I
106TH CONGRESS
2D SESSION
H. R. 3874
To amend the Internal Revenue Code of 1986 to provide tax relief for
small businesses, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 9, 2000
Mr. RANGEL (for himself, Mr. GEPHARDT, Mr. BONIOR, Mr. MATSUI, Mr.
COYNE, Mr. NEAL of Massachusetts, Mr. OBEY, Mr. LAFALCE, Mrs.
MINK of Hawaii, Mr. SKELTON, Mr. STENHOLM, Mr. ACKERMAN, Mr.
SPRATT, Mr. EVANS, Mr. WISE, Mr. SAWYER, Mr. SERRANO, Mr. ABER-
CROMBIE, Mr. ENGEL, Ms. DELAURO, Mr. NADLER, Mr. HINCHEY, Mr.
BROWN of Ohio, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. STUPAK,
Mr. WYNN, Mr. FORBES, Mr. KIND, Mr. STRICKLAND, Mr. MCGOVERN,
Mr. TURNER, Mr. BOSWELL, Mr. HINOJOSA, Ms. SANCHEZ, Mr.
SANDLIN, Mr. WU, Mr. HOLT, Mrs. CAPPS, Mr. MEEKS of New York,
Mr. LARSON, Ms. BERKLEY, Mrs. NAPOLITANO, Mr. PHELPS, Mr. GON-
ZALEZ, Mr. INSLEE, and Mr. UDALL of Colorado) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax relief for small businesses, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
TITLE II—AMENDMENTS OF IN-
TERNAL REVENUE CODE OF
1986
SEC. 200. SHORT TITLE.
(a) SHORT TITLE.—This title may be cited as the
‘‘Small Business Tax Relief Act of 2000’’.
(b) TABLE OF CONTENTS.—
TITLE II—AMENDMENTS OF INTERNAL REVENUE CODE OF 1986
Sec. 200. Short title.
Subtitle A—Permanent Extension of Work Opportunity Credit and Welfare-
to-Work Credit
Sec. 201. Work opportunity credit and welfare-to-work credit; repeal of age lim-
itation on eligibility of food stamp recipients.
Subtitle B—Deduction for 100 Percent of Health Insurance Costs of Self-
Employed Individuals
Sec. 211. Deduction for 100 percent of health insurance costs of self-employed
individuals.
Subtitle C—Pension Provisions
Sec. 221. Treatment of multiemployer plans under section 415.
Sec. 222. Early retirement limits for certain plans.
Sec. 223. Certain post-secondary educational benefits provided by an employer
to children of employees excludable from gross income as a
scholarship.
Subtitle D—Business Tax Relief
Sec. 231. Increase in expense treatment for small businesses.
Sec. 232. Small businesses allowed increased deduction for meal and entertain-
ment expenses.
Sec. 233. Restoration 
of 
deduction 
for 
travel 
expenses 
of 
spouse,
etc. accompanying taxpayer on business travel.
Sec. 234. Increased credit and amortization deduction for reforestation expendi-
tures.
Sec. 235. Repeal of modification of installment method.
Subtitle E—Expansion of Incentives for Public Schools
Sec. 241. Expansion of incentives for public schools.
Subtitle F—Increased Estate Tax Relief for Family-Owned Business Interests
Sec. 251. Increase in estate tax benefit for family-owned business interests.
Subtitle G—Revenue Offsets
PART I—REVISION OF TAX RULES ON EXPATRIATION
Sec. 261. Revision of tax rules on expatriation.
PART II—DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES
SUBPART A—DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES; INCREASE
IN PENALTY WITH RESPECT TO DISALLOWED NONECONOMIC TAX ATTRIBUTES
Sec. 266. Disallowance of noneconomic tax attributes.
Sec. 267. Increase in substantial underpayment penalty with respect to dis-
allowed noneconomic tax attributes.
Sec. 268. Penalty on marketed tax avoidance strategies which have no economic
substance, etc.
Sec. 269. Effective dates.
SUBPART B—LIMITATIONS ON IMPORTATION OR TRANSFER OF BUILT-IN
LOSSES
Sec. 271. Limitation on importation of built-in losses.
Sec. 272. Disallowance of partnership loss transfers.
PART III—ESTATE AND GIFT TAX OFFSETS
Sec. 276. Valuation rules for transfers involving nonbusiness assets.
Sec. 277. Correction of technical error affecting largest estates.
PART IV—OTHER OFFSETS
Sec. 281. Consistent amortization periods for intangibles.
Sec. 282. Modification of foreign tax credit carryover rules.
Sec. 283. Recognition of gain on transfers to swap funds.
Subtitle A—Permanent Extension
of Work Opportunity Credit and
Welfare-to-Work Credit
SEC. 201. WORK OPPORTUNITY CREDIT AND WELFARE-TO-
WORK CREDIT; REPEAL OF AGE LIMITATION
ON ELIGIBILITY OF FOOD STAMP RECIPI-
ENTS.
(a) PERMANENT EXTENSION.—
(1) IN GENERAL.—
(A) Section 51(c) of the Internal Revenue
Code of 1986 is amended by striking paragraph
(4).
(B) Section 51A of such Code is amended
by striking subsection (f).
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
begin work for the employer after December 31,
2001.
(b) REPEAL OF AGE LIMITATION ON ELIGIBILITY OF
FOOD STAMP RECIPIENTS.—
(1) IN GENERAL.—Subparagraph (A) of section
51(d)(8) of such Code is amended to read as follows:
‘‘(A) IN
GENERAL.—The term ‘qualified
food stamp recipient’ means any individual who
is certified by the designated local agency as
being a member of a family—
‘‘(i) receiving assistance under a food
stamp program under the Food Stamp Act
of 1977 for the 6-month period ending on
the hiring date, or
‘‘(ii) receiving such assistance for at
least 3 months of the 5-month period end-
ing on the hiring date, in the case of a
member of a family who ceases to be eligi-
ble for such assistance under section 6(o)
of the Food Stamp Act of 1977.’’
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to individuals who
begin work for the employer after the date of the en-
actment of this Act.
Subtitle B—Deduction for 100 Per-
cent of Health Insurance Costs
of Self-Employed Individuals
SEC. 211. DEDUCTION FOR 100 PERCENT OF HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
of the Internal Revenue Code of 1986 is amended to read
as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
care for the taxpayer and the taxpayer’s spouse and
dependents.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle C—Pension Provisions
SEC. 221. TREATMENT OF MULTIEMPLOYER PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—Paragraph (11) of sec-
tion 415(b) of the Internal Revenue Code of 1986 (relat-
ing to limitation for defined benefit plans) is amended to
read as follows:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL AND MULTIEMPLOYER PLANS.—In the case
of a governmental plan (as defined in section
414(d)) or a multiemployer plan (as defined in sec-
tion 414(f)), subparagraph (B) of paragraph (1)
shall not apply.’’.
