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apply to such claimant with respect to such
applicable possession for taxable years be-
ginning after December 31, 2005.
‘‘(B) APPLICABLE POSSESSION.—For pur-
poses of this paragraph, the term ‘applicable pos-
session’ means Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘existing cred-
it claimant’ means a corporation—
‘‘(i) which was actively conducting a
trade or business in a possession on October
13, 1995, and
‘‘(ii) with respect to which an election
under this section is in effect for the cor-
poration’s taxable year which includes Octo-
ber 13, 1995.
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIB-
ITED.—If, after October 13, 1995, a corporation
which would (but for this subparagraph) be an
existing credit claimant adds a substantial new
line of business, such corporation shall cease to
be treated as an existing credit claimant as of
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the close of the taxable year ending before the
date of such addition.
‘‘(C) BINDING
CONTRACT
EXCEPTION.—If,
on October 13, 1995, and at all times thereafter,
there is in effect with respect to a corporation a
binding contract for the acquisition of assets to
be used in, or for the sale of assets to be produced
from, a trade or business, the corporation shall
be treated for purposes of this paragraph as ac-
tively conducting such trade or business on Octo-
ber 13, 1995. The preceding sentence shall not
apply if such trade or business is not actively
conducted before January 1, 1996.
‘‘(10) SEPARATE APPLICATION TO EACH POSSES-
SION.—For purposes of determining—
‘‘(A) whether a taxpayer is an existing
credit claimant, and
‘‘(B) the amount of the credit allowed under
this section,
this subsection (and so much of this section as relates
to this subsection) shall be applied separately with re-
spect to each possession.’’.
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO.—
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(1) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 is amended by adding at the
end the following new section:
‘‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this section, if the conditions of both paragraph (1)
and paragraph (2) of subsection (b) are satisfied with
respect to a qualified domestic corporation, there shall
be allowed as a credit against the tax imposed by this
chapter an amount equal to the portion of the tax
which is attributable to the taxable income, from
sources without the United States, from—
‘‘(A) the active conduct of a trade or busi-
ness within Puerto Rico, or
‘‘(B) the sale or exchange of substantially
all of the assets used by the taxpayer in the ac-
tive conduct of such trade or business.
In the case of any taxable year beginning after De-
cember 31, 2001, the aggregate amount of taxable in-
come taken into account under the preceding sentence
(and in applying subsection (d)) shall not exceed the
adjusted base period income of such corporation, as
determined in the same manner as under section
936(j).
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‘‘(2) QUALIFIED DOMESTIC CORPORATION.—For
purposes of paragraph (1), the term ‘qualified domes-
tic corporation’ means a domestic corporation—
‘‘(A) which is an existing credit claimant
with respect to Puerto Rico, and
‘‘(B) 
with 
respect 
to 
which 
section
936(a)(4)(B) does not apply for the taxable year.
‘‘(3) SEPARATE APPLICATION.—For purposes of
determining—
‘‘(A) whether a taxpayer is an existing
credit claimant with respect to Puerto Rico, and
‘‘(B) the amount of the credit allowed under
this section,
this section (and so much of section 936 as relates to
this section) shall be applied separately with respect
to Puerto Rico.
‘‘(b) CONDITIONS WHICH MUST BE SATISFIED.—The
conditions referred to in subsection (a) are—
‘‘(1) 3-YEAR PERIOD.—If 80 percent or more of
the gross income of the qualified domestic corporation
for the 3-year period immediately preceding the close
of the taxable year (or for such part of such period
immediately preceding the close of such taxable year
as may be applicable) was derived from sources with-
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in a possession of the United States (determined with-
out regard to section 904(f)).
‘‘(2) TRADE
OR
BUSINESS.—If 75 percent or
more of the gross income of the qualified domestic cor-
poration for such period or such part thereof was de-
rived from the active conduct of a trade or business
within a possession of the United States.
