Union Calendar No. 290
104TH CONGRESS
2D SESSION
H. R. 3448
[Report No. 104–586]
A BILL
To provide tax relief for small businesses, to protect
jobs, to create opportunities, to increase the take
home pay of workers, and for other purposes.
MAY 20, 1996
Reported with an amendment, committed to the Commit-
tee of the Whole House on the State of the Union, and
ordered to be printed
IB
Union Calendar No. 290
104TH CONGRESS
2D SESSION
H. R. 3448
[Report No. 104–586]
To provide tax relief for small businesses, to protect jobs, to create opportuni-
ties, to increase the take home pay of workers, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 14, 1996
Mr. ARCHER introduced the following bill; which was referred to the
Committee on Ways and Means
MAY 20, 1996
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on May 14, 1996]
A BILL
To provide tax relief for small businesses, to protect jobs,
to create opportunities, to increase the take home pay
of workers, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Small Business Job Protection Act of 1996’’.
(b) TABLE OF CONTENTS.—
TITLE I—SMALL BUSINESS AND OTHER TAX PROVISIONS
Sec. 1101. Amendment of 1986 Code.
Sec. 1102. Underpayments of estimated tax.
Subtitle A—Expensing; Etc.
Sec. 1111. Increase in expense treatment for small businesses.
Sec. 1112. Treatment of employee tips.
Sec. 1113. Treatment of storage of product samples.
Sec. 1114. Treatment of certain charitable risk pools.
Sec. 1115. Treatment of dues paid to agricultural or horticultural organizations.
Sec. 1116. Clarification of employment tax status of certain fishermen; informa-
tion reporting.
Subtitle B—Extension of Certain Expiring Provisions
Sec. 1201. Work opportunity tax credit.
Sec. 1202. Employer-provided educational assistance programs.
Sec. 1203. FUTA exemption for alien agricultural workers.
Subtitle C—Provisions Relating to S Corporations
Sec. 1301. S corporations permitted to have 75 shareholders.
Sec. 1302. Electing small business trusts.
Sec. 1303. Expansion of post-death qualification for certain trusts.
Sec. 1304. Financial institutions permitted to hold safe harbor debt.
Sec. 1305. Rules relating to inadvertent terminations and invalid elections.
Sec. 1306. Agreement to terminate year.
Sec. 1307. Expansion of post-termination transition period.
Sec. 1308. S corporations permitted to hold subsidiaries.
Sec. 1309. Treatment of distributions during loss years.
Sec. 1310. Treatment of S corporations under subchapter C.
Sec. 1311. Elimination of certain earnings and profits.
Sec. 1312. Carryover of disallowed losses and deductions under at-risk rules al-
lowed.
Sec. 1313. Adjustments to basis of inherited S stock to reflect certain items of in-
come.
Sec. 1314. S corporations eligible for rules applicable to real property subdivided
for sale by noncorporate taxpayers.
Sec. 1315. Effective date.
Subtitle D—Pension Simplification
CHAPTER 1—SIMPLIFIED DISTRIBUTION RULES
Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 1402. Repeal of $5,000 exclusion of employees’ death benefits.
Sec. 1403. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 1404. Required distributions.
CHAPTER 2—INCREASED ACCESS TO PENSION PLANS
SUBCHAPTER A—SIMPLE SAVINGS PLANS
Sec. 1421. Establishment of savings incentive match plans for employees of small
employers.
Sec. 1422. Extension of simple plan to 401(k) arrangements.
SUBCHAPTER B—OTHER PROVISIONS
Sec. 1426. Tax-exempt organizations eligible under section 401(k).
CHAPTER 3—NONDISCRIMINATION PROVISIONS
Sec. 1431. Definition of highly compensated employees; repeal of family aggrega-
tion.
Sec. 1432. Modification of additional participation requirements.
Sec. 1433. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 1434. Definition of compensation for section 415 purposes.
CHAPTER 4—MISCELLANEOUS PROVISIONS
Sec. 1441. Plans covering self-employed individuals.
Sec. 1442. Elimination of special vesting rule for multiemployer plans.
Sec. 1443. Distributions under rural cooperative plans.
Sec. 1444. Treatment of governmental plans under section 415.
Sec. 1445. Uniform retirement age.
Sec. 1446. Contributions on behalf of disabled employees.
Sec. 1447. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 1448. Trust requirement for deferred compensation plans of State and local
governments.
Sec. 1449. Transition rule for computing maximum benefits under section 415
limitations.
Sec. 1450. Modifications of section 403(b).
Sec. 1451. Waiver of minimum period for joint and survivor annuity explanation
before annuity starting date.
