174
‘‘(2) 
MINIMUM
DISTRIBUTION
REQUIRE-
MENTS.—A plan meets the minimum distribution re-
quirements of this paragraph if such plan meets the
requirements of section 401(a)(9).’’.
(b) INCLUSION IN GROSS INCOME.—
(1) YEAR
OF
INCLUSION.—Subsection (a) of
section 457 (relating to year of inclusion in gross in-
come) is amended to read as follows:
‘‘(a) YEAR OF INCLUSION IN GROSS INCOME.—
‘‘(1) IN GENERAL.—Any amount of compensa-
tion deferred under an eligible deferred compensa-
tion plan, and any income attributable to the
amounts so deferred, shall be includible in gross in-
come only for the taxable year in which such com-
pensation or other income—
‘‘(A) is paid to the participant or other
beneficiary, in the case of a plan of an eligible
employer described in subsection (e)(1)(A), and
‘‘(B) is paid or otherwise made available to
the participant or other beneficiary, in the case
of a plan of an eligible employer described in
subsection (e)(1)(B).
‘‘(2) 
SPECIAL
RULE
FOR
ROLLOVER
AMOUNTS.—To the extent provided in section
175
72(t)(9), section 72(t) shall apply to any amount in-
cludible in gross income under this subsection.’’.
(2) CONFORMING AMENDMENTS.—
(A) So much of paragraph (9) of section
457(e) as precedes subparagraph (A) is amend-
ed to read as follows:
‘‘(9) BENEFITS OF TAX EXEMPT ORGANIZATION
PLANS NOT TREATED AS MADE AVAILABLE BY REA-
SON OF CERTAIN ELECTIONS, ETC.—In the case of
an eligible deferred compensation plan of an em-
ployer described in subsection (e)(1)(B)—’’.
(B) Section 457(d) is amended by adding
at the end the following new paragraph:
‘‘(3) SPECIAL RULE FOR GOVERNMENT PLAN.—
An eligible deferred compensation plan of an em-
ployer described in subsection (e)(1)(A) shall not be
treated as failing to meet the requirements of this
subsection solely by reason of making a distribution
described in subsection (e)(9)(A).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after December 31,
2000.
176
Subtitle E—Strengthening Pension
Security and Enforcement
SEC. 441. REPEAL OF 155 PERCENT OF CURRENT LIABILITY
FUNDING LIMIT.
(a) AMENDMENTS OF INTERNAL REVENUE CODE.—
Section 412(c)(7) (relating to full-funding limitation) is
amended—
(1) by striking ‘‘the applicable percentage’’ in
subparagraph (A)(i)(I) and inserting ‘‘in the case of
plan years beginning before January 1, 2004, the
applicable percentage’’; and
(2) by amending subparagraph (F) to read as
follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A)(i)(I), the applica-
ble percentage shall be determined in accord-
ance with the following table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2001 .............................................................................
160
2002 .............................................................................
165
2003 .............................................................................
170.’’.
(b) AMENDMENT OF ERISA.—Section 302(c)(7) of
the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1082(c)(7)) is amended—
(1) by striking ‘‘the applicable percentage’’ in
subparagraph (A)(i)(I) and inserting ‘‘in the case of
177
plan years beginning before January 1, 2004, the
applicable percentage’’; and
(2) by amending subparagraph (F) to read as
follows:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A)(i)(I), the applica-
ble percentage shall be determined in accord-
ance with the following table:
‘‘In the case of any plan year
The applicable
beginning in—
percentage is—
2001 .............................................................................
160
2002 .............................................................................
165
2003 .............................................................................
170.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2000.
SEC. 442. MAXIMUM CONTRIBUTION DEDUCTION RULES
MODIFIED AND APPLIED TO ALL DEFINED
BENEFIT PLANS.
(a) IN GENERAL.—Subparagraph (D) of section
404(a)(1) (relating to special rule in case of certain plans)
is amended to read as follows:
‘‘(D) SPECIAL RULE IN CASE OF CERTAIN
PLANS.—
‘‘(i) IN GENERAL.—In the case of any
defined benefit plan, except as provided in
regulations, the maximum amount deduct-
ible under the limitations of this paragraph
178
shall not be less than the unfunded termi-
nation liability (determined as if the pro-
posed termination date referred to in sec-
tion 4041(b)(2)(A)(i)(II) of the Employee
Retirement Income Security Act of 1974
were the last day of the plan year).
‘‘(ii) PLANS
WITH
LESS
THAN
100
PARTICIPANTS.—For purposes of this sub-
paragraph, in the case of a plan which has
less than 100 participants for the plan
year, termination liability shall not include
the liability attributable to benefit in-
creases for highly compensated employees
(as defined in section 414(q)) resulting
from a plan amendment which is made or
becomes effective, whichever is later, within
the last 2 years before the termination
date.
‘‘(iii) RULE FOR DETERMINING NUM-
BER OF PARTICIPANTS.—For purposes of
determining whether a plan has more than
100 participants, all defined benefit plans
maintained by the same employer (or any
member of such employer’s controlled
group (within the meaning of section
179
412(l)(8)(C))) shall be treated as one plan,
but only employees of such member or em-
ployer shall be taken into account.
‘‘(iv) PLANS MAINTAINED BY PROFES-
SIONAL SERVICE EMPLOYERS.—Clause (i)
shall not apply to a plan described in sec-
tion 4021(b)(13) of the Employee Retire-
ment Income Security Act of 1974.’’.
(b) CONFORMING AMENDMENT.—Paragraph (6) of
section 4972(c) is amended to read as follows:
‘‘(6) EXCEPTIONS.—In determining the amount
of nondeductible contributions for any taxable year,
there shall not be taken into account so much of the
contributions to one or more defined contribution
plans which are not deductible when contributed
solely because of section 404(a)(7) as does not ex-
ceed the greater of—
‘‘(A) the amount of contributions not in
excess of 6 percent of compensation (within the
meaning of section 404(a)) paid or accrued
(during the taxable year for which the contribu-
tions were made) to beneficiaries under the
plans, or
‘‘(B) the sum of—
181
section 404(a)(7) shall first be applied to amounts
contributed to defined contribution plans and then
to amounts described in this paragraph. If an em-
ployer makes an election under this paragraph for a
taxable year, paragraph (6) shall not apply to such
employer for such taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2000.
SEC. 444. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY
DEFINED BENEFIT PLANS SIGNIFICANTLY
REDUCING FUTURE BENEFIT ACCRUALS.
(a) AMENDMENT OF INTERNAL REVENUE CODE.—
(1) IN
GENERAL.—Chapter 43 (relating to
qualified pension, etc., plans) is amended by adding
at the end the following new section:
‘‘SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING
BENEFIT ACCRUALS TO SATISFY NOTICE RE-
QUIREMENTS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the failure of any applicable pension plan to meet
the requirements of subsection (e) with respect to any ap-
plicable individual.
‘‘(b) AMOUNT OF TAX.—
182
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on any failure with respect
to any applicable individual shall be $100 for each
day in the noncompliance period with respect to such
failure.
‘‘(2) NONCOMPLIANCE PERIOD.—For purposes
of this section, the term ‘noncompliance period’
means, with respect to any failure, the period begin-
ning on the date the failure first occurs and ending
on the date the notice to which the failure relates is
provided or the failure is otherwise corrected.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT
DISCOVERED
AND
REASONABLE
DILIGENCE
EXER-
CISED.—No tax shall be imposed by subsection (a)
on any failure during any period for which it is es-
tablished to the satisfaction of the Secretary that
any person subject to liability for the tax under sub-
section (d) did not know that the failure existed and
exercised reasonable diligence to meet the require-
ments of subsection (e).
‘‘(2) TAX NOT TO APPLY TO FAILURES COR-
RECTED WITHIN 30 DAYS.—No tax shall be imposed
by subsection (a) on any failure if—
183
‘‘(A) any person subject to liability for the
tax under subsection (d) exercised reasonable
diligence to meet the requirements of subsection
(e), and
‘‘(B) such person provides the notice de-
scribed in subsection (e) during the 30-day pe-
riod beginning on the first date such person
knew, or exercising reasonable diligence would
have known, that such failure existed.
‘‘(3) OVERALL
LIMITATION
FOR
UNINTEN-
TIONAL FAILURES.—
‘‘(A) IN GENERAL.—If the person subject
to liability for tax under subsection (d) exer-
cised reasonable diligence to meet the require-
ments of subsection (e), the tax imposed by
subsection (a) for failures during the taxable
year of the employer (or, in the case of a multi-
employer plan, the taxable year of the trust
forming part of the plan) shall not exceed
$500,000. For purposes of the preceding sen-
tence, all multiemployer plans of which the
same trust forms a part shall be treated as 1
plan.
‘‘(B) TAXABLE
YEARS
IN
THE
CASE
OF
CERTAIN CONTROLLED GROUPS.—For purposes
184
of this paragraph, if all persons who are treated
as a single employer for purposes of this section
do not have the same taxable year, the taxable
years taken into account shall be determined
under principles similar to the principles of sec-
tion 1561.
‘‘(4) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive or
otherwise inequitable relative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multi-
employer plan, the employer.
‘‘(2) In the case of a multiemployer plan, the
plan.
‘‘(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFI-
CANTLY REDUCING BENEFIT ACCRUALS.—
‘‘(1) IN
GENERAL.—If an applicable pension
plan is amended to provide for a significant reduc-
tion in the rate of future benefit accrual, the plan
administrator shall provide written notice to each
185
applicable individual (and to each employee organi-
zation representing applicable individuals).
‘‘(2) NOTICE.—The notice required by para-
graph (1) shall be written in a manner calculated to
be understood by the average plan participant and
shall provide sufficient information (as determined
in accordance with regulations prescribed by the
Secretary) to allow applicable individuals to under-
stand the effect of the plan amendment. The Sec-
retary may provide a simplified form of notice for,
or exempt from any notice requirement, a plan—
‘‘(A) which has fewer than 100 partici-
pants who have accrued a benefit under the
plan, or
‘‘(B) which offers participants the option
to choose between the new benefit formula and
the old benefit formula.
‘‘(3) TIMING OF NOTICE.—Except as provided
in regulations, the notice required by paragraph (1)
shall be provided within a reasonable time before the
effective date of the plan amendment.
‘‘(4) DESIGNEES.—Any notice under paragraph
(1) may be provided to a person designated, in writ-
ing, by the person to which it would otherwise be
provided.
186
‘‘(5) NOTICE
BEFORE
ADOPTION
OF
AMEND-
MENT.—A plan shall not be treated as failing to
meet the requirements of paragraph (1) merely be-
cause notice is provided before the adoption of the
plan amendment if no material modification of the
amendment occurs before the amendment is adopt-
ed.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap-
plicable individual’ means, with respect to any plan
amendment—
‘‘(A) each participant in the plan, and
‘‘(B) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under an applicable qualified domestic relations
order 
(within 
the 
meaning 
of 
section
414(p)(1)(A)),
whose rate of future benefit accrual under the
plan may reasonably be expected to be signifi-
cantly reduced by such plan amendment.
‘‘(2) APPLICABLE
PENSION
PLAN.—The term
‘applicable pension plan’ means—
‘‘(A) any defined benefit plan, or
187
‘‘(B) an individual account plan which is
subject to the funding standards of section 412.
Such term shall not include a governmental plan
(within the meaning of section 414(d)) or a church
plan (within the meaning of section 414(e)) with re-
spect to which the election provided by section
410(d) has not been made.
‘‘(3) EARLY RETIREMENT.—A plan amendment
which eliminates or significantly reduces any early
retirement benefit or retirement-type subsidy (within
the meaning of section 411(d)(6)(B)(i)) shall be
treated as having the effect of significantly reducing
the rate of future benefit accrual.
‘‘(g) NEW TECHNOLOGIES.—The Secretary may by
regulations allow any notice under paragraph (1) or (2)
of subsection (e) to be provided by using new tech-
nologies.’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter 43 is amended by adding at the
end the following new item:
‘‘Sec. 4980F. Failure of applicable plans reducing benefit accruals
to satisfy notice requirements.’’.
(b) AMENDMENT OF ERISA.—Section 204(h) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1054(h)) is amended by adding at the end the fol-
lowing new paragraphs:
188
‘‘(3)(A) An applicable pension plan to which para-
graph (1) applies shall not be treated as meeting the re-
quirements of such paragraph unless, in addition to any
notice required to be provided to an individual or organiza-
tion under such paragraph, the plan administrator pro-
vides the notice described in subparagraph (B) to each ap-
plicable individual (and to each employee organization rep-
resenting applicable individuals).
‘‘(B) The notice required by subparagraph (A) shall
be written in a manner calculated to be understood by the
average plan participant and shall provide sufficient infor-
mation (as determined in accordance with regulations pre-
scribed by the Secretary of the Treasury) to allow applica-
ble individuals to understand the effect of the plan amend-
ment. The Secretary of the Treasury may provide a sim-
plified form of notice for, or exempt from any notice re-
quirement, a plan—
‘‘(i) which has fewer than 100 participants who
have accrued a benefit under the plan, or
‘‘(ii) which offers participants the option to
choose between the new benefit formula and the old
benefit formula.
‘‘(C) Except as provided in regulations prescribed by
the Secretary of the Treasury, the notice required by sub-
189
paragraph (A) shall be provided within a reasonable time
before the effective date of the plan amendment.
‘‘(D) Any notice under subparagraph (A) may be pro-
vided to a person designated, in writing, by the person
to which it would otherwise be provided.
‘‘(E) A plan shall not be treated as failing to meet
the requirements of subparagraph (A) merely because no-
tice is provided before the adoption of the plan amendment
if no material modification of the amendment occurs be-
fore the amendment is adopted.
‘‘(F) The Secretary of the Treasury may by regula-
tions allow any notice under subparagraph (A) or (B) to
be provided by using new technologies.
‘‘(4) For purposes of paragraph (3)—
‘‘(A) The term ‘applicable individual’ means,
with respect to any plan amendment—
‘‘(i) each participant in the plan; and
‘‘(ii) any beneficiary who is an alternate
payee 
(within 
the 
meaning 
of 
section
206(d)(3)(K)) under an applicable qualified do-
mestic relations order (within the meaning of
section 206(d)(3)(B)(i)),
whose rate of future benefit accrual under the plan
may reasonably be expected to be significantly re-
duced by such plan amendment.
190
‘‘(B) The term ‘applicable pension plan’
means—
‘‘(i) any defined benefit plan; or
‘‘(ii) an individual account plan which is
subject to the funding standards of section 412
of the Internal Revenue Code of 1986.
‘‘(C) A plan amendment which eliminates or
significantly reduces any early retirement benefit or
retirement-type subsidy (within the meaning of sub-
section (g)(2)(A)) shall be treated as having the ef-
fect of significantly reducing the rate of future ben-
efit accrual.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan amendments taking
effect on or after the date of the enactment of this
Act.
(2) TRANSITION.—Until such time as the Sec-
retary of the Treasury issues regulations under sec-
tions 4980F(e)(2) and (3) of the Internal Revenue
Code of 1986 and section 204(h)(3) of the Employee
Retirement Income Security Act of 1974 (as added
by the amendments made by this section), a plan
shall be treated as meeting the requirements of such
191
sections if it makes a good faith effort to comply
with such requirements.
(3) SPECIAL NOTICE RULES.—
(A) IN
GENERAL.—The period for pro-
viding any notice required by the amendments
made by this section shall not end before the
date which is 3 months after the date of the en-
actment of this Act.
(B) REASONABLE
NOTICE.—The amend-
ments made by this section shall not apply to
any plan amendment taking effect on or after
the date of the enactment of this Act if, before
October 25, 2000, notice was provided to par-
ticipants and beneficiaries adversely affected by
the plan amendment (or their representatives)
which was reasonably expected to notify them
of the nature and effective date of the plan
amendment.
(d) STUDY.—The Secretary of the Treasury shall
prepare a report on the effects of conversions of tradi-
tional defined benefit plans to cash balance or hybrid for-
mula plans. Such study shall examine the effect of such
conversions on longer service participants, including the
incidence and effects of ‘‘wear away’’ provisions under
which participants earn no additional benefits for a period
192
of time after the conversion. As soon as practicable, but
not later than 60 days after the date of the enactment
of this Act, the Secretary shall submit such report, to-
gether with recommendations thereon, to the Committee
on Ways and Means and the Committee on Education and
the Workforce of the House of Representatives and the
Committee on Finance and the Committee on Health,
Education, Labor, and Pensions of the Senate.
SEC. 445. TREATMENT OF MULTIEMPLOYER PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—
(1) IN GENERAL.—Paragraph (11) of section
415(b) (relating to limitation for defined benefit
plans) is amended to read as follows:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL AND MULTIEMPLOYER PLANS.—In the case
of a governmental plan (as defined in section
414(d)) or a multiemployer plan (as defined in sec-
tion 414(f)), subparagraph (B) of paragraph (1)
shall not apply.’’.
(2) 
CONFORMING
AMENDMENT.—Section
415(b)(7) (relating to benefits under certain collec-
tively bargained plans) is amended by inserting
‘‘(other than a multiemployer plan)’’ after ‘‘defined
193
benefit plan’’ in the matter preceding subparagraph
(A).
(b) COMBINING AND AGGREGATION OF PLANS.—
(1) COMBINING OF PLANS.—Subsection (f) of
section 415 (relating to combining of plans) is
amended by adding at the end the following:
‘‘(3) 
EXCEPTION
FOR
MULTIEMPLOYER
PLANS.—Notwithstanding paragraph (1) and sub-
section (g), a multiemployer plan (as defined in sec-
tion 414(f)) shall not be combined or aggregated—
‘‘(A) with any other plan which is not a
multiemployer plan for purposes of applying
subsection (b)(1)(B) to such other plan, or
‘‘(B) with any other multiemployer plan
for purposes of applying the limitations estab-
lished in this section.’’.
(2) CONFORMING AMENDMENT FOR AGGREGA-
TION OF PLANS.—Subsection (g) of section 415 (re-
lating to aggregation of plans) is amended by strik-
ing ‘‘The Secretary’’ and inserting ‘‘Except as pro-
vided in subsection (f)(3), the Secretary’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
194
SEC. 446. PROTECTION OF INVESTMENT OF EMPLOYEE
CONTRIBUTIONS TO 401(K) PLANS.
(a) IN GENERAL.—Section 1524(b) of the Taxpayer
Relief Act of 1997 is amended to read as follows:
‘‘(b) EFFECTIVE DATE.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to elective deferrals for plan years begin-
ning after December 31, 1998.
‘‘(2) NONAPPLICATION
TO
PREVIOUSLY
AC-
QUIRED PROPERTY.—The amendments made by this
section shall not apply to any elective deferral which
is invested in assets consisting of qualifying em-
ployer securities, qualifying employer real property,
or both, if such assets were acquired before January
1, 1999.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply as if included in the provision of
the Taxpayer Relief Act of 1997 to which it relates.
SEC. 447. PERIODIC PENSION BENEFITS STATEMENTS.
(a) IN GENERAL.—Section 105(a) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1025
(a)) is amended to read as follows:
‘‘(a)(1) Except as provided in paragraph (2)—
‘‘(A) the administrator of an individual account
plan shall furnish a pension benefit statement—
195
‘‘(i) to a plan participant at least once an-
nually, and
‘‘(ii) to a plan beneficiary upon written re-
quest, and
‘‘(B) the administrator of a defined benefit plan
shall furnish a pension benefit statement—
‘‘(i) at least once every 3 years to each
participant with a nonforfeitable accrued ben-
efit who is employed by the employer maintain-
ing the plan at the time the statement is fur-
nished to participants, and
‘‘(ii) to a plan participant or plan bene-
ficiary of the plan upon written request.
‘‘(2) Notwithstanding paragraph (1), the adminis-
trator of a plan to which more than 1 unaffiliated em-
ployer is required to contribute shall only be required to
furnish a pension benefit statement under paragraph (1)
upon the written request of a participant or beneficiary
of the plan.
‘‘(3) A pension benefit statement under paragraph
(1)—
‘‘(A) shall indicate, on the basis of the latest
available information—
‘‘(i) the total benefits accrued, and
196
‘‘(ii) the nonforfeitable pension benefits, if
any, which have accrued, or the earliest date on
which benefits will become nonforfeitable,
‘‘(B) shall be written in a manner calculated to
be understood by the average plan participant, and
‘‘(C) may be provided in written, electronic, tel-
ephonic, or other appropriate form.
‘‘(4)(A) In the case of a defined benefit plan, the re-
quirements of paragraph (1)(B)(i) shall be treated as met
with respect to a participant if the administrator provides
the participant at least once each year with notice of the
availability of the pension benefit statement and the ways
in which the participant may obtain such statement. Such
notice shall be provided in written, electronic, telephonic,
or other appropriate form, and may be included with other
communications to the participant if done in a manner
reasonably designed to attract the attention of the partici-
pant.
‘‘(B) The Secretary may provide that years in which
no employee or former employee benefits (within the
meaning of section 410(b) of the Internal Revenue Code
of 1986) under the plan need not be taken into account
in determining the 3-year period under paragraph
(1)(B)(i).’’.
(b) CONFORMING AMENDMENTS.—
197
(1) Section 105 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1025) is
amended by striking subsection (d).
(2) Section 105(b) of such Act (29 U.S.C.
1025(b)) is amended to read as follows:
‘‘(b) In no case shall a participant or beneficiary of
a plan be entitled to more than one statement described
in subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is appli-
cable, in any 12-month period.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2001.
SEC. 448. PROHIBITED ALLOCATIONS OF STOCK IN S COR-
PORATION ESOP.
