‘‘(I) 40 percent of all employees of
the employer, or
‘‘(II) 2 employees (or if there is
only 1 employee, such employee).’’
(b) SEPARATE LINE
OF BUSINESS TEST.—Section
401(a)(26)(G) (relating to separate line of business) is
amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para-
graph (2)(A) or (7)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1996.
SEC. 1433. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SECTION
401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat-
ing to cash or deferred arrangements), as amended by sec-
tion 1422, is amended by adding at the end the following
new paragraph:
‘‘(12) ALTERNATIVE METHODS OF MEETING NON-
DISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if such ar-
rangement—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C), and
‘‘(ii) meets the notice requirements of
subparagraph (D).
‘‘(B) MATCHING CONTRIBUTIONS.—
‘‘(i) IN
GENERAL.—The requirements
of this subparagraph are met if, under the
arrangement, the employer makes matching
contributions on behalf of each employee
who is not a highly compensated employee
in an amount equal to—
‘‘(I) 100 percent of the elective
contributions of the employee to the ex-
tent such elective contributions do not
exceed 3 percent of the employee’s com-
pensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the ex-
tent that such elective contributions ex-
ceed 3 percent but do not exceed 5 per-
cent of the employee’s compensation.
‘‘(ii) RATE FOR HIGHLY COMPENSATED
EMPLOYEES.—The requirements of this sub-
paragraph are not met if, under the ar-
rangement, the rate of matching contribu-
tion with respect to any elective contribu-
tion of a highly compensated employee at
any rate of elective contribution is greater
than that with respect to an employee who
is not a highly compensated employee.
‘‘(iii) ALTERNATIVE PLAN DESIGNS.—
If the rate of any matching contribution
with respect to any rate of elective contribu-
tion is not equal to the percentage required
under clause (i), an arrangement shall not
be treated as failing to meet the require-
ments of clause (i) if—
‘‘(I) the rate of an employer’s
matching contribution does not in-
crease as an employee’s rate of elective
contributions increase, and
‘‘(II) the aggregate amount of
matching contributions at such rate of
elective contribution is at least equal to
the aggregate amount of matching con-
tributions which would be made if
matching contributions were made on
the basis of the percentages described in
clause (i).
‘‘(C) NONELECTIVE
CONTRIBUTIONS.—The
requirements of this subparagraph are met if,
under the arrangement, the employer is required,
without regard to whether the employee makes an
elective contribution or employee contribution, to
make a contribution to a defined contribution
plan on behalf of each employee who is not a
highly compensated employee and who is eligible
to participate in the arrangement in an amount
equal to at least 3 percent of the employee’s com-
pensation.
‘‘(D) NOTICE REQUIREMENT.—An arrange-
ment meets the requirements of this paragraph
if, under the arrangement, each employee eligible
to participate is, within a reasonable period be-
fore any year, given written notice of the em-
ployee’s rights and obligations under the ar-
rangement which—
‘‘(i) is sufficiently accurate and com-
prehensive to appraise the employee of such
rights and obligations, and
‘‘(ii) is written in a manner calculated
to be understood by the average employee el-
igible to participate.
‘‘(E) OTHER REQUIREMENTS.—
‘‘(i) WITHDRAWAL
AND
VESTING
RE-
STRICTIONS.—An arrangement shall not be
treated as meeting the requirements of sub-
paragraph (B) or (C) of this paragraph un-
less the requirements of subparagraphs (B)
and (C) of paragraph (2) are met with re-
spect to all employer contributions (includ-
ing matching contributions) taken into ac-
count in determining whether the require-
ments of subparagraphs (B) and (C) of this
paragraph are met.
‘‘(ii) SOCIAL SECURITY AND SIMILAR
CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT.—An arrangement shall not be treat-
ed as meeting the requirements of subpara-
graph (B) or (C) unless such requirements
are met without regard to subsection (l),
and, for purposes of subsection (l), employer
contributions under subparagraph (B) or
(C) shall not be taken into account.
‘‘(F) OTHER PLANS.—An arrangement shall
be treated as meeting the requirements under
subparagraph (A)(i) if any other plan main-
tained by the employer meets such requirements
with respect to employees eligible under the ar-
rangement.’’
(b) ALTERNATIVE METHODS OF SATISFYING SECTION
401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re-
lating to nondiscrimination test for matching contributions
and employee contributions), as amended by this Act, is
amended by redesignating paragraph (11) as paragraph
(12) and by adding after paragraph (10) the following new
paragraph:
‘‘(11) ALTERNATIVE
METHOD
OF
SATISFYING
TESTS.—
‘‘(A) IN GENERAL.—A defined contribution
plan shall be treated as meeting the requirements
of paragraph (2) with respect to matching con-
tributions if the plan—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C) of sub-
section (k)(12),
‘‘(ii) meets the notice requirements of
subsection (k)(12)(D), and
‘‘(iii) meets the requirements of sub-
paragraph (B).
‘‘(B) LIMITATION ON MATCHING CONTRIBU-
TIONS.—The requirements of this subparagraph
are met if—
100
‘‘(i) matching contributions on behalf
of any employee may not be made with re-
spect to an employee’s contributions or elec-
tive deferrals in excess of 6 percent of the
employee’s compensation,
‘‘(ii) the rate of an employer’s match-
ing contribution does not increase as the
rate of an employee’s contributions or elec-
tive deferrals increase, and
‘‘(iii) the matching contribution with
respect to any highly compensated employee
at any rate of an employee contribution or
rate of elective deferral is not greater than
that with respect to an employee who is not
a highly compensated employee.’’
(c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED
EMPLOYEE PERCENTAGE.—
(1) CASH
OR
DEFERRED
ARRANGEMENTS.—
Clause (ii) of section 401(k)(3)(A) is amended—
(A) by striking ‘‘such year’’ and inserting
‘‘the plan year’’,
(B) by striking ‘‘for such plan year’’ and
inserting ‘‘for the preceding plan year’’, and
(C) by adding at the end the following new
sentence: ‘‘An arrangement may apply this
101
clause by using the plan year rather than the
preceding plan year if the employer so elects, ex-
cept that if such an election is made, it may not
be changed except as provided by the Secretary.’’
(2) 
MATCHING
AND
EMPLOYEE
CONTRIBU-
TIONS.—Section 401(m)(2)(A) is amended—
(A) by inserting ‘‘for such plan year’’ after
‘‘highly compensated employees’’,
(B) by inserting ‘‘for the preceding plan
year’’ after ‘‘eligible employees’’ each place it ap-
pears in clause (i) and clause (ii), and
(C) by adding at the end the following flush
sentence: ‘‘This subparagraph may be applied by
using the plan year rather than the preceding
plan year if the employer so elects, except that
if such an election is made, it may not be
changed except as provided the Secretary.’’
(d) SPECIAL RULE FOR DETERMINING AVERAGE DE-
FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—
(1) Paragraph (3) of section 401(k) is amended
by adding at the end the following new subparagraph:
‘‘(E) For purposes of this paragraph, in the
case of the first plan year of any plan (other
than a successor plan), the amount taken into
account as the actual deferral percentage of non-
102
highly compensated employees for the preceding
plan year shall be—
‘‘(i) 3 percent, or
‘‘(ii) if the employer makes an election
under this subclause, the actual deferral
percentage of nonhighly compensated em-
ployees determined for such first plan
year.’’
(2) Paragraph (3) of section 401(m) is amended
by adding at the end the following: ‘‘Rules similar to
the rules of subsection (k)(3)(E) shall apply for pur-
poses of this subsection.’’
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND
EXCESS AGGREGATE CONTRIBUTIONS.—
(1) Subparagraph (C) of section 401(k)(8) (relat-
ing to arrangement not disqualified if excess contribu-
tions distributed) is amended by striking ‘‘on the
basis of the respective portions of the excess contribu-
tions attributable to each of such employees’’ and in-
serting ‘‘on the basis of the amount of contributions
by, or on behalf of, each of such employees’’.
(2) Subparagraph (C) of section 401(m)(6) (re-
lating to method of distributing excess aggregate con-
tributions) is amended by striking ‘‘on the basis of the
respective portions of such amounts attributable to
103
each of such employees’’ and inserting ‘‘on the basis
of the amount of contributions on behalf of, or by,
each such employee’’.
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to years beginning after De-
cember 31, 1998.
(2) EXCEPTIONS.—The amendments made by
subsections (c), (d), and (e) shall apply to years be-
ginning after December 31, 1996.
SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION
415 PURPOSES.
(a) GENERAL RULE.—Section 415(c)(3) (defining par-
ticipant’s compensation) is amended by adding at the end
the following new subparagraph:
‘‘(D) CERTAIN DEFERRALS INCLUDED.—The
term ‘participant’s compensation’ shall in-
clude—
‘‘(i) any elective deferral (as defined in
section 402(g)(3)), and
‘‘(ii) any amount which is contributed
by the employer at the election of the em-
ployee and which is not includible in the
gross income of the employee under section
125 or 457.’’
104
(b) CONFORMING AMENDMENTS.—
(1) Section 414(q)(4), as redesignated by section
1431, is amended to read as follows:
‘‘(4) COMPENSATION.—For purposes of this sub-
section, the term ‘compensation’ has the meaning
given such term by section 415(c)(3).’’
(2) Section 414(s)(2) is amended by inserting
‘‘not’’ after ‘‘elect’’ in the text and heading thereof.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1997.
CHAPTER 4—MISCELLANEOUS
PROVISIONS
SEC. 1441. PLANS COVERING SELF-EMPLOYED INDIVID-
UALS.
