I
103D CONGRESS
1ST SESSION
H. R. 1960
To amend the Internal Revenue Code of 1986 to provide training and invest-
ment incentives and to provide additional revenues for deficit reduction
purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 4, 1993
Mr. ROSTENKOWSKI (by request) introduced the following bill; which was
referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
training and investment incentives and to provide addi-
tional revenues for deficit reduction 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
‘‘Revenue Reconciliation Act of 1993’’.
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(b) AMENDMENT TO 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) SECTION 15 NOT TO APPLY.—Except in the case
of the amendments made by section 2201 (relating to cor-
porate rate increase), no amendment made by this Act
shall be treated as a change in a rate of tax for purposes
of section 15 of the Internal Revenue Code of 1986.
(d) WAIVER OF ESTIMATED TAX PENALTIES.—No
addition to tax shall be made under section 6654 or 6655
of the Internal Revenue Code of 1986 for any period be-
fore April 16, 1994 (March 16, 1994, in the case of a
corporation), with respect to any underpayment to the ex-
tent such underpayment was created or increased by any
provision of this Act.
(e) TABLE OF CONTENTS.—
Sec. 1. Short title; etc.
TITLE I—TRAINING AND INVESTMENT INCENTIVES
Subtitle A—Provisions Relating To Education And Training
Sec. 1101. Employer-provided educational assistance.
Sec. 1102. Targeted jobs credit.
Subtitle B—Investment Incentives
PART I—INVESTMENT TAX CREDIT
Sec. 1201. Permanent investment tax credit for small business.
Sec. 1202. Temporary incremental investment tax credit.
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PART II—RESEARCH CREDIT
Sec. 1211. Permanent extension of research credit.
Sec. 1212. Modification of fixed base percentage for startup companies.
PART III—INCENTIVE FOR INVESTMENT IN SMALL BUSINESS STOCK
Sec. 1221. 50-percent exclusion for gain from certain small business stock.
PART IV—MODIFICATIONS TO MINIMUM TAX DEPRECIATION RULES
Sec. 1231. Modification to minimum tax depreciation rules.
Subtitle C—Tax-Exempt Bond Provisions
Sec. 1301. High-speed intercity rail facility bonds exempt from State volume
cap.
Sec. 1302. Permanent extension of qualified small issue bonds.
Subtitle D—Expansion And Simplification Of Earned Income Tax Credit
Sec. 1401. Expansion and simplification of earned income tax credit.
Subtitle E—Incentives For Investment In Real Estate
PART I—EXTENSION OF QUALIFIED MORTGAGE BONDS AND LOW-INCOME
HOUSING CREDIT
Sec. 1501. Permanent extension of qualified mortgage bonds.
Sec. 1502. Permanent extension of low-income housing credit.
PART II—MODIFICATION OF PASSIVE LOSS RULES
Sec. 1511. Modification of passive loss rules.
PART III—PROVISIONS RELATING TO REAL ESTATE INVESTMENTS BY
PENSION FUNDS
Sec. 1521. Real estate property acquired by a qualified organization.
Sec. 1522. Repeal of special treatment of publicly treated partnerships.
Sec. 1523. Title-holding companies permitted to receive small amounts of unre-
lated business taxable income.
Sec. 1524. Exclusion from unrelated business tax of gains from certain prop-
erty.
Sec. 1525. Exclusion from unrelated business tax of certain fees and option
premiums.
PART IV—INCREASE IN RECOVERY PERIOD FOR NONRESIDENTIAL REAL
PROPERTY
Sec. 1531. Increase in recovery period for nonresidential real property.
Subtitle F—Other Changes
Sec. 1601. Alternative minimum tax treatment of contributions of appreciated
property.
Sec. 1602. Certain transfers to railroad retirement account made permanent.
Sec. 1603. Temporary extension of deduction for health insurance costs of self-
employed individuals.
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TITLE II—REVENUE INCREASES
Subtitle A—Provisions Affecting Individuals
PART I—RATE INCREASES
Sec. 2101. Increase in top marginal rate under section 1.
Sec. 2102. Surtax on high-income taxpayers.
Sec. 2103. Modifications to alternative minimum tax rates and exemption
amounts.
Sec. 2104. Overall limitation on itemized deductions for high-income taxpayers
made permanent.
Sec. 2105. Phaseout of personal exemption of high-income taxpayers made per-
manent.
Sec. 2106. Provisions to prevent conversion of ordinary income to capital gain.
PART II—OTHER PROVISIONS
Sec. 2111. Repeal of limitation on amount of wages subject to health insurance
employment tax.
Sec. 2112. Top estate and gift tax rates made permanent.
Sec. 2113. Reduction in deductible portion of business meals and entertain-
ment.
Sec. 2114. Elimination of deduction for club membership fees.
Sec. 2115. Disallowance of deduction for certain employee remuneration in ex-
cess of $1,000,000.
Sec. 2116. Reduction in compensation taken into account in determining con-
tributions and benefits under qualified retirement plans.
Sec. 2117. Modification to deduction for certain moving expenses.
Subtitle B—Provisions Affecting Businesses
Sec. 2201. Increase in top marginal rate under section 11.
Sec. 2202. Denial of deduction for lobbying expenses.
Sec. 2203. Mark to market accounting method for securities dealers.
Sec. 2204. Clarification of treatment of certain FSLIC financial assistance.
Sec. 2205. Extension of corporate estimated tax rules.
Sec. 2206. Limitation on section 936 credit.
Sec. 2207. Modification to limitation on deduction for certain interest.
Subtitle C—Foreign Tax Provisions
PART I—CURRENT TAXATION OF CERTAIN EARNINGS OF CONTROLLED
FOREIGN CORPORATIONS
Sec. 2301. Earnings invested in excess passive assets.
Sec. 2302. Modification to taxation of investment in United States property.
Sec. 2303. Other modifications to subpart F.
PART II—ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES;
TREATMENT OF CERTAIN ROYALTIES
Sec. 2311. Allocation of research and experimental expenditures.
Sec. 2312. Royalties treated as passive income for purposes of separate applica-
tion of foreign tax credit.
PART III—OTHER PROVISIONS
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Sec. 2321. Repeal of certain exceptions for working capital.
Sec. 2322. Modifications of accuracy-related penalty.
Sec. 2323. Denial of portfolio interest exemption for contingent interest.
Sec. 2324. Regulations dealing with conduit arrangements.
Subtitle D—Energy Tax Provisions
Sec. 2401. Imposition of energy tax based on Btu content.
Sec. 2402. Extension of motor fuel tax rates; increased deposits into highway
trust fund.
Subtitle E—Compliance Provisions
Sec. 2501. Reporting required for certain payments to corporations.
Sec. 2502. Modifications to substantial understatement and return-preparer
penalties.
Subtitle F—Miscellaneous Provisions
Sec. 2601. Substantiation requirement for deduction of certain charitable con-
tributions.
Sec. 2602. Disclosure related to quid pro quo contributions.
Sec. 2603. Disallowance of interest on certain overpayments of tax.
Sec. 2604. Denial of deduction relating to travel expenses.
Sec. 2605. Increase in withholding from supplemental wage payments.
TITLE III—EMPOWERMENT ZONES AND ENTERPRISE
COMMUNITIES
Sec. 3101. Designation and treatment of empowerment zones and enterprise
communities.
Sec. 3102. Expansion of targeted jobs credit.
Sec. 3103. Technical and conforming amendments.
Sec. 3104. Effective date.
TITLE I—TRAINING AND
INVESTMENT INCENTIVES
Subtitle A—Provisions Relating To
Education And Training
SEC. 1101. EMPLOYER-PROVIDED EDUCATIONAL ASSIST-
ANCE.
(a) PERMANENT EXTENSION OF EXCLUSION.—
(1) IN GENERAL.—Section 127 (relating to edu-
cational assistance programs) is amended by striking
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subsection (d) and by redesignating subsection (e) as
subsection (d).
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 103(a) of the Tax Extension Act of 1991
is hereby repealed.
(b) COORDINATION WITH SECTION 132.—Paragraph
(8) of section 132(i) is amended to read as follows:
‘‘(8) APPLICATION OF SECTION TO OTHERWISE
TAXABLE EDUCATIONAL OR TRAINING BENEFITS.—
Amounts paid or expenses incurred by the employer
for education or training provided to the employee
which are not excludable from gross income under
section 127 shall be excluded from gross income
under this section if (and only if) such amounts or
expenses are a working condition fringe.’’
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendments made
by subsection (a) shall apply to taxable years ending
after June 30, 1992.
(2) SUBSECTION (b).—The amendment made
by subsection (b) shall apply to taxable years begin-
ning after December 31, 1988.
(d) TRANSITION RULES.—
(1) WAIVER OF INTEREST AND PENALTIES.—
No interest, penalty, or addition to tax shall be im-
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posed or required to be paid solely by reason of a
failure, before the date of the enactment of this Act,
to treat educational assistance in a manner consist-
ent with the provisions of section 103(a) of the Tax
Extension Act of 1991 (as in effect before the
amendments made by subsection (a)).
(2) SPECIAL RULES FOR 1992.—
(A) EMPLOYMENT TAXES.—If—
(i) an employer provided an employee
with educational assistance during the pe-
riod beginning on July 1, 1992, and end-
ing on December 31, 1992,
(ii) consistent with the provisions of
section 103(a) of the Tax Extension Act of
1991 (as so in effect), such employer treat-
ed such assistance as taxable for purposes
of any employment tax and as a result of
such treatment there was an increase in
taxable wages for purposes of such tax,
(iii) on or after the date of the enact-
ment of this Act and before January 1,
1994, such employer pays such employee
amounts which are taxable wages for pur-
poses of such tax and which equal or ex-
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ceed the increase referred to in clause (ii),
and
(iv) such employee did not treat such
assistance for purposes of such employ-
ment tax (or for purposes of chapter 1 of
the Internal Revenue Code of 1986 in the
case of employment tax imposed by chap-
ter 24 of such Code) in a manner incon-
sistent with the employer’s treatment of
such assistance,
the amendments made by subsection (a) shall
not apply to such educational assistance for
purposes of such employment tax, but, for pur-
poses of applying such employment tax (and for
purposes of the reporting requirements imposed
by chapter 61 of such Code), the taxable wages
of the employee referred to in clause (iii) shall
be reduced by the amount of the increase re-
ferred to in clause (ii). For purposes of clause
(iv), an employer may assume that the em-
ployee treated the assistance in a manner con-
sistent with the employer’s treatment unless
such employer has actual knowledge to the con-
trary.
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(B) REPORTING REQUIREMENT.—An em-
ployer shall separately report the amounts of
any reduction under subparagraph (A) as non-
taxable income on any returns or receipts re-
quired under chapter 61 of such Code for cal-
endar year 1993.
(C) DEFINITIONS.—For purposes of this
paragraph—
(i) EMPLOYMENT
TAX.—The term
‘‘employment tax’’ means any tax imposed
by subtitle C of such Code.
(ii) 
TAXABLE
WAGES.—The 
term
‘‘taxable wages’’ means—
(I) wages (as defined in section
3121(a) of such Code) in the case of
the taxes imposed by chapter 21 of
such Code,
(II) compensation (as defined in
section 3231(e) of such Code) in the
case of the taxes imposed by chapter
22 of such Code,
(III) wages (as defined in section
3306(b) of such Code) in the case of
the taxes imposed by chapter 23 of
such Code, and
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(IV) wages (as defined in section
3401(a) of such Code) in the case of
the taxes imposed by chapter 24 of
such Code.
(3) INCOME TAX TREATMENT.—If—
(A) subparagraph (A) of paragraph (2) ap-
plies to any educational assistance referred to
in such paragraph provided to any employee,
and
(B) such employee included such assistance
in his taxable income for purposes of the tax
imposed by chapter 1 of such Code,
the amendments made by subsection (a) shall not
apply to such assistance for purposes of such chap-
ter 1, but the amount included in the gross income
of such employee by reason of wages received from
the employer referred to in subparagraph (A) of
paragraph (2) during 1993 shall be reduced in the
manner provided in such subparagraph (A).
SEC. 1102. TARGETED JOBS CREDIT.
(a) PERMANENT EXTENSION OF CREDIT.—
(1) IN GENERAL.—Subsection (c) of section 51
(relating to amount of targeted jobs credit) is
amended by striking paragraph (4).
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(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to individuals who
begin work for the employer after June 30, 1992.
(b) CREDIT
FOR
PARTICIPANTS
IN
APPROVED
SCHOOL-TO-WORK PROGRAMS.—
(1) IN GENERAL.—Subparagraph (I) of section
51(d)(1) (defining members of targeted group) is
amended to read as follows:
‘‘(I) a qualified participant in an
approved school-to-work program, or’’.
(2) QUALIFIED PARTICIPANT IN AN APPROVED
SCHOOL-TO-WORK
PROGRAM.—Paragraph (10) of
section 51(d) is amended to read as follows:
‘‘(10) QUALIFIED
PARTICIPANT
IN
AN
AP-
PROVED SCHOOL-TO-WORK PROGRAM DEFINED.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘qualified
participant in an approved school-to-work pro-
gram’ means any individual who is certified
under an approved school-to-work program as—
‘‘(i) having attained age 16 but not
having attained age 21, and
‘‘(ii) being enrolled in and making
satisfactory progress in completing such
approved school-to-work program.
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‘‘(B) LIMITATION ON NUMBER OF PARTICI-
PANTS.—
‘‘(i) IN
GENERAL.—Any individual
who begins work for the employer during
any calendar year shall not be treated as
a qualified participant in an approved
school-to-work program unless the individ-
ual is certified under such program as an
eligible participant with respect to such
calendar year.
‘‘(ii) 
LIMITATION
ON
CERTIFI-
CATIONS.—The aggregate number of indi-
viduals certified under an approved school-
to-work program as eligible participants
with respect to any calendar year shall not
exceed the portion of the national school-
to-work program limitation for such cal-
endar year allocated under subsection (l)
to such program.
‘‘(C) APPROVED
SCHOOL-TO-WORK
PRO-
GRAM.—The term ‘approved school-to-work pro-
gram’ means any program which—
‘‘(i) is a planned program of struc-
tured job training designed to integrate
academic instruction provided by an edu-
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cational institution and work-based learn-
ing provided by an employer, and
‘‘(ii) is approved by the Secretaries of
Labor and Education.
‘‘(D) LIMITATION ON AMOUNT OF WAGES
TAKEN INTO ACCOUNT.—For purposes of apply-
ing this subpart to wages paid or incurred to
any qualified participant in an approved school-
to-work program, subsection (b)(3) shall be ap-
plied by substituting ‘$3,000’ for ‘$6,000’.
‘‘(E) WAGES.—In the case of remunera-
tion attributable to services performed while the
individual meets the requirements of subpara-
graph (A), wages, and unemployment insurance
wages, shall be determined without regard to
section 3306(c)(10)(C).’’
(3) OVERALL
LIMITATIONS.—Section 51 is
amended by adding at the end thereof the following
new subsection:
‘‘(l) OVERALL LIMITATION ON APPROVED SCHOOL-
TO-WORK PROGRAM PARTICIPANTS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(d)(10), the national school-to-work program limita-
tion—
‘‘(A) for calendar year 1994 is 125,000,
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‘‘(B) for calendar year 1995 is 140,000,
‘‘(C) for calendar year 1996 is 160,000,
‘‘(D) for calendar year 1997 is 180,000,
and
‘‘(E) for calendar year 1998 and any sub-
sequent calendar year is 200,000.
‘‘(2) ALLOCATION
TO
STATES.—The national
school-to-work program limitation for any calendar
year shall be allocated among the States in propor-
tion to the number of their eligible participants that
are estimated to be served in approved school-to-
work programs for that year. Such estimates shall
be published by the Secretaries of Labor and Edu-
cation before the beginning of the calendar year to
which the allocation applies.
‘‘(3) ALLOCATION
TO
APPROVED
SCHOOL-TO-
WORK
PROGRAMS.—The portion of the national
school-to-work program limitation for any calendar
year which is allocated to any State shall be allo-
cated among the approved school-to-work programs
in such State in such manner as the Secretaries of
Labor and Education shall prescribe.’’
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply in the case of individ-
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uals who begin work for the employer after Decem-
ber 31, 1993.
Subtitle B—Investment Incentives
PART I—INVESTMENT TAX CREDIT
SEC. 1201. PERMANENT INVESTMENT TAX CREDIT FOR
SMALL BUSINESS.
(a) ALLOWANCE OF CREDIT.—Section 46 (relating to
amount of investment credit) is amended by redesignating
paragraphs (1), (2), and (3) as paragraphs (2), (3), and
(4) and by inserting before paragraph (2) (as so redesig-
nated) the following new paragraph:
‘‘(1) in the case of an eligible small business (as
defined in section 46A(b)), the small business regu-
lar credit,’’
(b) SMALL BUSINESS REGULAR CREDIT.—Subpart
E of part IV of subchapter A of chapter 1 (relating to
rules for computing the investment credit) is amended by
inserting after section 46 the following new section:
‘‘SEC. 46A. SMALL BUSINESS REGULAR CREDIT.
‘‘(a) DETERMINATION OF CREDIT.—For purposes of
section 46—
‘‘(1) IN GENERAL.—In the case of an eligible
small business, the small business regular credit for
any taxable year is an amount equal to 5 percent of
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the taxpayer’s qualified investment in regular credit
property.
‘‘(2) SPECIAL RULE FOR PROPERTY PLACED IN
SERVICE BEFORE 1995.—In the case of regular credit
property placed in service before January 1, 1995,
paragraph (1) shall be applied by substituting ‘7
percent’ for ‘5 percent’.
‘‘(b) ELIGIBLE SMALL BUSINESS.—For purposes of
this section—
‘‘(1) IN
GENERAL.—The term ‘eligible small
business’ means, with respect to any taxable year, a
taxpayer the average annual gross receipts of which
for the 3-taxable-year period ending with the preced-
ing taxable year does not exceed $5,000,000.
‘‘(2) APPLICABLE RULES.—
‘‘(A) AGGREGATION
RULES.—All persons
treated as a single employer under subsection
(a) or (b) of section 52 shall be treated as 1
person for purposes of paragraph (1).
‘‘(B) SPECIAL RULES.—The rules of sub-
sections (c)(3) and (d)(8) of section 448 shall
apply for purposes of this subsection.
‘‘(c) REGULAR CREDIT PROPERTY.—For purposes of
this subpart—
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‘‘(1) IN GENERAL.—The term ‘regular credit
property’ means any eligible property—
‘‘(A) which is property to which section
168 applies,
‘‘(B) which is placed in service after De-
cember 3, 1992, and
‘‘(C)(i) the construction, reconstruction, or
erection of which is completed by the taxpayer,
or
‘‘(ii) which is acquired by the taxpayer if
the original use of such property commences
with the taxpayer.
‘‘(2) ELIGIBLE
PROPERTY.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘eligible
property’ means—
‘‘(i) tangible personal property,
‘‘(ii) other tangible property (not in-
cluding a building or its structural compo-
nents), but only if such property—
‘‘(I) is used as an integral part of
manufacturing, production, or extrac-
tion, or of furnishing transportation,
communications, 
electrical 
energy,
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gas, water, or sewage disposal serv-
ices,
‘‘(II) constitutes a research facil-
ity used in connection with any of the
activities referred to in subclause (I),
or
‘‘(III) constitutes a facility used
in connection with any of the activities
referred to in subclause (I) for the
bulk storage of fungible commodities
(including commodities in a liquid or
gaseous state),
‘‘(iii) an elevator or escalator,
‘‘(iv) a storage facility used in connec-
tion with the distribution of petroleum or
any primary product of petroleum, or
‘‘(v) a single purpose agricultural or
horticultural structure (as defined in sec-
tion 168(i)(13)).
‘‘(B) PROPERTY RECEIVING OTHER CRED-
ITS.—The term ‘eligible property’ shall not in-
clude—
‘‘(i) any property to the extent the
basis of such property is attributable to
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‘‘(D) 
LIVESTOCK.—The 
term 
‘eligible
property’ shall include livestock acquired by the
taxpayer, except—
‘‘(i) such term shall not include
horses, and
‘‘(ii) the qualified investment in such
livestock shall be reduced by the amount
realized on the sale or other disposition
(other than in an involuntary conversion
within the meaning of section 1033) of
substantially identical livestock during the
1-year period beginning 6 months before
such acquisition.
‘‘(E) 
PROPERTY
COMPLETED
ABROAD
WHERE FOREIGN COUNTRY ENGAGED IN DIS-
CRIMINATORY ACTS.—The term ‘eligible prop-
erty’ shall not include property described in sec-
tion 168(g)(1)(D).
‘‘(d) QUALIFIED INVESTMENT.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified invest-
ment’ means the applicable percentage of the basis
of each regular credit property placed in service by
the taxpayer during the taxable year.
‘‘(2) ANNUAL LIMITATION.—
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‘‘(A) IN GENERAL.—The aggregate bases
of regular credit property taken into account in
computing the qualified investment of a tax-
payer for any taxable year shall not exceed
$250,000.
‘‘(B) PRO
RATA
ALLOCATION
WHERE
BASES
EXCEED
LIMIT.—If subparagraph (A)
applies to a taxpayer for any taxable year, the
bases taken into account in computing qualified
investment shall be allocated among regular
credit properties placed in service during the
taxable year in proportion to their cost.
‘‘(C) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all persons treated as 1 person
under subsection (a) or (b) of section 52
shall be treated as 1 person for purposes
of this paragraph, and
‘‘(ii) in the case of—
‘‘(I) a taxable year beginning
January 1, 1993, subparagraph (A)
shall 
be 
applied 
by 
substituting
‘$270,000’ for ‘$250,000’, and
‘‘(II) a taxable year which is less
than 12 months or which includes any
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period before December 4, 1992, the
$250,000 amount shall be ratably re-
duced to reflect the shorter taxable
year or such period.
‘‘(3) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage shall be
determined under the following table:
‘‘In the case of property
The applicable
which is:
percentage is:
3-year property .....................................................
33 percent
5-year property .....................................................
67 percent
7-year property .....................................................
80 percent
All other property .................................................
100 percent.
For purposes of this paragraph, the terms ‘3-year
property’, ‘5-year property’, and ‘7-year property’
have the meanings given such terms by section
168(e).
‘‘(4) RECONSTRUCTION.—In the case of regular
credit property the reconstruction of which is com-
pleted by the taxpayer, qualified investment shall
only include that portion of the basis which is prop-
erly attributable to the reconstruction by the tax-
payer.
‘‘(5) SPECIAL RULE FOR CERTAIN VESSELS.—
For purposes of paragraph (1), the basis of any reg-
ular credit property shall not include any portion of
the basis which is attributable to a qualified with-
drawal from any ordinary income or capital gain ac-
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count (within the meaning of section 7518) of a
fund established under section 607 of the Merchant
Marine Act, 1936.
‘‘(e) SPECIAL RULES RELATING TO LEASED PROP-
ERTY.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, regular credit property shall not include
property subject to a lease.
‘‘(2) EXCEPTION FOR QUALIFIED SHORT-TERM
LEASES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to regular credit property of a lessor
subject to a qualified short-term lease.
‘‘(B) QUALIFIED
SHORT-TERM
LEASE.—
For purposes of this subsection, the term
‘qualified short-term lease’ means any lease—
‘‘(i) the term of which is less than 1
year, and
‘‘(ii) which is made in connection with
the active conduct by the lessor of a quali-
fied leasing trade or business.
‘‘(C) QUALIFIED LEASING TRADE OR BUSI-
NESS.—For purposes of this subsection, the
term ‘qualified leasing trade or business’ means
any trade or business which normally derives at
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least 80 percent of its gross receipts from leases
of tangible personal property with terms of less
than 30 days.
‘‘(D) LEASE TERMS.—The rules of section
168(i)(3) shall apply for purposes of this para-
graph.
‘‘(3) EXCEPTION FOR LONGER TERM LEASES.—
‘‘(A) IN GENERAL.—If regular credit prop-
erty is subject to a lease with a term of 3 years
or more and the original use of the property be-
gins with the lessee—
‘‘(i) paragraph (1) shall not apply to
such property,
‘‘(ii) the lessee shall be treated for
purposes of this section as having acquired
such property with a basis equal to the fair
market value of the property as of the be-
ginning of the lease, and
‘‘(iii) if the lease term is shorter than
the applicable recovery period for the prop-
erty determined under section 168, the ap-
plicable percentage under subsection (d)(3)
shall be determined as if the recovery pe-
riod were equal to the longest such recov-
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ery period which does not exceed the lease
term.
‘‘(B) LEASE TERM.—For purposes of this
paragraph, in determining any lease term—
‘‘(i) options to renew shall not be
taken into account, and
‘‘(ii) 2 or more successive leases de-
scribed in section 168(i)(3)(A)(ii) shall not
be treated as 1 lease.
‘‘(C) SPECIAL RULE FOR PERSONS UNDER
COMMON CONTROL.—For purposes of subpara-
graph (A)(ii), if any property is leased by a per-
son to another person which is under common
control with such person (as determined under
subsection (a) or (b) of section 52), the basis of
the property shall be substituted for its fair
market value.
‘‘(4) RECAPTURE RULES TO APPLY.—For pur-
poses of section 50(a), if a lessee of regular credit
property—
‘‘(A) terminates the lease before the expi-
ration of its term (other than by acquiring the
property), or
‘‘(B) sublets the property,
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the lessee shall be treated as having disposed of the
property on the date of the termination or sublease.
‘‘(5) PRIOR LEASE RULES NOT TO APPLY.—The
provisions of section 50(d)(5) shall not apply for
purposes of this section.
‘‘(f) OTHER SPECIAL RULES.—For purposes of this
section—
‘‘(1) PARTNERSHIPS AND S CORPORATIONS.—
‘‘(A) IN GENERAL.—In the case of a part-
nership or S corporation—
‘‘(i) the limitation on the application
of this section to eligible small businesses,
and
‘‘(ii) the limitation under subsection
(d)(2),
shall be applied at both the partnership and S
corporation level and at the partner and share-
holder level.
‘‘(B) 
REPORTING
REQUIREMENTS.—A
partnership or S corporation shall include in
any return or statement it is otherwise required
to provide to a partner or shareholder such in-
formation as the Secretary may prescribe as
necessary to carry out the provisions of this
section.
•J. 69–001A
‘‘(2) CERTAIN
ENTITIES
INELIGIBLE.—Not-
withstanding paragraphs (1) and (6) of section
50(d), no credit shall be determined under this sec-
tion with respect to regular credit property of—
‘‘(A) an estate or trust, or
‘‘(B) a regulated investment company, real
estate investment trust, REMIC, or common
trust fund described in section 584.
‘‘(3) NORMALIZATION RULES.—The provisions
of section 50(d)(2) shall apply, except that—
‘‘(A) no election shall be allowed under the
last sentence of section 46(f)(1) or under sec-
tion 46(f)(3) (as such provisions were in effect
on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990), and
‘‘(B) the election under section 46(f)(2)
(as so in effect) shall be made by including it
on the taxpayer’s first return to which this sec-
tion applies.
‘‘(4) TRANSITION RULES.—
‘‘(A) PRE-1993 PROPERTY.—In the case of
a taxpayer whose taxable year is the calendar
year, any property placed in service after De-
cember 3, 1992, and before January 1, 1993,
•J. 69–001A
shall be treated as placed in service on January
1, 1993.
‘‘(B) AMOUNTS
ALLOCABLE
TO
PERIODS
BEFORE DECEMBER 4, 1992.—The basis of any
property with an actual construction period of
more than 2 years shall not include any amount
attributable to construction, reconstruction, or
erection by or for the taxpayer before December
4, 1992.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pro-
visions of this section and section 50A, including regula-
tions providing for the determination of lease terms.’’
(c) CREDIT MAY OFFSET 25 PERCENT OF MINIMUM
TAX.—
(1) IN
GENERAL.—Section 38(c) (relating to
limitation based on amount of tax) is amended by
redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following new
paragraph:
‘‘(2) REGULAR INVESTMENT CREDIT MAY OFF-
SET 25 PERCENT OF MINIMUM TAX.—
‘‘(A) IN GENERAL.—In the case of the reg-
ular investment tax credit—
•J. 69–001A
‘‘(i) this section and section 39 shall
be applied separately with respect to such
credit, and
‘‘(ii) for purposes of applying para-
graph (1) to such credit—
‘‘(I) 75 percent of the tentative
minimum tax shall be substituted for
the tentative minimum tax under sub-
paragraph (A) thereof, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
taxable year (other than the regular
investment tax credit).
‘‘(B) REGULAR
INVESTMENT
TAX
CRED-
IT.—For purposes of this paragraph, the term
‘regular investment tax credit’ means the por-
tion of the credit under subsection (a) which is
attributable to the credit determined under sec-
tion 46A. In the case of taxable years beginning
after December 31, 1992, the regular invest-
ment tax credit shall include any credit to
which section 38(c)(2) (as in effect on the day
before the date of the enactment of the Revenue
•J. 69–001A
Reconciliation Act of 1990) applies, and such
section shall not apply to such taxable years.’’
(2) CONFORMING AMENDMENT.—Section 38(d)
(relating to components of investment credit) is
amended by adding at the end the following new
paragraph:
‘‘(4) SPECIAL
RULE
FOR
SMALL
BUSINESS
CREDIT.—Notwithstanding paragraphs (1) and (2),
the small business regular credit described in sub-
section (b)(1) shall be treated as used last.’’
(d) APPLICATION OF OTHER RULES.—
(1) AT-RISK
RULES.—Clause (ii) of section
49(a)(1)(C) (defining credit base) is amended by in-
serting ‘‘or regular credit property’’ after ‘‘energy
property’’.
(2) RECAPTURE RULES.—Subparagraph (B) of
section 50(a)(1) (defining recapture percentage) is
amended by adding at the end the following new
sentence:
‘‘In the case of regular credit property which is
3-year property, the recapture percentage under
clause (ii) shall be 67 percent, under clause (iii)
shall be 33 percent, and under clauses (iv) and
(v) shall be zero.’’
(3) AUTOMOBILES.—
•J. 69–001A
(A) IN
GENERAL.—Section 280F(a) is
amended by redesignating paragraph (2) as
paragraph (3) and by inserting after paragraph
(1) the following new paragraph:
‘‘(2) INVESTMENT TAX CREDIT.—The amount
of the credit determined under section 46A with re-
spect to any passenger automobile shall not exceed
$675.’’
(B) CONFORMING AMENDMENTS.—
(i) Section 280F(b)(1) is amended—
(I) by inserting ‘‘and such prop-
erty shall not be treated as regular
credit property for purposes of section
46A for such taxable year’’ before the
period, and
(II) by inserting ‘‘OR
CREDIT’’
after ‘‘DEPRECIATION’’ in the heading.
(ii) Section 280F(c)(1) is amended by
inserting ‘‘(other than subsection (a)(2))’’
after ‘‘section’’.
(iii) Section 280F(d) is amended—
(I) by inserting ‘‘the amount of
any credit allowable under section 38
to the employee or’’ after ‘‘determin-
ing’’ in paragraph (3)(A),
•J. 69–001A
(II) by striking ‘‘subsection (a)’’
in paragraph (7)(A) and inserting
‘‘subsection (a)(1)’’, and
(III) 
by 
striking 
‘‘subsection
(a)(2)’’ in paragraphs (8) and (10)
and inserting ‘‘subsection (a)(3)’’.
(iv)(I) The heading for section 280F
is amended by inserting ‘‘AND CREDIT’’
after ‘‘DEPRECIATION’’.
(II) The item relating to section 280F
in the table of contents for part IX of sub-
chapter B of chapter 1 is amended by in-
serting ‘‘and credit’’ after ‘‘depreciation’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 38(d)(3)(B)(i) is amended by strik-
ing ‘‘paragraph (1)’’ and inserting ‘‘paragraph (2)’’.
(2) Section 39(d) is amended by adding at the
end the following new paragraph:
‘‘(4) INVESTMENT TAX CREDIT.—No portion of
the unused business credit which is attributable to
the credit determined under section 46A (relating to
the small business regular investment credit) may be
carried to any taxable year ending before January 1,
1993.’’
•J. 69–001A
(3) Section 1033(g)(3)(A) is amended by insert-
ing ‘‘with respect to which the regular credit deter-
mined under section 46A is or has been claimed or,’’
before ‘‘with respect to which’’.
(4) The table of sections for subpart E of part
IV of subchapter A of chapter 1 is amended by add-
ing after the item relating to section 46 the follow-
ing new item:
‘‘Sec. 46A. Small business regular credit.’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to property placed in service
after December 3, 1992.
(2) TRANSITION PROPERTY.—The amendments
made by this section shall not apply to any transi-
tion property (as defined in section 49(e) of the In-
ternal Revenue Code of 1986, as in effect on the day
before the date of the enactment of the Revenue
Reconciliation Act of 1990).
SEC. 1202. TEMPORARY INCREMENTAL INVESTMENT TAX
CREDIT.
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 (relating to rules for computing
investment tax credit) is amended by inserting after sec-
tion 50 the following new section:
•J. 69–001A
‘‘SEC. 50A. TEMPORARY INCREMENTAL INVESTMENT TAX
CREDIT.
‘‘(a) DETERMINATION OF CREDIT.—In the case of
any taxable year which includes December 31 of calendar
year 1993 or 1994, the amount of the credit determined
under section 46 for such taxable year shall be increased
by an amount equal to 7 percent of the excess (if any)
of—
‘‘(1) the taxpayer’s qualified net investment for
such calendar year, over
‘‘(2) the base amount for such calendar year.
‘‘(b) QUALIFIED NET INVESTMENT.—For purposes
of this section—
‘‘(1) IN GENERAL.—The qualified net invest-
ment for any calendar year is the excess (if any)
of—
‘‘(A) qualified investment, over
‘‘(B) the sum of the amounts determined
by multiplying—
‘‘(i) the amount realized from each
regular credit property—
‘‘(I) the basis of which was taken
into account in computing qualified
investment under this section, and
‘‘(II) which was disposed of (or
otherwise ceased to be regular credit
•J. 69–001A
property) during the calendar year,
and
‘‘(ii) the applicable percentage for the
property.
‘‘(2) QUALIFIED INVESTMENT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
investment’ has the meaning given such term
by section 46A(d) (without regard to the
$250,000 limitation of paragraph (2) thereof
and by treating the calendar year as the tax-
payer’s taxable year).
‘‘(B) COORDINATION WITH PROGRESS EX-
PENDITURES.—The amount which (but for this
subparagraph) would be taken into account
with respect to any regular credit property shall
be reduced by the excess (if any) of—
‘‘(i) the qualified investment taken
into account under subsection (f)(2) by the
taxpayer or a predecessor of the taxpayer,
over
‘‘(ii) any portion of the qualified in-
vestment described in clause (i) taken into
account under paragraph (1)(B).
‘‘(C) SPECIAL RULE WHERE INSUFFICIENT
NET INVESTMENT IN 1993.—If, in calendar year
•J. 69–001A
1993, the taxpayer’s base amount exceeds
qualified net investment, the taxpayer’s quali-
fied net investment for calendar year 1994 shall
be reduced by the amount of such excess.
‘‘(D) AUTOMOBILES.—The qualified in-
vestment taken into account with respect to any
passenger automobile (as defined in section
280F(d)(5)) shall not exceed $9,600.
‘‘(E) INTERNATIONAL INTERMODAL CARGO
CONTAINERS.—
‘‘(i) IN GENERAL.—In the case of any
international intermodal cargo container of
a United States person, section 50(b)(1)
shall not apply and 50 percent of the basis
of the container shall be taken into ac-
count in computing qualified investment.
‘‘(ii) INTERNATIONAL
INTERMODAL
CARGO
CONTAINER.—For 
purposes 
of
clause (i), the term ‘international inter-
modal cargo container’ means any inter-
modal cargo container which is leased to,
or owned by, a container user that has one
or more trade routes that contact outside
the United States.
•J. 69–001A
‘‘(iii) TRADE ROUTES.—For purposes
of clause (ii), a container user shall be
treated as having one or more trade routes
that contact outside the United States if,
at any time during the taxable year, such
user—
‘‘(I) owns, operates, or charters
any vessel that receives or delivers any
intermodal cargo container outside the
United States, or
‘‘(II) uses any intermodal cargo
container to ship cargo to or from the
United States.
‘‘(c) BASE AMOUNT.—For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘base amount’
means, with respect to any computation year, an
amount equal to 80 percent (70 percent in the case
of calendar year 1993) of the average of the indexed
base investment for each of the base period years.
‘‘(2) MINIMUM
BASE
AMOUNT.—In no event
shall the base amount for calendar year 1993 or
1994 be less than 50 percent of the qualified net
investment for the year.
‘‘(3) INDEXED BASE INVESTMENT.—For pur-
poses of paragraph (1)—
•J. 69–001A
‘‘(A) IN GENERAL.—The indexed base in-
vestment for any base period year—
‘‘(i) shall be computed separately with
respect to each computation year, and
‘‘(ii) shall be equal to the product
of—
‘‘(I) the base investment for the
base period year, and
‘‘(II) 
the 
applicable 
inflation
ratio for that computation year and
that base period year.
‘‘(B) BASE
INVESTMENT.—For purposes
of this paragraph, the base investment for any
base period year is an amount equal to the sum
of the amounts determined by applying the ap-
plicable percentage to each regular credit prop-
erty placed in service during such base period
year.
‘‘(C) APPLICABLE INFLATION RATIO.—The
applicable inflation ratio for any computation
year and any base period year is the percentage
arrived at by dividing—
‘‘(i) the GDP implicit price deflator
for the calendar year preceding the com-
putation year, by
•J. 69–001A
‘‘(ii) such deflator for the calendar
year preceding the calendar year in which
occurs the 1st day of the base period year.
For purposes of this subparagraph, the term
‘GDP implicit price deflator’ for each of the
years described in clauses (i) and (ii) is the
most recent revision of the implicit price
deflator for the gross domestic product, as com-
puted and published by the Department of
Commerce before March 15 of the computation
year.
‘‘(4) BASE PERIOD YEAR.—For purposes of this
subsection, the term ‘base period year’ means any
taxable year—
‘‘(A) beginning after December 31, 1988,
and before January 1, 1992, or
‘‘(B) at the election of the taxpayer, begin-
ning after December 31, 1986, and before Jan-
uary 1, 1992.
‘‘(5) COMPUTATION
YEAR.—The term ‘com-
putation year’ means the calendar year for which the
excess described in subsection (a) is being deter-
mined.
‘‘(6) SPECIAL
RULES.—For purposes of this
subsection—
•J. 69–001A
‘‘(A) REGULAR
CREDIT
PROPERTY
DE-
FINED.—The term ‘regular credit property’ has
the meaning given such term by section 46A(c),
without regard to paragraphs (1) (B) and (C)
thereof (relating to requirements for original
use and date of placement in service) or para-
graph (2)(B) (relating to certain ineligible prop-
erty).
‘‘(B) LEASES.—
‘‘(i) LESSORS.—A lessor of any regu-
lar credit property placed in service during
any taxable year in the base period shall
take into account the adjusted basis of
such property unless the property was sub-
ject to a lease the term of which was at
least 3 years and the lessor did not use
such property during the base period other
than as a lessor.
‘‘(ii) LESSEES.—A lessee shall not
take into account regular credit property
the use of which by the lessee began dur-
ing the base period unless the value of the
property as of the beginning of the lease
exceeded $1,000,000.
‘‘(d) RECAPTURE RULES.—
•J. 69–001A
‘‘(1) IN GENERAL.—If, for calendar year 1994,
1995, 1996, or 1997, the base amount exceeds the
qualified net investment of the taxpayer, then the
tax under this chapter for the taxable year in which
the last day of the calendar year occurs shall be in-
creased by the least of—
‘‘(A) 7 percent of such excess,
‘‘(B) the balance in the credit recapture
account as of the close of the taxable year, or
‘‘(C) the aggregate increase in the credits
allowed under section 38 by reason of the credit
determined under this section (reduced by prior
amounts taken into account under this subpara-
graph).
‘‘(2) SPECIAL RULE FOR BASE AMOUNT.—For
purposes of paragraph (1), if the limitation of sub-
section (c)(2) applied for 1993 or 1994, the base
amount shall be determined as if the base invest-
ment for each of the taxable years in the base period
were equal to the greater of—
‘‘(A) the amount determined without re-
gard to this paragraph, or
‘‘(B) in the case of a taxpayer for which a
base amount was determined under subsection
(c)(2)—
•J. 69–001A
‘‘(i) if the taxpayer’s base amount for
both calendar years 1993 and 1994 was so
determined, the lesser of such base
amounts, or
‘‘(ii) if the taxpayer’s base amount for
only one of such calendar years was so de-
termined, the base amount for that year.
‘‘(3) CREDIT RECAPTURE ACCOUNT.—
‘‘(A) OPENING
BALANCE.—The opening
balance of the credit recapture account shall be
zero.
‘‘(B) ACCOUNT INCREASED BY CREDIT AL-
LOWED.—The credit recapture account shall be
increased as of the close of any calendar year
by the credit determined under this section for
the calendar year.
‘‘(C) VESTING OF CREDIT.—
‘‘(i) IN GENERAL.—If the credit re-
capture account is increased under sub-
paragraph (B) for any calendar year, the
account shall be reduced—
‘‘(I) in the case of the credit de-
termined for 1993, as of the close of
each of the 4 succeeding calendar
•J. 69–001A
years by an amount equal to 25 per-
cent of such increase, and
‘‘(II) in the case of the credit de-
termined for 1994, as of the close of
each of the 3 succeeding years by an
amount equal to 331⁄3 percent of such
increase.
‘‘(ii) CREDIT
STOPS
BEING
VESTED
WHEN RECAPTURED.—If an increase in tax
under paragraph (1) for any calendar year
is properly allocable to any portion of the
credit to which clause (i) applies, no reduc-
tion shall be made under clause (i) with re-
spect to such portion for any succeeding
calendar year. Any such increase shall be
allocated to credits on a first-in first-out
basis.
‘‘(D) REDUCTION
FOR
TAX
INCREASE.—
The credit recapture account as of the begin-
ning of any calendar year shall be equal to the
balance as of the close of the preceding cal-
endar year, reduced by any increase in tax for
the preceding calendar year under paragraph
(1).
•J. 69–001A
‘‘(4) 
CARRYBACKS
AND
CARRYOVERS
AD-
JUSTED.—If subparagraph (C) of paragraph (1) ap-
plies for any taxable year, the carrybacks and
carryovers under section 39 shall be adjusted by rea-
son of any increase in tax under paragraph (1)
which would have occurred but for such subpara-
graph.
‘‘(5) TAX.—Any increase in tax under para-
graph (1) shall not be treated as tax imposed by this
chapter for purposes of determining the amount of
any credit allowable under subpart A, B, D, or G or
the amount of the regular tax for purposes of
section 55.
‘‘(e) DISPOSITIONS.—For purposes of this section—
‘‘(1) CERTAIN EVENTS TREATED AS DISPOSI-
TIONS.—
‘‘(A) IN
GENERAL.—If, during any cal-
endar year—
‘‘(i) regular credit property ceases to
be regular credit property with respect to
the taxpayer, or
‘‘(ii) any property to which subsection
(f)(2) applied ceases (by reason of sale or
other disposition, cancellation or abandon-
ment of contract, or otherwise) to be, with
•J. 69–001A
respect to the taxpayer, property which will
be regular credit property when placed in
service,
such property shall be treated as having been
disposed of during the calendar year.
‘‘(B) SPECIAL RULES FOR LEASES.—
‘‘(i) LESSOR.—A lessor of regular
credit property with respect to which a
credit is determined under this section by
reason of subsection (e)(2) of section 46A
shall be treated as having disposed of regu-
lar credit property if the taxpayer leases
such property in a lease other than a quali-
fied short-term lease (as defined in sub-
section (e)(2)(B) of section 46A).
‘‘(ii) LESSEES.—If a credit is allowed
to a lessee with respect to any property by
reason of subsection (e)(3) of section 46A,
the rules of section 46A(e)(4) shall apply
in determining when the lessee disposed of
the property.
‘‘(2) AMOUNT REALIZED.—The amount realized
in the case of any disposition under paragraph (1)
shall be equal to—
•J. 69–001A
‘‘(A) in the case described in paragraph
(1) (A)(i) or (B)(i), the fair market value of the
property as of the time of cessation or lease,
‘‘(B) in the case described in paragraph
(1)(A)(ii), the increase in qualified investment
with respect to the property for preceding tax-
able years under subsection (f)(2), or
‘‘(C) in the case described in paragraph
(1)(B)(ii), the fair market value of the property
as of the time of the disposition.
‘‘(3) EXCEPTIONS FOR CERTAIN CASES.—
‘‘(A) IN
GENERAL.—The following shall
not be treated as a disposition:
‘‘(i) A transfer by reason of death.
‘‘(ii) A transaction to which section
381(a) applies.
‘‘(iii) A disposition with respect to
which gain is not recognized under section
1031 or 1033, but only to the extent of an
amount which bears the same ratio to the
amount realized as the gain not recognized
bears to the gain realized.
‘‘(iv) A transfer described in section
1041(a).
•J. 69–001A
‘‘(B) CHANGES IN FORM OF BUSINESS.—
Property shall not be treated as ceasing to be
regular credit property with respect to the tax-
payer by reason of a mere change in the form
of conducting the trade or business so long as
the property is retained in such trade or busi-
ness as regular credit property and the tax-
payer retains a substantial interest in such
trade or business.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) DEFINITIONS.—Except as otherwise pro-
vided, the terms ‘applicable percentage’ and ‘regular
credit property’ have the meanings given such terms
by section 46A.
‘‘(2) QUALIFIED PROGRESS EXPENDITURES.—
‘‘(A) IN
GENERAL.—In the case of any
progress expenditure property which is regular
credit property, qualified progress expenditures
shall be taken into account in computing quali-
fied investment but only to the extent attrib-
utable to periods after December 3, 1992.
‘‘(B) TERMS.—For purposes of subpara-
graph (A), the terms ‘progress expenditure
property’ and ‘qualified progress expenditures’
•J. 69–001A
shall be determined under rules similar to the
rules of section 47(d), except that—
‘‘(i) paragraph (5) thereof shall not
apply, and
‘‘(ii) in the case of non-self-con-
structed property, amounts chargeable to
capital account before December 4, 1992,
with respect to the property shall be treat-
ed as qualified progress expenditures made
before such date (whether or not paid be-
fore such date).
‘‘(3) 
PRE-1993
PROPERTY
AND
EXPENDI-
TURES.—Any property placed in service (or any
qualified progress expenditures described in para-
graph (2) made) during the period beginning De-
cember 4, 1992, and ending December 31, 1992,
shall be treated as placed in service (or made) on
January 1, 1993.
‘‘(4) COORDINATION WITH SECTION 46A.—
‘‘(A) LEASING RULES.—The rules of sec-
tion 46A(e) shall apply.
‘‘(B) REPORTING
REQUIREMENTS.—The
rules of section 46A(f)(1)(B) shall apply.
‘‘(C) CERTAIN
ENTITIES
INELIGIBLE.—
The rule of section 46A(f)(2) shall apply.
•J. 69–001A
‘‘(D) NORMALIZATION
RULES
APPLY.—
The rules of section 46A(f)(3) shall apply.
‘‘(5) RESEARCH CREDIT RULES APPLICABLE.—
Rules similar to the rules of section 41 (f) and (g)
shall apply.
‘‘(6) 
CERTAIN
LEASING
RULES
NOT
TO
APPLY.—Section 50(d)(5) shall not apply.
‘‘(g) CREDIT ELECTIVE.—Subsection (a) shall apply
to a taxpayer for a taxable year only if the taxpayer elects
to have subsection (a) apply and in the case of an eligible
small business (as defined in section 46A(b)), elects not
to have section 46A apply.’’
(b) INCREASE IN INCOME TO REFLECT CREDIT.—
(1) IN GENERAL.—Part II of subchapter B of
chapter 1 (relating to items specifically included in
gross income) is amended by adding at the end the
following new section:
‘‘SEC. 91. INCOME INCLUSION RELATING TO TEMPORARY
INVESTMENT TAX CREDIT.
‘‘(a) GENERAL RULE.—The amount of the current
year business credit under section 38 for any taxable year
which is determined under section 50A shall be included
in gross income ratably—
‘‘(1) in the case of the credit determined for
1993, over the 4-taxable-year period beginning with
•J. 69–001A
the taxable year following the taxable year for which
the credit was determined, and
‘‘(2) in the case of the credit determined for
1994, over the 3-taxable-year period beginning with
the taxable year following the taxable year for which
the credit was determined.
‘‘(b) RECAPTURED AMOUNTS.—If any increase in tax
under section 50A(d)(1) is properly allocable (as deter-
mined under section 50A(d)(3)(C)(ii)) to any portion of
any credit described in subsection (a) for any taxable year,
subsection (a) shall cease to apply to such portion for the
taxable year of recapture and for any succeeding taxable
year.’’
(2) CONFORMING AMENDMENT.—Paragraph (1)
of section 50(c) (relating to basis adjustment) is
amended by inserting ‘‘(other than regular credit
property to which section 50A applies)’’ after ‘‘any
property’’.
(c) CREDIT ALLOWED AGAINST MINIMUM TAX.—
Subparagraph (B) of section 38(c)(2) (relating to regular
investment credit may offset minimum tax), as added by
section 1201(c)(1), is amended by inserting ‘‘or 50A’’
after ‘‘section 46A’’.
(d) APPLICATION OF OTHER RULES.—
(1) AT-RISK RULES.—
•J. 69–001A
(A) Clause (ii) of section 49(a)(1)(C) (de-
fining credit base), as amended by section
1201(d)(1), is amended by inserting ‘‘to which
section 46A or 50A applies’’ after ‘‘regular
credit property’’.
(B) Section 49(b)(1) is amended by adding
at the end the following new sentence: ‘‘For
purposes of section 50A(b)(1)(B), any increase
during 
any 
taxable 
year 
in 
nonqualified
nonrecourse financing with respect to any regu-
lar credit property shall be treated as an
amount realized during such taxable year with
respect to the disposition of such property.’’.
(2) RECAPTURE RULES.—Subparagraph (A) of
section 50(a)(5) (defining investment credit prop-
erty) is amended by adding at the end the following
new sentence: ‘‘Such term does not include regular
credit property to which section 50A applies.’’.
(e) CONFORMING AMENDMENTS.—
(1) Section 39(d)(4), as added by section
1201(e)(2), is amended by inserting ‘‘or 50A (relat-
ing to incremental investment credit)’’ after ‘‘cred-
it)’’.
(2) Section 55(c)(1) is amended by striking
‘‘49(b)’’ and inserting ‘‘50A(d), 49(b),’’.
•J. 69–001A
(3) Section 1033(g)(3)(A), as amended by sec-
tion 1201(e)(3), is amended by inserting ‘‘or 50A’’
after ‘‘section 46A’’.
(4) Section 1371(d)(3) is amended by striking
‘‘49(b)’’ and inserting ‘‘50A(d), 49(b),’’.
(5) The table of sections for subpart E of part
IV of subchapter A of chapter 1 is amended by add-
ing after the item relating to section 50 the follow-
ing new item:
‘‘Sec. 50A. Temporary incremental investment tax credit.’’
(6) The table of sections for part II of sub-
chapter B of chapter 1 is amended by adding at the
end the following new item:
‘‘Sec. 91. Income inclusion relating to temporary investment tax
credit.’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to property placed in service
after December 3, 1992.
(2) TRANSITION PROPERTY.—The amendments
made by this section shall not apply to any transi-
tion property (as defined in section 49(e) of the In-
ternal Revenue Code of 1986, as in effect on the day
before the date of the enactment of the Revenue
Reconciliation Act of 1990). This paragraph shall
•J. 69–001A
not apply for purposes of section 50A(c) of the In-
ternal Revenue Code of 1986.
PART II—RESEARCH CREDIT
SEC. 1211. PERMANENT EXTENSION OF RESEARCH CREDIT.
(a) IN GENERAL.—Section 41 (relating to credit for
increasing research activities) is amended by striking sub-
section (h).
(b) CONFORMING AMENDMENT.—Paragraph (1) of
section 28(b) is amended by striking subparagraph (D).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after June
30, 1992.
SEC. 1212. MODIFICATION OF FIXED BASE PERCENTAGE
FOR STARTUP COMPANIES.
(a) 
GENERAL
RULE.—Clause 
(ii) 
of 
section
41(c)(3)(B) is amended to read as follows:
‘‘(ii) FIXED-BASE PERCENTAGE.—In a
case to which this subparagraph applies,
the fixed-base percentage is—
‘‘(I) 3 percent for each of the
taxpayer’s 1st 5 taxable years begin-
ning after December 31, 1993, for
which the taxpayer has qualified re-
search expenses,
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‘‘(II) in the case of the tax-
payer’s 6th such taxable year, 1⁄6 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 4th and 5th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(III) in the case of the tax-
payer’s 7th such taxable year, 1⁄3 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th and 6th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(IV) in the case of the tax-
payer’s 8th such taxable year, 1⁄2 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, and 7th such
taxable years is of the aggregate gross
receipts of the taxpayer for such
years,
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‘‘(V) in the case of the taxpayer’s
9th such taxable year, 2⁄3 of the per-
centage which the aggregate qualified
research expenses of the taxpayer for
the 5th, 6th, 7th, and 8th such tax-
able years is of the aggregate gross
receipts of the taxpayer for such
years,
‘‘(VI) in the case of the tax-
payer’s 10th such taxable year, 5⁄6 of
the percentage which the aggregate
qualified research expenses of the tax-
payer for the 5th, 6th, 7th, 8th, and
9th such taxable years is of the aggre-
gate gross receipts of the taxpayer for
such years, and
‘‘(VII) for taxable years there-
after, the percentage which the aggre-
gate qualified research expenses for
any 5 taxable years selected by the
taxpayer from among the 5th through
the 10th such taxable years is of the
aggregate gross receipts of the tax-
payer for such selected years.’’
(b) CONFORMING AMENDMENTS.—
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(1) Clause (iii) of section 41(c)(3)(B) is amend-
ed by striking ‘‘clause (i)’’ and inserting ‘‘clauses (i)
and (ii)’’.
(2) Subparagraph (D) of section 41(c)(3) is
amended by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘subparagraphs (A) and (B)(ii)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
PART III—INCENTIVE FOR INVESTMENT IN
SMALL BUSINESS STOCK
SEC. 1221. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
(a) GENERAL RULE.—Part I of subchapter P of
chapter 1 (relating to capital gains and losses) is amended
by adding at the end thereof the following new section:
‘‘SEC. 1202. 50-PERCENT EXCLUSION FOR GAIN FROM CER-
TAIN SMALL BUSINESS STOCK.
‘‘(a) 50–PERCENT EXCLUSION.—In the case of a tax-
payer other than a corporation, gross income shall not in-
clude 50 percent of any gain from the sale or exchange
of qualified small business stock held for more than 5
years.
‘‘(b) PER-ISSUER LIMITATION ON TAXPAYER’S ELI-
GIBLE GAIN.—
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‘‘(1) IN GENERAL.—If the taxpayer has eligible
gain for the taxable year from 1 or more dispositions
of stock issued by any corporation, the aggregate
amount of such gain from dispositions of stock is-
sued by such corporation which may be taken into
account under subsection (a) for the taxable year
shall not exceed the greater of—
‘‘(A) $10,000,000 reduced by the aggre-
gate amount of eligible gain taken into account
under subsection (a) for prior taxable years and
attributable to dispositions of stock issued by
such corporation, or
‘‘(B) 10 times the aggregate adjusted
bases of qualified small business stock issued by
such corporation and disposed of by the tax-
payer during the taxable year.
For purposes of subparagraph (B), the adjusted
basis of any stock shall be determined without re-
gard to any addition to basis after the date on which
such stock was originally issued.
‘‘(2) ELIGIBLE
GAIN.—For purposes of this
subsection, the term ‘eligible gain’ means any gain
from the sale or exchange of qualified small business
stock held for more than 5 years.
‘‘(3) TREATMENT OF MARRIED INDIVIDUALS.—
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‘‘(A) SEPARATE RETURNS.—In the case of
a separate return by a married individual, para-
graph (1)(A) shall be applied by substituting
‘$5,000,000’ for ‘$10,000,000’.
‘‘(B) ALLOCATION OF EXCLUSION.—In the
case of any joint return, the amount of gain
taken into account under subsection (a) shall be
allocated equally between the spouses for pur-
poses of applying this subsection to subsequent
taxable years.
‘‘(C) MARITAL STATUS.—For purposes of
this subsection, marital status shall be deter-
mined under section 7703.
‘‘(c) QUALIFIED SMALL BUSINESS STOCK.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the term ‘qualified small busi-
ness stock’ means any stock in a C corporation
which is originally issued after December 31, 1992,
if—
‘‘(A) as of the date of issuance, such cor-
poration is a qualified small business, and
‘‘(B) except as provided in subsections (f)
and (h), such stock is acquired by the taxpayer
•J. 69–001A
at its original issue (directly or through an un-
derwriter)—
‘‘(i) in exchange for money or other
property (not including stock), or
‘‘(ii) as compensation for services pro-
vided to such corporation (other than serv-
ices performed as an underwriter of such
stock).
‘‘(2) ACTIVE BUSINESS REQUIREMENT; ETC.—
Stock in a corporation shall not be treated as quali-
fied small business stock unless, during substantially
all of the taxpayer’s holding period for such stock,
such corporation meets the active business require-
ments of subsection (e) and such corporation is a C
corporation.
‘‘(3) CERTAIN PURCHASES BY CORPORATION OF
ITS OWN STOCK.—
‘‘(A) REDEMPTIONS FROM TAXPAYER OR
RELATED PERSON.—Stock acquired by the tax-
payer shall not be treated as qualified small
business stock if, at any time during the 4-year
period beginning on the date 2 years before the
issuance of such stock, the corporation issuing
such stock purchased (directly or indirectly) any
of its stock from the taxpayer or from a person
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related (within the meaning of section 267(b) or
707(b)) to the taxpayer.
‘‘(B) SIGNIFICANT
REDEMPTIONS.—Stock
issued by a corporation shall not be treated as
qualified business stock if, during the 2-year pe-
riod beginning on the date 1 year before the is-
suance of such stock, such corporation made 1
or more purchases of its stock with an aggre-
gate value (as of the time of the respective pur-
chases) exceeding 5 percent of the aggregate
value of all of its stock as of the beginning of
such 2-year period.
‘‘(C) ACQUISITIONS
BY
RELATED
PER-
SONS.—For purposes of this paragraph, the
purchase by any person related (within the
meaning of section 267(b) or 707(b)) to the is-
suing corporation of any stock in the issuing
corporation shall be treated as a purchase by
the issuing corporation.
‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified small
business’ means any domestic corporation which is a
C corporation if—
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‘‘(A) the aggregate capitalization of such
corporation (or any predecessor thereof) at all
times on or after January 1, 1993, and before
the issuance did not exceed $50,000,000,
‘‘(B) the aggregate capitalization of such
corporation immediately after the issuance (de-
termined by taking into account amounts re-
ceived in the issuance) does not exceed
$50,000,000, and
‘‘(C) such corporation agrees to submit
such reports to the Secretary and to sharehold-
ers as the Secretary may require to carry out
the purposes of this section.
‘‘(2) AGGREGATE
CAPITALIZATION.—For pur-
poses of paragraph (1), the term ‘aggregate capital-
ization’ means the excess of—
‘‘(A) the amount of cash and the aggregate
adjusted bases of other property held by the
corporation, over
‘‘(B) the aggregate amount of the short-
term indebtedness of the corporation.
For purposes of the preceding sentence, the term
‘short-term indebtedness’ means any indebtedness
which, when incurred, did not have a term in excess
of 1 year.
•J. 69–001A
‘‘(3) LOOK-THRU IN CASE OF SUBSIDIARIES.—
In determining whether a corporation meets the re-
quirements of this subsection—
‘‘(A) stock and debt of any subsidiary (as
defined in subsection (e)(5)(C)) held by such
corporation shall be disregarded, and
‘‘(B) such corporation shall be treated as
holding its ratable share of the assets of such
subsidiary and as being liable for its ratable
share of the indebtedness of such subsidiary.
‘‘(e) ACTIVE BUSINESS REQUIREMENT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(2), the requirements of this subsection are met
by a corporation for any period if during such pe-
riod—
‘‘(A) at least 80 percent (by value) of the
assets of such corporation are used by such cor-
poration in the active conduct of a qualified
trade or business, and
‘‘(B) such corporation is an eligible cor-
poration.
‘‘(2) SPECIAL
RULE
FOR
CERTAIN
ACTIVI-
TIES.—For purposes of paragraph (1), if, in connec-
tion with any future qualified trade or business, a
corporation is engaged in—
•J. 69–001A
‘‘(A) start-up activities described in section
195(c)(1)(A),
‘‘(B) activities resulting in the payment or
incurring of expenditures which may be treated
as research and experimental expenditures
under section 174, or
‘‘(C) activities with respect to in-house re-
search expenses described in section 41(b)(4),
assets used in such activities shall be treated as used
in the active conduct of a qualified trade or busi-
ness. Any determination under this paragraph shall
be made without regard to whether a corporation
has any gross income from such activities at the
time of the determination.
‘‘(3) QUALIFIED
TRADE
OR
BUSINESS.—For
purposes of this subsection, the term ‘qualified trade
or business’ means any trade or business other
than—
‘‘(A) any trade or business involving the
performance of services in the fields of health,
law, engineering, architecture, accounting, actu-
arial science, performing arts, consulting, ath-
letics, financial services, brokerage services, or
any other trade or business where the principal
•J. 69–001A
asset of such trade or business is the reputation
or skill of 1 or more of its employees,
‘‘(B) any banking, insurance, financing, in-
vesting, or similar business,
‘‘(C) any farming business (including the
business of raising or harvesting trees),
‘‘(D) any business involving the production
or extraction of products of a character with re-
spect to which a deduction is allowable under
section 613 or 613A, and
‘‘(E) any business of operating a hotel,
motel, restaurant, or similar business.
‘‘(4) ELIGIBLE
CORPORATION.—For purposes
of this subsection, the term ‘eligible corporation’
means any domestic corporation; except that such
term shall not include—
‘‘(A) a DISC or former DISC,
‘‘(B) a corporation with respect to which
an election under section 936 is in effect,
‘‘(C) a regulated investment company, real
estate investment trust, or REMIC, and
‘‘(D) a cooperative.
‘‘(5) STOCK IN OTHER CORPORATIONS.—
‘‘(A) LOOK-THRU
IN
CASE
OF
SUBSIDI-
ARIES.—For purposes of this subsection, stock
•J. 69–001A
and debt in any subsidiary corporation shall be
disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidi-
ary’s assets, and to conduct its ratable share of
the subsidiary’s activities.
‘‘(B) PORTFOLIO STOCK OR SECURITIES.—
A corporation shall be treated as failing to meet
the requirements of paragraph (1) for any pe-
riod during which more than 10 percent of the
value of its assets (in excess of liabilities) con-
sist of stock or securities in other corporations
which are not subsidiaries of such corporation
(other than assets described in paragraph (6)).
‘‘(C) SUBSIDIARY.—For purposes of this
paragraph, a corporation shall be considered a
subsidiary if the parent owns more than 50 per-
cent of the combined voting power of all classes
of stock entitled to vote, or more than 50 per-
cent in value of all outstanding stock, of such
corporation.
‘‘(6) WORKING
CAPITAL.—For purposes of
paragraph (1)(A), any assets which—
‘‘(A) are held as a part of the reasonably
required working capital needs of a qualified
trade or business of the corporation, or
•J. 69–001A
‘‘(B) are held for investment and are rea-
sonably expected to be used within 2 years to
finance future research and experimentation in
a qualified trade or business or increases in
working capital needs of a qualified trade or
business,
shall be treated as used in the active conduct of a
qualified trade or business. For periods after the
corporation has been in existence for at least 2
years, in no event may more than 50 percent of the
assets of the corporation qualify as used in the ac-
tive conduct of a qualified trade or business by rea-
son of this paragraph.
‘‘(7) MAXIMUM
REAL
ESTATE
HOLDINGS.—A
corporation shall not be treated as meeting the re-
quirements of paragraph (1) for any period during
which more than 10 percent of the total value of its
assets consists of real property which is not used in
the active conduct of a qualified trade or business.
For purposes of the preceding sentence, the owner-
ship of, dealing in, or renting of real property shall
not be treated as the active conduct of a qualified
trade or business.
‘‘(8) COMPUTER
SOFTWARE
ROYALTIES.—For
purposes of paragraph (1), rights to computer soft-
•J. 69–001A
ware which produces active business computer soft-
ware royalties (within the meaning of section
543(d)(1)) shall be treated as an asset used in the
active conduct of a trade or business.
‘‘(f) STOCK ACQUIRED ON CONVERSION OF PRE-
FERRED STOCK.—If any stock in a corporation is acquired
solely through the conversion of other stock in such cor-
poration which is qualified small business stock in the
hands of the taxpayer—
‘‘(1) the stock so acquired shall be treated as
qualified small business stock in the hands of the
taxpayer, and
‘‘(2) the stock so acquired shall be treated as
having been held during the period during which the
converted stock was held.
‘‘(g) TREATMENT OF PASS-THRU ENTITIES.—
‘‘(1) IN GENERAL.—If any amount included in
gross income by reason of holding an interest in a
pass-thru entity meets the requirements of para-
graph (2)—
‘‘(A) such amount shall be treated as gain
described in subsection (a), and
‘‘(B) for purposes of applying subsection
(b), such amount shall be treated as gain from
a disposition of stock in the corporation issuing
•J. 69–001A
erence to the interest the taxpayer held in the pass-
thru entity on the date the qualified small business
stock was acquired.
‘‘(4) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(h) CERTAIN
TAX-FREE
AND
OTHER
TRANS-
FERS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer
described in paragraph (2), the transferee shall be
treated as—
‘‘(A) having acquired such stock in the
same manner as the transferor, and
‘‘(B) having held such stock during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) DESCRIPTION OF TRANSFERS.—A transfer
is described in this subsection if such transfer is—
‘‘(A) by gift,
‘‘(B) at death, or
•J. 69–001A
‘‘(C) from a partnership to a partner of
stock with respect to which requirements simi-
lar to the requirements of subsection (g) are
met at the time of the transfer (without regard
to the 5-year holding period requirement).
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘(4) INCORPORATIONS AND REORGANIZATIONS
INVOLVING NONQUALIFIED STOCK.—
‘‘(A) IN GENERAL.—In the case of a trans-
action described in section 351 or a reorganiza-
tion described in section 368, if qualified small
business stock is exchanged for other stock
which would not qualify as qualified small busi-
ness stock but for this subparagraph, such
other stock shall be treated as qualified small
business stock acquired on the date on which
the exchanged stock was acquired.
‘‘(B) 
LIMITATION.—This 
section 
shall
apply to gain from the sale or exchange of stock
treated as qualified small business stock by rea-
son of subparagraph (A) only to the extent of
the gain which would have been recognized at
the time of the transfer described in subpara-
•J. 69–001A
graph (A) if section 351 or 368 had not applied
at such time.
‘‘(C) SUCCESSIVE APPLICATION.—For pur-
poses of this paragraph, stock treated as quali-
fied small business stock under subparagraph
(A) shall be so treated for subsequent trans-
actions or reorganizations, except that the limi-
tation of subparagraph (B) shall be applied as
of the time of the first transfer to which sub-
paragraph (A) applied.
‘‘(D) CONTROL TEST.—Except in the case
of a transaction described in section 368, this
paragraph shall apply only if, immediately after
the transaction, the corporation issuing the
stock owns directly or indirectly stock rep-
resenting control (within the meaning of section
368(c)) of the corporation whose stock was ex-
changed.
‘‘(i) BASIS RULES.—For purposes of this section—
‘‘(1) STOCK EXCHANGED FOR PROPERTY.—In
the case where the taxpayer transfers property
(other than money or stock) to a corporation in ex-
change for stock in such corporation—
•J. 69–001A
‘‘(A) such stock shall be treated as having
been acquired by the taxpayer on the date of
such exchange, and
‘‘(B) the basis of such stock in the hands
of the taxpayer shall in no event be less than
the fair market value of the property ex-
changed.
‘‘(2) TREATMENT OF CONTRIBUTIONS TO CAP-
ITAL.—If the adjusted basis of any qualified small
business stock is adjusted by reason of any contribu-
tion to capital after the date on which such stock
was originally issued, in determining the amount of
the adjustment by reason of such contribution, the
basis of the contributed property shall in no event be
treated as less than its fair market value on the date
of the contribution.
‘‘(j) TREATMENT OF CERTAIN SHORT POSITIONS.—
‘‘(1) IN GENERAL.—If the taxpayer has an off-
setting short position with respect to any qualified
small business stock, subsection (a) shall not apply
to any gain from the sale or exchange of such stock
unless—
‘‘(A) such stock was held by the taxpayer
for more than 5 years as of the first day on
which there was such a short position, and
•J. 69–001A
‘‘(B) the taxpayer elects to recognize gain
as if such stock were sold on such first day for
its fair market value.
‘‘(2) OFFSETTING SHORT POSITION.—For pur-
poses of paragraph (1), the taxpayer shall be treated
as having an offsetting short position with respect to
any qualified small business stock if—
‘‘(A) the taxpayer has made a short sale of
substantially identical property,
‘‘(B) the taxpayer has acquired an option
to sell substantially identical property at a fixed
price, or
‘‘(C) to the extent provided in regulations,
the taxpayer has entered into any other trans-
action which substantially reduces the risk of
loss from holding such qualified small business
stock.
For purposes of the preceding sentence, any ref-
erence to the taxpayer shall be treated as including
a reference to any person who is related (within the
meaning of section 267(b) or 707(b)) to the tax-
payer.
‘‘(k) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out the
purposes of this section, including regulations to prevent
•J. 69–001A
the avoidance of the purposes of this section through split-
ups, shell corporations, partnerships, or otherwise.’’
(b) ONE-HALF OF EXCLUSION TREATED AS PREF-
ERENCE FOR MINIMUM TAX.—
(1) IN GENERAL.—Subsection (a) of section 57
(relating to items of tax preference) is amended by
adding at the end thereof the following new para-
graph:
‘‘(8) EXCLUSION FOR GAINS ON SALE OF CER-
TAIN SMALL BUSINESS STOCK.—An amount equal to
one-half of the amount excluded from gross income
for the taxable year under section 1202.’’
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 53(d)(1)(B)(ii) is amended by striking
‘‘and (6)’’ and inserting ‘‘(6), and (8)’’.
(c) PENALTY FOR FAILURE TO COMPLY WITH RE-
PORTING REQUIREMENTS.—Section 6652 is amended by
inserting before the last subsection thereof the following
new subsection:
‘‘(l) FAILURE TO MAKE REPORTS REQUIRED UNDER
SECTION 1202.—In the case of a failure to make a report
required under section 1202(d)(1)(C) which contains the
information required by such section on the date pre-
scribed therefor (determined with regard to any extension
of time for filing), there shall be paid (on notice and de-
•J. 69–001A
mand by the Secretary and in the same manner as tax)
by the person failing to make such report, an amount
equal to $50 for each report with respect to which there
was such a failure. In the case of any failure due to neg-
ligence or intentional disregard, the preceding sentence
shall be applied by substituting ‘$100’ for ‘$50’. In the
case of a report covering periods in 2 or more years, the
penalty determined under preceding provisions of this sub-
section shall be multiplied by the number of such years.’’
(d) CONFORMING AMENDMENTS.—
(1)(A) Section 172(d)(2) (relating to modifica-
tions with respect to net operating loss deduction) is
amended to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation—
‘‘(A) the amount deductible on account of
losses from sales or exchanges of capital assets
shall not exceed the amount includable on ac-
count of gains from sales or exchanges of cap-
ital assets; and
‘‘(B) the exclusion provided by section
1202 shall not be allowed.’’
•J. 69–001A
(B) Subparagraph (B) of section 172(d)(4) is
amended by inserting ‘‘, (2)(B),’’ after ‘‘paragraph
(1)’’.
(2) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain described in section
1202(a), proper adjustment shall be made for any
exclusion allowable to the estate or trust under sec-
tion 1202. In the case of a trust, the deduction al-
lowed by this subsection shall be subject to section
681 (relating to unrelated business income).’’
(3) Paragraph (3) of section 643(a) is amended
by adding at the end thereof the following new sen-
tence: ‘‘The exclusion under section 1202 shall not
be taken into account.’’.
(4) Paragraph (4) of section 691(c) is amended
by striking ‘‘1201, and 1211’’ and inserting ‘‘1201,
1202, and 1211’’.
(5) The second sentence of paragraph (2) of
section 871(a) is amended by inserting ‘‘such gains
and losses shall be determined without regard to sec-
tion 1202 and’’ after ‘‘except that’’.
•J. 69–001A
(6) The table of sections for part I of sub-
chapter P of chapter 1 is amended by adding after
the item relating to section 1201 the following new
item:
‘‘Sec. 1202. 50-percent exclusion for gain from certain small busi-
ness stock.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after December 31,
1992.
PART IV—MODIFICATIONS TO MINIMUM TAX
DEPRECIATION RULES
SEC. 1231. MODIFICATION TO MINIMUM TAX DEPRECIA-
TION RULES.
(a) GENERAL RULE.—Paragraph (1) of section 56(a)
(relating to depreciation) is amended by redesignating
subparagraphs (B), (C), and (D) as subparagraphs (C),
(D), and (E), respectively, and by inserting after subpara-
graph (A) the following new subparagraph:
‘‘(B) TREATMENT OF CERTAIN PERSONAL
PROPERTY PLACED IN SERVICE AFTER 1993.—
‘‘(i) IN GENERAL.—In the case of any
property to which this subparagraph ap-
plies, the depreciation deduction allowable
under section 167 shall be determined as
provided in section 168(a), except that the
method of depreciation used shall be—
•J. 69–001A
‘‘(I) the 120 percent declining
balance method switching to the
straight line method for the 1st tax-
able year for which using the straight
line method with respect to the ad-
justed basis as of the beginning of the
year will yield a higher allowance, or
‘‘(II) the straight line method in
the case of property for which the ap-
plicable depreciation method under
section 168(a) is the straight line
method.
‘‘(ii) PROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—This subparagraph shall
apply to any tangible property placed in
service after December 31, 1993, except
that this subparagraph shall not apply
to—
‘‘(I) any residential rental prop-
erty or nonresidential real property
(within 
the 
meaning 
of 
section
168(e)), and
‘‘(II) any other property for
which the depreciation deduction pro-
vided by section 167(a) for purposes
•J. 69–001A
of the regular tax is computed under
the alternative depreciation system of
section 168(g).
‘‘(iii) COORDINATION WITH SUBPARA-
GRAPH (A).—Subparagraph (A) shall not
apply to any property to which this sub-
paragraph applies.’’
(b) ELIMINATION OF ACE DEPRECIATION ADJUST-
MENT.—Clause (i) of section 56(g)(4)(A) (relating to de-
preciation adjustments for computing adjusted current
earnings) is amended by adding at the end thereof the
following new sentence: ‘‘The preceding sentence shall not
apply to any property to which subsection (a)(1)(B) ap-
plies, and the depreciation deduction with respect to such
property shall be determined under the rules of subsection
(a)(1)(B).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 168(b) is amended
to read as follows:
‘‘(2) SPECIAL RULE FOR DECLINING BALANCE
METHOD IN CERTAIN CASES.—
‘‘(A) 150 PERCENT METHOD FOR CERTAIN
PROPERTY.—Paragraph (1) shall be applied by
substituting ‘150 percent’ for ‘200 percent’ in
the case of—
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‘‘(i) any 15-year or 20-year property,
or
‘‘(ii) any property used in a farming
business (within the meaning of section
263A(e)(4)).
‘‘(B) ELECTION
TO
USE
MINIMUM
TAX
METHOD.—In the case of any property (other
than property described in paragraph (3)) with
respect to which the taxpayer elects under para-
graph (5) to have the provisions of this sub-
paragraph apply, paragraph (1) shall be applied
by substituting ‘120 percent’ for ‘200 percent’
(and subparagraph (A) of this paragraph shall
not apply).’’
(2) Paragraph (5) of section 168(b) is amended
by striking ‘‘paragraph (2)(C)’’ and inserting ‘‘para-
graph (2)(B)’’.
(3) Subsection (c) of section 168 is amended—
(A) by striking paragraph (2), and
(B) by striking so much of such subsection
as precedes the table contained in paragraph
(1) and inserting the following:
‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes
of this section, the applicable recovery period shall be de-
termined in accordance with the following table:’’.
•J. 69–001A
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to property placed in service after De-
cember 31, 1993.
(2) 
COORDINATION
WITH
TRANSITIONAL
RULES.—The amendments made by this section
shall not apply to any property to which paragraph
(1) of section 56(a) of the Internal Revenue Code of
1986 does not apply by reason of subparagraph
(D)(i) thereof (as redesignated by subsection (a) of
this section).
Subtitle C—Tax-Exempt Bond
Provisions
SEC. 1301. HIGH-SPEED INTERCITY RAIL FACILITY BONDS
EXEMPT FROM STATE VOLUME CAP.
(a) IN GENERAL.—Paragraph (4) of section 146(g)
(relating to exemption for certain bonds) is amended by
striking ‘‘75 percent of’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after December
31, 1993.
•J. 69–001A
SEC. 1302. PERMANENT EXTENSION OF QUALIFIED SMALL
ISSUE BONDS.
(a) IN
GENERAL.—Subparagraph (B) of section
144(a)(12) is amended to read as follows:
‘‘(B) BONDS
ISSUED
TO
FINANCE
MANUFACTURING
FACILITIES
AND
FARM
PROPERTY.—Subparagraph (A) shall not
apply to any bond issued as part of an
issue 95 percent or more of the net pro-
ceeds of which are to be used to provide—
‘‘(i) any manufacturing facility, or
‘‘(ii) any land or property in accord-
ance with section 147(c)(2).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to bonds issued after June 30,
1992.
Subtitle D—Expansion And Sim-
plification Of Earned Income
Tax Credit
SEC. 1401. EXPANSION AND SIMPLIFICATION OF EARNED
INCOME TAX CREDIT.
(a) GENERAL RULE.—Section 32 (relating to earned
income credit) is amended by striking subsections (a) and
(b) and inserting the following:
‘‘(a) ALLOWANCE OF CREDIT.—
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‘‘(1) IN GENERAL.—In the case of an eligible
individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year
an amount equal to the credit percentage of so much
of the taxpayer’s earned income for the taxable year
as does not exceed the earned income amount.
‘‘(2) LIMITATION.—The amount of the credit
allowable to a taxpayer under paragraph (1) for any
taxable year shall not exceed the excess (if any) of—
‘‘(A) the credit percentage of the earned
income amount, over
‘‘(B) the phaseout percentage of so much
of the adjusted gross income (or, if greater, the
earned income) of the taxpayer for the taxable
year as exceeds the phaseout amount.
‘‘(b) PERCENTAGES AND AMOUNTS.—For purposes
of subsection (a)—
‘‘(1) PERCENTAGES.—The credit percentage
and the phaseout percentage shall be determined as
follows:
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an eli-
gible individual with:
The credit percentage
is:
The phaseout percent-
age is:
1 qualifying child .....
34.37 ..........................
16.16
•J. 69–001A
In the case of an eli-
gible individual with:
The credit percentage
is:
The phaseout percent-
age is:
2 or more qualifying
children .................
39.66 ..........................
19.83
No qualifying chil-
dren ......................
7.65 ..........................
7.65
‘‘(B) TRANSITIONAL
PERCENTAGES.—In
the case of a taxable year beginning in 1994:
In the case of an
eligible individual
with:
The credit percentage
is:
The phaseout percent-
age is:
1 qualifying child .
26.60 ..........................
16.16
2 or more qualify-
ing children ......
31.59 ..........................
15.79
No qualifying chil-
dren ..................
7.65 ..........................
7.65
‘‘(2) AMOUNTS.—The earned income amount
and the phaseout amount shall be determined as fol-
lows:
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after 1994:
In the case of an eli-
gible individual with:
The earned income
amount is:
The phaseout amount
is:
1 qualifying child .....
$6,000 ........................
$11,000
2 or more qualifying
children .................
$8,500 ........................
$11,000
No qualifying chil-
dren ......................
$4,000 ........................
$5,000
‘‘(B) TRANSITIONAL
AMOUNTS.—In the
case of a taxable year beginning in 1994:
In the case of an
eligible individual
with:
The earned income
amount is:
The phaseout amount
is:
1 qualifying child .
$7,750 ........................
$11,000
2 or more qualify-
ing children ......
$8,500 ........................
$11,000
No qualifying chil-
dren ..................
$4,000 ........................
$5,000’’.
•J. 69–001A
(b) ELIGIBLE INDIVIDUAL.—Subparagraph (A) of
section 32(c)(1) (defining eligible individual) is amended
to read as follows:
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means—
‘‘(i) any individual who has a qualify-
ing child for the taxable year, or
‘‘(ii) any other individual who does
not have a qualifying child for the taxable
year, if—
‘‘(I) such individual’s principal
place of abode is in the United States
for more than one-half of such taxable
year,
‘‘(II) such individual (or, if the
individual is married, the individual’s
spouse) has attained age 22 before
the close of the taxable year, and
‘‘(III) such individual (or, if the
individual is married, the individual’s
spouse) is not a dependent for whom
a deduction is allowable under section
151 to another taxpayer for any tax-
able year beginning in the same cal-
endar year as such taxable year.’’
•J. 69–001A
(c) INFLATION ADJUSTMENTS.—Section 32(i) (relat-
ing to inflation adjustments) is amended—
(1) by striking paragraphs (1) and (2) and in-
serting the following new paragraph:
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning after 1994, each dollar amount con-
tained in subsection (b)(2)(A) shall be increased by
an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3), for the calendar
year in which the taxable year begins, by sub-
stituting ‘calendar year 1993’ for ‘calendar year
1992’.’’, and
(2) by redesignating paragraph (3) as para-
graph (2).
(d) CONFORMING AMENDMENTS.—
(1) Subparagraph (D) of section 32(c)(3) is
amended—
(A) by striking ‘‘clause (i) or (ii)’’ in clause
(iii) and inserting ‘‘clause (i)’’,
(B) by striking clause (ii), and
(C) by redesignating clause (iii) as clause
(ii).
•J. 69–001A
(2) Paragraph (3) of section 162(l) is amended
to read as follows:
‘‘(3) COORDINATION
WITH
MEDICAL
DEDUC-
TION.—Any amount paid by a taxpayer for insur-
ance to which paragraph (1) applies shall not be
taken into account in computing the amount allow-
able to the taxpayer as a deduction under section
213(a).’’
(3) Section 213 is amended by striking sub-
section (f).
(4) Subsection (b) of section 3507 is amended
by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
‘‘(2) certifies that the employee has 1 or more
qualifying children (within the meaning of section
32(c)(3)) for such taxable year,’’.
(5) Subparagraph (B) of section 3507(c)(2) is
amended by striking clauses (i) and (ii) and insert-
ing the following:
‘‘(i) of not more than the credit per-
centage in effect under section 32(b)(1) for
an eligible individual with 1 qualifying
child and with earned income not in excess
of the earned income amount in effect
•J. 69–001A
under section 32(b)(2) for such an eligible
individual, which
‘‘(ii) phases out at the phaseout per-
centage in effect under section 32(b)(1) for
such an eligible individual between the
phaseout amount in effect under section
32(b)(2) for such an eligible individual and
the amount of earned income at which the
credit under section 32(a) phases out for
such an eligible individual, or’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
Subtitle E—Incentives For
Investment In Real Estate
PART I—EXTENSION OF QUALIFIED MORTGAGE
BONDS AND LOW-INCOME HOUSING CREDIT
SEC. 1501. PERMANENT EXTENSION OF QUALIFIED MORT-
GAGE BONDS.
(a) IN GENERAL.—Paragraph (1) of section 143(a)
(defining qualified mortgage bond) is amended to read as
follows:
‘‘(1) QUALIFIED MORTGAGE BOND DEFINED.—
For purposes of this title, the term ‘qualified mort-
•J. 69–001A
gage bond’ means a bond which is issued as part of
a qualified mortgage issue.’’
(b) MORTGAGE CREDIT CERTIFICATES.—Section 25
is amended by striking subsection (h) and by redesignat-
ing subsections (i) and (j) as subsections (h) and (i), re-
spectively.
(c) EFFECTIVE DATES.—
(1) BONDS.—The amendment made by sub-
section (a) shall apply to bonds issued after June
30, 1992.
(2) CERTIFICATES.—The amendment made by
subsection (b) shall apply to elections for periods
after June 30, 1992.
SEC. 1502. PERMANENT EXTENSION OF LOW-INCOME HOUS-
ING CREDIT.
(a) IN GENERAL.—Section 42 (relating to low-income
housing credit) is amended by striking subsection (o).
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to periods after June 30, 1992.
PART II—MODIFICATION OF PASSIVE LOSS
RULES
SEC. 1511. MODIFICATION OF PASSIVE LOSS RULES.
(a) GENERAL RULE.—Section 469 (relating to pas-
sive activity losses and credits limited) is amended by re-
designating subsections (l) and (m) as subsections (m) and
•J. 69–001A
(n), respectively, and by inserting after subsection (k) the
following new subsection:
‘‘(l) SPECIAL RULES
FOR REAL ESTATE ACTIVI-
TIES.—
‘‘(1) LOSS FROM CERTAIN RENTAL REAL ES-
TATE ACTIVITIES TREATED AS NOT PASSIVE.—If the
taxpayer meets the requirements of paragraph (2)
for the taxable year, subsection (a) shall not apply
to so much of the passive activity loss for such tax-
able year as does not exceed the least of—
‘‘(A) the net loss for such taxable year
from rental real estate activities in which the
taxpayer materially participates,
‘‘(B) the net income of the taxpayer for
the taxable year from real property trade or
business activities which are not passive activi-
ties, or
‘‘(C) the taxable income of the taxpayer
for the taxable year determined without regard
to this subsection.
A similar rule shall apply to any passive activity
credit.
‘‘(2) REQUIREMENTS.—The taxpayer meets the
requirements of this paragraph for any taxable year
if more than one-half of the personal services per-
•J. 69–001A
formed in trades or businesses by the taxpayer dur-
ing such taxable year are performed in real property
trades or businesses in which the taxpayer materially
participates.
‘‘(3) REAL PROPERTY TRADE OR BUSINESS.—
For purposes of this paragraph, the term ‘real prop-
erty trade or business’ means any real property de-
velopment, redevelopment, construction, reconstruc-
tion, acquisition, conversion, rental, operation, man-
agement, leasing, or brokerage trade or business.
‘‘(4) SPECIAL RULES.—
‘‘(A) PERSONAL
SERVICES
AS
AN
EM-
PLOYEE.—For purposes of paragraph (2), per-
sonal services performed as an employee shall
not be treated as performed in real property
trades or businesses. The preceding sentence
shall not apply if such employee is a 5-percent
owner (as defined in section 416(i)(1)(B)) in
the employer.
‘‘(B) CLOSELY HELD C CORPORATIONS.—
This subsection shall not apply to any interests
held by a closely held C corporation.
‘‘(5) COORDINATION WITH SUBSECTION (i).—
•J. 69–001A
‘‘(A) IN GENERAL.—This subsection shall
be applied after the application of subsection
(i).
‘’(B) AMOUNTS
ALLOWED
UNDER
SUB-
SECTION
(i).—For purposes of this sub-
section—
‘‘(i) the passive activity loss and pas-
sive activity credit, and
‘‘(ii) the net loss referred to in para-
graph (1)(A),
shall not include any amount allowed under
subsection (i).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
PART III—PROVISIONS RELATING TO REAL
ESTATE INVESTMENTS BY PENSION FUNDS
SEC. 1521. REAL ESTATE PROPERTY ACQUIRED BY A
QUALIFIED ORGANIZATION.
(a) MODIFICATIONS
OF EXCEPTIONS.—Paragraph
(9) of section 514(c) (relating to real property acquired
by a qualified organization) is amended by adding at the
end thereof the following new subparagraphs:
•J. 69–001A
‘‘(G) SPECIAL RULES FOR PURPOSES OF
THE
EXCEPTIONS.—Except as otherwise pro-
vided by regulations—
‘‘(i) SMALL LEASES DISREGARDED.—
For purposes of clauses (iii) and (iv) of
subparagraph (B), a lease to a person de-
scribed in such clause (iii) or (iv) shall be
disregarded if no more than 25 percent of
the leasable floor space in a building (or
complex of buildings) is covered by the
lease and if the lease is on commercially
reasonable terms.
‘‘(ii) COMMERCIALLY REASONABLE FI-
NANCING.—Clause (v) of subparagraph (B)
shall not apply if the financing is on com-
mercially reasonable terms.
‘‘(H) QUALIFYING
SALES
BY
FINANCIAL
INSTITUTIONS.—
‘‘(i) IN GENERAL.—In the case of a
qualifying sale by a financial institution,
except as provided in regulations, clauses
(i) and (ii) of subparagraph (B) shall not
apply with respect to financing provided by
such institution for such sale.
•J. 69–001A
‘‘(ii) QUALIFYING
SALE.—For pur-
poses of this clause, there is a qualifying
sale by a financial institution if—
‘‘(I) a qualified organization ac-
quires property described in clause
(iii) from a financial institution and
any gain recognized by the financial
institution with respect to the prop-
erty is ordinary income,
‘‘(II) the stated principal amount
of the financing provided by the finan-
cial institution does not exceed the
amount of the outstanding indebted-
ness (including accrued but unpaid in-
terest) of the financial institution with
respect to the property described in
clause (iii) immediately before the ac-
quisition referred to in clause (iii) or
(v), whichever is applicable, and
‘‘(III) the present value (deter-
mined as of the time of the sale and
by using the applicable Federal rate
determined under section 1274(d)) of
the maximum amount payable pursu-
ant to the financing that is deter-
•J. 69–001A
mined by reference to the revenue, in-
come, or profits derived from the
property cannot exceed 30 percent of
the total purchase price of the prop-
erty (including the contingent pay-
ments).
‘‘(iii) PROPERTY TO WHICH SUBPARA-
GRAPH APPLIES.—Property is described in
this clause if such property is foreclosure
property, or is real property which—
‘‘(I) was acquired by the quali-
fied organization from a financial in-
stitution which is in conservatorship
or receivership, or from the conserva-
tor or receiver of such an institution,
and
‘‘(II) was held by the financial
institution at the time it entered into
conservatorship or receivership.
‘‘(iv) FINANCIAL
INSTITUTION.—For
purposes of this subparagraph, the term
‘financial institution’ means—
‘‘(I) any financial institution de-
scribed in section 581 or 591(a),
•J. 69–001A
‘‘(II) any other corporation which
is a direct or indirect subsidiary of an
institution referred to in subclause (I)
but only if, by virtue of being affili-
ated with such institution, such other
corporation is subject to supervision
and examination by a Federal or
State agency which regulates institu-
tions referred to in subclause (I), and
‘‘(III) any person acting as a
conservator or receiver of an entity re-
ferred to in subclause (I) or (II) (or
any government agency or corporation
succeeding to the rights or interest of
such person).
‘‘(v) FORECLOSURE PROPERTY.—For
purposes of this subparagraph, the term
‘foreclosure property’ means any real prop-
erty acquired by the financial institution as
the result of having bid on such property
at foreclosure, or by operation of an agree-
ment or process of law, after there was a
default (or a default was imminent) on in-
debtedness which such property secured.’’
•J. 69–001A
(b) CONFORMING AMENDMENT.—Paragraph (9) of
section 514(c) is amended—
(1) by adding the following new sentence at the
end of subparagraph (A): ‘‘For purposes of this
paragraph, an interest in a mortgage shall in no
event be treated as real property.’’, and
(2) by striking the last sentence of subpara-
graph (B).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to acquisitions on or after
January 1, 1994.
(2) SMALL LEASES.—The provisions of section
514(c)(9)(G)(i) of the Internal Revenue Code of
1986 shall, in addition to any leases to which the
provisions apply by reason of paragraph (1), apply
to leases entered into on or after January 1, 1994.
SEC. 1522. REPEAL OF SPECIAL TREATMENT OF PUBLICLY
TREATED PARTNERSHIPS.
(a) GENERAL RULE.—Subsection (c) of section 512
is amended—
(1) by striking paragraph (2),
(2) by redesignating paragraph (3) as para-
graph (2), and
•J. 69–001A
(3) by striking ‘‘paragraph (1) or (2)’’ in para-
graph (2) (as so redesignated) and inserting ‘‘para-
graph (1)’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to partnership years beginning
on or after January 1, 1994.
SEC. 1523. TITLE-HOLDING COMPANIES PERMITTED TO RE-
CEIVE 
SMALL 
AMOUNTS 
OF 
UNRELATED
BUSINESS TAXABLE INCOME.
(a) GENERAL RULE.—Paragraph (25) of section
501(c) is amended by adding at the end thereof the follow-
ing new subparagraph:
‘‘(G)(i) An organization shall not be treat-
ed as failing to be described in this paragraph
merely by reason of the receipt of any otherwise
disqualifying income which is incidentally de-
rived from the holding of real property.
‘‘(ii) Clause (i) shall not apply if the
amount of gross income described in such
clause exceeds 10 percent of the organization’s
gross income for the taxable year unless the or-
ganization establishes to the satisfaction of the
Secretary that the receipt of gross income de-
scribed in clause (i) in excess of such limitation
was inadvertent and reasonable steps are being
•J. 69–001A
taken to correct the circumstances giving rise to
such income.’’
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 501(c) is amended by adding at the end thereof
the following new sentence: ‘‘Rules similar to the rules of
subparagraph (G) of paragraph (25) shall apply for pur-
poses of this paragraph.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning on or
after January 1, 1994.
SEC. 1524. EXCLUSION FROM UNRELATED BUSINESS TAX
OF GAINS FROM CERTAIN PROPERTY.
(a) GENERAL RULE.—Subsection (b) of section 512
(relating to modifications) is amended by adding at the
end thereof the following new paragraph:
‘‘(16)(A) Notwithstanding paragraph (5)(B),
there shall be excluded all gains or losses from the
sale, exchange, or other disposition of any real prop-
erty described in subparagraph (B) if—
‘‘(i) such property was acquired by the or-
ganization from—
‘‘(I) a financial institution described
in section 581 or 591(a) which is in
conservatorship or receivership, or
100
•J. 69–001A
‘‘(II) the conservator or receiver of
such an institution (or any government
agency or corporation succeeding to the
rights or interests of the conservator or re-
ceiver),
‘‘(ii) such property is designated by the or-
ganization within the 9-month period beginning
on the date of its acquisition as property held
for sale, except that not more than one-half (by
value determined as of such date) of property
acquired in a single transaction may be so
designated,
‘‘(iii) such sale, exchange, or disposition
occurs before the later of—
‘‘(I) the date which is 30 months after
the date of the acquisition of such prop-
erty, or
‘‘(II) the date specified by the Sec-
retary in order to assure an orderly dis-
position of property held by persons de-
scribed in subparagraph (A), and
‘‘(iv) while such property was held by the
organization, the aggregate expenditures on im-
provements and development activities included
in the basis of the property are (or were) not
101
•J. 69–001A
in excess of 20 percent of the net selling price
of such property.
‘‘(B) Property is described in this subparagraph
if it is real property which—
‘‘(i) was held by the financial institution at
the time it entered into conservatorship or re-
ceivership, or
‘‘(ii) was foreclosure property (as defined
in section 514(c)(9)(H)(v)) which secured in-
debtedness held by the financial institution at
such time.
For purposes of this subparagraph, real property in-
cludes an interest in a mortgage.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to property acquired on or after
January 1, 1994.
SEC. 1525. EXCLUSION FROM UNRELATED BUSINESS TAX
OF CERTAIN FEES AND OPTION PREMIUMS.
(a) LOAN COMMITMENT FEES.—Paragraph (1) of
section 512(b) (relating to modifications) is amended by
inserting ‘‘amounts received or accrued as consideration
for entering into agreements to make loans,’’ before ‘‘and
annuities’’.
(b) OPTION PREMIUMS.—The second sentence of sec-
tion 512(b)(5) is amended—
102
•J. 69–001A
(1) by striking ‘‘all gains on’’ and inserting ‘‘all
gains or losses recognized, in connection with the or-
ganization’s investment activities, from’’,
(2) by striking ‘‘, written by the organization in
connection with its investment activities,’’ and
(3) by inserting ‘‘or real property and all gains
or losses from the forfeiture of good-faith deposits
(that are consistent with established business prac-
tice) for the purchase, sale, or lease of real property
in connection with the organization’s investment ac-
tivities’’ before the period.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received on or after
January 1, 1994.
PART IV—INCREASE IN RECOVERY PERIOD FOR
NONRESIDENTIAL REAL PROPERTY
SEC. 
1531. INCREASE 
IN 
RECOVERY 
PERIOD 
FOR
NONRESIDENTIAL REAL PROPERTY.
(a) GENERAL RULE.—Paragraph (1) of section
168(c) (relating to applicable recovery period) is amended
by striking the item relating to nonresidential real prop-
erty and inserting the following:
‘‘Nonresidential real property ..................................................
37 years.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendment made by subsection (a)
103
•J. 69–001A
shall apply to property placed in service by the tax-
payer on or after February 25, 1993.
(2) EXCEPTION.—The amendments made by
this section shall not apply to property placed in
service by the taxpayer before January 1, 1994, if—
(A) the taxpayer or a qualified person en-
tered into a binding written contract to pur-
chase or construct such property before Feb-
ruary 25, 1993, or
(B) the construction of such property was
commenced by or for the taxpayer or a quali-
fied person before February 25, 1993.
For purposes of this paragraph, the term ‘‘qualified
person’’ means any person who transfers his rights
in such a contract or such property to the taxpayer
but only if the property is not placed in service by
such person before such rights are transferred to the
taxpayer.
Subtitle F—Other Changes
SEC. 1601. ALTERNATIVE MINIMUM TAX TREATMENT OF
CONTRIBUTIONS 
OF 
APPRECIATED 
PROP-
ERTY.
(a) REPEAL OF TAX PREFERENCE.—Subsection (a)
of section 57 (as amended by section 1221) is amended
by striking paragraph (6) (relating to appreciated prop-
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erty charitable deduction) and by redesignating para-
graphs (7) and (8) as paragraphs (6) and (7), respectively.
(b) EFFECT ON ADJUSTED CURRENT EARNINGS.—
Paragraph (4) of section 56(g) is amended by adding at
the end thereof the following new subparagraph:
‘‘(J) TREATMENT
OF
CHARITABLE
CON-
TRIBUTIONS.—Notwithstanding subparagraphs
(B) and (C), no adjustment related to the earn-
ings and profits effects of any charitable con-
tribution shall be made in computing adjusted
current earnings.’’
(c) CONFORMING AMENDMENT.—Subclause (II) of
section 53(d)(1)(B)(ii) (as amended by section 1221) is
amended by striking ‘‘(5), (6), and (8)’’ and inserting
‘‘(5), and (7)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to contributions made after June
30, 1992, except that in the case of any contribution of
capital gain property which is not tangible personal prop-
erty, such amendments shall apply only if the contribution
is made after December 31, 1992.
SEC. 1602. CERTAIN TRANSFERS TO RAILROAD RETIRE-
MENT ACCOUNT MADE PERMANENT.
Subsection (c)(1)(A) of section 224 of the Railroad
Retirement Solvency Act of 1983 (relating to section 72(r)
105
•J. 69–001A
revenue increase transferred to certain railroad accounts)
is amended by striking ‘‘with respect to benefits received
before October 1, 1992’’.
SEC. 1603. TEMPORARY EXTENSION OF DEDUCTION FOR
HEALTH INSURANCE COSTS OF SELF-EM-
PLOYED INDIVIDUALS.
(a) IN GENERAL.—
(1) EXTENSION.—Paragraph (6) of section
162(l) (relating to special rules for health insurance
costs of self-employed individuals) is amended by
striking ‘‘June 30, 1992’’ and inserting ‘‘December
31, 1993’’.
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 110(a) of the Tax Extension Act of 1991
is hereby repealed.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years end-
ing after June 30, 1992.
(b) DETERMINATION
OF
ELIGIBILITY
FOR
EM-
PLOYER-SPONSORED HEALTH PLAN.—
(1) IN GENERAL.—Paragraph (2)(B) of section
162(l) is amended to read as follows:
‘‘(B) OTHER
COVERAGE.—Paragraph (1)
shall not apply to any taxpayer for any calendar
month for which the taxpayer is eligible to
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•J. 69–001A
particpate in any subsidized health plan main-
tained by any employer of the taxpayer or of
the spouse of the taxpayer.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1992.
TITLE II—REVENUE INCREASES
Subtitle A—Provisions Affecting
Individuals
PART I—RATE INCREASES
SEC. 2101. INCREASE IN TOP MARGINAL RATE UNDER SEC-
TION 1.
(a) GENERAL RULE.—Section 1 (relating to tax im-
posed) is amended by striking subsections (a) through (e)
and inserting the following:
‘‘(a) MARRIED INDIVIDUALS FILING JOINT RETURNS
AND SURVIVING SPOUSES.—There is hereby imposed on
the taxable income of—
‘‘(1) every married individual (as defined in sec-
tion 7703) who makes a single return jointly with
his spouse under section 6013, and
‘‘(2) every surviving spouse (as defined in sec-
tion 2(a)),
a tax determined in accordance with the following table:
‘‘If taxable income is:
The tax is:
Not over $36,900 ..........................
15% of taxable income.
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•J. 69–001A
‘‘If taxable income is:
The tax is:
Over 
$36,900 
but 
not 
over
$89,150.
$5,535, plus 28% of the excess over
$36,900.
Over 
$89,150 
but 
not 
over
$140,000.
$20,165, plus 31% of the excess over
$89,150.
Over $140,000 ...............................
$35,928.50, plus 36% of the excess
over $140,000.
‘‘(b) HEADS OF HOUSEHOLDS.—There is hereby im-
posed on the taxable income of every head of a household
(as defined in section 2(b)) a tax determined in accordance
with the following table:
‘‘If taxable income is:
The tax is:
Not over $29,600 ..........................
15% of taxable income.
Over 
$29,600 
but 
not 
over
$76,400.
$4,440, plus 28% of the excess over
$29,600.
Over 
$76,400 
but 
not 
over
$127,500.
$17,544, plus 31% of the excess over
$76,400.
Over $127,500 ...............................
$33,385, plus 36% of the excess over
$127,500.
‘‘(c) UNMARRIED INDIVIDUALS (OTHER THAN SUR-
VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—There
is hereby imposed on the taxable income of every individ-
ual (other than a surviving spouse as defined in section
2(a) or the head of a household as defined in section 2(b))
who is not a married individual (as defined in section
7703) a tax determined in accordance with the following
table:
‘‘If taxable income is:
The tax is:
Not over $22,100 ..........................
15% of taxable income.
Over 
$22,100 
but 
not 
over
$53,500.
$3,315, plus 28% of the excess over
$22,100.
Over 
$53,500 
but 
not 
over
$115,000.
$12,107, plus 31% of the excess over
$53,500.
Over $115,000 ...............................
$31,172, plus 36% of the excess over
$115,000.
‘‘(d) MARRIED INDIVIDUALS FILING SEPARATE RE-
TURNS.—There is hereby imposed on the taxable income
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•J. 69–001A
of every married individual (as defined in section 7703)
who does not make a single return jointly with his spouse
under section 6013, a tax determined in accordance with
the following table:
‘‘If taxable income is:
The tax is:
Not over $18,450 ..........................
15% of taxable income.
Over 
$18,450 
but 
not 
over
$44,575.
$2,767.50, plus 28% of the excess
over $18,450.
Over 
$44,575 
but 
not 
over
$70,000.
$10,082.50, plus 31% of the excess
over $44,575.
Over $70,000 .................................
$17,964.25, plus 36% of the excess
over $70,000.
‘‘(e) ESTATES AND TRUSTS.—There is hereby im-
posed on the taxable income of—
‘‘(1) every estate, and
‘‘(2) every trust,
taxable under this subsection a tax determined in accord-
ance with the following table:
‘‘If taxable income is:
The tax is:
Not over $1,500 ............................
15% of taxable income.
Over $1,500 but not over $3,500 ..
$225, plus 28% of the excess over
$1,500.
Over $3,500 but not over $5,500 ..
$785, plus 31% of the excess over
$3,500.
Over $5,500 ...................................
$1,405, plus 36% of the excess over
$5,500.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 531 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(2) Section 541 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(3)(A) Subsection (f) of section 1 is amended—
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•J. 69–001A
(i) by striking ‘‘1990’’ in paragraph (1)
and inserting ‘‘1993’’, and
(ii) by striking ‘‘1989’’ in paragraph
(3)(B) and inserting ‘‘1992’’.
(B) Subparagraph (C) of section 41(e)(5) is
amended by striking ‘‘1989’’ each place it appears
and inserting ‘‘1992’’.
(C) Subparagraph (B) of section 63(c)(4) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(D) Subparagraph (B) of section 68(b)(2) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(E) Subparagraph (B) of section 132(f)(6) is
amended by striking ‘‘, determined by substituting’’
and all that follows down through the period at the
end thereof and inserting a period.
(F) Subparagraphs (A)(ii) and (B)(ii) of section
151(d)(4) are each amended by striking ‘‘1989’’ and
inserting ‘‘1992’’.
(G) Clause (ii) of section 513(h)(2)(C) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 2102. SURTAX ON HIGH-INCOME TAXPAYERS.
(a) GENERAL RULE.—
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(1) Subsection (a) of section 1 (as amended by
section 2101) is amended by striking the last item
in the table contained therein and inserting the
following:
Over 
$140,000 
but 
not 
over
$250,000.
$35,928.50, plus 36% of the excess
over $140,000.
Over $250,000 ...............................
$75,528.50, plus 39.6% of the excess
over $250,000.’’
(2) Subsection (b) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$127,500 
but 
not 
over
$250,000.
$33,385, plus 36% of the excess over
$127,500.
Over $250,000 ...............................
$77,485, plus 39.6% of the excess
over $250,000.’’
(3) Subsection (c) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$115,000 
but 
not 
over
$250,000.
$31,172, plus 36% of the excess over
$115,000.
Over $250,000 ...............................
$79,772, plus 39.6% of the excess
over $250,000.’’
(4) Subsection (d) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$70,000 
but 
not 
over
$125,000.
$17,964.25, plus 36% of the excess
over $70,000.
Over $125,000 ...............................
$37,764.25, plus 39.6% of the excess
over $125,000.’’
(5) Subsection (e) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
111
•J. 69–001A
Over $5,500 but not over $7,500 ..
$1,405, plus 36% of the excess over
$5,500.
Over $7,500 ...................................
$2,125, plus 39.6% of the excess over
$7,500.’’
(b) TECHNICAL AMENDMENT.—Sections 531 and
541 (as amended by section 2101) are each amended by
striking ‘‘36 percent’’ and inserting ‘‘39.6 percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 2103. MODIFICATIONS TO ALTERNATIVE MINIMUM
TAX RATES AND EXEMPTION AMOUNTS.
(a) INCREASE IN RATE.—Paragraph (1) of section
55(b) (defining tentative minimum tax) is amended to
read as follows:
‘‘(1) AMOUNT OF TENTATIVE TAX.—
‘‘(A) NONCORPORATE TAXPAYERS.—
‘‘(i) IN GENERAL.—In the case of a
taxpayer other than a corporation, the ten-
tative minimum tax for the taxable year is
the sum of—
‘‘(I) 26 percent of so much of the
taxable excess as does not exceed
$175,000, plus
‘‘(II) 28 percent of so much of
the 
taxable 
excess 
as 
exceeds
$175,000.
112
•J. 69–001A
The amount determined under the preced-
ing sentence shall be reduced by the alter-
native minimum tax foreign tax credit for
the taxable year.
‘‘(ii) TAXABLE
EXCESS.—For pur-
poses of clause (i), the term ‘taxable ex-
cess’ means so much of the alternative
minimum taxable income for the taxable
year as exceeds the exemption amount.
‘‘(iii) MARRIED
INDIVIDUAL
FILING
SEPARATE RETURN.—In the case of a mar-
ried individual filing a separate return,
clause (i) shall be applied by substituting
‘$87,500’ for ‘$175,000’ each place it ap-
pears. For purposes of the preceding sen-
tence, marital status shall be determined
under section 7703.
‘‘(B) CORPORATIONS.—In the case of a
corporation, the tentative minimum tax for the
taxable year is—
‘‘(i) 20 percent of so much of the al-
ternative minimum taxable income for the
taxable year as exceeds the exemption
amount, reduced by
113
•J. 69–001A
‘‘(ii) the alternative minimum tax for-
eign tax credit for the taxable year.’’
(b) INCREASE
IN EXEMPTION AMOUNTS.—Para-
graph (1) of section 55(d) (defining exemption amount)
is amended—
(1) by striking ‘‘$40,000’’ in subparagraph (A)
and inserting ‘‘$45,000’’,
(2) by striking ‘‘$30,000’’ in subparagraph (B)
and inserting ‘‘$33,750’’, and
(3) by striking ‘‘$20,000’’ in subparagraph (C)
and inserting ‘‘$22,500’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 55(d)(3) is
amended by striking ‘‘$155,000 or (ii) $20,000’’ and
inserting ‘‘$165,000 or (ii) $22,500’’.
(2)(A) Subparagraph (A) of section 897(a)(2)
is amended by striking ‘‘the amount determined
under section 55(b)(1)(A) shall not be less than 21
percent of’’ and inserting ‘‘the taxable excess for
purposes of section 55(b)(1)(A) shall not be less
than’’.
(B) The heading for paragraph (2) of section
897(a) is amended by striking ‘‘21-PERCENT’’.
114
•J. 69–001A
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 2104. OVERALL LIMITATION ON ITEMIZED DEDUC-
TIONS FOR HIGH-INCOME TAXPAYERS MADE
PERMANENT.
Subsection (f) of section 68 (relating to overall limita-
tion on itemized deductions) is hereby repealed.
SEC. 2105. PHASEOUT OF PERSONAL EXEMPTION OF HIGH-
INCOME TAXPAYERS MADE PERMANENT.
Section 151(d)(3) (relating to phaseout of personal
exemption) is amended by striking subparagraph (E).
SEC. 2106. PROVISIONS TO PREVENT CONVERSION OF OR-
DINARY INCOME TO CAPITAL GAIN.
(a) INTEREST EMBEDDED
IN FINANCIAL TRANS-
ACTIONS.—
(1) IN GENERAL.—Part IV of subchapter P of
chapter 1 (relating to special rules for determining
capital gains and losses) is amended by adding at
the end thereof the following new section:
‘‘SEC. 1258. RECHARACTERIZATION OF GAIN FROM CER-
TAIN FINANCIAL TRANSACTIONS.
‘‘(a) GENERAL RULE.—In the case of any gain—
115
•J. 69–001A
‘‘(1) which (but for this section) would be treat-
ed as gain from the sale or exchange of a capital
asset, and
‘‘(2) which is recognized on the disposition of
any property which was held as part of a conversion
transaction,
such gain (to the extent such gain does not exceed the
applicable imputed income amount) shall be treated as
ordinary income.
‘‘(b) APPLICABLE IMPUTED INCOME AMOUNT.—For
purposes of subsection (a), the term ‘applicable imputed
income amount’ means, with respect to any disposition re-
ferred to in subsection (a), an amount equal to—
‘‘(1) the amount of interest which would have
accrued on the taxpayer’s net investment in the con-
version transaction for the period ending on the date
of such disposition (or, if earlier, the date on which
the requirements of subsection (c) ceased to be satis-
fied) at a rate equal to 120 percent of the applicable
rate, reduced by
‘‘(2) the amount treated as ordinary income
under subsection (a) with respect to any prior dis-
position of property which was held as a part of
such transaction.
116
•J. 69–001A
‘‘(c) CONVERSION TRANSACTION.—For purposes of
this section, the term ‘conversion transaction’ means any
of the following where substantially all of the taxpayer’s
expected net return from the transaction is attributable
to the time value of the taxpayer’s net investment in such
transaction:
‘‘(1) The holding of any property (whether or
not actively traded), and the entering into a contract
to sell such property (or substantially identical prop-
erty) at a price determined in accordance with such
contract, but only if such property was acquired and
such contract was entered into on a substantially
contemporaneous basis.
‘‘(2) Any applicable straddle.
‘‘(3) Any other transaction which is marketed
or sold as producing capital gains.
‘‘(4) Any other transaction specified in regula-
tions prescribed by the Secretary.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE STRADDLE.—The term ‘appli-
cable straddle’ means any straddle (within the mean-
ing of section 1092(c)); except that—
‘‘(A) the term ‘personal property’ shall in-
clude stock, and
117
•J. 69–001A
‘‘(B) paragraph (4) of section 1092(c)
shall not apply.
‘‘(2) APPLICABLE RATE.—The term ‘applicable
Federal rate’ means—
‘‘(A) the applicable Federal rate deter-
mined under section 1274(d) (compounded
semiannually) as if the conversion transaction
were a debt instrument, or
‘‘(B) if the term of the conversion trans-
action is indefinite, the Federal short-term
rates in effect under section 6621(b) during the
period 
of 
the 
conversion 
transaction
(compounded daily).
‘‘(3) TREATMENT OF PROPERTY WITH BUILT-IN
LOSS.—
‘‘(A) IN GENERAL.—If any property with a
built-in loss becomes part of a conversion trans-
action—
‘‘(i) for purposes of applying this sub-
title to such property for periods after such
property becomes part of such transaction,
the adjusted basis of such property shall be
its fair market value as of the time it be-
came part of such transaction, except that
118
•J. 69–001A
‘‘(ii) upon the disposition of such
property in a transaction in which gain or
loss is recognized, such built-in loss shall
be recognized and shall have a character
determined without regard to this section.
‘‘(B) BUILT-IN
LOSS.—For purposes of
subparagraph (A), the term ‘built-in loss’
means the excess (if any) of the adjusted basis
of any property over its fair market value.
‘‘(4) PROPERTY TAKEN INTO ACCOUNT AT FAIR
MARKET VALUE.—In determining the taxpayer’s net
investment in any conversion transaction, there shall
be included the fair market value of any property
which becomes part of such transaction (determined
as of the date on which such property became part
of such transaction).’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part IV of subchapter P of chapter 1 is
amended by adding at the end thereof the following
new item:
‘‘Sec. 1258. Recharacterization of gain from certain financial
transactions.’’
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to conversion transactions
entered into after April 30, 1993.
119
•J. 69–001A
(b) REPEAL OF CERTAIN EXCEPTIONS TO MARKET
DISCOUNT RULES.—
(1) MARKET DISCOUNT BONDS ISSUED ON OR
BEFORE
JULY
18, 1984.—The following provisions
are hereby repealed:
(A) Section 1276(e).
(B) Section 1277(d).
(2) TAX-EXEMPT OBLIGATIONS.—
(A) IN GENERAL.—Paragraph (1) of sec-
tion 1278(a) (defining market discount bond) is
amended—
(i) by striking clause (ii) of subpara-
graph (B) and redesignating subclauses
(iii) and (iv) of such subparagraph as
clauses (ii) and (iii), respectively,
(ii) by redesignating subparagraph
(C) as subparagraph (D), and
(iii) by inserting after subparagraph
(B) the following new subparagraph:
‘‘(C) SECTION 1277 NOT APPLICABLE TO
TAX-EXEMPT
OBLIGATIONS.—For purposes of
section 1277, the term ‘market discount bond’
shall not include any tax-exempt obligation (as
defined in section 1275(a)(3)).’’
120
•J. 69–001A
(B) CONFORMING AMENDMENT.—Sections
1276(a)(4) and 1278(b)(1) are each amended
by striking ‘‘sections 871(a)’’ and inserting
‘‘sections 103, 871(a),’’.
(3) EFFECTIVE DATE.—The amendments made
by this section shall apply to obligations purchased
(within the meaning of section 1272(d)(1) of the In-
ternal Revenue Code of 1986) after April 30, 1993.
(c) 
TREATMENT
OF
STRIPPED
PREFERRED
STOCK.—
(1) IN GENERAL.—Section 305 is amended by
redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new sub-
section:
‘‘(e) TREATMENT OF PURCHASER OF STRIPPED PRE-
FERRED STOCK.—
‘‘(1) IN
GENERAL.—If any person purchases
after April 30, 1993 any stripped preferred stock,
then such person, while holding such stock, shall in-
clude in gross income amounts equal to the amounts
which would have been so includible if such stripped
preferred stock were a bond issued on the purchase
date and having original issue discount equal to the
excess, if any, of—
121
•J. 69–001A
‘‘(A) the redemption price for such stock,
over
‘‘(B) the price at which such person pur-
chased such stock.
The preceding sentence shall also apply in the case
of any person whose basis in such stock is deter-
mined by reference to the basis in the hands of such
purchaser.
‘‘(2) BASIS
ADJUSTMENTS.—Appropriate ad-
justments to basis shall be made for amounts includ-
ible in gross income under paragraph (1).
‘‘(3) TAX TREATMENT OF PERSON STRIPPING
STOCK.—If any person strips the rights to 1 or more
dividends from any stock described in paragraph
(5)(B) and after April 30, 1993 disposes of such
dividend rights, for purposes of paragraph (1), such
person shall be treated as having purchased the
stripped preferred stock on the date of such disposi-
tion for a purchase price equal to such person’s ad-
justed basis in such stripped preferred stock.
‘‘(4) AMOUNTS
TREATED
AS
ORDINARY
IN-
COME.—Any amount included in gross income under
paragraph (1) shall be treated as ordinary income.
‘‘(5) STRIPPED PREFERRED STOCK.—For pur-
poses of this subsection—
122
•J. 69–001A
‘‘(A) IN
GENERAL.—The term ‘stripped
preferred stock’ means any stock described in
subparagraph (B) if there has been a separa-
tion in ownership between such stock and any
dividend on such stock which has not become
payable.
‘‘(B) DESCRIPTION OF STOCK.—Stock is
described in this subsection if such stock—
‘‘(i) is limited and preferred as to
dividends and does not participate in cor-
porate growth to any significant extent,
and
‘‘(ii) has a fixed redemption price.
‘‘(6) PURCHASE.—For purposes of this sub-
section, the term ‘purchase’ means—
‘‘(A) any acquisition of stock, where
‘‘(B) the basis of such stock is not deter-
mined in whole or in part by the reference to
the adjusted basis of such stock in the hands of
the person from whom acquired.’’
(2) COORDINATION
WITH
SECTION
167(e).—
Paragraph (2) of section 167(e) is amended to read
as follows:
‘‘(2) COORDINATION
WITH
OTHER
PROVI-
SIONS.—
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•J. 69–001A
‘‘(A) SECTION 273.—This subsection shall
not apply to any term interest to which section
273 applies.
‘‘(B) SECTION
305(e).—This subsection
shall not apply to the holder of the dividend
rights which were separated from any stripped
preferred stock to which section 305(e)(1) ap-
plies.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on April 30,
1993.
(d) TREATMENT OF CAPITAL GAIN UNDER LIMITA-
TION ON INVESTMENT INTEREST.—
(1) IN GENERAL.—Subparagraph (B) of section
163(d)(4) (defining investment income) is amended
to read as follows:
‘‘(B) INVESTMENT
INCOME.—The term
‘investment income’ means the sum of—
‘‘(i) gross income from property held
for investment (other than any gain taken
into account under clause (ii)(I)),
‘‘(ii) the excess (if any) of—
‘‘(I) the net gain attributable to
the disposition of property held for in-
vestment, over
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•J. 69–001A
‘‘(II) the net capital gain deter-
mined by only taking into account
gains and losses from dispositions of
property held for investment, plus
‘‘(iii) so much of the net capital gain
referred to in clause (ii)(II) (or, if lesser,
the net gain referred to in clause (ii)(I)) as
the taxpayer elects to take into account
under this clause.’’
(2) COORDINATION
WITH
SPECIAL
CAPITAL
GAINS RATE.—Subsection (h) of section 1 is amend-
ed by adding at the end thereof the following new
sentence:
‘‘For purposes of the preceding sentence, the net capital
gain for any taxable year shall be reduced (but not below
zero) by the amount which the taxpayer elects to take into
account as investment income for the taxable year under
section 163(d)(4)(B)(iii).’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1992.
(e) TREATMENT OF CERTAIN APPRECIATED INVEN-
TORY.—
(1) Paragraph (1) of section 751(d) is amended
to read as follows:
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•J. 69–001A
‘‘(1) SUBSTANTIAL APPRECIATION.—
‘‘(A) IN GENERAL.—Inventory items of the
partnership shall be considered to have appre-
ciated substantially in income if their fair mar-
ket value exceeds 120 percent of the adjusted
basis to the partnership of such property.
‘‘(B) CERTAIN
PROPERTY
EXCLUDED.—
For purposes of subparagraph (A), there shall
be excluded any inventory property if a prin-
cipal purpose for acquiring such property was
to avoid the provisions of this section relating
to inventory items.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to sales, exchanges,
and distributions after April 30, 1993.
PART II—OTHER PROVISIONS
SEC. 2111. REPEAL OF LIMITATION ON AMOUNT OF WAGES
SUBJECT TO HEALTH INSURANCE EMPLOY-
MENT TAX.
(a) HOSPITAL INSURANCE TAX.—
(1) Paragraph (1) of section 3121(a) (defining
wages) is amended—
(A) by inserting ‘‘in the case of the taxes
imposed by sections 3101(a) and 3111(a)’’ after
‘‘(1)’’,
126
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(B) by striking ‘‘applicable contribution
base (as determined under subsection (x))’’
each place it appears and inserting ‘‘contribu-
tion and benefit base (as determined under sec-
tion 230 of the Social Security Act)’’, and
(C) by striking ‘‘such applicable contribu-
tion base’’ and inserting ‘‘such contribution and
benefit base’’.
(2) Section 3121 is amended by striking sub-
section (x).
(b) SELF-EMPLOYMENT TAX.—
(1) Subsection (b) of section 1402 is amend-
ed—
(A) by striking ‘‘that part of the net’’ in
paragraph (1) and inserting ‘‘in the case of the
tax imposed by section 1401(a), that part of
the net’’,
(B) by striking ‘‘applicable contribution
base (as determined under subsection (k))’’ in
paragraph (1) and inserting ‘‘contribution and
benefit base (as determined under section 230
of the Social Security Act)’’,
(C) by inserting ‘‘and’’ after ‘‘section
3121(b),’’, and
127
•J. 69–001A
(D) by striking ‘‘and (C) includes’’ and all
that follows through ‘‘3111(b)’’.
(2) Section 1402 is amended by striking sub-
section (k).
(c) RAILROAD RETIREMENT TAX.—
(1) Subparagraph (A) of section 3231(e)(2) is
amended by adding at the end thereof the following
new clause:
‘‘(iii) HOSPITAL INSURANCE TAXES.—
Clause (i) shall not apply to—
‘‘(I) so much of the rate applica-
ble under section 3201(a) or 3221(a)
as does not exceed the rate of tax in
effect under section 3101(b), and
‘‘(II) so much of the rate applica-
ble under section 3211(a)(1) as does
not exceed the rate of tax in effect
under section 1402(b).’’
(2) Clause (i) of section 3231(e)(2)(B) is
amended to read as follows:
‘‘(i) TIER 1 TAXES.—Except as pro-
vided in clause (ii), the term ‘applicable
base’ means for any calendar year the con-
tribution and benefit base determined
128
•J. 69–001A
under section 230 of the Social Security
Act for such calendar year.’’
(d) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 6413(c) is amend-
ed by striking ‘‘section 3101 or section 3201’’ and
inserting ‘‘section 3101(a) or section 3201(a) (to the
extent the rate applicable under section 3201(a) as
does not exceed the rate of tax in effect under sec-
tion 3101(a))’’.
(2) Subparagraphs (B) and (C) of section
6413(c)(2) are each amended by striking ‘‘section
3101’’ each place it appears and inserting ‘‘section
3101(a)’’.
(3) Subsection (c) of section 6413 is amended
by striking paragraph (3).
(4) Sections 3122 and 3125 of such Code are
each amended by striking ‘‘applicable contribution
base limitation’’ and inserting ‘‘contribution and
benefit base limitation’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to 1994 and later calendar years.
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•J. 69–001A
SEC. 2112. TOP ESTATE AND GIFT TAX RATES MADE PERMA-
NENT.
(a) GENERAL RULE.—The table contained in para-
graph (1) of section 2001(c) is amended by striking the
last item and inserting the following new items:
‘‘Over $2,500,000 but not over
$3,000,000.
$1,025,800, plus 53% of the excess
over $2,500,000.
Over $3,000,000 ............................
$1,290,800, plus 55% of the excess
over $3,000,000.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 2001 is amended
by striking paragraph (2) and by redesignating
paragraph (3) as paragraph (2).
(2) Paragraph (2) of section 2001(c), as redes-
ignated by paragraph (1), is amended by striking
‘‘($18,340,000 in the case of decedents dying, and
gifts made, after 1992)’’.
(3) The last sentence of section 2101(b) is
amended by striking ‘‘section 2001(c)(3)’’ and in-
serting ‘‘section 2001(c)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply in the case of decedents dying, and
gifts made, after December 31, 1992.
SEC. 2113. REDUCTION IN DEDUCTIBLE PORTION OF BUSI-
NESS MEALS AND ENTERTAINMENT.
(a) GENERAL RULE.—Paragraph (1) of section
274(n) (relating to only 80 percent of meal and entertain-
130
•J. 69–001A
ment expenses allowed as deduction) is amended by strik-
ing ‘‘80 percent’’ and inserting ‘‘50 percent’’.
(b) CONFORMING
AMENDMENT.—The subsection
heading for section 274(n) is amended by striking ‘‘80’’
and inserting ‘‘50’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 2114. ELIMINATION OF DEDUCTION FOR CLUB MEM-
BERSHIP FEES.
(a) IN GENERAL.—Subsection (a) of section 274 (re-
lating to disallowance of certain entertainment, etc., ex-
penses) is amended by adding at the end thereof the
following new paragraph:
‘‘(3) DENIAL
OF
DEDUCTION
FOR
CLUB
DUES.—Notwithstanding the preceding provisions of
this subsection, no deduction shall be allowed under
this chapter for amounts paid or incurred for mem-
bership in any club organized for business, pleasure,
recreation, or other social purpose.
(b) EXCEPTION FOR EMPLOYEE RECREATIONAL EX-
PENSES NOT TO APPLY.—Paragraph (4) of section
274(e) is amended by adding at the end thereof the follow-
ing: ‘‘This paragraph shall not apply for purposes of sub-
section (a)(3).’’
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•J. 69–001A
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
SEC. 2115. DISALLOWANCE OF DEDUCTION FOR CERTAIN
EMPLOYEE REMUNERATION IN EXCESS OF
$1,000,000.
(a) GENERAL RULE.—Section 162 (relating to trade
or business expenses) is amended by redesignating sub-
section (m) as subsection (n) and by inserting after sub-
section (l) the following new subsection:
‘‘(m) CERTAIN EXCESSIVE EMPLOYEE REMUNERA-
TION.—
‘‘(1) IN GENERAL.—In the case of any publicly
held corporation, no deduction shall be allowed
under this chapter for applicable employee remu-
neration with respect to any covered employee to the
extent that the amount of such remuneration for the
taxable year with respect to such employee exceeds
$1,000,000.
‘‘(2) PUBLICLY HELD CORPORATION.—For pur-
poses of this subsection, the term ‘publicly held cor-
poration’ means any corporation issuing any class of
common equity securities required to be registered
under section 12 of the Securities Exchange Act of
1934.
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•J. 69–001A
‘‘(3) COVERED
EMPLOYEE.—For purposes of
this subsection, the term ‘covered employee’ means
any employee of the taxpayer if—
‘‘(A) as of the close of the taxable year,
such employee is the chief executive officer of
the taxpayer or an individual acting in such a
capacity, or
‘‘(B) the total compensation for the tax-
able year of such employee is required to be re-
ported to shareholders under the Securities Ex-
change Act of 1934 by reason of such employee
being among the 4 highest compensated officers
for the taxable year (other than the chief execu-
tive officer).
‘‘(4) 
APPLICABLE
EMPLOYEE
REMUNERA-
TION.—For purposes of this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘applicable
employee remuneration’ means, with respect to
any covered employee for any taxable year, the
aggregate amount allowable as a deduction
under this chapter for such taxable year (deter-
mined without regard to this subsection) for re-
muneration for services performed by such em-
ployee (whether or not during the taxable year).
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•J. 69–001A
‘‘(B) EXCEPTION
FOR
REMUNERATION
PAYABLE
ON
COMMISSION
BASIS.—The term
‘applicable employee remuneration’ shall not in-
clude any remuneration payable on a commis-
sion basis solely on account of income generated
directly by the individual performance of the in-
dividual to whom such remuneration is payable.
‘‘(C) OTHER
PERFORMANCE-BASED
COM-
PENSATION.—The term ‘applicable employee re-
muneration’ shall not include any remuneration
payable solely on account of the attainment of
one or more performance goals but only if—
‘‘(i) the performance goals are deter-
mined by a compensation committee of the
board of directors of the taxpayer which is
comprised solely of 2 or more independent
directors,
‘‘(ii) the material terms under which
the remuneration is to be paid, including
the performance goals, are disclosed to
shareholders and approved by a majority of
the vote in a separate shareholder vote be-
fore the payment of such remuneration,
and
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•J. 69–001A
‘‘(iii) before any payment of such re-
muneration, the compensation committee
referred to in clause (i) certifies that the
performance goals and any other material
terms were in fact satisfied.
‘‘(D) EXCEPTION FOR EXISTING BINDING
CONTRACTS.—The term ‘applicable employee
remuneration’ shall not include any remunera-
tion payable under a written binding contract
which was in effect on February 17, 1993, and
which was not modified thereafter in any mate-
rial respect before such remuneration is paid.
‘‘(E) REMUNERATION.—For purposes of
this paragraph, the term ‘remuneration’ in-
cludes any remuneration (including benefits) in
any medium other than cash, but shall not in-
clude—
‘‘(i) any payment referred to in so
much of section 3121(a)(5) as precedes
subparagraph (E) thereof, and
‘‘(ii) any benefit provided to or on be-
half of an employee if at the time such
benefit is provided it is reasonable to be-
lieve that the employee will be able to ex-
135
•J. 69–001A
clude such benefit from gross income
under this chapter.
For purposes of clause (i), section 3121(a)(5)
shall be applied without regard to section
3121(v)(1).
‘‘(F) COORDINATION
WITH
DISALLOWED
GOLDEN
PARACHUTE
PAYMENTS.—The dollar
limitation contained in paragraph (1) shall be
reduced (but not below zero) by the amount (if
any) which would have been included in the ap-
plicable employee remuneration of the covered
employee for the taxable year but for being dis-
allowed under section 280G.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to amounts which would other-
wise be deductible for taxable years beginning on or after
January 1, 1994.
SEC. 2116. REDUCTION IN COMPENSATION TAKEN INTO AC-
COUNT IN DETERMINING CONTRIBUTIONS
AND BENEFITS UNDER QUALIFIED RETIRE-
MENT PLANS.
(a) IN GENERAL.—Sections 401(a)(17), 404(l), and
505(b)(7) are each amended—
(1) by striking ‘‘$200,000’’ in the first sentence
and inserting ‘‘$150,000’’, and
136
•J. 69–001A
(2) by striking the second sentence and insert-
ing ‘‘In the case of years beginning after 1994, the
Secretary shall adjust the $150,000 amount at the
same time and in the same manner as under section
415(d), except that the base period for purposes of
section 415(d)(1)(A) shall be the calendar quarter
beginning October 1, 1994.’’
(b) SIMPLIFIED EMPLOYEE PENSIONS.—
(1) IN
GENERAL.—Paragraphs (3)(C) and
(6)(D)(ii) of section 408(k) are each amended by
striking ‘‘$200,000’’ and inserting ‘‘$150,000’’.
(2) COST-OF-LIVING.—Paragraph (8) of section
408(k) is amended to read as follows:
‘‘(8) COST-OF-LIVING ADJUSTMENT.—The Sec-
retary shall adjust the $300 amount in paragraph
(2)(C) at the same time and in the same manner as
under section 415(d) and shall adjust the $150,000
amount in paragraphs (3)(C) and (6)(D)(ii) at the
same time and by the same amount as the adjust-
ment 
to 
the 
$150,000 
amount 
in 
section
401(a)(17).’’
(c) CONFORMING AMENDMENT.—The heading for
section 505(b)(7) is amended by striking ‘‘$200,000’’.
137
•J. 69–001A
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to benefits accruing in plan years
beginning after December 31, 1993.
SEC. 2117. MODIFICATION TO DEDUCTION FOR CERTAIN
MOVING EXPENSES.
(a) REPEAL OF DEDUCTION FOR QUALIFIED RESI-
DENCE SALE, ETC., EXPENSES.—
(1) IN
GENERAL.—Paragraph (1) of section
217(b) (defining moving expenses) is amended by in-
serting ‘‘or’’ at the end of subparagraph (C), by
striking ‘‘, or’’ at the end of subparagraph (D) and
inserting 
a 
period, 
and 
by 
striking
subparagraph (E).
(2) CONFORMING AMENDMENTS.—
(A) Subsection (b) of section 217 is
amended by striking paragraph (2) and redesig-
nating paragraph (3) as paragraph (2).
(B) Paragraph (2) of section 217(b) (as
redesignated by subparagraph (A)) is amend-
ed—
(i) by striking the last sentence of
subparagraph (A), and
(ii) by striking ‘‘, and by’’ in subpara-
graph (B) and all that follows down
138
•J. 69–001A
through the period at the end of subpara-
graph (B) and inserting a period.
(C) Paragraph (1) of section 217(h) is
amended by striking subparagraphs (B) and
(C) and inserting the following:
‘‘(B) subsection (b)(2)(A) shall be applied
by substituting ‘$4,500’ for ‘$1,500’, and
‘‘(C) subsection (b)(2)(B) shall be applied
as if the last sentence of such subsection read
as follows: ‘In the case of a husband and wife
filing separate returns, subparagraph (A) shall
be applied by substituting ‘‘$2,250’’ for
‘‘$4,500’’.’ ’’
(D) Section 217 is amended by striking
subsection (e).
(b) DEDUCTION
DISALLOWED
FOR
MEAL
EX-
PENSES.—Paragraph (1) of section 217(b) is amended—
(1) by striking ‘‘meals and lodging’’ in subpara-
graphs (B), (C) and (D) and inserting ‘‘lodging’’,
and
(2) by adding at the end thereof the following
new sentence:
‘‘Such term shall not include any expenses for
meals.’’.
139
•J. 69–001A
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenses incurred after Decem-
ber 31, 1993.
Subtitle B—Provisions Affecting
Businesses
SEC. 2201. INCREASE IN TOP MARGINAL RATE UNDER SEC-
TION 11.
(a) GENERAL RULE.—Paragraph (1) of section 11(b)
(relating to amount of tax) is amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (B),
(2) by striking subparagraph (C) and inserting
the following:
‘‘(C) 34 percent of so much of the taxable
income as exceeds $75,000 but does not exceed
$10,000,000, and
‘‘(D) 36 percent of so much of the taxable
income as exceeds $10,000,000.’’, and
(3) by adding at the end thereof the following
new sentence: ‘‘In the case of a corporation which
has taxable income in excess of $15,000,000, the
amount of the tax determined under the foregoing
provisions of this paragraph shall be increased by an
additional amount equal to the lesser of (i) 3 percent
of such excess, or (ii) $200,000.’’.
140
•J. 69–001A
(b) CERTAIN PERSONAL SERVICE CORPORATIONS.—
Paragraph (2) of section 11(b) is amended by striking ‘‘34
percent’’ and inserting ‘‘36 percent’’.
(c) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) is
amended by striking ‘‘66 percent’’ and inserting ‘‘64
percent’’.
(2) Subsection (a) of section 1201 is amended
by striking ‘‘34 percent’’ each place it appears and
inserting ‘‘36 percent’’.
(3) Paragraphs (1) and (2) of section 1445(e)
are each amended by striking ‘‘34 percent’’ and in-
serting ‘‘36 percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning on or
after January 1, 1993; except that the amendment made
by subsection (c)(3) shall take effect on the date of the
enactment of this Act.
SEC. 2202. DENIAL OF DEDUCTION FOR LOBBYING EX-
PENSES.
(a) DISALLOWANCE OF DEDUCTION.—Section 162(e)
(relating to appearances, etc., with respect to legislation)
is amended to read as follows:
‘‘(e) DENIAL OF DEDUCTION FOR CERTAIN LOBBY-
ING AND POLITICAL EXPENDITURES.—
141
•J. 69–001A
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed under subsection (a) for any amount paid or
incurred—
‘‘(A) in connection with influencing legisla-
tion,
‘‘(B) for participation in, or intervention
in, any political campaign on behalf of (or in
opposition to) any candidate for public office, or
‘‘(C) in connection with any attempt to in-
fluence the general public, or segments thereof,
with respect to elections.
‘‘(2) APPLICATION TO DUES.—
‘‘(A) IN GENERAL.—No deduction shall be
allowed under subsection (a) for the portion of
dues or other similar amounts (paid by the tax-
payer with respect to an organization) which is
allocable to the expenditures described in para-
graph (1).
‘‘(B) ALLOCATION.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), expenditures described
in paragraph (1) shall be treated as paid
out of dues or other similar amounts.
‘‘(ii) CARRYOVER
OF
LOBBYING
EX-
PENDITURES
IN
EXCESS
OF
DUES.—For
142
•J. 69–001A
purposes of this paragraph, if expenditures
described in paragraph (1) exceed the dues
or other similar amounts for any calendar
year, such excess shall be treated as ex-
penditures described in paragraph (1)
which are paid or incurred by the organi-
zation during the following calendar year.
‘‘(3) INFLUENCING
LEGISLATION.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘influencing
legislation’ means—
‘‘(i) any attempt to influence the gen-
eral public, or segments thereof, with re-
spect to legislation, and
‘‘(ii) any attempt to influence any leg-
islation through communication with any
member or employee of the legislative
body, or with any government official or
employee who may participate in the for-
mulation of the legislation.
‘‘(B) EXCEPTION
FOR
CERTAIN
TECH-
NICAL ADVICE.—The term ‘influencing legisla-
tion’ shall not include the providing of technical
advice or assistance to a governmental body or
to a committee or other subdivision thereof in
143
•J. 69–001A
response to a specific written request by such
governmental entity to the taxpayer which
specifies the nature of the advice or assistance
requested.
‘‘(C) LEGISLATION.—The term ‘legislation’
has the meaning given such term by section
4911(e)(2).
‘‘(4) EXCEPTION FOR CERTAIN TAXPAYERS.—
In the case of any taxpayer engaged in the trade or
business of conducting activities described in para-
graph (1), paragraph (1) shall not apply to expendi-
tures of the taxpayer in conducting such activities on
behalf of another person (but shall apply to pay-
ments by such other person to the taxpayer for con-
ducting such activities).
‘‘(5) CROSS REFERENCE.—
‘‘For reporting requirements related to this sub-
section, see section 6050O.’’
(b) REPORTING REQUIREMENTS.—
(1) IN GENERAL.—Subpart B of part III of
subchapter A of chapter 61 (relating to information
concerning transactions with other persons) is
amended by adding at the end the following new
section:
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•J. 69–001A
‘‘SEC. 6050O. RETURNS RELATING TO LOBBYING EXPENDI-
TURES OF CERTAIN ORGANIZATIONS.
‘‘(a) REQUIREMENT OF REPORTING.—Each organi-
zation referred to in section 162(e)(2) shall make a return,
according to the forms or regulations prescribed by the
Secretary, setting forth the names and addresses of per-
sons paying dues to the organization, the amount of the
dues paid by such person, and the portion of such dues
which is nondeductible under section 162(e)(2).
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS
WITH
RESPECT
TO
WHOM
INFORMATION
IS
FUR-
NISHED.—Any organization required to make a return
under subsection (a) shall furnish to each person whose
name is required to be set forth in such return a written
statement showing—
‘‘(1) the name and address of the organization,
and
‘‘(2) the dues paid by the person during the cal-
endar year and the portion of such dues which is
nondeductible under section 162(e)(2).
The written statement required under the preceding sen-
tence shall be furnished (either in person or in a statement
mailing by first-class mail which includes adequate notice
that the statement is enclosed) to the persons on or before
January 31 of the year following the calendar year for
which the return under subsection (a) was made and shall
145
•J. 69–001A
be in such form as the Secretary may prescribe by regula-
tions.
‘‘(c) WAIVER.—The Secretary may waive the report-
ing requirements of this section with respect to any orga-
nization or class of organizations if the Secretary deter-
mines that such reporting is not necessary to carry out
the purposes of section 162(e).
‘‘(d) DUES.—For purposes of this section, the term
‘dues’ includes other similar amounts.’’
(2) PENALTIES.—
(A) RETURNS.—Subparagraph (A) of sec-
tion 6724(d)(1) (defining information return) is
amended by striking ‘‘or’’ at the end of clause
(xi), by striking the period at the end of the
clause (xii) relating to section 4101(d) and in-
serting a comma, by redesignating the clause
(xii) relating to section 338(h)(10) as clause
(xiii), by striking the period at the end of clause
(xiii) (as so redesignated) and inserting ‘‘, or’’,
and by adding at the end the following new
clause:
‘‘(xiv) section 6050O(a) (relating to
information on nondeductible lobbying ex-
penditures).’’
147
•J. 69–001A
‘‘(B) the highest rate of tax imposed by
section 11 for taxable years beginning in such
calendar year.’’
(3) CONFORMING AMENDMENT.—The table of
sections for subpart B of part III of subchapter A
of chapter 61 is amended by adding at the end the
following new item:
‘‘Sec. 6050O. Returns relating to lobbying expenditures of certain
organizations.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
SEC. 2203. MARK TO MARKET ACCOUNTING METHOD FOR
SECURITIES DEALERS.
(a) GENERAL RULE.—Subpart D of part II of sub-
chapter E of chapter 1 (relating to inventories) is amend-
ed by adding at the end thereof the following new section:
‘‘SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR
DEALERS IN SECURITIES.
‘‘(a) GENERAL RULE.—Notwithstanding any other
provision of this subpart, the following rules shall apply
to securities held by a dealer in securities:
‘‘(1) Any security which is inventory in the
hands of the dealer shall be included in inventory at
its fair market value.
148
•J. 69–001A
‘‘(2) In the case of any security which is not in-
ventory in the hands of the dealer and which is held
at the close of any taxable year—
‘‘(A) the dealer shall recognize gain or loss
as if such security were sold for its fair market
value on the last business day of such taxable
year, and
‘‘(B) any gain or loss shall be taken into
account for such taxable year.
Proper adjustment shall be made in the amount of
any gain or loss subsequently realized for gain or
loss taken into account under the preceding sen-
tence. The Secretary may provide by regulations for
the application of this paragraph at times other than
the times provided in this paragraph.
‘‘(b) EXCEPTIONS.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to—
‘‘(A) any security held for investment,
‘‘(B)(i) any security described in sub-
section (c)(2)(C) which is acquired (including
originated) by the taxpayer in the ordinary
course of a trade or business of the taxpayer
and which is not held for sale, and (ii) any obli-
gation to acquire a security described in clause
149
•J. 69–001A
(i) if such obligation is entered into in the ordi-
nary course of such trade or business and is not
held for sale, and
‘‘(C) any security which is a hedge with re-
spect to—
‘‘(i) a security to which subsection (a)
does not apply, or
‘‘(ii) a position, right to income, or a
liability which is not a security in the
hands of the taxpayer.
To the extent provided in regulations, subparagraph
(C) shall not apply to any security held by a person
in its capacity as a dealer in securities.
‘‘(2) IDENTIFICATION
REQUIRED.—A security
shall not be treated as described in subparagraph
(A), (B), or (C) of paragraph (1), as the case may
be, unless such security is clearly identified in the
dealer’s records as being described in such subpara-
graph before the close of the day on which it was ac-
quired, originated, or entered into (or such other
time as the Secretary may by regulations prescribe).
‘‘(3) SECURITIES
SUBSEQUENTLY
NOT
EX-
EMPT.—If a security ceases to be described in para-
graph (1) at any time after it was identified as such
under paragraph (2), subsection (a) shall apply to
150
•J. 69–001A
any changes in value of the security occurring after
the cessation.
‘‘(4) SPECIAL RULE FOR PROPERTY HELD FOR
INVESTMENT.—To the extent provided in regula-
tions, subparagraph (A) of paragraph (1) shall not
apply to any security described in subparagraph (D)
or (E) of subsection (c)(2) which is held by a dealer
in such securities.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) DEALER IN SECURITIES DEFINED.—The
term ‘dealer in securities’ means a taxpayer who—
‘‘(A) regularly purchases securities from or
sells securities to customers in the ordinary
course of a trade or business; or
‘‘(B) regularly offers to enter into, assume,
offset, assign or otherwise terminate positions
in securities with customers in the ordinary
course of a trade or business.
‘‘(2) SECURITY DEFINED.—The term ‘security’
means any—
‘‘(A) share of stock in a corporation;
‘‘(B) partnership or beneficial ownership
interest in a widely held or publicly traded part-
nership or trust;
151
•J. 69–001A
‘‘(C) note, bond, debenture, or other evi-
dence of indebtedness;
‘‘(D) interest rate, currency, or equity no-
tional principal contract;
‘‘(E) evidence of an interest in, or a deriv-
ative financial instrument in, any security de-
scribed in subparagraph (A), (B), (C), or (D),
or any currency, including any option, forward
contract, short position, and any similar finan-
cial instrument in such a security or currency;
and
‘‘(F) position which—
‘‘(i) is not a security described in sub-
paragraph (A), (B), (C), (D), or (E),
‘‘(ii) is a hedge with respect to such
a security, and
‘‘(iii) is clearly identified in the deal-
er’s records as being described in this sub-
paragraph before the close of the day on
which it was acquired or entered into (or
such other time as the Secretary may by
regulations prescribe).
Subparagraph (E) shall not include any contract to
which section 1256(a) applies.
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•J. 69–001A
‘‘(3) HEDGE.—The term ‘hedge’ means any po-
sition which reduces the dealer’s risk of interest rate
or price changes or currency fluctuations, including
any position which is reasonably expected to become
a hedge within 60 days after the acquisition of the
position.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) COORDINATION WITH CERTAIN RULES.—
The rules of sections 263(g), 263A, and 1256(a)
shall not apply to securities to which subsection (a)
applies, and section 1091 shall not apply (and sec-
tion 1092 shall apply) to any loss recognized under
subsection (a).
‘‘(2) IMPROPER
IDENTIFICATION.—If a tax-
payer—
‘‘(A) identifies any security under sub-
section (b)(2) as being described in subsection
(b)(1) and such security is not so described, or
‘‘(B) fails under subsection (c)(2)(F)(iii) to
identify any position which is described in sub-
section (c)(2)(F) (without regard to clause (iii)
thereof) at the time such identification is re-
quired,
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•J. 69–001A
the provisions of subsection (a) shall apply to such
security or position, except that any loss under this
section prior to the disposition of the security or po-
sition shall be recognized only to the extent of gain
previously recognized under this section (and not
previously taken into account under this paragraph)
with respect to such security or position.
‘‘(3) CHARACTER OF GAIN OR LOSS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) or section 1236(b)—
‘‘(i) IN GENERAL.—Any gain or loss
with respect to a security under subsection
(a)(2) shall be treated as ordinary income
or loss.
‘‘(ii) SPECIAL
RULE
FOR
DISPOSI-
TIONS.—If—
‘‘(I) gain or loss is recognized
with respect to a security before the
close of the taxable year, and
‘‘(II) subsection (a)(2) would
have applied if the security were held
as of the close of the taxable year,
such gain or loss shall be treated as ordi-
nary income or loss.
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•J. 69–001A
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to any gain or loss which is allo-
cable to a period during which—
‘‘(i) the security is described in sub-
section (b)(1)(C) (without regard to sub-
section (b)(2)),
‘‘(ii) the security is held by a person
other than in connection with its activities
as a dealer in securities, or
‘‘(iii) the security is improperly identi-
fied (within the meaning of subparagraph
(A) or (B) of paragraph (2)).
‘‘(e) REGULATORY AUTHORITY.—The Secretary shall
prescribe such regulations as may be necessary or appro-
priate to carry out the purposes of this section, including
rules—
‘‘(1) to prevent the use of year-end transfers,
related parties, or other arrangements to avoid the
provisions of this section, and
‘‘(2) to provide for the application of this sec-
tion to any security which is a hedge which cannot
be identified with a specific security, position, right
to income, or liability.’’
(b) CONFORMING AMENDMENTS.—
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•J. 69–001A
(1) Paragraph (1) of section 988(d) is amend-
ed—
(A) by striking ‘‘section 1256’’ and insert-
ing ‘‘section 475 or 1256’’, and
(B) by striking ‘‘1092 and 1256’’ and in-
serting ‘‘475, 1092, and 1256’’.
(2) The table of sections for subpart D of part
II of subchapter E of chapter 1 is amended by add-
ing at the end thereof the following new item:
‘‘Sec. 475. Mark to market accounting method for dealers in secu-
rities.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to all taxable years ending on
or after December 31, 1993.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method of accounting for any taxable
year—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary, and
(C) except as provided in paragraph (3),
the net amount of the adjustments required to
be taken into account by the taxpayer under
156
•J. 69–001A
section 481 of the Internal Revenue Code of
1986 shall be taken into account ratably over
the 5-taxable year period beginning with the
first taxable year ending on or after December
31, 1993.
(3) SPECIAL
RULE
FOR
FLOOR
SPECIALISTS
AND MARKET MAKERS.—
(A) IN GENERAL.—If—
(i) a taxpayer used the last-in first-
out (LIFO) method of accounting with re-
spect to any qualified securities for its last
taxable year ending before December 31,
1993, and
(ii) any portion of the net amount de-
scribed in paragraph (2)(C) is attributable
to the use of such method of accounting,
then paragraph (2)(C) shall be applied by tak-
ing such portion into account ratably over the
20-taxable year period beginning with the first
taxable year ending on or after December 31,
1993 (or, if shorter, the period of taxable years
equal to the greater of 5 years or the number
of taxable years before such first taxable year
for which the taxpayer (or any predecessor)
used such method of accounting).
157
•J. 69–001A
(B) QUALIFIED SECURITY.—For purposes
of this paragraph, the term ‘‘qualified security’’
means any security acquired—
(i) by a floor specialist (as defined in
section 1236(d)(2) of the Internal Revenue
Code of 1986) in connection with the spe-
cialist’s duties as a specialist on an ex-
change, but only if the security is one in
which the specialist is registered with the
exchange, or
(ii) by a taxpayer who is a market
maker in connection with the taxpayer’s
duties as a market maker, but only if—
(I) the security is included on the
National Association of Security Deal-
ers Automated Quotation System,
(II) the taxpayer is registered as
a market maker in such security with
the National Association of Security
Dealers, and
(III) as of the last day of the
taxable year preceding the taxpayer’s
first taxable year ending on or after
December 31, 1993, the taxpayer (or
any predecessor) has been actively
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•J. 69–001A
and regularly engaged as a market
maker in such security for the 2-year
period ending on such date (or, if
shorter, the period beginning 61 days
after the security was listed in such
quotation system and ending on such
date).
SEC. 2204. CLARIFICATION OF TREATMENT OF CERTAIN
FSLIC FINANCIAL ASSISTANCE.
(a) GENERAL RULE.—For purposes of chapter 1 of
the Internal Revenue Code of 1986—
(1) any FSLIC assistance with respect to any
loss of principal, capital, or similar amount upon the
disposition of any asset shall be taken into account
as compensation for such loss for purposes of section
165 of such Code, and
(2) any FSLIC assistance with respect to any
debt shall be taken into account for purposes of sec-
tion 166, 585, or 593 of such Code in determining
whether such debt is worthless (or the extent to
which such debt is worthless) and in determining the
amount of any addition to a reserve for bad debts
arising from the worthlessness or partial worthless-
ness of such debts.
159
•J. 69–001A
(b) FSLIC ASSISTANCE.—For purposes of this sec-
tion, the term ‘‘FSLIC assistance’’ means any assistance
(or right to assistance) with respect to a domestic building
and loan association (as defined in section 7701(a)(19) of
such Code without regard to subparagraph (C) thereof)
under section 406(f) of the National Housing Act or sec-
tion 21A of the Federal Home Loan Bank Act (or under
any similar provision of law).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection—
(A) The provisions of this section shall
apply to taxable years ending on or after March
4, 1991, but only with respect to FSLIC assist-
ance not credited before March 4, 1991.
(B) If any FSLIC assistance not credited
before March 4, 1991, is with respect to a loss
sustained or charge-off in a taxable year ending
before March 4, 1991, for purposes of deter-
mining the amount of any net operating loss
carryover to a taxable year ending on or after
March 4, 1991, the provisions of this section
shall apply to such assistance for purposes of
determining the amount of the net operating
loss for the taxable year in which such loss was
160
•J. 69–001A
sustained or debt written off. Except as pro-
vided in the preceding sentence, this section
shall not apply to any FSLIC assistance with
respect to a loss sustained or charge-off in a
taxable year ending before March 4, 1991.
(2) EXCEPTIONS.—The provisions of this sec-
tion shall not apply to any assistance to which the
amendments made by section 1401(a)(3) of the Fi-
nancial Institutions Reform, Recovery, and Enforce-
ment Act of 1989 apply.
SEC. 2205. EXTENSION OF CORPORATE ESTIMATED TAX
RULES.
(a) 
GENERAL
RULE.—Clause 
(i) 
of 
section
6655(d)(1)(B) (relating to amount of required install-
ment) is amended by striking ‘‘91 percent’’ each place it
appears and inserting ‘‘97 percent’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 6655 is amend-
ed—
(A) by striking paragraph (3), and
(B) by striking ‘‘91 PERCENT’’ in the para-
graph heading of paragraph (2) and inserting
‘‘97 PERCENT’’.
161
•J. 69–001A
(2) Clause (ii) of section 6655(e)(2)(B) is
amended by striking the table contained therein and
inserting the following:
‘‘In the case of the following re-
quired installments:
The applicable percentage
is:
1st ............................................................................................
24.25
2nd ...........................................................................................
48.50
3rd ............................................................................................
72.75
4th ............................................................................................
97.
’’
(3) Clause (i) of section 6655(e)(3)(A) is
amended by striking ‘‘91 percent’’ and inserting ‘‘97
percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 2206. LIMITATION ON SECTION 936 CREDIT.
(a) GENERAL RULE.—Subsection (a) of section 936
(relating to Puerto Rico and possession tax credit) is
amended—
(1) by striking ‘‘as provided in paragraph (3)’’
in paragraph (1) and inserting ‘‘as otherwise pro-
vided in this section’’;
(2) by adding at the end thereof the following
new paragraph:
‘‘(4) LIMITATIONS ON CREDIT.—
‘‘(A) CREDIT
FOR
ACTIVE
BUSINESS
IN-
COME.—The amount of the credit determined
under paragraph (1)(A) for any taxable year
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•J. 69–001A
shall not exceed 60 percent of the aggregate
amount of the possession corporation’s qualified
possession wages for such taxable year.
‘‘(B) CREDIT FOR INVESTMENT INCOME.—
‘‘(i) IN GENERAL.—If—
‘‘(I) the QPSII assets of the pos-
session corporation for any taxable
year, exceed
‘‘(II) 80 percent of such posses-
sion corporation’s qualified tangible
business investment for such taxable
year,
the credit determined under paragraph
(1)(B) for such taxable year shall be re-
duced by the amount determined under
clause (ii).
‘‘(ii) AMOUNT
OF
REDUCTION.—The
reduction determined under this clause for
any taxable year is an amount which bears
the same ratio to the credit determined
under paragraph (1)(B) for such taxable
year (determined without regard to this
subparagraph) as—
‘‘(I) the excess determined under
clause (i), bears to
163
•J. 69–001A
‘‘(II) the QPSII assets of the
possession corporation for such tax-
able year.
‘‘(C) CROSS REFERENCE.—
‘‘For definitions and special rules applicable to
this paragraph, see subsection (i).’’
(b) DEFINITIONS AND SPECIAL RULES.—Section 936
is amended by adding at the end thereof the following new
subsection:
‘‘(i) DEFINITIONS AND SPECIAL RULES RELATING
TO LIMITATIONS OF SUBSECTION (a)(4).—
‘‘(1) QUALIFIED
POSSESSION
WAGES.—For
purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘qualified
possession wages’ means wages paid or incurred
by the possession corporation during the tax-
able year to any employee for services per-
formed in a possession of the United States,
but only if such services are performed while
the principal place of employment of such em-
ployee is within such possession.
‘‘(B) LIMITATION ON AMOUNT OF WAGES
TAKEN INTO ACCOUNT.—
‘‘(i) IN
GENERAL.—The amount of
wages which may be taken into account
under subparagraph (A) with respect to
164
•J. 69–001A
any employee for any taxable year shall
not exceed the contribution and benefit
base determined under section 230 of the
Social Security Act for the calendar year
in which such taxable year begins.
‘‘(ii) TREATMENT OF PART-TIME EM-
PLOYEES, ETC.—If—
‘‘(I) any employee is not em-
ployed by the possession corporation
on a substantially full-time basis at all
times during the taxable year, or
‘‘(II) the principal place of em-
ployment of any employee with the
possession corporation is not within a
possession at all times during the tax-
able year,
the limitation applicable under clause (i)
with respect to such employee shall be the
appropriate portion (as determined by the
Secretary) of the limitation which would
otherwise be in effect under clause (i).
‘‘(C) TREATMENT
OF
CERTAIN
EMPLOY-
EES.—The term ‘qualified possession wages’
shall not include any wages paid to employees
who are assigned by the employer to perform
165
•J. 69–001A
services for another person, unless the principal
trade or business of the employer is to make
employees available for temporary periods to
other persons in return for compensation. All
possession corporations treated as 1 corporation
under paragraph (4) shall be treated as 1 em-
ployer for purposes of the preceding sentence.
‘‘(D) WAGES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the term ‘wages’ has
the meaning given to such term by sub-
section (b) of section 3306 (determined
without regard to any dollar limitation
contained in such section). For purposes of
the preceding sentence, such subsection (b)
shall be applied as if the term ‘United
States’ included all possessions of the
United States.
‘‘(ii) SPECIAL
RULE
FOR
AGRICUL-
TURAL LABOR AND RAILWAY LABOR.—In
any case to which subparagraph (A) or (B)
of paragraph (1) of section 51(h) applies,
the term ‘wages’ has the meaning given to
such term by section 51(h)(2).
166
•J. 69–001A
‘‘(2) QPSII ASSETS.—For purposes of this sec-
tion—
‘‘(A) IN GENERAL.—The QPSII assets of a
possession corporation for any taxable year is
the average of the amounts of the possession
corporation’s qualified investment assets as of
the close of each quarter of such taxable year.
‘‘(B) QUALIFIED INVESTMENT ASSETS.—
The term ‘qualified investment assets’ means
the aggregate adjusted bases of the assets
which are held by the possession corporation
and the income from which qualifies as quali-
fied possession source investment income. For
purposes of the preceding sentence, the ad-
justed basis of any asset shall be its adjusted
basis as determined for purposes of computing
earnings and profits.
‘‘(3) QUALIFIED TANGIBLE BUSINESS INVEST-
MENT.—For purposes of this section—
‘‘(A) IN GENERAL.—The qualified tangible
business investment of any possession corpora-
tion for any taxable year is the average of the
amounts of the possession corporation’s quali-
fied possession investments as of the close of
each quarter of such taxable year.
167
•J. 69–001A
‘‘(B) QUALIFIED
POSSESSION
INVEST-
MENTS.—The term ‘qualified possession invest-
ments’ means the aggregate adjusted bases of
tangible property used by the possession cor-
poration in a possession of the United States in
the active conduct of a trade or business within
such possession. For purposes of the preceding
sentence, the adjusted basis of any property
shall be its adjusted basis as determined for
purposes of computing earnings and profits.
‘‘(4) ELECTION TO COMPUTE CREDIT ON CON-
SOLIDATED BASIS.—
‘‘(A) IN GENERAL.—Any affiliated group
may elect to treat all possession corporations
which would be members of such group but for
section 1504(b)(4) as 1 corporation for pur-
poses of this section. The credit determined
under this section with respect to such 1 cor-
poration shall be allocated among such posses-
sion corporations in such manner as the Sec-
retary may prescribe.
‘‘(B) ELECTION.—An election under sub-
paragraph (A) shall apply to the taxable year
for which made and all succeeding taxable years
168
•J. 69–001A
unless revoked with the consent of the Sec-
retary.
‘‘(5) TREATMENT
OF
CERTAIN
TAXES.—Not-
withstanding subsection (c), if—
‘‘(A) the credit determined under sub-
section (a)(1) for any taxable year is limited
under subsection (a)(4), and
‘‘(B) the possession corporation has paid
or accrued any taxes of a possession of the
United States for such taxable year which are
treated as not being income, war profits, or ex-
cess profits taxes paid or accrued to a posses-
sion of the United States by reason of sub-
section (c),
such possession corporation shall be allowed a de-
duction for such taxable year equal to the portion of
such taxes which are allocable (on a pro rata basis)
to taxable income of the possession corporation the
tax on which is not offset by reason of the limita-
tions of subsection (a)(4). In determining the credit
under subsection (a) and in applying the preceding
sentence, taxable income shall be determined without
regard to the preceding sentence.
‘‘(6) POSSESSION
CORPORATION.—The term
‘possession corporation’ means a domestic corpora-
169
•J. 69–001A
tion for which the election provided in subsection (a)
is in effect.
‘‘(7) TRANSITIONAL RULE.—If any possession
corporation elects the benefits of this paragraph for
any taxable year beginning in 1994 or 1995—
‘‘(A) subsection (a)(4) shall not apply to
such taxable year, and
‘‘(B) the credit determined under sub-
section (a)(1) for such taxable year shall be the
following percentage of the credit which would
otherwise have been determined under such
subsection:
‘‘(i) 80 percent in the case of a tax-
able year beginning in 1994.
‘‘(ii) 60 percent in the case of a tax-
able year beginning in 1995.
A possession corporation which elects the bene-
fits of this paragraph shall be entitled to the
benefits of paragraph (5) for taxes allocable to
taxable income the tax on which is not offset by
reason of this paragraph.’’
(c) MINIMUM TAX TREATMENT.—
(1) IN
GENERAL.—Clause (ii) of section
56(g)(4)(C) (relating to treatment of special rule for
certain dividends) is amended by striking ‘‘sections
170
•J. 69–001A
936 and 921’’ and inserting ‘‘sections 936 (including
subsection (a)(4) thereof) and 921’’.
(2) TREATMENT OF FOREIGN TAXES.—Clause
(iii) of section 56(g)(4)(C) is amended by adding at
the end thereof the following subclauses:
‘‘(IV) SEPARATE
APPLICATION
OF
FOREIGN
TAX
CREDIT
LIMITA-
TIONS.—In determining the alter-
native minimum foreign tax credit,
section 904(d) shall be applied as if
dividends from a corporation eligible
for the credit provided by section 936
were a separate category of income re-
ferred to in a subparagraph of section
904(d)(1).
‘‘(V) COORDINATION WITH LIMI-
TATION
ON 936 CREDIT.—Any ref-
erence in this clause to a dividend re-
ceived from a corporation eligible for
the credit provided by section 936
shall be treated as a reference to the
portion of any such dividend for which
the dividends received deduction is
disallowed under clause (i) after the
application of clause (ii)(I).’’
171
•J. 69–001A
(d) CONFORMING AMENDMENT.—Paragraph (4) of
section 904(b) is amended by inserting before the period
at the end thereof the following: ‘‘(without regard to sub-
section (a)(4) thereof)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 2207. MODIFICATION TO LIMITATION ON DEDUCTION
FOR CERTAIN INTEREST.
(a) GENERAL RULE.—Paragraph (3) of section
163(j) (defining disqualified interest) is amended to read
as follows:
‘‘(3) DISQUALIFIED INTEREST.—For purposes
of this subsection, the term ‘disqualified interest’
means—
‘‘(A) any interest paid or accrued by the
taxpayer (directly or indirectly) to a related
person if no tax is imposed by this subtitle with
respect to such interest, and
‘‘(B) any interest paid or accrued by the
taxpayer with respect to any indebtedness to a
person who is not a related person if—
‘‘(i) there is a disqualified guarantee
of such indebtedness, and
172
•J. 69–001A
‘‘(ii) no gross basis tax is imposed by
this subtitle with respect to such interest.’’
(b) DEFINITIONS.—Paragraph (6) of section 163(j)
is amended by adding at the end thereof the following new
subparagraphs:
‘‘(D) DISQUALIFIED GUARANTEE.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the term ‘disqualified
guarantee’ means any guarantee by a re-
lated person which is—
‘‘(I) an organization exempt from
taxation under this subtitle, or
‘‘(II) a foreign person.
‘‘(ii) EXCEPTIONS.—The term ‘dis-
qualified guarantee’ shall not include a
guarantee—
‘‘(I) in any circumstances identi-
fied by the Secretary by regulation,
where the interest on the indebtedness
would have been subject to a net basis
tax if the interest had been paid to
the guarantor, or
‘‘(II) if the taxpayer owns a con-
trolling interest in the guarantor.
173
•J. 69–001A
For purposes of subclause (II), except as
provided in regulations, the term ‘a con-
trolling interest’ means direct or indirect
ownership of at least 80 percent of the
total voting power and value of all classes
of stock of a corporation, or 80 percent of
the profit and capital interests in any other
entity. For purposes of the preceding sen-
tence, the rules of paragraphs (1) and (5)
of section 267(c) shall apply; except that
such rules shall also apply to interest in
entities other than corporations.
‘‘(iii) GUARANTEE.—Except as pro-
vided in regulations, the term ‘guarantee’
includes any arrangement under which a
person (directly or indirectly through an
entity or otherwise) assures, on a condi-
tional or unconditional basis, the payment
of another person’s obligation under any
indebtedness.
‘‘(E) GROSS BASIS AND NET BASIS TAX-
ATION.—
‘‘(i) GROSS
BASIS
TAX.—The term
‘gross basis tax’ means any tax imposed by
this subtitle which is determined by ref-
174
•J. 69–001A
erence to the gross amount of any item of
income without any reduction for any de-
duction allowed by this subtitle.
‘‘(ii) NET BASIS TAX.—The term ‘net
basis tax’ means any tax imposed by this
subtitle which is a not a gross basis tax.’’
(c) CONFORMING AMENDMENT.—Subparagraph (B)
of section 163(j)(5) is amended by striking ‘‘to a related
person’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest paid or accrued in tax-
able years beginning after December 31, 1993.
Subtitle C—Foreign Tax Provisions
PART I—CURRENT TAXATION OF CERTAIN EARN-
INGS OF CONTROLLED FOREIGN CORPORA-
TIONS
SEC. 2301. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
(a) GENERAL RULE.—Paragraph (1) of section
951(a) (relating to amounts included in gross income of
United States shareholders) is amended by striking ‘‘and’’
at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘; and’’,
and by adding at the end thereof the following new sub-
paragraph:
175
•J. 69–001A
‘‘(C) the amount determined under section
956A with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(3)).’’
(b) AMOUNT OF INCLUSION.—Subpart F of part III
of subchapter N of chapter 1 is amended by inserting after
section 956 the following new section:
‘‘SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE AS-
SETS.
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this
section with respect to any United States shareholder for
any taxable year is the lesser of—
‘‘(1) the excess (if any) of—
‘‘(A) such shareholder’s pro rata share of
the amount of the controlled foreign corpora-
tion’s excess passive assets for such taxable
year, over
‘‘(B) the aggregate amount previously in-
cluded under section 951(a)(1)(C) (or which
would have been included but for section
959(a)(3)) in the gross income of such share-
holder (or of any other United States person
from whom such shareholder acquired any por-
tion of his interest in the controlled foreign cor-
176
•J. 69–001A
poration, but only to the extent attributable to
the acquired interest and subject to such proof
of the identity of such interest as the Secretary
may require), or
‘‘(2) such shareholder’s pro rata share of the
applicable earnings of such controlled foreign cor-
poration determined after the application of section
951(a)(1)(B).
‘‘(b) ADJUSTMENT FOR CERTAIN DISTRIBUTIONS OF
PREVIOUSLY TAXED INCOME.—The amount determined
under subsection (a)(1)(B) shall be reduced by the amount
of any distribution excluded from gross income under sec-
tion 959 and treated as a distribution out of earnings and
profits referred to in section 959(c)(1)(B).
‘‘(c) APPLICABLE EARNINGS.—For purposes of this
section, the term ‘applicable earnings’ means, with respect
to any controlled foreign corporation, the amounts re-
ferred to in sections 316(a)(1) and 316(a)(2) (but reduced
by distributions made during the taxable year), reduced
by any portion of such amounts which, if distributed,
would not be treated as a dividend by reason of section
955 and further reduced by the earnings and profits de-
scribed in section 959(c)(1).
‘‘(d) EXCESS PASSIVE ASSETS.—For purposes of this
section—
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•J. 69–001A
‘‘(1) IN GENERAL.—The excess passive assets
of any controlled foreign corporation for any taxable
year is the excess (if any) of—
‘‘(A) the average of the amounts of passive
assets held by such corporation as of the close
of each quarter of such taxable year, over
‘‘(B) 25 percent of the average of the
amounts of total assets held by such corpora-
tion as of the close of each quarter of such tax-
able year.
For purposes of the preceding sentence, the amount
taken into account with respect to any asset shall be
its adjusted basis as determined for purposes of
computing earnings and profits.
‘‘(2) PASSIVE ASSET.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this section, the term ‘passive asset’
means any asset held by the controlled foreign
corporation which produces passive income (as
defined in section 1296(b)) or is held for the
production of such income.
‘‘(B) COORDINATION WITH SECTION 956.—
The term ‘passive asset’ shall not include any
United States property (as defined in section
956).
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‘‘(3) LOOK-THRU RULES MADE APPLICABLE.—
For purposes of this subsection, the rules of section
1296(c) shall apply.
‘‘(4) LEASING RULES MADE APPLICABLE.—For
purposes of this subsection, the rules of section
1297(d) shall apply.
‘‘(e) SPECIAL RULE WHERE CORPORATION CEASES
TO BE CONTROLLED FOREIGN CORPORATION DURING
TAXABLE YEAR.—If any foreign corporation ceases to be
a controlled foreign corporation during any taxable year—
‘‘(1) the determination of any United States
shareholder’s pro rata share shall be made on the
basis of stock owned (within the meaning of section
958(a)) by such shareholder on the last day during
the taxable year on which the foreign corporation is
a controlled foreign corporation, and
‘‘(2) the amount of such corporation’s excess
passive assets for such taxable year shall be deter-
mined by only taking into account quarters ending
on or before such last day, and
‘‘(3) in determining applicable earnings, the
amount taken into account by reason of being de-
scribed in paragraph (2) of section 316(a) shall be
the portion of the amount so described which is allo-
cable (on a pro rata basis) to the part of such year
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•J. 69–001A
during which the corporation is a controlled foreign
corporation.
‘‘(f) TRANSITION RULE.—In the case of any taxable
year of a controlled foreign corporation beginning after
September 30, 1993, and before October 1, 1997, the
amount determined under subsection (a) shall be the ap-
plicable percentage (determined under the following table)
of the amount which would otherwise be determined under
such subsection:
‘‘In the case of a taxable year
beginning during the 1-year
The applicable
period beginning on:
percentage is:
October 1, 1993 ........................................................
October 1, 1994 ........................................................
October 1, 1995 ........................................................
October 1, 1996 ........................................................
50.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section, including regulations to prevent the
avoidance of the provisions of this section through reorga-
nizations or otherwise.’’.
(c) PREVIOUSLY TAXED INCOME RULES.—
(1) IN
GENERAL.—Subsection (a) of section
959 (relating to exclusion from gross income of pre-
viously taxed earnings and profits) is amended by
striking ‘‘or’’ at the end of paragraph (1), by adding
‘‘or’’ at the end of paragraph (2), and by inserting
after paragraph (2) the following new paragraph:
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•J. 69–001A
‘‘(3) such amounts would, but for this sub-
section, be included under section 951(a)(1)(C) in
the gross income of,’’.
(2) ALLOCATION RULES.—
(A) Subsection (a) of section 959 is
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘The rules of subsection
(c) shall apply for purposes of paragraph (1) of
this subsection and the rules of subsection (f)
shall apply for purposes of paragraphs (2) and
(3) of this subsection.’’.
(B) Section 959 is amended by adding at
the end thereof the following new subsection:
‘‘(f) ALLOCATION
RULES
FOR
CERTAIN
INCLU-
SIONS.—For purposes of this section, amounts that would
be included under subparagraph (B) or (C) of section
951(a)(1) (determined without regard to this section) shall
be treated as attributable first to earnings described in
subsection (c)(2), and then to earnings described in sub-
section (c)(3).’’
(C) Paragraph (1) of section 959(c) is
amended to read as follows:
‘‘(1) first to the aggregate of—
‘‘(A) earnings and profits attributable to
amounts included in gross income under section
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•J. 69–001A
951(a)(1)(B) (or which would have been in-
cluded except for subsection (a)(2) of this sec-
tion), and
‘‘(B) earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(C) (or which would have been in-
cluded except for subsection (a)(3) of this sec-
tion),
with any distribution being allocated between earn-
ings and profits described in subparagraph (A) and
earnings and profits described in subparagraph (B)
proportionately on the basis of the respective
amounts of such earnings and profits,’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsections (a) and (b) of section 959
are each amended by striking ‘‘earnings and
profits for a taxable year’’ and inserting ‘‘earn-
ings and profits’’.
(B) Paragraph (2) of section 959(c) is
amended to read as follows:
‘‘(2) then to earnings and profits attributable to
amounts included in gross income under section
951(a)(1)(A) (but reduced by amounts not included
under subparagraph (B) or (C) of section 951(a)(1)
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•J. 69–001A
because of the exclusions in paragraphs (2) and (3)
of subsection (a) of this section), and’’
(d) MODIFICATIONS TO PASSIVE FOREIGN INVEST-
MENT COMPANY RULES.—
(1) ADJUSTED BASIS USED IN CERTAIN DETER-
MINATIONS.—Subsection (a) of section 1296 is
amended by striking the material following para-
graph (2) and inserting the following:
‘‘In the case of a controlled foreign corporation (or any
other foreign corporation if such corporation so elects), the
determination under paragraph (2) shall be based on the
adjusted bases (as determined for purposes of computing
earnings and profits) of its assets in lieu of their value.
Such an election, once made, may be revoked only with
the consent of the Secretary.’’
(2) TREATMENT OF CERTAIN SUBPART F IN-
CLUSIONS.—Subsection (b) of section 1297 is
amended by adding at the end thereof the following
new paragraph:
‘‘(9) TREATMENT OF CERTAIN SUBPART F IN-
CLUSIONS.—The term ‘distribution’ includes any
amount included in gross income under subpara-
graph (B) or (C) of section 951(a)(1).’’
(3) TREATMENT OF CERTAIN DEALERS IN SE-
CURITIES.—Subsection (b) of section 1296 is
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•J. 69–001A
amended by adding at the end thereof the following
new paragraph:
‘‘(3) TREATMENT OF CERTAIN DEALERS IN SE-
CURITIES.—In the case of any foreign corporation
which is a controlled foreign corporation (as defined
in section 957(a)), the term ‘passive income’ does
not include any income derived in the active conduct
of a securities business by such corporation if such
corporation is registered 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. To the extent provided in regulations, such
term shall not include any income derived in the ac-
tive conduct of a securities business by a controlled
foreign corporation which is not so registered. The
preceding provisions of this paragraph shall only
apply in the case of persons who are United States
shareholders (as defined in section 951(b)) in the
controlled foreign corporation.’’
(4) LEASING RULES.—Section 1297 is amended
by redesignating subsection (d) as subsection (e) and
by inserting after subsection (c) the following new
subsection:
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•J. 69–001A
‘‘(d) TREATMENT
OF
CERTAIN
LEASED
PROP-
ERTY.—For purposes of this part—
‘‘(1) IN
GENERAL.—Any tangible personal
property with respect to which a foreign corporation
is the lessee under a lease with a term of at least
12 months shall be treated as an asset actually held
by such corporation.
‘‘(2) DETERMINATION OF ADJUSTED BASIS.—
‘‘(A) IN GENERAL.—The adjusted basis of
any asset to which paragraph (1) applies shall
be the unamortized portion (as determined
under regulations prescribed by the Secretary)
of the present value of the payments under the
lease for the use of such property.
‘‘(B) PRESENT VALUE.—For purposes of
subparagraph (A), the present value of pay-
ments described in subparagraph (A) shall be
determined in the manner provided in regula-
tions prescribed by the Secretary—
‘‘(i) as of the beginning of the lease
term, and
‘‘(ii) except as provided in such regu-
lations, by using a discount rate equal to
the applicable Federal rate determined
under section 1274(d)—
185
•J. 69–001A
‘‘(I) by substituting the lease
term for the term of the debt instru-
ment, and
‘‘(II) without regard to para-
graph (2) or (3) thereof.
‘‘(3) EXCEPTIONS.—This subsection shall not
apply in any case where—
‘‘(A) the lessor is a related person (as de-
fined in section 954(d)(3)) with respect to the
foreign corporation, or
‘‘(B) a principal purpose of leasing the
property was to avoid the provisions of this sec-
tion.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of controlled for-
eign corporations beginning after September 30, 1993,
and to taxable years of United States shareholders in
which or with which such taxable years of controlled for-
eign corporations end.
SEC. 2302. MODIFICATION TO TAXATION OF INVESTMENT
IN UNITED STATES PROPERTY.
(a) GENERAL RULE.—Section 956 (relating to in-
vestment of earnings in United States property) is amend-
ed—
186
•J. 69–001A
(1) by redesignating subsections (b) and (c) as
subsections (c) and (d), respectively, and
(2) by striking subsection (a) and inserting the
following:
‘‘(a) GENERAL RULE.—In the case of any controlled
foreign corporation, the amount determined under this
section with respect to any United States shareholder for
any taxable year is the lesser of—
‘‘(1) the excess (if any) of—
‘‘(A) such shareholder’s pro rata share of
the average of the amounts of United States
property held (directly or indirectly) by the con-
trolled foreign corporation as of the close of
each quarter of such taxable year, over
‘‘(B) the aggregate amount previously in-
cluded under section 951(a)(1)(B) (or which
would have been included but for section
959(a)(2)) in the gross income of such share-
holder (or of any other United States person
from whom such shareholder acquired any por-
tion of his interest in the controlled foreign cor-
poration, but only to the extent attributable to
the acquired interest and subject to such proof
of the identity of such interest as the Secretary
may require), or
187
•J. 69–001A
‘‘(2) such shareholder’s pro rata share of the
applicable earnings of such controlled foreign cor-
poration.
The amount taken into account under paragraph (1) with
respect to any property shall be its adjusted basis as deter-
mined for purposes of computing earnings and profits, re-
duced by any liability to which the property is subject.
‘‘(b) ADJUSTMENTS FOR CERTAIN DISTRIBUTIONS;
OTHER SPECIAL RULES.—
‘‘(1) ADJUSTMENT
FOR
CERTAIN
DISTRIBU-
TIONS
OF
PREVIOUSLY
TAXED
INCOME.—The
amount determined under subsection (a)(1)(B) shall
be reduced by the amount of any distribution ex-
cluded from gross income under section 959 and
treated as a distribution out of earnings and profits
described in section 959(c)(1)(A).
‘‘(2) APPLICABLE EARNINGS.—For purposes of
this section, the term ‘applicable earnings’ has the
meaning given to such term by section 956A(c).
‘‘(3) SPECIAL
RULE
WHERE
CORPORATION
CEASES
TO
BE
CONTROLLED
FOREIGN
CORPORA-
TION.—Rules similar to the rules of section 956A(e)
shall apply for purposes of this section.
(b) CONFORMING AMENDMENTS.—
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•J. 69–001A
(1) Subparagraph (B) of section 951(a)(1) is
amended to read as follows:
‘‘(B) the amount determined under section
956 with respect to such shareholder for such
year (but only to the extent not excluded from
gross income under section 959(a)(2)); and’’
(2) Subsection (a) of section 951 is amended by
striking paragraph (4).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years of controlled for-
eign corporations beginning after September 30, 1993,
and to taxable years of United States shareholders in
which or with which such taxable years of controlled for-
eign corporations end.
SEC. 2303. OTHER MODIFICATIONS TO SUBPART F.
(a) SAME COUNTRY EXCEPTION NOT TO APPLY TO
CERTAIN DIVIDENDS.—
(1) IN
GENERAL.—Paragraph (3) of section
954(c) (relating to certain income received from re-
lated persons) is amended by adding at the end
thereof the following new subparagraph:
‘‘(C) EXCEPTION
FOR
CERTAIN
DIVI-
DENDS.—Subparagraph (A)(i) shall not apply
to any dividend with respect to any stock which
is attributable to earnings and profits of the
189
•J. 69–001A
distributing corporation accumulated during
any period during which the person receiving
such dividend did not hold such stock.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years of con-
trolled foreign corporations beginning after Septem-
ber 30, 1993, and to taxable years of United States
shareholders in which or with which such taxable
years of controlled foreign corporations end.
(b) SIMPLIFICATION OF SECTION 960(b).—
(1) IN
GENERAL.—Subsection (b) of section
960 is amended—
(A) by redesignating paragraphs (3) and
(4) as paragraphs (4) and (5), respectively, and
(B) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
‘‘(1) INCREASE IN SECTION 904 LIMITATION.—
In the case of any taxpayer who—
‘‘(A) either (i) chose to have the benefits
of subpart A of this part for a taxable year be-
ginning after September 30, 1993, in which he
was required under section 951(a) to include
any amount in his gross income, or (ii) did not
pay or accrue for such taxable year any income,
war profits, or excess profits taxes to any for-
190
•J. 69–001A
eign country or to any possession of the United
States,
‘‘(B) chooses to have the benefits of sub-
part A of this part for any taxable year in
which he receives 1 or more distributions or
amounts which are excludable from gross in-
come under section 959(a) and which are at-
tributable to amounts included in his gross in-
come for taxable years referred to in subpara-
graph (A), and
‘‘(C) for the taxable year in which such
distributions or amounts are received, pays, or
is deemed to have paid, or accrues income, war
profits, or excess profits taxes to a foreign
country or to any possession of the United
States with respect to such distributions or
amounts,
the limitation under section 904 for the taxable year
in which such distributions or amounts are received
shall be increased by the lesser of the amount of
such taxes paid, or deemed paid, or accrued with re-
spect to such distributions or amounts or the
amount in the excess limitation account as of the be-
ginning of such taxable year.
‘‘(2) EXCESS LIMITATION ACCOUNT.—
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•J. 69–001A
‘‘(A) ESTABLISHMENT
OF
ACCOUNT.—
Each taxpayer meeting the requirements of
paragraph (1)(A) shall establish an excess limi-
tation account. The opening balance of such ac-
count shall be zero.
‘‘(B) INCREASES IN ACCOUNT.—For each
taxable year beginning after September 30,
1993, the taxpayer shall increase the amount in
the excess limitation account by the excess (if
any) of—
‘‘(i) the amount by which the limita-
tion under section 904(a) for such taxable
year was increased by reason of the total
amount of the inclusions in gross income
under section 951(a) for such taxable year,
over
‘‘(ii) the amount of any income, war
profits, and excess profits taxes paid, or
deemed paid, or accrued to any foreign
country or possession of the United States
which were allowable as a credit under sec-
tion 901 for such taxable year and which
would not have been allowable but for the
inclusions in gross income described in
clause (i).
192
•J. 69–001A
Proper reductions in the amount added to the
account under the preceding sentence for any
taxable year shall be made for any increase in
the credit allowable under section 901 for such
taxable year by reason of a carryback if such
increase would not have been allowable but for
the inclusions in gross income described in
clause (i).
‘‘(C) DECREASES IN ACCOUNT.—For each
taxable year beginning after September 30,
1993, for which the limitation under section
904 was increased under paragraph (1), the
taxpayer shall reduce the amount in the excess
limitation account by the amount of such in-
crease.
‘‘(3) DISTRIBUTIONS OF INCOME PREVIOUSLY
TAXED IN YEARS BEGINNING BEFORE OCTOBER 1,
1993.—If the taxpayer receives a distribution or
amount in a taxable year beginning after September
30, 1993, which is excluded from gross income
under section 959(a) and is attributable to any
amount included in gross income under section
951(a) for a taxable year beginning before October
1, 1993, the limitation under section 904 for the
taxable year in which such amount or distribution is
193
•J. 69–001A
received shall be increased by the amount deter-
mined under this subsection as in effect on the day
before the date of the enactment of the Revenue
Reconcilation Act of 1993.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after September 30, 1993.
PART II—ALLOCATION OF RESEARCH AND EX-
PERIMENTAL EXPENDITURES; TREATMENT
OF CERTAIN ROYALTIES
SEC. 2311. ALLOCATION OF RESEARCH AND EXPERI-
MENTAL EXPENDITURES.
(a) GENERAL RULE.—Paragraph (1) of section
864(f) (relating to allocation of research and experimental
expenditures) is amended by striking subparagraphs (B)
and (C) and inserting the following:
‘‘(B) In the case of any qualified research
and experimental expenditures (not allocated
under subparagraph (A))—
‘‘(i) to the extent such expenditures
are attributable to activities conducted in
the United States, 100 percent of such ex-
penditures shall be allocated and appor-
tioned to income from sources within the
United States and deducted from such in-
194
•J. 69–001A
come in determining the amount of taxable
income from sources within the United
States, and
‘‘(ii) to the extent such expenditures
are attributable to activities conducted out-
side the United States, such expenditures
shall be allocated and apportioned on the
basis of gross sales.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 864 is amended by
striking paragraph (5) and inserting the following:
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out the purposes of this subsection, including
regulations relating to the determination of whether
any expenses are attributable to activities conducted
in the United States or outside the United States
and regulations providing such adjustments to the
provisions of this subsection as may be appropriate
in the case of cost-sharing arrangements and con-
tract research.’’
(2) Subparagraph (D) of section 864(f)(4) is
amended by striking ‘‘subparagraph (C)’’ and insert-
ing ‘‘subparagraph (B) or (C)’’.
195
•J. 69–001A
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 2312. ROYALTIES TREATED AS PASSIVE INCOME FOR
PURPOSES OF SEPARATE APPLICATION OF
FOREIGN TAX CREDIT.
(a) GENERAL RULE.—Subparagraph (A) of section
904(d)(2) (defining passive income) is amended by redes-
ignating clauses (iii) and (iv) as clauses (iv) and (v), re-
spectively, and by inserting after clause (ii) the following
new clause:
‘‘(iii) INCLUSION OF ROYALTIES.—Ex-
cept as provided in clause (iv), the term
‘passive income’ includes—
‘‘(I) any royalty in respect of any
intangible property described in sec-
tion 936(h)(3)(B) (whether or not the
requirements of paragraph (2)(A) or
(3)(A)(ii) of section 954(c) are met),
and
‘‘(II) any other payment for the
use of, or for the right or privilege to
use, any intangible property so de-
scribed and any payment made in con-
sideration of a sale or other disposi-
196
•J. 69–001A
tion of any such intangible property to
the extent that such payment is con-
tingent on the productivity, use, or
disposition of such property.’’
(b) DETERMINATION OF WHETHER ROYALTIES ARE
HIGH-TAXED INCOME.—Subparagraph (F) of section
904(d)(2) is amended by adding at the end thereof the
following new sentence: ‘‘For purposes of this subpara-
graph, all items of income described in clause (iii) of sub-
paragraph (A) shall be treated as 1 item of income.’’.
(c) LOOK-THRU RULES NOT APPLICABLE TO CER-
TAIN ROYALTIES.—Paragraph (3) of section 904(d) is
amended by adding at the end thereof the following new
subparagraph:
‘‘(J) LOOK-THRU RULES NOT APPLICABLE
TO CERTAIN ROYALTIES.—For purposes of this
paragraph, the term ‘royalty’ shall not include
any royalty in respect of intangible property de-
scribed in section 936(h)(3)(B).’’
(d) CONFORMING AMENDMENTS.—
(1) Clause (ii) of section 904(d)(2)(A) is
amended by striking ‘‘clause (iii)’’ and inserting
‘‘clause (iv)’’.
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•J. 69–001A
(2) Subclause (II) of section 904(d)(2)(C)(i) is
amended by striking ‘‘subparagraph (A)(iii)’’ and in-
serting ‘‘subparagraph (A)(iv)’’.
(3) Subclause (I) of section 904(d)(3)(F)(ii) is
amended by striking ‘‘paragraph (2)(A)(iii)’’ and in-
serting ‘‘paragraph (2)(A)(iv)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
PART III—OTHER PROVISIONS
SEC. 2321. REPEAL OF CERTAIN EXCEPTIONS FOR WORK-
ING CAPITAL.
(a) PROVISIONS RELATING TO OIL AND GAS IN-
COME.—
(1) AMENDMENTS TO SECTION 907.—
(A) Paragraph (1) of section 907(c) is
amended by adding at the end thereof the fol-
lowing new flush sentence:
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(B) Paragraph (2) of section 907(c) is
amended by adding at the end thereof the fol-
lowing new flush sentence: