H. R. 2491—507
‘‘(3) EXCEPTION FOR LONG-TERM CARE RIDERS.—Paragraph
(1) shall not apply to any rider which is treated as a long-
term care insurance contract under section 7702B.’’
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this section
shall take effect on January 1, 1996.
(2) ISSUANCE
OF
RIDER
NOT
TREATED
AS
MATERIAL
CHANGE.—For purposes of applying sections 101(f), 7702, and
7702A of the Internal Revenue Code of 1986 to any contract—
(A) the issuance of a qualified accelerated death benefit
rider (as defined in section 818(g) of such Code (as added
by this Act)), and
(B) the addition of any provision required to conform
an accelerated death benefit rider to the requirements of
such section 818(g),
shall not be treated as a modification or material change of
such contract.
CHAPTER 2—MEDICAL SAVINGS ACCOUNTS
SEC. 11066. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating
to additional itemized deductions for individuals) is amended by
redesignating section 222 as section 223 and by inserting after
section 221 the following new section:
‘‘SEC. 222. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an individual who
is an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by such individual to a medical savings account of
such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, the amount allowable as a deduction under sub-
section (a) to an individual for the taxable year shall not
exceed—
‘‘(A) except as provided in subparagraph (B), the lesser
of—
‘‘(i) $2,000, or
‘‘(ii) the annual deductible limit for any individual
covered under the high deductible health plan, or
‘‘(B) in the case of a high deductible health plan cover-
ing the taxpayer and any other eligible individual who
is the spouse or any dependent (as defined in section 152)
of the taxpayer, the lesser of—
‘‘(i) $4,000, or
‘‘(ii) the annual limit under the plan on the aggre-
gate amount of deductibles required to be paid by
all individuals.
The preceding sentence shall not apply if the spouse of such
individual is covered under any other high deductible health
plan.
‘‘(2) SPECIAL RULE FOR MARRIED INDIVIDUALS.—
‘‘(A) IN
GENERAL.—This subsection shall be applied
separately for each married individual.
H. R. 2491—508
‘‘(B) SPECIAL RULE.—If individuals who are married
to each other are covered under the same high deductible
health plan, then the amounts applicable under paragraph
(1)(B) shall be divided equally between them unless they
agree on a different division.
‘‘(3) COORDINATION WITH EXCLUSION FOR EMPLOYER CON-
TRIBUTIONS.—No deduction shall be allowed under this section
for any amount paid for any taxable year to a medical savings
account of an individual if—
‘‘(A) any amount is paid to any medical savings account
of such individual which is excludable from gross income
under section 106(b) for such year, or
‘‘(B) in a case described in paragraph (2), any amount
is paid to any medical savings account of either spouse
which is so excludable for such year.
‘‘(4) PRORATION OF LIMITATION.—
‘‘(A) IN GENERAL.—The limitation under paragraph (1)
shall be the sum of the monthly limitations for months
during the taxable year that the individual is an eligible
individual if—
‘‘(i) such individual is not an eligible individual
for all months of the taxable year,
‘‘(ii) the deductible under the high deductible
health plan covering such individual is not the same
throughout such taxable year, or
‘‘(iii) such limitation is determined under para-
graph (1)(B) for some but not all months during such
taxable year.
‘‘(B) MONTHLY LIMITATION.—The monthly limitation for
any month shall be an amount equal to 1⁄12 of the limitation
which would (but for this paragraph and paragraph (3))
be determined under paragraph (1) if the facts and cir-
cumstances as of the first day of such month that such
individual is covered under a high deductible health plan
were true for the entire taxable year.
‘‘(5) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction
shall be allowed under this section to any individual with
respect to whom a deduction under section 151 is allowable
to another taxpayer for a taxable year beginning in the calendar
year in which such individual’s taxable year begins.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible individual’ means,
with respect to any month, any individual—
‘‘(i) who is covered under a high deductible health
plan as of the 1st day of such month, and
‘‘(ii) who is not, while covered under a high deduct-
ible health plan, covered under any health plan—
‘‘(I) which is not a high deductible health plan,
and
‘‘(II) which provides coverage for any benefit
which is covered under the high deductible health
plan.
‘‘(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph
(A)(ii) shall be applied without regard to—
‘‘(i) coverage for any benefit provided by permitted
insurance, and
H. R. 2491—509
‘‘(ii) coverage (whether through insurance or other-
wise) for accidents, disability, dental care, vision care,
or long-term care.
‘‘(2) HIGH
DEDUCTIBLE
HEALTH
PLAN.—The term ‘high
deductible health plan’ means a health plan which—
‘‘(A) has an annual deductible limit for each individual
covered by the plan which is not less than $1,500, and
‘‘(B) has an annual limit on the aggregate amount
of deductibles required to be paid with respect to all individ-
uals covered by the plan which is not less than $3,000.
Such term does not include a health plan if substantially all
of its coverage is coverage described in paragraph (1)(B).
‘‘(3) PERMITTED INSURANCE.—The term ‘permitted insur-
ance’ means—
‘‘(A) Medicare supplemental insurance,
‘‘(B) insurance if substantially all of the coverage pro-
vided under such insurance relates to—
‘‘(i) liabilities incurred under workers’ compensa-
tion laws,
‘‘(ii) tort liabilities,
‘‘(iii) liabilities relating to ownership or use of prop-
erty, or
‘‘(iv) such other similar liabilities as the Secretary
may specify by regulations,
‘‘(C) insurance for a specified disease or illness, and
‘‘(D) insurance paying a fixed amount per day (or other
period) of hospitalization.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of this sec-
tion—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term ‘medical sav-
ings account’ means a trust created or organized in the United
States exclusively for the purpose of paying the qualified medi-
cal expenses of the account holder, but only if the written
governing instrument creating the trust meets the following
requirements:
‘‘(A) Except in the case of a rollover contribution
described in subsection (f)(5), no contribution will be
accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) to the extent such contribution, when added
to previous contributions to the trust for the calendar
year, exceeds $4,000.
‘‘(B) The trustee is a bank (as defined in section 408(n)),
an insurance company (as defined in section 816), or
another person who demonstrates to the satisfaction of
the Secretary that the manner in which such person will
administer the trust will be consistent with the require-
ments of this section.
‘‘(C) No part of the trust assets will be invested in
life insurance contracts.
‘‘(D) The assets of the trust will not be commingled
with other property except in a common trust fund or
common investment fund.
‘‘(E) The interest of an individual in the balance in
his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
H. R. 2491—510
‘‘(A) 
IN
GENERAL.—The 
term 
‘qualified 
medical
expenses’ means, with respect to an account holder,
amounts paid by such holder for medical care (as defined
in section 213(d)) for such individual, the spouse of such
individual, and any dependent (as defined in section 152)
of such individual, but only to the extent such amounts
are not compensated for by insurance or otherwise.
‘‘(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM
ACCOUNT.—
‘‘(i) IN
GENERAL.—Subparagraph (A) shall not
apply to any payment for insurance.
‘‘(ii) EXCEPTIONS.—Clause (i) shall not apply to
any expense for coverage under—
‘‘(I) a health plan during any period of continu-
ation coverage required under any Federal law,
‘‘(II) a qualified long-term care contract (as
defined in section 7702B), or
‘‘(III) a health plan during a period in which
the individual is receiving unemployment com-
pensation under any Federal or State law.
‘‘(3) ACCOUNT HOLDER.—The term ‘account holder’ means
the individual on whose behalf the medical savings account
was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the follow-
ing rules shall apply for purposes of this section:
‘‘(A) Section 219(d)(2) (relating to no deduction for roll-
overs).
‘‘(B) Section 219(f)(3) (relating to time when contribu-
tions deemed made).
‘‘(C) Except as provided in section 106(b), section
219(f)(5) (relating to employer payments).
‘‘(D) Section 408(g) (relating to community property
laws).
‘‘(E) Section 408(h) (relating to custodial accounts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A medical savings account is exempt
from taxation under this subtitle unless such account has
ceased to be a medical savings account by reason of paragraph
(2) or (3). Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of charitable,
etc. organizations).
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply to medical
savings accounts, and any amount treated as distributed under
such rules shall be treated as not used to pay qualified medical
expenses.
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or distributed out
of a medical savings account which is used exclusively
to pay qualified medical expenses of any account holder
(or any spouse or dependent of the holder) shall not be
includible in gross income.
‘‘(B) TREATMENT AFTER DEATH OF ACCOUNT HOLDER.—
‘‘(i) TREATMENT
IF
HOLDER
IS
SPOUSE.—If, after
the death of the account holder, the account holder’s
H. R. 2491—511
interest is payable to (or for the benefit of) the holder’s
spouse, the medical savings account shall be treated
as if the spouse were the account holder.
‘‘(ii) TREATMENT
IF
DESIGNATED
HOLDER
IS
NOT
SPOUSE.—In the case of an account holder’s interest
in a medical savings account which is payable to (or
for the benefit of) any person other than such holder’s
spouse upon the death of such holder—
‘‘(I) such account shall cease to be a medical
savings account as of the date of death, and
‘‘(II) an amount equal to the fair market value
of the assets in such account on such date shall
be includible if such person is not the estate of
such holder, in such person’s gross income for the
taxable year which includes such date, or if such
person is the estate of such holder, in such holder’s
gross income for the last taxable year of such
holder.
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDI-
CAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or distributed out
of a medical savings account which is not used exclusively
to pay the qualified medical expenses of the account holder
or of the spouse or dependents of such holder shall be
included in the gross income of such holder.
‘‘(B) SPECIAL RULES.—For purposes of subparagraph
(A)—
‘‘(i) all medical savings accounts of the account
holder shall be treated as 1 account,
‘‘(ii) all payments and distributions during any
taxable year shall be treated as 1 distribution, and
‘‘(iii) any distribution of property shall be taken
into account at its fair market value on the date of
the distribution.
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE
OF RETURN.—Paragraph (2) shall not apply to the distribution
of any contribution paid during a taxable year to a medical
savings account to the extent that such contribution exceeds
the amount under subsection (d)(1)(A)(ii) if—
‘‘(A) such distribution is received by the individual
on or before the last day prescribed by law (including
extensions of time) for filing such individual’s return for
such taxable year, and
‘‘(B) such distribution is accompanied by the amount
of net income attributable to such excess contribution.
Any net income described in subparagraph (B) shall be included
in the gross income of the individual for the taxable year
in which it is received.
‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED FOR QUALIFIED
MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by this chapter
on the account holder for any taxable year in which there
is a payment or distribution from a medical savings account
of such holder which is includible in gross income under
paragraph (2) shall be increased by 10 percent of the
amount which is so includible.
H. R. 2491—512
‘‘(B) EXCEPTION FOR DISABILITY OR DEATH.—Subpara-
graph (A) shall not apply if the payment or distribution
is made after the account holder becomes disabled within
the meaning of section 72(m)(7) or dies.
‘‘(C) EXCEPTION FOR DISTRIBUTIONS AFTER AGE 591⁄2.—
Subparagraph (A) shall not apply to any payment or dis-
tribution after the date on which the account holder attains
age 591⁄2.
‘‘(5) ROLLOVER CONTRIBUTION.—An amount is described in
this paragraph as a rollover contribution if it meets the require-
ments of subparagraphs (A) and (B).
‘‘(A) IN GENERAL.—Paragraph (2) shall not apply to
any amount paid or distributed from a medical savings
account to the account holder to the extent the amount
received is paid into a medical savings account for the
benefit of such holder not later than the 60th day after
the day on which the holder receives the payment or dis-
tribution.
‘‘(B) LIMITATION.—This paragraph shall not apply to
any amount described in subparagraph (A) received by
an individual from a medical savings account if, at any
time during the 1-year period ending on the day of such
receipt, such individual received any other amount
described in subparagraph (A) from a medical savings
account which was not includible in the individual’s gross
income because of the application of this paragraph.
‘‘(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—
For purposes of determining the amount of the deduction under
section 213, any payment or distribution out of a medical sav-
ings account for qualified medical expenses shall not be treated
as an expense paid for medical care.
‘‘(7) TRANSFER
OF
ACCOUNT
INCIDENT
TO
DIVORCE.—The
transfer of an individual’s interest in a medical savings account
to an individual’s spouse or former spouse under a divorce
or separation instrument described in subparagraph (A) of sec-
tion 71(b)(2) shall not be considered a taxable transfer made
by such individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer, be treated
as a medical savings account with respect to which the spouse
is the account holder.
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable year beginning
in a calendar year after 1996, each dollar amount in subsection
(b)(1), (c)(2), or (d)(1)(A) shall be increased by an amount equal
to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the medical care cost adjustment for such calendar
year.
If any increase under the preceding sentence is not a multiple
of $50, such increase shall be rounded to the nearest multiple
of $50.
‘‘(2) MEDICAL
CARE
COST
ADJUSTMENT.—For purposes of
paragraph (1), the medical care cost adjustment for any cal-
endar year is the percentage (if any) by which—
‘‘(A) the medical care component of the Consumer Price
Index (as defined in section 1(f)(5)) for August of the preced-
ing calendar year, exceeds
H. R. 2491—513
‘‘(B) such component for August of 1995.
‘‘(h) REPORTS.—The Secretary may require the trustee of a
medical savings account to make such reports regarding such
account to the Secretary and to the account holder with respect
to contributions, distributions, and such other matters as the Sec-
retary determines appropriate. The reports required by this sub-
section shall be filed at such time and in such manner and furnished
to such individuals at such time and in such manner as may
be required by those regulations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEM-
IZES OTHER DEDUCTIONS.—Subsection (a) of section 62 is amended
by inserting after paragraph (18) the following new paragraph:
‘‘(19) MEDICAL SAVINGS ACCOUNTS.—The deduction allowed
by section 222.’’
(c) EXCLUSIONS
FOR EMPLOYER CONTRIBUTIONS
TO MEDICAL
SAVINGS ACCOUNTS.—
(1) EXCLUSION FROM INCOME TAX.—Section 106 (relating
to contributions by employer to accident and health plans),
as amended by this Act, is amended—
(A) by adding at the end the following new subsection:
‘‘(c) CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—
‘‘(1) IN GENERAL.—In the case of an employee who is an
eligible individual, gross income does not include amounts
contributed by such employee’s employer to any medical savings
account of such employee.
‘‘(2) COORDINATION
WITH
DEDUCTION
LIMITATION.—The
amount excluded from the gross income of an employee under
this subsection for any taxable year shall not exceed the limita-
tion under section 222(b)(1) (determined without regard to this
subsection) which is applicable to such employee for such tax-
able year.
‘‘(3) NO
CONSTRUCTIVE
RECEIPT.—No amount shall be
included in the gross income of any employee solely because
the employee may choose between the contributions referred
to in paragraph (1) and employer contributions to another
health plan of the employer.
‘‘(4) SPECIAL RULE FOR DEDUCTION OF EMPLOYER CONTRIBU-
TIONS.—Any employer contribution to a medical savings
account, if otherwise allowable as a deduction under this chap-
ter, shall be allowed only for the taxable year in which paid.
‘‘(5) DEFINITIONS.—For purposes of this subsection, the
terms ‘eligible individual’ and ‘medical savings account’ have
the respective meanings given to such terms by section 222’’,
and
(B) by striking ‘‘subsection (b)’’ in subsection (a) and
inserting ‘‘this subsection’’.
(2) EXCLUSION FROM WITHHOLDING TAX.—Subsection (a) of
section 3401 is amended by striking ‘‘or’’ at the end of paragraph
(19), by striking the period at the end of paragraph (20) and
inserting ‘‘; or’’, and by inserting after paragraph (20) the
following new paragraph:
‘‘(21) any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe
that the employee will be able to exclude such payment from
income under section 106(b).’’
H. R. 2491—514
(d) MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS NOT AVAILABLE
UNDER CAFETERIA PLANS.—Subsection (f) of section 125 is amended
by inserting ‘‘106(b),’’ before ‘‘117’’.
(e) EXCLUSION OF MEDICAL SAVINGS ACCOUNTS FROM ESTATE
TAX.—Part IV of subchapter A of chapter 11 is amended by adding
at the end the following new section:
‘‘SEC. 2057. MEDICAL SAVINGS ACCOUNTS.
‘‘For purposes of the tax imposed by section 2001, the value
of the taxable estate shall be determined by deducting from the
value of the gross estate an amount equal to the value of any
medical savings account (as defined in section 222(d)) included
in the gross estate.’’
(f) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 (relating to
tax on excess contributions to individual retirement accounts, cer-
tain section 403(b) contracts, and certain individual retirement
annuities) is amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
ACCOUNTS,’’ after
‘‘ACCOUNTS,’’ in the heading of such section,
(2) by striking ‘‘or’’ at the end of paragraph (1) of subsection
(a),
(3) by redesignating paragraph (2) of subsection (a) as
paragraph (3) and by inserting after paragraph (1) the follow-
ing:
‘‘(2) a medical savings account (within the meaning of sec-
tion 222(d)), or’’, and
(4) by adding at the end the following new subsection:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—
For purposes of this section, in the case of a medical savings
account (within the meaning of section 222(d)), the term ‘excess
contributions’ means the sum of—
‘‘(1) the amount by which the amount contributed for the
taxable year to the account exceeds the amount which may
be contributed to the account under section 222(d)(1)(B)(ii) for
such taxable year, and
‘‘(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of distributions
out of the account included in gross income under section
222(f) (2) or (3) and the excess (if any) of the maximum amount
allowable as a deduction under section 222 for the taxable
year over the amount contributed.
For purposes of this subsection, any contribution which is distrib-
uted out of the medical savings account in a distribution to which
section 222(f)(3) applies shall be treated as an amount not contrib-
uted.’’
(g) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 (relating to tax on prohibited transactions)
is amended by adding at the end of subsection (c) the following
new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS ACCOUNTS.—An
individual for whose benefit a medical savings account (within
the meaning of section 222(d)) is established shall be exempt
from the tax imposed by this section with respect to any trans-
action concerning such account (which would otherwise be tax-
able under this section) if, with respect to such transaction,
the account ceases to be a medical savings account by reason
of the application of section 222(e)(2) to such account.’’
H. R. 2491—515
(2) Paragraph (1) of section 4975(e) is amended to read
as follows:
‘‘(1) PLAN.—For purposes of this section, the term ‘plan’
means—
‘‘(A) a trust described in section 401(a) which forms
a part of a plan, or a plan described in section 403(a),
which trust or plan is exempt from tax under section 501(a),
‘‘(B) an individual retirement account described in sec-
tion 408(a),
‘‘(C) an individual retirement annuity described in sec-
tion 408(b),
‘‘(D) a medical savings account described in section
220(d), or
‘‘(E) a trust, plan, account, or annuity which, at any
time, has been determined by the Secretary to be described
in any preceding subparagraph of this paragraph.’’