(a) AGGREGATION RULES.—Section 401(d) (relating
to additional requirements for qualification of trusts and
plans benefiting owner-employees) is amended to read as
follows:
‘‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES.—
A trust forming part of a pension or profit-sharing plan
which provides contributions or benefits for employees some
or all of whom are owner-employees shall constitute a quali-
fied trust under this section only if, in addition to meeting
the requirements of subsection (a), the plan provides that
105
contributions on behalf of any owner-employee may be
made only with respect to the earned income of such owner-
employee which is derived from the trade or business with
respect to which such plan is established.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1996.
SEC. 1442. ELIMINATION OF SPECIAL VESTING RULE FOR
MULTIEMPLOYER PLANS.
(a) IN GENERAL.—Paragraph (2) of section 411(a)
(relating to minimum vesting standards) is amended—
(1) by striking ‘‘subparagraph (A), (B), or (C)’’
and inserting ‘‘subparagraph (A) or (B)’’; and
(2) by striking subparagraph (C).
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning on or after the
earlier of—
(1) the later of—
(A) January 1, 1997, or
(B) the date on which the last of the collec-
tive bargaining agreements pursuant to which
the plan is maintained terminates (determined
without regard to any extension thereof after the
date of the enactment of this Act), or
(2) January 1, 1999.
106
Such amendments shall not apply to any individual who
does not have more than 1 hour of service under the plan
on or after the 1st day of the 1st plan year to which such
amendments apply.
SEC. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE
PLANS.
(a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CER-
TAIN AGE.—Section 401(k)(7) is amended by adding at the
end the following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
DIS-
TRIBUTIONS.—A rural cooperative plan which
includes a qualified cash or deferred arrange-
ment shall not be treated as violating the re-
quirements of section 401(a) or of paragraph (2)
merely by reason of a hardship distribution or a
distribution to a participant after attainment of
age 591⁄2. For purposes of this section, the term
‘hardship distribution’ means a distribution de-
scribed in paragraph (2)(B)(i)(IV) (without re-
gard to the limitation of its application to prof-
it-sharing or stock bonus plans).’’
(b) PUBLIC UTILITY DISTRICTS.—Clause (i) of section
401(k)(7)(B) (defining rural cooperative) is amended to
read as follows:
‘‘(i) any organization which—
107
‘‘(I) is engaged primarily in pro-
viding electric service on a mutual or
cooperative basis, or
‘‘(II) is engaged primarily in pro-
viding electric service to the public in
its area of service and which is exempt
from tax under this subtitle or which is
a State or local government (or an
agency or instrumentality thereof),
other than a municipality (or an agen-
cy or instrumentality thereof),’’.
(c) EFFECTIVE DATES.—
(1) DISTRIBUTIONS.—The amendments made by
subsection (a) shall apply to distributions after the
date of the enactment of this Act.
(2) RURAL
COOPERATIVE.—The amendments
made by subsection (b) shall apply to plan years be-
ginning after December 31, 1996.
SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER
SECTION 415.
(a) COMPENSATION LIMIT.—Subsection (b) of section
415 is amended by adding immediately after paragraph
(10) the following new paragraph:
‘‘(11) SPECIAL LIMITATION RULE FOR GOVERN-
MENTAL PLANS.—In the case of a governmental plan
108
(as defined in section 414(d)), subparagraph (B) of
paragraph (1) shall not apply.’’
(b) TREATMENT
OF
CERTAIN
EXCESS
BENEFIT
PLANS.—
(1) IN GENERAL.—Section 415 is amended by
adding at the end the following new subsection:
‘‘(m) TREATMENT OF QUALIFIED GOVERNMENTAL EX-
CESS BENEFIT ARRANGEMENTS.—
‘‘(1) GOVERNMENTAL PLAN NOT AFFECTED.—In
determining whether a governmental plan (as defined
in section 414(d)) meets the requirements of this sec-
tion, benefits provided under a qualified governmental
excess benefit arrangement shall not be taken into ac-
count. Income accruing to a governmental plan (or to
a trust that is maintained solely for the purpose of
providing benefits under a qualified governmental ex-
cess benefit arrangement) in respect of a qualified
governmental excess benefit arrangement shall con-
stitute income derived from the exercise of an essen-
tial governmental function upon which such govern-
mental plan (or trust) shall be exempt from tax under
section 115.
‘‘(2) TAXATION OF PARTICIPANT.—For purposes
of this chapter—
109
‘‘(A) the taxable year or years for which
amounts in respect of a qualified governmental
excess benefit arrangement are includible in
gross income by a participant, and
‘‘(B) the treatment of such amounts when so
includible by the participant,
shall be determined as if such qualified governmental
excess benefit arrangement were treated as a plan for
the deferral of compensation which is maintained by
a corporation not exempt from tax under this chapter
and which does not meet the requirements for quali-
fication under section 401.
‘‘(3) QUALIFIED GOVERNMENTAL EXCESS BENE-
FIT ARRANGEMENT.—For purposes of this subsection,
the term ‘qualified governmental excess benefit ar-
rangement’ means a portion of a governmental plan
if—
‘‘(A) such portion is maintained solely for
the purpose of providing to participants in the
plan that part of the participant’s annual bene-
fit otherwise payable under the terms of the plan
that exceeds the limitations on benefits imposed
by this section,
110
‘‘(B) under such portion no election is pro-
vided at any time to the participant (directly or
indirectly) to defer compensation, and
‘‘(C) benefits described in subparagraph (A)
are not paid from a trust forming a part of such
governmental plan unless such trust is main-
tained solely for the purpose of providing such
benefits.’’
(2) COORDINATION
WITH
SECTION
457.—Sub-
section (e) of section 457 is amended by adding at the
end the following new paragraph:
‘‘(14) TREATMENT
OF
QUALIFIED
GOVERN-
MENTAL
EXCESS
BENEFIT
ARRANGEMENTS.—Sub-
sections (b)(2) and (c)(1) shall not apply to any
qualified governmental excess benefit arrangement (as
defined in section 415(m)(3)), and benefits provided
under such an arrangement shall not be taken into
account in determining whether any other plan is an
eligible deferred compensation plan.’’
(3) CONFORMING AMENDMENT.—Paragraph (2)
of section 457(f) is amended by striking ‘‘and’’ at the
end of subparagraph (C), by striking the period at the
end of subparagraph (D) and inserting ‘‘, and’’, and
by inserting immediately thereafter the following new
subparagraph:
111
‘‘(E) a qualified governmental excess benefit
arrangement described in section 415(m).’’
(c) EXEMPTION FOR SURVIVOR AND DISABILITY BENE-
FITS.—Paragraph (2) of section 415(b) is amended by add-
ing at the end the following new subparagraph:
‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY
BENEFITS
PROVIDED
UNDER
GOVERN-
MENTAL
PLANS.—Subparagraph (C) of this
paragraph and paragraph (5) shall not apply
to—
‘‘(i) income received from a govern-
mental plan (as defined in section 414(d))
as a pension, annuity, or similar allowance
as the result of the recipient becoming dis-
abled by reason of personal injuries or sick-
ness, or
‘‘(ii) amounts received from a govern-
mental plan by the beneficiaries, survivors,
or the estate of an employee as the result of
the death of the employee.’’
(d) REVOCATION OF GRANDFATHER ELECTION.—
(1) IN GENERAL.—Subparagraph (C) of section
415(b)(10) is amended by adding at the end the fol-
lowing new clause:
112
‘‘(ii) REVOCATION OF ELECTION.—An
election under clause (i) may be revoked not
later than the last day of the third plan
year beginning after the date of the enact-
ment of this clause. The revocation shall
apply to all plan years to which the election
applied and to all subsequent plan years.
Any amount paid by a plan in a taxable
year ending after the revocation shall be in-
cludible in income in such taxable year
under the rules of this chapter in effect for
such taxable year, except that, for purposes
of applying the limitations imposed by this
section, any portion of such amount which
is attributable to any taxable year during
which the election was in effect shall be
treated as received in such taxable year.’’
(2) CONFORMING
AMENDMENT.—Subparagraph
(C) of section 415(b)(10) is amended by striking
‘‘This’’ and inserting:
‘‘(i) IN GENERAL.—This’’.
(e) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
subsections (a), (b), and (c) shall apply to years be-
ginning after December 31, 1994. The amendments
113
made by subsection (d) shall apply with respect to
revocations adopted after the date of the enactment of
this Act.
(2) TREATMENT FOR YEARS BEGINNING BEFORE
JANUARY 1, 1995.—Nothing in the amendments made
by this section shall be construed to infer that a gov-
ernmental plan (as defined in section 414(d) of the
Internal Revenue Code of 1986) fails to satisfy the re-
quirements of section 415 of such Code for any tax-
able year beginning before January 1, 1995.
SEC. 1445. UNIFORM RETIREMENT AGE.
(a) DISCRIMINATION TESTING.—Paragraph (5) of sec-
tion 401(a) (relating to special rules relating to non-
discrimination requirements) is amended by adding at the
end the following new subparagraph:
‘‘(F) SOCIAL SECURITY RETIREMENT AGE.—
For purposes of testing for discrimination under
paragraph (4)—
‘‘(i) the social security retirement age
(as defined in section 415(b)(8)) shall be
treated as a uniform retirement age, and
‘‘(ii) subsidized early retirement bene-
fits and joint and survivor annuities shall
not be treated as being unavailable to em-
ployees on the same terms merely because
114
such benefits or annuities are based in
whole or in part on an employee’s social se-
curity retirement age (as so defined).’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
1996.
SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EM-
PLOYEES.
