I
105TH CONGRESS
2D SESSION
H. R. 4597
To provide tax relief for individuals, families, and farming and other small
businesses, to provide tax incentives for education, to extend certain
expiring provisions, to protect the solvency of the Social Security System,
to reserve social security surpluses solely for the Social Security System,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 18, 1998
Mr. RANGEL (for himself, Mr. STARK, Mr. MATSUI, Mr. COYNE, Mr. LEVIN,
Mr. CARDIN, Mr. MCDERMOTT, Mr. KLECZKA, Mr. LEWIS of Georgia,
Mr. NEAL of Massachusetts, Mr. MCNULTY, Mr. JEFFERSON, Mr. TAN-
NER, Mr. BECERRA, and Mrs. THURMAN) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To provide tax relief for individuals, families, and farming
and other small businesses, to provide tax incentives
for education, to extend certain expiring provisions, to
protect the solvency of the Social Security System, to
reserve social security surpluses solely for the Social Se-
curity System, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Save Social Security and Taxpayer Relief Act of 1998’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title, etc.
TITLE I—PROVISIONS PRIMARILY AFFECTING INDIVIDUALS AND
FAMILIES
Subtitle A—General Provisions
Sec. 101. Elimination of marriage penalty in standard deduction.
Sec. 102. Exemption of certain interest and dividend income from tax.
Sec. 103. Nonrefundable personal credits allowed against alternative minimum
tax.
Sec. 104. 100 percent deduction for health insurance costs of self-employed in-
dividuals.
Sec. 105. Special rule for members of uniformed services and Foreign Service
in determining exclusion of gain from sale of principal resi-
dence.
Sec. 106. $1,000,000 exemption from estate and gift taxes.
Subtitle B—Provisions Relating to Education
Sec. 111. Eligible educational institutions permitted to maintain qualified tui-
tion programs.
Sec. 112. Modification of arbitrage rebate rules applicable to public school con-
struction bonds.
Subtitle C—Provisions Relating to Social Security
Sec. 121. Increases in the social security earnings limit for individuals who
have attained retirement age.
Sec. 122. Recomputation of benefits after normal retirement age.
TITLE II—PROVISIONS PRIMARILY AFFECTING FARMING AND
OTHER BUSINESSES
Subtitle A—Increase in Expense Treatment for Small Businesses
Sec. 201. Increase in expense treatment for small businesses.
Subtitle B—Provisions Relating to Farmers
Sec. 211. Income averaging for farmers made permanent.
Sec. 212. 5-year net operating loss carryback for farming losses.
Sec. 213. Production flexibility contract payments.
Subtitle C—Increase in Volume Cap on Private Activity Bonds
Sec. 221. Increase in volume cap on private activity bonds.
TITLE III—EXTENSION AND MODIFICATION OF CERTAIN
EXPIRING PROVISIONS
Subtitle A—Tax Provisions
Sec. 301. Research credit.
Sec. 302. Work opportunity credit.
Sec. 303. Welfare-to-work credit.
Sec. 304. Contributions of stock to private foundations; expanded public inspec-
tion of private foundations’ annual returns.
Sec. 305. Subpart F exemption for active financing income.
Subtitle B—Generalized System of Preferences
Sec. 311. Extension of Generalized System of Preferences.
TITLE IV—REVENUE OFFSET
Sec. 401. Treatment of certain deductible liquidating distributions of regulated
investment companies and real estate investment trusts.
TITLE V—TECHNICAL CORRECTIONS
Sec. 501. Definitions; coordination with other titles.
Sec. 502. Amendments related to Internal Revenue Service Restructuring and
Reform Act of 1998.
Sec. 503. Amendments related to Taxpayer Relief Act of 1997.
Sec. 504. Amendments related to Tax Reform Act of 1984.
Sec. 505. Other amendments.
TITLE VI—AMERICAN COMMUNITY RENEWAL ACT OF 1998
Sec. 601. Short title.
Sec. 602. Findings and purpose.
Subtitle A—Designation and Evaluation of Renewal Communities
Sec. 611. Short title.
Sec. 612. Statement of purpose.
Sec. 613. Designation of renewal communities.
Sec. 614. Evaluation and reporting requirements.
Sec. 615. Interaction with other Federal programs.
Subtitle B—Tax Incentives for Renewal Communities
Sec. 621. Tax treatment of renewal communities.
Sec. 622. Extension of work opportunity tax credit for renewal communities
Sec. 623. Conforming and clerical amendments.
TITLE VII—TAX REDUCTIONS CONTINGENT ON SAVING SOCIAL
SECURITY
Sec. 701. Tax reductions contingent on saving social security.
Sec. 702. Reservation of social security surpluses solely for social security sys-
tem.
TITLE 
I—PROVISIONS 
PRI-
MARILY AFFECTING INDIVID-
UALS AND FAMILIES
Subtitle A—General Provisions
SEC. 101. ELIMINATION OF MARRIAGE PENALTY IN STAND-
ARD DEDUCTION.
(a) IN GENERAL.—Paragraph (2) of section 63(c)
(relating to standard deduction) is amended—
(1) by striking ‘‘$5,000’’ in subparagraph (A)
and inserting ‘‘twice the dollar amount in effect
under subparagraph (C) for the taxable year’’,
(2) by adding ‘‘or’’ at the end of subparagraph
(B),
(3) by striking ‘‘in the case of ’’ and all that fol-
lows in subparagraph (C) and inserting ‘‘in any
other case.’’, and
(4) by striking subparagraph (D).
(b) ADDITIONAL STANDARD DEDUCTION FOR AGED
AND BLIND TO BE THE SAME FOR MARRIED AND UN-
MARRIED INDIVIDUALS.—
(1) Paragraphs (1) and (2) of section 63(f) are
each amended by striking ‘‘$600’’ and inserting
‘‘$750’’.
(2) Subsection (f) of section 63 is amended by
striking paragraph (3) and by redesignating para-
graph (4) as paragraph (3).
(c) TECHNICAL AMENDMENT.—Subparagraph (B) of
section 1(f)(6) is amended by striking ‘‘(other than with’’
and all that follows through ‘‘shall be applied’’ and insert-
ing ‘‘(other than with respect to sections 63(c)(4) and
151(d)(4)(A)) shall be applied’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 102. EXEMPTION OF CERTAIN INTEREST AND DIVI-
DEND INCOME FROM TAX.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to amounts specifically excluded from gross
income) is amended by inserting after section 115 the fol-
lowing new section:
‘‘SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTER-
EST RECEIVED BY INDIVIDUALS.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come does not include dividends and interest received dur-
ing the taxable year by an individual.
‘‘(b) LIMITATIONS.—
‘‘(1) 
MAXIMUM
AMOUNT.—The 
aggregate
amount excluded under subsection (a) for any tax-
able year shall not exceed $200 ($400 in the case of
a joint return).
‘‘(2) CERTAIN
DIVIDENDS
EXCLUDED.—Sub-
section (a) shall not apply to any dividend from a
corporation which, for the taxable year of the cor-
poration in which the distribution is made, or for the
next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (re-
lating to certain charitable, etc., organization) or
section 521 (relating to farmers’ cooperative associa-
tions).
‘‘(c) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) DISTRIBUTIONS
FROM
REGULATED
IN-
VESTMENT COMPANIES AND REAL ESTATE INVEST-
MENT TRUSTS.—Subsection (a) shall apply with re-
spect to distributions by—
‘‘(A) regulated investment companies sub-
ject to the limitations provided in section
854(b), and
‘‘(B) real estate investment trusts subject
to the limitations provided in section 857(c).
‘‘(2) DISTRIBUTIONS BY A TRUST.—For pur-
poses of subsection (a), the amount of dividends and
interest properly allocable to a beneficiary under sec-
tion 652 or 662 shall be deemed to have been re-
ceived by the beneficiary ratably on the same date
that the dividends and interest were received by the
estate or trust.
‘‘(3) CERTAIN
NONRESIDENT
ALIENS
INELI-
GIBLE
FOR
EXCLUSION.—In the case of a non-
resident alien individual, subsection (a) shall apply
only—
‘‘(A) in determining the tax imposed for
the taxable year pursuant to section 871(b)(1)
and only in respect of dividends and interest
which are effectively connected with the conduct
of a trade or business within the United States,
or
‘‘(B) in determining the tax imposed for
the taxable year pursuant to section 877(b).
‘‘(4) DIVIDENDS FROM EMPLOYEE STOCK OWN-
ERSHIP PLANS.—Subsection (a) shall not apply to
any dividend described in section 404(k).’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 265(a) is amended
by inserting before the period ‘‘, or to purchase or
carry obligations or shares, or to make deposits, to
the extent the interest thereon is excludable from
gross income under section 116’’.
(2) Subsection (c) of section 584 is amended by
adding at the end thereof the following new flush
sentence:
‘‘The proportionate share of each participant in the
amount of dividends or interest received by the common
trust fund and to which section 116 applies shall be con-
sidered for purposes of such section as having been re-
ceived by such participant.’’
(3) Subsection (a) of section 643 is amended by
redesignating paragraph (7) as paragraph (8) and
by inserting after paragraph (6) the following new
paragraph:
‘‘(7) DIVIDENDS OR INTEREST.—There shall be
included the amount of any dividends or interest ex-
cluded from gross income pursuant to section 116.’’
(4) Section 854 is amended to read as follows:
‘‘SEC. 854. LIMITATIONS APPLICABLE TO DIVIDENDS RE-
CEIVED 
FROM 
REGULATED 
INVESTMENT
COMPANY.
‘‘(a) CAPITAL GAIN DIVIDEND.—For purposes of sec-
tion 116 (relating to partial exclusion of dividends and in-
terest received by individuals) and section 243 (relating
to deductions for dividends received by corporations), a
capital gain dividend (as defined in section 852(b)(3)) re-
ceived from a regulated investment company shall not be
considered as a dividend.
‘‘(b) OTHER DIVIDENDS.—
‘‘(1) AMOUNT TREATED AS DIVIDEND.—
‘‘(A) DEDUCTION UNDER SECTION 243.—
In any case in which—
‘‘(i) a dividend is received from a reg-
ulated investment company (other than a
dividend to which subsection (a) applies),
and
‘‘(ii) such investment company meets
the requirements of section 852(a) for the
taxable year during which it paid such div-
idend,
then, in computing any deduction under section
243, there shall be taken into account only that
portion of such dividend designated under this
subparagraph by the regulated investment com-
pany and such dividend shall be treated as re-
ceived from a corporation which is not a 20-per-
cent owned corporation.
‘‘(B) EXCLUSION UNDER SECTION 116.—If
the aggregate dividends and interest received by
a regulated investment company during any
taxable year are less than 95 percent of its
gross income, then in computing the exclusion
under section 116, rules similar to the rules of
subparagraph (A) shall apply.
‘‘(C) LIMITATIONS.—
‘‘(i) SECTION
243.—The aggregate
amount which may be designated as divi-
dends under subparagraph (A) shall not
exceed the aggregate dividends received by
the company for the taxable year.
‘‘(ii) SECTION
116.—The aggregate
amount which may be designated as divi-
dends under subparagraph (B) shall not
exceed the sum of the aggregate dividends
and aggregate interest received by the
company for the taxable year.
‘‘(2) NOTICE TO SHAREHOLDERS.—The amount
of any distribution by a regulated investment com-
pany which may be taken into account as a dividend
for purposes of the exclusion under section 116 and
the deduction under section 243 shall not exceed the
amount so designated by the company in a written
notice to its shareholders mailed not later than 60
days after the close of its taxable year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) GROSS INCOME.—In the case of 1 or
more sales or other dispositions of stock or se-
curities, the term ‘gross income’ includes only
the excess of—
‘‘(i) the net short-term capital gain
from such sales or dispositions, over
‘‘(ii) the net long-term capital loss
from such sales or dispositions.
‘‘(B) AGGREGATE DIVIDENDS.—
‘‘(i) IN GENERAL.—The term ‘aggre-
gate dividends’ does not include dividends
described in section 116(b)(2) (relating to
dividends excluded from income).
‘‘(ii) DISTRIBUTIONS FROM REAL ES-
TATE
INVESTMENT
TRUSTS
AND
OTHER
REGULATED INVESTMENT COMPANIES.—In
determining the amount of any dividend
for purposes of this subparagraph, the
rules of section 116(c)(1) shall apply; ex-
cept that, for purposes of applying sub-
paragraph (C)(i) of paragraph (1), aggre-
gate dividends shall not include a distribu-
tion from a real estate investment trust
which, for the taxable year of the trust in
which the dividend is paid, qualifies under
part II of subchapter M (section 856 and
following).
‘‘(C) AGGREGATE
INTEREST.—The term
‘aggregate interest’ means only interest includ-
ible in gross income. Gross income and aggre-
gate interest received shall each be reduced by
so much of the deduction allowable by section
163 for the taxable year as does not exceed ag-
gregate interest received for the taxable year.
‘‘(4) SPECIAL RULE FOR COMPUTING DEDUC-
TION UNDER SECTION 243.—For purposes of sub-
paragraph (A) of paragraph (1), an amount shall be
treated as a dividend for the purpose of paragraph
(1) only if a deduction would have been allowable
under section 243 to the regulated investment com-
pany determined—
‘‘(A) as if section 243 applied to dividends
received by a regulated investment company,
‘‘(B) after the application of section 246
(but without regard to subsection (b) thereof),
and
‘‘(C) after the application of section
246A.’’
(5) Subsection (c) of section 857 is amended to
read as follows:
‘‘(c) LIMITATIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) CAPITAL GAIN DIVIDEND.—For purposes
of section 116 (relating to partial exclusion of divi-
dends and interest received by individuals), a capital
gain dividend (as defined in subsection (b)(3)(C)) re-
ceived from a real estate investment trust which
meets the requirements of this part shall not be con-
sidered as a dividend.
‘‘(2) ONLY
PORTION
OF
DIVIDEND
EXCLUD-
ABLE UNDER SECTION 116 IN CERTAIN CASES.—
‘‘(A) IN
GENERAL.—In any case in
which—
‘‘(i) a dividend is received from a real
estate investment trust (other than a cap-
ital gain dividend, as defined in subsection
(b)(3)(C)),
‘‘(ii) such trust meets the require-
ments of this part for the taxable year dur-
ing which it paid such dividend, and
‘‘(iii) the aggregate interest received
by such trust during the taxable year is
less than 95 percent of its gross income,
then, in computing any exclusion under section
116, there shall be taken into account only that
portion of such dividend designated under this
subparagraph as interest by the real estate in-
vestment trust.
‘‘(B) LIMITATION.—The aggregate amount
which may be designated as interest under sub-
paragraph (A) shall not exceed the aggregate
interest received by the trust for the taxable
year.
‘‘(3) ADJUSTMENTS TO GROSS INCOME AND AG-
GREGATE
INTEREST
RECEIVED.—For purposes of
this subsection—
‘‘(A) gross income does not include net
capital gain,
‘‘(B) gross income and aggregate interest
received shall each be reduced by so much of
the deduction allowable by section 163 for the
taxable year (other than for interest on mort-
gages on real property owned by the real estate
investment trust) as does not exceed aggregate
interest received for the taxable year, and
‘‘(C) gross income shall be reduced by the
sum of the taxes imposed by paragraphs (4),
(5), and (6) of subsection (b).
‘‘(4) AGGREGATE INTEREST.—For purposes of
this subsection, the term ‘aggregate interest’ means
only interest includible in gross income.