(a) IN GENERAL.—Section 409 (relating to qualifica-
tions for tax credit employee stock ownership plans) is
amended by redesignating subsection (p) as subsection (q)
and by inserting after subsection (o) the following new
subsection:
‘‘(p) PROHIBITED ALLOCATIONS OF SECURITIES IN
AN S CORPORATION.—
‘‘(1) IN GENERAL.—An employee stock owner-
ship plan holding employer securities consisting of
stock in an S corporation shall provide that no por-
tion of the assets of the plan attributable to (or allo-
198
cable in lieu of) such employer securities may, dur-
ing a nonallocation year, accrue (or be allocated di-
rectly or indirectly under any plan of the employer
meeting the requirements of section 401(a)) for the
benefit of any disqualified person.
‘‘(2) FAILURE TO MEET REQUIREMENTS.—
‘‘(A) IN GENERAL.—If a plan fails to meet
the requirements of paragraph (1), the plan
shall be treated as having distributed to any
disqualified person the amount allocated to the
account of such person in violation of para-
graph (1) at the time of such allocation.
‘‘(B) CROSS REFERENCE.—
‘‘For excise tax relating to violations of paragraph
(1) and ownership of synthetic equity, see section
4979A.
‘‘(3) NONALLOCATION YEAR.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘nonalloca-
tion year’ means any plan year of an employee
stock ownership plan if, at any time during
such plan year—
‘‘(i) such plan holds employer securi-
ties consisting of stock in an S corpora-
tion, and
199
‘‘(ii) disqualified persons own at least
50 percent of the number of shares of
stock in the S corporation.
‘‘(B) ATTRIBUTION RULES.—For purposes
of subparagraph (A)—
‘‘(i) IN GENERAL.—The rules of sec-
tion 318(a) shall apply for purposes of de-
termining ownership, except that—
‘‘(I) in applying paragraph (1)
thereof, the members of an individ-
ual’s family shall include members of
the family described in paragraph
(4)(D), and
‘‘(II) paragraph (4) thereof shall
not apply.
‘‘(ii) DEEMED-OWNED SHARES.—Not-
withstanding the employee trust exception
in section 318(a)(2)(B)(i), an individual
shall be treated as owning deemed-owned
shares of the individual.
Solely for purposes of applying paragraph (5),
this subparagraph shall be applied after the at-
tribution rules of paragraph (5) have been ap-
plied.
200
‘‘(4) DISQUALIFIED PERSON.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘disqualified
person’ means any person if—
‘‘(i) the aggregate number of deemed-
owned shares of such person and the mem-
bers of such person’s family is at least 20
percent of the number of deemed-owned
shares of stock in the S corporation, or
‘‘(ii) in the case of a person not de-
scribed in clause (i), the number of
deemed-owned shares of such person is at
least 10 percent of the number of deemed-
owned shares of stock in such corporation.
‘‘(B) TREATMENT OF FAMILY MEMBERS.—
In the case of a disqualified person described in
subparagraph (A)(i), any member of such per-
son’s family with deemed-owned shares shall be
treated as a disqualified person if not otherwise
treated as a disqualified person under subpara-
graph (A).
‘‘(C) DEEMED-OWNED SHARES.—
‘‘(i) 
IN
GENERAL.—The 
term
‘deemed-owned shares’ means, with respect
to any person—
201
‘‘(I) the stock in the S corpora-
tion constituting employer securities
of an employee stock ownership plan
which is allocated to such person
under the plan, and
‘‘(II) such person’s share of the
stock in such corporation which is
held by such plan but which is not al-
located under the plan to participants.
‘‘(ii) 
PERSON’S
SHARE
OF
UNALLOCATED
STOCK.—For purposes of
clause 
(i)(II), 
a 
person’s 
share 
of
unallocated S corporation stock held by
such plan is the amount of the unallocated
stock which would be allocated to such per-
son if the unallocated stock were allocated
to all participants in the same proportions
as the most recent stock allocation under
the plan.
‘‘(D) MEMBER OF FAMILY.—For purposes
of this paragraph, the term ‘member of the
family’ means, with respect to any individual—
‘‘(i) the spouse of the individual,
‘‘(ii) an ancestor or lineal descendant
of the individual or the individual’s spouse,
202
‘‘(iii) a brother or sister of the indi-
vidual or the individual’s spouse and any
lineal descendant of the brother or sister,
and
‘‘(iv) the spouse of any individual de-
scribed in clause (ii) or (iii).
A spouse of an individual who is legally sepa-
rated from such individual under a decree of di-
vorce or separate maintenance shall not be
treated as such individual’s spouse for purposes
of this subparagraph.
‘‘(5) TREATMENT OF SYNTHETIC EQUITY.—For
purposes of paragraphs (3) and (4), in the case of
a person who owns synthetic equity in the S corpora-
tion, except to the extent provided in regulations, the
shares of stock in such corporation on which such
synthetic equity is based shall be treated as out-
standing stock in such corporation and deemed-
owned shares of such person if such treatment of
synthetic equity of 1 or more such persons results
in—
‘‘(A) the treatment of any person as a dis-
qualified person, or
‘‘(B) the treatment of any year as a non-
allocation year.
203
For purposes of this paragraph, synthetic equity
shall be treated as owned by a person in the same
manner as stock is treated as owned by a person
under the rules of paragraphs (2) and (3) of section
318(a). If, without regard to this paragraph, a per-
son is treated as a disqualified person or a year is
treated as a nonallocation year, this paragraph shall
not be construed to result in the person or year not
being so treated.
‘‘(6) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) 
EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock ownership
plan’ has the meaning given such term by sec-
tion 4975(e)(7).
‘‘(B) EMPLOYER SECURITIES.—The term
‘employer security’ has the meaning given such
term by section 409(l).
‘‘(C) SYNTHETIC EQUITY.—The term ‘syn-
thetic equity’ means any stock option, warrant,
restricted stock, deferred issuance stock right,
or similar interest or right that gives the holder
the right to acquire or receive stock of the S
corporation in the future. Except to the extent
provided in regulations, synthetic equity also in-
204
cludes a stock appreciation right, phantom
stock unit, or similar right to a future cash
payment based on the value of such stock or
appreciation in such value.
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection.’’.
(b) COORDINATION WITH SECTION 4975(e)(7).—The
last sentence of section 4975(e)(7) (defining employee
stock ownership plan) is amended by inserting ‘‘, section
409(p),’’ after ‘‘409(n)’’.
(c) EXCISE TAX.—
(1) APPLICATION OF TAX.—Subsection (a) of
section 4979A (relating to tax on certain prohibited
allocations of employer securities) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (1); and
(B) by striking all that follows paragraph
(2) and inserting the following:
‘‘(3) there is any allocation of employer securi-
ties which violates the provisions of section 409(p),
or a nonallocation year described in subsection
(e)(2)(C) with respect to an employee stock owner-
ship plan, or
205
‘‘(4) any synthetic equity is owned by a dis-
qualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or owner-
ship equal to 50 percent of the amount involved.’’.
(2) LIABILITY.—Section 4979A(c) (defining li-
ability for tax) is amended to read as follows:
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid—
‘‘(1) in the case of an allocation referred to in
paragraph (1) or (2) of subsection (a), by—
‘‘(A) the employer sponsoring such plan, or
‘‘(B) the eligible worker-owned cooperative,
which made the written statement described in sec-
tion 664(g)(1)(E) or in section 1042(b)(3)(B) (as
the case may be), and
‘‘(2) in the case of an allocation or ownership
referred to in paragraph (3) or (4) of subsection (a),
by the S corporation the stock in which was so allo-
cated or owned.’’.
(3) DEFINITIONS.—Section 4979A(e) (relating
to definitions) is amended to read as follows:
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) DEFINITIONS.—Except as provided in
paragraph (2), terms used in this section have the
206
same respective meanings as when used in sections
409 and 4978.
‘‘(2) SPECIAL
RULES
RELATING
TO
TAX
IM-
POSED BY REASON OF PARAGRAPH (3) OR (4) OF
SUBSECTION (a).—
‘‘(A) 
PROHIBITED
ALLOCATIONS.—The
amount involved with respect to any tax im-
posed by reason of subsection (a)(3) is the
amount allocated to the account of any person
in violation of section 409(p)(1).
‘‘(B) SYNTHETIC
EQUITY.—The amount
involved with respect to any tax imposed by rea-
son of subsection (a)(4) is the value of the
shares on which the synthetic equity is based.
‘‘(C) SPECIAL RULE DURING FIRST NON-
ALLOCATION YEAR.—For purposes of subpara-
graph (A), the amount involved for the first
nonallocation year of any employee stock owner-
ship plan shall be determined by taking into ac-
count the total value of all the deemed-owned
shares of all disqualified persons with respect to
such plan.
‘‘(D) STATUTE
OF
LIMITATIONS.—The
statutory period for the assessment of any tax
imposed by this section by reason of paragraph
207
(3) or (4) of subsection (a) shall not expire be-
fore the date which is 3 years from the later
of—
‘‘(i) the allocation or ownership re-
ferred to in such paragraph giving rise to
such tax, or
‘‘(ii) the date on which the Secretary
is notified of such allocation or owner-
ship.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to plan years beginning after
December 31, 2001.
(2) EXCEPTION FOR CERTAIN PLANS.—In the
case of any—
(A) employee stock ownership plan estab-
lished after July 11, 2000; or
(B) employee stock ownership plan estab-
lished on or before such date if employer securi-
ties held by the plan consist of stock in a cor-
poration with respect to which an election under
section 1362(a) of the Internal Revenue Code
of 1986 is not in effect on such date,
the amendments made by this section shall apply to
plan years ending after July 11, 2000.
208
Subtitle F—Reducing Regulatory
Burdens
SEC. 451. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) IN GENERAL.—Paragraph (9) of section 412(c)
(relating to annual valuation) is amended to read as fol-
lows:
‘‘(9) ANNUAL VALUATION.—
‘‘(A) IN GENERAL.—For purposes of this
section, a determination of experience gains and
losses and a valuation of the plan’s liability
shall be made not less frequently than once
every year, except that such determination shall
be made more frequently to the extent required
in particular cases under regulations prescribed
by the Secretary.
‘‘(B) VALUATION DATE.—
‘‘(i) CURRENT YEAR.—Except as pro-
vided in clause (ii), the valuation referred
to in subparagraph (A) shall be made as of
a date within the plan year to which the
valuation refers or within one month prior
to the beginning of such year.
‘‘(ii) ELECTION TO USE PRIOR YEAR
VALUATION.—The valuation referred to in
subparagraph (A) may be made as of a
209
date within the plan year prior to the year
to which the valuation refers if—
‘‘(I) an election is in effect under
this clause with respect to the plan,
and
‘‘(II) as of such date, the value
of the assets of the plan are not less
than 125 percent of the plan’s current
liability (as defined in paragraph
(7)(B)).
‘‘(iii) 
ADJUSTMENTS.—Information
under clause (ii) shall, in accordance with
regulations, be actuarially adjusted to re-
flect significant differences in participants.
‘‘(iv) ELECTION.—An election under
clause (ii), once made, shall be irrevocable
without the consent of the Secretary.’’.
(b) AMENDMENT OF ERISA.—Paragraph (9) of sec-
tion 302(c) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1053(c)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(9)’’; and
(2) by adding at the end the following:
‘‘(B)(i) Except as provided in clause (ii), the valu-
ation referred to in subparagraph (A) shall be made as
210
of a date within the plan year to which the valuation refers
or within one month prior to the beginning of such year.
‘‘(ii) The valuation referred to in subparagraph (A)
may be made as of a date within the plan year prior to
the year to which the valuation refers if—
‘‘(I) an election is in effect under this clause
with respect to the plan; and
‘‘(II) as of such date, the value of the assets of
the plan are not less than 125 percent of the plan’s
current liability (as defined in paragraph (7)(B)).
‘‘(iii) Information under clause (ii) shall, in accord-
ance with regulations, be actuarially adjusted to reflect
significant differences in participants.
‘‘(iv) An election under clause (ii), once made, shall
be irrevocable without the consent of the Secretary of the
Treasury.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after De-
cember 31, 2000.
SEC. 452. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT
LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL.—Section 404(k)(2)(A) (defining
applicable dividends) is amended by striking ‘‘or’’ at the
end of clause (ii), by redesignating clause (iii) as clause
211
(iv), and by inserting after clause (ii) the following new
clause:
‘‘(iii) is, at the election of such par-
ticipants or their beneficiaries—
‘‘(I) payable as provided in clause
(i) or (ii), or
‘‘(II) paid to the plan and rein-
vested in qualifying employer securi-
ties, or’’.
(b) 
STANDARD
FOR
DISALLOWANCE.—Section
404(k)(5)(A) (relating to disallowance of deduction) is
amended by inserting ‘‘avoidance or’’ before ‘‘evasion’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 453. REPEAL OF TRANSITION RULE RELATING TO CER-
TAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL.—Paragraph (4) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to plan years beginning after De-
cember 31, 2000.
SEC. 454. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL.—The Secretary of the Treasury
shall modify Treasury Regulations section 1.410(b)–6(g)
212
to provide that employees of an organization described in
section 403(b)(1)(A)(i) of the Internal Revenue Code of
1986 who are eligible to make contributions under section
403(b) of such Code pursuant to a salary reduction agree-
ment may be treated as excludable with respect to a plan
under section 401(k) or (m) of such Code that is provided
under the same general arrangement as a plan under such
section 401(k), if—
(1) no employee of an organization described in
section 403(b)(1)(A)(i) of such Code is eligible to
participate in such section 401(k) plan or section
401(m) plan; and
(2) 95 percent of the employees who are not
employees of an organization described in section
403(b)(1)(A)(i) of such Code are eligible to partici-
pate in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE.—The modification required by
subsection (a) shall apply as of the same date set forth
in section 1426(b) of the Small Business Job Protection
Act of 1996.
SEC. 455. CLARIFICATION OF TREATMENT OF EMPLOYER-
PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL.—Subsection (a) of section 132 (re-
lating to exclusion from gross income) is amended by
striking ‘‘or’’ at the end of paragraph (5), by striking the
213
period at the end of paragraph (6) and inserting ‘‘, or’’,
and by adding at the end the following new paragraph:
‘‘(7) qualified retirement planning services.’’.
(b) QUALIFIED RETIREMENT PLANNING SERVICES
DEFINED.—Section 132 is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following:
‘‘(m) QUALIFIED RETIREMENT PLANNING SERV-
ICES.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified retirement planning serv-
ices’ means any retirement planning advice or infor-
mation provided to an employee and his spouse by
an employer maintaining a qualified employer plan.
‘‘(2) NONDISCRIMINATION
RULE.—Subsection
(a)(7) shall apply in the case of highly compensated
employees only if such services are available on sub-
stantially the same terms to each member of the
group of employees normally provided education and
information regarding the employer’s qualified em-
ployer plan.
‘‘(3) QUALIFIED EMPLOYER PLAN.—For pur-
poses of this subsection, the term ‘qualified employer
plan’ means a plan, contract, pension, or account de-
scribed in section 219(g)(5).’’.
214
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 456. REPORTING SIMPLIFICATION.
(a) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the requirements for filing annual
returns with respect to one-participant retirement
plans to ensure that such plans with assets of
$250,000 or less as of the close of the plan year
need not file a return for that year.
(2) ONE-PARTICIPANT RETIREMENT PLAN DE-
FINED.—For purposes of this subsection, the term
‘‘one-participant retirement plan’’ means a retire-
ment plan that—
(A) on the first day of the plan year—
(i) covered only the employer (and the
employer’s spouse) and the employer
owned the entire business (whether or not
incorporated); or
(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration);
215
(B) meets the minimum coverage require-
ments of section 410(b) of the Internal Revenue
Code of 1986 without being combined with any
other plan of the business that covers the em-
ployees of the business;
(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse)
or the partners (and their spouses);
(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of
businesses under common control; and
(E) does not cover a business that leases
employees.
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the
Internal Revenue Code of 1986 shall have the re-
spective meanings given such terms by such section.
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
of plan years beginning after December 31, 2001, the Sec-
retary of the Treasury shall provide for the filing of a sim-
plified annual return for any retirement plan which covers
less than 25 employees on the first day of a plan year
216
and meets the requirements described in subparagraphs
(B), (D), and (E) of subsection (a)(2).
(c) EFFECTIVE DATE.—The provisions of this section
shall take effect on January 1, 2001.
SEC. 457. IMPROVEMENT OF EMPLOYEE PLANS COMPLI-
ANCE RESOLUTION SYSTEM.
The Secretary of the Treasury shall continue to up-
date and improve the Employee Plans Compliance Resolu-
tion System (or any successor program) giving special at-
tention to—
(1) increasing the awareness and knowledge of
small employers concerning the availability and use
of the program;
(2) taking into account special concerns and
circumstances that small employers face with respect
to compliance and correction of compliance failures;
(3) extending the duration of the self-correction
period under the Administrative Policy Regarding
Self-Correction for significant compliance failures;
(4) expanding the availability to correct insig-
nificant compliance failures under the Administra-
tive Policy Regarding Self-Correction during audit;
and
(5) assuring that any tax, penalty, or sanction
that is imposed by reason of a compliance failure is
217
not excessive and bears a reasonable relationship to
the nature, extent, and severity of the failure.
SEC. 458. REPEAL OF THE MULTIPLE USE TEST.
(a) IN GENERAL.—Paragraph (9) of section 401(m)
is amended to read as follows:
‘‘(9) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection and subsection
(k), including regulations permitting appropriate ag-
gregation of plans and contributions.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 2000.
SEC. 459. FLEXIBILITY IN NONDISCRIMINATION, COV-
ERAGE, AND LINE OF BUSINESS RULES.
(a) NONDISCRIMINATION.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall, by regulation, provide that a plan shall be
deemed to satisfy the requirements of section
401(a)(4) of the Internal Revenue Code of 1986 if
such plan satisfies the facts and circumstances test
under section 401(a)(4) of such Code, as in effect
before January 1, 1994, but only if—
218
(A) the plan satisfies conditions prescribed
by the Secretary to appropriately limit the
availability of such test; and
(B) the plan is submitted to the Secretary
for a determination of whether it satisfies such
test.
Subparagraph (B) shall only apply to the extent pro-
vided by the Secretary.
(2) EFFECTIVE DATES.—
(A) REGULATIONS.—The regulation re-
quired by paragraph (1) shall apply to years be-
ginning after December 31, 2002.
(B) CONDITIONS OF AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under paragraph (1)(A) shall not apply
before the first year beginning not less than
120 days after the date on which such condition
is prescribed.
(b) COVERAGE TEST.—
(1) IN GENERAL.—Section 410(b)(1) (relating
to minimum coverage requirements) is amended by
adding at the end the following:
‘‘(D) In the case that the plan fails to
meet the requirements of subparagraphs (A),
(B) and (C), the plan—
219
‘‘(i) satisfies subparagraph (B), as in
effect immediately before the enactment of
the Tax Reform Act of 1986,
‘‘(ii) is submitted to the Secretary for
a determination of whether it satisfies the
requirement described in clause (i), and
‘‘(iii) satisfies conditions prescribed by
the Secretary by regulation that appro-
priately limit the availability of this sub-
paragraph.
Clause (ii) shall apply only to the extent pro-
vided by the Secretary.’’.
(2) EFFECTIVE DATES.—
(A) IN GENERAL.—The amendment made
by paragraph (1) shall apply to years beginning
after December 31, 2002.
(B) CONDITIONS OF AVAILABILITY.—Any
condition of availability prescribed by the Sec-
retary under regulations prescribed by the Sec-
retary under section 410(b)(1)(D) of the Inter-
nal Revenue Code of 1986 shall not apply be-
fore the first year beginning not less than 120
days after the date on which such condition is
prescribed.
220
(c) LINE OF BUSINESS RULES.—The Secretary of
the Treasury shall, on or before December 31, 2002, mod-
ify the existing regulations issued under section 414(r) of
the Internal Revenue Code of 1986 in order to expand
(to the extent that the Secretary determines appropriate)
the ability of a pension plan to demonstrate compliance
with the line of business requirements based upon the
facts and circumstances surrounding the design and oper-
ation of the plan, even though the plan is unable to satisfy
the mechanical tests currently used to determine compli-
ance.
SEC. 460. EXTENSION TO ALL GOVERNMENTAL PLANS OF
MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES APPLICABLE TO
STATE AND LOCAL PLANS.
(a) IN GENERAL.—
(1) Subparagraph (G) of section 401(a)(5) and
subparagraph (H) of section 401(a)(26) are each
amended by striking ‘‘section 414(d))’’ and all that
follows and inserting ‘‘section 414(d)).’’.
(2) Subparagraph (G) of section 401(k)(3) and
paragraph (2) of section 1505(d) of the Taxpayer
Relief Act of 1997 are each amended by striking
‘‘maintained by a State or local government or polit-
221
ical subdivision thereof (or agency or instrumentality
thereof)’’.
(b) CONFORMING AMENDMENTS.—
(1) The heading for subparagraph (G) of sec-
tion 401(a)(5) is amended to read as follows: ‘‘GOV-
ERNMENTAL PLANS’’.
(2) The heading for subparagraph (H) of sec-
tion 401(a)(26) is amended to read as follows: ‘‘EX-
CEPTION FOR GOVERNMENTAL PLANS’’.
(3) Subparagraph (G) of section 401(k)(3) is
amended by inserting ‘‘GOVERNMENTAL PLANS.—’’
after ‘‘(G)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 461. NOTICE AND CONSENT PERIOD REGARDING DIS-
TRIBUTIONS.
(a) EXPANSION OF PERIOD.—
(1) AMENDMENT
OF
INTERNAL
REVENUE
CODE.—
(A) IN
GENERAL.—Subparagraph (A) of
section 417(a)(6) is amended by striking ‘‘90-
day’’ and inserting ‘‘180-day’’.
(B) MODIFICATION
OF
REGULATIONS.—
The Secretary of the Treasury shall modify the
222
regulations under sections 402(f), 411(a)(11),
and 417 of the Internal Revenue Code of 1986
to substitute ‘‘180 days’’ for ‘‘90 days’’ each
place it appears in Treasury Regulations sec-
tions 1.402(f)–1, 1.411(a)–11(c), and 1.417(e)–
1(b).