(a) ALL DISABLED PARTICIPANTS RECEIVING CON-
TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding
at the end the following: ‘‘If a defined contribution plan
provides for the continuation of contributions on behalf of
all participants described in clause (i) for a fixed or deter-
minable period, this subparagraph shall be applied without
regard to clauses (ii) and (iii).’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to years beginning after December 31,
1996.
SEC. 1447. TREATMENT OF DEFERRED COMPENSATION
PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) SPECIAL RULES
FOR PLAN DISTRIBUTIONS.—
Paragraph (9) of section 457(e) (relating to other defini-
tions and special rules) is amended to read as follows:
115
‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL-
ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—
‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500 OR
LESS.—The total amount payable to a partici-
pant under the plan shall not be treated as made
available merely because the participant may
elect to receive such amount (or the plan may
distribute such amount without the participant’s
consent) if—
‘‘(i) such amount does not exceed
$3,500, and
‘‘(ii) such amount may be distributed
only if—
‘‘(I) no amount has been deferred
under the plan with respect to such
participant during the 2-year period
ending on the date of the distribution,
and
‘‘(II) there has been no prior dis-
tribution under the plan to such par-
ticipant to which this subparagraph
applied.
A plan shall not be treated as failing to meet the
distribution requirements of subsection (d) by
116
reason of a distribution to which this subpara-
graph applies.
‘‘(B) ELECTION TO DEFER COMMENCEMENT
OF DISTRIBUTIONS.—The total amount payable
to a participant under the plan shall not be
treated as made available merely because the
participant may elect to defer commencement of
distributions under the plan if—
‘‘(i) such election is made after
amounts may be available under the plan
in accordance with subsection (d)(1)(A) and
before commencement of such distributions,
and
‘‘(ii) the participant may make only 1
such election.’’
(b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE-
FERRAL AMOUNT.—Subsection (e) of section 457, as amend-
ed by section 1444(b)(2) (relating to governmental plans),
is amended by adding at the end the following new para-
graph:
‘‘(15) COST-OF-LIVING ADJUSTMENT OF MAXIMUM
DEFERRAL AMOUNT.—The Secretary shall adjust the
$7,500 amount specified in subsections (b)(2) and
(c)(1) at the same time and in the same manner as
under section 415(d), except that the base period shall
117
be the calendar quarter ending September 30, 1994,
and any increase under this paragraph which is not
a multiple of $500 shall be rounded to the next lowest
multiple of $500.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1996.
SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COM-
PENSATION PLANS OF STATE AND LOCAL
GOVERNMENTS.
(a) IN GENERAL.—Section 457 is amended by adding
at the end the following new subsection:
‘‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-
ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS.—
‘‘(1) IN GENERAL.—A plan maintained by an el-
igible employer described in subsection (e)(1)(A) shall
not be treated as an eligible deferred compensation
plan unless all assets and income of the plan de-
scribed in subsection (b)(6) are held in trust for the
exclusive benefit of participants and their bene-
ficiaries.
‘‘(2) TAXABILITY
OF
TRUSTS
AND
PARTICI-
PANTS.—For purposes of this title—
118
‘‘(A) a trust described in paragraph (1)
shall be treated as an organization exempt from
taxation under section 501(a), and
‘‘(B) notwithstanding any other provision
of this title, amounts in the trust shall be includ-
ible in the gross income of participants and
beneficiaries only to the extent, and at the time,
provided in this section.
‘‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS.—
For purposes of this subsection, custodial accounts
and contracts described in section 401(f) shall be
treated as trusts under rules similar to the rules
under section 401(f).’’
(b) CONFORMING AMENDMENT.—Paragraph (6) of sec-
tion 457(b) is amended by inserting ‘‘except as provided
in subsection (g),’’ before ‘‘which provides that’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to assets and income described in section
457(b)(6) of the Internal Revenue Code of 1986 held
by a plan on and after the date of the enactment of
this Act.
(2) TRANSITION RULE.—In the case of assets and
income described in paragraph (1) held by a plan on
119
the date of the enactment of this Act, a trust need
not be established by reason of the amendments made
by this section before January 1, 1999.
SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM
BENEFITS UNDER SECTION 415 LIMITATIONS.
(a) IN
GENERAL.—Subparagraph (A) of section
767(d)(3) of the Uruguay Round Agreements Act is amend-
ed to read as follows:
‘‘(A) EXCEPTION.—A plan that was adopt-
ed and in effect before December 8, 1994, shall
not be required to apply the amendments made
by subsection (b) with respect to benefits accrued
before the earlier of—
‘‘(i) the later of the date a plan amend-
ment applying such amendment is adopted
or made effective, or
‘‘(ii) the first day of the first limita-
tion year beginning after December 31,
1999.
Determinations under section 415(b)(2)(E) of the
Internal Revenue Code of 1986 before such ear-
lier date shall be made with respect to such bene-
fits on the basis of such section as in effect on
December 7, 1994 (except that the modification
made by section 1449(b) of the Small Business
120
Job Protection Act of 1996 shall be taken into
account), and the provisions of the plan as in ef-
fect on December 7, 1994, but only if such provi-
sions of the plan meet the requirements of such
section (as so in effect).’’
(b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR AD-
JUSTING BENEFITS
OF DEFINED BENEFIT PLANS
FOR
EARLY RETIREES.—Subparagraph (E) of section 415(b)(2)
(relating to limitation on certain assumptions) is amend-
ed—
(1) by striking ‘‘Except as provided in clause
(ii), for purposes of adjusting any benefit or limita-
tion under subparagraph (B) or (C),’’ in clause (i)
and inserting ‘‘For purposes of adjusting any limita-
tion under subparagraph (C) and, except as provided
in clause (ii), for purposes of adjusting any benefit
under subparagraph (B),’’, and
(2) by striking ‘‘For purposes of adjusting the
benefit or limitation of any form of benefit subject to
section 417(e)(3),’’ in clause (ii) and inserting ‘‘For
purposes of adjusting any benefit under subparagraph
(B) for any form of benefit subject to section
417(e)(3),’’.
121
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect as if included in the provisions of
section 767 of the Uruguay Round Agreements Act.
(d) TRANSITIONAL RULE.—In the case of a plan that
was adopted and in effect before December 8, 1994, if—
(1) a plan amendment was adopted or made ef-
fective on or before the date of the enactment of this
Act applying the amendments made by section 767 of
the Uruguay Round Agreements Act, and
(2) within 1 year after the date of the enactment
of this Act, a plan amendment is adopted which re-
peals the amendment referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be
taken into account in applying section 767(d)(3)(A) of the
Uruguay Round Agreements Act, as amended by subsection
(a).
SEC. 1450. MODIFICATIONS OF SECTION 403(b).
(a) MULTIPLE
SALARY
REDUCTION
AGREEMENTS
PERMITTED.—
(1) GENERAL
RULE.—For purposes of section
403(b) of the Internal Revenue Code of 1986, the fre-
quency that an employee is permitted to enter into a
salary reduction agreement, the salary to which such
an agreement may apply, and the ability to revoke
such an agreement shall be determined under the rules
122
applicable to cash or deferred elections under section
401(k) of such Code.
(2) EFFECTIVE
DATE.—This subsection shall
apply to taxable years beginning after December 31,
1995.
(b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS.—
(1) IN GENERAL.—In the case of any contract
purchased in a plan year beginning before January
1, 1995, section 403(b) of the Internal Revenue Code
of 1986 shall be applied as if any reference to an em-
ployer described in section 501(c)(3) of the Internal
Revenue Code of 1986 which is exempt from tax
under section 501 of such Code included a reference
to an employer which is an Indian tribal government
(as defined by section 7701(a)(40) of such Code), a
subdivision of an Indian tribal government (deter-
mined in accordance with section 7871(d) of such
Code), an agency or instrumentality of an Indian
tribal government or subdivision thereof, or a cor-
poration chartered under Federal, State, or tribal law
which is owned in whole or in part by any of the
foregoing.
(2) ROLLOVERS.—Solely for purposes of apply-
ing section 403(b)(8) of such Code to a contract to
which paragraph (1) applies, a qualified cash or de-
123
ferred arrangement under section 401(k) of such Code
shall be treated as if it were a plan or contract de-
scribed in clause (ii) of section 403(b)(8)(A) of such
Code.
(c) ELECTIVE DEFERRALS.—
(1) IN GENERAL.—Subparagraph (E) of section
403(b)(1) is amended to read as follows:
‘‘(E) in the case of a contract purchased
under a salary reduction agreement, the contract
meets the requirements of section 401(a)(30),’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 1995, except a contract shall not be re-
quired to meet any change in any requirement by
reason of such amendment before the 90th day after
the date of the enactment of this Act.
SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND
SURVIVOR ANNUITY EXPLANATION BEFORE
ANNUITY STARTING DATE.
(a) GENERAL
RULE.—For purposes of section
417(a)(3)(A) of the Internal Revenue Code of 1986 (relating
to plan to provide written explanations), the minimum pe-
riod prescribed by the Secretary of the Treasury between
the date that the explanation referred to in such section is
provided and the annuity starting date shall not apply if
124
waived by the participant and, if applicable, the partici-
pant’s spouse.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
plan years beginning after December 31, 1996.
SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED
BENEFIT PLAN AND DEFINED CONTRIBUTION
PLAN FOR SAME EMPLOYEE; EXCESS DIS-
TRIBUTIONS.
(a) IN GENERAL.—Section 415(e) is repealed.
