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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to dividends paid or accrued more
than 30 days after the date of the enactment of this Act.
SEC. 1174. PENALTIES FOR FAILURE TO DISCLOSE POSI-
TION THAT CERTAIN INTERNATIONAL TRANS-
PORTATION INCOME IS NOT INCLUDIBLE IN
GROSS INCOME.
(a) IN GENERAL.—Section 883 is amended by adding
at the end the following new subsection:
‘‘(d) PENALTIES FOR FAILURE TO DISCLOSE POSI-
TION THAT CERTAIN INTERNATIONAL TRANSPORTATION
INCOME IS NOT INCLUDIBLE IN GROSS INCOME.—
‘‘(1) IN GENERAL.—A taxpayer who, with re-
spect to any tax imposed by this title, takes the posi-
tion that any of its gross income derived from the
international operation of 1 or more ships or aircraft
is not includible in gross income by reason of para-
graph (1) or (2) of subsection (a) or paragraph (1)
or (2) of section 872(b) (or by reason of any appli-
cable treaty) shall be entitled to such treatment only
if such position is disclosed (in such manner as the
Secretary may prescribe) on the return of tax for
such tax (or any statement attached to such return).
‘‘(2) ADDITIONAL PENALTIES FOR FAILING TO
DISCLOSE POSITION.—If a taxpayer fails to meet the
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requirement of paragraph (1) for any taxable year
with respect to the international operation of 1 or
more ships or 1 or more aircraft—
‘‘(A) the amount of the income from the
international operation to which such failure re-
lates—
‘‘(i) which is from sources without the
United States, and
‘‘(ii) which is attributable to a fixed
place of business in the United States,
shall be treated for purposes of this title as ef-
fectively connected with the conduct of a trade
or business within the United States, and
‘‘(B) no deductions or credits shall be al-
lowed which are attributable to income from the
international operation to which the failure re-
lates.
‘‘(3) REASONABLE
CAUSE
EXCEPTION.—This
subsection shall not apply to a failure to disclose a
position if it is shown that such failure is due to rea-
sonable cause and not due to willful neglect.’’.
(b) CONFORMING AMENDMENTS.—Paragraphs (1)
and (2) of section 872(b), and paragraphs (1) and (2) of
section 883(a), are each amended by striking ‘‘Gross in-
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come’’ each place it appears and inserting ‘‘Except as pro-
vided in section 883(d), gross income’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1997.
(2) 
COORDINATION
WITH
TREATIES.—The
amendments made by this section shall not apply in
any case where their application would be contrary
to any treaty obligation of the United States.
(d) INFORMATION TO BE PROVIDED BY CUSTOMS
SERVICE.—The United States Custom Service shall pro-
vide the Secretary of the Treasury or his delegate with
such information as may be specified by such Secretary
in order to enable such Secretary to determine whether
ships which are not registered in the United States are
engaged in transportation to or from the United States.
SEC. 1175. DENIAL OF TREATY BENEFITS FOR CERTAIN
PAYMENTS THROUGH HYBRID ENTITIES.
A foreign person shall be entitled under any income
tax treaty of the United States with a foreign country to
any reduced rate of any withholding tax imposed by the
Internal Revenue Code of 1986 on an item of income de-
rived through any partnership or other pass-thru entity
only to the extent that such item is treated for purposes
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of the taxation laws of such foreign country as an item
of income of such person. The preceding sentence shall
not apply if—
(1) the treaty contains a provision addressing
the applicability of the treaty in the case of an item
of income derived through a partnership, or
(2) the foreign country imposes tax on a dis-
tribution of such item of income from such partner-
ship to such person.
SEC. 1176. INTEREST ON UNDERPAYMENTS NOT REDUCED
BY FOREIGN TAX CREDIT CARRYBACKS.
(a) IN GENERAL.—Subsection (d) of section 6601 is
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) FOREIGN
TAX
CREDIT
CARRYBACKS.—If
any credit allowed for any taxable year is increased
by reason of a carryback of tax paid or accrued to
foreign countries or possessions of the United
States, such increase shall not affect the computa-
tion of interest under this section for the period end-
ing with the filing date for the taxable year in which
such taxes were in fact paid or accrued, or, with re-
spect to any portion of such credit carryback from
a taxable year attributable to a net operating loss
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carryback or a capital loss carryback from a subse-
quent taxable year, such increase shall not affect the
computation of interest under this section for the
period ending with the filing date for such subse-
quent taxable year.’’.
(b) CONFORMING AMENDMENT
TO REFUNDS AT-
TRIBUTABLE TO FOREIGN TAX CREDIT CARRYBACKS.—
(1) IN
GENERAL.—Subsection (f) of section
6611 is amended by redesignating paragraphs (2)
and (3) as paragraphs (3) and (4), respectively, and
by inserting after paragraph (1) the following new
paragraph:
‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—For
purposes of subsection (a), if any overpayment of
tax imposed by subtitle A results from a carryback
of tax paid or accrued to foreign countries or posses-
sions of the United States, such overpayment shall
be deemed not to have been made before the filing
date for the taxable year in which such taxes were
in fact paid or accrued, or, with respect to any por-
tion of such credit carryback from a taxable year at-
tributable to a net operating loss carryback or a cap-
ital loss carryback from a subsequent taxable year,
such overpayment shall be deemed not to have been
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made before the filing date for such subsequent tax-
able year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (4) of section 6611(f) (as
so redesignated) is amended—
(i) by striking ‘‘PARAGRAPHS (1) AND
(2)’’ and inserting ‘‘PARAGRAPHS (1), (2),
AND (3)’’, and
(ii) by striking ‘‘paragraph (1) or (2)’’
each place it appears and inserting ‘‘para-
graph (1), (2), or (3)’’.
(B) Clause (ii) of section 6611(f)(4)(B) (as
so redesignated) is amended by striking ‘‘and’’
at the end of subclause (I), by redesignating
subclause (II) as subclause (III), and by insert-
ing after subclause (I) the following new sub-
clause:
‘‘(II) in the case of a carryback
of taxes paid or accrued to foreign
countries or possessions of the United
States, the taxable year in which such
taxes were in fact paid or accrued (or,
with respect to any portion of such
carryback from a taxable year attrib-
utable 
to 
a 
net 
operating 
loss
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carryback or a capital loss carryback
from a subsequent taxable year, such
subsequent taxable year), and’’.
(C) 
Subclause 
(III) 
of 
section
6611(f)(4)(B)(ii) (as so redesignated) is amend-
ed by inserting ‘‘(as defined in paragraph
(3)(B))’’ after ‘‘credit carryback’’ the first place
it appears.
(D) Section 6611 is amended by striking
subsection (g) and by redesignating subsections
(h) and (i) as subsections (g) and (h), respec-
tively.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to carrybacks arising in taxable
years beginning after the date of the enactment of this
Act.
SEC. 1177. CLARIFICATION OF PERIOD OF LIMITATIONS ON
CLAIM FOR CREDIT OR REFUND ATTRIB-
UTABLE 
TO 
FOREIGN 
TAX 
CREDIT
CARRYFORWARD.
(a) IN GENERAL.—Subparagraph (A) of section
6511(d)(3) is amended by striking ‘‘for the year with re-
spect to which the claim is made’’ and inserting ‘‘for the
year in which such taxes were actually paid or accrued’’.
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(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxes paid or accrued in tax-
able years beginning after the date of the enactment of
this Act.
SEC. 1178. MISCELLANEOUS CLARIFICATIONS.
(a) ATTRIBUTION OF DEEMED PAID FOREIGN TAXES
TO PRIOR DISTRIBUTIONS.—Subparagraph (B) of section
902(c)(2) is amended by striking ‘‘deemed paid with re-
spect to’’ and inserting ‘‘attributable to’’.
(b) FINANCIAL
SERVICES
INCOME
DETERMINED
WITHOUT REGARD TO HIGH-TAXED INCOME.—Subclause
(II) of section 904(d)(2)(C)(i) is amended by striking
‘‘subclause (I)’’ and inserting ‘‘subclauses (I) and (III)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
TITLE 
XII—SIMPLIFICATION
PROVISIONS RELATING TO IN-
DIVIDUALS AND BUSINESSES
Subtitle A—Provisions Relating to
Individuals
SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM
TAX EXEMPTION AMOUNT FOR CERTAIN DE-
PENDENTS.