(h) FAILURE TO PROVIDE REPORTS ON MEDICAREPLUS MSA’S.—
(1) Subsection (a) of section 6693 (relating to failure to
provide reports on individual retirement accounts or annuities)
is amended to read as follows:
‘‘(a) REPORTS.—
‘‘(1) IN
GENERAL.—If a person required to file a report
under a provision referred to in paragraph (2) fails to file
such report at the time and in the manner required by such
provision, such person shall pay a penalty of $50 for each
failure unless it is shown that such failure is due to reasonable
cause.
‘‘(2) PROVISIONS.—The provisions referred to in this para-
graph are—
‘‘(A) subsections (i) and (l) of section 408 (relating
to individual retirement plans), and
‘‘(B) section 222(h) (relating to medical savings
accounts).’’
(i) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION
EXPENSES.—Subparagraph (B) of section 848(e)(1) (defining speci-
fied insurance contract) is amended by striking ‘‘and’’ at the end
of clause (ii), by striking the period at the end of clause (iii)
and inserting ‘‘, and’’, and by adding at the end the following
new clause:
‘‘(iv) any contract which is a medical savings
account (as defined in section 222(d)).’’.
(j) CLERICAL AMENDMENT.—The table of sections for part VII
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following:
‘‘Sec. 222. Medical savings accounts.
‘‘Sec. 223. Cross reference.’’
(k) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
CHAPTER 3—INCREASE IN DEDUCTION FOR HEALTH
INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS
SEC. 11068. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS
OF SELF-EMPLOYED INDIVIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l) is amended
to read as follows:
H. R. 2491—516
‘‘(1) ALLOWANCE OF DEDUCTION.—
‘‘(A) IN GENERAL.—In the case of an individual who
is an employee within the meaning of section 401(c)(1),
there shall be allowed as a deduction under this section
an amount equal to the applicable percentage of the amount
paid during the taxable year for insurance which con-
stitutes medical care for the taxpayer, his spouse, and
dependents.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (A), the applicable percentage shall be deter-
mined under the following table:
The
applicable
‘‘For taxable years beginning in calendar year—
percentage
is—
1996 or 1997 .....................................................................................
30 percent
1998 or 1999 .....................................................................................
35 percent
2000 or 2001 .....................................................................................
40 percent
2002 or thereafter .............................................................................
50 percent.’’
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1995.
Subtitle D—Estate and Gift Provisions
SEC. 11071. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND
GIFT TAX PROVISIONS.
(a) INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDIT.—
(1) ESTATE TAX CREDIT.—
(A) Subsection (a) of section 2010 (relating to unified
credit against estate tax) is amended by striking ‘‘$192,800’’
and inserting ‘‘the applicable credit amount’’.
(B) Section 2010 is amended by redesignating sub-
section (c) as subsection (d) and by inserting after sub-
section (b) the following new subsection:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes of this sec-
tion—
‘‘(1) IN
GENERAL.—The applicable credit amount is the
amount of the tentative tax which would be determined under
the rate schedule set forth in section 2001(c) if the amount
with respect to which such tentative tax is to be computed
were the applicable exclusion amount determined in accordance
with the following table:
‘‘In the case of estates of decedents
The applicable
dying, and gifts made, during:
exclusion amount is:
1996 .......................................................................................
$625,000
1997 .......................................................................................
650,000
1998 .......................................................................................
675,000
1999 .......................................................................................
700,000
2000 .......................................................................................
725,000
2001 or thereafter ................................................................
$750,000.
‘‘(2) COST-OF-LIVING
ADJUSTMENTS.—In the case of any
decedent dying, and gift made, in a calendar year after 2001,
the $750,000 amount set forth in paragraph (1) shall be
increased by an amount equal to—
‘‘(A) $750,000, multiplied by
H. R. 2491—521
‘‘(A) any interest in a trade or business the principal
place of business of which is not located in the United
States,
‘‘(B) any interest in an entity, if the stock or debt
of such entity or a controlled group (as defined in section
267(f)(1)) of which such entity was a member was readily
tradable on an established securities market or secondary
market (as defined by the Secretary) at any time within
3 years of the date of the decedent’s death,
‘‘(C) any interest in a trade or business not described
in section 542(c)(2), if more than 35 percent of the adjusted
ordinary gross income of such trade or business for the
taxable year which includes the date of the decedent’s
death would qualify as personal holding company income
(as defined in section 543(a)),
‘‘(D) that portion of an interest in a trade or business
that is attributable to—
‘‘(i) cash or marketable securities, or both, in excess
of the reasonably expected day-to-day working capital
needs of such trade or business, and
‘‘(ii) any other assets of the trade or business (other
than assets used in the active conduct of a trade or
business described in section 542(c)(2)), the income
of which is described in section 543(a) or in subpara-
graph (B), (C), (D), or (E) of section 954(c)(1) (deter-
mined by substituting ‘trade or business’ for ‘controlled
foreign corporation’).
‘‘(3) RULES REGARDING OWNERSHIP.—
‘‘(A) OWNERSHIP OF ENTITIES.—For purposes of para-
graph (1)(B)—
‘‘(i) CORPORATIONS.—Ownership of a corporation
shall be determined by the holding of stock possessing
the appropriate percentage of the total combined voting
power of all classes of stock entitled to vote and the
appropriate percentage of the total value of shares
of all classes of stock.
‘‘(ii) PARTNERSHIPS.—Ownership of a partnership
shall be determined by the owning of the appropriate
percentage of the capital interest in such partnership.
‘‘(B) OWNERSHIP
OF
TIERED
ENTITIES.—For purposes
of this section, if by reason of holding an interest in a
trade or business, a decedent, any member of the decedent’s
family, any qualified heir, or any member of any qualified
heir’s family is treated as holding an interest in any other
trade or business—
‘‘(i) such ownership interest in the other trade
or business shall be disregarded in determining if the
ownership interest in the first trade or business is
a qualified family-owned business interest, and
‘‘(ii) this section shall be applied separately in
determining if such interest in any other trade or
business is a qualified family-owned business interest.
‘‘(C) INDIVIDUAL OWNERSHIP RULES.—For purposes of
this section, an interest owned, directly or indirectly, by
or for an entity described in paragraph (1)(B) shall be
considered as being owned proportionately by or for the
entity’s shareholders, partners, or beneficiaries. A person
H. R. 2491—522
shall be treated as a beneficiary of any trust only if such
person has a present interest in such trust.
‘‘(f) TAX TREATMENT OF FAILURE TO MATERIALLY PARTICIPATE
IN BUSINESS OR DISPOSITIONS OF INTERESTS.—
‘‘(1) IN GENERAL.—There is imposed an additional estate
tax if, within 10 years after the date of the decedent’s death
and before the date of the qualified heir’s death—
‘‘(A) the material participation requirements described
in section 2032A(c)(6)(B) are not met with respect to the
qualified family-owned business interest which was
acquired (or passed) from the decedent,
‘‘(B) the qualified heir disposes of any portion of a
qualified family-owned business interest (other than by
a disposition to a member of the qualified heir’s family
or through a qualified conservation contribution under sec-
tion 170(h)),
‘‘(C) the qualified heir loses United States citizenship
(within the meaning of section 877) or with respect to
whom an event described in subparagraph (A) or (B) of
section 877(e)(1) occurs, and such heir does not comply
with the requirements of subsection (g), or
‘‘(D) the principal place of business of a trade or busi-
ness of the qualified family-owned business interest ceases
to be located in the United States.
‘‘(2) ADDITIONAL ESTATE TAX.—
‘‘(A) IN GENERAL.—The amount of the additional estate
tax imposed by paragraph (1) shall be equal to—
‘‘(i) the applicable percentage of the adjusted tax
difference attributable to the qualified family-owned
business interest (as determined under rules similar
to the rules of section 2032A(c)(2)(B)), plus
‘‘(ii) interest on the amount determined under
clause (i) at the underpayment rate established under
section 6621 for the period beginning on the date the
estate tax liability was due under this chapter and
ending on the date such additional estate tax is due.
‘‘(B) APPLICABLE PERCENTAGE.—For purposes of this
paragraph, the applicable percentage shall be determined
under the following table:
‘‘If the event described in
paragraph (1) occurs in
the following year of
The applicable
material participation:
percentage is:
1 through 6 .......................................................................................
100
7 .........................................................................................................
8 .........................................................................................................
9 .........................................................................................................
10 .......................................................................................................
20.
‘‘(g) SECURITY
REQUIREMENTS
FOR
NONCITIZEN
QUALIFIED
HEIRS.—
‘‘(1) IN GENERAL.—Except upon the application of subpara-
graph (F) or (M) of subsection (h)(3), if a qualified heir is
not a citizen of the United States, any interest under this
section passing to or acquired by such heir (including any
interest held by such heir at a time described in subsection
(f)(1)(C)) shall be treated as a qualified family-owned business
H. R. 2491—523
interest only if the interest passes or is acquired (or is held)
in a qualified trust.
‘‘(2) QUALIFIED TRUST.—The term ‘qualified trust’ means
a trust—
‘‘(A) which is organized under, and governed by, the
laws of the United States or a State, and
‘‘(B) except as otherwise provided in regulations, with
respect to which the trust instrument requires that at
least 1 trustee of the trust be an individual citizen of
the United States or a domestic corporation.
‘‘(h) OTHER DEFINITIONS AND APPLICABLE RULES.—For purposes
of this section—
‘‘(1) QUALIFIED HEIR.—The term ‘qualified heir’—
‘‘(A) has the meaning given to such term by section
2032A(e)(1), and
‘‘(B) includes any active employee of the trade or busi-
ness to which the qualified family-owned business interest
relates if such employee has been employed by such trade
or business for a period of at least 10 years before the
date of the decedent’s death.
‘‘(2) MEMBER OF THE FAMILY.—The term ‘member of the
family’ has the meaning given to such term by section
2032A(e)(2).
‘‘(3) APPLICABLE
RULES.—Rules similar to the following
rules shall apply:
‘‘(A) Section 2032A(b)(4) (relating to decedents who
are retired or disabled).
‘‘(B) Section 2032A(b)(5) (relating to special rules for
surviving spouses).
‘‘(C) Section 2032A(c)(2)(D) (relating to partial disposi-
tions).
‘‘(D) Section 2032A(c)(3) (relating to only 1 additional
tax imposed with respect to any 1 portion).
‘‘(E) Section 2032A(c)(4) (relating to due date).
‘‘(F) Section 2032A(c)(5) (relating to liability for tax;
furnishing of bond).
‘‘(G) Section 2032A(c)(7) (relating to no tax if use begins
within 2 years; active management by eligible qualified
heir treated as material participation).
‘‘(H) Section 2032A(e)(10) (relating to community prop-
erty).
‘‘(I) Section 2032A(e)(14) (relating to treatment of
replacement property acquired in section 1031 or 1033
transactions).
‘‘(J) Section 2032A(f) (relating to statute of limitations).
‘‘(K) Section 6166(b)(3) (relating to farmhouses and
certain other structures taken into account).
‘‘(L) Subparagraphs (B), (C), and (D) of section
6166(g)(1) (relating to acceleration of payment).
‘‘(M) Section 6324B (relating to special lien for addi-
tional estate tax).
‘‘(4) COORDINATION WITH OTHER ESTATE TAX BENEFITS.—
If there is a reduction in the value of the gross estate under
this section—
‘‘(A) the dollar limitation applicable under section
2032A(a)(2), and
H. R. 2491—524
‘‘(B) the $1,000,000 amount under section 6601(j)(3)
(as adjusted),
shall each be reduced (but not below zero) by the amount
of such reduction.’’.
(b) CLERICAL AMENDMENT.—The table of sections for part III
of subchapter A of chapter 11 is amended by inserting after the
item relating to section 2033 the following new item:
‘‘Sec. 2033A. Family-owned business exclusion.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after December 31, 1995.
SEC. 11073. TREATMENT OF LAND SUBJECT TO A QUALIFIED CON-
SERVATION EASEMENT.
(a) ESTATE TAX WITH RESPECT TO LAND SUBJECT TO A QUALI-
FIED CONSERVATION EASEMENT.—Section 2031 (relating to the defi-
nition of gross estate) is amended by redesignating subsection (c)
as subsection (d) and by inserting after subsection (b) the following
new subsection:
‘‘(c) ESTATE TAX WITH RESPECT TO LAND SUBJECT TO A QUALI-
FIED CONSERVATION EASEMENT.—
‘‘(1) IN
GENERAL.—If the executor makes the election
described in paragraph (4), then, except as otherwise provided
in this subsection, there shall be excluded from the gross estate
the applicable percentage of the lesser of—
‘‘(A) the value of land subject to a qualified conserva-
tion easement, reduced by the amount of any deduction
under section 2055(f) with respect to such land, or
‘‘(B) the excess (if any) of $5,000,000 over the lesser
of—
‘‘(i) $2,500,000, or
‘‘(ii) the adjusted value of the qualified family-
owned business interests of the decedent determined
under section 2033A.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph
(1), the term ‘applicable percentage’ means 40 percent reduced
(but not below zero) by 2 percentage points for each percentage
point (or fraction thereof) by which the value of the qualified
conservation easement is less than 30 percent of the value
of the land (determined without regard to the value of such
easement and reduced by the value of any retained development
right (as defined in paragraph (4)).
‘‘(3) TREATMENT OF CERTAIN INDEBTEDNESS.—
‘‘(A) IN GENERAL.—The exclusion provided in paragraph
(1) shall not apply to the extent that the land is debt-
financed property.
‘‘(B) DEFINITIONS.—For purposes of this paragraph—
‘‘(i) DEBT-FINANCED
PROPERTY.—The term ‘debt-
financed property’ means any property with respect
to which there is an acquisition indebtedness (as
defined in clause (ii)) on the date of the decedent’s
death.
‘‘(ii) 
ACQUISITION
INDEBTEDNESS.—The 
term
‘acquisition indebtedness’ means, with respect to debt-
financed property, the unpaid amount of—
‘‘(I) the indebtedness incurred by the donor
in acquiring such property,
H. R. 2491—525
‘‘(II) the indebtedness incurred before the
acquisition of such property if such indebtedness
would not have been incurred but for such acquisi-
tion,
‘‘(III) the indebtedness incurred after the
acquisition of such property if such indebtedness
would not have been incurred but for such acquisi-
tion and the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisi-
tion, and
‘‘(IV) the extension, renewal, or refinancing
of an acquisition indebtedness.
‘‘(4) TREATMENT OF RETAINED DEVELOPMENT RIGHT.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
the value of any development right retained by the donor
in the conveyance of a qualified conservation easement.
‘‘(B) TERMINATION OF RETAINED DEVELOPMENT RIGHT.—
If every person in being who has an interest (whether
or not in possession) in the land executes an agreement
to extinguish permanently some or all of any development
rights (as defined in subparagraph (D)) retained by the
donor on or before the date for filing the return of the
tax imposed by section 2001, then any tax imposed by
section 2001 shall be reduced accordingly. Such agreement
shall be filed with the return of the tax imposed by section
2001. The agreement shall be in such form as the Secretary
shall prescribe.
‘‘(C) ADDITIONAL TAX.—Any failure to implement the
agreement described in subparagraph (B) not later than
the earlier of—
‘‘(i) the date which is 2 years after the date of
the decedent’s death, or
‘‘(ii) the date of the sale of such land subject to
the qualified conservation easement,
shall result in the imposition of an additional tax in the
amount of the tax which would have been due on the
retained development rights subject to such agreement.
Such additional tax shall be due and payable on the last
day of the 6th month following such date.
‘‘(D) DEVELOPMENT RIGHT DEFINED.—For purposes of
this paragraph, the term ‘development right’ means any
right to use the land subject to the qualified conservation
easement in which such right is retained for any commer-
cial purpose which is not subordinate to and directly
supportive of the use of such land as a farm for farming
purposes (within the meaning of section 6420(c)).
‘‘(4) ELECTION.—The election under this subsection shall
be made on the return of the tax imposed by section 2001.
Such an election, once made, shall be irrevocable.
‘‘(5) CALCULATION OF ESTATE TAX DUE.—An executor mak-
ing the election described in paragraph (4) shall, for purposes
of calculating the amount of tax imposed by section 2001,
include the value of any development right (as defined in para-
graph (3)) retained by the donor in the conveyance of such
qualified conservation easement. The computation of tax on
any retained development right prescribed in this paragraph
H. R. 2491—526
shall be done in such manner and on such forms as the Sec-
retary shall prescribe.
‘‘(6) DEFINITIONS.—For purposes of this subsection—
‘‘(A) LAND
SUBJECT
TO
A
QUALIFIED
CONSERVATION
EASEMENT.—The term ‘land subject to a qualified conserva-
tion easement’ means land—
‘‘(i) which is located—
‘‘(I) in or within 25 miles of an area which,
on the date of the decedent’s death, is a metropoli-
tan area (as defined by the Office of Management
and Budget),
‘‘(II) in or within 25 miles of an area which,
on the date of the decedent’s death, is a national
park or wilderness area designated as part of the
National Wilderness Preservation System (unless
it is determined by the Secretary that land in
or within 25 miles of such a park or wilderness
area is not under significant development pres-
sure), or
‘‘(III) in or within 10 miles of an area which,
on the date of the decedent’s death, is an Urban
National Forest (as designated by the Forest Serv-
ice),
‘‘(ii) which was owned by the decedent or a member
of the decedent’s family at all times during the 3-
year period ending on the date of the decedent’s death,
and
‘‘(iii) with respect to which a qualified conservation
easement has been made by the decedent or a member
of the decedent’s family.
‘‘(B) QUALIFIED CONSERVATION EASEMENT.—The term
‘qualified conservation easement’ means a qualified con-
servation contribution (as defined in section 170(h)(1)) of
a qualified real property interest (as defined in section
170(h)(2)(C)), except that clause (iv) of section 170(h)(4)(A)
shall not apply, and the restriction on the use of such
interest described in section 170(h)(2)(C) shall include a
prohibition on commercial recreational activity.
‘‘(C) MEMBER OF FAMILY.—The term ‘member of the
decedent’s family’ means any member of the family (as
defined in section 2032A(e)(2)) of the decedent.
‘‘(7) APPLICATION OF THIS SECTION TO INTERESTS IN PART-
NERSHIPS, CORPORATIONS, AND TRUSTS.—This section shall apply
to an interest in a partnership, corporation, or trust if at
least 30 percent of the entity is owned (directly or indirectly)
by the decedent, as determined under the rules described in
section 2033A(e)(3).’’.
(b) CARRYOVER BASIS.—Section 1014(a) (relating to basis of
property acquired from a decedent) is amended by striking the
period at the end of paragraph (3) and inserting ‘‘, or’’ and by
adding after paragraph (3) the following new paragraph:
‘‘(4) to the extent of the applicability of the exclusion
described in section 2031(c), the basis in the hands of the
decedent.’’.
