121
‘‘(C) the date the Secretary of Housing
and Urban Development revokes such designa-
tion.
‘‘(2) REVOCATION OF DESIGNATION.—The Sec-
retary of Housing and Urban Development may re-
voke the designation under this section of an area if
such Secretary determines that the local government
or the State in which the area is located—
‘‘(A) has modified the boundaries of the
area, or
‘‘(B) is not complying substantially with,
or fails to make progress in achieving, the State
or local commitments, respectively, described in
subsection (d).
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate a nominated
area as a renewal community under subsection (a)
only if the area meets the requirements of para-
graphs (2) and (3) of this subsection.
‘‘(2) AREA REQUIREMENTS.—A nominated area
meets the requirements of this paragraph if—
‘‘(A) the area is within the jurisdiction of
one or more local governments;
122
‘‘(B) the boundary of the area is contin-
uous; and
‘‘(C) the area—
‘‘(i) has a population, of at least—
‘‘(I) 4,000 if any portion of such
area (other than a rural area de-
scribed in subsection (a)(2)(B)(i)) is
located within a metropolitan statis-
tical area (within the meaning of sec-
tion 143(k)(2)(B)) which has a popu-
lation of 50,000 or greater; or
‘‘(II) 1,000 in any other case; or
‘‘(ii) is entirely within an Indian res-
ervation (as determined by the Secretary of
the Interior).
‘‘(3) ELIGIBILITY
REQUIREMENTS.—A nomi-
nated area meets the requirements of this paragraph
if the State and the local governments in which it
is located certify (and the Secretary of Housing and
Urban Development, after such review of supporting
data as he deems appropriate, accepts such certifi-
cation) that—
‘‘(A) the area is one of pervasive poverty,
unemployment, and general distress;
123
‘‘(B) the unemployment rate in the area,
as determined by the most recent available
data, was at least 11⁄2 times the national unem-
ployment rate for the period to which such data
relate;
‘‘(C) the poverty rate for each population
census tract within the nominated area is at
least 20 percent; and
‘‘(D) in the case of an urban area, at least
70 percent of the households living in the area
have incomes below 80 percent of the median
income of households within the jurisdiction of
the local government (determined in the same
manner as under section 119(b)(2) of the
Housing and Community Development Act of
1974).
‘‘(4) CONSIDERATION OF HIGH INCIDENCE OF
CRIME.—The Secretary of Housing and Urban De-
velopment shall take into account, in selecting nomi-
nated areas for designation as renewal communities
under this section, the extent to which such areas
have a high incidence of crime.
‘‘(5) CONSIDERATION OF COMMUNITIES IDENTI-
FIED
IN
GAO
STUDY.—The Secretary of Housing
and Urban Development shall take into account, in
124
selecting nominated areas for designation as renewal
communities under this section, if the area has cen-
sus tracts identified in the May 12, 1998, report of
the Government Accounting Office regarding the
identification of economically distressed areas.
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if—
‘‘(A) the local government and the State in
which the area is located agree in writing that,
during any period during which the area is a
renewal community, such governments will fol-
low a specified course of action which meets the
requirements of paragraph (2) and is designed
to reduce the various burdens borne by employ-
ers or employees in such area; and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
‘‘(2) COURSE OF ACTION.—
‘‘(A) IN
GENERAL.—A course of action
meets the requirements of this paragraph if
such course of action is a written document,
125
signed by a State (or local government) and
neighborhood organizations, which evidences a
partnership between such State or government
and community-based organizations and which
commits each signatory to specific and measur-
able goals, actions, and timetables. Such course
of action shall include at least five of the fol-
lowing:
‘‘(i) A reduction of tax rates or fees
applying within the renewal community.
‘‘(ii) An increase in the level of effi-
ciency of local services within the renewal
community.
‘‘(iii) Crime reduction strategies, such
as crime prevention (including the provi-
sion of such services by nongovernmental
entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
ments applying within the renewal commu-
nity.
‘‘(v) Involvement in the program by
private entities, organizations, neighbor-
hood 
organizations, 
and 
community
groups, particularly those in the renewal
126
community, including a commitment from
such private entities to provide jobs and
job training for, and technical, financial, or
other assistance to, employers, employees,
and residents from the renewal community.
‘‘(vi) State or local income tax bene-
fits for fees paid for services performed by
a nongovernmental entity which were for-
merly performed by a governmental entity.
‘‘(vii) The gift (or sale at below fair
market value) of surplus real property
(such as land, homes, and commercial or
industrial structures) in the renewal com-
munity to neighborhood organizations,
community development corporations, or
private companies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—
For purposes of this section, in evaluating the
course of action agreed to by any State or local
government, the Secretary of Housing and
Urban Development shall take into account the
past efforts of such State or local government
in reducing the various burdens borne by em-
ployers and employees in the area involved.
127
‘‘(3) ECONOMIC GROWTH PROMOTION REQUIRE-
MENTS.—The economic growth promotion require-
ments of this paragraph are met with respect to a
nominated area if the local government and the
State in which such area is located certify in writing
that such government and State, respectively, have
repealed or otherwise will not enforce within the
area, if such area is designated as a renewal
community—
‘‘(A) licensing requirements for occupa-
tions that do not ordinarily require a profes-
sional degree;
‘‘(B) zoning restrictions on home-based
businesses which do not create a public nui-
sance;
‘‘(C) permit requirements for street ven-
dors who do not create a public nuisance;
‘‘(D) zoning or other restrictions that im-
pede the formation of schools or child care cen-
ters; and
‘‘(E) franchises or other restrictions on
competition for businesses providing public
services, including but not limited to taxicabs,
jitneys, cable television, or trash hauling,
128
except to the extent that such regulation of busi-
nesses and occupations is necessary for and well-tai-
lored to the protection of health and safety.
‘‘(e) COORDINATION WITH TREATMENT
OF EM-
POWERMENT ZONES AND ENTERPRISE COMMUNITIES.—
For purposes of this title, if there are in effect with respect
to the same area both—
‘‘(1) a designation as a renewal community; and
‘‘(2) a designation as an empowerment zone or
enterprise community,
both of such designations shall be given full effect with
respect to such area.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this subchapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal com-
munity, any reference to, or requirement of, this sec-
tion shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ includes Puerto
Rico, the Virgin Islands of the United States, Guam,
American Samoa, the Northern Mariana Islands,
and any other possession of the United States.
‘‘(3) LOCAL
GOVERNMENT.—The term ‘local
government’ means—
129
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State;
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Devel-
opment; and
‘‘(C) the District of Columbia.
‘‘(4) APPLICATION
OF
RULES
RELATING
TO
CENSUS TRACTS AND CENSUS DATA.—The rules of
sections 1392(b)(4) and 1393(a)(9) shall apply.
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN;
RENEWAL COMMUNITY BUSINESS
‘‘Sec. 1400F. Renewal community capital gain.
‘‘Sec. 1400G. Renewal community business defined.
‘‘SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude any qualified capital gain recognized on the sale or
exchange of a qualified community asset held for more
than 5 years.
‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified com-
munity asset’ means—
‘‘(A) any qualified community stock;
130
‘‘(B) any qualified community partnership
interest; and
‘‘(C) any qualified community business
property.
‘‘(2) QUALIFIED COMMUNITY STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified commu-
nity stock’ means any stock in a domestic cor-
poration if—
‘‘(i) such stock is acquired by the tax-
payer after December 31, 2000, and before
January 1, 2008, at its original issue (di-
rectly or through an underwriter) from the
corporation solely in exchange for cash;
‘‘(ii) as of the time such stock was
issued, such corporation was a renewal
community business (or, in the case of a
new corporation, such corporation was
being organized for purposes of being a re-
newal community business); and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
131
‘‘(B) REDEMPTIONS.—A rule similar to
the rule of section 1202(c)(3) shall apply for
purposes of this paragraph.
‘‘(3) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any capital or profits interest in
a domestic partnership if—
‘‘(A) such interest is acquired by the tax-
payer after December 31, 2000, and before
January 1, 2008;
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
nity business (or, in the case of a new partner-
ship, such partnership was being organized for
purposes of being a renewal community busi-
ness); and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
‘‘(4) QUALIFIED COMMUNITY BUSINESS PROP-
ERTY.—
132
‘‘(A) IN
GENERAL.—The term ‘qualified
community business property’ means tangible
property if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after December 31,
2000, and before January 1, 2008;
‘‘(ii) the original use of such property
in the renewal community commences with
the taxpayer; and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such prop-
erty, substantially all of the use of such
property was in a renewal community busi-
ness of the taxpayer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—The requirements of clauses (i)
and (ii) of subparagraph (A) shall be treated as
satisfied with respect to—
‘‘(i) property which is substantially
improved (within the meaning of section
1400B(b)(4)(B)(ii)) by the taxpayer before
January 1, 2008; and
‘‘(ii) any land on which such property
is located.
133
‘‘(c) CERTAIN RULES TO APPLY.—Rules similar to
the rules of paragraphs (5), (6), and (7) of subsection (b),
and subsections (e), (f), and (g), of section 1400B shall
apply for purposes of this section.
‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘For purposes of this part, the term ‘renewal commu-
nity business’ means any entity or proprietorship which
would be a qualified business entity or qualified propri-
etorship under section 1397B if—
‘‘(1) references to renewal communities were
substituted for references to empowerment zones in
such section; and
‘‘(2) ‘80 percent’ were substituted for ‘50 per-
cent’ in subsections (b)(2) and (c)(1) of such sec-
tion.
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400H. Family development accounts for renewal commu-
nity EITC recipients.
‘‘Sec. 1400I. Demonstration program to provide matching con-
tributions to family development accounts in certain
renewal communities.
‘‘Sec. 1400J. Designation of earned income tax credit payments
for deposit to family development account.
‘‘SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
134
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
such individual to any family development ac-
count for such individual’s benefit; and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual but only if the amount so
paid is designated for purposes of this section
by such individual.
No deduction shall be allowed under this paragraph
for any amount deposited in a family development
account under section 1400I (relating to demonstra-
tion program to provide matching amounts in re-
newal communities).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowable
as a deduction to any individual for any taxable
year by reason of paragraph (1)(A) shall not
exceed the lesser of—
‘‘(i) $2,000, or
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
135
‘‘(B) PERSONS DONATING TO FAMILY DE-
VELOPMENT
ACCOUNTS
OF
OTHERS.—The
amount which may be designated under para-
graph (1)(B) by any qualified individual for any
taxable year of such individual shall not exceed
$1,000.
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED
INDIVIDUALS.—Rules similar to rules of section
219(c) shall apply to the limitation in paragraph
(2)(A).
‘‘(4) COORDINATION WITH IRAS.—No deduction
shall be allowed under this section for any taxable
year to any person by reason of a payment to an ac-
count for the benefit of a qualified individual if any
amount is paid for such taxable year into an indi-
vidual retirement account (including a Roth IRA)
for the benefit of such individual.
‘‘(5) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a
family development account shall be included in
136
gross income by the payee or distributee, as the case
may be.
‘‘(2) EXCLUSION OF QUALIFIED FAMILY DEVEL-
OPMENT DISTRIBUTIONS.—Paragraph (1) shall not
apply to any qualified family development distribu-
tion.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified family
development distribution’ means any amount paid or
distributed out of a family development account
which would otherwise be includible in gross income,
to the extent that such payment or distribution is
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development
expenses’ means any of the following:
‘‘(A) Qualified higher education expenses.
‘‘(B) Qualified first-time homebuyer costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
137
‘‘(E) Qualified rollovers.
‘‘(3) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ has the meaning
given such term by section 72(t)(7), determined
by treating postsecondary vocational edu-
cational schools as eligible educational institu-
tions.
‘‘(B) POSTSECONDARY VOCATIONAL EDU-
CATION SCHOOL.—The term ‘postsecondary vo-
cational educational school’ means an area vo-
cational education school (as defined in sub-
paragraph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied Tech-
nology Education Act (20 U.S.C. 2471(4)))
which is in any State (as defined in section
521(33) of such Act), as such sections are in
effect on the date of the enactment of this sec-
tion.
‘‘(C) COORDINATION WITH OTHER BENE-
FITS.—The amount of qualified higher edu-
cation expenses for any taxable year shall be re-
duced as provided in section 25A(g)(2).
138
‘‘(4) 
QUALIFIED
FIRST-TIME
HOMEBUYER
COSTS.—The term ‘qualified first-time homebuyer
costs’ means qualified acquisition costs (as defined
in section 72(t)(8) without regard to subparagraph
(B) thereof) with respect to a principal residence
(within the meaning of section 121) for a qualified
first-time 
homebuyer 
(as 
defined 
in 
section
72(t)(8)).
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any trade or business
other than any trade or business—
‘‘(i) which consists of the operation of
any 
facility 
described 
in 
section
144(c)(6)(B), or
139
‘‘(ii) which contravenes any law.
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which meets
such requirements as the Secretary may specify.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer.
Rules similar to the rules of section 408(d)(3) shall
apply for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a family devel-
140
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations). Notwith-
standing any other provision of this title (including
chapters 11 and 12), the basis of any person in such
an account is zero.
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(3) OTHER RULES TO APPLY.—Rules similar
to the rules of paragraphs (4), (5), and (6) of sec-
tion 408(d) shall apply for purposes of this section.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses of this title, the term ‘family development account’
means a trust created or organized in the United States
for the exclusive benefit of a qualified individual or his
beneficiaries, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(1) Except in the case of a qualified rollover
(as defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash; and
141
‘‘(B) contributions will not be accepted for
the taxable year in excess of $3,000 (deter-
mined without regard to any contribution made
under section 1400I (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The requirements of paragraphs (2)
through (6) of section 408(a) are met.
‘‘(f) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year; and
‘‘(2) to whom a credit was allowed under sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
142
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to a
family development account on the last day of the
preceding taxable year if the contribution is made on
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER
PAYMENTS; CUSTODIAL
AC-
COUNTS.—Rules similar to the rules of sections
219(f)(5) and 408(h) shall apply for purposes of this
section.
‘‘(5) REPORTS.—The trustee of a family devel-
opment account shall make such reports regarding
such account to the Secretary and to the individual
for whom the account is maintained with respect to
contributions (and the years to which they relate),
distributions, and such other matters as the Sec-
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations; and
‘‘(B) shall be furnished to individuals—
143
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate; and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(6) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from a family development account and is not
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder, the tax imposed by this chapter for the tax-
able year of such distribution shall be increased by
the sum of—
‘‘(A) 100 percent of the portion of such
amount which is includible in gross income and
is attributable to amounts contributed under
section 1400I (relating to demonstration pro-
gram to provide matching amounts in renewal
communities); and
145
‘‘SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE
MATCHING CONTRIBUTIONS TO FAMILY DE-
VELOPMENT 
ACCOUNTS 
IN 
CERTAIN 
RE-
NEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this sec-
tion, the term ‘FDA matching demonstration area’
means any renewal community—
‘‘(A) which is nominated under this section
by each of the local governments and States
which nominated such community for designa-
tion as a renewal community under section
1400E(a)(1)(A); and
‘‘(B) which the Secretary of Housing and
Urban Development designates as an FDA
matching demonstration area after consultation
with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury, the
Director of the Office of Management and
Budget, and the Administrator of the
Small Business Administration; and
‘‘(ii) in the case of a community on an
Indian reservation, the Secretary of the In-
terior.
‘‘(2) NUMBER OF DESIGNATIONS.—
146
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 5 renewal communities as
FDA matching demonstration areas.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under sub-
paragraph (A), at least 2 must be areas de-
scribed in section 1400E(a)(2)(B).
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating a
renewal 
community 
under 
paragraph
(1)(A) (including procedures for coordi-
nating such nomination with the nomina-
tion of an area for designation as a re-
newal community under section 1400E);
and
‘‘(ii) the manner in which nominated
renewal communities will be evaluated for
purposes of this section.
147
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate renewal communities as FDA matching
demonstration areas only during the 24-month
period beginning on the first day of the first
month following the month in which the regula-
tions described in subparagraph (A) are pre-
scribed.
‘‘(4) DESIGNATION BASED ON DEGREE OF POV-
ERTY, ETC.—The rules of section 1400E(a)(3) shall
apply for purposes of designations of FDA matching
demonstration areas under this section.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—Any designation of a renewal community as an
FDA matching demonstration area shall remain in effect
during the period beginning on the date of such designa-
tion and ending on the date on which such area ceases
to be a renewal community.
‘‘(c) MATCHING CONTRIBUTIONS TO FAMILY DEVEL-
OPMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into a family
development account of each qualified individual (as
defined in section 1400H(f))—
148
‘‘(A) who is a resident throughout the tax-
able year of an FDA matching demonstration
area; and
‘‘(B) who requests (in such form and man-
ner as the Secretary prescribes) such deposit
for the taxable year,
an amount equal to the sum of the amounts depos-
ited into all of the family development accounts of
such individual during such taxable year (determined
without regard to any amount contributed under this
section).
‘‘(2) LIMITATIONS.—
‘‘(A) ANNUAL LIMIT.—The Secretary shall
not deposit more than $1000 under paragraph
(1) with respect to any individual for any tax-
able year.
‘‘(B) AGGREGATE
LIMIT.—The Secretary
shall not deposit more than $2000 under para-
graph (1) with respect to any individual for all
taxable years.
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
provided in section 1400H, gross income shall not
include any amount deposited into a family develop-
ment account under paragraph (1).
149
‘‘(d) NOTICE
OF PROGRAM.—The Secretary shall
provide appropriate notice to residents of FDA matching
demonstration areas of the availability of the benefits
under this section.
‘‘(e) TERMINATION.—No amount may be deposited
under this section for any taxable year beginning after De-
cember 31, 2007.
‘‘SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CRED-
IT PAYMENTS FOR DEPOSIT TO FAMILY DE-
VELOPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400H(f)) for
the taxable year of the tax imposed by this chapter, such
individual may designate that a specified portion (not less
than $1) of any overpayment of tax for such taxable year
which is attributable to the earned income tax credit shall
be deposited by the Secretary into a family development
account of such individual. The Secretary shall so deposit
such portion designated under this subsection.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year—
‘‘(1) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
150
‘‘(2) at any other time (after the time of filing
the return of the tax imposed by this chapter for
such taxable year) specified in regulations prescribed
by the Secretary.