(a) BASIC STANDARD DEDUCTION.—
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(1) IN
GENERAL.—Paragraph (5) of section
63(c) (relating to limitation on basic standard de-
duction in the case of certain dependents) is amend-
ed by striking ‘‘shall not exceed’’ and all that follows
and inserting ‘‘shall not exceed the greater of—
‘‘(A) $500, or
‘‘(B) the sum of $250 and such individ-
ual’s earned income.’’.
(2) CONFORMING AMENDMENT.—Paragraph (4)
of section 63(c) is amended—
(A) by striking ‘‘(5)(A)’’ in the material
preceding subparagraph (A) and inserting
‘‘(5)’’, and
(B) by striking ‘‘by substituting’’ and all
that follows in subparagraph (B) and inserting
‘‘by substituting for ‘calendar year 1992’ in
subparagraph (B) thereof—
‘‘(i) ‘calendar year 1987’ in the case
of the dollar amounts contained in para-
graph (2) or (5)(A) or subsection (f), and
‘‘(ii) ‘calendar year 1997’ in the case
of the dollar amount contained in para-
graph (5)(B).’’.
(b) MINIMUM
TAX
EXEMPTION
AMOUNT.—Sub-
section (j) of section 59 is amended to read as follows:
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‘‘(j) TREATMENT OF UNEARNED INCOME OF MINOR
CHILDREN.—
‘‘(1) IN GENERAL.—In the case of a child to
whom section 1(g) applies, the exemption amount
for purposes of section 55 shall not exceed the sum
of—
‘‘(A) such child’s earned income (as de-
fined in section 911(d)(2)) for the taxable year,
plus
‘‘(B) $5,000.
‘‘(2) INFLATION ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
1998, the dollar amount in paragraph (1)(B) shall
be increased by an amount equal to the product of—
‘‘(A) such dollar amount, and
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘1997’ for ‘1992’ in sub-
paragraph (B) thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $50, such increase shall
be rounded to the nearest multiple of $50.’’.
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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM
ESTIMATED TAX REQUIREMENTS.
(a) IN GENERAL.—Paragraph (1) of section 6654(e)
(relating to exception where tax is small amount) is
amended by striking ‘‘$500’’ and inserting ‘‘$1,000’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 1203. OPTIONAL METHODS FOR COMPUTING SECA TAX
COMBINED.
(a) INTERNAL REVENUE CODE.—
(1) IN
GENERAL.—Subsection (h) of section
1402 is amended to read as follows:
‘‘(h) OPTIONAL METHOD FOR COMPUTING SELF-EM-
PLOYMENT INCOME.—
‘‘(1) INDIVIDUALS.—In the case of any trade or
business which is carried on by an individual—
‘‘(A) if the gross income derived by him
from such trade or business is not more than
the upper limit for the taxable year, the net
earnings from self-employment derived by him
from such trade or business may, at his option,
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be deemed to be 662⁄3 percent of such gross in-
come, or
‘‘(B) if the gross income derived by him
from such trade or business is more than the
upper limit for the taxable year and the net
earnings from self-employment derived by him
from such trade or business (computed under
subsection (a) without regard to this sentence)
are less than the lower limit for the taxable
year, the net earnings from self-employment de-
rived by him from such trade or business may,
at his option, be deemed to be the lower limit
for the taxable year.
‘‘(2) MEMBER OF A PARTNERSHIP.—In the case
of a member of a partnership carrying on any trade
or business—
‘‘(A) if his distributive share of the gross
income of the partnership derived from such
trade or business (after such gross income has
been reduced by the sum of all payments to
which section 707(c) applies) is not more than
the upper limit for the taxable year, his dis-
tributive share of income described in section
702(a)(8) derived from such trade or business
may, at his option, be deemed to be an amount
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equal to 662⁄3 percent of his distributive share
of such gross income (after such gross income
has been so reduced), or
‘‘(B) if his distributive share of the gross
income of the partnership derived from such
trade or business (after such gross income has
been reduced by the sum of all payments to
which section 707(c) applies) is more than the
upper limit for the taxable year and his dis-
tributive share (whether or not distributed) of
income described in section 702(a)(8) derived
from such trade or business (computed under
this subsection without regard to this sentence)
is less than the lower limit for the taxable year,
his distributive share of income described in
section 702(a)(8) derived from such trade or
business may, at his option, be deemed to be
the lower limit for the taxable year.
‘‘(3) UPPER
AND
LOWER
LIMITS.—For pur-
poses of this subsection—
‘‘(A) LOWER LIMIT.—The lower limit for
any taxable year is the sum of the amounts ap-
plicable under section 213(d) of the Social Se-
curity Act for calendar quarters ending with or
within such taxable year.
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‘‘(B) UPPER LIMIT.—The upper limit for
any taxable year is the amount equal to 150
percent of the lower limit for such taxable year.
‘‘(4) DETERMINATION OF GROSS INCOME.—For
purposes of this subsection, the term ‘gross income’
means—
‘‘(A) in the case of any such trade or busi-
ness in which the income is computed under a
cash receipts and disbursements method, the
gross receipts from such trade or business re-
duced by the cost or other basis of property
which was purchased and sold in carrying on
such trade or business, adjusted (after such re-
duction) in accordance with the provisions of
paragraphs (1) through (7) and paragraph (9)
of subsection (a), and
‘‘(B) in the case of any such trade or busi-
ness in which the income is computed under an
accrual method, the gross income from such
trade or business, adjusted in accordance with
the provisions of paragraphs (1) through (7)
and paragraph (9) of subsection (a).
‘‘(5) INCOME
DERIVED
FROM
MORE
THAN
TRADE
OR
BUSINESS.—For purposes of this sub-
section, if an individual (including a member of a
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partnership) derives gross income from more than 1
such trade or business, such gross income (including
his distributive share of the gross income of any
partnership derived from any such trade or busi-
ness) shall be deemed to have been derived from one
trade or business.
‘‘(6) ELECTION.—The option under
this subsection shall be allowed for any
taxable year only if elected on the first re-
turn filed for such taxable year.’’.
(2) CONFORMING AMENDMENT.—Subsection (a)
of section 1402 is amended by striking all that fol-
lows the first sentence following paragraph (15) and
inserting ‘‘For optional method of determining net
earnings from self-employment, see subsection (h).’’.
(b) SOCIAL SECURITY ACT.—Subsection (g) of sec-
tion 211 of the Social Security Act is amended to read
as follows:
‘‘(g) OPTIONAL METHOD FOR COMPUTING SELF-EM-
PLOYMENT INCOME.—
‘‘(1) INDIVIDUALS.—In the case of any trade or
business which is carried on by an individual—
‘‘(A) if the gross income derived by him
from such trade or business is not more than
the upper limit for the taxable year, the net
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earnings from self-employment derived by him
from such trade or business may, at his option,
be deemed to be 662⁄3 percent of such gross in-
come, or
‘‘(B) if the gross income derived by him
from such trade or business is more than the
upper limit for the taxable year and the net
earnings from self-employment derived by him
from such trade or business (computed under
subsection (a) without regard to this sentence)
are less than the lower limit for the taxable
year, the net earnings from self-employment de-
rived by him from such trade or business may,
at his option, be deemed to be the lower limit
for the taxable year.
‘‘(2) MEMBER OF A PARTNERSHIP.—In the case
of a member of a partnership carrying on any trade
or business—
‘‘(A) if his distributive share of the gross
income of the partnership derived from such
trade or business (after such gross income has
been reduced by the sum of all payments to
which section 707(c) of the Internal Revenue
Code of 1986 applies) is not more than the
upper limit for the taxable year, his distributive
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share of income described in section 702(a)(8)
of such Code derived from such trade or busi-
ness may, at his option, be deemed to be an
amount equal to 662⁄3 percent of his distributive
share of such gross income (after such gross in-
come has been so reduced), or
‘‘(B) if his distributive share of the gross
income of the partnership derived from such
trade or business (after such gross income has
been reduced by the sum of all payments to
which section 707(c) of such Code applies) is
more than the upper limit for the taxable year
and his distributive share (whether or not dis-
tributed) 
of 
income 
described 
in 
section
702(a)(8) of such Code derived from such trade
or business (computed under this subsection
without regard to this sentence) is less than the
lower limit for the taxable year, his distributive
share of income described in section 702(a)(8)
of such Code derived from such trade or busi-
ness may, at his option, be deemed to be the
lower limit for the taxable year.