(c) QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DISPOSI-
TION.—Subsection (c) of section 2032A (relating to alternative valu-
H. R. 2491—527
ation method) is amended by adding at the end the following
new paragraph:
‘‘(8) QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DIS-
POSITION.—A qualified conservation contribution (as defined
in section 170(h)) by gift or otherwise shall not be deemed
a disposition under subsection (c)(1)(A).’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after December 31, 1995.
SEC. 11074. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING
TRANSFER TAX FOR TRANSFERS TO INDIVIDUALS WITH
DECEASED PARENTS.
(a) IN GENERAL.—Section 2651 (relating to generation assign-
ment) is amended by redesignating subsection (e) as subsection
(f), and by inserting after subsection (d) the following new sub-
section:
‘‘(e) SPECIAL RULE FOR PERSONS WITH A DECEASED PARENT.—
‘‘(1) IN GENERAL.—For purposes of determining whether
any transfer is a generation-skipping transfer, if—
‘‘(A) an individual is a descendant of a parent of the
transferor (or the transferor’s spouse or former spouse),
and
‘‘(B) such individual’s parent who is a lineal descendant
of the parent of the transferor (or the transferor’s spouse
or former spouse) is dead at the time the transfer (from
which an interest of such individual is established or
derived) is subject to a tax imposed by chapter 11 or
12 upon the transferor (and if there shall be more than
1 such time, then at the earliest such time),
such individual shall be treated as if such individual were
a member of the generation which is 1 generation below the
lower of the transferor’s generation or the generation assign-
ment of the youngest living ancestor of such individual who
is also a descendant of the parent of the transferor (or the
transferor’s spouse or former spouse), and the generation
assignment of any descendant of such individual shall be
adjusted accordingly.
‘‘(2) LIMITED APPLICATION OF SUBSECTION TO COLLATERAL
HEIRS.—This subsection shall not apply with respect to a trans-
fer to any individual who is not a lineal descendant of the
transferor (or the transferor’s spouse or former spouse) if, at
the time of the transfer, such transferor has any living lineal
descendant.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 2612(c) (defining direct skip) is amended by
striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is amended by
striking ‘‘section 2651(e)(2)’’ and inserting ‘‘section 2651(f)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to terminations, distributions, and transfers occurring
after December 31, 1994.
SEC. 11075. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER
SECTION 2032A TO LINEAL DESCENDANTS.
(a) GENERAL RULE.—Paragraph (7) of section 2032A(c) (relating
to special rules for tax treatment of dispositions and failures to
H. R. 2491—528
use for qualified use) is amended by adding at the end the following
new subparagraph:
‘‘(E) CERTAIN RENTS TREATED AS QUALIFIED USE.—For
purposes of this subsection, a surviving spouse or lineal
descendant of the decedent shall not be treated as failing
to use qualified real property in a qualified use solely
because such spouse or descendant rents such property
to a member of the family of such spouse or descendant
on a net cash basis. For purposes of the preceding sentence,
a legally adopted child of an individual shall be treated
as the child of such individual by blood.’’.
(b) 
CONFORMING
AMENDMENT.—Section 
2032A(b)(5)(A) 
is
amended by striking out the last sentence.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to leases entered into after December
31, 1995.
Subtitle E—Extension of Expiring
Provisions
CHAPTER 1—TEMPORARY EXTENSIONS
SEC. 11111. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.—Subsection (a) of section 51 (relating
to amount of credit) is amended by striking ‘‘40 percent’’ and insert-
ing ‘‘35 percent’’.
(b) MEMBERS OF TARGETED GROUPS.—Subsection (d) of section
51 is amended to read as follows:
‘‘(d) MEMBERS
OF TARGETED GROUPS.—For purposes of this
subpart—
‘‘(1) IN GENERAL.—An individual is a member of a targeted
group if such individual is—
‘‘(A) a qualified IV–A recipient,
‘‘(B) a qualified veteran,
‘‘(C) a qualified ex-felon,
‘‘(D) a high-risk youth,
‘‘(E) a vocational rehabilitation referral, or
‘‘(F) a qualified summer youth employee.
‘‘(2) QUALIFIED IV–A RECIPIENT.—
‘‘(A) IN GENERAL.—The term ‘qualified IV–A recipient’
means any individual who is certified by the designated
local agency as being a member of a family receiving assist-
ance under a IV–A program for at least a 9-month period
ending during the 9-month period ending on the hiring
date.
‘‘(B) IV–A PROGRAM.—For purposes of this paragraph,
the term ‘IV–A program’ means any program providing
assistance under a State plan approved under part A of
title IV of the Social Security Act (relating to assistance
for needy families with minor children) and any successor
of such program.
‘‘(3) QUALIFIED VETERAN.—
‘‘(A) IN GENERAL.—The term ‘qualified veteran’ means
any veteran who is certified by the designated local agency
as being—
H. R. 2491—529
‘‘(i) a member of a family receiving assistance
under a IV–A program (as defined in paragraph (2)(B))
for at least a 9-month period ending during the 12-
month period ending on the hiring date, or
‘‘(ii) a member of a family receiving assistance
under a food stamp program under the Food Stamp
Act of 1977 for at least a 3-month period ending during
the 12-month period ending on the hiring date.
‘‘(B) VETERAN.—For purposes of subparagraph (A), the
term ‘veteran’ means any individual who is certified by
the designated local agency as—
‘‘(i)(I) having served on active duty (other than
active duty for training) in the Armed Forces of the
United States for a period of more than 180 days,
or
‘‘(II) having been discharged or released from
active duty in the Armed Forces of the United States
for a service-connected disability, and
‘‘(ii) not having any day during the 60-day period
ending on the hiring date which was a day of extended
active duty in the Armed Forces of the United States.
For purposes of clause (ii), the term ‘extended active duty’
means a period of more than 90 days during which the
individual was on active duty (other than active duty for
training).
‘‘(4) QUALIFIED
EX-FELON.—The term ‘qualified ex-felon’
means any individual who is certified by the designated local
agency—
‘‘(A) as having been convicted of a felony under any
statute of the United States or any State,
‘‘(B) as having a hiring date which is not more than
1 year after the last date on which such individual was
so convicted or was released from prison, and
‘‘(C) as being a member of a family which had an
income during the 6 months immediately preceding the
earlier of the month in which such income determination
occurs or the month in which the hiring date occurs, which,
on an annual basis, would be 70 percent or less of the
Bureau of Labor Statistics lower living standard.
Any determination under subparagraph (C) shall be valid for
the 45-day period beginning on the date such determination
is made.
‘‘(5) HIGH-RISK YOUTH.—
‘‘(A) IN GENERAL.—The term ‘high-risk youth’ means
any individual who is certified by the designated local
agency—
‘‘(i) as having attained age 18 but not age 25
on the hiring date, and
‘‘(ii) as having his principal place of abode within
an empowerment zone or enterprise community.
‘‘(B) YOUTH MUST CONTINUE TO RESIDE IN ZONE.—In
the case of a high-risk youth, the term ‘qualified wages’
shall not include wages paid or incurred for services per-
formed while such youth’s principal place of abode is out-
side an empowerment zone or enterprise community.
H. R. 2491—530
‘‘(6) VOCATIONAL
REHABILITATION
REFERRAL.—The term
‘vocational rehabilitation referral’ means any individual who
is certified by the designated local agency as—
‘‘(A) having a physical or mental disability which, for
such individual, constitutes or results in a substantial
handicap to employment, and
‘‘(B) having been referred to the employer upon comple-
tion of (or while receiving) rehabilitative services pursuant
to—
‘‘(i) an individualized written rehabilitation plan
under a State plan for vocational rehabilitation services
approved under the Rehabilitation Act of 1973, or
‘‘(ii) a program of vocational rehabilitation carried
out under chapter 31 of title 38, United States Code.
‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
‘‘(A) IN GENERAL.—The term ‘qualified summer youth
employee’ means any individual—
‘‘(i) who performs services for the employer
between May 1 and September 15,
‘‘(ii) who is certified by the designated local agency
as having attained age 16 but not 18 on the hiring
date (or if later, on May 1 of the calendar year
involved),
‘‘(iii) who has not been an employee of the employer
during any period prior to the 90-day period described
in subparagraph (B)(i), and
‘‘(iv) who is certified by the designated local agency
as having his principal place of abode within an
empowerment zone or enterprise community.
‘‘(B) SPECIAL
RULES
FOR
DETERMINING
AMOUNT
OF
CREDIT.—For purposes of applying this subpart to wages
paid or incurred to any qualified summer youth employee—
‘‘(i) subsection (b)(2) shall be applied by substitut-
ing ‘any 90-day period between May 1 and September
15’ for ‘the 1-year period beginning with the day the
individual begins work for the employer’, and
‘‘(ii) subsection (b)(3) shall be applied by substitut-
ing ‘$3,000’ for ‘$6,000’.
The preceding sentence shall not apply to an individual
who, with respect to the same employer, is certified as
a member of another targeted group after such individual
has been a qualified summer youth employee.
‘‘(C) YOUTH MUST CONTINUE TO RESIDE IN ZONE.—Para-
graph (5)(B) shall apply for purposes of this paragraph.
‘‘(8) HIRING DATE.—The term ‘hiring date’ means the day
the individual is hired by the employer.
‘‘(9) DESIGNATED
LOCAL
AGENCY.—The term ‘designated
local agency’ means a State employment security agency estab-
lished in accordance with the Act of June 6, 1933, as amended
(29 U.S.C. 49–49n).
‘‘(10) SPECIAL RULES FOR CERTIFICATIONS.—
‘‘(A) IN GENERAL.—An individual shall not be treated
as a member of a targeted group unless—
‘‘(i) on or before the day on which such individual
begins work for the employer, the employer has
received a certification from a designated local agency
H. R. 2491—531
that such individual is a member of a targeted group,
or
‘‘(ii)(I) on or before the day the individual is offered
employment with the employer, a pre-screening notice
is completed by the employer with respect to such
individual, and
‘‘(II) not later than the 14th day after the individ-
ual begins work for the employer, the employer submits
such notice, signed by the employer and the individual
under penalties of perjury, to the designated local
agency as part of a written request for such a certifi-
cation from such agency.
For purposes of this paragraph, the term ‘pre-screening
notice’ means a document (in such form as the Secretary
shall prescribe) which contains information provided by
the individual on the basis of which the employer believes
that the individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified by a designated
local agency as a member of a targeted group, and
‘‘(ii) such certification is incorrect because it was
based on false information provided by such individual,
the certification shall be revoked and wages paid by the
employer after the date on which notice of revocation is
received by the employer shall not be treated as qualified
wages.
‘‘(C) EXPLANATION OF DENIAL OF REQUEST.—If a des-
ignated local agency denies a request for certification of
membership in a targeted group, such agency shall provide
to the person making such request a written explanation
of the reasons for such denial.’’
(c) MINIMUM EMPLOYMENT PERIOD.—Paragraph (3) of section
51(i) (relating to certain individuals ineligible) is amended to read
as follows:
‘‘(3) INDIVIDUALS
NOT
MEETING
MINIMUM
EMPLOYMENT
PERIOD.—No wages shall be taken into account under sub-
section (a) with respect to any individual unless such individual
either—
‘‘(A) is employed by the employer at least 180 days
(20 days in the case of a qualified summer youth employee),
or
‘‘(B) has completed at least 500 hours (120 hours in
the case of a qualified summer youth employee) of services
performed for the employer.’’
(d) TERMINATION.—Paragraph (4) of section 51(c) (relating to
wages defined) is amended to read as follows:
‘‘(4) TERMINATION.—The term ‘wages’ shall not include any
amount paid or incurred to an individual who begins work
for the employer—
‘‘(A) after December 31, 1994, and before January 1,
1996, or
‘‘(B) after December 31, 1996.’’
(e) REDESIGNATION OF CREDIT.—
(1) Sections 38(b)(2) and 51(a) are each amended by striking
‘‘targeted jobs credit’’ and inserting ‘‘work opportunity credit’’.
H. R. 2491—532
(2) The subpart heading for subpart F of part IV of sub-
chapter A of chapter 1 is amended by striking ‘‘Targeted
Jobs Credit’’ and inserting ‘‘Work Opportunity Credit’’.
(3) The table of subparts for such part IV is amended
by striking ‘‘targeted jobs credit’’ and inserting ‘‘work oppor-
tunity credit’’.
(4) The heading for paragraph (3) of section 1396(c) is
amended by striking ‘‘TARGETED JOBS CREDIT’’ and inserting
‘‘WORK OPPORTUNITY CREDIT’’.
(f) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 51(c) is amended by striking
‘‘, subsection (d)(8)(D),’’.
(2) Paragraph (3) of section 51(i) is amended by striking
‘‘(d)(12)’’ each place it appears and inserting ‘‘(d)(6)’’.
(g) EFFECTIVE DATE.—The amendments made by this section
shall apply to individuals who begin work for the employer after
December 31, 1995.
SEC. 11112. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PRO-
GRAMS.
(a) EXTENSION.—Subsection (d) of section 127 (relating to edu-
cational assistance programs) is amended by striking ‘‘December
31, 1994’’ and inserting ‘‘December 31, 1996’’.
(b) LIMITATION TO EDUCATION BELOW GRADUATE LEVEL.—The
last sentence of section 127(c)(1) is amended by inserting before
the period ‘‘or at the graduate level’’.
(c) EFFECTIVE DATES.—
(1) EXTENSION.—The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1994.
(2) LIMITATION.—The amendment made by subsection (b)
shall apply to taxable years beginning after December 31, 1995.
SEC. 11113. RESEARCH CREDIT.
(a) IN GENERAL.—Subsection (h) of section 41 (relating to credit
for research activities) is amended—
(1) by striking ‘‘June 30, 1995’’ each place it appears and
inserting ‘‘December 31, 1996’’, and
(2) by striking ‘‘July 1, 1995’’ each place it appears and
inserting ‘‘January 1, 1997’’.
(b) BASE AMOUNT
FOR START-UP COMPANIES.—Clause (i) of
section 41(c)(3)(B) (relating to start-up companies) is amended to
read as follows:
‘‘(i) 
TAXPAYERS
TO
WHICH
SUBPARAGRAPH
APPLIES.—The fixed-base percentage shall be deter-
mined under this subparagraph if—
‘‘(I) the first taxable year in which a taxpayer
had both gross receipts and qualified research
expenses begins after December 31, 1983, or
‘‘(II) there are fewer than 3 taxable years
beginning after December 31, 1983, and before
January 1, 1989, in which the taxpayer had both
gross receipts and qualified research expenses.’’.
(c) ELECTION
OF ALTERNATIVE INCREMENTAL CREDIT.—Sub-
section (c) of section 41 is amended by redesignating paragraphs
(4) and (5) as paragraphs (5) and (6), respectively, and by inserting
after paragraph (3) the following new paragraph:
‘‘(4) ELECTION OF ALTERNATIVE INCREMENTAL CREDIT.—
H. R. 2491—533
‘‘(A) IN GENERAL.—At the election of the taxpayer, the
credit determined under subsection (a)(1) shall be equal
to the sum of—
‘‘(i) 1.65 percent of so much of the qualified
research expenses for the taxable year as exceeds 1
percent of the average described in subsection (c)(1)(B)
but does not exceed 1.5 percent of such average,
‘‘(ii) 2.2 percent of so much of such expenses as
exceeds 1.5 percent of such average but does not exceed
2 percent of such average, and
‘‘(iii) 2.75 percent of so much of such expenses
as exceeds 2 percent of such average.
‘‘(B) ELECTION.—An election under this paragraph may
be made only for the first taxable year of the taxpayer
beginning after June 30, 1995. Such an election shall apply
to the taxable year for which made and all succeeding
taxable years unless revoked with the consent of the Sec-
retary.’’
(d) INCREASED CREDIT
FOR CONTRACT RESEARCH EXPENSES
WITH RESPECT TO CERTAIN RESEARCH CONSORTIA.—Paragraph (3)
of section 41(b) is amended by adding at the end the following
new subparagraph:
‘‘(C) AMOUNTS
PAID
TO
CERTAIN
RESEARCH
CONSOR-
TIA.—
‘‘(i) IN
GENERAL.—Subparagraph (A) shall be
applied by substituting ‘75 percent’ for ‘65 percent’
with respect to amounts paid or incurred by the tax-
payer to a qualified research consortium for qualified
research.
‘‘(ii) QUALIFIED RESEARCH CONSORTIUM.—The term
‘qualified research consortium’ means any organization
described in subsection (e)(6)(B) if—
‘‘(I) at least 15 unrelated taxpayers paid (dur-
ing the calendar year in which the taxable year
of the taxpayer begins) amounts to such organiza-
tion for qualified research,
‘‘(II) no 3 persons paid during such calendar
year more than 50 percent of the total amounts
paid during such calendar year for qualified
research, and
‘‘(III) no person contributed more than 20 per-
cent of such total amounts.
For purposes of subclause (I), all persons treated as
a single employer under subsection (a) or (b) of section
52 shall be treated as related taxpayers.’’
(e) CONFORMING AMENDMENT.—Subparagraph (D) of section
28(b)(1) is amended by striking ‘‘June 30, 1995’’ and inserting
‘‘December 31, 1996’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after June 30, 1995.
(2) SUBSECTIONS (c) AND (d).—The amendments made by
subsections (c) and (d) shall apply to taxable years beginning
after June 30, 1995.
H. R. 2491—534
SEC. 11114. ORPHAN DRUG TAX CREDIT.
(a) RECATEGORIZED AS A BUSINESS CREDIT.—
(1) IN GENERAL.—Section 28 (relating to clinical testing
expenses for certain drugs for rare diseases or conditions) is
transferred to subpart D of part IV of subchapter A of chapter
1, inserted after section 45B, and redesignated as section 45C.
(2) CONFORMING
AMENDMENT.—Subsection (b) of section
38 (relating to general business credit) is amended by striking
‘‘plus’’ at the end of paragraph (10), by striking the period
at the end of paragraph (11) and inserting ‘‘, plus’’, and by
adding at the end the following new paragraph:
‘‘(12) the orphan drug credit determined under section
45C(a).’’.
(3) CLERICAL AMENDMENTS.—
(A) The table of sections for subpart B of such part
IV is amended by striking the item relating to section
28.
(B) The table of sections for subpart D of such part
IV is amended by adding at the end the following new
item:
‘‘Sec. 45C. Clinical testing expenses for certain drugs for rare diseases or condi-
tions.’’.
(b) CREDIT TERMINATION.—Subsection (e) of section 45C, as
redesignated by subsection (a)(1), is amended by striking ‘‘December
31, 1994’’ and inserting ‘‘December 31, 1996’’.