Such designation shall be made in such manner as the
Secretary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an over-
payment for any taxable year shall be treated as attrib-
utable to the earned income tax credit to the extent that
such overpayment does not exceed the credit allowed to
the taxpayer under section 32 for such taxable year.
‘‘(d) OVERPAYMENTS TREATED
AS REFUNDED.—
For purposes of this title, any portion of an overpayment
of tax designated under subsection (a) shall be treated as
being refunded to the taxpayer as of the last date pre-
scribed for filing the return of tax imposed by this chapter
(determined without regard to extensions) or, if later, the
date the return is filed.
‘‘(e) TERMINATION.—This section shall not apply to
any taxable year beginning after December 31, 2007.
‘‘PART IV—ADDITIONAL INCENTIVES
‘‘Sec. 1400K. Commercial revitalization deduction.
‘‘Sec. 1400L. Increase in expensing under section 179.
151
‘‘SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.
‘‘(a) GENERAL RULE.—At the election of the tax-
payer, either—
‘‘(1) one-half of any qualified revitalization ex-
penditures chargeable to capital account with respect
to any qualified revitalization building shall be allow-
able as a deduction for the taxable year in which the
building is placed in service, or
‘‘(2) a deduction for all such expenditures shall
be allowable ratably over the 120-month period be-
ginning with the month in which the building is
placed in service.
The deduction provided by this section with respect to
such expenditure shall be in lieu of any depreciation de-
duction otherwise allowable on account of such expendi-
ture.
‘‘(b) QUALIFIED REVITALIZATION BUILDINGS AND
EXPENDITURES.—For purposes of this section—
‘‘(1) QUALIFIED REVITALIZATION BUILDING.—
The term ‘qualified revitalization building’ means
any building (and its structural components) if—
‘‘(A) such building is located in a renewal
community and is placed in service after De-
cember 31, 2000;
152
‘‘(B) a commercial revitalization deduction
amount is allocated to the building under sub-
section (d); and
‘‘(C) depreciation (or amortization in lieu
of depreciation) is allowable with respect to the
building (without regard to this section).
‘‘(2) QUALIFIED
REVITALIZATION
EXPENDI-
TURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
revitalization expenditure’ means any amount
properly chargeable to capital account—
‘‘(i) for property for which deprecia-
tion is allowable under section 168 (with-
out regard to this section) and which is—
‘‘(I) nonresidential real property;
or
‘‘(II) an addition or improvement
to property described in subclause (I);
‘‘(ii) in connection with the construc-
tion of any qualified revitalization building
which was not previously placed in service
or in connection with the substantial reha-
bilitation (within the meaning of section
47(c)(1)(C)) of a building which was
153
placed in service before the beginning of
such rehabilitation; and
‘‘(iii) for land (including land which is
functionally related to such property and
subordinate thereto).
‘‘(B) DOLLAR
LIMITATION.—The aggre-
gate amount which may be treated as qualified
revitalization expenditures with respect to any
qualified revitalization building for any taxable
year shall not exceed the excess of—
‘‘(i) $10,000,000, reduced by
‘‘(ii) any such expenditures with re-
spect to the building taken into account by
the taxpayer or any predecessor in deter-
mining the amount of the deduction under
this section for all preceding taxable years.
‘‘(C) CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—The term ‘qualified revitalization ex-
penditure’ does not include—
‘‘(i) ACQUISITION COSTS.—The costs
of acquiring any building or interest there-
in and any land in connection with such
building to the extent that such costs ex-
ceed 30 percent of the qualified revitaliza-
154
tion expenditures determined without re-
gard to this clause.
‘‘(ii) 
CREDITS.—Any 
expenditure
which the taxpayer may take into account
in computing any credit allowable under
this title unless the taxpayer elects to take
the expenditure into account only for pur-
poses of this section.
‘‘(c) WHEN
EXPENDITURES
TAKEN
INTO
AC-
COUNT.—Qualified revitalization expenditures with re-
spect to any qualified revitalization building shall be taken
into account for the taxable year in which the qualified
revitalization building is placed in service. For purposes
of the preceding sentence, a substantial rehabilitation of
a building shall be treated as a separate building.
‘‘(d) LIMITATION ON AGGREGATE DEDUCTIONS AL-
LOWABLE WITH RESPECT TO BUILDINGS LOCATED IN A
STATE.—
‘‘(1) IN GENERAL.—The amount of the deduc-
tion determined under this section for any taxable
year with respect to any building shall not exceed
the commercial revitalization deduction amount (in
the case of an amount determined under subsection
(a)(2), the present value of such amount as deter-
mined under the rules of section 42(b)(2)(C) by sub-
155
stituting ‘100 percent’ for ‘72 percent’ in clause (ii)
thereof) allocated to such building under this sub-
section by the commercial revitalization agency.
Such allocation shall be made at the same time and
in the same manner as under paragraphs (1) and
(7) of section 42(h).
‘‘(2) COMMERCIAL REVITALIZATION DEDUCTION
AMOUNT FOR AGENCIES.—
‘‘(A) IN GENERAL.—The aggregate com-
mercial revitalization deduction amount which a
commercial revitalization agency may allocate
for any calendar year is the amount of the
State commercial revitalization deduction ceil-
ing determined under this paragraph for such
calendar year for such agency.
‘‘(B) STATE COMMERCIAL REVITALIZATION
DEDUCTION
CEILING.—The State commercial
revitalization deduction ceiling applicable to any
State—
‘‘(i) for each calendar year after 2000
and before 2008 is $6,000,000 for each re-
newal community in the State; and
‘‘(ii) zero for each calendar year
thereafter.
156
‘‘(C) COMMERCIAL REVITALIZATION AGEN-
CY.—For purposes of this section, the term
‘commercial revitalization agency’ means any
agency authorized by a State to carry out this
section.
‘‘(e) RESPONSIBILITIES OF COMMERCIAL REVITAL-
IZATION AGENCIES.—
‘‘(1) 
PLANS
FOR
ALLOCATION.—Notwith-
standing any other provision of this section, the
commercial revitalization deduction amount with re-
spect to any building shall be zero unless—
‘‘(A) such amount was allocated pursuant
to a qualified allocation plan of the commercial
revitalization agency which is approved (in ac-
cordance with rules similar to the rules of sec-
tion 147(f)(2) (other than subparagraph (B)(ii)
thereof)) by the governmental unit of which
such agency is a part; and
‘‘(B) such agency notifies the chief execu-
tive officer (or its equivalent) of the local juris-
diction within which the building is located of
such allocation and provides such individual a
reasonable opportunity to comment on the allo-
cation.
157
‘‘(2) QUALIFIED ALLOCATION PLAN.—For pur-
poses of this subsection, the term ‘qualified alloca-
tion plan’ means any plan—
‘‘(A) which sets forth selection criteria to
be used to determine priorities of the commer-
cial revitalization agency which are appropriate
to local conditions;
‘‘(B) which considers—
‘‘(i) the degree to which a project con-
tributes to the implementation of a stra-
tegic plan that is devised for a renewal
community through a citizen participation
process;
‘‘(ii) the amount of any increase in
permanent, full-time employment by reason
of any project; and
‘‘(iii) the active involvement of resi-
dents and nonprofit groups within the re-
newal community; and
‘‘(C) which provides a procedure that the
agency (or its agent) will follow in monitoring
compliance with this section.
‘‘(f) REGULATIONS.—For purposes of this section,
the Secretary shall, by regulations, provide for the applica-
158
tion of rules similar to the rules of section 49 and sub-
sections (a) and (b) of section 50.
‘‘(g) TERMINATION.—This section shall not apply to
any building placed in service after December 31, 2007.
‘‘SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.
‘‘(a) GENERAL RULE.—In the case of a renewal com-
munity business (as defined in section 1400G), for pur-
poses of section 179—
‘‘(1) the limitation under section 179(b)(1)
shall be increased by the lesser of—
‘‘(A) $35,000; or
‘‘(B) the cost of section 179 property
which is qualified renewal property placed in
service during the taxable year; and
‘‘(2) the amount taken into account under sec-
tion 179(b)(2) with respect to any section 179 prop-
erty which is qualified renewal property shall be 50
percent of the cost thereof.
‘‘(b) RECAPTURE.—Rules similar to the rules under
section 179(d)(10) shall apply with respect to any quali-
fied renewal property which ceases to be used in a renewal
community by a renewal community business.
‘‘(c) QUALIFIED RENEWAL PROPERTY.—For pur-
poses of this section—
159
‘‘(1) IN GENERAL.—The term ‘qualified renewal
property’ means any property to which section 168
applies (or would apply but for section 179) if—
‘‘(A) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after December 31, 2000, and be-
fore January 1, 2008; and
‘‘(B) such property would be qualified zone
property (as defined in section 1397C) if ref-
erences to renewal communities were sub-
stituted for references to empowerment zones in
section 1397C.
‘‘(2) CERTAIN RULES TO APPLY.—The rules of
subsections (a)(2) and (b) of section 1397C shall
apply for purposes of this section.’’.
SEC. 703. EXTENSION OF EXPENSING OF ENVIRONMENTAL
REMEDIATION COSTS TO RENEWAL COMMU-
NITIES.
(a) EXTENSION.—Paragraph (2) of section 198(c)
(defining targeted area) is amended by redesignating sub-
paragraph (C) as subparagraph (D) and by inserting after
subparagraph (B) the following new subparagraph:
‘‘(C) 
RENEWAL
COMMUNITIES
IN-
CLUDED.—Except as provided in subparagraph
(B), such term shall include a renewal commu-
160
nity (as defined in section 1400E) with respect
to expenditures paid or incurred after Decem-
ber 31, 2000.’’.
(b) EXTENSION OF TERMINATION DATE FOR RE-
NEWAL COMMUNITIES.—Subsection (h) of section 198 is
amended by inserting before the period ‘‘(December 31,
2007, in the case of a renewal community, as defined in
section 1400E).’’.
SEC. 704. EXTENSION OF WORK OPPORTUNITY TAX CREDIT
FOR RENEWAL COMMUNITIES.
(a) EXTENSION.—Subsection (c) of section 51 (relat-
ing to termination) is amended by adding at the end the
following new paragraph:
‘‘(5) EXTENSION
OF
CREDIT
FOR
RENEWAL
COMMUNITIES.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who begins work for the employer after
the date contained in paragraph (4)(B), for
purposes of section 38—
‘‘(i) in lieu of applying subsection (a),
the amount of the work opportunity credit
determined under this section for the tax-
able year shall be equal to—
‘‘(I) 15 percent of the qualified
first-year wages for such year; and
161
‘‘(II) 30 percent of the qualified
second-year wages for such year;
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$10,000’ for ‘$6,000’;
‘‘(iii) paragraph (4)(B) shall be ap-
plied by substituting for the date contained
therein the last day for which the designa-
tion under section 1400E of the renewal
community referred to in subparagraph
(B)(i) is in effect; and
‘‘(iv) rules similar to the rules of sec-
tion 51A(b)(5)(C) shall apply.
‘‘(B) QUALIFIED
FIRST- AND
SECOND-
YEAR WAGES.—For purposes of subparagraph
(A)—
‘‘(i) IN GENERAL.—The term ‘quali-
fied wages’ means, with respect to each 1-
year period referred to in clause (ii) or
(iii), as the case may be, the wages paid or
incurred by the employer during the tax-
able year to any individual but only if—
‘‘(I) the employer is engaged in a
trade or business in a renewal com-
munity throughout such 1-year period;
162
‘‘(II) the principal place of abode
of such individual is in such renewal
community throughout such 1-year
period; and
‘‘(III) substantially all of the
services which such individual per-
forms for the employer during such 1-
year period are performed in such re-
newal community.
‘‘(ii) 
QUALIFIED
FIRST-YEAR
WAGES.—The term ‘qualified first-year
wages’ means, with respect to any indi-
vidual, qualified wages attributable to serv-
ice rendered during the 1-year period be-
ginning with the day the individual begins
work for the employer.
‘‘(iii) 
QUALIFIED
SECOND-YEAR
WAGES.—The term ‘qualified second-year
wages’ means, with respect to any indi-
vidual, qualified wages attributable to serv-
ice rendered during the 1-year period be-
ginning on the day after the last day of the
1-year period with respect to such indi-
vidual determined under clause (ii).’’.
163
(b) CONGRUENT TREATMENT OF RENEWAL COMMU-
NITIES
AND ENTERPRISE ZONES
FOR PURPOSES
OF
YOUTH RESIDENCE REQUIREMENTS.—
(1) HIGH-RISK YOUTH.—Subparagraphs (A)(ii)
and (B) of section 51(d)(5) are each amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(2) QUALIFIED SUMMER YOUTH EMPLOYEE.—
Clause (iv) of section 51(d)(7)(A) is amended by
striking ‘‘empowerment zone or enterprise commu-
nity’’ and inserting ‘‘empowerment zone, enterprise
community, or renewal community’’.
(3) HEADINGS.—Paragraphs (5)(B) and (7)(C)
of section 51(d) are each amended by inserting ‘‘OR
COMMUNITY’’ in the heading after ‘‘ZONE’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
begin work for the employer after December 31,
2000.
SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.
(a) DEDUCTION FOR CONTRIBUTIONS TO FAMILY
DEVELOPMENT ACCOUNTS ALLOWABLE WHETHER
OR
NOT TAXPAYER ITEMIZES.—Subsection (a) of section 62
(relating to adjusted gross income defined) is amended by
164
inserting after paragraph (19) the following new para-
graph:
‘‘(20) FAMILY DEVELOPMENT ACCOUNTS.—The
deduction allowed by section 1400H(a)(1).’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) TAX IMPOSED.—Subsection (a) of section
4973 is amended by striking ‘‘or’’ at the end of
paragraph (3), adding ‘‘or’’ at the end of paragraph
(4), and inserting after paragraph (4) the following
new paragraph:
‘‘(5) a family development account (within the
meaning of section 1400H(e)),’’.
(2) EXCESS CONTRIBUTIONS.—Section 4973 is
amended by adding at the end the following new
subsection:
‘‘(g) FAMILY DEVELOPMENT ACCOUNTS.—For pur-
poses of this section, in the case of family development
accounts, the term ‘excess contributions’ means the sum
of—
‘‘(1) the excess (if any) of—
‘‘(A) the amount contributed for the tax-
able year to the accounts (other than a quali-
fied rollover, as defined in section 1400H(c)(7),
or a contribution under section 1400I), over
165
‘‘(B) the amount allowable as a deduction
under section 1400H for such contributions;
and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year reduced by the
sum of—
‘‘(A) the distributions out of the accounts
for the taxable year which were included in the
gross income of the payee under section
1400H(b)(1);
‘‘(B) the distributions out of the accounts
for the taxable year to which rules similar to
the rules of section 408(d)(5) apply by reason
of section 1400H(d)(3); and
‘‘(C) the excess (if any) of the maximum
amount allowable as a deduction under section
1400H for the taxable year over the amount
contributed to the account for the taxable year
(other than a contribution under section
1400I).
For purposes of this subsection, any contribution which
is distributed from the family development account in a
distribution to which rules similar to the rules of section
408(d)(4) apply by reason of section 1400H(d)(3) shall
be treated as an amount not contributed.’’.
166
(c) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(6) SPECIAL
RULE
FOR
FAMILY
DEVELOP-
MENT ACCOUNTS.—An individual for whose benefit a
family development account is established and any
contributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if, with re-
spect to such transaction, the account ceases to be
a family development account by reason of the appli-
cation of section 1400H(d)(2) to such account.’’;
and
(2) in subsection (e)(1), by striking ‘‘or’’ at the
end of subparagraph (E), by redesignating subpara-
graph (F) as subparagraph (G), and by inserting
after subparagraph (E) the following new subpara-
graph:
‘‘(F) a family development account de-
scribed in section 1400H(e), or’’.
(d) INFORMATION RELATING TO CERTAIN TRUSTS
AND ANNUITY PLANS.—Subsection (c) of section 6047 is
amended—
168
utable to any commercial revitalization deduction deter-
mined under section 1400K may be carried back to a tax-
able year ending before the date of the enactment of sec-
tion 1400K.’’.
(2) Subparagraph (B) of section 48(a)(2) is
amended by inserting ‘‘or commercial revitalization’’
after ‘‘rehabilitation’’ each place it appears in the
text and heading.
(3) Subparagraph (C) of section 469(i)(3) is
amended—
(A) by inserting ‘‘or section 1400K’’ after
‘‘section 42’’; and
(B) by inserting ‘‘AND COMMERCIAL REVI-
TALIZATION
DEDUCTION’’ after ‘‘CREDIT’’ in
the heading.
(h) CLERICAL AMENDMENTS.—The table of sub-
chapters for chapter 1 is amended by adding at the end
the following new item:
‘‘Subchapter X. Renewal Communities.’’.
SEC. 706. EVALUATION AND REPORTING REQUIREMENTS.
Not later than the close of the fourth calendar year
after the year in which the Secretary of Housing and
Urban Development first designates an area as a renewal
community under section 1400E of the Internal Revenue
Code of 1986, and at the close of each fourth calendar
169
year thereafter, such Secretary shall prepare and submit
to the Congress a report on the effects of such designa-
tions in stimulating the creation of new jobs, particularly
for disadvantaged workers and long-term unemployed in-
dividuals, and promoting the revitalization of economically
distressed areas.
Subtitle B—Farming Incentive
SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAY-
MENTS.
Any option to accelerate the receipt of any payment
under a production flexibility contract which is payable
under the Federal Agriculture Improvement and Reform
Act of 1996 (7 U.S.C. 7200 et seq.), as in effect on the
date of the enactment of this Act, shall be disregarded
in determining the taxable year for which such payment
is properly includible in gross income for purposes of the
Internal Revenue Code of 1986.