Sec. 1452. Repeal of limitation in case of defined benefit plan and defined con-
tribution plan for same employee; excess distributions.
Sec. 1453. Tax on prohibited transactions.
Sec. 1454. Treatment of leased employees.
Sec. 1455. Uniform penalty provisions to apply to certain pension reporting re-
quirements.
Sec. 1456. Retirement benefits of ministers not subject to tax on net earnings
from self-employment.
Sec. 1457. Date for adoption of plan amendments.
Subtitle E—Foreign Simplification
Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive as-
sets.
Subtitle F—Revenue Offsets
Sec. 1601. Termination of Puerto Rico and possession tax credit.
Sec. 1602. Repeal of exclusion for interest on loans used to acquire employer secu-
rities.
Sec. 1603. Certain amounts derived from foreign corporations treated as unre-
lated business taxable income.
Sec. 1604. Depreciation under income forecast method.
Sec. 1605. Repeal of exclusion for punitive damages and for damages not attrib-
utable to physical injuries or sickness.
Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered auto-
mobiles and light trucks.
Subtitle G—Technical Corrections
Sec. 1701. Coordination with other subtitles.
Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1704. Miscellaneous provisions.
TITLE I—SMALL BUSINESS AND
OTHER TAX PROVISIONS
SEC. 1101. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms of
an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.
SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.
No addition to the tax shall be made under section
6654 or 6655 of the Internal Revenue Code of 1986 (relating
to failure to pay estimated tax) with respect to any under-
payment of an installment required to be paid before the
date of the enactment of this Act to the extent such under-
payment was created or increased by any provision of this
title.
Subtitle A—Expensing; Etc.
SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section 179(b)
(relating to dollar limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection (a)
for any taxable year shall not exceed the following ap-
plicable amount:
‘‘If the taxable year
The applicable
begins in:
amount is:
1996 ............................................................................
$18,500
1997 ............................................................................
19,000
1998 ............................................................................
20,000
1999 ............................................................................
21,000
2000 ............................................................................
22,000
2001 ............................................................................
23,000
2002 ............................................................................
23,500
2003 or thereafter .......................................................
25,000.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1995.
SEC. 1112. TREATMENT OF EMPLOYEE TIPS.
(a) EMPLOYEE CASH TIPS.—
(1) REPORTING
REQUIREMENT
NOT
CONSID-
ERED.—Subparagraph (A) of section 45B(b)(1) (re-
lating to excess employer social security tax) is
amended by inserting ‘‘(without regard to whether
such tips are reported under section 6053)’’ after ‘‘sec-
tion 3121(q)’’.
(2) TAXES
PAID.—Subsection (d) of section
13443 of the Revenue Reconciliation Act of 1993 is
amended by inserting ‘‘, with respect to services per-
formed before, on, or after such date’’ after ‘‘1993’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect as if included in
the amendments made by, and the provisions of, sec-
tion 13443 of the Revenue Reconciliation Act of 1993.
(b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEV-
ERAGES.—
(1) IN
GENERAL.—Paragraph (2) of section
45B(b) is amended to read as follows:
‘‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEV-
ERAGES TAKEN INTO ACCOUNT.—In applying para-
graph (1), there shall be taken into account only tips
received from customers in connection with the deliv-
ering or serving of food or beverages for consumption
if the tipping of employees delivering or serving food
or beverages by customers is customary.’’
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to tips received for services
performed after December 31, 1996.
SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAM-
PLES.
(a) IN GENERAL.—Paragraph (2) of section 280A(c)
is amended by striking ‘‘inventory’’ and inserting ‘‘inven-
tory or product samples’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1995.
SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK
POOLS.
(a) GENERAL RULE.—Section 501 (relating to exemp-
tion from tax on corporations, certain trusts, etc.) is
amended by redesignating subsection (n) as subsection (o)
and by inserting after subsection (m) the following new sub-
section:
‘‘(n) CHARITABLE RISK POOLS.—
‘‘(1) IN GENERAL.—For purposes of this title—
‘‘(A) a qualified charitable risk pool shall be
treated as an organization organized and oper-
ated exclusively for charitable purposes, and
‘‘(B) subsection (m) shall not apply to a
qualified charitable risk pool.
‘‘(2) QUALIFIED CHARITABLE RISK POOL.—For
purposes of this subsection, the term ‘qualified chari-
table risk pool’ means any organization—
‘‘(A) which is organized and operated solely
to pool insurable risks of its members (other than
risks related to medical malpractice) and to pro-
vide information to its members with respect to
loss control and risk management,
‘‘(B) which is comprised solely of members
that are organizations described in subsection
(c)(3) and exempt from tax under subsection (a),
and
‘‘(C) which meets the organizational re-
quirements of paragraph (3).
