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then each United States person who discussed
participation in such shelter shall register such
shelter under subsection (a).
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to a United States person who
discussed participation in a tax shelter if—
‘‘(i) such person notified the promoter
in writing (not later than the close of the
day on which such discussions began) that
such person would not participate in such
shelter, and
‘‘(ii) such person does not participate
in such shelter.
‘‘(4) OFFER
TO
PARTICIPATE
TREATED
AS
OFFER FOR SALE.—For purposes of subsections (a)
and (b), an offer to participate in a tax shelter (as
defined in paragraph (1)) shall be treated as an
offer for sale.’’
(b) PENALTY.—Subsection (a) of section 6707 (relat-
ing to failure to furnish information regarding tax shel-
ters) is amended by adding at the end the following new
paragraph:
‘‘(3) CONFIDENTIAL ARRANGEMENTS.—
‘‘(A) IN GENERAL.—In the case of a tax
shelter (as defined in section 6111(d)), the pen-
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alty imposed under paragraph (1) shall be an
amount equal to the greater of—
‘‘(i) 50 percent of the fees paid to any
promoter of the tax shelter with respect to
offerings made before the date such shelter
is registered under section 6111, or
‘‘(ii) $10,000.
Clause (i) shall be applied by substituting ‘75
percent’ for ‘50 percent’ in the case of an inten-
tional failure or act described in paragraph (1).
‘‘(B) SPECIAL
RULE
FOR
PARTICIPANTS
REQUIRED
TO
REGISTER
SHELTER.—In the
case of a person required to register such a tax
shelter by reason of section 6111(d)(3)—
‘‘(i) such person shall be required to
pay the penalty under paragraph (1) only
if such person actually participated in such
shelter,
‘‘(ii) the amount of such penalty shall
be determined by taking into account
under subparagraph (A)(i) only the fees
paid by such person, and
‘‘(iii) such penalty shall be in addition
to the penalty imposed on any other person
for failing to register such shelter.’’
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(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6707(a) is amend-
ed by striking ‘‘The penalty’’ and inserting ‘‘Except
as provided in paragraph (3), the penalty’’.
(2) Subparagraph (A) of section 6707(a)(1) is
amended by striking ‘‘paragraph (2)’’ and inserting
‘‘paragraph (2) or (3), as the case may be’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to any tax shelter (as defined
in section 6111(d) of the Internal Revenue Code of
1986, as amended by this section) interests in which
are offered to potential participants after the date of
the enactment of this Act.
(2) DUE DATE FOR REGISTRATION.—The due
date for registering any tax shelter required to be
registered by reason of the amendments made by
this section shall be not earlier than the close of a
reasonable period after the Secretary of the Treas-
ury prescribes guidance with respect to meeting such
requirements.
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SEC. 13603. DENIAL OF DEDUCTION FOR INTEREST ON
LOANS WITH RESPECT TO COMPANY-OWNED
INSURANCE.
(a) IN GENERAL.—Paragraph (4) of section 264(a)
is amended—
(1) by inserting ‘‘or endowment or annuity con-
tract’’ after ‘‘life insurance policies’’, and
(2) by striking all that follows ‘‘carried on by
the taxpayer’’ and inserting a period.
(b) PHASE-IN OF DISALLOWANCE.—Section 264 is
amended by adding at the end the following new sub-
section:
‘‘(d) PHASE-IN
OF DISALLOWANCE UNDER SUB-
SECTION (a)(4).—In the case of calendar years after 1995
and before 2000—
‘‘(1) IN
GENERAL.—The amount of interest
paid or accrued during any period in any such cal-
endar year with respect to qualified indebtedness
which is disallowed by reason of the amendment
made by section 13603(a) of the Revenue Reconcili-
ation Act of 1995 (determined without regard to this
subsection) shall not exceed the applicable percent-
age of such interest which is so disallowed.
‘‘(2) QUALIFIED
INDEBTEDNESS.—For pur-
poses of paragraph (1), the term ‘qualified indebted-
ness’ means indebtedness incurred before September
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(A) the interest paid or accrued after De-
cember 31, 1995, on such indebtedness is not
allowed as a deduction under chapter 1 of such
Code by reason of such paragraph (4) (as
amended by this section), and
(B) the entire amount of interest paid or
accrued on or before such date on such indebt-
edness was allowed as a deduction under such
chapter 1,
then (in lieu of any other inclusion in gross income)
the qualified amount with respect to such policy
shall be includible in gross income ratably over the
4 taxable years beginning with the taxable year such
amount would (but for this paragraph) be includible.
(2) QUALIFIED
AMOUNT.—For purposes of
paragraph (1), the term ‘‘qualified amount’’ means,
with respect to any policy, the amount received
under such policy—
(A) on the complete surrender, redemption,
or maturity of such policy during 1996, or
(B) in full discharge during 1996 of the
obligation under the policy which is in the na-
ture of a refund of the consideration paid for
the policy,
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but only to the extent such amount is includible in
gross income for the taxable year in which the event
described in subparagraph (A) or (B) occurs.
(3) SPECIAL RULE.—A contract shall not be
treated as failing to meet the requirement of section
264(c)(1) of the Internal Revenue Code of 1986
solely by reason of an occurrence described in sub-
paragraph (A) or (B) of paragraph (2) of this sub-
section.
SEC. 13604. TERMINATION OF SUSPENSE ACCOUNTS FOR
FAMILY CORPORATIONS REQUIRED TO USE
ACCRUAL METHOD OF ACCOUNTING.
(a) IN GENERAL.—Subsection (i) of section 447 (re-
lating to method of accounting for corporations engaged
in farming) is amended by adding at the end the following
new paragraph:
‘‘(7) TERMINATION.—
‘‘(A) IN GENERAL.—No suspense account
may be established under this subsection by any
corporation required by this section to change
its method of accounting for any taxable year
ending after September 13, 1995.
‘‘(B) 20-YEAR
PHASEOUT
OF
EXISTING
SUSPENSE ACCOUNTS.—Each suspense account
under this subsection shall be reduced (but not
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below zero) for each of the first 20 taxable
years beginning after September 13, 1995, by
an amount equal to the applicable portion of
such account. Any reduction in a suspense ac-
count under this paragraph shall be included in
gross income for the taxable year of the reduc-
tion. The amount of the reduction required
under this paragraph for any taxable year shall
be reduced (but not below zero) by the amount
of any reduction required for such taxable year
under any other provision of this subsection.
‘‘(C) APPLICABLE
PORTION.—For pur-
poses of subparagraph (B), the term ‘applicable
portion’ means, for any taxable year, the
amount which would ratably reduce the amount
in the account (after taking into account prior
reductions) to zero over the period consisting of
such taxable year and the remaining taxable
years in such first 20 taxable years.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years ending after Sep-
tember 13, 1995.
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SEC. 13605. TERMINATION OF PUERTO RICO AND POSSES-
SION TAX CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding
at the end the following new subsection:
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—This section shall not apply
to any taxable year beginning after December 31,
1995.
‘‘(2) EXCEPTION FOR EXISTING CLAIMANTS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
be applied by substituting ‘2005’ for ‘1995’ in
the case of an existing credit claimant.
‘‘(B) EXCEPTION
TERMINATES
IF
NEW
LINE OF BUSINESS ADDED.—If, after Septem-
ber 13, 1995, a corporation which would (but
for this subparagraph) be an existing credit
claimant adds a substantial new line of busi-
ness, such corporation shall cease to be treated
as an existing credit claimant as of the close of
the taxable year ending before the date of such
addition.
‘‘(C) EXISTING
CREDIT
CLAIMANT.—For
purposes of this subsection, the term ‘existing
credit claimant’ means any corporation which
satisfied the conditions of both subparagraph
(A) and subparagraph (B) of subsection (a)(2)
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for at least 1 base period year for which such
corporation elected the application of this sec-
tion.
‘‘(3) LIMIT
ON
CREDIT
OF
EXISTING
CLAIM-
ANTS.—
‘‘(A) IN GENERAL.—In the case of an ex-
isting credit claimant, the aggregate amount of
income taken into account under subsection
(a)(1) for any taxable year beginning after De-
cember 31, 1995 (hereinafter in this subsection
referred to as the ‘current year’), shall not ex-
ceed the adjusted base period income of such
claimant.
‘‘(B) COORDINATION
WITH
SUBSECTION
(a)(4).—The amount of income described in sub-
section (a)(1)(A) which is taken into account in
applying subsection (a)(4) shall be such income
as reduced under this paragraph. In determin-
ing such reduction, any reduction under sub-
paragraph (A) in the amount which would oth-
erwise be taken into account under subsection
(a)(1) shall be allocated between the income de-
scribed in subparagraph (A) thereof and the in-
come described in subparagraph (B) thereof in
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‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE
OF INDEBTEDNESS.—If a large partnership has income
from the discharge of any indebtedness—
‘‘(1) such income shall be excluded in determin-
ing the amounts referred to in section 772(a), and
‘‘(2) in determining the income tax of any part-
ner of such partnership—
‘‘(A) such income shall be treated as an
item required to be separately taken into ac-
count under section 772(a), and
‘‘(B) the provisions of section 108 shall be
applied without regard to this part.
‘‘SEC. 774. OTHER MODIFICATIONS.
‘‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUST-
MENTS, ETC.—In the case of a large partnership—
‘‘(1) computations under section 773 shall be
made without regard to any adjustment under sec-
tion 743(b) or 108(b), but
‘‘(2) a partner’s distributive share of any
amount referred to in section 772(a) shall be appro-
priately adjusted to take into account any adjust-
ment under section 743(b) or 108(b) with respect to
such partner.
‘‘(b) CREDIT RECAPTURE DETERMINED AT PART-
NERSHIP LEVEL.—