(b) COMBINING AND AGGREGATION OF PLANS.—
(1) COMBINING OF PLANS.—Subsection (f) of
section 415 of such Code (relating to combining of
plans) is amended by adding at the end the fol-
lowing:
‘‘(3) 
EXCEPTION
FOR
MULTIEMPLOYER
PLANS.—Notwithstanding paragraph (1) and sub-
section (g), a multiemployer plan (as defined in sec-
tion 414(f)) shall not be combined or aggregated
with any other plan maintained by an employer for
purposes of applying the limitations established in
this section, except that such plan shall be combined
or aggregated with another plan which is not such
a multiemployer plan solely for purposes of deter-
mining whether such other plan meets the require-
ments of subsection (b)(1)(A).’’.
(2) CONFORMING AMENDMENT FOR AGGREGA-
TION OF PLANS.—Subsection (g) of section 415 of
such Code (relating to aggregation of plans) is
amended by striking ‘‘The Secretary’’ and inserting
‘‘Except as provided in subsection (f)(3), the Sec-
retary’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1999.
SEC. 222. EARLY RETIREMENT LIMITS FOR CERTAIN
PLANS.
(a) IN GENERAL.—Subparagraph (F) of section
415(b)(2) of the Internal Revenue Code of 1986 is amend-
ed to read as follows:
‘‘(F) MULTIEMPLOYER PLANS AND PLANS
MAINTAINED BY GOVERNMENTS AND TAX EX-
EMPT ORGANIZATIONS.—In the case of a gov-
ernmental plan (within the meaning of section
414(d)), a plan maintained by an organization
(other than a governmental unit) exempt from
tax under this subtitle, a multiemployer plan
(as defined in section 414(f)), or a qualified
merchant marine plan—
‘‘(i) 
subparagraph 
(C) 
shall 
be
applied—
‘‘(I) by substituting ‘age 62’ for
‘social security retirement age’ each
place it appears, and
‘‘(II) as if the last sentence
thereof read as follows: ‘The reduction
under this subparagraph shall not re-
duce the limitation of paragraph
(1)(A) below (i) 80 percent of such
limitation as in effect for the year, or
(ii) if the benefit begins before age 55,
the equivalent of such 80 percent
amount for age 55.’, and
‘‘(ii) subparagraph (D) shall be ap-
plied by substituting ‘age 65’ for ‘social se-
curity retirement age’ each place it ap-
pears.
For purposes of this subparagraph, the term
‘qualified merchant marine plan’ means a plan
in existence on January 1, 1986, the partici-
pants in which are merchant marine officers
holding licenses issued by the Secretary of
Transportation under title 46, United States
Code.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 1999.
SEC. 223. CERTAIN POST-SECONDARY EDUCATIONAL BENE-
FITS PROVIDED BY AN EMPLOYER TO CHIL-
DREN OF EMPLOYEES EXCLUDABLE FROM
GROSS INCOME AS A SCHOLARSHIP.
(a) IN GENERAL.—Section 117 of the Internal Rev-
enue Code of 1986 (relating to qualified scholarships) is
amended by adding at the end the following:
‘‘(e) EMPLOYER-PROVIDED POST-SECONDARY EDU-
CATIONAL BENEFITS PROVIDED TO CHILDREN OF EM-
PLOYEES.—
‘‘(1) IN
GENERAL.—In determining whether
any amount is a qualified scholarship for purposes
of subsection (a), the fact that such amount is pro-
vided in connection with an employment relationship
shall be disregarded if—
‘‘(A) such amount is provided by the em-
ployer to a child (as defined in section
151(c)(3)) of an employee or former employee
of such employer,
‘‘(B) such amount is provided pursuant to
a plan which meets the nondiscrimination re-
quirements of subsection (d)(3), and
‘‘(C) amounts provided under such plan
are in addition to any other compensation pay-
able to employees and such plan does not pro-
vide employees with a choice between such
amounts and any other benefit.
For purposes of subparagraph (C), the business
practices of the employer (as well as such plan) shall
be taken into account.
‘‘(2) DOLLAR LIMITATIONS.—
‘‘(A) PER CHILD.—The amount excluded
from the gross income of the employee by rea-
son of paragraph (1) for a taxable year with re-
spect to amounts provided to each child of such
employee shall not exceed $2,000.
‘‘(B) AGGREGATE LIMIT.—The amount ex-
cluded from the gross income of the employee
by reason of paragraph (1) for a taxable year
(after the application of subparagraph (A))
shall not exceed the excess of the dollar amount
contained in section 127(a)(2) over the amount
excluded from the employee’s gross income
under section 127 for such year.
‘‘(3) PRINCIPAL
SHAREHOLDERS
AND
OWN-
ERS.—Paragraph (1) shall not apply to any amount
provided to any child of any individual if such indi-
vidual (or such individual’s spouse) owns (on any
day of the year) more than 5 percent of the stock
or of the capital or profits interest in the employer.
‘‘(4) SPECIAL RULES OF APPLICATION.—In the
case of an amount which is treated as a qualified
scholarship by reason of this subsection—
‘‘(A) subsection (a) shall be applied with-
out regard to the requirement that the recipient
be a candidate for a degree, and
‘‘(B) subsection (b)(2)(A) shall be applied
by substituting ‘section 529(e)(5)’ for ‘section
170(b)(1)(A)(ii)’.
‘‘(5) CERTAIN OTHER RULES TO APPLY.—Rules
similar to the rules of paragraphs (4), (5), and (7)
of section 127(c) shall apply for purposes of this
subsection.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle D—Business Tax Relief
SEC. 231. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) IN GENERAL.—Paragraph (1) of section 179(b)
of the Internal Revenue Code of 1986 (relating to dollar
limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $30,000.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 232. SMALL BUSINESSES ALLOWED INCREASED DE-
DUCTION FOR MEAL AND ENTERTAINMENT
EXPENSES.
(a) IN GENERAL.—Subsection (n) of section 274 (re-
lating to only 50 percent of meal and entertainment ex-
penses allowed as deduction) is amended by adding at the
end the following new paragraph:
‘‘(4) SPECIAL RULE FOR SMALL BUSINESSES.—
‘‘(A) IN
GENERAL.—In the case of any
taxpayer which is a small business, paragraph
(1) shall be applied by substituting for ‘50
percent’—
‘‘(i) ‘55 percent’ in the case of taxable
years beginning in 2001 and 2002, and
‘‘(ii) ‘60 percent’ in the case of tax-
able years beginning in 2003, 2004, 2005,
and 2006, and
‘‘(iii) ‘65 percent’ in the case of tax-
able years beginning after 2006.
‘‘(B) SMALL BUSINESS.—For purposes of
this paragraph, the term ‘small business’
means, with respect to expenses paid or in-
curred during any taxable year—
‘‘(i) any C corporation which meets
the requirements of section 55(e)(1) for
such year, and
‘‘(ii) any S corporation, partnership,
or sole proprietorship which would meet
such requirements if it were a C corpora-
tion.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2000.
SEC. 233. RESTORATION OF DEDUCTION FOR TRAVEL EX-
PENSES OF SPOUSE, ETC. ACCOMPANYING
TAXPAYER ON BUSINESS TRAVEL.
(a) IN GENERAL.—Subsection (m) of section 274 of
the Internal Revenue Code of 1986 (relating to additional
limitations on travel expenses) is amended by striking
paragraph (3).
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 234. INCREASED CREDIT AND AMORTIZATION DEDUC-
TION FOR REFORESTATION EXPENDITURES.