‘‘(3) UPPER
AND
LOWER
LIMITS.—For pur-
poses of this subsection—
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‘‘(A) LOWER LIMIT.—The lower limit for
any taxable year is the sum of the amounts ap-
plicable under section 213(d) for calendar quar-
ters ending with or within such taxable year.
‘‘(B) UPPER LIMIT.—The upper limit for
any taxable year is the amount equal to 150
percent of the lower limit for such taxable year.
‘‘(4) DETERMINATION OF GROSS INCOME.—For
purposes of this subsection, the term ‘gross income’
means—
‘‘(A) in the case of any such trade or busi-
ness in which the income is computed under a
cash receipts and disbursements method, the
gross receipts from such trade or business re-
duced by the cost or other basis of property
which was purchased and sold in carrying on
such trade or business, adjusted (after such re-
duction) in accordance with the provisions of
paragraphs (1) through (6) and paragraph (8)
of subsection (a), and
‘‘(B) in the case of any such trade or busi-
ness in which the income is computed under an
accrual method, the gross income from such
trade or business, adjusted in accordance with
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the provisions of paragraphs (1) through (6)
and paragraph (8) of subsection (a).
‘‘(5) INCOME
DERIVED
FROM
MORE
THAN
TRADE
OR
BUSINESS.—For purposes of this sub-
section, if an individual (including a member of a
partnership) derives gross income from more than 1
such trade or business, such gross income (including
his distributive share of the gross income of any
partnership derived from any such trade or busi-
ness) shall be deemed to have been derived from one
trade or business.
‘‘(6) ELECTION.—The option under this sub-
section shall be allowed for any taxable year only if
elected on the first return filed for such taxable
year.’’.
(2) CONFORMING AMENDMENT.—Subsection (a)
of section 211 of the Social Security Act is amended
by striking all that follows the first sentence follow-
ing paragraph (15) and inserting ‘‘For optional
method of determining net earnings from self-em-
ployment, see subsection (g).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
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SEC. 1204. TREATMENT OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.
(a) IN GENERAL.—Section 162 (relating to trade or
business expenses) is amended by redesignating subsection
(o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
‘‘(o) TREATMENT
OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.—
‘‘(1) GENERAL RULE.—In the case of any em-
ployee of the United States Postal Service who per-
forms services involving the collection and delivery of
mail on a rural route and who receives qualified re-
imbursements for the expenses incurred by such em-
ployee for the use of a vehicle in performing such
services—
‘‘(A) the amount allowable as a deduction
under this chapter for the use of a vehicle in
performing such services shall be equal to the
amount of such qualified reimbursements; and
‘‘(B) such qualified reimbursements shall
be treated as paid under a reimbursement or
other expense allowance arrangement for pur-
poses of section 62(a)(2)(A) (and section 62(c)
shall not apply to such qualified reimburse-
ments).
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‘‘(2) DEFINITION OF QUALIFIED REIMBURSE-
MENTS.—For purposes of this subsection, the term
‘qualified reimbursements’ means the amounts paid
by the United States Postal Service to employees as
an equipment maintenance allowance under the
1991 collective bargaining agreement between the
United States Postal Service and the National Rural
Letter Carriers’ Association. Amounts paid as an
equipment maintenance allowance by such Postal
Service under later collective bargaining agreements
that supersede the 1991 agreement shall be consid-
ered qualified reimbursements if such amounts do
not exceed the amounts that would have been paid
under the 1991 agreement, adjusted for changes in
the Consumer Price Index (as defined in section
1(f)(5)) since 1991.’’.
(b) TECHNICAL AMENDMENT.—Section 6008 of the
Technical and Miscellaneous Revenue Act of 1988 is here-
by repealed.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
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SEC. 1205. TREATMENT OF TRAVELING EXPENSES OF CER-
TAIN FEDERAL EMPLOYEES ENGAGED IN
CRIMINAL INVESTIGATIONS.
(a) IN GENERAL.—Subsection (a) of section 162 is
amended by adding at the end the following new sentence:
‘‘The preceding sentence shall not apply to any Federal
employee during any period for which such employee is
certified by the Attorney General (or the designee thereof)
as traveling on behalf of the United States in temporary
duty status to investigate, or provide support services for
the investigation of, a Federal crime.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts paid or incurred
with respect to taxable years ending after the date of the
enactment of this Act.
SEC. 1206. PAYMENT OF TAX BY COMMERCIALLY ACCEPT-
ABLE MEANS.
(a) GENERAL RULE.—Section 6311 is amended to
read as follows:
‘‘SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPT-
ABLE MEANS.
‘‘(a) AUTHORITY TO RECEIVE.—It shall be lawful for
the Secretary to receive for internal revenue taxes (or in
payment for internal revenue stamps) any commercially
acceptable means that the Secretary deems appropriate to
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the extent and under the conditions provided in regula-
tions prescribed by the Secretary.
‘‘(b) ULTIMATE
LIABILITY.—If a check, money
order, or other method of payment, including payment by
credit card, debit card, or charge card so received is not
duly paid, or is paid and subsequently charged back to
the Secretary, the person by whom such check, or money
order, or other method of payment has been tendered shall
remain liable for the payment of the tax or for the stamps,
and for all legal penalties and additions, to the same ex-
tent as if such check, money order, or other method of
payment had not been tendered.
‘‘(c) LIABILITY OF BANKS AND OTHERS.—If any cer-
tified, treasurer’s, or cashier’s check (or other guaranteed
draft), or any money order, or any other means of pay-
ment that has been guaranteed by a financial institution
(such as a credit card, debit card, or charge card trans-
action which has been guaranteed expressly by a financial
institution) so received is not duly paid, the United States
shall, in addition to its right to exact payment from the
party originally indebted therefor, have a lien for—
‘‘(1) the amount of such check (or draft) upon
all assets of the financial institution on which
drawn,
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‘‘(2) the amount of such money order upon all
the assets of the issuer thereof, or
‘‘(3) the guaranteed amount of any other trans-
action upon all the assets of the institution making
such guarantee,
and such amount shall be paid out of such assets in pref-
erence to any other claims whatsoever against such finan-
cial institution, issuer, or guaranteeing institution, except
the necessary costs and expenses of administration and
the reimbursement of the United States for the amount
expended in the redemption of the circulating notes of
such financial institution.
‘‘(d) PAYMENT BY OTHER MEANS.—
‘‘(1) AUTHORITY
TO
PRESCRIBE
REGULA-
TIONS.—The Secretary shall prescribe such regula-
tions as the Secretary deems necessary to receive
payment by commercially acceptable means, includ-
ing regulations that—
‘‘(A) specify which methods of payment by
commercially acceptable means will be accept-
able,
‘‘(B) specify when payment by such means
will be considered received,
‘‘(C) identify types of nontax matters re-
lated to payment by such means that are to be
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resolved by persons ultimately liable for pay-
ment and financial intermediaries, without the
involvement of the Secretary, and
‘‘(D) ensure that tax matters will be re-
solved by the Secretary, without the involve-
ment of financial intermediaries.
‘‘(2) 
AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—Notwithstanding section 3718(f) of title
31, United States Code, the Secretary is authorized
to enter into contracts to obtain services related to
receiving payment by other means where cost bene-
ficial to the Government.
‘‘(3) SPECIAL PROVISIONS FOR USE OF CREDIT
CARDS.—If use of credit cards is accepted as a
method of payment of taxes pursuant to subsection
(a)—
‘‘(A) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by
a person by use of a credit card shall not be
subject to section 161 of the Truth-in-Lending
Act (15 U.S.C. 1666), or to any similar provi-
sions of State law, if the error alleged by the
person is an error relating to the underlying tax
liability, rather than an error relating to the
credit card account such as a computational
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error or numerical transposition in the credit
card transaction or an issue as to whether the
person authorized payment by use of the credit
card,
‘‘(B) a payment of internal revenue taxes
(or a payment for internal revenue stamps)
shall not be subject to section 170 of the Truth-
in-Lending Act (15 U.S.C. 1666i), or to any
similar provisions of State law,
‘‘(C) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by
a person by use of a debit card shall not be
subject to section 908 of the Electronic Fund
Transfer Act (15 U.S.C. 1693f), or to any simi-
lar provisions of State law, if the error alleged
by the person is an error relating to the under-
lying tax liability, rather than an error relating
to the debit card account such as a computa-
tional error or numerical transposition in the
debit card transaction or an issue as to whether
the person authorized payment by use of the
debit card,
‘‘(D) the term ‘creditor’ under section
103(f) of the Truth-in-Lending Act (15 U.S.C.
1602(f)) shall not include the Secretary with re-
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spect to credit card transactions in payment of
internal revenue taxes (or payment for internal
revenue stamps), and
‘‘(E) notwithstanding any other provision
of law to the contrary, in the case of payment
made by credit card or debit card transaction of
an amount owed to a person as the result of the
correction of an error under section 161 of the
Truth-in-Lending Act (15 U.S.C. 1666) or sec-
tion 908 of the Electronic Fund Transfer Act
(15 U.S.C. 1693f), the Secretary is authorized
to provide such amount to such person as a
credit to that person’s credit card or debit card
account through the applicable credit card or
debit card system.
‘‘(e) CONFIDENTIALITY OF INFORMATION.—
‘‘(1) IN
GENERAL.—Except as otherwise au-
thorized by this subsection, no person may use or
disclose any information relating to credit or debit
card transactions obtained pursuant to section
6103(k)(8) other than for purposes directly related
to the processing of such transactions, or the billing
or collection of amounts charged or debited pursuant
thereto.
‘‘(2) EXCEPTIONS.—
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‘‘(A) Debit or credit card issuers or others
acting on behalf of such issuers may also use
and disclose such information for purposes di-
rectly related to servicing an issuer’s accounts.
‘‘(B) Debit or credit card issuers or others
directly involved in the processing of credit or
debit card transactions or the billing or collec-
tion of amounts charged or debited thereto may
also use and disclose such information for pur-
poses directly related to—
‘‘(i) statistical risk and profitability
assessment;
‘‘(ii) 
transferring 
receivables, 
ac-
counts, or interest therein;
‘‘(iii) auditing the account informa-
tion;
‘‘(iv) complying with Federal, State,
or local law; and
‘‘(v) properly authorized civil, crimi-
nal, or regulatory investigation by Federal,
State, or local authorities.
‘‘(3) PROCEDURES.—Use and disclosure of in-
formation under this paragraph shall be made only
to the extent authorized by written procedures pro-
mulgated by the Secretary.
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‘‘(4) CROSS REFERENCE.—
‘‘For provision providing for civil damages for vio-
lation of paragraph (1), see section 7431.’’.
(b) SEPARATE APPROPRIATION REQUIRED FOR PAY-
MENT OF CREDIT CARD FEES.—No amount may be paid
by the United States to a credit card issuer for the right
to receive payments of internal revenue taxes by credit
card without a separate appropriation therefor.
(c) CLERICAL AMENDMENT.—The table of sections
for subchapter B of chapter 64 is amended by striking
the item relating to section 6311 and inserting the follow-
ing:
‘‘Sec. 6311. Payment of tax by commercially acceptable means.’’.
(d) AMENDMENTS
TO SECTIONS 6103 AND 7431
WITH RESPECT TO DISCLOSURE AUTHORIZATION.—
(1) Subsection (k) of section 6103 (relating to
confidentiality and disclosure of returns and return
information) is amended by adding at the end the
following new paragraph:
‘‘(8) DISCLOSURE OF INFORMATION TO ADMIN-
ISTER SECTION 6311.—The Secretary may disclose
returns or return information to financial institu-
tions and others to the extent the Secretary deems
necessary for the administration of section 6311.
Disclosures of information for purposes other than
to accept payments by checks or money orders shall
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be made only to the extent authorized by written
procedures promulgated by the Secretary.’’.
(2) Section 7431 (relating to civil damages for
unauthorized disclosure of returns and return infor-
mation) is amended by adding at the end the follow-
ing new subsection:
‘‘(g) SPECIAL RULE FOR INFORMATION OBTAINED
UNDER SECTION 6103(k)(8).—For purposes of this sec-
tion, any reference to section 6103 shall be treated as in-
cluding a reference to section 6311(e).’’.
(3) Section 6103(p)(3)(A) is amended by strik-
ing ‘‘or (6)’’ and inserting ‘‘(6), or (8)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the day 9 months after
the date of the enactment of this Act.
Subtitle B—Provisions Relating to
Businesses Generally
SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR
LONG-TERM CONTRACTS.
(a) LOOK-BACK METHOD NOT TO APPLY IN CER-
TAIN CASES.—Subsection (b) of section 460 (relating to
percentage of completion method) is amended by adding
at the end the following new paragraph:
‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD
NOT APPLY IN DE MINIMIS CASES.—
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‘‘(A) AMOUNTS
TAKEN
INTO
ACCOUNT
AFTER
COMPLETION
OF
CONTRACT.—Para-
graph (1)(B) shall not apply with respect to
any taxable year (beginning after the taxable
year in which the contract is completed) if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
such taxable year, is within
‘‘(ii) 10 percent of the cumulative
look-back taxable income (or loss) under
the contract as of the close of the most re-
cent taxable year to which paragraph
(1)(B) applied (or would have applied but
for subparagraph (B)).
‘‘(B) DE MINIMIS DISCREPANCIES.—Para-
graph (1)(B) shall not apply in any case to
which it would otherwise apply if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
each prior contract year, is within
‘‘(ii) 10 percent of the cumulative
look-back income (or loss) under the con-
tract as of the close of such prior contract
year.
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‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) CONTRACT
YEAR.—The term
‘contract year’ means any taxable year for
which income is taken into account under
the contract.
‘‘(ii) LOOK-BACK INCOME OR LOSS.—
The look-back income (or loss) is the
amount which would be the taxable income
(or loss) under the contract if the alloca-
tion method set forth in paragraph (2)(A)
were used in determining taxable income.
‘‘(iii) DISCOUNTING
NOT
APPLICA-
BLE.—The amounts taken into account
after the completion of the contract shall
be determined without regard to any dis-
counting under the 2nd sentence of para-
graph (2).
‘‘(D) CONTRACTS TO WHICH PARAGRAPH
APPLIES.—This paragraph shall only apply if
the taxpayer makes an election under this sub-
paragraph. Unless revoked with the consent of
the Secretary, such an election shall apply to all
long-term contracts completed during the tax-
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able year for which election is made or during
any subsequent taxable year.’’.
(b) MODIFICATION OF INTEREST RATE.—
(1) IN GENERAL.—Subparagraph (C) of section
460(b)(2) is amended by striking ‘‘the overpayment
rate established by section 6621’’ and inserting ‘‘the
adjusted overpayment rate (as defined in paragraph
(7))’’.
(2) ADJUSTED
OVERPAYMENT
RATE.—Sub-
section (b) of section 460 is amended by adding at
the end the following new paragraph:
‘‘(7) ADJUSTED OVERPAYMENT RATE.—
‘‘(A) IN GENERAL.—The adjusted overpay-
ment rate for any interest accrual period is the
overpayment rate in effect under section 6621
for the calendar quarter in which such interest
accrual period begins.
‘‘(B) INTEREST
ACCRUAL
PERIOD.—For
purposes of subparagraph (A), the term ‘inter-
est accrual period’ means the period—
‘‘(i) beginning on the day after the re-
turn due date for any taxable year of the
taxpayer, and
‘‘(ii) ending on the return due date
for the following taxable year.
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For purposes of the preceding sentence, the
term ‘return due date’ means the date pre-
scribed for filing the return of the tax imposed
by this chapter (determined without regard to
extensions).’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to contracts completed in taxable years
ending after the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendments made
by subsection (b) shall apply for purposes of section
167(g) of the Internal Revenue Code of 1986 to
property placed in service after September 13, 1995.
SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROP-
ERTY AND CASUALTY INSURANCE COMPA-
NIES.
(a) IN GENERAL.—Clause (i) of section 56(g)(4)(B)
(relating to inclusion of items included for purposes of
computing earnings and profits) is amended by adding at
the end the following new sentence: ‘‘In the case of any
insurance company taxable under section 831(b), this
clause shall not apply to any amount not described in sec-
tion 834(b).’’.
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(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1997.
Subtitle C—Simplification Relating
to Electing Large Partnerships
PART I—GENERAL PROVISIONS
SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Subchapter K (relating to
partners and partnerships) is amended by adding at the
end the following new part:
‘‘PART IV—SPECIAL RULES FOR ELECTING
LARGE PARTNERSHIPS
‘‘Sec. 771. Application of subchapter to electing large partner-
ships.
‘‘Sec. 772. Simplified flow-through.
‘‘Sec. 773. Computations at partnership level.
‘‘Sec. 774. Other modifications.
‘‘Sec. 775. Electing large partnership defined.
‘‘Sec. 776. Special rules for partnerships holding oil and gas prop-
erties.
‘‘Sec. 777. Regulations.
‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING
LARGE PARTNERSHIPS.
‘‘The preceding provisions of this subchapter to the
extent inconsistent with the provisions of this part shall
not apply to an electing large partnership and its partners.
‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH.
‘‘(a) GENERAL RULE.—In determining the income
tax of a partner of an electing large partnership, such
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partner shall take into account separately such partner’s
distributive share of the partnership’s—
‘‘(1) taxable income or loss from passive loss
limitation activities,
‘‘(2) taxable income or loss from other activi-
ties,
‘‘(3) net capital gain (or net capital loss)—
‘‘(A) to the extent allocable to passive loss
limitation activities, and
‘‘(B) to the extent allocable to other activi-
ties,
‘‘(4) tax-exempt interest,
‘‘(5) applicable net AMT adjustment separately
computed for—
‘‘(A) passive loss limitation activities, and
‘‘(B) other activities,
‘‘(6) general credits,
‘‘(7) low-income housing credit determined
under section 42,
‘‘(8) rehabilitation credit determined under sec-
tion 47,
‘‘(9) foreign income taxes,
‘‘(10) the credit allowable under section 29, and
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‘‘(11) other items to the extent that the Sec-
retary determines that the separate treatment of
such items is appropriate.
‘‘(b) SEPARATE COMPUTATIONS.—In determining
the amounts required under subsection (a) to be sepa-
rately taken into account by any partner, this section and
section 773 shall be applied separately with respect to
such partner by taking into account such partner’s dis-
tributive share of the items of income, gain, loss, deduc-
tion, or credit of the partnership.
‘‘(c) TREATMENT AT PARTNER LEVEL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, rules similar to the rules of section
702(b) shall apply to any partner’s distributive share
of the amounts referred to in subsection (a).
‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIM-
ITATION ACTIVITIES.—For purposes of this chapter,
any partner’s distributive share of any income or
loss described in subsection (a)(1) shall be treated as
an item of income or loss (as the case may be) from
the conduct of a trade or business which is a single
passive activity (as defined in section 469). A similar
rule shall apply to a partner’s distributive share of
amounts referred to in paragraphs (3)(A) and
(5)(A) of subsection (a).
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‘‘(3) INCOME OR LOSS FROM OTHER ACTIVI-
TIES.—
‘‘(A) IN GENERAL.—For purposes of this
chapter, any partner’s distributive share of any
income or loss described in subsection (a)(2)
shall be treated as an item of income or expense
(as the case may be) with respect to property
held for investment.
‘‘(B) DEDUCTIONS
FOR
LOSS
NOT
SUB-
JECT
TO
SECTION
67.—The deduction under
section 212 for any loss described in subpara-
graph (A) shall not be treated as a miscellane-
ous itemized deduction for purposes of section
67.
‘‘(4) TREATMENT
OF
NET
CAPITAL
GAIN
OR
LOSS.—For purposes of this chapter, any partner’s
distributive share of any gain or loss described in
subsection (a)(3) shall be treated as a long-term
capital gain or loss, as the case may be.
‘‘(5) MINIMUM TAX TREATMENT.—In determin-
ing the alternative minimum taxable income of any
partner, such partner’s distributive share of any ap-
plicable net AMT adjustment shall be taken into ac-
count in lieu of making the separate adjustments
provided in sections 56, 57, and 58 with respect to
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the items of the partnership. Except as provided in
regulations, the applicable net AMT adjustment
shall be treated, for purposes of section 53, as an
adjustment or item of tax preference not specified in
section 53(d)(1)(B)(ii).
‘‘(6) GENERAL CREDITS.—A partner’s distribu-
tive share of the amount referred to in paragraph
(6) of subsection (a) shall be taken into account as
a current year business credit.
‘‘(d) OPERATING RULES.—For purposes of this sec-
tion—
‘‘(1) PASSIVE
LOSS
LIMITATION
ACTIVITY.—
The term ‘passive loss limitation activity’ means—
‘‘(A) any activity which involves the con-
duct of a trade or business, and
‘‘(B) any rental activity.
For purposes of the preceding sentence, the term
‘trade or business’ includes any activity treated as a
trade or business under paragraph (5) or (6) of sec-
tion 469(c).
‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax-
exempt interest’ means interest excludable from
gross income under section 103.
‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—
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‘‘(A) IN
GENERAL.—The applicable net
AMT adjustment is—
‘‘(i) with respect to taxpayers other
than corporations, the net adjustment de-
termined by using the adjustments applica-
ble to individuals, and
‘‘(ii) with respect to corporations, the
net adjustment determined by using the
adjustments applicable to corporations.
‘‘(B) NET ADJUSTMENT.—The term ‘net
adjustment’ means the net adjustment in the
items attributable to passive loss activities or
other activities (as the case may be) which
would result if such items were determined with
the adjustments of sections 56, 57, and 58.
‘‘(4) TREATMENT
OF
CERTAIN
SEPARATELY
STATED ITEMS.—
‘‘(A) EXCLUSION
FOR
CERTAIN
PUR-
POSES.—In determining the amounts referred
to in paragraphs (1) and (2) of subsection (a),
any net capital gain or net capital loss (as the
case may be), and any item referred to in sub-
section (a)(11), shall be excluded.
‘‘(B) ALLOCATION RULES.—The net cap-
ital gain shall be treated—
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‘‘(i) as allocable to passive loss limita-
tion activities to the extent the net capital
gain does not exceed the net capital gain
determined by only taking into account
gains and losses from sales and exchanges
of property used in connection with such
activities, and
‘‘(ii) as allocable to other activities to
the extent such gain exceeds the amount
allocated under clause (i).
A similar rule shall apply for purposes of allo-
cating any net capital loss.
‘‘(C) NET CAPITAL LOSS.—The term ‘net
capital loss’ means the excess of the losses from
sales or exchanges of capital assets over the
gains from sales or exchange of capital assets.
‘‘(5) GENERAL
CREDITS.—The term ‘general
credits’ means any credit other than the low-income
housing credit, the rehabilitation credit, the foreign
tax credit, and the credit allowable under section 29.
‘‘(6) FOREIGN INCOME TAXES.—The term ‘for-
eign income taxes’ means taxes described in section
901 which are paid or accrued to foreign countries
and to possessions of the United States.
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‘‘(e) SPECIAL RULE
FOR UNRELATED BUSINESS
TAX.—In the case of a partner which is an organization
subject to tax under section 511, such partner’s distribu-
tive share of any items shall be taken into account sepa-
rately to the extent necessary to comply with the provi-
sions of section 512(c)(1).
‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS
LIMITATIONS.—If any person holds an interest in an elect-
ing large partnership other than as a limited partner—
‘‘(1) paragraph (2) of subsection (c) shall not
apply to such partner, and
‘‘(2) such partner’s distributive share of the
partnership items allocable to passive loss limitation
activities shall be taken into account separately to
the extent necessary to comply with the provisions of
section 469.
The preceding sentence shall not apply to any items alloca-
ble to an interest held as a limited partner.
‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.
‘‘(a) GENERAL RULE.—
‘‘(1) TAXABLE INCOME.—The taxable income of
an electing large partnership shall be computed in
the same manner as in the case of an individual ex-
cept that—
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‘‘(A) the items described in section 772(a)
shall be separately stated, and
‘‘(B) the modifications of subsection (b)
shall apply.
‘‘(2) ELECTIONS.—All elections affecting the
computation of the taxable income of an electing
large partnership or the computation of any credit
of an electing large partnership shall be made by the
partnership; except that the election under section
901, and any election under section 108, shall be
made by each partner separately.
‘‘(3) LIMITATIONS, ETC.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), all limitations and other pro-
visions affecting the computation of the taxable
income of an electing large partnership or the
computation of any credit of an electing large
partnership shall be applied at the partnership
level (and not at the partner level).
‘‘(B) CERTAIN LIMITATIONS APPLIED AT
PARTNER
LEVEL.—The following provisions
shall be applied at the partner level (and not at
the partnership level):
‘‘(i) Section 68 (relating to overall
limitation on itemized deductions).
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‘‘(ii) Sections 49 and 465 (relating to
at risk limitations).
‘‘(iii) Section 469 (relating to limita-
tion on passive activity losses and credits).
‘‘(iv) Any other provision specified in
regulations.
‘‘(4) COORDINATION
WITH
OTHER
PROVI-
SIONS.—Paragraphs (2) and (3) shall apply notwith-
standing any other provision of this chapter other
than this part.
‘‘(b) MODIFICATIONS TO DETERMINATION OF TAX-
ABLE INCOME.—In determining the taxable income of an
electing large partnership—
‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—
The following deductions shall not be allowed:
‘‘(A) The deduction for personal exemp-
tions provided in section 151.
‘‘(B) The net operating loss deduction pro-
vided in section 172.
‘‘(C) The additional itemized deductions
for individuals provided in part VII of sub-
chapter B (other than section 212 thereof).
‘‘(2) CHARITABLE DEDUCTIONS.—In determin-
ing the amount allowable under section 170, the lim-
itation of section 170(b)(2) shall apply.
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‘‘(3) COORDINATION WITH SECTION 67.—In lieu
of applying section 67, 70 percent of the amount of
the miscellaneous itemized deductions shall be dis-
allowed.
‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE
OF INDEBTEDNESS.—If an electing 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 an electing large partner-
ship—
‘‘(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-
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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.—
‘‘(1) IN GENERAL.—In the case of an electing
large partnership—
‘‘(A) any credit recapture shall be taken
into account by the partnership, and
‘‘(B) the amount of such recapture shall be
determined as if the credit with respect to
which the recapture is made had been fully uti-
lized to reduce tax.
‘‘(2) METHOD OF TAKING RECAPTURE INTO AC-
COUNT.—An electing large partnership shall take
into account a credit recapture by reducing the
amount of the appropriate current year credit to the
extent thereof, and if such recapture exceeds the
amount of such current year credit, the partnership
shall be liable to pay such excess.
‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP-
TURE.—No credit recapture shall be required by rea-
son of any transfer of an interest in an electing
large partnership.
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‘‘(4) CREDIT
RECAPTURE.—For purposes of
this subsection, the term ‘credit recapture’ means
any increase in tax under section 42(j) or 50(a).
‘‘(c) PARTNERSHIP NOT TERMINATED BY REASON
OF CHANGE IN OWNERSHIP.—Subparagraph (B) of sec-
tion 708(b)(1) shall not apply to an electing large partner-
ship.
‘‘(d) PARTNERSHIP ENTITLED TO CERTAIN CRED-
ITS.—The following shall be allowed to an electing large
partnership and shall not be taken into account by the
partners of such partnership:
‘‘(1) The credit provided by section 34.
‘‘(2) Any credit or refund under section
852(b)(3)(D).
‘‘(e) TREATMENT OF REMIC RESIDUALS.—For pur-
poses of applying section 860E(e)(6) to any electing large
partnership—
‘‘(1) all interests in such partnership shall be
treated as held by disqualified organizations,
‘‘(2) in lieu of applying subparagraph (C) of
section 860E(e)(6), the amount subject to tax under
section 860E(e)(6) shall be excluded from the gross
income of such partnership, and
‘‘(3) subparagraph (D) of section 860E(e)(6)
shall not apply.
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‘‘(f) SPECIAL RULES FOR APPLYING CERTAIN IN-
STALLMENT SALE RULES.—In the case of an electing
large partnership—
‘‘(1) the provisions of sections 453(l)(3) and
453A shall be applied at the partnership level, and
‘‘(2) in determining the amount of interest pay-
able under such sections, such partnership shall be
treated as subject to tax under this chapter at the
highest rate of tax in effect under section 1 or 11.
‘‘SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.
‘‘(a) GENERAL RULE.—For purposes of this part—
‘‘(1) IN
GENERAL.—The term ‘electing large
partnership’ means, with respect to any partnership
taxable year, any partnership if—
‘‘(A) the number of persons who were part-
ners in such partnership in the preceding part-
nership taxable year equaled or exceeded 100,
and
‘‘(B) such partnership elects the applica-
tion of this part.
To the extent provided in regulations, a partnership
shall cease to be treated as an electing large part-
nership for any partnership taxable year if in such
taxable year fewer than 100 persons were partners
in such partnership.
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‘‘(2) ELECTION.—The election under this sub-
section shall apply to the taxable year for which
made and all subsequent taxable years unless re-
voked with the consent of the Secretary.
‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART-
NERSHIPS.—
‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For
purposes of this section, the term ‘partner’ does not
include any individual performing substantial serv-
ices in connection with the activities of the partner-
ship and holding an interest in such partnership, or
an individual who formerly performed substantial
services in connection with such activities and who
held an interest in such partnership at the time the
individual performed such services.
‘‘(2) EXCLUSION.—For purposes of this part,
an election under subsection (a) shall not be effec-
tive with respect to any partnership if substantially
all the partners of such partnership—
‘‘(A) are individuals performing substantial
services in connection with the activities of such
partnership or are personal service corporations
(as defined in section 269A(b)) the owner-em-
ployees (as defined in section 269A(b)) of which
perform such substantial services,
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‘‘(B) are retired partners who had per-
formed such substantial services, or
‘‘(C) are spouses of partners who are per-
forming (or had previously performed) such
substantial services.
‘‘(3) SPECIAL RULE FOR LOWER TIER PART-
NERSHIPS.—For purposes of this subsection, the ac-
tivities of a partnership shall include the activities of
any other partnership in which the partnership owns
directly an interest in the capital and profits of at
least 80 percent.
‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur-
poses of this part, an election under subsection (a) shall
not be effective with respect to any partnership the prin-
cipal activity of which is the buying and selling of com-
modities (not described in section 1221(1)), or options, fu-
tures, or forwards with respect to such commodities.
‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE-
TURN.—If, on the partnership return of any partnership,
such partnership is treated as an electing large partner-
ship, such treatment shall be binding on such partnership
and all partners of such partnership but not on the Sec-
retary.
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‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING
OIL AND GAS PROPERTIES.
‘‘(a) COMPUTATION OF PERCENTAGE DEPLETION.—
In the case of an electing large partnership, except as pro-
vided in subsection (b)—
‘‘(1) the allowance for depletion under section
611 with respect to any partnership oil or gas prop-
erty shall be computed at the partnership level with-
out regard to any provision of section 613A requir-
ing such allowance to be computed separately by
each partner,
‘‘(2) such allowance shall be determined without
regard to the provisions of section 613A(c) limiting
the amount of production for which percentage de-
pletion is allowable and without regard to paragraph
(1) of section 613A(d), and
‘‘(3) paragraph (3) of section 705(a) shall not
apply.