‘‘(3) ORGANIZATIONAL REQUIREMENTS.—An or-
ganization (hereinafter in this subsection referred to
as the ‘risk pool’) meets the organizational require-
ments of this paragraph if—
‘‘(A) such risk pool is organized as a non-
profit organization under State law provisions
authorizing risk pooling arrangements for chari-
table organizations,
‘‘(B) such risk pool is exempt from any in-
come tax imposed by the State (or will be so ex-
empt after such pool qualifies as an organization
exempt from tax under this title),
‘‘(C) such risk pool has obtained at least
$1,000,000 in startup capital from nonmember
charitable organizations,
‘‘(D) such risk pool is controlled by a board
of directors elected by its members, and
‘‘(E) the organizational documents of such
risk pool require that—
‘‘(i) each member of such pool shall at
all times be an organization described in
subsection (c)(3) and exempt from tax
under subsection (a),
‘‘(ii) any member which receives a
final determination that it no longer quali-
fies as an organization described in sub-
section (c)(3) shall immediately notify the
pool of such determination and the effective
date of such determination, and
‘‘(iii) each policy of insurance issued
by the risk pool shall provide that such pol-
icy will not cover the insured with respect
to events occurring after the date such final
determination was issued to the insured.
An organization shall not cease to qualify as a quali-
fied charitable risk pool solely by reason of the failure
of any of its members to continue to be an organiza-
tion described in subsection (c)(3) if, within a reason-
able period of time after such pool is notified as re-
quired under subparagraph (C)(ii), such pool takes
such action as may be reasonably necessary to remove
such member from such pool.
‘‘(4) OTHER DEFINITIONS.—For purposes of this
subsection—
‘‘(A) STARTUP CAPITAL.—The term ‘startup
capital’ means any capital contributed to, and
any program-related investments (within the
meaning of section 4944(c)) made in, the risk
pool before such pool commences operations.
‘‘(B) NONMEMBER CHARITABLE ORGANIZA-
TION.—The term ‘nonmember charitable organi-
zation’ means any organization which is de-
scribed in subsection (c)(3) and exempt from tax
under subsection (a) and which is not a member
of the risk pool and does not benefit (directly or
indirectly) from the insurance coverage provided
by the pool to its members.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after the
date of the enactment of this Act.
SEC. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL
OR HORTICULTURAL ORGANIZATIONS.
(a) GENERAL RULE.—Section 512 (defining unrelated
business taxable income) is amended by adding at the end
thereof the following new subsection:
‘‘(d) TREATMENT
OF DUES
OF AGRICULTURAL
OR
HORTICULTURAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an agricultural or horticultural orga-
nization described in section 501(c)(5) requires
annual dues to be paid in order to be a member
of such organization, and
‘‘(B) the amount of such required annual
dues does not exceed $100,
in no event shall any portion of such dues be treated
as derived by such organization from an unrelated
trade or business by reason of any benefits or privi-
leges to which members of such organization are enti-
tled.
‘‘(2) INDEXATION OF $100 AMOUNT.—In the case
of any taxable year beginning in a calendar year
after 1995, the $100 amount in paragraph (1) shall
be increased by an amount equal to—
‘‘(A) $100, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year
in which the taxable year begins, by substituting
‘calendar year 1994’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(3) DUES.—For purposes of this subsection, the
term ‘dues’ includes any payment required to be
made in order to be recognized by the organization as
a member of the organization.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1994.
SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS
OF CERTAIN FISHERMEN; INFORMATION RE-
PORTING.
(a) CLARIFICATION OF EMPLOYMENT TAX STATUS.—
(1) AMENDMENTS OF INTERNAL REVENUE CODE
OF 1986.—
(A) DETERMINATION OF SIZE OF CREW.—
Subsection (b) of section 3121 (defining employ-
ment) is amended by adding at the end thereof
the following new sentence:
‘‘For purposes of paragraph (20), the operating crew of a
boat shall be treated as normally made up of fewer than
10 individuals if the average size of the operating crew
on trips made during the preceding 4 calendar quarters
consisted of fewer than 10 individuals.’’
(A) DETERMINATION OF SIZE OF CREW.—
Subsection (a) of section 210 of the Social Secu-
rity Act is amended by adding at the end thereof
the following new sentence:
‘‘For purposes of paragraph (20), the operating crew of a
boat shall be treated as normally made up of fewer than
10 individuals if the average size of the operating crew
on trips made during the preceding 4 calendar quarters
consisted of fewer than 10 individuals.’’