Subtitle C—Oil and Gas Incentives
SEC. 721. 5-YEAR NET OPERATING LOSS CARRYBACK FOR
LOSSES ATTRIBUTABLE TO OPERATING MIN-
ERAL INTERESTS OF INDEPENDENT OIL AND
GAS PRODUCERS.
(a) IN GENERAL.—Paragraph (1) of section 172(b)
(relating to years to which loss may be carried) is amended
by adding at the end the following new subparagraph:
170
‘‘(H) LOSSES ON OPERATING MINERAL IN-
TERESTS OF INDEPENDENT OIL AND GAS PRO-
DUCERS.—In the case of a taxpayer—
‘‘(i) which has an eligible oil and gas
loss (as defined in subsection (j)) for a tax-
able year, and
‘‘(ii) which is not an integrated oil
company (as defined in section 291(b)(4)),
such eligible oil and gas loss shall be a net op-
erating loss carryback to each of the 5 taxable
years preceding the taxable year of such loss.’’.
(b) ELIGIBLE OIL AND GAS LOSS.—Section 172 is
amended by redesignating subsection (j) as subsection (k)
and by inserting after subsection (i) the following new sub-
section:
‘‘(j) ELIGIBLE OIL AND GAS LOSS.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘eligible oil and
gas loss’ means the lesser of—
‘‘(A) the amount which would be the net
operating loss for the taxable year if only in-
come and deductions attributable to operating
mineral interests (as defined in section 614(d))
in oil and gas wells are taken into account, or
171
‘‘(B) the amount of the net operating loss
for such taxable year.
‘‘(2) 
COORDINATION
WITH
SUBSECTION
(b)(2).—For purposes of applying subsection (b)(2),
an eligible oil and gas loss for any taxable year shall
be treated in a manner similar to the manner in
which a specified liability loss is treated.
‘‘(3) ELECTION.—Any taxpayer entitled to a 5-
year carryback under subsection (b)(1)(H) from any
loss year may elect to have the carryback period
with respect to such loss year determined without re-
gard to subsection (b)(1)(H).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to net operating losses for taxable
years beginning after December 31, 1998.
SEC. 722. DEDUCTION FOR DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Section 263 (relating to capital
expenditures) is amended by adding after subsection (i)
the following new subsection:
‘‘(j) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), a taxpayer may elect to treat delay rental pay-
ments incurred in connection with the development
of oil or gas within the United States (as defined in
172
section 638) as payments which are not chargeable
to capital account. Any payments so treated shall be
allowed as a deduction in the taxable year in which
paid or incurred.
‘‘(2) DELAY RENTAL PAYMENTS.—For purposes
of paragraph (1), the term ‘delay rental payment’
means an amount paid for the privilege of deferring
development of an oil or gas well.’’.
(b) CONFORMING AMENDMENT.—Section 263A(c)(3)
is amended by inserting ‘‘263(j),’’ after ‘‘263(i),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 1999.
SEC. 723. ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Section 263 (relating to capital
expenditures) is amended by adding after subsection (j)
the following new subsection:
‘‘(k) GEOLOGICAL
AND
GEOPHYSICAL
EXPENDI-
TURES FOR DOMESTIC OIL AND GAS WELLS.—Notwith-
standing subsection (a), a taxpayer may elect to treat geo-
logical and geophysical expenses incurred in connection
with the exploration for, or development of, oil or gas with-
in the United States (as defined in section 638) as ex-
penses which are not chargeable to capital account. Any
173
expenses so treated shall be allowed as a deduction in the
taxable year in which paid or incurred.’’.
(b) CONFORMING AMENDMENT.—Section 263A(c)(3)
is amended by inserting ‘‘263(k),’’ after ‘‘263(j),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs paid or incurred in taxable
years beginning after December 31, 1999.
SEC. 724. TEMPORARY SUSPENSION OF LIMITATION BASED
ON 65 PERCENT OF TAXABLE INCOME.
(a) IN GENERAL.—Subsection (d) of section 613A
(relating to limitation on percentage depletion in case of
oil and gas wells) is amended by adding at the end the
following new paragraph:
‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN-
COME LIMIT.—Paragraph (1) shall not apply to tax-
able years beginning after December 31, 1998, and
before January 1, 2005, including with respect to
amounts carried under the second sentence of para-
graph (1) to such taxable years.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
174
SEC. 725. DETERMINATION OF SMALL REFINER EXCEPTION
TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the
taxpayer or a related person engages in the refining
of crude oil, subsection (c) shall not apply to the
taxpayer for a taxable year if the average daily refin-
ery runs of the taxpayer and the related person for
the taxable year exceed 50,000 barrels. For purposes
of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the
aggregate refinery runs for the taxable year by the
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
Subtitle D—Timber Incentives
SEC. 731. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT
OF AMORTIZABLE REFORESTATION EXPENDI-
TURES.
(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’’.
175
(b) TEMPORARY SUSPENSION OF INCREASED DOL-
LAR LIMITATION.—Subsection (b) of section 194(b) (re-
lating to amortization of reforestation expenditures) is
amended by adding at the end the following new para-
graph:
‘‘(5) SUSPENSION
OF
DOLLAR
LIMITATION.—
Paragraph (1) shall not apply to taxable years be-
ginning after December 31, 1999, and before Janu-
ary 1, 2004.
(c) 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)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 732. CAPITAL GAIN TREATMENT UNDER SECTION
631(b) TO APPLY TO OUTRIGHT SALES BY
LAND OWNER.
(a) IN GENERAL.—Subsection (b) of section 631 (re-
lating to disposal of timber with a retained economic inter-
est) is amended—
(1) by inserting ‘‘AND OUTRIGHT SALES
OF
TIMBER’’ after ECONOMIC INTEREST’’ in the sub-
section heading, and
176
(2) by adding before the last sentence the fol-
lowing new sentence: ‘‘The requirement in the first
sentence of this subsection to retain an economic in-
terest in timber shall not apply to an outright sale
of such timber by the owner thereof if such owner
owned the land (at the time of such sale) from which
the timber is cut.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to sales after the date of the enact-
ment of this Act.
Subtitle E—Steel Industry
Incentive
SEC. 741. MINIMUM TAX RELIEF FOR STEEL INDUSTRY.
(a) IN GENERAL.—Subsection (c) of section 53 (as
amended by section 302) is amended by adding at the end
the following new paragraph:
‘‘(4) STEEL COMPANIES.—
‘‘(A) IN GENERAL.—In the case of a cor-
poration engaged in the trade or business of
manufacturing steel in the United States for
sale to customers, in lieu of applying paragraph
(2), the limitation under paragraph (1) for any
taxable year beginning after December 31,
1998, shall be increased (subject to the rule of
177
the last sentence of paragraph (2)) by 90 per-
cent of the tentative minimum tax.
‘‘(B) LIMITATION.—The increase in the
credit allowed by this section by reason of this
paragraph for any taxable year shall not exceed
the increase in the credit which would be so al-
lowed if the trade or business of such corpora-
tion of manufacturing steel in the United States
for sale to customers were a separate taxpayer.
‘‘(C) REGULATIONS.—The Secretary shall
prescribe regulations to prevent the abuse of
the purposes of this paragraph, including regu-
lations to prevent the benefits of this paragraph
from becoming available to any other corpora-
tion through any reorganization or other acqui-
sition.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
178
TITLE VIII—RELIEF FOR SMALL
BUSINESSES
SEC. 801. 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, his spouse, and dependents.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 802. 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 $30,000.’’.
179
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1999.
SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.
(a) IN GENERAL.—Section 3301 (relating to rate of
Federal unemployment tax) is amended—
(1) by striking ‘‘2007’’ and inserting ‘‘2004’’,
and
(2) by striking ‘‘2008’’ and inserting ‘‘2005’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to calendar years beginning after
the date of the enactment of this Act.
SEC. 804. RESTORATION OF 80 PERCENT 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 PERCENTAGES.—Subsection (n) of
section 274 is amended by redesignating paragraphs (2)
and (3) as paragraphs (3) and (4), respectively, and by
inserting after paragraph (2) the following new paragraph:
‘‘(2) ALLOWABLE PERCENTAGE.—For purposes
of paragraph (1), the allowable percentage is—
180
‘‘(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, the percentage determined in accord-
ance with the following table:
‘‘For taxable years beginning
The allowable
in calendar year—
percentage is—
2000 through 2004 ......................................................
2005 .............................................................................
2006 .............................................................................
2007 .............................................................................
2008 .............................................................................
2009 .............................................................................
2010 and thereafter .....................................................
80.’’.
(b) CONFORMING AMENDMENTS.—
(1) The heading for subsection (n) of section
274 is amended by striking ‘‘50 PERCENT’’ and in-
serting ‘‘LIMITED PERCENTAGES’’.
(2) Subparagraph (A) of section 274(n)(4), as
redesignated by subsection (a), is amended by strik-
ing ‘‘50 percent’’ and inserting ‘‘the allowable per-
centage’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
TITLE IX—INTERNATIONAL TAX
RELIEF
SEC. 901. INTEREST ALLOCATION RULES.
(a) ELECTION
TO
ALLOCATE
INTEREST
ON
A
WORLDWIDE BASIS.—Subsection (e) of section 864 (relat-
181
ing to rules for allocating interest, etc.) is amended by
redesignating paragraphs (6) and (7) as paragraphs (7)
and (8), respectively, and by inserting after paragraph (5)
the following new paragraph:
‘‘(6) ELECTION TO ALLOCATE INTEREST ON A
WORLDWIDE BASIS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, this subsection shall be applied
by treating each worldwide affiliated group for
which an election under this paragraph is in ef-
fect as an affiliated group solely for purposes of
allocating and apportioning interest expense of
domestic corporations which are members of
such group.
‘‘(B) WORLDWIDE AFFILIATED GROUP.—
For purposes of this paragraph, the term
‘worldwide affiliated group’ means the group of
corporations which consists of—
‘‘(i) all corporations in an affiliated
group (as defined in paragraph (5)), and
‘‘(ii) all foreign corporations (other
than a FSC, as defined in section 922(a))
with respect to which corporations de-
scribed in clause (i) own stock meeting the
ownership requirements of section 957(a)
182
(without regard to stock considered as
owned under section 958(b)).
‘‘(C) ALLOCATION.—
‘‘(i) IN
GENERAL.—For purposes of
paragraph (1), only the applicable percent-
age of the interest expense and assets of a
foreign corporation described in subpara-
graph (B)(ii) shall be taken into account.
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of this paragraph, the term ‘ap-
plicable percentage’ means, with respect to
any foreign corporation, the percentage
equal to the ratio which the value of the
stock in such corporation taken into ac-
count under subparagraph (B)(ii) bears to
the aggregate value of all stock in such
corporation.
‘‘(D) TREATMENT OF FOREIGN INTEREST
EXPENSE.—Interest expense of domestic cor-
porations which are members of an electing
worldwide affiliated group which is allocated to
foreign source income under this subsection
shall be reduced (but not below zero) by the ap-
plicable percentage of the interest expense in-
curred by any foreign corporation in the elect-
183
ing worldwide affiliated group to the extent
such interest expense of such foreign corpora-
tion would have been allocated and apportioned
to foreign source income of such foreign cor-
poration if this subsection were applied to a
group consisting of all the foreign corporations
in such affiliated group.
‘‘(E) ELECTION.—An election under this
paragraph with respect to any worldwide affili-
ated group may be made only by the common
parent of the affiliated group referred to in sub-
paragraph (B)(i) and may be made only for the
first taxable year beginning after December 31,
2001, in which a worldwide affiliated group ex-
ists which includes such affiliated group and at
least 1 corporation described in subparagraph
(B)(ii). Such an election, once made, shall apply
to such parent and all other corporations which
are included in such worldwide affiliated group
for such taxable year and all subsequent years
unless revoked with the consent of the Sec-
retary.’’.
(b) ELECTION TO ALLOCATE INTEREST WITHIN FI-
NANCIAL
INSTITUTION
GROUPS
AND
SUBSIDIARY
GROUPS.—Section 864 is amended by redesignating sub-
184
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) ELECTION TO APPLY SUBSECTION (e) ON BASIS
OF FINANCIAL INSTITUTION GROUP
AND SUBSIDIARY
GROUPS.—
‘‘(1) IN
GENERAL.—Subsection (e) shall be
applied—
‘‘(A) as if the electing financial institution
group were a separate affiliated group, and
‘‘(B) for purposes of allocating interest ex-
pense with respect to qualified indebtedness of
members of an electing subsidiary group, as if
each electing subsidiary group were a separate
affiliated group.
Subsection (e) shall apply to any such electing group
in the same manner as subsection (e) applies to the
pre-election affiliated group of which such electing
group is a part.
‘‘(2) 
ELECTING
FINANCIAL
INSTITUTION
GROUP.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘electing fi-
nancial institution group’ means any group of
corporations if—
185
‘‘(i) such group consists only of all of
the financial corporations in the pre-elec-
tion affiliated group, and
‘‘(ii) an election under this paragraph
is in effect for such group of corporations.
‘‘(B) 
FINANCIAL
CORPORATION.—The
term ‘financial corporation’ means any corpora-
tion if at least 80 percent of its gross income
is income described in section 904(d)(2)(C)(ii)
and the regulations thereunder. To the extent
provided in regulations prescribed by the Sec-
retary, such term includes a bank holding com-
pany (within the meaning of section 2(a) of the
Bank Holding Company Act of 1956).
‘‘(C) 
EFFECT
OF
CERTAIN
TRANS-
ACTIONS.—Rules similar to the rules of para-
graph (3)(D) shall apply to transactions be-
tween any member of the electing financial in-
stitution group and any member of the pre-elec-
tion affiliated group (other than a member of
the electing financial institution group).
‘‘(D) ELECTION.—An election under this
paragraph with respect to any financial institu-
tion group may be made only by the common
parent of the pre-election affiliated group. Such
186
an election, once made, shall apply only to the
taxable year for which made.
‘‘(3) ELECTING SUBSIDIARY GROUPS.—
‘‘(A) IN
GENERAL.—The term ‘electing
subsidiary group’ means any group of corpora-
tions if—
‘‘(i) such group consists only of cor-
porations in the pre-election affiliated
group,
‘‘(ii) such group includes—
‘‘(I) 
a 
domestic 
corporation
(which is not the common parent of
the pre-election affiliated group or a
member of an electing financial insti-
tution group) which incurs interest ex-
pense with respect to qualified indebt-
edness, and
‘‘(II) every other corporation
(other than a member of an electing
financial institution group) which is in
the pre-election affiliated group and
which would be a member of an affili-
ated group having such domestic cor-
poration as the common parent, and
187
‘‘(iii) an election under this paragraph
is in effect for such group.
‘‘(B) EQUALIZATION
RULE.—All interest
expense of a domestic corporation which is a
member of a pre-election affiliated group (other
than subsidiary group interest expense) shall be
treated as allocated to foreign source income to
the extent such expense does not exceed the ex-
cess (if any) of—
‘‘(i) the interest expense of the pre-
election affiliated group (including sub-
sidiary group interest expense) which
would (but for any election under this
paragraph) be allocated to foreign source
income, over
‘‘(ii) the subsidiary group interest ex-
pense allocated to foreign source income.
For purposes of the preceding sentence, the
subsidiary group interest expense is the interest
expense to which subsection (e) applies sepa-
rately by reason of paragraph (1)(B).
‘‘(C) 
QUALIFIED
INDEBTEDNESS.—For
purposes of this subsection, the term ‘qualified
indebtedness’ means any indebtedness of a do-
mestic corporation—
188
‘‘(i) which is held by an unrelated per-
son, and
‘‘(ii) which is not guaranteed (or oth-
erwise supported) by any corporation
which is a member of the pre-election af-
filiated group other than a corporation
which is a member of the electing sub-
sidiary group.
For purposes of this subparagraph, the term
‘unrelated person’ means any person not bear-
ing a relationship specified in section 267(b) or
707(b)(1) to the corporation.
‘‘(D) EFFECT OF CERTAIN TRANSACTIONS
ON QUALIFIED INDEBTEDNESS.—In the case of
a corporation which is a member of an electing
subsidiary group, to the extent that such
corporation—
‘‘(i) distributes dividends or makes
other distributions with respect to its stock
after the date of the enactment of this
paragraph to any member of the pre-elec-
tion affiliated group (other than to a mem-
ber of the electing subsidiary group) in ex-
cess of the greater of—
189
‘‘(I) its average annual dividend
(expressed as a percentage of current
earnings and profits) during the 5-
taxable-year period ending with the
taxable year preceding the taxable
year, or
‘‘(II) 25 percent of its average
annual earnings and profits for such 5
taxable year period, or
‘‘(ii) deals with any person in any
manner not clearly reflecting the income of
the corporation (as determined under prin-
ciples similar to the principles of section
482),
an amount of qualified indebtedness equal to
the excess distribution or the understatement or
overstatement of income, as the case may be,
shall be recharacterized (for the taxable year
and subsequent taxable years) for purposes of
this subsection as indebtedness which is not
qualified indebtedness. If a corporation has not
been in existence for 5 taxable years, this sub-
paragraph shall be applied with respect to the
period it was in existence.
190
‘‘(E) ELECTION.—An election under this
paragraph with respect to any electing sub-
sidiary group may be made only by the common
parent of the pre-election affiliated group. Such
an election, once made, shall apply only to the
taxable year for which made. No election may
be made under this paragraph if the effect of
the election would be to have the same member
of the pre-election affiliated group included in
more than 1 electing subsidiary group.
‘‘(4) PRE-ELECTION AFFILIATED GROUP.—For
purposes of this subsection, the term ‘pre-election
affiliated group’ means, with respect to a corpora-
tion, the affiliated group or electing worldwide affili-
ated group of which such corporation would (but for
an election under this subsection) be a member for
purposes of applying subsection (e).
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out this subsection and subsection (e), includ-
ing regulations—
‘‘(A) providing for the direct allocation of
interest expense in other circumstances where
such allocation would be appropriate to carry
out the purposes of this subsection,
191
‘‘(B) preventing assets or interest expense
from being taken into account more than once,
and
‘‘(C) dealing with changes in members of
any group (through acquisitions or otherwise)
treated under this subsection as an affiliated
group for purposes of subsection (e).’’.