(c) NO PRE-1995 CARRYBACKS.—Subsection (d) of section 39
(relating to carryback and carryforward of unused credits) is
amended by adding at the end the following new paragraph:
‘‘(7) NO CARRYBACK OF SECTION 45C CREDIT BEFORE 1995.—
No portion of the unused business credit for any taxable year
which is attributable to the orphan drug credit determined
under section 45C may be carried back to a taxable year begin-
ning before January 1, 1995.’’.
(d) ADDITIONAL CONFORMING AMENDMENTS.—
(1) Section 45C(a), as redesignated by subsection (a)(1),
is amended by striking ‘‘There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year’’
and inserting ‘‘For purposes of section 38, the credit determined
under this section for the taxable year is’’.
(2) Section 45C(d), as so redesignated, is amended by strik-
ing paragraph (2) and by redesignating paragraphs (3), (4),
and (5) as paragraphs (2), (3), and (4).
(3) Section 29(b)(6)(A) is amended by striking ‘‘sections
27 and 28’’ and inserting ‘‘section 27’’.
(4) Section 30(b)(3)(A) is amended by striking ‘‘sections
27, 28, and 29’’ and inserting ‘‘sections 27 and 29’’.
(5) Section 53(d)(1)(B) is amended—
(A) by striking ‘‘or not allowed under section 28 solely
by reason of the application of section 28(d)(2)(B),’’ in clause
(iii), and
(B) by striking ‘‘or not allowed under section 28 solely
by reason of the application of section 28(d)(2)(B)’’ in clause
(iv)(II).
(6) Section 55(c)(2) is amended by striking ‘‘28(d)(2),’’.
(7) Section 280C(b) is amended—
(A) by striking ‘‘section 28(b)’’ in paragraph (1) and
inserting ‘‘section 45C(b)’’,
H. R. 2491—535
(B) by striking ‘‘section 28’’ in paragraphs (1) and (2)(A)
and inserting ‘‘section 45C(b)’’, and
(C) by striking ‘‘subsection (d)(2) thereof’’ in paragraphs
(1) and (2)(A) and inserting ‘‘section 38(c)’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after December 31, 1994.
SEC. 11115. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) IN GENERAL.—Subparagraph (D) of section 170(e)(5) (relat-
ing to special rule for contributions of stock for which market
quotations are readily available) is amended by striking ‘‘December
31, 1994’’ and inserting ‘‘December 31, 1996’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to contributions made after December 31, 1994.
SEC. 11116. DELAY OF TAX ON FUEL USED IN COMMERCIAL AVIATION.
(a) IN
GENERAL.—Sections 4092(b)(2), 6421(f)(2)(B), and
6427(l)(4)(B) are each amended by striking ‘‘September 30, 1995’’
and inserting ‘‘September 30, 1997’’.
(b) CONFORMING AMENDMENT.—Section 13245 of the Omnibus
Budget Reconciliation Act of 1993 is hereby repealed.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall take effect after September 30, 1995, but shall not take
effect if section 11117 does not take effect.
(2) CROSS REFERENCE.—
For refund of tax paid on commercial aviation fuel before the
date of the enactment of this Act, see section 6427(l) of the Internal
Revenue Code of 1986.
(d) FLOOR STOCKS TAX.—
(1) IMPOSITION OF TAX.—In the case of commercial aviation
fuel which is held by any person on October 1, 1997, there
is hereby imposed a floor stocks tax equal to 4.3 cents per
gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAYMENT.—
(A) LIABILITY FOR TAX.—A person holding aviation fuel
on October 1, 1997, to which the tax imposed by paragraph
(1) applies shall be liable for such tax.
(B) METHOD OF PAYMENT.—The tax imposed by para-
graph (1) shall be paid in such manner as the Secretary
shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed by para-
graph (1) shall be paid on or before April 30, 1998.
(3) DEFINITIONS.—For purposes of this subsection—
(A) HELD BY A PERSON.—Aviation fuel shall be consid-
ered as ‘‘held by a person’’ if title thereto has passed
to such person (whether or not delivery to the person
has been made).
(B) COMMERCIAL AVIATION FUEL.—The term ‘‘commer-
cial aviation fuel’’ means aviation fuel (as defined in section
4093 of such Code) which is held on October 1, 1997,
for sale or use in commercial aviation (as defined in section
4092(b) of such Code).
(C) SECRETARY.—The term ‘‘Secretary’’ means the Sec-
retary of the Treasury or the Secretary’s delegate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax imposed by
paragraph (1) shall not apply to aviation fuel held by any
person exclusively for any use for which a credit or refund
H. R. 2491—536
of the entire tax imposed by section 4091 of such Code (other
than the rate imposed by section 4091(b)(2) of such Code)
is allowable for aviation fuel so used.
(5) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL.—
(A) IN GENERAL.—No tax shall be imposed by para-
graph (1) on aviation fuel held on October 1, 1997, by
any person if the aggregate amount of commercial aviation
fuel held by such person on such date does not exceed
2,000 gallons. The preceding sentence shall apply only if
such person submits to the Secretary (at the time and
in the manner required by the Secretary) such information
as the Secretary shall require for purposes of this para-
graph.
(B) EXEMPT FUEL.—For purposes of subparagraph (A),
there shall not be taken into account fuel held by any
person which is exempt from the tax imposed by paragraph
(1) by reason of paragraph (4).
(C) CONTROLLED GROUPS.—For purposes of this para-
graph—
(i) CORPORATIONS.—
(I) IN GENERAL.—All persons treated as a con-
trolled group shall be treated as 1 person.
(II) CONTROLLED
GROUP.—The term ‘‘con-
trolled group’’ has the meaning given to such term
by subsection (a) of section 1563 of such Code;
except that for such purposes the phrase ‘‘more
than 50 percent’’ shall be substituted for the
phrase ‘‘at least 80 percent’’ each place it appears
in such subsection.
(ii) NONINCORPORATED
PERSONS
UNDER
COMMON
CONTROL.—Under regulations prescribed by the Sec-
retary, principles similar to the principles of clause
(i) shall apply to a group of persons under common
control where 1 or more of such persons is not a
corporation.
(6) OTHER LAWS APPLICABLE.—All provisions of law, includ-
ing penalties, applicable with respect to the taxes imposed
by section 4091 of such Code shall, insofar as applicable and
not inconsistent with the provisions of this subsection, apply
with respect to the floor stock taxes imposed by paragraph
(1) to the same extent as if such taxes were imposed by such
section 4091.
SEC. 11117. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE
TAXES.
(a) FUEL TAX.—
(1) Subparagraph (A) of section 4091(b)(3) is amended by
striking ‘‘January 1, 1996’’ and inserting ‘‘October 1, 1996’’.
(2) Paragraph (2) of section 4081(d), as amended by section
11651 of this Act, is amended by striking ‘‘January 1, 1996’’
and inserting ‘‘October 1, 1996’’.
(b) TICKET TAXES.—Sections 4261(g) and 4271(d) are each
amended by striking ‘‘January 1, 1996’’ and inserting ‘‘October
1, 1996’’.
(c) TRANSFER TO AIRPORT AND AIRWAY TRUST FUND.—
H. R. 2491—537
(1) Subsection (b) of section 9502 is amended by striking
‘‘January 1, 1996’’ each place it appears and inserting ‘‘October
1, 1996’’.
(2) Paragraph (3) of section 9502(f) is amended by striking
‘‘December 31, 1995’’ and inserting ‘‘September 30, 1996’’.
SEC. 11118. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.
Subsection (c) of section 10511 of the Revenue Act of 1987
is amended by striking ‘‘October 1, 2000’’ and by inserting ‘‘October
1, 2002’’.
CHAPTER 2—SUNSET OF LOW-INCOME HOUSING
CREDIT
SEC. 11121. SUNSET OF LOW-INCOME HOUSING CREDIT.
(a) REPEAL
OF REALLOCATION
OF UNUSED CREDITS AMONG
STATES.—Subparagraph (D) of section 42(h)(3) is amended by add-
ing at the end the following new clause:
‘‘(v) TERMINATION.—No amount may be allocated
under this paragraph for any calendar year after 1995.’’
(b) TERMINATION.—Section 42 is amended by adding at the
end the following new subsection:
‘‘(o) TERMINATION.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2)—
‘‘(A) clause (i) of subsection (h)(3)(C) shall not apply
to any amount allocated after December 31, 1997, and
‘‘(B) subsection (h)(4) shall not apply to any building
placed in service after such date.
‘‘(2) 
EXCEPTION
FOR
BOND-FINANCED
BUILDINGS
IN
PROGRESS.—For purposes of paragraph (1)(B), a building shall
be treated as placed in service before January 1, 1998, if—
‘‘(A) the bonds with respect to such building are issued
before such date,
‘‘(B) the taxpayer’s basis in the project (of which the
building is a part) as of December 31, 1997, is more than
10 percent of the taxpayer’s reasonably expected basis in
such project as of December 31, 1999, and
‘‘(C) such building is placed in service before January
1, 2000.’’
CHAPTER 3—EXTENSIONS OF SUPERFUND AND OIL
SPILL LIABILITY TAXES
SEC. 11131. EXTENSION OF HAZARDOUS SUBSTANCE SUPERFUND
TAXES.
(a) EXTENSION OF TAXES.—
(1) ENVIRONMENTAL TAX.—Section 59A(e) is amended to
read as follows:
‘‘(e) APPLICATION OF TAX.—The tax imposed by this section
shall apply to taxable years beginning after December 31, 1986,
and before January 1, 1997.’’.
(2) EXCISE
TAXES.—Section 4611(e) is amended to read
as follows:
‘‘(e) APPLICATION
OF
HAZARDOUS
SUBSTANCE
SUPERFUND
FINANCING RATE.—The Hazardous Substance Superfund financing
rate under this section shall apply after December 31, 1986, and
before October 1, 1996.’’.
H. R. 2491—538
(b) TERMINATION ON DEPOSITS OF TAXES INTO HAZARDOUS SUB-
STANCE SUPERFUND.—Paragraph (1) of section 9507(b) is amended
by inserting ‘‘before August 1, 1996’’ after ‘‘received’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 11132. EXTENSION OF OIL SPILL LIABILITY TAX.
(a) IN GENERAL.—Section 4611(f)(1) (relating to application of
oil spill liability trust fund financing rate) is amended by striking
‘‘after December 31, 1989, and before January 1, 1995’’ and inserting
‘‘after December 31, 1995, and before October 1, 2002’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on January 1, 1996.
CHAPTER 4—EXTENSIONS RELATING TO FUEL TAXES
SEC. 11141. ETHANOL BLENDER REFUNDS.
(a) IN GENERAL.—Paragraph (4) of section 6427(f) (relating
to gasoline, diesel fuel, and aviation fuel used to produce certain
alcohol fuels) is amended by striking ‘‘1995’’ and inserting ‘‘1999’’.
(b) SPECIAL RULE.—With respect to refund claims which could
have been filed under section 6427(f) of the Internal Revenue Code
of 1986 during the period beginning on October 8, 1995, and ending
on the date of the enactment of this Act, but for the expiration
of such section after September 30, 1995, interest shall accrue
on such claims from the date which is the later of—
(1) November 1, 1995, or
(2) 20 days after the claim could have been filed under
such section as in effect on September 30, 1995.
(c) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 11142. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS
AND COAL FACILITIES.
(a) IN GENERAL.—Subparagraph (A) of section 29(g)(1) (relating
to extension of certain facilities) is amended by striking ‘‘January
1, 1997’’ and inserting ‘‘January 1, 1998’’ and by striking ‘‘January
1, 1996’’ and inserting ‘‘July 1, 1996’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 11143. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS
WITH RESPECT TO CERTAIN STATES.
(a) IN GENERAL.—Section 4082 (relating to exemptions for diesel
fuel) is amended by redesignating subsections (c) and (d) as sub-
sections (d) and (e), respectively, and by inserting after subsection
(b) the following new subsection:
‘‘(c) EXCEPTION TO DYEING REQUIREMENTS.—Paragraph (2) of
subsection (a) shall not apply with respect to any diesel fuel—
‘‘(1) removed, entered, or sold in a State for ultimate sale
or use in an area of such State on or after the date on which
such area is exempted from the fuel dyeing requirements under
subsection (i) of section 211 of the Clean Air Act (as in effect
on the date of the enactment of this subsection) by the Adminis-
trator of the Environmental Protection Agency under paragraph
(4) of such subsection (i) (as so in effect), and
‘‘(2) the use of which is certified pursuant to regulations
issued by the Secretary.’’
H. R. 2491—539
(b) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the first day of the first calendar quarter
beginning after the date of the enactment of this Act.
SEC. 11144. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD
FOR USE OR USED IN DIESEL-POWERED MOTORBOATS.
(a) IN GENERAL.—Subparagraph (D) of section 4041(a)(1) (relat-
ing to the imposition of tax on diesel fuel and special motor fuels)
is amended to read as follows:
‘‘(D) DIESEL FUEL USED IN MOTORBOATS.—
‘‘(i) MORATORIUM.—No tax shall be imposed by
subsection (a) or (d)(1) on diesel fuel sold for use or
used in a diesel-powered motorboat during the period
after December 31, 1995, and before July 1, 1997.
‘‘(ii) SPECIAL TERMINATION DATE.—In the case of
any sale for use, or use, of fuel in a diesel-powered
motorboat—
‘‘(I) effective during the period after September
30, 1999, and before January 1, 2000, the rate
of tax imposed by this paragraph is 24.3 cents
per gallon, and
‘‘(II) the termination of the tax under sub-
section (d) shall not occur before January 1, 2000.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall take effect after December 31, 1995.
CHAPTER 5—PERMANENT EXTENSION OF FUTA
EXEMPTION FOR ALIEN AGRICULTURAL WORKERS
SEC. 11151. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.
(a) IN GENERAL.—Subparagraph (B) of section 3306(c)(1) (defin-
ing employment) is amended by striking ‘‘before January 1, 1995,’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to services performed after December 31, 1994.
CHAPTER 6—DISCLOSURE OF RETURN INFORMATION
FOR ADMINISTRATION OF CERTAIN VETERANS PRO-
GRAMS
SEC. 11161. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRA-
TION OF CERTAIN VETERANS PROGRAMS.
(a) GENERAL RULE.—Subparagraph (D) of section 6103(l)(7)
(relating to disclosure of return information to Federal, State, and
local agencies administering certain programs) is amended by strik-
ing ‘‘Clause (viii) shall not apply after September 30, 1998.’’ and
inserting ‘‘Clause (viii) shall not apply after September 30, 2002.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
Subtitle F—Taxpayer Bill of Rights 2
Provisions
SEC. 11201. EXPANSION OF AUTHORITY TO ABATE INTEREST.
(a) GENERAL RULE.—Paragraph (1) of section 6404(e) (relating
to abatement of interest in certain cases) is amended—
H. R. 2491—540
(1) by inserting ‘‘unreasonable’’ before ‘‘error’’ each place
it appears in subparagraphs (A) and (B), and
(2) by striking ‘‘in performing a ministerial act’’ each place
it appears and inserting ‘‘in performing a ministerial or mana-
gerial act’’.
(b) CLERICAL AMENDMENT.—The subsection heading for sub-
section (e) of section 6404 is amended—
(1) by striking ‘‘ASSESSMENTS’’ and inserting ‘‘ABATEMENT’’,
and
(2) by inserting ‘‘UNREASONABLE’’ before ‘‘ERRORS’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to interest accruing with respect to deficiencies or pay-
ments for taxable years beginning after the date of the enactment
of this Act.
SEC. 11202. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT
OF TAX AFTER NOTICE AND DEMAND.
(a) GENERAL RULE.—Paragraph (3) of section 6601(e) (relating
to payments made within 10 days after notice and demand) is
amended to read as follows:
‘‘(3) PAYMENTS
MADE
WITHIN
SPECIFIED
PERIOD
AFTER
NOTICE AND DEMAND.—If notice and demand is made for pay-
ment of any amount and if such amount is paid within 21
calendar days (10 business days if the amount for which such
notice and demand is made equals or exceeds $100,000) after
the date of such notice and demand, interest under this section
on the amount so paid shall not be imposed for the period
after the date of such notice and demand.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 6601(e)(2) is amended by
striking ‘‘10 days from the date of notice and demand therefor’’
and inserting ‘‘21 calendar days from the date of notice and
demand therefor (10 business days if the amount for which
such notice and demand is made equals or exceeds $100,000)’’.
(2) Paragraph (3) of section 6651(a) is amended by striking
‘‘10 days of the date of the notice and demand therefor’’ and
inserting ‘‘21 calendar days from the date of notice and demand
therefor (10 business days if the amount for which such notice
and demand is made equals or exceeds $100,000)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply in the case of any notice and demand given after
June 30, 1996.
SEC. 11203. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS
WITHOUT FULL PAYMENT OF TAX.
(a) GENERAL RULE.—Paragraph (2) of section 6013(b) (relating
to limitations on filing of joint return after filing separate returns)
is amended by striking subparagraph (A) and redesignating the
following subparagraphs accordingly.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 11204. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.
(a) FUEL, ETC.—Paragraph (2) of section 6334(a) (relating to
fuel, provisions, furniture, and personal effects exempt from levy)
is amended—
H. R. 2491—543
‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION (a)(1).—If the
property was acquired as the result of a compulsory or involun-
tary conversion described in subsection (a)(1), the basis shall
be the same as in the case of the property so converted—
‘‘(A) decreased in the amount of any money received
by the taxpayer which was not expended in accordance
with the provisions of law (applicable to the year in which
such conversion was made) determining the taxable status
of the gain or loss upon such conversion, and
‘‘(B) increased in the amount of gain or decreased
in the amount of loss to the taxpayer recognized upon
such conversion under the law applicable to the year in
which such conversion was made.
‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION (a)(2).—In the
case of property purchased by the taxpayer in a transaction
described in subsection (a)(2) which resulted in the nonrecogni-
tion of any part of the gain realized as the result of a compul-
sory or involuntary conversion, the basis shall be the cost
of such property decreased in the amount of the gain not
so recognized; and if the property purchased consists of more
than 1 piece of property, the basis determined under this sen-
tence shall be allocated to the purchased properties in propor-
tion to their respective costs.
‘‘(3) PROPERTY HELD BY CORPORATION THE STOCK OF WHICH
IS REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—If the basis of stock in a corporation
is decreased under paragraph (2), an amount equal to
such decrease shall also be applied to reduce the basis
of property held by the corporation at the time the taxpayer
acquired control (as defined in subsection (a)(2)(E)) of such
corporation.
‘‘(B) LIMITATION.—Subparagraph (A) shall not apply
to the extent that it would (but for this subparagraph)
require a reduction in the aggregate adjusted bases of
the property of the corporation below the taxpayer’s
adjusted basis of the stock in the corporation (determined
immediately after such basis is decreased under paragraph
(2)).
‘‘(C) ALLOCATION OF BASIS REDUCTION.—The decrease
required under subparagraph (A) shall be allocated—
‘‘(i) first to property which is similar or related
in service or use to the converted property,
‘‘(ii) second to depreciable property (as defined in
section 1017(b)(3)(B)) not described in clause (i), and
‘‘(iii) then to other property.
‘‘(D) SPECIAL RULES.—
‘‘(i) REDUCTION NOT TO EXCEED ADJUSTED BASIS
OF PROPERTY.—No reduction in the basis of any prop-
erty under this paragraph shall exceed the adjusted
basis of such property (determined without regard to
such reduction).
‘‘(ii) ALLOCATION
OF
REDUCTION
AMONG
PROP-
ERTIES.—If more than 1 property is described in a
clause of subparagraph (C), the reduction under this
paragraph shall be allocated among such property in
proportion to the adjusted bases of such property (as
so determined).’’.
H. R. 2491—544
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to involuntary conversions occurring after September
13, 1995.
SEC. 11252. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CON-
VERTED PROPERTY BE REPLACED WITH PROPERTY
ACQUIRED FROM AN UNRELATED PERSON.
(a) IN GENERAL.—Subsection (i) of section 1033 is amended
to read as follows:
‘‘(i) REPLACEMENT PROPERTY MUST BE ACQUIRED FROM UNRE-
LATED PERSON IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—If the property which is involuntarily
converted is held by a taxpayer to which this subsection applies,
subsection (a) shall not apply if the replacement property or
stock is acquired from a related person. The preceding sentence
shall not apply to the extent that the related person acquired
the replacement property or stock from an unrelated person
during the period applicable under subsection (a)(2)(B).
‘‘(2) TAXPAYERS TO WHICH SUBSECTION APPLIES.—This sub-
section shall apply to—
‘‘(A) a C corporation,
‘‘(B) a partnership in which 1 or more C corporations
own, directly or indirectly (determined in accordance with
section 707(b)(3)), more than 50 percent of the capital
interest, or profits interest, in such partnership at the
time of the involuntary conversion, and
‘‘(C) any other taxpayer if, with respect to property
which is involuntarily converted during the taxable year,
the aggregate of the amount of realized gain on such prop-
erty on which there is realized gain exceeds $100,000.
In the case of a partnership, subparagraph (C) shall apply
with respect to the partnership and with respect to each part-
ner. A similar rule shall apply in the case of an S corporation
and its shareholders.
‘‘(3) RELATED
PERSON.—For purposes of this subsection,
a person is related to another person if the person bears a
relationship to the other person described in section 267(b)
or 707(b)(1).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to involuntary conversions occurring after September
13, 1995.
SEC. 11253. SPECIAL RULE FOR CROP INSURANCE PROCEEDS AND
DISASTER PAYMENTS.
(a) IN GENERAL.—Section 451(d) (relating to special rule for
crop insurance proceeds and disaster payments) is amended to
read as follows:
‘‘(d) SPECIAL RULE FOR CROP INSURANCE PROCEEDS AND DISAS-
TER PAYMENTS.—
‘‘(1) GENERAL RULE.—In the case of any payment described
in paragraph (2), a taxpayer reporting on the cash receipts
and disbursements method of accounting—
‘‘(A) may elect to treat any such payment received
in the taxable year of destruction or damage of crops as
having been received in the following taxable year if the
taxpayer establishes that, under the taxpayer’s practice,
income from such crops involved would have been reported
in a following taxable year, or
H. R. 2491—545
‘‘(B) may elect to treat any such payment received
in a taxable year following the taxable year of the destruc-
tion or damage of crops as having been received in the
taxable year of destruction or damage, if the taxpayer
establishes that, under the taxpayer’s practice, income from
such crops involved would have been reported in the tax-
able year of destruction or damage.
‘‘(2) PAYMENTS
DESCRIBED.—For purposes of this sub-
section, a payment is described in this paragraph if such pay-
ment—
‘‘(A) is insurance proceeds received on account of
destruction or damage to crops, or
‘‘(B) is disaster assistance received under any Federal
law as a result of—
‘‘(i) destruction or damage to crops caused by
drought, flood, or other natural disaster, or
‘‘(ii) inability to plant crops because of such a disas-
ter.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
applies to payments received after December 31, 1992, as a result
of destruction or damage occurring after such date.
SEC. 11254. APPLICATION OF INVOLUNTARY EXCLUSION RULES TO
PRESIDENTIALLY DECLARED DISASTERS.
(a) IN GENERAL.—Section 1033(h) is amended by redesignating
paragraphs (2) and (3) as paragraphs (3) and (4) and by inserting
after paragraph (1) the following new paragraph:
‘‘(2) TRADE OR BUSINESS AND INVESTMENT PROPERTY.—If
a taxpayer’s property held for productive use in a trade or
business or for investment is compulsorily or involuntarily con-
verted as a result of a Presidentially declared disaster, tangible
property of a type held for productive use in a trade or business
shall be treated for purposes of subsection (a) as property
similar or related in use to the property so converted.’’.
(b) CONFORMING AMENDMENTS.—Section 1033(h) is amended—
(1) by striking ‘‘residence’’ in paragraph (3) (as redesignated
by subsection (a)) and inserting ‘‘property’’,
(2) by striking ‘‘Principal Residences’’ in the heading and
inserting ‘‘Property’’, and
(3) by striking ‘‘(1) IN GENERAL.—’’ and inserting ‘‘(1) PRIN-
CIPAL RESIDENCES.—’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to disasters declared after December 31, 1994, in taxable
years ending after such date.
Subtitle H—Exempt Organizations and
Charitable Reforms
CHAPTER 1—EXCISE TAX ON AMOUNTS OF PRIVATE
EXCESS BENEFITS
SEC. 11271. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE
ORGANIZATIONS TO MEET CERTAIN QUALIFICATION
REQUIREMENTS.
(a) IN GENERAL.—Chapter 42 (relating to private foundations
and certain other tax-exempt organizations) is amended by
H. R. 2491—546
redesignating subchapter D as subchapter E and by inserting after
subchapter C the following new subchapter:
‘‘Subchapter D—Failure By Certain Chari-
table Organizations To Meet Certain
Qualification Requirements
‘‘Sec. 4958. Taxes on excess benefit transactions.
‘‘SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.
‘‘(a) INITIAL TAXES.—
‘‘(1) ON
THE
DISQUALIFIED
PERSON.—There is hereby
imposed on each excess benefit transaction a tax equal to
25 percent of the excess benefit. The tax imposed by this
paragraph shall be paid by any disqualified person referred
to in subsection (f)(1) with respect to such transaction.
‘‘(2) ON THE MANAGEMENT.—In any case in which a tax
is imposed by paragraph (1), there is hereby imposed on the
participation of any organization manager in the excess benefit
transaction, knowing that it is such a transaction, a tax equal
to 10 percent of the excess benefit, unless such participation
is not willful and is due to reasonable cause. The tax imposed
by this paragraph shall be paid by any organization manager
who participated in the excess benefit transaction.
‘‘(b) ADDITIONAL TAX ON THE DISQUALIFIED PERSON.—In any
case in which an initial tax is imposed by subsection (a)(1) on
an excess benefit transaction and the excess benefit involved in
such transaction is not corrected within the taxable period, there
is hereby imposed a tax equal to 200 percent of the excess benefit
involved. The tax imposed by this subsection shall be paid by
any disqualified person referred to in subsection (f)(1) with respect
to such transaction.
‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BENEFIT.—For pur-
poses of this section—
‘‘(1) EXCESS BENEFIT TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘excess benefit transaction’
means any transaction in which an economic benefit is
provided by an applicable tax-exempt organization directly
or indirectly to or for the use of any disqualified person
if the value of the economic benefit provided exceeds the
value of the consideration (including the performance of
services) received for providing such benefit. For purposes
of the preceding sentence, an economic benefit shall not
be treated as consideration for the performance of services
unless such organization clearly indicated its intent to so
treat such benefit.
‘‘(B) EXCESS BENEFIT.—The term ‘excess benefit’ means
the excess referred to in subparagraph (A).
‘‘(2) AUTHORITY
TO
INCLUDE
CERTAIN
OTHER
PRIVATE
INUREMENT.—To the extent provided in regulations prescribed
by the Secretary, the term ‘excess benefit transaction’ includes
any transaction in which the amount of any economic benefit
provided to or for the use of a disqualified person is determined
in whole or in part by the revenues of 1 or more activities
of the organization but only if such transaction results in
inurement not permitted under paragraph (3) or (4) of section
H. R. 2491—547
501(c), as the case may be. In the case of any such transaction,
the excess benefit shall be the amount of the inurement not
so permitted.
‘‘(d) SPECIAL RULES.—For purposes of this section—
‘‘(1) JOINT AND SEVERAL LIABILITY.—If more than 1 person
is liable for any tax imposed by subsection (a) or subsection
(b), all such persons shall be jointly and severally liable for
such tax.
‘‘(2) LIMIT FOR MANAGEMENT.—With respect to any 1 excess
benefit transaction, the maximum amount of the tax imposed
by subsection (a)(2) shall not exceed $10,000.
‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—For purposes of
this subchapter, the term ‘applicable tax-exempt organization’
means—
‘‘(1) any organization which (without regard to any excess
benefit) would be described in paragraph (3) or (4) of section
501(c) and exempt from tax under section 501(a), and
‘‘(2) any organization which was described in paragraph
(1) at any time during the 2-year period ending on the date
of the transaction.
Such term shall not include a private foundation (as defined in
section 509(a)).
‘‘(f) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) DISQUALIFIED PERSON.—The term ‘disqualified person’
means, with respect to any transaction—
‘‘(A) any person who was, at any time during the
5-year period ending on the date of such transaction, in
a position to exercise substantial influence over the affairs
of the organization,
‘‘(B) a member of the family of an individual described
in subparagraph (A), and
‘‘(C) a 35-percent controlled entity.
‘‘(2) ORGANIZATION MANAGER.—The term ‘organization man-
ager’ means, with respect to any applicable tax-exempt
organization, any officer, director, or trustee of such organiza-
tion (or any individual having powers or responsibilities similar
to those of officers, directors, or trustees of the organization).
‘‘(3) 35-PERCENT CONTROLLED ENTITY.—
‘‘(A) IN
GENERAL.—The term ‘35-percent controlled
entity’ means—
‘‘(i) a corporation in which persons described in
subparagraph (A) or (B) of paragraph (1) own more
than 35 percent of the total combined voting power,
‘‘(ii) a partnership in which such persons own more
than 35 percent of the profits interest, and
‘‘(iii) a trust or estate in which such persons own
more than 35 percent of the beneficial interest.
‘‘(B) CONSTRUCTIVE OWNERSHIP RULES.—Rules similar
to the rules of paragraphs (3) and (4) of section 4946(a)
shall apply for purposes of this paragraph.
‘‘(4) FAMILY
MEMBERS.—The members of an individual’s
family shall be determined under section 4946(d); except that
such members also shall include the brothers and sisters
(whether by the whole or half blood) of the individual and
their spouses.
‘‘(5) TAXABLE PERIOD.—The term ‘taxable period’ means,
with respect to any excess benefit transaction, the period begin-
H. R. 2491—548
ning with the date on which the transaction occurs and ending
on the earliest of—
‘‘(A) the date of mailing a notice of deficiency under
section 6212 with respect to the tax imposed by subsection
(a)(1), or
‘‘(B) the date on which the tax imposed by subsection
(a)(1) is assessed.
‘‘(6) CORRECTION.—The terms ‘correction’ and ‘correct’
mean, with respect to any excess benefit transaction, undoing
the excess benefit to the extent possible, and where fully
undoing the excess benefit is not possible, such additional
corrective action as is prescribed by the Secretary by regula-
tions.’’
(b) APPLICATION OF PRIVATE INUREMENT RULE TO TAX-EXEMPT
ORGANIZATIONS DESCRIBED IN SECTION 501(c)(4).—
(1) Paragraph (4) of section 501(c) is amended by inserting
‘‘(A)’’ after ‘‘(4)’’ and by adding at the end the following:
‘‘(B) Subparagraph (A) shall not apply to an entity unless
no part of the net earnings of such entity inures to the benefit
of any private shareholder or individual.’’
(2) In the case of an organization operating on a cooperative
basis which, before the date of the enactment of this Act,
was determined by the Secretary of the Treasury or his dele-
gate, to be described in section 501(c)(4) of the Internal Revenue
Code of 1986 and exempt from tax under section 501(a) of
such Code, the allocation or return of net margins or capital
to the members of such organization in accordance with its
incorporating statute and bylaws shall not be treated for pur-
poses of such Code as the inurement of the net earnings of
such organization to the benefit of any private shareholder
or individual. The preceding sentence shall apply only if such
statute and bylaws are substantially as such statute and bylaws
were in existence on the date of the enactment of this Act.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (e) of section 4955 is amended—
(A) by striking ‘‘SECTION 4945’’ in the heading and
inserting ‘‘SECTIONS 4945 and 4958’’, and
(B) by inserting before the period ‘‘or an excess benefit
for purposes of section 4958’’.
(2) Subsections (a), (b), and (c) of section 4963 are each
amended by inserting ‘‘4958,’’ after ‘‘4955,’’.
(3) Subsection (e) of section 6213 is amended by inserting
‘‘4958 (relating to private excess benefit),’’ before ‘‘4971’’.
(4) Paragraphs (2) and (3) of section 7422(g) are each
amended by inserting ‘‘4958,’’ after ‘‘4955,’’.
(5) Subsection (b) of section 7454 is amended by inserting
‘‘or whether an organization manager (as defined in section
4958(f)(2)) has ‘knowingly’ participated in an excess benefit
transaction (as defined in section 4958(c)),’’ after ‘‘section
4912(b),’’.
(6) The table of subchapters for chapter 42 is amended
by striking the last item and inserting the following:
‘‘Subchapter D. Failure by certain charitable organizations to meet certain
qualification requirements.
‘‘Subchapter E. Abatement of first and second tier taxes in certain cases.’’
(d) EFFECTIVE DATES.—
H. R. 2491—549
(1) IN GENERAL.—The amendments made by this section
(other than subsection (b)) shall apply to excess benefit trans-
actions occurring on or after September 14, 1995.
(2) BINDING CONTRACTS.—The amendments referred to in
paragraph (1) shall not apply to any benefit arising from a
transaction pursuant to any written contract which was binding
on September 13, 1995, and at all times thereafter before
such transaction occurred.
(3) APPLICATION
OF
PRIVATE
INUREMENT
RULE
TO
TAX-
EXEMPT ORGANIZATIONS DESCRIBED IN SECTION 501(C)(4).—
(A) IN GENERAL.—The amendment made by subsection
(b) shall apply to inurement occurring on or after Septem-
ber 14, 1995.
(B) BINDING
CONTRACTS.—The amendment made by
subsection (b) shall not apply to any inurement occurring
before January 1, 1997, pursuant to a written contract
which was binding on September 13, 1995, and at all
times thereafter before such inurement occurred.
SEC. 11272. REPORTING OF CERTAIN EXCISE TAXES AND OTHER
INFORMATION.
(a) REPORTING
BY
ORGANIZATIONS
DESCRIBED
IN
SECTION
501(c)(3).—Subsection (b) of section 6033 (relating to certain
organizations described in section 501(c)(3)) is amended by striking
‘‘and’’ at the end of paragraph (9), by redesignating paragraph
(10) as paragraph (14), and by inserting after paragraph (9) the
following new paragraphs:
‘‘(10) the respective amounts (if any) of the taxes paid
by the organization during the taxable year under the following
provisions:
‘‘(A) section 4911 (relating to tax on excess expendi-
tures to influence legislation),
‘‘(B) section 4912 (relating to tax on disqualifying lobby-
ing expenditures of certain organizations), and
‘‘(C) section 4955 (relating to taxes on political expendi-
tures of section 501(c)(3) organizations),
‘‘(11) the respective amounts (if any) of the taxes paid
by the organization, or any disqualified person with respect
to such organization, during the taxable year under section
4958 (relating to taxes on private excess benefit from certain
charitable organizations),
‘‘(12) such information as the Secretary may require with
respect to any excess benefit transaction (as defined in section
4958),
‘‘(13) the name of each disqualified person (as defined in
section 4958(f)(1)(A)) with respect to such organization and
such other information as the Secretary may prescribe, and’’.
(b) ORGANIZATIONS DESCRIBED IN SECTION 501(c)(4).—Section
6033 is amended by redesignating subsection (f) as subsection (g)
and by inserting after subsection (e) the following new subsection:
‘‘(f) CERTAIN ORGANIZATIONS DESCRIBED IN SECTION 501(c)(4).—
Every organization described in section 501(c)(4) which is subject
to the requirements of subsection (a) shall include on the return
required under subsection (a) the information referred to in para-
graphs (11), (12) and (13) of subsection (b) with respect to such
organization.’’
H. R. 2491—550
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns for taxable years beginning after the date
of the enactment of this Act.
SEC. 11273. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR
FAILURE TO FILE COMPLETE AND TIMELY ANNUAL
RETURNS.
(a) IN GENERAL.—Subparagraph (A) of section 6652(c)(1) (relat-
ing to annual returns under section 6033) is amended by striking
‘‘$10’’ and inserting ‘‘$20’’ and by striking ‘‘$5,000’’ and inserting
‘‘$10,000’’.
(b) LARGER
PENALTY
ON
ORGANIZATIONS
HAVING
GROSS
RECEIPTS IN EXCESS OF $1,000,000.—Subparagraph (A) of section
6652(c)(1) is amended by adding at the end the following new
sentence: ‘‘In the case of an organization having gross receipts
exceeding $1,000,000 for any year, with respect to the return
required under section 6033 for such year, the first sentence of
this subparagraph shall be applied by substituting ‘$100’ for ‘$20’
and, in lieu of applying the second sentence of this subparagraph,
the maximum penalty under this subparagraph shall not exceed
$50,000.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to returns for taxable years ending on or after December
31, 1995.
CHAPTER 2—OTHER PROVISIONS
SEC. 11276. COOPERATIVE SERVICE ORGANIZATIONS FOR CERTAIN
FOUNDATIONS.
