Calendar No. 665
105TH CONGRESS
2D SESSION
H. R. 4579
AN ACT
To provide tax relief for individuals, families, and
farming and other small businesses, to provide
tax incentives for education, to extend certain ex-
piring provisions, to amend the Social Security
Act to establish the Protect Social Security Ac-
count into which the Secretary of the Treasury
shall deposit budget surpluses until a reform
measure is enacted to ensure the long-term sol-
vency of the OASDI trust funds, and for other
purposes.
SEPTEMBER 29, 1998
Read the second time and placed on the calendar
II
Calendar No. 665
105TH CONGRESS
2D SESSION
H. R. 4579
IN THE SENATE OF THE UNITED STATES
SEPTEMBER 28, 1998
Received and read the first time
SEPTEMBER 29, 1998
Read the second time and placed on the calendar
AN ACT
To provide tax relief for individuals, families, and farming
and other small businesses, to provide tax incentives
for education, to extend certain expiring provisions, to
amend the Social Security Act to establish the Protect
Social Security Account into which the Secretary of the
Treasury shall deposit budget surpluses until a reform
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measure is enacted to ensure the long-term solvency of
the OASDI trust funds, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Taxpayer Relief Act of 1998’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title, etc.
TITLE I—PROVISIONS PRIMARILY AFFECTING INDIVIDUALS AND
FAMILIES
Subtitle A—General Provisions
Sec. 101. Elimination of marriage penalty in standard deduction.
Sec. 102. Exemption of certain interest and dividend income from tax.
Sec. 103. Nonrefundable personal credits allowed against alternative minimum
tax.
Sec. 104. 100 percent deduction for health insurance costs of self-employed in-
dividuals.
Sec. 105. Special rule for members of uniformed services and Foreign Service
in determining exclusion of gain from sale of principal resi-
dence.
Sec. 106. $1,000,000 exemption from estate and gift taxes.
Subtitle B—Provisions Relating to Education
Sec. 111. Eligible educational institutions permitted to maintain qualified tui-
tion programs.
Sec. 112. Modification of arbitrage rebate rules applicable to public school con-
struction bonds.
Subtitle C—Provisions Relating to Social Security
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Sec. 121. Increases in the social security earnings limit for individuals who
have attained retirement age.
Sec. 122. Recomputation of benefits after normal retirement age.
TITLE II—PROVISIONS PRIMARILY AFFECTING FARMING AND
OTHER BUSINESSES
Subtitle A—Increase in Expense Treatment for Small Businesses
Sec. 201. Increase in expense treatment for small businesses.
Subtitle B—Provisions Relating to Farmers
Sec. 211. Income averaging for farmers made permanent.
Sec. 212. 5-year net operating loss carryback for farming losses.
Sec. 213. Production flexibility contract payments.
Subtitle C—Increase in Volume Cap on Private Activity Bonds
Sec. 221. Increase in volume cap on private activity bonds.
TITLE III—EXTENSION AND MODIFICATION OF CERTAIN
EXPIRING PROVISIONS
Subtitle A—Tax Provisions
Sec. 301. Research credit.
Sec. 302. Work opportunity credit.
Sec. 303. Welfare-to-work credit.
Sec. 304. Contributions of stock to private foundations; expanded public inspec-
tion of private foundations’ annual returns.
Sec. 305. Subpart F exemption for active financing income.
Subtitle B—Generalized System of Preferences
Sec. 311. Extension of Generalized System of Preferences.
TITLE IV—REVENUE OFFSET
Sec. 401. Treatment of certain deductible liquidating distributions of regulated
investment companies and real estate investment trusts.
TITLE V—TECHNICAL CORRECTIONS
Sec. 501. Definitions; coordination with other titles.
Sec. 502. Amendments related to Internal Revenue Service Restructuring and
Reform Act of 1998.
Sec. 503. Amendments related to Taxpayer Relief Act of 1997.
Sec. 504. Amendments related to Tax Reform Act of 1984.
Sec. 505. Other amendments.
TITLE VI—AMERICAN COMMUNITY RENEWAL ACT OF 1998
Sec. 601. Short title.
Sec. 602. Designation of and tax incentives for renewal communities.
Sec. 603. Extension of expensing of environmental remediation costs to renewal
communities.
Sec. 604. Extension of work opportunity tax credit for renewal communities.
Sec. 605. Conforming and clerical amendments.
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Sec. 606. Evaluation and reporting requirements.
Sec. 607. Exclusion of effects of this Act from paygo scorecard.
TITLE VII—ESTABLISHMENT OF THE PROTECT SOCIAL
SECURITY ACCOUNT
Sec. 701. Establishment of special reserve account.
Sec. 702. Effective date.
TITLE 
I—PROVISIONS 
PRI-
MARILY AFFECTING INDIVID-
UALS AND FAMILIES
Subtitle A—General Provisions
SEC. 101. ELIMINATION OF MARRIAGE PENALTY IN STAND-
ARD DEDUCTION.
(a) IN GENERAL.—Paragraph (2) of section 63(c)
(relating to standard deduction) is amended—
(1) by striking ‘‘$5,000’’ in subparagraph (A)
and inserting ‘‘twice the dollar amount in effect
under subparagraph (C) for the taxable year’’;
(2) by adding ‘‘or’’ at the end of subparagraph
(B);
(3) by striking ‘‘in the case of’’ and all that fol-
lows in subparagraph (C) and inserting ‘‘in any
other case.’’; and
(4) by striking subparagraph (D).
(b) ADDITIONAL STANDARD DEDUCTION FOR AGED
AND BLIND TO BE THE SAME FOR MARRIED AND UN-
MARRIED INDIVIDUALS.—
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(1) Paragraphs (1) and (2) of section 63(f) are
each amended by striking ‘‘$600’’ and inserting
‘‘$750’’.
(2) Subsection (f) of section 63 is amended by
striking paragraph (3) and by redesignating para-
graph (4) as paragraph (3).
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 1(f)(6) is
amended by striking ‘‘(other than with’’ and all that
follows through ‘‘shall be applied’’ and inserting
‘‘(other than with respect to sections 63(c)(4) and
151(d)(4)(A)) shall be applied’’.
(2) Paragraph (4) of section 63(c) is amended
by adding at the end the following flush sentence:
‘‘The preceding sentence shall not apply to the
amount referred to in paragraph (2)(A).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 102. EXEMPTION OF CERTAIN INTEREST AND DIVI-
DEND INCOME FROM TAX.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to amounts specifically excluded from gross
income) is amended by inserting after section 115 the fol-
lowing new section:
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‘‘SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTER-
EST RECEIVED BY INDIVIDUALS.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come does not include dividends and interest received dur-
ing the taxable year by an individual.
‘‘(b) LIMITATIONS.—
‘‘(1) 
MAXIMUM
AMOUNT.—The 
aggregate
amount excluded under subsection (a) for any tax-
able year shall not exceed $200 ($400 in the case of
a joint return).
‘‘(2) CERTAIN
DIVIDENDS
EXCLUDED.—Sub-
section (a) shall not apply to any dividend from a
corporation which, for the taxable year of the cor-
poration in which the distribution is made, or for the
next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (re-
lating to certain charitable, etc., organization) or
section 521 (relating to farmers’ cooperative associa-
tions).
‘‘(c) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) EXCLUSION NOT TO APPLY TO CAPITAL
GAIN
DIVIDENDS
FROM
REGULATED
INVESTMENT
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COMPANIES
AND
REAL
ESTATE
INVESTMENT
TRUSTS.—
‘‘For treatment of capital gain dividends, see sec-
tions 854(a) and 857(c).
‘‘(2) CERTAIN
NONRESIDENT
ALIENS
INELI-
GIBLE
FOR
EXCLUSION.—In the case of a non-
resident alien individual, subsection (a) shall apply
only—
‘‘(A) in determining the tax imposed for
the taxable year pursuant to section 871(b)(1)
and only in respect of dividends and interest
which are effectively connected with the conduct
of a trade or business within the United States,
or
‘‘(B) in determining the tax imposed for
the taxable year pursuant to section 877(b).
‘‘(3) DIVIDENDS FROM EMPLOYEE STOCK OWN-
ERSHIP PLANS.—Subsection (a) shall not apply to
any dividend described in section 404(k).’’.
(b) CONFORMING AMENDMENTS.—
(1)(A) Subparagraph (A) of section 135(c)(4) is
amended by inserting ‘‘116,’’ before ‘‘137’’.
(B) Subsection (d) of section 135 is amended
by redesignating paragraph (4) as paragraph (5)
and by inserting after paragraph (3) the following
new paragraph:
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dends and interest received by individuals) and’’
after ‘‘For purposes of’’.
(6) Section 857(c) is amended to read as fol-
lows:
‘‘(c) RESTRICTIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) TREATMENT FOR SECTION 116.—For pur-
poses of section 116 (relating to partial exclusion of
dividends and interest received by individuals), a
capital gain dividend (as defined in subsection
(b)(3)(C)) received from a real estate investment
trust which meets the requirements of this part shall
not be considered as a dividend.
‘‘(2) TREATMENT FOR SECTION 243.—For pur-
poses of section 243 (relating to deductions for divi-
dends received by corporations), a dividend received
from a real estate investment trust which meets the
requirements of this part shall not be considered as
a dividend.’’.
(7) The table of sections for part III of sub-
chapter B of chapter 1 is amended by inserting after
the item relating to section 115 the following new
item:
‘‘Sec. 116. Partial exclusion of dividends and interest received by
individuals.’’.
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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 103. NONREFUNDABLE PERSONAL CREDITS ALLOWED
AGAINST ALTERNATIVE MINIMUM TAX.
(a) IN GENERAL.—Subsection (a) of section 26 is
amended to read as follows:
‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The
aggregate amount of credits allowed by this subpart for
the taxable year shall not exceed the sum of—
‘‘(1) the taxpayer’s regular tax liability for the
taxable year; and
‘‘(2) the tax imposed for the taxable year by
section 55(a).
For purposes of applying the preceding sentence, para-
graph (2) shall be treated as being zero for any taxable
year beginning during 1998.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 24 is amended by
striking paragraph (2) and by redesignating para-
graph (3) as paragraph (2).
(2) Section 32 is amended by striking sub-
section (h).
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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 104. 100 PERCENT DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
(relating to special rules for health insurance costs of self-
employed individuals) is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
care for the taxpayer, his spouse, and dependents.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 105. SPECIAL RULE FOR MEMBERS OF UNIFORMED
SERVICES AND FOREIGN SERVICE IN DETER-
MINING EXCLUSION OF GAIN FROM SALE OF
PRINCIPAL RESIDENCE.
(a) IN GENERAL.—Subsection (d) of section 121 (re-
lating to exclusion of gain from sale of principal residence)
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is amended by adding at the end the following new para-
graph:
‘‘(9) MEMBERS OF UNIFORMED SERVICES AND
FOREIGN SERVICE.—
‘‘(A) IN GENERAL.—The running of the 5-
year period described in subsection (a) shall be
suspended with respect to an individual during
any time that such individual or such individ-
ual’s spouse is serving on qualified official ex-
tended duty as a member of the uniformed
services or of the Foreign Service.
‘‘(B) QUALIFIED
OFFICIAL
EXTENDED
DUTY.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘quali-
fied official extended duty’ means any pe-
riod of extended duty as a member of the
uniformed services or a member of the
Foreign Service during which the member
serves at a duty station which is at least
50 miles from such property or is under
Government orders to reside in Govern-
ment quarters.
‘‘(ii) 
UNIFORMED
SERVICES.—The
term ‘uniformed services’ has the meaning
given such term by section 101(a)(5) of
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title 10, United States Code, as in effect
on the date of the enactment of the Tax-
payer Relief Act of 1998.
‘‘(iii) FOREIGN
SERVICE
OF
THE
UNITED
STATES.—The term ‘member of
the Foreign Service’ has the meaning given
the term ‘member of the Service’ by para-
graph (1), (2), (3), (4), or (5) of section
103 of the Foreign Service Act of 1980, as
in effect on the date of the enactment of
the Taxpayer Relief Act of 1998.
‘‘(iv) EXTENDED
DUTY.—The term
‘extended duty’ means any period of active
duty pursuant to a call or order to such
duty for a period in excess of 90 days or
for an indefinite period.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to sales and exchanges after the
date of the enactment of this Act.
SEC. 106. $1,000,000 EXEMPTION FROM ESTATE AND GIFT
TAXES.
(a) IN GENERAL.—Subsection (c) of section 2010
(relating to applicable credit amount) is amended to read
as follows:
‘‘(c) APPLICABLE CREDIT AMOUNT.—
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‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the applicable credit amount is $345,800.
‘‘(2) APPLICABLE
EXCLUSION
AMOUNT.—For
purposes of the provisions of this title which refer to
this subsection, the applicable exclusion amount is
$1,000,000.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying, and
gifts made, after December 31, 1998.
Subtitle B—Provisions Relating to
Education
SEC. 111. ELIGIBLE EDUCATIONAL INSTITUTIONS PER-
MITTED TO MAINTAIN QUALIFIED TUITION
PROGRAMS.
(a) IN GENERAL.—Paragraph (1) of section 529(b)
(defining qualified State tuition program) is amended by
inserting ‘‘or by 1 or more eligible educational institu-
tions’’ after ‘‘maintained by a State or agency or instru-
mentality thereof’’.
(b) TECHNICAL AMENDMENTS.—
(1) The texts of sections 72(e)(9), 135(c)(2)(C),
135(d)(1)(D), 529, 530, and 4973(e)(1)(B) are each
amended by striking ‘‘qualified State tuition pro-
gram’’ each place it appears and inserting ‘‘qualified
tuition program’’.
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(2) The paragraph heading for paragraph (9) of
section 72(e) and the subparagraph heading for sub-
paragraph (B) of section 530(b)(2) are each amend-
ed by striking ‘‘STATE’’.
(3) The subparagraph heading for subpara-
graph (C) of section 135(c)(2) is amended by strik-
ing ‘‘QUALIFIED STATE TUITION PROGRAM’’ and in-
serting ‘‘QUALIFIED TUITION PROGRAMS’’.
(4) Sections 529(c)(3)(D)(i) and 6693(a)(2)(C)
are each amended by striking ‘‘qualified State tui-
tion programs’’ and inserting ‘‘qualified tuition pro-
grams’’.
(5)(A) The section heading of section 529 is
amended to read as follows:
‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’.
(B) The item relating to section 529 in the
table of sections for part VIII of subchapter F of
chapter 1 is amended by striking ‘‘State’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1999.
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SEC. 112. MODIFICATION OF ARBITRAGE REBATE RULES
APPLICABLE TO PUBLIC SCHOOL CONSTRUC-
TION BONDS.
(a) IN GENERAL.—Subparagraph (C) of section
148(f)(4) is amended by adding at the end the following
new clause:
‘‘(xviii) 4-YEAR
SPENDING
REQUIRE-
MENT FOR PUBLIC SCHOOL CONSTRUCTION
ISSUE.—
‘‘(I) IN GENERAL.—In the case
of a public school construction issue,
the spending requirements of clause
(ii) shall be treated as met if at least
10 percent of the available construc-
tion proceeds of the construction issue
are spent for the governmental pur-
poses of the issue within the 1-year
period beginning on the date the
bonds are issued, 30 percent of such
proceeds are spent for such purposes
within the 2-year period beginning on
such date, 50 percent of such pro-
ceeds are spent for such purposes
within the 3-year period beginning on
such date, and 100 percent of such
proceeds are spent for such purposes
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within the 4-year period beginning on
such date.
‘‘(II) 
PUBLIC
SCHOOL
CON-
STRUCTION ISSUE.—For purposes of
this clause, the term ‘public school
construction issue’ means any con-
struction issue if no bond which is
part of such issue is a private activity
bond and all of the available construc-
tion proceeds of such issue are to be
used for the construction (as defined
in clause (iv)) of public school facili-
ties to provide education or training
below the postsecondary level or for
the acquisition of land that is func-
tionally related and subordinate to
such facilities.
‘‘(III) 
OTHER
RULES
TO
APPLY.—Rules similar to the rules of
the preceding provisions of this sub-
paragraph which apply to clause (ii)
also apply to this clause.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to obligations issued after Decem-
ber 31, 1998.
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Subtitle C—Provisions Relating to
Social Security
SEC. 121. INCREASES IN THE SOCIAL SECURITY EARNINGS
LIMIT FOR INDIVIDUALS WHO HAVE AT-
TAINED RETIREMENT AGE.
(a) IN GENERAL.—Section 203(f)(8)(D) of the Social
Security Act (42 U.S.C. 403(f)(8)(D)) is amended by
striking clauses (iv) through (vii) and inserting the follow-
ing new clauses:
‘‘(iv) for each month of any taxable year
ending 
after 
1998 
and 
before 
2000,
$1,416.662⁄3;
‘‘(v) for each month of any taxable year
ending 
after 
1999 
and 
before 
2001,
$1,541.662⁄3;
‘‘(vi) for each month of any taxable year
ending 
after 
2000 
and 
before 
2002,
$2,166.662⁄3;
‘‘(vii) for each month of any taxable year
ending after 2001 and before 2003, $2,500.00;
‘‘(viii) for each month of any taxable year
ending 
after 
2002 
and 
before 
2004,
$2,608.331⁄3;
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‘‘(ix) for each month of any taxable year
ending 
after 
2003 
and 
before 
2005,
$2,833.331⁄3;
‘‘(x) for each month of any taxable year
ending after 2004 and before 2006, $2,950.00;
‘‘(xi) for each month of any taxable year
ending 
after 
2005 
and 
before 
2007,
$3,066.662⁄3;
‘‘(xii) for each month of any taxable year
ending 
after 
2006 
and 
before 
2008,
$3,195.831⁄3; and
‘‘(xiii) for each month of any taxable year
ending 
after 
2007 
and 
before 
2009,
$3,312.50.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 203(f)(8)(B)(ii) of such Act (42
U.S.C. 403(f)(8)(B)(ii)) is amended—
(A) by striking ‘‘after 2001 and before
2003’’ and inserting ‘‘after 2007 and before
2009’’; and
(B) in subclause (II), by striking ‘‘2000’’
and inserting ‘‘2006’’.
(2) The second sentence of section 223(d)(4)(A)
of such Act (42 U.S.C. 423(d)(4)(A)) is amended by
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any such case in which the individual is entitled
to old-age insurance benefits, the individual has
attained age 65 as of the end of the year pre-
ceding the year with respect to which the re-
computation is made, and the year with respect
to which the recomputation is made would not
be substituted in recomputation under this sub-
section for a benefit computation year in which
no wages or self-employment income have been
credited previously to such individual, or
‘‘(ii) the first year following the year with
respect to which the recomputation is made, in
any other such case; or’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to recomputations of
primary insurance amounts based on wages paid and self
employment income derived after 1997 and with respect
to benefits payable after December 31, 1998.
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TITLE 
II—PROVISIONS 
PRI-
MARILY AFFECTING FARMING
AND OTHER BUSINESSES
Subtitle A—Increase in Expense
Treatment for Small Businesses
SEC. 201. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section
179(b) (relating to dollar limitation) is amended to read
as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection
(a) for any taxable year shall not exceed $25,000.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998.
(c) STUDY.—The Secretary of the Treasury (or the
Secretary’s delegate)—
(1) shall conduct a comprehensive study of the
recovery periods and depreciation methods under
section 168 of the Internal Revenue Code of 1986,
and
(2) shall submit the results of such study, to-
gether with recommendations for determining such
periods and methods in a more rational manner, to
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the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of
the Senate.
Subtitle B—Provisions Relating to
Farmers
SEC. 211. INCOME AVERAGING FOR FARMERS MADE PER-
MANENT.
Subsection (c) of section 933 of the Taxpayer Relief
Act of 1997 is amended by striking ‘‘, and before January
1, 2001’’.
SEC. 212. 5-YEAR NET OPERATING LOSS CARRYBACK FOR
FARMING LOSSES.
(a) IN GENERAL.—Paragraph (1) of section 172(b)
(relating to net operating loss deduction) is amended by
adding at the end the following new subparagraph:
‘‘(G) FARMING LOSSES.—In the case of a
taxpayer which has a farming loss (as defined
in subsection (i)) for a taxable year, such farm-
ing loss shall be a net operating loss carryback
to each of the 5 taxable years preceding the
taxable year of such loss.’’.
(b) FARMING LOSS.—Section 172 is amended by re-
designating subsection (i) as subsection (j) and by insert-
ing after subsection (h) the following new subsection:
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‘‘(i) RULES RELATING TO FARMING LOSSES.—For
purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘farming loss’
means the lesser of—
‘‘(A) the amount which would be the net
operating loss for the taxable year if only in-
come and deductions attributable to farming
businesses (as defined in section 263A(e)(4))
are taken into account, or
‘‘(B) the amount of the net operating loss
for such taxable year.
‘‘(2) 
COORDINATION
WITH
SUBSECTION
(b)(2).—For purposes of applying subsection (b)(2),
a farming loss for any taxable year shall be treated
in a manner similar to the manner in which a speci-
fied liability loss is treated.
‘‘(3) ELECTION.—Any taxpayer entitled to a 5-
year carryback under subsection (b)(1)(G) from any
loss year may elect to have the carryback period
with respect to such loss year determined without re-
gard to subsection (b)(1)(G). Such election shall be
made in such manner as may be prescribed by the
Secretary and shall be made by the due date (includ-
ing extensions of time) for filing the taxpayer’s re-
turn for the taxable year of the net operating loss.