‘‘(c) CREDIT
NOT
ALLOWED
AGAINST
CERTAIN
TAXES.—The credit provided by subsection (a) shall not be
allowed against the tax imposed by—
‘‘(1) section 59A (relating to environmental tax),
‘‘(2) section 531 (relating to the tax on accumu-
lated earnings),
‘‘(3) section 541 (relating to personal holding
company tax), or
‘‘(4) section 1351 (relating to recoveries of for-
eign expropriation losses).
‘‘(d) LIMITATIONS ON CREDIT.—The amount of the
credit determined under subsection (a) for any taxable year
shall not exceed the sum of the following amounts:
‘‘(1) 60 percent (40 percent in the case of taxable
years beginning after December 31, 2005) of the sum
of—
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‘‘(A) the aggregate amount of the qualified
domestic corporation’s qualified possession wages
for such taxable year, plus
‘‘(B) the allocable employee fringe benefit
expenses of the qualified domestic corporation for
such taxable year.
‘‘(2) The sum of—
‘‘(A) 15 percent of the depreciation allow-
ances for the taxable year with respect to short-
life qualified tangible property,
‘‘(B) 40 percent of the depreciation allow-
ances for the taxable year with respect to me-
dium-life qualified tangible property, and
‘‘(C) 65 percent of the depreciation allow-
ances for the taxable year with respect to long-
life qualified tangible property.
‘‘(3) If the qualified domestic corporation does
not have an election to use the method described in
section 936(h)(5)(C)(ii) (relating to profit split) in ef-
fect for the taxable year, the amount of the qualified
possession income taxes for the taxable year allocable
to nonsheltered income.
‘‘(e) ADMINISTRATIVE PROVISIONS.—For purposes of
this title (other than section 27)—
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‘‘(1) the provisions of section 936 (including any
applicable election thereunder) shall apply in the
same manner as if the credit under this section were
a credit under section 936(a)(1)(A) for a domestic
corporation to which section 936(a)(4)(A) applies,
‘‘(2) the credit under this section shall be treated
in the same manner as the credit under section 936,
and
‘‘(3) a corporation to which this section applies
shall be treated in the same manner as if it were a
corporation electing the application of section 936.
‘‘(f) DEFINITIONS.—For purposes of this section, any
term used in this section which is also used in section 936
shall have the same meaning given such term by section
936.
‘‘(g) APPLICATION OF SECTION.—This section shall
apply to taxable years beginning after December 31, 1995.’’.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 55(c) is
amended by striking ‘‘and the section 936 credit
allowable under section 27(b)’’ and inserting ‘‘,
the section 936 credit allowable under section
27(b), and the Puerto Rican economic activity
credit under section 30A’’.
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(B) Subclause (I) of section 56(g)(4)(C)(ii)
is amended—
(i) by inserting ‘‘30A,’’ before ‘‘936’’,
and
(ii) by striking ‘‘and (i)’’ and insert-
ing ‘‘, (i), and (j)’’.
(C) Clause (iii) of section 56(g)(4)(C) is
amended by adding at the end the following new
subclause:
‘‘(VI) APPLICATION
TO
SECTION
30A CORPORATIONS.—References in this
clause to section 936 shall be treated as
including references to section 30A.’’.
(D)(i) Subsection (b) of section 59 is
amended by striking ‘‘section 936,’’ and all that
follows and inserting ‘‘section 30A or 936, alter-
native minimum taxable income shall not in-
clude any income with respect to which a credit
is determined under section 30A or 936.’’.
(ii) The heading for section 59(b) is amend-
ed by inserting ‘‘30A OR’’ before ‘‘936’’.
(E) The table of sections for subpart B of
part IV of subchapter A of chapter 1 is amended
by adding at the end the following new item:
‘‘Sec. 30A. Puerto Rican economic activity credit.’’.
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(F)(i) The heading for subpart B of part IV
of subchapter A of chapter 1 is amended to read
as follows:
‘‘Subpart B—Other Credits’’.
(ii) The table of subparts for part IV of sub-
chapter A of chapter 1 is amended by striking
the item relating to subpart B and inserting the
following new item:
‘‘Subpart B. Other credits.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1995.
