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trust under the rules of subpart E of
part I of subchapter J of chapter 1, or
‘‘(II) any portion of a foreign
trust was included in the gross estate
of the decedent.
‘‘(B) EXCEPTIONS.—
‘‘(i) FAIR
MARKET
VALUE
SALES.—
Subparagraph (A)(ii) shall not apply to
any transfer of property to a trust in ex-
change for consideration of at least the fair
market value of the transferred property.
For purposes of the preceding sentence, con-
sideration other than cash shall be taken
into account at its fair market value and
the rules of section 679(a)(3) shall apply.
‘‘(ii) DEFERRED
COMPENSATION
AND
CHARITABLE
TRUSTS.—Subparagraph (A)
shall not apply with respect to a trust
which is—
‘‘(I) described in section 402(b),
404(a)(4), or 404A, or
‘‘(II) determined by the Secretary
to be described in section 501(c)(3).
‘‘(4) RESPONSIBLE PARTY.—For purposes of this
subsection, the term ‘responsible party’ means—
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‘‘(A) the grantor in the case of the creation
of an inter vivos trust,
‘‘(B) the transferor in the case of a report-
able event described in paragraph (3)(A)(ii)
other than a transfer by reason of death, and
‘‘(C) the executor of the decedent’s estate in
any other case.
‘‘(b) UNITED STATES GRANTOR OF FOREIGN TRUST.—
‘‘(1) IN GENERAL.—If, at any time during any
taxable year of a United States person, such person
is treated as the owner of any portion of a foreign
trust under the rules of subpart E of part I of sub-
chapter J of chapter 1, such person shall be respon-
sible to ensure that—
‘‘(A) such trust makes a return for such
year which sets forth a full and complete ac-
counting of all trust activities and operations for
the year, the name of the United States agent for
such trust, and such other information as the
Secretary may prescribe, and
‘‘(B) such trust furnishes such information
as the Secretary may prescribe to each United
States person (i) who is treated as the owner of
any portion of such trust or (ii) who receives
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‘‘(ii) any summons by the Secretary
for such records or testimony.
The appearance of persons or production of
records by reason of a United States person
being such an agent shall not subject such per-
sons or records to legal process for any purpose
other than determining the correct treatment
under this title of the amounts required to be
taken into account under the rules referred to in
subparagraph (A). A foreign trust which ap-
points an agent described in this subparagraph
shall not be considered to have an office or a per-
manent establishment in the United States, or to
be engaged in a trade or business in the United
States, solely because of the activities of such
agent pursuant to this subsection.
‘‘(C) OTHER RULES TO APPLY.—Rules simi-
lar to the rules of paragraphs (2) and (4) of sec-
tion 6038A(e) shall apply for purposes of this
paragraph.
‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES
OF FOREIGN TRUSTS.—
‘‘(1) IN GENERAL.—If any United States person
receives (directly or indirectly) during any taxable
year of such person any distribution from a foreign
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trust, such person shall make a return with respect to
such trust for such year which includes—
‘‘(A) the name of such trust,
‘‘(B) the aggregate amount of the distribu-
tions so received from such trust during such
taxable year, and
‘‘(C) such other information as the Sec-
retary may prescribe.
‘‘(2) INCLUSION
IN
INCOME
IF
RECORDS
NOT
PROVIDED.—
‘‘(A) IN GENERAL.—If adequate records are
not provided to the Secretary to determine the
proper treatment of any distribution from a for-
eign trust, such distribution shall be treated as
an accumulation distribution includible in the
gross income of the distributee under chapter 1.
To the extent provided in regulations, the preced-
ing sentence shall not apply if the foreign trust
elects to be subject to rules similar to the rules
of subsection (b)(2)(B).
‘‘(B) APPLICATION OF ACCUMULATION DIS-
TRIBUTION
RULES.—For purposes of applying
section 668 in a case to which subparagraph (A)
applies, the applicable number of years for pur-
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poses of section 668(a) shall be 1⁄2 of the number
of years the trust has been in existence.
‘‘(d) SPECIAL RULES.—
‘‘(1) DETERMINATION
OF
WHETHER
UNITED
STATES PERSON RECEIVES DISTRIBUTION.—For pur-
poses of this section, in determining whether a United
States person receives a distribution from a foreign
trust, the fact that a portion of such trust is treated
as owned by another person under the rules of sub-
part E of part I of subchapter J of chapter 1 shall
be disregarded.
‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVI-
TIES.—To the extent provided in regulations, a trust
which is a United States person shall be treated as
a foreign trust for purposes of this section and section
6677 if such trust has substantial activities, or holds
substantial property, outside the United States.
‘‘(3) TIME AND MANNER OF FILING INFORMA-
TION.—Any notice or return required under this sec-
tion shall be made at such time and in such manner
as the Secretary shall prescribe.
‘‘(4) 
MODIFICATION
OF
RETURN
REQUIRE-
MENTS.—The Secretary is authorized to suspend or
modify any requirement of this section if the Sec-
retary determines that the United States has no sig-
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nificant tax interest in obtaining the required infor-
mation.’’.
(b) INCREASED PENALTIES.—Section 6677 (relating to
failure to file information returns with respect to certain
foreign trusts) is amended to read as follows:
‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT
TO CERTAIN FOREIGN TRUSTS.
‘‘(a) CIVIL PENALTY.—In addition to any criminal
penalty provided by law, if any notice or return required
to be filed by section 6048—
‘‘(1) is not filed on or before the time provided
in such section, or
‘‘(2) does not include all the information re-
quired pursuant to such section or includes incorrect
information,
the person required to file such notice or return shall pay
a penalty equal to 35 percent of the gross reportable
amount. If any failure described in the preceding sentence
continues for more than 90 days after the day on which
the Secretary mails notice of such failure to the person re-
quired to pay such penalty, such person shall pay a penalty
(in addition to the amount determined under the preceding
sentence) of $10,000 for each 30-day period (or fraction
thereof) during which such failure continues after the expi-
ration of such 90-day period. In no event shall the penalty
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under this subsection with respect to any failure exceed the
gross reportable amount.
‘‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION
6048(b).—In the case of a return required under section
6048(b)—
‘‘(1) the United States person referred to in such
section shall be liable for the penalty imposed by sub-
section (a), and
‘‘(2) subsection (a) shall be applied by substitut-
ing ‘5 percent’ for ‘35 percent’.
‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes of
subsection (a), the term ‘gross reportable amount’ means—
‘‘(1) the gross value of the property involved in
the event (determined as of the date of the event) in
the case of a failure relating to section 6048(a),
‘‘(2) the gross value of the portion of the trust’s
assets at the close of the year treated as owned by the
United States person in the case of a failure relating
to section 6048(b)(1), and
‘‘(3) the gross amount of the distributions in the
case of a failure relating to section 6048(c).
‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed by this section on any failure which is
shown to be due to reasonable cause and not due to willful
neglect. The fact that a foreign jurisdiction would impose
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a civil or criminal penalty on the taxpayer (or any other
person) for disclosing the required information is not rea-
sonable cause.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub-
chapter B of chapter 63 (relating to deficiency procedures
for income, estate, gift, and certain excise taxes) shall not
apply in respect of the assessment or collection of any pen-
alty imposed by subsection (a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6724(d), as amend-
ed by sections 11004 and 11045, is amended by strik-
ing ‘‘or’’ at the end of subparagraph (U), by striking
the period at the end of subparagraph (V) and insert-
ing ‘‘, or’’, and by inserting after subparagraph (V)
the following new subparagraph:
‘‘(W) section 6048(b)(1)(B) (relating to for-
eign trust reporting requirements).’’.
(2) The table of sections for subpart B of part
III of subchapter A of chapter 61 is amended by strik-
ing the item relating to section 6048 and inserting
the following new item:
‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.
(3) The table of sections for part I of subchapter
B of chapter 68 is amended by striking the item relat-
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ing to section 6677 and inserting the following new
item:
‘‘Sec. 6677. Failure to file information with respect to certain for-
eign trusts.’’.
(d) EFFECTIVE DATES.—
(1) REPORTABLE EVENTS.—To the extent related
to subsection (a) of section 6048 of the Internal Reve-
nue Code of 1986, as amended by this section, the
amendments made by this section shall apply to re-
portable events (as defined in such section 6048) oc-
curring after the date of the enactment of this Act.
(2) GRANTOR TRUST REPORTING.—To the extent
related to subsection (b) of such section 6048, the
amendments made by this section shall apply to tax-
able years of United States persons beginning after
the date of the enactment of this Act.
(3) REPORTING
BY
UNITED
STATES
BENE-
FICIARIES.—To the extent related to subsection (c) of
such section 6048, the amendments made by this sec-
tion shall apply to distributions received after the
date of the enactment of this Act.
SEC. 11342. MODIFICATIONS OF RULES RELATING TO FOR-
EIGN TRUSTS HAVING ONE OR MORE UNITED
STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.—
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(1) Paragraph (2) of section 679(a) is amended
by striking subparagraph (B) and inserting the fol-
lowing:
‘‘(B) 
TRANSFERS
AT
FAIR
MARKET
VALUE.—To any transfer of property to a trust
in exchange for consideration of at least the fair
market value of the transferred property. For
purposes of the preceding sentence, consideration
other than cash shall be taken into account at its
fair market value.’’.
(2) Subsection (a) of section 679 (relating to for-
eign trusts having one or more United States bene-
ficiaries) is amended by adding at the end the follow-
ing new paragraph:
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO AC-
COUNT UNDER FAIR MARKET VALUE EXCEPTION.—
‘‘(A) IN GENERAL.—In determining whether
paragraph (2)(B) applies to any transfer by a
person described in clause (ii) or (iii) of sub-
paragraph (C), there shall not be taken into ac-
count—
‘‘(i) except as provided in regulations,
any obligation of a person described in sub-
paragraph (C), and
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‘‘(ii) to the extent provided in regula-
tions, any obligation which is guaranteed
by a person described in subparagraph (C).
‘‘(B) TREATMENT OF PRINCIPAL PAYMENTS
ON
OBLIGATION.—Principal payments by the
trust on any obligation referred to in subpara-
graph (A) shall be taken into account on and
after the date of the payment in determining the
portion of the trust attributable to the property
transferred.
‘‘(C) PERSONS
DESCRIBED.—The persons
described in this subparagraph are—
‘‘(i) the trust,
‘‘(ii) any grantor or beneficiary of the
trust, and
‘‘(iii) any person who is related (with-
in the meaning of section 643(i)(2)(B)) to
any grantor or beneficiary of the trust.’’.