(c) INSURANCE COMPANIES INCLUDED IN AFFILI-
ATED GROUPS.—Paragraph (5) of section 864(e) is
amended to read as follows:
‘‘(5) AFFILIATED GROUP.—The term ‘affiliated
group’ has the meaning given such term by section
1504 (determined without regard to paragraphs (2)
and (4) of section 1504(b)).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS
FROM NONCONTROLLED SECTION 902 COR-
PORATIONS.
(a) IN GENERAL.—Section 904(d)(4) (relating to ap-
plication of look-thru rules to dividends from noncon-
trolled section 902 corporations) is amended to read as
follows:
192
‘‘(4) LOOK-THRU APPLIES TO DIVIDENDS FROM
NONCONTROLLED SECTION 902 CORPORATIONS.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, any dividend from a noncontrolled
section 902 corporation with respect to the tax-
payer shall be treated as income in a separate
category in proportion to the ratio of—
‘‘(i) the portion of earnings and prof-
its attributable to income in such category,
to
‘‘(ii) the total amount of earnings and
profits.
‘‘(B) SPECIAL
RULES.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—Rules similar to
the rules of paragraph (3)(F) shall apply;
except that the term ‘separate category’
shall include the category of income de-
scribed in paragraph (1)(I).
‘‘(ii) EARNINGS AND PROFITS.—
‘‘(I) IN GENERAL.—The rules of
section 316 shall apply.
‘‘(II) REGULATIONS.—The Sec-
retary may prescribe regulations re-
garding the treatment of distributions
193
out of earnings and profits for periods
before the taxpayer’s acquisition of
the stock to which the distributions
relate.
‘‘(iii) DIVIDENDS NOT ALLOCABLE TO
SEPARATE CATEGORY.—The portion of any
dividend from a noncontrolled section 902
corporation which is not treated as income
in a separate category under subparagraph
(A) shall be treated as a dividend to which
subparagraph (A) does not apply.
‘‘(iv) LOOK-THRU WITH RESPECT TO
CARRYFORWARDS OF CREDIT.—Rules simi-
lar to subparagraph (A) also shall apply to
any carryforward under subsection (c)
from a taxable year beginning before Janu-
ary 1, 2002, of tax allocable to a dividend
from a noncontrolled section 902 corpora-
tion with respect to the taxpayer.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (E) of section 904(d)(1), as
in effect both before and after the amendments
made by section 1105 of the Taxpayer Relief Act of
1997, is hereby repealed.
194
(2) Section 904(d)(2)(C)(iii), as so in effect, is
amended by striking subclause (II) and by redesig-
nating subclause (III) as subclause (II).
(3) The last sentence of section 904(d)(2)(D),
as so in effect, is amended to read as follows: ‘‘Such
term does not include any financial services in-
come.’’.
(4) Section 904(d)(2)(E) is amended by strik-
ing clauses (ii) and (iv) and by redesignating clause
(iii) as clause (ii).
(5) Section 904(d)(3)(F) is amended by strik-
ing ‘‘(D), or (E)’’ and inserting ‘‘or (D)’’.
(6) Section 864(d)(5)(A)(i) is amended by
striking ‘‘(C)(iii)(III)’’ and inserting ‘‘(C)(iii)(II)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 903. CLARIFICATION OF TREATMENT OF PIPELINE
TRANSPORTATION INCOME.
(a) IN GENERAL.—Section 954(g)(1) (defining for-
eign base company oil related income) is amended by strik-
ing ‘‘or’’ at the end of subparagraph (A), by striking the
period at the end of subparagraph (B) and inserting ‘‘,
or’’, and by inserting after subparagraph (B) the following
new subparagraph:
195
‘‘(C) the pipeline transportation of oil or
gas within such foreign country.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years of controlled for-
eign corporations beginning after December 31, 2001, and
taxable years of United States shareholders with or within
which such taxable years of controlled foreign corporations
end.
SEC. 904. SUBPART F TREATMENT OF INCOME FROM
TRANSMISSION OF HIGH VOLTAGE ELEC-
TRICITY.
(a) IN GENERAL.—Paragraph (2) of section 954(e)
(relating to foreign base company services income) is
amended by striking ‘‘or’’ at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and
inserting ‘‘, or’’, and by inserting after subparagraph (B)
the following new subparagraph:
‘‘(C) the transmission of high voltage elec-
tricity.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years of controlled for-
eign corporations beginning after December 31, 2001, and
taxable years of United States shareholders with or within
which such taxable years of controlled foreign corporations
end.
196
SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.
(a) GENERAL RULE.—Section 904 is amended by re-
designating subsections (g), (h), (i), (j), and (k) as sub-
sections (h), (i), (j), (k), and (l), respectively, and by in-
serting after subsection (f) the following new subsection:
‘‘(g) RECHARACTERIZATION OF OVERALL DOMESTIC
LOSS.—
‘‘(1) GENERAL
RULE.—For purposes of this
subpart and section 936, in the case of any taxpayer
who sustains an overall domestic loss for any taxable
year beginning after December 31, 2004, that por-
tion of the taxpayer’s taxable income from sources
within the United States for each succeeding taxable
year which is equal to the lesser of—
‘‘(A) the amount of such loss (to the extent
not used under this paragraph in prior taxable
years), or
‘‘(B) 50 percent of the taxpayer’s taxable
income from sources within the United States
for such succeeding taxable year,
shall be treated as income from sources without the
United States (and not as income from sources with-
in the United States).
‘‘(2) OVERALL DOMESTIC LOSS DEFINED.—For
purposes of this subsection—
197
‘‘(A) IN GENERAL.—The term ‘overall do-
mestic loss’ means any domestic loss to the ex-
tent such loss offsets taxable income from
sources without the United States for the tax-
able year or for any preceding taxable year by
reason of a carryback. For purposes of the pre-
ceding sentence, the term ‘domestic loss’ means
the amount by which the gross income for the
taxable year from sources within the United
States is exceeded by the sum of the deductions
properly apportioned or allocated thereto (deter-
mined without regard to any carryback from a
subsequent taxable year).
‘‘(B) TAXPAYER
MUST
HAVE
ELECTED
FOREIGN TAX CREDIT FOR YEAR OF LOSS.—
The term ‘overall domestic loss’ shall not in-
clude any loss for any taxable year unless the
taxpayer chose the benefits of this subpart for
such taxable year.
‘‘(3) CHARACTERIZATION OF SUBSEQUENT IN-
COME.—
‘‘(A) IN
GENERAL.—Any income from
sources within the United States that is treated
as income from sources without the United
States under paragraph (1) shall be allocated
198
among and increase the income categories in
proportion to the loss from sources within the
United States previously allocated to those in-
come categories.
‘‘(B) INCOME CATEGORY.—For purposes of
this paragraph, the term ‘income category’ has
the meaning given such term by subsection
(f)(5)(E)(i).
‘‘(4) COORDINATION WITH SUBSECTION (f).—
The Secretary shall prescribe such regulations as
may be necessary to coordinate the provisions of this
subsection with the provisions of subsection (f).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 535(d)(2) is amended by striking
‘‘section 
904(g)(6)’’ 
and 
inserting 
‘‘section
904(h)(6)’’.
(2) Subparagraph (A) of section 936(a)(2) is
amended by striking ‘‘section 904(f)’’ and inserting
‘‘subsections (f) and (g) of section 904’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to losses for taxable years begin-
ning after December 31, 2004.
199
SEC. 906. TREATMENT OF MILITARY PROPERTY OF FOR-
EIGN SALES CORPORATIONS.
(a) IN GENERAL.—Section 923(a) (defining exempt
foreign trade income) is amended by striking paragraph
(5) and by redesignating paragraph (6) as paragraph (5).
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 907. TREATMENT OF CERTAIN DIVIDENDS OF REGU-
LATED INVESTMENT COMPANIES.
(a) TREATMENT OF CERTAIN DIVIDENDS.—
(1) NONRESIDENT ALIEN INDIVIDUALS.—Sec-
tion 871 (relating to tax on nonresident alien indi-
viduals) is amended by redesignating subsection (k)
as subsection (l) and by inserting after subsection (j)
the following new subsection:
‘‘(k) EXEMPTION FOR CERTAIN DIVIDENDS OF REG-
ULATED INVESTMENT COMPANIES.—
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
any interest-related dividend received from a
regulated investment company.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
shall not apply—
200
‘‘(i) to any interest-related dividend
received from a regulated investment com-
pany by a person to the extent such divi-
dend is attributable to interest (other than
interest described in clause (i), (iii), or the
last sentence of subparagraph (E)) re-
ceived by such company on indebtedness
issued by such person or by any corpora-
tion or partnership with respect to which
such person is a 10-percent shareholder,
‘‘(ii) to any interest-related dividend
with respect to stock of a regulated invest-
ment company unless the person who
would otherwise be required to deduct and
withhold tax from such dividend under
chapter 3 receives a statement (which
meets requirements similar to the require-
ments of subsection (h)(5)) that the bene-
ficial owner of such stock is not a United
States person, and
‘‘(iii) to any interest-related dividend
paid to any person within a foreign coun-
try (or any interest-related dividend pay-
ment addressed to, or for the account of,
persons within such foreign country) dur-
201
ing any period described in subsection
(h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with
respect to any stock the holding period of which
begins on or before the date of the publication
of the Secretary’s determination under sub-
section (h)(6).
‘‘(C) INTEREST-RELATED DIVIDEND.—For
purposes of this paragraph, an interest-related
dividend is any dividend (or part thereof) which
is designated by the regulated investment com-
pany as an interest-related dividend in a writ-
ten notice mailed to its shareholders not later
than 60 days after the close of its taxable year.
If the aggregate amount so designated with re-
spect to a taxable year of the company (includ-
ing amounts so designated with respect to divi-
dends paid after the close of the taxable year
described in section 855) is greater than the
qualified net interest income of the company for
such taxable year, the portion of each distribu-
tion which shall be an interest-related dividend
shall be only that portion of the amounts so
designated which such qualified net interest in-
202
come bears to the aggregate amount so des-
ignated.
‘‘(D) 
QUALIFIED
NET
INTEREST
IN-
COME.—For purposes of subparagraph (C), the
term ‘qualified net interest income’ means the
qualified interest income of the regulated in-
vestment company reduced by the deductions
properly allocable to such income.
‘‘(E) QUALIFIED INTEREST INCOME.—For
purposes of subparagraph (D), the term ‘quali-
fied interest income’ means the sum of the fol-
lowing amounts derived by the regulated invest-
ment company from sources within the United
States:
‘‘(i) Any amount includible in gross
income as original issue discount (within
the meaning of section 1273) on an obliga-
tion payable 183 days or less from the date
of original issue (without regard to the pe-
riod held by the company).
‘‘(ii) Any interest includible in gross
income (including amounts recognized as
ordinary income in respect of original issue
discount or market discount or acquisition
discount under part V of subchapter P and
203
such other amounts as regulations may
provide) on an obligation which is in reg-
istered form; except that this clause shall
not apply to—
‘‘(I) any interest on an obligation
issued by a corporation or partnership
if the regulated investment company
is a 10-percent shareholder in such
corporation or partnership, and
‘‘(II) any interest which is treat-
ed as not being portfolio interest
under the rules of subsection (h)(4).
‘‘(iii) Any interest referred to in sub-
section (i)(2)(A) (without regard to the
trade or business of the regulated invest-
ment company).
‘‘(iv) Any interest-related dividend in-
cludable in gross income with respect to
stock of another regulated investment com-
pany.
Such term includes any interest derived by the
regulated investment company from sources
outside the United States other than interest
that is subject to a tax imposed by a foreign ju-
risdiction if the amount of such tax is reduced
204
(or eliminated) by a treaty with the United
States.
‘‘(F) 10-PERCENT
SHAREHOLDER.—For
purposes of this paragraph, the term ‘10-per-
cent shareholder’ has the meaning given such
term by subsection (h)(3)(B).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1)(A) of subsection (a) on
any short-term capital gain dividend received
from a regulated investment company.
‘‘(B) EXCEPTION
FOR
ALIENS
TAXABLE
UNDER SUBSECTION (a)(2).—Subparagraph (A)
shall not apply in the case of any nonresident
alien individual subject to tax under subsection
(a)(2).
‘‘(C) SHORT-TERM
CAPITAL
GAIN
DIVI-
DEND.—For purposes of this paragraph, a
short-term capital gain dividend is any dividend
(or part thereof) which is designated by the reg-
ulated investment company as a short-term cap-
ital gain dividend in a written notice mailed to
its shareholders not later than 60 days after the
close of its taxable year. If the aggregate
205
amount so designated with respect to a taxable
year of the company (including amounts so des-
ignated with respect to dividends paid after the
close of the taxable year described in section
855) is greater than the qualified short-term
gain of the company for such taxable year, the
portion of each distribution which shall be a
short-term capital gain dividend shall be only
that portion of the amounts so designated
which such qualified short-term gain bears to
the aggregate amount so designated.
‘‘(D) QUALIFIED SHORT-TERM GAIN.—For
purposes of subparagraph (C), the term ‘quali-
fied short-term gain’ means the excess of the
net short-term capital gain of the regulated in-
vestment company for the taxable year over the
net long-term capital loss (if any) of such com-
pany for such taxable year. For purposes of this
subparagraph—
‘‘(i) the net short-term capital gain of
the regulated investment company shall be
computed by treating any short-term cap-
ital gain dividend includible in gross in-
come with respect to stock of another regu-
206
lated investment company as a short-term
capital gain, and
‘‘(ii) the excess of the net short-term
capital gain for a taxable year over the net
long-term capital loss for a taxable year (to
which an election under section 4982(e)(4)
does not apply) shall be determined with-
out regard to any net capital loss or net
short-term capital loss attributable to
transactions after October 31 of such year,
and any such net capital loss or net short-
term capital loss shall be treated as arising
on the 1st day of the next taxable year.
To the extent provided in regulations, clause
(ii) shall apply also for purposes of computing
the taxable income of the regulated investment
company.’’.
(2) FOREIGN CORPORATIONS.—Section 881 (re-
lating to tax on income of foreign corporations not
connected with United States business) is amended
by redesignating subsection (e) as subsection (f) and
by inserting after subsection (d) the following new
subsection:
‘‘(e) TAX NOT TO APPLY TO CERTAIN DIVIDENDS
OF REGULATED INVESTMENT COMPANIES.—
207
‘‘(1) INTEREST-RELATED DIVIDENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), no tax shall be imposed
under paragraph (1) of subsection (a) on any
interest-related dividend (as defined in section
871(k)(1)) received from a regulated investment
company.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply—
‘‘(i) to any dividend referred to in sec-
tion 871(k)(1)(B), and
‘‘(ii) to any interest-related dividend
received by a controlled foreign corporation
(within the meaning of section 957(a)) to
the extent such dividend is attributable to
interest received by the regulated invest-
ment company from a person who is a re-
lated person (within the meaning of section
864(d)(4)) with respect to such controlled
foreign corporation.
‘‘(C) TREATMENT
OF
DIVIDENDS
RE-
CEIVED
BY
CONTROLLED
FOREIGN
CORPORA-
TIONS.—The rules of subsection (c)(5)(A) shall
apply to any interest-related dividend received
by a controlled foreign corporation (within the
208
meaning of section 957(a)) to the extent such
dividend is attributable to interest received by
the regulated investment company which is de-
scribed in clause (ii) of section 871(k)(1)(E)
(and not described in clause (i), (iii), or the last
sentence of such section).
‘‘(2) SHORT-TERM CAPITAL GAIN DIVIDENDS.—
No tax shall be imposed under paragraph (1) of sub-
section (a) on any short-term capital gain dividend
(as defined in section 871(k)(2)) received from a
regulated investment company.’’.
(3) WITHHOLDING TAXES.—
(A) Section 1441(c) (relating to excep-
tions) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(12) CERTAIN
DIVIDENDS
RECEIVED
FROM
REGULATED INVESTMENT COMPANIES.—
‘‘(A) IN GENERAL.—No tax shall be re-
quired to be deducted and withheld under sub-
section (a) from any amount exempt from the
tax imposed by section 871(a)(1)(A) by reason
of section 871(k).
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph 
(A), 
clause 
(i) 
of 
section
871(k)(1)(B) shall not apply to any dividend
209
unless the regulated investment company knows
that such dividend is a dividend referred to in
such clause. A similar rule shall apply with re-
spect to the exception contained in section
871(k)(2)(B).’’.
(B) Section 1442(a) (relating to with-
holding of tax on foreign corporations) is
amended—
(i) by striking ‘‘and the reference in
section 1441(c)(10)’’ and inserting ‘‘the
reference in section 1441(c)(10)’’, and
(ii) by inserting before the period at
the end the following: ‘‘, and the references
in section 1441(c)(12) to sections 871(a)
and 871(k) shall be treated as referring to
sections 881(a) and 881(e) (except that for
purposes of applying subparagraph (A) of
section 1441(c)(12), as so modified, clause
(ii) of section 881(e)(1)(B) shall not apply
to any dividend unless the regulated invest-
ment company knows that such dividend is
a dividend referred to in such clause)’’.
(b) ESTATE TAX TREATMENT OF INTEREST IN CER-
TAIN
REGULATED
INVESTMENT
COMPANIES.—Section
2105 (relating to property without the United States for
210
estate tax purposes) is amended by adding at the end the
following new subsection:
‘‘(d) STOCK IN A RIC.—
‘‘(1) IN GENERAL.—For purposes of this sub-
chapter, stock in a regulated investment company
(as defined in section 851) owned by a nonresident
not a citizen of the United States shall not be
deemed property within the United States in the
proportion that, at the end of the quarter of such in-
vestment company’s taxable year immediately pre-
ceding a decedent’s date of death (or at such other
time as the Secretary may designate in regulations),
the assets of the investment company that were
qualifying assets with respect to the decedent bore
to the total assets of the investment company.