(B) CERTAIN
CASH
REMUNERATION
PER-
MITTED.—Subparagraph 
(A) 
of 
section
210(a)(20) of such Act is amended to read as fol-
lows:
‘‘(A) such individual does not receive any
additional compensation other than as provided
in subparagraph (B) and other than cash remu-
neration—
‘‘(i) which does not exceed $100 per
trip;
‘‘(ii) which is contingent on a mini-
mum catch; and
‘‘(iii) which is paid solely for addi-
tional duties (such as mate, engineer, or
cook) for which additional cash remunera-
tion is traditional in the industry,’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to remuneration
paid after December 31, 1996.
(B) 
SPECIAL
RULE.—The 
amendments
made by this subsection (other than paragraph
(1)(C)) shall also apply to remuneration paid
after December 31, 1984, and before January 1,
1997, unless the payor treated such remunera-
tion (when paid) as being subject to tax under
chapter 21 of the Internal Revenue Code of 1986.
(b) INFORMATION REPORTING.—
(1) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 68 (relating to information con-
cerning transactions with other persons) is amended
by adding at the end the following new section:
‘‘SEC. 6050Q. RETURNS RELATING TO CERTAIN PURCHASES
OF FISH.
‘‘(a) REQUIREMENT OF REPORTING.—Every person—
‘‘(1) who is engaged in the trade or business of
purchasing fish for resale from any person engaged in
the trade or business of catching fish; and
‘‘(2) who makes payments in cash in the course
of such trade or business to such a person of $600 or
more during any calendar year for the purchase of
fish,
shall make a return (at such times as the Secretary may
prescribe) described in subsection (b) with respect to each
person to whom such a payment was made during such cal-
endar year.
‘‘(b) RETURN.—A return is described in this subsection
if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe, and
‘‘(2) contains—
‘‘(A) the name, address, and TIN of each
person to whom a payment described in sub-
section (a)(2) was made during the calendar
year;
‘‘(B) the aggregate amount of such pay-
ments made to such person during such calendar
year and the date and amount of each such pay-
ment, and
‘‘(C) such other information as the Sec-
retary may require.
‘‘(c) STATEMENT TO BE FURNISHED WITH RESPECT
TO WHOM INFORMATION IS REQUIRED.—Every person re-
quired to make a return under subsection (a) shall furnish
to each person whose name is required to be set forth in
such return a written statement showing—
‘‘(1) the name and address of the person required
to make such a return, and
‘‘(2) the aggregate amount of payments to the
person required to be shown on the return.
The written statement required under the preceding sen-
tence shall be furnished to the person on or before January
31 of the year following the calendar year for which the
return under subsection (a) is required to be made.
‘‘(d) DEFINITIONS.—For purposes of this section:
‘‘(1) CASH.—The term ‘cash’ has the meaning
given such term by section 6050I(d).
‘‘(2) FISH.—The term ‘fish’ includes other forms
of aquatic life.’’.
(2) TECHNICAL AMENDMENTS.—
(A) Subparagraph (A) of section 6724(d)(1)
is amended by striking ‘‘or’’ at the end of clause
(vi), by striking ‘‘and’’ at the end of clause (vii)
and inserting ‘‘or’’, and by adding at the end the
following new clause:
‘‘(viii) section 6050Q (relating to re-
turns relating to certain purchases of fish),
and’’.
(B) Paragraph (2) of section 6724(d) is
amended by redesignating subparagraphs (Q)
through (T) as subparagraphs (R) through (U),
respectively, and by inserting after subparagraph
(P) the following new subparagraph:
‘‘(Q) section 6050Q(c) (relating to returns
relating to certain purchases of fish),’’.
(C) The table of sections for subpart B of
part III of subchapter A of chapter 68 is amend-
ed by adding at the end the following new item:
‘‘Sec. 6050Q. Returns relating to certain purchases of fish.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to payments made after
December 31, 1996.
Subtitle B—Extension of Certain
Expiring Provisions
SEC. 1201. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.—Subsection (a) of section 51
(relating to amount of credit) is amended by striking ‘‘40
percent’’ and inserting ‘‘35 percent’’.
(b) MEMBERS OF TARGETED GROUPS.—Subsection (d)
of section 51 is amended to read as follows:
‘‘(d) MEMBERS OF TARGETED GROUPS.—For purposes
of this subpart—
‘‘(1) IN GENERAL.—An individual is a member
of a targeted group if such individual is—
‘‘(A) a qualified IV–A recipient,
‘‘(B) a qualified veteran,
‘‘(C) a qualified ex-felon,
‘‘(D) a high-risk youth,
‘‘(E) a vocational rehabilitation referral, or
‘‘(F) a qualified summer youth employee.
‘‘(2) QUALIFIED IV–A RECIPIENT.—
‘‘(A) IN GENERAL.—The term ‘qualified IV–
A recipient’ means any individual who is cer-
tified by the designated local agency as being a
member of a family receiving assistance under a
IV–A program for at least a 9-month period end-
ing during the 9-month period ending on the
hiring date.
‘‘(B) IV–A PROGRAM.—For purposes of this
paragraph, the term ‘IV–A program’ means any
program providing assistance under a State
plan approved under part A of title IV of the So-
cial Security Act (relating to assistance for
needy families with minor children) and any
successor of such program.
‘‘(3) QUALIFIED VETERAN.—
‘‘(A) IN GENERAL.—The term ‘qualified vet-
eran’ means any veteran who is certified by the
designated local agency as being—
‘‘(i) a member of a family receiving as-
sistance under a IV–A program (as defined
in paragraph (2)(B)) for at least a 9-month
period ending during the 12-month period
ending on the hiring date, or
‘‘(ii) a member of a family receiving
assistance under a food stamp program
under the Food Stamp Act of 1977 for at
least a 3-month period ending during the
12-month period ending on the hiring date.
‘‘(B) VETERAN.—For purposes of subpara-
graph (A), the term ‘veteran’ means any individ-
ual who is certified by the designated local agen-
cy as—
‘‘(i)(I) having served on active duty
(other than active duty for training) in the
Armed Forces of the United States for a pe-
riod of more than 180 days, or
‘‘(II) having been discharged or re-
leased from active duty in the Armed Forces
of the United States for a service-connected
disability, and
‘‘(ii) not having any day during the
60-day period ending on the hiring date
which was a day of extended active duty in
the Armed Forces of the United States.
For purposes of clause (ii), the term ‘extended
active duty’ means a period of more than 90
days during which the individual was on active
duty (other than active duty for training).
‘‘(4) QUALIFIED EX-FELON.—The term ‘qualified
ex-felon’ means any individual who is certified by the
designated local agency—
‘‘(A) as having been convicted of a felony
under any statute of the United States or any
State,
‘‘(B) as having a hiring date which is not
more than 1 year after the last date on which
such individual was so convicted or was released
from prison, and
‘‘(C) as being a member of a family which
had an income during the 6 months immediately
preceding the earlier of the month in which such
income determination occurs or the month in
which the hiring date occurs, which, on an an-
nual basis, would be 70 percent or less of the Bu-
reau of Labor Statistics lower living standard.
Any determination under subparagraph (C) shall be
valid for the 45-day period beginning on the date
such determination is made.
‘‘(5) HIGH-RISK YOUTH.—
‘‘(A) IN
GENERAL.—The term ‘high-risk
youth’ means any individual who is certified by
the designated local agency—
‘‘(i) as having attained age 18 but not
age 25 on the hiring date, and
‘‘(ii) as having his principal place of
abode within an empowerment zone or en-
terprise community.
‘‘(B) YOUTH MUST CONTINUE TO RESIDE IN
ZONE.—In the case of a high-risk youth, the term
‘qualified wages’ shall not include wages paid or
incurred for services performed while such
youth’s principal place of abode is outside an
empowerment zone or enterprise community.
‘‘(6) VOCATIONAL REHABILITATION REFERRAL.—
The term ‘vocational rehabilitation referral’ means
any individual who is certified by the designated
local agency as—
‘‘(A) having a physical or mental disability
which, for such individual, constitutes or results
in a substantial handicap to employment, and
‘‘(B) having been referred to the employer
upon completion of (or while receiving) rehabili-
tative services pursuant to—
‘‘(i) an individualized written rehabili-
tation plan under a State plan for voca-
tional 
rehabilitation 
services 
approved
under the Rehabilitation Act of 1973, or
‘‘(ii) a program of vocational rehabili-
tation carried out under chapter 31 of title
38, United States Code.
‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
summer youth employee’ means any individ-
ual—
‘‘(i) who performs services for the em-
ployer between May 1 and September 15,
‘‘(ii) who is certified by the designated
local agency as having attained age 16 but
not 18 on the hiring date (or if later, on
May 1 of the calendar year involved),
‘‘(iii) who has not been an employee of
the employer during any period prior to the
90-day period described in subparagraph
(B)(i), and
‘‘(iv) who is certified by the designated
local agency as having his principal place
of abode within an empowerment zone or
enterprise community.
‘‘(B) SPECIAL
RULES
FOR
DETERMINING
AMOUNT OF CREDIT.—For purposes of applying
this subpart to wages paid or incurred to any
qualified summer youth employee—
‘‘(i) subsection (b)(2) shall be applied
by substituting ‘any 90-day period between
May 1 and September 15’ for ‘the 1-year
period beginning with the day the individ-
ual begins work for the employer’, and
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$3,000’ for ‘$6,000’.
The preceding sentence shall not apply to an in-
dividual who, with respect to the same employer,
is certified as a member of another targeted
group after such individual has been a qualified
summer youth employee.
‘‘(C) YOUTH MUST CONTINUE TO RESIDE IN
ZONE.—Paragraph (5)(B) shall apply for pur-
poses of this paragraph.
‘‘(8) HIRING
DATE.—The term ‘hiring date’
means the day the individual is hired by the em-
ployer.
‘‘(9) DESIGNATED
LOCAL
AGENCY.—The term
‘designated local agency’ means a State employment
security agency established in accordance with the Act
of June 6, 1933, as amended (29 U.S.C. 49-49n).
‘‘(10) SPECIAL RULES FOR CERTIFICATIONS.—
‘‘(A) IN GENERAL.—An individual shall not
be treated as a member of a targeted group un-
less—
‘‘(i) on or before the day on which such
individual begins work for the employer, the
employer has received a certification from a
designated local agency that such individual
is a member of a targeted group, or
‘‘(ii)(I) on or before the day the indi-
vidual is offered employment with the em-
ployer, a pre-screening notice is completed
by the employer with respect to such indi-
vidual, and
‘‘(II) not later than the 14th day after
the individual begins work for the employer,
the employer submits such notice, signed by
the employer and the individual under pen-
alties of perjury, to the designated local
agency as part of a written request for such
a certification from such agency.
For purposes of this paragraph, the term ‘pre-
screening notice’ means a document (in such
form as the Secretary shall prescribe) which con-
tains information provided by the individual on
the basis of which the employer believes that the
individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified by
a designated local agency as a member of a
targeted group, and
‘‘(ii) such certification is incorrect be-
cause it was based on false information pro-
vided by such individual,
the certification shall be revoked and wages paid
by the employer after the date on which notice
of revocation is received by the employer shall
not be treated as qualified wages.
‘‘(C) EXPLANATION
OF
DENIAL
OF
RE-
QUEST.—If a designated local agency denies a
request for certification of membership in a tar-
geted group, such agency shall provide to the per-
son making such request a written explanation
of the reasons for such denial.’’
(c) MINIMUM EMPLOYMENT PERIOD.—Paragraph (3)
of section 51(i) (relating to certain individuals ineligible)
is amended to read as follows:
‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM-
PLOYMENT PERIOD.—No wages shall be taken into ac-
count under subsection (a) with respect to any indi-
vidual unless such individual either—
‘‘(A) is employed by the employer at least
180 days (20 days in the case of a qualified
summer youth employee), or
‘‘(B) has completed at least 500 hours (120
hours in the case of a qualified summer youth
employee) of services performed for the em-
ployer.’’
(d) TERMINATION.—Paragraph (4) of section 51(c)
(relating to wages defined) is amended to read as follows:
‘‘(4) TERMINATION.—The term ‘wages’ shall not
include any amount paid or incurred to an individ-
ual who begins work for the employer—
‘‘(A) after December 31, 1994, and before
July 1, 1996, or
‘‘(B) after June 30, 1997.’’
(e) REDESIGNATION OF CREDIT.—
(1) Sections 38(b)(2) and 51(a) are each amend-
ed by striking ‘‘targeted jobs credit’’ and inserting
‘‘work opportunity credit’’.
(2) The subpart heading for subpart F of part IV
of subchapter A of chapter 1 is amended by striking
‘‘Targeted Jobs Credit’’ and inserting ‘‘Work
Opportunity Credit’’.
(3) The table of subparts for such part IV is
amended by striking ‘‘targeted jobs credit’’ and insert-
ing ‘‘work opportunity credit’’.
(4) The heading for paragraph (3) of section
1396(c) is amended by striking ‘‘TARGETED
JOBS
CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED-
IT’’.
(f) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion 51(c) is amended by striking ‘‘, subsection (d)(8)(D),’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to individuals who begin work for the
employer after June 30, 1996.
SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSIST-
ANCE PROGRAMS.
(a) EXTENSION.—Subsection (d) of section 127 (relat-
ing to educational assistance programs) is amended by
striking ‘‘December 31, 1994’’ and inserting ‘‘December 31,
1996’’.
(b) LIMITATION TO EDUCATION BELOW GRADUATE
LEVEL.—The last sentence of section 127(c)(1) is amended
by inserting before the period ‘‘or at the graduate level’’.
(c) EFFECTIVE DATES.—
(1) EXTENSION.—The amendment made by sub-
section (a) shall apply to taxable years beginning
after December 31, 1994.
(2) LIMITATION.—The amendment made by sub-
section (b) shall apply to taxable years beginning
after December 31, 1995.
(3) EXPEDITED PROCEDURES.—The Secretary of
the Treasury shall establish expedited procedures for
the refund of any overpayment of taxes imposed by
chapter 24 of the Internal Revenue Code of 1986
which is attributable to amounts excluded from gross
income during 1995 or 1996 under section 127 of
such Code, including procedures waiving the require-
ment that an employer obtain an employee’s signa-
ture where the employer demonstrates to the satisfac-
tion of the Secretary that any refund collected by the
employer on behalf of the employee will be paid to the
employee.
SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL
WORKERS.
(a) IN
GENERAL.—Subparagraph (B) of section
3306(c)(1) (defining employment) is amended by striking
‘‘before January 1, 1995,’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to services performed after December
31, 1994.
Subtitle C—Provisions Relating to
S Corporations
SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75
SHAREHOLDERS.
Subparagraph (A) of section 1361(b)(1) (defining
small business corporation) is amended by striking ‘‘35
shareholders’’ and inserting ‘‘75 shareholders’’.
SEC. 1302. ELECTING SMALL BUSINESS TRUSTS.
(a) GENERAL RULE.—Subparagraph (A) of section
1361(c)(2) (relating to certain trusts permitted as share-
holders) is amended by inserting after clause (iv) the follow-
ing new clause:
‘‘(v) An electing small business trust.’’
(b) CURRENT BENEFICIARIES TREATED AS SHARE-
HOLDERS.—Subparagraph (B) of section 1361(c)(2) is
amended by adding at the end the following new clause:
‘‘(v) In the case of a trust described in
clause (v) of subparagraph (A), each poten-
tial current beneficiary of such trust shall
be treated as a shareholder; except that, if
for any period there is no potential current
beneficiary of such trust, such trust shall be
treated as the shareholder during such pe-
riod.’’
(c) ELECTING SMALL BUSINESS TRUST DEFINED.—
Section 1361 (defining S corporation) is amended by add-
ing at the end the following new subsection:
‘‘(e) ELECTING SMALL BUSINESS TRUST DEFINED.—
‘‘(1) ELECTING SMALL BUSINESS TRUST.—For
purposes of this section—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘electing small busi-
ness trust’ means any trust if—
‘‘(i) such trust does not have as a bene-
ficiary any person other than (I) an indi-
vidual, (II) an estate, or (III) an organiza-
tion described in paragraph (2), (3), (4), or
(5) of section 170(c) which holds a contin-
gent interest and is not a potential current
beneficiary,
‘‘(ii) no interest in such trust was ac-
quired by purchase, and
‘‘(iii) an election under this subsection
applies to such trust.
‘‘(B) CERTAIN TRUSTS NOT ELIGIBLE.—The
term ‘electing small business trust’ shall not in-
clude—
‘‘(i) any qualified subchapter S trust
(as defined in subsection (d)(3)) if an elec-
tion under subsection (d)(2) applies to any
corporation the stock of which is held by
such trust, and
‘‘(ii) any trust exempt from tax under
this subtitle.
‘‘(C) PURCHASE.—For purposes of subpara-
graph (A), the term ‘purchase’ means any acqui-
sition if the basis of the property acquired is de-
termined under section 1012.
‘‘(2) POTENTIAL
CURRENT
BENEFICIARY.—For
purposes of this section, the term ‘potential current
beneficiary’ means, with respect to any period, any
person who at any time during such period is entitled
to, or at the discretion of any person may receive, a
distribution from the principal or income of the trust.
If a trust disposes of all of the stock which it holds
in an S corporation, then, with respect to such cor-
poration, the term ‘potential current beneficiary’ does
not include any person who first met the requirements
of the preceding sentence during the 60-day period
ending on the date of such disposition.
‘‘(3) ELECTION.—An election under this sub-
section shall be made by the trustee. Any such election
shall apply to the taxable year of the trust for which
made and all subsequent taxable years of such trust
unless revoked with the consent of the Secretary.
‘‘(4) CROSS REFERENCE.—
‘‘For special treatment of electing small business
trusts, see section 641(d).’’
(d) TAXATION
OF
ELECTING
SMALL
BUSINESS
TRUSTS.—Section 641 (relating to imposition of tax on
trusts) is amended by adding at the end the following new
subsection:
‘‘(d) SPECIAL RULES FOR TAXATION OF ELECTING
SMALL BUSINESS TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter—
‘‘(A) the portion of any electing small busi-
ness trust which consists of stock in 1 or more
S corporations shall be treated as a separate
trust, and
‘‘(B) the amount of the tax imposed by this
chapter on such separate trust shall be deter-
mined with the modifications of paragraph (2).
‘‘(2) MODIFICATIONS.—For purposes of para-
graph (1), the modifications of this paragraph are the
following:
‘‘(A) Except as provided in section 1(h), the
amount of the tax imposed by section 1(e) shall
be determined by using the highest rate of tax set
forth in section 1(e).
‘‘(B) The exemption amount under section
55(d) shall be zero.
‘‘(C) The only items of income, loss, deduc-
tion, or credit to be taken into account are the
following:
‘‘(i) The items required to be taken
into account under section 1366.
‘‘(ii) Any gain or loss from the disposi-
tion of stock in an S corporation.
‘‘(iii) To the extent provided in regula-
tions, State or local income taxes or admin-
istrative expenses to the extent allocable to
items described in clauses (i) and (ii).
No deduction or credit shall be allowed for any
amount not described in this paragraph, and no
item described in this paragraph shall be appor-
tioned to any beneficiary.
‘‘(D) No amount shall be allowed under
paragraph (1) or (2) of section 1211(b).
‘‘(3) TREATMENT OF REMAINDER OF TRUST AND
DISTRIBUTIONS.—For purposes of determining—
‘‘(A) the amount of the tax imposed by this
chapter on the portion of any electing small
business trust not treated as a separate trust
under paragraph (1), and
‘‘(B) the distributable net income of the en-
tire trust,
the items referred to in paragraph (2)(C) shall be ex-
cluded. Except as provided in the preceding sentence,
this subsection shall not affect the taxation of any dis-
tribution from the trust.
‘‘(4) TREATMENT
OF
UNUSED
DEDUCTIONS
WHERE
TERMINATION
OF
SEPARATE
TRUST.—If a
portion of an electing small business trust ceases to
be treated as a separate trust under paragraph (1),
any carryover or excess deduction of the separate
trust which is referred to in section 642(h) shall be
taken into account by the entire trust.
‘‘(5) ELECTING SMALL BUSINESS TRUST.—For
purposes of this subsection, the term ‘electing small
business trust’ has the meaning given such term by
section 1361(e)(1).’’
(e) TECHNICAL AMENDMENT.—Paragraph (1) of sec-
tion 1366(a) is amended by inserting ‘‘, or of a trust or
estate which terminates,’’ after ‘‘who dies’’.
SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION
FOR CERTAIN TRUSTS.
Subparagraph (A) of section 1361(c)(2) (relating to
certain trusts permitted as shareholders) is amended—
(1) by striking ‘‘60-day period’’ each place it ap-
pears in clauses (ii) and (iii) and inserting ‘‘2-year
period’’, and
(2) by striking the last sentence in clause (ii).
SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD
SAFE HARBOR DEBT.
Clause (iii) of section 1361(c)(5)(B) (defining straight
debt) is amended by striking ‘‘or a trust described in para-
graph (2)’’ and inserting ‘‘a trust described in paragraph
(2), or a person which is actively and regularly engaged
in the business of lending money’’.
SEC. 1305. RULES RELATING TO INADVERTENT TERMI-
NATIONS AND INVALID ELECTIONS.
(a) GENERAL RULE.—Subsection (f) of section 1362
(relating to inadvertent terminations) is amended to read
as follows:
‘‘(f) INADVERTENT INVALID ELECTIONS OR TERMI-
NATIONS.—If—
SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS
YEARS.
(a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO
ACCOUNT BEFORE LOSSES.—
(1) Subparagraph (A) of section 1366(d)(1) (re-
lating to losses and deductions cannot exceed share-
holder’s basis in stock and debt) is amended by strik-
ing ‘‘paragraph (1)’’ and inserting ‘‘paragraphs (1)
and (2)(A)’’.
(2) Subsection (d) of section 1368 (relating to
certain adjustments taken into account) is amended
by adding at the end the following new sentence:
‘‘In the case of any distribution made during any taxable
year, the adjusted basis of the stock shall be determined with
regard to the adjustments provided in paragraph (1) of sec-
tion 1367(a) for the taxable year.’’
(b) ACCUMULATED ADJUSTMENTS ACCOUNT.—Para-
graph (1) of section 1368(e) (relating to accumulated ad-
justments account) is amended by adding at the end the
following new subparagraph:
‘‘(C) NET LOSS FOR YEAR DISREGARDED.—
‘‘(i) IN GENERAL.—In applying this section
to distributions made during any taxable year,
the amount in the accumulated adjustments ac-
count as of the close of such taxable year shall