(b) EXEMPTION
OF
TRANSFERS
TO
CHARITABLE
TRUSTS.—Subsection (a) of section 679 is amended by
striking ‘‘section 404(a)(4) or 404A’’ and inserting ‘‘section
6048(a)(3)(B)(ii)’’.
(c) OTHER MODIFICATIONS.—Subsection (a) of section
679 is amended by adding at the end the following new
paragraphs:
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‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN
GRANTOR WHO LATER BECOMES A UNITED STATES
PERSON.—
‘‘(A) IN GENERAL.—If a nonresident alien
individual has a residency starting date within
5 years after directly or indirectly transferring
property to a foreign trust, this section and sec-
tion 6048 shall be applied as if such individual
transferred to such trust on the residency start-
ing date an amount equal to the portion of such
trust attributable to the property transferred by
such individual to such trust in such transfer.
‘‘(B) TREATMENT
OF
UNDISTRIBUTED
IN-
COME.—For purposes of this section, undistrib-
uted net income for periods before such individ-
ual’s residency starting date shall be taken into
account in determining the portion of the trust
which is attributable to property transferred by
such individual to such trust but shall not other-
wise be taken into account.
‘‘(C) RESIDENCY
STARTING
DATE.—For
purposes of this paragraph, an individual’s resi-
dency starting date is the residency starting date
determined under section 7701(b)(2)(A).
‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—
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‘‘(A) an individual who is a citizen or resi-
dent of the United States transferred property to
a trust which was not a foreign trust, and
‘‘(B) such trust becomes a foreign trust
while such individual is alive,
then this section and section 6048 shall be applied as
if such individual transferred to such trust on the
date such trust becomes a foreign trust an amount
equal to the portion of such trust attributable to the
property previously transferred by such individual to
such trust. A rule similar to the rule of paragraph
(4)(B) shall apply for purposes of this paragraph.’’.
(d) MODIFICATIONS RELATING TO WHETHER TRUST
HAS UNITED STATES BENEFICIARIES.—Subsection (c) of
section 679 is amended by adding at the end the following
new paragraph:
‘‘(3) CERTAIN
UNITED
STATES
BENEFICIARIES
DISREGARDED.—A beneficiary shall not be treated as
a United States person in applying this section with
respect to any transfer of property to foreign trust if
such beneficiary first became a United States person
more than 5 years after the date of such transfer.’’.
(e) TECHNICAL AMENDMENT.—Subparagraph (A) of
section 679(c)(2) is amended to read as follows:
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‘‘(A) in the case of a foreign corporation,
such corporation is a controlled foreign corpora-
tion (as defined in section 957(a)),’’.
(f) REGULATIONS.—Section 679 is amended by adding
at the end the following new subsection:
‘‘(d) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers of property after February
6, 1995.
SEC. 11343. FOREIGN PERSONS NOT TO BE TREATED AS
OWNERS UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.—
(1) Subsection (f) of section 672 (relating to spe-
cial rule where grantor is foreign person) is amended
to read as follows:
‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER-
SHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this subpart, this subpart shall apply
only to the extent such application results in an
amount being currently taken into account (directly
or through 1 or more entities) under this chapter in
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computing the income of a citizen or resident of the
United States or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN
REVOCABLE
AND
IRREV-
OCABLE
TRUSTS.—Paragraph (1) shall not
apply to any trust if—
‘‘(i) the power to revest absolutely in
the grantor title to the trust property is ex-
ercisable solely by the grantor without the
approval or consent of any other person or
with the consent of a related or subordinate
party who is subservient to the grantor, or
‘‘(ii) the only amounts distributable
from such trust (whether income or corpus)
during the lifetime of the grantor are
amounts distributable to the grantor or the
spouse of the grantor.
‘‘(B) COMPENSATORY
TRUSTS.—Except as
provided in regulations, paragraph (1) shall not
apply to any portion of a trust distributions
from which are taxable as compensation for serv-
ices rendered.
‘‘(3) SPECIAL RULES.—Except as otherwise pro-
vided in regulations prescribed by the Secretary—
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‘‘(A) a controlled foreign corporation (as de-
fined in section 957) shall be treated as a domes-
tic corporation for purposes of paragraph (1),
and
‘‘(B) paragraph (1) shall not apply for pur-
poses of applying section 1296.
‘‘(4) 
RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the case of any transfer directly or indi-
rectly from a partnership or foreign corporation
which the transferee treats as a gift or bequest, the
Secretary may recharacterize such transfer in such
circumstances as the Secretary determines to be ap-
propriate to prevent the avoidance of the purposes of
this subsection.
‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR-
EIGN PERSON.—If
‘‘(A) but for this subsection, a foreign per-
son would be treated as the owner of any portion
of a trust, and
‘‘(B) such trust has a beneficiary who is a
United States person,
such beneficiary shall be treated as the grantor of
such portion to the extent such beneficiary has made
transfers of property by gift (directly or indirectly) to
such foreign person. For purposes of the preceding
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sentence, any gift shall not be taken into account to
the extent such gift would be excluded from taxable
gifts under section 2503(b).
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or appro-
priate to carry out the purposes of this subsection, in-
cluding regulations providing that paragraph (1)
shall not apply in appropriate cases.’’.
(2) The last sentence of subsection (c) of section
672 of such Code is amended by inserting ‘‘subsection
(f) and’’ before ‘‘sections 674’’.
(b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of
section 665(d) is amended by adding at the end the follow-
ing new sentence: ‘‘Under rules or regulations prescribed
by the Secretary, in the case of any foreign trust of which
the settlor or another person would be treated as owner of
any portion of the trust under subpart E but for section
672(f), the term ‘taxes imposed on the trust’ includes the
allocable amount of any income, war profits, and excess
profits taxes imposed by any foreign country or possession
of the United States on the settlor or such other person in
respect of trust gross income.’’.
(c) DISTRIBUTIONS
BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—
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(1) Section 643 is amended by adding at the end
the following new subsection:
‘‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—For purposes of this part, any
amount paid to a United States person which is derived
directly or indirectly from a foreign trust of which the
payor is not the grantor shall be deemed in the year of pay-
ment to have been directly paid by the foreign trust to such
United States person.’’.
(2) Section 665 is amended by striking sub-
section (c).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section shall
take effect on the date of the enactment of this Act.
(2) EXCEPTION
FOR
CERTAIN
TRUSTS.—The
amendments made by this section shall not apply to
any trust—
(A) which is treated as owned by the grant-
or or another person under section 676 or 677
(other than subsection (a)(3) thereof) of the In-
ternal Revenue Code of 1986, and
(B) which is in existence on September 19,
1995.
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The preceding sentence shall not apply to the portion
of any such trust attributable to any transfer to such
trust after September 19, 1995.
(e) TRANSITIONAL RULE.—If—
(1) by reason of the amendments made by this
section, any person other than a United States person
ceases to be treated as the owner of a portion of a do-
mestic trust, and
(2) before January 1, 1997, such trust becomes
a foreign trust, or the assets of such trust are trans-
ferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal Rev-
enue Code of 1986 by reason of such trust becoming a for-
eign trust or the assets of such trust being transferred to
a foreign trust.
SEC. 11344. INFORMATION REPORTING REGARDING FOR-
EIGN GIFTS.
(a) IN GENERAL.—Subpart A of part III of subchapter
A of chapter 61 is amended by inserting after section 6039E
the following new section:
‘‘SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN
PERSONS.
‘‘(a) IN GENERAL.—If the value of the aggregate for-
eign gifts received by a United States person (other than
an organization described in section 501(c) and exempt
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from tax under section 501(a)) during any taxable year ex-
ceeds $10,000, such United States person shall furnish (at
such time and in such manner as the Secretary shall pre-
scribe) such information as the Secretary may prescribe re-
garding each foreign gift received during such year.
‘‘(b) FOREIGN GIFT.—For purposes of this section, the
term ‘foreign gift’ means any amount received from a per-
son other than a United States person which the recipient
treats as a gift or bequest. Such term shall not include any
qualified 
transfer 
(within 
the 
meaning 
of 
section
2503(e)(2)).
‘‘(c) PENALTY FOR FAILURE TO FILE INFORMATION.—
‘‘(1) IN GENERAL.—If a United States person
fails to furnish the information required by subsection
(a) with respect to any foreign gift within the time
prescribed therefor (including extensions)—
‘‘(A) the tax consequences of the receipt of
such gift shall be determined by the Secretary in
the Secretary’s sole discretion from the Sec-
retary’s own knowledge or from such information
as the Secretary may obtain through testimony
or otherwise, and
‘‘(B) such United States person shall pay
(upon notice and demand by the Secretary and
in the same manner as tax) an amount equal to
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5 percent of the amount of such foreign gift for
each month for which the failure continues (not
to exceed 25 percent of such amount in the aggre-
gate).
‘‘(2) REASONABLE
CAUSE
EXCEPTION.—Para-
graph (1) shall not apply to any failure to report a
foreign gift if the United States person shows that the
failure is due to reasonable cause and not due to will-
ful neglect.
‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of
any taxable year beginning after December 31, 1996, the
$10,000 amount under subsection (a) shall be increased by
an amount equal to the product of such amount and the
cost-of-living adjustment for such taxable year under section
1(f)(3), except that subparagraph (B) thereof shall be ap-
plied by substituting ‘1995’ for ‘1992’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such subpart is amended by inserting after the item relating
to section 6039E the following new item:
‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts received after the date of
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the enactment of this Act in taxable years ending after such
date.
SEC. 11345. MODIFICATION OF RULES RELATING TO FOR-
EIGN TRUSTS WHICH ARE NOT GRANTOR
TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCUMU-
LATION DISTRIBUTIONS.—Subsection (a) of section 668 (re-
lating to interest charge on accumulation distributions from
foreign trusts) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax deter-
mined under section 667(a)—
‘‘(1) 
INTEREST
DETERMINED
USING
UNDERPAYMENT RATES.—The interest charge deter-
mined under this section with respect to any distribu-
tion is the amount of interest which would be deter-
mined on the partial tax computed under section
667(b) for the period described in paragraph (2)
using the rates and the method under section 6621
applicable to underpayments of tax.
‘‘(2) PERIOD.—For purposes of paragraph (1),
the period described in this paragraph is the period
which begins on the date which is the applicable num-
ber of years before the date of the distribution and
which ends on the date of the distribution.