(2) 
AMENDMENT
OF
ERISA.—Section
205(c)(7)(A) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1055(c)(7)(A)) is
amended by striking ‘‘90-day’’ and inserting ‘‘180-
day’’.
(3) EFFECTIVE DATE.—The amendments made
by paragraph (1)(A) and (2) and the modifications
required by paragraph (1)(B) shall apply to years
beginning after December 31, 2000.
(b) CONSENT REGULATION INAPPLICABLE TO CER-
TAIN DISTRIBUTIONS.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the regulations under section
411(a)(11) of the Internal Revenue Code of 1986 to
provide that the description of a participant’s right,
if any, to defer receipt of a distribution shall also de-
scribe the consequences of failing to defer such re-
ceipt.
223
(2) EFFECTIVE DATE.—The modifications re-
quired by paragraph (1) shall apply to years begin-
ning after December 31, 2000.
(c) DISCLOSURE OF OPTIONAL FORMS OF BENE-
FITS.—
(1) REGULATIONS.—
(A) IN GENERAL.—The Secretary of the
Treasury shall, not later than December 31,
2001, issue final regulations under section
417(a)(3) of the Internal Revenue Code of 1986
which provide that if—
(i) a defined benefit plan offers both
a qualified joint and survivor annuity and
a single sum optional form of benefit, and
(ii) the distributable amount under
such single sum option is less than the
present value (determined in accordance
with section 417(e) of such Code) of the
qualified joint and survivor annuity com-
mencing as of the same annuity starting
date,
the written explanation required by section
417(a)(3)(A) of such Code shall include suffi-
cient information to allow the participant to un-
224
derstand the difference between the amount of
the single sum and such present value.
(B) UNMARRIED
PARTICIPANTS.—If the
plan offers an unmarried participant one or
more annuity options that are substantially
more valuable than the qualified joint and sur-
vivor annuity offered by the plan, the compari-
son required under subparagraph (A) shall be
made between the single sum option and the
most valuable of the other annuity options of-
fered by the plan.
(C) FORM.—Any information required
under this paragraph shall be provided in a
manner calculated to be reasonably understood
by the average plan participant.
(2) 
EFFECTIVE
DATE.—Regulations 
issued
under paragraph (1) shall only apply to distributions
made not earlier than 6 months after the date such
regulations are issued.
SEC. 462. ANNUAL REPORT DISSEMINATION.
(a) REPORT AVAILABLE THROUGH ELECTRONIC
MEANS.—Section 104(b)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1024(b)(3)) is
amended by adding at the end the following new sentence:
‘‘The requirement to furnish information under the pre-
225
vious sentence shall be satisfied if the administrator makes
such information reasonably available through electronic
means or other new technology.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to reports for years beginning after
December 31, 1999.
SEC. 463. TECHNICAL CORRECTIONS TO SAVER ACT.
Section 517 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1147) is amended—
(1) in subsection (a), by striking ‘‘2001 and
2005 on or after September 1 of each year involved’’
and inserting ‘‘2001, 2005, and 2009 in the month
of September of each year involved’’;
(2) in subsection (b), by adding at the end the
following new sentence: ‘‘To effectuate the purposes
of this paragraph, the Secretary may enter into a co-
operative agreement, pursuant to the Federal Grant
and Cooperative Agreement Act of 1977 (31 U.S.C.
6301 et seq.), with the American Savings Education
Council.’’;
(3) in subsection (e)(2)—
(A) by striking ‘‘Committee on Labor and
Human Resources’’ in subparagraph (D) and
inserting ‘‘Committee on Health, Education,
Labor, and Pensions’’;
226
(B) by striking subparagraph (F) and in-
serting the following:
‘‘(F) the Chairman and Ranking Member
of the Subcommittee on Labor, Health and
Human Services, and Education of the Com-
mittee on Appropriations of the House of Rep-
resentatives and the Chairman and Ranking
Member of the Subcommittee on Labor, Health
and Human Services, and Education of the
Committee on Appropriations of the Senate;’’;
(C) by redesignating subparagraph (G) as
subparagraph (J); and
(D) by inserting after subparagraph (F)
the following new subparagraphs:
‘‘(G) the Chairman and Ranking Member
of the Committee on Finance of the Senate;
‘‘(H) the Chairman and Ranking Member
of the Committee on Ways and Means of the
House of Representatives;
‘‘(I) the Chairman and Ranking Member
of the Subcommittee on Employer-Employee
Relations of the Committee on Education and
the Workforce of the House of Representatives;
and’’;
(4) in subsection (e)(3)(A)—
227
(A) by striking ‘‘There shall be no more
than 200 additional participants.’’ and inserting
‘‘The participants in the National Summit shall
also include additional participants appointed
under this subparagraph.’’;
(B) by striking ‘‘one-half shall be ap-
pointed by the President,’’ in clause (i) and in-
serting ‘‘not more than 100 participants shall
be appointed under this clause by the Presi-
dent,’’, and by striking ‘‘and’’ at the end of
clause (i);
(C) by striking ‘‘one-half shall be ap-
pointed by the elected leaders of Congress’’ in
clause (ii) and inserting ‘‘not more than 100
participants shall be appointed under this
clause by the elected leaders of Congress’’, and
by striking the period at the end of clause (ii)
and inserting ‘‘; and’’;
(D) by adding at the end the following new
clause:
‘‘(iii) The President, in consultation
with the elected leaders of Congress re-
ferred to in subsection (a), may appoint
under this clause additional participants to
the National Summit. The number of such
228
additional participants appointed under
this clause may not exceed the lesser of 3
percent of the total number of all addi-
tional participants appointed under this
paragraph, or 10. Such additional partici-
pants shall be appointed from persons
nominated by the organization referred to
in subsection (b)(2) which is made up of
private sector businesses and associations
partnered with Government entities to pro-
mote long term financial security in retire-
ment through savings and with which the
Secretary is required thereunder to consult
and cooperate and shall not be Federal,
State, or local government employees.’’;
(5) in subsection (e)(3)(B), by striking ‘‘Janu-
ary 31, 1998’’ in subparagraph (B) and inserting
‘‘May 1, 2001, May 1, 2005, and May 1, 2009, for
each of the subsequent summits, respectively’’;
(6) in subsection (f)(1)(C), by inserting ‘‘, no
later than 90 days prior to the date of the com-
mencement of the National Summit,’’ after ‘‘com-
ment’’ in paragraph (1)(C);
229
(7) in subsection (g), by inserting ‘‘, in con-
sultation with the congressional leaders specified in
subsection (e)(2),’’ after ‘‘report’’;
(8) in subsection (i)—
(A) by striking ‘‘beginning on or after Oc-
tober 1, 1997’’ in paragraph (1) and inserting
‘‘2001, 2005, and 2009’’; and
(B) by adding at the end the following new
paragraph:
‘‘(3) RECEPTION
AND
REPRESENTATION
AU-
THORITY.—The Secretary is hereby granted recep-
tion and representation authority limited specifically
to the events at the National Summit. The Secretary
shall use any private contributions accepted in con-
nection with the National Summit prior to using
funds appropriated for purposes of the National
Summit pursuant to this paragraph.’’; and
(9) in subsection (k)—
(A) by striking ‘‘shall enter into a contract
on a sole-source basis’’ and inserting ‘‘may
enter into a contract on a sole-source basis’’;
and
(B) by striking ‘‘fiscal year 1998’’ and in-
serting ‘‘fiscal years 2001, 2005, and 2009’’.
230
SEC. 464. STUDY OF PENSION COVERAGE.
Not later than 5 years after the date of the enact-
ment of this Act, the Secretary of the Treasury shall sub-
mit a report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance
of the Senate a report on the effect of the provisions of
the Retirement Savings and Pension Coverage Act of 2000
on pension coverage, including—
(1) any expansion of coverage for low- and mid-
dle-income workers;
(2) levels of pension benefits;
(3) quality of pension coverage;
(4) worker’s access to and participation in
plans; and
(5) retirement security.
Subtitle G—Other ERISA
Provisions
SEC. 471. MISSING PARTICIPANTS.
(a) IN GENERAL.—Section 4050 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1350)
is amended by redesignating subsection (c) as subsection
(e) and by inserting after subsection (b) the following new
subsection:
‘‘(c) MULTIEMPLOYER
PLANS.—The corporation
shall prescribe rules similar to the rules in subsection (a)
231
for multiemployer plans covered by this title that termi-
nate under section 4041A.
‘‘(d) PLANS NOT OTHERWISE SUBJECT TO TITLE.—
‘‘(1) TRANSFER TO CORPORATION.—The plan
administrator of a plan described in paragraph (4)
may elect to transfer a missing participant’s benefits
to the corporation upon termination of the plan.
‘‘(2) INFORMATION TO THE CORPORATION.—To
the extent provided in regulations, the plan adminis-
trator of a plan described in paragraph (4) shall,
upon termination of the plan, provide the corpora-
tion information with respect to benefits of a miss-
ing participant if the plan transfers such benefits—
‘‘(A) to the corporation, or
‘‘(B) to an entity other than the corpora-
tion or a plan described in paragraph (4)(B)(ii).
‘‘(3) PAYMENT BY THE CORPORATION.—If ben-
efits of a missing participant were transferred to the
corporation under paragraph (1), the corporation
shall, upon location of the participant or beneficiary,
pay to the participant or beneficiary the amount
transferred (or the appropriate survivor benefit)
either—
‘‘(A) in a single sum (plus interest), or
232
‘‘(B) in such other form as is specified in
regulations of the corporation.
‘‘(4) PLANS DESCRIBED.—A plan is described
in this paragraph if—
‘‘(A) the plan is a pension plan (within the
meaning of section 3(2))—
‘‘(i) to which the provisions of this
section do not apply (without regard to
this subsection), and
‘‘(ii) which is not a plan described in
paragraphs (2) through (11) of section
4021(b), and
‘‘(B) at the time the assets are to be dis-
tributed upon termination, the plan—
‘‘(i) has missing participants, and
‘‘(ii) has not provided for the transfer
of assets to pay the benefits of all missing
participants to another pension plan (with-
in the meaning of section 3(2)).
‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—
Subsections (a)(1) and (a)(3) shall not apply to a
plan described in paragraph (4).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to distributions made after final
regulations implementing subsections (c) and (d) of sec-
233
tion 4050 of the Employee Retirement Income Security
Act of 1974 (as added by subsection (a)), respectively, are
prescribed.
SEC. 472. REDUCED PBGC PREMIUM FOR NEW PLANS OF
SMALL EMPLOYERS.
(a) IN GENERAL.—Subparagraph (A) of section
4006(a)(3) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1306(a)(3)(A)) is amended—
(1) in clause (i), by inserting ‘‘other than a new
single-employer plan (as defined in subparagraph
(F)) maintained by a small employer (as so de-
fined),’’ after ‘‘single-employer plan,’’,
(2) in clause (iii), by striking the period at the
end and inserting ‘‘, and’’, and
(3) by adding at the end the following new
clause:
‘‘(iv) in the case of a new single-employer plan
(as defined in subparagraph (F)) maintained by a
small employer (as so defined) for the plan year, $5
for each individual who is a participant in such plan
during the plan year.’’.
(b) 
DEFINITION
OF
NEW
SINGLE-EMPLOYER
PLAN.—Section 4006(a)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1306(a)(3)) is
234
amended by adding at the end the following new subpara-
graph:
‘‘(F)(i) For purposes of this paragraph, a single-em-
ployer plan maintained by a contributing sponsor shall be
treated as a new single-employer plan for each of its first
5 plan years if, during the 36-month period ending on the
date of the adoption of such plan, the sponsor or any
member of such sponsor’s controlled group (or any prede-
cessor of either) did not establish or maintain a plan to
which this title applies with respect to which benefits were
accrued for substantially the same employees as are in the
new single-employer plan.
‘‘(ii)(I) For purposes of this paragraph, the term
‘small employer’ means an employer which on the first day
of any plan year has, in aggregation with all members of
the controlled group of such employer, 100 or fewer em-
ployees.
‘‘(II) In the case of a plan maintained by two or more
contributing sponsors that are not part of the same con-
trolled group, the employees of all contributing sponsors
and controlled groups of such sponsors shall be aggregated
for purposes of determining whether any contributing
sponsor is a small employer.’’.
235
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to plans established after Decem-
ber 31, 2000.
SEC. 473. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR
NEW AND SMALL PLANS.
(a) NEW PLANS.—Subparagraph (E) of section
4006(a)(3) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1306(a)(3)(E)) is amended by
adding at the end the following new clause:
‘‘(v) In the case of a new defined benefit plan, the
amount determined under clause (ii) for any plan year
shall be an amount equal to the product of the amount
determined under clause (ii) and the applicable percent-
age. For purposes of this clause, the term ‘applicable per-
centage’ means—
‘‘(I) 0 percent, for the first plan year.
‘‘(II) 20 percent, for the second plan year.
‘‘(III) 40 percent, for the third plan year.
‘‘(IV) 60 percent, for the fourth plan year.
‘‘(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as de-
fined in section 3(35)) maintained by a contributing spon-
sor shall be treated as a new defined benefit plan for each
of its first 5 plan years if, during the 36-month period
ending on the date of the adoption of the plan, the sponsor
236
and each member of any controlled group including the
sponsor (or any predecessor of either) did not establish
or maintain a plan to which this title applies with respect
to which benefits were accrued for substantially the same
employees as are in the new plan.’’.
(b) SMALL
PLANS.—Paragraph (3) of section
4006(a) of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1306(a)), as amended by section
472(b), is amended—
(1) by striking ‘‘The’’ in subparagraph (E)(i)
and inserting ‘‘Except as provided in subparagraph
(G), the’’, and
(2) by inserting after subparagraph (F) the fol-
lowing new subparagraph:
‘‘(G)(i) In the case of an employer who has 25 or
fewer employees on the first day of the plan year, the addi-
tional premium determined under subparagraph (E) for
each participant shall not exceed $5 multiplied by the
number of participants in the plan as of the close of the
preceding plan year.
‘‘(ii) For purposes of clause (i), whether an employer
has 25 or fewer employees on the first day of the plan
year is determined taking into consideration all of the em-
ployees of all members of the contributing sponsor’s con-
trolled group. In the case of a plan maintained by two
237
or more contributing sponsors, the employees of all con-
tributing sponsors and their controlled groups shall be ag-
gregated for purposes of determining whether the 25-or-
fewer-employees limitation has been satisfied.’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendments made
by subsection (a) shall apply to plans established
after December 31, 2000.
(2) SUBSECTION (b).—The amendments made
by subsection (b) shall apply to plan years beginning
after December 31, 2000.
SEC. 474. AUTHORIZATION FOR PBGC TO PAY INTEREST ON
PREMIUM OVERPAYMENT REFUNDS.
(a) IN GENERAL.—Section 4007(b) of the Employ-
ment Retirement Income Security Act of 1974 (29 U.S.C.
1307(b)) is amended—
(1) by striking ‘‘(b)’’ and inserting ‘‘(b)(1)’’,
and
(2) by inserting at the end the following new
paragraph:
‘‘(2) The corporation is authorized to pay, subject to
regulations prescribed by the corporation, interest on the
amount of any overpayment of premium refunded to a des-
ignated payor. Interest under this paragraph shall be cal-
culated at the same rate and in the same manner as inter-
238
est is calculated for underpayments under paragraph
(1).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to interest accruing for periods
beginning not earlier than the date of the enactment of
this Act.
SEC. 475. SUBSTANTIAL OWNER BENEFITS IN TERMINATED
PLANS.
(a) MODIFICATION OF PHASE-IN OF GUARANTEE.—
Section 4022(b)(5) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1322(b)(5)) is amended
to read as follows:
‘‘(5)(A) For purposes of this paragraph, the term
‘majority owner’ means an individual who, at any time
during the 60-month period ending on the date the deter-
mination is being made—
‘‘(i) owns the entire interest in an unincor-
porated trade or business,
‘‘(ii) in the case of a partnership, is a partner
who owns, directly or indirectly, 50 percent or more
of either the capital interest or the profits interest
in such partnership, or
‘‘(iii) in the case of a corporation, owns, directly
or indirectly, 50 percent or more in value of either
239
the voting stock of that corporation or all the stock
of that corporation.
For purposes of clause (iii), the constructive ownership
rules of section 1563(e) of the Internal Revenue Code of
1986 shall apply (determined without regard to section
1563(e)(3)(C)).
‘‘(B) In the case of a participant who is a majority
owner, the amount of benefits guaranteed under this sec-
tion shall equal the product of—
‘‘(i) a fraction (not to exceed 1) the numerator
of which is the number of years from the later of the
effective date or the adoption date of the plan to the
termination date, and the denominator of which is
10, and
‘‘(ii) the amount of benefits that would be guar-
anteed under this section if the participant were not
a majority owner.’’.
(b) MODIFICATION OF ALLOCATION OF ASSETS.—
(1) Section 4044(a)(4)(B) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C.
1344(a)(4)(B)) is amended by striking ‘‘section
4022(b)(5)’’ and inserting ‘‘section 4022(b)(5)(B)’’.
(2) Section 4044(b) of such Act (29 U.S.C.
1344(b)) is amended—
240
(A) by striking ‘‘(5)’’ in paragraph (2) and
inserting ‘‘(4), (5),’’, and
(B) 
by 
redesignating 
paragraphs 
(3)
through (6) as paragraphs (4) through (7), re-
spectively, and by inserting after paragraph (2)
the following new paragraph:
‘‘(3) If assets available for allocation under
paragraph (4) of subsection (a) are insufficient to
satisfy in full the benefits of all individuals who are
described in that paragraph, the assets shall be allo-
cated first to benefits described in subparagraph (A)
of that paragraph. Any remaining assets shall then
be allocated to benefits described in subparagraph
(B) of that paragraph. If assets allocated to such
subparagraph (B) are insufficient to satisfy in full
the benefits described in that subparagraph, the as-
sets shall be allocated pro rata among individuals on
the basis of the present value (as of the termination
date) of their respective benefits described in that
subparagraph.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 4021 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1321) is
amended—
241
(A) in subsection (b)(9), by striking ‘‘as
defined in section 4022(b)(6)’’, and
(B) by adding at the end the following new
subsection:
‘‘(d) For purposes of subsection (b)(9), the term ‘sub-
stantial owner’ means an individual who, at any time dur-
ing the 60-month period ending on the date the determina-
tion is being made—
‘‘(1) owns the entire interest in an unincor-
porated trade or business,
‘‘(2) in the case of a partnership, is a partner
who owns, directly or indirectly, more than 10 per-
cent of either the capital interest or the profits inter-
est in such partnership, or
‘‘(3) in the case of a corporation, owns, directly
or indirectly, more than 10 percent in value of either
the voting stock of that corporation or all the stock
of that corporation.
For purposes of paragraph (3), the constructive ownership
rules of section 1563(e) of the Internal Revenue Code of
1986 shall apply (determined without regard to section
1563(e)(3)(C)).’’.
(2) Section 4043(c)(7) of such Act (29 U.S.C.
1343(c)(7)) is amended by striking ‘‘section 4022(b)(6)’’
and inserting ‘‘section 4021(d)’’.
242
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to plan terminations—
(A) under section 4041(c) of the Employee
Retirement Income Security Act of 1974 (29
U.S.C. 1341(c)) with respect to which notices
of intent to terminate are provided under sec-
tion 4041(a)(2) of such Act (29 U.S.C.
1341(a)(2)) after December 31, 2000, and
(B) under section 4042 of such Act (29
U.S.C. 1342) with respect to which proceedings
are instituted by the corporation after such
date.
(2) CONFORMING AMENDMENTS.—The amend-
ments made by subsection (c) shall take effect on
January 1, 2001.
SEC. 476. MULTIEMPLOYER PLAN BENEFITS GUARANTEE.
(a) IN GENERAL.—Section 4022A(c) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1322A(c)) is amended—
(1) by striking ‘‘$5’’ each place it appears in
paragraph (1) and inserting ‘‘$11’’,
(2) by striking ‘‘$15’’ in paragraph (1) and in-
serting ‘‘$33’’, and
243
(3) by striking paragraphs (2), (5), and (6) and
by redesignating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively.
(b) CONFORMING AMENDMENT.—Section 4244(e)(4)
of such Act (29 U.S.C. 1424(e)(4)) is amended by striking
‘‘and without regard to section 4022A(c)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to benefits payable after the date
of the enactment of this Act, except that such amendments
shall not apply to any multiemployer plan that has re-
ceived financial assistance (within the meaning of section
4261 of the Employee Retirement Income Security Act of
1974) within the 1-year period ending on the date of the
enactment of this Act.
SEC. 477. CIVIL PENALTIES FOR BREACH OF FIDUCIARY
RESPONSIBILITY.
(a) IMPOSITION AND AMOUNT OF PENALTY MADE
DISCRETIONARY.—Section 502(l)(1) of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C.
1132(l)(1)) is amended—
(1) by striking ‘‘shall’’ and inserting ‘‘may’’,
and
(2) by striking ‘‘equal to’’ and inserting ‘‘not
greater than’’.
244
(b) 
APPLICABLE
RECOVERY
AMOUNT.—Section
502(l)(2) of such Act (29 U.S.C. 1132(l)(2)) is amended
to read as follows:
‘‘(2) For purposes of paragraph (1), the term ‘appli-
cable recovery amount’ means any amount which is recov-
ered from any fiduciary or other person (or from any other
person on behalf of any such fiduciary or other person)
with respect to a breach or violation described in para-
graph (1) on or after the 30th day following receipt by
such fiduciary or other person of written notice from the
Secretary of the violation, whether paid voluntarily or by
order of a court in a judicial proceeding instituted by the
Secretary under subsection (a)(2) or (a)(5). The Secretary
may, in the Secretary’s sole discretion, extend the 30-day
period described in the preceding sentence.’’.