(2) SPECIAL RULE FOR QUALIFIED POSSESSION
SOURCE
INVESTMENT
INCOME.—The amendments
made by this section shall not apply to qualified pos-
session source investment income received or accrued
before July 1, 1996, without regard to the taxable
year in which received or accrued.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON
LOANS USED TO ACQUIRE EMPLOYER SECU-
RITIES.
(a) IN GENERAL.—Section 133 (relating to interest on
certain loans used to acquire employer securities) is hereby
repealed.
(b) CONFORMING AMENDMENTS.—
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(1) Subparagraph (B) of section 291(e)(1) is
amended by striking clause (iv) and by redesignating
clause (v) as clause (iv).
(2) Section 812 is amended by striking sub-
section (g).
(3) Paragraph (5) of section 852(b) is amended
by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended
by striking subparagraph (A) and all that follows and
inserting the following:
‘‘(A) first from qualified securities to which
section 1042 applied acquired during the 3-year
period ending on the date of the disposition, be-
ginning with the securities first so acquired, and
‘‘(B) then from any other employer securi-
ties.
If subsection (d) applies to a disposition, the disposi-
tion shall be treated as made from employer securities
in the opposite order of the preceding sentence.’’.
(5)(A) Section 4978B (relating to tax on disposi-
tion of employer securities to which section 133 ap-
plied) is hereby repealed.
(B) The table of sections for chapter 43 is
amended by striking the item relating to section
4978B.
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(6) Subsection (e) of section 6047 is amended by
striking paragraphs (1), (2), and (3) and inserting
the following new paragraphs:
‘‘(1) any employer maintaining, or the plan ad-
ministrator (within the meaning of section 414(g)) of,
an employee stock ownership plan which holds stock
with respect to which section 404(k) applies to divi-
dends paid on such stock, or
‘‘(2) both such employer or plan administrator,’’.
(7) Subsection (f) of section 7872 is amended by
striking paragraph (12).
(8) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 133.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to loans made after the date
of the enactment of this Act.
(2) REFINANCINGS.—The amendments made by
this section shall not apply to loans made after the
date of the enactment of this Act to refinance securi-
ties acquisition loans (determined without regard to
section 133(b)(1)(B) of the Internal Revenue Code of
1986, as in effect on the day before the date of the en-
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actment of this Act) made on or before such date or
to refinance loans described in this paragraph if—
(A) the refinancing loans meet the require-
ments of section 133 of such Code (as so in ef-
fect),
(B) immediately after the refinancing the
principal amount of the loan resulting from the
refinancing does not exceed the principal amount
of the refinanced loan (immediately before the re-
financing), and
(C) the term of such refinancing loan does
not extend beyond the last day of the term of the
original securities acquisition loan.
For purposes of this paragraph, the term ‘‘securities
acquisition loan’’ includes a loan from a corporation
to an employee stock ownership plan described in sec-
tion 133(b)(3) of such Code (as so in effect).
(3) EXCEPTION.—Any loan made pursuant to a
binding written contract in effect before June 10,
1996, and at all times thereafter before such loan is
made, shall be treated for purposes of paragraphs (1)
and (2) as a loan made on or before the date of the
enactment of this Act.
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SEC. 1603. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES.
(a) IN GENERAL.—Paragraph (2) of section 104(a)
(relating to compensation for injuries or sickness) is amend-
ed to read as follows:
‘‘(2) the amount of any damages (other than pu-
nitive damages) received (whether by suit or agree-
ment and whether as lump sums or as periodic pay-
ments) on account of personal injuries or sickness;’’.