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Such election, once made for any taxable year, shall
be irrevocable for such taxable year.’’.
(c) 
COORDINATION
WITH
FARM
DISASTER
LOSSES.—Clause (ii) of section 172(b)(1)(F) is amended
by adding at the end the following flush sentence:
‘‘Such term shall not include any farming
loss (as defined in subsection (i)).’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to net operating losses for taxable
years beginning after December 31, 1997.
SEC. 213. PRODUCTION FLEXIBILITY CONTRACT PAY-
MENTS.
The option under section 112(d)(3) of the Federal
Agriculture Improvement and Reform Act of 1996 (7
U.S.C. 7212(d)(3)) shall be disregarded in determining
the taxable year for which the payment for fiscal year
1999 under a production flexibility contract under subtitle
B of title I of such Act is properly includible in gross in-
come for purposes of the Internal Revenue Code of 1986.
Subtitle C—Increase in Volume
Cap on Private Activity Bonds
SEC. 221. INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY
BONDS.
(a) IN GENERAL.—Subsection (d) of section 146 (re-
lating to volume cap) is amended by striking paragraph
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(2), by redesignating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively, and by striking para-
graph (1) and inserting the following new paragraph:
‘‘(1) IN GENERAL.—The State ceiling applicable
to any State for any calendar year shall be the
greater of—
‘‘(A) an amount equal to $75 multiplied by
the State population, or
‘‘(B) $225,000,000.
Subparagraph (B) shall not apply to any possession
of the United States.’’.
(b) CONFORMING AMENDMENT.—Sections 25(f)(3)
and 42(h)(3)(E)(iii) are each amended by striking ‘‘sec-
tion 146(d)(3)(C)’’ and inserting ‘‘section 146(d)(2)(C)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to calendar years after 1998.
TITLE 
III—EXTENSION 
AND
MODIFICATION OF CERTAIN
EXPIRING PROVISIONS
Subtitle A—Tax Provisions
SEC. 301. RESEARCH CREDIT.
(a) TEMPORARY EXTENSION.—
(1) IN
GENERAL.—Paragraph (1) of section
41(h) (relating to termination) is amended—
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(A) by striking ‘‘June 30, 1998’’ and in-
serting ‘‘February 29, 2000’’;
(B) by striking ‘‘24-month’’ and inserting
‘‘44-month’’; and
(C) by striking ‘‘24 months’’ and inserting
‘‘44 months’’.
(2) TECHNICAL
AMENDMENT.—Subparagraph
(D) of section 45C(b)(1) is amended by striking
‘‘June 30, 1998’’ and inserting ‘‘February 29,
2000’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to amounts paid or in-
curred after June 30, 1998.
(b) INCREASE
IN PERCENTAGES UNDER ALTER-
NATIVE INCREMENTAL CREDIT.—
(1) IN GENERAL.—Subparagraph (A) of section
41(c)(4) is amended—
(A) by striking ‘‘1.65 percent’’ and insert-
ing ‘‘2.65 percent’’;
(B) by striking ‘‘2.2 percent’’ and inserting
‘‘3.2 percent’’; and
(C) by striking ‘‘2.75 percent’’ and insert-
ing ‘‘3.75 percent’’.
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(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after June 30, 1998.
SEC. 302. WORK OPPORTUNITY CREDIT.
(a) TEMPORARY EXTENSION.—Subparagraph (B) of
section 51(c)(4) (relating to termination) is amended by
striking ‘‘June 30, 1998’’ and inserting ‘‘February 29,
2000’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to individuals who begin work for
the employer after June 30, 1998.
SEC. 303. WELFARE-TO-WORK CREDIT.
Subsection (f) of section 51A (relating to termi-
nation) is amended by striking ‘‘April 30, 1999’’ and in-
serting ‘‘February 29, 2000’’.
SEC. 304. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDA-
TIONS; EXPANDED PUBLIC INSPECTION OF
PRIVATE FOUNDATIONS’ ANNUAL RETURNS.
(a) SPECIAL RULE FOR CONTRIBUTIONS OF STOCK
MADE PERMANENT.—
(1) IN
GENERAL.—Paragraph (5) of section
170(e) is amended by striking subparagraph (D)
(relating to termination).
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(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to contributions made
after June 30, 1998.
(b) EXPANDED PUBLIC INSPECTION
OF PRIVATE
FOUNDATIONS’ ANNUAL RETURNS, ETC.—
(1) IN
GENERAL.—Section 6104 (relating to
publicity of information required from certain ex-
empt organizations and certain trusts) is amended
by striking subsections (d) and (e) and inserting
after subsection (c) the following new subsection:
‘‘(d) PUBLIC INSPECTION OF CERTAIN ANNUAL RE-
TURNS AND APPLICATIONS FOR EXEMPTION.—
‘‘(1) IN GENERAL.—In the case of an organiza-
tion described in subsection (c) or (d) of section 501
and exempt from taxation under section 501(a)—
‘‘(A) a copy of—
‘‘(i) the annual return filed under sec-
tion 6033 (relating to returns by exempt
organizations) by such organization; and
‘‘(ii) if the organization filed an appli-
cation for recognition of exemption under
section 501, the exempt status application
materials of such organization,
shall be made available by such organization for
inspection during regular business hours by any
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individual at the principal office of such organi-
zation and, if such organization regularly main-
tains 1 or more regional or district offices hav-
ing 3 or more employees, at each such regional
or district office; and
‘‘(B) upon request of an individual made
at such principal office or such a regional or
district office, a copy of such annual return and
exempt status application materials shall be
provided to such individual without charge
other than a reasonable fee for any reproduc-
tion and mailing costs.
The request described in subparagraph (B) must be
made in person or in writing. If such request is
made in person, such copy shall be provided imme-
diately and, if made in writing, shall be provided
within 30 days.
‘‘(2) 3-YEAR
LIMITATION
ON
INSPECTION
OF
RETURNS.—Paragraph (1) shall apply to an annual
return filed under section 6033 only during the 3-
year period beginning on the last day prescribed for
filing such return (determined with regard to any
extension of time for filing).
‘‘(3) EXCEPTIONS FROM DISCLOSURE REQUIRE-
MENT.—
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‘‘(A) NONDISCLOSURE OF CONTRIBUTORS,
ETC.—Paragraph (1) shall not require the dis-
closure of the name or address of any contribu-
tor to the organization. In the case of an orga-
nization described in section 501(d), subpara-
graph (A) shall not require the disclosure of the
copies referred to in section 6031(b) with re-
spect to such organization.
‘‘(B) NONDISCLOSURE OF CERTAIN OTHER
INFORMATION.—Paragraph (1) shall not re-
quire the disclosure of any information if the
Secretary withheld such information from pub-
lic inspection under subsection (a)(1)(D).
‘‘(4) LIMITATION
ON
PROVIDING
COPIES.—
Paragraph (1)(B) shall not apply to any request if,
in accordance with regulations promulgated by the
Secretary, the organization has made the requested
documents widely available, or the Secretary deter-
mines, upon application by an organization, that
such request is part of a harassment campaign and
that compliance with such request is not in the pub-
lic interest.
‘‘(5) EXEMPT
STATUS
APPLICATION
MATE-
RIALS.—For purposes of paragraph (1), the term
‘exempt status applicable materials’ means the appli-
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cation for recognition of exemption under section
501 and any papers submitted in support of such
application and any letter or other document issued
by the Internal Revenue Service with respect to such
application.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (c) of section 6033 is
amended by adding ‘‘and’’ at the end of para-
graph (1), by striking paragraph (2), and by re-
designating paragraph (3) as paragraph (2).
(B) 
Subparagraph 
(C) 
of 
section
6652(c)(1) is amended by striking ‘‘subsection
(d) or (e)(1) of section 6104 (relating to public
inspection of annual returns)’’ and inserting
‘‘section 6104(d) with respect to any annual re-
turn’’.
(C) 
Subparagraph 
(D) 
of 
section
6652(c)(1) is amended by striking ‘‘section
6104(e)(2) (relating to public inspection of ap-
plications for exemption)’’ and inserting ‘‘sec-
tion 6104(d) with respect to any exempt status
application materials (as defined in such sec-
tion)’’.
(D) Section 6685 is amended by striking
‘‘or (e)’’.
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‘‘(h) SPECIAL RULE FOR INCOME DERIVED IN THE
ACTIVE CONDUCT OF BANKING, FINANCING, OR SIMILAR
BUSINESSES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income
shall not include qualified banking or financing in-
come of an eligible controlled foreign corporation.
‘‘(2) ELIGIBLE
CONTROLLED
FOREIGN
COR-
PORATION.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘eligible con-
trolled foreign corporation’ means a controlled
foreign corporation which—
‘‘(i) is predominantly engaged in the
active conduct of a banking, financing, or
similar business; and
‘‘(ii) conducts substantial activity with
respect to such business.
‘‘(B) PREDOMINANTLY ENGAGED.—A con-
trolled foreign corporation shall be treated as
predominantly engaged in the active conduct of
a banking, financing, or similar business if—
‘‘(i) more than 70 percent of the gross
income of the controlled foreign corpora-
tion is derived directly from the active and
regular conduct of a lending or finance
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business from transactions with customers
which are not related persons,
‘‘(ii) it is engaged in the active con-
duct of a banking business and is an insti-
tution licensed to do business as a bank in
the United States (or is any other corpora-
tion not so licensed which is specified by
the Secretary in regulations), or
‘‘(iii) it is engaged in the active con-
duct of a securities business and is reg-
istered as a securities broker or dealer
under section 15(a) of the Securities Ex-
change Act of 1934 or is registered as a
Government securities broker or dealer
under section 15C(a) of such Act (or is
any other corporation not so registered
which is specified by the Secretary in regu-
lations).
‘‘(3) QUALIFIED BANKING OR FINANCING IN-
COME.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
banking or financing income’ means income of
an 
eligible 
controlled 
foreign 
corporation
which—
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‘‘(i) is derived in the active conduct of
a banking, financing, or similar business
by—
‘‘(I) such eligible controlled for-
eign corporation; or
‘‘(II) a qualified business unit of
such eligible controlled foreign cor-
poration,
‘‘(ii) is derived from one or more
transactions—
‘‘(I) with customers located in a
country other than the United States;
and
‘‘(II) substantially all of the ac-
tivities in connection with which are
conducted directly by the corporation
or unit in its home country; and
‘‘(iii) is treated as earned by such cor-
poration or unit in its home country for
purposes of such country’s tax laws.
‘‘(B) LIMITATION
ON
NONBANKING
AND
NONSECURITIES
BUSINESSES.—No income of
an eligible controlled foreign corporation not de-
scribed in clause (ii) or (iii) of paragraph
(2)(B) (or of a qualified business unit of such
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corporation) shall be treated as qualified bank-
ing or financing income unless more than 30
percent of such corporation’s or unit’s gross in-
come is derived directly from the active and
regular conduct of a lending or finance business
from transactions with customers which are not
related persons and which are located within
such corporation’s or unit’s home country.
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENT FOR CROSS BORDER INCOME.—The term
‘qualified banking or financing income’ shall
not include income derived from 1 or more
transactions with customers located in a coun-
try other than the home country of the eligible
controlled foreign corporation or a qualified
business unit of such corporation unless such
corporation or unit conducts substantial activity
with respect to a banking, financing, or similar
business in its home country.
‘‘(D) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of this paragraph, the
qualified banking or financing income of an eli-
gible controlled foreign corporation and each
qualified business unit of such corporation shall
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‘‘(F) rendering services or making facilities
available in connection with activities described
in subparagraphs (A) through (E) carried on
by—
‘‘(i) the corporation (or qualified busi-
ness unit) rendering services or making fa-
cilities available; or
‘‘(ii) another corporation (or qualified
business unit of a corporation) which is a
member of the same affiliated group (as
defined in section 1504, but determined
without regard to section 1504(b)(3)).
‘‘(5) OTHER
DEFINITIONS.—For purposes of
this subsection—
‘‘(A) CUSTOMER.—The term ‘customer’
means, with respect to any controlled foreign
corporation or qualified business unit, any per-
son which has a customer relationship with
such corporation or unit and which is acting in
its capacity as such.
‘‘(B) HOME
COUNTRY.—Except as pro-
vided in regulations—
‘‘(i) CONTROLLED FOREIGN CORPORA-
TION.—The term ‘home country’ means,
with respect to any controlled foreign cor-
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poration, the country under the laws of
which the corporation was created or orga-
nized.
‘‘(ii) QUALIFIED
BUSINESS
UNIT.—
The term ‘home country’ means, with re-
spect to any qualified business unit, the
country in which such unit maintains its
principal office.
‘‘(C) LOCATED.—The determination of
where a customer is located shall be made
under rules prescribed by the Secretary.
‘‘(D) QUALIFIED
BUSINESS
UNIT.—The
term ‘qualified business unit’ has the meaning
given such term by section 989(a).
‘‘(E) RELATED PERSON.—The term ‘relat-
ed person’ has the meaning given such term by
subsection (d)(3).
‘‘(6) COORDINATION
WITH
EXCEPTION
FOR
DEALERS.—Paragraph (1) shall not apply to income
described in subsection (c)(2)(C)(ii) of a dealer in
securities (within the meaning of section 475) which
is an eligible controlled foreign corporation described
in paragraph (2)(B)(iii).
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and subsection (c)(2)(C)(ii)—
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‘‘(A) there shall be disregarded any item of
income, gain, loss, or deduction with respect to
any transaction or series of transactions one of
the principal purposes of which is qualifying in-
come or gain for the exclusion under this sec-
tion, including any transaction or series of
transactions a principal purpose of which is the
acceleration or deferral of any item in order to
claim the benefits of such exclusion through the
application of this subsection;
‘‘(B) there shall be disregarded any item of
income, gain, loss, or deduction of an entity
which is not engaged in regular and continuous
transactions with customers which are not re-
lated persons;
‘‘(C) there shall be disregarded any item of
income, gain, loss, or deduction with respect to
any transaction or series of transactions utiliz-
ing, or doing business with—
‘‘(i) one or more entities in order to
satisfy any home country requirement
under this subsection; or
‘‘(ii) a special purpose entity or ar-
rangement, including a securitization, fi-
nancing, or similar entity or arrangement,
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if one of the principal purposes of such trans-
action or series of transactions is qualifying in-
come or gain for the exclusion under this sub-
section; and
‘‘(D) a related person, an officer, a direc-
tor, or an employee with respect to any con-
trolled foreign corporation (or qualified business
unit) which would otherwise be treated as a
customer of such corporation or unit with re-
spect to any transaction shall not be so treated
if a principal purpose of such transaction is to
satisfy any requirement of this subsection.
‘‘(8) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, 
subsection 
(c)(1)(B)(i), 
subsection
(c)(2)(C)(ii), and the last sentence of subsection
(e)(2).
‘‘(9) 
APPLICATION.—This 
subsection, 
sub-
section (c)(2)(C)(ii), and the last sentence of sub-
section (e)(2) shall apply only to the first taxable
year of a foreign corporation beginning after Decem-
ber 31, 1998, and before January 1, 2000, and to
taxable years of United States shareholders with or
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within which such taxable year of such foreign cor-
poration ends.’’.
(b) INCOME
DERIVED
FROM
INSURANCE
BUSI-
NESS.—
(1) INCOME ATTRIBUTABLE TO ISSUANCE OR
REINSURANCE.—
(A) IN GENERAL.—Section 953(a) (defin-
ing insurance income) is amended to read as
follows:
‘‘(a) INSURANCE INCOME.—
‘‘(1) IN
GENERAL.—For purposes of section
952(a)(1), the term ‘insurance income’ means any
income which—
‘‘(A) is attributable to the issuing (or rein-
suring) of an insurance or annuity contract;
and
‘‘(B) would (subject to the modifications
provided by subsection (b)) be taxed under sub-
chapter L of this chapter if such income were
the income of a domestic insurance company.
‘‘(2) EXCEPTION.—Such term shall not include
any exempt insurance income (as defined in sub-
section (e)).’’.
(B) EXEMPT
INSURANCE
INCOME.—Sec-
tion 953 (relating to insurance income) is
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amended by adding at the end the following
new subsection:
‘‘(e) EXEMPT INSURANCE INCOME.—For purposes of
this section—
‘‘(1) EXEMPT INSURANCE INCOME DEFINED.—
‘‘(A) IN GENERAL.—The term ‘exempt in-
surance income’ means income derived by a
qualifying insurance company which—
‘‘(i) is attributable to the issuing (or
reinsuring) of an exempt contract by such
company or a qualifying insurance com-
pany branch of such company; and
‘‘(ii) is treated as earned by such com-
pany or branch in its home country for
purposes of such country’s tax laws.
‘‘(B) EXCEPTION FOR CERTAIN ARRANGE-
MENTS.—Such term shall not include income
attributable to the issuing (or reinsuring) of an
exempt contract as the result of any arrange-
ment whereby another corporation receives a
substantially equal amount of premiums or
other consideration in respect of issuing (or re-
insuring) a contract which is not an exempt
contract.
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‘‘(C) 
DETERMINATIONS
MADE
SEPA-
RATELY.—For purposes of this subsection and
section 954(i), the exempt insurance income
and exempt contracts of a qualifying insurance
company or any qualifying insurance company
branch of such company shall be determined
separately for such company and each such
branch by taking into account—
‘‘(i) in the case of the qualifying in-
surance company, only items of income, de-
duction, gain, or loss, and activities of such
company not properly allocable or attrib-
utable to any qualifying insurance com-
pany branch of such company; and
‘‘(ii) in the case of a qualifying insur-
ance company branch, only items of in-
come, deduction, gain, or loss and activities
properly allocable or attributable to such
unit.
‘‘(2) EXEMPT CONTRACT.—
‘‘(A) IN
GENERAL.—The term ‘exempt
contract’ means an insurance or annuity con-
tract issued or reinsured by a qualifying insur-
ance company or qualifying insurance company
branch in connection with property in, liability
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arising out of activity in, or the lives or health
of residents of, a country other than the United
States.
‘‘(B) MINIMUM
HOME
COUNTRY
INCOME
REQUIRED.—
‘‘(i) IN GENERAL.—No contract of a
qualifying insurance company or of a
qualifying insurance company branch shall
be treated as an exempt contract unless
such company or branch derives more than
30 percent of its net written premiums
from exempt contracts (determined without
regard to this subparagraph)—
‘‘(I) which cover applicable home
country risks; and
‘‘(II) with respect to which no
policyholder, insured, annuitant, or
beneficiary is a related person (as de-
fined in section 954(d)(3)).
‘‘(ii) APPLICABLE
HOME
COUNTRY
RISKS.—The term ‘applicable home coun-
try risks’ means risks in connection with
property in, liability arising out of activity
in, or the lives or health of residents of,
the home country of the qualifying insur-
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ance company or qualifying insurance com-
pany branch, as the case may be, issuing
or reinsuring the contract covering the
risks.
‘‘(C) SUBSTANTIAL
ACTIVITY
REQUIRE-
MENTS FOR CROSS BORDER RISKS.—A contract
issued by a qualifying insurance company or
qualifying insurance company branch which
covers risks other than applicable home country
risks (as defined in subparagraph (B)(ii)) shall
not be treated as an exempt contract unless
such company or branch, as the case may be—
‘‘(i) conducts substantial activity with
respect to an insurance business in its
home country; and
‘‘(ii) performs in its home country
substantially all of the activities necessary
to give rise to the income generated by
such contract.
‘‘(3) QUALIFYING INSURANCE COMPANY.—The
term ‘qualifying insurance company’ means any con-
trolled foreign corporation which—
‘‘(A) is subject to regulation as an insur-
ance (or reinsurance) company by its home
country, and is licensed, authorized, or regu-
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lated by the applicable insurance regulatory
body for its home country to sell insurance, re-
insurance, or annuity contracts to persons other
than related persons (within the meaning of
section 954(d)(3)) in such home country;
‘‘(B) derives more than 50 percent of its
aggregate net written premiums from the
issuance or reinsurance by such controlled for-
eign corporation and each of its qualifying in-
surance company branches of contracts—
‘‘(i) covering applicable home country
risks (as defined in paragraph (2)) of such
corporation or branch, as the case may be;
and
‘‘(ii) with respect to which no policy-
holder, insured, annuitant, or beneficiary is
a related person (as defined in section
954(d)(3));
except that in the case of a branch, such pre-
miums shall only be taken into account to the
extent such premiums are treated as earned by
such branch in its home country for purposes of
such country’s tax laws; and
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‘‘(2) QUALIFIED
INSURANCE
INCOME.—The
term ‘qualified insurance income’ means income of a
qualifying insurance company which is—
‘‘(A) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from the invest-
ments made by a qualifying insurance company
or a qualifying insurance company branch of its
reserves allocable to exempt contracts or of 80
percent of its unearned premiums from exempt
contracts (as both are determined in the man-
ner prescribed under paragraph (4)), or
‘‘(B) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from investments
made by a qualifying insurance company or a
qualifying insurance company branch of an
amount of its assets allocable to exempt con-
tracts equal to—
‘‘(i) in the case of property, casualty,
or health insurance contracts, one-third of
its premiums earned on such insurance
contracts during the taxable year (as de-
fined in section 832(b)(4)); and