I
106TH CONGRESS
2D SESSION
H. R. 5542
To amend the Internal Revenue Code of 1986 to provide tax relief.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 25, 2000
Mr. ARMEY introduced the following bill; which was referred to the Committee
on Ways and Means, and in addition to the Committees on Education
and the Workforce, Banking and Financial Services, and the Budget, for
a period to be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the jurisdiction of the com-
mittee concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax relief.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Taxpayer Relief Act of 2000’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment 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 provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title; amendment of 1986 Code.
TITLE I—FSC REPEAL AND EXTRATERRITORIAL INCOME
EXCLUSION
Sec. 101. Repeal of foreign sales corporation rules.
Sec. 102. Treatment of extraterritorial income.
Sec. 103. Technical and conforming amendments.
Sec. 104. Effective date.
TITLE II—SMALL BUSINESS TAX RELIEF
Sec. 201. Extension of work opportunity tax credit.
Sec. 202. Increase in amortizable reforestation expenditures, etc.
Sec. 203. Increase in expense treatment for small businesses.
Sec. 204. Increased deduction for meal expenses.
Sec. 205. Increased deductibility of business meal expenses for individuals sub-
ject to Federal limitations on hours of service.
Sec. 206. Repeal of modification of installment method.
Sec. 207. Income averaging not to increase alternative minimum tax liability;
income averaging for fishermen.
Sec. 208. Repeal of occupational taxes relating to distilled spirits, wine, and
beer.
Sec. 209. Exclusion from gross income for certain forgiven mortgage obliga-
tions.
Sec. 210. Clarification of cash accounting rules for small business.
Sec. 211. Amendments relating to demand deposit accounts at depository insti-
tutions.
TITLE III—HEALTH INSURANCE AND LONG-TERM CARE
INSURANCE PROVISIONS
Sec. 301. Deduction for 100 percent of health insurance costs of self-employed
individuals.
Sec. 302. Deduction for health and long-term care insurance costs of individ-
uals not participating in employer-subsidized health plans.
Sec. 303. 2-year extension of availability of medical savings accounts.
Sec. 304. Additional consumer protections for long-term care insurance.
Sec. 305. Deduction for providing long-term care in the home to household
members.
TITLE IV—PENSION AND INDIVIDUAL RETIREMENT
ARRANGEMENT PROVISIONS
Sec. 400. Short title.
Subtitle A—Individual Retirement Accounts
Sec. 401. Modification of IRA contribution limits.
Sec. 402. Deemed IRAs under employer plans.
Sec. 403. Tax-free distributions from individual retirement accounts for chari-
table purposes.
Sec. 404. Modification of AGI limits for Roth IRAs.
Subtitle B—Expanding Coverage
Sec. 411. Increase in benefit and contribution limits.
Sec. 412. Plan loans for subchapter S owners, partners, and sole proprietors.
Sec. 413. Modification of top-heavy rules.
Sec. 414. Elective deferrals not taken into account for purposes of deduction
limits.
Sec. 415. Repeal of coordination requirements for deferred compensation plans
of State and local governments and tax-exempt organizations.
Sec. 416. Elimination of user fee for requests to IRS regarding pension plans.
Sec. 417. Deduction limits.
Sec. 418. Option to treat elective deferrals as after-tax Roth contributions.
Subtitle C—Enhancing Fairness for Women
Sec. 421. Catch-up contributions for individuals age 50 or over.
Sec. 422. Equitable treatment for contributions of employees to defined con-
tribution plans.
Sec. 423. Faster vesting of certain employer matching contributions.
Sec. 424. Simplify and update the minimum distribution rules.
Sec. 425. Clarification of tax treatment of division of section 457 plan benefits
upon divorce.
Sec. 426. Provisions relating to hardship distributions.
Sec. 427. Waiver of tax on nondeductible contributions for domestic or similar
workers.
Subtitle D—Increasing Portability for Participants
Sec. 431. Rollovers allowed among various types of plans.
Sec. 432. Rollovers of IRAs into workplace retirement plans.
Sec. 433. Rollovers of after-tax contributions.
Sec. 434. Hardship exception to 60-day rule.
Sec. 435. Treatment of forms of distribution.
Sec. 436. Rationalization of restrictions on distributions.
Sec. 437. Purchase of service credit in governmental defined benefit plans.
Sec. 438. Employers may disregard rollovers for purposes of cash-out amounts.
Sec. 439. Minimum distribution and inclusion requirements for section 457
plans.
Subtitle E—Strengthening Pension Security and Enforcement
Sec. 441. Repeal of 155 percent of current liability funding limit.
Sec. 442. Maximum contribution deduction rules modified and applied to all de-
fined benefit plans.
Sec. 443. Excise tax relief for sound pension funding.
Sec. 444. Excise tax on failure to provide notice by defined benefit plans sig-
nificantly reducing future benefit accruals.
Sec. 445. Treatment of multiemployer plans under section 415.
Sec. 446. Protection of investment of employee contributions to 401(k) plans.
Sec. 447. Periodic pension benefits statements.
Sec. 448. Prohibited allocations of stock in S corporation ESOP.
Subtitle F—Reducing Regulatory Burdens
Sec. 451. Modification of timing of plan valuations.
Sec. 452. ESOP dividends may be reinvested without loss of dividend deduc-
tion.
Sec. 453. Repeal of transition rule relating to certain highly compensated em-
ployees.
Sec. 454. Employees of tax-exempt entities.
Sec. 455. Clarification of treatment of employer-provided retirement advice.
Sec. 456. Reporting simplification.
Sec. 457. Improvement of employee plans compliance resolution system.
Sec. 458. Repeal of the multiple use test.
Sec. 459. Flexibility in nondiscrimination, coverage, and line of business rules.
Sec. 460. Extension to all governmental plans of moratorium on application of
certain nondiscrimination rules applicable to State and local
plans.
Sec. 461. Notice and consent period regarding distributions.
Sec. 462. Annual report dissemination.
Sec. 463. Technical corrections to SAVER Act.
Sec. 464. Study of pension coverage.
Subtitle G—Other ERISA Provisions
Sec. 471. Missing participants.
Sec. 472. Reduced PBGC premium for new plans of small employers.
Sec. 473. Reduction of additional PBGC premium for new and small plans.
Sec. 474. Authorization for PBGC to pay interest on premium overpayment re-
funds.
Sec. 475. Substantial owner benefits in terminated plans.
Sec. 476. Multiemployer plan benefits guarantee.
Sec. 477. Civil penalties for breach of fiduciary responsibility.
Sec. 478. Benefit suspension notice.
Subtitle H—Plan Amendments
Sec. 481. Provisions relating to plan amendments.
TITLE V—SCHOOL CONSTRUCTION PROVISIONS
Sec. 501. Additional increase in arbitrage rebate exception for governmental
bonds used to finance educational facilities.
Sec. 502. Modification of arbitrage rebate rules applicable to public school con-
struction bonds.
Sec. 503. Modification of special arbitrage rule for certain funds.
Sec. 504. Treatment of qualified public educational facility bonds as exempt fa-
cility bonds.
Sec. 505. Expansion of qualified zone academy bond program.
TITLE VI—COMMUNITY REVITALIZATION
Subtitle A—Tax Incentives for Renewal Communities
Sec. 601. Designation of and tax incentives for renewal communities.
Sec. 602. Work opportunity credit for hiring youth residing in renewal commu-
nities.
Subtitle B—Extension and Expansion of Empowerment Zone Incentives
Sec. 611. Authority to designate 9 additional empowerment zones.
Sec. 612. Extension of empowerment zone treatment through 2009.
Sec. 613. 20 percent employment credit for all empowerment zones
Sec. 614. Increased expensing under section 179.
Sec. 615. Higher limits on tax-exempt empowerment zone facility bonds.
Sec. 616. Nonrecognition of gain on rollover of empowerment zone investments.
Sec. 617. Increased exclusion of gain on sale of empowerment zone stock.
Subtitle C—New Markets Tax Credit
Sec. 621. New markets tax credit.
Subtitle D—Improvements in Low-Income Housing Credit
Sec. 631. Modification of State ceiling on low-income housing credit.
Sec. 632. Modification of criteria for allocating housing credits among projects.
Sec. 633. Additional responsibilities of housing credit agencies.
Sec. 634. Modifications to rules relating to basis of building which is eligible
for credit.
Sec. 635. Other modifications.
Sec. 636. Carryforward rules.
Sec. 637. Effective date.
Subtitle E—Other Community Renewal and New Markets Assistance
Sec. 641. Transfer of unoccupied and substandard HUD-held housing to local
governments and community development corporations.
Sec. 642. Transfer of HUD assets in revitalization areas.
Sec. 643. Risk-sharing demonstration.
Sec. 644. Prevention and treatment of substance abuse; services provided
through religious organizations.
Subtitle F—Other Provisions
Sec. 651. Acceleration of phase-in of increase in volume cap on private activity
bonds.
Sec. 652. Modifications to expensing of environmental remediation costs.
Sec. 653. Extension of DC homebuyer tax credit.
TITLE VII—ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL
PROVISIONS
Subtitle A—Administrative Provisions
Sec. 701. Exemption of certain reporting requirements.
Sec. 702. Extension of deadlines for IRS compliance with certain notice re-
quirements.
Sec. 703. Extension of authority for undercover operations.
Sec. 704. Confidentiality of certain documents relating to closing and similar
agreements and to agreements with foreign governments.
Sec. 705. Increase in threshold for Joint Committee reports on refunds and
credits.
Sec. 706. Treatment of missing children with respect to certain tax benefits.
Sec. 707. Amendments to statutes referencing yield on 52-week Treasury bills.
Sec. 708. Adjustments for Consumer Price Index error.
Sec. 709. Prevention of duplication of loss through assumption of liabilities giv-
ing rise to a deduction.
Subtitle B—Miscellaneous Provisions
Sec. 710. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland wa-
terway transportation which remain in general fund.
Sec. 711. Repeal of reduction of deductions for mutual life insurance compa-
nies.
Sec. 712. Repeal of policyholders surplus account provisions.
Sec. 713. Credit to holders of qualified Amtrak bonds.
Sec. 714. Farm, fishing, and ranch risk management accounts.
Sec. 715. Extension of enhanced deduction for corporate donations of computer
technology.
Sec. 716. Relief from Federal tax liability arising with respect to certain claims
against the Department of Agriculture for discrimination in
farm credit and benefit programs.
Sec. 717. Expansion of credit for adoption expenses.
Sec. 718. Study concerning United States insurance companies with certain off-
shore reinsurance affiliates.
Sec. 719. Treatment of Indian tribal governments under Federal Unemploy-
ment Tax Act.
Subtitle C—Technical Corrections
Sec. 721. Amendments related to Ticket to Work and Work Incentives Im-
provement Act of 1999.
Sec. 722. Amendments related to Tax and Trade Relief Extension Act of 1998.
Sec. 723. Amendments related to Internal Revenue Service Restructuring and
Reform Act of 1998.
Sec. 724. Amendments related to Taxpayer Relief Act of 1997.
Sec. 725. Amendments related to Balanced Budget Act of 1997.
Sec. 726. Amendments related to Small Business Job Protection Act of 1996.
Sec. 727. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 728. Other technical corrections.
Sec. 729. Clerical changes.
Subtitle D—Pay-Go Adjustments
Sec. 731. Avoidance of a Pay-Go sequestration for fiscal year 2001.
TITLE 
I—FSC 
REPEAL 
AND
EXTRATERRITORIAL INCOME
EXCLUSION
SEC. 101. REPEAL OF FOREIGN SALES CORPORATION
RULES.
Subpart C of part III of subchapter N of chapter 1
(relating to taxation of foreign sales corporations) is here-
by repealed.
SEC. 102. TREATMENT OF EXTRATERRITORIAL INCOME.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by inserting before section 115 the
following new section:
‘‘SEC. 114. EXTRATERRITORIAL INCOME.
‘‘(a) EXCLUSION.—Gross income does not include
extraterritorial income.
‘‘(b) EXCEPTION.—Subsection (a) shall not apply to
extraterritorial income which is not qualifying foreign
trade income as determined under subpart E of part III
of subchapter N.
‘‘(c) DISALLOWANCE OF DEDUCTIONS.—
‘‘(1) IN GENERAL.—Any deduction of a tax-
payer 
allocated 
under 
paragraph 
(2) 
to
extraterritorial income of the taxpayer excluded from
gross income under subsection (a) shall not be al-
lowed.
‘‘(2) ALLOCATION.—Any deduction of the tax-
payer properly apportioned and allocated to the
extraterritorial income derived by the taxpayer from
any transaction shall be allocated on a proportionate
basis between—
‘‘(A) the extraterritorial income derived
from such transaction which is excluded from
gross income under subsection (a), and
‘‘(B) the extraterritorial income derived
from such transaction which is not so excluded.
‘‘(d) DENIAL OF CREDITS FOR CERTAIN FOREIGN
TAXES.—Notwithstanding any other provision of this
chapter, no credit shall be allowed under this chapter for
any income, war profits, and excess profits taxes paid or
accrued to any foreign country or possession of the United
States with respect to extraterritorial income which is ex-
cluded from gross income under subsection (a).
‘‘(e) EXTRATERRITORIAL INCOME.—For purposes of
this section, the term ‘extraterritorial income’ means the
gross income of the taxpayer attributable to foreign trad-
ing gross receipts (as defined in section 942) of the tax-
payer.’’.
(b) QUALIFYING FOREIGN TRADE INCOME.—Part III
of subchapter N of chapter 1 is amended by inserting after
subpart D the following new subpart:
‘‘Subpart E—Qualifying Foreign Trade Income
‘‘Sec. 941. Qualifying foreign trade income.
‘‘Sec. 942. Foreign trading gross receipts.
‘‘Sec. 943. Other definitions and special rules.
‘‘SEC. 941. QUALIFYING FOREIGN TRADE INCOME.
‘‘(a) QUALIFYING FOREIGN TRADE INCOME.—For
purposes of this subpart and section 114—
‘‘(1) IN GENERAL.—The term ‘qualifying for-
eign trade income’ means, with respect to any trans-
action, the amount of gross income which, if ex-
cluded, will result in a reduction of the taxable in-
come of the taxpayer from such transaction equal to
the greatest of—
‘‘(A) 30 percent of the foreign sale and
leasing income derived by the taxpayer from
such transaction,
‘‘(B) 1.2 percent of the foreign trading
gross receipts derived by the taxpayer from the
transaction, or
‘‘(C) 15 percent of the foreign trade in-
come derived by the taxpayer from the trans-
action.
In no event shall the amount determined under sub-
paragraph (B) exceed 200 percent of the amount de-
termined under subparagraph (C).
‘‘(2) ALTERNATIVE COMPUTATION.—A taxpayer
may compute its qualifying foreign trade income
under a subparagraph of paragraph (1) other than
the subparagraph which results in the greatest
amount of such income.
‘‘(3) LIMITATION ON USE OF FOREIGN TRADING
GROSS RECEIPTS METHOD.—If any person computes
its qualifying foreign trade income from any trans-
action with respect to any property under paragraph
(1)(B), the qualifying foreign trade income of such
person (or any related person) with respect to any
other transaction involving such property shall be
zero.
‘‘(4) RULES
FOR
MARGINAL
COSTING.—The
Secretary shall prescribe regulations setting forth
rules for the allocation of expenditures in computing
foreign trade income under paragraph (1)(C) in
those cases where a taxpayer is seeking to establish
or maintain a market for qualifying foreign trade
property.
‘‘(5) PARTICIPATION IN INTERNATIONAL BOY-
COTTS, ETC.—Under regulations prescribed by the
Secretary, the qualifying foreign trade income of a
taxpayer for any taxable year shall be reduced (but
not below zero) by the sum of—
‘‘(A) an amount equal to such income mul-
tiplied by the international boycott factor deter-
mined under section 999, and
‘‘(B) any illegal bribe, kickback, or other
payment (within the meaning of section 162(c))
paid by or on behalf of the taxpayer directly or
indirectly to an official, employee, or agent in
fact of a government.
‘‘(b) FOREIGN TRADE INCOME.—For purposes of
this subpart—
‘‘(1) IN GENERAL.—The term ‘foreign trade in-
come’ means the taxable income of the taxpayer at-
tributable to foreign trading gross receipts of the
taxpayer.
‘‘(2) SPECIAL
RULE
FOR
COOPERATIVES.—In
any case in which an organization to which part I
of subchapter T applies which is engaged in the
marketing of agricultural or horticultural products
sells qualifying foreign trade property, in computing
the taxable income of such cooperative, there shall
not be taken into account any deduction allowable
under subsection (b) or (c) of section 1382 (relating
to patronage dividends, per-unit retain allocations,
and nonpatronage distributions).
‘‘(c) FOREIGN SALE AND LEASING INCOME.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘foreign sale and
leasing income’ means, with respect to any
transaction—
‘‘(A) foreign trade income properly allo-
cable to activities which—
‘‘(i) 
are 
described 
in 
paragraph
(2)(A)(i) or (3) of section 942(b), and
‘‘(ii) are performed by the taxpayer
(or any person acting under a contract
with such taxpayer) outside the United
States, or
‘‘(B) foreign trade income derived by the
taxpayer in connection with the lease or rental
of qualifying foreign trade property for use by
the lessee outside the United States.
‘‘(2) SPECIAL
RULES
FOR
LEASED
PROP-
ERTY.—
‘‘(A) SALES INCOME.—The term ‘foreign
sale and leasing income’ includes any foreign
trade income derived by the taxpayer from the
sale of property described in paragraph (1)(B).
‘‘(B) LIMITATION IN CERTAIN CASES.—Ex-
cept as provided in regulations, in the case of
property which—
‘‘(i) was manufactured, produced,
grown, or extracted by the taxpayer, or
‘‘(ii) was acquired by the taxpayer
from a related person for a price which
was not determined in accordance with the
rules of section 482,
the amount of foreign trade income which may
be treated as foreign sale and leasing income
under paragraph (1)(B) or subparagraph (A) of
this paragraph with respect to any transaction
involving such property shall not exceed the
amount which would have been determined if
the taxpayer had acquired such property for the
price determined in accordance with the rules of
section 482.
‘‘(3) SPECIAL RULES.—
‘‘(A) EXCLUDED PROPERTY.—Foreign sale
and leasing income shall not include any income
properly allocable to excluded property de-
scribed 
in 
subparagraph 
(B) 
of 
section
943(a)(3) (relating to intangibles).
‘‘(B) ONLY
DIRECT
EXPENSES
TAKEN
INTO
ACCOUNT.—For purposes of this sub-
section, any expense other than a directly allo-
cable expense shall not be taken into account in
computing foreign trade income.
‘‘SEC. 942. FOREIGN TRADING GROSS RECEIPTS.
‘‘(a) FOREIGN TRADING GROSS RECEIPTS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, for purposes of this subpart,
the term ‘foreign trading gross receipts’ means the
gross receipts of the taxpayer which are—
‘‘(A) from the sale, exchange, or other dis-
position of qualifying foreign trade property,
‘‘(B) from the lease or rental of qualifying
foreign trade property for use by the lessee out-
side the United States,
‘‘(C) for services which are related and
subsidiary to—
‘‘(i) any sale, exchange, or other dis-
position of qualifying foreign trade prop-
erty by such taxpayer, or
‘‘(ii) any lease or rental of qualifying
foreign trade property described in sub-
paragraph (B) by such taxpayer,
‘‘(D) for engineering or architectural serv-
ices for construction projects located (or pro-
posed for location) outside the United States, or
‘‘(E) for the performance of managerial
services for a person other than a related per-
son in furtherance of the production of foreign
trading gross receipts described in subpara-
graph (A), (B), or (C).
Subparagraph (E) shall not apply to a taxpayer for
any taxable year unless at least 50 percent of its for-
eign trading gross receipts (determined without re-
gard to this sentence) for such taxable year is de-
rived from activities described in subparagraph (A),
(B), or (C).
‘‘(2) CERTAIN RECEIPTS EXCLUDED ON BASIS
OF
USE; SUBSIDIZED
RECEIPTS
EXCLUDED.—The
term ‘foreign trading gross receipts’ shall not in-
clude receipts of a taxpayer from a transaction if—
‘‘(A) the qualifying foreign trade property
or services—
‘‘(i) are for ultimate use in the United
States, or
‘‘(ii) are for use by the United States
or any instrumentality thereof and such
use of qualifying foreign trade property or
services is required by law or regulation, or
‘‘(B) such transaction is accomplished by a
subsidy granted by the government (or any in-
strumentality thereof) of the country or posses-
sion in which the property is manufactured,
produced, grown, or extracted.
‘‘(3) ELECTION
TO
EXCLUDE
CERTAIN
RE-
CEIPTS.—The term ‘foreign trading gross receipts’
shall not include gross receipts of a taxpayer from
a transaction if the taxpayer elects not to have such
receipts taken into account for purposes of this sub-
part.
‘‘(b) FOREIGN
ECONOMIC
PROCESS
REQUIRE-
MENTS.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (c), a taxpayer shall be treated as having for-
eign trading gross receipts from any transaction only
if economic processes with respect to such trans-
action take place outside the United States as re-
quired by paragraph (2).
‘‘(2) REQUIREMENT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to the
gross receipts of a taxpayer derived from any
transaction if—
‘‘(i) such taxpayer (or any person act-
ing under a contract with such taxpayer)
has participated outside the United States
in the solicitation (other than advertising),
the negotiation, or the making of the con-
tract relating to such transaction, and
‘‘(ii) the foreign direct costs incurred
by the taxpayer attributable to the trans-
action equal or exceed 50 percent of the
total direct costs attributable to the trans-
action.
‘‘(B) ALTERNATIVE 85-PERCENT TEST.—A
taxpayer shall be treated as satisfying the re-
quirements of subparagraph (A)(ii) with respect
to any transaction if, with respect to each of at
least 2 subparagraphs of paragraph (3), the
foreign direct costs incurred by such taxpayer
attributable to activities described in such sub-
paragraph equal or exceed 85 percent of the
total direct costs attributable to activities de-
scribed in such subparagraph.
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) TOTAL DIRECT COSTS.—The term
‘total direct costs’ means, with respect to
any transaction, the total direct costs in-
curred by the taxpayer attributable to ac-
tivities described in paragraph (3) per-
formed at any location by the taxpayer or
any person acting under a contract with
such taxpayer.
‘‘(ii) FOREIGN
DIRECT
COSTS.—The
term ‘foreign direct costs’ means, with re-
spect to any transaction, the portion of the
total direct costs which are attributable to
activities performed outside the United
States.
‘‘(3) ACTIVITIES
RELATING
TO
QUALIFYING
FOREIGN
TRADE
PROPERTY.—The activities de-
scribed in this paragraph are any of the following
with respect to qualifying foreign trade property—
‘‘(A) advertising and sales promotion,
‘‘(B) the processing of customer orders
and the arranging for delivery,
‘‘(C) transportation outside the United
States in connection with delivery to the cus-
tomer,
‘‘(D) the determination and transmittal of
a final invoice or statement of account or the
receipt of payment, and
‘‘(E) the assumption of credit risk.
‘‘(4) ECONOMIC
PROCESSES
PERFORMED
BY
RELATED PERSONS.—A taxpayer shall be treated as
meeting the requirements of this subsection with re-
spect to any sales transaction involving any property
if any related person has met such requirements in
such transaction or any other sales transaction in-
volving such property.
‘‘(c) EXCEPTION FROM FOREIGN ECONOMIC PROC-
ESS REQUIREMENT.—
‘‘(1) IN GENERAL.—The requirements of sub-
section (b) shall be treated as met for any taxable
year if the foreign trading gross receipts of the tax-
payer for such year do not exceed $5,000,000.
‘‘(2) RECEIPTS OF RELATED PERSONS AGGRE-
GATED.—All related persons shall be treated as one
person for purposes of paragraph (1), and the limi-
tation under paragraph (1) shall be allocated among
such persons in a manner provided in regulations
prescribed by the Secretary.
‘‘(3) SPECIAL
RULE
FOR
PASS-THRU
ENTI-
TIES.—In the case of a partnership, S corporation,
or other pass-thru entity, the limitation under para-
graph (1) shall apply with respect to the partner-
ship, S corporation, or entity and with respect to
each partner, shareholder, or other owner.
‘‘SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.
‘‘(a) QUALIFYING FOREIGN TRADE PROPERTY.—For
purposes of this subpart—
‘‘(1) IN GENERAL.—The term ‘qualifying for-
eign trade property’ means property—
‘‘(A) manufactured, produced, grown, or
extracted within or outside the United States,
‘‘(B) held primarily for sale, lease, or rent-
al, in the ordinary course of trade or business
for direct use, consumption, or disposition out-
side the United States, and
‘‘(C) not more than 50 percent of the fair
market value of which is attributable to—
‘‘(i) articles manufactured, produced,
grown, or extracted outside the United
States, and
‘‘(ii) direct costs for labor (determined
under the principles of section 263A) per-
formed outside the United States.
For purposes of subparagraph (C), the fair market
value of any article imported into the United States
shall be its appraised value, as determined by the
Secretary under section 402 of the Tariff Act of
1930 (19 U.S.C. 1401a) in connection with its im-
portation, and the direct costs for labor under clause
(ii) do not include costs that would be treated under
the principles of section 263A as direct labor costs
attributable to articles described in clause (i).
‘‘(2) U.S. TAXATION TO ENSURE CONSISTENT
TREATMENT.—Property which (without regard to
this paragraph) is qualifying foreign trade property
and which is manufactured, produced, grown, or ex-
tracted outside the United States shall be treated as
qualifying foreign trade property only if it is manu-
factured, produced, grown, or extracted by—
‘‘(A) a domestic corporation,
‘‘(B) an individual who is a citizen or resi-
dent of the United States,
‘‘(C) a foreign corporation with respect to
which an election under subsection (e) (relating
to foreign corporations electing to be subject to
United States taxation) is in effect, or
‘‘(D) a partnership or other pass-thru enti-
ty all of the partners or owners of which are de-
scribed in subparagraph (A), (B), or (C).
Except as otherwise provided by the Secretary,
tiered partnerships or pass-thru entities shall be
treated as described in subparagraph (D) if each of
the partnerships or entities is directly or indirectly
wholly owned by persons described in subparagraph
(A), (B), or (C).
‘‘(3) EXCLUDED PROPERTY.—The term ‘quali-
fying foreign trade property’ shall not include—
‘‘(A) property leased or rented by the tax-
payer for use by any related person,
‘‘(B) patents, inventions, models, designs,
formulas, or processes whether or not patented,
copyrights (other than films, tapes, records, or
similar reproductions, and other than computer
software (whether or not patented), for com-
mercial or home use), goodwill, trademarks,
trade brands, franchises, or other like property,
‘‘(C) oil or gas (or any primary product
thereof),
‘‘(D) products the transfer of which is pro-
hibited or curtailed to effectuate the policy set
forth in paragraph (2)(C) of section 3 of Public
Law 96–72, or
‘‘(E) any unprocessed timber which is a
softwood.
For purposes of subparagraph (E), the term ‘un-
processed timber’ means any log, cant, or similar
form of timber.
‘‘(4) PROPERTY
IN
SHORT
SUPPLY.—If the
President determines that the supply of any prop-
erty described in paragraph (1) is insufficient to
meet the requirements of the domestic economy, the
President may by Executive order designate the
property as in short supply. Any property so des-
ignated shall not be treated as qualifying foreign
trade property during the period beginning with the
date specified in the Executive order and ending
with the date specified in an Executive order setting
forth the President’s determination that the prop-
erty is no longer in short supply.
‘‘(b) OTHER DEFINITIONS AND RULES.—For pur-
poses of this subpart—
‘‘(1) TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘transaction’
means—
‘‘(i) any sale, exchange, or other dis-
position,
‘‘(ii) any lease or rental, and
‘‘(iii) any furnishing of services.
‘‘(B) GROUPING
OF
TRANSACTIONS.—To
the extent provided in regulations, any provision
of this subpart which, but for this subpara-
graph, would be applied on a transaction-by-
transaction basis may be applied by the tax-
payer on the basis of groups of transactions
based on product lines or recognized industry or
trade usage. Such regulations may permit dif-
ferent groupings for different purposes.
‘‘(2) UNITED
STATES
DEFINED.—The term
‘United States’ includes the Commonwealth of Puer-
to Rico. The preceding sentence shall not apply for
purposes of determining whether a corporation is a
domestic corporation.
‘‘(3) RELATED PERSON.—A person shall be re-
lated to another person if such persons are treated
as a single employer under subsection (a) or (b) of
section 52 or subsection (m) or (o) of section 414,
except that determinations under subsections (a)
and (b) of section 52 shall be made without regard
to section 1563(b).
‘‘(4) GROSS
AND
TAXABLE
INCOME.—Section
114 shall not be taken into account in determining
the amount of gross income or foreign trade income
from any transaction.
‘‘(c) SOURCE RULE.—Under regulations, in the case
of qualifying foreign trade property manufactured, pro-
duced, grown, or extracted within the United States, the
amount of income of a taxpayer from any sales transaction
with respect to such property which is treated as from
sources without the United States shall not exceed—
‘‘(1) in the case of a taxpayer computing its
qualifying foreign trade income under section
941(a)(1)(B), the amount of the taxpayer’s foreign
trade income which would (but for this subsection)
be treated as from sources without the United
States if the foreign trade income were reduced by
an amount equal to 4 percent of the foreign trading
gross receipts with respect to the transaction, and
‘‘(2) in the case of a taxpayer computing its
qualifying foreign trade income under section
941(a)(1)(C), 50 percent of the amount of the tax-
payer’s foreign trade income which would (but for
this subsection) be treated as from sources without
the United States.
‘‘(d) TREATMENT OF WITHHOLDING TAXES.—
‘‘(1) IN
GENERAL.—For purposes of section
114(d), any withholding tax shall not be treated as
paid or accrued with respect to extraterritorial in-
come which is excluded from gross income under
section 114(a). For purposes of this paragraph, the
term ‘withholding tax’ means any tax which is im-
posed on a basis other than residence and for which
credit is allowable under section 901 or 903.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply to any taxpayer with respect to extraterritorial
income from any transaction if the taxpayer com-
putes its qualifying foreign trade income with re-
spect to the transaction under section 941(a)(1)(A).
‘‘(e) ELECTION TO BE TREATED AS DOMESTIC COR-
PORATION.—
‘‘(1) IN GENERAL.—An applicable foreign cor-
poration may elect to be treated as a domestic cor-
poration for all purposes of this title if such corpora-
tion waives all benefits to such corporation granted
by the United States under any treaty. No election
under section 1362(a) may be made with respect to
such corporation.
‘‘(2) APPLICABLE
FOREIGN
CORPORATION.—
For purposes of paragraph (1), the term ‘applicable
foreign corporation’ means any foreign corporation
if—
‘‘(A) such corporation manufactures, pro-
duces, grows, or extracts property in the ordi-
nary course of such corporation’s trade or busi-
ness, or
‘‘(B) substantially all of the gross receipts
of such corporation are foreign trading gross
receipts.
‘‘(3) PERIOD OF ELECTION.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, an election under
paragraph (1) shall apply to the taxable year
for which made and all subsequent taxable
years unless revoked by the taxpayer. Any rev-
ocation of such election shall apply to taxable
years beginning after such revocation.
‘‘(B) TERMINATION.—If a corporation
which made an election under paragraph (1) for
any taxable year fails to meet the requirements
of subparagraph (A) or (B) of paragraph (2)
for any subsequent taxable year, such election
shall not apply to any taxable year beginning
after such subsequent taxable year.
‘‘(C) EFFECT OF REVOCATION OR TERMI-
NATION.—If a corporation which made an elec-
tion under paragraph (1) revokes such election
or such election is terminated under subpara-
graph (B), such corporation (and any successor
corporation) may not make such election for
any of the 5 taxable years beginning with the
first taxable year for which such election is not
in effect as a result of such revocation or termi-
nation.
‘‘(4) SPECIAL RULES.—
‘‘(A) 
REQUIREMENTS.—This 
subsection
shall not apply to an applicable foreign corpora-
tion if such corporation fails to meet the re-
quirements (if any) which the Secretary may
prescribe to ensure that the taxes imposed by
this chapter on such corporation are paid.
‘‘(B) EFFECT OF ELECTION, REVOCATION,
AND TERMINATION.—
‘‘(i) ELECTION.—For purposes of sec-
tion 367, a foreign corporation making an
election under this subsection shall be
treated as transferring (as of the first day
of the first taxable year to which the elec-
tion applies) all of its assets to a domestic
corporation in connection with an exchange
to which section 354 applies.
‘‘(ii) 
REVOCATION
AND
TERMI-
NATION.—For purposes of section 367,
if—
‘‘(I) an election is made by a cor-
poration under paragraph (1) for any
taxable year, and
‘‘(II) such election ceases to
apply for any subsequent taxable year,
such corporation shall be treated as a domestic
corporation transferring (as of the 1st day of
the first such subsequent taxable year to which
such election ceases to apply) all of its property
to a foreign corporation in connection with an
exchange to which section 354 applies.
‘‘(C) ELIGIBILITY
FOR
ELECTION.—The
Secretary may by regulation designate one or
more classes of corporations which may not
make the election under this subsection.
‘‘(f) RULES RELATING TO ALLOCATIONS OF QUALI-
FYING FOREIGN TRADE INCOME FROM SHARED PART-
NERSHIPS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a partnership maintains a separate
account for transactions (to which this subpart
applies) with each partner,
‘‘(B) distributions to each partner with re-
spect to such transactions are based on the
amounts in the separate account maintained
with respect to such partner, and
‘‘(C) such partnership meets such other re-
quirements as the Secretary may by regulations
prescribe,
then such partnership shall allocate to each partner
items of income, gain, loss, and deduction (including
qualifying foreign trade income) from any trans-
action to which this subpart applies on the basis of
such separate account.
‘‘(2) SPECIAL
RULES.—For purposes of this
subpart, in the case of a partnership to which para-
graph (1) applies—
‘‘(A) any partner’s interest in the partner-
ship shall not be taken into account in deter-
mining whether such partner is a related person
with respect to any other partner, and
‘‘(B) the election under section 942(a)(3)
shall be made separately by each partner with
respect to any transaction for which the part-
nership maintains separate accounts for each
partner.
‘‘(g) EXCLUSION FOR PATRONS OF AGRICULTURAL
AND HORTICULTURAL COOPERATIVES.—Any amount de-
scribed in paragraph (1) or (3) of section 1385(a)—
‘‘(1) which is received by a person from an or-
ganization to which part I of subchapter T applies
which is engaged in the marketing of agricultural or
horticultural products, and
‘‘(2) which is allocable to qualifying foreign
trade income and designated as such by the organi-
zation in a written notice mailed to its patrons dur-
ing the payment period described in section 1382(d),
shall be treated as qualifying foreign trade income of such
person for purposes of section 114. The taxable income
of the organization shall not be reduced under section
1382 by reason of any amount to which the preceding sen-
tence applies.
‘‘(h) SPECIAL RULE FOR DISCS.—Section 114 shall
not apply to any taxpayer for any taxable year if, at any
time during the taxable year, the taxpayer is a member
of any controlled group of corporations (as defined in sec-
tion 927(d)(4), as in effect before the date of the enact-
ment of this subsection) of which a DISC is a member.’’
SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.
(1) 
The 
second 
sentence 
of 
section
56(g)(4)(B)(i) is amended by inserting before the
period ‘‘or under section 114’’.
(2) Section 275(a) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (4)(A), by striking the period at the end
of paragraph (4)(B) and inserting ‘‘, or’’, and
by adding at the end of paragraph (4) the fol-
lowing new subparagraph:
‘‘(C) such taxes are paid or accrued with
respect to qualifying foreign trade income (as
defined in section 941).’’; and
(B) by adding at the end the following the
following new sentence: ‘‘A rule similar to the
rule of section 943(d) shall apply for purposes
of paragraph (4)(C).’’.
(3) Paragraph (3) of section 864(e) is
amended—
(A) by striking ‘‘For purposes of’’ and in-
serting:
‘‘(A) IN GENERAL.—For purposes of’’; and
(B) by adding at the end the following new
subparagraph:
‘‘(B) 
ASSETS
PRODUCING
EXEMPT
EXTRATERRITORIAL INCOME.—For purposes of
allocating and apportioning any interest ex-
pense, there shall not be taken into account any
qualifying foreign trade property (as defined in
section 943(a)) which is held by the taxpayer
for lease or rental in the ordinary course of
trade or business for use by the lessee outside
the United States (as defined in section
943(b)(2)).’’.
(4) Section 903 is amended by striking
‘‘164(a)’’ and inserting ‘‘114, 164(a),’’.
(5) Section 999(c)(1) is amended by inserting
‘‘941(a)(5),’’ after ‘‘908(a),’’.
(6) The table of sections for part III of sub-
chapter B of chapter 1 is amended by inserting be-
fore the item relating to section 115 the following
new item:
‘‘Sec. 114. Extraterritorial income.’’.
(7) The table of subparts for part III of sub-
chapter N of chapter 1 is amended by striking the
item relating to subpart E and inserting the fol-
lowing new item:
‘‘Subpart E. Qualifying foreign trade income.’’.
(8) The table of subparts for part III of sub-
chapter N of chapter 1 is amended by striking the
item relating to subpart C.
SEC. 104. EFFECTIVE DATE.
(a) IN GENERAL.—The amendments made by this
title shall apply to transactions after September 30, 2000.
(b) NO NEW FSCS; TERMINATION
OF INACTIVE
FSCS.—
(1) NO NEW FSCS.—No corporation may elect
after September 30, 2000, to be a FSC (as defined
in section 922 of the Internal Revenue Code of
1986, as in effect before the amendments made by
this Act).
(2) TERMINATION
OF
INACTIVE
FSCS.—If a
FSC has no foreign trade income (as defined in sec-
tion 923(b) of such Code, as so in effect) for any pe-
riod of 5 consecutive taxable years beginning after
December 31, 2001, such FSC shall cease to be
treated as a FSC for purposes of such Code for any
taxable year beginning after such period.
(c) TRANSITION PERIOD FOR EXISTING FOREIGN
SALES CORPORATIONS.—
(1) IN GENERAL.—In the case of a FSC (as so
defined) in existence on September 30, 2000, and at
all times thereafter, the amendments made by this
Act shall not apply to any transaction in the ordi-
nary course of trade or business involving a FSC
which occurs—
(A) before January 1, 2002; or
(B) after December 31, 2001, pursuant to
a binding contract—
(i) which is between the FSC (or any
related person) and any person which is
not a related person; and
(ii) which is in effect on September
30, 2000, and at all times thereafter.
For purposes of this paragraph, a binding contract
shall include a purchase option, renewal option, or
replacement option which is included in such con-
tract and which is enforceable against the seller or
lessor.
(2) ELECTION TO HAVE AMENDMENTS APPLY
EARLIER.—A taxpayer may elect to have the amend-
ments made by this Act apply to any transaction by
a FSC or any related person to which such amend-
ments would apply but for the application of para-
graph (1). Such election shall be effective for the
taxable year for which made and all subsequent tax-
able years, and, once made, may be revoked only
with the consent of the Secretary of the Treasury.
(3) EXCEPTION FOR OLD EARNINGS AND PROF-
ITS OF CERTAIN CORPORATIONS.—
(A) IN GENERAL.—In the case of a foreign
corporation to which this paragraph applies—
(i) earnings and profits of such cor-
poration accumulated in taxable years end-
ing before October 1, 2000, shall not be in-
cluded in the gross income of the persons
holding stock in such corporation by rea-
son of section 943(e)(4)(B)(i), and
(ii) rules similar to the rules of
clauses (ii), (iii), and (iv) of section
953(d)(4)(B) shall apply with respect to
such earnings and profits.
The preceding sentence shall not apply to earn-
ings and profits acquired in a transaction after
September 30, 2000, to which section 381 ap-
plies unless the distributor or transferor cor-
poration was immediately before the transaction
a foreign corporation to which this paragraph
applies.
(B) EXISTING FSCS.—This paragraph shall
apply to any controlled foreign corporation (as
defined in section 957) if—
(i) such corporation is a FSC (as so
defined) in existence on September 30,
2000,
(ii) such corporation is eligible to
make the election under section 943(e) by
reason of being described in paragraph
(2)(B) of such section, and
(iii) such corporation makes such elec-
tion not later than for its first taxable year
beginning after December 31, 2001.
(C) OTHER
CORPORATIONS.—This para-
graph shall apply to any controlled foreign cor-
poration (as defined in section 957), and such
corporation shall (notwithstanding any provi-
sion of section 943(e)) be treated as an applica-
ble foreign corporation for purposes of section
943(e), if—
(i) such corporation is in existence on
September 30, 2000,
(ii) as of such date, such corporation
is wholly owned (directly or indirectly) by
a domestic corporation (determined with-
out regard to any election under section
943(e)),
(iii) for each of the 3 taxable years
preceding the first taxable year to which
the election under section 943(e) by such
controlled foreign corporation applies—
(I) all of the gross income of
such corporation is subpart F income
(as defined in section 952), including
by reason of section 954(b)(3)(B),
and
(II) in the ordinary course of
such corporation’s trade or business,
such corporation regularly sold (or
paid commissions) to a FSC which on
September 30, 2000, was a related
person to such corporation,
(iv) such corporation has never made
an election under section 922(a)(2) (as in
effect before the date of the enactment of
this paragraph) to be treated as a FSC,
and
(v) such corporation makes the elec-
tion under section 943(e) not later than
for its first taxable year beginning after
December 31, 2001.
The preceding sentence shall cease to apply as
of the date that the domestic corporation re-
ferred to in clause (ii) ceases to wholly own (di-
rectly or indirectly) such controlled foreign cor-
poration.
(4) RELATED PERSON.—For purposes of this
subsection, the term ‘‘related person’’ has the mean-
ing given to such term by section 943(b)(3).
(5) SECTION REFERENCES.—Except as other-
wise expressly provided, any reference in this sub-
section to a section or other provision shall be con-
sidered to be a reference to a section or other provi-
sion of the Internal Revenue Code of 1986, as
amended by this title.
(d) SPECIAL RULES RELATING TO LEASING TRANS-
ACTIONS.—
(1) SALES INCOME.—If foreign trade income in
connection with the lease or rental of property de-
scribed in section 927(a)(1)(B) of such Code (as in
effect before the amendments made by this Act) is
treated as exempt foreign trade income for purposes
of section 921(a) of such Code (as so in effect), such
property shall be treated as property described in
section 941(c)(1)(B) of such Code (as added by this
Act) for purposes of applying section 941(c)(2) of
such Code (as so added) to any subsequent trans-
action involving such property to which the amend-
ments made by this Act apply.
(2) LIMITATION ON USE OF GROSS RECEIPTS
METHOD.—If any person computed its foreign trade
income from any transaction with respect to any
property on the basis of a transfer price determined
under the method described in section 925(a)(1) of
such Code (as in effect before the amendments made
by this Act), then the qualifying foreign trade in-
come (as defined in section 941(a) of such Code, as
in effect after such amendment) of such person (or
any related person) with respect to any other trans-
action involving such property (and to which the
amendments made by this Act apply) shall be zero.
TITLE II—SMALL BUSINESS TAX
RELIEF
SEC. 201. EXTENSION OF WORK OPPORTUNITY TAX CREDIT.
(a) IN GENERAL.—Section 51(c)(4)(B) is amended
by striking ‘‘December 31, 2001’’ and inserting ‘‘June 30,
2004’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to individuals who begin work for
the employer after December 31, 2001.
SEC. 202. INCREASE IN AMORTIZABLE REFORESTATION EX-
PENDITURES, ETC.
(a) INCREASE IN DOLLAR LIMITATION.—Paragraph
(1) of section 194(b) (relating to amortization of reforest-
ation expenditures) is amended by striking ‘‘$10,000
($5,000’’ and inserting ‘‘$25,000 ($12,500’’.
(b) TEMPORARY SUSPENSION OF INCREASED DOL-
LAR LIMITATION.—
(1) IN
GENERAL.—Subsection (b) of section
194 (relating to amortization of reforestation ex-
penditures) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(5) SUSPENSION
OF
DOLLAR
LIMITATION.—
Paragraph (1) shall not apply to taxable years be-
ginning after December 31, 2000, and before Janu-
ary 1, 2004.’’.
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 48(b) is amended by striking ‘‘section
194(b)(1)’’ and inserting ‘‘section 194(b)(1) and
without regard to section 194(b)(5)’’.
(c) CAPITAL GAIN TREATMENT UNDER SECTION
631(b) TO
APPLY
TO
OUTRIGHT
SALES
BY
LAND
OWNER.—
(1) IN GENERAL.—The first sentence of section
631(b) (relating to disposal of timber with a re-
tained economic interest) is amended by striking
‘‘retains an economic interest in such timber’’ and
inserting ‘‘either retains an economic interest in
such timber or makes an outright sale of such tim-
ber’’.
(2) CONFORMING AMENDMENT.—The third sen-
tence of section 631(b) is amended by striking ‘‘The
date of disposal’’ and inserting ‘‘In the case of dis-
posal of timber with a retained economic interest,
the date of disposal’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS
(a)
AND
(b).—The amend-
ments made by subsections (a) and (b) shall apply
to taxable years beginning after December 31, 2000.
(2) SUBSECTION (c).—The amendment made by
subsection (c) shall apply to sales after the date of
the enactment of this Act.
SEC. 203. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) IN GENERAL.—Paragraph (1) of section 179(b)
(relating to dollar limitation) is amended to read as fol-
lows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $35,000.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 204. INCREASED DEDUCTION FOR MEAL EXPENSES.
(a) IN GENERAL.—Paragraph (1) of section 274(n)
(relating to only 50 percent of meal and entertainment
expenses allowed as deduction) is amended by striking ‘‘50
percent’’ in the text and inserting ‘‘the allowable percent-
age’’.
(b) ALLOWABLE PERCENTAGE.—Subsection (n) of
section 274 is amended by redesignating paragraphs (2)
and (3) as paragraphs (3) and (4), respectively, and by
inserting after paragraph (1) the following new paragraph:
‘‘(2) ALLOWABLE PERCENTAGE.—For purposes
of paragraph (1), the allowable percentage is—
‘‘(A) in the case of amounts for items de-
scribed in paragraph (1)(B), 50 percent, and
‘‘(B) in the case of expenses for food or
beverages, 70 percent.’’.
(c) CONFORMING AMENDMENT.—The heading for
subsection (n) of section 274 is amended by striking ‘‘50
PERCENT’’ and inserting ‘‘LIMITED PERCENTAGES’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 205. INCREASED DEDUCTIBILITY OF BUSINESS MEAL
EXPENSES FOR INDIVIDUALS SUBJECT TO
FEDERAL LIMITATIONS ON HOURS OF SERV-
ICE.
(a) IN GENERAL.—Paragraph (4) of section 274(n)
(relating to limited percentages of meal and entertainment
expenses allowed as deduction), as redesignated by section
204, is amended to read as follows:
‘‘(4) SPECIAL RULE FOR INDIVIDUALS SUBJECT
TO FEDERAL HOURS OF SERVICE.—In the case of
any expenses for food or beverages consumed while
away from home (within the meaning of section
162(a)(2)) by an individual during, or incident to,
the period of duty subject to the hours of service
limitations of the Department of Transportation,
paragraph (2)(B) shall be applied by substituting
‘80 percent’ for ‘70 percent’.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 206. 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.
SEC. 207. INCOME AVERAGING NOT TO INCREASE ALTER-
NATIVE MINIMUM TAX LIABILITY; INCOME
AVERAGING FOR FISHERMEN.
(a) IN GENERAL.—Section 55(c) (defining regular
tax) is amended by redesignating paragraph (2) as para-
graph (3) and by inserting after paragraph (1) the fol-
lowing:
‘‘(2) COORDINATION WITH INCOME AVERAGING
FOR
FARMERS
AND
FISHERMEN.—Solely for pur-
poses of this section, section 1301 (relating to aver-
aging of farm and fishing income) shall not apply in
computing the regular tax.’’.
(b) ALLOWING INCOME AVERAGING
FOR FISHER-
MEN.—
(1) IN GENERAL.—Section 1301(a) is amended
by striking ‘‘farming business’’ and inserting ‘‘farm-
ing business or fishing business’’.
(2) DEFINITION OF ELECTED FARM INCOME.—
(A) IN
GENERAL.—Clause (i) of section
1301(b)(1)(A) is amended by inserting ‘‘or fish-
ing business’’ before the semicolon.
(B) CONFORMING AMENDMENT.—Subpara-
graph (B) of section 1301(b)(1) is amended by
inserting ‘‘or fishing business’’ after ‘‘farming
business’’ both places it occurs.
(3) DEFINITION OF FISHING BUSINESS.—Sec-
tion 1301(b) is amended by adding at the end the
following new paragraph:
‘‘(4) FISHING
BUSINESS.—The term ‘fishing
business’ means the conduct of commercial fishing
as defined in section 3 of the Magnuson-Stevens
Fishery Conservation and Management Act (16
U.S.C. 1802).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 208. REPEAL OF OCCUPATIONAL TAXES RELATING TO
DISTILLED SPIRITS, WINE, AND BEER.
(a) REPEAL OF OCCUPATIONAL TAXES.—
(1) IN GENERAL.—The following provisions of
part II of subchapter A of chapter 51 (relating to
occupational taxes) are hereby repealed:
(A) Subpart A (relating to proprietors of
distilled spirits plants, bonded wine cellars,
etc.).
(B) Subpart B (relating to brewer).
(C) Subpart D (relating to wholesale deal-
ers) (other than sections 5114 and 5116).
(D) Subpart E (relating to retail dealers)
(other than section 5124).
(E) Subpart G (relating to general provi-
sions) (other than sections 5142, 5143, 5145,
and 5146).
(2) NONBEVERAGE
DOMESTIC
DRAWBACK.—
Section 5131 is amended by striking ‘‘, on payment
of a special tax per annum,’’.
(3) INDUSTRIAL USE OF DISTILLED SPIRITS.—
Section 5276 is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1)(A) The heading for part II of subchapter A
of chapter 51 and the table of subparts for such
part are amended to read as follows:
‘‘PART II—MISCELLANEOUS PROVISIONS
‘‘Subpart A. Manufacturers of stills.
‘‘Subpart B. Nonbeverage domestic drawback claimants.
‘‘Subpart C. Recordkeeping by dealers.
‘‘Subpart D. Other provisions.’’.
(B) The table of parts for such subchapter A
is amended by striking the item relating to part II
and inserting the following new item:
‘‘Part II. Miscellaneous provisions.’’.
(2) Subpart C of part II of such subchapter
(relating to manufacturers of stills) is redesignated
as subpart A.
(3)(A) Subpart F of such part II (relating to
nonbeverage domestic drawback claimants), as
amended by paragraph (5), is redesignated as sub-
part B and sections 5131 through 5134 are redesig-
nated as sections 5111 through 5114, respectively.
(B) The table of sections for such subpart B,
as so redesignated, is amended—
(i) by redesignating the items relating to
sections 5131 through 5134 as relating to sec-
tions 5111 through 5114, respectively, and
(ii) by striking ‘‘and rate of tax’’ in the
item relating to section 5111, as so redesig-
nated.
(C) Section 5111, as redesignated by subpara-
graph (A), is amended—
(i) by striking ‘‘AND RATE OF TAX’’ in
the section heading,
(ii) by striking ‘‘(a) ELIGIBILITY
FOR
DRAWBACK.—’’, and
(iii) by striking subsection (b).
(4) Part II of subchapter A of chapter 51 is
amended by adding after subpart B, as redesignated
by paragraph (3), the following new subpart:
‘‘Subpart C—Recordkeeping by Dealers
‘‘Sec. 5121. Recordkeeping by wholesale dealers.
‘‘Sec. 5122. Recordkeeping by retail dealers.
‘‘Sec. 5123. Preservation and inspection of records, and entry of
premises for inspection.’’.
(5)(A) Section 5114 (relating to records) is
moved to subpart C of such part II and inserted
after the table of sections for such subpart.
(B) Section 5114 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.’’,
and
(ii) by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b)
the following new subsection:
‘‘(c) WHOLESALE DEALERS.—For purposes of this
part—
‘‘(1) WHOLESALE DEALER IN LIQUORS.—The
term ‘wholesale dealer in liquors’ means any dealer
(other than a wholesale dealer in beer) who sells, or
offers for sale, distilled spirits, wines, or beer, to an-
other dealer.
‘‘(2) WHOLESALE DEALER IN BEER.—The term
‘wholesale dealer in beer’ means any dealer who
sells, or offers for sale, beer, but not distilled spirits
or wines, to another dealer.
‘‘(3) DEALER.—The term ‘dealer’ means any
person who sells, or offers for sale, any distilled spir-
its, wines, or beer.
‘‘(4) PRESUMPTION IN CASE OF SALE OF 20
WINE GALLONS OR MORE.—The sale, or offer for
sale, of distilled spirits, wines, or beer, in quantities
of 20 wine gallons or more to the same person at
the same time, shall be presumptive evidence that
the person making such sale, or offer for sale, is en-
gaged in or carrying on the business of a wholesale
dealer in liquors or a wholesale dealer in beer, as the
case may be. Such presumption may be overcome by
evidence satisfactorily showing that such sale, or
offer for sale, was made to a person other than a
dealer.’’.
(C) Paragraph (3) of section 5121(d), as so re-
designated, is amended by striking ‘‘section 5146’’
and inserting ‘‘section 5123’’.
(6)(A) Section 5124 (relating to records) is
moved to subpart C of part II of subchapter A of
chapter 51 and inserted after section 5121.
(B) Section 5124 is amended—
(i) by striking the section heading and in-
serting the following new heading:
‘‘SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.’’,
(ii) by striking ‘‘section 5146’’ in sub-
section (c) and inserting ‘‘section 5123’’, and
(iii) by redesignating subsection (c) as sub-
section (d) and inserting after subsection (b)
the following new subsection:
‘‘(c) RETAIL
DEALERS.—For purposes of this
section—
‘‘(1) RETAIL DEALER IN LIQUORS.—The term
‘retail dealer in liquors’ means any dealer (other
than a retail dealer in beer) who sells, or offers for
sale, distilled spirits, wines, or beer, to any person
other than a dealer.
‘‘(2) RETAIL DEALER IN BEER.—The term ‘re-
tail dealer in beer’ means any dealer who sells, or of-
fers for sale, beer, but not distilled spirits or wines,
to any person other than a dealer.
‘‘(3) DEALER.—The term ‘dealer’ has the
meaning given such term by section 5121(c)(3).’’.
(7) Section 5146 is moved to subpart C of part
II of subchapter A of chapter 51, inserted after sec-
tion 5122, and redesignated as section 5123.
(8) Part II of subchapter A of chapter 51 is
amended by inserting after subpart C the following
new subpart:
‘‘Subpart D—Other Provisions
‘‘Sec. 5131. Packaging distilled spirits for industrial uses.
‘‘Sec. 5132. Prohibited purchases by dealers.’’.
(9) Section 5116 is moved to subpart D of part
II of subchapter A of chapter 51, inserted after the
table of sections, redesignated as section 5131, and
amended by inserting ‘‘(as defined in section
5121(c))’’ after ‘‘dealer’’ in subsection (a).
(10) Subpart D of part II of subchapter A of
chapter 51 is amended by adding at the end the fol-
lowing new section:
‘‘SEC. 5132. PROHIBITED PURCHASES BY DEALERS.
‘‘(a) IN GENERAL.—Except as provided in regula-
tions prescribed by the Secretary, it shall be unlawful for
a dealer to purchase distilled spirits from any person other
than a wholesale dealer in liquors who is required to keep
the records prescribed by section 5121.
‘‘(b) PENALTY AND FORFEITURE.—
‘‘For penalty and forfeiture provisions applicable
to violations of subsection (a), see sections 5687 and
7302.’’.
(11) Subsection (b) of section 5002 is
amended—
(A) by striking ‘‘section 5112(a)’’ and in-
serting ‘‘section 5121(c)(3)’’,
(B) by striking ‘‘section 5112’’ and insert-
ing ‘‘section 5121(c)’’, and
(C) by striking ‘‘section 5122’’ and insert-
ing ‘‘section 5122(c)’’.
(12) Subparagraph (A) of section 5010(c)(2) is
amended by striking ‘‘section 5134’’ and inserting
‘‘section 5114’’.
(13) Subsection (d) of section 5052 is amended
to read as follows:
‘‘(d) BREWER.—For purposes of this chapter, the
term ‘brewer’ means any person who brews beer or pro-
duces beer for sale. Such term shall not include any person
who produces only beer exempt from tax under section
5053(e).’’.
(14) The text of section 5182 is amended to
read as follows:
‘‘For 
provisions 
requiring 
recordkeeping 
by
wholesale liquor dealers, see section 5112, and by
retail liquor dealers, see section 5122.’’.
(15) Subsection (b) of section 5402 is amended
by striking ‘‘section 5092’’ and inserting ‘‘section
5052(d)’’.
(16) Section 5671 is amended by striking ‘‘or
5091’’.
(17)(A) Part V of subchapter J of chapter 51
is hereby repealed.
(B) The table of parts for such subchapter J is
amended by striking the item relating to part V.
(18)(A) Sections 5142, 5143, and 5145 are
moved to subchapter D of chapter 52, inserted after
section 5731, redesignated as sections 5732, 5733,
and 5734, respectively, and amended—
(i) by striking ‘‘this part’’ each place it ap-
pears and inserting ‘‘this subchapter’’, and
(ii) by striking ‘‘this subpart’’ in section
5732(c)(2) (as so redesignated) and inserting
‘‘this subchapter’’.
(B) Section 5732, as redesignated by subpara-
graph (A), is amended by striking ‘‘(except the tax
imposed by section 5131)’’ each place it appears.
(C) Subsection (c) of section 5733, as redesig-
nated by subparagraph (A), is amended by striking
paragraph (2) and by redesignating paragraph (3)
as paragraph (2).
(D) The table of sections for subchapter D of
chapter 52 is amended by adding at the end thereof
the following:
‘‘Sec. 5732. Payment of tax.
‘‘Sec. 5733. Provisions relating to liability for occupational taxes.
‘‘Sec. 5734. Application of State laws.’’.
(E) Section 5731 is amended by striking sub-
section (c) and by redesignating subsection (d) as
subsection (c).
(19) Subsection (c) of section 6071 is amended
by striking ‘‘section 5142’’ and inserting ‘‘section
5732’’.
(20) Paragraph (1) of section 7652(g) is
amended—
(A) by striking ‘‘subpart F’’ and inserting
‘‘subpart B’’, and
(B) by striking ‘‘section 5131(a)’’ and in-
serting ‘‘section 5111(a)’’.
(21) The table of sections for subchapter D of
chapter 51 is amended by striking the item relating
to section 5276.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on July 1, 2001, but shall
not apply to taxes imposed for periods before such date.
SEC. 209. EXCLUSION FROM GROSS INCOME FOR CERTAIN
FORGIVEN MORTGAGE OBLIGATIONS.
(a) IN GENERAL.—Paragraph (1) of section 108(a)
(relating to exclusion from gross income) is amended by
striking ‘‘or’’ at the end of both subparagraphs (A) and
(C), by striking the period at the end of subparagraph (D)
and inserting ‘‘, or’’, and by inserting after subparagraph
(D) the following new subparagraph:
‘‘(E) in the case of an individual, the in-
debtedness discharged is qualified residential in-
debtedness.’’.
(b) QUALIFIED RESIDENTIAL INDEBTEDNESS.—Sec-
tion 108 (relating to discharge of indebtedness) is amend-
ed by adding at the end the following new subsection:
‘‘(h) QUALIFIED RESIDENTIAL INDEBTEDNESS.—
‘‘(1) 
LIMITATIONS.—The 
amount 
excluded
under subparagraph (E) of subsection (a)(1) with
respect to any qualified residential indebtedness
shall not exceed the excess (if any) of—
‘‘(A) the outstanding principal amount of
such indebtedness (immediately before the dis-
charge), over
‘‘(B) the sum of—
‘‘(i) the amount realized from the sale
of the real property securing such indebt-
edness reduced by the cost of such sale,
and
‘‘(ii) the outstanding principal amount
of any other indebtedness secured by such
property.
‘‘(2) 
QUALIFIED
RESIDENTIAL
INDEBTED-
NESS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
residential indebtedness’ means indebtedness
which—
‘‘(i) was incurred or assumed by the
taxpayer in connection with real property
used as the principal residence (within the
meaning of section 121) of the taxpayer
and is secured by such real property,
‘‘(ii) was incurred or assumed to ac-
quire, construct, reconstruct, or substan-
tially improve such real property, and
‘‘(iii) with respect to which such tax-
payer makes an election to have this para-
graph apply.
‘‘(B) REFINANCED INDEBTEDNESS.—Such
term shall include indebtedness resulting from
the refinancing of indebtedness under subpara-
graph (A)(ii), but only to the extent the amount
of the indebtedness resulting from such refi-
nancing does not exceed the amount of the refi-
nanced indebtedness.
‘‘(C) EXCEPTIONS.—Such term shall not
include qualified farm indebtedness or qualified
real property business indebtedness.’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 108(a) is
amended—
(A) in subparagraph (A) by striking ‘‘and
(D)’’ and inserting ‘‘(D), and (E)’’, and
(B) by amending subparagraph (B) to read
as follows:
‘‘(B) 
INSOLVENCY
EXCLUSION
TAKES
PRECEDENCE OVER QUALIFIED FARM EXCLU-
SION, QUALIFIED
REAL
PROPERTY
BUSINESS
EXCLUSION, AND QUALIFIED RESIDENTIAL IN-
DEBTEDNESS EXCLUSION.—Subparagraphs (C),
(D), and (E) of paragraph (1) shall not apply
to a discharge to the extent the taxpayer is in-
solvent.’’.
(2) Paragraph (1) of section 108(b) is amended
by striking ‘‘or (C)’’ and inserting ‘‘(C), or (E)’’.
(3) Subsection (c) of section 121 is amended by
adding at the end the following new paragraph:
‘‘(3) SPECIAL RULE RELATING TO DISCHARGE
OF
INDEBTEDNESS.—The amount of gain which
(but for this paragraph) would be excluded from
gross income under subsection (a) with respect to a
principal residence shall be reduced by the amount
excluded 
from 
gross 
income 
under 
section
108(a)(1)(E) with respect to such residence.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to discharges after December 31,
2000.
SEC. 210. CLARIFICATION OF CASH ACCOUNTING RULES
FOR SMALL BUSINESS.
(a) CASH ACCOUNTING PERMITTED.—Section 446
(relating to general rule for methods of accounting) is
amended by adding at the end the following new sub-
section:
‘‘(g) SMALL BUSINESS TAXPAYERS PERMITTED TO
USE CASH ACCOUNTING METHOD WITHOUT LIMITA-
TION.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this title, an eligible taxpayer shall not
be required to use an accrual method of accounting
for any taxable year.
‘‘(2) ELIGIBLE
TAXPAYER.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—A taxpayer is an eligi-
ble taxpayer with respect to any taxable year if,
for all prior taxable years beginning after Octo-
ber 31, 1999, the taxpayer (or any predecessor)
met the gross receipts test of subparagraph
(B).
‘‘(B) GROSS RECEIPTS TEST.—A taxpayer
meets the gross receipts test of this subpara-
graph for any prior taxable year if the average
annual gross receipts of the taxpayer (or any
predecessor) for the 3-taxable-year period end-
ing with such prior taxable year does not exceed
$2,500,000. The rules of paragraphs (2) and
(3) of section 448(c) shall apply for purposes of
the preceding sentence.’’
ments made by this section to change its method of
accounting for any taxable year—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treas-
ury, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
of 1986 shall be taken into account over a pe-
riod (not greater than 4 taxable years) begin-
ning with such taxable year.
SEC. 211. AMENDMENTS RELATING TO DEMAND DEPOSIT
ACCOUNTS AT DEPOSITORY INSTITUTIONS.
(a) INTEREST-BEARING TRANSACTION ACCOUNTS
AUTHORIZED.—
(1) FEDERAL RESERVE ACT.—Section 19(i) of
the Federal Reserve Act (12 U.S.C. 371a) is amend-
ed by inserting at the end the following: ‘‘Notwith-
standing any other provision of this section, a mem-
ber bank may permit the owner of any deposit, any
account which is a deposit, or any account on which
interest or dividends are paid to make up to 24
transfers per month (or such greater number as the
Board may determine by rule or order), for any pur-
pose, to a demand deposit account of the owner in
the same institution. With respect to an escrow ac-
count maintained in connection with a loan, a lender
or servicer shall pay interest on such account only
if such payments are required by contract between
the lender or servicer and the borrower, or a specific
statutory provision of the law of the State in which
the security property is located requires the lender
or servicer to make such payments. Nothing in this
subsection shall be construed to prevent an account
offered pursuant to this subsection from being con-
sidered a transaction account for purposes of this
Act.’’.
(2) HOME OWNERS’ LOAN ACT.—
(A) IN GENERAL.—Section 5(b)(1) of the
Home Owners’ Loan Act (12 U.S.C. 1464
(b)(1)) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(G) TRANSFERS.—Notwithstanding any
other provision of this paragraph, a Federal
savings association may permit the owner of
any deposit or share, any account which is a de-
posit or share, or any account on which interest
or dividends are paid to make up to 24 trans-
fers per month (or such greater number as the
Board of Governors of the Federal Reserve Sys-
tem may determine by rule or order under sec-
tion 19(i) to be permissible for member banks),
for any purpose, to a demand deposit account
of the owner in the same institution. With re-
spect to an escrow account maintained in con-
nection with a loan, a lender or servicer shall
pay interest on such account only if such pay-
ments are required by contract between the
lender or servicer and the borrower, or a spe-
cific statutory provision of the law of the State
in which the security property is located re-
quires the lender or servicer to make such pay-
ments. Nothing in this subsection shall be con-
strued to prevent an account offered pursuant
to this subsection from being considered a
transaction account (as defined in section 19(b)
of the Federal Reserve Act) for purposes of the
Federal Reserve Act.’’.
(B) REPEAL.—Effective on at the end of
the 2-year period beginning on the date of en-
actment of this Act, section 5(b)(1) of the
Home Owners’ Loan Act (12 U.S.C. 1464
(b)(1)) is amended by striking subparagraph
(G).
(3) FEDERAL DEPOSIT INSURANCE ACT.—Sec-
tion 18(g) of the Federal Deposit Insurance Act (12
U.S.C. 1828(g)) is amended by adding at the end
the following new paragraph:
‘‘(3) TRANSFERS.—Notwithstanding any other
provision of this subsection, an insured nonmember
bank or insured State savings association may per-
mit the owner of any deposit or share, any account
which is a deposit or share, or any account on which
interest or dividends are paid to make up to 24
transfers per month (or such greater number as the
Board of Governors of the Federal Reserve System
may determine by rule or order under section 19(i)
to be permissible for member banks), for any pur-
pose, to a demand deposit account of the owner in
the same institution. With respect to an escrow ac-
count maintained in connection with a loan, a lender
or servicer shall pay interest on such account only
if such payments are required by contract between
the lender or servicer and the borrower, or a specific
statutory provision of the law of the State in which
the security property is located requires the lender
or servicer to make such payments. Nothing in this
subsection shall be construed to prevent an account
offered pursuant to this subsection from being con-
sidered a transaction account (as defined in section
19(b) of the Federal Reserve Act) for purposes of
the Federal Reserve Act.’’.
(b) REPEAL OF PROHIBITION ON PAYMENT OF IN-
TEREST ON DEMAND DEPOSITS.—
(1) FEDERAL RESERVE ACT.—Section 19(i) of
the Federal Reserve Act (12 U.S.C. 371a) is amend-
ed to read as follows:
‘‘(i) [Repealed]’’.
(2) HOME OWNERS’ LOAN ACT.—The 1st sen-
tence of section 5(b)(1)(B) of the Home Owners’
Loan Act (12 U.S.C. 1464(b)(1)(B)) is amended by
striking ‘‘savings association may not—’’ and all
that follows through ‘‘(ii) permit any’’ and inserting
‘‘savings association may not permit any’’.
(3) FEDERAL DEPOSIT INSURANCE ACT.—Sec-
tion 18(g) of the Federal Deposit Insurance Act (12
U.S.C. 1828(g)) is amended to read as follows:
‘‘(g) [Repealed]’’.
(c) EFFECTIVE DATE.—The amendments made by
subsection (b) shall take effect at the end of the 2-year
period beginning on the date of the enactment of this Act.
TITLE III—HEALTH INSURANCE
AND LONG-TERM CARE IN-
SURANCE PROVISIONS
SEC. 301. DEDUCTION FOR 100 PERCENT OF HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
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) CLARIFICATION OF LIMITATIONS ON OTHER COV-
ERAGE.—The first sentence of section 162(l)(2)(B) is
amended to read as follows: ‘‘Paragraph (1) shall not
apply to any taxpayer for any calendar month for which
the taxpayer participates in any subsidized health plan
maintained by any employer (other than an employer de-
scribed in section 401(c)(4)) of the taxpayer or the spouse
of the taxpayer.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 302. DEDUCTION FOR HEALTH AND LONG-TERM CARE
INSURANCE COSTS OF INDIVIDUALS NOT
PARTICIPATING IN EMPLOYER-SUBSIDIZED
HEALTH PLANS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 is amended by redesignating section 222 as section
223 and by inserting after section 221 the following new
section:
‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE
COSTS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a deduction an amount equal to
the applicable percentage of the amount paid during the
taxable year for insurance which constitutes medical care
for the taxpayer and the taxpayer’s spouse and depend-
ents.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage shall be deter-
mined in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2001, 2002, and 2003 .............................................................
2004 .........................................................................................
2005 .........................................................................................
2006 and thereafter .................................................................
100.
‘‘(c) LIMITATION BASED ON OTHER COVERAGE.—
‘‘(1) COVERAGE UNDER CERTAIN SUBSIDIZED
EMPLOYER PLANS.—
‘‘(A) IN
GENERAL.—Subsection (a) shall
not apply to any taxpayer for any calendar
month for which the taxpayer participates in
any health plan maintained by any employer of
the taxpayer or of the spouse of the taxpayer if
for such month 50 percent or more of the cost
of coverage under such plan (determined under
section 4980B and without regard to payments
made with respect to any coverage described in
subsection (e)) is paid or incurred by the em-
ployer.
‘‘(B) EMPLOYER CONTRIBUTIONS TO CAF-
ETERIA PLANS, FLEXIBLE SPENDING ARRANGE-
MENTS, AND
MEDICAL
SAVINGS
ACCOUNTS.—
Employer contributions to a cafeteria plan, a
flexible spending or similar arrangement, or a
medical savings account which are excluded
from gross income under section 106 shall be
treated for purposes of subparagraph (A) as
paid by the employer.
‘‘(C) AGGREGATION
OF
PLANS
OF
EM-
PLOYER.—A health plan which is not otherwise
described in subparagraph (A) shall be treated
as described in such subparagraph if such plan
would be so described if all health plans of per-
sons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 were
treated as one health plan.
‘‘(D) SEPARATE APPLICATION TO HEALTH
INSURANCE
AND
LONG-TERM
CARE
INSUR-
ANCE.—Subparagraphs (A) and (C) shall be
applied separately with respect to—
‘‘(i) plans which include primarily cov-
erage for qualified long-term care services
or are qualified long-term care insurance
contracts, and
‘‘(ii) plans which do not include such
coverage and are not such contracts.
‘‘(2) COVERAGE
UNDER
CERTAIN
FEDERAL
PROGRAMS.—
‘‘(A) IN
GENERAL.—Subsection (a) shall
not apply to any amount paid for any coverage
for an individual for any calendar month if, as
of the first day of such month, the individual is
covered under any medical care program de-
scribed in—
‘‘(i) title XVIII, XIX, or XXI of the
Social Security Act,
‘‘(ii) chapter 55 of title 10, United
States Code,
‘‘(iii) chapter 17 of title 38, United
States Code,
‘‘(iv) chapter 89 of title 5, United
States Code, or
‘‘(v) the Indian Health Care Improve-
ment Act.
‘‘(B) EXCEPTIONS.—
‘‘(i) QUALIFIED LONG-TERM CARE.—
Subparagraph (A) shall not apply to
amounts paid for coverage under a quali-
fied long-term care insurance contract.
‘‘(ii) CONTINUATION
COVERAGE
OF
FEHBP.—Subparagraph (A)(iv) shall not
apply to coverage which is comparable to
continuation 
coverage 
under 
section
4980B.
‘‘(d) LONG-TERM CARE DEDUCTION LIMITED
TO
QUALIFIED
LONG-TERM
CARE
INSURANCE
CON-
TRACTS.—In the case of a qualified long-term care insur-
ance contract, only eligible long-term care premiums (as
defined in section 213(d)(10)) may be taken into account
under subsection (a).
‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF
ANCILLARY COVERAGE PREMIUMS.—Any amount paid as
a premium for insurance which provides for—
‘‘(1) coverage for accidents, disability, dental
care, vision care, or a specified illness, or
‘‘(2) making payments of a fixed amount per
day (or other period) by reason of being hospitalized,
shall not be taken into account under subsection (a).
‘‘(f ) SPECIAL RULES.—
‘‘(1) COORDINATION
WITH
DEDUCTION
FOR
HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN-
DIVIDUALS.—The amount taken into account by the
taxpayer in computing the deduction under section
162(l) shall not be taken into account under this
section.
‘‘(2) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—The amount taken into account by
the taxpayer in computing the deduction under this
section shall not be taken into account under section
213.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section, including regulations requiring employers to re-
port to their employees and the Secretary such informa-
tion as the Secretary determines to be appropriate.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 is amended by inserting after paragraph (17)
the following new item:
‘‘(18) HEALTH AND LONG-TERM CARE INSUR-
ANCE
COSTS.—The deduction allowed by section
222.’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part VII of subchapter B of chapter 1 is amended by
striking the last item and inserting the following new
items:
‘‘Sec. 222. Health and long-term care insurance costs.
‘‘Sec. 223. Cross reference.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 303. 2-YEAR EXTENSION OF AVAILABILITY OF MED-
ICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Paragraphs (2) and (3)(B) of sec-
tion 220(i) (defining cut-off year) are each amended by
striking ‘‘2000’’ each place it appears and inserting
‘‘2002’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 220(j) is
amended—
(A) by striking ‘‘1998 or 1999’’ each place
it appears and inserting ‘‘1998, 1999, 2000, or
2001’’, and
(B) by striking ‘‘600,000 (750,000 in the
case 
of 
1999)’’ 
and 
inserting 
‘‘750,000
(600,000 in the case of 1998)’’.
(2) Subparagraph (A) of section 220(j)(4) is
amended by striking ‘‘, 1998, and 1999’’ and insert-
ing ‘‘and of each calendar year after 1997 and be-
fore 2002’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 304. ADDITIONAL CONSUMER PROTECTIONS FOR
LONG-TERM CARE INSURANCE.
(a) ADDITIONAL
PROTECTIONS
APPLICABLE
TO
LONG-TERM CARE INSURANCE.—Subparagraph (A) of
section 7702B(g)(2) (relating to requirements of model
regulation and Act) is amended to read as follows:
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met with respect to any con-
tract if such contract meets—
‘‘(i) MODEL
REGULATION.—The fol-
lowing requirements of the model regula-
tion:
‘‘(I) Section 6A (relating to guar-
anteed renewal or noncancellability),
and the requirements of section 6B of
the model Act relating to such section
6A.
‘‘(II) Section 6B (relating to pro-
hibitions on limitations and exclu-
sions).
‘‘(III) Section 6C (relating to ex-
tension of benefits).
‘‘(IV) Section 6D (relating to
continuation or conversion of cov-
erage).
‘‘(V) Section 6E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 7 (relating to unin-
tentional lapse).
‘‘(VII) Section 8 (relating to dis-
closure), other than section 8F there-
of.
‘‘(VIII) Section 11 (relating to
prohibitions against post-claims un-
derwriting).
‘‘(IX) Section 12 (relating to
minimum standards).
‘‘(X) Section 13 (relating to re-
quirement to offer inflation protec-
tion), except that any requirement for
a signature on a rejection of inflation
protection shall permit the signature
to be on an application or on a sepa-
rate form.
‘‘(XI) Section 25 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
‘‘(XII) The provisions of section
26 relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act:
‘‘(I) Section 6C (relating to pre-
existing conditions).
‘‘(II) Section 6D (relating to
prior hospitalization).
‘‘(III) The provisions of section 8
relating to contingent nonforfeiture
benefits, if the policyholder declines
the offer of a nonforfeiture provision
described in paragraph (4).
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ mean
the long-term care insurance model regula-
tion, and the long-term care insurance
model Act, respectively, promulgated by
the National Association of Insurance
Commissioners (as adopted as of Sep-
tember 2000).
‘‘(ii) COORDINATION.—Any provision
of the model regulation or model Act listed
under clause (i) or (ii) of subparagraph
(A) shall be treated as including any other
provision of such regulation or Act nec-
essary to implement the provision.
‘‘(iii) 
DETERMINATION.—For 
pur-
poses of this section and section 4980C,
the determination of whether any require-
ment of a model regulation or the model
Act has been met shall be made by the
Secretary.’’
(b) 
EXCISE
TAX.—Paragraph 
(1) 
of 
section
4980C(c) (relating to requirements of model provisions)
is amended to read as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
‘‘(A) MODEL REGULATION.—The following
requirements of the model regulation must be
met:
‘‘(i) Section 9 (relating to required
disclosure of rating practices to con-
sumer).’’
‘‘(ii) Section 14 (relating to applica-
tion forms and replacement coverage).
‘‘(iii) Section 15 (relating to reporting
requirements), except that the issuer shall
also report at least annually the number of
claims denied during the reporting period
for each class of business (expressed as a
percentage of claims denied), other than
claims denied for failure to meet the wait-
ing period or because of any applicable
preexisting condition.
The requirements referred to in clause (vi) shall
not include those portions of the personal work-
sheet described in Appendix B relating to con-
sumer protection requirements not imposed by
section 4980C or 7702B.
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met:
‘‘(i) Section 6F (relating to right to
return), except that such section shall also
apply to denials of applications and any re-
fund shall be made within 30 days of the
return or denial.
‘‘(ii) Section 6G (relating to outline of
coverage).
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans).
‘‘(iv) Section 6I (relating to policy
summary).
‘‘(v) Section 6J (relating to monthly
reports on accelerated death benefits).
‘‘(vi) Section 7 (relating to incontest-
ability period).
‘‘(C) DEFINITIONS.—For purposes of this
paragraph, the terms ‘model regulation’ and
‘model Act’ have the meanings given such terms
by section 7702B(g)(2)(B).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to policies issued more than 1 year
after the date of the enactment of this Act.
SEC. 305. DEDUCTION FOR PROVIDING LONG-TERM CARE
IN THE HOME TO HOUSEHOLD MEMBERS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 is amended by redesignating section 223 as section
224 and by inserting after section 222 the following new
section:
‘‘SEC. 223. PROVISION OF LONG-TERM CARE IN THE HOME
TO HOUSEHOLD MEMBERS.
‘‘(a) DEDUCTION ALLOWED.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction for the taxable year an amount equal to
the applicable amount multiplied by the number of
qualified family members of the taxpayer for the
taxable year.
‘‘(2) APPLICABLE AMOUNT.—For purposes of
paragraph (1), the applicable amount for a taxable
year shall be the amount determined in accordance
with the following table:
‘‘For taxable years
The applicable
beginning in:
amount is:
2001 .............................................................................
$3,000
2002 .............................................................................
$4,000
2003 .............................................................................
$5,000
2004 .............................................................................
$6,000
2005 .............................................................................
$7,000
2006 .............................................................................
$8,000
2007 .............................................................................
$9,000
2008 and thereafter .....................................................
$10,000.
‘‘(b) LIMITATIONS.—
‘‘(1) REDUCTION
FOR
AMOUNTS
RECEIVED
UNDER LONG-TERM CARE INSURANCE POLICY.—The
amount of the deduction allowable under subsection
(a) with respect to a qualified family member shall
be reduced (but not below zero) by the amount re-
ceived for the taxable year under a long-term care
insurance policy (whether or not such policy is a
qualified long-term care insurance contract under
section 7702B) with respect to which the insured is
the qualified family member.
‘‘(2) PHASEOUT.—The amount of the deduction
allowable under subsection (a) (after the application
of paragraph (1)) shall be reduced in the same man-
ner as the exemption amount is reduced under sec-
tion 151(d)(3).
‘‘(c) QUALIFIED FAMILY MEMBER.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified family
member’ means, with respect to any taxable year,
any individual—
‘‘(A) who is—
‘‘(i) the taxpayer’s spouse, or
‘‘(ii) an individual who bears a rela-
tionship to the taxpayer described in any
of paragraphs (1) through (8) of section
152(a),
‘‘(B) who is a member for the entire tax-
able year of the household maintained by the
taxpayer,
‘‘(C) whose gross income for the calendar
year in which the taxable year of the taxpayer
begins is less than the sum of—
‘‘(i) the exemption amount (as defined
in section 151(d)), and
‘‘(ii) the standard deduction, and
‘‘(D) who has been certified, before the due
date for filing the return of tax for the taxable
year (without extensions), by a physician (as
defined in section 1861(r)(1) of the Social Se-
curity Act) as being an individual described in
paragraph (3) for a period—
‘‘(i) which is at least 180 consecutive
days, and
‘‘(ii) a portion of which occurs within
the taxable year.
‘‘(2) SPECIAL RULES.—
‘‘(A) FREQUENCY
OF
CERTIFICATION.—
The term ‘qualified family member’ shall not
include any individual otherwise meeting the re-
quirements of paragraph (1)(D) unless the cer-
tification is made within the 391⁄2 month period
ending on the due date (or such other period as
the Secretary prescribes).
‘‘(B) GROSS INCOME TEST NOT TO APPLY
TO CERTAIN INDIVIDUALS.—Paragraph (1)(C)
shall not apply to—
‘‘(i) the spouse of the taxpayer,
‘‘(ii) any child of the taxpayer de-
scribed in section 151(c)(1)(B), and
‘‘(iii) any gross income which is not
taken into account under paragraph (1)(B)
of section 151(c) by reason of paragraph
(5) thereof.
‘‘(3) INDIVIDUALS
WITH
LONG-TERM
CARE
NEEDS.—An individual is described in this para-
graph if the individual meets any of the following re-
quirements:
‘‘(A) The individual is at least 6 years of
age and—
‘‘(i) is unable to perform (without
substantial assistance from another indi-
vidual) at least 3 activities of daily living
(as defined in section 7702B(c)(2)(B)) due
to a loss of functional capacity, or
‘‘(ii) requires substantial supervision
to protect such individual from threats to
health and safety due to severe cognitive
impairment, and
‘‘(I) is unable to perform, with-
out reminding or cuing assistance, at
least 1 activity of daily living (as so
defined), or
‘‘(II) to the extent provided in
regulations prescribed by the Sec-
retary (in consultation with the Sec-
retary of Health and Human Serv-
ices), is unable to engage in age ap-
propriate activities.
‘‘(B) The individual is at least 2 but not
6 years of age and is unable due to a loss of
functional capacity to perform (without sub-
stantial assistance from another individual) at
least 2 of the following activities: eating, trans-
ferring, or mobility.
‘‘(C) The individual is under 2 years of age
and requires specific durable medical equipment
by reason of a severe health condition or re-
quires a skilled practitioner trained to address
the individual’s condition to be available if the
individual’s parents or guardians are absent.
‘‘(d) SPECIAL RULES.—
‘‘(1) IDENTIFICATION REQUIREMENT.—No de-
duction shall be allowed under this section to a tax-
payer with respect to any qualified family member
unless the taxpayer includes the name and taxpayer
identification number of such member, and the iden-
tification number of the physician certifying such
member, on the return of tax for the taxable year.
‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE
YEAR.—No deduction shall be allowable under this
section in the case of a taxable year covering a pe-
riod of less than 12 months, except that in the case
of a taxable year closed by the death of a taxpayer
a ratable portion of the deduction shall be allowable.
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (1), (2), (3), (4), and (5) of sec-
tion 21(e) shall apply for purposes of this sub-
section.’’.
(b) DEDUCTION ALLOWABLE WHETHER
OR NOT
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(3) the deduction allowed by section 223.’’
(2) Subsection (d) of section 63 is amended by
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
‘‘(3) the deduction allowed by section 223.’’
(c) CONFORMING AMENDMENTS.—
(1) Section 6213(g)(2) is amended by striking
‘‘and’’ at the end of subparagraph (K), by striking
the period at the end of subparagraph (L) and in-
serting ‘‘, and’’, and by inserting after subparagraph
(L) the following new subparagraph:
‘‘(M) an omission of a correct TIN or phy-
sician identification number required under sec-
tion 223(d)(1) (relating to deduction for provi-
sion of long-term care in the home to household
members) to be included on a return.’’
(2) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by striking the
last item and inserting the following new items:
‘‘Sec. 223. Provision of long-term care in the home to household
members.
‘‘Sec. 224. Cross reference.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
TITLE IV—PENSION AND INDI-
VIDUAL 
RETIREMENT 
AR-
RANGEMENT PROVISIONS
SEC. 400. SHORT TITLE.
This title may be cited as the ‘‘Retirement Savings
and Pension Coverage Act of 2000’’.
Subtitle A—Individual Retirement
Accounts
SEC. 401. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) INCREASE IN CONTRIBUTION LIMIT.—
(1) IN GENERAL.—Paragraph (1)(A) of section
219(b) (relating to maximum amount of deduction)
is amended by striking ‘‘$2,000’’ and inserting ‘‘the
deductible amount’’.
(2) DEDUCTIBLE AMOUNT.—Section 219(b) is
amended by adding at the end the following new
paragraph:
‘‘(5) DEDUCTIBLE AMOUNT.—For purposes of
paragraph (1)(A)—
‘‘(A) 
IN
GENERAL.—The 
deductible
amount shall be determined in accordance with
the following table:
‘‘For taxable years
The deductible
beginning in:
amount is:
2001 .............................................................................
$3,000
2002 .............................................................................
$4,000
2003 and thereafter .....................................................
$5,000.
‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDI-
VIDUALS 50 OR OLDER.—
‘‘(i) IN GENERAL.—In the case of an
individual who has attained the age of 50
before the close of the taxable year, the de-
ductible amount for such taxable year (de-
termined without regard to this subpara-
graph) shall be increased by the applicable
catch-up amount.
‘‘(ii) 
APPLICABLE
CATCH-UP
AMOUNT.—For purposes of clause (i), the
applicable catch-up amount shall be the
amount determined in accordance with the
following table:
‘‘For taxable years
The applicable catch-up
beginning in:
amount is:
2001 .............................................................................
$500
2002 .............................................................................
$1,000
2003 and thereafter .....................................................
$1,500.
‘‘(C) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 2003, the $5,000 amount under sub-
paragraph (A) and the $1,500 amount
under subparagraph (B) shall each be in-
creased by an amount equal to—
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3)
for the calendar year in which the tax-
able year begins, determined by sub-
stituting ‘calendar year 2002’ for ‘cal-
endar year 1992’ in subparagraph (B)
thereof.
‘‘(ii) 
ROUNDING
RULES.—If 
any
amount after adjustment under clause (i)
is not a multiple of $500, such amount
shall be rounded to the next lower multiple
of $500.’’.
(b) INCREASE IN AGI LIMITS FOR ACTIVE PARTICI-
PANTS.—
(1) JOINT RETURNS.—The table in clause (i) of
section 219(g)(3)(B) (relating to applicable dollar
amount) is amended to read as follows:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001 ............................................................................. $56,000
2002 ............................................................................. $60,000
2003 ............................................................................. $64,000
2004 ............................................................................. $68,000
2005 ............................................................................. $72,000
2006 ............................................................................. $76,000
2007 or thereafter ........................................................ $80,000.’’.
(2) OTHER TAXPAYERS.—Section 219(g)(3)(B)
(relating to applicable dollar amount) is amended by
striking clauses (ii) and (iii) and inserting the fol-
lowing:
‘‘(ii) In the case of any other tax-
payer:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001 ............................................................................. $36,000
2002 ............................................................................. $40,000
2003 ............................................................................. $44,000
2004 ............................................................................. $48,000
2005 or thereafter ........................................................ $50,000.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking
‘‘in excess of $2,000 on behalf of any individual’’
and inserting ‘‘on behalf of any individual in excess
of the amount in effect for such taxable year under
section 219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by strik-
ing ‘‘$2,000’’ and inserting ‘‘the dollar amount in
effect under section 219(b)(1)(A)’’.
(3) Section 408(b) is amended by striking
‘‘$2,000’’ in the matter following paragraph (4) and
inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
(4) Section 408(j) is amended by striking
‘‘$2,000’’.
(5) Section 408(p)(8) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 402. DEEMED IRAS UNDER EMPLOYER PLANS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (q) as subsection (r) and by inserting after sub-
section (p) the following new subsection:
‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER
PLANS.—
‘‘(1) GENERAL RULE.—If—
‘‘(A) a qualified employer plan elects to
allow employees to make voluntary employee
contributions to a separate account or annuity
established under the plan, and
‘‘(B) under the terms of the qualified em-
ployer plan, such account or annuity meets the
applicable requirements of this section or sec-
tion 408A for an individual retirement account
or annuity,
then such account or annuity shall be treated for
purposes of this title in the same manner as an indi-
vidual retirement plan and not as a qualified em-
ployer plan (and contributions to such account or
annuity as contributions to an individual retirement
plan and not to the qualified employer plan). For
purposes of subparagraph (B), the requirements of
subsection (a)(5) shall not apply.
‘‘(2) SPECIAL
RULES
FOR
QUALIFIED
EM-
PLOYER PLANS.—For purposes of this title, a quali-
fied employer plan shall not fail to meet any require-
ment of this title solely by reason of establishing and
maintaining a program described in paragraph (1).
‘‘(3) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) QUALIFIED
EMPLOYER
PLAN.—The
term ‘qualified employer plan’ has the meaning
given such term by section 72(p)(4); except
such term shall only include an eligible deferred
compensation plan (as defined in section
457(b)) which is maintained by an eligible em-
ployer described in section 457(e)(1)(A).
‘‘(B) VOLUNTARY
EMPLOYEE
CONTRIBU-
TION.—The term ‘voluntary employee contribu-
tion’ means any contribution (other than a
mandatory contribution within the meaning of
section 411(c)(2)(C))—
‘‘(i) which is made by an individual as
an employee under a qualified employer
plan which allows employees to elect to
make contributions described in paragraph
(1), and
‘‘(ii) with respect to which the indi-
vidual has designated the contribution as a
contribution to which this subsection ap-
plies.’’.
(b) AMENDMENT OF ERISA.—
(1) IN GENERAL.—Section 4 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1003) is amended by adding at the end the following
new subsection:
‘‘(c) If a pension plan allows an employee to elect to
make voluntary employee contributions to accounts and
annuities as provided in section 408(q) of the Internal
Revenue Code of 1986, such accounts and annuities (and
contributions thereto) shall not be treated as part of such
plan (or as a separate pension plan) for purposes of any
provision of this title other than section 403(c), 404, or
405 (relating to exclusive benefit, and fiduciary and co-
fiduciary responsibilities).’’.
(2) CONFORMING
AMENDMENT.—Section 4(a)
of such Act (29 U.S.C. 1003(a)) is amended by in-
serting ‘‘or (c)’’ after ‘‘subsection (b)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 403. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT 
ACCOUNTS 
FOR 
CHARITABLE
PURPOSES.
(a) IN GENERAL.—Subsection (d) of section 408 (re-
lating to individual retirement accounts) is amended by
adding at the end the following new paragraph:
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—In the case of a quali-
fied charitable distribution, no amount shall be
includible in the gross income of the account
holder or beneficiary.
‘‘(B) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the
term ‘qualified charitable distribution’ means
any distribution from an individual retirement
account—
‘‘(i) which is made on or after the
date that the individual for whose benefit
the account is maintained has attained age
701⁄2, and
‘‘(ii) which is a charitable contribution
(as defined in section 170(c)) made di-
rectly from the account to an organization
or entity described in section 170(c).
‘‘(C) 
DENIAL
OF
DEDUCTION.—The
amount allowable as a deduction to the tax-
payer for the taxable year under section 170
(before the application of section 170(b)) for
qualified charitable distributions shall be re-
duced (but not below zero) by the sum of the
amounts of the qualified charitable distributions
during such year which (but for this paragraph)
would have been includible in the gross income
of the taxpayer for such year.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2000.
SEC. 404. MODIFICATION OF AGI LIMITS FOR ROTH IRAS.
(a) INCREASE IN AGI LIMIT FOR ROTH IRA CON-
TRIBUTIONS.—
(1) IN
GENERAL.—Section 408A(c)(3)(C)(ii)
(relating to limits based on modified adjusted gross
income) is amended to read as follows:
‘‘(ii) the applicable dollar amount is—
‘‘(I) in the case of a taxpayer fil-
ing a joint return, $190,000, and
‘‘(II) in the case of any other
taxpayer, $95,000.’’.
(2) PHASEOUT AMOUNT.—Clause (ii) of section
408A(c)(3)(A) is amended to read as follows:
‘‘(ii) $15,000 ($30,000 in the case of
a joint return).’’.
(b) INCREASE IN AGI LIMIT FOR ROTH IRA CON-
VERSIONS.—Section 408A(c)(3)(B) (relating to rollover
from IRA) is amended by striking ‘‘relates’’ and all that
follows and inserting ‘‘relates, the taxpayer’s adjusted
gross income exceeds $100,000 ($200,000 in the case of
a joint return).’’.
(c) CONFORMING AMENDMENT.—Section 408A(c)(3)
is amended by striking subparagraph (D).
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle B—Expanding Coverage
SEC. 411. INCREASE IN BENEFIT AND CONTRIBUTION LIM-
ITS.
(a) DEFINED BENEFIT PLANS.—
(1) DOLLAR LIMIT.—
(A) Subparagraph (A) of section 415(b)(1)
(relating to limitation for defined benefit plans)
is amended by striking ‘‘$90,000’’ and inserting
‘‘$160,000’’.
(B) Subparagraphs (C) and (D) of section
415(b)(2) are each amended by striking
‘‘$90,000’’ each place it appears in the head-
ings and the text and inserting ‘‘$160,000’’.
(C) Paragraph (7) of section 415(b) (relat-
ing to benefits under certain collectively bar-
gained plans) is amended by striking ‘‘the
greater of $68,212 or one-half the amount oth-
erwise applicable for such year under paragraph
(1)(A) for ‘$90,000’ ’’ and inserting ‘‘one-half
the amount otherwise applicable for such year
under paragraph (1)(A) for ‘$160,000’ ’’.
(2) LIMIT
REDUCED
WHEN
BENEFIT
BEGINS
BEFORE
AGE
62.—Subparagraph (C) of section
415(b)(2) is amended by striking ‘‘the social security
retirement age’’ each place it appears in the heading
and text and inserting ‘‘age 62’’ and by striking the
second sentence.
(3) LIMIT INCREASED WHEN BENEFIT BEGINS
AFTER
AGE
65.—Subparagraph (D) of section
415(b)(2) is amended by striking ‘‘the social security
retirement age’’ each place it appears in the heading
and text and inserting ‘‘age 65’’.
(4) 
COST-OF-LIVING
ADJUSTMENTS.—Sub-
section (d) of section 415 (related to cost-of-living
adjustments) is amended—
(A) by striking ‘‘$90,000’’ in paragraph
(1)(A) and inserting ‘‘$160,000’’; and
(B) in paragraph (3)(A)—
(i) by striking ‘‘$90,000’’ in the head-
ing and inserting ‘‘$160,000’’; and
(ii) by striking ‘‘October 1, 1986’’ and
inserting ‘‘July 1, 2000’’.
(5) CONFORMING AMENDMENTS.—
(A) Section 415(b)(2) is amended by strik-
ing subparagraph (F).
(B) Section 415(b)(9) is amended to read
as follows:
‘‘(9) SPECIAL RULE FOR COMMERCIAL AIR-
LINE PILOTS.—In the case of any participant
who is a commercial airline pilot, if, as of the
time of the participant’s retirement, regulations
prescribed by the Federal Aviation Administra-
tion require an individual to separate from serv-
ice as a commercial airline pilot after attaining
any age occurring on or after age 60 and before
age 62, paragraph (2)(C) shall be applied by
substituting such age for age 62.’’.
(C) Section 415(b)(10)(C)(i) is amended
by striking ‘‘applied without regard to para-
graph (2)(F)’’.
(b) DEFINED CONTRIBUTION PLANS.—
(1) DOLLAR LIMIT.—Subparagraph (A) of sec-
tion 415(c)(1) (relating to limitation for defined con-
tribution plans) is amended by striking ‘‘$30,000’’
and inserting ‘‘$40,000’’.
(2) 
COST-OF-LIVING
ADJUSTMENTS.—Sub-
section (d) of section 415 (related to cost-of-living
adjustments) is amended—
(A) by striking ‘‘$30,000’’ in paragraph
(1)(C) and inserting ‘‘$40,000’’; and
(B) in paragraph (3)(D)—
(i) by striking ‘‘$30,000’’ in the head-
ing and inserting ‘‘$40,000’’; and
(ii) by striking ‘‘October 1, 1993’’ and
inserting ‘‘July 1, 2000’’.
100
(3) CONFORMING AMENDMENTS.—
(A) IN
GENERAL.—Section 664(g)(3)(E)
(relating to plan requirements) is amended by
striking ‘‘limitations under section 415(c)(1)‘‘
and inserting ‘‘applicable limitation under para-
graph (7)’’.
(B) 
APPLICABLE
LIMITATION.—Section
664(g) (relating to qualified gratuitous transfer
of qualified employer securities) is amended by
adding at the end the following new paragraph:
‘‘(7) APPLICABLE LIMITATION.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(E), the applicable limitation under
this paragraph with respect to a participant is
an amount equal to the lesser of—
‘‘(i) $30,000, or
‘‘(ii) 25 percent of the participant’s
compensation 
(as 
defined 
in 
section
415(c)(3)).
‘‘(B) COST-OF-LIVING ADJUSTMENT.—The
Secretary shall adjust annually the $30,000
amount under subparagraph (A)(i) at the same
time and in the same manner as under section
415(d), except that the base period shall be the
calendar quarter beginning October 1, 1993,
101
and any increase under this subparagraph
which is not a multiple of $5,000 shall be
rounded to the next lowest multiple of $5,000.’’.
(c) QUALIFIED TRUSTS.—
(1) 
COMPENSATION
LIMIT.—Sections
401(a)(17), 404(l), 408(k), and 505(b)(7) are each
amended by striking ‘‘$150,000’’ each place it ap-
pears and inserting ‘‘$200,000’’.
(2) BASE PERIOD AND ROUNDING OF COST-OF-
LIVING ADJUSTMENT.—Subparagraph (B) of section
401(a)(17) is amended—
(A) by striking ‘‘October 1, 1993’’ and in-
serting ‘‘July 1, 2000’’; and
(B) by striking ‘‘$10,000’’ both places it
appears and inserting ‘‘$5,000’’.
(d) ELECTIVE DEFERRALS.—
(1) IN
GENERAL.—Paragraph (1) of section
402(g) (relating to limitation on exclusion for elec-
tive deferrals) is amended to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) LIMITATION.—Notwithstanding sub-
sections (e)(3) and (h)(1)(B), the elective defer-
rals of any individual for any taxable year shall
be included in such individual’s gross income to
the extent the amount of such deferrals for the
102
taxable year exceeds the applicable dollar
amount.
‘‘(B) APPLICABLE DOLLAR AMOUNT.—For
purposes of subparagraph (A), the applicable
dollar amount shall be the amount determined
in accordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001 ............................................................................. $11,000
2002 ............................................................................. $12,000
2003 ............................................................................. $13,000
2004 ............................................................................. $14,000
2005 or thereafter ........................................................ $15,000.’’.
(2) COST-OF-LIVING ADJUSTMENT.—Paragraph
(5) of section 402(g) is amended to read as follows:
‘‘(5) COST-OF-LIVING
ADJUSTMENT.—In the
case of taxable years beginning after December 31,
2005, the Secretary shall adjust the $15,000
amount under paragraph (1)(B) at the same time
and in the same manner as under section 415(d),
except that the base period shall be the calendar
quarter beginning July 1, 2004, and any increase
under this paragraph which is not a multiple of
$500 shall be rounded to the next lowest multiple of
$500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation
on exclusion for elective deferrals), as amended
103
by paragraphs (1) and (2), is further amended
by striking paragraph (4) and redesignating
paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is
amended by striking ‘‘402(g)(8)(A)(iii)’’ and in-
serting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is
amended by striking ‘‘(other than paragraph
(4) thereof)’’.
(e) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—
(1) IN GENERAL.—Section 457 (relating to de-
ferred compensation plans of State and local govern-
ments and tax-exempt organizations) is amended—
(A) in subsections (b)(2)(A) and (c)(1) by
striking ‘‘$7,500’’ each place it appears and in-
serting ‘‘the applicable dollar amount’’; and
(B) in subsection (b)(3)(A) by striking
‘‘$15,000’’ and inserting ‘‘twice the dollar
amount in effect under subsection (b)(2)(A)’’.
(2) APPLICABLE
DOLLAR
AMOUNT; COST-OF-
LIVING
ADJUSTMENT.—Paragraph (15) of section
457(e) is amended to read as follows:
104
‘‘(15) APPLICABLE DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—The applicable dollar
amount shall be the amount determined in ac-
cordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001 .............................................................................
$11,000
2002 .............................................................................
$12,000
2003 .............................................................................
$13,000
2004 .............................................................................
$14,000
2005 or thereafter ........................................................
$15,000.
‘‘(B) COST-OF-LIVING ADJUSTMENTS.—In
the case of taxable years beginning after De-
cember 31, 2005, the Secretary shall adjust the
$15,000 amount under subparagraph (A) at the
same time and in the same manner as under
section 415(d), except that the base period shall
be the calendar quarter beginning July 1, 2004,
and any increase under this paragraph which is
not a multiple of $500 shall be rounded to the
next lowest multiple of $500.’’.
(f) SIMPLE RETIREMENT ACCOUNTS.—
(1) 
LIMITATION.—Clause 
(ii) 
of 
section
408(p)(2)(A) (relating to general rule for qualified
salary reduction arrangement) is amended by strik-
ing ‘‘$6,000’’ and inserting ‘‘the applicable dollar
amount’’.
105
(2) APPLICABLE DOLLAR AMOUNT.—Subpara-
graph (E) of 408(p)(2) is amended to read as fol-
lows:
‘‘(E) APPLICABLE DOLLAR AMOUNT; COST-
OF-LIVING ADJUSTMENT.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in
accordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount:
calendar year:
2001 ......................................................................
$7,000
2002 ......................................................................
$8,000
2003 ......................................................................
$9,000
2004 or thereafter ................................................
$10,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
In the case of a year beginning after De-
cember 31, 2004, the Secretary shall ad-
just the $10,000 amount under clause (i)
at the same time and in the same manner
as under section 415(d), except that the
base period taken into account shall be the
calendar quarter beginning July 1, 2003,
and any increase under this subparagraph
which is not a multiple of $500 shall be
rounded to the next lower multiple of
$500.’’.
(3) CONFORMING AMENDMENTS.—
106
(A) 
Subclause 
(I) 
of 
section
401(k)(11)(B)(i) 
is 
amended 
by 
striking
‘‘$6,000’’ and inserting ‘‘the amount in effect
under section 408(p)(2)(A)(ii)’’.
(B) Section 401(k)(11) is amended by
striking subparagraph (E).
(g) ROUNDING RULE RELATING TO DEFINED BEN-
EFIT PLANS
AND DEFINED CONTRIBUTION PLANS.—
Paragraph (4) of section 415(d) is amended to read as
follows:
‘‘(4) ROUNDING.—
‘‘(A) $160,000 AMOUNT.—Any increase
under subparagraph (A) of paragraph (1) which
is not a multiple of $5,000 shall be rounded to
the next lowest multiple of $5,000.
‘‘(B) $40,000 
AMOUNT.—Any increase
under subparagraph (C) of paragraph (1) which
is not a multiple of $1,000 shall be rounded to
the next lowest multiple of $1,000.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
107
SEC. 412. PLAN LOANS FOR SUBCHAPTER S OWNERS, PART-
NERS, AND SOLE PROPRIETORS.
(a) IN GENERAL.—Subparagraph (B) of section
4975(f)(6) (relating to exemptions not to apply to certain
transactions) is amended by adding at the end the fol-
lowing new clause:
‘‘(iii) LOAN
EXCEPTION.—For pur-
poses of subparagraph (A)(i), the term
‘owner-employee’ shall only include a per-
son described in subclause (II) or (III) of
clause (i).’’.
(b) AMENDMENT OF ERISA.—Section 408(d)(2) of
the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1108(d)(2)) is amended by adding at the end
the following new subparagraph:
‘‘(C) For purposes of paragraph (1)(A), the term
‘owner-employee’ shall only include a person described in
clause (ii) or (iii) of subparagraph (A).’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2000.
SEC. 413. MODIFICATION OF TOP-HEAVY RULES.
(a) SIMPLIFICATION OF DEFINITION OF KEY EM-
PLOYEE.—
(1) IN GENERAL.—Section 416(i)(1)(A) (defin-
ing key employee) is amended—
108
(A) by striking ‘‘or any of the 4 preceding
plan years’’ in the matter preceding clause (i);
(B) by striking clause (i) and inserting the
following:
‘‘(i) an officer of the employer having
an annual compensation greater than
$115,000,’’;
(C) by striking clause (ii) and redesig-
nating clauses (iii) and (iv) as clauses (ii) and
(iii), respectively; and
(D) by striking the second sentence in the
matter following clause (iii), as redesignated by
subparagraph (C).
(2) 
COST-OF-LIVING
ADJUSTMENT.—Section
416(i)(1) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(E) COST-OF-LIVING
ADJUSTMENT.—In
the case of a year beginning after December 31,
2001, the Secretary shall adjust the $115,000
amount under subparagraph (A)(i) at the same
time and in the same manner as under section
415(d), except that the base period taken into
account shall be the calendar quarter beginning
July 1, 2000, and any increase under this sub-
paragraph which is not a multiple of $5,000
109
shall be rounded to the next lower multiple of
$5,000.’’.
(3) 
CONFORMING
AMENDMENT.—Section
416(i)(1)(B)(iii) is amended by striking ‘‘and sub-
paragraph (A)(ii)’’.
(b) MATCHING CONTRIBUTIONS TAKEN INTO AC-
COUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS.—
Section 416(c)(2)(A) (relating to defined contribution
plans) is amended by adding at the end the following:
‘‘Employer matching contributions (as defined in section
401(m)(4)(A)) shall be taken into account for purposes
of this subparagraph.’’.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE
DETERMINATION DATE TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Paragraph (3) of section
416(g) is amended to read as follows:
‘‘(3) DISTRIBUTIONS DURING LAST YEAR BE-
FORE
DETERMINATION
DATE
TAKEN
INTO
AC-
COUNT.—
‘‘(A) IN
GENERAL.—For purposes of
determining—
‘‘(i) the present value of the cumu-
lative accrued benefit for any employee, or
‘‘(ii) the amount of the account of any
employee,
110
such present value or amount shall be increased
by the aggregate distributions made with re-
spect to such employee under the plan during
the 1-year period ending on the determination
date. The preceding sentence shall also apply to
distributions under a terminated plan which if
it had not been terminated would have been re-
quired to be included in an aggregation group.
‘‘(B) 5-YEAR PERIOD IN CASE OF IN-SERV-
ICE
DISTRIBUTION.—In the case of any dis-
tribution made for a reason other than separa-
tion from service, death, or disability, subpara-
graph (A) shall be applied by substituting ‘5-
year period’ for ‘1-year period’.’’.
(2) BENEFITS NOT TAKEN INTO ACCOUNT.—
Subparagraph 
(E) 
of 
section 
416(g)(4) 
is
amended—
(A) by striking ‘‘LAST 5 YEARS’’ in the
heading and inserting ‘‘LAST YEAR BEFORE DE-
TERMINATION DATE’’; and
(B) by striking ‘‘5-year period’’ and insert-
ing ‘‘1-year period’’.
(d) DEFINITION OF TOP-HEAVY PLANS.—Paragraph
(4) of section 416(g) (relating to other special rules for
111
top-heavy plans) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(H) CASH OR DEFERRED ARRANGEMENTS
USING
ALTERNATIVE
METHODS
OF
MEETING
NONDISCRIMINATION
REQUIREMENTS.—The
term ‘top-heavy plan’ shall not include a plan
which consists solely of—
‘‘(i) a cash or deferred arrangement
which meets the requirements of section
401(k)(12), and
‘‘(ii) matching contributions with re-
spect to which the requirements of section
401(m)(11) are met.
If, but for this subparagraph, a plan would be
treated as a top-heavy plan because it is a
member of an aggregation group which is a top-
heavy group, contributions under the plan may
be taken into account in determining whether
any other plan in the group meets the require-
ments of subsection (c)(2).’’.
(e) FROZEN PLAN EXEMPT FROM MINIMUM BEN-
EFIT
REQUIREMENT.—Subparagraph (C) of section
416(c)(1) (relating to defined benefit plans) is amended—
(A) by striking ‘‘clause (ii)’’ in clause (i)
and inserting ‘‘clause (ii) or (iii)’’; and
112
(B) by adding at the end the following:
‘‘(iii) 
EXCEPTION
FOR
FROZEN
PLAN.—For purposes of determining an
employee’s years of service with the em-
ployer, any service with the employer shall
be disregarded to the extent that such
service occurs during a plan year when the
plan benefits (within the meaning of sec-
tion 410(b)) no key employee or former
key employee.’’.
(f) ELIMINATION OF FAMILY ATTRIBUTION.—Sec-
tion 416(i)(1)(B) (defining 5-percent owner) is amended
by adding at the end the following new clause:
‘‘(iv) 
FAMILY
ATTRIBUTION
DIS-
REGARDED.—Solely for purposes of apply-
ing this paragraph (and not for purposes
of any provision of this title which incor-
porates by reference the definition of a key
employee or 5-percent owner under this
paragraph), section 318 shall be applied
without regard to subsection (a)(1) thereof
in determining whether any person is a 5-
percent owner.’’.
113
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 414. ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIM-
ITS.
(a) IN GENERAL.—Section 404 (relating to deduction
for contributions of an employer to an employees’ trust
or annuity plan and compensation under a deferred pay-
ment plan) is amended by adding at the end the following
new subsection:
‘‘(n) ELECTIVE DEFERRALS NOT TAKEN INTO AC-
COUNT FOR PURPOSES OF DEDUCTION LIMITS.—Elective
deferrals (as defined in section 402(g)(3)) shall not be
subject to any limitation contained in paragraph (3), (7),
or (9) of subsection (a), and such elective deferrals shall
not be taken into account in applying any such limitation
to any other contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2000.
114
SEC. 415. REPEAL OF COORDINATION REQUIREMENTS FOR
DEFERRED COMPENSATION PLANS OF STATE
AND LOCAL GOVERNMENTS AND TAX-EX-
EMPT ORGANIZATIONS.
(a) IN GENERAL.—Subsection (c) of section 457 (re-
lating to deferred compensation plans of State and local
governments and tax-exempt organizations), as amended
by section 411, is amended to read as follows:
‘‘(c) LIMITATION.—The maximum amount of the
compensation of any one individual which may be deferred
under subsection (a) during any taxable year shall not ex-
ceed the amount in effect under subsection (b)(2)(A) (as
modified by any adjustment provided under subsection
(b)(3)).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 2000.
SEC. 416. ELIMINATION OF USER FEE FOR REQUESTS TO
IRS REGARDING PENSION PLANS.
(a) ELIMINATION OF CERTAIN USER FEES.—The
Secretary of the Treasury or the Secretary’s delegate shall
not require payment of user fees under the program estab-
lished under section 10511 of the Revenue Act of 1987
for requests to the Internal Revenue Service for deter-
mination letters with respect to the qualified status of a
pension benefit plan maintained solely by one or more eli-
115
gible employers or any trust which is part of the plan.
The preceding sentence shall not apply to any request—
(1) made after the later of—
(A) the fifth plan year the pension benefit
plan is in existence; or
(B) the end of any remedial amendment
period with respect to the plan beginning within
the first 5 plan years; or
(2) made by the sponsor of any prototype or
similar plan which the sponsor intends to market to
participating employers.
(b) PENSION BENEFIT PLAN.—For purposes of this
section, the term ‘‘pension benefit plan’’ means a pension,
profit-sharing, stock bonus, annuity, or employee stock
ownership plan.
(c) ELIGIBLE EMPLOYER.—For purposes of this sec-
tion, the term ‘‘eligible employer’’ has the same meaning
given such term in section 408(p)(2)(C)(i)(I) of the Inter-
nal Revenue Code of 1986. The determination of whether
an employer is an eligible employer under this section shall
be made as of the date of the request described in sub-
section (a).
(d) 
DETERMINATION
OF
AVERAGE
FEES
CHARGED.—For purposes of any determination of average
116
fees charged, any request to which subsection (a) applies
shall not be taken into account.
(e) EFFECTIVE DATE.—The provisions of this section
shall apply with respect to requests made after December
31, 2000.
SEC. 417. DEDUCTION LIMITS.
(a) MODIFICATION OF LIMITS.—
(1) STOCK
BONUS
AND
PROFIT
SHARING
TRUSTS.—
(A) IN GENERAL.—Subclause (I) of section
404(a)(3)(A)(i) (relating to stock bonus and
profit sharing trusts) is amended by striking
‘‘15 percent’’ and inserting ‘‘25 percent’’.
(B) CONFORMING AMENDMENT.—Subpara-
graph (C) of section 404(h)(1) is amended by
striking ‘‘15 percent’’ each place it appears and
inserting ‘‘25 percent’’.
(2) DEFINED CONTRIBUTION PLANS.—
(A) IN GENERAL.—Clause (v) of section
404(a)(3)(A) (relating to stock bonus and profit
sharing trusts) is amended to read as follows:
‘‘(v) DEFINED CONTRIBUTION PLANS
SUBJECT TO THE FUNDING STANDARDS.—
Except as provided by the Secretary, a de-
fined contribution plan which is subject to
117
the funding standards of section 412 shall
be treated in the same manner as a stock
bonus or profit-sharing plan for purposes
of this subparagraph.’’.
(B) CONFORMING AMENDMENTS.—
(i) Section 404(a)(1)(A) is amended
by inserting ‘‘(other than a trust to which
paragraph (3) applies)’’ after ‘‘pension
trust’’.
(ii) Section 404(h)(2) is amended by
striking ‘‘stock bonus or profit-sharing
trust’’ and inserting ‘‘trust subject to sub-
section (a)(3)(A)’’.
(iii) The heading of section 404(h)(2)
is amended by striking ‘‘STOCK
BONUS
AND PROFIT-SHARING TRUST’’ and insert-
ing ‘‘CERTAIN TRUSTS’’.
(b) COMPENSATION.—
(1) IN GENERAL.—Section 404(a) (relating to
general rule) is amended by adding at the end the
following:
‘‘(12) DEFINITION
OF
COMPENSATION.—For
purposes of paragraphs (3), (7), (8), and (9), the
term ‘compensation’ shall include amounts treated
118
as participant’s compensation under subparagraph
(C) or (D) of section 415(c)(3).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 404(a)(3)
is amended by striking the last sentence there-
of.
(B) Clause (i) of section 4972(c)(6)(B) is
amended by striking ‘‘(within the meaning of
section 404(a))’’ and inserting ‘‘(within the
meaning of section 404(a) and as adjusted
under section 404(a)(12))’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 418. OPTION TO TREAT ELECTIVE DEFERRALS AS
AFTER-TAX ROTH CONTRIBUTIONS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to deferred compensation, etc.)
is amended by inserting after section 402 the following
new section:
‘‘SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFER-
RALS AS ROTH CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—If an applicable retirement
plan includes a qualified Roth contribution program—
119
‘‘(1) any designated Roth contribution made by
an employee pursuant to the program shall be treat-
ed as an elective deferral for purposes of this chap-
ter, except that such contribution shall not be ex-
cludable from gross income, and
‘‘(2) such plan (and any arrangement which is
part of such plan) shall not be treated as failing to
meet any requirement of this chapter solely by rea-
son of including such program.
‘‘(b) QUALIFIED ROTH CONTRIBUTION PROGRAM.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified Roth
contribution program’ means a program under which
an employee may elect to make designated Roth con-
tributions in lieu of all or a portion of elective defer-
rals the employee is otherwise eligible to make under
the applicable retirement plan.
‘‘(2) SEPARATE
ACCOUNTING
REQUIRED.—A
program shall not be treated as a qualified Roth
contribution program unless the applicable retire-
ment plan—
‘‘(A) establishes separate accounts (‘des-
ignated Roth accounts’) for the designated Roth
contributions of each employee and any earn-
ings properly allocable to the contributions, and
120
‘‘(B) maintains separate recordkeeping
with respect to each account.
‘‘(c) DEFINITIONS AND RULES RELATING TO DES-
IGNATED ROTH CONTRIBUTIONS.—For purposes of this
section—
‘‘(1) DESIGNATED ROTH CONTRIBUTION.—The
term ‘designated Roth contribution’ means any elec-
tive deferral which—
‘‘(A) is excludable from gross income of an
employee without regard to this section, and
‘‘(B) the employee designates (at such time
and in such manner as the Secretary may pre-
scribe) as not being so excludable.
‘‘(2) DESIGNATION
LIMITS.—The amount of
elective deferrals which an employee may designate
under paragraph (1) shall not exceed the excess (if
any) of—
‘‘(A) the maximum amount of elective de-
ferrals excludable from gross income of the em-
ployee for the taxable year (without regard to
this section), over
‘‘(B) the aggregate amount of elective de-
ferrals of the employee for the taxable year
which the employee does not designate under
paragraph (1).
121
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—A rollover contribu-
tion of any payment or distribution from a des-
ignated Roth account which is otherwise allow-
able under this chapter may be made only if the
contribution is to—
‘‘(i) another designated Roth account
of the individual from whose account the
payment or distribution was made, or
‘‘(ii) a Roth IRA of such individual.
‘‘(B) COORDINATION
WITH
LIMIT.—Any
rollover contribution to a designated Roth ac-
count under subparagraph (A) shall not be
taken into account for purposes of paragraph
(1).
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) EXCLUSION.—Any qualified distribution
from a designated Roth account shall not be includ-
ible in gross income.
‘‘(2) QUALIFIED DISTRIBUTION.—For purposes
of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
distribution’ has the meaning given such term
122
by section 408A(d)(2)(A) (without regard to
clause (iv) thereof).
‘‘(B) DISTRIBUTIONS WITHIN NONEXCLU-
SION PERIOD.—A payment or distribution from
a designated Roth account shall not be treated
as a qualified distribution if such payment or
distribution is made within the 5-taxable-year
period beginning with the earlier of—
‘‘(i) the first taxable year for which
the individual made a designated Roth con-
tribution to any designated Roth account
established for such individual under the
same applicable retirement plan, or
‘‘(ii) if a rollover contribution was
made to such designated Roth account
from a designated Roth account previously
established for such individual under an-
other applicable retirement plan, the first
taxable year for which the individual made
a designated Roth contribution to such
previously established account.
‘‘(C) DISTRIBUTIONS OF EXCESS DEFER-
RALS
AND
CONTRIBUTIONS
AND
EARNINGS
THEREON.—The term ‘qualified distribution’
shall not include any distribution of any excess
123
deferral under section 402(g)(2) or any excess
contribution under section 401(k)(8), and any
income on the excess deferral or contribution.
‘‘(3) TREATMENT OF DISTRIBUTIONS OF CER-
TAIN EXCESS DEFERRALS.—Notwithstanding section
72, if any excess deferral under section 402(g)(2) at-
tributable to a designated Roth contribution is not
distributed on or before the 1st April 15 following
the close of the taxable year in which such excess de-
ferral is made, the amount of such excess deferral
shall—
‘‘(A) not be treated as investment in the
contract, and
‘‘(B) be included in gross income for the
taxable year in which such excess is distributed.
‘‘(4) AGGREGATION RULES.—Section 72 shall
be applied separately with respect to distributions
and payments from a designated Roth account and
other distributions and payments from the plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) APPLICABLE
RETIREMENT
PLAN.—The
term ‘applicable retirement plan’ means—
124
‘‘(A) an employees’ trust described in sec-
tion 401(a) which is exempt from tax under
section 501(a), and
‘‘(B) a plan under which amounts are con-
tributed by an individual’s employer for an an-
nuity contract described in section 403(b).
‘‘(2) ELECTIVE DEFERRAL.—The term ‘elective
deferral’ means any elective deferral described in
subparagraph (A) or (C) of section 402(g)(3).’’.
(b) EXCESS DEFERRALS.—Section 402(g) (relating
to limitation on exclusion for elective deferrals) is
amended—
(1) by adding at the end of paragraph (1)(A)
(as added by section 201(d)(1)) the following new
sentence: ‘‘The preceding sentence shall not apply to
the portion of such excess as does not exceed the
designated Roth contributions of the individual for
the taxable year.’’; and
(2) by inserting ‘‘(or would be included but for
the last sentence thereof)’’ after ‘‘paragraph (1)’’ in
paragraph (2)(A).
(c) ROLLOVERS.—Subparagraph (B) of section
402(c)(8) is amended by adding at the end the following:
‘‘If any portion of an eligible rollover distribu-
tion is attributable to payments or distributions
125
from a designated Roth account (as defined in
section 402A), an eligible retirement plan with
respect to such portion shall include only an-
other designated Roth account and a Roth
IRA.’’.
(d) REPORTING REQUIREMENTS.—
(1) W–2 INFORMATION.—Section 6051(a)(8) is
amended by inserting ‘‘, including the amount of
designated Roth contributions (as defined in section
402A)’’ before the comma at the end.
(2) INFORMATION.—Section 6047 is amended
by redesignating subsection (f) as subsection (g) and
by inserting after subsection (e) the following new
subsection:
‘‘(f) DESIGNATED ROTH CONTRIBUTIONS.—The Sec-
retary shall require the plan administrator of each applica-
ble retirement plan (as defined in section 402A) to make
such returns and reports regarding designated Roth con-
tributions (as defined in section 402A) to the Secretary,
participants and beneficiaries of the plan, and such other
persons as the Secretary may prescribe.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 408A(e) is amended by adding after
the first sentence the following new sentence: ‘‘Such
126
term includes a rollover contribution described in
section 402A(c)(3)(A).’’.
(2) The table of sections for subpart A of part
I of subchapter D of chapter 1 is amended by insert-
ing after the item relating to section 402 the fol-
lowing new item:
‘‘Sec. 402A. Optional treatment of elective deferrals as Roth con-
tributions.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle C—Enhancing Fairness
For Women
SEC. 421. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS
AGE 50 OR OVER.
(a) IN GENERAL.—Section 414 (relating to defini-
tions and special rules) is amended by adding at the end
the following new subsection:
‘‘(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS
AGE 50 OR OVER.—
‘‘(1) IN
GENERAL.—An applicable employer
plan shall not be treated as failing to meet any re-
quirement of this title solely because the plan per-
mits an eligible participant to make additional elec-
tive deferrals in any plan year.
127
‘‘(2) LIMITATION ON AMOUNT OF ADDITIONAL
DEFERRALS.—
‘‘(A) IN GENERAL.—A plan shall not per-
mit additional elective deferrals under para-
graph (1) for any year in an amount greater
than the lesser of—
‘‘(i) the applicable deferral amount, or
‘‘(ii) the excess (if any) of—
‘‘(I) the participant’s compensa-
tion for the year, over
‘‘(II) any other elective deferrals
of the participant for such year which
are made without regard to this sub-
section.
‘‘(B) APPLICABLE
DEFERRAL
AMOUNT;
COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A)(i), the applicable defer-
ral amount shall be the amount determined
in accordance with the following table:
‘‘For taxable years
The applicable
beginning in
deferral amount:
calendar year:
2001 ......................................................................
$1,000
2002 ......................................................................
$2,000
2003 ......................................................................
$3,000
2004 ......................................................................
$4,000
2005 or thereafter ................................................
$5,000.
128
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—
In the case of a year beginning after De-
cember 31, 2005, the Secretary shall ad-
just the $5,000 amount under clause (i) at
the same time and in the same manner as
under section 415(d), except that the base
period taken into account shall be the cal-
endar quarter beginning July 1, 2004, and
any increase under this subparagraph
which is not a multiple of $500 shall be
rounded to the next lower multiple of
$500.
‘‘(3) TREATMENT OF CONTRIBUTIONS.—In the
case of any contribution to a plan under paragraph
(1), such contribution shall not, with respect to the
year in which the contribution is made—
‘‘(A) be subject to any otherwise applicable
limitation 
contained 
in 
section 
402(g),
402(h)(2), 404(a), 404(h), 408(p)(2)(A)(ii),
415, or 457, or
‘‘(B) be taken into account in applying
such limitations to other contributions or bene-
fits under such plan or any other such plan.
‘‘(4) APPLICATION
OF
NONDISCRIMINATION
RULES.—
129
‘‘(A) IN
GENERAL.—An applicable em-
ployer plan shall not be treated as failing to
meet the nondiscrimination requirements under
section 401(a)(4) with respect to benefits,
rights, and features if the plan allows all eligi-
ble participants to make the same election with
respect to the additional elective deferrals under
this subsection.
‘‘(B) AGGREGATION.—For purposes of
subparagraph (A), all plans maintained by em-
ployers who are treated as a single employer
under subsection (b), (c), (m), or (o) of section
414 shall be treated as 1 plan.
‘‘(5) ELIGIBLE PARTICIPANT.—For purposes of
this subsection, the term ‘eligible participant’ means,
with respect to any plan year, a participant in a
plan—
‘‘(A) who has attained the age of 50 before
the close of the plan year, and
‘‘(B) with respect to whom no other elec-
tive deferrals may (without regard to this sub-
section) be made to the plan for the plan year
by reason of the application of any limitation or
other restriction described in paragraph (3) or
130
any comparable limitation contained in the
terms of the plan.
‘‘(6) OTHER
DEFINITIONS
AND
RULES.—For
purposes of this subsection—
‘‘(A) APPLICABLE EMPLOYER PLAN.—The
term ‘applicable employer plan’ means—
‘‘(i) an employees’ trust described in
section 401(a) which is exempt from tax
under section 501(a),
‘‘(ii) a plan under which amounts are
contributed by an individual’s employer for
an annuity contract described in section
403(b),
‘‘(iii) an eligible deferred compensa-
tion plan under section 457 of an eligible
employer 
as 
defined 
in 
section
457(e)(1)(A), and
‘‘(iv) an arrangement meeting the re-
quirements of section 408 (k) or (p).
‘‘(B) ELECTIVE
DEFERRAL.—The term
‘elective deferral’ has the meaning given such
term by subsection (u)(2)(C).
‘‘(C) 
EXCEPTION
FOR
SECTION
457
PLANS.—This subsection shall not apply to an
applicable employer plan described in subpara-
131
graph (A)(iii) for any year to which section
457(b)(3) applies.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions in taxable years
beginning after December 31, 2000.
SEC. 422. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF
EMPLOYEES 
TO 
DEFINED 
CONTRIBUTION
PLANS.
(a) EQUITABLE TREATMENT.—
(1) IN GENERAL.—Subparagraph (B) of section
415(c)(1) (relating to limitation for defined con-
tribution plans) is amended by striking ‘‘25 percent’’
and inserting ‘‘100 percent’’.
(2) APPLICATION TO SECTION 403(b).—Section
403(b) is amended—
(A) by striking ‘‘the exclusion allowance
for such taxable year’’ in paragraph (1) and in-
serting ‘‘the applicable limit under section
415’’;
(B) by striking paragraph (2); and
(C) by inserting ‘‘or any amount received
by a former employee after the fifth taxable
year following the taxable year in which such
employee was terminated’’ before the period at
132
the end of the second sentence of paragraph
(3).
(3) CONFORMING AMENDMENTS.—
(A) Subsection (f) of section 72 is amend-
ed by striking ‘‘section 403(b)(2)(D)(iii))’’ and
inserting ‘‘section 403(b)(2)(D)(iii), as in effect
before the enactment of the Retirement Savings
and Pension Coverage Act of 2000)’’.
(B) Section 404(a)(10)(B) is amended by
striking ‘‘, the exclusion allowance under sec-
tion 403(b)(2),’’.
(C) Section 415(a)(2) is amended by strik-
ing ‘‘, and the amount of the contribution for
such portion shall reduce the exclusion allow-
ance as provided in section 403(b)(2)’’.
(D) Section 415(c)(3) is amended by add-
ing at the end the following new subparagraph:
‘‘(E) ANNUITY CONTRACTS.—In the case
of an annuity contract described in section
403(b), the term ‘participant’s compensation’
means the participant’s includible compensation
determined under section 403(b)(3).’’.
(E) Section 415(c) is amended by striking
paragraph (4).
133
(F) Section 415(c)(7) is amended to read
as follows:
‘‘(7) CERTAIN
CONTRIBUTIONS
BY
CHURCH
PLANS NOT TREATED AS EXCEEDING LIMIT.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this subsection, at the elec-
tion of a participant who is an employee of a
church or a convention or association of church-
es, including an organization described in sec-
tion 414(e)(3)(B)(ii), contributions and other
additions for an annuity contract or retirement
income account described in section 403(b) with
respect to such participant, when expressed as
an annual addition to such participant’s ac-
count, shall be treated as not exceeding the lim-
itation of paragraph (1) if such annual addition
is not in excess of $10,000.
‘‘(B) $40,000 AGGREGATE LIMITATION.—
The total amount of additions with respect to
any participant which may be taken into ac-
count for purposes of this subparagraph for all
years may not exceed $40,000.
‘‘(C) ANNUAL ADDITION.—For purposes of
this paragraph, the term ‘annual addition’ has
134
the meaning given such term by paragraph
(2).’’.
(G) Subparagraph (B) of section 402(g)(7)
(as redesignated by section 201(d)(3)(A)) is
amended by inserting before the period at the
end the following: ‘‘(as in effect before the en-
actment of the Retirement Savings and Pension
Coverage Act of 2000)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning
after December 31, 2000.
(b) SPECIAL RULES
FOR SECTIONS 403(b) AND
408.—
(1) IN
GENERAL.—Subsection (k) of section
415 is amended by adding at the end the following
new paragraph:
‘‘(4) SPECIAL RULES FOR SECTIONS 403(b) AND
408.—For purposes of this section, any annuity con-
tract described in section 403(b) for the benefit of
a participant shall be treated as a defined contribu-
tion plan maintained by each employer with respect
to which the participant has the control required
under subsection (b) or (c) of section 414 (as modi-
fied by subsection (h)). For purposes of this section,
any contribution by an employer to a simplified em-
135
ployee pension plan for an individual for a taxable
year shall be treated as an employer contribution to
a defined contribution plan for such individual for
such year.’’.
(2) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendment made
by paragraph (1) shall apply to limitation years
beginning after December 31, 1999.
(B) EXCLUSION
ALLOWANCE.—Effective
for limitation years beginning in 2000, in the
case of any annuity contract described in sec-
tion 403(b) of the Internal Revenue Code of
1986, the amount of the contribution disquali-
fied by reason of section 415(g) of such Code
shall reduce the exclusion allowance as provided
in section 403(b)(2) of such Code.
(3) MODIFICATION OF 403(b) EXCLUSION AL-
LOWANCE TO CONFORM TO 415 MODIFICATION.—The
Secretary of the Treasury shall modify the regula-
tions regarding the exclusion allowance under section
403(b)(2) of the Internal Revenue Code of 1986 to
render void the requirement that contributions to a
defined benefit pension plan be treated as previously
excluded amounts for purposes of the exclusion al-
lowance. For taxable years beginning after Decem-
136
ber 31, 1999, such regulations shall be applied as if
such requirement were void.
(c) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—
(1) IN GENERAL.—Subparagraph (B) of section
457(b)(2) (relating to salary limitation on eligible
deferred compensation plans) is amended by striking
‘‘331⁄3 percent’’ and inserting ‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2000.
SEC. 
423. 
FASTER 
VESTING 
OF 
CERTAIN 
EMPLOYER
MATCHING CONTRIBUTIONS.
(a) IN GENERAL.—Section 411(a) (relating to min-
imum vesting standards) is amended—
(1) in paragraph (2), by striking ‘‘A plan’’ and
inserting ‘‘Except as provided in paragraph (12), a
plan’’; and
(2) by adding at the end the following:
‘‘(12) FASTER VESTING FOR MATCHING CON-
TRIBUTIONS.—In the case of matching contributions
(as defined in section 401(m)(4)(A)), paragraph (2)
shall be applied—
137
‘‘(A) by substituting ‘3 years’ for ‘5 years’
in subparagraph (A), and
‘‘(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...................................................................................
3 ...................................................................................
4 ...................................................................................
5 ...................................................................................
6 ...................................................................................
100.’’.
(b) AMENDMENT OF ERISA.—Section 203(a) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1053(a)) is amended—
(1) in paragraph (2), by striking ‘‘A plan’’ and
inserting ‘‘Except as provided in paragraph (4), a
plan’’, and
(2) by adding at the end the following:
‘‘(4) In the case of matching contributions (as
defined in section 401(m)(4)(A) of the Internal Rev-
enue Code of 1986), paragraph (2) shall be
applied—
‘‘(A) by substituting ‘3 years’ for ‘5 years’
in subparagraph (A), and
‘‘(B) by substituting the following table for
the table contained in subparagraph (B):
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...................................................................................
3 ...................................................................................
4 ...................................................................................
138
5 ...................................................................................
6 ...................................................................................
100.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to contributions for plan years beginning
after December 31, 2000.
(2) COLLECTIVE BARGAINING AGREEMENTS.—
In the case of a plan maintained pursuant to one or
more collective bargaining agreements between em-
ployee representatives and one or more employers
ratified by the date of the enactment of this Act, the
amendments made by this section shall not apply to
contributions on behalf of employees covered by any
such agreement for plan years beginning before the
earlier of—
(A) the later of—
(i) the date on which the last of such
collective bargaining agreements termi-
nates (determined without regard to any
extension thereof on or after such date of
the enactment); or
(ii) January 1, 2001; or
(B) January 1, 2005.
(3) SERVICE REQUIRED.—With respect to any
plan, the amendments made by this section shall not
139
apply to any employee before the date that such em-
ployee has 1 hour of service under such plan in any
plan year to which the amendments made by this
section apply.
SEC. 424. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBU-
TION RULES.
(a) SIMPLIFICATION
AND FINALIZATION
OF MIN-
IMUM DISTRIBUTION REQUIREMENTS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall—
(A) simplify and finalize the regulations re-
lating to minimum distribution requirements
under sections 401(a)(9), 408(a)(6) and (b)(3),
403(b)(10), and 457(d)(2) of the Internal Rev-
enue Code of 1986; and
(B) modify such regulations to—
(i) reflect current life expectancy; and
(ii) revise the required distribution
methods so that, under reasonable assump-
tions, the amount of the required minimum
distribution does not decrease over a par-
ticipant’s life expectancy.
(2) FRESH START.—Notwithstanding subpara-
graph (D) of section 401(a)(9) of such Code, during
the first year that regulations are in effect under
140
this subsection, required distributions for future
years may be redetermined to reflect changes under
such regulations. Such redetermination shall include
the opportunity to choose a new designated bene-
ficiary and to elect a new method of calculating life
expectancy.
(3) DATE FOR REGULATIONS.—Not later than
December 31, 2001, the Secretary shall issue final
regulations described in paragraph (1) and such reg-
ulations shall apply without regard to whether an in-
dividual had previously begun receiving minimum
distributions.
(b) REPEAL OF RULE WHERE DISTRIBUTIONS HAD
BEGUN BEFORE DEATH OCCURS.—
(1) IN GENERAL.—Subparagraph (B) of section
401(a)(9) is amended by striking clause (i) and re-
designating clauses (ii), (iii), and (iv) as clauses (i),
(ii), and (iii), respectively.
(2) CONFORMING CHANGES.—
(A) Clause (i) of section 401(a)(9)(B) (as
so redesignated) is amended—
(i) by striking ‘‘FOR OTHER CASES’’ in
the heading; and
(ii) by striking ‘‘the distribution of the
employee’s interest has begun in accord-
141
ance with subparagraph (A)(ii)’’ and in-
serting ‘‘his entire interest has been dis-
tributed to him’’.
(B) Clause (ii) of section 401(a)(9)(B) (as
so redesignated) is amended by striking ‘‘clause
(ii)’’ and inserting ‘‘clause (i)’’.
(C) Clause (iii) of section 401(a)(9)(B) (as
so redesignated) is amended—
(i) by striking ‘‘clause (iii)(I)’’ and in-
serting ‘‘clause (ii)(I)’’;
(ii) by striking ‘‘clause (iii)(III)’’ in
subclause 
(I) 
and 
inserting 
‘‘clause
(ii)(III)’’;
(iii) by striking ‘‘the date on which
the employee would have attained age
701⁄2,’’ in subclause (I) and inserting
‘‘April 1 of the calendar year following the
calendar year in which the spouse attains
701⁄2,’’; and
(iv) by striking ‘‘the distributions to
such spouse begin,’’ in subclause (II) and
inserting ‘‘his entire interest has been dis-
tributed to him,’’.
(3) EFFECTIVE DATE.—
142
(A) IN GENERAL.—Except as provided in
subparagraph (B), the amendments made by
this subsection shall apply to years beginning
after December 31, 2000.
(B) 
DISTRIBUTIONS
TO
SURVIVING
SPOUSE.—
(i) IN GENERAL.—In the case of an
employee described in clause (ii), distribu-
tions to the surviving spouse of the em-
ployee shall not be required to commence
prior to the date on which such distribu-
tions would have been required to begin
under section 401(a)(9)(B) of the Internal
Revenue Code of 1986 (as in effect on the
day before the date of the enactment of
this Act).
(ii) CERTAIN
EMPLOYEES.—An em-
ployee is described in this clause if such
employee dies before—
(I) the date of the enactment of
this Act, and
(II) the required beginning date
(within 
the 
meaning 
of 
section
401(a)(9)(C) of the Internal Revenue
Code of 1986) of the employee.
143
(c) REDUCTION IN EXCISE TAX.—
(1) IN
GENERAL.—Subsection (a) of section
4974 is amended by striking ‘‘50 percent’’ and in-
serting ‘‘10 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2000.
SEC. 425. CLARIFICATION OF TAX TREATMENT OF DIVISION
OF SECTION 457 PLAN BENEFITS UPON DI-
VORCE.
(a) IN GENERAL.—Section 414(p)(11) (relating to
application of rules to governmental and church plans) is
amended—
(1) by inserting ‘‘or an eligible deferred com-
pensation plan (within the meaning of section
457(b))’’ after ‘‘subsection (e))’’; and
(2) in the heading, by striking ‘‘GOVERN-
MENTAL AND CHURCH PLANS’’ and inserting ‘‘CER-
TAIN OTHER PLANS’’.
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIRE-
MENTS.—Paragraph (10) of section 414(p) is amended by
striking ‘‘and section 409(d)’’ and inserting ‘‘section
409(d), and section 457(d)’’.
(c) TAX TREATMENT OF PAYMENTS FROM A SEC-
TION 457 PLAN.—Subsection (p) of section 414 is amend-
144
ed by redesignating paragraph (12) as paragraph (13) and
inserting after paragraph (11) the following new para-
graph:
‘‘(12) TAX TREATMENT OF PAYMENTS FROM A
SECTION 457 PLAN.—If a distribution or payment
from an eligible deferred compensation plan de-
scribed in section 457(b) is made pursuant to a
qualified domestic relations order, rules similar to
the rules of section 402(e)(1)(A) shall apply to such
distribution or payment.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers, distributions, and
payments made after December 31, 2000.
SEC. 426. PROVISIONS RELATING TO HARDSHIP DISTRIBU-
TIONS.
(a) SAFE HARBOR RELIEF.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall revise the regulations relating to hardship
distributions under section 401(k)(2)(B)(i)(IV) of
the Internal Revenue Code of 1986 to provide that
the period an employee is prohibited from making
elective and employee contributions in order for a
distribution to be deemed necessary to satisfy finan-
cial need shall be equal to 6 months.
145
(2) EFFECTIVE DATE.—The revised regulations
under this subsection shall apply to years beginning
after December 31, 2000.
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS
ELIGIBLE ROLLOVER DISTRIBUTIONS.—
(1) MODIFICATION OF DEFINITION OF ELIGI-
BLE ROLLOVER.—Section 402(c)(4)(C) (relating to
eligible rollover distribution) is amended by striking
‘‘described in section 401(k)(2)(B)(i)(IV)’’ and in-
serting ‘‘under the terms of the plan’’.
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to distributions made
after December 31, 2001, unless a plan adminis-
trator elects to apply such amendment to distribu-
tions made after December 31, 2000.
SEC. 427. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBU-
TIONS FOR DOMESTIC OR SIMILAR WORKERS.
(a) IN GENERAL.—Section 4972(c)(6) (relating to
exceptions to nondeductible contributions), as amended by
section 442(b), is amended by striking ‘‘or’’ at the end
of subparagraph (A), by striking the period and inserting
‘‘, or’’ at the end of subparagraph (B), and by inserting
after subparagraph (B) the following new subparagraph:
‘‘(C) so much of the contributions to a
qualified employer plan which are not deduct-
146
ible when contributed solely because such con-
tributions are not made in connection with a
trade or business of the employer.’’.
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS.—Sec-
tion 4972(c)(6), as amended by subsection (a), is amended
by adding at the end the following new sentence: ‘‘Sub-
paragraph (C) shall not apply to contributions made on
behalf of the employer or a member of the employer’s fam-
ily (as defined in section 447(e)(1)).’’.
(c) NO INFERENCE.—Nothing in the amendments
made by this section shall be construed to infer the proper
treatment of nondeductible contributions under the laws
in effect before such amendments.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle D—Increasing Portability
For Participants
SEC. 431. ROLLOVERS ALLOWED AMONG VARIOUS TYPES
OF PLANS.
(a) ROLLOVERS
FROM
AND
TO
SECTION
457
PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
147
(A) IN GENERAL.—Section 457(e) (relat-
ing to other definitions and special rules) is
amended by adding at the end the following:
‘‘(16) ROLLOVER AMOUNTS.—
‘‘(A) GENERAL RULE.—In the case of an
eligible deferred compensation plan established
and maintained by an employer described in
subsection (e)(1)(A), if—
‘‘(i) any portion of the balance to the
credit of an employee in such plan is paid
to such employee in an eligible rollover dis-
tribution (within the meaning of section
402(c)(4) without regard to subparagraph
(C) thereof),
‘‘(ii) the employee transfers any por-
tion of the property such employee receives
in such distribution to an eligible retire-
ment 
plan 
described 
in 
section
402(c)(8)(B), and
‘‘(iii) in the case of a distribution of
property other than money, the amount so
transferred consists of the property distrib-
uted,
148
then such distribution (to the extent so trans-
ferred) shall not be includible in gross income
for the taxable year in which paid.
‘‘(B) CERTAIN
RULES
MADE
APPLICA-
BLE.—The rules of paragraphs (2) through (7)
and (9) of section 402(c) and section 402(f)
shall apply for purposes of subparagraph (A).
‘‘(C) REPORTING.—Rollovers under this
paragraph shall be reported to the Secretary in
the same manner as rollovers from qualified re-
tirement 
plans 
(as 
defined 
in 
section
4974(c)).’’.
(B) DEFERRAL LIMIT DETERMINED WITH-
OUT REGARD TO ROLLOVER AMOUNTS.—Section
457(b)(2) (defining eligible deferred compensa-
tion plan) is amended by inserting ‘‘(other than
rollover amounts)’’ after ‘‘taxable year’’.
(C) DIRECT ROLLOVER.—Paragraph (1) of
section 457(d) is amended by striking ‘‘and’’ at
the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and in-
serting ‘‘, and’’, and by inserting after subpara-
graph (B) the following:
‘‘(C) in the case of a plan maintained by
an employer described in subsection (e)(1)(A),
149
the plan meets requirements similar to the re-
quirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trust-
ee transfer in accordance with section 401(a)(31)
shall not be includible in gross income for the tax-
able year of transfer.’’.
(D) WITHHOLDING.—
(i) Paragraph (12) of section 3401(a)
is amended by adding at the end the fol-
lowing:
‘‘(E) under or to an eligible deferred com-
pensation plan which, at the time of such pay-
ment, is a plan described in section 457(b)
maintained by an employer described in section
457(e)(1)(A), or’’.
(ii) Paragraph (3) of section 3405(c)
is amended to read as follows:
‘‘(3) ELIGIBLE ROLLOVER DISTRIBUTION.—For
purposes of this subsection, the term ‘eligible roll-
over distribution’ has the meaning given such term
by section 402(f)(2)(A).’’.
(iii) LIABILITY FOR WITHHOLDING.—
Subparagraph (B) of section 3405(d)(2) is
amended by striking ‘‘or’’ at the end of
clause (ii), by striking the period at the
150
end of clause (iii) and inserting ‘‘, or’’, and
by adding at the end the following:
‘‘(iv) section 457(b) and which is
maintained by an eligible employer de-
scribed in section 457(e)(1)(A).’’.
(2) ROLLOVERS TO SECTION 457 PLANS.—
(A) IN
GENERAL.—Section 402(c)(8)(B)
(defining eligible retirement plan) is amended
by striking ‘‘and’’ at the end of clause (iii), by
striking the period at the end of clause (iv) and
inserting ‘‘, and’’, and by inserting after clause
(iv) the following new clause:
‘‘(v) an eligible deferred compensation
plan described in section 457(b) which is
maintained by an eligible employer de-
scribed in section 457(e)(1)(A).’’.
(B) 
SEPARATE
ACCOUNTING.—Section
402(c) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(11) SEPARATE ACCOUNTING.—Unless a plan
described in clause (v) of paragraph (8)(B) agrees to
separately account for amounts rolled into such plan
from eligible retirement plans not described in such
clause, the plan described in such clause may not ac-
151
cept transfers or rollovers from such retirement
plans.’’.
(C) 10 PERCENT ADDITIONAL TAX.—Sub-
section (t) of section 72 (relating to 10-percent
additional tax on early distributions from quali-
fied retirement plans) is amended by adding at
the end the following new paragraph:
‘‘(9) SPECIAL RULE FOR ROLLOVERS TO SEC-
TION 457 PLANS.—For purposes of this subsection,
a distribution from an eligible deferred compensation
plan (as defined in section 457(b)) of an eligible em-
ployer described in section 457(e)(1)(A) shall be
treated as a distribution from a qualified retirement
plan described in 4974(c)(1) to the extent that such
distribution is attributable to an amount transferred
to an eligible deferred compensation plan from a
qualified retirement plan (as defined in section
4974(c)).’’.
(b) ALLOWANCE
OF ROLLOVERS FROM
AND
TO
403(b) PLANS.—
(1) 
ROLLOVERS
FROM
SECTION
403(b)
PLANS.—Section 403(b)(8)(A)(ii) (relating to roll-
over amounts) is amended by striking ‘‘such dis-
tribution’’ and all that follows and inserting ‘‘such
152
distribution to an eligible retirement plan described
in section 402(c)(8)(B), and’’.
(2) ROLLOVERS TO SECTION 403(b) PLANS.—
Section 402(c)(8)(B) (defining eligible retirement
plan), as amended by subsection (a), is amended by
striking ‘‘and’’ at the end of clause (iv), by striking
the period at the end of clause (v) and inserting ‘‘,
and’’, and by inserting after clause (v) the following
new clause:
‘‘(vi) an annuity contract described in
section 403(b).’’.
(c) EXPANDED EXPLANATION TO RECIPIENTS OF
ROLLOVER DISTRIBUTIONS.—Paragraph (1) of section
402(f) (relating to written explanation to recipients of dis-
tributions eligible for rollover treatment) is amended by
striking ‘‘and’’ at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting
‘‘, and’’, and by adding at the end the following new sub-
paragraph:
‘‘(E) of the provisions under which dis-
tributions from the eligible retirement plan re-
ceiving the distribution may be subject to re-
strictions and tax consequences which are dif-
ferent from those applicable to distributions
from the plan making such distribution.’’.
153
(d) SPOUSAL ROLLOVERS.—Section 402(c)(9) (relat-
ing to rollover where spouse receives distribution after
death of employee) is amended by striking ‘‘; except that’’
and all that follows up to the end period.
(e) CONFORMING AMENDMENTS.—
(1) Section 72(o)(4) is amended by striking
‘‘and 
408(d)(3)’’ 
and 
inserting 
‘‘403(b)(8),
408(d)(3), and 457(e)(16)’’.
(2) Section 219(d)(2) is amended by striking
‘‘or 
408(d)(3)’’ 
and 
inserting 
‘‘408(d)(3), 
or
457(e)(16)’’.
(3) Section 401(a)(31)(B) is amended by strik-
ing ‘‘and 403(a)(4)’’ and inserting ‘‘, 403(a)(4),
403(b)(8), and 457(e)(16)’’.
(4) Subparagraph (A) of section 402(f)(2) is
amended by striking ‘‘or paragraph (4) of section
403(a)’’ and inserting ‘‘, paragraph (4) of section
403(a), subparagraph (A) of section 403(b)(8), or
subparagraph (A) of section 457(e)(16)’’.
(5) Paragraph (1) of section 402(f) is amended
by striking ‘‘from an eligible retirement plan’’.
(6) Subparagraphs (A) and (B) of section
402(f)(1) are amended by striking ‘‘another eligible
retirement plan’’ and inserting ‘‘an eligible retire-
ment plan’’.
154
(7) Subparagraph (B) of section 403(b)(8) is
amended to read as follows:
‘‘(B) CERTAIN
RULES
MADE
APPLICA-
BLE.—The rules of paragraphs (2) through (7)
and (9) of section 402(c) and section 402(f)
shall apply for purposes of subparagraph (A),
except that section 402(f) shall be applied to
the payor in lieu of the plan administrator.’’.
(8) Section 408(a)(1) is amended by striking
‘‘or 403(b)(8),’’ and inserting ‘‘403(b)(8), or
457(e)(16)’’.
(9) Subparagraphs (A) and (B) of section
415(b)(2) are each amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and
457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking
‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and
457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by
striking ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or
457(e)(16)’’.
(f) EFFECTIVE DATE; SPECIAL RULES.—
(1) EFFECTIVE DATE.—Except as provided in
paragraph (2), the amendments made by this section
155
shall apply to distributions after December 31,
2000.
(2) REASONABLE NOTICE.—No penalty shall be
imposed on a plan for the failure to provide the in-
formation required by the amendment made by sub-
section (c) with respect to any distribution made be-
fore January 1, 2002, if the administrator of such
plan makes a reasonable attempt to comply with
such requirement.
(3) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of
section 1122 of the Tax Reform Act of 1986 shall
not apply to any distribution from an eligible retire-
ment plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986)
on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is per-
mitted solely by reason of any amendment made by
this section.
SEC. 432. ROLLOVERS OF IRAS INTO WORKPLACE RETIRE-
MENT PLANS.
(a) IN GENERAL.—Subparagraph (A) of section
408(d)(3) (relating to rollover amounts) is amended by
adding ‘‘or’’ at the end of clause (i), by striking clauses
(ii) and (iii), and by adding at the end the following:
156
‘‘(ii) the entire amount received (in-
cluding money and any other property) is
paid into an eligible retirement plan for
the benefit of such individual not later
than the 60th day after the date on which
the payment or distribution is received, ex-
cept that the maximum amount which may
be paid into such plan may not exceed the
portion of the amount received which is in-
cludible in gross income (determined with-
out regard to this paragraph).
For purposes of clause (ii), the term ‘eligible re-
tirement plan’ means an eligible retirement plan
described in clause (iii), (iv), (v), or (vi) of sec-
tion 402(c)(8)(B).’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 403(b) is amended
by striking ‘‘section 408(d)(3)(A)(iii)’’ and inserting
‘‘section 408(d)(3)(A)(ii)’’.
(2) Clause (i) of section 408(d)(3)(D) is amend-
ed by striking ‘‘(i), (ii), or (iii)’’ and inserting ‘‘(i)
or (ii)’’.
(3) Subparagraph (G) of section 408(d)(3) is
amended to read as follows:
157
‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—In
the case of any payment or distribution out of
a simple retirement account (as defined in sub-
section (p)) to which section 72(t)(6) applies,
this paragraph shall not apply unless such pay-
ment or distribution is paid into another simple
retirement account.’’.
(c) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to distributions after De-
cember 31, 2000.
(2) SPECIAL RULE.—Notwithstanding any other
provision of law, subsections (h)(3) and (h)(5) of
section 1122 of the Tax Reform Act of 1986 shall
not apply to any distribution from an eligible retire-
ment plan (as defined in clause (iii) or (iv) of section
402(c)(8)(B) of the Internal Revenue Code of 1986)
on behalf of an individual if there was a rollover to
such plan on behalf of such individual which is per-
mitted solely by reason of the amendments made by
this section.
SEC. 433. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS FROM EXEMPT TRUSTS.—Para-
graph (2) of section 402(c) (relating to maximum amount
which may be rolled over) is amended by adding at the
158
end the following: ‘‘The preceding sentence shall not apply
to such distribution to the extent—
‘‘(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified trust
which is part of a plan which is a defined con-
tribution plan and which agrees to separately
account for amounts so transferred, including
separately accounting for the portion of such
distribution which is includible in gross income
and the portion of such distribution which is
not so includible, or
‘‘(B) such portion is transferred to an eli-
gible retirement plan described in clause (i) or
(ii) of paragraph (8)(B).’’.
(b) OPTIONAL DIRECT TRANSFER
OF ELIGIBLE
ROLLOVER DISTRIBUTIONS.—Subparagraph (B) of sec-
tion 401(a)(31) (relating to limitation) is amended by add-
ing at the end the following: ‘‘The preceding sentence shall
not apply to such distribution if the plan to which such
distribution is transferred—
‘‘(i) agrees to separately account for
amounts so transferred, including sepa-
rately accounting for the portion of such
distribution which is includible in gross in-
159
come and the portion of such distribution
which is not so includible, or
‘‘(ii) is an eligible retirement plan de-
scribed in clause (i) or (ii) of section
402(c)(8)(B).’’.
(c) RULES FOR APPLYING SECTION 72 TO IRAS.—
Paragraph (3) of section 408(d) (relating to special rules
for applying section 72) is amended by inserting at the
end the following:
‘‘(H) APPLICATION OF SECTION 72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) a distribution is made from
an individual retirement plan, and
‘‘(II) a rollover contribution is
made to an eligible retirement plan
described in section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect to all or
part of such distribution,
then, notwithstanding paragraph (2), the
rules of clause (ii) shall apply for purposes
of applying section 72.
‘‘(ii) APPLICABLE
RULES.—In the
case of a distribution described in clause
(i)—
160
‘‘(I) section 72 shall be applied
separately to such distribution,
‘‘(II) notwithstanding the pro
rata allocation of income on, and in-
vestment in, the contract to distribu-
tions under section 72, the portion of
such distribution rolled over to an eli-
gible retirement plan described in
clause (i) shall be treated as from in-
come on the contract (to the extent of
the aggregate income on the contract
from all individual retirement plans of
the distributee), and
‘‘(III) appropriate adjustments
shall be made in applying section 72
to other distributions in such taxable
year and subsequent taxable years.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions made after Decem-
ber 31, 2001.
SEC. 434. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS.—Paragraph (3) of section
402(c) (relating to transfer must be made within 60 days
of receipt) is amended to read as follows:
161
‘‘(3) TRANSFER
MUST
BE
MADE
WITHIN
DAYS OF RECEIPT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), paragraph (1) shall not
apply to any transfer of a distribution made
after the 60th day following the day on which
the distributee received the property distrib-
uted.
‘‘(B) HARDSHIP
EXCEPTION.—The Sec-
retary may waive the 60-day requirement under
subparagraph (A) where the failure to waive
such requirement would be against equity or
good conscience, including casualty, disaster, or
other events beyond the reasonable control of
the individual subject to such requirement.’’.
(b) IRAS.—Paragraph (3) of section 408(d) (relating
to rollover contributions), as amended by section 433, is
amended by adding after subparagraph (H) the following
new subparagraph:
‘‘(I) WAIVER OF 60-DAY REQUIREMENT.—
The Secretary may waive the 60-day require-
ment under subparagraphs (A) and (D) where
the failure to waive such requirement would be
against equity or good conscience, including
casualty, disaster, or other events beyond the
162
reasonable control of the individual subject to
such requirement.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2000.
SEC. 435. TREATMENT OF FORMS OF DISTRIBUTION.
(a) PLAN TRANSFERS.—
(1) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Paragraph (6) of section 411(d) (relating to
accrued benefit not to be decreased by amendment)
is amended by adding at the end the following:
‘‘(D) PLAN TRANSFERS.—
‘‘(i) IN
GENERAL.—A defined con-
tribution plan (in this subparagraph re-
ferred to as the ‘transferee plan’) shall not
be treated as failing to meet the require-
ments of this subsection merely because
the transferee plan does not provide some
or all of the forms of distribution pre-
viously available under another defined
contribution plan (in this subparagraph re-
ferred to as the ‘transferor plan’) to the
extent that—
‘‘(I) the forms of distribution
previously available under the trans-
163
feror plan applied to the account of a
participant or beneficiary under the
transferor plan that was transferred
from the transferor plan to the trans-
feree plan pursuant to a direct trans-
fer rather than pursuant to a distribu-
tion from the transferor plan,
‘‘(II) the terms of both the trans-
feror plan and the transferee plan au-
thorize the transfer described in sub-
clause (I),
‘‘(III) the transfer described in
subclause (I) was made pursuant to a
voluntary election by the participant
or beneficiary whose account was
transferred to the transferee plan,
‘‘(IV) the election described in
subclause (III) was made after the
participant or beneficiary received a
notice describing the consequences of
making the election, and
‘‘(V) the transferee plan allows
the participant or beneficiary de-
scribed in subclause (III) to receive
any distribution to which the partici-
164
pant or beneficiary is entitled under
the transferee plan in the form of a
single sum distribution.
‘‘(ii) SPECIAL
RULE
FOR
MERGERS;
ETC.—Clause (i) shall apply to plan merg-
ers and other transactions having the ef-
fect of a direct transfer, including consoli-
dations of benefits attributable to different
employers within a multiple employer plan.
‘‘(E) ELIMINATION OF FORM OF DISTRIBU-
TION.—Except to the extent provided in regula-
tions, a defined contribution plan shall not be
treated as failing to meet the requirements of
this section merely because of the elimination of
a form of distribution previously available there-
under. This subparagraph shall not apply to the
elimination of a form of distribution with re-
spect to any participant unless—
‘‘(i) a single sum payment is available
to such participant at the same time or
times as the form of distribution being
eliminated, and
‘‘(ii) such single sum payment is
based on the same or greater portion of
165
the participant’s account as the form of
distribution being eliminated.’’.
(2) AMENDMENT OF ERISA.—Section 204(g) of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1054(g)) is amended by adding at
the end the following:
‘‘(4)(A) A defined contribution plan (in this subpara-
graph referred to as the ‘transferee plan’) shall not be
treated as failing to meet the requirements of this sub-
section merely because the transferee plan does not pro-
vide some or all of the forms of distribution previously
available under another defined contribution plan (in this
subparagraph referred to as the ‘transferor plan’) to the
extent that—
‘‘(i) the forms of distribution previously avail-
able under the transferor plan applied to the account
of a participant or beneficiary under the transferor
plan that was transferred from the transferor plan
to the transferee plan pursuant to a direct transfer
rather than pursuant to a distribution from the
transferor plan;
‘‘(ii) the terms of both the transferor plan and
the transferee plan authorize the transfer described
in clause (i);
166
‘‘(iii) the transfer described in clause (i) was
made pursuant to a voluntary election by the partici-
pant or beneficiary whose account was transferred to
the transferee plan;
‘‘(iv) the election described in clause (iii) was
made after the participant or beneficiary received a
notice describing the consequences of making the
election; and
‘‘(v) the transferee plan allows the participant
or beneficiary described in clause (iii) to receive any
distribution to which the participant or beneficiary is
entitled under the transferee plan in the form of a
single sum distribution.
‘‘(B) Subparagraph (A) shall apply to plan mergers
and other transactions having the effect of a direct trans-
fer, including consolidations of benefits attributable to dif-
ferent employers within a multiple employer plan.
‘‘(5) Except to the extent provided in regulations pro-
mulgated by the Secretary of the Treasury, a defined con-
tribution plan shall not be treated as failing to meet the
requirements of this subsection merely because of the
elimination of a form of distribution previously available
thereunder. This paragraph shall not apply to the elimi-
nation of a form of distribution with respect to any partici-
pant unless—
167
‘‘(A) a single sum payment is available to such
participant at the same time or times as the form
of distribution being eliminated; and
‘‘(B) such single sum payment is based on the
same or greater portion of the participant’s account
as the form of distribution being eliminated.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning
after December 31, 2000.
(b) REGULATIONS.—
(1) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Paragraph (6)(B) of section 411(d) (relat-
ing to accrued benefit not to be decreased by amend-
ment) is amended by inserting after the second sen-
tence the following new sentence: ‘‘The Secretary
shall by regulations provide that this subparagraph
shall not apply to any plan amendment which re-
duces or eliminates benefits or subsidies which cre-
ate significant burdens or complexities for the plan
and plan participants and does not adversely affect
the rights of any participant in a more than de mini-
mis manner.’’.
(2) AMENDMENT OF ERISA.—Section 204(g)(2)
of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1054(g)(2)) is amended by insert-
168
ing before the last sentence the following new sen-
tence: ‘‘The Secretary of the Treasury shall by regu-
lations provide that this paragraph shall not apply
to any plan amendment which reduces or eliminates
benefits or subsidies which create significant bur-
dens or complexities for the plan and plan partici-
pants and does not adversely affect the rights of any
participant in a more than de minimis manner.’’.
(3) SECRETARY
DIRECTED.—Not later than
December 31, 2002, the Secretary of the Treasury
is directed to issue regulations under section
411(d)(6) of the Internal Revenue Code of 1986 and
section 204(g) of the Employee Retirement Income
Security Act of 1974, including the regulations re-
quired by the amendment made by this subsection.
Such regulations shall apply to plan years beginning
after December 31, 2002, or such earlier date as is
specified by the Secretary of the Treasury.
SEC. 436. RATIONALIZATION OF RESTRICTIONS ON DIS-
TRIBUTIONS.
(a) MODIFICATION OF SAME DESK EXCEPTION.—
(1) SECTION 401(k).—
(A) Section 401(k)(2)(B)(i)(I) (relating to
qualified cash or deferred arrangements) is
169
amended by striking ‘‘separation from service’’
and inserting ‘‘severance from employment’’.
(B) 
Subparagraph 
(A) 
of 
section
401(k)(10) (relating to distributions upon ter-
mination of plan or disposition of assets or sub-
sidiary) is amended to read as follows:
‘‘(A) IN GENERAL.—An event described in
this subparagraph is the termination of the
plan without establishment or maintenance of
another defined contribution plan (other than
an employee stock ownership plan as defined in
section 4975(e)(7)).’’.
(C) Section 401(k)(10) is amended—
(i) in subparagraph (B)—
(I) by striking ‘‘An event’’ in
clause (i) and inserting ‘‘A termi-
nation’’; and
(II) by striking ‘‘the event’’ in
clause (i) and inserting ‘‘the termi-
nation’’;
(ii) by striking subparagraph (C); and
(iii) by striking ‘‘OR DISPOSITION OF
ASSETS OR SUBSIDIARY’’ in the heading.
(2) SECTION 403(b).—
170
(A) Paragraphs (7)(A)(ii) and (11)(A) of
section 403(b) are each amended by striking
‘‘separates from service’’ and inserting ‘‘has a
severance from employment’’.
(B) The heading for paragraph (11) of
section 403(b) is amended by striking ‘‘SEPARA-
TION
FROM
SERVICE’’ and inserting ‘‘SEVER-
ANCE FROM EMPLOYMENT’’.
(3) SECTION
457.—Clause (ii) of section
457(d)(1)(A) is amended by striking ‘‘is separated
from service’’ and inserting ‘‘has a severance from
employment’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2000.
SEC. 437. PURCHASE OF SERVICE CREDIT IN GOVERN-
MENTAL DEFINED BENEFIT PLANS.
(a) 403(b) PLANS.—Subsection (b) of section 403 is
amended by adding at the end the following new para-
graph:
‘‘(13) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE
SERVICE
CREDIT.—No
amount shall be includible in gross income by reason
of a direct trustee-to-trustee transfer to a defined
171
benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
‘‘(B) a repayment to which section 415
does not apply by reason of subsection (k)(3)
thereof.’’.
(b) 457 PLANS.—Subsection (e) of section 457 is
amended by adding after paragraph (16) the following
new paragraph:
‘‘(17) TRUSTEE-TO-TRUSTEE
TRANSFERS
TO
PURCHASE
PERMISSIVE
SERVICE
CREDIT.—No
amount shall be includible in gross income by reason
of a direct trustee-to-trustee transfer to a defined
benefit governmental plan (as defined in section
414(d)) if such transfer is—
‘‘(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
‘‘(B) a repayment to which section 415
does not apply by reason of subsection (k)(3)
thereof.’’.
172
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to trustee-to-trustee transfers after
December 31, 2000.
SEC. 438. EMPLOYERS MAY DISREGARD ROLLOVERS FOR
PURPOSES OF CASH-OUT AMOUNTS.
(a) QUALIFIED PLANS.—
(1) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—Section 411(a)(11) (relating to restrictions
on certain mandatory distributions) is amended by
adding at the end the following:
‘‘(D) SPECIAL RULE FOR ROLLOVER CON-
TRIBUTIONS.—A plan shall not fail to meet the
requirements of this paragraph if, under the
terms of the plan, the present value of the non-
forfeitable accrued benefit is determined with-
out regard to that portion of such benefit which
is attributable to rollover contributions (and
earnings allocable thereto). For purposes of this
subparagraph, the term ‘rollover contributions’
means any rollover contribution under sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii),
and 457(e)(16).’’.
(2) AMENDMENT OF ERISA.—Section 203(e) of
the Employee Retirement Income Security Act of
173
1974 (29 U.S.C. 1053(c)) is amended by adding at
the end the following:
‘‘(4) A plan shall not fail to meet the requirements
of this subsection if, under the terms of the plan, the
present value of the nonforfeitable accrued benefit is de-
termined without regard to that portion of such benefit
which is attributable to rollover contributions (and earn-
ings allocable thereto). For purposes of this subparagraph,
the term ‘rollover contributions’ means any rollover con-
tribution under sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue
Code of 1986.’’.
(b) ELIGIBLE DEFERRED COMPENSATION PLANS.—
Clause (i) of section 457(e)(9)(A) is amended by striking
‘‘such amount’’ and inserting ‘‘the portion of such amount
which is not attributable to rollover contributions (as de-
fined in section 411(a)(11)(D))’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2000.
SEC. 439. MINIMUM DISTRIBUTION AND INCLUSION RE-
QUIREMENTS FOR SECTION 457 PLANS.
(a) MINIMUM
DISTRIBUTION
REQUIREMENTS.—
Paragraph (2) of section 457(d) (relating to distribution
requirements) is amended to read as follows:
180
‘‘(i) the amount of contributions de-
scribed in section 401(m)(4)(A), plus
‘‘(ii) the amount of contributions de-
scribed in section 402(g)(3)(A).
For purposes of this paragraph, the deductible limits
under section 404(a)(7) shall first be applied to
amounts contributed to a defined benefit plan and
then to amounts described in subparagraph (B).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2000.
SEC. 443. EXCISE TAX RELIEF FOR SOUND PENSION FUND-
ING.
(a) IN GENERAL.—Subsection (c) of section 4972
(relating to nondeductible contributions) is amended by
adding at the end the following new paragraph:
‘‘(7) DEFINED BENEFIT PLAN EXCEPTION.—In
determining the amount of nondeductible contribu-
tions for any taxable year, an employer may elect for
such year not to take into account any contributions
to a defined benefit plan except to the extent that
such contributions exceed the full-funding limitation
(as defined in section 412(c)(7), determined without
regard to subparagraph (A)(i)(I) thereof). For pur-
poses of this paragraph, the deductible limits under