(b) APPLICATION
OF PRIOR LAW
FOR STATES
IN
WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN
WRONGFUL DEATH ACTIONS.—Section 104 is amended by
redesignating subsection (c) as subsection (d) and by insert-
ing after subsection (b) the following new subsection:
‘‘(c) APPLICATION
OF
PRIOR
LAW
IN
CERTAIN
CASES.—Notwithstanding subsection (a)(2), gross income
shall not include punitive damages awarded in a civil ac-
tion—
‘‘(1) which is a wrongful death action, and
‘‘(2) with respect to which applicable State law
(as in effect on September 13, 1995 and without re-
gard to any modification after such date) provides, or
has been construed to provide by a court of competent
jurisdiction pursuant to a decision issued on or before
September 13, 1995, that only punitive damages may
be awarded in such an action.
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This subsection shall cease to apply to any civil action filed
on or after the first date on which the applicable State law
ceases to provide (or is no longer construed to provide) the
treatment described in paragraph (2).’’.
(c) CONFORMING AMENDMENT.—Section 104(a) is
amended by striking the last sentence.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to amounts received after June 30, 1996, in
taxable years ending after such date.
(2) EXCEPTION.—The amendments made by this
section shall not apply to any amount received under
a written binding agreement, court decree, or medi-
ation award in effect on (or issued on or before) Sep-
tember 13, 1995.
SEC. 1604. EXTENSION AND PHASEDOWN OF LUXURY PAS-
SENGER AUTOMOBILE TAX.
(a) EXTENSION.—Subsection (f) of section 4001 is
amended by striking ‘‘1999’’ and inserting ‘‘2002’’.
(b) PHASEDOWN.—Section 4001 is amended by redes-
ignating subsection (f) (as amended by subsection (a) of this
section) as subsection (g) and by inserting after subsection
(e) the following new subsection:
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‘‘(f) PHASEDOWN.—For sales occurring in calendar
years after 1995 and before 2003, subsection (a) shall be
applied by substituting for ‘10 percent’ the percentage deter-
mined in accordance with the following table:
‘‘If the calendar year is:
The percentage is:
1996 .............................................................................................
9 percent
1997 .............................................................................................
8 percent
1998 .............................................................................................
7 percent
1999 .............................................................................................
6 percent
2000 .............................................................................................
5 percent
2001 .............................................................................................
4 percent
2002 .............................................................................................
3 percent.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to sales occurring after the
date which is 7 days after the date of the enactment of this
Act.
SEC. 1605. TERMINATION OF FUTURE TAX-EXEMPT BOND FI-
NANCING FOR LOCAL FURNISHERS OF ELEC-
TRICITY AND GAS.
Section 142(f) (relating to local furnishing of electric
energy or gas) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(3) TERMINATION OF FUTURE FINANCING.—For
purposes of this section, no bond may be issued as
part of an issue described in subsection (a)(8) with
respect to a facility for the local furnishing of electric
energy or gas on or after the date of the enactment
of this paragraph unless—
‘‘(A) the facility will—
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‘‘(i) be used by a person who is en-
gaged in the local furnishing of that energy
source on such date, and
‘‘(ii) be used to provide service within
the area served by such person on such date,
or
‘‘(B) the facility will be used by a successor
in interest to such person for the same use and
within the same service area as described in sub-
paragraph (A).
‘‘(4) ELECTION
TO
TERMINATE
TAX-EXEMPT
BOND FINANCING BY CERTAIN FURNISHERS.—
‘‘(A) IN GENERAL.—In the case of a facility
financed with bonds issued before the date of the
enactment of this paragraph which would cease
to be tax-exempt by reason of the failure to meet
the local furnishing requirement of subsection
(a)(8) as a result of a service area expansion,
such bonds shall not cease to be tax-exempt bonds
(and section 150(b)(4) shall not apply) if the
person engaged in such local furnishing by such
facility makes an election described in subpara-
graph (B).
‘‘(B) ELECTION.—An election is described
in this subparagraph if it is an election made in
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such manner as the Secretary prescribes, and
such person (or its predecessor in interest) agrees
that—
‘‘(i) such election is made with respect
to all facilities for the local furnishing of
electric energy or gas, or both, by such per-
son,
‘‘(ii) no bond exempt from tax under
section 103 and described in subsection
(a)(8) may be issued on or after the date of
the enactment of this paragraph with re-
spect to all such facilities of such person,
‘‘(iii) any expansion of the service
area—
‘‘(I) is not financed with the pro-
ceeds of any exempt facility bond de-
scribed in subsection (a)(8), and
‘‘(II) is not treated as a non-
qualifying use under the rules of para-
graph (2), and
‘‘(iv) all outstanding bonds used to fi-
nance the facilities for such person are re-
deemed not later than 6 months after the
later of—
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‘‘(I) the earliest date on which
such bonds may be redeemed, or
‘‘(II) the date of the election.
‘‘(C) RELATED PERSONS.—For purposes of
this paragraph, the term ‘person’ includes a
group of related persons (within the meaning of
section 144(a)(3)) which includes such person.’’.
SEC. 1606. REPEAL OF FINANCIAL INSTITUTION TRANSI-
TION 
RULE 
TO 
INTEREST 
ALLOCATION
RULES.
(a) IN GENERAL.—Paragraph (5) of section 1215(c)
of the Tax Reform Act of 1986 (Public Law 99–514, 100
Stat. 2548) is hereby repealed.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 1607. EXTENSION OF AIRPORT AND AIRWAY TRUST
FUND EXCISE TAXES.
(a) FUEL TAX.—
(1) Subparagraph (A) of section 4091(b)(3) is
amended to read as follows:
‘‘(A) The rate of tax specified in paragraph
(1) shall be 4.3 cents per gallon—
‘‘(i) after December 31, 1995, and be-
fore the date which is 7 days after the date
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of the enactment of the Small Business Job
Protection Act of 1996, and
‘‘(ii) after April 15, 1997.’’.
(2) Section 4081(d) is amended—
(A) by adding at the end the following new
paragraph:
‘‘(3) AVIATION GASOLINE.—After April 15, 1997,
the rate of tax specified in subsection (a)(2)(A)(i) on
aviation gasoline shall be 4.3 cents per gallon.’’, and
(B) by inserting ‘‘(other than the tax on
aviation gasoline)’’ after ‘‘subsection (a)(2)(A)’’.
(3) Section 4041(c)(5) is amended by inserting
‘‘, and during the period beginning on the date which
is 7 days after the date of the enactment of the Small
Business Job Protection Act of 1996 and ending on
April 15, 1997’’ after ‘‘December 31, 1995’’.
(b) TICKET TAXES.—Sections 4261(g) and 4271(d) are
each amended by striking ‘‘January 1, 1996’’ and inserting
‘‘January 1, 1996, and to transportation beginning on or
after the date which is 7 days after the date of the enactment
of the Small Business Job Protection Act of 1996 and before
April 16, 1997’’.
(c) TRANSFERS
TO AIRPORT
AND AIRWAY TRUST
FUND.—
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(1) Subsection (b) of section 9502 is amended by
striking ‘‘January 1, 1996’’ each place it appears and
inserting ‘‘April 16, 1997’’.
(2) Paragraph (3) of section 9502(f) is amended
to read as follows:
‘‘(3) TERMINATION.—Notwithstanding the pre-
ceding provisions of this subsection, the Airport and
Airway Trust Fund financing rate shall be zero with
respect to—
‘‘(A) taxes imposed after December 31,
1995, and before the date which is 7 days after
the date of the enactment of the Small Business
Job Protection Act of 1996, and
‘‘(B) taxes imposed after April 15, 1997.’’.
(3) Subsection (d) of section 9502 is amended by
adding at the end the following new paragraph:
‘‘(5) TRANSFERS
FROM
AIRPORT
AND
AIRWAY
TRUST FUND ON ACCOUNT OF REFUNDS OF TAXES ON
TRANSPORTATION
BY
AIR.—The Secretary of the
Treasury shall pay from time to time from the Air-
port and Airway Trust Fund into the general fund
of the Treasury amounts equivalent to the amounts
paid after December 31, 1995, under section 6402 (re-
lating to authority to make credits or refunds) or sec-
tion 6415 (relating to credits or refunds to persons
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who collected certain taxes) in respect of taxes under
sections 4261 and 4271.’’.
(d) EXCISE TAX EXEMPTION FOR CERTAIN EMER-
GENCY MEDICAL TRANSPORTATION BY AIR AMBULANCE.—
Subsection (f) of section 4261 (relating to imposition of tax
on transportation by air) is amended to read as follows:
‘‘(f) EXEMPTION FOR AIR AMBULANCES PROVIDING
CERTAIN EMERGENCY MEDICAL TRANSPORTATION.—No
tax shall be imposed under this section or section 4271 on
any air transportation for the purpose of providing emer-
gency medical services—
‘‘(1) by helicopter, or
‘‘(2) by a fixed-wing aircraft equipped for and
exclusively dedicated to acute care emergency medical
services.’’.
(e) EXEMPTION FOR CERTAIN HELICOPTER USES.—
Subsection (e) of section 4261 is amended by adding at the
end the following new sentence: ‘‘In the case of helicopter
transportation described in paragraph (1), this subsection
shall be applied by treating each flight segment as a distinct
flight.’’.
(f) FLOOR STOCKS TAXES ON AVIATION FUEL.—
(1) IMPOSITION OF TAX.—In the case of aviation
fuel on which tax was imposed under section 4091 of
the Internal Revenue Code of 1986 before the tax-in-
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crease date described in paragraph (3)(A)(i) and
which is held on such date by any person, there is
hereby imposed a floor stocks tax of 17.5 cents per
gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
aviation fuel on a tax-increase date to which the
tax imposed by paragraph (1) applies shall be
liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) with respect to any tax-in-
crease date shall be paid on or before the first
day of the 7th month beginning after such tax-
increase date.
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) TAX INCREASE DATE.—The term ‘‘tax-
increase date’’ means the date which is 7 days
after the date of the enactment of this Act.
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(B) AVIATION FUEL.—The term ‘‘aviation
fuel’’ has the meaning given such term by section
4093 of such Code.
(C) HELD
BY
A
PERSON.—Aviation fuel
shall be considered as ‘‘held by a person’’ if title
thereto has passed to such person (whether or not
delivery to the person has been made).
(D) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or his dele-
gate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax
imposed by paragraph (1) shall not apply to aviation
fuel held by any person on any tax-increase date ex-
clusively for any use for which a credit or refund of
the entire tax imposed by section 4091 of such Code
is allowable for aviation fuel purchased on or after
such tax-increase date for such use.
(5) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
(A) IN GENERAL.—No tax shall be imposed
by paragraph (1) on aviation fuel held on any
tax-increase date by any person if the aggregate
amount of aviation fuel held by such person on
such date does not exceed 2,000 gallons. The pre-
ceding sentence shall apply only if such person
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submits to the Secretary (at the time and in the
manner required by the Secretary) such informa-
tion as the Secretary shall require for purposes
of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
from the tax imposed by paragraph (1) by rea-
son of paragraph (4).
(C) CONTROLLED GROUPS.—For purposes of
this paragraph—
(i) CORPORATIONS.—
(I) IN
GENERAL.—All persons
treated as a controlled group shall be
treated as 1 person.
(II) CONTROLLED
GROUP.—The
term ‘‘controlled group’’ has the mean-
ing given to such term by subsection
(a) of section 1563 of such Code; except
that for such purposes the phrase
‘‘more than 50 percent’’ shall be sub-
stituted for the phrase ‘‘at least 80 per-
cent’’ each place it appears in such
subsection.
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(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, principles
similar to the principles of clause (i) shall
apply to a group of persons under common
control where 1 or more of such persons is
not a corporation.
(6) OTHER LAW APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 4091 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply with respect to the
floor stock taxes imposed by paragraph (1) to the
same extent as if such taxes were imposed by such sec-
tion 4091.
(g) EFFECTIVE DATE.—The amendments made by this
section shall take effect 7 days after the date of the enact-
ment of this Act, except that the amendments made by sub-
section (b) shall not apply to any amount paid on or before
such date.
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SEC. 1608. BASIS ADJUSTMENT TO PROPERTY HELD BY
CORPORATION WHERE STOCK IN CORPORA-
TION IS REPLACEMENT PROPERTY UNDER IN-
VOLUNTARY CONVERSION RULES.
(a) IN GENERAL.—Subsection (b) of section 1033 is
amended to read as follows:
‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN-
VOLUNTARY CONVERSION.—
‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(1).—If the property was acquired as the result of
a compulsory or involuntary conversion described in
subsection (a)(1), the basis shall be the same as in the
case of the property so converted—
‘‘(A) decreased in the amount of any money
received by the taxpayer which was not expended
in accordance with the provisions of law (appli-
cable to the year in which such conversion was
made) determining the taxable status of the gain
or loss upon such conversion, and
‘‘(B) increased in the amount of gain or de-
creased in the amount of loss to the taxpayer rec-
ognized upon such conversion under the law ap-
plicable to the year in which such conversion
was made.
‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(2).—In the case of property purchased by the tax-
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payer in a transaction described in subsection (a)(2)
which resulted in the nonrecognition of any part of
the gain realized as the result of a compulsory or in-
voluntary conversion, the basis shall be the cost of
such property decreased in the amount of the gain not
so recognized; and if the property purchased consists
of more than 1 piece of property, the basis determined
under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.
‘‘(3) PROPERTY
HELD
BY
CORPORATION
THE
STOCK OF WHICH IS REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—If the basis of stock in
a corporation is decreased under paragraph (2),
an amount equal to such decrease shall also be
applied to reduce the basis of property held by
the corporation at the time the taxpayer ac-
quired 
control 
(as 
defined 
in 
subsection
(a)(2)(E)) of such corporation.
‘‘(B) LIMITATION.—Subparagraph (A) shall
not apply to the extent that it would (but for
this subparagraph) require a reduction in the
aggregate adjusted bases of the property of the
corporation below the taxpayer’s adjusted basis
of the stock in the corporation (determined im-
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mediately after such basis is decreased under
paragraph (2)).
‘‘(C) ALLOCATION OF BASIS REDUCTION.—
The decrease required under subparagraph (A)
shall be allocated—
‘‘(i) first to property which is similar
or related in service or use to the converted
property,
‘‘(ii) second to depreciable property (as
defined in section 1017(b)(3)(B)) not de-
scribed in clause (i), and
‘‘(iii) then to other property.
‘‘(D) SPECIAL RULES.—
‘‘(i) REDUCTION NOT TO EXCEED AD-
JUSTED BASIS OF PROPERTY.—No reduction
in the basis of any property under this
paragraph shall exceed the adjusted basis of
such property (determined without regard
to such reduction).
‘‘(ii) 
ALLOCATION
OF
REDUCTION
AMONG PROPERTIES.—If more than 1 prop-
erty is described in a clause of subpara-
graph (C), the reduction under this para-
graph shall be allocated among such prop-
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erty in proportion to the adjusted bases of
such property (as so determined).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to involuntary conversions occurring
after the date of the enactment of this Act.
SEC. 1609. EXTENSION OF WITHHOLDING TO CERTAIN GAM-
BLING WINNINGS.
(a) REPEAL OF EXEMPTION FOR BINGO AND KENO.—
Paragraph (5) of section 3402(q) is amended to read as fol-
lows:
‘‘(5) EXEMPTION FOR SLOT MACHINES.—The tax
imposed under paragraph (1) shall not apply to
winnings from a slot machine.’’.
(b) THRESHOLD AMOUNT.—Paragraph (3) of section
3402(q) is amended—
(1) by striking ‘‘(B) and (C)’’ in subparagraph
(A) and inserting ‘‘(B), (C), and (D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) BINGO AND KENO.—Proceeds of more
than $5,000 from a wager placed in a bingo or
keno game.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the 30th day after the date of
the enactment of this Act.