(b) EXCESS
DISTRIBUTIONS.—Section 4980A is
amended by adding at the end the following new subsection:
‘‘(g) LIMITATION ON APPLICATION.—This section shall
not apply to distributions during years beginning after De-
cember 31, 1995, and before January 1, 1999, and such dis-
tributions shall be treated as made first from amounts not
described in subsection (f).’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 415(a) is amend-
ed—
(A) by adding ‘‘or’’ at the end of subpara-
graph (A),
(B) by striking ‘‘, or’’ at the end of sub-
paragraph (B) and inserting a period, and
(C) by striking subparagraph (C).
125
(2) Subparagraph (B) of section 415(b)(5) is
amended by striking ‘‘and subsection (e)’’.
(3) Paragraph (1) of section 415(f) is amended
by striking ‘‘subsections (b), (c), and (e)’’ and insert-
ing ‘‘subsections (b) and (c)’’.
(4) Subsection (g) of section 415 is amended by
striking ‘‘subsections (e) and (f)’’ in the last sentence
and inserting ‘‘subsection (f)’’.
(5) Clause (i) of section 415(k)(2)(A) is amended
to read as follows:
‘‘(i) any contribution made directly by
an employee under such an arrangement
shall not be treated as an annual addition
for purposes of subsection (c), and’’.
(6) Clause (ii) of section 415(k)(2)(A) is amend-
ed by striking ‘‘subsections (c) and (e)’’ and inserting
‘‘subsection (c)’’.
(7) Section 416 is amended by striking sub-
section (h).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to limitation years beginning after December
31, 1998.
126
(2) EXCESS
DISTRIBUTIONS.—The amendment
made by subsection (b) shall apply to years beginning
after December 31, 1995.
SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.
(a) IN GENERAL.—Section 4975(a) is amended by
striking ‘‘5 percent’’ and inserting ‘‘10 percent’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to prohibited transactions occurring
after the date of the enactment of this Act.
SEC. 1454. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.—Subparagraph (C) of section
414(n)(2) (defining leased employee) is amended to read as
follows:
‘‘(C) such services are performed under pri-
mary direction or control by the recipient.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to years beginning after December
31, 1996, but shall not apply to any relationship deter-
mined under an Internal Revenue Service ruling issued be-
fore the date of the enactment of this Act pursuant to section
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in
effect on the day before such date) not to involve a leased
employee.
127
SEC. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO
CERTAIN 
PENSION 
REPORTING 
REQUIRE-
MENTS.
(a) PENALTIES.—
(1) STATEMENTS.—Paragraph (1) of section
6724(d) is amended by striking ‘‘and’’ at the end of
subparagraph (A), by striking the period at the end
of subparagraph (B) and inserting ‘‘, and’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) any statement of the amount of pay-
ments to another person required to be made to
the Secretary under—
‘‘(i) section 408(i) (relating to reports
with respect to individual retirement ac-
counts or annuities), or
‘‘(ii) section 6047(d) (relating to re-
ports by employers, plan administrators,
etc.).’’
(2) 
REPORTS.—Paragraph 
(2) 
of 
section
6724(d), as amended by section 1116, is amended by
striking ‘‘or’’ at the end of subparagraph (T), by
striking the period at the end of subparagraph (U)
and inserting a comma, and by inserting after sub-
paragraph (U) the following new subparagraphs:
128
‘‘(V) section 408(i) (relating to reports with
respect to individual retirement plans) to any
person other than the Secretary with respect to
the amount of payments made to such person, or
‘‘(W) section 6047(d) (relating to reports by
plan administrators) to any person other than
the Secretary with respect to the amount of pay-
ments made to such person.’’
(b) MODIFICATION OF REPORTABLE DESIGNATED DIS-
TRIBUTIONS.—
(1) SECTION 408.—Subsection (i) of section 408
(relating to individual retirement account reports) is
amended by inserting ‘‘aggregating $10 or more in
any calendar year’’ after ‘‘distributions’’.
(2) SECTION
6047.—Paragraph (1) of section
6047(d) (relating to reports by employers, plan ad-
ministrators, etc.) is amended by adding at the end
the following new sentence: ‘‘No return or report may
be required under the preceding sentence with respect
to distributions to any person during any year unless
such distributions aggregate $10 or more.’’
(c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Section
6652(i) is amended—
(1) by striking ‘‘the $10’’ and inserting ‘‘$100’’,
and
129
(2) 
by 
striking 
‘‘$5,000’’ 
and 
inserting
‘‘$50,000’’.
(d) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 6047(f) is amended
to read as follows:
‘‘(1) For provisions relating to penalties for fail-
ures to file returns and reports required under this
section, see sections 6652(e), 6721, and 6722.’’
(2) Subsection (e) of section 6652 is amended by
adding at the end the following new sentence: ‘‘This
subsection shall not apply to any return or statement
which is an information return described in section
6724(d)(1)(C)(ii) or a payee statement described in
section 6724(d)(2)(W).’’
(3) Subsection (a) of section 6693 is amended by
adding at the end the following new sentence: ‘‘This
subsection shall not apply to any report which is an
information 
return 
described 
in 
section
6724(d)(1)(C)(i) or a payee statement described in
section 6724(d)(2)(V).’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns, reports, and other statements
the due date for which (determined without regard to exten-
sions) is after December 31, 1996.
130
SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUB-
JECT TO TAX ON NET EARNINGS FROM SELF-
EMPLOYMENT.
(a) IN GENERAL.—Section 1402(a)(8) (defining net
earning from self-employment) is amended by inserting ‘‘,
but shall not include in such net earnings from self-employ-
ment the rental value of any parsonage (whether or not ex-
cludable under section 107) provided after the individual
retires, or any other retirement benefit received by such in-
dividual from a church plan (as defined in section 414(e))
after the individual retires’’ before the semicolon at the end.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning before, on, or after
December 31, 1994.
SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this subtitle requires an
amendment to any plan or annuity contract, such amend-
ment shall not be required to be made before the first day
of the first plan year beginning on or after January 1,
1997, if—
(1) during the period after such amendment
takes effect and before such first plan year, the plan
or contract is operated in accordance with the re-
quirements of such amendment, and
(2) such amendment applies retroactively to such
period.
131
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this section
shall be applied by substituting ‘‘1999’’ for ‘‘1997’’.
Subtitle E—Foreign Simplification
SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS
INVESTED IN EXCESS PASSIVE ASSETS.
(a) IN GENERAL.—
(1) REPEAL OF INCLUSION.—Paragraph (1) of
section 951(a) (relating to amounts included in gross
income of United States shareholders) is amended by
striking subparagraph (C), by striking ‘‘; and’’ at the
end of subparagraph (B) and inserting a period, and
by adding ‘‘and’’ at the end of subparagraph (A).
(2) REPEAL
OF
INCLUSION
AMOUNT.—Section
956A (relating to earnings invested in excess passive
assets) is repealed.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 956(b) is amended
to read as follows:
‘‘(1) APPLICABLE
EARNINGS.—For purposes of
this section, the term ‘applicable earnings’ means,
with respect to any controlled foreign corporation, the
sum of—
‘‘(A) the amount (not including a deficit)
referred to in section 316(a)(1), and
132
‘‘(B) the amount referred to in section
316(a)(2),
but reduced by distributions made during the taxable
year.’’
(2) Paragraph (3) of section 956(b) is amended
to read as follows:
‘‘(3) 
SPECIAL
RULE
WHERE
CORPORATION
CEASES
TO
BE
CONTROLLED
FOREIGN
CORPORA-
TION.—If any foreign corporation ceases to be a con-
trolled foreign corporation during any taxable year—
‘‘(A) the determination of any United
States shareholder’s pro rata share shall be made
on the basis of stock owned (within the meaning
of section 958(a)) by such shareholder on the last
day during the taxable year on which the foreign
corporation is a controlled foreign corporation,
‘‘(B) the average referred to in subsection
(a)(1)(A) for such taxable year shall be deter-
mined by only taking into account quarters end-
ing on or before such last day, and
‘‘(C) in determining applicable earnings,
the amount taken into account by reason of
being described in paragraph (2) of section
316(a) shall be the portion of the amount so de-
scribed which is allocable (on a pro rata basis)
133
to the part of such year during which the cor-
poration is a controlled foreign corporation.’’
(3) Subsection (a) of section 959 (relating to ex-
clusion from gross income of previously taxed earn-
ings and profits) is amended by adding ‘‘or’’ at the
end of paragraph (1), by striking ‘‘or’’ at the end of
paragraph (2), and by striking paragraph (3).
(4) Subsection (a) of section 959 is amended by
striking ‘‘paragraphs (2) and (3)’’ in the last sentence
and inserting ‘‘paragraph (2)’’.
(5) Subsection (c) of section 959 is amended by
adding at the end the following flush sentence:
‘‘References in this subsection to section 951(a)(1)(C) and
subsection (a)(3) shall be treated as references to such provi-
sions as in effect on the day before the date of the enactment
of the Small Business Job Protection Act of 1996.’’
(6) Paragraph (1) of section 959(f) is amended
to read as follows:
‘‘(1) IN GENERAL.—For purposes of this section,
amounts that would be included under subparagraph
(B) of section 951(a)(1) (determined without regard
to this section) shall be treated as attributable first to
earnings described in subsection (c)(2), and then to
earnings described in subsection (c)(3).’’
134
(7) Paragraph (2) of section 959(f) is amended
by striking ‘‘subparagraphs (B) and (C) of section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(8) Subsection (b) of section 989 is amended by
striking ‘‘subparagraph (B) or (C) of section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(9) Paragraph (9) of section 1297(b) is amended
by striking ‘‘subparagraph (B) or (C) of section
951(a)(1)’’ and inserting ‘‘section 951(a)(1)(B)’’.
(10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of
section 1297 are each amended by striking ‘‘or section
956A’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subpart F of part III of subchapter N of chapter 1 is
amended by striking the item relating to section 956A.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years of foreign corporations
beginning after December 31, 1996, and to taxable years
of United States shareholders within which or with which
such taxable years of foreign corporations end.
Subtitle F—Revenue Offsets
SEC. 1601. 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:
135
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this subsection, this section shall not apply to any
taxable year beginning after December 31, 1995.
‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS
INCOME CREDIT.—Except as provided in paragraph
(3)—
‘‘(A) ECONOMIC ACTIVITY CREDIT.—In the
case of an existing credit claimant—
‘‘(i) with respect to a possession other
than Puerto Rico, and
‘‘(ii) to which subsection (a)(4)(B) does
not apply,
the credit determined under subsection (a)(1)(A)
shall be allowed for taxable years beginning after
December 31, 1995, and before January 1, 2002.
‘‘(B) SPECIAL RULE FOR REDUCED CRED-
IT.—
‘‘(i) IN GENERAL.—In the case of an
existing credit claimant to which subsection
(a)(4)(B) applies, the credit determined
under subsection (a)(1)(A) shall be allowed
for taxable years beginning after December
31, 1995, and before January 1, 1998.
136
‘‘(ii) ELECTION
IRREVOCABLE
AFTER
1997.—An 
election 
under 
subsection
(a)(4)(B)(iii) which is in effect for the tax-
payer’s last taxable year beginning before
1997 may not be revoked unless it is re-
voked for the taxpayer’s first taxable year
beginning in 1997 and all subsequent tax-
able years.
‘‘(C) ECONOMIC
ACTIVITY
CREDIT
FOR
PUERTO RICO.—
‘‘For economic activity credit for Puerto Rico, see
section 30A.
‘‘(3) ADDITIONAL RESTRICTED CREDIT.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant—
‘‘(i) 
the 
credit 
under 
subsection
(a)(1)(A) shall be allowed for the period be-
ginning with the first taxable year after the
last taxable year to which subparagraph (A)
or (B) of paragraph (2), whichever is ap-
propriate, applied and ending with the last
taxable year beginning before January 1,
2006, except that
‘‘(ii) the aggregate amount of taxable
income taken into account under subsection
(a)(1)(A) for any such taxable year shall
137
not exceed 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.
‘‘(4) ADJUSTED
BASE
PERIOD
INCOME.—For
purposes of paragraph (3)—
‘‘(A) IN GENERAL.—The term ‘adjusted base
period income’ means the average of the infla-
tion-adjusted possession incomes of the corpora-
tion for each base period year.
‘‘(B) INFLATION-ADJUSTED POSSESSION IN-
COME.—For purposes of subparagraph (A), the
inflation-adjusted possession income of any cor-
poration for any base period year shall be an
amount equal to the sum of—
‘‘(i) the possession income of such cor-
poration for such base period year, plus
‘‘(ii) such possession income multiplied
by the inflation adjustment percentage for
such base period year.
‘‘(C) INFLATION
ADJUSTMENT
PERCENT-
AGE.—For purposes of subparagraph (B), the in-
138
flation adjustment percentage for any base pe-
riod year means the percentage (if any) by
which—
‘‘(i) the CPI for 1995, exceeds
‘‘(ii) the CPI for the calendar year in
which the base period year for which the de-
termination is being made ends.
For purposes of the preceding sentence, the CPI
for any calendar year is the CPI (as defined in
section 1(f)(5)) for such year under section
1(f)(4).
‘‘(D) INCREASE IN INFLATION ADJUSTMENT
PERCENTAGE
FOR
GROWTH
DURING
BASE
YEARS.—The inflation adjustment percentage
(determined under subparagraph (C) without re-
gard to this subparagraph) for each of the 5 tax-
able years referred to in paragraph (5)(A) shall
be increased by—
‘‘(i) 5 percentage points in the case of
a taxable year ending during the 1-year pe-
riod ending on October 13, 1995;
‘‘(ii) 10.25 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1994;
139
‘‘(iii) 15.76 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1993;
‘‘(iv) 21.55 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1992;
and
‘‘(v) 27.63 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘base period
year’ means each of 3 taxable years which are
among the 5 most recent taxable years of the cor-
poration ending before October 14, 1995, deter-
mined by disregarding—
‘‘(i) one taxable year for which the cor-
poration had the largest inflation-adjusted
possession income, and
‘‘(ii) one taxable year for which the
corporation had the smallest inflation-ad-
justed possession income.
140
‘‘(B) CORPORATIONS NOT HAVING SIGNIFI-
CANT POSSESSION INCOME THROUGHOUT 5-YEAR
PERIOD.—
‘‘(i) IN
GENERAL.—If a corporation
does not have significant possession income
for each of the most recent 5 taxable years
ending before October 14, 1995, then, in lieu
of applying subparagraph (A), the term
‘base period year’ means only those taxable
years (of such 5 taxable years) for which the
corporation has significant possession in-
come; except that, if such corporation has
significant possession income for 4 of such
5 taxable years, the rule of subparagraph
(A)(ii) shall apply.
‘‘(ii) SPECIAL RULE.—If there is no
year (of such 5 taxable years) for which a
corporation has significant possession in-
come—
‘‘(I) the term ‘base period year’
means the first taxable year ending on
or after October 14, 1995, but
‘‘(II) the amount of possession in-
come for such year which is taken into
account under paragraph (4) shall be
141
the amount which would be determined
if such year were a short taxable year
ending on September 30, 1995.
‘‘(iii) SIGNIFICANT
POSSESSION
IN-
COME.—For purposes of this subparagraph,
the term ‘significant possession income’
means possession income which exceeds 2
percent of the possession income of the tax-
payer for the taxable year (of the period of
6 taxable years ending with the first taxable
year ending on or after October 14, 1995)
having the greatest possession income.
‘‘(C) ELECTION TO USE ONE BASE PERIOD
YEAR.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, the term ‘base period year’
means—
‘‘(I) only the last taxable year of
the corporation ending in calendar
year 1992, or
‘‘(II) a deemed taxable year which
includes the first ten months of cal-
endar year 1995.
‘‘(ii) 
BASE
PERIOD
INCOME
FOR
1995.—In determining the adjusted base pe-
142
riod income of the corporation for the
deemed taxable year under clause (i)(II),
the possession income shall be annualized
and shall be determined without regard to
any extraordinary item.
‘‘(iii) ELECTION.—An election under
this subparagraph by any possession cor-
poration may be made only for the corpora-
tion’s first taxable year beginning after De-
cember 31, 1995, for which it is a possession
corporation. The rules of subclauses (II)
and (III) of subsection (a)(4)(B)(iii) shall
apply to the election under this subpara-
graph.
‘‘(D) ACQUISITIONS
AND
DISPOSITIONS.—
Rules similar to the rules of subparagraphs (A)
and (B) of section 41(f)(3) shall apply for pur-
poses of this subsection.
‘‘(6) POSSESSION INCOME.—For purposes of this
subsection, the term ‘possession income’ means, with
respect to any possession, the income referred to in
subsection (a)(1)(A) determined with respect to that
possession. In no event shall possession income be
treated as being less than zero.
143
‘‘(7) SHORT YEARS.—If the current year or a
base period year is a short taxable year, the applica-
tion of this subsection shall be made with such
annualizations as the Secretary shall prescribe.
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
POSSES-
SIONS.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant with respect to an applicable
possession, this section (other than the preceding
paragraphs of this subsection) shall apply to
such claimant with respect to such applicable
possession for taxable years beginning after De-
cember 31, 1995, and before January 1, 2006.
‘‘(B) APPLICABLE POSSESSION.—For pur-
poses of this paragraph, the term ‘applicable pos-
session’ means Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘existing cred-
it claimant’ means a corporation—
‘‘(i) which was actively conducting a
trade or business in a possession on October
13, 1995, and
144
‘‘(ii) with respect to which an election
under this section is in effect for the cor-
poration’s taxable year which includes Octo-
ber 13, 1995.
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIB-
ITED.—If, after October 13, 1995, a corporation
which would (but for this subparagraph) be an
existing credit claimant adds a substantial new
line of business, 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) BINDING
CONTRACT
EXCEPTION.—If,
on October 13, 1995, and at all times thereafter,
there is in effect with respect to a corporation a
binding contract for the acquisition of assets to
be used in, or for the sale of assets to be produced
from, a trade or business, the corporation shall
be treated for purposes of this paragraph as ac-
tively conducting such trade or business on Octo-
ber 13, 1995. The preceding sentence shall not
apply if such trade or business is not actively
conducted before January 1, 1996.
‘‘(10) SEPARATE APPLICATION TO EACH POSSES-
SION.—For purposes of determining—
145
‘‘(A) whether a taxpayer is an existing
credit claimant, and
‘‘(B) the amount of the credit allowed under
this section,
this subsection (and so much of this section as relates
to this subsection) shall be applied separately with re-
spect to each possession.’’
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
(1) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 is amended by adding at the
end the following new section:
‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this section, if the conditions of both paragraph (1)
and paragraph (2) of subsection (b) are satisfied with
respect to a qualified domestic corporation, there shall
be allowed as a credit against the tax imposed by this
chapter an amount equal to the portion of the tax
which is attributable to the taxable income, from
sources without the United States, from—
‘‘(A) the active conduct of a trade or busi-
ness within Puerto Rico, or
146
‘‘(B) the sale or exchange of substantially
all of the assets used by the taxpayer in the ac-
tive conduct of such trade or business.
In the case of any taxable year beginning after De-
cember 31, 2001, the aggregate amount of taxable in-
come taken into account under the preceding sentence
(and in applying subsection (d)) shall not exceed the
adjusted base period income of such corporation, as
determined in the same manner as under section
936(j).
‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For
purposes of paragraph (1), the term ‘qualified domes-
tic corporation’ means a domestic corporation—
‘‘(A) which is an existing credit claimant
with respect to Puerto Rico, and
‘‘(B) 
with 
respect 
to 
which 
section
936(a)(4)(B) does not apply for the taxable year.
‘‘(3) SEPARATE APPLICATION.—For purposes of
determining—
‘‘(A) whether a taxpayer is an existing
credit claimant with respect to Puerto Rico, and
‘‘(B) the amount of the credit allowed under
this section,
147
this section (and so much of section 936 as relates to
this section) shall be applied separately with respect
to Puerto Rico.
‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The
conditions referred to in subsection (a) are—
‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of
the gross income of the qualified domestic corporation
for the 3-year period immediately preceding the close
of the taxable year (or for such part of such period
immediately preceding the close of such taxable year
as may be applicable) was derived from sources with-
in a possession (determined without regard to section
904(f)).
‘‘(2) TRADE
OR
BUSINESS.—If 75 percent or
more of the gross income of the qualified domestic cor-
poration for such period or such part thereof was de-
rived from the active conduct of a trade or business
within a possession.
‘‘(c) CREDIT
NOT
ALLOWED
AGAINST
CERTAIN
TAXES.—The credit provided by subsection (a) shall not be
allowed against the tax imposed by—
‘‘(1) section 59A (relating to environmental tax),
‘‘(2) section 531 (relating to the tax on accumu-
lated earnings),
148
‘‘(3) section 541 (relating to personal holding
company tax), or
‘‘(4) section 1351 (relating to recoveries of for-
eign expropriation losses).
‘‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSINESS
INCOME.—The amount of the credit determined under sub-
section (a) for any taxable year shall not exceed the sum
of the following amounts:
‘‘(1) 60 percent of the sum of—
‘‘(A) the aggregate amount of the qualified
domestic corporation’s qualified possession wages
for such taxable year, plus
‘‘(B) the allocable employee fringe benefit
expenses of the qualified domestic corporation for
such taxable year.
‘‘(2) The sum of—
‘‘(A) 15 percent of the deprecation allow-
ances for the taxable year with respect to short-
life qualified tangible property,
‘‘(B) 40 percent of the depreciation allow-
ances for the taxable year with respect to me-
dium-life qualified tangible property, and
‘‘(C) 65 percent of the depreciation allow-
ances for the taxable year with respect to long-
life qualified tangible property.
149
‘‘(3) If the qualified domestic corporation does
not have an election to use the method described in
section 936(h)(5)(C)(ii) (relating to profit split) in ef-
fect for the taxable year, the amount of the qualified
possession income taxes for the taxable year allocable
to nonsheltered income.
‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of
this title—
‘‘(1) the provisions of section 936 (including any
applicable election thereunder) shall apply in the
same manner as if the credit under this section were
a credit under section 936(a)(1)(A) for a domestic
corporation to which section 936(a)(4)(A) applies,
‘‘(2) the credit under this section shall be treated
in the same manner as the credit under section 936,
and
‘‘(3) a corporation to which this section applies
shall be treated in the same manner as if it were a
corporation electing the application of section 936.
‘‘(f) DEFINITIONS.—For purposes of this section, any
term used in this section which is also used in section 936
shall have the same meaning given such term by section
936.
150
‘‘(g) APPLICATION OF SECTION.—This section shall
apply to taxable years beginning after December 31, 1995,
and before January 1, 2006.’’
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 55(c) is
amended by striking ‘‘and the section 936 credit
allowable under section 27(b)’’ and inserting ‘‘,
the section 936 credit allowable under section
27(b), and the Puerto Rican economic activity
credit under section 30A’’.
(B) Subclause (I) of section 56(g)(4)(C)(ii)
is amended—
(i) by inserting ‘‘30A,’’ before ‘‘936’’,
and
(ii) by striking ‘‘and (i)’’ and insert-
ing ‘‘, (i), and (j)’’.
(C) Clause (iii) of section 56(g)(4)(C) is
amended by adding at the end the following new
subclause:
‘‘(VI) APPLICATION
TO
SECTION
30A CORPORATIONS.—References in this
clause to section 936 shall be treated as
including references to section 30A.’’
(D) Subsection (b) of section 59 is amended
by striking ‘‘section 936,’’ and all that follows
151
and inserting ‘‘section 30A or 936, alternative
minimum taxable income shall not include any
income with respect to which a credit is deter-
mined under section 30A or 936.’’.
(E) The table of sections for subpart B of
part IV of subchapter A of chapter 1 is amended
by adding at the end the following new item:
‘‘Sec. 30A. Puerto Rican economic activity credit.’’
(F)(i) The heading for subpart B of part IV
of subchapter A of chapter 1 is amended to read
as follows:
‘‘Subpart B—Other Credits’’.
(ii) The table of subparts for part IV of sub-
chapter A of chapter 1 is amended by striking
the item relating to subpart B and inserting the
following new item:
‘‘Subpart B. Other credits.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON
LOANS USED TO ACQUIRE EMPLOYER SECU-
RITIES.
(a) IN GENERAL.—Section 133 (relating to interest on
certain loans used to acquire employer securities) is hereby
repealed.
152
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 291(e)(1) is
amended by striking clause (iv) and by redesignating
clause (v) as clause (iv).
(2) Section 812 is amended by striking sub-
section (g).
(3) Paragraph (5) of section 852(b) is amended
by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended
by striking subparagraph (A) and all that follows and
inserting the following:
‘‘(A) first from qualified securities to which
section 1042 applied acquired during the 3-year
period ending on the date of the disposition, be-
ginning with the securities first so acquired, and
‘‘(B) then from any other employer securi-
ties.
If subsection (d) applies to a disposition, the disposi-
tion shall be treated as made from employer securities
in the opposite order of the preceding sentence.’’.
(5)(A) Section 4978B (relating to tax on disposi-
tion of employer securities to which section 133 ap-
plied) is hereby repealed.
153
(B) The table of sections for chapter 43 is
amended by striking the item relating to section
4978B.
(6) Subsection (e) of section 6047 is amended by
striking paragraphs (1), (2), and (3) and inserting
the following new paragraphs:
‘‘(1) any employer maintaining, or the plan ad-
ministrator (within the meaning of section 414(g)) of,
an employee stock ownership plan which holds stock
with respect to which section 404(k) applies to divi-
dends paid on such stock, or
‘‘(2) both such employer or plan administrator,’’.
(7) Subsection (f) of section 7872 is amended by
striking paragraph (12).
(8) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 133.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to loans made after October
13, 1995.
(2) REFINANCINGS.—The amendments made by
this section shall not apply to loans made after Octo-
ber 13, 1995, to refinance securities acquisition loans
(determined without regard to section 133(b)(1)(B) of
154
the Internal Revenue Code of 1986, as in effect on the
day before the date of the enactment of this Act) made
on or before such date or to refinance loans described
in this paragraph if—
(A) the refinancing loans meet the require-
ments of section 133 of such Code (as so in ef-
fect),
(B) immediately after the refinancing the
principal amount of the loan resulting from the
refinancing does not exceed the principal amount
of the refinanced loan (immediately before the re-
financing), and
(C) the term of such refinancing loan does
not extend beyond the last day of the term of the
original securities acquisition loan.
For purposes of this paragraph, the term ‘‘securities
acquisition loan’’ includes a loan from a corporation
to an employee stock ownership plan described in sec-
tion 133(b)(3) of such Code (as so in effect).
(3) EXCEPTION.—Any loan made pursuant to a
binding written contract in effect on October 13,
1995, and at all times thereafter before such loan is
made, shall be treated for purposes of paragraphs (1)
and (2) as a loan made before such date.
155
SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN
CORPORATIONS 
TREATED 
AS 
UNRELATED
BUSINESS TAXABLE INCOME.
(a) GENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the end
the following new paragraph:
‘‘(17) TREATMENT
OF
CERTAIN
AMOUNTS
DE-
RIVED FROM FOREIGN CORPORATIONS.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (1), any amount included in gross income
under section 951(a)(1)(A) shall be included as
an item of gross income derived from an unre-
lated trade or business to the extent the amount
so included is attributable to insurance income
(as defined in section 953) which, if derived di-
rectly by the organization, would be treated as
gross income from an unrelated trade or busi-
ness. There shall be allowed all deductions di-
rectly connected with amounts included in gross
income under the preceding sentence.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to income attributable to a policy of
insurance or reinsurance with respect to which
the person (directly or indirectly) insured is—
‘‘(i) such organization,
156
‘‘(ii) an affiliate of such organization
which is exempt from tax under section
501(a), or
‘‘(iii) a director or officer of, or an in-
dividual who (directly or indirectly) per-
forms services for, such organization or af-
filiate but only if the insurance covers pri-
marily risks associated with the perform-
ance of services in connection with such or-
ganization or affiliate.
For purposes of this subparagraph, the deter-
mination as to whether an entity is an affiliate
of an organization shall be made under rules
similar to the rules of section 168(h)(4)(B).
‘‘(C) REGULATIONS.—The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this
paragraph, including regulations for the appli-
cation of this paragraph in the case of income
paid through 1 or more entities or between 2 or
more chains of entities.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to amounts included in gross income
in any taxable year beginning after December 31, 1995.