(a) IN GENERAL.—Section 501 (relating to exemption from tax
on corporations, certain trusts, etc.) is amended by redesignating
subsection (n) as subsection (o) and by inserting after subsection
(m) the following new subsection:
‘‘(n) COOPERATIVE
SERVICE
ORGANIZATIONS
FOR
CERTAIN
FOUNDATIONS.—
‘‘(1) IN GENERAL.—For purposes of this title, if an organiza-
tion—
‘‘(A) is organized and operated solely for purposes
referred to in subsection (f)(1),
‘‘(B) is composed solely of members which are exempt
from taxation under subsection (a) and are—
‘‘(i) private foundations, or
‘‘(ii) community foundations as to which section
170(b)(1)(A)(vi) applies,
‘‘(C) has at least 20 members,
‘‘(D) does not at any time after the second taxable
year beginning after the date of its organization or, if
later, beginning after the date of the enactment of this
subsection, have a member which holds more than 10 per-
cent (by value) of the interests in the organization,
‘‘(E) is organized and controlled by its members but
is not controlled by any one member and does not have
a member which controls another member of the organiza-
tion, and
‘‘(F) permits members of the organization to require
the dismissal of any of the organization’s investment advis-
ers, following reasonable notice, if members holding a
H. R. 2491—551
majority of interest in the account managed by such adviser
vote to remove such adviser,
then such organization shall be treated as an organization
organized and operated exclusively for charitable purposes.
‘‘(2) TREATMENT OF INCOME OF MEMBERS.—If any member
of an organization described in paragraph (1) is a private
foundation (other than an exempt operating foundation, as
defined in section 4940(d)), such private foundation’s allocable
share of the capital gain net income and gross investment
income of the organization for any taxable year of the organiza-
tion shall be treated, for purposes of section 4940, as capital
gain net income and gross investment income of such private
foundation (whether or not distributed to such foundation) for
the taxable year of such private foundation with or within
which the taxable year of the organization described in para-
graph (1) ends (and such private foundation shall take into
account its allocable share of the deductions referred to in
section 4940(c)(3) of the organization).
‘‘(3) APPLICABLE EXCISE TAXES.—Subchapter A of chapter
42 (other than sections 4940 and 4942) shall apply to any
organization described in paragraph (1).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 4945(d) is amended by adding at the end the
following new flush sentence:
‘‘Paragraph (4)(B) shall not apply to a grant to an organization
described in section 501(n).’’
(2) Section 4942(g)(1)(A) is amended by inserting ‘‘or an
organization described in section 501(n)’’ after ‘‘subsection
(j)(3))’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after December 31, 1995.
SEC. 11277. EXCLUSION FROM UNRELATED BUSINESS TAXABLE
INCOME FOR CERTAIN SPONSORSHIP PAYMENTS.
(a) IN GENERAL.—Section 513 (relating to unrelated trade or
business income) is amended by adding at the end the following
new subsection:
‘‘(i) TREATMENT OF CERTAIN SPONSORSHIP PAYMENTS.—
‘‘(1) IN GENERAL.—The term ‘unrelated trade or business’
does not include the activity of soliciting and receiving qualified
sponsorship payments.
‘‘(2) QUALIFIED SPONSORSHIP PAYMENTS.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified sponsorship pay-
ment’ means any payment made by any person engaged
in a trade or business with respect to which there is no
arrangement or expectation that such person will receive
any substantial return benefit other than the use or
acknowledgement of the name or logo (or product lines)
of such person’s trade or business in connection with the
activities of the organization that receives such payment.
Such a use or acknowledgement does not include advertis-
ing such person’s products or services (including messages
containing qualitative or comparative language, price
information or other indications of savings or value, an
endorsement, or an inducement to purchase, sell, or use
such products or services).
H. R. 2491—552
‘‘(B) LIMITATIONS.—
‘‘(i) CONTINGENT PAYMENTS.—The term ‘qualified
sponsorship payment’ does not include any payment
if the amount of such payment is contingent upon
the level of attendance at one or more events, broadcast
ratings, or other factors indicating the degree of public
exposure to one or more events.
‘‘(ii) ACKNOWLEDGEMENTS
OR
ADVERTISING
IN
PERIODICALS.—The term ‘qualified sponsorship pay-
ment’ does not include any payment which entitles
the payor to an acknowledgement or advertising in
regularly scheduled and printed material published by
or on behalf of the payee organization that is not
related to and primarily distributed in connection with
a specific event conducted by the payee organization.
‘‘(3) ALLOCATION OF PORTIONS OF SINGLE PAYMENT.—For
purposes of this subsection, to the extent that a portion of
a payment would (if made as a separate payment) be a qualified
sponsorship payment, such portion of such payment and the
other portion of such payment shall be treated as separate
payments.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to payments solicited or received after December 31,
1995.
SEC. 11278. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTI-
CULTURAL ORGANIZATIONS.
(a) GENERAL RULE.—Section 512 (defining unrelated business
taxable income) is amended by adding at the end the following
new subsection:
‘‘(d) TREATMENT OF DUES OF AGRICULTURAL OR HORTICULTURAL
ORGANIZATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an agricultural or horticultural organization
described in section 501(c)(5) requires annual dues to be
paid in order to be a member of such organization, and
‘‘(B) the amount of such required annual dues does
not exceed $100,
in no event shall any portion of such dues be treated as derived
by such organization from an unrelated trade or business by
reason of any benefits or privileges to which members of such
organization are entitled.
‘‘(2) INDEXATION OF $100 AMOUNT.—In the case of any tax-
able year beginning in a calendar year after 1995, the $100
amount in paragraph (1) shall be increased by an amount
equal to—
‘‘(A) $100, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, by substituting ‘calendar year 1994’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof.
‘‘(3) DUES.—For purposes of this subsection, the term ‘dues’
means any payment required to be made in order to be recog-
nized by the organization as a member of the organization.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1994.
H. R. 2491—553
SEC. 11279. REPEAL OF CREDIT FOR CONTRIBUTIONS TO COMMUNITY
DEVELOPMENT CORPORATIONS.
(a) IN GENERAL.—Section 13311 of the Revenue Reconciliation
Act of 1993 (relating to credit for contributions to certain community
development corporations) is hereby repealed.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to contributions made after the date of the enactment
of this Act (other than contributions made pursuant to a legally
enforceable agreement which is in effect on the date of the enact-
ment of this Act).
Subtitle I—Tax Reform and Other
Provisions
CHAPTER 1—PROVISIONS RELATING TO BUSINESSES
SEC. 11301. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVI-
DENDS.
(a) TREATMENT OF EXTRAORDINARY DIVIDENDS IN EXCESS OF
BASIS.—Paragraph (2) of section 1059(a) (relating to corporate
shareholder’s basis in stock reduced by nontaxed portion of extraor-
dinary dividends) is amended to read as follows:
‘‘(2) AMOUNTS IN EXCESS OF BASIS.—If the nontaxed portion
of such dividends exceeds such basis, such excess shall be
treated as gain from the sale or exchange of such stock for
the taxable year in which the extraordinary dividend is
received.’’.
(b) TREATMENT OF REDEMPTIONS WHERE OPTIONS INVOLVED.—
Paragraph (1) of section 1059(e) (relating to treatment of partial
liquidations and non-pro rata redemptions) is amended to read
as follows:
‘‘(1) TREATMENT
OF
PARTIAL
LIQUIDATIONS
AND
CERTAIN
REDEMPTIONS.—Except as otherwise provided in regulations—
‘‘(A) REDEMPTIONS.—In the case of any redemption of
stock—
‘‘(i) which is part of a partial liquidation (within
the meaning of section 302(e)) of the redeeming cor-
poration,
‘‘(ii) which is not pro rata as to all shareholders,
or
‘‘(iii) which would not have been treated (in whole
or in part) as a dividend if any options had not been
taken into account under section 318(a)(4),
any amount treated as a dividend with respect to such
redemption shall be treated as an extraordinary dividend
to which paragraphs (1) and (2) of subsection (a) apply
without regard to the period the taxpayer held such stock.
In the case of a redemption described in clause (iii), only
the basis in the stock redeemed shall be taken into account
under subsection (a).
‘‘(B) REORGANIZATIONS, ETC.—An exchange described
in section 356(a)(1) which is treated as a dividend under
section 356(a)(2) shall be treated as a redemption of stock
for purposes of applying subparagraph (A).’’.
(c) EFFECTIVE DATES.—
H. R. 2491—554
(1) IN GENERAL.—The amendments made by this section
shall apply to distributions after May 3, 1995.
(2) TRANSITION RULE.—The amendments made by this sec-
tion shall not apply to any distribution made pursuant to
the terms of—
(A) a written binding contract in effect on May 3,
1995, and at all times thereafter before such distribution,
or
(B) a tender offer outstanding on May 3, 1995.
(3) CERTAIN DIVIDENDS NOT PURSUANT TO CERTAIN REDEMP-
TIONS.—In determining whether the amendment made by sub-
section (a) applies to any extraordinary dividend other than
a dividend treated as an extraordinary dividend under section
1059(e)(1) of the Internal Revenue Code of 1986 (as amended
by this Act), paragraphs (1) and (2) shall be applied by
substituting ‘‘September 13, 1995’’ for ‘‘May 3, 1995’’.
SEC. 11302. REGISTRATION OF CONFIDENTIAL CORPORATE TAX SHEL-
TERS.
(a) IN GENERAL.—Section 6111 (relating to registration of tax
shelters) is amended by redesignating subsections (d) and (e) as
subsections (e) and (f), respectively, and by inserting after sub-
section (c) the following new subsection:
‘‘(d) CERTAIN CONFIDENTIAL ARRANGEMENTS TREATED AS TAX
SHELTERS.—
‘‘(1) IN GENERAL.—For purposes of this section, the term
‘tax shelter’ includes any entity, plan, arrangement, or trans-
action—
‘‘(A) a significant purpose of the structure of which
is the avoidance or evasion of Federal income tax for a
direct or indirect participant which is a corporation,
‘‘(B) which is offered to any potential participant under
conditions of confidentiality, and
‘‘(C) for which the tax shelter promoters may receive
fees in excess of $100,000 in the aggregate.
‘‘(2) CONDITIONS
OF
CONFIDENTIALITY.—For purposes of
paragraph (1)(B), an offer is under conditions of confidentiality
if—
‘‘(A) the potential participant to whom the offer is
made (or any other person acting on behalf of such partici-
pant) has an understanding or agreement with or for the
benefit of any promoter of the tax shelter that such partici-
pant (or such other person) will limit disclosure of the
tax shelter or any significant tax features of the tax shelter,
or
‘‘(B) any promoter of the tax shelter—
‘‘(i) claims, knows, or has reason to know,
‘‘(ii) knows or has reason to know that any other
person (other than the potential participant) claims,
or
‘‘(iii) causes another person to claim,
that the tax shelter (or any aspect thereof) is proprietary
to any person other than the potential participant or is
otherwise protected from disclosure to or use by others.
For purposes of this subsection, the term ‘promoter’ means
any person or any related person (within the meaning of section
H. R. 2491—555
267 or 707) who participates in the organization, management,
or sale of the tax shelter.
‘‘(3) PERSONS OTHER THAN PROMOTER REQUIRED TO REG-
ISTER IN CERTAIN CASES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the requirements of subsection (a) are not met
with respect to any tax shelter (as defined in paragraph
(1)) by any tax shelter promoter, and
‘‘(ii) no tax shelter promoter is a United States
person,
then each United States person who discussed participation
in such shelter shall register such shelter under subsection
(a).
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
to a United States person who discussed participation in
a tax shelter if—
‘‘(i) such person notified the promoter in writing
(not later than the close of the 90th day after the
day on which such discussions began) that such person
would not participate in such shelter, and
‘‘(ii) such person does not participate in such shel-
ter.
‘‘(4) OFFER TO PARTICIPATE TREATED AS OFFER FOR SALE.—
For purposes of subsections (a) and (b), an offer to participate
in a tax shelter (as defined in paragraph (1)) shall be treated
as an offer for sale.’’.
(b) PENALTY.—Subsection (a) of section 6707 (relating to failure
to furnish information regarding tax shelters) is amended by adding
at the end the following new paragraph:
‘‘(3) CONFIDENTIAL ARRANGEMENTS.—
‘‘(A) IN
GENERAL.—In the case of a tax shelter (as
defined in section 6111(d)), the penalty imposed under
paragraph (1) shall be an amount equal to the greater
of—
‘‘(i) 50 percent of the fees paid to any promoter
of the tax shelter with respect to offerings made before
the date such shelter is registered under section 6111,
or
‘‘(ii) $10,000.
Clause (i) shall be applied by substituting ‘75 percent’
for ‘50 percent’ in the case of an intentional failure or
act described in paragraph (1).
‘‘(B) SPECIAL RULE FOR PARTICIPANTS REQUIRED TO REG-
ISTER SHELTER.—In the case of a person required to register
such a tax shelter by reason of section 6111(d)(3)—
‘‘(i) such person shall be required to pay the pen-
alty under paragraph (1) only if such person actually
participated in such shelter,
‘‘(ii) the amount of such penalty shall be deter-
mined by taking into account under subparagraph
(A)(i) only the fees paid by such person, and
‘‘(iii) such penalty shall be in addition to the pen-
alty imposed on any other person for failing to register
such shelter.’’.
(c) CONFORMING AMENDMENTS.—
H. R. 2491—556
(1) Paragraph (2) of section 6707(a) is amended by striking
‘‘The penalty’’ and inserting ‘‘Except as provided in paragraph
(3), the penalty’’.
(2) Subparagraph (A) of section 6707(a)(1) is amended by
striking ‘‘paragraph (2)’’ and inserting ‘‘paragraph (2) or (3),
as the case may be’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to any tax shelter (as defined in section 6111(d) of
the Internal Revenue Code of 1986, as amended by this section)
interests in which are offered to potential participants after the
Secretary of the Treasury prescribes guidance with respect to meet-
ing requirements added by such amendments.
SEC. 11303. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH
RESPECT TO COMPANY-OWNED INSURANCE.
(a) IN GENERAL.—Paragraph (4) of section 264(a) is amended—
(1) by inserting ‘‘, or any endowment or annuity contracts
owned by the taxpayer covering any individual,’’ after ‘‘the
life of any individual’’, and
(2) by striking all that follows ‘‘carried on by the taxpayer’’
and inserting a period.
(b) EXCEPTION
FOR CONTRACTS RELATING
TO KEY PERSONS;
PERMISSIBLE INTEREST RATES.—Section 264 is amended—
(1) by striking ‘‘Any’’ in subsection (a)(4) and inserting
‘‘Except as provided in subsection (d), any’’, and
(2) by adding at the end the following new subsection:
‘‘(d) SPECIAL RULES FOR APPLICATION OF SUBSECTION (a)(4).—
‘‘(1) EXCEPTION FOR KEY PERSONS.—Subsection (a)(4) shall
not apply to any interest paid or accrued on any indebtedness
with respect to policies or contracts covering an individual
who is a key person to the extent that the aggregate amount
of such indebtedness with respect to policies and contracts
covering such individual does not exceed $50,000.
‘‘(2) INTEREST
RATE
CAP
ON
KEY
PERSONS
AND
PRE-1986
CONTRACTS.—
‘‘(A) IN GENERAL.—No deduction shall be allowed by
reason of paragraph (1) or the last sentence of subsection
(a) with respect to interest paid or accrued for any month
to the extent the amount of such interest exceeds the
amount which would have been determined if the
applicable rate of interest were used for such month.
‘‘(B) APPLICABLE RATE OF INTEREST.—For purposes of
subparagraph (A)—
‘‘(i) IN GENERAL.—The applicable rate of interest
for any month is the rate of interest described as
Moody’s Corporate Bond Yield Average-Monthly Aver-
age Corporates as published by Moody’s Investors Serv-
ice, Inc., or any successor thereto, for such month.
‘‘(ii) PRE-1986 CONTRACT.—In the case of indebted-
ness on a contract to which the last sentence of sub-
section (a) applies—
‘‘(I) which is a contract providing a fixed rate
of interest, the applicable rate of interest for any
month shall be the Moody’s rate described in
clause (i) for the month in which the contract
was purchased, or
H. R. 2491—557
‘‘(II) which is a contract providing a variable
rate of interest, the applicable rate of interest for
any month in an applicable period shall be such
Moody’s rate for the last month preceding such
period.
For purposes of subclause (II), the taxpayer shall elect
an applicable period for such contract on its return
of tax imposed by this chapter for its first taxable
year ending on or after October 13, 1995. Such
applicable period shall be for any number of months
(not greater than 12) specified in the election and
may not be changed by the taxpayer without the con-
sent of the Secretary.
‘‘(3) KEY PERSON.—For purposes of paragraph (1), the term
‘key person’ means an officer or 20-percent owner, except that
the number of individuals who may be treated as key persons
with respect to any taxpayer shall not exceed the greater of—
‘‘(A) 5 individuals, or
‘‘(B) the lesser of 5 percent of the total officers and
employees of the taxpayer or 10 individuals.
‘‘(4) 20-PERCENT OWNER.—For purposes of this subsection,
the term ‘20-percent owner’ means—
‘‘(A) if the taxpayer is a corporation, any person who
owns directly 20 percent or more of the outstanding stock
of the corporation or stock possessing 20 percent or more
of the total combined voting power of all stock of the
corporation, or
‘‘(B) if the taxpayer is not a corporation, any person
who owns 20 percent or more of the capital or profits
interest in the employer.
‘‘(5) AGGREGATION RULES.—
‘‘(A) IN GENERAL.—For purposes of paragraph (4)(A)
and applying the $50,000 limitation in paragraph (1)—
‘‘(i) all members of a controlled group shall be
treated as 1 taxpayer, and
‘‘(ii) such limitation shall be allocated among the
members of such group in such manner as the Sec-
retary may prescribe.
‘‘(B) CONTROLLED GROUP.—For purposes of this para-
graph, all persons treated as a single employer under sub-
section (a) or (b) of section 52 or subsection (m) or (o)
of section 414 shall be treated as members of a controlled
group.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to interest paid or accrued after December 31,
1995.
(2) TRANSITION RULE FOR EXISTING INDEBTEDNESS.—
(A) IN GENERAL.—In the case of—
(i) indebtedness incurred before January 1, 1996,
or
(ii) indebtedness incurred before January 1, 1997
with respect to any contract or policy entered into
in 1994 or 1995,
the amendments made by this section shall not apply to
qualified interest paid or accrued on such indebtedness
after October 13, 1995, and before January 1, 1999.
H. R. 2491—558
(B) QUALIFIED
INTEREST.—For purposes of subpara-
graph (A), the qualified interest with respect to any indebt-
edness for any month is the amount of interest which
would be paid or accrued for such month on such indebted-
ness if—
(i) in the case of any interest paid or accrued
after December 31, 1995, indebtedness with respect
to no more than 20,000 insured individuals were taken
into account, and
(ii) the lesser of the following rates of interest
were used for such month:
(I) The rate of interest specified under the
terms of the indebtedness as in effect on October
13, 1995 (and without regard to modification of
such terms after such date).
