1836—63
(h) ROUNDING RULE RELATING
TO DEFINED BENEFIT PLANS
AND DEFINED CONTRIBUTION PLANS.—Paragraph (4) of section
415(d) is amended to read as follows:
‘‘(4) ROUNDING.—
‘‘(A) $160,000 AMOUNT.—Any increase under subpara-
graph (A) of paragraph (1) which is not a multiple of
$5,000 shall be rounded to the next lowest multiple of
$5,000.
‘‘(B) $40,000 AMOUNT.—Any increase under subpara-
graph (C) of paragraph (1) which is not a multiple of
$1,000 shall be rounded to the next lowest multiple of
$1,000.’’.
(i) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to years beginning after December 31, 2001.
(2) DEFINED BENEFIT PLANS.—The amendments made by
subsection (a) shall apply to years ending after December 31,
2001.
SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND
SOLE PROPRIETORS.
(a) IN
GENERAL.—Subparagraph (B) of section 4975(f )(6)
(relating to exemptions not to apply to certain transactions) is
amended by adding at the end the following new clause:
‘‘(iii) LOAN EXCEPTION.—For purposes of subpara-
graph (A)(i), the term ‘owner-employee’ shall only
include a person described in subclause (II) or (III)
of clause (i).’’.
(b) AMENDMENT OF ERISA.—Section 408(d)(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2))
is amended by adding at the end the following new subparagraph:
‘‘(C) For purposes of paragraph (1)(A), the term ‘owner-
employee’ shall only include a person described in clause (ii) or
(iii) of subparagraph (A).’’.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to years beginning after December 31, 2001.
SEC. 613. MODIFICATION OF TOP-HEAVY RULES.
(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE.—
(1) 
IN
GENERAL.—Section 
416(i)(1)(A) 
(defining 
key
employee) is amended—
(A) by striking ‘‘or any of the 4 preceding plan years’’
in the matter preceding clause (i);
(B) by striking clause (i) and inserting the following:
‘‘(i) an officer of the employer having an annual
compensation greater than $130,000,’’;
(C) by striking clause (ii) and redesignating clauses
(iii) and (iv) as clauses (ii) and (iii), respectively; and
(D) by striking the second sentence in the matter fol-
lowing clause (iii), as redesignated by subparagraph (C),
and by inserting the following: ‘‘in the case of plan years
beginning after December 31, 2002, the $130,000 amount
in clause (i) shall be adjusted at the same time and in
the same manner as under section 415(d), except that
the base period shall be the calendar quarter beginning
July 1, 2001, and any increase under this sentence which
is not a multiple of $5,000 shall be rounded to the next
lower multiple of $5,000.’’.
H. R. 1836—64
(2) CONFORMING AMENDMENT.—Section 416(i)(1)(B)(iii) is
amended by striking ‘‘and subparagraph (A)(ii)’’.
(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MIN-
IMUM CONTRIBUTION REQUIREMENTS.—Section 416(c)(2)(A) (relating
to defined contribution plans) is amended by adding at the end
the following: ‘‘Employer matching contributions (as defined in sec-
tion 401(m)(4)(A)) shall be taken into account for purposes of this
subparagraph (and any reduction under this sentence shall not
be taken into account in determining whether section 401(k)(4)(A)
applies).’’.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION
DATE TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Paragraph (3) of section 416(g) is
amended to read as follows:
‘‘(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINA-
TION DATE TAKEN INTO ACCOUNT.—
‘‘(A) IN GENERAL.—For purposes of determining—
‘‘(i) the present value of the cumulative accrued
benefit for any employee, or
‘‘(ii) the amount of the account of any employee,
such present value or amount shall be increased by the
aggregate distributions made with respect to such employee
under the plan during the 1-year period ending on the
determination date. The preceding sentence shall also apply
to distributions under a terminated plan which if it had
not been terminated would have been required to be
included in an aggregation group.
‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBU-
TION.—In the case of any distribution made for a reason
other than separation from service, death, or disability,
subparagraph (A) shall be applied by substituting ‘5-year
period’ for ‘1-year period’.’’.
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—Subparagraph
(E) of section 416(g)(4) is amended—
(A) by striking ‘‘LAST 5 YEARS’’ in the heading and
inserting ‘‘LAST YEAR BEFORE DETERMINATION DATE’’; and
(B) by striking ‘‘5-year period’’ and inserting ‘‘1-year
period’’.
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph (4) of section
416(g) (relating to other special rules for top-heavy plans) is
amended by adding at the end the following new subparagraph:
‘‘(H) CASH OR DEFERRED ARRANGEMENTS USING ALTER-
NATIVE METHODS OF MEETING NONDISCRIMINATION REQUIRE-
MENTS.—The term ‘top-heavy plan’ shall not include a plan
which consists solely of—
‘‘(i) a cash or deferred arrangement which meets
the requirements of section 401(k)(12), and
‘‘(ii) matching contributions with respect to which
the requirements of section 401(m)(11) are met.
If, but for this subparagraph, a plan would be treated
as a top-heavy plan because it is a member of an aggrega-
tion group which is a top-heavy group, contributions under
the plan may be taken into account in determining whether
any other plan in the group meets the requirements of
subsection (c)(2).’’.
H. R. 1836—65
(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIRE-
MENT.—Subparagraph (C) of section 416(c)(1) (relating to defined
benefit plans) is amended—
(A) by striking ‘‘clause (ii)’’ in clause (i) and inserting
‘‘clause (ii) or (iii)’’; and
(B) by adding at the end the following:
‘‘(iii) EXCEPTION FOR FROZEN PLAN.—For purposes
of determining an employee’s years of service with
the employer, any service with the employer shall be
disregarded to the extent that such service occurs
during a plan year when the plan benefits (within
the meaning of section 410(b)) no key employee or
former key employee.’’.
(f ) EFFECTIVE DATE.—The amendments made by this section
shall apply to years beginning after December 31, 2001.
SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PUR-
POSES OF DEDUCTION LIMITS.
(a) IN GENERAL.—Section 404 (relating to deduction for con-
tributions of an employer to an employees’ trust or annuity plan
and compensation under a deferred payment plan) is amended
by adding at the end the following new subsection:
‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PUR-
POSES OF DEDUCTION LIMITS.—Elective deferrals (as defined in sec-
tion 402(g)(3)) shall not be subject to any limitation contained
in paragraph (3), (7), or (9) of subsection (a), and such elective
deferrals shall not be taken into account in applying any such
limitation to any other contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to years beginning after December 31, 2001.
SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED
COMPENSATION PLANS OF STATE AND LOCAL GOVERN-
MENTS AND TAX-EXEMPT ORGANIZATIONS.
(a) IN GENERAL.—Subsection (c) of section 457 (relating to
deferred compensation plans of State and local governments and
tax-exempt organizations), as amended by section 611, is amended
to read as follows:
‘‘(c) LIMITATION.—The maximum amount of the compensation
of any one individual which may be deferred under subsection
(a) during any taxable year shall not exceed the amount in effect
under subsection (b)(2)(A) (as modified by any adjustment provided
under subsection (b)(3)).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to years beginning after December 31, 2001.
SEC. 616. DEDUCTION LIMITS.
(a) MODIFICATION OF LIMITS.—
(1) STOCK BONUS AND PROFIT SHARING TRUSTS.—
(A) IN GENERAL.—Subclause (I) of section 404(a)(3)(A)(i)
(relating to stock bonus and profit sharing trusts) is
amended by striking ‘‘15 percent’’ and inserting ‘‘25 per-
cent’’.
(B) CONFORMING AMENDMENT.—Subparagraph (C) of
section 404(h)(1) is amended by striking ‘‘15 percent’’ each
place it appears and inserting ‘‘25 percent’’.
(2) DEFINED CONTRIBUTION PLANS.—
H. R. 1836—66
(A) IN
GENERAL.—Clause (v) of section 404(a)(3)(A)
(relating to stock bonus and profit sharing trusts) is
amended to read as follows:
‘‘(v) DEFINED CONTRIBUTION PLANS SUBJECT TO THE
FUNDING STANDARDS.—Except as provided by the Sec-
retary, a defined contribution plan which is subject
to the funding standards of section 412 shall be treated
in the same manner as a stock bonus or profit-sharing
plan for purposes of this subparagraph.’’.
(B) CONFORMING AMENDMENTS.—
(i) Section 404(a)(1)(A) is amended by inserting
‘‘(other than a trust to which paragraph (3) applies)’’
after ‘‘pension trust’’.
(ii) Section 404(h)(2) is amended by striking ‘‘stock
bonus or profit-sharing trust’’ and inserting ‘‘trust sub-
ject to subsection (a)(3)(A)’’.
(iii) The heading of section 404(h)(2) is amended
by striking ‘‘STOCK BONUS AND PROFIT-SHARING TRUST’’
and inserting ‘‘CERTAIN TRUSTS’’.
(b) COMPENSATION.—
(1) IN GENERAL.—Section 404(a) (relating to general rule)
is amended by adding at the end the following:
‘‘(12) DEFINITION OF COMPENSATION.—For purposes of para-
graphs (3), (7), (8), and (9), the term ‘compensation’ shall include
amounts treated as ‘participant’s compensation’ under subpara-
graph (C) or (D) of section 415(c)(3).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 404(a)(3) is amended
by striking the last sentence thereof.
(B) Clause (i) of section 4972(c)(6)(B) is amended by
striking ‘‘(within the meaning of section 404(a))’’ and
inserting ‘‘(within the meaning of section 404(a) and as
adjusted under section 404(a)(12))’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to years beginning after December 31, 2001.
SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX
ROTH CONTRIBUTIONS.
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter
1 (relating to deferred compensation, etc.) is amended by inserting
after section 402 the following new section:
‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH
CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—If an applicable retirement plan includes
a qualified Roth contribution program—
‘‘(1) any designated Roth contribution made by an employee
pursuant to the program shall be treated as an elective deferral
for purposes of this chapter, except that such contribution shall
not be excludable from gross income, and
‘‘(2) such plan (and any arrangement which is part of
such plan) shall not be treated as failing to meet any require-
ment of this chapter solely by reason of including such program.
‘‘(b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified Roth contribution
program’ means a program under which an employee may
elect to make designated Roth contributions in lieu of all or
H. R. 1836—67
a portion of elective deferrals the employee is otherwise eligible
to make under the applicable retirement plan.
‘‘(2) SEPARATE ACCOUNTING REQUIRED.—A program shall
not be treated as a qualified Roth contribution program unless
the applicable retirement plan—
‘‘(A) establishes separate accounts (‘designated Roth
accounts’) for the designated Roth contributions of each
employee and any earnings properly allocable to the con-
tributions, and
‘‘(B) maintains separate recordkeeping with respect to
each account.
‘‘(c) DEFINITIONS AND RULES RELATING TO DESIGNATED ROTH
CONTRIBUTIONS.—For purposes of this section—
‘‘(1) DESIGNATED
ROTH
CONTRIBUTION.—The term ‘des-
ignated Roth contribution’ means any elective deferral which—
‘‘(A) is excludable from gross income of an employee
without regard to this section, and
‘‘(B) the employee designates (at such time and in
such manner as the Secretary may prescribe) as not being
so excludable.
‘‘(2) DESIGNATION LIMITS.—The amount of elective deferrals
which an employee may designate under paragraph (1) shall
not exceed the excess (if any) of—
‘‘(A) the maximum amount of elective deferrals exclud-
able from gross income of the employee for the taxable
year (without regard to this section), over
‘‘(B) the aggregate amount of elective deferrals of the
employee for the taxable year which the employee does
not designate under paragraph (1).
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN GENERAL.—A rollover contribution of any pay-
ment or distribution from a designated Roth account which
is otherwise allowable under this chapter may be made
only if the contribution is to—
‘‘(i) another designated Roth account of the indi-
vidual from whose account the payment or distribution
was made, or
‘‘(ii) a Roth IRA of such individual.
‘‘(B) COORDINATION WITH LIMIT.—Any rollover contribu-
tion to a designated Roth account under subparagraph
(A) shall not be taken into account for purposes of para-
graph (1).
‘‘(d) DISTRIBUTION RULES.—For purposes of this title—
‘‘(1) EXCLUSION.—Any qualified distribution from a des-
ignated Roth account shall not be includible in gross income.
‘‘(2) QUALIFIED
DISTRIBUTION.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘qualified distribution’ has
the meaning given such term by section 408A(d)(2)(A)
(without regard to clause (iv) thereof ).
‘‘(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD.—
A payment or distribution from a designated Roth account
shall not be treated as a qualified distribution if such
payment or distribution is made within the 5-taxable-year
period beginning with the earlier of—
‘‘(i) the first taxable year for which the individual
made a designated Roth contribution to any designated
H. R. 1836—68
Roth account established for such individual under
the same applicable retirement plan, or
‘‘(ii) if a rollover contribution was made to such
designated Roth account from a designated Roth
account previously established for such individual
under another applicable retirement plan, the first tax-
able year for which the individual made a designated
Roth contribution to such previously established
account.
‘‘(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND CON-
TRIBUTIONS AND EARNINGS THEREON.—The term ‘qualified
distribution’ shall not include any distribution of any excess
deferral under section 402(g)(2) or any excess contribution
under section 401(k)(8), and any income on the excess
deferral or contribution.
‘‘(3) TREATMENT
OF
DISTRIBUTIONS
OF
CERTAIN
EXCESS
DEFERRALS.—Notwithstanding section 72, if any excess deferral
under section 402(g)(2) attributable to a designated Roth con-
tribution is not distributed on or before the 1st April 15 fol-
lowing the close of the taxable year in which such excess
deferral is made, the amount of such excess deferral shall—
‘‘(A) not be treated as investment in the contract, and
‘‘(B) be included in gross income for the taxable year
in which such excess is distributed.
‘‘(4) AGGREGATION RULES.—Section 72 shall be applied sepa-
rately with respect to distributions and payments from a des-
ignated Roth account and other distributions and payments
from the plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) APPLICABLE RETIREMENT PLAN.—The term ‘applicable
retirement plan’ means—
‘‘(A) an employees’ trust described in section 401(a)
which is exempt from tax under section 501(a), and
‘‘(B) a plan under which amounts are contributed by
an individual’s employer for an annuity contract described
in section 403(b).
‘‘(2) ELECTIVE
DEFERRAL.—The term ‘elective deferral’
means any elective deferral described in subparagraph (A) or
(C) of section 402(g)(3).’’.
(b) EXCESS DEFERRALS.—Section 402(g) (relating to limitation
on exclusion for elective deferrals) is amended—
(1) by adding at the end of paragraph (1)(A) (as added
by section 201(c)(1)) the following new sentence: ‘‘The preceding
sentence shall not apply the portion of such excess as does
not exceed the designated Roth contributions of the individual
for the taxable year.’’; and
(2) by inserting ‘‘(or would be included but for the last
sentence thereof )’’ after ‘‘paragraph (1)’’ in paragraph (2)(A).
(c) ROLLOVERS.—Subparagraph (B) of section 402(c)(8) is
amended by adding at the end the following:
‘‘If any portion of an eligible rollover distribution is attrib-
utable to payments or distributions from a designated Roth
account (as defined in section 402A), an eligible retirement
plan with respect to such portion shall include only another
designated Roth account and a Roth IRA.’’.
(d) REPORTING REQUIREMENTS.—
H. R. 1836—69
(1) W–2 INFORMATION.—Section 6051(a)(8) is amended by
inserting ‘‘, including the amount of designated Roth contribu-
tions (as defined in section 402A)’’ before the comma at the
end.
(2) INFORMATION.—Section 6047 is amended by redesig-
nating subsection (f ) as subsection (g) and by inserting after
subsection (e) the following new subsection:
‘‘(f ) DESIGNATED ROTH CONTRIBUTIONS.—The Secretary shall
require the plan administrator of each applicable retirement plan
(as defined in section 402A) to make such returns and reports
regarding designated Roth contributions (as defined in section 402A)
to the Secretary, participants and beneficiaries of the plan, and
such other persons as the Secretary may prescribe.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 408A(e) is amended by adding after the first
sentence the following new sentence: ‘‘Such term includes a
rollover contribution described in section 402A(c)(3)(A).’’.
(2) The table of sections for subpart A of part I of sub-
chapter D of chapter 1 is amended by inserting after the item
relating to section 402 the following new item:
‘‘Sec. 402A. Optional treatment of elective deferrals as Roth contributions.’’.
(f ) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2005.
SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR
ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS.
(a) IN GENERAL.—Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is amended
by inserting after section 25A the following new section:
‘‘SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CER-
TAIN INDIVIDUALS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligible indi-
vidual, there shall be allowed as a credit against the tax imposed
by this subtitle for the taxable year an amount equal to the
applicable percentage of so much of the qualified retirement savings
contributions of the eligible individual for the taxable year as do
not exceed $2,000.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of this section,
the applicable percentage is the percentage determined in accord-
ance with the following table:
Adjusted Gross Income
Applica-
ble per-
centage
Joint return
Head of a household
All other cases
Over
Not over
Over
Not over
Over
Not over
$30,000
$22,500
$15,000
30,000
32,500
22,500
24,375
15,000
16,250
32,500
50,000
24,375
37,500
16,250
25,000
50,000
37,500
25,000
‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘eligible individual’ means any
individual if such individual has attained the age of 18 as
of the close of the taxable year.
H. R. 1836—70
‘‘(2) DEPENDENTS AND FULL-TIME STUDENTS NOT ELIGIBLE.—
The term ‘eligible individual’ shall not include—
‘‘(A) any individual with respect to whom a deduction
under section 151 is allowed to another taxpayer for a
taxable year beginning in the calendar year in which such
individual’s taxable year begins, and
‘‘(B) any individual who is a student (as defined in
section 151(c)(4)).
‘‘(d) QUALIFIED
RETIREMENT
SAVINGS
CONTRIBUTIONS.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified retirement savings
contributions’ means, with respect to any taxable year, the
sum of—
‘‘(A) the amount of the qualified retirement contribu-
tions (as defined in section 219(e)) made by the eligible
individual,
‘‘(B) the amount of—
‘‘(i) any elective deferrals (as defined in section
402(g)(3)) of such individual, and
‘‘(ii) any elective deferral of compensation by such
individual under an eligible deferred compensation
plan (as defined in section 457(b)) of an eligible
employer described in section 457(e)(1)(A), and
‘‘(C) the amount of voluntary employee contributions
by such individual to any qualified retirement plan (as
defined in section 4974(c)).
‘‘(2) REDUCTION FOR CERTAIN DISTRIBUTIONS.—
‘‘(A) IN
GENERAL.—The qualified retirement savings
contributions determined under paragraph (1) shall be
reduced (but not below zero) by the sum of—
‘‘(i) any distribution from a qualified retirement
plan (as defined in section 4974(c)), or from an eligible
deferred compensation plan (as defined in section
457(b)), received by the individual during the testing
period which is includible in gross income, and
‘‘(ii) any distribution from a Roth IRA or a Roth
account received by the individual during the testing
period which is not a qualified rollover contribution
(as defined in section 408A(e)) to a Roth IRA or a
rollover under section 402(c)(8)(B) to a Roth account.
‘‘(B) TESTING PERIOD.—For purposes of subparagraph
(A), the testing period, with respect to a taxable year,
is the period which includes—
‘‘(i) such taxable year,
‘‘(ii) the 2 preceding taxable years, and
‘‘(iii) the period after such taxable year and before
the due date (including extensions) for filing the return
of tax for such taxable year.
‘‘(C) EXCEPTED
DISTRIBUTIONS.—There shall not be
taken into account under subparagraph (A)—
‘‘(i) any distribution referred to in section 72(p),
401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
‘‘(ii) any distribution to which section 408A(d)(3)
applies.
‘‘(D) TREATMENT
OF
DISTRIBUTIONS
RECEIVED
BY
SPOUSE OF INDIVIDUAL.—For purposes of determining dis-
tributions received by an individual under subparagraph
H. R. 1836—71
(A) for any taxable year, any distribution received by the
spouse of such individual shall be treated as received by
such individual if such individual and spouse file a joint
return for such taxable year and for the taxable year during
which the spouse receives the distribution.
‘‘(e) ADJUSTED GROSS INCOME.—For purposes of this section,
adjusted gross income shall be determined without regard to sec-
tions 911, 931, and 933.
‘‘(f ) INVESTMENT
IN
THE
CONTRACT.—Notwithstanding any
other provision of law, a qualified retirement savings contribution
shall not fail to be included in determining the investment in
the contract for purposes of section 72 by reason of the credit
under this section.
‘‘(g) TERMINATION.—This section shall not apply to taxable years
beginning after December 31, 2006.’’.
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND ALTERNATIVE
MINIMUM TAX.—
(1) IN GENERAL.—Section 25B, as added by subsection (a),
is amended by inserting after subsection (f ) the following new
subsection:
‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed
under subsection (a) for the taxable year shall not exceed the
excess of—
‘‘(1) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
‘‘(2) the sum of the credits allowable under this subpart
(other than this section and section 23) and section 27 for
the taxable year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 24(b)(3)(B), as amended by sections 201(b)
and 203(d), is amended by striking ‘‘section 23’’ and
inserting ‘‘sections 23 and 25B’’.
(B) Section 25(e)(1)(C), as amended by section 201(b),
is amended by inserting ‘‘25B,’’ after ‘‘24,’’.
(C) Section 26(a)(1), as amended by sections 201(b)
and 203, is amended by striking ‘‘and 24’’ and inserting
‘‘, 24, and 25B’’.
(D) Section 904(h), as amended by sections 201(b) and
203, is amended by striking ‘‘and 24’’ and inserting ‘‘,
24, and 25B’’.
(E) Section 1400C(d), as amended by sections 201(b)
and 203, is amended by striking ‘‘and 24’’ and inserting
‘‘, 24, and 25B’’.
(c) CONFORMING AMENDMENT.—The table of sections for subpart
A of part IV of subchapter A of chapter 1, as amended by section
432, is amended by inserting after the item relating to section
25A the following new item:
‘‘Sec. 25B. Elective deferrals and IRA contributions by certain individuals.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
SEC. 619. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL
EMPLOYERS.
(a) IN GENERAL.—Subpart D of part IV of subchapter A of
chapter 1 (relating to business related credits) is amended by adding
at the end the following new section:
H. R. 1836—72
‘‘SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
‘‘(a) GENERAL RULE.—For purposes of section 38, in the case
of an eligible employer, the small employer pension plan startup
cost credit determined under this section for any taxable year
is an amount equal to 50 percent of the qualified startup costs
paid or incurred by the taxpayer during the taxable year.
‘‘(b) DOLLAR LIMITATION.—The amount of the credit determined
under this section for any taxable year shall not exceed—
‘‘(1) $500 for the first credit year and each of the 2 taxable
years immediately following the first credit year, and
‘‘(2) zero for any other taxable year.
‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘eligible employer’ has the
meaning given such term by section 408(p)(2)(C)(i).
‘‘(2) REQUIREMENT FOR NEW QUALIFIED EMPLOYER PLANS.—
Such term shall not include an employer if, during the 3-
taxable year period immediately preceding the 1st taxable year
for which the credit under this section is otherwise allowable
for a qualified employer plan of the employer, the employer
or any member of any controlled group including the employer
(or any predecessor of either) established or maintained a quali-
fied employer plan with respect to which contributions were
made, or benefits were accrued, for substantially the same
employees as are in the qualified employer plan.
‘‘(d) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED STARTUP COSTS.—
‘‘(A) IN GENERAL.—The term ‘qualified startup costs’
means any ordinary and necessary expenses of an eligible
employer which are paid or incurred in connection with—
‘‘(i) the establishment or administration of an
eligible employer plan, or
‘‘(ii) the retirement-related education of employees
with respect to such plan.
‘‘(B) PLAN MUST HAVE AT LEAST 1 PARTICIPANT.—Such
term shall not include any expense in connection with
a plan that does not have at least 1 employee eligible
to participate who is not a highly compensated employee.
‘‘(2) ELIGIBLE EMPLOYER PLAN.—The term ‘eligible employer
plan’ means a qualified employer plan within the meaning
of section 4972(d).
‘‘(3) FIRST
CREDIT
YEAR.—The term ‘first credit year’
means—
‘‘(A) the taxable year which includes the date that
the eligible employer plan to which such costs relate
becomes effective, or
‘‘(B) at the election of the eligible employer, the taxable
year preceding the taxable year referred to in subparagraph
(A).
‘‘(e) SPECIAL RULES.—For purposes of this section—
‘‘(1) AGGREGATION RULES.—All persons treated as a single
employer under subsection (a) or (b) of section 52, or subsection
(n) or (o) of section 414, shall be treated as one person. All
eligible employer plans shall be treated as 1 eligible employer
plan.
‘‘(2) DISALLOWANCE OF DEDUCTION.—No deduction shall be
allowed for that portion of the qualified startup costs paid
H. R. 1836—73
or incurred for the taxable year which is equal to the credit
determined under subsection (a).
‘‘(3) ELECTION NOT TO CLAIM CREDIT.—This section shall
not apply to a taxpayer for any taxable year if such taxpayer
elects to have this section not apply for such taxable year.’’.
(b) CREDIT ALLOWED AS PART OF GENERAL BUSINESS CREDIT.—
Section 38(b) (defining current year business credit) is amended
by striking ‘‘plus’’ at the end of paragraph (12), by striking the
period at the end of paragraph (13) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(14) in the case of an eligible employer (as defined in
section 45E(c)), the small employer pension plan startup cost
credit determined under section 45E(a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 39(d) is amended by adding at the end the
following new paragraph:
‘‘(10) NO CARRYBACK OF SMALL EMPLOYER PENSION PLAN
STARTUP
COST
CREDIT
BEFORE
JANUARY
1, 2002.—No portion
of the unused business credit for any taxable year which is
attributable to the small employer pension plan startup cost
credit determined under section 45E may be carried back to
a taxable year beginning before January 1, 2002.’’.
(2) Subsection (c) of section 196 is amended by striking
‘‘and’’ at the end of paragraph (8), by striking the period at
the end of paragraph (9) and inserting ‘‘, and’’, and by adding
at the end the following new paragraph:
‘‘(10) the small employer pension plan startup cost credit
determined under section 45E(a).’’.
(3) The table of sections for subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end the
following new item:
‘‘Sec. 45E. Small employer pension plan startup costs.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to costs paid or incurred in taxable years beginning
after December 31, 2001, with respect to qualified employer plans
established after such date.
SEC. 620. ELIMINATION OF USER FEE FOR REQUESTS TO IRS
REGARDING PENSION PLANS.
(a) ELIMINATION OF CERTAIN USER FEES.—The Secretary of
the Treasury or the Secretary’s delegate shall not require payment
of user fees under the program established under section 10511
of the Revenue Act of 1987 for requests to the Internal Revenue
Service for determination letters with respect to the qualified status
of a pension benefit plan maintained solely by one or more eligible
employers or any trust which is part of the plan. The preceding
sentence shall not apply to any request—
(1) made after the later of—
(A) the fifth plan year the pension benefit plan is
in existence; or
(B) the end of any remedial amendment period with
respect to the plan beginning within the first 5 plan years;
or
(2) made by the sponsor of any prototype or similar plan
which the sponsor intends to market to participating employers.
H. R. 1836—74
(b) PENSION BENEFIT PLAN.—For purposes of this section, the
term ‘‘pension benefit plan’’ means a pension, profit-sharing, stock
bonus, annuity, or employee stock ownership plan.
(c) ELIGIBLE EMPLOYER.—For purposes of this section, the term
‘‘eligible employer’’ means an eligible employer (as defined in section
408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986) which has
at least one employee who is not a highly compensated employee
(as defined in section 414(q)) and is participating in the plan.
The determination of whether an employer is an eligible employer
under this section shall be made as of the date of the request
described in subsection (a).
(d) DETERMINATION OF AVERAGE FEES CHARGED.—For purposes
of any determination of average fees charged, any request to which
subsection (a) applies shall not be taken into account.
(e) EFFECTIVE DATE.—The provisions of this section shall apply
with respect to requests made after December 31, 2001.
SEC. 621. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTER-
NATIONAL TRANSPORTATION SERVICES.
(a) EXCLUSION FROM INCOME SOURCING RULES.—The second
sentence of section 861(a)(3) (relating to gross income from sources
within the United States) is amended by striking ‘‘except for pur-
poses of sections 79 and 105 and subchapter D,’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to remuneration for services performed in plan years
beginning after December 31, 2001.
Subtitle C—Enhancing Fairness for Women
SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR
OVER.
(a) IN GENERAL.—Section 414 (relating to definitions and spe-
cial rules) is amended by adding at the end the following new
subsection:
‘‘(v) CATCH-UP CONTRIBUTIONS
FOR INDIVIDUALS AGE 50 OR
OVER.—
‘‘(1) IN GENERAL.—An applicable employer plan shall not
be treated as failing to meet any requirement of this title
solely because the plan permits an eligible participant to make
additional elective deferrals in any plan year.
‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS.—
‘‘(A) IN GENERAL.—A plan shall not permit additional
elective deferrals under paragraph (1) for any year in an
amount greater than the lesser of—
‘‘(i) the applicable dollar amount, or
‘‘(ii) the excess (if any) of—
‘‘(I) the participant’s compensation (as defined
in section 415(c)(3)) for the year, over
‘‘(II) any other elective deferrals of the partici-
pant for such year which are made without regard
to this subsection.
‘‘(B) APPLICABLE
DOLLAR
AMOUNT.—For purposes of
this paragraph—
‘‘(i) In the case of an applicable employer plan
other than a plan described in section 401(k)(11) or
H. R. 1836—75
408(p), the applicable dollar amount shall be deter-
mined in accordance with the following table:
‘‘For taxable years
The
applicable
beginning in:
dollar amount
is:
2002 ...................................................................................................
$1,000
2003 ...................................................................................................
$2,000
2004 ...................................................................................................
$3,000
2005 ...................................................................................................
$4,000
2006 and thereafter ..........................................................................
$5,000.
‘‘(ii) In the case of an applicable employer plan
described in section 401(k)(11) or 408(p), the applicable
dollar amount shall be determined in accordance with
the following table:
‘‘For taxable years
The
applicable
beginning in:
dollar amount
is:
2002 ...................................................................................................
$500
2003 ...................................................................................................
$1,000
2004 ...................................................................................................
$1,500
2005 ...................................................................................................
$2,000
2006 and thereafter ..........................................................................
$2,500.
‘‘(C) COST-OF-LIVING
ADJUSTMENT.—In the case of a
year beginning after December 31, 2006, the Secretary
shall adjust annually the $5,000 amount in subparagraph
(B)(i) and the $2,500 amount in subparagraph (B)(ii) for
increases in the cost-of-living at the same time and in
the same manner as adjustments under section 415(d);
except that the base period taken into account shall be
the calendar quarter beginning July 1, 2005, and any
increase under this subparagraph which is not a multiple
of $500 shall be rounded to the next lower multiple of
$500.’’.
‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the case of any
contribution to a plan under paragraph (1)—
‘‘(A) such contribution shall not, with respect to the
year in which the contribution is made—
‘‘(i) be subject to any otherwise applicable limita-
tion contained in section 402(g), 402(h), 403(b), 404(a),
404(h), 408(k), 408(p), 415, or 457, or
‘‘(ii) be taken into account in applying such limita-
tions to other contributions or benefits under such
plan or any other such plan, and
‘‘(B) except as provided in paragraph (4), such plan
shall not be treated as failing to meet the requirements
of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(k)(12), 403(b)(12), 408(k), 408(p), 408B, 410(b), or 416
by reason of the making of (or the right to make) such
contribution.
‘‘(4) APPLICATION OF NONDISCRIMINATION RULES.—
‘‘(A) IN GENERAL.—An applicable employer plan shall
be treated as failing to meet the nondiscrimination require-
ments under section 401(a)(4) with respect to benefits,
rights, and features unless the plan allows all eligible
participants to make the same election with respect to
the additional elective deferrals under this subsection.
H. R. 1836—76
‘‘(B) AGGREGATION.—For purposes of subparagraph (A),
all plans maintained by employers who are treated as
a single employer under subsection (b), (c), (m), or (o)
of section 414 shall be treated as 1 plan.
‘‘(5) ELIGIBLE
PARTICIPANT.—For purposes of this sub-
section, the term ‘eligible participant’ means, with respect to
any plan year, a participant in a plan—
‘‘(A) who has attained the age of 50 before the close
of the plan year, and
‘‘(B) with respect to whom no other elective deferrals
may (without regard to this subsection) be made to the
plan for the plan year by reason of the application of
any limitation or other restriction described in paragraph
(3) or comparable limitation or restriction contained in
the terms of the plan.
‘‘(6) OTHER DEFINITIONS AND RULES.—For purposes of this
subsection—
‘‘(A) 
APPLICABLE
EMPLOYER
PLAN.—The 
term
‘applicable employer plan’ means—
‘‘(i) an employees’ trust described in section 401(a)
which is exempt from tax under section 501(a),
‘‘(ii) a plan under which amounts are contributed
by an individual’s employer for an annuity contract
described in section 403(b),
‘‘(iii) an eligible deferred compensation plan under
section 457 of an eligible employer described in section
457(e)(1)(A), and
‘‘(iv) an arrangement meeting the requirements
of section 408 (k) or (p).
‘‘(B) ELECTIVE DEFERRAL.—The term ‘elective deferral’
has the meaning given such term by subsection (u)(2)(C).
‘‘(C) EXCEPTION
FOR
SECTION
457
PLANS.—This sub-
section shall not apply to an applicable employer plan
described in subparagraph (A)(iii) for any year to which
section 457(b)(3) applies.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to contributions in taxable years beginning after
December 31, 2001.
SEC. 
632. 
EQUITABLE 
TREATMENT 
FOR 
CONTRIBUTIONS 
OF
EMPLOYEES TO DEFINED CONTRIBUTION PLANS.
(a) EQUITABLE TREATMENT.—
(1) IN
GENERAL.—Subparagraph (B) of section 415(c)(1)
(relating to limitation for defined contribution plans) is
amended by striking ‘‘25 percent’’ and inserting ‘‘100 percent’’.
(2) APPLICATION
TO
SECTION
403(b).—Section 403(b) is
amended—
(A) by striking ‘‘the exclusion allowance for such tax-
able year’’ in paragraph (1) and inserting ‘‘the applicable
limit under section 415’’,
(B) by striking paragraph (2), and
(C) by inserting ‘‘or any amount received by a former
employee after the fifth taxable year following the taxable
year in which such employee was terminated’’ before the
period at the end of the second sentence of paragraph
(3).
(3) CONFORMING AMENDMENTS.—
H. R. 1836—77
(A) Subsection (f ) of section 72 is amended by striking
‘‘section 
403(b)(2)(D)(iii))’’ 
and 
inserting 
‘‘section
403(b)(2)(D)(iii), as in effect before the enactment of the
Economic Growth and Tax Relief Reconciliation Act of
2001’’.
(B) Section 404(a)(10)(B) is amended by striking ‘‘,
the exclusion allowance under section 403(b)(2),’’.
(C) Section 415(a)(2) is amended by striking ‘‘, and
the amount of the contribution for such portion shall reduce
the exclusion allowance as provided in section 403(b)(2)’’.
(D) Section 415(c)(3) is amended by adding at the end
the following new subparagraph:
‘‘(E) ANNUITY CONTRACTS.—In the case of an annuity
contract described in section 403(b), the term ‘participant’s
compensation’ means the participant’s includible compensa-
tion determined under section 403(b)(3).’’.
(E) Section 415(c) is amended by striking paragraph
(4).
(F) Section 415(c)(7) is amended to read as follows:
‘‘(7) CERTAIN
CONTRIBUTIONS
BY
CHURCH
PLANS
NOT
TREATED AS EXCEEDING LIMIT.—
‘‘(A) IN GENERAL.—Notwithstanding any other provi-
sion of this subsection, at the election of a participant
who is an employee of a church or a convention or associa-
tion of churches, including an organization described in
section 414(e)(3)(B)(ii), contributions and other additions
for an annuity contract or retirement income account
described in section 403(b) with respect to such participant,
when expressed as an annual addition to such participant’s
account, shall be treated as not exceeding the limitation
of paragraph (1) if such annual addition is not in excess
of $10,000.
‘‘(B) 
$40,000 
AGGREGATE
LIMITATION.—The 
total
amount of additions with respect to any participant which
may be taken into account for purposes of this subpara-
graph for all years may not exceed $40,000.
‘‘(C) ANNUAL
ADDITION.—For purposes of this para-
graph, the term ‘annual addition’ has the meaning given
such term by paragraph (2).’’.
(G) Subparagraph (B) of section 402(g)(7) (as redesig-
nated by section 611(c)(3)) is amended by inserting before
the period at the end the following: ‘‘(as in effect before
the enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001’’.
(H) Section 664(g) is amended—
(i) in paragraph (3)(E) by striking ‘‘limitations
under section 415(c)’’ and inserting ‘‘applicable limita-
tion under paragraph (7)’’, and
(ii) by adding at the end the following new para-
graph:
‘‘(7) APPLICABLE LIMITATION.—
‘‘(A) IN GENERAL.—For purposes of paragraph (3)(E),
the applicable limitation under this paragraph with respect
to a participant is an amount equal to the lesser of—
‘‘(i) $30,000, or
‘‘(ii) 25 percent of the participant’s compensation
(as defined in section 415(c)(3)).
H. R. 1836—78
‘‘(B) COST-OF-LIVING ADJUSTMENT.—The Secretary shall
adjust annually the $30,000 amount under subparagraph
(A)(i) at the same time and in the same manner as under
section 415(d), except that the base period shall be the
calendar quarter beginning October 1, 1993, and any
increase under this subparagraph which is not a multiple
of $5,000 shall be rounded to the next lowest multiple
of $5,000.’’.
(4) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to years beginning after December 31, 2001.
(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—
(1) IN GENERAL.—Subsection (k) of section 415 is amended
by adding at the end the following new paragraph:
‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408.—For pur-
poses of this section, any annuity contract described in section
403(b) for the benefit of a participant shall be treated as a
defined contribution plan maintained by each employer with
respect to which the participant has the control required under
subsection (b) or (c) of section 414 (as modified by subsection
(h)). For purposes of this section, any contribution by an
employer to a simplified employee pension plan for an indi-
vidual for a taxable year shall be treated as an employer
contribution to a defined contribution plan for such individual
for such year.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendment made by paragraph
(1) shall apply to limitation years beginning after December
31, 1999.
(B) EXCLUSION
ALLOWANCE.—Effective for limitation
years beginning in 2000, in the case of any annuity contract
described in section 403(b) of the Internal Revenue Code
of 1986, the amount of the contribution disqualified by
reason of section 415(g) of such Code shall reduce the
exclusion allowance as provided in section 403(b)(2) of such
Code.
(3) ELECTION TO MODIFY SECTION 403(b) EXCLUSION ALLOW-
ANCE TO CONFORM TO SECTION 415 MODIFICATION.—In the case
of taxable years beginning after December 31, 1999, and before
January 1, 2002, a plan may disregard the requirement in
the regulations regarding the exclusion allowance under section
403(b)(2) of the Internal Revenue Code of 1986 that contribu-
tions to a defined benefit pension plan be treated as previously
excluded amounts for purposes of the exclusion allowance.
(c) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.—
(1) IN
GENERAL.—Subparagraph (B) of section 457(b)(2)
(relating to salary limitation on eligible deferred compensation
plans) is amended by striking ‘‘331⁄3 percent’’ and inserting
‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to years beginning after December 31, 2001.
SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CON-
TRIBUTIONS.
(a) IN GENERAL.—Section 411(a) (relating to minimum vesting
standards) is amended—
H. R. 1836—79
(1) in paragraph (2), by striking ‘‘A plan’’ and inserting
‘‘Except as provided in paragraph (12), a plan’’; and
(2) by adding at the end the following:
‘‘(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS.—In
the case of matching contributions (as defined in section
401(m)(4)(A)), paragraph (2) shall be applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subpara-
graph (A), and
‘‘(B) by substituting the following table for the table
contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...................................................................................................
3 ...................................................................................................
4 ...................................................................................................
5 ...................................................................................................
6 ...................................................................................................
100.’’.
(b) AMENDMENT OF ERISA.—Section 203(a) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is
amended—
(1) in paragraph (2), by striking ‘‘A plan’’ and inserting
‘‘Except as provided in paragraph (4), a plan’’, and
(2) by adding at the end the following:
‘‘(4) In the case of matching contributions (as defined in
section 401(m)(4)(A) of the Internal Revenue Code of 1986),
paragraph (2) shall be applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’ in subpara-
graph (A), and
‘‘(B) by substituting the following table for the table
contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...................................................................................................
3 ...................................................................................................
4 ...................................................................................................
5 ...................................................................................................
6 ...................................................................................................
100.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions
for plan years beginning after December 31, 2001.
(2) COLLECTIVE BARGAINING AGREEMENTS.—In the case of
a plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more
employers ratified by the date of the enactment of this Act,
the amendments made by this section shall not apply to con-
tributions on behalf of employees covered by any such agree-
ment for plan years beginning before the earlier of—
(A) the later of—
(i) the date on which the last of such collective
bargaining agreements terminates (determined without
regard to any extension thereof on or after such date
of the enactment); or
(ii) January 1, 2002; or
(B) January 1, 2006.
(3) SERVICE
REQUIRED.—With respect to any plan, the
amendments made by this section shall not apply to any
employee before the date that such employee has 1 hour of
H. R. 1836—80
service under such plan in any plan year to which the amend-
ments made by this section apply.
SEC. 634. MODIFICATION TO MINIMUM DISTRIBUTION RULES.
The Secretary of the Treasury shall modify the life expectancy
tables under the regulations relating to minimum distribution
requirements under sections 401(a)(9), 408(a)(6) and (b)(3),
403(b)(10), and 457(d)(2) of the Internal Revenue Code to reflect
current life expectancy.
SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SEC-
TION 457 PLAN BENEFITS UPON DIVORCE.
(a) IN GENERAL.—Section 414(p)(11) (relating to application
of rules to governmental and church plans) is amended—
(1) by inserting ‘‘or an eligible deferred compensation plan
(within the meaning of section 457(b))’’ after ‘‘subsection (e))’’;
and
(2) in the heading, by striking ‘‘GOVERNMENTAL
AND
CHURCH PLANS’’ and inserting ‘‘CERTAIN OTHER PLANS’’.
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS.—Para-
graph (10) of section 414(p) is amended by striking ‘‘and section
409(d)’’ and inserting ‘‘section 409(d), and section 457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN.—
Subsection (p) of section 414 is amended by redesignating paragraph
(12) as paragraph (13) and inserting after paragraph (11) the fol-
lowing new paragraph:
‘‘(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457
PLAN.—If a distribution or payment from an eligible deferred
compensation plan described in section 457(b) is made pursuant
to a qualified domestic relations order, rules similar to the
rules of section 402(e)(1)(A) shall apply to such distribution
or payment.’’.
(d) EFFECTIVE DATE.—The amendment made by this section
shall apply to transfers, distributions, and payments made after
December 31, 2001.
SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.
(a) SAFE HARBOR RELIEF.—
(1) IN GENERAL.—The Secretary of the Treasury shall revise
the regulations relating to hardship distributions under section
401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to
provide that the period an employee is prohibited from making
elective and employee contributions in order for a distribution
to be deemed necessary to satisfy financial need shall be equal
to 6 months.
(2) EFFECTIVE DATE.—The revised regulations under this
subsection shall apply to years beginning after December 31,
2001.
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELIGIBLE ROLL-
OVER DISTRIBUTIONS.—
(1) MODIFICATION OF DEFINITION OF ELIGIBLE ROLLOVER.—
Subparagraph (C) of section 402(c)(4) (relating to eligible roll-
over distribution) is amended to read as follows:
‘‘(C) any distribution which is made upon hardship
of the employee.’’.
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to distributions made after December 31,
2001.
H. R. 1836—81
SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR
DOMESTIC OR SIMILAR WORKERS.
(a) IN GENERAL.—Section 4972(c)(6) (relating to exceptions to
nondeductible contributions), as amended by section 616, is
amended by striking ‘‘and’’ at the end of subparagraph (A), by
striking the period and inserting ‘‘, or’’ at the end of subparagraph
(B), and by inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) so much of the contributions to a simple retirement
account (within the meaning of section 408(p)) or a simple
plan (within the meaning of section 401(k)(11)) which are
not deductible when contributed solely because such con-
tributions are not made in connection with a trade or
business of the employer.’’.
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Section 4972(c)(6),
as amended by subsection (a), is amended by adding at the end
the following new sentence: ‘‘Subparagraph (C) shall not apply
to contributions made on behalf of the employer or a member
of the employer’s family (as defined in section 447(e)(1)).’’.
(c) NO INFERENCE.—Nothing in the amendments made by this
section shall be construed to infer the proper treatment of non-
deductible contributions under the laws in effect before such amend-
ments.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2001.
Subtitle D—Increasing Portability for
Participants
SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.
(a) ROLLOVERS FROM AND TO SECTION 457 PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
(A) IN
GENERAL.—Section 457(e) (relating to other
definitions and special rules) is amended by adding at
the end the following:
‘‘(16) ROLLOVER AMOUNTS.—
‘‘(A) GENERAL RULE.—In the case of an eligible deferred
compensation plan established and maintained by an
employer described in subsection (e)(1)(A), if—
‘‘(i) any portion of the balance to the credit of
an employee in such plan is paid to such employee
in an eligible rollover distribution (within the meaning
of section 402(c)(4)),
‘‘(ii) the employee transfers any portion of the prop-
erty such employee receives in such distribution to
an eligible retirement plan described in section
402(c)(8)(B), and
‘‘(iii) in the case of a distribution of property other
than money, the amount so transferred consists of
the property distributed,
then such distribution (to the extent so transferred) shall
not be includible in gross income for the taxable year
in which paid.
‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of
paragraphs (2) through (7) and (9) of section 402(c) and
H. R. 1836—82
section 402(f ) shall apply for purposes of subparagraph
(A).
‘‘(C) REPORTING.—Rollovers under this paragraph shall
be reported to the Secretary in the same manner as roll-
overs from qualified retirement plans (as defined in section
4974(c)).’’.
(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO
ROLLOVER
AMOUNTS.—Section 457(b)(2) (defining eligible
deferred compensation plan) is amended by inserting
‘‘(other than rollover amounts)’’ after ‘‘taxable year’’.
(C) DIRECT ROLLOVER.—Paragraph (1) of section 457(d)
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 inserting after subpara-
graph (B) the following:
‘‘(C) in the case of a plan maintained by an employer
described in subsection (e)(1)(A), the plan meets require-
ments similar to the requirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible
in gross income for the taxable year of transfer.’’.
(D) WITHHOLDING.—
(i) Paragraph (12) of section 3401(a) is amended
by adding at the end the following:
‘‘(E) under or to an eligible deferred compensation plan
which, at the time of such payment, is a plan described
in section 457(b) which is maintained by an eligible
employer described in section 457(e)(1)(A), or’’.
(ii) Paragraph (3) of section 3405(c) is amended
to read as follows:
‘‘(3) ELIGIBLE
ROLLOVER
DISTRIBUTION.—For purposes of
this subsection, the term ‘eligible rollover distribution’ has the
meaning given such term by section 402(f )(2)(A).’’.
(iii) LIABILITY FOR WITHHOLDING.—Subparagraph
(B) of section 3405(d)(2) is amended by striking ‘‘or’’
at the end of clause (ii), by striking the period at
the end of clause (iii) and inserting ‘‘, or’’, and by
adding at the end the following:
‘‘(iv) section 457(b) and which is maintained by
an eligible employer described in section 457(e)(1)(A).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) IN GENERAL.—Section 402(c)(8)(B) (defining eligible
retirement plan) is amended by striking ‘‘and’’ at the end
of clause (iii), by striking the period at the end of clause
(iv) and inserting ‘‘, and’’, and by inserting after clause
(iv) the following new clause:
‘‘(v) 
an 
eligible 
deferred 
compensation 
plan
described in section 457(b) which is maintained by
an eligible employer described in section 457(e)(1)(A).’’.
(B) SEPARATE ACCOUNTING.—Section 402(c) is amended
by adding at the end the following new paragraph:
‘‘(10) SEPARATE ACCOUNTING.—Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately account
for amounts rolled into such plan from eligible retirement plans
not described in such clause, the plan described in such clause
may not accept transfers or rollovers from such retirement
plans.’’.
H. R. 1836—83
(C) 10 PERCENT ADDITIONAL TAX.—Subsection (t) of sec-
tion 72 (relating to 10-percent additional tax on early dis-
tributions from qualified retirement plans) is amended by
adding at the end the following new paragraph:
‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS.—
For purposes of this subsection, a distribution from an eligible
deferred compensation plan (as defined in section 457(b)) of
an eligible employer described in section 457(e)(1)(A) shall be
treated as a distribution from a qualified retirement plan
described in 4974(c)(1) to the extent that such distribution
is attributable to an amount transferred to an eligible deferred
compensation plan from a qualified retirement plan (as defined
in section 4974(c)).’’.
(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS.—
(1) ROLLOVERS
FROM
SECTION
403(b)
PLANS.—Section
403(b)(8)(A)(ii) (relating to rollover amounts) is amended by
striking ‘‘such distribution’’ and all that follows and inserting
‘‘such distribution to an eligible retirement plan described in
section 402(c)(8)(B), and’’.
(2) 
ROLLOVERS
TO
SECTION
403(b)
PLANS.—Section
402(c)(8)(B) (defining eligible retirement plan), as amended by
subsection (a), is amended by striking ‘‘and’’ at the end of
clause (iv), by striking the period at the end of clause (v)
and inserting ‘‘, and’’, and by inserting after clause (v) the
following new clause:
‘‘(vi) an annuity contract described in section
403(b).’’.
(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DIS-
TRIBUTIONS.—Paragraph (1) of section 402(f ) (relating to written
explanation to recipients of distributions eligible for rollover treat-
ment) is amended by striking ‘‘and’’ at the end of subparagraph
(C), by striking the period at the end of subparagraph (D) and
inserting ‘‘, and’’, and by adding at the end the following new
subparagraph:
‘‘(E) of the provisions under which distributions from
the eligible retirement plan receiving the distribution may
be subject to restrictions and tax consequences which are
different from those applicable to distributions from the
plan making such distribution.’’.
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relating to rollover
where spouse receives distribution after death of employee) is
amended by striking ‘‘; except that’’ and all that follows up to
the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by striking ‘‘and 408(d)(3)’’
and inserting ‘‘403(b)(8), 408(d)(3), and 457(e)(16)’’.
(2) Section 219(d)(2) is amended by striking ‘‘or 408(d)(3)’’
and inserting ‘‘408(d)(3), or 457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended by striking ‘‘and
403(a)(4)’’ and inserting ‘‘, 403(a)(4), 403(b)(8), and 457(e)(16)’’.
(4) Subparagraph (A) of section 402(f )(2) is amended by
striking ‘‘or paragraph (4) of section 403(a)’’ and inserting ‘‘,
paragraph (4) of section 403(a), subparagraph (A) of section
403(b)(8), or subparagraph (A) of section 457(e)(16)’’.
(5) Paragraph (1) of section 402(f ) is amended by striking
‘‘from an eligible retirement plan’’.
H. R. 1836—84
(6) Subparagraphs (A) and (B) of section 402(f )(1) are
amended by striking ‘‘another eligible retirement plan’’ and
inserting ‘‘an eligible retirement plan’’.
(7) Subparagraph (B) of section 403(b)(8) is amended to
read as follows:
‘‘(B) CERTAIN RULES MADE APPLICABLE.—The rules of
paragraphs (2) through (7) and (9) of section 402(c) and
section 402(f ) shall apply for purposes of subparagraph
(A), except that section 402(f ) shall be applied to the payor
in lieu of the plan administrator.’’.
(8) Section 408(a)(1) is amended by striking ‘‘or 403(b)(8),’’
and inserting ‘‘403(b)(8), or 457(e)(16)’’.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each
amended by striking ‘‘and 408(d)(3)’’ and inserting ‘‘403(b)(8),
408(d)(3), and 457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking ‘‘and 408(d)(3)’’
and inserting ‘‘408(d)(3), and 457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by striking ‘‘or
408(d)(3)’’ and inserting ‘‘408(d)(3), or 457(e)(16)’’.
(f ) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made by this sec-
tion shall apply to distributions after December 31, 2001.
(2) REASONABLE NOTICE.—No penalty shall be imposed on
a plan for the failure to provide the information required by
the amendment made by subsection (c) with respect to any
distribution made before the date that is 90 days after the
date on which the Secretary of the Treasury issues a safe
harbor rollover notice after the date of the enactment of this
Act, if the administrator of such plan makes a reasonable
attempt to comply with such requirement.
(3) SPECIAL RULE.—Notwithstanding any other provision
of law, subsections (h)(3) and (h)(5) of section 1122 of the
Tax Reform Act of 1986 shall not apply to any distribution
from an eligible retirement plan (as defined in clause (iii)
or (iv) of section 402(c)(8)(B) of the Internal Revenue Code
of 1986) on behalf of an individual if there was a rollover
to such plan on behalf of such individual which is permitted
solely by reason of any amendment made by this section.
SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.
(a) IN
GENERAL.—Subparagraph (A) of section 408(d)(3)
(relating to rollover amounts) is amended by adding ‘‘or’’ at the
end of clause (i), by striking clauses (ii) and (iii), and by adding
at the end the following:
‘‘(ii) the entire amount received (including money
and any other property) is paid into an eligible retire-
ment plan for the benefit of such individual not later
than the 60th day after the date on which the payment
or distribution is received, except that the maximum
amount which may be paid into such plan may not
exceed the portion of the amount received which is
includible in gross income (determined without regard
to this paragraph).
For purposes of clause (ii), the term ‘eligible retirement
plan’ means an eligible retirement plan described in clause
(iii), (iv), (v), or (vi) of section 402(c)(8)(B).’’.
(b) CONFORMING AMENDMENTS.—
H. R. 1836—85
(1) Paragraph (1) of section 403(b) is amended by striking
‘‘section 408(d)(3)(A)(iii)’’ and inserting ‘‘section 408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is amended by striking
‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i) or (ii)’’.
(3) Subparagraph (G) of section 408(d)(3) is amended to
read as follows:
‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In the case of
any payment or distribution out of a simple retirement
account (as defined in subsection (p)) to which section
72(t)(6) applies, this paragraph shall not apply unless such
payment or distribution is paid into another simple retire-
ment account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made by this sec-
tion shall apply to distributions after December 31, 2001.
(2) SPECIAL RULE.—Notwithstanding any other provision
of law, subsections (h)(3) and (h)(5) of section 1122 of the
Tax Reform Act of 1986 shall not apply to any distribution
from an eligible retirement plan (as defined in clause (iii)
or (iv) of section 402(c)(8)(B) of the Internal Revenue Code
of 1986) on behalf of an individual if there was a rollover
to such plan on behalf of such individual which is permitted
solely by reason of the amendments made by this section.
SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Paragraph (2) of section
402(c) (relating to maximum amount which may be rolled over)
is amended by adding at the end the following: ‘‘The preceding
sentence shall not apply to such distribution to the extent—
‘‘(A) such portion is transferred in a direct trustee-
to-trustee transfer to a qualified trust which is part of
a plan which is a defined contribution plan and which
agrees to separately account for amounts so transferred,
including separately accounting for the portion of such
distribution which is includible in gross income and the
portion of such distribution which is not so includible,
or
‘‘(B) such portion is transferred to an eligible retire-
ment plan described in clause (i) or (ii) of paragraph
(8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DIS-
TRIBUTIONS.—Subparagraph (B) of section 401(a)(31) (relating to
limitation) is amended by adding at the end the following: ‘‘The
preceding sentence shall not apply to such distribution if the plan
to which such distribution is transferred—
‘‘(i) agrees to separately account for amounts so
transferred, including separately accounting for the
portion of such distribution which is includible in gross
income and the portion of such distribution which is
not so includible, or
‘‘(ii) is an eligible retirement plan described in
clause (i) or (ii) of section 402(c)(8)(B).’’.
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—Paragraph (3)
of section 408(d) (relating to special rules for applying section
72) is amended by inserting at the end the following:
‘‘(H) APPLICATION OF SECTION 72.—
‘‘(i) IN GENERAL.—If—
H. R. 1836—86
‘‘(I) a distribution is made from an individual
retirement plan, and
‘‘(II) a rollover contribution is made to an
eligible retirement plan described in section
402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to
all or part of such distribution,
then, notwithstanding paragraph (2), the rules of
clause (ii) shall apply for purposes of applying section
72.
‘‘(ii) APPLICABLE RULES.—In the case of a distribu-
tion described in clause (i)—
‘‘(I) section 72 shall be applied separately to
such distribution,
‘‘(II) notwithstanding the pro rata allocation
of income on, and investment in, the contract to
distributions under section 72, the portion of such
distribution rolled over to an eligible retirement
plan described in clause (i) shall be treated as
from income on the contract (to the extent of the
aggregate income on the contract from all indi-
vidual retirement plans of the distributee), and
‘‘(III) appropriate adjustments shall be made
in applying section 72 to other distributions in
such taxable year and subsequent taxable years.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions made after December 31, 2001.
SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS.—Paragraph (3) of section 402(c) (relating
to transfer must be made within 60 days of receipt) is amended
to read as follows:
‘‘(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), paragraph (1) shall not apply to any transfer of a
distribution made after the 60th day following the day
on which the distributee received the property distributed.
‘‘(B) HARDSHIP EXCEPTION.—The Secretary may waive
the 60-day requirement under subparagraph (A) where the
failure to waive such requirement would be against equity
or good conscience, including casualty, disaster, or other
events beyond the reasonable control of the individual sub-
ject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating to rollover
contributions), as amended by section 643, is amended by adding
after subparagraph (H) the following new subparagraph:
‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—The Secretary
may waive the 60-day requirement under subparagraphs
(A) and (D) where the failure to waive such requirement
would be against equity or good conscience, including cas-
ualty, disaster, or other events beyond the reasonable con-
trol of the individual subject to such requirement.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions after December 31, 2001.
SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.
(a) PLAN TRANSFERS.—
(1) AMENDMENT OF INTERNAL REVENUE CODE.—Paragraph
(6) of section 411(d) (relating to accrued benefit not to be