157
SEC. 1604. DEPRECIATION UNDER INCOME FORECAST
METHOD.
(a) GENERAL RULE.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (g) as sub-
section (h) and by inserting after subsection (f) the follow-
ing new subsection:
‘‘(g) DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduction
allowable under this section to any taxpayer with re-
spect to any property is determined under the income
forecast method or any similar method—
‘‘(A) the income from the property to be
taken into account in determining the deprecia-
tion deduction under such method shall be equal
to the amount of income earned in connection
with the property before the close of the 10th tax-
able year following the taxable year in which the
property was placed in service,
‘‘(B) the adjusted basis of the property shall
only include amounts with respect to which the
requirements of section 461(h) are satisfied,
‘‘(C) the depreciation deduction under such
method for the 10th taxable year beginning after
the taxable year in which the property was
placed in service shall be equal to the adjusted
158
basis of such property as of the beginning of such
10th taxable year, and
‘‘(D) such taxpayer shall pay (or be entitled
to receive) interest computed under the look-back
method of paragraph (2) for any recomputation
year.
‘‘(2) LOOK-BACK
METHOD.—The interest com-
puted under the look-back method of this paragraph
for any recomputation year shall be determined by—
‘‘(A) first determining the depreciation de-
ductions under this section with respect to such
property which would have been allowable for
prior taxable years if the determination of the
amounts so allowable had been made on the basis
of the sum of the following (instead of the esti-
mated income from such property)—
‘‘(i) the actual income earned in con-
nection with such property for periods be-
fore the close of the recomputation year, and
‘‘(ii) an estimate of the future income
to be earned in connection with such prop-
erty for periods after the recomputation
year and before the close of the 10th taxable
year following the taxable year in which the
property was placed in service,
159
‘‘(B) second, determining (solely for pur-
poses of computing such interest) the overpay-
ment or underpayment of tax for each such prior
taxable year which would result solely from the
application of subparagraph (A), and
‘‘(C) then using the adjusted overpayment
rate 
(as 
defined 
in 
section 
460(b)(7)),
compounded daily, on the overpayment or under-
payment determined under subparagraph (B).
For purposes of the preceding sentence, any cost in-
curred after the property is placed in service (which
is not treated as a separate property under para-
graph (5)) shall be taken into account by discounting
(using the Federal mid-term rate determined under
section 1274(d) as of the time such cost is incurred)
such cost to its value as of the date the property is
placed in service. The taxpayer may elect with respect
to any property to have the preceding sentence not
apply to such property.
‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—
Paragraph (1)(D) shall not apply with respect to any
property which, when placed in service by the tax-
payer, had a basis of $100,000 or less.
‘‘(4) RECOMPUTATION
YEAR.—For purposes of
this subsection, except as provided in regulations, the
160
term ‘recomputation year’ means, with respect to any
property, the 3d and the 10th taxable years beginning
after the taxable year in which the property was
placed in service, unless the actual income earned in
connection with the property for the period before the
close of such 3d or 10th taxable year is within 10 per-
cent of the income earned in connection with the
property for such period which was taken into ac-
count under paragraph (1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN
COSTS
TREATED
AS
SEPA-
RATE
PROPERTY.—For purposes of this sub-
section, the following costs shall be treated as
separate properties:
‘‘(i) Any costs incurred with respect to
any property after the 10th taxable year be-
ginning after the taxable year in which the
property was placed in service.
‘‘(ii) Any costs incurred after the prop-
erty is placed in service and before the close
of such 10th taxable year if such costs are
significant and give rise to a significant in-
crease in the income from the property
which was not included in the estimated in-
come from the property.
161
‘‘(B) SYNDICATION
INCOME
FROM
TELE-
VISION SERIES.—In the case of property which is
an episode in a television series, income from
syndicating such series shall not be required to
be taken into account under this subsection be-
fore the earlier of—
‘‘(i) the 4th taxable year beginning
after the date the first episode in such series
is placed in service, or
‘‘(ii) the earliest taxable year in which
the taxpayer has an arrangement relating
to the future syndication of such series.
‘‘(C) SPECIAL RULES FOR FINANCIAL EX-
PLOITATION
OF
CHARACTERS, ETC.—For pur-
poses of this subsection, in the case of television
and motion picture films, the income from the
property shall include income from the exploi-
tation of characters, designs, scripts, scores, and
other incidental income associated with such
films, but only to the extent that such income is
earned in connection with the ultimate use of
such items by, or the ultimate sale of merchan-
dise to, persons who are not related persons
(within the meaning of section 267(b)) to the
taxpayer.
162
‘‘(D) COLLECTION OF INTEREST.—For pur-
poses of subtitle F (other than sections 6654 and
6655), any interest required to be paid by the
taxpayer under paragraph (1) for any recom-
putation year shall be treated as an increase in
the tax imposed by this chapter for such year.
‘‘(E) DETERMINATIONS.—For purposes of
paragraph (2), determinations of the amount of
income earned in connection with any property
shall be made in the same manner as for pur-
poses of applying the income forecast method; ex-
cept that any income from the disposition of
such property shall be taken into account.
‘‘(F) TREATMENT
OF
PASS-THRU
ENTI-
TIES.—Rules similar to the rules of section
460(b)(4) shall apply for purposes of this sub-
section.’’
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to property placed in service
after September 13, 1995.
(2) 
BINDING
CONTRACTS.—The 
amendment
made by subsection (a) shall not apply to any prop-
erty produced or acquired by the taxpayer pursuant
to a written contract which was binding on Septem-
163
ber 13, 1995, and at all times thereafter before such
production or acquisition.
SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES
AND FOR DAMAGES NOT ATTRIBUTABLE TO
PHYSICAL INJURIES OR SICKNESS.
(a) IN GENERAL.—Paragraph (2) of section 104(a)
(relating to compensation for injuries or sickness) is amend-
ed to read as follows:
‘‘(2) the amount of any damages (other than pu-
nitive damages) received (whether by suit or agree-
ment and whether as lump sums or as periodic pay-
ments) on account of personal physical injuries or
physical sickness;’’.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT
PHYSICAL
INJURY
OR
PHYSICAL
SICKNESS.—Section
104(a) is amended by striking the last sentence and insert-
ing the following new sentence: ‘‘For purposes of paragraph
(2), emotional distress shall not be treated as a physical
injury or physical sickness. The preceding sentence shall not
apply to an amount of damages not in excess of the amount
paid for medical care (described in subparagraph (A) or
(B) of section 213(d)(1)) attributable to emotional dis-
tress.’’.
(c) APPLICATION
OF PRIOR LAW
FOR STATES
IN
WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN
164
WRONGFUL DEATH ACTIONS.—Section 104 is amended by
redesignating subsection (c) as subsection (d) and by insert-
ing after subsection (b) the following new subsection:
‘‘(c) APPLICATION
OF
PRIOR
LAW
IN
CERTAIN
CASES.—The phrase ‘(other than punitive damages)’ shall
not apply to punitive damages awarded in a civil action—
‘‘(1) which is a wrongful death action, and
‘‘(2) with respect to which applicable State law
(as in effect on September 13, 1995 and without re-
gard to any modification after such date) provides, or
has been construed to provide by a court of competent
jurisdiction pursuant to a decision issued on or before
September 13, 1995, that only punitive damages may
be awarded in such an action.
This subsection shall cease to apply to any civil action filed
on or after the first date on which the applicable State law
ceases to provide (or is no longer construed to provide) the
treatment described in paragraph (2).’’
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to amounts received after June 30, 1996, in
taxable years ending after such date.
(2) EXCEPTION.—The amendments made by this
section shall not apply to any amount received under
165
a written binding agreement, court decree, or medi-
ation award in effect on (or issued on or before) Sep-
tember 13, 1995.
SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PUR-
CHASERS 
OF 
DIESEL-POWERED 
AUTO-
MOBILES AND LIGHT TRUCKS.
(a) IN GENERAL.—Section 6427 (relating to fuels not
used for taxable purposes) is amended by striking subsection
(g).
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 34(a) is amended to
read as follows:
‘‘(3) under section 6427 with respect to fuels
used for nontaxable purposes or resold during the tax-
able year (determined without regard to section
6427(k)).’’.
(2) Paragraphs (1) and (2)(A) of section 6427(i)
are each amended—
(A) by striking ‘‘(g),’’, and
(B) by striking ‘‘(or a qualified diesel pow-
ered highway vehicle purchased)’’ each place it
appears.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to vehicles purchased after the date of
the enactment of this Act.
167
clusive use by a State or any political subdivision
thereof’’.
(B) Paragraph (4) of section 6427(l), as in effect
before the amendments made by the Revenue Rec-
onciliation Act of 1993, is amended by inserting be-
fore the period ‘‘unless such fuel was used by a State
or any political subdivision thereof’’.
(3) Paragraph (1) of section 6416(b) is amended
by striking ‘‘chapter 32 or by section 4051’’ and in-
serting ‘‘chapter 31 or 32’’.
(4) Section 7012 is amended—
(A) by striking ‘‘production or importation
of gasoline’’ in paragraph (3) and inserting
‘‘taxes on gasoline and diesel fuel’’, and
(B) by striking paragraph (4) and redesig-
nating paragraphs (5) and (6) as paragraphs
(4) and (5), respectively.