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‘‘(3) APPLICABLE NUMBER OF YEARS.—For pur-
poses of paragraph (2)—
‘‘(A) IN GENERAL.—The applicable number
of years with respect to a distribution is the
number determined by dividing—
‘‘(i) the sum of the products described
in subparagraph (B) with respect to each
undistributed income year, by
‘‘(ii) the aggregate undistributed net
income.
The quotient determined under the preceding
sentence shall be rounded under procedures pre-
scribed by the Secretary.
‘‘(B) PRODUCT DESCRIBED.—For purposes
of subparagraph (A), the product described in
this subparagraph with respect to any undistrib-
uted income year is the product of—
‘‘(i) the undistributed net income for
such year, and
‘‘(ii) the sum of the number of taxable
years between such year and the taxable
year of the distribution (counting in each
case the undistributed income year but not
counting the taxable year of the distribu-
tion).
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‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur-
poses of this subsection, the term ‘undistributed in-
come year’ means any prior taxable year of the trust
for which there is undistributed net income, other
than a taxable year during all of which the bene-
ficiary receiving the distribution was not a citizen or
resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET
INCOME.—Notwithstanding section 666, for purposes
of this subsection, an accumulation distribution from
the trust shall be treated as reducing proportionately
the undistributed net income for undistributed income
years.
‘‘(6) PERIODS
BEFORE
1996.—Interest for the
portion of the period described in paragraph (2)
which occurs before January 1, 1996, shall be deter-
mined—
‘‘(A) by using an interest rate of 6 percent,
and
‘‘(B) without compounding until January
1, 1996.’’.
(b) ABUSIVE
TRANSACTIONS.—Section 643(a) is
amended by inserting after paragraph (6) the following new
paragraph:
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‘‘(7) ABUSIVE
TRANSACTIONS.—The Secretary
shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this part,
including regulations to prevent avoidance of such
purposes.’’.
(c) TREATMENT OF LOANS FROM TRUSTS.—
(1) IN GENERAL.—Section 643 (relating to defi-
nitions applicable to subparts A, B, C, and D) is
amended by adding at the end the following new sub-
section:
‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes of
subparts B, C, and D—
‘‘(1) GENERAL
RULE.—Except as provided in
regulations, if a foreign trust makes a loan of cash or
marketable securities directly or indirectly to—
‘‘(A) any grantor or beneficiary of such
trust who is a United States person, or
‘‘(B) any United States person not de-
scribed in subparagraph (A) who is related to
such grantor or beneficiary,
the amount of such loan shall be treated as a distribu-
tion by such trust to such grantor or beneficiary (as
the case may be).
‘‘(2) DEFINITIONS
AND
SPECIAL
RULES.—For
purposes of this subsection—
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‘‘(A) CASH.—The term ‘cash’ includes for-
eign currencies and cash equivalents.
‘‘(B) RELATED PERSON.—
‘‘(i) IN GENERAL.—A person is related
to another person if the relationship between
such persons would result in a disallowance
of losses under section 267 or 707(b). In ap-
plying section 267 for purposes of the pre-
ceding sentence, section 267(c)(4) shall be
applied as if the family of an individual
includes the spouses of the members of the
family.
‘‘(ii) ALLOCATION.—If any person de-
scribed in paragraph (1)(B) is related to
more than one person, the grantor or bene-
ficiary to whom the treatment under this
subsection applies shall be determined under
regulations prescribed by the Secretary.
‘‘(C) EXCLUSION
OF
TAX-EXEMPTS.—The
term ‘United States person’ does not include any
entity exempt from tax under this chapter.
‘‘(D) TRUST
NOT
TREATED
AS
SIMPLE
TRUST.—Any trust which is treated under this
subsection as making a distribution shall be
treated as not described in section 651.
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‘‘(3) SUBSEQUENT
TRANSACTIONS
REGARDING
LOAN PRINCIPAL.—If any loan is taken into account
under paragraph (1), any subsequent transaction be-
tween the trust and the original borrower regarding
the principal of the loan (by way of complete or par-
tial repayment, satisfaction, cancellation, discharge,
or otherwise) shall be disregarded for purposes of this
title.’’.
(2) TECHNICAL AMENDMENT.—Paragraph (8) of
section 7872(f) is amended by inserting ‘‘, 643(i),’’ be-
fore ‘‘or 1274’’ each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST CHARGE.—The amendment made
by subsection (a) shall apply to distributions after the
date of the enactment of this Act.
(2) ABUSIVE
TRANSACTIONS.—The amendment
made by subsection (b) shall take effect on the date of
the enactment of this Act.
(3) LOANS
FROM
TRUSTS.—The amendment
made by subsection (c) shall apply to loans of cash
or marketable securities after September 19, 1995.
SEC. 11346. RESIDENCE OF ESTATES AND TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN
GENERAL.—Paragraph (30) of section
7701(a) is amended by striking subparagraph (D)
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and by inserting after subparagraph (C) the follow-
ing:
‘‘(D) any estate or trust if—
‘‘(i) a court within the United States
is able to exercise primary supervision over
the administration of the estate or trust,
and
‘‘(ii) in the case of a trust, one or more
United States fiduciaries have the authority
to control all substantial decisions of the
trust.’’.
(2) CONFORMING AMENDMENT.—Paragraph (31)
of section 7701(a) is amended to read as follows:
‘‘(31) FOREIGN ESTATE OR TRUST.—The term
‘foreign estate’ or ‘foreign trust’ means any estate or
trust other than an estate or trust described in section
7701(a)(30)(D).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply—
(A) to taxable years beginning after Decem-
ber 31, 1996, or
(B) at the election of the trustee of a trust,
to taxable years ending after the date of the en-
actment of this Act.
Such an election, once made, shall be irrevocable.
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(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN
TRUSTS.—
(1) IN GENERAL.—Section 1491 (relating to im-
position of tax on transfers to avoid income tax) is
amended by adding at the end the following new flush
sentence:
‘‘If a trust which is not a foreign trust becomes a foreign
trust, such trust shall be treated for purposes of this section
as having transferred, immediately before becoming a for-
eign trust, all of its assets to a foreign trust.’’.
(2) PENALTY.—Section 1494 is amended by add-
ing at the end the following new subsection:
‘‘(c) PENALTY.—In the case of any failure to file a re-
turn required by the Secretary with respect to any transfer
described in section 1491 with respect to a trust, the person
required to file such return shall be liable for the penalties
provided in section 6677 in the same manner as if such
failure were a failure to file a return under section
6048(a).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on the date of the
enactment of this Act.
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CHAPTER 
6—TREATMENT 
OF 
INDIVID-
UALS WHO LOSE UNITED STATES CITI-
ZENSHIP
SEC. 11348. REVISION OF INCOME, ESTATE, AND GIFT TAXES
ON INDIVIDUALS WHO LOSE UNITED STATES
CITIZENSHIP.
(a) IN GENERAL.—Subsection (a) of section 877 is
amended to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien in-
dividual who, within the 10-year period immediately
preceding the close of the taxable year, lost United
States citizenship, unless such loss did not have for 1
of its principal purposes the avoidance of taxes under
this subtitle or subtitle B, shall be taxable for such
taxable year in the manner provided in subsection (b)
if the tax imposed pursuant to such subsection exceeds
the tax which, without regard to this section, is im-
posed pursuant to section 871.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING
TAX
AVOIDANCE
PURPOSE.—For purposes of para-
graph (1), an individual shall be treated as having a
principal purpose to avoid such taxes if—
‘‘(A) the average annual net income tax (as
defined in section 38(c)(1)) of such individual
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for the period of 5 taxable years ending before
the date of the loss of United States citizenship
is greater than $100,000, or
‘‘(B) the net worth of the individual as of
such date is $500,000 or more.
In the case of the loss of United States citizenship in
any calendar year after 1996, such $100,000 and
$500,000 amounts shall be increased by an amount
equal to such dollar amount multiplied by the cost-
of-living adjustment determined under section 1(f)(3)
for such calendar year by substituting ‘1994’ for
‘1992’ in subparagraph (B) thereof. Any increase
under the preceding sentence shall be rounded to the
nearest multiple of $1,000.’’
(b) EXCEPTIONS.—
(1) IN GENERAL.—Section 877 is amended by
striking subsection (d), by redesignating subsection (c)
as subsection (d), and by inserting after subsection (b)
the following new subsection:
‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN
CASES.—
‘‘(1) IN GENERAL.—Subsection (a)(2) shall not
apply to an individual if—
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‘‘(A) such individual is described in a sub-
paragraph of paragraph (2) of this subsection,
and
‘‘(B) within the 1-year period beginning on
the date of the loss of United States citizenship,
such individual submits a ruling request for the
Secretary’s determination as to whether such loss
has for 1 of its principal purposes the avoidance
of taxes under this subtitle or subtitle B.
‘‘(2) INDIVIDUALS DESCRIBED.—
‘‘(A) DUAL CITIZENSHIP, ETC.—An individ-
ual is described in this subparagraph if—
‘‘(i) the individual became at birth a
citizen of the United States and a citizen of
another country and continues to be a citi-
zen of such other country, or
‘‘(ii) the individual becomes (not later
than the close of a reasonable period after
loss of United States citizenship) a citizen
of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is mar-
ried, such individual’s spouse was
born, or
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‘‘(III) either of such individual’s
parents were born.
‘‘(B) LONG-TERM FOREIGN RESIDENTS.—An
individual is described in this subparagraph if,
for each year in the 10-year period ending on the
date of loss of United States citizenship, the in-
dividual was present in the United States for 30
days or less. The rule of section 7701(b)(3)(D)(ii)
shall apply for purposes of this subparagraph.
‘‘(C) RENUNCIATION UPON REACHING AGE
OF
MAJORITY.—An individual is described in
this subparagraph if the individual’s loss of
United States citizenship occurs before such indi-
vidual attains age 181⁄2.
‘‘(D) INDIVIDUALS SPECIFIED IN REGULA-
TIONS.—An individual is described in this sub-
paragraph if the individual is described in a
category of individuals prescribed by regulation
by the Secretary.’’
(2) TECHNICAL AMENDMENT.—Paragraph (1) of
section 877(b) of such Code is amended by striking
‘‘subsection (c)’’ and inserting ‘‘subsection (d)’’.