‘‘(5) NOTICE TO SHAREHOLDERS.—The amount
of any distribution by a real estate investment trust
which may be taken into account as interest for pur-
poses of the exclusion under section 116 shall not
exceed the amount so designated by the trust in a
written notice to its shareholders mailed not later
than 60 days after the close of its taxable year.
‘‘(6) CROSS REFERENCE.—
‘‘For restriction on dividends received by a cor-
poration, see section 243(d)(3).’’
(6) The table of sections for part III of sub-
chapter B of chapter 1 is amended by inserting after
the item relating to section 115 the following new
item:
‘‘Sec. 116. Partial exclusion of dividends and interest received by
individuals.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 103. NONREFUNDABLE PERSONAL CREDITS ALLOWED
AGAINST ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Subsection (a) of section 26 is
amended to read as follows:
‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The
aggregate amount of credits allowed by this subpart for
the taxable year shall not exceed the sum of—
‘‘(1) the taxpayer’s regular tax liability for the
taxable year, and
‘‘(2) the tax imposed for the taxable year by
section 55(a).’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 24 is amended by
striking paragraph (2) and by redesignating para-
graph (3) as paragraph (2).
(2) Section 32 is amended by striking sub-
section (h).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 104. 100 PERCENT DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
(relating to special rules for health insurance costs of self-
employed individuals) is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of an
individual who is an employee within the meaning of sec-
tion 401(c)(1), there shall be allowed as a deduction under
this section an amount equal to 100 percent of the amount
paid during the taxable year for insurance which con-
stitutes medical care for the taxpayer, his spouse, and de-
pendents.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 105. SPECIAL RULE FOR MEMBERS OF UNIFORMED
SERVICES AND FOREIGN SERVICE IN DETER-
MINING EXCLUSION OF GAIN FROM SALE OF
PRINCIPAL RESIDENCE.
(a) IN GENERAL.—Subsection (d) of section 121 (re-
lating to exclusion of gain from sale of principal residence)
is amended by adding at the end the following new para-
graph:
‘‘(9) MEMBERS OF UNIFORMED SERVICES AND
FOREIGN SERVICE.—
‘‘(A) IN GENERAL.—The running of the 5-
year period described in subsection (a) shall be
suspended with respect to an individual during
any time that such individual or such individ-
ual’s spouse is serving on qualified official ex-
tended duty as a member of the uniformed
services or of the Foreign Service.
‘‘(B) QUALIFIED
OFFICIAL
EXTENDED
DUTY.—For purposes of subparagraph (A)—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, the term ‘qualified official
extended duty’ means any period of ex-
tended duty as a member of the uniformed
services or a member of the Foreign Serv-
ice during which the member serves at a
duty station which is at least 50 miles
from such property or is under Govern-
ment orders to reside in Government quar-
ters.
‘‘(ii) 
UNIFORMED
SERVICES.—For
purposes of clause (i), the term ‘uniformed
services’ has the meaning given such term
by section 101(a)(5) of title 10, United
States Code, as in effect on the date of the
enactment of this paragraph.
‘‘(iii) FOREIGN
SERVICE
OF
THE
UNITED STATES.—For purposes of clause
(i), the term ‘member of the Foreign Serv-
ice’ has the meaning given the term ‘mem-
ber of the Service’ by paragraph (1), (2),
(3), (4), or (5) of section 103 of the For-
eign Service Act of 1980, as in effect on
the date of the enactment of this para-
graph.
‘‘(iv) EXTENDED
DUTY.—The term
‘extended duty’ means any period of active
duty pursuant to a call or order to such
duty for a period in excess of 90 days or
for an indefinite period.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to sales and exchanges after the
date of the enactment of this Act.
SEC. 106. $1,000,000 EXEMPTION FROM ESTATE AND GIFT
TAXES.
(a) IN GENERAL.—Subsection (c) of section 2010
(relating to applicable credit amount) is amended to read
as follows:
‘‘(c) APPLICABLE CREDIT AMOUNT.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the applicable credit amount is $345,800.
‘‘(2) APPLICABLE
EXCLUSION
AMOUNT.—For
purposes of the provisions of this title which refer to
this subsection, the applicable exclusion amount is
$1,000,000.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying, and
gifts made, after December 31, 1998.
Subtitle B—Provisions Relating to
Education
SEC. 111. ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION
PROGRAMS.
(a) IN GENERAL.—Paragraph (1) of section 529(b)
(defining qualified State tuition program) is amended by
inserting ‘‘or by 1 or more eligible educational institu-
tions’’ after ‘‘maintained by a State or agency or instru-
mentality thereof’’.
(b) TECHNICAL AMENDMENTS.—
(1) The texts of sections 72(e)(9), 135(c)(2)(C),
135(d)(1)(D), 529, 530, and 4973(e)(1)(B) are each
amended by striking ‘‘qualified State tuition pro-
gram’’ each place it appears and inserting ‘‘qualified
tuition program’’.
(2) The paragraph heading for paragraph (9) of
section 72(e) and the subparagraph heading for sub-
paragraph (B) of section 530(b)(2) are each amend-
ed by striking ‘‘QUALIFIED
STATE
TUITION
PRO-
GRAMS’’ and inserting ‘‘QUALIFIED
TUITION
PRO-
GRAMS’’.
(3) The subparagraph heading for subpara-
graph (C) of section 135(c)(2) is amended by strik-
ing ‘‘QUALIFIED STATE TUITION PROGRAM’’ and in-
serting ‘‘QUALIFIED TUITION PROGRAMS’’.
(4) Sections 529(c)(3)(D)(i) and 6693(a)(2)(C)
are each amended by striking ‘‘qualified State tui-
tion programs’’ and inserting ‘‘qualified tuition pro-
grams’’.
(5)(A) The section heading of section 529 is
amended to read as follows:
‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.
(B) The item relating to section 529 in the
table of sections for part VIII of subchapter F of
chapter 1 is amended by striking ‘‘State’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1999.
SEC. 112. MODIFICATION OF ARBITRAGE REBATE RULES
APPLICABLE TO PUBLIC SCHOOL CONSTRUC-
TION BONDS.
(a) IN GENERAL.—Subparagraph (C) of section
148(f)(4) is amended by adding at the end the following
new clause:
‘‘(xviii) 4-YEAR
SPENDING
REQUIRE-
MENT FOR PUBLIC SCHOOL CONSTRUCTION
ISSUE.—
‘‘(I) IN GENERAL.—In the case
of a public school construction issue,
the spending requirements of clause
(ii) shall be treated as met if at least
10 percent of the available construc-
tion proceeds of the construction issue
are spent for the governmental pur-
poses of the issue within the 1-year
period beginning on the date the
bonds are issued, 30 percent of such
proceeds are spent for such purposes
within the 2-year period beginning on
such date, 50 percent of such pro-
ceeds are spent for such purposes
within the 3-year period beginning on
such date, and 100 percent of such
proceeds are spent for such purposes
within the 4-year period beginning on
such date.
‘‘(II) 
PUBLIC
SCHOOL
CON-
STRUCTION ISSUE.—For purposes of
this clause, the term ‘public school
construction issue’ means any con-
struction issue if no bond which is
part of such issue is a private activity
bond and all of the available construc-
tion proceeds of such issue are to be
used for the construction (as defined
in clause (iv)) of public school facili-
ties to provide education or training
below the postsecondary level or for
the acquisition of land that is func-
tionally related and subordinate to
such facilities.
‘‘(III) 
OTHER
RULES
TO
APPLY.—Rules similar to the rules of
the preceding provisions of this sub-
paragraph which apply to clause (ii)
also apply to this clause.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to obligations issued after Decem-
ber 31, 1998.
Subtitle C—Provisions Relating to
Social Security
SEC. 121. INCREASES IN THE SOCIAL SECURITY EARNINGS
LIMIT FOR INDIVIDUALS WHO HAVE AT-
TAINED RETIREMENT AGE.
(a) IN GENERAL.—Section 203(f)(8)(D) of the Social
Security Act (42 U.S.C. 403(f)(8)(D)) is amended by
striking clauses (iv) through (vii) and inserting the follow-
ing new clauses:
‘‘(iv) for each month of any taxable
year ending after 1998 and before 2000,
$1,416.662⁄3,
‘‘(v) for each month of any taxable
year ending after 1999 and before 2001,
$1,541.662⁄3,
‘‘(vi) for each month of any taxable
year ending after 2000 and before 2002,
$2,166.662⁄3,
‘‘(vii) for each month of any taxable
year ending after 2001 and before 2003,
$2,500.00,
‘‘(viii) for each month of any taxable
year ending after 2002 and before 2004,
$2,608.331⁄3,
‘‘(ix) for each month of any taxable
year ending after 2003 and before 2005,
$2,833.331⁄3,
‘‘(x) for each month of any taxable
year ending after 2004 and before 2006,
$2,950.00,
‘‘(xi) for each month of any taxable
year ending after 2005 and before 2007,
$3,066.662⁄3,
‘‘(xii) for each month of any taxable
year ending after 2006 and before 2008,
$3,195.831⁄3, and
‘‘(xiii) for each month of any taxable
year ending after 2007 and before 2009,
$3,312.50.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 203(f)(8)(B)(ii) of such Act (42
U.S.C. 403(f)(8)(B)(ii)) is amended—
(A) by striking ‘‘after 2001 and before
2003’’ and inserting ‘‘after 2007 and before
2009’’; and
(B) in subclause (II), by striking ‘‘2000’’
and inserting ‘‘2006’’.
(2) The second sentence of section 223(d)(4)(A)
of such Act (42 U.S.C. 423(d)(4)(A)) is amended by
inserting ‘‘and section 121 of the Save Social Secu-
rity and Taxpayer Relief Act of 1998’’ after ‘‘1996’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to taxable years end-
ing after 1998.
SEC. 122. RECOMPUTATION OF BENEFITS AFTER NORMAL
RETIREMENT AGE.
(a) IN GENERAL.—Section 215(f)(2)(D)(i) of the So-
cial Security Act (42 U.S.C. 415(f)(2)(D)(i)) is amended
to read as follows:
‘‘(i) in the case of an individual who did not die
in the year with respect to which the recomputation
is made, for monthly benefits beginning with bene-
fits for January of—
‘‘(I) the second year following the year
with respect to which the recomputation is
made, in any such case in which the individual
is entitled to old-age insurance benefits, the in-
dividual has attained retirement age (as defined
in section 216(l)) as of the end of the year pre-
ceding the year with respect to which the re-
computation is made, and the year with respect
to which the recomputation is made would not
be substituted in recomputation under this sub-
section for a benefit computation year in which
no wages or self-employment income have been
credited previously to such individual, or
‘‘(II) the first year following the year with
respect to which the recomputation is made, in
any other such case; or’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 215(f)(7) of such Act (42 U.S.C.
415(f)(7)) is amended by inserting ‘‘, and as
amended by section 122(b)(2) of the Save Social Se-
curity and Taxpayer Relief Act of 1998,’’ after
‘‘This subsection as in effect in December 1978’’.
(2) Subparagraph (A) section 215(f)(2) of the
Social Security Act as in effect in December 1978
and applied in certain cases under the provisions of
such Act as in effect after December 1978 is amend-
ed—
(A) by striking ‘‘in the case of an individ-
ual who did not die’’ and all that follows and
inserting ‘‘in the case of an individual who did
not die in the year with respect to which the re-
computation is made, for monthly benefits be-
ginning with benefits for January of—’’; and
(B) by adding at the end the following:
‘‘(i) the second year following the year with
respect to which the recomputation is made, in
any such case in which the individual is entitled
to old-age insurance benefits, the individual has
attained age 65 as of the end of the year pre-
ceding the year with respect to which the re-
computation is made, and the year with respect
to which the recomputation is made would not
be substituted in recomputation under this sub-
section for a benefit computation year in which
no wages or self-employment income have been
credited previously to such individual, or
‘‘(ii) the first year following the year with
respect to which the recomputation is made, in
any other such case; or’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to recomputations of
primary insurance amounts based on wages paid and self
employment income derived after 1997 and with respect
to benefits payable after December 31, 1998.
TITLE 
II—PROVISIONS 
PRI-
MARILY AFFECTING FARMING
AND OTHER BUSINESSES
Subtitle A—Increase in Expense
Treatment for Small Businesses
SEC. 201. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section
179(b) (relating to dollar limitation) is amended to read
as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $25,000.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
Subtitle B—Provisions Relating to
Farmers
SEC. 211. INCOME AVERAGING FOR FARMERS MADE PER-
MANENT.
Subsection (c) of section 933 of the Taxpayer Relief
Act of 1997 is amended by striking ‘‘, and before January
1, 2001’’.
SEC. 212. 5-YEAR NET OPERATING LOSS CARRYBACK FOR
FARMING LOSSES.
(a) IN GENERAL.—Paragraph (1) of section 172(b)
(relating to net operating loss deduction) is amended by
adding at the end the following new subparagraph:
‘‘(G) FARMING LOSSES.—In the case of a
taxpayer which has a farming loss (as defined
in subsection (i)) for a taxable year, such farm-
ing loss shall be a net operating loss carryback
to each of the 5 taxable years preceding the
taxable year of such loss.’’
(b) FARMING LOSS.—Section 172 is amended by re-
designating subsection (i) as subsection (j) and by insert-
ing after subsection (h) the following new subsection:
‘‘(i) RULES RELATING TO FARMING LOSSES.—For
purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘farming loss’
means the lesser of—
‘‘(A) the amount which would be the net
operating loss for the taxable year if only in-
come and deductions attributable to farming
businesses (as defined in section 263A(e)(4))
are taken into account, or
‘‘(B) the amount of the net operating loss
for such taxable year.
‘‘(2) 
COORDINATION
WITH
SUBSECTION
(B)(2).—For purposes of applying subsection (b)(2),
a farming loss for any taxable year shall be treated
in a manner similar to the manner in which a speci-
fied liability loss is treated.
‘‘(3) ELECTION.—Any taxpayer entitled to a 5-
year carryback under subsection (b)(1)(G) from any
loss year may elect to have the carryback period
with respect to such loss year determined without re-
gard to subsection (b)(1)(G). Such election shall be
made in such manner as may be prescribed by the
Secretary and shall be made by the due date (includ-
ing extensions of time) for filing the taxpayer’s re-
turn for the taxable year of the net operating loss.
Such election, once made for any taxable year, shall
be irrevocable for such taxable year.’’
(c) 
COORDINATION
WITH
FARM
DISASTER
LOSSES.—Clause (ii) of section 172(b)(1)(F) is amended
by adding at the end the following flush sentence:
‘‘Such term shall not include any farming
loss (as defined in subsection (i)).’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to net operating losses for taxable
years beginning after December 31, 1997.
SEC. 213. PRODUCTION FLEXIBILITY CONTRACT PAY-
MENTS.
The option under section 112(d)(3) of the Federal
Agriculture Improvement and Reform Act of 1996 (7
U.S.C. 7212(d)(3)) shall be disregarded in determining
the taxable year for which the payment for fiscal year
1999 under a production flexibility contract under subtitle
B of title I of such Act is properly includible in gross in-
come for purposes of the Internal Revenue Code of 1986.
Subtitle C—Increase in Volume
Cap on Private Activity Bonds
SEC. 221. INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY
BONDS.
(a) IN GENERAL.—Subsection (d) of section 146 (re-
lating to volume cap) is amended by striking paragraph
(2), by redesignating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively, and by striking para-
graph (1) and inserting the following new paragraph:
‘‘(1) IN GENERAL.—The State ceiling applicable
to any State for any calendar year shall be the
greater of—
‘‘(A) an amount equal to $75 multiplied by
the State population, or
‘‘(B) $225,000,000.
Subparagraph (B) shall not apply to any possession
of the United States.’’
(b) CONFORMING AMENDMENT.—Sections 25(f)(3)
and 42(h)(3)(E)(iii) are each amended by striking ‘‘sec-
tion 146(d)(3)(C)’’ and inserting ‘‘section 146(d)(2)(C)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to calendar years after 1998.
TITLE 
III—EXTENSION 
AND
MODIFICATION OF CERTAIN
EXPIRING PROVISIONS
Subtitle A—Tax Provisions
SEC. 301. RESEARCH CREDIT.
(a) TEMPORARY EXTENSION.—
(1) IN
GENERAL.—Paragraph (1) of section
41(h) (relating to termination) is amended—
(A) by striking ‘‘June 30, 1998’’ and in-
serting ‘‘February 29, 2000’’,
(B) by striking ‘‘24-month’’ and inserting
‘‘44-month’’, and
(C) by striking ‘‘24 months’’ and inserting
‘‘44 months’’.
(2) TECHNICAL
AMENDMENT.—Subparagraph
(D) of section 45C(b)(1) is amended by striking
‘‘June 30, 1998’’ and inserting ‘‘February 29,
2000’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts paid or in-
curred after June 30, 1998.
(b) INCREASE
IN PERCENTAGES UNDER ALTER-
NATIVE INCREMENTAL CREDIT.—
(1) IN GENERAL.—Subparagraph (A) of section
41(c)(4) is amended—
(A) by striking ‘‘1.65 percent’’ and insert-
ing ‘‘2.65 percent’’,
(B) by striking ‘‘2.2 percent’’ and inserting
‘‘3.2 percent’’, and
(C) by striking ‘‘2.75 percent’’ and insert-
ing ‘‘3.75 percent’’.
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after June 30, 1998.
SEC. 302. WORK OPPORTUNITY CREDIT.
(a) TEMPORARY EXTENSION.—Subparagraph (B) of
section 51(c)(4) (relating to termination) is amended by
striking ‘‘June 30, 1998’’ and inserting ‘‘February 29,
2000’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to individuals who begin work for
the employer after June 30, 1998.
SEC. 303. WELFARE-TO-WORK CREDIT.
Subsection (f) of section 51A (relating to termi-
nation) is amended by striking ‘‘April 30, 1999’’ and in-
serting ‘‘February 29, 2000’’.
SEC. 304. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDA-
TIONS; EXPANDED PUBLIC INSPECTION OF
PRIVATE FOUNDATIONS’ ANNUAL RETURNS.
(a) SPECIAL RULE FOR CONTRIBUTIONS OF STOCK
MADE PERMANENT.—
(1) IN
GENERAL.—Paragraph (5) of section
170(e) is amended by striking subparagraph (D)
(relating to termination).
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to contributions made
after June 30, 1998.
(b) EXPANDED PUBLIC INSPECTION
OF PRIVATE
FOUNDATIONS’ ANNUAL RETURNS, ETC.—
(1) IN
GENERAL.—Section 6104 (relating to
publicity of information required from certain ex-
empt organizations and certain trusts) is amended
by striking subsections (d) and (e) and inserting
after subsection (c) the following new subsection:
‘‘(d) PUBLIC INSPECTION OF CERTAIN ANNUAL RE-
TURNS AND APPLICATIONS FOR EXEMPTION.—
‘‘(1) IN GENERAL.—In the case of an organiza-
tion described in subsection (c) or (d) of section 501
and exempt from taxation under section 501(a)—
‘‘(A) a copy of—
‘‘(i) the annual return filed under sec-
tion 6033 (relating to returns by exempt
organizations) by such organization, and
‘‘(ii) if the organization filed an appli-
cation for recognition of exemption under
section 501, the exempt status application
materials of such organization,
shall be made available by such organization for
inspection during regular business hours by any
individual at the principal office of such organi-
zation and, if such organization regularly main-
tains 1 or more regional or district offices hav-
ing 3 or more employees, at each such regional
or district office, and
‘‘(B) upon request of an individual made
at such principal office or such a regional or
district office, a copy of such annual return and
exempt status application materials shall be
provided to such individual without charge
other than a reasonable fee for any reproduc-
tion and mailing costs.
The request described in subparagraph (B) must be
made in person or in writing. If such request is
made in person, such copy shall be provided imme-
diately and, if made in writing, shall be provided
within 30 days.
‘‘(2) 3-YEAR
LIMITATION
ON
INSPECTION
OF
RETURNS.—Paragraph (1) shall apply to an annual
return filed under section 6033 only during the 3-
year period beginning on the last day prescribed for
filing such return (determined with regard to any
extension of time for filing).
‘‘(3) EXCEPTIONS FROM DISCLOSURE REQUIRE-
MENT.—
‘‘(A) 
NONDISCLOSURE
OF
CONTRIBU-
TORS.—Paragraph (1) shall not require the dis-
closure of the name or address of any contribu-
tor to the organization.
‘‘(B) NONDISCLOSURE OF CERTAIN OTHER
INFORMATION.—Paragraph (1) shall not re-
quire the disclosure of any information if the
Secretary withheld such information from pub-
lic inspection under subsection (a)(1)(D).
‘‘(4) LIMITATION
ON
PROVIDING
COPIES.—
Paragraph (1)(B) shall not apply to any request if,
in accordance with regulations promulgated by the
Secretary, the organization has made the requested
documents widely available, or the Secretary deter-
mines, upon application by an organization, that
such request is part of a harassment campaign and
that compliance with such request is not in the pub-
lic interest.
‘‘(5) EXEMPT
STATUS
APPLICATION
MATE-
RIALS.—For purposes of paragraph (1), the term
‘exempt status applicable materials’ means the appli-
cation for recognition of exemption under section
501 and any papers submitted in support of such
application and any letter or other document issued
by the Internal Revenue Service with respect to such
application.’’
(2) CONFORMING AMENDMENTS.—
(A) Subsection (c) of section 6033 is
amended by adding ‘‘and’’ at the end of para-
graph (1), by striking paragraph (2), and by re-
designating paragraph (3) as paragraph (2).
(B) 
Subparagraph 
(C) 
of 
section
6652(c)(1) is amended by striking ‘‘subsection
(d) or (e)(1) of section 6104 (relating to public
inspection of annual returns)’’ and inserting
‘‘section 6104(d) with respect to any annual re-
turn’’.
(C) 
Subparagraph 
(D) 
of 
section
6652(c)(1) is amended by striking ‘‘section
6104(e)(2) (relating to public inspection of ap-
plications for exemption)’’ and inserting ‘‘sec-
tion 6104(d) with respect to any exempt status
application materials (as defined in such sec-
tion)’’.
(D) Section 6685 is amended by striking
‘‘or (e)’’.
(E) Section 7207 is amended by striking
‘‘or (e)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years end-
ing after December 31, 1998.
SEC. 305. SUBPART F EXEMPTION FOR ACTIVE FINANCING
INCOME.
(a) INCOME DERIVED FROM BANKING, FINANCING
OR SIMILAR BUSINESSES.—Section 954(h) (relating to in-
come derived in the active conduct of banking, financing,
or similar businesses) is amended to read as follows:
‘‘(h) SPECIAL RULE FOR INCOME DERIVED IN THE
ACTIVE CONDUCT OF BANKING, FINANCING, OR SIMILAR
BUSINESSES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income
shall not include qualified banking or financing in-
come of an eligible controlled foreign corporation.
‘‘(2) ELIGIBLE
CONTROLLED
FOREIGN
COR-
PORATION.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘eligible con-
trolled foreign corporation’ means a controlled
foreign corporation which—
‘‘(i) is predominantly engaged in the
active conduct of a banking, financing, or
similar business, and
‘‘(ii) conducts substantial activity with
respect to such business.
‘‘(B) PREDOMINANTLY ENGAGED.—A con-
trolled foreign corporation shall be treated as
predominantly engaged in the active conduct of
a banking, financing, or similar business if—
‘‘(i) more than 70 percent of the gross
income of the controlled foreign corpora-
tion is derived directly from the active and
regular conduct of a lending or finance
business from transactions with customers
which are not related persons, or
‘‘(ii) it is engaged in the active con-
duct of a banking business and is an insti-
tution licensed to do business as a bank in
the United States (or is any other corpora-
tion not so licensed which is specified by
the Secretary in regulations).
‘‘(3) QUALIFIED BANKING OR FINANCING IN-
COME.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
banking or financing income’ means income of
an 
eligible 
controlled 
foreign 
corporation
which—
‘‘(i) is derived in the active conduct of
a banking, financing, or similar business
by—
‘‘(I) such eligible controlled for-
eign corporation, or
‘‘(II) a qualified business unit of
such eligible controlled foreign cor-
poration,
‘‘(ii) is derived from 1 or more trans-
actions—
‘‘(I) with customers located in a
country other than the United States,
and
‘‘(II) substantially all of the ac-
tivities in connection with which are
conducted directly by the corporation
or unit in its home country, and
‘‘(iii) is treated as earned by such cor-
poration or unit in its home country for
purposes of such country’s tax laws.
‘‘(B) LIMITATION ON NONBANKING BUSI-
NESSES.—No income of an eligible controlled
foreign corporation not described in paragraph
(2)(B)(ii) (or of a qualified business unit of
such corporation) shall be treated as qualified
banking or financing income unless more than
30 percent of such corporation’s or unit’s gross
income is derived directly from the active and
regular conduct of a lending or finance business
from transactions with customers which are not
related persons and which are located within
such corporation’s or unit’s home country.
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENT FOR CROSS BORDER INCOME.—The term
‘qualified banking or financing income’ shall
not include income derived from 1 or more
transactions with customers located in a coun-
try other than the home country of the eligible
controlled foreign corporation or a qualified
business unit of such corporation unless such
corporation or unit conducts substantial activity
with respect to a banking, financing, or similar
business in its home country.
‘‘(D) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of this paragraph, the
qualified banking or financing income of an eli-
gible controlled foreign corporation and each
qualified business unit of such corporation shall
be determined separately for such corporation
and each such unit by taking into account—
‘‘(i) in the case of the eligible con-
trolled foreign corporation, only items of
income, deduction, gain, or loss and activi-
ties of such corporation not properly allo-
cable or attributable to any qualified busi-
ness unit of such corporation, and
‘‘(ii) in the case of a qualified busi-
ness unit, only items of income, deduction,
gain, or loss and activities properly alloca-
ble or attributable to such unit.
‘‘(4) LENDING
OR
FINANCE
BUSINESS.—For
purposes of this subsection, the term ‘lending or fi-
nance business’ means the business of—
‘‘(A) making loans,
‘‘(B) purchasing or discounting accounts
receivable, notes, or installment obligations,
‘‘(C) engaging in leasing (including enter-
ing into leases and purchasing, servicing, and
disposing of leases and leased assets),
‘‘(D) issuing letters of credit or providing
guarantees,
‘‘(E) providing charge and credit card
services, or
‘‘(F) rendering services or making facilities
available in connection with activities described
in subparagraphs (A) through (E) carried on
by—
‘‘(i) the corporation (or qualified busi-
ness unit) rendering services or making fa-
cilities available, or
‘‘(ii) another corporation (or qualified
business unit of a corporation) which is a
member of the same affiliated group (as
defined in section 1504, but determined
without regard to section 1504(b)(3)).
‘‘(5) OTHER
DEFINITIONS.—For purposes of
this subsection—
‘‘(A) CUSTOMER.—The term ‘customer’
means, with respect to any controlled foreign
corporation or qualified business unit, any per-
son which has a customer relationship with
such corporation or unit and which is acting in
its capacity as such.
‘‘(B) HOME
COUNTRY.—Except as pro-
vided in regulations—
‘‘(i) CONTROLLED FOREIGN CORPORA-
TION.—The term ‘home country’ means,
with respect to any controlled foreign cor-
poration, the country under the laws of
which the corporation was created or orga-
nized.
‘‘(ii) QUALIFIED
BUSINESS
UNIT.—
The term ‘home country’ means, with re-
spect to any qualified business unit, the
country in which such unit maintains its
principal office.
‘‘(C) LOCATED.—The determination of
where a customer is located shall be made
under rules prescribed by the Secretary.
‘‘(D) QUALIFIED
BUSINESS
UNIT.—The
term ‘qualified business unit’ has the meaning
given such term by section 989(a).
‘‘(E) RELATED PERSON.—The term ‘relat-
ed person’ has the meaning given such term by
subsection (d)(3).
‘‘(6) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and subsection (c)(2)(C)(ii)—
‘‘(A) there shall be disregarded any item of
income, gain, loss, or deduction with respect to
any transaction or series of transactions one of
the principal purposes of which is qualifying in-
come or gain for the exclusion under this sec-
tion, including any transaction or series of
transactions a principal purpose of which is the
acceleration or deferral of any item in order to
claim the benefits of such exclusion through the
application of this subsection,
‘‘(B) there shall be disregarded any item of
income, gain, loss, or deduction of, or derived
from, an entity which is not engaged in regular
and continuous transactions with persons which
are not related persons,
‘‘(C) there shall be disregarded any item of
income, gain, loss, or deduction with respect to
any transaction or series of transactions utiliz-
ing, or doing business with—
‘‘(i) one or more entities in order to
satisfy any home country requirement
under this subsection, or
‘‘(ii) a special purpose entity or ar-
rangement, including a securitization, fi-
nancing, or similar entity or arrangement,
if one of the principal purposes of such trans-
action or series of transactions is qualifying in-
come or gain for the exclusion under this sec-
tion, and
‘‘(D) a related person, an officer, a direc-
tor, or an employee with respect to any con-
trolled foreign corporation (or qualified business
unit) which would otherwise be treated as a
customer of such corporation or unit with re-
spect to any transaction shall not be so treated
if a principal purpose of such transaction is to
satisfy any requirement of this subsection.
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, 
subsection 
(c)(1)(B)(i), 
subsection
(c)(2)(C)(ii), and the last sentence of subsection
(e)(2).
‘‘(8) 
APPLICATION.—This 
subsection, 
sub-
section (c)(2)(C)(ii), and the last sentence of sub-
section (e)(2) shall apply only to the first taxable
year of a foreign corporation beginning after Decem-
ber 31, 1998, and before January 1, 2000, and to
taxable years of United States shareholders with or
within which such taxable year of such foreign cor-
poration ends.’’
(b) INCOME
DERIVED
FROM
INSURANCE
BUSI-
NESS.—
(1) INCOME ATTRIBUTABLE TO ISSUANCE OR
REINSURANCE.—
(A) IN GENERAL.—Section 953(a) (defin-
ing insurance income) is amended to read as
follows:
‘‘(a) INSURANCE INCOME.—
‘‘(1) IN
GENERAL.—For purposes of section
952(a)(1), the term ‘insurance income’ means any
income which—
‘‘(A) is attributable to the issuing (or rein-
suring) of an insurance or annuity contract,
and
‘‘(B) would (subject to the modifications
provided by subsection (b)) be taxed under sub-
chapter L of this chapter if such income were
the income of a domestic insurance company.
‘‘(2) EXCEPTION.—Such term shall not include
any exempt insurance income (as defined in sub-
section (e)).’’
(B) EXEMPT
INSURANCE
INCOME.—Sec-
tion 953 (relating to insurance income) is
amended by adding at the end the following
new subsection:
‘‘(e) EXEMPT INSURANCE INCOME.—For purposes of
this section—
‘‘(1) EXEMPT INSURANCE INCOME DEFINED.—
‘‘(A) IN GENERAL.—The term ‘exempt in-
surance income’ means income derived by a
qualifying insurance company which—
‘‘(i) is attributable to the issuing (or
reinsuring) of an exempt contract by such
company or a qualifying insurance com-
pany branch of such company, and
‘‘(ii) is treated as earned by such com-
pany or branch in its home country for
purposes of such country’s tax laws.
‘‘(B) EXCEPTION FOR CERTAIN ARRANGE-
MENTS.—Such term shall not include income
attributable to the issuing (or reinsuring) of an
exempt contract as the result of any arrange-
ment whereby another corporation receives a
substantially equal amount of premiums or
other consideration in respect of issuing (or re-
insuring) a contract which is not an exempt
contract.
‘‘(C) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of this subsection and
section 954(i), the exempt insurance income
and exempt contracts of a qualifying insurance
company or any qualifying insurance company
branch of such company shall be determined
separately for such company and each such
branch by taking into account—
‘‘(i) in the case of the qualifying in-
surance company, only items of income, de-
duction, gain, or loss, and activities of such
company not properly allocable or attrib-
utable to any qualifying insurance com-
pany branch of such company, and
‘‘(ii) in the case of a qualifying insur-
ance company branch, only items of in-
come, deduction, gain, or loss and activities
properly allocable or attributable to such
unit.
‘‘(2) EXEMPT CONTRACT.—
‘‘(A) IN
GENERAL.—The term ‘exempt
contract’ means an insurance or annuity con-
tract issued or reinsured by a qualifying insur-
ance company or qualifying insurance company
branch in connection with property in, liability
arising out of activity in, or the lives or health
of residents of, a country other than the United
States.
‘‘(B) MINIMUM
HOME
COUNTRY
INCOME
REQUIRED.—
‘‘(i) IN GENERAL.—No contract of a
qualifying insurance company or of a
qualifying insurance company branch shall
be treated as an exempt contract unless
such company or branch derives more than
30 percent of its net written premiums
from exempt contracts (determined without
regard to this subparagraph)—
‘‘(I) which cover applicable home
country risks, and
‘‘(II) with respect to which no
policyholder, insured, annuitant, or
beneficiary is a related person (as de-
fined in section 954(d)(3)).
‘‘(ii) APPLICABLE
HOME
COUNTRY
RISKS.—The term ‘applicable home coun-
try risks’ means risks in connection with
property in, liability arising out of activity
in, or the lives or health of residents of,
the home country of the qualifying insur-
ance company or qualifying insurance com-
pany branch, as the case may be, issuing
or reinsuring the contract covering the
risks.
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENTS FOR CROSS BORDER RISKS.—A contract
issued by a qualifying insurance company or
qualifying insurance company branch which
covers risks other than applicable home country
risks (as defined in subparagraph (B)(ii)) shall
not be treated as an exempt contract unless
such company or branch, as the case may be—
‘‘(i) conducts substantial activity with
respect to an insurance business in its
home country, and
‘‘(ii) performs in its home country
substantially all of the activities necessary
to give rise to the income generated by
such contract.
‘‘(3) QUALIFYING INSURANCE COMPANY.—The
term ‘qualifying insurance company’ means any con-
trolled foreign corporation which—
‘‘(A) is subject to regulation as an insur-
ance (or reinsurance) company by its home
country, and is licensed, authorized, or regu-
lated by the applicable insurance regulatory
body for its home country to sell insurance, re-
insurance, or annuity contracts to persons other
than related persons (within the meaning of
section 954(d)(3)) in such home country,
‘‘(B) derives more than 50 percent of its
aggregate net written premiums from the
issuance or reinsurance by such controlled for-
eign corporation and each of its qualifying in-
surance company branches of contracts—
‘‘(i) covering applicable home country
risks (as defined in paragraph (2)) of such
corporation or branch, as the case may be,
and
‘‘(ii) with respect to which no policy-
holder, insured, annuitant, or beneficiary is
a related person (as defined in section
954(d)(3)),
except that in the case of a branch, such pre-
miums shall only be taken into account to the
extent such premiums are treated as earned by
such branch in its home country for purposes of
such country’s tax laws, and
‘‘(C) is engaged in the insurance business
and would be subject to tax under subchapter
L if it were a domestic corporation.
‘‘(4) 
QUALIFYING
INSURANCE
COMPANY
BRANCH.—The term ‘qualifying insurance company
branch’ means a qualified business unit (within the
meaning of section 989(a)) of a controlled foreign
corporation if—
‘‘(A) such unit is licensed, authorized, or
regulated by the applicable insurance regulatory
body for its home country to sell insurance, re-
insurance, or annuity contracts to persons other
than related persons (within the meaning of
section 954(d)(3)) in such home country, and
‘‘(B) such controlled foreign corporation is
a qualifying insurance company, determined
under paragraph (3) as if such unit were a
qualifying insurance company branch.
‘‘(5) LIFE
INSURANCE
OR
ANNUITY
CON-
TRACT.—For purposes of this section and section
954, the determination of whether a contract issued
by a controlled foreign corporation or a qualified
business unit (within the meaning of section 989(a))
is a life insurance contract or an annuity contract
shall be made without regard to sections 72(s),
101(f), 817(h), and 7702 if—
‘‘(A) such contract is regulated as a life in-
surance or annuity contract by the corpora-
tion’s or unit’s home country, and
‘‘(B) no policyholder, insured, annuitant,
or beneficiary with respect to the contract is a
United States person.
‘‘(6) HOME
COUNTRY.—For purposes of this
subsection, except as provided in regulations—
‘‘(A) CONTROLLED
FOREIGN
CORPORA-
TION.—The term ‘home country’ means, with
respect to a controlled foreign corporation, the
country in which such corporation is created or
organized.
‘‘(B) QUALIFIED
BUSINESS
UNIT.—The
term ‘home country’ means, with respect to a
qualified business unit (as defined in section
989(a)), the country in which the principal of-
fice of such unit is located and in which such
unit is licensed, authorized, or regulated by the
applicable insurance regulatory body to sell in-
surance, reinsurance, or annuity contracts to
persons other than related persons (as defined
in section 954(d)(3)) in such country.
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and section 954(i)—
‘‘(A) the rules of section 954(h)(6) shall
apply,
‘‘(B) there shall be disregarded any change
in the method of computing reserves a principal
purpose of which is the acceleration or deferral
of any item in order to claim the benefits of
this subsection or section 954(i),
‘‘(C) a contract of insurance or reinsur-
ance shall not be treated as an exempt contract
(and premiums from such contract shall not be
taken into account for purposes of paragraph
(2)(B) or (3)) if—
‘‘(i) any policyholder, insured, annu-
itant, or beneficiary is a resident of the
United States and such contract was mar-
keted to such resident and was written to
cover a risk outside the United States, or
‘‘(ii) the contract covers risks located
within and without the United States and
the qualifying insurance company or quali-
fying insurance company branch does not
maintain such contemporaneous records,
and file such reports, with respect to such
contract as the Secretary may require,
‘‘(D) the Secretary may prescribe rules for
the allocation of contracts (and income from
contracts) among 2 or more qualifying insur-
ance company branches of a qualifying insur-
ance company in order to clearly reflect the in-
come of such branches, and
‘‘(E) premiums from a contract shall not
be taken into account for purposes of para-
graph (2)(B) or (3) if such contract reinsures
a contract issued or reinsured by a related per-
son (as defined in section 954(d)(3)).
For purposes of subparagraph (C), the determina-
tion of where risks are located shall be made under
the principles of section 953.
‘‘(8) COORDINATION WITH SUBSECTION (c).—
In determining insurance income for purposes of
subsection (c), exempt insurance income shall not in-
clude income derived from exempt contracts which
cover risks other than applicable home country risks.
‘‘(9) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section and section 954(i).
‘‘(10) APPLICATION.—This subsection and sec-
tion 954(i) shall apply only to the first taxable year
of a foreign corporation beginning after December
31, 1998, and before January 1, 2000, and to tax-
able years of United States shareholders with or
within which such taxable year of such foreign cor-
poration ends.
‘‘(11) CROSS REFERENCE.—
‘‘For income exempt from foreign personal hold-
ing company income, see section 954(i).’’
(2) EXEMPTION
FROM
FOREIGN
PERSONAL
HOLDING COMPANY INCOME.—Section 954 (defining
foreign base company income) is amended by adding
at the end the following new subsection:
‘‘(i) SPECIAL RULE FOR INCOME DERIVED IN THE
ACTIVE CONDUCT OF INSURANCE BUSINESS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income
shall not include qualified insurance income of a
qualifying insurance company.
‘‘(2) QUALIFIED
INSURANCE
INCOME.—The
term ‘qualified insurance income’ means income of a
qualifying insurance company which is—
‘‘(A) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from the invest-
ments made by a qualifying insurance company
or a qualifying insurance company branch of its
reserves allocable to exempt contracts or of 80
percent of its unearned premiums from exempt
contracts (as both are determined in the man-
ner prescribed under paragraph (4)), or
‘‘(B) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from investments
made by a qualifying insurance company or a
qualifying insurance company branch of an
amount of its assets allocable to exempt con-
tracts equal to—
‘‘(i) in the case of property, casualty,
or health insurance contracts, one-third of
its premiums earned on such insurance
contracts during the taxable year (as de-
fined in section 832(b)(4)), and
‘‘(ii) in the case of life insurance or
annuity contracts, 10 percent of the re-
serves described in subparagraph (A) for
such contracts.
‘‘(3) PRINCIPLES
FOR
DETERMINING
INSUR-
ANCE
INCOME.—Except as provided by the Sec-
retary, for purposes of subparagraphs (A) and (B)
of paragraph (2)—
‘‘(A) in the case of any contract which is
a separate account-type contract (including any
variable contract not meeting the requirements
of section 817), income credited under such
contract shall be allocable only to such contract,
and
‘‘(B) income not allocable under subpara-
graph (A) shall be allocated ratably among con-
tracts not described in subparagraph (A).
‘‘(4) METHODS FOR DETERMINING UNEARNED
PREMIUMS AND RESERVES.—For purposes of para-
graph (2)(A)—
‘‘(A) PROPERTY
AND
CASUALTY
CON-
TRACTS.—The unearned premiums and reserves
of a qualifying insurance company or a qualify-
ing insurance company branch with respect to
property, casualty, or health insurance con-
tracts shall be determined using the same meth-
ods and interest rates which would be used if
such company or branch were subject to tax
under subchapter L, except that—
‘‘(i) the interest rate determined for
the functional currency of the company or
branch, and which, except as provided by
the Secretary, is calculated in the same
manner as the Federal mid-term rate
under section 1274(d), shall be substituted
for the applicable Federal interest rate,
and
‘‘(ii) such company or branch shall
use the appropriate foreign loss payment
pattern.
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.—The amount of the reserve of a quali-
fying insurance company or qualifying insur-
ance company branch for any life insurance or
annuity contract shall be equal to the greater
of—
‘‘(i) the net surrender value of such
contract 
(as 
defined 
in 
section
807(e)(1)(A)), or
‘‘(ii) the reserve determined under
paragraph (5).
‘‘(C) LIMITATION
ON
RESERVES.—In no
event shall the reserve determined under this
paragraph for any contract as of any time ex-
ceed the amount which would be taken into ac-
count with respect to such contract as of such
time in determining foreign statement reserves
(less any catastrophe, deficiency, equalization,
or similar reserves).
‘‘(5) AMOUNT OF RESERVE.—The amount of
the reserve determined under this paragraph with
respect to any contract shall be determined in the
same manner as it would be determined if the quali-
fying insurance company or qualifying insurance
company branch were subject to tax under sub-
chapter L, except that in applying such sub-
chapter—
‘‘(A) the interest rate determined for the
functional currency of the company or branch,
and which, except as provided by the Secretary,
is calculated in the same manner as the Federal
mid-term rate under section 1274(d), shall be
substituted for the applicable Federal interest
rate,
‘‘(B) the highest assumed interest rate
permitted to be used in determining foreign
statement reserves shall be substituted for the
prevailing State assumed interest rate, and
‘‘(C) tables for mortality and morbidity
which reasonably reflect the current mortality
and morbidity risks in the company’s or
branch’s home country shall be substituted for
the mortality and morbidity tables otherwise
used for such subchapter.
The Secretary may provide that the interest rate
and mortality and morbidity tables of a qualifying
insurance company may be used for 1 or more of its
qualifying insurance company branches when appro-
priate.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section, any term used in this subsection which is
also used in section 953(e) shall have the meaning
given such term by section 953.’’
(3) RESERVES.—Section 953(b) is amended by
redesignating paragraph (3) as paragraph (4) and
by inserting after paragraph (2) the following new
paragraph:
‘‘(3) Reserves for any insurance or annuity con-
tract shall be determined in the same manner as
under section 954(i).’’
(c) 
SPECIAL
RULES
FOR
DEALERS.—Section
954(c)(2)(C) is amended to read as follows:
‘‘(C) EXCEPTION FOR DEALERS.—Except
as provided by regulations, in the case of a reg-
ular dealer in property which is property de-
scribed in paragraph (1)(B), forward contracts,
option contracts, or similar financial instru-
ments (including notional principal contracts
and all instruments referenced to commodities),
there shall not be taken into account in comput-
ing foreign personal holding company income—
‘‘(i) any item of income, gain, deduc-
tion, or loss (other than any item described
in subparagraph (A), (E), or (G) of para-
graph (1)) from any transaction (including
hedging transactions) entered into in the
ordinary course of such dealer’s trade or
business as such a dealer, and
‘‘(ii) if such dealer is a dealer in secu-
rities (within the meaning of section 475),
any interest or dividend or equivalent
amount described in subparagraph (E) or
(G) of paragraph (1) from any transaction
(including any hedging transaction or
transaction 
described 
in 
section
956(c)(2)(J)) entered into in the ordinary
course of such dealer’s trade or business as
such a dealer in securities, but only if the
income from the transaction is attributable
to activities of the dealer in the country
under the laws of which the dealer is cre-
ated or organized (or in the case of a
qualified business unit described in section
989(a), is attributable to activities of the
unit in the country in which the unit both
maintains its principal office and conducts
substantial business activity).’’
(d) EXEMPTION FROM FOREIGN BASE COMPANY
SERVICES INCOME.—Paragraph (2) of section 954(e) is
amended by inserting ‘‘or’’ at the end of subparagraph
(A), by striking ‘‘; or’’ at the end of subparagraph (B)
and inserting a period, by striking subparagraph (C), and
by adding at the end the following new flush sentence:
‘‘Paragraph (1) shall also not apply to income which is
exempt insurance income (as defined in section 953(e))
or which is not treated as foreign personal holding income
by reason of subsection (c)(2)(C)(ii), (h), or (i).’’
(e) EXEMPTION FOR GAIN.—Section 954(c)(1)(B)(i)
(relating to net gains from certain property transactions)
is amended by inserting ‘‘other than property which gives
rise to income not treated as foreign personal holding com-
pany income by reason of subsection (h) or (i) for the tax-
able year’’ before the comma at the end.
Subtitle B—Generalized System of
Preferences
SEC. 311. EXTENSION OF GENERALIZED SYSTEM OF PREF-
ERENCES.
(a) EXTENSION OF DUTY-FREE TREATMENT UNDER
SYSTEM.—Section 505 of the Trade Act of 1974 (29
U.S.C. 2465) is amended by striking ‘‘June 30, 1998’’ and
inserting ‘‘February 29, 2000’’.
(b) RETROACTIVE APPLICATION FOR CERTAIN LIQ-
UIDATIONS AND RELIQUIDATIONS.—
(1) IN GENERAL.—Notwithstanding section 514
of the Tariff Act of 1930 or any other provision of
law, and subject to paragraph (2), any entry—
(A) of an article to which duty-free treat-
ment under title V of the Trade Act of 1974
would have applied if such title had been in ef-
fect during the period beginning on July 1,
1998, and ending on the day before the date of
the enactment of this Act, and
(B) that was made after June 30, 1998,
and before the date of the enactment of this
Act,
shall be liquidated or reliquidated as free of duty,
and the Secretary of the Treasury shall refund any
duty paid with respect to such entry. As used in this
subsection, the term ‘‘entry’’ includes a withdrawal
from warehouse for consumption.
(2) REQUESTS.—Liquidation or reliquidation
may be made under paragraph (1) with respect to
an entry only if a request therefor is filed with the
Customs Service, within 180 days after the date of
the enactment of this Act, that contains sufficient
information to enable the Customs Service—
(A) to locate the entry; or
(B) to reconstruct the entry if it cannot be
located.
TITLE IV—REVENUE OFFSET
SEC. 401. TREATMENT OF CERTAIN DEDUCTIBLE LIQUIDAT-
ING DISTRIBUTIONS OF REGULATED INVEST-
MENT COMPANIES AND REAL ESTATE IN-
VESTMENT TRUSTS.
(a) IN GENERAL.—Section 332 (relating to complete
liquidations of subsidiaries) is amended by adding at the
end the following new subsection:
‘‘(c) DEDUCTIBLE LIQUIDATING DISTRIBUTIONS OF
REGULATED INVESTMENT COMPANIES
AND REAL ES-
TATE INVESTMENT TRUSTS.—If a corporation receives a
distribution from a regulated investment company or a
real estate investment trust which is considered under sub-
section (b) as being in complete liquidation of such com-
pany or trust, then, notwithstanding any other provision
of this chapter, such corporation shall recognize and treat
as a dividend from such company or trust an amount
equal to the deduction for dividends paid allowable to such
company or trust by reason of such distribution.’’.
(b) CONFORMING AMENDMENTS.—
(1) The material preceding paragraph (1) of
section 332(b) is amended by striking ‘‘subsection
(a)’’ and inserting ‘‘this section’’.
(2) Paragraph (1) of section 334(b) is amended
by striking ‘‘section 332(a)’’ and inserting ‘‘section
332’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after May 21,
1998.
TITLE V—TECHNICAL
CORRECTIONS
SEC. 501. DEFINITIONS; COORDINATION WITH OTHER TI-
TLES.
(a) DEFINITIONS.—For purposes of this title—
(1) 1986 
CODE.—The term ‘‘1986 Code’’
means the Internal Revenue Code of 1986.
(2) 1998 ACT.—The term ‘‘1998 Act’’ means
the Internal Revenue Service Restructuring and Re-
form Act of 1998 (Public Law 105–206).
(3) 1997 ACT.—The term ‘‘1997 Act’’ means
the Taxpayer Relief Act of 1997 (Public Law 105–
34).
(b) COORDINATION WITH OTHER TITLES.—For pur-
poses of applying the amendments made by any title of
this Act other than this title, the provisions of this title
shall be treated as having been enacted immediately before
the provisions of such other titles.
SEC. 502. AMENDMENTS RELATED TO INTERNAL REVENUE
SERVICE RESTRUCTURING AND REFORM ACT
OF 1998.
(a) AMENDMENT RELATED TO SECTION 1101 OF
1998 ACT.—Paragraph (5) of section 6103(h) of the 1986
Code, as added by section 1101(b) of the 1998 Act, is
redesignated as paragraph (6).
(b) AMENDMENT RELATED TO SECTION 3001 OF
1998 ACT.—Paragraph (2) of section 7491(a) of the 1986
Code is amended by adding at the end the following flush
sentence:
‘‘Subparagraph (C) shall not apply to any qualified
revocable trust (as defined in section 645(b)(1)) with
respect to liability for tax for any taxable year end-
ing after the date of the decedent’s death and before
the 
applicable 
date 
(as 
defined 
in 
section
645(b)(2)).’’.
(c) AMENDMENTS RELATED TO SECTION 3201 OF
1998 ACT.—
(1) Section 7421(a) of the 1986 Code is amend-
ed by striking ‘‘6015(d)’’ and inserting ‘‘6015(e)’’.
(2) Subparagraph (A) of section 6015(e)(3) is
amended by striking ‘‘of this section’’ and inserting
‘‘of subsection (b) or (f)’’.
(d) AMENDMENT RELATED TO SECTION 3301 OF
1998 ACT.—Paragraph (2) of section 3301(c) of the 1998
Act is amended by striking ‘‘The amendments’’ and insert-
ing ‘‘Subject to any applicable statute of limitation not
having expired with regard to either a tax underpayment
or a tax overpayment, the amendments’’.
(e) AMENDMENT RELATED TO SECTION 3401 OF
1998 ACT.—Section 3401(c) of the 1998 Act is amend-
ed—
(1) in paragraph (1), by striking ‘‘7443(b)’’
and inserting ‘‘7443A(b)’’; and
(2) in paragraph (2), by striking ‘‘7443(c)’’ and
inserting ‘‘7443A(c)’’.
(f) AMENDMENT RELATED TO SECTION 3433 OF
1998 ACT.—Section 7421(a) of the 1986 Code is amended
by inserting ‘‘6331(i),’’ after ‘‘6246(b),’’.
(g) AMENDMENT RELATED TO SECTION 3708 OF
1998 ACT.—Subparagraph (A) of section 6103(p)(3) of
the 1986 Code is amended by inserting ‘‘(f)(5),’’ after
‘‘(c), (e),’’.
(h) AMENDMENT RELATED TO SECTION 5001 OF
1998 ACT.—
(1) Subparagraph (B) of section 1(h)(13) of the
1986 Code is amended by striking ‘‘paragraph
(7)(A)’’ and inserting ‘‘paragraph (7)(A)(i)’’.
(2)(A) Subparagraphs (A)(i)(II), (A)(ii)(II),
and (B)(ii) of section 1(h)(13) of the 1986 Code
shall not apply to any distribution after December
31, 1997, by a regulated investment company or a
real estate investment trust with respect to—
(i) gains and losses recognized directly by
such company or trust, and
(ii) amounts properly taken into account
by such company or trust by reason of holding
(directly or indirectly) an interest in another
such company or trust to the extent that such
subparagraphs did not apply to such other com-
pany or trust with respect to such amounts.
(B) Subparagraph (A) shall not apply to any
distribution which is treated under section 852(b)(7)
or 857(b)(8) of the 1986 Code as received on De-
cember 31, 1997.
(C) For purposes of subparagraph (A), any
amount which is includible in gross income of its
shareholders 
under 
section 
852(b)(3)(D) 
or
857(b)(3)(D) of the 1986 Code after December 31,
1997, shall be treated as distributed after such date.
(i) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the provisions
of the 1998 Act to which they relate.
SEC. 503. AMENDMENTS RELATED TO TAXPAYER RELIEF
ACT OF 1997.
(a) AMENDMENT RELATED TO SECTION 202 OF 1997
ACT.—Paragraph (2) of section 163(h) of the 1986 Code
is amended by striking ‘‘and’’ at the end of subparagraph
(D), by striking the period at the end of subparagraph
(E) and inserting ‘‘, and’’, and by adding at the end the
following new subparagraph:
‘‘(F) any interest allowable as a deduction
under section 221 (relating to interest on edu-
cational loans).’’
(b) PROVISION RELATED TO SECTION 311 OF 1997
ACT.—In the case of any capital gain distribution made
after 1997 by a trust to which section 664 of the 1986
Code applies with respect to amounts properly taken into
account 
by 
such 
trust 
during 
1997, 
paragraphs
(5)(A)(i)(I), (5)(A)(ii)(I), and (13)(A) of section 1(h) of
the 1986 Code (as in effect for taxable years ending on
December 31, 1997) shall not apply.
(c) AMENDMENT RELATED TO SECTION 506 OF 1997
ACT.—
(1) Section 2001(f)(2) of the 1986 Code is
amended by adding at the end the following:
‘‘For purposes of subparagraph (A), the value of an
item shall be treated as shown on a return if the
item is disclosed in the return, or in a statement at-
tached to the return, in a manner adequate to ap-
prise the Secretary of the nature of such item.’’.
(2) Paragraph (9) of section 6501(c) of the
1986 Code is amended by striking the last sentence.
(d) AMENDMENTS RELATED TO SECTION 904 OF
1997 ACT.—
(1) Paragraph (1) of section 9510(c) of the
1986 Code is amended to read as follows:
‘‘(1) IN GENERAL.—Amounts in the Vaccine In-
jury Compensation Trust Fund shall be available, as
provided in appropriation Acts, only for—
‘‘(A) the payment of compensation under
subtitle 2 of title XXI of the Public Health
Service Act (as in effect on August 5, 1997) for
vaccine-related injury or death with respect to
any vaccine—
‘‘(i) which is administered after Sep-
tember 30, 1988, and
‘‘(ii) which is a taxable vaccine (as de-
fined in section 4132(a)(1)) at the time
compensation is paid under such subtitle 2,
or
‘‘(B) the payment of all expenses of admin-
istration (but not in excess of $6,000,000 for
any fiscal year) incurred by the Federal Gov-
ernment in administering such subtitle.’’.
(2) Section 9510(b) of the 1986 Code is amend-
ed by adding at the end the following new para-
graph:
‘‘(3) LIMITATION ON TRANSFERS TO VACCINE
INJURY COMPENSATION TRUST FUND.—No amount
may be appropriated to the Vaccine Injury Com-
pensation Trust Fund on and after the date of any
expenditure from the Trust Fund which is not per-
mitted by this section. The determination of whether
an expenditure is so permitted shall be made without
regard to—
‘‘(A) any provision of law which is not con-
tained or referenced in this title or in a revenue
Act, and
‘‘(B) whether such provision of law is a
subsequently enacted provision or directly or in-
directly seeks to waive the application of this
paragraph.’’.
(e) AMENDMENTS RELATED TO SECTION 915 OF
1997 ACT.—
(1) Section 915 of the Taxpayer Relief Act of
1997 is amended—
(A) in subsection (b), by inserting ‘‘or
1998’’ after ‘‘1997’’, and
(B) by amending subsection (d) to read as
follows:
‘‘(d) EFFECTIVE DATE.—This section shall apply to
taxable years ending with or within calendar year 1997.’’.
(2) Paragraph (2) of section 6404(h) of the
1986 Code is amended by inserting ‘‘Robert T. Staf-
ford’’ before ‘‘Disaster’’.
(f) AMENDMENTS RELATED TO SECTION 1012 OF
1997 ACT.—
(1) Paragraph (2) of section 351(c) of the 1986
Code, as amended by section 6010(c) of the 1998
Act, is amended by inserting ‘‘, or the fact that the
corporation whose stock was distributed issues addi-
tional stock,’’ after ‘‘dispose of part or all of the dis-
tributed stock’’.
(2) Clause (ii) of section 368(a)(2)(H) of the
1986 Code, as amended by section 6010(c) of the
1998 Act, is amended by inserting ‘‘, or the fact
that the corporation whose stock was distributed
issues additional stock,’’ after ‘‘dispose of part or all
of the distributed stock’’.
(g) AMENDMENT RELATED TO SECTION 1082 OF
1997 ACT.—Subparagraph (F) of section 172(b)(1) of the
1986 Code is amended by adding at the end the following
new clause:
‘‘(iv) COORDINATION
WITH
PARA-
GRAPH
(2).—For purposes of applying
paragraph (2), an eligible loss for any tax-
able year shall be treated in a manner
similar to the manner in which a specified
liability loss is treated.’’
(h) AMENDMENT RELATED TO SECTION 1084 OF
1997 ACT.—Paragraph (3) of section 264(f) of the 1986
Code is amended by adding at the end the following flush
sentence:
‘‘If the amount described in subparagraph (A) with
respect to any policy or contract does not reasonably
approximate its actual value, the amount taken into
account under subparagraph (A) shall be the greater
of the amount of the insurance company liability or
the insurance company reserve with respect to such
policy or contract (as determined for purposes of the
annual statement approved by the National Associa-
tion of Insurance Commissioners) or shall be such
other amount as is determined by the Secretary.’’
(i) AMENDMENT RELATED
TO SECTION 1205 OF
1997 ACT.—Paragraph (2) of section 6311(d) of the 1986
Code is amended by striking ‘‘under such contracts’’ in
the last sentence and inserting ‘‘under any such contract
for the use of credit or debit cards for the payment of
taxes imposed by subtitle A’’.
(j) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the provisions
of the Taxpayer Relief Act of 1997 to which they relate.
SEC. 504. AMENDMENTS RELATED TO TAX REFORM ACT OF
1984.
(a) IN GENERAL.—Subparagraph (C) of section
172(d)(4) of the 1986 Code is amended to read as follows:
‘‘(C) any deduction for casualty or theft
losses allowable under paragraph (2) or (3) of
section 165(c) shall be treated as attributable
to the trade or business; and’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 67(b) of the 1986
Code is amended by striking ‘‘for losses described in
subsection (c)(3) or (d) of section 165’’ and insert-
ing ‘‘for casualty or theft losses described in para-
graph (2) or (3) of section 165(c) or for losses de-
scribed in section 165(d)’’.
(2) Paragraph (3) of section 68(c) of the 1986
Code is amended by striking ‘‘for losses described in
subsection (c)(3) or (d) of section 165’’ and insert-
ing ‘‘for casualty or theft losses described in para-
graph (2) or (3) of section 165(c) or for losses de-
scribed in section 165(d)’’.
(3) Paragraph (1) of section 873(b) is amended
to read as follows:
‘‘(1) LOSSES.—The deduction allowed by sec-
tion 165 for casualty or theft losses described in
paragraph (2) or (3) of section 165(c), but only if
the loss is of property located within the United
States.’’
(c) EFFECTIVE DATES.—
(1) The amendments made by subsections (a)
and (b)(3) shall apply to taxable years beginning
after December 31, 1983.
(2) The amendment made by subsection (b)(1)
shall apply to taxable years beginning after Decem-
ber 31, 1986.
(3) The amendment made by subsection (b)(2)
shall apply to taxable years beginning after Decem-
ber 31, 1990.
SEC. 505. OTHER AMENDMENTS.
(a) AMENDMENTS RELATED TO SECTION 6103 OF
1986 CODE.—
(1) Subsection (j) of section 6103 of the 1986
Code is amended by adding at the end the following
new paragraph:
‘‘(5) DEPARTMENT
OF
AGRICULTURE.—Upon
request in writing by the Secretary of Agriculture,
the Secretary shall furnish such returns, or return
information reflected thereon, as the Secretary may
prescribe by regulation to officers and employees of
the Department of Agriculture whose official duties
require access to such returns or information for the
purpose of, but only to the extent necessary in,
structuring, preparing, and conducting the census of
agriculture pursuant to the Census of Agriculture
Act of 1997 (Public Law 105–113).’’.
(2) Paragraph (4) of section 6103(p) of the
1986 Code is amended by striking ‘‘(j)(1) or (2)’’ in
the material preceding subparagraph (A) and in sub-
paragraph (F) and inserting ‘‘(j)(1), (2), or (5)’’.
(3) The amendments made by this subsection
shall apply to requests made on or after the date of
the enactment of this Act.
(b) AMENDMENT RELATED TO SECTION 9004 OF
TRANSPORTATION EQUITY ACT
FOR
THE
21ST CEN-
TURY.—
(1) Paragraph (2) of section 9503(f) of the
1986 Code is amended to read as follows:
‘‘(2) notwithstanding section 9602(b), obliga-
tions held by such Fund after September 30, 1998,
shall be obligations of the United States which are
not interest-bearing.’’
(2) The amendment made by paragraph (1)
shall take effect on October 1, 1998.
(c) CLERICAL AMENDMENT.—Clause (i) of section
51(d)(6)(B) of the 1986 Code is amended by striking ‘‘re-
habilitation plan’’ and inserting ‘‘plan for employment’’.
TITLE 
VI—AMERICAN 
COMMU-
NITY RENEWAL ACT OF 1998
SEC. 601. SHORT TITLE.
This title may be cited as the ‘‘American Community
Renewal Act of 1998’’.
SEC. 602. FINDINGS AND PURPOSE.
(a) FINDINGS.—The Congress makes the following
findings:
(1) Many of the Nation’s urban centers are
places with high levels of poverty, high rates of wel-
fare dependency, high crime rates, poor schools, and
joblessness.
(2) Federal tax incentives and regulatory re-
forms can encourage economic growth, job creation,
and small business formation in many urban centers.
(3) Encouraging private sector investment in
America’s economically distressed urban and rural
areas is essential to breaking the cycle of poverty
and the related ills of crime, drug abuse, illiteracy,
welfare dependency, and unemployment.
(b) PURPOSE.—The purpose of this title is to in-
crease job creation, small business expansion and forma-
tion, educational opportunities, and homeownership, and
to foster moral renewal, in economically depressed areas
by providing Federal tax incentives, regulatory reforms,
school reform pilot projects, and homeownership incen-
tives.
Subtitle A—Designation and Eval-
uation of Renewal Communities
SEC. 611. SHORT TITLE.
This subtitle may be cited as the ‘‘Renewing Amer-
ican Communities Act of 1998’’.
SEC. 612. STATEMENT OF PURPOSE.
It is the purpose of this subtitle to provide for the
establishment of renewal communities in order to stimu-
late the creation of new jobs, particularly for disadvan-
taged workers and long-term unemployed individuals, and
to promote revitalization of economically distressed areas
primarily by providing or encouraging—
(1) tax relief at the Federal, State, and local
levels;
(2) regulatory relief at the Federal, State, and
local levels; and
(3) improved local services and an increase in
the economic stake of renewal community residents
in their own community and its development, par-
ticularly through the increased involvement of pri-
vate, local, and neighborhood organizations.
SEC. 613. DESIGNATION OF RENEWAL COMMUNITIES.
(a) IN GENERAL.—Chapter 1 of the is amended by
adding at the end the following new subchapter:
‘‘Subchapter X—Renewal Communities
‘‘Part I.
Designation.’’
‘‘PART I—DESIGNATION
‘‘Sec. 1400E. Designation of Renewal Communities.
‘‘SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
‘‘(1) DEFINITIONS.—For purposes of this title,
the term ‘renewal community’ means any area—
‘‘(A) which is nominated by one or more
local governments and the State or States in
which it is located for designation as a renewal
community (hereinafter in this section referred
to as a ‘nominated area’), and
‘‘(B) which the Secretary of Housing and
Urban Development, after consultation with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury; the
Director of the Office of Management and
Budget; and the Administrator of the
Small Business Administration, and
‘‘(ii) in the case of an area on an In-
dian reservation, the Secretary of the Inte-
rior,
designates as a renewal community.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 20 nominated areas as re-
newal communities.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 20 percent must be areas—
‘‘(i) which are within a local govern-
ment jurisdiction or jurisdictions with a
population of less than 50,000 (as deter-
mined under the most recent census data
available),
‘‘(ii) which are outside of a metropoli-
tan statistical area (within the meaning of
section 143(k)(2)(B)), or
‘‘(iii) which are determined by the
Secretary of Housing and Urban Develop-
ment, after consultation with the Secretary
of Commerce, to be rural areas.
‘‘(C) ADDITIONAL DESIGNATIONS TO RE-
PLACE REVOKED DESIGNATIONS.—
‘‘(i) IN GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate one additional area under subpara-
graph (A) to replace each area for which
the designation is revoked under subsection
(b)(2), but in no event may more than 20
areas designated under this subsection
bear designations as renewal communities
at any time.
‘‘(ii) EXTENSION OF TIME LIMIT ON
DESIGNATIONS.—In the case of any des-
ignation made under this subparagraph,
paragraph (4)(B) shall be applied by sub-
stituting ‘36-month’ for ‘24-month’.
‘‘(3) AREAS DESIGNATED BASED ON DEGREE
OF POVERTY, ETC.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this section, the nominated areas
designated as renewal communities under this
subsection shall be those nominated areas with
the highest average ranking with respect to the
criteria described in subparagraphs (C), (D),
and (E) of subsection (c)(3). For purposes of
the preceding sentence, an area shall be ranked
within each such criterion on the basis of the
amount by which the area exceeds such cri-
terion, with the area which exceeds such cri-
terion by the greatest amount given the highest
ranking.
‘‘(B) EXCEPTION
WHERE
INADEQUATE
COURSE OF ACTION, ETC.—An area shall not be
designated under subparagraph (A) if the Sec-
retary of Housing and Urban Development de-
termines that the course of action described in
subsection (d)(2) with respect to such area is
inadequate.
‘‘(C) PRIORITY FOR EMPOWERMENT ZONES
AND ENTERPRISE COMMUNITIES WITH RESPECT
TO FIRST HALF OF DESIGNATIONS.—With re-
spect to the first half of the designations made
under this section, the nominated areas des-
ignated as renewal communities shall be chosen
first from nominated areas which are enterprise
zones or empowerment communities (and are
otherwise eligible for designation under this sec-
tion), and then from other nominated areas
which are so eligible.
‘‘(D) SEPARATE APPLICATION TO RURAL
AND OTHER AREAS.—Subparagraph (A) shall
be applied separately with respect to areas de-
scribed in paragraph (2)(B) and to other areas.
‘‘(4) LIMITATION ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating an
area under paragraph (1)(A),
‘‘(ii) the parameters relating to the
size and population characteristics of a re-
newal community, and
‘‘(iii) the manner in which nominated
areas will be evaluated based on the cri-
teria specified in subsection (d).
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate nominated areas as renewal communities
only during the 24-month period beginning on
the first day of the first month following the
month in which the regulations described in
subparagraph (A) are prescribed.
‘‘(C) PROCEDURAL RULES.—The Secretary
of Housing and Urban Development shall not
make any designation of a nominated area as a
renewal community under paragraph (2) un-
less—
‘‘(i) the local governments and the
State in which the nominated area is lo-
cated have the authority—
‘‘(I) to nominate such area for
designation as a renewal community,
‘‘(II) to make the State and local
commitments described in subsection
(d), and
‘‘(III) to provide assurances sat-
isfactory to the Secretary of Housing
and Urban Development that such
commitments will be fulfilled,
‘‘(ii) a nomination regarding such
area is submitted in such a manner and in
such form, and contains such information,
as the Secretary of Housing and Urban
Development shall by regulation prescribe,
and
‘‘(iii) the Secretary of Housing and
Urban Development determines that any
information furnished is reasonably accu-
rate.
‘‘(5) NOMINATION PROCESS FOR INDIAN RES-
ERVATIONS.—For purposes of this subchapter, in
the case of a nominated area on an Indian reserva-
tion, the reservation governing body (as determined
by the Secretary of the Interior) shall be treated as
being both the State and local governments with re-
spect to such area.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as a renewal community shall remain in effect dur-
ing the period beginning on the date of the designa-
tion and ending on the earliest of—
‘‘(A) December 31, 2006,
‘‘(B) the termination date designated by
the State and local governments in their nomi-
nation pursuant to subsection (a)(4)(C)(ii), or
‘‘(C) the date the Secretary of Housing
and Urban Development revokes such designa-
tion under paragraph (2).
‘‘(2) REVOCATION OF DESIGNATION.—The Sec-
retary of Housing and Urban Development may,
after a hearing on the record involving officials of
the State or local government involved (or both, if
applicable), revoke the designation of an area if the
Secretary of Housing and Urban Development deter-
mines that the local government or State in which
the area is located is not complying substantially
with the State or local commitments, respectively,
described in subsection (d).
‘‘(c) AREA AND ELIGIBILITY REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if the area meets the requirements of para-
graphs (2) and (3) of this subsection.
‘‘(2) AREA REQUIREMENTS.—A nominated area
meets the requirements of this paragraph if—
‘‘(A) the area is within the jurisdiction of
a local government,
‘‘(B) the boundary of the area is continu-
ous, and
‘‘(C) the area—
‘‘(i) has a population, as determined
by the most recent census data available,
of at least—
‘‘(I) 4,000 if any portion of such
area (other than a rural area de-
scribed in subsection (a)(2)(B)(i)) is
located within a metropolitan statis-
tical area (within the meaning of sec-
tion 143(k)(2)(B)) which has a popu-
lation of 50,000 or greater, or
‘‘(II) 1,000 in any other case, or
‘‘(ii) is entirely within an Indian res-
ervation (as determined by the Secretary of
the Interior).
‘‘(3) ELIGIBILITY
REQUIREMENTS.—A nomi-
nated area meets the requirements of this paragraph
if the State and the local governments in which it
is located certify (and the Secretary of Housing and
Urban Development, after such review of supporting
data as he deems appropriate, accepts such certifi-
cation) that—
‘‘(A) the area is one of pervasive poverty,
unemployment, and general distress,
‘‘(B) the unemployment rate in the area,
as determined by the appropriate available
data, was at least 11⁄2 times the national unem-
ployment rate for the period to which such data
relate,
‘‘(C) the poverty rate (as determined by
the most recent census data available) for each
population census tract (or where not tracted,
the equivalent county division as defined by the
Bureau of the Census for the purpose of defin-
ing poverty areas) within the area was at least
20 percent for the period to which such data re-
late, and
‘‘(D) in the case of an urban area, at least
70 percent of the households living in the area
have incomes below 80 percent of the median
income of households within the jurisdiction of
the local government (determined in the same
manner as under section 119(b)(2) of the
Housing and Community Development Act of
1974).
‘‘(4) CONSIDERATION OF HIGH INCIDENCE OF
CRIME.—The Secretary of Housing and Urban De-
velopment shall take into account, in selecting nomi-
nated areas for designation as renewal communities
under this section, the extent to which such areas
have a high incidence of crime.
‘‘(5) CONSIDERATION OF COMMUNITIES IDENTI-
FIED
IN
GAO
STUDY.—The Secretary of Housing
and Urban Development shall take into account, in
selecting nominated areas for designation as renewal
communities under this section, if the area has cen-
sus tracts identified in the May 12, 1998, report of
the Government Accounting Office regarding the
identification of economically distressed areas.
‘‘(d) REQUIRED
STATE
AND
LOCAL
COMMIT-
MENTS.—
‘‘(1) IN GENERAL.—The Secretary of Housing
and Urban Development may designate any nomi-
nated area as a renewal community under subsection
(a) only if—
‘‘(A) the local government and the State in
which the area is located agree in writing that,
during any period during which the area is a
renewal community, such governments will fol-
low a specified course of action which meets the
requirements of paragraph (2) and is designed
to reduce the various burdens borne by employ-
ers or employees in such area, and
‘‘(B) the economic growth promotion re-
quirements of paragraph (3) are met.
‘‘(2) COURSE OF ACTION.—
‘‘(A) IN
GENERAL.—A course of action
meets the requirements of this paragraph if
such course of action is a written document,
signed by a State (or local government) and
neighborhood organizations, which evidences a
partnership between such State or government
and community-based organizations and which
commits each signatory to specific and measur-
able goals, actions, and timetables. Such course
of action shall include at least five of the follow-
ing:
‘‘(i) A reduction of tax rates or fees
applying within the renewal community.
‘‘(ii) An increase in the level of effi-
ciency of local services within the renewal
community.
‘‘(iii) Crime reduction strategies, such
as crime prevention (including the provi-
sion of such services by nongovernmental
entities).
‘‘(iv) Actions to reduce, remove, sim-
plify, or streamline governmental require-
ments applying within the renewal commu-
nity.
‘‘(v) Involvement in the program by
private entities, organizations, neighbor-
hood 
organizations, 
and 
community
groups, particularly those in the renewal
community, including a commitment from
such private entities to provide jobs and
job training for, and technical, financial, or
other assistance to, employers, employees,
and residents from the renewal community.
‘‘(vi) State or local income tax bene-
fits for fees paid for services performed by
a nongovernmental entity which were for-
merly performed by a governmental entity.
‘‘(vii) The gift (or sale at below fair
market value) of surplus realty (such as
land, homes, and commercial or industrial
structures) in the renewal community to
neighborhood organizations, community de-
velopment corporations, or private compa-
nies.
‘‘(B) RECOGNITION OF PAST EFFORTS.—
For purposes of this section, in evaluating the
course of action agreed to by any State or local
government, the Secretary of Housing and
Urban Development shall take into account the
past efforts of such State or local government
in reducing the various burdens borne by em-
ployers and employees in the area involved.
‘‘(3) ECONOMIC GROWTH PROMOTION REQUIRE-
MENTS.—The economic growth promotion require-
ments of this paragraph are met with respect to a
nominated area if the local government and the
State in which such area is located certify in writing
that such government and State, respectively, have
repealed or otherwise will not enforce within the
area, if such area is designated as a renewal commu-
nity—
‘‘(A) licensing requirements for occupa-
tions that do not ordinarily require a profes-
sional degree,
‘‘(B) zoning restrictions on home-based
businesses which do not create a public nui-
sance,
‘‘(C) permit requirements for street ven-
dors who do not create a public nuisance,
‘‘(D) zoning or other restrictions that im-
pede the formation of schools or child care cen-
ters, and
‘‘(E) franchises or other restrictions on
competition for businesses providing public
services, including but not limited to taxicabs,
jitneys, cable television, or trash hauling,
except to the extent that such regulation of busi-
nesses and occupations is necessary for and well-tai-
lored to the protection of health and safety.
‘‘(e) COORDINATION WITH TREATMENT
OF EM-
POWERMENT ZONES AND ENTERPRISE COMMUNITIES.—
For purposes of this title, if there are in effect with respect
to the same area both—
‘‘(1) a designation as a renewal community, and
‘‘(2) a designation as an empowerment zone or
enterprise community,
both of such designations shall be given full effect with
respect to such area.
‘‘(f) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) GOVERNMENTS.—If more than one govern-
ment seeks to nominate an area as a renewal com-
munity, any reference to, or requirement of, this sec-
tion shall apply to all such governments.
‘‘(2) STATE.—The term ‘State’ includes Puerto
Rico, the Virgin Islands of the United States, Guam,
American Samoa, the Northern Mariana Islands,
and any other possession of the United States.
‘‘(3) LOCAL
GOVERNMENT.—The term ‘local
government’ means—
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State,
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the Secretary of Housing and Urban Devel-
opment, and
‘‘(C) the District of Columbia.’’
SEC. 614. EVALUATION AND REPORTING REQUIREMENTS.
Not later than the close of the fourth calendar year
after the year in which the Secretary of Housing and
Urban Development first designates an area as a renewal
community under section 1400E of the Internal Revenue
Code of 1986, and at the close of each fourth calendar
year thereafter, such Secretary shall prepare and submit
to the Congress a report on the effects of such designa-
tions in accomplishing the purposes of this title.
SEC. 615. INTERACTION WITH OTHER FEDERAL PROGRAMS.
(a) TAX REDUCTIONS.—Any reduction of taxes, with
respect to any renewal community designated under sec-
tion 1400E of the Internal Revenue Code of 1986 (as
added by this subtitle), under any plan of action under
section 1400E(d) of such Code shall be disregarded in de-
termining the eligibility of a State or local government for,
or the amount or extent of, any assistance or benefits
under any law of the United States (other than subchapter
X of chapter 1 of such Code).
(b) COORDINATION
WITH
RELOCATION
ASSIST-
ANCE.—The designation of a renewal community under
section 1400E of such Code (as added by this subtitle)
shall not—
(1) constitute approval of a Federal or Feder-
ally assisted program or project (within the meaning
of the Uniform Relocation Assistance and Real
Property Acquisition Policies Act of 1970 (42
U.S.C. 4601 et seq.)), or
(2) entitle any person displaced from real prop-
erty located in such community to any rights or any
benefits under such Act.
(c) RENEWAL COMMUNITIES TREATED AS LABOR
SURPLUS AREAS.—Any area which is designated as a re-
newal community under section 1400E of such Code (as
added by this subtitle) shall be treated for all purposes
under Federal law as a labor surplus area.
(d) COORDINATION
WITH
JOB
TRAINING
PRO-
GRAMS.—Renewal communities are encouraged to coordi-
nate efforts with job training providers who are public,
private not-for-profit, or private for-profit entities.
Subtitle B—Tax Incentives for
Renewal Communities
SEC. 621. TAX TREATMENT OF RENEWAL COMMUNITIES.
Subchapter X of chapter 1 (as added by subtitle A)
is amended by adding at the end the following new parts:
‘‘PART II—RENEWAL COMMUNITY CAPITAL GAIN
‘‘Sec. 1400F. Renewal community capital gain.
‘‘Sec. 1400G. Renewal community business defined.
‘‘SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude any qualified capital gain recognized on the sale or
100
exchange of a qualified community asset held for more
than 5 years.
‘‘(b) QUALIFIED COMMUNITY ASSET.—For purposes
of this section—
‘‘(1) IN GENERAL.—The term ‘qualified com-
munity asset’ means—
‘‘(A) any qualified community stock,
‘‘(B) any qualified community business
property, and
‘‘(C) any qualified community partnership
interest.
‘‘(2) QUALIFIED COMMUNITY STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified commu-
nity stock’ means any stock in a domestic cor-
poration if—
‘‘(i) such stock is acquired by the tax-
payer after December 31, 1999, and before
January 1, 2007, at its original issue (di-
rectly or through an underwriter) from the
corporation solely in exchange for cash,
‘‘(ii) as of the time such stock was
issued, such corporation was a renewal
community business (or, in the case of a
new corporation, such corporation was
101
being organized for purposes of being a re-
newal community business), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a renewal
community business.
‘‘(B) REDEMPTIONS.—A rule similar to
the rule of section 1202(c)(3) shall apply for
purposes of this paragraph.
‘‘(3) QUALIFIED COMMUNITY BUSINESS PROP-
ERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
community business property’ means tangible
property if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after December 31,
1999, and before January 1, 2007,
‘‘(ii) the original use of such property
in the renewal community commences with
the taxpayer, and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such prop-
erty, substantially all of the use of such
102
property was in a renewal community busi-
ness of the taxpayer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—
‘‘(i) IN GENERAL.—The requirements
of clauses (i) and (ii) of subparagraph (A)
shall be treated as satisfied with respect
to—
‘‘(I) property which is substan-
tially improved by the taxpayer before
January 1, 2007, and
‘‘(II) any land on which such
property is located.
‘‘(ii) SUBSTANTIAL IMPROVEMENT.—
For purposes of clause (i), property shall
be treated as substantially improved by the
taxpayer only if, during any 24-month pe-
riod beginning after the date on which the
designation of the renewal community took
effect, additions to basis with respect to
such property in the hands of the taxpayer
exceed the greater of—
‘‘(I) an amount equal to the ad-
justed basis at the beginning of such
103
24-month period in the hands of the
taxpayer, or
‘‘(II) $5,000.
‘‘(4) QUALIFIED COMMUNITY PARTNERSHIP IN-
TEREST.—The term ‘qualified community partner-
ship interest’ means any interest in a partnership
if—
‘‘(A) such interest is acquired by the tax-
payer after December 31, 1999, and before
January 1, 2007,
‘‘(B) as of the time such interest was ac-
quired, such partnership was a renewal commu-
nity business (or, in the case of a new partner-
ship, such partnership was being organized for
purposes of being a renewal community busi-
ness), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a renewal community
business.
A rule similar to the rule of paragraph (2)(C) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified community asset’ in-
cludes any property which would be a qualified com-
104
munity asset but for paragraph (2)(A)(i), (3)(A)(ii),
or (4)(A) in the hands of the taxpayer if such prop-
erty was a qualified community asset in the hands
of all prior holders.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified community asset by reason
of paragraph (2)(A)(iii), (3)(A)(iii), or (4)(C) after
the 10-year period beginning on the date the tax-
payer acquired such property, such property shall
continue to be treated as meeting the requirements
of such paragraph; except that the amount of gain
to which subsection (a) applies on any sale or ex-
change of such property shall not exceed the amount
which would be qualified capital gain had such prop-
erty been sold on the date of such cessation.
‘‘(7) TREATMENT OF COMMUNITY DESIGNATION
TERMINATIONS.—The termination of any designa-
tion of an area as a renewal community shall be dis-
regarded for purposes of determining whether any
property is a qualified community asset.
‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
CAPITAL
GAIN.—Except as
otherwise provided in this subsection, the term
‘qualified capital gain’ means any long-term capital
105
gain recognized on the sale or exchange of a quali-
fied community asset held for more than 5 years
(determined without regard to any period before the
designation of the renewal community).
‘‘(2) GAIN BEFORE 2000 OR AFTER 2006 NOT
QUALIFIED.—The term ‘qualified capital gain’ shall
not include any gain attributable to periods before
January 1, 2000, or after December 31, 2006.
‘‘(3) CERTAIN
GAIN
NOT
QUALIFIED.—The
term ‘qualified capital gain’ shall not include any
gain which would be treated as ordinary income
under section 1245 or under section 1250 if section
1250 applied to all depreciation rather than the ad-
ditional depreciation.
‘‘(4) INTANGIBLES AND LAND NOT INTEGRAL
PART OF DC ZONE BUSINESS.—The term ‘qualified
capital gain’ shall not include any gain which is at-
tributable to real property, or an intangible asset,
which is not an integral part of a DC Zone business.
‘‘(5) RELATED
PARTY
TRANSACTIONS.—The
term ‘qualified capital gain’ shall not include any
gain attributable, directly or indirectly, in whole or
in part, to a transaction with a related person. For
purposes of this paragraph, persons are related to
106
each other if such persons are described in section
267(b) or 707(b)(1).
‘‘(d) CERTAIN OTHER RULES TO APPLY.—Rules
similar to the rules of subsections (g), (h), (i)(2), and (j)
of section 1202 shall apply for purposes of this section.
‘‘(e) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
QUALIFIED COMMUNITY BUSINESSES.—In the case of the
sale or exchange of an interest in a partnership, or of
stock in an S corporation, which was a renewal community
business during substantially all of the period the taxpayer
held such interest or stock, the amount of qualified capital
gain shall be determined without regard to—
‘‘(1) any intangible, and any land, which is not
an integral part of any qualified business entity (as
defined in section 1400G(b)), and
‘‘(2) gain attributable to periods before the des-
ignation of an area as a renewal community.
‘‘SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘renewal community business’ means—
‘‘(1) any qualified business entity, and
‘‘(2) any qualified proprietorship.
Such term shall include any trades or businesses which
would qualify as a renewal community business if such
107
trades or businesses were separately incorporated. Such
term shall not include any trade or business of producing
property of a character subject to the allowance for deple-
tion under section 611.
‘‘(b) QUALIFIED BUSINESS ENTITY.—For purposes
of this section, the term ‘qualified business entity’ means,
with respect to any taxable year, any corporation or part-
nership if for such year—
‘‘(1) every trade or business of such entity is
the active conduct of a qualified business within a
renewal community,
‘‘(2) at least 80 percent of the total gross in-
come of such entity is derived from the active con-
duct of such business,
‘‘(3) substantially all of the use of the tangible
property of such entity (whether owned or leased) is
within a renewal community,
‘‘(4) substantially all of the intangible property
of such entity is used in, and exclusively related to,
the active conduct of any such business,
‘‘(5) substantially all of the services performed
for such entity by its employees are performed in a
renewal community,
‘‘(6) at least 35 percent of its employees are
residents of a renewal community,
108
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to collectibles (as defined in
section 408(m)(2)) other than collectibles that are
held primarily for sale to customers in the ordinary
course of such business, and
‘‘(8) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to nonqualified financial prop-
erty.
‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of
this section, the term ‘qualified proprietorship’ means,
with respect to any taxable year, any qualified business
carried on by an individual as a proprietorship if for such
year—
‘‘(1) at least 80 percent of the total gross in-
come of such individual from such business is de-
rived from the active conduct of such business in a
renewal community,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within a renewal community,
‘‘(3) substantially all of the intangible property
of such business is used in, and exclusively related
to, the active conduct of such business,
109
‘‘(4) substantially all of the services performed
for such individual in such business by employees of
such business are performed in a renewal commu-
nity,
‘‘(5) at least 35 percent of such employees are
residents of a renewal community,
‘‘(6) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable 
to 
collectibles 
(as 
defined 
in 
section
408(m)(2)) other than collectibles that are held pri-
marily for sale to customers in the ordinary course
of such business, and
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable to nonqualified financial property.
For purposes of this subsection, the term ‘employee’ in-
cludes the proprietor.
‘‘(d) QUALIFIED BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified business’
means any trade or business.
110
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to others of real property located in a renewal com-
munity shall be treated as a qualified business if and
only if—
‘‘(A) the property is not residential rental
property (as defined in section 168(e)(2)), and
‘‘(B) at least 50 percent of the gross rental
income from the real property is from renewal
community businesses.
‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP-
ERTY.—The rental to others of tangible personal
property shall be treated as a qualified business if
and only if substantially all of the rental of such
property is by renewal community businesses or by
residents of a renewal community.
‘‘(4) TREATMENT OF BUSINESS HOLDING IN-
TANGIBLES.—The term ‘qualified business’ shall not
include any trade or business consisting predomi-
nantly of the development or holding of intangibles
for sale or license.
‘‘(5) CERTAIN
BUSINESSES
EXCLUDED.—The
term ‘qualified business’ shall not include—
‘‘(A) any trade or business consisting of
the operation of any facility described in section
144(c)(6)(B), and
111
‘‘(B) any trade or business the principal
activity of which is farming (within the meaning
of subparagraph (A) or (B) of section
2032A(e)(5)), but only if, as of the close of the
preceding taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the taxpayer which are
used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the taxpayer which are used in
such a trade or business,
exceeds $500,000.
‘‘(6) CONTROLLED GROUPS.—For purposes of
paragraph (5)(B), all persons treated as a single em-
ployer under subsection (a) or (b) of section 52 shall
be treated as a single taxpayer.
‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For
purposes of this section, the term ‘nonqualified financial
property’ means debt, stock, partnership interests, op-
tions, futures contracts, forward -contracts, warrants, no-
tional principal contracts, annuities, and other similar
property specified in regulations; except that such term
shall not include—
112
‘‘(1) reasonable amounts of working capital
held in cash, cash equivalents, or debt instruments
with a term of 18 months or less, or
‘‘(2) debt instruments described in section
1221(4).
‘‘PART III—FAMILY DEVELOPMENT ACCOUNTS
‘‘Sec. 1400H. Family development accounts.
‘‘Sec. 1400I. Demonstration program to provide matching con-
tributions to family development accounts in certain
renewal communities.
‘‘Sec. 1400J. Designation of earned income tax credit payments
for deposit to family development account.
‘‘SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RE-
NEWAL COMMUNITY EITC RECIPIENTS.
‘‘(a) ALLOWANCE OF DEDUCTION.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction—
‘‘(A) in the case of a qualified individual,
the amount paid in cash for the taxable year by
such individual to any family development ac-
count for such individual’s benefit, and
‘‘(B) in the case of any person other than
a qualified individual, the amount paid in cash
for the taxable year by such person to any fam-
ily development account for the benefit of a
qualified individual.
No deduction shall be allowed under this paragraph
for any amount deposited in a family development
113
account under section 1400I (relating to demonstra-
tion program to provide matching amounts in re-
newal communities).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—The amount allowable
as a deduction to any individual for any taxable
year by reason of paragraph (1)(A) shall not
exceed the lesser of—
‘‘(i) $2,000, or
‘‘(ii) an amount equal to the com-
pensation includible in the individual’s
gross income for such taxable year.
‘‘(B) PERSONS DONATING TO FAMILY DE-
VELOPMENT
ACCOUNTS
OF
OTHERS.—The
amount allowable as a deduction to any person
for any taxable year by reason of paragraph
(1)(B) shall not exceed $1,000 with respect to
any qualified individual.
‘‘(3) SPECIAL RULES FOR CERTAIN MARRIED
INDIVIDUALS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual to whom this subparagraph applies for
the taxable year, the limitation of subparagraph
(A) of paragraph (2) shall be equal to the lesser
of—
114
‘‘(i) the dollar amount in effect under
paragraph (2)(A)(i) for the taxable year,
or
‘‘(ii) the sum of—
‘‘(I) the compensation includible
in such individual’s gross income for
the taxable year, plus—
‘‘(II) the compensation includible
in the gross income of such individ-
ual’s spouse for the taxable year re-
duced by the amount allowed as a de-
duction under paragraph (1) to such
spouse for such taxable year.
‘‘(B) INDIVIDUALS
TO
WHOM
SUBPARA-
GRAPH (A) APPLIES.—Subparagraph (A) shall
apply to any individual if—
‘‘(i) such individual files a joint return
for the taxable year, and
‘‘(ii) the amount of compensation (if
any) includible in such individual’s gross
income for the taxable year is less than the
compensation includible in the gross in-
come of such individual’s spouse for the
taxable year.
115
‘‘(4) ROLLOVERS.—No deduction shall be al-
lowed under this section with respect to any rollover
contribution.
‘‘(b) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION
OF
AMOUNTS
IN
GROSS
IN-
COME.—Except as otherwise provided in this sub-
section, any amount paid or distributed out of a
family development account shall be included in
gross income by the payee or distributee, as the case
may be.
‘‘(2) EXCLUSION OF QUALIFIED FAMILY DEVEL-
OPMENT DISTRIBUTIONS.—Paragraph (1) shall not
apply to any qualified family development distribu-
tion.
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 408(d)
shall apply for purposes of this section.
‘‘(c) QUALIFIED FAMILY DEVELOPMENT DISTRIBU-
TION.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified family
development distribution’ means any amount paid or
distributed out of a family development account
which would otherwise be includible in gross income,
to the extent that such payment or distribution is
used exclusively to pay qualified family development
116
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder.
‘‘(2) QUALIFIED
FAMILY
DEVELOPMENT
EX-
PENSES.—The term ‘qualified family development
expenses’ means any of the following:
‘‘(A) Qualified postsecondary educational
expenses.
‘‘(B) First-home purchase costs.
‘‘(C) 
Qualified 
business 
capitalization
costs.
‘‘(D) Qualified medical expenses.
‘‘(E) Qualified rollovers.
‘‘(3) 
QUALIFIED
POSTSECONDARY
EDU-
CATIONAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
postsecondary 
educational 
expenses’ 
means
postsecondary educational expenses paid to an
eligible educational institution.
‘‘(B) POSTSECONDARY EDUCATIONAL EX-
PENSES.—The term ‘postsecondary educational
expenses’ means tuition, fees, room, board,
books, supplies, and equipment required for the
enrollment or attendance of a student at an eli-
gible educational institution.
117
‘‘(C) ELIGIBLE
EDUCATIONAL
INSTITU-
TION.—The term ‘eligible educational institu-
tion’ means the following:
‘‘(i) INSTITUTION
OF
HIGHER
EDU-
CATION.—An institution described in sec-
tion 481(a)(1) or 1201(a) of the Higher
Education 
Act 
of 
1965 
(20 
U.S.C.
1088(a)(1), 1141(a)), as such sections are
in effect on the date of the enactment of
this section.
‘‘(ii) POSTSECONDARY
VOCATIONAL
EDUCATION SCHOOL.—An area vocational
education school (as defined in subpara-
graph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied
Technology Education Act (20 U.S.C.
2471(4))) which is in any State (as defined
in section 521(33) of such Act), as such
sections are in effect on the date of the en-
actment of this section.
‘‘(D) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified post-
secondary educational expenses for any taxable
year shall be reduced by any amount excludable
from gross income under section 135.
118
‘‘(4) FIRST-HOME PURCHASE COSTS.—
‘‘(A) IN GENERAL.—The term ‘first-home
purchase costs’ means qualified acquisition
costs with respect to a qualified principal resi-
dence for a qualified first-time homebuyer.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
The term ‘qualified acquisition costs’ means the
costs of acquiring, constructing, or reconstruct-
ing a residence. Such term includes any usual
or reasonable settlement, financing, or other
closing costs.
‘‘(C) QUALIFIED PRINCIPAL RESIDENCE.—
The term ‘qualified principal residence’ means a
principal residence (within the meaning of sec-
tion 1034), the qualified acquisition costs of
which do not exceed 100 percent of the average
area purchase price applicable to such residence
(determined in accordance with paragraphs (2)
and (3) of section 143(e)).
‘‘(D) 
QUALIFIED
FIRST-TIME
HOME-
BUYER.—
‘‘(i) IN GENERAL.—The term ‘quali-
fied first-time homebuyer’ means an indi-
vidual if such individual (and, in the case
of a married individual, the individual’s
119
spouse) has no present ownership interest
in a principal residence during the 3-year
period ending on the date of acquisition of
the principal residence to which this sub-
section applies.
‘‘(ii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date
on which a binding contract to acquire,
construct, or reconstruct the principal resi-
dence to which this subsection applies is
entered into.
‘‘(5) QUALIFIED
BUSINESS
CAPITALIZATION
COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business capitalization costs’ means qualified
expenditures for the capitalization of a qualified
business pursuant to a qualified plan.
‘‘(B) 
QUALIFIED
EXPENDITURES.—The
term ‘qualified expenditures’ means expendi-
tures included in a qualified plan, including
capital, plant, equipment, working capital, and
inventory expenses.
‘‘(C) QUALIFIED
BUSINESS.—The term
‘qualified business’ means any business that
120
does not contravene any law or public policy (as
determined by the Secretary).
‘‘(D) QUALIFIED PLAN.—The term ‘quali-
fied plan’ means a business plan which—
‘‘(i) is approved by a financial institu-
tion, or by a nonprofit loan fund having
demonstrated fiduciary integrity,
‘‘(ii) includes a description of services
or goods to be sold, a marketing plan, and
projected financial statements, and
‘‘(iii) may require the eligible individ-
ual to obtain the assistance of an experi-
enced entrepreneurial advisor.
‘‘(6) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any amount
paid during the taxable year, not compensated for by
insurance or otherwise, for medical care (as defined
in section 213(d)) of the taxpayer, his spouse, or his
dependent (as defined in section 152).
‘‘(7) QUALIFIED ROLLOVERS.—The term ‘quali-
fied rollover’ means any amount paid from a family
development account of a taxpayer into another such
account established for the benefit of—
‘‘(A) such taxpayer, or
‘‘(B) any qualified individual who is—
121
‘‘(i) the spouse of such taxpayer, or
‘‘(ii) any dependent (as defined in sec-
tion 152) of the taxpayer. Rules similar to
the rules of section 408(d)(3) shall apply
for purposes of this paragraph.
‘‘(d) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Any family development ac-
count is exempt from taxation under this subtitle
unless such account has ceased to be a family devel-
opment account by reason of paragraph (2). Not-
withstanding the preceding sentence, any such ac-
count is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc., organizations).
‘‘(2) LOSS OF EXEMPTION IN CASE OF PROHIB-
ITED TRANSACTIONS.—For purposes of this section,
rules similar to the rules of section 408(e) shall
apply.
‘‘(e) FAMILY DEVELOPMENT ACCOUNT.—For pur-
poses of this title, the term ‘family development account’
means a trust created or organized in the United States
for the exclusive benefit of a qualified individual or his
beneficiaries, but only if the written governing instrument
creating the trust meets the following requirements:
122
‘‘(1) Except in the case of a qualified rollover
(as defined in subsection (c)(7))—
‘‘(A) no contribution will be accepted un-
less it is in cash, and
‘‘(B) contributions will not be accepted for
the taxable year in excess of $2,000 (deter-
mined without regard to any contribution made
under section 1400I (relating to demonstration
program to provide matching amounts in re-
newal communities)).
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)) or such other person who demonstrates
to the satisfaction of the Secretary that the manner
in which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance in his account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(6) Under regulations prescribed by the Sec-
retary, rules similar to the rules of section 401(a)(9)
123
and the incidental death benefit requirements of sec-
tion 401(a) shall apply to the distribution of the en-
tire interest of an individual for whose benefit the
trust is maintained.
‘‘(f) QUALIFIED INDIVIDUAL.—For purposes of this
section, the term ‘qualified individual’ means, for any tax-
able year, an individual—
‘‘(1) who is a bona fide resident of a renewal
community throughout the taxable year, and
‘‘(2) to whom a credit was allowed under sec-
tion 32 for the preceding taxable year.
‘‘(g) OTHER DEFINITIONS AND SPECIAL RULES.—
‘‘(1) COMPENSATION.—The term ‘compensa-
tion’ has the meaning given such term by section
219(f)(1).
‘‘(2) MARRIED
INDIVIDUALS.—The maximum
deduction under subsection (a) shall be computed
separately for each individual, and this section shall
be applied without regard to any community prop-
erty laws.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this section, a taxpayer
shall be deemed to have made a contribution to a
family development account on the last day of the
preceding taxable year if the contribution is made on
124
account of such taxable year and is made not later
than the time prescribed by law for filing the return
for such taxable year (not including extensions
thereof).
‘‘(4) EMPLOYER PAYMENTS.—For purposes of
this title, any amount paid by an employer to a fam-
ily development account shall be treated as payment
of compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the em-
ployee.
‘‘(5) ZERO BASIS.—The basis of an individual
in any family development account of such individual
shall be zero.
‘‘(6) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates, to the satisfaction of the Sec-
retary, that the manner in which such person will
administer the account will be consistent with the re-
quirements of this section, and if the custodial ac-
125
count would, except for the fact that it is not a
trust, constitute a family development account de-
scribed in this section. For purposes of this title, in
the case of a custodial account treated as a trust by
reason of the preceding sentence, the custodian of
such account shall be treated as the trustee thereof.
‘‘(7) REPORTS.—The trustee of a family devel-
opment account shall make such reports regarding
such account to the Secretary and to the individual
for whom the account is maintained with respect to
contributions (and the years to which they relate),
distributions, and such other matters as the Sec-
retary may require under regulations. The reports
required by this paragraph—
‘‘(A) shall be filed at such time and in
such manner as the Secretary prescribes in
such regulations, and
‘‘(B) shall be furnished to individuals—
‘‘(i) not later than January 31 of the
calendar year following the calendar year
to which such reports relate, and
‘‘(ii) in such manner as the Secretary
prescribes in such regulations.
‘‘(8) INVESTMENT IN COLLECTIBLES TREATED
AS DISTRIBUTIONS.—Rules similar to the rules of
126
section 408(m) shall apply for purposes of this sec-
tion.
‘‘(h) PENALTY FOR DISTRIBUTIONS NOT USED FOR
QUALIFIED FAMILY DEVELOPMENT EXPENSES.—
‘‘(1) IN GENERAL.—If any amount is distrib-
uted from a family development account and is not
used exclusively to pay qualified family development
expenses for the holder of the account or the spouse
or dependent (as defined in section 152) of such
holder, the tax imposed by this chapter for the tax-
able year of such distribution shall be increased by
the sum of—
‘‘(A) 100 percent of the portion of such
amount which is includible in gross income and
is attributable to amounts contributed under
section 1400I (relating to demonstration pro-
gram to provide matching amounts in renewal
communities), and
‘‘(B) 10 percent of the portion of such
amount which is includible in gross income and
is not described in paragraph (1).
For purposes of this subsection, the portion of a dis-
tributed amount which is attributable to amounts
contributed under section 1400I is the amount
which bears the same ratio to the distributed
127
amount as the aggregate amount contributed under
section 1400I to all family development accounts of
the individual bears to the aggregate amount con-
tributed to such accounts from all sources.
‘‘(2) EXCEPTION
FOR
CERTAIN
DISTRIBU-
TIONS.—Paragraph (1) shall not apply to distribu-
tions which are—
‘‘(A) made on or after the date on which
the account holder attains age 591⁄2,
‘‘(B) made pursuant to subsection (e)(6),
‘‘(C) made to a beneficiary (or the estate
of the account holder) on or after the death of
the account holder, or
‘‘(D) attributable to the account holder’s
being disabled within the meaning of section
72(m)(7).
‘‘(i) TERMINATION.—No deduction shall be allowed
under this section for any amount paid to a family devel-
opment account for any taxable year beginning after De-
cember 31, 2006.
‘‘SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE
MATCHING CONTRIBUTIONS TO FAMILY DE-
VELOPMENT 
ACCOUNTS 
IN 
CERTAIN 
RE-
NEWAL COMMUNITIES.
‘‘(a) DESIGNATION.—
128
‘‘(1) DEFINITIONS.—For purposes of this sec-
tion, the term ‘FDA matching demonstration area’
means any renewal community—
‘‘(A) which is nominated under this section
by each of the local governments and States
which nominated such community for designa-
tion as a renewal community under section
1400E(a)(1)(A), and
‘‘(B) which the Secretary of Housing and
Urban Development, after consultation with—
‘‘(i) the Secretaries of Agriculture,
Commerce, Labor, and the Treasury, the
Director of the Office of Management and
Budget, and the Administrator of the
Small Business Administration, and
‘‘(ii) in the case of a community on an
Indian reservation, the Secretary of the In-
terior,
designates as an FDA matching demonstration
area.
‘‘(2) NUMBER OF DESIGNATIONS.—
‘‘(A) IN
GENERAL.—The Secretary of
Housing and Urban Development may des-
ignate not more than 25 percent of the renewal
129
communities as FDA matching demonstration
areas.
‘‘(B) MINIMUM
DESIGNATION
IN
RURAL
AREAS.—Of the areas designated under para-
graph (1), at least 2 must be areas described in
section 1400E(a)(2)(B).
‘‘(3) LIMITATIONS ON DESIGNATIONS.—
‘‘(A) PUBLICATION
OF
REGULATIONS.—
The Secretary of Housing and Urban Develop-
ment shall prescribe by regulation no later than
4 months after the date of the enactment of
this section, after consultation with the officials
described in paragraph (1)(B)—
‘‘(i) the procedures for nominating a
renewal 
community 
under 
paragraph
(1)(A) (including procedures for coordinat-
ing such nomination with the nomination
of an area for designation as a renewal
community under section 1400E), and
‘‘(ii) the manner in which nominated
renewal communities will be evaluated for
purposes of this section.
‘‘(B) TIME LIMITATIONS.—The Secretary
of Housing and Urban Development may des-
ignate renewal communities as FDA matching
130
demonstration areas only during the 24-month
period beginning on the first day of the first
month following the month in which the regula-
tions described in subparagraph (A) are pre-
scribed.
‘‘(4) DESIGNATION BASED ON DEGREE OF POV-
ERTY, ETC.—The rules of section 1400E(a)(3) shall
apply for purposes of designations of FDA matching
demonstration areas under this section.
‘‘(b) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—Any designation of a renewal community as an
FDA matching demonstration area shall remain in effect
during the period beginning on the date of such designa-
tion and ending on the date on which such area ceases
to be a renewal community.
‘‘(c) MATCHING CONTRIBUTIONS TO FAMILY DEVEL-
OPMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—Not less than once each
taxable year, the Secretary shall deposit (to the ex-
tent provided in appropriation Acts) into a family
development account of each qualified individual (as
defined in section 1400H(f)) who is a resident
throughout the taxable year of an FDA matching
demonstration area an amount equal to the sum of
the amounts deposited into all of the family develop-
131
ment accounts of such individual during such tax-
able year (determined without regard to any amount
contributed under this section).
‘‘(2) LIMITATIONS.—
‘‘(A) ANNUAL LIMIT.—The Secretary shall
not deposit more than $1000 under paragraph
(1) with respect to any individual for any tax-
able year.
‘‘(B) AGGREGATE
LIMIT.—The Secretary
shall not deposit more than $2000 under para-
graph (1) with respect to any individual.
‘‘(3) EXCLUSION
FROM
INCOME.—Except as
provided in section 1400H, gross income shall not
include any amount deposited into a family develop-
ment account under paragraph (1).
‘‘(d) TERMINATION.—No amount may be deposited
under this section for any taxable year beginning after De-
cember 31, 2006.
‘‘SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CRED-
IT PAYMENTS FOR DEPOSIT TO FAMILY DE-
VELOPMENT ACCOUNT.
‘‘(a) IN GENERAL.—With respect to the return of any
qualified individual (as defined in section 1400H(f)) for
the taxable year of the tax imposed by this chapter, such
individual may designate that a specified portion (not less
132
than $1) of any overpayment of tax for such taxable year
which is attributable to the earned income tax credit shall
be deposited by the Secretary into a family development
account of such individual. The Secretary shall so deposit
such portion designated under this subsection.
‘‘(b) MANNER AND TIME OF DESIGNATION.—A des-
ignation under subsection (a) may be made with respect
to any taxable year—
‘‘(1) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
‘‘(2) at any other time (after the time of filing
the return of the tax imposed by this chapter for
such taxable year) specified in regulations prescribed
by the Secretary.
Such designation shall be made in such manner as the
Secretary prescribes by regulations.
‘‘(c) PORTION ATTRIBUTABLE TO EARNED INCOME
TAX CREDIT.—For purposes of subsection (a), an over-
payment for any taxable year shall be treated as attrib-
utable to the earned income tax credit to the extent that
such overpayment does not exceed the credit allowed to
the taxpayer under section 32 for such taxable year.
‘‘(d) OVERPAYMENTS TREATED
AS REFUNDED.—
For purposes of this title, any portion of an overpayment
of tax designated under subsection (a) shall be treated as