‘‘(b) TREATMENT OF CERTAIN PARTNERS.—
‘‘(1) IN GENERAL.—In the case of a disquali-
fied person, the treatment under this chapter of
such person’s distributive share of any item of in-
come, gain, loss, deduction, or credit attributable to
any partnership oil or gas property shall be deter-
mined without regard to this part. Such person’s
distributive share of any such items shall be ex-
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cluded for purposes of making determinations under
sections 772 and 773.
‘‘(2) DISQUALIFIED PERSON.—For purposes of
paragraph (1), the term ‘disqualified person’ means,
with respect to any partnership taxable year—
‘‘(A) any person referred to in paragraph
(2) or (4) of section 613A(d) for such person’s
taxable year in which such partnership taxable
year ends, and
‘‘(B) any other person if such person’s av-
erage daily production of domestic crude oil and
natural gas for such person’s taxable year in
which such partnership taxable year ends ex-
ceeds 500 barrels.
‘‘(3) AVERAGE DAILY PRODUCTION.—For pur-
poses of paragraph (2), a person’s average daily pro-
duction of domestic crude oil and natural gas for
any taxable year shall be computed as provided in
section 613A(c)(2)—
‘‘(A) by taking into account all production
of domestic crude oil and natural gas (including
such person’s proportionate share of any pro-
duction of a partnership),
‘‘(B) by treating 6,000 cubic feet of natu-
ral gas as a barrel of crude oil, and
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‘‘(C) by treating as 1 person all persons
treated as 1 taxpayer under section 613A(c)(8)
or among whom allocations are required under
such section.
‘‘SEC. 777. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be appropriate to carry out the purposes of this
part.’’.
(b) CLERICAL AMENDMENT.—The table of parts for
subchapter K of chapter 1 is amended by adding at the
end the following new item:
‘‘Part IV. Special rules for electing large partnerships.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to partnership taxable years begin-
ning after December 31, 1997.
SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Chapter 63 is amended by
adding at the end thereof the following new subchapter:
‘‘Subchapter D—Treatment of electing large
partnerships
‘‘Part I. Treatment of partnership items and adjustments.
‘‘Part II. Partnership level adjustments.
‘‘Part III. Definitions and special rules.
‘‘PART I—TREATMENT OF PARTNERSHIP ITEMS
AND ADJUSTMENTS
‘‘Sec. 6240. Application of subchapter.
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‘‘Sec. 6241. Partner’s return must be consistent with partnership
return.
‘‘Sec. 6242. Procedures for taking partnership adjustments into
account.
‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.
‘‘(a) GENERAL RULE.—This subchapter shall only
apply to electing large partnerships and partners in such
partnerships.
‘‘(b) COORDINATION WITH OTHER PARTNERSHIP
AUDIT PROCEDURES.—
‘‘(1) IN GENERAL.—Subchapter C of this chap-
ter shall not apply to any electing large partnership
other than in its capacity as a partner in another
partnership which is not an electing large partner-
ship.
‘‘(2) TREATMENT WHERE PARTNER IN OTHER
PARTNERSHIP.—If an electing large partnership is a
partner in another partnership which is not an elect-
ing large partnership—
‘‘(A) subchapter C of this chapter shall
apply to items of such electing large partner-
ship which are partnership items with respect
to such other partnership, but
‘‘(B) any adjustment under such sub-
chapter C shall be taken into account in the
manner provided by section 6242.
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‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT
WITH PARTNERSHIP RETURN.
‘‘(a) GENERAL RULE.—A partner of any electing
large partnership shall, on the partner’s return, treat each
partnership item attributable to such partnership in a
manner which is consistent with the treatment of such
partnership item on the partnership return.
‘‘(b) UNDERPAYMENT
DUE
TO
INCONSISTENT
TREATMENT ASSESSED AS MATH ERROR.—Any under-
payment of tax by a partner by reason of failing to comply
with the requirements of subsection (a) shall be assessed
and collected in the same manner as if such underpayment
were on account of a mathematical or clerical error ap-
pearing on the partner’s return. Paragraph (2) of section
6213(b) shall not apply to any assessment of an underpay-
ment referred to in the preceding sentence.
‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR
OF PARTNERS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a) and (b) shall apply with-
out regard to any adjustment to the partnership
item under part II.
‘‘(2) CERTAIN
CHANGES
IN
DISTRIBUTIVE
SHARE TAKEN INTO ACCOUNT BY PARTNER.—
‘‘(A) IN
GENERAL.—To the extent that
any adjustment under part II involves a change
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under section 704 in a partner’s distributive
share of the amount of any partnership item
shown on the partnership return, such adjust-
ment shall be taken into account in applying
this title to such partner for the partner’s tax-
able year for which such item was required to
be taken into account.
‘‘(B) COORDINATION
WITH
DEFICIENCY
PROCEDURES.—
‘‘(i) IN
GENERAL.—Subchapter B
shall not apply to the assessment or collec-
tion of any underpayment of tax attrib-
utable to an adjustment referred to in sub-
paragraph (A).
‘‘(ii) 
ADJUSTMENT
NOT
PRE-
CLUDED.—Notwithstanding any other law
or rule of law, nothing in subchapter B (or
in any proceeding under subchapter B)
shall preclude the assessment or collection
of any underpayment of tax (or the allow-
ance of any credit or refund of any over-
payment of tax) attributable to an adjust-
ment referred to in subparagraph (A) and
such assessment or collection or allowance
(or any notice thereof) shall not preclude
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any notice, proceeding, or determination
under subchapter B.
‘‘(C) PERIOD OF LIMITATIONS.—The pe-
riod for—
‘‘(i) assessing any underpayment of
tax, or
‘‘(ii) filing a claim for credit or refund
of any overpayment of tax,
attributable to an adjustment referred to in
subparagraph (A) shall not expire before the
close of the period prescribed by section 6248
for making adjustments with respect to the
partnership taxable year involved.
‘‘(D) TIERED STRUCTURES.—If the part-
ner referred to in subparagraph (A) is another
partnership or an S corporation, the rules of
this paragraph shall also apply to persons hold-
ing interests in such partnership or S corpora-
tion (as the case may be); except that, if such
partner is an electing large partnership, the ad-
justment referred to in subparagraph (A) shall
be taken into account in the manner provided
by section 6242.
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‘‘(B) a partnership does not make such an
election but in filing its return for any partner-
ship taxable year fails to take fully into account
any partnership adjustment as required under
paragraph (1), or
‘‘(C) any partnership adjustment involves a
reduction in a credit which exceeds the amount
of such credit determined for the partnership
taxable year in which the adjustment takes ef-
fect,
the partnership shall pay to the Secretary an
amount determined by applying the rules of sub-
section (b)(4) to the adjustments not so taken into
account and any excess referred to in subparagraph
(C).
‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO
ACCOUNT.—If a partnership adjustment requires an-
other adjustment in a taxable year after the ad-
justed year and before the partnership taxable year
in which such partnership adjustment takes effect,
such other adjustment shall be taken into account
under this subsection for the partnership taxable
year in which such partnership adjustment takes ef-
fect.
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‘‘(4) COORDINATION WITH PART II.—Amounts
taken into account under this subsection for any
partnership taxable year shall continue to be treated
as adjustments for the adjusted year for purposes of
determining whether such amounts may be read-
justed under part II.
‘‘(b) PARTNERSHIP LIABLE
FOR INTEREST
AND
PENALTIES.—
‘‘(1) IN
GENERAL.—If a partnership adjust-
ment takes effect during any partnership taxable
year and such adjustment results in an imputed
underpayment for the adjusted year, the partner-
ship—
‘‘(A) shall pay to the Secretary interest
computed under paragraph (2), and
‘‘(B) shall be liable for any penalty, addi-
tion to tax, or additional amount as provided in
paragraph (3).
‘‘(2) DETERMINATION OF AMOUNT OF INTER-
EST.—The interest computed under this paragraph
with respect to any partnership adjustment is the in-
terest which would be determined under chapter
67—
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‘‘(A) on the imputed underpayment deter-
mined under paragraph (4) with respect to such
adjustment,
‘‘(B) for the period beginning on the day
after the return due date for the adjusted year
and ending on the return due date for the part-
nership taxable year in which such adjustment
takes effect (or, if earlier, in the case of any ad-
justment to which subsection (a)(2) applies, the
date on which the payment under subsection
(a)(2) is made).
Proper adjustments in the amount determined under
the preceding sentence shall be made for adjust-
ments required for partnership taxable years after
the adjusted year and before the year in which the
partnership adjustment takes effect by reason of
such partnership adjustment.
‘‘(3) PENALTIES.—A partnership shall be liable
for any penalty, addition to tax, or additional
amount for which it would have been liable if such
partnership had been an individual subject to tax
under chapter 1 for the adjusted year and the im-
puted underpayment determined under paragraph
(4) were an actual underpayment (or understate-
ment) for such year.
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‘‘(4) IMPUTED UNDERPAYMENT.—For purposes
of this subsection, the imputed underpayment deter-
mined under this paragraph with respect to any
partnership adjustment is the underpayment (if any)
which would result—
‘‘(A) by netting all adjustments to items of
income, gain, loss, or deduction and by treating
any net increase in income as an underpayment
equal to the amount of such net increase multi-
plied by the highest rate of tax in effect under
section 1 or 11 for the adjusted year, and
‘‘(B) by taking adjustments to credits into
account as increases or decreases (whichever is
appropriate) in the amount of tax.
For purposes of the preceding sentence, any net de-
crease in a loss shall be treated as an increase in in-
come and a similar rule shall apply to a net increase
in a loss.
‘‘(c) ADMINISTRATIVE PROVISIONS.—
‘‘(1) IN GENERAL.—Any payment required by
subsection (a)(2) or (b)(1)(A)—
‘‘(A) shall be assessed and collected in the
same manner as if it were a tax imposed by
subtitle C, and
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‘‘(B) shall be paid on or before the return
due date for the partnership taxable year in
which the partnership adjustment takes effect.
‘‘(2) INTEREST.—For purposes of determining
interest, any payment required by subsection (a)(2)
or (b)(1)(A) shall be treated as an underpayment of
tax.
‘‘(3) PENALTIES.—
‘‘(A) IN
GENERAL.—In the case of any
failure by any partnership to pay on the date
prescribed therefor any amount required by
subsection (a)(2) or (b)(1)(A), there is hereby
imposed on such partnership a penalty of 10
percent of the underpayment. For purposes of
the preceding sentence, the term ‘underpay-
ment’ means the excess of any payment re-
quired under this section over the amount (if
any) paid on or before the date prescribed
therefor.
‘‘(B) ACCURACY-RELATED
AND
FRAUD
PENALTIES MADE APPLICABLE.—For purposes
of part II of subchapter A of chapter 68, any
payment required by subsection (a)(2) shall be
treated as an underpayment of tax.
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‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) PARTNERSHIP
ADJUSTMENT.—The term
‘partnership adjustment’ means any adjustment in
the amount of any partnership item of an electing
large partnership.
‘‘(2) WHEN ADJUSTMENT TAKES EFFECT.—A
partnership adjustment takes effect—
‘‘(A) in the case of an adjustment pursu-
ant to the decision of a court in a proceeding
brought under part II, when such decision be-
comes final,
‘‘(B) in the case of an adjustment pursu-
ant to any administrative adjustment request
under section 6251, when such adjustment is
allowed by the Secretary, or
‘‘(C) in any other case, when such adjust-
ment is made.
‘‘(3) ADJUSTED
YEAR.—The term ‘adjusted
year’ means the partnership taxable year to which
the item being adjusted relates.
‘‘(4) RETURN
DUE
DATE.—The term ‘return
due date’ means, with respect to any taxable year,
the date prescribed for filing the partnership return
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for such taxable year (determined without regard to
extensions).
‘‘(5) ADJUSTMENTS
INVOLVING
CHANGES
IN
CHARACTER.—Under regulations, appropriate ad-
justments in the application of this section shall be
made for purposes of taking into account partner-
ship adjustments which involve a change in the char-
acter of any item of income, gain, loss, or deduction.
‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction
shall be allowed under subtitle A for any payment required
to be made by an electing large partnership under this
section.
‘‘PART II—PARTNERSHIP LEVEL ADJUSTMENTS
‘‘Subpart A. Adjustments by Secretary.
‘‘Subpart B. Claims for adjustments by partnership.
‘‘Subpart A—Adjustments by Secretary
‘‘Sec. 6245. Secretarial authority.
‘‘Sec. 6246. Restrictions on partnership adjustments.
‘‘Sec. 6247. Judicial review of partnership adjustment.
‘‘Sec. 6248. Period of limitations for making adjustments.
‘‘SEC. 6245. SECRETARIAL AUTHORITY.
‘‘(a) GENERAL RULE.—The Secretary is authorized
and directed to make adjustments at the partnership level
in any partnership item to the extent necessary to have
such item be treated in the manner required.
‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a partnership adjustment is required, the Sec-
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retary is authorized to send notice of such adjust-
ment to the partnership by certified mail or reg-
istered mail. Such notice shall be sufficient if mailed
to the partnership at its last known address even if
the partnership has terminated its existence.
‘‘(2) FURTHER NOTICES RESTRICTED.—If the
Secretary mails a notice of a partnership adjustment
to any partnership for any partnership taxable year
and the partnership files a petition under section
6247 with respect to such notice, in the absence of
a showing of fraud, malfeasance, or misrepresenta-
tion of a material fact, the Secretary shall not mail
another such notice to such partnership with respect
to such taxable year.
‘‘(3) AUTHORITY
TO
RESCIND
NOTICE
WITH
PARTNERSHIP CONSENT.—The Secretary may, with
the consent of the partnership, rescind any notice of
a partnership adjustment mailed to such partner-
ship. Any notice so rescinded shall not be treated as
a notice of a partnership adjustment, for purposes of
this section, section 6246, and section 6247, and the
taxpayer shall have no right to bring a proceeding
under section 6247 with respect to such notice.
Nothing in this subsection shall affect any suspen-
sion of the running of any period of limitations dur-
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ing any period during which the rescinded notice
was outstanding.
‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUST-
MENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this chapter, no adjustment to any partnership item
may be made (and no levy or proceeding in any court for
the collection of any amount resulting from such adjust-
ment may be made, begun or prosecuted) before—
‘‘(1) the close of the 90th day after the day on
which a notice of a partnership adjustment was
mailed to the partnership, and
‘‘(2) if a petition is filed under section 6247
with respect to such notice, the decision of the court
has become final.
‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—
Notwithstanding section 7421(a), any action which vio-
lates subsection (a) may be enjoined in the proper court,
including the Tax Court. The Tax Court shall have no ju-
risdiction to enjoin any action under this subsection unless
a timely petition has been filed under section 6247 and
then only in respect of the adjustments that are the sub-
ject of such petition.
‘‘(c) EXCEPTIONS
TO RESTRICTIONS
ON ADJUST-
MENTS.—
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‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR
CLERICAL ERRORS.—
‘‘(A) IN GENERAL.—If the partnership is
notified that, on account of a mathematical or
clerical error appearing on the partnership re-
turn, an adjustment to a partnership item is re-
quired, rules similar to the rules of paragraphs
(1) and (2) of section 6213(b) shall apply to
such adjustment.
‘‘(B) SPECIAL RULE.—If an electing large
partnership is a partner in another electing
large partnership, any adjustment on account of
such partnership’s failure to comply with the
requirements of section 6241(a) with respect to
its interest in such other partnership shall be
treated as an adjustment referred to in sub-
paragraph (A), except that paragraph (2) of
section 6213(b) shall not apply to such adjust-
ment.
‘‘(2) 
PARTNERSHIP
MAY
WAIVE
RESTRIC-
TIONS.—The partnership shall at any time (whether
or not a notice of partnership adjustment has been
issued) have the right, by a signed notice in writing
filed with the Secretary, to waive the restrictions