(c) TREATMENT OF PROPERTY DISPOSED OF IN NON-
RECOGNITION TRANSACTIONS; TREATMENT OF DISTRIBU-
TIONS FROM CERTAIN CONTROLLED FOREIGN CORPORA-
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TIONS.—Subsection (d) of section 877, as redesignated by
subsection (b), is amended to read as follows:
‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For pur-
poses of subsection (b)—
‘‘(1) SOURCE
RULES.—The following items of
gross income shall be treated as income from sources
within the United States:
‘‘(A) SALE
OF
PROPERTY.—Gains on the
sale or exchange of property (other than stock or
debt obligations) located in the United States.
‘‘(B) STOCK OR DEBT OBLIGATIONS.—Gains
on the sale or exchange of stock issued by a do-
mestic corporation or debt obligations of United
States persons or of the United States, a State
or political subdivision thereof, or the District of
Columbia.
‘‘(C) INCOME OR GAIN DERIVED FROM CON-
TROLLED FOREIGN CORPORATION.—Any income
or gain derived from stock in a foreign corpora-
tion but only—
‘‘(i) if the individual losing United
States citizenship owned (within the mean-
ing of section 958(a)), or is considered as
owning (by applying the ownership rules of
section 958(b)), at any time during the 2-
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year period ending on the date of the loss
of United States citizenship, more than 50
percent of—
‘‘(I) the total combined voting
power of all classes of stock entitled to
vote of such corporation, or
‘‘(II) the total value of the stock of
such corporation, and
‘‘(ii) to the extent such income or gain
does not exceed the earnings and profits at-
tributable to such stock which were earned
or accumulated before the loss of citizenship
and during periods that the ownership re-
quirements of clause (i) are met.
‘‘(2) GAIN
RECOGNITION
ON
CERTAIN
EX-
CHANGES.—
‘‘(A) IN GENERAL.—In the case of any ex-
change of property to which this paragraph ap-
plies, notwithstanding any other provision of
this title, such property shall be treated as sold
for its fair market value on the date of such ex-
change, and any gain shall be recognized for the
taxable year which includes such date.
‘‘(B) EXCHANGES
TO
WHICH
PARAGRAPH
APPLIES.—This paragraph shall apply to any
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exchange during the 10-year period described in
subsection (a) if—
‘‘(i) gain would not (but for this para-
graph) be recognized on such exchange in
whole or in part for purposes of this sub-
title,
‘‘(ii) income derived from such prop-
erty was from sources within the United
States (or, if no income was so derived,
would have been from such sources), and
‘‘(iii) income derived from the property
acquired in the exchange would be from
sources outside the United States.
‘‘(C) EXCEPTION.—Subparagraph (A) shall
not apply if the individual enters into an agree-
ment with the Secretary which specifies that any
income or gain derived from the property ac-
quired in the exchange (or any other property
which has a basis determined in whole or part
by reference to such property) during such 10-
year period shall be treated as from sources with-
in the United States. If the property transferred
in the exchange is disposed of by the person ac-
quiring such property, such agreement shall ter-
minate and any gain which was not recognized
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by reason of such agreement shall be recognized
as of the date of such disposition.
‘‘(D) SECRETARY MAY EXTEND PERIOD.—
To the extent provided in regulations prescribed
by the Secretary, subparagraph (B) shall be ap-
plied by substituting the 15-year period begin-
ning 5 years before the loss of United States citi-
zenship for the 10-year period referred to therein.
‘‘(E) SECRETARY MAY REQUIRE RECOGNI-
TION OF GAIN IN CERTAIN CASES.—To the extent
provided in regulations prescribed by the Sec-
retary—
‘‘(i) the removal of appreciated tan-
gible personal property from the United
States, and
‘‘(ii) any other occurrence which (with-
out recognition of gain) results in a change
in the source of the income or gain from
property from sources within the United
States to sources outside the United States,
shall be treated as an exchange to which this
paragraph applies.
‘‘(3) SUBSTANTIAL
DIMINISHING
OF
RISKS
OF
OWNERSHIP.—For purposes of determining whether
this section applies to any gain on the sale or ex-
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change of any property, the running of the 10-year
period described in subsection (a) shall be suspended
for any period during which the individual’s risk of
loss with respect to the property is substantially di-
minished by—
‘‘(A) the holding of a put with respect to
such property (or similar property),
‘‘(B) the holding by another person of a
right to acquire the property, or
‘‘(C) a short sale or any other transaction.’’
(d) CREDIT FOR FOREIGN TAXES IMPOSED ON UNITED
STATES SOURCE INCOME.—
(1) Subsection (b) of section 877 is amended by
adding at the end the following new sentence: ‘‘The
tax imposed solely by reason of this section shall be
reduced (but not below zero) by the amount of any in-
come, war profits, and excess profits taxes (within the
meaning of section 903) paid to any foreign country
or possession of the United States on any income of
the taxpayer on which tax is imposed solely by reason
of this section.’’
(2) Subsection (a) of section 877, as amended by
subsection (a), is amended by inserting ‘‘(after any
reduction in such tax under the last sentence of such
subsection)’’ after ‘‘such subsection’’.
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(e) COMPARABLE ESTATE
AND GIFT TAX TREAT-
MENT.—
(1) ESTATE TAX.—
(A) IN GENERAL.—Subsection (a) of section
2107 is amended to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) RATE OF TAX.—A tax computed in accord-
ance with the table contained in section 2001 is here-
by imposed on the transfer of the taxable estate, deter-
mined as provided in section 2106, of every decedent
nonresident not a citizen of the United States if,
within the 10-year period ending with the date of
death, such decedent lost United States citizenship,
unless such loss did not have for 1 of its principal
purposes the avoidance of taxes under this subtitle or
subtitle A.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING
TAX AVOIDANCE PURPOSE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), an individual shall be treated as hav-
ing a principal purpose to avoid such taxes if
such individual is so treated under section
877(a)(2).
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‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to a decedent meeting the requirements
of section 877(c)(1).’’
(B) CREDIT FOR FOREIGN DEATH TAXES.—
Subsection (c) of section 2107 is amended by re-
designating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following
new paragraph:
‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—
‘‘(A) IN
GENERAL.—The tax imposed by
subsection (a) shall be credited with the amount
of any estate, inheritance, legacy, or succession
taxes actually paid to any foreign country in re-
spect of any property which is included in the
gross estate solely by reason of subsection (b).
‘‘(B) LIMITATION ON CREDIT.—The credit
allowed by subparagraph (A) for such taxes paid
to a foreign country shall not exceed the lesser
of—
‘‘(i) the amount which bears the same
ratio to the amount of such taxes actually
paid to such foreign country in respect of
property included in the gross estate as the
value of the property included in the gross
estate solely by reason of subsection (b)
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bears to the value of all property subjected
to such taxes by such foreign country, or
‘‘(ii) such property’s proportionate
share of the excess of—
‘‘(I) the tax imposed by subsection
(a), over
‘‘(II) the tax which would be im-
posed by section 2101 but for this sec-
tion.
‘‘(C) PROPORTIONATE
SHARE.—For pur-
poses of subparagraph (B), a property’s propor-
tionate share is the percentage which the value of
the property which is included in the gross estate
solely by reason of subsection (b) bears to the
total value of the gross estate.’’
(C) EXPANSION OF INCLUSION IN GROSS ES-
TATE OF STOCK OF FOREIGN CORPORATIONS.—
Paragraph (2) of section 2107(b) is amended by
striking ‘‘more than 50 percent of’’ and all that
follows and inserting ‘‘more than 50 percent of—
‘‘(A) the total combined voting power of all
classes of stock entitled to vote of such corpora-
tion, or
‘‘(B) the total value of the stock of such cor-
poration,’’.
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(2) GIFT TAX.—
(A) IN GENERAL.—Paragraph (3) of section
2501(a) is amended to read as follows:
‘‘(3) EXCEPTION.—
‘‘(A) CERTAIN
INDIVIDUALS.—Paragraph
(2) shall not apply in the case of a donor who,
within the 10-year period ending with the date
of transfer, lost United States citizenship, unless
such loss did not have for 1 of its principal pur-
poses the avoidance of taxes under this subtitle or
subtitle A.
‘‘(B) CERTAIN
INDIVIDUALS
TREATED
AS
HAVING
TAX
AVOIDANCE
PURPOSE.—For pur-
poses of subparagraph (A), an individual shall
be treated as having a principal purpose to
avoid such taxes if such individual is so treated
under section 877(a)(2).
‘‘(C) EXCEPTION
FOR
CERTAIN
INDIVID-
UALS.—Subparagraph (B) shall not apply to a
decedent meeting the requirements of section
877(c)(1).
‘‘(D) CREDIT FOR FOREIGN GIFT TAXES.—
The tax imposed by this section solely by reason
of this paragraph shall be credited with the
amount of any gift tax actually paid to any for-
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eign country in respect of any gift which is tax-
able under this section solely by reason of this
paragraph.’’
(f) COMPARABLE TREATMENT
OF LAWFUL PERMA-
NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI-
DENTS.—
(1) IN GENERAL.—Section 877 is amended by re-
designating subsection (e) as subsection (f) and by in-
serting after subsection (d) the following new sub-
section:
‘‘(e) COMPARABLE TREATMENT OF LAWFUL PERMA-
NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI-
DENTS.—
‘‘(1) IN GENERAL.—Any long-term resident of
the United States who—
‘‘(A) ceases to be a lawful permanent resi-
dent of the United States (within the meaning of
section 7701(b)(6)), or
‘‘(B) commences to be treated as a resident
of a foreign country under the provisions of a
tax treaty between the United States and the for-
eign country and who does not waive the benefits
of such treaty applicable to residents of the for-
eign country,
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shall be treated for purposes of this section and sec-
tions 2107, 2501, and 6039F in the same manner as
if such resident were a citizen of the United States
who lost United States citizenship on the date of such
cessation or commencement.
‘‘(2) LONG-TERM
RESIDENT.—For purposes of
this subsection, the term ‘long-term resident’ means
any individual (other than a citizen of the United
States) who is a lawful permanent resident of the
United States in at least 8 taxable years during the
period of 15 taxable years ending with the taxable
year during which the event described in subpara-
graph (A) or (B) of paragraph (1) occurs. For pur-
poses of the preceding sentence, an individual shall
not be treated as a lawful permanent resident for any
taxable year if such individual is treated as a resi-
dent of a foreign country for the taxable year under
the provisions of a tax treaty between the United
States and the foreign country and does not waive the
benefits of such treaty applicable to residents of the
foreign country.
‘‘(3) SPECIAL RULES.—
‘‘(A) EXCEPTIONS
NOT
TO
APPLY.—Sub-
section (c) shall not apply to an individual who
is treated as provided in paragraph (1).
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‘‘(B) STEP-UP IN BASIS.—Solely for pur-
poses of determining any tax imposed by reason
of this subsection, property which was held by
the long-term resident on the date the individual
first became a resident of the United States shall
be treated as having a basis on such date of not
less than the fair market value of such property
on such date. The preceding sentence shall not
apply if the individual elects not to have such
sentence apply. Such an election, once made,
shall be irrevocable.
‘‘(4) AUTHORITY
TO
EXEMPT
INDIVIDUALS.—
This subsection shall not apply to an individual who
is described in a category of individuals prescribed by
regulation by the Secretary.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out this subsection, including regulations pro-
viding for the application of this subsection in cases
where an alien individual becomes a resident of the
United States during the 10-year period after being
treated as provided in paragraph (1).’’
(2) CONFORMING AMENDMENTS.—
(A) Section 2107 is amended by striking
subsection (d), by redesignating subsection (e) as
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subsection (d), and by inserting after subsection
(d) (as so redesignated) the following new sub-
section:
‘‘(e) CROSS REFERENCE.—
‘‘For comparable treatment of long-term lawful
permanent residents who ceased to be taxed as resi-
dents, see section 877(e).’’
(B) Paragraph (3) of section 2501(a) (as
amended by subsection (e)) is amended by add-
ing at the end the following new subparagraph:
‘‘(E) CROSS REFERENCE.—
‘‘For comparable treatment of long-term lawful
permanent residents who ceased to be taxed as resi-
dents, see section 877(e).’’
(g) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to—
(A) individuals losing United States citi-
zenship (within the meaning of section 877 of the
Internal Revenue Code of 1986) on or after Feb-
ruary 6, 1995, and
(B) long-term residents of the United States
with respect to whom an event described in sub-
paragraph (A) or (B) of section 877(e)(1) of such
Code occurs on or after February 6, 1995.
(2) SPECIAL RULE.—
(A) IN GENERAL.—In the case of an indi-
vidual who performed an act of expatriation
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specified in paragraph (1), (2), (3), or (4) of sec-
tion 349(a) of the Immigration and Nationality
Act (8 U.S.C. 1481(a)(1)–(4)) before February 6,
1995, but who did not, on or before such date,
furnish to the United States Department of State
a signed statement of voluntary relinquishment
of United States nationality confirming the per-
formance of such act, the amendments made by
this section and section 11349 shall apply to
such individual except that—
(i) the 10-year period described in sec-
tion 877(a) of such Code shall not expire be-
fore the end of the 10-year period beginning
on the date such statement is so furnished,
and
(ii) the 1-year period referred to in sec-
tion 877(c) of such Code, as amended by
this section, shall not expire before the date
which is 1 year after the date of the enact-
ment of this Act.
(B) EXCEPTION.—Subparagraph (A) shall
not apply if the individual establishes to the sat-
isfaction of the Secretary of the Treasury that
such loss of United States citizenship occurred
before February 6, 1994.
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SEC. 11349. INFORMATION ON INDIVIDUALS LOSING UNIT-
ED STATES CITIZENSHIP.
(a) IN GENERAL.—Subpart A of part III of subchapter
A of chapter 61, as amended by section 11344, is amended
by inserting after section 6039F the following new section:
‘‘SEC. 6039G. INFORMATION ON INDIVIDUALS LOSING UNIT-
ED STATES CITIZENSHIP.
‘‘(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, any individual who loses United States citizen-
ship (within the meaning of section 877(a)) shall provide
a statement which includes the information described in
subsection (b). Such statement shall be—
‘‘(1) provided not later than the earliest date of
any act referred to in subsection (c), and
‘‘(2) provided to the person or court referred to
in subsection (c) with respect to such act.
‘‘(b) INFORMATION TO BE PROVIDED.—Information
required under subsection (a) shall include—
‘‘(1) the taxpayer’s TIN,
‘‘(2) the mailing address of such individual’s
principal foreign residence,
‘‘(3) the foreign country in which such individ-
ual is residing,
‘‘(4) the foreign country of which such individual
is a citizen,
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‘‘(5) in the case of an individual having a net
worth of at least the dollar amount applicable under
section 877(a)(2)(B), information detailing the assets
and liabilities of such individual, and
‘‘(6) such other information as the Secretary
may prescribe.
‘‘(c) ACTS DESCRIBED.—For purposes of this section,
the acts referred to in this subsection are—
‘‘(1) the individual’s renunciation of his United
States nationality before a diplomatic or consular of-
ficer of the United States pursuant to paragraph (5)
of section 349(a) of the Immigration and Nationality
Act (8 U.S.C. 1481(a)(5)),
‘‘(2) the individual’s furnishing to the United
States Department of State a signed statement of vol-
untary relinquishment of United States nationality
confirming the performance of an act of expatriation
specified in paragraph (1), (2), (3), or (4) of section
349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(1)–(4)),
‘‘(3) the issuance by the United States Depart-
ment of State of a certificate of loss of nationality to
the individual, or
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‘‘(4) the cancellation by a court of the United
States of a naturalized citizen’s certificate of natu-
ralization.
‘‘(d) PENALTY.—Any individual failing to provide a
statement required under subsection (a) shall be subject to
a penalty for each year (of the 10-year period beginning
on the date of loss of United States citizenship) during any
portion of which such failure continues in an amount equal
to the greater of—
‘‘(1) 5 percent of the tax required to be paid
under section 877 for the taxable year ending during
such year, or
‘‘(2) $1,000,
unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
‘‘(e) INFORMATION
TO
BE
PROVIDED
TO
SEC-
RETARY.—Notwithstanding any other provision of law—
‘‘(1) any Federal agency or court which collects
(or is required to collect) the statement under sub-
section (a) shall provide to the Secretary—
‘‘(A) a copy of any such statement, and
‘‘(B) the name (and any other identifying
information) of any individual refusing to com-
ply with the provisions of subsection (a),
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‘‘(2) the Secretary of State shall provide to the
Secretary a copy of each certificate as to the loss of
American nationality under section 358 of the Immi-
gration and Nationality Act which is approved by the
Secretary of State, and
‘‘(3) the Federal agency primarily responsible for
administering the immigration laws shall provide to
the Secretary the name of each lawful permanent resi-
dent of the United States (within the meaning of sec-
tion 7701(b)(6)) whose status as such has been re-
voked or has been administratively or judicially de-
termined to have been abandoned.
‘‘(f) REPORTING BY LONG-TERM LAWFUL PERMANENT
RESIDENTS WHO CEASE TO BE TAXED AS RESIDENTS.—
In lieu of applying the last sentence of subsection (a), any
individual who is required to provide a statement under
this section by reason of section 877(e)(1) shall provide such
statement with the return of tax imposed by chapter 1 for
the taxable year during which the event described in such
section occurs.
‘‘(g) EXEMPTION.—The Secretary may by regulations
exempt any class of individuals from the requirements of
this section if he determines that applying this section to
such individuals is not necessary to carry out the purposes
of this section.’’
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(b) CLERICAL AMENDMENT.—The table of sections for
such subpart A is amended by inserting after the item relat-
ing to section 6039F the following new item:
‘‘Sec. 6039G. Information on individuals losing Unit-
ed States citizenship.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to—
(1) individuals losing United States citizenship
(within the meaning of section 877 of the Internal
Revenue Code of 1986) on or after February 6, 1995,
and
(2) long-term residents of the United States with
respect to whom an event described in subparagraph
(A) or (B) of section 877(e)(1) of such Code occurs on
or after such date.
In no event shall any statement required by such amend-
ments be due before the 90th day after the date of the enact-
ment of this Act.
CHAPTER 7—FINANCIAL ASSET
SECURITIZATION INVESTMENTS
SEC. 11351. FINANCIAL ASSET SECURITIZATION INVEST-
MENT TRUSTS.
(a) IN GENERAL.—Subchapter M of chapter 1 is
amended by adding at the end the following new part:
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‘‘PART V—FINANCIAL ASSET SECURITIZATION
INVESTMENT TRUSTS
‘‘Sec. 860H. Taxation of a FASIT; other general rules.
‘‘Sec. 860I. Gain recognition on contributions to and distributions from a
FASIT and in other cases.
‘‘Sec. 860J. Non-FASIT losses not to offset certain FASIT inclusions.
‘‘Sec. 860K. Treatment of transfers of high-yield interests to disqualified
holders.
‘‘Sec. 860L. Definitions and other special rules.
‘‘SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.
‘‘(a) TAXATION OF FASIT.—A FASIT as such shall
not be subject to taxation under this subtitle (and shall not
be treated as a trust, partnership, corporation, or taxable
mortgage pool).
‘‘(b) TAXATION OF HOLDER OF OWNERSHIP INTER-
EST.—In determining the taxable income of the holder of
the ownership interest in a FASIT—
‘‘(1) all assets, liabilities, and items of income,
gain, deduction, loss, and credit of a FASIT shall be
treated as assets, liabilities, and such items (as the
case may be) of such holder,
‘‘(2) the constant yield method (including the
rules of section 1272(a)(6)) shall be applied under an
accrual method of accounting in determining all in-
terest, acquisition discount, original issue discount,
and market discount and all premium deductions or
adjustments with respect to all debt instruments of the
FASIT,
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‘‘(3) the amount of the tax imposed by section
860L(e) (relating to tax on income from foreclosure
property) shall be allowed as a deduction,
‘‘(4) there shall not be taken into account any
item of income, gain, loss, or deduction allocable to
prohibited income, and
‘‘(5) interest accrued by the FASIT which is ex-
empt from tax imposed by this subtitle shall, when
taken into account by such holder, be treated as ordi-
nary income.
For purposes of this subtitle, securities treated as held by
such holder under paragraph (1) shall be treated as held
for investment.
‘‘(c) TREATMENT OF REGULAR INTERESTS.—For pur-
poses of this title—
‘‘(1) a regular interest in a FASIT, if not other-
wise a debt instrument, shall be treated as a debt in-
strument,
‘‘(2) section 163(e)(5) shall not apply to such an
interest, and
‘‘(3) amounts includible in gross income with re-
spect to such an interest shall be determined under an
accrual method of accounting.
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‘‘SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO
AND DISTRIBUTIONS FROM A FASIT AND IN
OTHER CASES.
‘‘(a) CONTRIBUTIONS TO FASIT.—
‘‘(1) IN GENERAL.—If property is contributed to
a FASIT by the holder of the ownership interest in
such FASIT, gain (if any) shall be recognized to such
holder in an amount equal to the excess (if any) of
such property’s value under subsection (e) on the date
of such contribution over its adjusted basis on such
date.
‘‘(2) DEBT
INSTRUMENTS
ACQUIRED
OTHER
THAN BY CONTRIBUTION BY HOLDER OF OWNERSHIP
INTEREST.—For purposes of this part, any debt in-
strument which is acquired by a FASIT other than
in a contribution by the holder of the ownership in-
terest in the FASIT shall be treated—
‘‘(A) as having been acquired by such holder
at its fair market value on the date of its acqui-
sition by the FASIT, and
‘‘(B) as having been contributed by such
holder to the FASIT at its value under sub-
section (e) on such date.
‘‘(3) DEFERRAL
OF
GAIN
RECOGNITION.—The
Secretary may prescribe regulations which—
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‘‘(A) provide that gain otherwise recognized
under paragraph (1) shall not be recognized be-
fore the earliest date on which such property
supports any regular interest in such FASIT or
any indebtedness of the holder of the ownership
interest (or of any person related to such holder),
and
‘‘(B) provide such adjustments to the other
provisions of this part to the extent appropriate
in the context of the treatment provided under
subparagraph (A).
‘‘(b) CERTAIN DISTRIBUTIONS.—If a FASIT makes a
distribution of property with respect to the ownership inter-
est in the FASIT, gain (if any) shall be recognized to such
FASIT on the distribution in the same manner as if the
FASIT had sold such property to the distributee at its value
under subsection (e) on the date of such distribution.
‘‘(c) GAIN RECOGNITION
ON PROPERTY OUTSIDE
FASIT WHICH SUPPORTS REGULAR INTERESTS.—If prop-
erty held by the holder of the ownership interest in a FASIT
(or by any person related to such holder) supports any regu-
lar interest in such FASIT—
‘‘(1) gain shall be recognized to such holder in
the same manner as if such holder had sold such
property at its value under subsection (e) on the ear-
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liest date such property supports such an interest,
and
‘‘(2) such property shall be treated as held by
such FASIT for purposes of this part.
‘‘(d) GAIN RECOGNITION ON RETAINED INTERESTS.—
If—
‘‘(1) any interest in a debt instrument is con-
tributed to a FASIT, and
‘‘(2) the contributor (or any person related to
such contributor) retains any interest in such instru-
ment (including a right to receive excessive servicing
fees with respect to such instrument),
then gain shall be recognized to such contributor (or person)
in the same manner as if the contributor (or person) had
sold the retained interest at its value under subsection (e)
on the date of such contribution.
‘‘(e) VALUATION.—For purposes of this section—
‘‘(1) IN GENERAL.—The value of any property
under this subsection shall be—
‘‘(A) in the case of property other than a
debt instrument, its fair market value, and
‘‘(B) in the case of a debt instrument, the
sum of the present values of the reasonably ex-
pected payments under such instrument deter-
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mined (in the manner provided by regulations
prescribed by the Secretary)—
‘‘(i) as of the date of the event resulting
in the gain recognition under this section,
and
‘‘(ii) by using a discount rate equal to
120 percent of the applicable Federal rate
(as defined in section 1274(d)), or such
other discount rate specified in such regula-
tions, compounded semiannually.
‘‘(2) SPECIAL RULE FOR REVOLVING LOAN AC-
COUNTS.—For purposes of paragraph (1)—
‘‘(A) each extension of credit (other than the
accrual of interest) on a revolving loan account
shall be treated as a separate debt instrument,
and
‘‘(B) payments on such extensions of credit
having substantially the same terms shall be ap-
plied to such extensions beginning with the earli-
est such extension.
‘‘(f) SPECIAL RULES.—
‘‘(1) NONRECOGNITION RULES NOT TO APPLY.—
Gain required to be recognized under this section
shall be recognized notwithstanding any other provi-
sion of this subtitle.
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‘‘(2) BASIS
ADJUSTMENTS.—The basis of any
property on which gain is recognized under this sec-
tion shall be increased by the amount of gain so rec-
ognized.
‘‘SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN
FASIT INCLUSIONS.
‘‘(a) IN GENERAL.—The taxable income of the holder
of the ownership interest or any high-yield interest in a
FASIT for any taxable year shall in no event be less than
such holder’s taxable income determined solely with respect
to such interests.
‘‘(b) COORDINATION WITH SECTION 172.—Any in-
crease in the taxable income of any holder of the ownership
interest or a high-yield interest in a FASIT for any taxable
year by reason of subsection (a) shall be disregarded—
‘‘(1) in determining under section 172 the
amount of any net operating loss for such taxable
year, and
‘‘(2) in determining taxable income for such tax-
able year for purposes of the 2nd sentence of section
172(b)(2).
‘‘(c) COORDINATION WITH MINIMUM TAX.—For pur-
poses of part VI of subchapter A of this chapter—
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‘‘(1) the reference in section 55(b)(2) to taxable
income shall be treated as a reference to taxable in-
come determined without regard to this section,
‘‘(2) the alternative minimum taxable income of
any holder of the ownership interest or a high-yield
interest in a FASIT for any taxable year shall in no
event be less than such holder’s taxable income deter-
mined solely with respect to such interests, and
‘‘(3) any increase in taxable income under this
section shall be disregarded for purposes of computing
the alternative tax net operating loss deduction.
‘‘SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD IN-
TERESTS TO DISQUALIFIED HOLDERS.
‘‘(a) GENERAL RULE.—If any high-yield interest is
held by a disqualified holder, this chapter shall be applied
as if the transferor of such interest to such holder had not
transferred such interest.
‘‘(b) EXCEPTIONS.—Rules similar to the rules of para-
graphs (4) and (7) of section 860E(e) shall apply to the
tax imposed by reason of subsection (a).
‘‘(c) DISQUALIFIED HOLDER.—For purposes of this
section, the term ‘disqualified holder’ means any holder
other than an eligible corporation (as defined in section
860L(a)(2)).
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‘‘(d) TREATMENT OF INTERESTS HELD BY SECURI-
TIES DEALERS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to any high-yield interest held by a disqualified
holder if such holder is a dealer in securities who ac-
quired such interest exclusively for sale to customers
in the ordinary course of business (and not for invest-
ment).
‘‘(2) CHANGE IN DEALER STATUS.—
‘‘(A) IN GENERAL.—In the case of a dealer
in securities which is not an eligible corporation
(as defined in section 860L(a)(2)), if—
‘‘(i) such dealer ceases to be a dealer in
securities, or
‘‘(ii) such dealer commences holding
the high-yield interest for investment,
there is hereby imposed (in addition to other
taxes) an excise tax equal to the product of the
highest rate of tax specified in section 11(b)(1)
and the income of such dealer attributable to
such interest for periods after the date of such
cessation or commencement.
‘‘(B) HOLDING FOR 31 DAYS OR LESS.—For
purposes of subparagraph (A)(ii), a dealer shall
not be treated as holding an interest for invest-
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ment before the 32d day after the date such deal-
er acquired such interest unless such interest is
so held as part of a plan to avoid the purposes
of this paragraph.
‘‘(C) ADMINISTRATIVE
PROVISIONS.—The
deficiency procedures of subtitle F shall apply to
the tax imposed by this paragraph.
‘‘(e) TREATMENT OF HIGH-YIELD INTERESTS IN PASS-
THRU ENTITIES.—If a pass-thru entity (as defined in sec-
tion 860E(e)(6)) issues a debt or equity interest—
‘‘(1) which is supported by any regular interest
in a FASIT, and
‘‘(2) which has an original yield to maturity
which is greater than each of—
‘‘(A) the sum determined under clauses (i)
and (ii) of section 163(i)(1)(B) with respect to
such debt or equity interest, and
‘‘(B) the yield to maturity on such regular
interest,
there is hereby imposed on the pass-thru entity a tax
(in addition to other taxes) equal to the product of the
highest rate of tax specified in section 11(b)(1) and
the income of the holder of such debt or equity interest
which is properly attributable to such regular inter-
est. For purposes of the preceding sentence, the yield
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to maturity of any equity interest shall be determined
under regulations prescribed by the Secretary.
‘‘SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.
‘‘(a) FASIT.—
‘‘(1) IN GENERAL.—For purposes of this title, the
terms ‘financial asset securitization investment trust’
and ‘FASIT’ mean any entity—
‘‘(A) for which an election to be treated as
a FASIT applies for the taxable year,
‘‘(B) all of the interests in which are regu-
lar interests or the ownership interest,
‘‘(C) which has only 1 ownership interest
and such ownership interest is held directly by
an eligible corporation,
‘‘(D) as of the close of the 3rd month begin-
ning after the day of its formation and at all
times thereafter, substantially all of the assets of
which (including assets treated as held by the en-
tity under section 860I(c)(2)) consist of per-
mitted assets, and
‘‘(E) which is not described in section
851(a).
A rule similar to the rule of the last sentence of sec-
tion 860D(a) shall apply for purposes of this para-
graph.
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‘‘(2) ELIGIBLE CORPORATION.—For purposes of
paragraph (1)(C), the term ‘eligible corporation’
means any domestic C corporation other than—
‘‘(A) a corporation which is exempt from, or
is not subject to, tax under this chapter,
‘‘(B) an entity described in section 851(a)
or 856(a),
‘‘(C) a REMIC, and
‘‘(D) an organization to which part I of
subchapter T applies.
‘‘(3) ELECTION.—
‘‘(A) IN
GENERAL.—An entity (otherwise
meeting the requirements of paragraph (1)) may
elect to be treated as a FASIT. Except as pro-
vided in paragraph (5), such an election shall
apply to the taxable year for which made and all
subsequent taxable years unless revoked with the
consent of the Secretary.
‘‘(B) ELECTIONS MADE AFTER 1ST TAXABLE
YEAR OF ENTITY.—If the election under subpara-
graph (A) is made after the first taxable year of
the entity, all property held (or treated as held
under section 860I(c)(2)) by such entity as of the
first day of the first taxable year for which such
election is made shall be treated as contributed
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to such entity on such first day by the holder of
the ownership interest in such entity.
‘‘(4) TERMINATION.—If any entity ceases to be a
FASIT at any time during the taxable year, such en-
tity shall not be treated as a FASIT for such taxable
year or any succeeding taxable year.