(II) The applicable percentage rate of interest
described as Moody’s Corporate Bond Yield Aver-
age-Monthly Average Corporates as published by
Moody’s Investors Service, Inc., or any successor
thereto, for such month.
For purposes of clause (i), all persons treated as a single
employer under subsection (a) or (b) of section 52 of the
Internal Revenue Code of 1986 or subsection (m) or (o)
of section 414 of such Code shall be treated as one person.
(C) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (B), the applicable percentage is as follows:
For calendar year:
The percentage is:
1995 ..........................................................................................
100 percent
1996 ..........................................................................................
90 percent
1997 ..........................................................................................
80 percent
1998 ..........................................................................................
70 percent.
(3) SPECIAL RULE FOR GRANDFATHERED CONTRACTS.—This
section shall not apply to any contract purchased on or before
June 20, 1986, except that section 264(d)(2) of the Internal
Revenue Code of 1986 shall apply to interest paid or accrued
after October 13, 1995.
(d) SPREAD
OF INCOME INCLUSION
ON SURRENDER, ETC. OF
CONTRACTS.—
(1) IN
GENERAL.—If any amount is received under any
life insurance policy or endowment or annuity contract
described in paragraph (4) of section 264(a) of the Internal
Revenue Code of 1986—
(A) on the complete surrender, redemption, or maturity
of such policy or contract during calendar year 1996, 1997,
or 1998, or
(B) in full discharge during any such calendar year
of the obligation under the policy or contract which is
in the nature of a refund of the consideration paid for
the policy or contract,
then (in lieu of any other inclusion in gross income) such
amount shall be includible in gross income ratably over the
4-taxable year period beginning with the taxable year such
amount would (but for this paragraph) be includible. The
preceding sentence shall only apply to the extent the amount
is includible in gross income for the taxable year in which
the event described in subparagraph (A) or (B) occurs.
H. R. 2491—559
(2) SPECIAL RULES FOR APPLYING SECTION 264.—A contract
shall not be treated as—
(A) failing to meet the requirement of section 264(c)(1)
of the Internal Revenue Code of 1986, or
(B) a single premium contract under section 264(b)(1)
of such Code,
solely by reason of an occurrence described in subparagraph
(A) or (B) of paragraph (1) of this subsection or solely by
reason of no additional premiums being received under the
contract by reason of a lapse occurring after October 13, 1995.
(3) SPECIAL RULE FOR DEFERRED ACQUISITION COSTS.—In
the case of the occurrence of any event described in subpara-
graph (A) or (B) of paragraph (1) of this subsection with respect
to any policy or contract—
(A) section 848 of the Internal Revenue Code of 1986
shall not apply to the unamortized balance (if any) of
the specified policy acquisition expenses attributable to
such policy or contract immediately before the insurance
company’s taxable year in which such event occurs, and
(B) there shall be allowed as a deduction to such com-
pany for such taxable year under chapter 1 of such Code
an amount equal to such unamortized balance.
SEC. 11304. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY COR-
PORATIONS REQUIRED TO USE ACCRUAL METHOD OF
ACCOUNTING.
(a) IN GENERAL.—Subsection (i) of section 447 (relating to
method of accounting for corporations engaged in farming) is
amended by adding at the end the following new paragraph:
‘‘(7) TERMINATION.—
‘‘(A) IN GENERAL.—No suspense account may be estab-
lished under this subsection by any corporation required
by this section to change its method of accounting for
any taxable year ending after September 13, 1995.
‘‘(B) 
20-YEAR
PHASEOUT
OF
EXISTING
SUSPENSE
ACCOUNTS.—Each suspense account under this subsection
shall be reduced (but not below zero) for each of the first
20 taxable years beginning after September 13, 1995, by
an amount equal to the applicable portion of such account.
Any reduction in a suspense account under this paragraph
shall be included in gross income for the taxable year
of the reduction. The amount of the reduction required
under this paragraph for any taxable year shall be reduced
(but not below zero) by the amount of any reduction
required for such taxable year under any other provision
of this subsection.
‘‘(C) APPLICABLE PORTION.—For purposes of subpara-
graph (B), the term ‘applicable portion’ means, for any
taxable year, the amount which would ratably reduce the
amount in the account (after taking into account prior
reductions) to zero over the period consisting of such tax-
able year and the remaining taxable years in such first
20 taxable years.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years ending after September 13, 1995.
H. R. 2491—560
SEC. 11305. TERMINATION OF PUERTO RICO AND POSSESSION TAX
CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding at the
end the following new subsection:
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, this section shall not apply to any taxable year
beginning after December 31, 1995.
‘‘(2) TRANSITION
RULES
FOR
ACTIVE
BUSINESS
INCOME
CREDIT.—Except as provided in paragraph (3)—
‘‘(A) IN GENERAL.—In the case of an existing credit
claimant to which subsection (a)(4)(B) does not apply, the
credit determined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after December 31,
1995, and before January 1, 2002.
‘‘(B) SPECIAL RULE FOR REDUCED CREDIT.—
‘‘(i) IN GENERAL.—In the case of an existing credit
claimant to which subsection (a)(4)(B) applies, the
credit determined under subsection (a)(1)(A) shall be
allowed for taxable years beginning after December
31, 1995, and before January 1, 1998.
‘‘(ii) ELECTION IRREVOCABLE AFTER 1997.—An elec-
tion under subsection (a)(4)(B)(iii) which is in effect
for the taxpayer’s last taxable year beginning before
1997 may not be revoked unless it is revoked for the
taxpayer’s first taxable year beginning in 1997 and
all subsequent taxable years.
‘‘(3) ADDITIONAL RESTRICTED CREDIT.—
‘‘(A) IN GENERAL.—In the case of an existing credit
claimant—
‘‘(i) the credit under subsection (a)(1)(A) shall be
allowed for the period beginning with the first taxable
year after the last taxable year to which subparagraph
(A) or (B) of paragraph (2), whichever is appropriate,
applied and ending with the last taxable year begin-
ning before January 1, 2006, except that
‘‘(ii) the aggregate amount of taxable income taken
into account under subsection (a)(1)(A) for any such
taxable year shall not exceed the adjusted base period
income of such claimant.
‘‘(B) COORDINATION
WITH
SUBSECTION
(a)(4).—The
amount of income described in subsection (a)(1)(A) which
is taken into account in applying subsection (a)(4) shall
be such income as reduced under this paragraph.
‘‘(4) ADJUSTED BASE PERIOD INCOME.—For purposes of para-
graph (3)—
‘‘(A) IN
GENERAL.—The term ‘adjusted base period
income’ means the average of the inflation-adjusted posses-
sion incomes of the corporation for each base period year.
‘‘(B) INFLATION-ADJUSTED
POSSESSION
INCOME.—For
purposes of subparagraph (A), the inflation-adjusted posses-
sion income of any corporation for any base period year
shall be an amount equal to the sum of—
‘‘(i) the possession income of such corporation for
such base period year, plus
‘‘(ii) such possession income multiplied by the infla-
tion adjustment percentage for such base period year.
H. R. 2491—561
‘‘(C) INFLATION
ADJUSTMENT
PERCENTAGE.—For pur-
poses of subparagraph (B), the inflation adjustment
percentage for any base period year means the percentage
(if any) by which—
‘‘(i) the CPI for 1995, exceeds
‘‘(ii) the CPI for the calendar year in which the
base period year for which the determination is being
made ends.
For purposes of the preceding sentence, the CPI for any
calendar year is the CPI (as defined in section 1(f)(5))
for such year under section 1(f)(4).
‘‘(D) INCREASE IN INFLATION ADJUSTMENT PERCENTAGE
FOR GROWTH DURING BASE YEARS.—The inflation adjust-
ment percentage (determined under subparagraph (C) with-
out regard to this subparagraph) for each of the 5 taxable
years referred to in paragraph (5)(A) shall be increased
by—
‘‘(i) 5 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1995;
‘‘(ii) 10.25 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1994;
‘‘(iii) 15.76 percentage points in the case of a tax-
able year ending during the 1-year period ending on
October 13, 1993;
‘‘(iv) 21.55 percentage points in the case of a tax-
able year ending during the 1-year period ending on
October 13, 1992; and
‘‘(v) 27.63 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘base period year’ means
each of 3 taxable years which are among the 5 most recent
taxable years of the corporation ending before October 14,
1995, determined by disregarding—
‘‘(i) one taxable year for which the corporation
had the largest inflation-adjusted possession income,
and
‘‘(ii) one taxable year for which the corporation
had the smallest inflation-adjusted possession income.
‘‘(B) CORPORATIONS NOT HAVING SIGNIFICANT POSSES-
SION INCOME THROUGHOUT 5-YEAR PERIOD.—
‘‘(i) IN GENERAL.—If a corporation does not have
significant possession income for each of the most
recent 5 taxable years ending before October 14, 1995,
then, in lieu of applying subparagraph (A), the term
‘base period year’ means only those taxable years (of
such 5 taxable years) for which the corporation has
significant possession income; except that, if such cor-
poration has significant possession income for 4 of
such 5 taxable years, the rule of subparagraph (A)(ii)
shall apply.
‘‘(ii) SPECIAL RULE.—If there is no year (of such
5 taxable years) for which a corporation has significant
possession income—
H. R. 2491—562
‘‘(I) the term ‘base period year’ means the first
taxable year ending on or after October 14, 1995,
but
‘‘(II) the amount of possession income for such
year which is taken into account under paragraph
(4) shall be the amount which would be determined
if such year were a short taxable year ending
on September 30, 1995.
‘‘(iii) SIGNIFICANT POSSESSION INCOME.—For pur-
poses of this subparagraph, the term ‘significant
possession income’ means possession income which
exceeds 2 percent of the possession income of the tax-
payer for the taxable year (of the period of 6 taxable
years ending with the first taxable year ending on
or after October 14, 1995) having the greatest posses-
sion income.
‘‘(C) ELECTION TO USE ONE BASE PERIOD YEAR.—
‘‘(i) IN GENERAL.—At the election of the taxpayer,
the term ‘base period year’ means—
‘‘(I) only the last taxable year of the corpora-
tion ending in calendar year 1992, or
‘‘(II) a deemed taxable year which includes
the first ten months of calendar year 1995.
‘‘(ii) BASE PERIOD INCOME FOR 1995.—In determin-
ing the adjusted base period income of the corporation
for the deemed taxable year under clause (i)(II), the
possession income shall be annualized and shall be
determined without regard to any extraordinary item.
‘‘(iii) ELECTION.—An election under this subpara-
graph by any possession corporation may be made
only for the corporation’s first taxable year beginning
after December 31, 1995, for which it is a possession
corporation. The rules of subclauses (II) and (III) of
subsection (a)(4)(B)(iii) shall apply to the election under
this subparagraph.
‘‘(D) ACQUISITIONS AND DISPOSITIONS.—Rules similar
to the rules of subparagraphs (A) and (B) of section 41(f)(3)
shall apply for purposes of this subsection.
‘‘(6) POSSESSION INCOME.—For purposes of this subsection,
the term ‘possession income’ means the income referred to
in subsection (a)(1)(A), except that there shall not be taken
into account any such income from an applicable possession
(as defined in paragraph (8)(B)). In no event shall possession
income be treated as being less than zero.
‘‘(7) SHORT YEARS.—If the current year or a base period
year is a short taxable year, the application of this subsection
shall be made with such annualizations as the Secretary shall
prescribe.
‘‘(8) SPECIAL RULES FOR CERTAIN POSSESSIONS.—
‘‘(A) IN GENERAL.—In the case of an existing credit
claimant with respect to an applicable possession, this sec-
tion (other than the preceding paragraphs of this sub-
section) shall apply to taxable years beginning after Decem-
ber 31, 1995, and before January 1, 2006.
‘‘(B) APPLICABLE
POSSESSION.—For purposes of this
paragraph, the term ‘applicable possession’ means Guam,
H. R. 2491—563
American Samoa, and the Commonwealth of the Northern
Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘existing credit claimant’
means a corporation—
‘‘(i) which was actively conducting a trade or busi-
ness in a possession on October 13, 1995, and
‘‘(ii) with respect to which an election under this
section is in effect for the corporation’s taxable year
which includes October 13, 1995.
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIBITED.—If, after
October 13, 1995, a corporation which would (but for this
subparagraph) be an existing credit claimant adds a
substantial new line of business, such corporation shall
cease to be treated as an existing credit claimant as of
the close of the taxable year ending before the date of
such addition.
‘‘(C) BINDING CONTRACT EXCEPTION.—If, on October 13,
1995, and at all times thereafter, there is in effect with
respect to a corporation a binding contract for the acquisi-
tion of assets to be used in, or for the sale of assets
to be produced from, a trade or business, the corporation
shall be treated for purposes of this paragraph as actively
conducting such trade or business on October 13, 1995.
The preceding sentence shall not apply if such trade or
business is not actively conducted before January 1, 1996.
‘‘(D) SPECIAL RULE FOR APPLICABLE POSSESSIONS.—In
determining under paragraph (8) whether a taxpayer is
an existing credit claimant with respect to an applicable
possession, this paragraph shall be applied separately with
respect to such possession.’’
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11306. DEPRECIATION UNDER INCOME FORECAST METHOD.
(a) GENERAL RULE.—Section 167 (relating to depreciation) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f) the following new subsection:
‘‘(g) DEPRECIATION UNDER INCOME FORECAST METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduction allowable
under this section to any taxpayer with respect to any property
is determined under the income forecast method or any similar
method—
‘‘(A) in determining the amount of the depreciation
deduction under such method, the estimated income from
the property shall include all income earned before the
close of the 10th taxable year following the taxable year
in which the property was placed in service in connection
with the ultimate use of the property by, or the ultimate
sale of merchandise to, persons who are not related persons
(within the meaning of section 267(b)) to the taxpayer,
‘‘(B) the adjusted basis of the property shall only
include amounts with respect to which the requirements
of section 461(h) are satisfied,
‘‘(C) the depreciation deduction under such method
for the 10th taxable year beginning after the taxable year
H. R. 2491—564
in which the property was placed in service shall be equal
to the adjusted basis of such property as of the beginning
of such 10th taxable year, and
‘‘(D) such taxpayer shall pay (or be entitled to receive)
interest computed under the look-back method of paragraph
(2) for any recomputation year.
‘‘(2) LOOK-BACK
METHOD.—The interest computed under
the look-back method of this paragraph for any recomputation
year shall be determined by—
‘‘(A) first determining the depreciation deductions
under this section with respect to such property which
would have been allowable for prior taxable years if the
determination of the amounts so allowable had been made
on the basis of the sum of the following (instead of the
estimated income with respect to such property)—
‘‘(i) the actual income from such property for peri-
ods before the close of the recomputation year, and
‘‘(ii) an estimate of the future income with respect
to such property for periods after the recomputation
year,
‘‘(B) second, determining (solely for purposes of comput-
ing such interest) the overpayment or underpayment of
tax for each such prior taxable year which would result
solely from the application of subparagraph (A), and
‘‘(C) then using the adjusted overpayment rate (as
defined in section 460(b)(7)), compounded daily, on the
overpayment or underpayment determined under subpara-
graph (B).
For purposes of the preceding sentence, any cost incurred after
the property is placed in service (which is not treated as a
separate property under paragraph (5)) shall be taken into
account by discounting (using the Federal mid-term rate deter-
mined under section 1274(d) as of the time such cost is incurred)
such cost to its value as of the date the property is placed
in service. The taxpayer may elect with respect to any property
to have the preceding sentence not apply to such property.
‘‘(3) EXCEPTION
FROM
LOOK-BACK
METHOD.—Paragraph
(1)(D) shall not apply with respect to any property which,
when placed in service by the taxpayer, had a basis of $100,000
or less.
‘‘(4) RECOMPUTATION
YEAR.—For purposes of this sub-
section, except as provided in regulations, the term ‘recomputa-
tion year’ means, with respect to any property, the third and
the 10th taxable years beginning after the taxable year in
which the property was placed in service, unless the actual
income from the property for the period before the close of
such third or 10th taxable year is within 10 percent of the
estimated income from the property for such period which
was taken into account under paragraph (1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN COSTS TREATED AS SEPARATE PROPERTY.—
For purposes of this subsection, the following costs shall
be treated as separate properties:
‘‘(i) Any costs incurred with respect to any property
after the 10th taxable year beginning after the taxable
year in which the property was placed in service.
H. R. 2491—565
‘‘(ii) Any costs incurred after the property is placed
in service and before the close of such 10th taxable
year if such costs are significant and give rise to a
significant increase in the income from the property
which was not included in the estimated income from
the property.
‘‘(B) SYNDICATION INCOME FROM TELEVISION SERIES.—
In the case of property which is an episode in a television
series, income from syndicating such series shall not be
required to be taken into account under this subsection
before the earlier of—
‘‘(i) the 4th taxable year beginning after the date
the first episode in such series is placed in service,
or
‘‘(ii) the earliest taxable year in which the taxpayer
has an arrangement relating to the future syndication
of such series.
‘‘(C) COLLECTION OF INTEREST.—For purposes of sub-
title F (other than sections 6654 and 6655), any interest
required to be paid by the taxpayer under paragraph (1)
for any recomputation year shall be treated as an increase
in the tax imposed by this chapter for such year.
‘‘(D) DETERMINATIONS.—For purposes of paragraph (2),
determinations of the amount of income from any property
shall be determined in the same manner as for purposes
of applying the income forecast method; except that any
income from the disposition of such property shall be taken
into account.
‘‘(E) TREATMENT OF PASS-THRU ENTITIES.—Rules simi-
lar to the rules of section 460(b)(4) shall apply for purposes
of this subsection.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by subsection (a)
shall apply to property placed in service after September 13,
1995.
(2) BINDING CONTRACTS.—The amendment made by sub-
section (a) shall not apply to any property produced or acquired
by the taxpayer pursuant to a written contract which was
binding on September 13, 1995, and at all times thereafter
before such production or acquisition.
SEC. 11307. TRANSFERS OF EXCESS PENSION ASSETS.
(a) IN GENERAL.—Section 420 (relating to transfers of excess
pension assets to retiree health accounts) is amended by adding
at the end the following new subsection:
‘‘(f) SIMILAR RULES TO APPLY TO OTHER TRANSFERS OF EXCESS
PLAN ASSETS.—
‘‘(1) IN GENERAL.—If there is a qualified employee benefit
transfer of any excess pension assets of a defined benefit plan
(other than a multiemployer plan) to an employer—
‘‘(A) a trust which is part of such plan shall not be
treated as failing to meet the requirements of section 401(a)
solely by reason of such transfer (or any other action
authorized under this section), and
‘‘(B) such transfer shall not be treated as—
‘‘(i) an employer reversion for purposes of section
4980, or
H. R. 2491—566
‘‘(ii) a prohibited transaction for purposes of section
4975.