(a) INCREASE IN CREDIT.—Paragraph (1) of section
48(b) of the Internal Revenue Code of 1986 (relating to
reforestation credit) is amended by striking ‘‘10 percent’’
and inserting ‘‘20 percent’’.
(b) REDUCTION IN AMORTIZATION PERIOD.—Sub-
section (a) of section 194 of such Code (relating to amorti-
zation of reforestation expenditures) is amended—
(1) by striking ‘‘84 months’’ and inserting ‘‘36
months’’, and
(2) by striking ‘‘84-month period’’ and insert-
ing ‘‘36-month period’’.
(c) INCREASE IN MAXIMUM AMOUNT WHICH MAY BE
AMORTIZED.—Paragraph (1) of section 194(b) of such
Code is amended by striking ‘‘$10,000 ($5,000’’ and in-
serting ‘‘$20,000 ($10,000’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 235. REPEAL OF MODIFICATION OF INSTALLMENT
METHOD.
(a) IN GENERAL.—Subsection (a) of section 536 of
the Ticket to Work and Work Incentives Improvement Act
of 1999 (relating to modification of installment method
and repeal of installment method for accrual method tax-
payers) is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enact-
ment of such Act.
(b) APPLICABILITY.—The Internal Revenue Code of
1986 shall be applied and administered as if that sub-
section (and the amendments made by that subsection)
had not been enacted.
Subtitle E—Expansion of
Incentives for Public Schools
SEC. 
241. 
EXPANSION 
OF 
INCENTIVES 
FOR 
PUBLIC
SCHOOLS.
(a) IN GENERAL.—Chapter 1 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new subchapter:
‘‘Subchapter X—Public School Modernization
Provisions
‘‘Part I. Credit to holders of qualified public school modernization
bonds.
‘‘Part II. Qualified school construction bonds.
‘‘Part III. Incentives for education zones.
‘‘PART I—CREDIT TO HOLDERS OF QUALIFIED
PUBLIC SCHOOL MODERNIZATION BONDS
‘‘Sec. 1400F. Credit to holders of qualified public school mod-
ernization bonds.
‘‘SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED PUBLIC
SCHOOL MODERNIZATION BONDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax-
payer who holds a qualified public school modernization
bond on a credit allowance date of such bond which occurs
during the taxable year, there shall be allowed as a credit
against the tax imposed by this chapter for such taxable
year an amount equal to the sum of the credits determined
under subsection (b) with respect to credit allowance dates
during such year on which the taxpayer holds such bond.
‘‘(b) AMOUNT OF CREDIT.—
‘‘(1) IN GENERAL.—The amount of the credit
determined under this subsection with respect to any
credit allowance date for a qualified public school
modernization bond is 25 percent of the annual
credit determined with respect to such bond.
‘‘(2) ANNUAL CREDIT.—The annual credit de-
termined with respect to any qualified public school
modernization bond is the product of—
‘‘(A) the applicable credit rate, multiplied
by
‘‘(B) the outstanding face amount of the
bond.
‘‘(3) APPLICABLE CREDIT RATE.—For purposes
of paragraph (1), the applicable credit rate with re-
spect to an issue is the rate equal to an average
market yield (as of the day before the date of
issuance of the issue) on outstanding long-term cor-
porate debt obligations (determined under regula-
tions prescribed by the Secretary).
‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined
under this subsection with respect to such credit al-
lowance date shall be a ratable portion of the credit
otherwise determined based on the portion of the 3-
month period during which the bond is outstanding.
A similar rule shall apply when the bond is re-
deemed.
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) for any taxable year shall not exceed
the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under part IV of subchapter A (other than sub-
part C thereof, relating to refundable credits).
‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the
limitation imposed by paragraph (1) for such taxable
year, such excess shall be carried to the succeeding
taxable year and added to the credit allowable under
subsection (a) for such taxable year.
‘‘(d) QUALIFIED PUBLIC SCHOOL MODERNIZATION
BOND; CREDIT ALLOWANCE DATE.—For purposes of this
section—
‘‘(1) QUALIFIED PUBLIC SCHOOL MODERNIZA-
TION BOND.—The term ‘qualified public school mod-
ernization bond’ means—
‘‘(A) a qualified zone academy bond, and
‘‘(B) a qualified school construction bond.
‘‘(2) CREDIT
ALLOWANCE
DATE.—The term
‘credit allowance date’ means—
‘‘(A) March 15,
‘‘(B) June 15,
‘‘(C) September 15, and
‘‘(D) December 15.
Such term includes the last day on which the bond
is outstanding.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
subchapter—
‘‘(1) LOCAL EDUCATIONAL AGENCY.—The term
‘local educational agency’ has the meaning given to
such term by section 14101 of the Elementary and
Secondary Education Act of 1965. Such term in-
cludes the local educational agency that serves the
District of Columbia but does not include any other
State agency.
‘‘(2) BOND.—The term ‘bond’ includes any ob-
ligation.
‘‘(3) STATE.—The term ‘State’ includes the
District of Columbia and any possession of the
United States.
‘‘(4) PUBLIC
SCHOOL
FACILITY.—The term
‘public school facility’ shall not include—
‘‘(A) any stadium or other facility pri-
marily used for athletic contests or exhibitions
or other events for which admission is charged
to the general public, or
‘‘(B) any facility which is not owned by a
State or local government or any agency or in-
strumentality of a State or local government.
‘‘(f) CREDIT INCLUDED IN GROSS INCOME.—Gross
income includes the amount of the credit allowed to the
taxpayer under this section (determined without regard to
subsection (c)) and the amount so included shall be treat-
ed as interest income.
‘‘(g) BONDS HELD
BY REGULATED INVESTMENT
COMPANIES.—If any qualified public school modernization
bond is held by a regulated investment company, the credit
determined under subsection (a) shall be allowed to share-
holders of such company under procedures prescribed by
the Secretary.
‘‘(h) CREDITS MAY BE STRIPPED.—Under regula-
tions prescribed by the Secretary—
‘‘(1) IN GENERAL.—There may be a separation
(including at issuance) of the ownership of a quali-
fied public school modernization bond and the enti-
tlement to the credit under this section with respect
to such bond. In case of any such separation, the
credit under this section shall be allowed to the per-
son who on the credit allowance date holds the in-
strument evidencing the entitlement to the credit
and not to the holder of the bond.
‘‘(2) CERTAIN RULES TO APPLY.—In the case
of a separation described in paragraph (1), the rules
of section 1286 shall apply to the qualified public
school modernization bond as if it were a stripped
bond and to the credit under this section as if it
were a stripped coupon.
‘‘(i) TREATMENT FOR ESTIMATED TAX PURPOSES.—
Solely for purposes of sections 6654 and 6655, the credit
allowed by this section to a taxpayer by reason of holding
a qualified public school modernization bond on a credit
allowance date shall be treated as if it were a payment
of estimated tax made by the taxpayer on such date.
‘‘(j) CREDIT MAY BE TRANSFERRED.—Nothing in
any law or rule of law shall be construed to limit the trans-
ferability of the credit allowed by this section through sale
and repurchase agreements.
‘‘(k) REPORTING.—Issuers of qualified public school
modernization bonds shall submit reports similar to the
reports required under section 149(e).
‘‘(l) PENALTY ON CONTRACTORS FAILING TO PAY
PREVAILING WAGE.—
‘‘(1) IN GENERAL.—If any contractor on any
project funded by any qualified public school mod-
ernization bond has failed, during any portion of
such contractor’s taxable year, to pay prevailing
wages that would be required under section 439 of
the General Education Provisions Act if such fund-
ing were an applicable program under such section,
the tax imposed by chapter 1 on such contractor for
such taxable year shall be increased by 200 percent
of the amount involved in such failure.
‘‘(2) AMOUNT
INVOLVED.—For purposes of
paragraph (1), the amount involved with respect to
any failure is the excess of the amount of wages
such contractor would be so required to pay under
such section over the amount of wages paid.
‘‘(3) ABATEMENT
OF
TAX
IF
FAILURE
COR-
RECTED.—If a failure to pay prevailing wages is cor-
rected within a reasonable period, then any tax im-
posed by paragraph (1) with respect to such failure
(including interest, additions to the tax, and addi-
tional amounts) shall not be assessed, and if as-
sessed the assessment shall be abated, and if col-
lected shall be credited or refunded as an overpay-
ment.
‘‘(4) NO CREDITS AGAINST TAX.—The tax im-
posed by paragraph (1) shall not be treated as a tax
imposed 
by 
this 
chapter 
for 
purposes 
of
determining—
‘‘(A) the amount of any credit allowable
under this chapter, or
‘‘(B) the amount of the minimum tax im-
posed by section 55.
‘‘(m) TERMINATION.—This section shall not apply to
any bond issued after December 31, 2004.
‘‘PART II—QUALIFIED SCHOOL CONSTRUCTION
BONDS
‘‘Sec. 1400G. Qualified school construction bonds.
‘‘SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.
‘‘(a) QUALIFIED SCHOOL CONSTRUCTION BOND.—
For purposes of this subchapter, the term ‘qualified school
construction bond’ means any bond issued as part of an
issue if—
‘‘(1) 95 percent or more of the proceeds of such
issue are to be used for the construction, rehabilita-
tion, or repair of a public school facility or for the
acquisition of land on which such a facility is to be
constructed with part of the proceeds of such issue,
‘‘(2) the bond is issued by a State or local gov-
ernment within the jurisdiction of which such school
is located,
‘‘(3) the issuer designates such bond for pur-
poses of this section, and
‘‘(4) the term of each bond which is part of
such issue does not exceed 15 years.
‘‘(b) LIMITATION
ON AMOUNT
OF BONDS DES-
IGNATED.—The maximum aggregate face amount of
bonds issued during any calendar year which may be des-
ignated under subsection (a) by any issuer shall not exceed
the sum of—
‘‘(1) the limitation amount allocated under sub-
section (d) for such calendar year to such issuer,
and
‘‘(2) if such issuer is a large local educational
agency (as defined in subsection (e)(4)) or is issuing
on behalf of such an agency, the limitation amount
allocated under subsection (e) for such calendar year
to such agency.
‘‘(c) NATIONAL LIMITATION ON AMOUNT OF BONDS
DESIGNATED.—There is a national qualified school con-
struction bond limitation for each calendar year. Such lim-
itation is—
‘‘(1) $11,000,000,000 for 2001,
‘‘(2) except as provided in subsection (f), zero
after 2001.
‘‘(d) HALF
OF LIMITATION ALLOCATED AMONG
STATES.—
‘‘(1) IN GENERAL.—One-half of the limitation
applicable under subsection (c) for any calendar year
shall be allocated among the States under paragraph
(2) by the Secretary. The limitation amount allo-
cated to a State under the preceding sentence shall
be allocated by the State to issuers within such
State and such allocations may be made only if there
is an approved State application.
‘‘(2) ALLOCATION FORMULA.—The amount to
be allocated under paragraph (1) for any calendar
year shall be allocated among the States in propor-
tion to the respective amounts each such State re-
ceived for Basic Grants under subpart 2 of part A
of title I of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 6331 et seq.) for the
most recent fiscal year ending before such calendar
year. For purposes of the preceding sentence, Basic
Grants attributable to large local educational agen-
cies (as defined in subsection (e)) shall be dis-
regarded.
‘‘(3) MINIMUM ALLOCATIONS TO STATES.—
‘‘(A) IN
GENERAL.—The Secretary shall
adjust the allocations under this subsection for
any calendar year for each State to the extent
necessary to ensure that the sum of—
‘‘(i) the amount allocated to such
State under this subsection for such year,
and
‘‘(ii) the aggregate amounts allocated
under subsection (e) to large local edu-
cational agencies in such State for such
year,
is not less than an amount equal to such
State’s minimum percentage of the amount to
be allocated under paragraph (1) for the cal-
endar year.
‘‘(B) MINIMUM
PERCENTAGE.—A State’s
minimum percentage for any calendar year is
the minimum percentage described in section
1124(d) of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 6334(d)) for
such State for the most recent fiscal year end-
ing before such calendar year.
‘‘(4) 
ALLOCATIONS
TO
CERTAIN
POSSES-
SIONS.—The amount to be allocated under para-
graph (1) to any possession of the United States
other than Puerto Rico shall be the amount which
would have been allocated if all allocations under
paragraph (1) were made on the basis of respective
populations of individuals below the poverty line (as
defined by the Office of Management and Budget).
In making other allocations, the amount to be allo-
cated under paragraph (1) shall be reduced by the
aggregate amount allocated under this paragraph to
possessions of the United States.
‘‘(5) ALLOCATIONS FOR INDIAN SCHOOLS.—In
addition to the amounts otherwise allocated under
this subsection, $200,000,000 for calendar year
2001 shall be allocated by the Secretary of the Inte-
rior for purposes of the construction, rehabilitation,
and repair of schools funded by the Bureau of In-
dian Affairs. In the case of amounts allocated under
the preceding sentence, Indian tribal governments
(as defined in section 7871) shall be treated as
qualified issuers for purposes of this subchapter.
‘‘(6) APPROVED
STATE
APPLICATION.—For
purposes of paragraph (1), the term ‘approved State
application’ means an application which is approved
by the Secretary of Education and which includes—
‘‘(A) the results of a recent publicly-avail-
able survey (undertaken by the State with the
involvement of local education officials, mem-
bers of the public, and experts in school con-
struction and management) of such State’s
needs for public school facilities, including de-
scriptions of—
‘‘(i) health and safety problems at
such facilities,
‘‘(ii) the capacity of public schools in
the State to house projected enrollments,
and
‘‘(iii) the extent to which the public
schools in the State offer the physical in-
frastructure needed to provide a high-qual-
ity education to all students, and
‘‘(B) a description of how the State will al-
locate to local educational agencies, or other-
wise use, its allocation under this subsection to
address the needs identified under subpara-
graph (A), including a description of how it
will—
‘‘(i) give highest priority to localities
with the greatest needs, as demonstrated
by inadequate school facilities coupled with
a low level of resources to meet those
needs,
‘‘(ii) use its allocation under this sub-
section to assist localities that lack the fis-
cal capacity to issue bonds on their own,
and
‘‘(iii) ensure that its allocation under
this subsection is used only to supplement,
and not supplant, the amount of school
construction, rehabilitation, and repair in
the State that would have occurred in the
absence of such allocation.
Any allocation under paragraph (1) by a State shall
be binding if such State reasonably determined that
the allocation was in accordance with the plan ap-
proved under this paragraph.
‘‘(e) HALF
OF LIMITATION ALLOCATED AMONG
LARGEST SCHOOL DISTRICTS.—
‘‘(1) IN GENERAL.—One-half of the limitation
applicable under subsection (c) for any calendar year
shall be allocated under paragraph (2) by the Sec-
retary among local educational agencies which are
large local educational agencies for such year. No
qualified school construction bond may be issued by
reason of an allocation to a large local educational
agency under the preceding sentence unless such
agency has an approved local application.
‘‘(2) ALLOCATION FORMULA.—The amount to
be allocated under paragraph (1) for any calendar
year shall be allocated among large local educational
agencies in proportion to the respective amounts
each such agency received for Basic Grants under
subpart 2 of part A of title I of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 6331
et seq.) for the most recent fiscal year ending before
such calendar year.
‘‘(3) ALLOCATION OF UNUSED LIMITATION TO
STATE.—The amount allocated under this subsection
to a large local educational agency for any calendar
year may be reallocated by such agency to the State
in which such agency is located for such calendar
year. Any amount reallocated to a State under the
preceding sentence may be allocated as provided in
subsection (d)(1).
‘‘(4) LARGE LOCAL EDUCATIONAL AGENCY.—
For purposes of this section, the term ‘large local
educational agency’ means, with respect to a cal-
endar year, any local educational agency if such
agency is—
‘‘(A) among the 100 local educational
agencies with the largest numbers of children
aged 5 through 17 from families living below
the poverty level, as determined by the Sec-
retary using the most recent data available
from the Department of Commerce that are
satisfactory to the Secretary, or
‘‘(B) 1 of not more than 25 local edu-
cational agencies (other than those described in
subparagraph (A)) that the Secretary of Edu-
cation determines (based on the most recent
data available satisfactory to the Secretary) are
in particular need of assistance, based on a low
level of resources for school construction, a high
level of enrollment growth, or such other factors
as the Secretary deems appropriate.
‘‘(5) APPROVED
LOCAL
APPLICATION.—For
purposes of paragraph (1), the term ‘approved local
application’ means an application which is approved
by the Secretary of Education and which includes—
‘‘(A) the results of a recent publicly-avail-
able survey (undertaken by the local educational
agency or the State with the involvement of
school officials, members of the public, and ex-
perts in school construction and management)
of such agency’s needs for public school facili-
ties, including descriptions of—
‘‘(i) the overall condition of the local
educational agency’s school facilities, in-
cluding health and safety problems,
‘‘(ii) the capacity of the agency’s
schools to house projected enrollments, and
‘‘(iii) the extent to which the agency’s
schools offer the physical infrastructure
needed to provide a high-quality education
to all students,
‘‘(B) a description of how the local edu-
cational agency will use its allocation under this
subsection to address the needs identified under
subparagraph (A), and
‘‘(C) a description of how the local edu-
cational agency will ensure that its allocation
under this subsection is used only to supple-
ment, and not supplant, the amount of school
construction, rehabilitation, or repair in the lo-
cality that would have occurred in the absence
of such allocation.
A rule similar to the rule of the last sentence of sub-
section (d)(6) shall apply for purposes of this para-
graph.
‘‘(f) CARRYOVER OF UNUSED LIMITATION.—If for
any calendar year—
‘‘(1) the amount allocated under subsection (d)
to any State, exceeds
‘‘(2) the amount of bonds issued during such
year which are designated under subsection (a) pur-
suant to such allocation,
the limitation amount under such subsection for such
State for the following calendar year shall be increased
by the amount of such excess. A similar rule shall apply
to the amounts allocated under subsection (d)(5) or (e).
‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—
‘‘(1) IN GENERAL.—A bond shall not be treated
as failing to meet the requirement of subsection
(a)(1) solely by reason of the fact that the proceeds
of the issue of which such bond is a part are in-
vested for a temporary period (but not more than 36
months) until such proceeds are needed for the pur-
pose for which such issue was issued.
‘‘(2) BINDING COMMITMENT REQUIREMENT.—
Paragraph (1) shall apply to an issue only if, as of
the date of issuance, there is a reasonable expecta-
tion that—
‘‘(A) at least 10 percent of the proceeds of
the issue will be spent within the 6-month pe-
riod beginning on such date for the purpose for
which such issue was issued, and
‘‘(B) the remaining proceeds of the issue
will be spent with due diligence for such pur-
pose.
‘‘(3) EARNINGS ON PROCEEDS.—Any earnings
on proceeds during the temporary period shall be
treated as proceeds of the issue for purposes of ap-
plying subsection (a)(1) and paragraph (1) of this
subsection.
‘‘PART III—INCENTIVES FOR EDUCATION ZONES
‘‘Sec. 1400H. Qualified zone academy bonds.
‘‘SEC. 1400H. QUALIFIED ZONE ACADEMY BONDS.
‘‘(a) QUALIFIED ZONE ACADEMY BOND.—For pur-
poses of this subchapter—
‘‘(1) IN GENERAL.—The term ‘qualified zone
academy bond’ means any bond issued as part of an
issue if—
‘‘(A) 95 percent or more of the proceeds of
such issue are to be used for a qualified pur-
pose with respect to a qualified zone academy
established by a local educational agency,
‘‘(B) the bond is issued by a State or local
government within the jurisdiction of which
such academy is located,
‘‘(C) the issuer—
‘‘(i) designates such bond for purposes
of this section,
‘‘(ii) certifies that it has written as-
surances that the private business con-
tribution requirement of paragraph (2) will
be met with respect to such academy, and
‘‘(iii) certifies that it has the written
approval of the local educational agency
for such bond issuance, and
‘‘(D) the term of each bond which is part
of such issue does not exceed 15 years.
Rules similar to the rules of section 1400G(g) shall
apply for purposes of paragraph (1).
‘‘(2) PRIVATE
BUSINESS
CONTRIBUTION
RE-
QUIREMENT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the private business contribution re-
quirement of this paragraph is met with respect
to any issue if the local educational agency that
established the qualified zone academy has writ-
ten commitments from private entities to make
qualified contributions having a present value
(as of the date of issuance of the issue) of not
less than 10 percent of the proceeds of the
issue.
‘‘(B) QUALIFIED
CONTRIBUTIONS.—For
purposes of subparagraph (A), the term ‘quali-
fied contribution’ means any contribution (of a
type and quality acceptable to the local edu-
cational agency) of—
‘‘(i) equipment for use in the qualified
zone academy (including state-of-the-art
technology and vocational equipment),
‘‘(ii) technical assistance in developing
curriculum or in training teachers in order
to promote appropriate market driven tech-
nology in the classroom,
‘‘(iii) services of employees as volun-
teer mentors,
‘‘(iv) internships, field trips, or other
educational opportunities outside the acad-
emy for students, or
‘‘(v) any other property or service
specified by the local educational agency.
‘‘(3) QUALIFIED
ZONE
ACADEMY.—The term
‘qualified zone academy’ means any public school (or
academic program within a public school) which is
established by and operated under the supervision of
a local educational agency to provide education or
training below the postsecondary level if—
‘‘(A) such public school or program (as the
case may be) is designed in cooperation with
business to enhance the academic curriculum,
increase graduation and employment rates, and
better prepare students for the rigors of college
and the increasingly complex workforce,
‘‘(B) students in such public school or pro-
gram (as the case may be) will be subject to the
same academic standards and assessments as
other students educated by the local educational
agency,
‘‘(C) the comprehensive education plan of
such public school or program is approved by
the local educational agency, and
‘‘(D)(i) such public school is located in an
empowerment zone or enterprise community
(including any such zone or community des-
ignated after the date of the enactment of this
section), or
‘‘(ii) there is a reasonable expectation (as
of the date of issuance of the bonds) that at
least 35 percent of the students attending such
school or participating in such program (as the
case may be) will be eligible for free or reduced-
cost lunches under the school lunch program es-
tablished under the National School Lunch Act.
‘‘(4) QUALIFIED PURPOSE.—The term ‘quali-
fied purpose’ means, with respect to any qualified
zone academy—
‘‘(A) constructing, rehabilitating, or repair-
ing the public school facility in which the acad-
emy is established,
‘‘(B) acquiring the land on which such fa-
cility is to be constructed with part of the pro-
ceeds of such issue,
‘‘(C) providing equipment for use at such
academy,
‘‘(D) developing course materials for edu-
cation to be provided at such academy, and
‘‘(E) training teachers and other school
personnel in such academy.
‘‘(b) LIMITATIONS
ON AMOUNT
OF BONDS DES-
IGNATED.—
‘‘(1) IN GENERAL.—There is a national zone
academy bond limitation for each calendar year.
Such limitation is—
‘‘(A) $400,000,000 for 1998,
‘‘(B) $400,000,000 for 1999,
‘‘(C) $400,000,000 for 2000,
‘‘(D) $1,400,000,000 for 2001,
‘‘(E) except as provided in paragraph (3),
zero after 2001.
‘‘(2) ALLOCATION OF LIMITATION.—
‘‘(A) ALLOCATION AMONG STATES.—
‘‘(i) 1998, 1999, and 2000 LIMITA-
TIONS.—The national zone academy bond
limitations for calendar years 1998, 1999,
and 2000 shall be allocated by the Sec-
retary among the States on the basis of
their respective populations of individuals
below the poverty line (as defined by the
Office of Management and Budget).
‘‘(ii) LIMITATION
AFTER
2000.—The
national zone academy bond limitation for
any calendar year after 2000 shall be allo-
cated by the Secretary among the States in
the 
manner 
prescribed 
by 
section
1400G(d); except that in making the allo-
cation under this clause, the Secretary
shall take into account—
‘‘(I) Basic Grants attributable to
large local educational agencies (as
defined in section 1400G(e)).
‘‘(II) the national zone academy
bond limitation.
‘‘(B) 
ALLOCATION
TO
LOCAL
EDU-
CATIONAL
AGENCIES.—The limitation amount
allocated to a State under subparagraph (A)
shall be allocated by the State education agency
to qualified zone academies within such State.
‘‘(C) DESIGNATION SUBJECT TO LIMITA-
TION AMOUNT.—The maximum aggregate face
amount of bonds issued during any calendar
year which may be designated under subsection
(a) with respect to any qualified zone academy
shall not exceed the limitation amount allocated
to such academy under subparagraph (B) for
such calendar year.
‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If
for any calendar year—
‘‘(A) the limitation amount under this sub-
section for any State, exceeds
‘‘(B) the amount of bonds issued during
such year which are designated under sub-
section (a) (or the corresponding provisions of
prior law) with respect to qualified zone acad-
emies within such State,
the limitation amount under this subsection for such
State for the following calendar year shall be in-
creased by the amount of such excess.’’.
(b) REPORTING.—Subsection (d) of section 6049 of
such Code (relating to returns regarding payments of in-
terest) is amended by adding at the end the following new
paragraph:
‘‘(8) REPORTING
OF
CREDIT
ON
QUALIFIED
PUBLIC SCHOOL MODERNIZATION BONDS.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the term ‘interest’ includes amounts
includible in gross income under section
1400F(f) and such amounts shall be treated as
paid on the credit allowance date (as defined in
section 1400F(d)(2)).
‘‘(B) 
REPORTING
TO
CORPORATIONS,
ETC.—Except as otherwise provided in regula-
tions, in the case of any interest described in
subparagraph (A) of this paragraph, subsection
(b)(4) of this section shall be applied without
regard to subparagraphs (A), (H), (I), (J), (K),
and (L)(i).
‘‘(C) REGULATORY AUTHORITY.—The Sec-
retary may prescribe such regulations as are
necessary or appropriate to carry out the pur-
poses of this paragraph, including regulations
which require more frequent or more detailed
reporting.’’
(c) OTHER CONFORMING AMENDMENTS.—
(1) Subchapter U of chapter 1 of such Code is
amended by striking part IV, by redesignating part
V as part IV, and by redesignating section 1397F
as section 1397E.
(2) The table of subchapters for chapter 1 of
such Code is amended by adding at the end the fol-
lowing new item:
‘‘Subchapter X. Public school modernization provisions.’’
(3) The table of parts of subchapter U of chap-
ter 1 of such Code is amended by striking the last
2 items and inserting the following item:
‘‘Part IV. Regulations.’’
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to obligations issued after
December 31, 2000.
(2) REPEAL OF RESTRICTION ON ZONE ACAD-
EMY
BOND
HOLDERS.—In the case of bonds to
which section 1397E of the Internal Revenue Code
of 1986 (as in effect before the date of the enact-
ment of this Act) applies, the limitation of such sec-
tion to eligible taxpayers (as defined in subsection
(d)(6) of such section) shall not apply after the date
of the enactment of this Act.
Subtitle F—Increased Estate Tax
Relief for Family-Owned Busi-
ness Interests
SEC. 251. INCREASE IN ESTATE TAX BENEFIT FOR FAMILY-
OWNED BUSINESS INTERESTS.
(a) TRANSFER
TO CREDIT PROVISIONS.—Section
2057 of the Internal Revenue Code of 1986 (relating to
family-owned business interests) is hereby moved to part
II of subchapter A of chapter 11 of such Code, inserted
after section 2010, and redesignated as section 2010A.
(b) INCREASE IN CREDIT; SURVIVING SPOUSE AL-
LOWED UNUSED CREDIT OF DECEDENT.—Subsection (a)
of section 2010A of such Code, as redesignated by sub-
section (a) of this section, is amended to read as follows:
‘‘(a) INCREASE IN UNITED CREDIT.—For purposes
of determining the unified credit under section 2010 in
the case of an estate of a decedent to which this section
applies—
‘‘(1) IN
GENERAL.—The applicable exclusion
amount under section 2010(c) shall be increased
(but not in excess of $2,000,000) by the adjusted
value of the qualified family-owned business interests
of the decedent which are described in subsection
(b)(2) and for which no deduction is allowed under
section 2056.
‘‘(2) TREATMENT OF UNUSED LIMITATION OF
PREDECEASED
SPOUSE.—In 
the 
case 
of 
a
decedent—
‘‘(A) having no surviving spouse, but
‘‘(B) who was the surviving spouse of a
decedent—
‘‘(i) who died after December 31,
2000, and
‘‘(ii) whose estate met the require-
ments of subsection (b)(1) other than sub-
paragraph (B) thereof,
there shall be substituted for ‘$2,000,000’ in para-
graph (1) an amount equal to the excess of
$4,000,000 over the exclusion equivalent of the cred-
it allowed under section 2010 (as increased by this
section) to the estate of the decedent referred to in
subparagraph (B). For purposes of the preceding
sentence, the exclusion equivalent of the credit is the
amount on which a tentative tax under section
2001(c) equal to such credit would be imposed.’’
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by
striking the item relating to section 2057.
(2) Paragraph (10) of section 2031(c) of such
Code is amended by striking ‘‘section 2057(e)(3)’’
and inserting ‘‘section 2010A(e)(3)’’.
(3) The table of sections for part II of sub-
chapter A of chapter 11 of such Code is amended by
inserting after the item relating to section 2010 the
following new item:
‘‘Sec. 2010A. Family-owned business interests.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 2000.
Subtitle G—Revenue Offsets
PART I—REVISION OF TAX RULES ON
EXPATRIATION
SEC. 261. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 is amended by inserting after section 877 the fol-
lowing new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) GENERAL
RULES.—For purposes of this
subtitle—
‘‘(1) MARK TO MARKET.—Except as provided in
subsection (f), all property of a covered expatriate to
whom this section applies shall be treated as sold on
the day before the expatriation date for its fair mar-
ket value.
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the
case of any sale under paragraph (1)—
‘‘(A) notwithstanding any other provision
of this title, any gain arising from such sale
shall be taken into account for the taxable year
of the sale, and
‘‘(B) any loss arising from such sale shall
be taken into account for the taxable year of
the sale to the extent otherwise provided by this
title, except that section 1091 shall not apply to
any such loss.
Proper adjustment shall be made in the amount of
any gain or loss subsequently realized for gain or
loss taken into account under the preceding sen-
tence.
‘‘(3) EXCLUSION
FOR
CERTAIN
GAIN.—The
amount which would (but for this paragraph) be in-
cludible in the gross income of any individual by rea-
son of this section shall be reduced (but not below
zero) by $600,000. For purposes of this paragraph,
allocable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same man-
ner as an amount required to be includible in gross
income.
‘‘(b) ELECTION TO DEFER TAX.—
‘‘(1) IN GENERAL.—If the taxpayer elects the
application of this subsection with respect to any
property treated as sold by reason of subsection (a),
the payment of the additional tax attributable to
such property shall be postponed until the due date
of the return for the taxable year in which such
property is disposed of (or, in the case of property
disposed of in a transaction in which gain is not rec-
ognized in whole or in part, until such other date as
the Secretary may prescribe).
‘‘(2) DETERMINATION OF TAX WITH RESPECT
TO PROPERTY.—For purposes of paragraph (1), the
additional tax attributable to any property is an
amount which bears the same ratio to the additional
tax imposed by this chapter for the taxable year
solely by reason of subsection (a) as the gain taken
into account under subsection (a) with respect to
such property bears to the total gain taken into ac-
count under subsection (a) with respect to all prop-
erty to which subsection (a) applies.
‘‘(3) TERMINATION
OF
POSTPONEMENT.—No
tax may be postponed under this subsection later
than the due date for the return of tax imposed by
this chapter for the taxable year which includes the
date of death of the expatriate (or, if earlier, the
time that the security provided with respect to the
property fails to meet the requirements of paragraph
(4), unless the taxpayer corrects such failure within
the time specified by the Secretary).
‘‘(4) SECURITY.—
‘‘(A) IN GENERAL.—No election may be
made under paragraph (1) with respect to any
property unless adequate security is provided
with respect to such property.
‘‘(B) ADEQUATE SECURITY.—For purposes
of subparagraph (A), security with respect to
any property shall be treated as adequate secu-
rity if—
‘‘(i) it is a bond in an amount equal
to the deferred tax amount under para-
graph (2)(A) for the property, or
‘‘(ii) the taxpayer otherwise estab-
lishes to the satisfaction of the Secretary
that the security is adequate.
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the
taxpayer consents to the waiver of any right under
any treaty of the United States which would pre-
clude assessment or collection of any tax imposed by
reason of this section.
‘‘(6) ELECTIONS.—An election under paragraph
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may
be under paragraph (1) with respect to an interest
in a trust with respect to which gain is required to
be recognized under subsection (f)(1).
‘‘(7) INTEREST.—For purposes of section 6601,
the last date for the payment of tax shall be deter-
mined without regard to the election under this sub-
section.
‘‘(c) COVERED EXPATRIATE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘covered expa-
triate’ means an expatriate who meets the require-
ments of subparagraph (A) or (B) of section
877(a)(2).
‘‘(2) EXCEPTIONS.—An individual shall not be
treated as a covered expatriate if—
‘‘(A) the individual—
‘‘(i) became at birth a citizen of the
United States and a citizen of another
country and, as of the expatriation date,
continues to be a citizen of, and is taxed
as a resident of, such other country, and
‘‘(ii) has been a resident of the United
States 
(as 
defined 
in 
section
7701(b)(1)(A)(ii)) for not more than 8 tax-
able years during the 15-taxable year pe-
riod ending with the taxable year during
which the expatriation date occurs, or
‘‘(B)(i) the individual’s relinquishment of
United States citizenship occurs before such in-
dividual attains age 181⁄2, and
‘‘(ii) the individual has been a resident of
the United States (as so defined) for not more
than 5 taxable years before the date of relin-
quishment.
‘‘(d) SECTION NOT TO APPLY TO CERTAIN PROP-
ERTY.—This section shall not apply to the following prop-
erty:
‘‘(1) UNITED STATES REAL PROPERTY INTER-
ESTS.—Any United States real property interest (as
defined in section 897(c)(1)), other than stock of a
United States real property holding corporation
which does not, on the day before the expatriation
date, meet the requirements of section 897(c)(2).
‘‘(2) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(A) IN
GENERAL.—Any interest in a
qualified retirement plan (as defined in section
4974(c)), other than any interest attributable to
contributions which are in excess of any limita-
tion or which violate any condition for tax-fa-
vored treatment.
‘‘(B) FOREIGN PENSION PLANS.—
‘‘(i) IN GENERAL.—Under regulations
prescribed by the Secretary, interests in
foreign pension plans or similar retirement
arrangements or programs.
‘‘(ii) LIMITATION.—The value of prop-
erty which is treated as not sold by reason
of this subparagraph shall not exceed
$500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, and
‘‘(B) any long-term resident of the United
States who—
‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) commences to be treated as a
resident of a foreign country under the
provisions of a tax treaty between the
United States and the foreign country and
who does not waive the benefits of such
treaty applicable to residents of the foreign
country.
‘‘(2) EXPATRIATION
DATE.—The term ‘expa-
triation date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event de-
scribed in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT
OF
CITIZENSHIP.—A
citizen shall be treated as relinquishing his United
States citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant
to paragraph (5) of section 349(a) of the Immi-
gration 
and 
Nationality 
Act 
(8 
U.S.C.
1481(a)(5)),
‘‘(B) the date the individual furnishes to
the United States Department of State a signed
statement 
of 
voluntary 
relinquishment 
of
United States nationality confirming the per-
formance of an act of expatriation specified in
paragraph (1), (2), (3), or (4) of section 349(a)
of the Immigration and Nationality Act (8
U.S.C. 1481(a)(1)–(4)),
‘‘(C) the date the United States Depart-
ment of State issues to the individual a certifi-
cate of loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of nat-
uralization.
Subparagraph (A) or (B) shall not apply to any indi-
vidual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance
to the individual of a certificate of loss of nationality
by the United States Department of State.
‘‘(4) LONG-TERM RESIDENT.—The term ‘long-
term resident’ has the meaning given to such term
by section 877(e)(2).
‘‘(f) SPECIAL
RULES
APPLICABLE
TO
BENE-
FICIARIES’ INTERESTS IN TRUST.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust on the day
before the expatriation date—
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a
separate share in the trust, and
‘‘(C)(i) such separate share shall be treat-
ed as a separate trust consisting of the assets
allocable to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets on the day before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the in-
dividual as of such time, and
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate
trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii).
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
‘‘(A) IN GENERAL.—If the trust interest
described in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such
interest a tax in the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of
tax under subparagraph (A)(ii) shall be equal to
the lesser of—
‘‘(i) the highest rate of tax imposed by
section 1(e) for the taxable year which in-
cludes the day before the expatriation date,
multiplied by the amount of the distribu-
tion, or
‘‘(ii) the balance in the deferred tax
account immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th
day preceding the distribution.
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)—
‘‘(i) OPENING BALANCE.—The open-
ing balance in a deferred tax account with
respect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
with respect to the trust interest if such
gain had been included in gross income
under subsection (a).
‘‘(ii) INCREASE FOR INTEREST.—The
balance in the deferred tax account shall
be increased by the amount of interest de-
termined (on the balance in the account at
the time the interest accrues), for periods
after the 90th day after the expatriation
date, by using the rates and method appli-
cable under section 6621 for underpay-
ments of tax for such periods.
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced—
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any
distribution to the person holding the
trust interest, and
‘‘(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subpara-
graph (A) on distributions from the
trust with respect to nonvested inter-
ests not held by such person.
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—
For purposes of this paragraph, the allocable
expatriation gain with respect to any bene-
ficiary’s interest in a trust is the amount of
gain which would be allocable to such bene-
ficiary’s vested and nonvested interests in the
trust if the beneficiary held directly all assets
allocable to such interests.
‘‘(E) TAX DEDUCTED AND WITHHELD.—
‘‘(i) IN GENERAL.—The tax imposed
by subparagraph (A)(ii) shall be deducted
and withheld by the trustees from the dis-
tribution to which it relates.
‘‘(ii) EXCEPTION WHERE FAILURE TO
WAIVE
TREATY
RIGHTS.—If an amount
may not be deducted and withheld under
clause (i) by reason of the distributee fail-
ing to waive any treaty right with respect
to such distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expa-
triate disposes of an interest in a qualified
trust, or a covered expatriate holding an inter-
est in a qualified trust dies, then, in lieu of the
tax imposed by subparagraph (A)(ii), there is
hereby imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the day before the expatria-
tion date were the date of such cessation,
disposition, or death, whichever is applica-
ble, or
‘‘(ii) the balance in the tax deferred
account immediately before such date.
Such tax shall be imposed on the trust and
each trustee shall be personally liable for the
amount of such tax and any other beneficiary
of the trust shall be entitled to recover from the
covered expatriate or the estate the amount of
such tax imposed on the other beneficiary.
‘‘(G) DEFINITIONS AND SPECIAL RULE.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust—
‘‘(I) which is organized under,
and governed by, the laws of the
United States or a State, and
‘‘(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a do-
mestic corporation.
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
as of the day before the expatriation date,
is vested in the beneficiary.
‘‘(iii) NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
trust which is not a vested interest. Such
interest shall be determined by assuming
the maximum exercise of discretion in
favor of the beneficiary and the occurrence
of all contingencies in favor of the bene-
ficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
account, and the timing of such adjust-
ments, in order to ensure that gain is
taxed only once.
‘‘(3) DETERMINATION OF BENEFICIARIES’ IN-
TEREST IN TRUST.—
‘‘(A) 
DETERMINATIONS
UNDER
PARA-
GRAPH (1).—For purposes of paragraph (1), a
beneficiary’s interest in a trust shall be based
upon all relevant facts and circumstances, in-
cluding the terms of the trust instrument and
any letter of wishes or similar document, histor-
ical patterns of trust distributions, and the ex-
istence of and functions performed by a trust
protector or any similar advisor.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE
OWNERSHIP.—If
a beneficiary of a trust is a corporation,
partnership, trust, or estate, the share-
holders, partners, or beneficiaries shall be
deemed to be the trust beneficiaries for
purposes of this section.
‘‘(ii) TAXPAYER RETURN POSITION.—
A taxpayer shall clearly indicate on its in-
come tax return—
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a
different methodology to determine
such beneficiary’s trust interest under
this section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the
case of any covered expatriate, notwithstanding any other
provision of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate on the day
before the expatriation date, and
‘‘(2) any extension of time for payment of tax
shall cease to apply on the day before the expatria-
tion date and the unpaid portion of such tax shall
be due and payable at the time and in the manner
prescribed by the Secretary.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) TAX ON GIFTS AND BEQUESTS RECEIVED BY
UNITED STATES CITIZENS AND RESIDENTS FROM EXPA-
TRIATES.—
(1) IN GENERAL.—Subtitle B of the Internal
Revenue Code of 1986 (relating to estate and gift
taxes) is amended by inserting after chapter 13 the
following new chapter:
‘‘CHAPTER 13A—GIFTS AND BEQUESTS
FROM EXPATRIATES
‘‘Sec. 2681. Imposition of tax.
‘‘SEC. 2681. IMPOSITION OF TAX.
‘‘(a) IN GENERAL.—If, during any calendar year, any
United States citizen or resident receives any covered gift
or bequest, there is hereby imposed a tax equal to the
product of—
‘‘(1) the highest rate of tax specified in the
table contained in section 2001(c) as in effect on the
date of such receipt, and
‘‘(2) the value of such covered gift or bequest.
‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im-
posed by subsection (a) on any covered gift or bequest
shall be paid by the person receiving such gift or bequest.
‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection
(a) shall apply only to the extent that the covered gifts
and bequests received during the calendar year exceed
$10,000.
‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE
TAX.—The tax imposed by subsection (a) on any covered
gift or bequest shall be reduced by the amount of any gift
or estate tax paid to a foreign country with respect to such
covered gift or bequest.
‘‘(e) COVERED GIFT OR BEQUEST.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, the term ‘covered gift or bequest’ means—
‘‘(A) any property acquired by gift directly
or indirectly from an individual who, at the
time of such acquisition, was an expatriate, and