(c) OTHER RULES.—Section 502(l) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1132(l)) is amended by adding at the end the following
new paragraph:
‘‘(5) A person shall be jointly and severally liable for
the penalty described in paragraph (1) to the same extent
that such person is jointly and severally liable for the ap-
plicable recovery amount on which the penalty is based.
‘‘(6) No penalty shall be assessed under this sub-
section unless the person against whom the penalty is as-
245
sessed is given notice and opportunity for a hearing with
respect to the violation and applicable recovery amount.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to any breach of fiduciary re-
sponsibility or other violation of part 4 of subtitle B
of title I of the Employee Retirement Income Secu-
rity Act of 1974 occurring on or after the date of
enactment of this Act.
(2) 
TRANSITION
RULE.—In 
applying 
the
amendment made by subsection (b) (relating to ap-
plicable recovery amount), a breach or other viola-
tion occurring before the date of enactment of this
Act which continues after the 180th day after such
date (and which may have been discontinued at any
time during its existence) shall be treated as having
occurred after such date of enactment.
SEC. 478. BENEFIT SUSPENSION NOTICE.
(a) MODIFICATION OF REGULATION.—The Secretary
of Labor shall modify the regulation under section
203(a)(3)(B) of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1053(a)(3)(B)) to provide
that the notification required by such regulation—
246
(1) in the case of an employee who returns to
work for a former employer after commencement of
payment of benefits under the plan shall—
(A) be made during the first calendar
month or payroll period in which the plan with-
holds payments, and
(B) if a reduced rate of future benefit ac-
cruals will apply to the returning employee (as
of the first date of participation in the plan by
the employee after returning to work), include
a statement that the rate of future benefit ac-
cruals will be reduced, and
(2) in the case of any employee who is not de-
scribed in paragraph (1)—
(A) may be included in the summary plan
description for the plan furnished in accordance
with section 104(b) of such Act (29 U.S.C.
1024(b)), rather than in a separate notice, and
(B) need not include a copy of the relevant
plan provisions.
(b) EFFECTIVE
DATE.—The modification made
under this section shall apply to plan years beginning after
December 31, 2000.
247
Subtitle H—Plan Amendments
SEC. 481. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) IN GENERAL.—If this section applies to any plan
or contract amendment—
(1) such plan or contract shall be treated as
being operated in accordance with the terms of the
plan during the period described in subsection
(b)(2)(A); and
(2) except as provided by the Secretary of the
Treasury, such plan shall not fail to meet the re-
quirements of section 411(d)(6) of the Internal Rev-
enue Code of 1986 or section 204(g) of the Em-
ployee Retirement Income Security Act of 1974 by
reason of such amendment.
(b) AMENDMENTS TO WHICH SECTION APPLIES.—
(1) IN GENERAL.—This section shall apply to
any amendment to any plan or annuity contract
which is made—
(A) pursuant to any amendment made by
this title, or pursuant to any regulation issued
under this title; and
(B) on or before the last day of the first
plan year beginning on or after January 1,
2003.
248
In the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of
1986), this paragraph shall be applied by sub-
stituting ‘‘2005’’ for ‘‘2003’’.
(2) CONDITIONS.—This section shall not apply
to any amendment unless—
(A) during the period—
(i) beginning on the date the legisla-
tive or regulatory amendment described in
paragraph (1)(A) takes effect (or in the
case of a plan or contract amendment not
required by such legislative or regulatory
amendment, the effective date specified by
the plan); and
(ii) ending on the date described in
paragraph (1)(B) (or, if earlier, the date
the plan or contract amendment is adopt-
ed),
the plan or contract is operated as if such plan
or contract amendment were in effect; and
(B) such plan or contract amendment ap-
plies retroactively for such period.
249
TITLE V—SCHOOL
CONSTRUCTION PROVISIONS
SEC. 501. ADDITIONAL INCREASE IN ARBITRAGE REBATE
EXCEPTION 
FOR 
GOVERNMENTAL 
BONDS
USED TO FINANCE EDUCATIONAL FACILI-
TIES.
(a) IN GENERAL.—Section 148(f )(4)(D)(vii) (relat-
ing to increase in exception for bonds financing public
school capital expenditures) is amended by striking
‘‘$5,000,000’’ the second place it appears and inserting
‘‘$10,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to obligations issued after De-
cember 31, 2000.
SEC. 502. MODIFICATION OF ARBITRAGE REBATE RULES
APPLICABLE TO PUBLIC SCHOOL CONSTRUC-
TION BONDS.
(a) IN GENERAL.—Subparagraph (C) of section
148(f )(4) is amended by adding at the end the following
new clause:
‘‘(xviii) 4-YEAR
SPENDING
REQUIRE-
MENT FOR PUBLIC SCHOOL CONSTRUCTION
ISSUE.—
‘‘(I) IN GENERAL.—In the case
of a public school construction issue,
250
the spending requirements of clause
(ii) shall be treated as met if at least
10 percent of the available construc-
tion proceeds of the construction issue
are spent for the governmental pur-
poses of the issue within the 1-year
period beginning on the date the
bonds are issued, 30 percent of such
proceeds are spent for such purposes
within the 2-year period beginning on
such date, 60 percent of such pro-
ceeds are spent for such purposes
within the 3-year period beginning on
such date, and 100 percent of such
proceeds are spent for such purposes
within the 4-year period beginning on
such date.
‘‘(II) 
PUBLIC
SCHOOL
CON-
STRUCTION ISSUE.—For purposes of
this clause, the term ‘public school
construction issue’ means any con-
struction issue if no bond which is
part of such issue is a private activity
bond and all of the available construc-
tion proceeds of such issue are to be
251
used for the construction (as defined
in clause (iv)) of public school facili-
ties to provide education or training
below the postsecondary level or for
the acquisition of land that is func-
tionally related and subordinate to
such facilities.
‘‘(III) 
OTHER
RULES
TO
APPLY.—Rules similar to the rules of
the preceding provisions of this sub-
paragraph which apply to clause (ii)
also apply to this clause.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to obligations issued after Decem-
ber 31, 2000.
SEC. 503. 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-
252
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-
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, 2001.
SEC. 
504. 
TREATMENT 
OF 
QUALIFIED 
PUBLIC 
EDU-
CATIONAL FACILITY BONDS AS EXEMPT FA-
CILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND.—Sub-
section (a) of section 142 (relating to exempt facility
bond) is amended by striking ‘‘or’’ at the end of paragraph
(11), by striking the period at the end of paragraph (12)
and inserting ‘‘, or’’, and by adding at the end the fol-
lowing:
253
‘‘(13) qualified public educational facilities.’’
(b) QUALIFIED
PUBLIC
EDUCATIONAL
FACILI-
TIES.—Section 142 (relating to exempt facility bond) is
amended by adding at the end the following new sub-
section:
‘‘(k) QUALIFIED
PUBLIC
EDUCATIONAL
FACILI-
TIES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(13), the term ‘qualified public educational facil-
ity’ means any school facility which is—
‘‘(A) part of a public elementary school or
a public secondary school, and
‘‘(B) owned by a private, for-profit cor-
poration pursuant to a public-private partner-
ship agreement with a State or local edu-
cational agency described in paragraph (2).
‘‘(2) PUBLIC-PRIVATE
PARTNERSHIP
AGREE-
MENT
DESCRIBED.—A public-private partnership
agreement is described in this paragraph if it is an
agreement—
‘‘(A) under which the corporation agrees—
‘‘(i) to do 1 or more of the following:
construct, rehabilitate, refurbish, or equip
a school facility, and
254
‘‘(ii) at the end of the term of the
agreement, to transfer the school facility to
such agency for no additional consider-
ation, and
‘‘(B) the term of which does not exceed the
term of the issue to be used to provide the
school facility.
‘‘(3) SCHOOL FACILITY.—For purposes of this
subsection, the term ‘school facility’ means—
‘‘(A) school buildings,
‘‘(B) functionally related and subordinate
facilities and land with respect to such build-
ings, including any stadium or other facility pri-
marily used for school events, and
‘‘(C) any property, to which section 168
applies (or would apply but for section 179), for
use in the facility.
‘‘(4) PUBLIC SCHOOLS.—For purposes of this
subsection, the terms ‘elementary school’ and ‘sec-
ondary school’ have the meanings given such terms
by section 14101 of the Elementary and Secondary
Education Act of 1965 (20 U.S.C. 8801), as in ef-
fect on the date of the enactment of this subsection.
‘‘(5) ANNUAL
AGGREGATE
FACE
AMOUNT
OF
TAX-EXEMPT FINANCING.—
255
‘‘(A) IN GENERAL.—An issue shall not be
treated as an issue described in subsection
(a)(13) if the aggregate face amount of bonds
issued by the State pursuant thereto (when
added to the aggregate face amount of bonds
previously so issued during the calendar year)
exceeds an amount equal to the greater of—
‘‘(i) $10 multiplied by the State popu-
lation, or
‘‘(ii) $5,000,000.
‘‘(B) ALLOCATION RULES.—
‘‘(i) IN GENERAL.—Except as other-
wise provided in this subparagraph, the
State may allocate in a calendar year the
amount described in subparagraph (A) for
such year in such manner as the State de-
termines appropriate.
‘‘(ii) RULES FOR CARRYFORWARD OF
UNUSED
AMOUNT.—With respect to any
calendar year, a State may make an elec-
tion under rules similar to the rules of sec-
tion 
146(f), 
except 
that 
the 
sole
carryforward purpose with respect to such
election is the issuance of exempt facility
bonds described in section 142(a)(13).’’
256
(c) EXEMPTION FROM GENERAL STATE VOLUME
CAPS.—Paragraph (3) of section 146(g) (relating to ex-
ception for certain bonds) is amended—
(1) by striking ‘‘or (12)’’ and inserting ‘‘(12),
or (13)’’, and
(2) by striking ‘‘and environmental enhance-
ments of hydroelectric generating facilities’’ and in-
serting ‘‘environmental enhancements of hydro-
electric generating facilities, and qualified public
educational facilities’’.
(d) EXEMPTION FROM LIMITATION
ON USE
FOR
LAND ACQUISITION.—Section 147(h) (relating to certain
rules not to apply to mortgage revenue bonds, qualified
student loan bonds, and qualified 501(c)(3) bonds) is
amended by adding at the end the following new para-
graph:
‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED
PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not
apply to any exempt facility bond issued as part of
an issue described in section 142(a)(13) (relating to
qualified public-private schools).’’
(e) CONFORMING AMENDMENT.—The heading of sec-
tion 147(h) is amended by striking ‘‘MORTGAGE REVENUE
BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALI-
257
FIED 501(c)(3) BONDS’’ in the heading and inserting
‘‘CERTAIN BONDS’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to obligations issued after Decem-
ber 31, 2000.
SEC. 505. EXPANSION OF QUALIFIED ZONE ACADEMY BOND
PROGRAM.
(a) IN GENERAL.—So much of part IV of subchapter
U of chapter 1 (relating to incentives for education zones)
as precedes subsection (d) of section 1397E is amended
to read as follows:
‘‘PART IV—EDUCATION BOND PROVISIONS
‘‘Sec. 1397E. Credit to holders of qualified zone academy bonds.
‘‘Sec. 1397F. Qualified zone academy bond defined.
‘‘Sec. 1397G. Authorization of additional qualified zone academy
bonds without targeting and private partnership re-
quirements.
‘‘SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE
ACADEMY BONDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible taxpayer who holds a qualified zone academy bond
on a credit allowance date of such bond which occurs dur-
ing the taxable year, there shall be allowed as a credit
against the tax imposed by this chapter for such taxable
year an amount equal to the sum of the credits determined
under subsection (b) with respect to credit allowance dates
during such year on which the taxpayer holds such bond.
258
‘‘(b) AMOUNT OF CREDIT.—
‘‘(1) IN GENERAL.—The amount of the credit
determined under this subsection with respect to any
credit allowance date for a qualified zone academy
bond is 25 percent of the annual credit determined
with respect to such bond.
‘‘(2) ANNUAL CREDIT.—The annual credit de-
termined with respect to any qualified zone academy
bond is the product of—
‘‘(A) the applicable credit rate, multiplied
by
‘‘(B) the outstanding face amount of the
bond.
‘‘(3) APPLICABLE CREDIT RATE.—For purposes
of paragraph (1), the applicable credit rate with re-
spect to an issue is the rate equal to an average
market yield (as of the day before the day that the
issue is sold) on outstanding long-term corporate
debt obligations (determined under regulations pre-
scribed by the Secretary).
‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined
under this subsection with respect to such credit al-
259
lowance date shall be a ratable portion of the credit
otherwise determined based on the portion of the 3-
month period during which the bond is outstanding.
A similar rule shall apply when the bond is re-
deemed.
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) for any taxable year shall not exceed
the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under part IV of subchapter A (other than sub-
part C thereof, relating to refundable credits).
‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the
limitation imposed by paragraph (1) for such taxable
year, such excess shall be carried to the succeeding
taxable year and added to the credit allowable under
subsection (a) for such taxable year.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED ZONE ACADEMY BOND.—The
term ‘qualified zone academy bond’ has the meaning
given to such term by section 1397F; except that
260
such term shall also include any bond treated as a
qualified zone academy bond under section 1397G.
Such term shall not include any bond which is part
of an issue unless such issue meets the requirements
of subsection (g).
‘‘(2) CREDIT
ALLOWANCE
DATE.—The term
‘credit allowance date’ means—
‘‘(A) March 15,
‘‘(B) June 15,
‘‘(C) September 15, and
‘‘(D) December 15.
Such term includes the last day on which the bond
is outstanding.
‘‘(3) ELIGIBLE TAXPAYER.—The term ‘eligible
taxpayer’ means—
‘‘(A) a bank (within the meaning of section
581),
‘‘(B) an insurance company to which sub-
chapter L applies,
‘‘(C) a corporation actively engaged in the
business of lending money, and
‘‘(D) any other C corporation.
‘‘(e) OTHER DEFINITIONS.—For purposes of this
subchapter—
261
‘‘(1) LOCAL EDUCATIONAL AGENCY.—The term
‘local educational agency’ has the meaning given to
such term by section 14101 of the Elementary and
Secondary Education Act of 1965. Such term in-
cludes the local educational agency that serves the
District of Columbia, but does not include any other
State agency.
‘‘(2) BOND.—The term ‘bond’ includes any ob-
ligation.
‘‘(3) STATE.—The term ‘State’ includes the
District of Columbia and any possession of the
United States.
‘‘(4) PUBLIC
SCHOOL
FACILITY.—The term
‘public school facility’ shall not include—
‘‘(A) any stadium or other facility pri-
marily used for athletic contests or exhibitions
or other events for which admission is charged
to the general public, or
‘‘(B) any facility which is not owned by a
State or local government or any agency or in-
strumentality of a State or local government.
‘‘(5) PERMITTED
PURPOSE.—The term ‘per-
mitted purpose’ means—
‘‘(A) in the case of a bond which is a quali-
fied zone academy bond without regard to sec-
262
tion 1397G, any qualified purpose (as defined
in section 1397F(a)(4)), and
‘‘(B) in the case of a bond which is a
qualified zone academy bond solely by reason of
section 1397G, the purpose described in section
1397G(a)(2).
‘‘(f) SPECIAL RULES.—
‘‘(1) 
ONLY
CERTAIN
REFINANCINGS
PER-
MITTED.—A refinancing of indebtedness (other than
a qualified zone academy bond) shall be treated as
a qualified zone academy bond only if such indebted-
ness was originally incurred by the issuer—
‘‘(A) after the date of the enactment of
this section,
‘‘(B) for a term of not more than 1 year,
‘‘(C) to finance an expenditure which is a
permitted purpose to be financed by a qualified
zone academy bond, and
‘‘(D) in anticipation of being refinanced
with proceeds of a qualified zone academy bond.
‘‘(2) SINKING
FUNDS.—Rules similar to the
rules under section 148 on replacement proceeds
shall apply for purposes of this section. Such re-
placement proceeds shall be invested in noninterest-
263
bearing State and Local Government Series obliga-
tions issued by the Secretary.
‘‘(g) SPECIAL RULES RELATING TO ARBITRAGE.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, an issue shall be treated as
meeting the requirements of this subsection if the
issue meets the spending requirements of subclause
(I) of section 148(f)(4)(C)(xviii).
‘‘(2) RULES REGARDING COMPLIANCE DURING
4-YEAR
PERIOD.—If an issue fails to meet such
spending requirements during the 4-year period be-
ginning on the date of issuance, the issuer shall pay
to the United States amounts which would be re-
quired to be paid to the United States under section
148(f)(2) were such issue required to meet the re-
quirements of such section. Rules similar to the
rules of clause (iii) of section 148(f)(4)(C) shall
apply for purposes of the preceding sentence.
‘‘(3) RULES REGARDING CONTINUING COMPLI-
ANCE AFTER 4-YEAR DETERMINATION.—If at least
95 percent of the proceeds of the issue is not ex-
pended for 1 or more permitted purposes within the
4-year period beginning on the date of issuance, an
issue shall be treated as continuing to meet the re-
quirements of this subsection if the issuer uses all
264
unspent proceeds of the issue to redeem bonds of the
issue within 90 days after the end of such 4-year pe-
riod.
‘‘(4) SMALL
ISSUER
EXCEPTION.—Paragraph
(1) shall not apply to an issue issued by a govern-
mental unit with general taxing powers if the re-
quirements of paragraphs (2) and (3) of section
148(f) would be treated as met by reason of sub-
paragraph (D) of section 148(f)(4) if such issue
were treated as a tax-exempt bond and taken into
account under such subparagraph, and such issue
shall be so treated for purposes of determining
whether such requirements are met with respect to
tax-exempt bonds.
‘‘(h) RECAPTURE OF PORTION OF CREDIT WHERE
CESSATION OF COMPLIANCE.—
‘‘(1) IN GENERAL.—If any bond which when
issued purported to be a qualified zone academy
bond ceases to be a qualified zone academy bond,
the issuer shall pay to the United States (at the
time required by the Secretary) an amount equal to
the sum of—
‘‘(A) the aggregate of the credits allowable
under this section with respect to such bond
(determined without regard to subsection (c))
265
for taxable years ending during the calendar
year in which such cessation occurs and the 2
preceding calendar years, and
‘‘(B) interest at the underpayment rate
under section 6621 on the amount determined
under subparagraph (A) for each calendar year
for the period beginning on the first day of
such calendar year.
‘‘(2) FAILURE TO PAY.—If the issuer fails to
timely pay the amount required by paragraph (1)
with respect to such bond, the tax imposed by this
chapter on each holder of any such bond which is
part of such issue shall be increased (for the taxable
year of the holder in which such cessation occurs) by
the aggregate decrease in the credits allowed under
this section to such holder for taxable years begin-
ning in such 3 calendar years which would have re-
sulted solely from denying any credit under this sec-
tion with respect to such issue for such taxable
years.
‘‘(3) SPECIAL RULES.—
‘‘(A) TAX
BENEFIT
RULE.—The tax for
the taxable year shall be increased under para-
graph (2) only with respect to credits allowed
by reason of this section which were used to re-
266
duce tax liability. In the case of credits not so
used to reduce tax liability, the carryforwards
and carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under paragraph (2) shall not be
treated as a tax imposed by this chapter for
purposes of determining —
‘‘(i) the amount of any credit allow-
able under this part, or
‘‘(ii) the amount of the tax imposed
by section 55.
‘‘(i) CREDIT INCLUDED IN GROSS INCOME.—Gross
income includes the amount of the credit allowed to the
taxpayer under this section (determined without regard to
subsection (c)) and the amount so included shall be treat-
ed as interest income.
‘‘(j) TREATMENT FOR ESTIMATED TAX PURPOSES.—
Solely for purposes of sections 6654 and 6655, the credit
allowed by this section to a taxpayer by reason of holding
a qualified zone academy bond on a credit allowance date
shall be treated as if it were a payment of estimated tax
made by the taxpayer on such date.
267
‘‘(k) REPORTING.—Issuers of qualified zone academy
bonds shall submit reports similar to the reports required
under section 149(e).
‘‘(l) TERMINATION.—This section shall not apply to
any bond issued after December 31, 2005.
‘‘SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.’’
(b) EXTENSION
OF QUALIFIED ZONE ACADEMY
BOND PROVISIONS.—
(1) Subsections (d) and (e) of section 1397E
(as in effect on the day before the date of the enact-
ment of this Act) are hereby moved and inserted
after the section heading for section 1397F (as
added by subsection (a)) and redesignated as sub-
sections (a) and (b).
(2) Subsection (b) of section 1397F (as so re-
designated) is amended to read as follows:
‘‘(b) LIMITATIONS
ON AMOUNT
OF BONDS DES-
IGNATED.—
‘‘(1) IN GENERAL.—There is a national zone
academy bond limitation for each calendar year.
Such limitation is—
‘‘(A) $400,000,000 for 1998,
‘‘(B) $400,000,000 for 1999,
‘‘(C) $400,000,000 for 2000,
‘‘(D) $400,000,000 for 2001,
268
‘‘(E) $400,000,000 for 2002,
‘‘(F) $400,000,000 for 2003, and
‘‘(G) except as provided in paragraph (3),
zero after 2003.
‘‘(2) ALLOCATION OF LIMITATION.—
‘‘(A) IN
GENERAL.—The national zone
academy bond limitation for a calendar year
shall be allocated by the Secretary among the
States on the basis of their respective popu-
lations of individuals below the poverty line (as
defined by the Office of Management and
Budget). The limitation amount allocated to a
State under the preceding sentence shall be al-
located by the State to qualified zone academies
within such State.
‘‘(B) DESIGNATION SUBJECT TO LIMITA-
TION AMOUNT.—The maximum aggregate face
amount of bonds issued during any calendar
year which may be designated under subsection
(a) with respect to any qualified zone academy
shall not exceed the limitation amount allocated
to such academy under subparagraph (A) for
such calendar year.
‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If
for any calendar year—
269
‘‘(A) the limitation amount under this sub-
section for any State, exceeds
‘‘(B) the amount of bonds issued during
such year which are designated under sub-
section (a) (or the corresponding provisions of
prior law) with respect to qualified zone acad-
emies within such State,
the limitation amount under this subsection for such
State for the following calendar year shall be in-
creased by the amount of such excess. Any
carryforward of a limitation amount may be carried
only to the first 2 years (3 years for carryforwards
from 1998 or 1999) following the unused limitation
year. For purposes of the preceding sentence, a limi-
tation amount shall be treated as used on a first-in
first-out basis.’’
(3) Subsection (a) of section 1397F (as so re-
designated) is amended—
(A) by striking ‘‘For purposes of this sec-
tion—’’ in the material preceding paragraph (1)
and inserting ‘‘For purposes of this part—’’,
(B) by striking ‘‘an eligible local’’ in para-
graphs (1)(A) and (3)(A) (as redesignated by
this paragraph) and inserting ‘‘a local’’,
270
(C) by striking ‘‘the maximum term per-
mitted under paragraph (3)’’ in paragraph
(1)(D) and inserting ‘‘15 years’’, and
(D) by striking paragraphs (3) and (6)
and by redesignating paragraphs (4) and (5) as
paragraphs (3) and (4), respectively.
(4) Paragraph (3) of section 1397F(a) (as so
redesignated) is amended—
(A) by striking ‘‘(4)’’ and all that follows
through ‘‘The term’’ and inserting the fol-
lowing:
‘‘(4) QUALIFIED ZONE ACADEMY.—The term’’,
(B) by striking subparagraph (B),
(C) by redesignating clauses (i) through
(iv) as subparagraphs (A) through (D), respec-
tively, and
(D) by redesignating subclauses (I) and
(II) of subparagraph (D) (as so redesignated)
as clauses (i) and (ii), respectively.
(c) AUTHORIZATION
OF ADDITIONAL QUALIFIED
ZONE ACADEMY BONDS WITHOUT TARGETING AND PRI-
VATE PARTNERSHIP REQUIREMENTS.—Part IV of sub-
chapter U of chapter 1 is amended by adding at the end
the following new section:
271
‘‘SEC. 1397G. AUTHORIZATION OF ADDITIONAL QUALIFIED
ZONE 
ACADEMY 
BONDS 
WITHOUT 
TAR-
GETING AND PRIVATE PARTNERSHIP RE-
QUIREMENTS.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘qualified zone academy bond’ also includes any bond
issued by a State or local government as part of an issue
if—
‘‘(1) the issuer designates such bond for pur-
pose of this section, and
‘‘(2) the requirements of subparagraphs (A),
(B), and (D) of paragraph (1) of section 1397F(a)
are met with respect to such issue, determined—
‘‘(A) by treating any public school facility
as being a qualified zone academy ,and
‘‘(B) by applying paragraph (4) thereof as
if the only qualified purpose were constructing,
rehabilitating, or repairing a public school facil-
ity or acquiring the land which is functionally
related and subordinate to the public school fa-
cility which is to be constructed with part of the
proceeds of such issue.
‘‘(b) LIMITATION
ON AMOUNT
OF BONDS DES-
IGNATED.—The maximum aggregate face amount of
bonds issued during any calendar year which may be des-
ignated under subsection (a) by any issuer shall not exceed
272
the limitation amount allocated under subsection (d) for
such calendar year to such issuer.
‘‘(c) NATIONAL LIMITATION ON AMOUNT OF BONDS
DESIGNATED.—There is a national additional qualified
zone academy bond limitation for each calendar year. Such
limitation is—
‘‘(1) $5,000,000,000 for 2001,
‘‘(2) $5,000,000,000 for 2002, and
‘‘(3) $5,000,000,000 for 2003,
‘‘(4) except as provided in subsection (e), zero
after 2003.
‘‘(d) LIMITATION ALLOCATED AMONG STATES.—
‘‘(1) IN GENERAL.—
‘‘(A) ALLOCATION ON THE BASIS OF POPU-
LATION.—50 percent of the limitation applica-
ble under subsection (c) for any calendar year
shall be allocated before such calendar year by
the Secretary among the States on the basis of
their respective populations.
‘‘(B) ALLOCATION ON THE BASIS OF POV-
ERTY.—50 percent of the limitation applicable
under subsection (c) for any calendar year shall
be allocated before such calendar year by the
Secretary among the States on the basis of
their respective populations of individuals below
273
the poverty line (as defined by the Office of
Management and Budget).
‘‘(C) MINIMUM
ALLOCATIONS
TO
SMALL
STATES.—The Secretary shall adjust the alloca-
tions under this subsection for any calendar
year for each State to the extent necessary to
ensure that the amount allocated to such State
under this subsection for such year is not less
than $25,000,000.
‘‘(D) USE OF CENSUS DATA.—Determina-
tions under this subsection shall be made on the
basis of the most recently available census data.
‘‘(2) ALLOCATION WITHIN THE STATE.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in subparagraph (B), the limitation al-
located to any State may be allocated among
governmental units in such State having au-
thority to issue such bonds as provided by State
law (or, in absence of State law, by the Gov-
ernor of such State).
‘‘(B) MINIMUM
ALLOCATIONS
TO
LARGE
LOCAL EDUCATIONAL AGENCIES.—In no event
may the limitation for any calendar year allo-
cated to any large local educational agency in a
State be less than the sum of—
274
‘‘(i) an amount which bears the same
ratio to 50 percent of such limitation as
the population within the area under the
jurisdiction of such agency bears to the
population of the entire State, and
‘‘(ii) an amount which bears the same
ratio to 50 percent of such limitation as
the population within the area under the
jurisdiction of such agency below the pov-
erty line (as defined by the Office of Man-
agement and Budget) bears to such popu-
lation of the entire State.
‘‘(3) ALLOCATIONS FOR INDIAN SCHOOLS.—In
addition to the amounts otherwise allocated under
this subsection, $200,000,000 (in the aggregate for
calendar years 2001, 2002, and 2003) shall be allo-
cated by the Secretary (after consultation with the
Secretary of the Interior) for purposes of the con-
struction, rehabilitation, and repair of schools oper-
ated by or on behalf of an Indian tribal government
(within the meaning of section 7871). In the case of
amounts allocated under the preceding sentence, In-
dian tribal governments (as so defined) shall be
treated as qualified issuers for purposes of this part.
‘‘(4) REQUIRED STATE ALLOCATION PLANS.—
275
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this section, the limitation for
any State shall be zero unless the limitation is
allocated within such State pursuant to a quali-
fied allocation plan.
‘‘(B) QUALIFIED ALLOCATION PLAN.—For
purposes of subparagraph (A), the term ‘quali-
fied allocation plan’ means any plan which—
‘‘(i) identifies the State’s needs for
public school facilities (including descrip-
tions of the capacity of public schools in
the State to house projected enrollments),
particular financing difficulties being en-
countered by local school districts in the
State, and health and safety problems at
existing facilities, and
‘‘(ii) describes how the State will allo-
cate to local educational agencies, or other-
wise use, its allocation under this section
to address the needs identified under
clause (i), including a description of how it
will—
‘‘(I) ensure that the needs of
rural, urban, and suburban areas will
be recognized,
276
‘‘(II) ensure that the needs of lo-
calities with the greatest needs, as
demonstrated by inadequate school fa-
cilities coupled with low level of re-
sources, will be met, and
‘‘(III) give priority to the role of
charter schools in achieving State
educational objectives.
‘‘(C) APPLICATION OF PARAGRAPH.—This
paragraph shall apply to allocations after more
than 6 months after the date of the enactment
of this paragraph.
‘‘(5) LARGE LOCAL EDUCATIONAL AGENCY.—
For purposes of this section, the term ‘large local
educational agency’ means, with respect to a cal-
endar year, any local educational agency with at
least 40,000 children who have attained age 5 but
not age 18 for the most recent fiscal year ending be-
fore such calendar year.
‘‘(e) CARRYOVER OF UNUSED LIMITATION.—
‘‘(1) IN GENERAL.—If for any calendar year—
‘‘(A) the amount allocated under sub-
section (d) to any State, exceeds
277
‘‘(B) the amount of bonds issued during
such year which are designated under sub-
section (a) pursuant to such allocation,
the limitation amount under such subsection for
such State for the following calendar year shall be
increased by the amount of such excess.
‘‘(2) 
2-YEAR
CARRYFORWARD.—Any
carryforward of a limitation amount may be carried
only to the first 2 years following the unused limita-
tion year. For purposes of the preceding sentence, a
limitation amount shall be treated as used on a first-
in first-out basis.
‘‘(3) ALLOCATIONS
FOR
INDIAN
SCHOOLS.—
Rules similar to paragraphs (1) and (2) shall apply
to the amounts allocated under subsection (d)(3); ex-
cept that 2003 shall be treated as the unused limita-
tion year.’’
(d) REPORTING.—Subsection (d) of section 6049 (re-
lating to returns regarding payments of interest) is
amended by adding at the end the following new para-
graph:
‘‘(8) REPORTING
OF
CREDIT
ON
QUALIFIED
ZONE ACADEMY BONDS.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the term ‘interest’ includes amounts
278
includible in gross income under section
1397E(i) and such amounts shall be treated as
paid on the credit allowance date (as defined in
section 1397E(d)(2)).
‘‘(B) 
REPORTING
TO
CORPORATIONS,
ETC.—Except as otherwise provided in regula-
tions, in the case of any interest described in
subparagraph (A) of this paragraph, subsection
(b)(4) of this section shall be applied without
regard to subparagraphs (A), (H), (I), (J), (K),
and (L)(i).
‘‘(C) REGULATORY AUTHORITY.—The Sec-
retary may prescribe such regulations as are
necessary or appropriate to carry out the pur-
poses of this paragraph, including regulations
which require more frequent or more detailed
reporting.’’
(e) CONFORMING AMENDMENTS.—
(1) Subsections (f), (g), and (h) of section
1397E (as in effect on the day before the date of
the enactment of this Act) are hereby repealed.
(2) Subchapter U of chapter 1 of such Code is
amended by redesignating section 1397F (as in ef-
fect on the day before the date of the enactment of
this Act) as section 1397H.
279
(3) The table of parts of subchapter U of chap-
ter 1 of such Code is amended by striking the item
relating to part IV and inserting the following item:
‘‘Part IV. Education bond provisions.’’
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to obligations issued after
December 31, 2000.
(2) MODIFICATION OF RESTRICTION ON ZONE
ACADEMY BOND HOLDERS.—In the case of bonds to
which section 1397E of the Internal Revenue Code
of 1986 (as in effect before the date of the enact-
ment of this Act) applies, the limitation of such sec-
tion to corporations actively engaged in the business
of lending money shall not apply after the date of
the enactment of this Act.
TITLE VI—COMMUNITY
REVITALIZATION
Subtitle A—Tax Incentives for
Renewal Communities
SEC. 601. DESIGNATION OF AND TAX INCENTIVES FOR RE-
NEWAL COMMUNITIES.
(a) IN GENERAL.—Chapter 1 is amended by adding
at the end the following new subchapter:
280
‘‘Subchapter X—Renewal Communities
‘‘Part 
I. Designation.
‘‘Part II. Renewal community capital gain; renewal community
business.
‘‘Part III. Additional incentives.
‘‘PART I—DESIGNATION
‘‘Sec. 1400E. Designation of renewal communities.
‘‘SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this title,
the term ‘renewal community’ means any area—
‘‘(A) which is nominated by 1 or more
local governments and the State or States in
which it is located for designation as a renewal
community (hereafter in this section referred to
as a ‘nominated area’), and
‘‘(B) which the Secretary of Housing and
Urban Development designates as a renewal
community, 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 an area on an In-
dian reservation, the Secretary of the Inte-
rior.
281
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—Not more than 40
nominated areas may be designated as renewal
communities.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 12 must be areas—
‘‘(i) which are within a local govern-
ment jurisdiction or jurisdictions with a
population of less than 50,000,
‘‘(ii) which are outside of a metropoli-
tan statistical area (within the meaning of
section 143(k)(2)(B)), or
‘‘(iii) which are determined by the
Secretary of Housing and Urban Develop-
ment, after consultation with the Secretary
of Commerce, to be rural areas.
One of such 12 areas shall be an area within
Mississippi, to be designated by the State of
Mississippi, that includes at least 1 census tract
within Madison County, Mississippi.
‘‘(3) AREAS DESIGNATED BASED ON DEGREE
OF POVERTY, ETC.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this section, the nominated areas
282
designated as renewal communities under this
subsection shall be those nominated areas with
the highest average ranking with respect to the
criteria described in subparagraphs (B), (C),
and (D) of subsection (c)(3). For purposes of
the preceding sentence, an area shall be ranked
within each such criterion on the basis of the
amount by which the area exceeds such cri-
terion, with the area which exceeds such cri-
terion by the greatest amount given the highest
ranking.
‘‘(B) EXCEPTION
WHERE
INADEQUATE
COURSE OF ACTION, ETC.—An area shall not be
designated under subparagraph (A) if the Sec-
retary of Housing and Urban Development de-
termines that the course of action described in
subsection (d)(2) with respect to such area is
inadequate.
‘‘(C) PREFERENCE FOR ENTERPRISE COM-
MUNITIES AND EMPOWERMENT ZONES.—With
respect to the first 20 designations made under
this section, a preference shall be provided to
those nominated areas which are enterprise
communities or empowerment zones (and are
283
otherwise eligible for designation under this sec-
tion).
‘‘(4) LIMITATION 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 an
area under paragraph (1)(A),
‘‘(ii) the parameters relating to the
size and population characteristics of a re-
newal community, and
‘‘(iii) the manner in which nominated
areas will be evaluated based on the cri-
teria specified in subsection (d).
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate nominated areas as renewal communities
only during the period beginning on the first
day of the first month following the month in
which the regulations described in subpara-
graph (A) are prescribed and ending on Decem-
ber 31, 2001.
284
‘‘(C) PROCEDURAL RULES.—The Secretary
of Housing and Urban Development shall not
make any designation of a nominated area as a
renewal 
community 
under 
paragraph 
(2)
unless—
‘‘(i) the local governments and the
States in which the nominated area is lo-
cated have the authority—
‘‘(I) to nominate such area for
designation as a renewal community,
‘‘(II) to make the State and local
commitments described in subsection
(d), and
‘‘(III) to provide assurances sat-
isfactory to the Secretary of Housing
and Urban Development that such
commitments will be fulfilled,
‘‘(ii) a nomination regarding such
area is submitted in such a manner and in
such form, and contains such information,
as the Secretary of Housing and Urban
Development shall by regulation prescribe,
and
‘‘(iii) the Secretary of Housing and
Urban Development determines that any
285
information furnished is reasonably accu-
rate.
‘‘(5) NOMINATION PROCESS FOR INDIAN RES-
ERVATIONS.—For purposes of this subchapter, in
the case of a nominated area on an Indian reserva-
tion, the reservation governing body (as determined
by the Secretary of the Interior) shall be treated as
being both the State and local governments with re-
spect to such area.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as a renewal community shall remain in effect dur-
ing the period beginning on January 1, 2002, and
ending on the earliest of—
‘‘(A) December 31, 2009,
‘‘(B) the termination date designated by
the State and local governments in their nomi-
nation, or
‘‘(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
286
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).
‘‘(3) EARLIER TERMINATION OF CERTAIN BEN-
EFITS
IF
EARLIER
TERMINATION
OF
DESIGNA-
TION.—If the designation of an area as a renewal
community terminates before December 31, 2009,
the day after the date of such termination shall be
substituted for ‘January 1, 2010’ each place it ap-
pears in sections 1400F and 1400J with respect to
such area.
‘‘(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—
287
‘‘(A) the area is within the jurisdiction of
one or more local governments,
‘‘(B) the boundary of the area is contin-
uous, and
‘‘(C) the area—
‘‘(i) has a population of not more than
200,000 and 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 in writing (and the Secretary of
Housing and Urban Development, after such review
of supporting data as he deems appropriate, accepts
such certification) that—
288
‘‘(A) the area is one of pervasive poverty,
unemployment, and general distress;
‘‘(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
OTHER
FACTORS.—
The Secretary of Housing and Urban Development,
in selecting any nominated area for designation as
a renewal community under this section—
‘‘(A) shall take into account—
‘‘(i) the extent to which such area has
a high incidence of crime, or
289
‘‘(ii) if such area has census tracts
identified in the May 12, 1998, report of
the General Accounting Office regarding
the identification of economically distressed
areas, and
‘‘(B) with respect to 1 of the areas to be
designated under subsection (a)(2)(B), may, in
lieu of any criteria described in paragraph (3),
take into account the existence of outmigration
from the area.
‘‘(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
290
‘‘(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,
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 4 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 crime prevention services by non-
governmental entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
291
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
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) 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
292
in reducing the various burdens borne by em-
ployers and employees in the area involved.
‘‘(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 reduced, will not enforce, or will reduce
within the nominated area at least 4 of the fol-
lowing:
‘‘(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.
‘‘(E) Franchises or other restrictions on
competition for businesses providing public
293
services, including taxicabs, jitneys, cable tele-
vision, or trash hauling.
This paragraph shall not apply to the extent that
such regulation of businesses and occupations is nec-
essary for and well-tailored to the protection of
health and safety.
‘‘(e) COORDINATION WITH TREATMENT
OF EM-
POWERMENT ZONES AND ENTERPRISE COMMUNITIES.—
For purposes of this title, the designation under section
1391 of any area as an empowerment zone or enterprise
community shall cease to be in effect as of the date that
the designation of any portion of such area as a renewal
community takes effect.
‘‘(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) LOCAL
GOVERNMENT.—The term ‘local
government’ means—
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State, and
294
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Devel-
opment.
‘‘(3) APPLICATION
OF
RULES
RELATING
TO
CENSUS TRACTS.—The rules of section 1392(b)(4)
shall apply.
‘‘(4) CENSUS
DATA.—Population and poverty
rate shall be determined by using 1990 census data.
‘‘(g) PRIORITY FOR DISTRICT OF COLUMBIA NOMI-
NATED AREA.—For purposes of this subchapter—
‘‘(1) IN GENERAL.—One nominated area within
the District of Columbia shall be treated for pur-
poses of subsection (a)(3) as having the highest av-
erage with respect to the criteria described in sub-
paragraphs (B), (C), and (D) of subsection (c)(3).
‘‘(2) DATE OF DESIGNATION.—Notwithstanding
subsection (b)(1), the designation of a nominated
area within the District of Columbia as a renewal
community shall take effect on January 1, 2003.
‘‘(3) NOMINATION.—The District of Columbia
shall be treated as being both a State and local gov-
ernment with respect to such area.
295
‘‘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 from 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,
‘‘(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, 2001, and before
January 1, 2010, at its original issue (di-
296
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.
‘‘(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, 2001, and before
January 1, 2010, from the partnership solely in
exchange for cash,
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
297
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.—
‘‘(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,
2001, and before January 1, 2010,
‘‘(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
298
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 by the taxpayer before January
1, 2010, and
‘‘(ii) any land on which such property
is located.
The determination of whether a property is sub-
stantially improved shall be made under clause
(ii) of section 1400B(b)(4)(B), except that ‘De-
cember 31, 2001’ shall be substituted for ‘De-
cember 31, 1997’ in such clause.
‘‘(c) QUALIFIED CAPITAL GAIN.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified capital
gain‘ means any gain recognized on the sale or ex-
change of—
‘‘(A) a capital asset, or
‘‘(B) property used in the trade or busi-
ness (as defined in section 1231(b)).
299
‘‘(2) GAIN BEFORE 2002 OR AFTER 2014 NOT
QUALIFIED.—The term ‘qualified capital gain’ shall
not include any gain attributable to periods before
January 1, 2002, or after December 31, 2014.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (3), (4), and (5) of sec-
tion 1400B(e) shall apply for purposes of this sub-
section.
‘‘(d) CERTAIN RULES TO APPLY.—For purposes of
this section, rules similar to the rules of paragraphs (5),
(6), and (7) of subsection (b), and subsections (f ) and
(g), of section 1400B shall apply; except that for such pur-
poses section 1400B(g)(2) shall be applied by substituting
‘January 1, 2002’ for ‘January 1, 1998’ and ‘December
31, 2014’ for ‘December 31, 2007’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
the avoidance of the purposes of this section.
‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘For purposes of this subchapter, the term ‘renewal
community business’ means any entity or proprietorship
which would be a qualified business entity or qualified pro-
prietorship under section 1397C if references to renewal
300
communities were substituted for references to empower-
ment zones in such section.
‘‘PART III—ADDITIONAL INCENTIVES
‘‘Sec. 1400H. Renewal community employment credit.
‘‘Sec. 1400I. Commercial revitalization deduction.
‘‘Sec. 1400J. Increase in expensing under section 179.
‘‘SEC. 1400H. RENEWAL COMMUNITY EMPLOYMENT CREDIT.
‘‘(a) IN GENERAL.—Subject to the modification in
subsection (b), a renewal community shall be treated as
an empowerment zone for purposes of section 1396 with
respect to wages paid or incurred after December 31,
2001.
‘‘(b) MODIFICATION.—In applying section 1396 with
respect to renewal communities—
‘‘(1) the applicable percentage shall be 15 per-
cent, and
‘‘(2) subsection (c) thereof shall be applied by
substituting ‘$10,000’ for ‘$15,000’ each place it ap-
pears.
‘‘SEC. 1400I. 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
301
‘‘(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.
‘‘(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) the building is placed in service by
the taxpayer in a renewal community and the
original use of the building begins with the tax-
payer, or
‘‘(B) in the case of such building not de-
scribed in subparagraph (A), such building—
‘‘(i) 
is 
substantially 
rehabilitated
(within 
the 
meaning 
of 
section
47(c)(1)(C)) by the taxpayer, and
‘‘(ii) is placed in service by the tax-
payer after the rehabilitation in a renewal
community.
‘‘(2) QUALIFIED
REVITALIZATION
EXPENDI-
TURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
revitalization expenditure’ means any amount
302
properly chargeable to capital account for prop-
erty for which depreciation is allowable under
section 168 (without regard to this section) and
which is—
‘‘(i) nonresidential real property (as
defined in section 168(e)), or
‘‘(ii) section 1250 property (as defined
in section 1250(c)) which is functionally
related and subordinate to property de-
scribed in clause (i).
‘‘(B) CERTAIN
EXPENDITURES
NOT
IN-
CLUDED.—
‘‘(i) ACQUISITION COST.—In the case
of a building described in paragraph
(1)(B), the cost of acquiring the building
or interest therein shall be treated as a
qualified revitalization expenditure only to
the extent that such cost does not exceed
30 percent of the aggregate qualified revi-
talization expenditures (determined with-
out regard to such cost) with respect to
such building.
‘‘(ii) CREDITS.—The term ‘qualified
revitalization expenditure’ does not include
any expenditure which the taxpayer may
303
take into account in computing any credit
allowable under this title unless the tax-
payer elects to take the expenditure into
account only for purposes of this section.
‘‘(c) DOLLAR LIMITATION.—The aggregate amount
which may be treated as qualified revitalization expendi-
tures with respect to any qualified revitalization building
shall not exceed the lesser of—
‘‘(1) $10,000,000, or
‘‘(2) the commercial revitalization expenditure
amount allocated to such building under this section
by the commercial revitalization agency for the State
in which the building is located.
‘‘(d) COMMERCIAL REVITALIZATION EXPENDITURE
AMOUNT.—
‘‘(1) IN GENERAL.—The aggregate commercial
revitalization expenditure amount which a commer-
cial revitalization agency may allocate for any cal-
endar year is the amount of the State commercial
revitalization expenditure ceiling determined under
this paragraph for such calendar year for such agen-
cy.
‘‘(2) STATE COMMERCIAL REVITALIZATION EX-
PENDITURE CEILING.—The State commercial revi-
304
talization expenditure ceiling applicable to any
State—
‘‘(A) for each calendar year after 2001 and
before 2010 is $12,000,000 for each renewal
community in the State, and
‘‘(B) for each calendar year thereafter is
zero.
‘‘(3) COMMERCIAL REVITALIZATION AGENCY.—
For purposes of this section, the term ‘commercial
revitalization agency’ means any agency authorized
by a State to carry out this section.
‘‘(4) TIME AND MANNER OF ALLOCATIONS.—
Allocations under this section shall be made at the
same time and in the same manner as under para-
graphs (1) and (7) of section 42(h).
‘‘(e) RESPONSIBILITIES OF COMMERCIAL REVITAL-
IZATION AGENCIES.—
‘‘(1) 
PLANS
FOR
ALLOCATION.—Notwith-
standing any other provision of this section, the
commercial revitalization expenditure amount with
respect 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-
305
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.
‘‘(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
306
‘‘(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) SPECIAL RULES.—
‘‘(1) DEDUCTION IN LIEU OF DEPRECIATION.—
The deduction provided by this section for qualified
revitalization expenditures shall—
‘‘(A) with respect to the deduction deter-
mined under subsection (a)(1), be in lieu of any
depreciation deduction otherwise allowable on
account of one-half of such expenditures, and
‘‘(B) with respect to the deduction deter-
mined under subsection (a)(2), be in lieu of any
depreciation deduction otherwise allowable on
account of all of such expenditures.
‘‘(2) BASIS ADJUSTMENT, ETC.—For purposes
of sections 1016 and 1250, the deduction under this
section shall be treated in the same manner as a de-
preciation deduction. For purposes of section
1250(b)(5), the straight line method of adjustment
shall be determined without regard to this section.
307
‘‘(3) SUBSTANTIAL REHABILITATIONS TREATED
AS SEPARATE BUILDINGS.—A substantial rehabilita-
tion (within the meaning of section 47(c)(1)(C)) of
a building shall be treated as a separate building for
purposes of subsection (a).
‘‘(4) CLARIFICATION
OF
ALLOWANCE
OF
DE-
DUCTION
UNDER
MINIMUM
TAX.—Notwithstanding
section 56(a)(1), the deduction under this section
shall be allowed in determining alternative minimum
taxable income under section 55.
‘‘(g) TERMINATION.—This section shall not apply to
any building placed in service after December 31, 2009.
‘‘SEC. 1400J. INCREASE IN EXPENSING UNDER SECTION 179.
‘‘(a) 
IN
GENERAL.—For 
purposes 
of 
section
1397A—
‘‘(1) a renewal community shall be treated as
an empowerment zone,
‘‘(2) a renewal community business shall be
treated as an enterprise zone business, and
‘‘(3) qualified renewal property shall be treated
as qualified zone property.
‘‘(b) QUALIFIED RENEWAL PROPERTY.—For pur-
poses of this section—
308
‘‘(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, 2001, and be-
fore January 1, 2010, and
‘‘(B) such property would be qualified zone
property (as defined in section 1397D) if ref-
erences to renewal communities were sub-
stituted for references to empowerment zones in
section 1397D.
‘‘(2) CERTAIN RULES TO APPLY.—The rules of
subsections (a)(2) and (b) of section 1397D shall
apply for purposes of this section.’’.
(b) EXCEPTION FOR COMMERCIAL REVITALIZATION
DEDUCTION FROM PASSIVE LOSS RULES.—
(1) Paragraph (3) of section 469(i) is amended
by redesignating subparagraphs (C), (D), and (E) as
subparagraphs (D), (E), and (F), respectively, and
by inserting after subparagraph (B) the following
new subparagraph:
‘‘(C) EXCEPTION FOR COMMERCIAL REVI-
TALIZATION
DEDUCTION.—Subparagraph (A)
shall not apply to any portion of the passive ac-
309
tivity loss for any taxable year which is attrib-
utable to the commercial revitalization deduc-
tion under section 1400I.’’.
(2) Subparagraph (E) of section 469(i)(3), as
redesignated by subparagraph (A), is amended to
read as follows:
‘‘(E) ORDERING RULES TO REFLECT EX-
CEPTIONS
AND
SEPARATE
PHASE-OUTS.—If
subparagraph (B), (C), or (D) applies for a tax-
able year, paragraph (1) shall be applied—
‘‘(i) first to the portion of the passive
activity loss to which subparagraph (C)
does not apply,
‘‘(ii) second to the portion of the pas-
sive activity credit to which subparagraph
(B) or (D) does not apply,
‘‘(iii) third to the portion of such
credit to which subparagraph (B) applies,
‘‘(iv) fourth to the portion of such loss
to which subparagraph (C) applies, and
‘‘(v) then to the portion of such credit
to which subparagraph (D) applies.’’.
(3)(A) Subparagraph (B) of section 469(i)(6) is
amended by striking ‘‘or’’ at the end of clause (i),
by striking the period at the end of clause (ii) and
310
inserting ‘‘, or’’, and by adding at the end the fol-
lowing new clause:
‘‘(iii) any deduction under section
1400I (relating to commercial revitaliza-
tion deduction).’’.
(B) The heading for such subparagraph (B) is
amended by striking ‘‘OR REHABILITATION CREDIT’’
and inserting ‘‘, REHABILITATION CREDIT, OR COM-
MERCIAL REVITALIZATION DEDUCTION’’.
(c) AUDIT AND REPORT.—Not later than January 31
of 2004, 2007, and 2010, the Comptroller General of the
United States shall, pursuant to an audit of the renewal
community program established under section 1400E of
the Internal Revenue Code of 1986 (as added by sub-
section (a)) and the empowerment zone and enterprise
community program under subchapter U of chapter 1 of
such Code, report to Congress on such program and its
effect on poverty, unemployment, and economic growth
within the designated renewal communities, empowerment
zones, and enterprise communities.
(d) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 is amended by adding at the end
the following new item:
311
‘‘Subchapter X. Renewal Communities.’’.
SEC. 602. WORK OPPORTUNITY CREDIT FOR HIRING YOUTH
RESIDING IN RENEWAL COMMUNITIES.
(a) HIGH-RISK YOUTH.—Subparagraphs (A)(ii) and
(B) of section 51(d)(5) are each amended by striking ‘‘em-
powerment zone or enterprise community’’ and inserting
‘‘empowerment zone, enterprise community, or renewal
community’’.
(b) QUALIFIED
SUMMER
YOUTH
EMPLOYEE.—
Clause (iv) of section 51(d)(7)(A) is amended by striking
‘‘empowerment zone or enterprise community’’ and insert-
ing ‘‘empowerment zone, enterprise community, or re-
newal community’’.
(c) HEADINGS.—Paragraphs (5)(B) and (7)(C) of
section 51(d) are each amended by inserting ‘‘OR COMMU-
NITY’’ in the heading after ‘‘ZONE’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to individuals who begin work for
the employer after December 31, 2001.
312
Subtitle B—Extension and Expan-
sion of Empowerment Zone In-
centives
SEC. 611. AUTHORITY TO DESIGNATE 9 ADDITIONAL EM-
POWERMENT ZONES.
Section 1391 is amended by adding at the end the
following new subsection:
‘‘(h) ADDITIONAL DESIGNATIONS PERMITTED.—
‘‘(1) IN GENERAL.—In addition to the areas
designated under subsections (a) and (g), the appro-
priate Secretaries may designate in the aggregate an
additional 9 nominated areas as empowerment zones
under this section, subject to the availability of eligi-
ble nominated areas. Of that number, not more than
seven may be designated in urban areas and not
more than 2 may be designated in rural areas.
‘‘(2) PERIOD DESIGNATIONS MAY BE MADE AND
TAKE EFFECT.—A designation may be made under
this subsection after the date of the enactment of
this subsection and before January 1, 2002. Subject
to subparagraphs (B) and (C) of subsection (d)(1),
such designations shall remain in effect during the
period beginning on January 1, 2002, and ending on
December 31, 2009.
313
‘‘(3) MODIFICATIONS TO ELIGIBILITY CRITERIA,
ETC.—The rules of subsection (g)(3) shall apply to
designations under this subsection.’’.
SEC. 612. EXTENSION OF EMPOWERMENT ZONE TREAT-
MENT THROUGH 2009.
Subparagraph (A) of section 1391(d)(1) (relating to
period for which designation is in effect) is amended to
read as follows:
‘‘(A)(i) in the case of an empowerment
zone, December 31, 2009, or
‘‘(ii) in the case of an enterprise commu-
nity, the close of the 10th calendar year begin-
ning on or after such date of designation,’’.
SEC. 613. 20 PERCENT EMPLOYMENT CREDIT FOR ALL EM-
POWERMENT ZONES
(a) 20 PERCENT CREDIT.—Subsection (b) of section
1396 (relating to empowerment zone employment credit)
is amended to read as follows:
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the applicable percentage is 20 percent.’’.
(b) ALL
EMPOWERMENT
ZONES
ELIGIBLE
FOR
CREDIT.—Section 1396 is amended by striking subsection
(e).
(c) CONFORMING AMENDMENT.—Subsection (d) of
section 1400 is amended to read as follows:
314
‘‘(d) SPECIAL RULE FOR APPLICATION OF EMPLOY-
MENT CREDIT.—With respect to the DC Zone, section
1396(d)(1)(B) (relating to empowerment zone employ-
ment credit) shall be applied by substituting ‘the District
of Columbia’ for ‘such empowerment zone’.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to wages paid or incurred after
December 31, 2001.
SEC. 614. INCREASED EXPENSING UNDER SECTION 179.
(a) IN GENERAL.—Subparagraph (A) of section
1397A(a)(1) is amended by striking ‘‘$20,000’’ and in-
serting ‘‘$35,000’’.
(b) EXPENSING FOR PROPERTY USED IN DEVELOP-
ABLE SITES.—Section 1397A is amended by striking sub-
section (c).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 615. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT
ZONE FACILITY BONDS.
(a) IN GENERAL.—Paragraph (3) of section 1394(f)
(relating to bonds for empowerment zones designated
under section 1391(g)) is amended to read as follows:
‘‘(3) EMPOWERMENT ZONE FACILITY BOND.—
For purposes of this subsection, the term ‘empower-
315
ment zone facility bond’ means any bond which
would be described in subsection (a) if—
‘‘(A) in the case of obligations issued be-
fore January 1, 2002, only empowerment zones
designated under section 1391(g) were taken
into account under sections 1397C and 1397D,
and
‘‘(B) in the case of obligations issued after
December 31, 2001, all empowerment zones
(other than the District of Columbia) were
taken into account under sections 1397C and
1397D.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to obligations issued after Decem-
ber 31, 2001.
SEC. 616. NONRECOGNITION OF GAIN ON ROLLOVER OF
EMPOWERMENT ZONE INVESTMENTS.
(a) IN GENERAL.—Part III of subchapter U of chap-
ter 1 is amended—
(1) by redesignating subpart C as subpart D;
(2) by redesignating sections 1397B and 1397C
as sections 1397C and 1397D, respectively; and
(3) by inserting after subpart B the following
new subpart:
316
‘‘Subpart C—Nonrecognition of Gain on Rollover of
Empowerment Zone Investments
‘‘Sec. 1397B. Nonrecognition of Gain on Rollover of Empower-
ment Zone Investments.
‘‘SEC. 1397B. NONRECOGNITION OF GAIN ON ROLLOVER OF
EMPOWERMENT ZONE INVESTMENTS.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of any
sale of a qualified empowerment zone asset held by the
taxpayer for more than 1 year and with respect to which
such taxpayer elects the application of this section, gain
from such sale shall be recognized only to the extent that
the amount realized on such sale exceeds—
‘‘(1) the cost of any qualified empowerment
zone asset (with respect to the same zone as the
asset sold) purchased by the taxpayer during the 60-
day period beginning on the date of such sale, re-
duced by
‘‘(2) any portion of such cost previously taken
into account under this section.
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) 
QUALIFIED
EMPOWERMENT
ZONE
ASSET.—
‘‘(A) IN
GENERAL.—The term ‘qualified
empowerment zone asset’ means any property
317
which would be a qualified community asset (as
defined in section 1400F) if in section 1400F—
‘‘(i) references to empowerment zones
were substituted for references to renewal
communities,
‘‘(ii) references to enterprise zone
businesses (as defined in section 1397C)
were substituted for references to renewal
community businesses, and
‘‘(iii) the date of the enactment of this
paragraph were substituted for ‘December
31, 2001’ each place it appears.
‘‘(B) TREATMENT OF DC ZONE.—The Dis-
trict of Columbia Enterprise Zone shall not be
treated as an empowerment zone for purposes
of this section.
‘‘(2) CERTAIN GAIN NOT ELIGIBLE FOR ROLL-
OVER.—This section shall not apply to—
‘‘(A) any gain which is treated as ordinary
income for purposes of this subtitle, and
‘‘(B) any gain which is attributable to real
property, or an intangible asset, which is not an
integral part of an enterprise zone business.
‘‘(3) PURCHASE.—A taxpayer shall be treated
as having purchased any property if, but for para-
318
graph (4), the unadjusted basis of such property in
the hands of the taxpayer would be its cost (within
the meaning of section 1012).
‘‘(4) BASIS ADJUSTMENTS.—If gain from any
sale is not recognized by reason of subsection (a),
such gain shall be applied to reduce (in the order ac-
quired) the basis for determining gain or loss of any
qualified empowerment zone asset which is pur-
chased by the taxpayer during the 60-day period de-
scribed in subsection (a). This paragraph shall not
apply for purposes of section 1202.
‘‘(5) HOLDING PERIOD.—For purposes of deter-
mining whether the nonrecognition of gain under
subsection (a) applies to any qualified empowerment
zone asset which is sold—
‘‘(A) the taxpayer’s holding period for such
asset and the asset referred to in subsection
(a)(1) shall be determined without regard to
section 1223, and
‘‘(B) only the first year of the taxpayer’s
holding period for the asset referred to in sub-
section (a)(1) shall be taken into account for
purposes of paragraphs (2)(A)(iii), (3)(C), and
(4)(A)(iii) of section 1400F(b).’’.
(b) CONFORMING AMENDMENTS.—
319
(1) Paragraph (23) of section 1016(a) is
amended—
(A) by striking ‘‘or 1045’’ and inserting
‘‘1045, or 1397B’’, and
(B) by striking ‘‘or 1045(b)(4)’’ and in-
serting ‘‘1045(b)(4), or 1397B(b)(4)’’.
(2) Paragraph (15) of section 1223 is amended
to read as follows:
‘‘(15) 
Except 
for 
purposes 
of 
sections
1202(a)(2), 
1202(c)(2)(A), 
1400B(b), 
and
1400F(b), in determining the period for which the
taxpayer has held property the acquisition of which
resulted under section 1045 or 1397B in the non-
recognition of any part of the gain realized on the
sale of other property, there shall be included the pe-
riod for which such other property has been held as
of the date of such sale.’’.
(3) Paragraph (2) of section 1394(b) is
amended—
(A) by striking ‘‘section 1397C’’ and in-
serting ‘‘section 1397D’’, and
(B) by striking ‘‘section 1397C(a)(2)’’ and
inserting ‘‘section 1397D(a)(2)’’.
(4) Paragraph (3) of section 1394(b) is
amended—
320
(A) by striking ‘‘section 1397B’’ each place
it appears and inserting ‘‘section 1397C’’, and
(B) by striking ‘‘section 1397B(d)’’ and in-
serting ‘‘section 1397C(d)’’.
(5) Sections 1400(e) and 1400B(c) are each
amended by striking ‘‘section 1397B’’ each place it
appears and inserting ‘‘section 1397C’’.
(6) The table of subparts for part III of sub-
chapter U of chapter 1 is amended by striking the
last item and inserting the following new items:
‘‘Subpart C. Nonrecognition of gain on rollover of empowerment
zone investments.
‘‘Subpart D. General provisions.’’.
(7) The table of sections for subpart D of such
part III is amended to read as follows:
‘‘Sec. 1397C. Enterprise zone business defined.
‘‘Sec. 1397D. Qualified zone property defined.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualified empowerment zone as-
sets acquired after the date of the enactment of this Act.
SEC. 617. INCREASED EXCLUSION OF GAIN ON SALE OF EM-
POWERMENT ZONE STOCK.
(a) IN GENERAL.—Subsection (a) of section 1202 is
amended to read as follows:
‘‘(a) EXCLUSION.—
‘‘(1) IN GENERAL.—In the case of a taxpayer
other than a corporation, gross income shall not in-
321
clude 50 percent of any gain from the sale or ex-
change of qualified small business stock held for
more than 5 years.
‘‘(2) EMPOWERMENT ZONE BUSINESSES.—
‘‘(A) IN GENERAL.—In the case of quali-
fied small business stock acquired after the date
of the enactment of this paragraph in a cor-
poration which is a qualified business entity (as
defined in section 1397C(b)) during substan-
tially all of the taxpayer’s holding period for
such stock, paragraph (1) shall be applied by
substituting ‘60 percent’ for ‘50 percent’.
‘‘(B) CERTAIN RULES TO APPLY.—Rules
similar to the rules of paragraphs (5) and (7)
of section 1400B(b) shall apply for purposes of
this paragraph.
‘‘(C) GAIN AFTER 2014 NOT QUALIFIED.—
Subparagraph (A) shall not apply to gain at-
tributable to periods after December 31, 2014.
‘‘(D) TREATMENT OF DC ZONE.—The Dis-
trict of Columbia Enterprise Zone shall not be
treated as an empowerment zone for purposes
of this paragraph.’’.
322
(b) CONFORMING AMENDMENT.—Paragraph (8) of
section 1(h) is amended by striking ‘‘means’’ and all that
follows and inserting ‘‘means the excess of—
‘‘(A) the gain which would be excluded
from gross income under section 1202 but for
the percentage limitation in section 1202(a),
over
‘‘(B) the gain excluded from gross income
under section 1202.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock acquired after the date
of the enactment of this Act.
Subtitle C—New Markets Tax
Credit
SEC. 621. NEW MARKETS TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding at the end the following new
section:
‘‘SEC. 45D. NEW MARKETS TAX CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—For purposes of section 38,
in the case of a taxpayer who holds a qualified eq-
uity investment on a credit allowance date of such
investment which occurs during the taxable year, the
323
new markets tax credit determined under this sec-
tion for such taxable year is an amount equal to the
applicable percentage of the amount paid to the
qualified community development entity for such in-
vestment at its original issue.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage is—
‘‘(A) 5 percent with respect to the first 3
credit allowance dates, and
‘‘(B) 6 percent with respect to the remain-
der of the credit allowance dates.
‘‘(3) CREDIT ALLOWANCE DATE.—For purposes
of paragraph (1), the term ‘credit allowance date’
means, with respect to any qualified equity
investment—
‘‘(A) the date on which such investment is
initially made, and
‘‘(B) each of the 6 anniversary dates of
such date thereafter.
‘‘(b) QUALIFIED EQUITY INVESTMENT.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified equity
investment’ means any equity investment in a quali-
fied community development entity if—
324
‘‘(A) such investment is acquired by the
taxpayer at its original issue (directly or
through an underwriter) solely in exchange for
cash,
‘‘(B) substantially all of such cash is used
by the qualified community development entity
to make qualified low-income community invest-
ments, and
‘‘(C) such investment is designated for
purposes of this section by the qualified com-
munity development entity.
Such term shall not include any equity investment
issued by a qualified community development entity
more than 5 years after the date that such entity re-
ceives an allocation under subsection (f). Any alloca-
tion not used within such 5-year period may be re-
allocated by the Secretary under subsection (f).
‘‘(2) LIMITATION.—The maximum amount of
equity investments issued by a qualified community
development entity which may be designated under
paragraph (1)(C) by such entity shall not exceed the
portion of the limitation amount allocated under
subsection (f) to such entity.
‘‘(3) SAFE HARBOR FOR DETERMINING USE OF
CASH.—The requirement of paragraph (1)(B) shall
325
be treated as met if at least 85 percent of the aggre-
gate gross assets of the qualified community devel-
opment entity are invested in qualified low-income
community investments.
‘‘(4) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified equity investment’
includes any equity investment which would (but for
paragraph (1)(A)) be a qualified equity investment
in the hands of the taxpayer if such investment was
a qualified equity investment in the hands of a prior
holder.
‘‘(5) REDEMPTIONS.—A rule similar to the rule
of section 1202(c)(3) shall apply for purposes of this
subsection.
‘‘(6) EQUITY INVESTMENT.—The term ‘equity
investment’ means—
‘‘(A) any stock (other than nonqualified
preferred stock as defined in section 351(g)(2))
in an entity which is a corporation, and
‘‘(B) any capital interest in an entity
which is a partnership.
‘‘(c) QUALIFIED COMMUNITY DEVELOPMENT ENTI-
TY.—For purposes of this section—
326
‘‘(1) IN GENERAL.—The term ‘qualified com-
munity development entity’ means any domestic cor-
poration or partnership if—
‘‘(A) the primary mission of the entity is
serving, or providing investment capital for,
low-income communities or low-income persons,
‘‘(B) the entity maintains accountability to
residents of low-income communities through
their representation on any governing board of
the entity or on any advisory board to the enti-
ty, and
‘‘(C) the entity is certified by the Secretary
for purposes of this section as being a qualified
community development entity.
‘‘(2) SPECIAL RULES FOR CERTAIN ORGANIZA-
TIONS.—The requirements of paragraph (1) shall be
treated as met by—
‘‘(A) any specialized small business invest-
ment 
company 
(as 
defined 
in 
section
1044(c)(3)), and
‘‘(B) any community development financial
institution (as defined in section 103 of the
Community Development Banking and Finan-
cial Institutions Act of 1994 (12 U.S.C. 4702)).
327
‘‘(d) QUALIFIED LOW-INCOME COMMUNITY INVEST-
MENTS.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified low-in-
come community investment’ means—
‘‘(A) any equity investment in, or loan to,
any qualified active low-income community busi-
ness,
‘‘(B) the purchase from another commu-
nity development entity of any loan made by
such entity which is a qualified low-income com-
munity investment,
‘‘(C) financial counseling and other serv-
ices specified in regulations prescribed by the
Secretary to businesses located in, and resi-
dents of, low-income communities, and
‘‘(D) any equity investment in, or loan to,
any qualified community development entity.
‘‘(2) QUALIFIED ACTIVE LOW-INCOME COMMU-
NITY BUSINESS.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘qualified active low-income
community business’ means, with respect to any
taxable year, any corporation (including a non-
profit corporation) or partnership if for such
year—
328
‘‘(i) at least 50 percent of the total
gross income of such entity is derived from
the active conduct of a qualified business
within any low-income community,
‘‘(ii) a substantial portion of the use
of the tangible property of such entity
(whether owned or leased) is within any
low-income community,
‘‘(iii) a substantial portion of the serv-
ices performed for such entity by its em-
ployees are performed in any low-income
community,
‘‘(iv) less than 5 percent of the aver-
age of the aggregate unadjusted bases of
the property of such entity is attributable
to collectibles (as defined in section
408(m)(2)) other than collectibles that are
held primarily for sale to customers in the
ordinary course of such business, and
‘‘(v) less than 5 percent of the aver-
age of the aggregate unadjusted bases of
the property of such entity is attributable
to nonqualified financial property (as de-
fined in section 1397C(e)).
329
‘‘(B) PROPRIETORSHIP.—Such term shall
include any business carried on by an individual
as a proprietor if such business would meet the
requirements of subparagraph (A) were it incor-
porated.
‘‘(C) PORTIONS
OF
BUSINESS
MAY
BE
QUALIFIED
ACTIVE
LOW-INCOME
COMMUNITY
BUSINESS.—The term ‘qualified active low-in-
come community business’ includes any trades
or businesses which would qualify as a qualified
active low-income community business if such
trades or businesses were separately incor-
porated.
‘‘(3) QUALIFIED BUSINESS.—For purposes of
this subsection, the term ‘qualified business’ has the
meaning given to such term by section 1397C(d); ex-
cept that—
‘‘(A) in lieu of applying paragraph (2)(B)
thereof, the rental to others of real property lo-
cated in any low-income community shall be
treated as a qualified business if there are sub-
stantial improvements located on such property,
and
‘‘(B) paragraph (3) thereof shall not apply.
330
‘‘(e) LOW-INCOME COMMUNITY.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘low-income com-
munity’ means any population census tract if—
‘‘(A) the poverty rate for such tract is at
least 20 percent, or
‘‘(B)(i) in the case of a tract not located
within a metropolitan area, the median family
income for such tract does not exceed 80 per-
cent of statewide median family income, or
‘‘(ii) in the case of a tract located within
a metropolitan area, the median family income
for such tract does not exceed 80 percent of the
greater of statewide median family income or
the metropolitan area median family income.
‘‘(2) TARGETED
AREAS.—The Secretary may
designate any area within any census tract as a low-
income community if—
‘‘(A) the boundary of such area is contin-
uous,
‘‘(B) the area would satisfy the require-
ments of paragraph (1) if it were a census
tract, and
‘‘(C) an inadequate access to investment
capital exists in such area.
331
‘‘(3) AREAS NOT WITHIN CENSUS TRACTS.—In
the case of an area which is not tracted for popu-
lation census tracts, the equivalent county divisions
(as defined by the Bureau of the Census for pur-
poses of defining poverty areas) shall be used for
purposes of determining poverty rates and median
family income.
‘‘(f) NATIONAL LIMITATION ON AMOUNT OF INVEST-
MENTS DESIGNATED.—
‘‘(1) IN GENERAL.—There is a new markets tax
credit limitation for each calendar year. Such limita-
tion is—
‘‘(A) $1,000,000,000 for 2001,
‘‘(B) $1,500,000,000 for 2002 and 2003,
‘‘(C) $2,000,000,000 for 2004 and 2005,
and
‘‘(D) $3,500,000,000 for 2006 and 2007.
‘‘(2) ALLOCATION OF LIMITATION.—The limita-
tion under paragraph (1) shall be allocated by the
Secretary among qualified community development
entities selected by the Secretary. In making alloca-
tions under the preceding sentence, the Secretary
shall give priority to any entity—
332
‘‘(A) with a record of having successfully
provided capital or technical assistance to dis-
advantaged businesses or communities, or
‘‘(B) which intends to satisfy the require-
ment under subsection (b)(1)(B) by making
qualified low-income community investments in
1 or more businesses in which persons unre-
lated to such entity (within the meaning of sec-
tion 267(b) or 707(b)(1)) hold the majority eq-
uity interest.
‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If
the new markets tax credit limitation for any cal-
endar year exceeds the aggregate amount allocated
under paragraph (2) for such year, such limitation
for the succeeding calendar year shall be increased
by the amount of such excess. No amount may be
carried under the preceding sentence to any calendar
year after 2014.
‘‘(g) RECAPTURE OF CREDIT IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—If, at any time during the
7-year period beginning on the date of the original
issue of a qualified equity investment in a qualified
community development entity, there is a recapture
event with respect to such investment, then the tax
imposed by this chapter for the taxable year in
333
which such event occurs shall be increased by the
credit recapture amount.
‘‘(2) CREDIT RECAPTURE AMOUNT.—For pur-
poses of paragraph (1), the credit recapture amount
is an amount equal to the sum of—
‘‘(A) the aggregate decrease in the credits
allowed to the taxpayer under section 38 for all
prior taxable years which would have resulted if
no credit had been determined under this sec-
tion with respect to such investment, plus
‘‘(B) interest at the underpayment rate es-
tablished under section 6621 on the amount de-
termined under subparagraph (A) for each
prior taxable year for the period beginning on
the due date for filing the return for the prior
taxable year involved.
No deduction shall be allowed under this chapter for
interest described in subparagraph (B).
‘‘(3) RECAPTURE
EVENT.—For purposes of
paragraph (1), there is a recapture event with re-
spect to an equity investment in a qualified commu-
nity development entity if—
‘‘(A) such entity ceases to be a qualified
community development entity,
334
‘‘(B) the proceeds of the investment cease
to be used as required of subsection (b)(1)(B),
or
‘‘(C) such investment is redeemed by such
entity.
‘‘(4) SPECIAL RULES.—
‘‘(A) TAX
BENEFIT
RULE.—The tax for
the taxable year shall be increased under para-
graph (1) only with respect to credits allowed
by reason of this section which were used to re-
duce tax liability. In the case of credits not so
used to reduce tax liability, the carryforwards
and carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for
purposes of determining the amount of any
credit under this chapter or for purposes of sec-
tion 55.
‘‘(h) BASIS REDUCTION.—The basis of any qualified
equity investment shall be reduced by the amount of any
credit determined under this section with respect to such
investment. This subsection shall not apply for purposes
of sections 1202, 1400B, and 1400F.
335
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section, including regulations—
‘‘(1) which limit the credit for investments
which are directly or indirectly subsidized by other
Federal tax benefits (including the credit under sec-
tion 42 and the exclusion from gross income under
section 103),
‘‘(2) which prevent the abuse of the purposes of
this section,
‘‘(3) which provide rules for determining wheth-
er the requirement of subsection (b)(1)(B) is treated
as met,
‘‘(4) which impose appropriate reporting re-
quirements, and
‘‘(5) which apply the provisions of this section
to newly formed entities.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—
(1) IN GENERAL.—Subsection (b) of section 38
is amended by striking ‘‘plus’’ at the end of para-
graph (11), by striking the period at the end of
paragraph (12) and inserting ‘‘, plus’’, and by add-
ing at the end the following new paragraph:
336
‘‘(13) the new markets tax credit determined
under section 45D(a).’’.
(2) LIMITATION
ON
CARRYBACK.—Subsection
(d) of section 39 is amended by adding at the end
the following new paragraph:
‘‘(9) NO CARRYBACK OF NEW MARKETS TAX
CREDIT BEFORE JANUARY 1, 2001.—No portion of
the unused business credit for any taxable year
which is attributable to the credit under section 45D
may be carried back to a taxable year ending before
January 1, 2001.’’.
(c) DEDUCTION FOR UNUSED CREDIT.—Subsection
(c) of section 196 is amended by striking ‘‘and’’ at the
end of paragraph (7), by striking the period at the end
of paragraph (8) and inserting ‘‘, and’’, and by adding
at the end the following new paragraph:
‘‘(9) the new markets tax credit determined
under section 45D(a).’’.
(d) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by adding at the end the following new item:
‘‘Sec. 45D. New markets tax credit.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to investments made after Decem-
ber 31, 2000.
337
(f) GUIDANCE ON ALLOCATION OF NATIONAL LIMI-
TATION.—Not later than 120 days after the date of the
enactment of this Act, the Secretary of the Treasury or
the Secretary’s delegate shall issue guidance which
specifies—
(1) how entities shall apply for an allocation
under section 45D(f)(2) of the Internal Revenue
Code of 1986, as added by this section;
(2) the competitive procedure through which
such allocations are made; and
(3) the actions that such Secretary or delegate
shall take to ensure that such allocations are prop-
erly made to appropriate entities.
(g) AUDIT AND REPORT.—Not later than January 31
of 2004, 2007, and 2010, the Comptroller General of the
United States shall, pursuant to an audit of the new mar-
kets tax credit program established under section 45D of
the Internal Revenue Code of 1986 (as added by sub-
section (a)), report to Congress on such program, includ-
ing all qualified community development entities that re-
ceive an allocation under the new markets credit under
such section.
338
Subtitle D—Improvements in Low-
Income Housing Credit
SEC. 631. MODIFICATION OF STATE CEILING ON LOW-IN-
COME HOUSING CREDIT.
(a) IN GENERAL.—Clauses (i) and (ii) of section
42(h)(3)(C) (relating to State housing credit ceiling) are
amended to read as follows:
‘‘(i) the unused State housing credit
ceiling (if any) of such State for the pre-
ceding calendar year,
‘‘(ii) the greater of—
‘‘(I) $1.75 ($1.50 for 2001) mul-
tiplied by the State population, or
‘‘(II) $2,000,000,’’.
(b) ADJUSTMENT
OF
STATE
CEILING
FOR
IN-
CREASES IN COST-OF-LIVING.—Paragraph (3) of section
42(h) (relating to housing credit dollar amount for agen-
cies) is amended by adding at the end the following new
subparagraph:
‘‘(H) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of a
calendar year after 2002, the $2,000,000
and $1.75 amounts in subparagraph (C)
shall each be increased by an amount equal
to—
339
‘‘(I) such dollar amount, multi-
plied by
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3)
for such calendar year by substituting
‘calendar year 2001’ for ‘calendar
year 1992’ in subparagraph (B) there-
of.
‘‘(ii) ROUNDING.—
‘‘(I) 
In 
the 
case 
of 
the
$2,000,000 
amount, 
any 
increase
under clause (i) which is not a mul-
tiple of $5,000 shall be rounded to the
next lowest multiple of $5,000.
‘‘(II) In the case of the $1.75
amount, any increase under clause (i)
which is not a multiple of 5 cents
shall be rounded to the next lowest
multiple of 5 cents.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 42(h)(3)(C), as amended by sub-
section (a), is amended—
(A) by striking ‘‘clause (ii)’’ in the matter
following clause (iv) and inserting ‘‘clause (i)’’;
and
340
(B) by striking ‘‘clauses (i)’’ in the matter
following clause (iv) and inserting ‘‘clauses
(ii)’’.
(2) Section 42(h)(3)(D)(ii) is amended—
(A) by striking ‘‘subparagraph (C)(ii)’’ and
inserting ‘‘subparagraph (C)(i)’’; and
(B) by striking ‘‘clauses (i)’’ in subclause
(II) and inserting ‘‘clauses (ii)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to calendar years after 2000.
SEC. 632. MODIFICATION OF CRITERIA FOR ALLOCATING
HOUSING CREDITS AMONG PROJECTS.
(a) SELECTION CRITERIA.—Subparagraph (C) of
section 42(m)(1) (relating to certain selection criteria
must be used) is amended—
(1) by inserting ‘‘, including whether the project
includes the use of existing housing as part of a
community revitalization plan’’ before the comma at
the end of clause (iii); and
(2) by striking clauses (v), (vi), and (vii) and
inserting the following new clauses:
‘‘(v) tenant populations with special
housing needs,
‘‘(vi) public housing waiting lists,
341
‘‘(vii) tenant populations of individ-
uals with children, and
‘‘(viii) projects intended for eventual
tenant ownership.’’.
(b) PREFERENCE FOR COMMUNITY REVITALIZATION
PROJECTS LOCATED IN QUALIFIED CENSUS TRACTS.—
Clause (ii) of section 42(m)(1)(B) is amended by striking
‘‘and’’ at the end of subclause (I), by adding ‘‘and’’ at
the end of subclause (II), and by inserting after subclause
(II) the following new subclause:
‘‘(III) projects which are located
in qualified census tracts (as defined
in subsection (d)(5)(C)) and the devel-
opment of which contributes to a con-
certed 
community 
revitalization
plan,’’.
SEC. 633. ADDITIONAL RESPONSIBILITIES OF HOUSING
CREDIT AGENCIES.
(a) MARKET STUDY; PUBLIC DISCLOSURE OF RA-
TIONALE
FOR NOT FOLLOWING CREDIT ALLOCATION
PRIORITIES.—Subparagraph (A) of section 42(m)(1) (re-
lating to responsibilities of housing credit agencies) is
amended by striking ‘‘and’’ at the end of clause (i), by
striking the period at the end of clause (ii) and inserting
342
a comma, and by adding at the end the following new
clauses:
‘‘(iii) a comprehensive market study
of the housing needs of low-income individ-
uals in the area to be served by the project
is conducted before the credit allocation is
made and at the developer’s expense by a
disinterested party who is approved by
such agency, and
‘‘(iv) a written explanation is available
to the general public for any allocation of
a housing credit dollar amount which is
not made in accordance with established
priorities and selection criteria of the hous-
ing credit agency.’’.
(b) SITE VISITS.—Clause (iii) of section 42(m)(1)(B)
(relating to qualified allocation plan) is amended by insert-
ing before the period ‘‘and in monitoring for noncompli-
ance with habitability standards through regular site vis-
its’’.
SEC. 634. MODIFICATIONS TO RULES RELATING TO BASIS
OF BUILDING WHICH IS ELIGIBLE FOR CRED-
IT.
(a) ADJUSTED BASIS TO INCLUDE PORTION OF CER-
TAIN BUILDINGS USED BY LOW-INCOME INDIVIDUALS
343
WHO ARE NOT TENANTS AND BY PROJECT EMPLOY-
EES.—Paragraph (4) of section 42(d) (relating to special
rules relating to determination of adjusted basis) is
amended—
(1) by striking ‘‘subparagraph (B)’’ in subpara-
graph (A) and inserting ‘‘subparagraphs (B) and
(C)’’;
(2) by redesignating subparagraph (C) as sub-
paragraph (D); and
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraph:
‘‘(C) INCLUSION OF BASIS OF PROPERTY
USED
TO
PROVIDE
SERVICES
FOR
CERTAIN
NONTENANTS.—
‘‘(i) 
IN
GENERAL.—The 
adjusted
basis of any building located in a qualified
census tract (as defined in paragraph
(5)(C)) shall be determined by taking into
account the adjusted basis of property (of
a character subject to the allowance for de-
preciation and not otherwise taken into ac-
count) used throughout the taxable year in
providing any community service facility.
‘‘(ii) LIMITATION.—The increase in
the adjusted basis of any building which is
344
taken into account by reason of clause (i)
shall not exceed 10 percent of the eligible
basis of the qualified low-income housing
project of which it is a part. For purposes
of the preceding sentence, all community
service facilities which are part of the same
qualified low-income housing project shall
be treated as one facility.
‘‘(iii) COMMUNITY
SERVICE
FACIL-
ITY.—For purposes of this subparagraph,
the term ‘community service facility’
means any facility designed to serve pri-
marily individuals whose income is 60 per-
cent or less of area median income (within
the meaning of subsection (g)(1)(B)).’’.
(b) CERTAIN NATIVE AMERICAN HOUSING ASSIST-
ANCE DISREGARDED IN DETERMINING WHETHER BUILD-
ING IS FEDERALLY SUBSIDIZED FOR PURPOSES OF THE
LOW-INCOME HOUSING CREDIT.—Subparagraph (E) of
section 42(i)(2) (relating to determination of whether
building is federally subsidized) is amended—
(1) in clause (i), by inserting ‘‘or the Native
American Housing Assistance and Self-Determina-
tion Act of 1996 (25 U.S.C. 4101 et seq.) (as in ef-
345
fect on October 1, 1997)’’ after ‘‘this subpara-
graph)’’; and
(2) in the subparagraph heading, by inserting
‘‘OR NATIVE AMERICAN HOUSING ASSISTANCE’’ after
‘‘HOME ASSISTANCE’’.
SEC. 635. OTHER MODIFICATIONS.
(a) ALLOCATION
OF CREDIT LIMIT
TO CERTAIN
BUILDINGS.—
(1) The first sentence of section 42(h)(1)(E)(ii)
is amended by striking ‘‘(as of’’ the first place it ap-
pears and inserting ‘‘(as of the later of the date
which is 6 months after the date that the allocation
was made or’’.
(2) The last sentence of section 42(h)(3)(C) is
amended by striking ‘‘project which’’ and inserting
‘‘project which fails to meet the 10 percent test
under paragraph (1)(E)(ii) on a date after the close
of the calendar year in which the allocation was
made or which’’.
(b) DETERMINATION OF WHETHER BUILDINGS ARE
LOCATED IN HIGH COST AREAS.—The first sentence of
section 42(d)(5)(C)(ii)(I) is amended—
(1) by inserting ‘‘either’’ before ‘‘in which 50
percent’’; and
346
(2) by inserting before the period ‘‘or which has
a poverty rate of at least 25 percent’’.
SEC. 636. CARRYFORWARD RULES.
(a) IN GENERAL.—Clause (ii) of section 42(h)(3)(D)
(relating to unused housing credit carryovers allocated
among certain States) is amended by striking ‘‘the excess’’
and all that follows and inserting ‘‘the excess (if any) of—
‘‘(I) the unused State housing
credit ceiling for the year preceding
such year, over
‘‘(II) the aggregate housing cred-
it dollar amount allocated for such
year.’’.
(b) CONFORMING AMENDMENT.—The second sen-
tence of section 42(h)(3)(C) (relating to State housing
credit ceiling) is amended by striking ‘‘clauses (i) and
(iii)’’ and inserting ‘‘clauses (i) through (iv)’’.
SEC. 637. EFFECTIVE DATE.
Except as otherwise provided in this title, the amend-
ments made by this title shall apply to—
(1) housing credit dollar amounts allocated
after December 31, 2000; and
(2) buildings placed in service after such date
to the extent paragraph (1) of section 42(h) of the
Internal Revenue Code of 1986 does not apply to
347
any building by reason of paragraph (4) thereof, but
only with respect to bonds issued after such date.
Subtitle E—Other Community Re-
newal and New Markets Assist-
ance
SEC. 641. TRANSFER OF UNOCCUPIED AND SUBSTANDARD
HUD-HELD HOUSING TO LOCAL GOVERN-
MENTS 
AND 
COMMUNITY 
DEVELOPMENT
CORPORATIONS.
Section 204 of the Departments of Veterans Affairs
and Housing and Urban Development, and Independent
Agencies Appropriations Act, 1997 (12 U.S.C. 1715z–
11a) is amended—
(1) by striking ‘‘FLEXIBLE AUTHORITY.—’’ and
inserting ‘‘DISPOSITION
OF HUD-OWNED PROP-
ERTIES. (a) FLEXIBLE AUTHORITY
FOR MULTI-
FAMILY PROJECTS.—’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) TRANSFER OF UNOCCUPIED AND SUBSTANDARD
HOUSING
TO LOCAL GOVERNMENTS
AND COMMUNITY
DEVELOPMENT CORPORATIONS.—
‘‘(1) TRANSFER AUTHORITY.—Notwithstanding
the authority under subsection (a) and the last sen-
tence of section 204(g) of the National Housing Act
348
(12 U.S.C. 1710(g)), the Secretary of Housing and
Urban Development shall transfer ownership of any
qualified HUD property, subject to the requirements
of this section, to a unit of general local government
having jurisdiction for the area in which the prop-
erty is located or to a community development cor-
poration which operates within such a unit of gen-
eral local government in accordance with this sub-
section, but only to the extent that units of general
local government and community development cor-
porations consent to transfer and the Secretary de-
termines that such transfer is practicable.
‘‘(2) QUALIFIED HUD PROPERTIES.—For pur-
poses of this subsection, the term ‘qualified HUD
property’ means any property for which, as of the
date that notification of the property is first made
under paragraph (3)(B), not less than 6 months
have elapsed since the later of the date that the
property was acquired by the Secretary or the date
that the property was determined to be unoccupied
or substandard, that is owned by the Secretary and
is—
‘‘(A) an unoccupied multifamily housing
project;
349
‘‘(B) a substandard multifamily housing
project; or
‘‘(C) an unoccupied single family property
that—
‘‘(i) has been determined by the Sec-
retary not to be an eligible asset under sec-
tion 204(h) of the National Housing Act
(12 U.S.C. 1710(h)); or
‘‘(ii) is an eligible asset under such
section 204(h), but—
‘‘(I) is not subject to a specific
sale agreement under such section;
and
‘‘(II) has been determined by the
Secretary to be inappropriate for con-
tinued inclusion in the program under
such section 204(h) pursuant to para-
graph (10) of such section.
‘‘(3) TIMING.—The Secretary shall establish
procedures that provide for—
‘‘(A) time deadlines for transfers under
this subsection;
‘‘(B) notification to units of general local
government and community development cor-
350
porations of qualified HUD properties in their
jurisdictions;
‘‘(C) such units and corporations to ex-
press interest in the transfer under this sub-
section of such properties;
‘‘(D) a right of first refusal for transfer of
qualified HUD properties to units of general
local government and community development
corporations, under which—
‘‘(i) the Secretary shall establish a pe-
riod during which the Secretary may not
transfer such properties except to such
units and corporations;
‘‘(ii) the Secretary shall offer qualified
HUD properties that are single family
properties for purchase by units of general
local government at a cost of $1 for each
property, but only to the extent that the
costs to the Federal Government of dis-
posal at such price do not exceed the costs
to the Federal Government of disposing of
property subject to the procedures for sin-
gle family property established by the Sec-
retary pursuant to the authority under the
351
last sentence of section 204(g) of the Na-
tional Housing Act (12 U.S.C. 1710(g));
‘‘(iii) the Secretary may accept an
offer to purchase a property made by a
community development corporation only if
the offer provides for purchase on a cost
recovery basis; and
‘‘(iv) the Secretary shall accept an
offer to purchase such a property that is
made during such period by such a unit or
corporation and that complies with the re-
quirements of this paragraph;
‘‘(E) a written explanation, to any unit of
general local government or community develop-
ment corporation making an offer to purchase
a qualified HUD property under this subsection
that is not accepted, of the reason that such
offer was not acceptable.
‘‘(4) OTHER
DISPOSITION.—With respect to
any qualified HUD property, if the Secretary does
not receive an acceptable offer to purchase the prop-
erty pursuant to the procedure established under
paragraph (3), the Secretary shall dispose of the
property to the unit of general local government in
which property is located or to community develop-
352
ment corporations located in such unit of general
local government on a negotiated, competitive bid, or
other basis, on such terms as the Secretary deems
appropriate.
‘‘(5) SATISFACTION
OF
INDEBTEDNESS.—Be-
fore transferring ownership of any qualified HUD
property pursuant to this subsection, the Secretary
shall satisfy any indebtedness incurred in connection
with the property to be transferred, by canceling the
indebtedness.
‘‘(6) DETERMINATION
OF
STATUS
OF
PROP-
ERTIES.—To ensure compliance with the require-
ments of this subsection, the Secretary shall take the
following actions:
‘‘(A) UPON ENACTMENT.—Upon the enact-
ment of this subsection, the Secretary shall
promptly assess each residential property owned
by the Secretary to determine whether such
property is a qualified HUD property.
‘‘(B) UPON ACQUISITION.—Upon acquiring
any residential property, the Secretary shall
promptly determine whether the property is a
qualified HUD property.
‘‘(C) UPDATES.—The Secretary shall peri-
odically reassess the residential properties
353
owned by the Secretary to determine whether
any such properties have become qualified
HUD properties.
‘‘(7) TENANT LEASES.—This subsection shall
not affect the terms or the enforceability of any con-
tract or lease entered into with respect to any resi-
dential property before the date that such property
becomes a qualified HUD property.
‘‘(8) USE OF PROPERTY.—Property transferred
under this subsection shall be used only for appro-
priate neighborhood revitalization efforts, including
homeownership, rental units, commercial space, and
parks, consistent with local zoning regulations, local
building codes, and subdivision regulations and re-
strictions of record.
‘‘(9) INAPPLICABILITY
TO
PROPERTIES
MADE
AVAILABLE FOR HOMELESS.—Notwithstanding any
other provision of this subsection, this subsection
shall not apply to any properties that the Secretary
determines are to be made available for use by the
homeless pursuant to subpart E of part 291 of title
24, Code of Federal Regulations, during the period
that the properties are so available.
‘‘(10) PROTECTION OF EXISTING CONTRACTS.—
This subsection may not be construed to alter, af-
354
fect, or annul any legally binding obligations entered
into with respect to a qualified HUD property before
the property becomes a qualified HUD property.
‘‘(11) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply:
‘‘(A) COMMUNITY
DEVELOPMENT
COR-
PORATION.—The term ‘community development
corporation’ means a nonprofit organization
whose primary purpose is to promote commu-
nity development by providing housing opportu-
nities for low-income families.
‘‘(B) COST RECOVERY BASIS.—The term
‘cost recovery basis’ means, with respect to any
sale of a residential property by the Secretary,
that the purchase price paid by the purchaser
is equal to or greater than the sum of: (i) the
appraised value of the property, as determined
in accordance with such requirements as the
Secretary shall establish; and (ii) the costs in-
curred by the Secretary in connection with such
property during the period beginning on the
date on which the Secretary acquires title to the
property and ending on the date on which the
sale is consummated.
355
‘‘(C) MULTIFAMILY HOUSING PROJECT.—
The term ‘multifamily housing project’ has the
meaning given the term in section 203 of the
Housing and Community Development Amend-
ments of 1978.
‘‘(D) RESIDENTIAL PROPERTY.—The term
‘residential property’ means a property that is
a multifamily housing project or a single family
property.
‘‘(E) SECRETARY.—The term ‘Secretary’
means the Secretary of Housing and Urban De-
velopment.
‘‘(F) SEVERE PHYSICAL PROBLEMS.—The
term ‘severe physical problems’ means, with re-
spect to a dwelling unit, that the unit—
‘‘(i) lacks hot or cold piped water, a
flush toilet, or both a bathtub and a show-
er in the unit, for the exclusive use of that
unit;
‘‘(ii) on not less than three separate
occasions during the preceding winter
months, was uncomfortably cold for a pe-
riod of more than 6 consecutive hours due
to a malfunction of the heating system for
the unit;
356
‘‘(iii) has no functioning electrical
service, exposed wiring, any room in which
there is not a functioning electrical outlet,
or has experienced three or more blown
fuses or tripped circuit breakers during the
preceding 90-day period;
‘‘(iv) is accessible through a public
hallway in which there are no working
light fixtures, loose or missing steps or
railings, and no elevator; or
‘‘(v) has severe maintenance problems,
including water leaks involving the roof,
windows, doors, basement, or pipes or
plumbing fixtures, holes or open cracks in
walls or ceilings, severe paint peeling or
broken plaster, and signs of rodent infesta-
tion.
‘‘(G) SINGLE
FAMILY
PROPERTY.—The
term ‘single family property’ means a 1- to 4-
family residence.
‘‘(H) SUBSTANDARD.—The term ‘sub-
standard’ means, with respect to a multifamily
housing project, that 25 percent or more of the
dwelling units in the project have severe phys-
ical problems.
357
‘‘(I) UNIT OF GENERAL LOCAL GOVERN-
MENT.—The term ‘unit of general local govern-
ment’ has the meaning given such term in sec-
tion 102(a) of the Housing and Community De-
velopment Act of 1974.
‘‘(J) UNOCCUPIED.—The term ‘unoccu-
pied’ means, with respect to a residential prop-
erty, that the unit of general local government
having jurisdiction over the area in which the
project is located has certified in writing that
the property is not inhabited.
‘‘(12) REGULATIONS.—
‘‘(A) INTERIM.—Not later than 30 days
after the date of the enactment of this sub-
section, the Secretary shall issue such interim
regulations as are necessary to carry out this
subsection.
‘‘(B) FINAL.—Not later than 60 days after
the date of the enactment of this subsection,
the Secretary shall issue such final regulations
as are necessary to carry out this subsection.’’.
SEC. 642. TRANSFER OF HUD ASSETS IN REVITALIZATION
AREAS.
In carrying out the program under section 204(h) of
the National Housing Act (12 U.S.C. 1710(h)), upon the
358
request of the chief executive officer of a county or the
government of appropriate jurisdiction and not later than
60 days after such request is made, the Secretary of Hous-
ing and Urban Development shall designate as a revital-
ization area all portions of such county that meet the cri-
teria for such designation under paragraph (3) of such
section.
SEC. 643. RISK-SHARING DEMONSTRATION.
Section 249 of the National Housing Act (12 U.S.C.
1715z–14) is amended—
(1) by striking the section heading and insert-
ing the following:
‘‘RISK-SHARING DEMONSTRATION’’;
(2) by striking ‘‘reinsurance’’ each place such
term appears and insert ‘‘risk-sharing’’;
(3) in subsection (a)—
(A) in the first sentence, by inserting ‘‘and
with insured community development financial
institutions’’ after ‘‘private mortgage insurers’’;
(B) in the second sentence—
(i) by striking ‘‘two’’ and inserting
‘‘four’’; and
(ii) by striking ‘‘March 15, 1988’’ and
inserting ‘‘the expiration of the 5-year pe-
riod beginning on the date of the enact-
359
ment of the Taxpayer Relief Act of 2000’’;
and
(C) in the third sentence—
(i) by striking ‘‘insured’’ and inserting
‘‘for which risk of nonpayment is shared’’;
and
(ii) by striking ‘‘10 percent’’ and in-
serting ‘‘20 percent’’;
(4) in subsection (b)—
(A) in the first sentence—
(i) by striking ‘‘to provide’’ and in-
serting ‘‘, in providing’’;
(ii) by striking ‘‘through’’ and insert-
ing ‘‘, to enter into’’; and
(iii) by inserting ‘‘and with insured
community development financial institu-
tions’’ before the period at the end;
(B) in the second sentence, by inserting
‘‘and insured community development financial
institutions’’ after ‘‘private mortgage insurance
companies’’;
(C) by striking paragraph (1) and insert-
ing the following new paragraph:
‘‘(1) assume a secondary percentage of loss on
any mortgage insured pursuant to section 203(b),
360
234, or 245 covering a one- to four-family dwelling,
which percentage of loss shall be set forth in the
risk-sharing contract, with the first percentage of
loss to be borne by the Secretary;’’; and
(D) in paragraph (2)—
(i) by striking ‘‘carry out (under ap-
propriate delegation) such’’ and inserting
‘‘perform or delegate underwriting,’’;
(ii) by striking ‘‘function as the Sec-
retary pursuant to regulations,’’ and in-
serting ‘‘functions as the Secretary’’; and
(iii) by inserting before the period at
the end the following: ‘‘and shall set forth
in the risk-sharing contract’’;
(5) in subsection (c)—
(A) in the first sentence—
(i) by striking ‘‘of’’ the first place it
appears and inserting ‘‘for’’;
(ii) by inserting ‘‘received by the Sec-
retary with a private mortgage insurer or
insured community development financial
institution’’ after ‘‘sharing of premiums’’
(iii) by striking ‘‘insurance reserves’’
and inserting ‘‘loss reserves’’;
361
(iv) by striking ‘‘such insurance’’ and
inserting ‘‘such risk-sharing contract’’; and
(v) by striking ‘‘right’’ and inserting
‘‘rights’’; and
(B) in the second sentence—
(i) by inserting ‘‘or insured commu-
nity development financial institution’’
after ‘‘private mortgage insurance com-
pany’’; and
(ii) by striking ‘‘for insurance’’ and
inserting ‘‘for risk-sharing’’;
(6) in subsection (d), by inserting ‘‘or insured
community development financial institution’’ after
‘‘private mortgage insurance company’’; and
(7) by adding at the end the following new sub-
section:
‘‘(e) INSURED COMMUNITY DEVELOPMENT FINAN-
CIAL INSTITUTION.—For purposes of this section, the
term ‘insured community development financial institu-
tion’ means a community development financial institu-
tion, as such term is defined in section 103 of Reigle Com-
munity Development and Regulatory Improvement Act of
1994 (12 U.S.C. 4702) that is an insured depository insti-
tution (as such term is defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813)) or an insured
362
credit union (as such term is defined in section 101 of
the Federal Credit Union Act (12 U.S.C. 1752)).’’.
SEC. 644. PREVENTION AND TREATMENT OF SUBSTANCE
ABUSE; SERVICES PROVIDED THROUGH RELI-
GIOUS ORGANIZATIONS.
Title V of the Public Health Service Act (42 U.S.C.
290aa et seq.) is amended by adding at the end the fol-
lowing part:
‘‘PART G—SERVICES PROVIDED THROUGH RELIGIOUS
ORGANIZATIONS
‘‘SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.
‘‘(a) DESIGNATED
PROGRAMS.—Subject to sub-
section (b), this part applies to discretionary and formula
grant programs administered by the Substance Abuse and
Mental Health Services Administration that make awards
of financial assistance to public or private entities for the
purpose of carrying out activities to prevent or treat sub-
stance abuse (in this part referred to as a ‘designated pro-
gram’). Designated programs include the program under
subpart II of part B of title XIX (relating to formula
grants to the States).
‘‘(b) LIMITATION.—This part does not apply to any
award of financial assistance under a designated program
for a purpose other than the purpose specified in sub-
section (a).
363
‘‘(c) DEFINITIONS.—For purposes of this part (and
subject to subsection (b)):
‘‘(1) The term ‘designated program’ has the
meaning given such term in subsection (a).
‘‘(2) The term ‘financial assistance’ means a
grant, cooperative agreement, or contract.
‘‘(3) The term ‘program beneficiary’ means an
individual who receives program services.
‘‘(4) The term ‘program participant’ means a
public or private entity that has received financial
assistance under a designated program.
‘‘(5) The term ‘program services’ means treat-
ment for substance abuse, or preventive services re-
garding such abuse, provided pursuant to an award
of financial assistance under a designated program.
‘‘(6) The term ‘religious organization’ means a
nonprofit religious organization.
‘‘SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PAR-
TICIPANTS.
‘‘(a) IN GENERAL.—Notwithstanding any other pro-
vision of law, a religious organization, on the same basis
as any other nonprofit private provider—
‘‘(1) may receive financial assistance under a
designated program; and
364
‘‘(2) may be a provider of services under a des-
ignated program.
‘‘(b) RELIGIOUS ORGANIZATIONS.—The purpose of
this section is to allow religious organizations to be pro-
gram participants on the same basis as any other non-
profit private provider without impairing the religious
character of such organizations, and without diminishing
the religious freedom of program beneficiaries.
‘‘(c) NONDISCRIMINATION AGAINST RELIGIOUS OR-
GANIZATIONS.—
‘‘(1) 
ELIGIBILITY
AS
PROGRAM
PARTICI-
PANTS.—Religious organizations are eligible to be
program participants on the same basis as any other
nonprofit private organization as long as the pro-
grams are implemented consistent with the Estab-
lishment Clause and Free Exercise Clause of the
First Amendment to the United States Constitution.
Nothing in this Act shall be construed to restrict the
ability of the Federal Government, or a State or
local government receiving funds under such pro-
grams, to apply to religious organizations the same
eligibility conditions in designated programs as are
applied to any other nonprofit private organization.
‘‘(2) NONDISCRIMINATION.—Neither the Fed-
eral Government nor a State or local government re-
365
ceiving funds under designated programs shall dis-
criminate against an organization that is or applies
to be a program participant on the basis that the or-
ganization has a religious character.
‘‘(d) RELIGIOUS CHARACTER AND FREEDOM.—
‘‘(1) RELIGIOUS
ORGANIZATIONS.—Except as
provided in this section, any religious organization
that is a program participant shall retain its inde-
pendence from Federal, State, and local government,
including such organization’s control over the defini-
tion, development, practice, and expression of its re-
ligious beliefs.
‘‘(2) ADDITIONAL
SAFEGUARDS.—Neither the
Federal Government nor a State shall require a reli-
gious organization to—
‘‘(A) alter its form of internal governance;
or
‘‘(B) remove religious art, icons, scripture,
or other symbols,
in order to be a program participant.
‘‘(e) EMPLOYMENT PRACTICES.—Nothing in this sec-
tion shall be construed to modify or affect the provisions
of any other Federal or State law or regulation that re-
lates to discrimination in employment. A religious organi-
zation’s exemption provided under section 702 of the Civil
366
Rights Act of 1964 regarding employment practices shall
not be affected by its participation in, or receipt of funds
from, a designated program.
‘‘(f) RIGHTS OF PROGRAM BENEFICIARIES.—
‘‘(1) IN GENERAL.—If an individual who is a
program beneficiary or a prospective program bene-
ficiary objects to the religious character of a pro-
gram participant, within a reasonable period of time
after the date of such objection such program partic-
ipant shall refer such individual to, and the appro-
priate Federal, State, or local government that ad-
ministers a designated program or is a program par-
ticipant shall provide to such individual (if otherwise
eligible for such services), program services that—
‘‘(A) are from an alternative provider that
is accessible to, and has the capacity to provide
such services to, such individual; and
‘‘(B) have a value that is not less than the
value of the services that the individual would
have received from the program participant to
which the individual had such objection.
Upon referring a program beneficiary to an alter-
native provider, the program participant shall notify
the appropriate Federal, State, or local government
367
agency that administers the program of such refer-
ral.
‘‘(2) NOTICES.—Program participants, public
agencies that refer individuals to designated pro-
grams, and the appropriate Federal, State, or local
governments that administer designated programs or
are program participants shall ensure that notice is
provided to program beneficiaries or prospective pro-
gram beneficiaries of their rights under this section.
‘‘(3) ADDITIONAL REQUIREMENTS.—A program
participant making a referral pursuant to paragraph
(1) shall—
‘‘(A) prior to making such referral, con-
sider any list that the State or local government
makes available of entities in the geographic
area that provide program services; and
‘‘(B) ensure that the individual makes con-
tact with the alternative provider to which the
individual is referred.
‘‘(4) NONDISCRIMINATION.—A religious organi-
zation that is a program participant shall not in pro-
viding program services or engaging in outreach ac-
tivities under designated programs discriminate
against a program beneficiary or prospective pro-
368
gram beneficiary on the basis of religion or religious
belief.
‘‘(g) FISCAL ACCOUNTABILITY.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), any religious organization that is a pro-
gram participant shall be subject to the same regula-
tions as other recipients of awards of Federal finan-
cial assistance to account, in accordance with gen-
erally accepted auditing principles, for the use of the
funds provided under such awards.
‘‘(2) LIMITED
AUDIT.—With respect to the
award involved, a religious organization that is a
program 
participant 
shall 
segregate 
Federal
amounts provided under award into a separate ac-
count from non-Federal funds. Only the award funds
shall be subject to audit by the government.
‘‘(h) COMPLIANCE.—With respect to compliance with
this section by an agency, a religious organization may
obtain judicial review of agency action in accordance with
chapter 7 of title 5, United States Code.
‘‘SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN
PURPOSES.
‘‘No funds provided under a designated program shall
be expended for sectarian worship, instruction, or pros-
elytization.
369
‘‘SEC. 584. EDUCATIONAL REQUIREMENTS FOR PERSONNEL
IN DRUG TREATMENT PROGRAMS.
‘‘(a) FINDINGS.—The Congress finds that—
‘‘(1) establishing unduly rigid or uniform edu-
cational qualification for counselors and other per-
sonnel in drug treatment programs may undermine
the effectiveness of such programs; and
‘‘(2) such educational requirements for coun-
selors and other personnel may hinder or prevent the
provision of needed drug treatment services.
‘‘(b) NONDISCRIMINATION.—In determining whether
personnel of a program participant that has a record of
successful drug treatment for the preceding three years
have satisfied State or local requirements for education
and training, a State or local government shall not dis-
criminate against education and training provided to such
personnel by a religious organization, so long as such edu-
cation and training includes basic content substantially
equivalent to the content provided by nonreligious organi-
zations that the State or local government would credit
for purposes of determining whether the relevant require-
ments have been satisfied.’’.
370
Subtitle F—Other Provisions
SEC. 651. ACCELERATION OF PHASE-IN OF INCREASE IN
VOLUME CAP ON PRIVATE ACTIVITY BONDS.
(a) IN GENERAL.—Paragraphs (1) and (2) of section
146(d) (relating to State ceiling) are amended to read as
follows:
‘‘(1) IN GENERAL.—The State ceiling applicable
to any State for any calendar year shall be the
greater of—
‘‘(A) an amount equal to $75 ($62.50 in
the case of calendar year 2001) multiplied by
the State population, or
‘‘(B) $225,000,000 ($187,500,000 in the
case of calendar year 2001).
‘‘(2) COST-OF-LIVING
ADJUSTMENT.—In the
case of a calendar year after 2002, each of the dollar
amounts contained in paragraph (1) shall be in-
creased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 2001’ for
‘calendar year 1992’ in subparagraph (B)
thereof.