‘‘(2) QUALIFYING
ASSETS.—For purposes of
this subsection, qualifying assets with respect to a
decedent are assets that, if owned directly by the de-
cedent, would have been—
‘‘(A) amounts, deposits, or debt obligations
described in subsection (b) of this section,
‘‘(B) debt obligations described in the last
sentence of section 2104(c), or
‘‘(C) other property not within the United
States.’’.
211
(c) TREATMENT OF REGULATED INVESTMENT COM-
PANIES UNDER SECTION 897.—
(1) Paragraph (1) of section 897(h) is amended
by striking ‘‘REIT’’ each place it appears and in-
serting ‘‘qualified investment entity’’.
(2) Paragraphs (2) and (3) of section 897(h)
are amended to read as follows:
‘‘(2) SALE OF STOCK IN DOMESTICALLY CON-
TROLLED ENTITY NOT TAXED.—The term ‘United
States real property interest’ does not include any
interest in a domestically controlled qualified invest-
ment entity.
‘‘(3) DISTRIBUTIONS BY DOMESTICALLY CON-
TROLLED
QUALIFIED
INVESTMENT
ENTITIES.—In
the case of a domestically controlled qualified invest-
ment entity, rules similar to the rules of subsection
(d) shall apply to the foreign ownership percentage
of any gain.’’.
(3) Subparagraphs (A) and (B) of section
897(h)(4) are amended to read as follows:
‘‘(A) QUALIFIED INVESTMENT ENTITY.—
The term ‘qualified investment entity’ means
any real estate investment trust and any regu-
lated investment company.
212
‘‘(B) DOMESTICALLY
CONTROLLED.—The
term ‘domestically controlled qualified invest-
ment entity’ means any qualified investment en-
tity in which at all times during the testing pe-
riod less than 50 percent in value of the stock
was held directly or indirectly by foreign per-
sons.’’.
(4) Subparagraphs (C) and (D) of section
897(h)(4) are each amended by striking ‘‘REIT’’
and inserting ‘‘qualified investment entity’’.
(5) The subsection heading for subsection (h) of
section 897 is amended by striking ‘‘REITS’’ and
inserting ‘‘CERTAIN INVESTMENT ENTITIES’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to dividends with respect to
taxable years of regulated investment companies be-
ginning after December 31, 2004.
(2) ESTATE
TAX
TREATMENT.—The amend-
ment made by subsection (b) shall apply to estates
of decedents dying after December 31, 2004.
(3) CERTAIN OTHER PROVISIONS.—The amend-
ments made by subsection (c) (other than paragraph
(1) thereof) shall take effect on January 1, 2005.
213
SEC. 908. REPEAL OF SPECIAL RULES FOR APPLYING FOR-
EIGN TAX CREDIT IN CASE OF FOREIGN OIL
AND GAS INCOME.
(a) IN GENERAL.—Section 907 (relating to special
rules in case of foreign oil and gas income) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Each of the following provisions are amend-
ed by striking ‘‘907,’’:
(A) Section 245(a)(10).
(B) Section 865(h)(1)(B).
(C) Section 904(d)(1).
(D) Section 904(g)(10)(A).
(2) Section 904(f)(5)(E)(iii) is amended by in-
serting ‘‘, as in effect before its repeal by the Finan-
cial 
Freedom 
Act 
of 
1999’’ 
after 
‘‘section
907(c)(4)(B)’’.
(3) Section 954(g)(1) is amended by inserting
‘‘, as in effect before its repeal by the Financial
Freedom Act of 1999’’ after ‘‘907(c)’’.
(4) Section 6501(i) is amended—
(A) by striking ‘‘, or under section 907(f)
(relating to carryback and carryover of dis-
allowed oil and gas extraction taxes)’’, and
(B) by striking ‘‘or 907(f)’’.
214
(5) The table of sections for subpart A of part
III of subchapter N of chapter 1 is amended by
striking the item relating to section 907.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2004.
SEC. 909. STUDY OF PROPER TREATMENT OF EUROPEAN
UNION UNDER SAME COUNTRY EXCEPTIONS.
(a) STUDY.—The Secretary of the Treasury or the
Secretary’s delegate shall conduct a study on the feasi-
bility of treating all countries included in the European
Union as 1 country for purposes of applying the same
country exceptions under subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986.
(b) REPORT.—Not later than 6 months after the date
of the enactment of this Act, the Secretary of the Treasury
shall report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance
of the Senate the results of the study conducted under
subsection (a), including recommendations (if any) for leg-
islation.
215
SEC. 910. APPLICATION OF DENIAL OF FOREIGN TAX CRED-
IT WITH RESPECT TO CERTAIN FOREIGN
COUNTRIES.
(a) IN GENERAL.—Clause (ii) of section 901(j)(2)(B)
(relating to denial of foreign tax credit, etc., with respect
to certain foreign countries) is amended by inserting be-
fore the period ‘‘or, if earlier, ending on the date that the
President determines that the application of this sub-
section to such foreign country is no longer in the national
interests of the United States’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 911. ADVANCE PRICING AGREEMENTS TREATED AS
CONFIDENTIAL TAXPAYER INFORMATION.
(a) IN GENERAL.—
(1) TREATMENT AS RETURN INFORMATION.—
Paragraph (2) of section 6103(b) (defining return
information) is amended by striking ‘‘and’’ at the
end of subparagraph (A), by inserting ‘‘and’’ at the
end of subparagraph (B), and by inserting after sub-
paragraph (B) the following new subparagraph:
‘‘(C) any advance pricing agreement en-
tered into by a taxpayer and the Secretary and
any background information related to such
216
agreement or any application for an advance
pricing agreement,’’.
(2) EXCEPTION FROM PUBLIC INSPECTION AS
WRITTEN DETERMINATION.—Paragraph (1) of sec-
tion 6110(b) (defining written determination) is
amended by adding at the end the following new
sentence: ‘‘Such term shall not include any advance
pricing agreement entered into by a taxpayer and
the Secretary and any background information re-
lated to such agreement or any application for an
advance pricing agreement.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on the date of the
enactment of this Act.
(b) ANNUAL REPORT REGARDING ADVANCE PRICING
AGREEMENTS.—
(1) IN GENERAL.—Not later than 90 days after
the end of each calendar year, the Secretary of the
Treasury shall prepare and publish a report regard-
ing advance pricing agreements.
(2) CONTENTS OF REPORT.—The report shall
include the following for the calendar year to which
such report relates:
217
(A) Information about the structure, com-
position, and operation of the advance pricing
agreement program office.
(B) A copy of each model advance pricing
agreement.
(C) The number of—
(i) applications filed during such cal-
endar year for advanced pricing agree-
ments;
(ii) advance pricing agreements exe-
cuted cumulatively to date and during such
calendar year;
(iii) renewals of advanced pricing
agreements issued;
(iv) pending requests for advance pric-
ing agreements;
(v) pending renewals of advance pric-
ing agreements;
(vi) for each of the items in clauses
(ii) through (v), the number that are uni-
lateral, bilateral, and multilateral, respec-
tively;
(vii) advance pricing agreements re-
voked or canceled, and the number of with-
218
drawals from the advance pricing agree-
ment program; and
(viii) advanced pricing agreements fi-
nalized or renewed by industry.
(D) General descriptions of—
(i) the nature of the relationships be-
tween the related organizations, trades, or
businesses covered by advance pricing
agreements;
(ii) the covered transactions and the
business functions performed and risks as-
sumed by such organizations, trades, or
businesses;
(iii) the related organizations, trades,
or businesses whose prices or results are
tested to determine compliance with trans-
fer pricing methodologies prescribed in ad-
vanced pricing agreements;
(iv) methodologies used to evaluate
tested parties and transactions and the cir-
cumstances leading to the use of those
methodologies;
(v) critical assumptions made and
sources of comparables used;
219
(vi) comparable selection criteria and
the rationale used in determining such cri-
teria;
(vii) the nature of adjustments to
comparables or tested parties;
(viii) the nature of any ranges agreed
to, including information regarding when
no range was used and why, when inter-
quartile ranges were used, and when there
was 
a 
statistical 
narrowing 
of 
the
comparables;
(ix) adjustment mechanisms provided
to rectify results that fall outside of the
agreed upon advance pricing agreement
range;
(x) the various term lengths for ad-
vance pricing agreements, including roll-
back years, and the number of advance
pricing agreements with each such term
length;
(xi) the nature of documentation re-
quired; and
(xii) approaches for sharing of cur-
rency or other risks.
220
(E) Statistics regarding the amount of
time taken to complete new and renewal ad-
vance pricing agreements.
(3) CONFIDENTIALITY.—The reports required
by this subsection shall be treated as authorized by
the Internal Revenue Code of 1986 for purposes of
section 6103 of such Code, but the reports shall not
include information—
(A) which would not be permitted to be
disclosed under section 6110(c) of such Code if
such report were a written determination as de-
fined in section 6110 of such Code, or
(B) which can be associated with, or other-
wise identify, directly or indirectly, a particular
taxpayer.
(4) FIRST REPORT.—The report for calendar
year 1999 shall include prior calendar years after
1990.
(c) USER FEE.—Section 7527, as added by title XV
of this Act, is amended by redesignating subsection (c)
as subsection (d) and by inserting after subsection (b) the
following new subsection:
‘‘(c) ADVANCE PRICING AGREEMENTS.—
‘‘(1) IN GENERAL.—In addition to any fee oth-
erwise imposed under this section, the fee imposed
221
for requests for advance pricing agreements shall be
increased by $500.
‘‘(2) REDUCED FEE FOR SMALL BUSINESSES.—
The Secretary shall provide an appropriate reduction
in the amount imposed by reason of paragraph (1)
for requests for advance pricing agreements for
small businesses.’’.
(d) REGULATIONS.—The Secretary of the Treasury
or the Secretary’s delegate shall prescribe such regulations
as may be necessary or appropriate to carry out the pur-
poses of section 6103(b)(2)(C), and the last sentence of
section 6110(b)(1), of the Internal Revenue Code of 1986,
as added by this section.
SEC. 912. INCREASE IN DOLLAR LIMITATION ON SECTION
911 EXCLUSION.
(a) GENERAL RULE.—The table contained in clause
(i) of section 911(b)(2)(D) is amended to read as follows:
‘‘For calendar year—
The exclusion amount is—
2000 .........................................................................................
$76,000
2001 .........................................................................................
78,000
2002 .........................................................................................
80,000
2003 .........................................................................................
83,000
2004 .........................................................................................
86,000
2005 .........................................................................................
89,000
2006 .........................................................................................
92,000
2007 and thereafter .................................................................
95,000.’’.
(b) CONFORMING AMENDMENT.—Clause (ii) of sec-
tion 911(b)(2)(D) is amended by striking ‘‘$80,000’’ and
inserting ‘‘$95,000’’.
222
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1999.
TITLE 
X—PROVISIONS 
RELAT-
ING TO TAX-EXEMPT ORGANI-
ZATIONS
SEC. 1001. EXEMPTION FROM INCOME TAX FOR STATE-CRE-
ATED 
ORGANIZATIONS 
PROVIDING 
PROP-
ERTY AND CASUALTY INSURANCE FOR PROP-
ERTY FOR WHICH SUCH COVERAGE IS OTH-
ERWISE UNAVAILABLE.
(a) IN GENERAL.—Subsection (c) of section 501 (re-
lating to exemption from tax on corporations, certain
trusts, etc.) is amended by adding at the end the following
new paragraph:
‘‘(28)(A) Any association created before Janu-
ary 1, 1999, by State law and organized and oper-
ated exclusively to provide property and casualty in-
surance coverage for property located within the
State for which the State has determined that cov-
erage in the authorized insurance market is limited
or unavailable at reasonable rates, if—
‘‘(i) no part of the net earnings of which
inures to the benefit of any private shareholder
or individual,
223
‘‘(ii) except as provided in clause (v), no
part of the assets of which may be used for, or
diverted to, any purpose other than—
‘‘(I) to satisfy, in whole or in part, the
liability of the association for, or with re-
spect to, claims made on policies written
by the association,
‘‘(II) to invest in investments author-
ized by applicable law,
‘‘(III) to pay reasonable and nec-
essary administration expenses in connec-
tion with the establishment and operation
of the association and the processing of
claims against the association, or
‘‘(IV) to make remittances pursuant
to State law to be used by the State to
provide for the payment of claims on poli-
cies written by the association, purchase
reinsurance covering losses under such
policies, or to support governmental pro-
grams to prepare for or mitigate the ef-
fects of natural catastrophic events,
‘‘(iii) the State law governing the associa-
tion permits the association to levy assessments
on insurance companies authorized to sell prop-
224
erty and casualty insurance in the State, or on
property and casualty insurance policyholders
with insurable interests in property located in
the State to fund deficits of the association, in-
cluding the creation of reserves,
‘‘(iv) the plan of operation of the associa-
tion is subject to approval by the chief executive
officer or other official of the State, by the
State legislature, or both, and
‘‘(v) the assets of the association revert
upon dissolution to the State, the State’s des-
ignee, or an entity designated by the State law
governing the association, or State law does not
permit the dissolution of the association.
‘‘(B)(i) An entity described in clause (ii) shall
be disregarded as a separate entity and treated as
part of the association described in subparagraph
(A) from which it receives remittances described in
clause (ii) if an election is made within 30 days after
the date that such association is determined to be
exempt from tax.
‘‘(ii) An entity is described in this clause if it
is an entity or fund created before January 1, 1999,
pursuant to State law and organized and operated
exclusively to receive, hold, and invest remittances
225
from an association described in subparagraph (A)
and exempt from tax under subsection (a), to make
disbursements to pay claims on insurance contracts
issued by such association, and to make disburse-
ments to support governmental programs to prepare
for or mitigate the effects of natural catastrophic
events.’’.
(b) UNRELATED BUSINESS TAXABLE INCOME.—
Subsection (a) of section 512 (relating to unrelated busi-
ness taxable income) is amended by adding at the end the
following new paragraph:
‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA-
TIONS
DESCRIBED
IN
SECTION
501(C)(28).—In the
case of an organization described in section
501(c)(28), the term ‘unrelated business taxable in-
come’ means taxable income for a taxable year com-
puted without the application of section 501(c)(28)
if at the end of the immediately preceding taxable
year the organization’s net equity exceeded 15 per-
cent of the total coverage in force under insurance
contracts issued by the organization and outstanding
at the end of such preceding year.’’.
(c) TRANSITIONAL RULE.—No income or gain shall
be recognized by an association as a result of a change
in status to that of an association described by section
226
501(c)(28) of the Internal Revenue Code of 1986, as
amended by subsection (a).
(d) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1999.
SEC. 1002. MODIFICATION OF SPECIAL ARBITRAGE RULE
FOR CERTAIN FUNDS.
(a) IN GENERAL.—Paragraph (1) of section 648 of
the Tax Reform Act of 1984 is amended to read as fol-
lows:
‘‘(1) such securities or obligations are held in a
fund—
‘‘(A) which, except to the extent of the in-
vestment earnings on such securities or obliga-
tions, cannot be used, under State constitu-
tional or statutory restrictions continuously in
effect since October 9, 1969, through the date
of issue of the bond issue, to pay debt service
on the bond issue or to finance the facilities
that are to be financed with the proceeds of the
bonds, or
‘‘(B) the annual distributions from which
cannot exceed 7 percent of the average fair
market value of the assets held in such fund ex-
227
cept to the extent distributions are necessary to
pay debt service on the bond issue,’’.
(b) CONFORMING AMENDMENT.—Paragraph (3) of
such section is amended by striking ‘‘the investment earn-
ings of’’ and inserting ‘‘distributions from’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2000.
SEC. 1003. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE,
ANNUITY, AND ENDOWMENT CONTRACTS.
(a) IN GENERAL.—Subsection (f) of section 170 (re-
lating to disallowance of deduction in certain cases and
special rules) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(10) SPLIT-DOLLAR LIFE INSURANCE, ANNU-
ITY, AND ENDOWMENT CONTRACTS.—
‘‘(A) IN GENERAL.—Nothing in this sec-
tion or in section 545(b)(2), 556(b)(2), 642(c),
2055, 2106(a)(2), or 2522 shall be construed to
allow a deduction, and no deduction shall be al-
lowed, for any transfer to or for the use of an
organization described in subsection (c) if in
connection with such transfer—
‘‘(i) the organization directly or indi-
rectly pays, or has previously paid, any
228
premium on any personal benefit contract
with respect to the transferor, or
‘‘(ii) there is an understanding or ex-
pectation that any person will directly or
indirectly pay any premium on any per-
sonal benefit contract with respect to the
transferor.
‘‘(B) PERSONAL
BENEFIT
CONTRACT.—
For purposes of subparagraph (A), the term
‘personal benefit contract’ means, with respect
to the transferor, any life insurance, annuity, or
endowment contract if any direct or indirect
beneficiary under such contract is the trans-
feror, any member of the transferor’s family, or
any other person (other than an organization
described in subsection (c)) designated by the
transferor.
‘‘(C) APPLICATION
TO
CHARITABLE
RE-
MAINDER TRUSTS.—In the case of a transfer to
a trust referred to in subparagraph (E), ref-
erences in subparagraphs (A) and (F) to an or-
ganization described in subsection (c) shall be
treated as a reference to such trust.
‘‘(D) EXCEPTION FOR CERTAIN ANNUITY
CONTRACTS.—If, in connection with a transfer
230
dowment contract held by a charitable remain-
der annuity trust or a charitable remainder
unitrust (as defined in section 664(d)) solely by
reason of being entitled to any payment re-
ferred to in paragraph (1)(A) or (2)(A) of sec-
tion 664(d) if—
‘‘(i) such trust possesses all of the in-
cidents of ownership under such contract,
and
‘‘(ii) such trust is entitled to all the
payments under such contract.
‘‘(F) EXCISE TAX ON PREMIUMS PAID.—
‘‘(i) IN
GENERAL.—There is hereby
imposed on any organization described in
subsection (c) an excise tax equal to the
premiums paid by such organization on
any life insurance, annuity, or endowment
contract if the payment of premiums on
such contract is in connection with a trans-
fer for which a deduction is not allowable
under subparagraph (A), determined with-
out regard to when such transfer is made.
