204
but only if such amount is received under a
rider or other provision of such contract which
is treated as a qualified long-term care insur-
ance contract under section 7702B.
‘‘(2) 
TREATMENT
OF
VIATICAL
SETTLE-
MENTS.—
‘‘(A) IN GENERAL.—In the case of a life
insurance contract on the life of an insured de-
scribed in paragraph (1), if—
‘‘(i) any portion of such contract is
sold to any viatical settlement provider, or
‘‘(ii) any portion of the death benefit
is assigned to such a provider,
the amount paid for such sale or assignment
shall be treated as an amount paid under the
life insurance contract by reason of the death of
such insured.
‘‘(B) VIATICAL SETTLEMENT PROVIDER.—
The term ‘viatical settlement provider’ means
any person regularly engaged in the trade or
business of purchasing, or taking assignments
of, life insurance contracts on the lives of
insureds described in paragraph (1) if—
205
‘‘(i) such person is licensed for such
purposes in the State in which the insured
resides, or
‘‘(ii) in the case of an insured who re-
sides in a State not requiring the licensing
of such persons for such purposes—
‘‘(I) such person meets the re-
quirements of sections 8 and 9 of the
Viatical Settlements Model Act of the
National Association of Insurance
Commissioners, and
‘‘(II) meets the requirements of
the Model Regulations of the National
Association of Insurance Commis-
sioners (relating to standards for eval-
uation of reasonable payments) in de-
termining amounts paid by such per-
son in connection with such purchases
or assignments.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) TERMINALLY ILL INDIVIDUAL.—The
term ‘terminally ill individual’ means an indi-
vidual who has been certified by a physician as
having an illness or physical condition which
206
can reasonably be expected to result in death in
24 months or less after the date of the certifi-
cation.
‘‘(B) PHYSICIAN.—The term ‘physician’
has the meaning given to such term by section
1861(r)(1) of the Social Security Act (42
U.S.C. 1395x(r)(1)).
‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI-
CIES.—This subsection shall not apply in the case of
any amount paid to any taxpayer other than the in-
sured if such taxpayer has an insurable interest with
respect to the life of the insured by reason of the in-
sured being a director, officer, or employee of the
taxpayer or by reason of the insured being finan-
cially interested in any trade or business carried on
by the taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts received after De-
cember 31, 1996.
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALI-
FIED ACCELERATED DEATH BENEFIT RID-
ERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—Section 818 (relat-
207
ing to other definitions and special rules) is amended by
adding at the end the following new subsection:
‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT
RIDERS TREATED AS LIFE INSURANCE.—For purposes of
this part—
‘‘(1) IN GENERAL.—Any reference to a life in-
surance contract shall be treated as including a ref-
erence to a qualified accelerated death benefit rider
on such contract.
‘‘(2) QUALIFIED ACCELERATED DEATH BENE-
FIT RIDERS.—For purposes of this subsection, the
term ‘qualified accelerated death benefit rider’
means any rider on a life insurance contract if the
only payments under the rider are payments meeting
the requirements of section 101(g).
‘‘(3) EXCEPTION FOR LONG-TERM CARE RID-
ERS.—Paragraph (1) shall not apply to any rider
which is treated as a long-term care insurance con-
tract under section 7702B.’’
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
this section shall take effect on January 1, 1997.
(2) ISSUANCE OF RIDER NOT TREATED AS MA-
TERIAL CHANGE.—For purposes of applying sections
208
101(f), 7702, and 7702A of the Internal Revenue
Code of 1986 to any contract—
(A) the issuance of a qualified accelerated
death benefit rider (as defined in section 818(g)
of such Code (as added by this Act)), and
(B) the addition of any provision required
to conform an accelerated death benefit rider to
the requirements of such section 818(g),
shall not be treated as a modification or material
change of such contract.
Subtitle E—High-Risk Pools
SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPON-
SORED ORGANIZATIONS PROVIDING HEALTH
COVERAGE FOR HIGH-RISK INDIVIDUALS.
(a) IN GENERAL.—Subsection (c) of section 501 (re-
lating to list of exempt organizations) is amended by add-
ing at the end the following new paragraph:
‘‘(26) Any membership organization if—
‘‘(A) such organization is established by a
State exclusively to provide coverage for medical
care (as defined in section 213(d)) on a not-for-
profit basis to individuals described in subpara-
graph (B) through—
‘‘(i) insurance issued by the organiza-
tion, or
209
‘‘(ii) a health maintenance organiza-
tion under an arrangement with the orga-
nization,
‘‘(B) the only individuals receiving such
coverage through the organization are individ-
uals—
‘‘(i) who are residents of such State,
and
‘‘(ii) who, by reason of the existence
or history of a medical condition, are un-
able to acquire medical care coverage for
such condition through insurance or from
a health maintenance organization or are
able to acquire such coverage only at a
rate which is substantially in excess of the
rate for such coverage through the mem-
bership organization,
‘‘(C) the composition of the membership in
such organization is specified by such State,
and
‘‘(D) no part of the net earnings of the or-
ganization inures to the benefit of any private
shareholder or individual.’’
210
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1996.
TITLE IV—REVENUE OFFSETS
SEC. 400. 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 provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
Subtitle A—Repeal of Bad Debt Re-
serve Method for Thrift Savings
Associations
SEC. 401. REPEAL OF BAD DEBT RESERVE METHOD FOR
THRIFT SAVINGS ASSOCIATIONS.
(a) IN GENERAL.—Section 593 (relating to reserves
for losses on loans) is amended by adding at the end the
following new subsections:
‘‘(f) TERMINATION
OF RESERVE METHOD.—Sub-
sections (a), (b), (c), and (d) shall not apply to any taxable
year beginning after December 31, 1995.
‘‘(g) 6-YEAR SPREAD OF ADJUSTMENTS.—
211
‘‘(1) IN GENERAL.—In the case of any taxpayer
who is required by reason of subsection (f) to change
its method of computing reserves for bad debts—
‘‘(A) such change shall be treated as a
change in a method of accounting,
‘‘(B) such change shall be treated as initi-
ated by the taxpayer and as having been made
with the consent of the Secretary, and
‘‘(C) the net amount of the adjustments
required to be taken into account by the tax-
payer under section 481(a)—
‘‘(i) shall be determined by taking into
account only applicable excess reserves,
and
‘‘(ii) as so determined, shall be taken
into account ratably over the 6-taxable
year period beginning with the first taxable
year beginning after December 31, 1995.
‘‘(2) APPLICABLE EXCESS RESERVES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘applicable excess reserves’
means the excess (if any) of—
‘‘(i) the balance of the reserves de-
scribed in subsection (c)(1) (other than the
supplemental reserve) as of the close of the
212
taxpayer’s last taxable year beginning be-
fore December 31, 1995, over
‘‘(ii) the lesser of—
‘‘(I) the balance of such reserves
as of the close of the taxpayer’s last
taxable year beginning before January
1, 1988, or
‘‘(II) the balance of the reserves
described in subclause (I), reduced in
the same manner as under section
585(b)(2)(B)(ii) on the basis of the
taxable years described in clause (i)
and this clause.
‘‘(B) SPECIAL RULE FOR THRIFTS WHICH
BECOME SMALL BANKS.—In the case of a bank
(as defined in section 581) which was not a
large bank (as defined in section 585(c)(2)) for
its first taxable year beginning after December
31, 1995—
‘‘(i) the balance taken into account
under subparagraph (A)(ii) shall not be
less than the amount which would be the
balance of such reserves as of the close of
its last taxable year beginning before such
date if the additions to such reserves for
213
all taxable years had been determined
under section 585(b)(2)(A), and
‘‘(ii) the opening balance of the re-
serve for bad debts as of the beginning of
such first taxable year shall be the balance
taken into account under subparagraph
(A)(ii) (determined after the application of
clause (i) of this subparagraph).
The preceding sentence shall not apply for pur-
poses of paragraphs (5) and (6) or subsection
(e)(1).
‘‘(3) 
RECAPTURE
OF
PRE-1988
RESERVES
WHERE TAXPAYER CEASES TO BE BANK.—If, during
any taxable year beginning after December 31,
1995, a taxpayer to which paragraph (1) applied is
not a bank (as defined in section 581), paragraph
(1) shall apply to the reserves described in para-
graph (2)(A)(ii) except that such reserves shall be
taken into account ratably over the 6-taxable year
period beginning with such taxable year.
‘‘(4) SUSPENSION OF RECAPTURE IF RESIDEN-
TIAL LOAN REQUIREMENT MET.—
‘‘(A) IN GENERAL.—In the case of a bank
which meets the residential loan requirement of
subparagraph (B) for the first taxable year be-
214
ginning after December 31, 1995 or for the fol-
lowing taxable year—
‘‘(i) no adjustment shall be taken into
account under paragraph (1) for such tax-
able year, and
‘‘(ii) such taxable year shall be dis-
regarded in determining—
‘‘(I) whether any other taxable
year is a taxable year for which an
adjustment is required to be taken
into account under paragraph (1), and
‘‘(II) the amount of such adjust-
ment.
‘‘(B) 
RESIDENTIAL
LOAN
REQUIRE-
MENT.—A taxpayer meets the residential loan
requirement of this subparagraph for any tax-
able year if the principal amount of the residen-
tial loans made by the taxpayer during such
year is not less than the base amount for such
year.
‘‘(C) RESIDENTIAL
LOAN.—For purposes
of this paragraph, the term ‘residential loan’
means any loan described in clause (v) of sec-
tion 7701(a)(19)(C) but only if such loan is in-
215
curred in acquiring, constructing, or improving
the property described in such clause.
‘‘(D) BASE
AMOUNT.—For purposes of
subparagraph (B), the base amount is the aver-
age of the principal amounts of the residential
loans made by the taxpayer during the 6 most
recent taxable years beginning on or before De-
cember 31, 1995. At the election of the tax-
payer who made such loans during each of such
6 taxable years, the preceding sentence shall be
applied without regard to the taxable year in
which such principal amount was the highest
and the taxable year in such principal amount
was the lowest. Such an election may be made
only for the first taxable year beginning after
such date, and, if made for such taxable year,
shall apply to the succeeding taxable year un-
less revoked with the consent of the Secretary.
‘‘(E) CONTROLLED GROUPS.—In the case
of a taxpayer which is a member of any con-
trolled group of corporations described in sec-
tion 1563(a)(1), subparagraph (B) shall be ap-
plied with respect to such group.
‘‘(5) CONTINUED
APPLICATION
OF
FRESH
START UNDER SECTION 585 TRANSITIONAL RULES.—
216
In the case of a taxpayer to which paragraph (1) ap-
plied and which was not a large bank (as defined in
section 585(c)(2)) for its first taxable year beginning
after December 31, 1995:
‘‘(A) IN GENERAL.—For purposes of deter-
mining the net amount of adjustments referred
to in section 585(c)(3)(A)(iii), there shall be
taken into account only the excess (if any) of
the reserve for bad debts as of the close of the
last taxable year before the disqualification year
over the balance taken into account by such
taxpayer under paragraph (2)(A)(ii) of this sub-
section.
‘‘(B) TREATMENT UNDER ELECTIVE CUT-
OFF METHOD.—For purposes of applying sec-
tion 585(c)(4)—
‘‘(i) the balance of the reserve taken
into account under subparagraph (B)
thereof shall be reduced by the balance
taken into account by such taxpayer under
paragraph (2)(A)(ii) of this subsection,
and
‘‘(ii) no amount shall be includible in
gross income by reason of such reduction.
217
‘‘(6) SUSPENDED RESERVE INCLUDED AS SEC-
TION 381(c) ITEM.—The balance taken into account
by a taxpayer under paragraph (2)(A)(ii) of this
subsection shall be treated as an item described in
section 381(c).
‘‘(7) 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) and exempt from taxation under section
501(a)—
‘‘(A) any amount required to be included
in the gross income of the credit union by rea-
son of this subsection shall be treated as de-
rived from an unrelated trade or business (as
defined in section 513), and
‘‘(B) for purposes of paragraph (3), the
credit union shall not be treated as if it were
a bank.
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out this subsection and subsection (e), including reg-
ulations providing for the application of such sub-
sections in the case of acquisitions, mergers, spin-
offs, and other reorganizations.’’
(b) CONFORMING AMENDMENTS.—
218
(1) Subsection (d) of section 50 is amended by
adding at the end the following new sentence:
‘‘Paragraphs (1)(A), (2)(A), and (4) of the section 46(e)
referred to in paragraph (1) of this subsection shall not
apply to any taxable year beginning after December 31,
1995.’’
(2) Subsection (e) of section 52 is amended by
striking paragraph (1) and by redesignating para-
graphs (2) and (3) as paragraphs (1) and (2), re-
spectively.
(3) Subsection (a) of section 57 is amended by
striking paragraph (4).
(4) Section 246 is amended by striking sub-
section (f).
(5) Clause (i) of section 291(e)(1)(B) is amend-
ed by striking ‘‘or to which section 593 applies’’.
(6) Subparagraph (A) of section 585(a)(2) is
amended by striking ‘‘other than an organization to
which section 593 applies’’.
(7)(A) The material preceding subparagraph
(A) of section 593(e)(1) is amended by striking ‘‘by
a domestic building and loan association or an insti-
tution that is treated as a mutual savings bank
under section 591(b)’’ and inserting ‘‘by a taxpayer
219
having 
a 
balance 
described 
in 
subsection
(g)(2)(A)(ii)’’.
(B) Subparagraph (B) of section 593(e)(1) is
amended to read as follows:
‘‘(B) then out of the balance taken into ac-
count under subsection (g)(2)(A)(ii) (properly
adjusted for amounts charged against such re-
serves for taxable years beginning after Decem-
ber 31, 1987),’’.
(C) Paragraph (1) of section 593(e) is amended
by adding at the end the following new sentence:
‘‘This paragraph shall not apply to any distribution
of all of the stock of a bank (as defined in section
581) to another corporation if, immediately after the
distribution, such bank and such other corporation
are members of the same affiliated group (as defined
in section 1504) and the provisions of section 5(e)
of the Federal Deposit Insurance Act (as in effect
on December 31, 1995) or similar provisions are in
effect.’’
(8) Section 595 is hereby repealed.
(9) Section 596 is hereby repealed.
(10) Subsection (a) of section 860E is amend-
ed—
220
(A) by striking ‘‘Except as provided in
paragraph (2), the’’ in paragraph (1) and in-
serting ‘‘The’’,
(B) by striking paragraphs (2) and (4) and
redesignating paragraphs (3) and (5) as para-
graphs (2) and (3), respectively, and
(C) by striking in paragraph (2) (as so re-
designated) all that follows ‘‘subsection’’ and
inserting a period.
(11) Paragraph (3) of section 992(d) is amend-
ed by striking ‘‘or 593’’.
(12) Section 1038 is amended by striking sub-
section (f).
(13) Clause (ii) of section 1042(c)(4)(B) is
amended by striking ‘‘or 593’’.
(14) Subsection (c) of section 1277 is amended
by striking ‘‘or to which section 593 applies’’.
(15) Subparagraph (B) of section 1361(b)(2) is
amended by striking ‘‘or to which section 593 ap-
plies’’.
(16) The table of sections for part II of sub-
chapter H of chapter 1 is amended by striking the
items relating to sections 595 and 596.
(c) EFFECTIVE DATE.—
221
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to taxable years beginning
after December 31, 1995.
(2) SUBSECTION
(b)(7).—The amendments
made by subsection (b)(7) shall not apply to any dis-
tribution with respect to preferred stock if—
(A) such stock is outstanding at all times
after October 31, 1995, and before the distribu-
tion, and
(B) such distribution is made before the
date which is 1 year after the date of the enact-
ment of this Act.
(3) SUBSECTION
(b)(10).—The amendments
made by subsection (b)(10) shall not apply to any
residual interest held by a taxpayer if such interest
has been held by such taxpayer at all times after Oc-
tober 31, 1995.
Subtitle B—Reform of the Earned
Income Credit
SEC. 411. EARNED INCOME CREDIT DENIED TO INDIVID-
UALS NOT AUTHORIZED TO BE EMPLOYED IN
THE UNITED STATES.
(a) IN GENERAL.—Section 32(c)(1) (relating to indi-
viduals eligible to claim the earned income credit) is
222
amended by adding at the end the following new subpara-
graph:
‘‘(F) IDENTIFICATION NUMBER REQUIRE-
MENT.—The term ‘eligible individual’ does not
include any individual who does not include on
the return of tax for the taxable year—
‘‘(i) such individual’s taxpayer identi-
fication number, and
‘‘(ii) if the individual is married (with-
in the meaning of section 7703), the tax-
payer identification number of such indi-
vidual’s spouse.’’.
(b) SPECIAL IDENTIFICATION NUMBER.—Section 32
is amended by adding at the end the following new sub-
section:
‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur-
poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer
identification number means a social security number is-
sued to an individual by the Social Security Administra-
tion (other than a social security number issued pursuant
to clause (II) (or that portion of clause (III) that relates
to clause (II)) of section 205(c)(2)(B)(i) of the Social Se-
curity Act).’’.
(c) EXTENSION OF PROCEDURES APPLICABLE TO
MATHEMATICAL
OR
CLERICAL
ERRORS.—Section
223
6213(g)(2) (relating to the definition of mathematical or
clerical errors) is amended by striking ‘‘and’’ at the end
of subparagraph (D), by striking the period at the end
of subparagraph (E) and inserting a comma, and by in-
serting after subparagraph (E) the following new subpara-
graphs:
‘‘(F) an omission of a correct taxpayer
identification number required under section 32
(relating to the earned income credit) to be in-
cluded on a return, and
‘‘(G) an entry on a return claiming the
credit under section 32 with respect to net
earnings from self-employment described in sec-
tion 32(c)(2)(A) to the extent the tax imposed
by section 1401 (relating to self-employment
tax) on such net earnings has not been paid.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. 412. PROVISIONS TO IMPROVE TAX COMPLIANCE.
(a) INCREASE IN PENALTIES FOR RETURN PREPAR-
ERS.—
(1) 
UNDERSTATEMENT
PENALTY.—Section
6694 (relating to understatement of income tax li-
ability by income tax return preparer) is amended—
224
(A) by striking ‘‘$250’’ in subsection (a)
and inserting ‘‘$500’’, and
(B) by striking ‘‘$1,000’’ in subsection (b)
and inserting ‘‘$2,000’’.
(2) OTHER ASSESSABLE PENALTIES.—Section
6695 (relating to other assessable penalties) is
amended—
(A) by striking ‘‘$50’’ and ‘‘$25,000’’ in
subsections (a), (b), (c), (d), and (e) and insert-
ing ‘‘$100’’ and ‘‘$50,000’’, respectively, and
(B) by striking ‘‘$500’’ in subsection (f)
and inserting ‘‘$1,000’’.
(b) AIDING
AND
ABETTING
PENALTY.—Section
6701(b) (relating to amount of penalty) is amended—
(1) by striking ‘‘$1,000’’ in paragraph (1) and
inserting ‘‘$2,000’’, and
(2) by striking ‘‘$10,000’’ in paragraph (2) and
inserting ‘‘$20,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to penalties with respect to taxable
years beginning after December 31, 1995.
Æ