(5) Subsection (c) of section 5041 is amended by
striking paragraph (6) and by inserting the following
new paragraphs:
‘‘(6) CREDIT FOR TRANSFEREE IN BOND.—If—
‘‘(A) wine produced by any person would be
eligible for any credit under paragraph (1) if re-
moved by such person during the calendar year,
168
‘‘(B) wine produced by such person is re-
moved during such calendar year by any other
person (hereafter in this paragraph referred to as
the ‘transferee’) to whom such wine was trans-
ferred in bond and who is liable for the tax im-
posed by this section with respect to such wine,
and
‘‘(C) such producer holds title to such wine
at the time of its removal and provides to the
transferee such information as is necessary to
properly determine the transferee’s credit under
this paragraph,
then, the transferee (and not the producer) shall be al-
lowed the credit under paragraph (1) which would be
allowed to the producer if the wine removed by the
transferee had been removed by the producer on that
date.
‘‘(7) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including regula-
tions—
‘‘(A) to prevent the credit provided in this
subsection from benefiting any person who pro-
duces more than 250,000 wine gallons during a
calendar year, and
169
‘‘(B) to assure proper reduction of such
credit for persons producing more than 150,000
wine gallons of wine during a calendar year.’’
(6) Paragraph (3) of section 5061(b) is amended
to read as follows:
‘‘(3) section 5041(f),’’.
(7) Section 5354 is amended by inserting ‘‘(tak-
ing into account the appropriate amount of credit
with respect to such wine under section 5041(c))’’
after ‘‘any one time’’.
(c) AMENDMENTS RELATED TO SUBTITLE C.—
(1) Paragraph (4) of section 56(g) is amended by
redesignating subparagraphs (I) and (J) as subpara-
graphs (H) and (I), respectively.
(2) Subparagraph (B) of section 6724(d)(1) is
amended—
(A) by striking ‘‘or’’ at the end of clause
(xii), and
(B) by striking the period at the end of
clause (xiii) and inserting ‘‘, or’’.
(3) Subsection (g) of section 6302 is amended by
inserting ‘‘, 22,’’ after ‘‘chapters 21’’.
(4) The earnings and profits of any insurance
company to which section 11305(c)(3) of the Revenue
Reconciliation Act of 1990 applies shall be deter-
170
mined without regard to any deduction allowed under
such section; except that, for purposes of applying sec-
tions 56 and 902, and subpart F of part III of sub-
chapter N of chapter 1 of the Internal Revenue Code
of 1986, such deduction shall be taken into account.
(5) Subparagraph (D) of section 6038A(e)(4) is
amended—
(A) by striking ‘‘any transaction to which
the summons relates’’ and inserting ‘‘any af-
fected taxable year’’, and
(B) by adding at the end thereof the follow-
ing new sentence: ‘‘For purposes of this subpara-
graph, the term ‘affected taxable year’ means
any taxable year if the determination of the
amount of tax imposed for such taxable year is
affected by the treatment of the transaction to
which the summons relates.’’.
(6) Subparagraph (A) of section 6621(c)(2) is
amended by adding at the end thereof the following
new flush sentence:
‘‘The preceding sentence shall be applied without
regard to any such letter or notice which is with-
drawn by the Secretary.’’.
171
(7) Clause (i) of section 6621(c)(2)(B) is amend-
ed by striking ‘‘this subtitle’’ and inserting ‘‘this
title’’.
(d) AMENDMENTS RELATED TO SUBTITLE D.—
(1) Notwithstanding section 11402(c) of the Rev-
enue Reconciliation Act of 1990, the amendment
made by section 11402(b)(1) of such Act shall apply
to taxable years ending after December 31, 1989.
(2) Clause (ii) of section 143(m)(4)(C) is amend-
ed—
(A) by striking ‘‘any month of the 10-year
period’’ and inserting ‘‘any year of the 4-year
period’’,
(B) by striking ‘‘succeeding months’’ and
inserting ‘‘succeeding years’’, and
(C) by striking ‘‘over the remainder of such
period (or, if lesser, 5 years)’’ and inserting ‘‘to
zero over the succeeding 5 years’’.
(e) AMENDMENTS RELATED TO SUBTITLE E.—
(1)(A) Clause (ii) of section 56(d)(1)(B) is
amended to read as follows:
‘‘(ii) appropriate adjustments in the
application of section 172(b)(2) shall be
made to take into account the limitation of
subparagraph (A).’’
172
(B) For purposes of applying sections 56(g)(1)
and 56(g)(3) of the Internal Revenue Code of 1986
with respect to taxable years beginning in 1991 and
1992, the reference in such sections to the alternative
tax net operating loss deduction shall be treated as
including a reference to the deduction under section
56(h) of such Code as in effect before the amendments
made by section 1915 of the Energy Policy Act of
1992.
(2) Clause (i) of section 613A(c)(3)(A) is amend-
ed by striking ‘‘the table contained in’’.
(3) Section 6501 is amended—
(A) by striking subsection (m) (relating to
deficiency attributable to election under section
44B) and by redesignating subsections (n) and
(o) as subsections (m) and (n), respectively, and
(B) by striking ‘‘section 40(f) or 51(j)’’ in
subsection (m) (as redesignated by subparagraph
(A)) and inserting ‘‘section 40(f), 43, or 51(j)’’.
(4) Subparagraph (C) of section 38(c)(2) (as in
effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990) is amended
by inserting before the period at the end of the first
sentence the following: ‘‘and without regard to the de-
duction under section 56(h)’’.
173
(5) 
The 
amendment 
made 
by 
section
1913(b)(2)(C)(i) of the Energy Policy Act of 1992
shall apply to taxable years beginning after December
31, 1990.
(f) AMENDMENTS RELATED TO SUBTITLE F.—
(1)(A) Section 2701(a)(3) is amended by adding
at the end thereof the following new subparagraph:
‘‘(C) VALUATION OF QUALIFIED PAYMENTS
WHERE NO LIQUIDATION, ETC. RIGHTS.—In the
case of an applicable retained interest which is
described in subparagraph (B)(i) but not sub-
paragraph (B)(ii), the value of the distribution
right shall be determined without regard to this
section.’’
(B) Section 2701(a)(3)(B) is amended by insert-
ing ‘‘CERTAIN’’ before ‘‘QUALIFIED’’ in the heading
thereof.
(C) Sections 2701 (d)(1) and (d)(4) are each
amended by striking ‘‘subsection (a)(3)(B)’’ and in-
serting ‘‘subsection (a)(3) (B) or (C)’’.
(2) Clause (i) of section 2701(a)(4)(B) is amend-
ed by inserting ‘‘(or, to the extent provided in regula-
tions, the rights as to either income or capital)’’ after
‘‘income and capital’’.
174
(3)(A) Section 2701(b)(2) is amended by adding
at the end thereof the following new subparagraph:
‘‘(C) APPLICABLE
FAMILY
MEMBER.—For
purposes of this subsection, the term ‘applicable
family member’ includes any lineal descendant
of any parent of the transferor or the transferor’s
spouse.’’
(B) Section 2701(e)(3) is amended—
(i) by striking subparagraph (B), and
(ii) by striking so much of paragraph (3) as
precedes ‘‘shall be treated as holding’’ and insert-
ing:
‘‘(3) ATTRIBUTION OF INDIRECT HOLDINGS AND
TRANSFERS.—An individual’’.
(C) Section 2704(c)(3) is amended by striking
‘‘section 
2701(e)(3)(A)’’ 
and 
inserting 
‘‘section
2701(e)(3)’’.
(4) Clause (i) of section 2701(c)(1)(B) is amend-
ed to read as follows:
‘‘(i) a right to distributions with re-
spect to any interest which is junior to the
rights of the transferred interest,’’.
(5)(A) Clause (i) of section 2701(c)(3)(C) is
amended to read as follows:
175
‘‘(i) IN
GENERAL.—Payments under
any interest held by a transferor which
(without regard to this subparagraph) are
qualified payments shall be treated as
qualified payments unless the transferor
elects not to treat such payments as quali-
fied payments. Payments described in the
preceding sentence which are held by an ap-
plicable family member shall be treated as
qualified payments only if such member
elects to treat such payments as qualified
payments.’’
(B) The first sentence of section 2701(c)(3)(C)(ii)
is amended to read as follows: ‘‘A transferor or appli-
cable family member holding any distribution right
which (without regard to this subparagraph) is not a
qualified payment may elect to treat such right as a
qualified payment, to be paid in the amounts and at
the times specified in such election.’’.
(C) The time for making an election under the
second sentence of section 2701(c)(3)(C)(i) of the In-
ternal Revenue Code of 1986 (as amended by sub-
paragraph (A)) shall not expire before the due date
(including extensions) for filing the transferor’s re-
turn of the tax imposed by section 2501 of such Code
176
for the first calendar year ending after the date of en-
actment.
(6) Section 2701(d)(3)(A)(iii) is amended by
striking ‘‘the period ending on the date of’’.
(7) Subclause (I) of section 2701(d)(3)(B)(ii) is
amended by inserting ‘‘or the exclusion under section
2503(b),’’ after ‘‘section 2523,’’.
(8) Section 2701(e)(5) is amended—
(A) by striking ‘‘such contribution to cap-
ital or such redemption, recapitalization, or
other change’’ in subparagraph (A) and insert-
ing ‘‘such transaction’’, and
(B) by striking ‘‘the transfer’’ in subpara-
graph (B) and inserting ‘‘such transaction’’.
(9) Section 2701(d)(4) is amended by adding at
the end thereof the following new subparagraph:
‘‘(C) TRANSFER TO TRANSFERORS.—In the
case of a taxable event described in paragraph
(3)(A)(ii) involving a transfer of an applicable
retained interest from an applicable family
member to a transferor, this subsection shall con-
tinue to apply to the transferor during any pe-
riod the transferor holds such interest.’’