‘‘(5) INADVERTENT TERMINATIONS, ETC.—Rules
similar to the rules of section 860D(b)(2)(B) shall
apply to inadvertent failures to qualify or remain
qualified as a FASIT.
‘‘(b) INTERESTS
IN FASIT.—For purposes of this
part—
‘‘(1) REGULAR INTEREST.—
‘‘(A) IN GENERAL.—The term ‘regular in-
terest’ means any interest which is issued by a
FASIT with fixed terms and which is designated
as a regular interest if—
‘‘(i) such interest unconditionally enti-
tles the holder to receive a specified prin-
cipal amount (or other similar amount),
‘‘(ii) except as otherwise provided by
the Secretary—
‘‘(I) in the case of a FASIT which
would be treated as a REMIC if an
election under section 860D(b) had
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been made, interest payments (or other
similar amounts), if any, with respect
to such interest at or before maturity
meet the requirements applicable under
clause 
(i) 
or 
(ii) 
of 
section
860G(a)(1)(B), or
‘‘(II) in the case of any other
FASIT, interest payments (or other
similar amounts), if any, with respect
to such interest are determined using a
current rate which is reasonably ex-
pected to measure contemporaneous
variations in the cost of newly bor-
rowed funds in the currency in which
the regular interest is denominated,
‘‘(iii) such interest does not have a
stated 
maturity 
(including 
options 
to
renew) greater than 30 years (or such
longer period as may be permitted by regu-
lations),
‘‘(iv) the issue price of such interest
does not exceed 125 percent of its stated
principal amount, and
‘‘(v) the yield to maturity on such in-
terest is less than the sum determined under
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section 163(i)(1)(B) with respect to such in-
terest.
Interest shall not fail to meet the requirements of
clause (i) merely because the timing (but not the
amount) of the principal payments (or other
similar amounts) may be contingent on the ex-
tent that payments on debt instruments held by
the FASIT are made in advance of anticipated
payments and on the amount of income from
permitted assets.
‘‘(B) HIGH-YIELD INTERESTS.—
‘‘(i) IN GENERAL.—The term ‘regular
interest’ includes any high-yield interest.
‘‘(ii) 
HIGH-YIELD
INTEREST.—The
term ‘high-yield interest’ means any interest
which would be described in subparagraph
(A) but for failing to meet the requirements
of one or more of clauses (i), (iv), or (v)
thereof.
‘‘(2) OWNERSHIP INTEREST.—The term ‘owner-
ship interest’ means the interest issued by a FASIT
which is designated as an ownership interest and
which is not a regular interest.
‘‘(c) PERMITTED
ASSETS.—For purposes of this
part—
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‘‘(1) IN GENERAL.—The term ‘permitted asset’
means—
‘‘(A) cash or cash equivalents,
‘‘(B) any debt instrument (as defined in
section 1275(a)(1)) under which interest pay-
ments (or other similar amounts), if any, at or
before maturity meet the requirements applicable
under clause (i) or (ii) of section 860G(a)(1)(B),
‘‘(C) foreclosure property,
‘‘(D) any asset—
‘‘(i) which is an interest rate or foreign
currency notional principal contract, letter
of credit, insurance, guarantee against pay-
ment defaults, or other similar instrument,
permitted by the Secretary, and
‘‘(ii) which is a reasonably required to
guarantee or hedge against the FASIT’s
risks associated with being the obligor on
interests issued by the FASIT, and
‘‘(E) contract rights to acquire debt instru-
ments described in subparagraph (B) or assets
described in subparagraph (D).
‘‘(2) DEBT ISSUED BY HOLDER OF OWNERSHIP
INTEREST NOT PERMITTED ASSET.—The term ‘per-
mitted asset’ shall not include any debt instrument is-
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sued by the holder of the ownership interest in the
FASIT or by any person related to such holder or
any direct or indirect interest in such a debt instru-
ment. The preceding sentence shall not apply to cash
equivalents and to any other investment specified in
regulations prescribed by the Secretary.
‘‘(3) FORECLOSURE PROPERTY.—The term ‘fore-
closure property’ means property—
‘‘(A) which would be foreclosure property
under section 856(e) (determined without regard
to paragraph (5) thereof) if acquired by a real
estate investment trust, and
‘‘(B) which is acquired in connection with
the default or imminent default of a debt instru-
ment held by the FASIT unless the security in-
terest in such property was created for the prin-
cipal purpose of permitting the FASIT to invest
in such property.
Solely for purposes of subsection (a)(1), the deter-
mination of whether any property is foreclosure prop-
erty shall be made without regard to section
856(e)(4).
‘‘(d) TAX ON PROHIBITED TRANSACTIONS.—
‘‘(1) IN GENERAL.—There is hereby imposed for
each taxable year of a FASIT a tax equal to 100 per-
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cent of the net income derived from prohibited trans-
actions.
‘‘(2) PROHIBITED TRANSACTIONS.—For purposes
of this part, the term ‘prohibited transaction’
means—
‘‘(A) the receipt of any income derived from
any asset that is not a permitted asset,
‘‘(B) except as provided in paragraph (3),
the disposition of any permitted asset,
‘‘(C) the receipt of any income derived from
any loan originated by the FASIT, and
‘‘(D) the receipt of any income representing
a fee or other compensation for services (other
than any fee received as compensation for a
waiver, amendment, or consent under permitted
assets (other than foreclosure property) held by
the FASIT).
‘‘(3) EXCEPTION
FOR
INCOME
FROM
CERTAIN
DISPOSITIONS.—
‘‘(A) IN GENERAL.—Paragraph (2)(B) shall
not apply to a disposition which would not be a
prohibited transaction (as defined in section
860F(a)(2)) by reason of—
‘‘(i) clause (ii), (iii), or (iv) of section
860F(a)(2)(A), or
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‘‘(ii) section 860F(a)(5),
if the FASIT were treated as a REMIC and debt
instruments described in subsection (c)(1)(B)
were treated as qualified mortgages.
‘‘(B) SUBSTITUTION
OF
DEBT
INSTRU-
MENTS; 
REDUCTION
OF
OVER-
COLLATERALIZATION.—Paragraph (2)(B) shall
not apply to—
‘‘(i) the substitution of a debt instru-
ment described in subsection (c)(1)(B) for
another debt instrument which is a per-
mitted asset, or
‘‘(ii) the distribution of a debt instru-
ment contributed by the holder of the owner-
ship interest to such holder in order to re-
duce over-collateralization of the FASIT,
but only if a principal purpose of acquiring the
debt instrument which is disposed of was not the
recognition of gain (or the reduction of a loss) as
a result of an increase in the market value of the
debt instrument after its acquisition by the
FASIT.
‘‘(C) LIQUIDATION OF CLASS OF REGULAR
INTERESTS.—Paragraph (2)(B) shall not apply
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to the complete liquidation of any class of regu-
lar interests.
‘‘(4) NET INCOME.—For purposes of this sub-
section, net income shall be determined in accordance
with section 860F(a)(3).
‘‘(e) TAX
ON INCOME FROM FORECLOSURE PROP-
ERTY.—
‘‘(1) IN GENERAL.—A tax is hereby imposed for
each taxable year on the net income from foreclosure
property of each FASIT. Such tax shall be computed
by multiplying the net income from foreclosure prop-
erty by the highest rate of tax specified in section
11(b).
‘‘(2) NET
INCOME
FROM
FORECLOSURE
PROP-
ERTY.—For purposes of this part, the term ‘net in-
come from foreclosure property’ means the amount
which would be the FASIT’s net income from fore-
closure property under section 857(b)(4)(B) if the
FASIT were a real estate investment trust.
‘‘(f) COORDINATION WITH WASH SALES RULES.—
Rules similar to the rules of section 860F(d) shall apply
to the ownership interest in a FASIT.
‘‘(g) RELATED PERSON.—For purposes of this part, a
person (hereinafter in this subsection referred to as the ‘re-
lated person’) is related to any person if—
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‘‘(1) the related person bears a relationship to
such person specified in section 267(b) or section
707(b)(1), or
‘‘(2) the related person and such person are en-
gaged in trades or businesses under common control
(within the meaning of subsections (a) and (b) of sec-
tion 52).
For purposes of paragraph (1), in applying section 267(b)
or 707(b)(1), ‘20 percent’ shall be substituted for ‘50 per-
cent’.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this part, including regulations
to prevent the abuse of the purposes of this part through
transactions 
which 
are 
not 
primarily 
related 
to
securitization of debt instruments by a FASIT.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Paragraph (2) of section 26(b) is amended by
striking ‘‘and’’ at the end of subparagraph (M), by
striking the period at the end of subparagraph (N)
and inserting ‘‘, and’’, and by adding at the end the
following new subparagraphs:
‘‘(O) section 860K (relating to treatment of
transfers of high-yield interests to disqualified
holders).’’.
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(2) Paragraph (6) of section 56(g) is amended by
striking ‘‘or REMIC’’ and inserting ‘‘REMIC, or
FASIT’’.
(3) Clause (ii) of section 382(l)(4)(B) is amended
by striking ‘‘or a REMIC to which part IV of sub-
chapter M applies’’ and inserting ‘‘a REMIC to
which part IV of subchapter M applies, or a FASIT
to which part V of subchapter M applies’’.
(4) Paragraph (1) of section 582(c) is amended
by inserting ‘‘, and any regular or ownership interest
in a FASIT,’’ after ‘‘REMIC’’.
(5) Subparagraph (E) of section 856(c)(6) is
amended by adding at the end the following new sen-
tence: ‘‘References in the preceding provisions of this
subparagraph to a REMIC shall be treated as includ-
ing a reference to a FASIT.’’.
(6) Subparagraph (C) of section 1202(e)(4) is
amended by striking ‘‘or REMIC’’ and inserting
‘‘REMIC, or FASIT’’.
(7) Clause (xi) of section 7701(a)(19)(C) is
amended to read as follows:
‘‘(xi) any regular or residual interest
in a REMIC, and any regular or ownership
interest in a FASIT, but only in the pro-
portion which the assets of such REMIC or
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FASIT consist of property described in any
of the preceding clauses of this subpara-
graph; except that if 95 percent or more of
the assets of such REMIC or FASIT are as-
sets described in clauses (i) through (x), the
entire interest in the REMIC or FASIT
shall qualify.’’.
(8) Subparagraph (A) of section 7701(i)(2) is
amended by inserting ‘‘or a FASIT’’ after ‘‘a
REMIC’’.
(c) CLERICAL AMENDMENT.—The table of parts for
subchapter M of chapter 1 is amended by adding at the
end the following new item:
‘‘Part V. Financial asset securitization investment trusts.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
CHAPTER 8—DEPRECIATION PROVISIONS
SEC. 11361. TREATMENT OF CONTRIBUTIONS IN AID OF
CONSTRUCTION.
(a) TREATMENT OF CONTRIBUTIONS IN AID OF CON-
STRUCTION.—
(1) IN GENERAL.—Section 118 (relating to con-
tributions to the capital of a corporation) is amend-
ed—
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(A) by redesignating subsection (c) as sub-
section (e), and
(B) by inserting after subsection (b) the fol-
lowing new subsections:
‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE
DISPOSAL UTILITIES.—
‘‘(1) GENERAL RULE.—For purposes of this sec-
tion, the term ‘contribution to the capital of the tax-
payer’ includes any amount of money or other prop-
erty received from any person (whether or not a
shareholder) by a regulated public utility which pro-
vides water or sewerage disposal services if—
‘‘(A) such amount is a contribution in aid
of construction,
‘‘(B) in the case of contribution of property
other than water or sewerage disposal facilities,
such amount meets the requirements of the ex-
penditure rule of paragraph (2), and
‘‘(C) such amount (or any property ac-
quired or constructed with such amount) is not
included in the taxpayer’s rate base for rate-
making purposes.
‘‘(2) EXPENDITURE
RULE.—An amount meets
the requirements of this paragraph if—
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‘‘(A) an amount equal to such amount is
expended for the acquisition or construction of
tangible property described in section 1231(b)—
‘‘(i) which is the property for which
the contribution was made or is of the same
type as such property, and
‘‘(ii) which is used predominantly in
the trade or business of furnishing water or
sewerage disposal services,
‘‘(B) the expenditure referred to in subpara-
graph (A) occurs before the end of the second tax-
able year after the year in which such amount
was received, and
‘‘(C) accurate records are kept of the
amounts contributed and expenditures made, the
expenditures to which contributions are allo-
cated, and the year in which the contributions
and expenditures are received and made.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) CONTRIBUTION IN AID OF CONSTRUC-
TION.—The term ‘contribution in aid of con-
struction’ shall be defined by regulations pre-
scribed by the Secretary, except that such term
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shall not include amounts paid as service
charges for starting or stopping services.
‘‘(B) PREDOMINANTLY.—The term ‘pre-
dominantly’ means 80 percent or more.
‘‘(C) REGULATED
PUBLIC
UTILITY.—The
term ‘regulated public utility’ has the meaning
given such term by section 7701(a)(33), except
that such term shall not include any utility
which is not required to provide water or sewer-
age disposal services to members of the general
public in its service area.
‘‘(4) DISALLOWANCE OF DEDUCTIONS AND CRED-
ITS; ADJUSTED
BASIS.—Notwithstanding any other
provision of this subtitle, no deduction or credit shall
be allowed for, or by reason of, any expenditure which
constitutes a contribution in aid of construction to
which this subsection applies. The adjusted basis of
any property acquired with contributions in aid of
construction to which this subsection applies shall be
zero.
‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for
any taxable year treats an amount as a contribution to the
capital of the taxpayer described in subsection (c), then—
‘‘(1) the statutory period for the assessment of
any deficiency attributable to any part of such
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amount shall not expire before the expiration of 3
years from the date the Secretary is notified by the
taxpayer (in such manner as the Secretary may pre-
scribe) of—
‘‘(A) the amount of the expenditure referred
to in subparagraph (A) of subsection (c)(2),
‘‘(B) the taxpayer’s intention not to make
the expenditures referred to in such subpara-
graph, or
‘‘(C) a failure to make such expenditure
within the period described in subparagraph (B)
of subsection (c)(2); and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which
would otherwise prevent such assessment.’’.
(2) CONFORMING AMENDMENT.—Section 118(b)
is amended by inserting ‘‘except as provided in sub-
section (c),’’ before ‘‘the term’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts received
after the date of the enactment of this Act.
(b) RECOVERY METHOD
AND PERIOD
FOR WATER
UTILITY PROPERTY.—
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(1) REQUIREMENT
TO
USE
STRAIGHT
LINE
METHOD.—Section 168(b)(3) is amended by adding
at the end the following new subparagraph:
‘‘(F) Water utility property described in
subsection (e)(5).’’.
(2) 25-YEAR RECOVERY PERIOD.—The table con-
tained in section 168(c)(1) is amended by inserting
the following item after the item relating to 20-year
property:
‘‘Water utility property .........................................................
25 years’’.
(3) WATER UTILITY PROPERTY.—
(A) IN GENERAL.—Section 168(e) is amend-
ed by adding at the end the following new para-
graph:
‘‘(5) WATER
UTILITY
PROPERTY.—The term
‘water utility property’ means property—
‘‘(A) which is an integral part of the gath-
ering, treatment, or commercial distribution of
water, and which, without regard to this para-
graph, would be 20-year property, and
‘‘(B) any municipal sewer.’’.
(B) CONFORMING
AMENDMENTS.—Section
168 is amended—
(i) by striking subparagraph (F) of
subsection (e)(3), and
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(ii) by striking the item relating to
subparagraph (F) in the table in subsection
(g)(3).
(4) ALTERNATIVE SYSTEM.—Clause (iv) of sec-
tion 168(g)(2)(C) is amended by inserting ‘‘or water
utility property’’ after ‘‘tunnel bore’’.
(5) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after the date of the enactment of this Act,
other than property placed in service pursuant to a
binding contract in effect on such date and at all
times thereafter before the property is placed in serv-
ice.
SEC. 11362. DEDUCTION FOR CERTAIN OPERATING AU-
THORITY.
(a) GENERAL RULE.—For purpose of chapter 1 of the
Internal Revenue Code of 1986, in computing the taxable
income of a taxpayer who, on January 1, 1995, held one
or more operating authorities preempted by section 601 of
the Federal Aviation Administration Authorization Act of
1994, the taxpayer shall be entitled to deduct ratably over
the 36-month period beginning with January 1995 an
amount equal to the aggregate adjusted bases of such operat-
ing authorities held by the taxpayer on January 1, 1995.
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(b) TREATMENT AS DEPRECIATION.—Any deduction
under subsection (a) shall be treated as a deduction for de-
preciation for purposes of the Internal Revenue Code of
1986.
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to taxable years ending after December 31,
1994.
SEC. 11363. CLASS LIFE FOR GAS STATION CONVENIENCE
STORES AND SIMILAR STRUCTURES.
(a) IN GENERAL.—Section 168(e)(3)(E) (classifying
certain property as 15-year property) is amended by strik-
ing ‘‘and’’ at the end of clause (i), by striking the period
at the end of clause (ii) and inserting ‘‘, and’’, and by add-
ing at the end the following new clause:
‘‘(iii) any section 1250 property which
is a retail motor fuels outlet (whether or not
food or other convenience items are sold at
the outlet).’’.
(b) CONFORMING AMENDMENT.—Subparagraph (B) of
section 168(g)(3) is amended by inserting after the item re-
lating to subparagraph (E)(ii) in the table contained there-
in the following new item:
‘‘(E)(iii)
20’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property which is placed in service
on or after the date of the enactment of this Act and to
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which section 168 of the Internal Revenue Code of 1986 ap-
plies after the amendment made by section 201 of the Tax
Reform Act of 1986. A taxpayer may elect to have such
amendments apply with respect to any property placed in
service before such date and to which such section so applies.
CHAPTER 9—OTHER PROVISIONS
SEC. 11371. APPLICATION OF FAILURE-TO-PAY PENALTY TO
SUBSTITUTE RETURNS.
(a) GENERAL RULE.—Section 6651 (relating to failure
to file tax return or to pay tax) is amended by adding at
the end the following new subsection:
‘‘(g) TREATMENT OF RETURNS PREPARED BY SEC-
RETARY UNDER SECTION 6020(b).—In the case of any re-
turn made by the Secretary under section 6020(b)—
‘‘(1) such return shall be disregarded for pur-
poses of determining the amount of the addition
under paragraph (1) of subsection (a), but
‘‘(2) such return shall be treated as the return
filed by the taxpayer for purposes of determining the
amount of the addition under paragraphs (2) and (3)
of subsection (a).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply in the case of any return the due
date for which (determined without regard to extensions)
is after the date of the enactment of this Act.
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SEC. 11377. CERTAIN AMOUNTS DERIVED FROM FOREIGN
CORPORATIONS 
TREATED 
AS 
UNRELATED
BUSINESS TAXABLE INCOME.
(a) GENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the end
thereof the following new paragraph:
‘‘(18) TREATMENT
OF
CERTAIN
AMOUNTS
DE-
RIVED FROM FOREIGN CORPORATIONS.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (1), any amount included in gross income
under section 951(a)(1)(A) shall be included as
an item of gross income derived from an unre-
lated trade or business to the extent the amount
so included is attributable to insurance income
(as defined in section 953) which, if derived di-
rectly by the organization, would be treated as
gross income from an unrelated trade or busi-
ness. There shall be allowed all deductions di-
rectly connected with amounts included in gross
income under the preceding sentence.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to income attributable to a policy of
insurance or reinsurance with respect to which
the person (directly or indirectly) insured is—
‘‘(i) such organization,
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and (C) of section 593(e)(1) (as so in effect) shall be
the balance taken into account by such taxpayer
under paragraph (2)(A)(ii) of this subsection.
(7) CERTAIN ITEMS INCLUDED AS SECTION 381(c)
ITEMS.—The balance of the applicable excess reserves,
and the balance taken into account by a taxpayer
under paragraph (2)(A)(ii) of this subsection, shall be
treated as items described in section 381(c) of such
Code.
(8) CONVERSIONS TO CREDIT UNIONS.—In the
case of a taxpayer to which paragraph (1) applied
which becomes a credit union described in section
501(c)(14)(A)—
(A) any amount required to be included in
the gross income of the credit union by reason of
this subsection shall be treated as derived from
an unrelated trade or business (as defined in sec-
tion 513), and
(B) for purposes of paragraph (3), the cred-
it union shall not be treated as if it were a bank.
(9) REGULATIONS.—The Secretary of the Treas-
ury or his delegate shall prescribe such regulations as
may be necessary to carry out this subsection, includ-
ing regulations providing for the application of para-