‘‘(ii) PAYMENTS
BY
OTHER
PER-
SONS.—For purposes of clause (i), pay-
ments made by any other person pursuant
231
to an understanding or expectation re-
ferred to in subparagraph (A) shall be
treated as made by the organization.
‘‘(iii) REPORTING.—Any organization
on which tax is imposed by clause (i) with
respect to any premium shall file an an-
nual return which includes—
‘‘(I) the amount of such pre-
miums paid during the year and the
name and TIN of each beneficiary
under the contract to which the pre-
mium relates, and
‘‘(II) such other information as
the Secretary may require.
The penalties applicable to returns re-
quired under section 6033 shall apply to
returns required under this clause. Returns
required under this clause shall be fur-
nished at such time and in such manner as
the Secretary shall by forms or regulations
require.
‘‘(iv) CERTAIN
RULES
TO
APPLY.—
The tax imposed by this subparagraph
shall be treated as imposed by chapter 42
232
for purposes of this title other than sub-
chapter B of chapter 42.
‘‘(G) SPECIAL
RULE
WHERE
STATE
RE-
QUIRES
SPECIFICATION
OF
CHARITABLE
GIFT
ANNUITANT IN CONTRACT.—In the case of an
obligation to pay a charitable gift annuity re-
ferred to in subparagraph (D) which is entered
into under the laws of a State which requires,
in order for the charitable gift annuity to be ex-
empt from insurance regulation by such State,
that each beneficiary under the charitable gift
annuity be named as a beneficiary under an an-
nuity contract issued by an insurance company
authorized to transact business in such State,
the requirements of clauses (i) and (ii) of sub-
paragraph (D) shall be treated as met if—
‘‘(i) such State law requirement was
in effect on February 8, 1999,
‘‘(ii) each such beneficiary under the
charitable gift annuity is a bona fide resi-
dent of such State at the time the obliga-
tion to pay a charitable gift annuity is en-
tered into, and
‘‘(iii) the only persons entitled to pay-
ments under such contract are persons en-
233
titled to payments as beneficiaries under
such obligation on the date such obligation
is entered into.
‘‘(H) MEMBER OF FAMILY.—For purposes
of this paragraph, an individual’s family con-
sists of the individual’s grandparents, the
grandparents of such individual’s spouse, the
lineal descendants of such grandparents, and
any spouse of such a lineal descendant.
‘‘(I) REGULATIONS.—The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this
paragraph, including regulations to prevent the
avoidance of such purposes.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this section, the amendment made by this
section shall apply to transfers made after February
8, 1999.
(2) EXCISE TAX.—Except as provided in para-
graph (3) of this subsection, section 170(f)(10)(F)
of the Internal Revenue Code of 1986 (as added by
this section) shall apply to premiums paid after the
date of the enactment of this Act.
234
(3) REPORTING.—Clause (iii) of such section
170(f)(10)(F) shall apply to premiums paid after
February 8, 1999 (determined as if the tax imposed
by such section applies to premiums paid after such
date).
SEC. 1004. EXEMPTION PROCEDURE FROM TAXES ON SELF-
DEALING.
(a) IN GENERAL.—Subsection (d) of section 4941
(relating to taxes on self-dealing) is amended by adding
at the end the following new paragraph:
‘‘(3) SPECIAL
EXEMPTION.—The Secretary
shall establish an exemption procedure for purposes
of this subsection. Pursuant to such procedure, the
Secretary may grant a conditional or unconditional
exemption of any disqualified person or transaction
or class of disqualified persons or transactions, from
all or part of the restrictions imposed by paragraph
(1). The Secretary may not grant an exemption
under this paragraph unless he finds that such ex-
emption is—
‘‘(A) administratively feasible,
‘‘(B) in the interests of the private founda-
tion, and
‘‘(C) protective of the rights of the private
foundation.
235
Before granting an exemption under this paragraph,
the Secretary shall require adequate notice to be
given to interested persons and shall publish notice
in the Federal Register of the pendency of such ex-
emption and shall afford interested persons an op-
portunity to present views.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to transactions occurring after the
date of the enactment of this Act.
SEC. 1005. EXPANSION OF DECLARATORY JUDGMENT REM-
EDY TO TAX-EXEMPT ORGANIZATIONS.
(a) IN GENERAL.—Subsection (a) of section 7428
(relating to creation of remedy) is amended—
(1) in subparagraph (B) by inserting after
‘‘509(a))’’ the following: ‘‘or as a private operating
foundation (as defined in section 4942(j)(3))’’, and
(2) by amending subparagraph (C) to read as
follows:
‘‘(C) with respect to the initial qualifica-
tion or continuing qualification of an organiza-
tion as an organization described in section
501(c) (other than paragraph (3)) which is ex-
empt from tax under section 501(a), or’’.
(b) COURT JURISDICTION.—Subsection (a) of section
7428 is amended in the material following paragraph (2)
236
by striking ‘‘United States Tax Court, the United States
Claims Court, or the district court of the United States
for the District of Columbia’’ and inserting the following:
‘‘United States Tax Court (in the case of any such deter-
mination or failure) or the United States Claims Court
or the district court of the United States for the District
of Columbia (in the case of a determination or failure with
respect to an issue referred to in subparagraph (A) or (B)
of paragraph (1)),’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to pleadings filed with respect to
determinations (or requests for determinations) made
after the date of the enactment of this Act.
SEC. 1006. MODIFICATIONS TO SECTION 512(b)(13).
(a) IN GENERAL.—Paragraph (13) of section 512(b)
is amended by redesignating subparagraph (E) as sub-
paragraph (F) and by inserting after subparagraph (D)
the following new paragraph:
‘‘(E) PARAGRAPH TO APPLY ONLY TO EX-
CESS PAYMENTS.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall apply only to the portion of a speci-
fied payment received by the controlling
organization that exceeds the amount
which would have been paid if such pay-
237
ment met the requirements prescribed
under section 482.
‘‘(ii) ADDITION
TO
TAX
FOR
VALU-
ATION MISSTATEMENTS.—The tax imposed
by this chapter on the controlling organiza-
tion shall be increased by an amount equal
to 20 percent of such excess.’’.
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
this section shall apply to payments received or ac-
crued after December 31, 1999.
(2) PAYMENTS SUBJECT TO BINDING CONTRACT
TRANSITION
RULE.—If the amendments made by
section 1041 of the Taxpayer Relief Act of 1997 do
not apply to any amount received or accrued after
the date of the enactment of this Act under any con-
tract described in subsection (b)(2) of such section,
such amendments also shall not apply to amounts
received or accrued under such contract before Jan-
uary 1, 2000.
238
TITLE XI—REAL ESTATE
PROVISIONS
Subtitle A—Provisions Relating to
Real Estate Investment Trusts
PART I—TREATMENT OF INCOME AND SERVICES
PROVIDED BY TAXABLE REIT SUBSIDIARIES
SEC. 1101. MODIFICATIONS TO ASSET DIVERSIFICATION
TEST.
(a) IN GENERAL.—Subparagraph (B) of section
856(c)(4) is amended to read as follows:
‘‘(B)(i) not more than 25 percent of the
value of its total assets is represented by securi-
ties (other than those includible under subpara-
graph (A)), and
‘‘(ii) except with respect to a taxable REIT
subsidiary and securities includible under sub-
paragraph (A)—
‘‘(I) not more than 5 percent of the
value of its total assets is represented by
securities of any 1 issuer,
‘‘(II) the trust does not hold securities
possessing more than 10 percent of the
total voting power of the outstanding secu-
rities of any 1 issuer, and
239
‘‘(III) the trust does not hold securi-
ties having a value of more than 10 per-
cent of the total value of the outstanding
securities of any 1 issuer.’’.
(b) EXCEPTION FOR STRAIGHT DEBT SECURITIES.—
Subsection (c) of section 856 is amended by adding at the
end the following new paragraph:
‘‘(7) STRAIGHT DEBT SAFE HARBOR IN APPLY-
ING PARAGRAPH (4).—Securities of an issuer which
are straight debt (as defined in section 1361(c)(5)
without regard to subparagraph (B)(iii) thereof)
shall not be taken into account in applying para-
graph (4)(B)(ii)(III) if—
‘‘(A) the only securities of such issuer
which are held by the trust or a taxable REIT
subsidiary of the trust are straight debt (as so
defined), or
‘‘(B) the issuer is a partnership and the
trust holds at least a 20 percent profits interest
in the partnership.’’.
SEC. 1102. TREATMENT OF INCOME AND SERVICES PRO-
VIDED BY TAXABLE REIT SUBSIDIARIES.
(a) INCOME FROM TAXABLE REIT SUBSIDIARIES
NOT TREATED AS IMPERMISSIBLE TENANT SERVICE IN-
COME.—Clause (i) of section 856(d)(7)(C) (relating to ex-
240
ceptions to impermissible tenant service income) is amend-
ed by inserting ‘‘or through a taxable REIT subsidiary
of such trust’’ after ‘‘income’’.
(b) CERTAIN INCOME FROM TAXABLE REIT SUB-
SIDIARIES NOT EXCLUDED FROM RENTS FROM REAL
PROPERTY.—
(1) IN
GENERAL.—Subsection (d) of section
856 (relating to rents from real property defined) is
amended by adding at the end the following new
paragraphs:
‘‘(8) SPECIAL RULE FOR TAXABLE REIT SUB-
SIDIARIES.—For 
purposes 
of 
this 
subsection,
amounts paid to a real estate investment trust by a
taxable REIT subsidiary of such trust shall not be
excluded from rents from real property by reason of
paragraph (2)(B) if the requirements of subpara-
graph (A) or (B) are met.
‘‘(A) LIMITED RENTAL EXCEPTION.—The
requirements of this subparagraph are met with
respect to any property if at least 90 percent of
the leased space of the property is rented to
persons other than taxable REIT subsidiaries of
such trust and other than persons described in
section 856(d)(2)(B). The preceding sentence
shall apply only to the extent that the amounts
241
paid to the trust as rents from real property (as
defined in paragraph (1) without regard to
paragraph (2)(B)) from such property are sub-
stantially comparable to such rents made by the
other tenants of the trust’s property for com-
parable space.
‘‘(B) EXCEPTION FOR CERTAIN LODGING
FACILITIES.—The requirements of this subpara-
graph are met with respect to an interest in
real property which is a qualified lodging facil-
ity leased by the trust to a taxable REIT sub-
sidiary of the trust if the property is operated
on behalf of such subsidiary by a person who is
an eligible independent contractor.
‘‘(9) ELIGIBLE INDEPENDENT CONTRACTOR.—
For purposes of paragraph (8)(B)—
‘‘(A) IN
GENERAL.—The term ‘eligible
independent contractor’ means, with respect to
any qualified lodging facility, any independent
contractor if, at the time such contractor enters
into a management agreement or other similar
service contract with the taxable REIT sub-
sidiary to operate the facility, such contractor
(or any related person) is actively engaged in
the trade or business of operating qualified
242
lodging facilities for any person who is not a re-
lated person with respect to the real estate in-
vestment trust or the taxable REIT subsidiary.
‘‘(B) SPECIAL RULES.—Solely for purposes
of this paragraph and paragraph (8)(B), a per-
son shall not fail to be treated as an inde-
pendent contractor with respect to any qualified
lodging facility by reason of any of the fol-
lowing:
‘‘(i) The taxable REIT subsidiary
bears the expenses for the operation of the
facility pursuant to the management agree-
ment or other similar service contract.
‘‘(ii) The taxable REIT subsidiary re-
ceives the revenues from the operation of
such facility, net of expenses for such oper-
ation and fees payable to the operator pur-
suant to such agreement or contract.
‘‘(iii) The real estate investment trust
receives income from such person with re-
spect to another property that is attrib-
utable to a lease of such other property to
such person that was in effect as on the
later of—
‘‘(I) January 1, 1999, or
243
‘‘(II) the earliest date that any
taxable REIT subsidiary of such trust
entered into a management agreement
or other similar service contract with
such person with respect to such
qualified lodging facility.
‘‘(C) RENEWALS, 
ETC., 
OF
EXISTING
LEASES.—For 
purposes 
of 
subparagraph
(B)(iii)—
‘‘(i) a lease shall be treated as in ef-
fect on January 1, 1999, without regard to
its renewal after such date, so long as such
renewal is pursuant to the terms of such
lease as in effect on whichever of the dates
under subparagraph (B)(iii) is the latest,
and
‘‘(ii) a lease of a property entered into
after whichever of the dates under sub-
paragraph (B)(iii) is the latest shall be
treated as in effect on such date if—
‘‘(I) on such date, a lease of such
property from the trust was in effect,
and
‘‘(II) under the terms of the new
lease, such trust receives a substan-
244
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED LODGING FACILITY.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied lodging facility’ means any lodging fa-
cility unless wagering activities are con-
ducted at or in connection with such facil-
ity by any person who is engaged in the
business of accepting wagers and who is le-
gally authorized to engage in such business
at or in connection with such facility.
‘‘(ii) LODGING
FACILITY.—The term
‘lodging facility’ means a hotel, motel, or
other establishment more than one-half of
the dwelling units in which are used on a
transient basis.
‘‘(iii) CUSTOMARY AMENITIES AND FA-
CILITIES.—The term ‘lodging facility’ in-
cludes customary amenities and facilities
operated as part of, or associated with, the
lodging facility so long as such amenities
and facilities are customary for other prop-
erties of a comparable size and class owned
245
by other owners unrelated to such real es-
tate investment trust.
‘‘(E) OPERATE INCLUDES MANAGE.—Ref-
erences in this paragraph to operating a prop-
erty shall be treated as including a reference to
managing the property.
‘‘(F) RELATED PERSON.—Persons shall be
treated as related to each other if such persons
are treated as a single employer under sub-
section (a) or (b) of section 52.’’.
(2) CONFORMING AMENDMENT.—Subparagraph
(B) of section 856(d)(2) is amended by inserting
‘‘except as provided in paragraph (8),’’ after ‘‘(B)’’.
SEC. 1103. TAXABLE REIT SUBSIDIARY.
(a) IN GENERAL.—Section 856 is amended by adding
at the end the following new subsection:
‘‘(l) TAXABLE REIT SUBSIDIARY.—For purposes of
this part—
‘‘(1) IN GENERAL.—The term ‘taxable REIT
subsidiary’ means, with respect to a real estate in-
vestment trust, a corporation (other than a real es-
tate investment trust) if—
‘‘(A) such trust directly or indirectly owns
stock in such corporation, and
246
‘‘(B) such trust and such corporation joint-
ly elect that such corporation shall be treated as
a taxable REIT subsidiary of such trust for
purposes of this part.
Such an election, once made, shall be irrevocable un-
less both such trust and corporation consent to its
revocation. Such election, and any revocation there-
of, may be made without the consent of the Sec-
retary.
‘‘(2) 35
PERCENT
OWNERSHIP
IN
ANOTHER
TAXABLE
REIT
SUBSIDIARY.—The term ‘taxable
REIT subsidiary’ includes, with respect to any real
estate investment trust, any corporation (other than
a real estate investment trust) with respect to which
a taxable REIT subsidiary of such trust owns di-
rectly or indirectly—
‘‘(A) securities possessing more than 35
percent of the total voting power of the out-
standing securities of such corporation, or
‘‘(B) securities having a value of more
than 35 percent of the total value of the out-
standing securities of such corporation.
The preceding sentence shall not apply to a qualified
REIT subsidiary (as defined in subsection (i)(2)).
247
The rule of section 856(c)(7) shall apply for pur-
poses of subparagraph (B).
‘‘(3) EXCEPTIONS.—The term ‘taxable REIT
subsidiary’ shall not include—
‘‘(A) any corporation which directly or in-
directly operates or manages a lodging facility
or a health care facility, and
‘‘(B) any corporation which directly or in-
directly provides to any other person (under a
franchise, license, or otherwise) rights to any
brand name under which any lodging facility or
health care facility is operated.
Subparagraph (B) shall not apply to rights provided
to an eligible independent contractor to operate or
manage a lodging facility if such rights are held by
such corporation as a franchisee, licensee, or in a
similar capacity and such lodging facility is either
owned by such corporation or is leased to such cor-
poration from the real estate investment trust.
‘‘(4) DEFINITIONS.—For purposes of paragraph
(3)—
‘‘(A) LODGING FACILITY.—The term ‘lodg-
ing facility’ has the meaning given to such term
by paragraph (9)(D)(ii).
248
‘‘(B) HEALTH CARE FACILITY.—The term
‘health care facility’ has the meaning given to
such term by subsection (e)(6)(D)(ii).’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 856(i) is amended by adding at the end the fol-
lowing new sentence: ‘‘Such term shall not include a tax-
able REIT subsidiary.’’.
SEC. 1104. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163(j) (relating to limitation
on deduction for interest on certain indebtedness) is
amended by striking ‘‘and’’ at the end of subparagraph
(A), by striking the period at the end of subparagraph
(B) and inserting ‘‘, and’’, and by adding at the end the
following new subparagraph:
‘‘(C) any interest paid or accrued (directly
or indirectly) by a taxable REIT subsidiary (as
defined in section 856(l)) of a real estate invest-
ment trust to such trust.’’.
SEC. 1105. 100 PERCENT TAX ON IMPROPERLY ALLOCATED
AMOUNTS.
(a) IN GENERAL.—Subsection (b) of section 857 (re-
lating to method of taxation of real estate investment
trusts and holders of shares or certificates of beneficial
interest) is amended by redesignating paragraphs (7) and
249
(8) as paragraphs (8) and (9), respectively, and by insert-
ing after paragraph (6) the following new paragraph:
‘‘(7) INCOME FROM REDETERMINED RENTS, RE-
DETERMINED
DEDUCTIONS, AND
EXCESS
INTER-
EST.—
‘‘(A) IMPOSITION OF TAX.—There is here-
by imposed for each taxable year of the real es-
tate investment trust a tax equal to 100 percent
of redetermined rents, redetermined deductions,
and excess interest.
‘‘(B) REDETERMINED RENTS.—
‘‘(i) IN GENERAL.—The term ‘redeter-
mined rents’ means rents from real prop-
erty (as defined in subsection 856(d)) the
amount of which would (but for subpara-
graph (E)) be reduced on distribution, ap-
portionment, or allocation under section
482 to clearly reflect income as a result of
services furnished or rendered by a taxable
REIT subsidiary of the real estate invest-
ment trust to a tenant of such trust.
‘‘(ii) EXCEPTION FOR CERTAIN SERV-
ICES.—Clause (i) shall not apply to
amounts received directly or indirectly by a
real estate investment trust for services de-
250
scribed in paragraph (1)(B) or (7)(C)(i) of
section 856(d).
‘‘(iii) EXCEPTION
FOR
DE
MINIMIS
AMOUNTS.—Clause (i) shall not apply to
amounts described in section 856(d)(7)(A)
with respect to a property to the extent
such amounts do not exceed the one per-
cent 
threshold 
described 
in 
section
856(d)(7)(B) with respect to such prop-
erty.
‘‘(iv) EXCEPTION
FOR
COMPARABLY
PRICED
SERVICES.—Clause (i) shall not
apply to any service rendered by a taxable
REIT subsidiary of a real estate invest-
ment trust to a tenant of such trust if—
‘‘(I) such subsidiary renders a
significant amount of similar services
to persons other than such trust and
tenants of such trust who are unre-
lated (within the meaning of section
856(d)(8)(F)) to such subsidiary,
trust, and tenants, but
‘‘(II) only to the extent the
charge for such service so rendered is
substantially comparable to the charge
251
for the similar services rendered to
persons referred to in subclause (I).
‘‘(v) EXCEPTION FOR CERTAIN SEPA-
RATELY
CHARGED
SERVICES.—Clause (i)
shall not apply to any service rendered by
a taxable REIT subsidiary of a real estate
investment trust to a tenant of such trust
if—
‘‘(I) the rents paid to the trust
by tenants (leasing at least 25 percent
of the net leasable space in the trust’s
property) who are not receiving such
service from such subsidiary are sub-
stantially comparable to the rents
paid by tenants leasing comparable
space who are receiving such service
from such subsidiary, and
‘‘(II) the charge for such service
from such subsidiary is separately
stated.
‘‘(vi) EXCEPTION FOR CERTAIN SERV-
ICES
BASED
ON
SUBSIDIARY’S
INCOME
FROM THE SERVICES.—Clause (i) shall not
apply to any service rendered by a taxable
REIT subsidiary of a real estate invest-
252
ment trust to a tenant of such trust if the
gross income of such subsidiary from such
service is not less than 150 percent of such
subsidiary’s direct cost in furnishing or
rendering the service.
‘‘(vii) EXCEPTIONS GRANTED BY SEC-
RETARY.—The Secretary may waive the
tax otherwise imposed by subparagraph
(A) if the trust establishes to the satisfac-
tion of the Secretary that rents charged to
tenants were established on an arms’
length basis even though a taxable REIT
subsidiary of the trust provided services to
such tenants.
‘‘(C) REDETERMINED DEDUCTIONS.—The
term ‘redetermined deductions’ means deduc-
tions (other than redetermined rents) of a tax-
able REIT subsidiary of a real estate invest-
ment trust if the amount of such deductions
would (but for subparagraph (E)) be increased
on distribution, apportionment, or allocation
under section 482 to clearly reflect income as
between such subsidiary and such trust.
‘‘(D) EXCESS INTEREST.—The term ‘ex-
cess interest’ means any deductions for interest
253
payments by a taxable REIT subsidiary of a
real estate investment trust to such trust to the
extent that the interest payments are in excess
of a rate that is commercially reasonable.
‘‘(E) COORDINATION WITH SECTION 482.—
The imposition of tax under subparagraph (A)
shall be in lieu of any distribution, apportion-
ment, or allocation under section 482.
‘‘(F) REGULATORY AUTHORITY.—The Sec-
retary shall prescribe such regulations as may
be necessary or appropriate to carry out the
purposes of this paragraph. Until the Secretary
prescribes such regulations, real estate invest-
ment trusts and their taxable REIT subsidi-
aries may base their allocations on any reason-
able method.’’.
(b) AMOUNT SUBJECT TO TAX NOT REQUIRED TO
BE
DISTRIBUTED.—Subparagraph 
(E) 
of 
section
857(b)(2) (relating to real estate investment trust taxable
income) is amended by striking ‘‘paragraph (5)’’ and in-
serting ‘‘paragraphs (5) and (7)’’.
SEC. 1106. EFFECTIVE DATE.
(a) IN GENERAL.—The amendments made by this
part shall apply to taxable years beginning after December
31, 2000.
254
(b) TRANSITIONAL RULES RELATED
TO SECTION
1101.—
(1) EXISTING ARRANGEMENTS.—
(A) IN
GENERAL.—Except as otherwise
provided in this paragraph, the amendment
made by section 1101 shall not apply to a real
estate investment trust with respect to—
(i) securities of a corporation held di-
rectly or indirectly by such trust on July
12, 1999,
(ii) securities of a corporation held by
an entity on July 12, 1999, if such trust
acquires control of such entity pursuant to
a written binding contract in effect on such
date and at all times thereafter before such
acquisition,
(iii) securities received by such trust
(or a successor) in exchange for, or with
respect to, securities described in clause (i)
or (ii) in a transaction in which gain or
loss is not recognized, and
(iv) securities acquired directly or in-
directly by such trust as part of a reorga-
nization (as defined in section 368(a)(1) of
the Internal Revenue Code of 1986) with
255
respect to such trust if such securities are
described in clause (i), (ii), or (iii) with re-
spect to any other real estate investment
trust.
(B) NEW TRADE OR BUSINESS OR SUB-
STANTIAL
NEW
ASSETS.—Subparagraph (A)
shall cease to apply to securities of a corpora-
tion as of the first day after July 12, 1999, on
which such corporation engages in a substantial
new line of business, or acquires any substantial
asset, other than—
(i) pursuant to a binding contract in
effect on such date and at all times there-
after before the acquisition of such asset,
(ii) in a transaction in which gain or
loss is not recognized by reason of section
1031 or 1033 of the Internal Revenue
Code of 1986, or
(iii) in a reorganization (as so de-
fined) with another corporation the securi-
ties of which are described in paragraph
(1)(A) of this subsection.
(2) TAX-FREE CONVERSION.—If—
(A) at the time of an election for a cor-
poration to become a taxable REIT subsidiary,
256
the amendment made by section 1101 does not
apply to such corporation by reason of para-
graph (1), and
(B) such election first takes effect before
January 1, 2004,
such election shall be treated as a reorganization
qualifying under section 368(a)(1)(A) of such Code.
PART II—HEALTH CARE REITS
SEC. 1111. HEALTH CARE REITS.
(a) SPECIAL FORECLOSURE RULE
FOR HEALTH
CARE PROPERTIES.—Subsection (e) of section 856 (relat-
ing to special rules for foreclosure property) is amended
by adding at the end the following new paragraph:
‘‘(6) SPECIAL RULE FOR QUALIFIED HEALTH
CARE
PROPERTIES.—For 
purposes 
of 
this
subsection—
‘‘(A) ACQUISITION
AT
EXPIRATION
OF
LEASE.—The term ‘foreclosure property’ shall
include any qualified health care property ac-
quired by a real estate investment trust as the
result of the termination of a lease of such
property (other than a termination by reason of
a default, or the imminence of a default, on the
lease).
257
‘‘(B) GRACE
PERIOD.—In the case of a
qualified health care property which is fore-
closure property solely by reason of subpara-
graph (A), in lieu of applying paragraphs (2)
and (3)—
‘‘(i) the qualified health care property
shall cease to be foreclosure property as of
the close of the second taxable year after
the taxable year in which such trust ac-
quired such property, and
‘‘(ii) if the real estate investment
trust establishes to the satisfaction of the
Secretary that an extension of the grace
period in clause (i) is necessary to the or-
derly leasing or liquidation of the trust’s
interest in such qualified health care prop-
erty, the Secretary may grant 1 or more
extensions of the grace period for such
qualified health care property.
Any such extension shall not extend the grace
period beyond the close of the 6th year after
the taxable year in which such trust acquired
such qualified health care property.
‘‘(C) INCOME
FROM
INDEPENDENT
CON-
TRACTORS.—For purposes of applying para-
258
graph (4)(C) with respect to qualified health
care property which is foreclosure property by
reason of subparagraph (A) or paragraph (1),
income derived or received by the trust from an
independent contractor shall be disregarded to
the extent such income is attributable to—
‘‘(i) any lease of property in effect on
the date the real estate investment trust
acquired the qualified health care property
(without regard to its renewal after such
date so long as such renewal is pursuant to
the terms of such lease as in effect on such
date), or
‘‘(ii) any lease of property entered
into after such date if—
‘‘(I) on such date, a lease of such
property from the trust was in effect,
and
‘‘(II) under the terms of the new
lease, such trust receives a substan-
tially similar or lesser benefit in com-
parison to the lease referred to in sub-
clause (I).
‘‘(D) QUALIFIED
HEALTH
CARE
PROP-
ERTY.—
259
‘‘(i) IN GENERAL.—The term ‘quali-
fied health care property’ means any real
property (including interests therein), and
any personal property incident to such real
property, which—
‘‘(I) is a health care facility, or
‘‘(II) is necessary or incidental to
the use of a health care facility.
‘‘(ii) HEALTH
CARE
FACILITY.—For
purposes of clause (i), the term ‘health
care facility’ means a hospital, nursing fa-
cility, assisted living facility, congregate
care facility, qualified continuing care facil-
ity (as defined in section 7872(g)(4)), or
other licensed facility which extends med-
ical or nursing or ancillary services to pa-
tients and which, immediately before the
termination, expiration, default, or breach
of the lease of or mortgage secured by
such facility, was operated by a provider of
such services which was eligible for partici-
pation in the medicare program under title
XVIII of the Social Security Act with re-
spect to such facility.’’.
260
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
PART III—CONFORMITY WITH REGULATED
INVESTMENT COMPANY RULES
SEC. 1121. CONFORMITY WITH REGULATED INVESTMENT
COMPANY RULES.
(a) DISTRIBUTION REQUIREMENT.—Clauses (i) and
(ii) of section 857(a)(1)(A) (relating to requirements ap-
plicable to real estate investment trusts) are each amended
by striking ‘‘95 percent (90 percent for taxable years be-
ginning before January 1, 1980)’’ and inserting ‘‘90 per-
cent’’.
(b) IMPOSITION
OF TAX.—Clause (i) of section
857(b)(5)(A) (relating to imposition of tax in case of fail-
ure to meet certain requirements) is amended by striking
‘‘95 percent (90 percent in the case of taxable years begin-
ning before January 1, 1980)’’ and inserting ‘‘90 per-
cent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
261
PART IV—CLARIFICATION OF EXCEPTION FROM
IMPERMISSIBLE TENANT SERVICE INCOME
SEC. 1131. CLARIFICATION OF EXCEPTION FOR INDE-
PENDENT OPERATORS.
(a) IN GENERAL.—Paragraph (3) of section 856(d)
(relating to independent contractor defined) is amended
by adding at the end the following flush sentence:
‘‘In the event that any class of stock of either the
real estate investment trust or such person is regu-
larly traded on an established securities market, only
persons who own, directly or indirectly, more than 5
percent of such class of stock shall be taken into ac-
count as owning any of the stock of such class for
purposes of applying the 35 percent limitation set
forth in subparagraph (B) (but all of the out-
standing stock of such class shall be considered out-
standing in order to compute the denominator for
purpose of determining the applicable percentage of
ownership).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
262
PART V—MODIFICATION OF EARNINGS AND
PROFITS RULES
SEC. 1141. MODIFICATION OF EARNINGS AND PROFITS
RULES.
(a) RULES
FOR DETERMINING WHETHER REGU-
LATED
INVESTMENT
COMPANY
HAS
EARNINGS
AND
PROFITS FROM NON-RIC YEAR.—Subsection (c) of sec-
tion 852 is amended by adding at the end the following
new paragraph:
‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS
OF SUBSECTION (a)(2)(B).—Any distribution which
is made in order to comply with the requirements of
subsection (a)(2)(B)—
‘‘(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from the earliest earnings and profits accumu-
lated in any taxable year to which the provi-
sions of this part did not apply rather than the
most recently accumulated earnings and profits,
and
‘‘(B) to the extent treated under subpara-
graph (A) as made from accumulated earnings
and profits, shall not be treated as a distribu-
tion for purposes of subsection (b)(2)(D) and
section 855.’’.
263
(b) CLARIFICATION
OF
APPLICATION
OF
REIT
SPILLOVER DIVIDEND RULES
TO DISTRIBUTIONS TO
MEET
QUALIFICATION
REQUIREMENT.—Subparagraph
(B) of section 857(d)(3) is amended by inserting before
the period ‘‘and section 858’’.
(c) APPLICATION OF DEFICIENCY DIVIDEND PROCE-
DURES.—Paragraph (1) of section 852(e) is amended by
adding at the end the following new sentence: ‘‘If the de-
termination under subparagraph (A) is solely as a result
of the failure to meet the requirements of subsection
(a)(2), the preceding sentence shall also apply for pur-
poses of applying subsection (a)(2) to the non-RIC year.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2000.
PART VI—STUDY RELATING TO TAXABLE REIT
SUBSIDIARIES
SEC. 1151. STUDY RELATING TO TAXABLE REIT SUBSIDI-
ARIES.
The Commissioner of the Internal Revenue shall con-
duct a study to determine how many taxable REIT sub-
sidiaries are in existence and the aggregate amount of
taxes paid by such subsidiaries. The Secretary shall sub-
mit a report to the Congress describing the results of such
study.
264
Subtitle B—Modification of At-Risk
Rules for Publicly Traded Non-
recourse Debt
SEC. 1161. TREATMENT UNDER AT-RISK RULES OF PUB-
LICLY TRADED NONRECOURSE DEBT.
(a) IN GENERAL.—Subparagraph (A) of section
465(b)(6) (relating to qualified nonrecourse financing
treated as amount at risk) is amended by striking ‘‘share
of’’ and all that follows and inserting ‘‘share of—
‘‘(i) any qualified nonrecourse financ-
ing which is secured by real property used
in such activity, and
‘‘(ii) any other financing which—
‘‘(I) would (but for subparagraph
(B)(ii)) be qualified nonrecourse fi-
nancing,
‘‘(II) is qualified publicly traded
debt, and
‘‘(III) is not borrowed by the tax-
payer from a person described in sub-
clause (I), (II), or (III) of section
49(a)(1)(D)(iv).’’.
(b) QUALIFIED PUBLICLY TRADED DEBT.—Para-
graph (6) of section 465(b) is amended by adding at the
end the following new subparagraph:
265
‘‘(F) 
QUALIFIED
PUBLICLY
TRADED
DEBT.—For purposes of subparagraph (A), the
term ‘qualified publicly traded debt’ means any
debt instrument which is readily tradable on an
established securities market. Such term shall
not include any debt instrument which has a
yield to maturity which equals or exceeds the
limitation in section 163(i)(1)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to debt instruments issued after
December 31, 1999.
Subtitle C—Treatment of Construc-
tion Allowances and Certain
Contributions to Capital of Re-
tailers
SEC. 1171. EXCLUSION FROM GROSS INCOME OF QUALI-
FIED LESSEE CONSTRUCTION ALLOWANCES
NOT LIMITED FOR CERTAIN RETAILERS TO
SHORT-TERM LEASES.
(a) IN GENERAL.—Subsection (a) section 110 (relat-
ing to qualified lessee construction allowances for short-
term leases) is amended by adding at the end the following
new sentence: ‘‘Paragraph (1) shall not apply if the lessee
is a qualified retail business (as defined by section
266
118(d)(3) without regard to the proximity requirement in
subparagraph (A) thereof).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to leases entered into after Decem-
ber 31, 1999.
SEC. 1172. EXCLUSION FROM GROSS INCOME FOR CERTAIN
CONTRIBUTIONS TO THE CAPITAL OF CER-
TAIN RETAILERS.
(a) IN GENERAL.—Section 118 (relating to contribu-
tions to the capital of a corporation) is amended by redes-
ignating subsections (d) and (e) as subsections (e) and (f),
respectively, and by inserting after subsection (c) the fol-
lowing new subsection:
‘‘(d) SAFE HARBOR FOR CONTRIBUTIONS TO CER-
TAIN RETAILERS.—
‘‘(1) GENERAL
RULE.—For purposes of this
section, the term ‘contribution to the capital of the
taxpayer’ includes any amount of money or other
property received by the taxpayer if—
‘‘(A) the taxpayer has entered into an
agreement to operate (or cause to be operated)
a qualified retail business at a particular loca-
tion for a period of at least 15 years,
‘‘(B)(i) immediately after the receipt of
such money or other property, the taxpayer
267
owns the land and the structure to be used by
the taxpayer in carrying on a qualified retail
business at such location, or
‘‘(ii) the taxpayer uses such amount to ac-
quire ownership of at least such land and struc-
ture,
‘‘(C) such amount meets the requirements
of the expenditure rule of paragraph (2), and
‘‘(D) the contributor of such amount does
not hold a beneficial interest in any property lo-
cated on the premises of such qualified retail
business other than de minimis amounts of
property associated with the operation of prop-
erty adjacent to such premises.
‘‘(2) EXPENDITURE RULE.—An amount meets
the requirements of this paragraph if—
‘‘(A) an amount equal to such amount is
expended for the acquisition of land or for ac-
quisition or construction of other property de-
scribed in section 1231(b)—
‘‘(i) which was the purpose motivating
the contribution, and
‘‘(ii) which is used predominantly in a
qualified retail business at the location re-
ferred to in paragraph (1)(A),
268
‘‘(B) the expenditure referred to in sub-
paragraph (A) occurs before the end of the sec-
ond taxable year after the year in which such
amount was received, and
‘‘(C) accurate records are kept of the
amounts contributed and expenditures made on
the basis of the project for which the contribu-
tion was made and on the basis of the year of
the contribution expenditure.
‘‘(3) DEFINITION OF QUALIFIED RETAIL BUSI-
NESS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified retail
business’ means a trade or business of selling
tangible personal property to the general public
if the premises on which such trade or business
is conducted is in close proximity to property
that the contributor of the amount referred to
in paragraph (1) is developing or operating for
profit (or, in the case of a contributor which is
a governmental entity, is attempting to revi-
talize).
‘‘(B) SERVICES.—A trade or business shall
not fail to be treated as a qualified retail busi-
ness by reason of sales of services if such sales
269
are incident to the sale of tangible personal
property or if the services are de minimis in
amount.
‘‘(4) SPECIAL RULES.—
‘‘(A) LEASES.—For purposes of paragraph
(1)(B)(i), property shall be treated as owned by
the taxpayer if the taxpayer is the lessee of
such property under a lease having a term of at
least 30 years and on which only nominal rent
is required.
‘‘(B) CONTROLLED
GROUPS.—For pur-
poses of this subsection, all persons treated as
a single employer under subsection (a) or (b) of
section 52 shall be treated as 1 person.
‘‘(5) DISALLOWANCE
OF
DEDUCTIONS
AND
CREDITS; ADJUSTED
BASIS.—Notwithstanding any
other provision of this subtitle, no deduction or cred-
it shall be allowed for, or by reason of, any amount
received by the taxpayer which constitutes a con-
tribution to capital to which this subsection applies.
The adjusted basis of any property acquired with the
contributions to which this subsection applies shall
be reduced by the amount of the contributions to
which this subsection applies.
270
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations are appropriate to prevent
the abuse of the purposes of the subsection, includ-
ing regulations which allocate income and deductions
(or adjust the amount excludable under this sub-
section) in cases in which—
‘‘(A) payments in excess of fair market
value are paid to the contributor by the tax-
payer, or
‘‘(B) the contributor and the taxpayer are
related parties.’’.
(b) CONFORMING AMENDMENT.—Subsection (e) of
section 118 (as redesignated by subsection (a)) is amended
by adding at the end the following flush sentence:
‘‘Rules similar to the rules of the preceding sentence shall
apply to any amount treated as a contribution to the cap-
ital of the taxpayer under subsection (d).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after Decem-
ber 31, 1999.
271
TITLE XII—PROVISIONS
RELATING TO PENSIONS
Subtitle A—Expanding Coverage
SEC. 1201. 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 headings and the text
and inserting ‘‘$160,000’’.
(C) Paragraph (7) of section 415(b) (relating to
benefits under certain collectively bargained plans) is
amended by striking ‘‘the greater of $68,212 or one-
half the amount otherwise applicable for such year
under paragraph (1)(A) for ‘$90,000’ ’’ and insert-
ing ‘‘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
272
retirement age’’ each place it appears in the heading
and text and inserting ‘‘age 62’’.
(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) in paragraph (1)(A) by striking
‘‘$90,000’’ 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
AMENDMENT.—Section
415(b)(2) is amended by striking subparagraph (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’’.
273
(2) 
COST-OF-LIVING
ADJUSTMENTS.—Sub-
section (d) of section 415 (related to cost-of-living
adjustments) is amended—
(A) in paragraph (1)(C) by striking
‘‘$30,000’’ 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’’.
(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.—
274
(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
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:
‘‘Taxable year:
Applicable dollar amount:
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);
275
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
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—
278
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.—
(A) Clause (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
279
is not a multiple of $1,000 shall be rounded to
the next lowest multiple of $1,000.’’.
(h) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 2000.
(2) COLLECTIVE BARGAINING AGREEMENTS.—
In the case of a plan maintained pursuant to 1 or
more collective bargaining agreements between em-
ployee representatives and 1 or more employers rati-
fied by the date of the enactment of this Act, the
amendments made by this section shall not apply to
contributions or benefits pursuant to any such
agreement for 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.
280
SEC. 1202. PLAN LOANS FOR SUBCHAPTER S OWNERS,
PARTNERS, AND SOLE PROPRIETORS.
(a) IN GENERAL.—Subparagraph (B) of section
4975(f)(6) (relating to exemptions not to apply to certain
transactions) is amended by adding at the end the 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) EFFECTIVE DATE.—The amendment made by
this section shall apply to loans made after December 31,
2000.
SEC. 1203. 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—
(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
$150,000,’’,
281
(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) 
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—
282
‘‘(i) the present value of the cumu-
lative accrued benefit for any employee, or
‘‘(ii) the amount of the account of any
employee,
such present value or amount shall be increased
by the aggregate distributions made with 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
283
(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
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).’’.
284
(e) FROZEN PLAN EXEMPT FROM MINIMUM BEN-
EFIT
REQUIREMENT.—Subparagraph (C) of section
416(c)(1) (relating to defined benefit plans) is amended—
(A) in clause (i), by striking ‘‘clause (ii)’’
and inserting ‘‘clause (ii) or (iii)’’, and
(B) by adding at the end the following:
‘‘(iii) 
EXCEPTION
FOR
FROZEN
PLAN.—For purposes of determining an
employee’s years of service with the 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 employee or former em-
ployee.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 1204. 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-
285
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.
SEC. 1205. REPEAL OF COORDINATION REQUIREMENTS
FOR DEFERRED COMPENSATION PLANS OF
STATE AND LOCAL GOVERNMENTS AND TAX-
EXEMPT 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 1201(e), 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
286
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. 1206. 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 7527 of the Internal Revenue Code
of 1986 for requests to the Internal Revenue Service for
determination letters with respect to the qualified status
of a pension benefit plan maintained solely by one or more
eligible employers or any trust which is part of the plan.
The preceding sentence shall not apply to any request
made by the sponsor of any prototype or similar plan
which the sponsor intends to market to participating em-
ployers.
(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
287
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) EFFECTIVE DATE.—The provisions of this sec-
tion shall apply with respect to requests made after De-
cember 31, 2000.
SEC. 1207. DEDUCTION LIMITS.
(a) IN GENERAL.—Section 404(a) (relating to gen-
eral 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
as participant’s compensation under subparagraph
(C) or (D) of section 415(c)(3).’’.
(b) CONFORMING AMENDMENT.—Subparagraph (B)
of section 404(a)(3) is amended by striking the last sen-
tence thereof.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
288
SEC. 1208. OPTION TO TREAT ELECTIVE DEFERRALS AS
AFTER-TAX 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 PLUS CONTRIBUTIONS.
‘‘(a) GENERAL RULE.—If an applicable retirement
plan includes a qualified plus contribution program—
‘‘(1) any designated plus 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 PLUS CONTRIBUTION PROGRAM.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualified plus
contribution program’ means a program under which
an employee may elect to make designated plus con-
tributions in lieu of all or a portion of elective defer-
289
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 plus con-
tribution program unless the applicable retirement
plan—
‘‘(A) establishes separate accounts (‘des-
ignated plus accounts’) for the designated plus
contributions of each employee and any earn-
ings properly allocable to the contributions, and
‘‘(B) maintains separate recordkeeping
with respect to each account.
‘‘(c) DEFINITIONS AND RULES RELATING TO DES-
IGNATED PLUS CONTRIBUTIONS.—For purposes of this
section—
‘‘(1) DESIGNATED PLUS CONTRIBUTION.—The
term ‘designated plus 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
290
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).
‘‘(3) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—A rollover contribu-
tion of any payment or distribution from a des-
ignated plus account which is otherwise allow-
able under this chapter may be made only if the
contribution is to—
‘‘(i) another designated plus 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 plus ac-
count under subparagraph (A) shall not be
taken into account for purposes of paragraph
(1).
291
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) EXCLUSION.—Any qualified distribution
from a designated plus 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
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 plus 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 1st taxable year for which the
individual made a designated plus con-
tribution to any designated plus account
established for such individual under the
same applicable retirement plan, or
‘‘(ii) if a rollover contribution was
made to such designated plus account from
a designated plus account previously estab-
292
lished for such individual under another
applicable retirement plan, the 1st taxable
year for which the individual made a des-
ignated plus contribution to such pre-
viously established account.
‘‘(C) DISTRIBUTIONS OF EXCESS DEFER-
RALS AND EARNINGS.—The term ‘qualified dis-
tribution’ shall not include any distribution of
any excess deferral under section 402(g)(2) and
any income on the excess deferral.
‘‘(3) AGGREGATION RULES.—Section 72 shall
be applied separately with respect to distributions
and payments from a designated plus account and
other distributions and payments from the plan.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) APPLICABLE
RETIREMENT
PLAN.—The
term ‘applicable retirement plan’ means—
‘‘(A) an employees’ trust described in 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).
293
‘‘(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) the
following new sentence: ‘‘The preceding sentence
shall not apply to so much of such excess as does
not exceed the designated plus 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
from a designated plus account (as defined in
section 402A), an eligible retirement plan with
respect to such portion shall include only an-
other designated plus account and a Roth
IRA.’’.
(d) REPORTING REQUIREMENTS.—
295
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 1209. INCREASE IN MINIMUM DEFINED BENEFIT LIMIT
UNDER SECTION 415.
(a) IN GENERAL.—Paragraph (4) of section 415(b)
(relating to total annual benefits not in excess of $10,000)
is amended to read as follows:
‘‘(4) TOTAL ANNUAL BENEFITS NOT IN EXCESS
OF
$40,000.—Notwithstanding the preceding provi-
sions of this subsection, the benefits payable with re-
spect to a participant under any defined benefit plan
shall be deemed not to exceed the limitation of this
subsection if the retirement benefits payable with re-
spect to such participant under such plan and under
all other defined benefit plans of the employer do
not exceed $40,000 for the plan year or any prior
plan year. The preceding sentence shall be applied
by substituting for ‘$40,000’—
‘‘(A) $20,000 if the plan year begins dur-
ing 2001, and
‘‘(B) $30,000 if the plan year begins dur-
ing 2002.’’.
296
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2000.
Subtitle B—Enhancing Fairness for
Women
SEC. 1221. ADDITIONAL SALARY REDUCTION CATCH-UP
CONTRIBUTIONS.
(a) LIMITATION ON EXCLUSION FOR ELECTIVE DE-
FERRALS.—
(1) IN
GENERAL.—Subsection (g) of section
402 (as amended by section 1201(d)) is further
amended by adding at the end the following:
‘‘(9) CATCH-UP
CONTRIBUTIONS
FOR
THOSE
APPROACHING RETIREMENT.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is at least age 50 as of the end of
any taxable year, the limitation of paragraph
(1) for such year, after the application of para-
graph (7), shall be increased by the applicable
catch-up amount.
‘‘(B) APPLICABLE
CATCH-UP
AMOUNT.—
For purposes of subparagraph (A), the applica-
ble catch-up amount shall be the amount deter-
mined in accordance with the following table:
‘‘Taxable year:
Applicable catch-up amount:
2001 .............................................................................
$1,000
2002 .............................................................................
$2,000
297
2003 .............................................................................
$3,000
2004 .............................................................................
$4,000
2005 or thereafter ........................................................
$5,000.’’.
(2) 
COST-OF-LIVING
ADJUSTMENTS.—Para-
graph (4) of section 402(g) (relating to cost-of-living
adjustment), as amended by section 1201(d), is fur-
ther amended by inserting ‘‘and the $5,000 dollar
amount 
in 
paragraph 
(9)’’ 
after 
‘‘paragraph
(1)(B)’’.
(b) SIMPLE RETIREMENT ACCOUNTS.—Paragraph
(2) of section 408(p) (relating to qualified salary reduction
arrangement) is amended by inserting at the end of the
following new subparagraph:
‘‘(F) 
CATCH-UP
CONTRIBUTIONS
FOR
THOSE
APPROACHING
RETIREMENT.—In the
case of an individual who is at least age 50 as
of the end of any taxable year, the limitation of
subparagraph (A)(ii) for such year shall be in-
creased by the applicable catch-up amount. For
purposes of the preceding sentence, the applica-
ble catch-up amount is the amount in effect
under section 402(g)(9) for such taxable year.’’.
(c) DEFERRED COMPENSATION PLANS
OF STATE
AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANI-
ZATIONS.—Subsection (e) of section 457 (relating to other
definitions and special rules) is amended by adding after
paragraph (16) the following new paragraph:
298
‘‘(17) CATCH-UP AMOUNTS.—In the case of an
individual who is at least age 50 as of the end of
any taxable year, the limitation of subsection
(b)(2)(A) for such year shall be increased by the ap-
plicable catch-up amount (as in effect under section
402(g)(9) for such taxable year), except that this
paragraph shall not apply to any taxable year to
which subsection (b)(3) applies.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 1222. 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’’,
299
(B) by striking paragraph (2), and
(C) by inserting ‘‘or any amount received
by a former employee after the 5th taxable year
following the taxable year in which such em-
ployee was terminated’’ before the period at 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
on December 31, 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).’’.
300
(E) Section 415(c) is amended by striking
paragraph (4).
(F) Section 415(c)(7) is amended to read
as follows:
‘‘(7) CERTAIN
CONTRIBUTIONS
BY
CHURCH
PLANS NOT TREATED AS EXCEEDING LIMIT.—
‘‘(A) IN GENERAL.—Notwithstanding any
other 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.
301
‘‘(C) ANNUAL ADDITION.—For purposes of
this paragraph, the term ‘annual addition’ has
the meaning given such term by paragraph
(2).’’.
(G) Subparagraph (B) of section 402(g)(7)
(as amended by section 1201(d)) is amended by
inserting before the period at the end the fol-
lowing: ‘‘(as in effect on the date of the enact-
ment of the Financial Freedom Act of 1999)’’.
(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,
302
any contribution by an employer to a simplified em-
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.
(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’’.
303
(2) EFFECTIVE DATE.—The amendment made
by this subsection shall apply to years beginning
after December 31, 2000.
SEC. 1223. 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—
‘‘(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 or more ......................................................................
100.’’.
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
304
shall apply to plan years beginning after December
31, 2000.
(2) COLLECTIVE BARGAINING AGREEMENTS.—
In the case of a plan maintained pursuant to 1 or
more collective bargaining agreements between em-
ployee representatives and 1 or more employers rati-
fied by the date of the enactment of this Act, the
amendments made by this section shall not apply to
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
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.
305
SEC. 1224. SIMPLIFY AND UPDATE THE MINIMUM DIS-
TRIBUTION 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
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-
306
ficiary and to elect a new method of calculating life
expectancy.
(3) EFFECTIVE
DATE
FOR
REGULATIONS.—
Regulations referred to in paragraph (1) shall be ef-
fective for years beginning after December 31, 2000,
and shall apply in such years without regard to
whether an individual 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-
ance with subparagraph (A)(ii)’’ and in-
serting ‘‘his entire interest has been dis-
tributed to him,’’.
307
(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) in subclause (I) by striking
‘‘clause (iii)(III)’’ and inserting ‘‘clause
(ii)(III)’’,
(iii) in subclause (I) by striking ‘‘the
date on which the employee would have at-
tained the age 701⁄2,’’ and inserting ‘‘April
1 of the calendar year following the cal-
endar year in which the spouse attains
701⁄2,’’, and
(iv) in subclause (II) by striking ‘‘the
distributions to such spouse begin,’’ and
inserting ‘‘his entire interest has been dis-
tributed to him,’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to years beginning
after December 31, 2000.
(c) REDUCTION IN EXCISE TAX.—
308
(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. 1225. CLARIFICATION OF TAX TREATMENT OF DIVI-
SION OF SECTION 457 PLAN BENEFITS UPON
DIVORCE.
(a) IN GENERAL.—Section 414(p)(11) (relating to
application of rules to governmental and church plans) is
amended—
(1) by inserting ‘‘or an eligible deferred 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-
ed by redesignating paragraph (12) as paragraph (13) and
309
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.
Subtitle C—Increasing Portability
for Participants
SEC. 1231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES
OF PLANS.
(a) ROLLOVERS
FROM
AND
TO
SECTION
457
PLANS.—
(1) ROLLOVERS FROM SECTION 457 PLANS.—
(A) IN GENERAL.—Section 457(e) (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
310
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,
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)
(other than paragraph (4)(C)) and (9) of sec-
tion 402(c) and section 402(f) shall apply for
purposes of subparagraph (A).
311
‘‘(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),
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.—
312
(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
end of clause (iii) and inserting ‘‘, or’’, and
by adding at the end the following:
‘‘(iv) section 457(b).’’.
(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
313
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) of an em-
ployer described 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-
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 employer
314
described in section 457(e)(1)(A) shall be treated as
a distribution from a qualified retirement plan de-
scribed in 4974(c)(1) to the extent that such dis-
tribution is attributable to an amount transferred to
an eligible deferred compensation plan from a quali-
fied 
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
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 fol-
lowing new clause:
‘‘(vi) an annuity contract described in
section 403(b).’’.
315
(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.’’.
(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)’’.
316
(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’’.
(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)’’.
317
(9) Subparagraphs (A) and (B) of section
415(b)(2) are each amended by striking ‘‘and
408(d)(3)’’ and inserting ‘‘403(b)(8), 408(d)(3), and
457(e)(16)’’.
(10) Section 415(c)(2) is amended by striking
‘‘and 408(d)(3)’’ and inserting ‘‘408(d)(3), and
457(e)(16)’’.
(11) Section 4973(b)(1)(A) is amended by
striking ‘‘or 408(d)(3)’’ and inserting ‘‘408(d)(3), or
457(e)(16)’’.
(f) EFFECTIVE DATE; SPECIAL RULE.—
(1) EFFECTIVE DATE.—The amendments made
by this 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 any amendment made by
this section.
318
SEC. 1232. 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:
‘‘(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’ has the meaning given such term
by clauses (iii), (iv), (v), and (vi) of section
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)’’.
319
(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:
‘‘(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-
320
mitted solely by reason of the amendments made by
this section.
SEC. 1233. 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
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
321
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-
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,
322
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)—
‘‘(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.’’.
323
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions made after Decem-
ber 31, 2000.
SEC. 1234. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS.—Paragraph (3) of section
402(c) (relating to transfer must be made within 60 days
of receipt) is amended to read as follows:
‘‘(3) TRANSFER
MUST
BE
MADE
WITHIN
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) is amended by adding after sub-
paragraph (H) the following new subparagraph: