SEC. 413. FOREIGN PERSONS NOT TO BE TREATED AS OWN-
ERS UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.—
(1) Subsection (f) of section 672 (relating to
special rule where grantor is foreign person) is
amended to read as follows:
‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER-
SHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this subpart, this subpart shall apply
only to the extent such application results in an
amount being currently taken into account (directly
or through 1 or more entities) under this chapter in
computing the income of a citizen or resident of the
United States or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN
REVOCABLE
AND
IRREV-
OCABLE
TRUSTS.—Paragraph
(1)
shall
not
apply to any trust if—
‘‘(i) the power to revest absolutely in
the grantor title to the trust property is
exercisable solely by the grantor without
the approval or consent of any other per-
son or with the consent of a related or sub-
ordinate party who is subservient to the
grantor, or
‘‘(ii) the only amounts distributable
from such trust (whether income or cor-
pus) during the lifetime of the grantor are
amounts distributable to the grantor or the
spouse of the grantor.
‘‘(B) COMPENSATORY TRUSTS.—Except as
provided in regulations, paragraph (1) shall not
apply to any portion of a trust distributions
from which are taxable as compensation for
services rendered.
‘‘(3)
SPECIAL
RULES.—Except
as
otherwise
provided
in
regulations
prescribed
by
the
Sec-
retary—
‘‘(A) a controlled foreign corporation (as
defined in section 957) shall be treated as a do-
mestic corporation for purposes of paragraph
(1), and
‘‘(B) paragraph (1) shall not apply for
purposes of applying section 1296.
‘‘(4)
RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the case of any transfer directly or indi-
rectly from a partnership or foreign corporation
which the transferee treats as a gift or bequest, the
Secretary may recharacterize such transfer in such
circumstances as the Secretary determines to be ap-
propriate to prevent the avoidance of the purposes of
this subsection.
‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR-
EIGN PERSON.—If—
‘‘(A) but for this subsection, a foreign per-
son would be treated as the owner of any por-
tion of a trust, and
‘‘(B) such trust has a beneficiary who is a
United States person,
such beneficiary shall be treated as the grantor of
such portion to the extent such beneficiary has made
transfers of property by gift (directly or indirectly)
to such foreign person. For purposes of the preced-
ing sentence, any gift shall not be taken into account
to the extent such gift would be excluded from tax-
able gifts under section 2503(b).
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, including regulations providing that para-
graph (1) shall not apply in appropriate cases.’’.
(2) The last sentence of subsection (c) of sec-
tion 672 of such Code is amended by inserting ‘‘sub-
section (f) and’’ before ‘‘sections 674’’.
(b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of
section 665(d) is amended by adding at the end the follow-
ing new sentence: ‘‘Under rules or regulations prescribed
by the Secretary, in the case of any foreign trust of which
the settlor or another person would be treated as owner
of any portion of the trust under subpart E but for section
672(f), the term ‘taxes imposed on the trust’ includes the
allocable amount of any income, war profits, and excess
profits taxes imposed by any foreign country or possession
of the United States on the settlor or such other person
in respect of trust gross income.’’.
(c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—
(1) Section 643 is amended by adding at the
end the following new subsection:
‘‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—For purposes of this part, any
amount paid to a United States person which is derived
directly or indirectly from a foreign trust of which the
payor is not the grantor shall be deemed in the year of
payment to have been directly paid by the foreign trust
to such United States person.’’.
(2) Section 665 is amended by striking sub-
section (c).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section
shall take effect on the date of the enactment of this
Act.
(2) EXCEPTION
FOR
CERTAIN
TRUSTS.—The
amendments made by this section shall not apply to
any trust—
(A) which is treated as owned by the
grantor or another person under section 676 or
677 (other than subsection (a)(3) thereof) of
the Internal Revenue Code of 1986, and
(B) which is in existence on September 19,
1995.
The preceding sentence shall not apply to the por-
tion of any such trust attributable to any transfer to
such trust after September 19, 1995.
(e) TRANSITIONAL RULE.—If—
(1) by reason of the amendments made by this
section, any person other than a United States per-
son ceases to be treated as the owner of a portion
of a domestic trust, and
(2) before January 1, 1997, such trust becomes
a foreign trust, or the assets of such trust are trans-
ferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal
Revenue Code of 1986 by reason of such trust becoming
a foreign trust or the assets of such trust being trans-
ferred to a foreign trust.
SEC. 414. INFORMATION REPORTING REGARDING FOREIGN
GIFTS.
(a) IN GENERAL.—Subpart A of part III of sub-
chapter A of chapter 61 is amended by inserting after sec-
tion 6039E the following new section:
‘‘SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM
FOREIGN PERSONS.
‘‘(a) IN GENERAL.—If the value of the aggregate for-
eign gifts received by a United States person (other than
an organization described in section 501(c) and exempt
from tax under section 501(a)) during any taxable year
exceeds $10,000, such United States person shall furnish
(at such time and in such manner as the Secretary shall
prescribe) such information as the Secretary may pre-
scribe regarding each foreign gift received during such
year.
‘‘(b) FOREIGN GIFT.—For purposes of this section,
the term ‘foreign gift’ means any amount received from
a person other than a United States person which the re-
cipient treats as a gift or bequest. Such term shall not
include any qualified transfer (within the meaning of sec-
tion 2503(e)(2)).
‘‘(c) PENALTY FOR FAILURE TO FILE INFORMA-
TION.—
‘‘(1) IN GENERAL.—If a United States person
fails to furnish the information required by sub-
section (a) with respect to any foreign gift within
the time prescribed therefor (including extensions)—
‘‘(A) the tax consequences of the receipt of
such gift shall be determined by the Secretary
in the Secretary’s sole discretion from the Sec-
retary’s own knowledge or from such informa-
tion as the Secretary may obtain through testi-
mony or otherwise, and
‘‘(B) such United States person shall pay
(upon notice and demand by the Secretary and
in the same manner as tax) an amount equal to
5 percent of the amount of such foreign gift for
each month for which the failure continues (not
to exceed 25 percent of such amount in the ag-
gregate).
‘‘(2) REASONABLE CAUSE EXCEPTION.—Para-
graph (1) shall not apply to any failure to report a
foreign gift if the United States person shows that
the failure is due to reasonable cause and not due
to willful neglect.
‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of
any taxable year beginning after December 31, 1996, the
$10,000 amount under subsection (a) shall be increased
by an amount equal to the product of such amount and
the cost-of-living adjustment for such taxable year under
section 1(f)(3), except that subparagraph (B) thereof shall
be applied by substituting ‘1995’ for ‘1992’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for such subpart is amended by inserting after the item
relating to section 6039E the following new item:
‘‘Sec. 6039F. Notice of large gifts received from foreign per-
sons.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after the date
of the enactment of this Act in taxable years ending after
such date.
SEC. 415. MODIFICATION OF RULES RELATING TO FOREIGN
TRUSTS WHICH ARE NOT GRANTOR TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCU-
MULATION DISTRIBUTIONS.—Subsection (a) of section
668 (relating to interest charge on accumulation distribu-
tions from foreign trusts) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax de-
termined under section 667(a)—
‘‘(1) INTEREST
DETERMINED
USING
UNDER-
PAYMENT RATES.—The interest charge determined
under this section with respect to any distribution is
the amount of interest which would be determined
on the partial tax computed under section 667(b) for
the period described in paragraph (2) using the
rates and the method under section 6621 applicable
to underpayments of tax.
‘‘(2) PERIOD.—For purposes of paragraph (1),
the period described in this paragraph is the period
which begins on the date which is the applicable
number of years before the date of the distribution
and which ends on the date of the distribution.
‘‘(3) APPLICABLE
NUMBER
OF
YEARS.—For
purposes of paragraph (2)—
‘‘(A) IN GENERAL.—The applicable num-
ber of years with respect to a distribution is the
number determined by dividing—
‘‘(i) the sum of the products described
in subparagraph (B) with respect to each
undistributed income year, by
‘‘(ii) the aggregate undistributed net
income.
The quotient determined under the preceding
sentence shall be rounded under procedures
prescribed by the Secretary.
‘‘(B)
PRODUCT
DESCRIBED.—For
pur-
poses of subparagraph (A), the product de-
scribed in this subparagraph with respect to
any undistributed income year is the product
of—
‘‘(i) the undistributed net income for
such year, and
‘‘(ii) the sum of the number of taxable
years between such year and the taxable
year of the distribution (counting in each
case the undistributed income year but not
counting the taxable year of the distribu-
tion).
‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur-
poses of this subsection, the term ‘undistributed in-
come year’ means any prior taxable year of the trust
for which there is undistributed net income, other
than a taxable year during all of which the bene-
ficiary receiving the distribution was not a citizen or
resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET
INCOME.—Notwithstanding section 666, for pur-
poses of this subsection, an accumulation distribu-
tion from the trust shall be treated as reducing pro-
portionately the undistributed net income for undis-
tributed income years.
‘‘(6) PERIODS BEFORE 1996.—Interest for the
portion of the period described in paragraph (2)
which occurs before January 1, 1996, shall be deter-
mined—
‘‘(A) by using an interest rate of 6 percent,
and
‘‘(B) without compounding until January
1, 1996.’’.
(b) ABUSIVE TRANSACTIONS.—Section 643(a) is
amended by inserting after paragraph (6) the following
new paragraph:
‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary
shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this part,
including regulations to prevent avoidance of such
purposes.’’.
(c) TREATMENT OF LOANS FROM TRUSTS.—
(1) IN
GENERAL.—Section 643 (relating to
definitions applicable to subparts A, B, C, and D)
is amended by adding at the end the following new
subsection:
‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes
of subparts B, C, and D—
‘‘(1) GENERAL RULE.—Except as provided in
regulations, if a foreign trust makes a loan of cash
or marketable securities directly or indirectly to—
‘‘(A) any grantor or beneficiary of such
trust who is a United States person, or
‘‘(B) any United States person not de-
scribed in subparagraph (A) who is related to
such grantor or beneficiary,
the amount of such loan shall be treated as a dis-
tribution by such trust to such grantor or bene-
ficiary (as the case may be).
‘‘(2) DEFINITIONS AND SPECIAL RULES.—For
purposes of this subsection—
‘‘(A) CASH.—The term ‘cash’ includes for-
eign currencies and cash equivalents.
‘‘(B) RELATED PERSON.—
‘‘(i) IN GENERAL.—A person is relat-
ed to another person if the relationship be-
tween such persons would result in a dis-
allowance of losses under section 267 or
707(b). In applying section 267 for pur-
poses of the preceding sentence, section
267(c)(4) shall be applied as if the family
of an individual includes the spouses of the
members of the family.
‘‘(ii) ALLOCATION.—If any person de-
scribed in paragraph (1)(B) is related to
more than one person, the grantor or bene-
ficiary to whom the treatment under this
subsection
applies
shall
be
determined
under regulations prescribed by the Sec-
retary.
‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The
term ‘United States person’ does not include
any entity exempt from tax under this chapter.
‘‘(D) TRUST
NOT
TREATED
AS
SIMPLE
TRUST.—Any trust which is treated under this
subsection as making a distribution shall be
treated as not described in section 651.
‘‘(3) SUBSEQUENT TRANSACTIONS REGARDING
LOAN PRINCIPAL.—If any loan is taken into account
under paragraph (1), any subsequent transaction be-
tween the trust and the original borrower regarding
the principal of the loan (by way of complete or par-
tial repayment, satisfaction, cancellation, discharge,
or otherwise) shall be disregarded for purposes of
this title.’’.
(2) TECHNICAL AMENDMENT.—Paragraph (8)
of
section
7872(f)
is
amended
by
inserting
‘‘,
643(i),’’ before ‘‘or 1274’’ each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST CHARGE.—The amendment made
by subsection (a) shall apply to distributions after
the date of the enactment of this Act.
(2) ABUSIVE TRANSACTIONS.—The amendment
made by subsection (b) shall take effect on the date
of the enactment of this Act.
(3) LOANS
FROM
TRUSTS.—The amendment
made by subsection (c) shall apply to loans of cash
or marketable securities after September 19, 1995.
SEC. 416. RESIDENCE OF ESTATES AND TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN GENERAL.—Paragraph (30) of section
7701(a) is amended by striking subparagraph (D)
and by inserting after subparagraph (C) the follow-
ing:
‘‘(D) any estate or trust if—
‘‘(i) a court within the United States
is able to exercise primary supervision over
the administration of the estate or trust,
and
‘‘(ii) in the case of a trust, one or
more United States fiduciaries have the
authority to control all substantial deci-
sions of the trust.’’.
(2)
CONFORMING
AMENDMENT.—Paragraph
(31) of section 7701(a) is amended to read as fol-
lows:
‘‘(31) FOREIGN ESTATE OR TRUST.—The term
‘foreign estate’ or ‘foreign trust’ means any estate or
trust other than an estate or trust described in sec-
tion 7701(a)(30)(D).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply—
(A) to taxable years beginning after De-
cember 31, 1996, or
(B) at the election of the trustee of a
trust, to taxable years ending after the date of
the enactment of this Act.
Such an election, once made, shall be irrevocable.
(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN
TRUSTS.—
(1) IN
GENERAL.—Section 1491 (relating to
imposition of tax on transfers to avoid income tax)
is amended by adding at the end the following new
flush sentence:
‘‘If a trust which is not a foreign trust becomes a foreign
trust, such trust shall be treated for purposes of this sec-
tion as having transferred, immediately before becoming
a foreign trust, all of its assets to a foreign trust.’’.
(2) PENALTY.—Section 1494 is amended by
adding at the end the following new subsection:
‘‘(c) PENALTY.—In the case of any failure to file a
return required by the Secretary with respect to any trans-
fer described in section 1491 with respect to a trust, the
person required to file such return shall be liable for the
penalties provided in section 6677 in the same manner as
if such failure were a failure to file a return under section
6048(a).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on the date of the
enactment of this Act.
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Adoption Promotion and
Stability Act of 1996’’.
SEC. 2. TABLE OF CONTENTS.
The table of contents of this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I—CREDIT FOR ADOPTION EXPENSES
Sec. 101. Credit for adoption expenses.
TITLE II—INTERETHNIC ADOPTION
Sec. 201. Removal of barriers to interethnic adoption.
TITLE III—CHILD CUSTODY PROCEEDINGS AFFECTED BY THE
INDIAN CHILD WELFARE ACT OF 1978
Sec. 301. Inapplicability of the Indian Child Welfare Act of 1978 to child custody
proceedings involving a child whose parents do not maintain af-
filiation with their Indian tribe.
Sec. 302. Membership and child custody proceedings.
Sec. 303. Effective date.
TITLE IV—REVENUE OFFSETS
Sec. 400. Amendment of 1986 Code.
Subtitle A—Exclusion for Energy Conservation Subsidies Limited to Subsidies
With Respect to Dwelling Units
Sec. 401. Exclusion for energy conservation subsidies limited to subsidies with re-
spect to dwelling units.
Subtitle B—Foreign Trust Tax Compliance
Sec. 411. Improved information reporting on foreign trusts.
Sec. 412. Comparable penalties for failure to file return relating to transfers to
foreign entities.
Sec. 413. Modifications of rules relating to foreign trusts having one or more
United States beneficiaries.
Sec. 414. Foreign persons not to be treated as owners under grantor trust rules.
Sec. 415. Information reporting regarding foreign gifts.
Sec. 416. Modification of rules relating to foreign trusts which are not grantor
trusts.
Sec. 417. Residence of trusts, etc.
TITLE I—CREDIT FOR ADOPTION
EXPENSES
SEC. 101. CREDIT FOR ADOPTION EXPENSES.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 of the Internal Revenue Code of 1986 (relat-
ing to nonrefundable personal credits) is amended by insert-
ing after section 22 the following new section:
‘‘SEC. 23. ADOPTION EXPENSES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year the amount
of the qualified adoption expenses paid or incurred by the
taxpayer during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) 
DOLLAR
LIMITATION.—The 
aggregate
amount of qualified adoption expenses which may be
taken into account under subsection (a) for all taxable
years with respect to the adoption of a child by the
taxpayer shall not exceed $5,000.
‘‘(2) INCOME LIMITATION.—The amount allow-
able as a credit under subsection (a) for any taxable
year shall be reduced (but not below zero) by an
amount which bears the same ratio to the amount so
allowable (determined without regard to this para-
graph but with regard to paragraph (1)) as—
‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income (determined with-
out regard to sections 911, 931, and 933) exceeds
$75,000, bears to
‘‘(B) $40,000.
‘‘(3) DENIAL OF DOUBLE BENEFIT.—
‘‘(A) IN GENERAL.—No credit shall be al-
lowed under subsection (a) for any expense for
which a deduction or credit is allowable under
any other provision of this chapter.
‘‘(B) GRANTS.—No credit shall be allowed
under subsection (a) for any expense to the ex-
tent that funds for such expense are received
under any Federal, State, or local program. The
preceding sentence shall not apply to expenses for
the adoption of a child with special needs.
‘‘(C) REIMBURSEMENT.—No credit shall be
allowed under subsection (a) for any expense to
the extent that such expense is reimbursed and
the reimbursement is excluded from gross income
under section 137.
‘‘(c) CARRYFORWARDS OF UNUSED CREDIT.—If the
credit allowable under subsection (a) for any taxable year
exceeds the limitation imposed by section 26(a) for such tax-
able year reduced by the sum of the credits allowable under
this subpart (other than this section), such excess shall be
carried to the succeeding taxable year and added to the
credit allowable under subsection (a) for such taxable year.
No credit may be carried forward under this subsection to
any taxable year following the fifth taxable year after the
taxable year in which the credit arose. For purposes of the
preceding sentence, credits shall be treated as used on a
first-in first-out basis.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
ADOPTION
EXPENSES.—The
term ‘qualified adoption expenses’ means reasonable
and necessary adoption fees, court costs, attorney fees,
and other expenses—
‘‘(A) which are directly related to, and the
principal purpose of which is for, the legal adop-
tion of an eligible child by the taxpayer, and
‘‘(B) which are not incurred in violation of
State or Federal law or in carrying out any sur-
rogate parenting arrangement.
‘‘(2) EXPENSES
FOR
ADOPTION
OF
SPOUSE’S
CHILD NOT ELIGIBLE.—The term ‘qualified adoption
expenses’ shall not include any expenses in connection
with the adoption by an individual of a child who is
the child of such individual’s spouse.
‘‘(3) ELIGIBLE CHILD.—The term ‘eligible child’
means any individual—
‘‘(A) who has not attained age 18 as of the
time of the adoption, or
‘‘(B) who is physically or mentally incapa-
ble of caring for himself.
‘‘(4) CHILD WITH SPECIAL NEEDS.—The term
‘child with special needs’ means any child if—
‘‘(A) a State has determined that the child
cannot or should not be returned to the home of
his parents, and
‘‘(B) such State has determined that there
exists with respect to the child a specific factor
or condition (such as his ethnic background, age,
or membership in a minority or sibling group,
or the presence of factors such as medical condi-
tions or physical, mental, or emotional handi-
caps) because of which it is reasonable to con-
clude that such child cannot be placed with
adoptive parents without providing adoption as-
sistance.
‘‘(e) SPECIAL RULES FOR FOREIGN ADOPTIONS.—In
the case of a foreign adoption—
‘‘(1) subsection (a) shall not apply to any quali-
fied adoption expense with respect to such adoption
unless such adoption becomes final, and
‘‘(2) any such expense which is paid or incurred
before the taxable year in which such adoption be-
comes final shall be taken into account under this sec-
tion as if such expense were paid or incurred during
such year.
‘‘(f) MARRIED COUPLES MUST FILE JOINT RE-
TURNS.—Rules similar to the rules of paragraphs (2), (3),
and (4) of section 21(e) shall apply for purposes of this sec-
tion.
‘‘(g) BASIS ADJUSTMENTS.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this subsection)
result from such expenditure shall be reduced by the amount
of the credit so allowed.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section and section 137, including regulations which treat
unmarried individuals who pay or incur qualified adoption
expenses with respect to the same child as 1 taxpayer for
purposes of applying the dollar limitation in subsection
(b)(1) of this section and in section 137(b)(1).’’.
(b) EXCLUSION OF AMOUNTS RECEIVED UNDER EM-
PLOYER’S ADOPTION ASSISTANCE PROGRAMS.—Part III of
subchapter B of chapter 1 of such Code (relating to items
specifically excluded from gross income) is amended by re-
designating section 137 as section 138 and by inserting
after section 136 the following new section:
‘‘SEC. 137. ADOPTION ASSISTANCE PROGRAMS.
‘‘(a) IN GENERAL.—Gross income of an employee does
not include amounts paid or expenses incurred by the em-
ployer for qualified adoption expenses in connection with
the adoption of a child by an employee if such amounts
are furnished pursuant to an adoption assistance program.
‘‘(b) LIMITATIONS.—
‘‘(1) 
DOLLAR
LIMITATION.—The 
aggregate
amount excludable from gross income under sub-
section (a) for all taxable years with respect to the
adoption of a child by the taxpayer shall not exceed
$5,000.
‘‘(2) INCOME LIMITATION.—The amount exclud-
able from gross income under subsection (a) for any
taxable year shall be reduced (but not below zero) by
an amount which bears the same ratio to the amount
so excludable (determined without regard to this
paragraph but with regard to paragraph (1)) as—
‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income exceeds $75,000,
bears to
‘‘(B) $40,000.
‘‘(3) DETERMINATION OF ADJUSTED GROSS IN-
COME.—For purposes of paragraph (2), adjusted gross
income shall be determined—
‘‘(A) without regard to this section and sec-
tions 911, 931, and 933, and
‘‘(B) after the application of sections 86,
135, 219, and 469.
‘‘(c) ADOPTION ASSISTANCE PROGRAM.—For purposes
of this section, an adoption assistance program is a plan
of an employer—
‘‘(1) under which the employer provides employ-
ees with adoption assistance, and
‘‘(2) which meets requirements similar to the re-
quirements of paragraphs (2), (3), and (5) of section
127(b).
An adoption reimbursement program operated under sec-
tion 1052 of title 10, United States Code (relating to armed
forces) or section 514 of title 14, United States Code (relat-
ing to members of the Coast Guard) shall be treated as an
adoption assistance program for purposes of this section.
‘‘(d) QUALIFIED ADOPTION EXPENSES.—For purposes
of this section, the term ‘qualified adoption expenses’ has
the meaning given such term by section 23(d).
‘‘(e) CERTAIN RULES TO APPLY.—Rules similar to the
rules of subsections (e) and (g) of section 23 shall apply
for purposes of this section.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2)(A) and 135(c)(4)(A) of
such Code are each amended by inserting ‘‘137,’’ be-
fore ‘‘911’’.
(2) Clause (i) of section 219(g)(3)(A) of such
Code is amended by inserting ‘‘, 137,’’ before ‘‘and
911’’.
(3) Clause (ii) of section 469(i)(3)(E) of such
Code is amended to read as follows:
‘‘(ii) the amounts excludable from gross
income under sections 135 and 137,’’.
(4) Subsection (a) of section 1016 of such Code
is amended by striking ‘‘and’’ at the end of para-
graph (24), by striking the period at the end of para-
graph (25) and inserting ‘‘, and’’, and by adding at
the end the following new paragraph:
‘‘(26) to the extent provided in sections 23(g)
and 137(e).’’
(5) The table of sections for subpart A of part IV
of subchapter A of chapter 1 of such Code is amended
by inserting after the item relating to section 22 the
following new item:
‘‘Sec. 23. Adoption expenses.’’.
(6) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 137 and inserting
the following:
‘‘Sec. 137. Adoption assistance programs.
‘‘Sec. 138. Cross reference to other Acts.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
TITLE II—INTERETHNIC
ADOPTION
SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC ADOP-
TION.
(a) STATE PLAN REQUIREMENTS.—Section 471(a) of
the Social Security Act (42 U.S.C 671(a)) is amended—
(1) by striking ‘‘and’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; and’’; and
(3) by adding at the end the following:
‘‘(18) not later than January 1, 1997, provides
that neither the State nor any other entity in the
State that receives funds from the Federal Govern-
ment and is involved in adoption or foster care place-
ments may—
‘‘(A) deny to any person the opportunity to
become an adoptive or a foster parent, on the
basis of the race, color, or national origin of the
person, or of the child, involved; or
‘‘(B) delay or deny the placement of a child
for adoption or into foster care, on the basis of
the race, color, or national origin of the adoptive
or foster parent, or the child, involved.’’.
(b) ENFORCEMENT.—Section 474 of such Act (42
U.S.C. 674) is amended by adding at the end the following:
‘‘(d)(1) If a State’s program operated under this part
is found, as a result of a review conducted under section
1123, to have violated section 471(a)(18) during a quarter
with respect to any person, then, notwithstanding sub-
section (a) of this section and any regulations promulgated
under section 1123(b)(3), the Secretary shall reduce the
amount otherwise payable to the State under this part, for
the quarter and for each subsequent quarter before the 1st
quarter for which the State program is found, as a result
of such a review, not to have violated section 471(a)(18)
with respect to any person, by—
‘‘(A) 2 percent of such otherwise payable
amount, in the case of the 1st such finding with re-
spect to the State;
‘‘(B) 5 percent of such otherwise payable
amount, in the case of the 2nd such finding with re-
spect to the State; or
‘‘(C) 10 percent of such otherwise payable
amount, in the case of the 3rd or subsequent such
finding with respect to the State.
‘‘(2) Any other entity which is in a State that receives
funds under this part and which violates section 471(a)(18)
during a quarter with respect to any person shall remit
to the Secretary all funds that were paid by the State to
the entity during the quarter from such funds.
‘‘(3)(A) Any individual who is aggrieved by a viola-
tion of section 471(a)(18) by a State or other entity may
bring an action seeking relief from the State or other entity
in any United States district court.
‘‘(B) An action under this paragraph may not be
brought more than 2 years after the date the alleged viola-
tion occurred.
‘‘(4) This subsection shall not be construed to affect
the application of the Indian Child Welfare Act of 1978.’’.
(c) CIVIL RIGHTS.—
(1) PROHIBITED CONDUCT.—A person or govern-
ment that is involved in adoption or foster care place-
ments may not—
(A) deny to any individual the opportunity
to become an adoptive or a foster parent, on the
basis of the race, color, or national origin of the
individual, or of the child, involved; or
(B) delay or deny the placement of a child
for adoption or into foster care, on the basis of
the race, color, or national origin of the adoptive
or foster parent, or the child, involved.
(2) ENFORCEMENT.—Noncompliance with para-
graph (1) is deemed a violation of title VI of the Civil
Rights Act of 1964.
(3) NO EFFECT ON THE INDIAN CHILD WELFARE
ACT OF 1978.—This subsection shall not be construed
to affect the application of the Indian Child Welfare
Act of 1978.
(d) CONFORMING REPEAL.—Section 553 of the How-
ard M. Metzenbaum Multiethnic Placement Act of 1994 (42
U.S.C. 5115a) is repealed.
TITLE III—CHILD CUSTODY PRO-
CEEDINGS AFFECTED BY THE
INDIAN CHILD WELFARE ACT
OF 1978
SEC. 301. INAPPLICABILITY OF THE INDIAN CHILD WEL-
FARE ACT OF 1978 TO CHILD CUSTODY PRO-
CEEDINGS INVOLVING A CHILD WHOSE PAR-
ENTS DO NOT MAINTAIN AFFILIATION WITH
THEIR INDIAN TRIBE.
Title I of the Indian Child Welfare Act of 1978 (25
U.S.C. 1911 et seq.) is amended by adding at the end the
following:
‘‘SEC. 114. (a) This title does not apply to any child
custody proceeding involving a child who does not reside
or is not domiciled within a reservation unless—
‘‘(1) at least one of the child’s biological parents
is of Indian descent; and
‘‘(2) at least one of the child’s biological parents
maintains significant social, cultural, or political af-
filiation with the Indian tribe of which either parent
is a member.
‘‘(b) The factual determination as to whether a biologi-
cal parent maintains significant social, cultural, or politi-
cal affiliation with the Indian tribe of which either parent
is a member shall be based on such affiliation as of the
time of the child custody proceeding.
‘‘(c) The determination that this title does not apply
pursuant to subsection (a) is final, and, thereafter, this title
shall not be the basis for determining jurisdiction over any
child custody proceeding involving the child.’’.
SEC. 302. MEMBERSHIP AND CHILD CUSTODY PROCEED-
INGS.
Title I of the Indian Child Welfare Act of 1978 (25
U.S.C. 1911 et seq.), as amended by section 301 of this title,
is further amended by adding at the end the following:
‘‘SEC. 115. (a) A person who attains the age of 18
years before becoming a member of an Indian tribe may
become a member of an Indian tribe only upon the person’s
written consent.
‘‘(b) For the purposes of any child custody proceeding
involving an Indian child, membership in an Indian tribe
shall be effective from the actual date of admission to mem-
bership in the Indian tribe and shall not be given retro-
active effect.’’.
SEC. 303. EFFECTIVE DATE.
The amendments made by this title shall take effect
on the date of the enactment of this Act and shall apply
with respect to any child custody proceeding in which a
final decree has not been entered as of such date.
TITLE IV—REVENUE OFFSETS
SEC. 400. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms of
an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.