The gross income of the employer shall include the amount
of any qualified employee benefit transfer made during the
taxable year.
‘‘(2) QUALIFIED
EMPLOYEE
BENEFIT
TRANSFER.—For pur-
poses of this section—
‘‘(A) IN GENERAL.—The term ‘qualified employee benefit
transfer’ means a transfer—
‘‘(i) of excess pension assets of a defined benefit
plan to the employer, and
‘‘(ii) with respect to which—
‘‘(I) the use requirements of paragraph (3) are
met, and
‘‘(II) the requirements of subsection (c)(2)(A)
are met (determined by treating such transfer as
a qualified transfer).
‘‘(B) LIMITATION
ON
AMOUNTS
TRANSFERRED.—The
amount of excess pension assets which may be transferred
in qualified employee benefit transfers during any taxable
year shall not exceed the amount which is reasonably esti-
mated to be the amount the employer maintaining the
plan will pay (whether directly or through reimbursement)
during the taxable year for qualified current employee
benefit liabilities.
‘‘(C) COORDINATION
WITH
TRANSFERS
TO
RETIREE
HEALTH ACCOUNTS.—Such term shall not include any quali-
fied transfer (as defined in subsection (b)).
‘‘(D) EXPIRATION.—No transfer in any taxable year
beginning after December 31, 2001, shall be treated as
a qualified employee benefit transfer.
‘‘(3) RESTRICTIONS ON USE OF TRANSFERRED ASSETS.—
‘‘(A) IN
GENERAL.—Any assets transferred to an
employer in a qualified employee benefit transfer shall
be used only to pay qualified current employee benefit
liabilities for the taxable year of the transfer (whether
directly or through reimbursement).
‘‘(B) AMOUNTS
NOT
USED
TO
PAY
BENEFITS.—An
employer shall transfer to a plan an amount equal to
any assets transferred out of the plan in a qualified
employee benefit transfer which are not used as provided
in subparagraph (A). Such amount shall be treated in
the same manner as amounts are treated under subsection
(c)(1)(B), except that allocable income shall be determined
by using the Federal short-term rate under section 1274(d).
‘‘(C) QUALIFIED
CURRENT
EMPLOYEE
BENEFIT
LIABIL-
ITIES.—For purposes of this subsection—
‘‘(i) IN
GENERAL.—The term ‘qualified current
employee benefit liabilities’ means, with respect to any
taxable year, the aggregate amounts (including
administrative expenses) for which a deduction is
allowable to the employer for such taxable year with
respect to applicable employee benefits.
‘‘(ii) APPLICABLE EMPLOYEE BENEFITS.—The term
‘applicable employee benefits’ means—
H. R. 2491—567
‘‘(I) contributions to a trust described in sec-
tion 401(a) which is exempt from tax under section
501(a),
‘‘(II) benefits under an accident or health plan
(within the meaning of section 105),
‘‘(III) disability benefits,
‘‘(IV) benefits under an educational assistance
program of the employer described in section
127(b), and
‘‘(V) benefits under a dependent care assist-
ance program of the employer described in section
129(d).
‘‘(4) DEFINITION AND SPECIAL RULES.—For purposes of this
subsection—
‘‘(A) EXCESS PENSION ASSETS.—The term ‘excess pen-
sion assets’ has the meaning given such term by subsection
(e)(2).
‘‘(B) COORDINATION
WITH
SECTION
412.—In the case
of a qualified employee benefit transfer—
‘‘(i) any assets transferred in a plan year on or
before the valuation date for such year (and any income
allocable thereto) shall, for purposes of section 412,
be treated as assets in the plan as of the valuation
date for such year, and
‘‘(ii) the plan shall be treated as having a net
experience loss under section 412(b)(2)(B)(iv) in an
amount equal to the amount of such transfer and for
which amortization charges begin for the first plan
year after the plan year in which such transfer occurs,
except that such section shall be applied to such
amount by substituting ‘10 plan years’ for ‘5 plan
years’.’’
(b) EXCESS ASSETS.—Section 420(e)(2) is amended to read as
follows:
‘‘(2) EXCESS PENSION ASSETS.—The term ‘excess pension
assets’ means the excess (if any) of—
‘‘(A) 
the 
amount 
determined 
under 
section
412(c)(7)(A)(ii), over
‘‘(B) the greater of—
‘‘(i) 
the 
amount 
determined 
under 
section
412(c)(7)(A)(i)(II), or
‘‘(ii) 125 percent of termination liability determined
under section 414(l), except that the actuarial assump-
tions used in making such determinations shall be
the assumptions used by the Pension Benefit Guaranty
Corporation for single-employer plan termination pur-
poses under regulations under title IV of the Employee
Retirement Income Security Act of 1974.
The determination under the preceding sentence with respect
to any transfer shall be made as of the date of the transfer.
No substantial changes in the regulations described in clause
(ii) which are made after the date of the enactment of the
Revenue Reconciliation Act of 1995 shall be taken into account
for purposes of such clause.’’
(c) TAXPAYERS IN BANKRUPTCY MAY NOT MAKE TRANSFERS.—
Section 420(e) is amended by adding at the end the following
new paragraph:
H. R. 2491—570
CHAPTER 2—LEGAL REFORMS
SEC. 11311. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR
DAMAGES NOT ATTRIBUTABLE TO PHYSICAL INJURIES
OR SICKNESS.
(a) IN GENERAL.—Paragraph (2) of section 104(a) (relating to
compensation for injuries or sickness) is amended to read as follows:
‘‘(2) the amount of any damages (other than punitive dam-
ages) received (whether by suit or agreement and whether
as lump sums or as periodic payments) on account of personal
physical injuries or physical sickness;’’.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT PHYSICAL
INJURY OR PHYSICAL SICKNESS.—Section 104(a) is amended by strik-
ing the last sentence and inserting the following new sentence:
‘‘For purposes of paragraph (2), emotional distress shall not be
treated as a physical injury or physical sickness. The preceding
sentence shall not apply to an amount of damages not in excess
of the amount paid for medical care (described in subparagraph
(A) or (B) of section 213(d)(1)) attributable to emotional distress.’’.
(c) SPECIAL RULE FOR STATES IN WHICH ONLY PUNITIVE DAM-
AGES MAY BE AWARDED IN WRONGFUL DEATH ACTIONS.—Section
104 is amended by redesignating subsection (c) as subsection (d)
and by inserting after subsection (b) the following new subsection:
‘‘(c) RESTRICTION
ON PUNITIVE DAMAGES NOT TO APPLY
IN
CERTAIN CASES.—The restriction on the application of subsection
(a)(2) to punitive damages shall not apply to punitive damages
which—
‘‘(1) are awarded in a civil action—
‘‘(A) which is a wrongful death action, and
‘‘(B) with respect to which applicable State law (as
in effect on February 1, 1996, and without regard to any
modification after such date) provides, or has been con-
strued to provide by a court of competent jurisdiction pursu-
ant to a decision issued on or before February 1, 1996,
that only punitive damages may be awarded in such an
action, and
‘‘(2) would have been excludable from gross income under
subsection (a)(2) as in effect for amounts received on December
31, 1995.
This subsection shall cease to apply to any civil action filed on
or after the first date on which the applicable State law ceases
to provide (or is no longer construed to provide) the treatment
described in paragraph (2).’’
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to amounts
received after December 31, 1995, in taxable years ending
after such date.
(2) EXCEPTION.—The amendments made by this section
shall not apply to any amount received under a written binding
agreement, court decree, or mediation award in effect on (or
issued on or before) September 13, 1995.
SEC. 11312. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.
(a) IN GENERAL.—Section 6045 (relating to returns of brokers)
is amended by adding at the end the following new subsection:
H. R. 2491—571
‘‘(f) RETURN REQUIRED IN THE CASE OF PAYMENTS TO ATTOR-
NEYS.—
‘‘(1) IN GENERAL.—Any person engaged in a trade or busi-
ness and making a payment (in the course of such trade or
business) to which this subsection applies shall file a return
under subsection (a) and a statement under subsection (b)
with respect to such payment.
‘‘(2) APPLICATION OF SUBSECTION.—
‘‘(A) IN GENERAL.—This subsection shall apply to any
payment to an attorney in connection with legal services
(whether or not such services are performed for the payor).
‘‘(B) EXCEPTION.—This subsection shall not apply to
the portion of any payment which is required to be reported
under section 6041(a) (or would be so required but for
the dollar limitation contained therein) or section 6051.’’.
(b) REPORTING
OF ATTORNEYS’ FEES PAYABLE
TO CORPORA-
TIONS.—The regulations providing an exception under section 6041
of the Internal Revenue Code of 1986 for payments made to corpora-
tions shall not apply to payments of attorneys’ fees.
(c) EFFECTIVE DATE.—The amendment made by this section
shall apply to payments made after December 31, 1996.
CHAPTER 3—REFORMS RELATING TO
NONRECOGNITION PROVISIONS
SEC. 11321. NO ROLLOVER OR EXCLUSION OF GAIN ON SALE OF PRIN-
CIPAL RESIDENCE WHICH IS ATTRIBUTABLE TO DEPRE-
CIATION DEDUCTIONS.
(a) IN GENERAL.—Subsection (d) of section 1034 (relating to
limitations) is amended by adding at the end the following new
paragraph:
‘‘(3) RECOGNITION
OF
GAIN
ATTRIBUTABLE
TO
DEPRECIA-
TION.—Subsection (a) shall not apply to so much of the gain
from the sale of any residence as does not exceed the portion
of the depreciation adjustments (as defined in section
1250(b)(3)) attributable to periods after December 31, 1995,
in respect of such residence.’’.
(b) COMPARABLE TREATMENT UNDER 1-TIME EXCLUSION OF GAIN
ON SALE OF PRINCIPAL RESIDENCE.—Subsection (d) of section 121
is amended by adding at the end the following new paragraph:
‘‘(10) RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIA-
TION.—
‘‘(A) IN GENERAL.—Subsection (a) shall not apply to
so much of the gain from the sale of any property as
does not exceed the portion of the depreciation adjustments
(as defined in section 1250(b)(3)) attributable to periods
after December 31, 1995, in respect of such property.
‘‘(B) COORDINATION WITH PARAGRAPH (5).—If this sec-
tion does not apply to gain attributable to a portion of
a residence by reason of paragraph (5), subparagraph (A)
shall not apply to depreciation adjustments attributable
to such portion.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after December 31, 1995.
H. R. 2491—572
SEC. 11322. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL RESI-
DENCE BY NONCITIZENS LIMITED TO NEW RESIDENCES
LOCATED IN THE UNITED STATES.
(a) IN GENERAL.—Subsection (d) of section 1034 (relating to
limitations) (as amended by section 11321) is amended by adding
at the end the following new paragraph:
‘‘(4) NEW RESIDENCE MUST BE LOCATED IN UNITED STATES
IN CERTAIN CASES.—
‘‘(A) IN
GENERAL.—In the case of a sale of an old
residence by a taxpayer—
‘‘(i) who is not a citizen of the United States at
the time of sale, and
‘‘(ii) who is not a citizen or resident of the United
States on the date which is 2 years after the date
of the sale of such old residence,
subsection (a) shall apply only if the new residence is
located in the United States or a possession of the United
States.
‘‘(B) PROPERTY HELD JOINTLY BY HUSBAND AND WIFE.—
Subparagraph (A) shall not apply if—
‘‘(i) the old residence is held by a husband and
wife as joint tenants, tenants by the entirety, or
community property,
‘‘(ii) such husband and wife make a joint return
for the taxable year of the sale or exchange, and
‘‘(iii) one spouse is a citizen of the United States
at the time of sale.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this section
shall apply to sales of old residences after December 31, 1995.
(2) TREATMENT OF PURCHASES OF NEW RESIDENCES.—The
amendment made by this section shall not apply to new resi-
dences—
(A) purchased before September 13, 1995, or
(B) purchased on or after such date pursuant to a
binding contract in effect on such date and at all times
thereafter before such purchase.
(3) CERTAIN RULES TO APPLY.—For purposes of this sub-
section, the rules of paragraphs (1), (2), and (3) of section
1034(c) of the Internal Revenue Code of 1986 shall apply.
CHAPTER 4—EXCISE TAX AND TAX-EXEMPT BOND
PROVISIONS
SEC. 11331. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS
OF 
DIESEL-POWERED 
AUTOMOBILES 
AND 
LIGHT
TRUCKS.
(a) IN GENERAL.—Section 6427 (relating to fuels not used for
taxable purposes) is amended by striking subsection (g).
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 34(a) is amended to read as
follows:
‘‘(3) under section 6427 with respect to fuels used for non-
taxable purposes or resold during the taxable year (determined
without regard to section 6427(k)).’’.
(2) Paragraphs (1) and (2)(A) of section 6427(i) are each
amended—
H. R. 2491—573
(A) by striking ‘‘(g),’’, and
(B) by striking ‘‘(or a qualified diesel powered highway
vehicle purchased)’’ each place it appears.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to vehicles purchased after December 31, 1995.
SEC. 11332. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING
CHEMICALS.
(a) IN GENERAL.—Section 4682(d)(1) (relating to recycling) is
amended by inserting ‘‘, or on any recycled halon imported from
any country which is a signatory to the Montreal Protocol on Sub-
stances that Deplete the Ozone Layer’’ before the period at the
end.
(b) CERTIFICATION SYSTEM.—The Secretary of the Treasury,
after consultation with the Administrator of the Environmental
Protection Agency, shall develop a certification system to ensure
compliance with the recycling requirement for imported halon under
section 4682(d)(1) of the Internal Revenue Code of 1986, as amended
by subsection (a).
(c) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the date of the enactment of this Act.
SEC. 11333. ELECTION TO AVOID TAX-EXEMPT BOND PENALTIES FOR
LOCAL FURNISHERS OF ELECTRICITY AND GAS.
Section 142(f) (relating to local furnishing of electric energy
or gas) is amended by adding at the end the following new para-
graphs:
‘‘(3) ELECTION
TO
AVOID
PENALTIES
FOR
CERTAIN
FUR-
NISHERS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a person engaged in the local furnishing of
electric energy or gas, directly or indirectly financed
facilities for such furnishing in whole or in part with
exempt facility bonds described in subsection (a)(8)
issued before the date of the enactment of this para-
graph,
‘‘(ii) such bonds would (but for this paragraph)
cease to be tax-exempt by reason of such person failing
to meet the local furnishing requirement of such section
as a result of a service area expansion by such person,
and
‘‘(iii) an election described in subparagraph (B)
is made by such person with respect to all such facili-
ties of the person,
then such bonds shall not cease to be tax-exempt by reason
of such expansion (and section 150(b)(4) shall not apply
to interest on such bonds).
‘‘(B) ELECTION.—An election is described in this
subparagraph if it is an election made in such manner
as the Secretary prescribes, and such person agrees that—
‘‘(i) no bond exempt from tax under section 103
and described in subsection (a)(8) may be issued on
or after the date of the enactment of this paragraph
with respect to the facilities for the local furnishing
of electric energy or gas, or both of such person, other
than such a bond issued to refund another bond if
the amount of such bond does not exceed the outstand-
ing amount of the refunded bond and the maturity
H. R. 2491—574
date of the refunding bond is not later than the average
maturity date of the refunded bonds to be refunded
by the issue of which the refunding bond is a part,
‘‘(ii) the expansion of the service area—
‘‘(I) is not financed with the proceeds of any
exempt facility bond described in subsection (a)(8),
and
‘‘(II) is not treated as a nonqualifying use
under the rules of paragraph (2), and
‘‘(iii) all outstanding bonds used to finance the
facilities for such person are redeemed not later than
6 months after the later of—
‘‘(I) the earliest date on which such bonds
may be redeemed, or
‘‘(II) the date of the election.
‘‘(C) RELATED
PERSONS.—For purposes of this para-
graph, the term ‘person’ includes a group of related persons
(within the meaning of section 144(a)(3)) which includes
such person.
‘‘(4) APPLICATION OF SECTION.—For purposes of this section,
no person may qualify on or after the date of the enactment
of this paragraph for tax-exempt bond financing for the local
furnishing of electric energy or gas unless such person is
engaged on such date in the local furnishing of the energy
source for which facilities are financed.’’.
SEC. 11334. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER
ADMINISTRATION FACILITY.
Sections 142(f)(4) (as added by section 11333(a)) and 147(d)
of the Internal Revenue Code of 1986 shall not apply with respect
to any private activity bond issued after the date of the enactment
of this Act and used to finance the acquisition of the Snettisham
hydroelectric project from the Alaska Power Administration in
determining if such bond is a qualified bond for purposes of such
Code.
CHAPTER 5—FOREIGN TRUST TAX COMPLIANCE
SEC. 11341. IMPROVED INFORMATION REPORTING ON FOREIGN
TRUSTS.
(a) IN GENERAL.—Section 6048 (relating to returns as to certain
foreign trusts) is amended to read as follows:
‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN
TRUSTS.
‘‘(a) NOTICE OF CERTAIN EVENTS.—
‘‘(1) GENERAL RULE.—On or before the 90th day (or such
later day as the Secretary may prescribe) after any reportable
event, the responsible party shall provide written notice of
such event to the Secretary in accordance with paragraph (2).
‘‘(2) CONTENTS OF NOTICE.—The notice required by para-
graph (1) shall contain such information as the Secretary may
prescribe, including—
‘‘(A) the amount of money or other property (if any)
transferred to the trust in connection with the reportable
event, and
‘‘(B) the identity of the trust and of each trustee and
beneficiary (or class of beneficiaries) of the trust.
H. R. 2491—576
‘‘(A) IN GENERAL.—If the rules of this paragraph apply
to any foreign trust, the determination of amounts required
to be taken into account with respect to such trust by
a United States person under the rules of subpart E of
part I of subchapter J of chapter 1 shall be determined
by the Secretary.
‘‘(B) UNITED STATES AGENT REQUIRED.—The rules of
this paragraph shall apply to any foreign trust to which
paragraph (1) applies unless such trust agrees (in such
manner, subject to such conditions, and at such time as
the Secretary shall prescribe) to authorize a United States
person to act as such trust’s limited agent solely for pur-
poses of applying sections 7602, 7603, and 7604 with
respect to—
‘‘(i) any request by the Secretary to examine
records or produce testimony related to the proper
treatment of amounts required to be taken into account
under the rules referred to in subparagraph (A), or
‘‘(ii) any summons by the Secretary for such
records or testimony.
The appearance of persons or production of records by
reason of a United States person being such an agent
shall not subject such persons or records to legal process
for any purpose other than determining the correct treat-
ment under this title of the amounts required to be taken
into account under the rules referred to in subparagraph
(A). A foreign trust which appoints an agent described
in this subparagraph shall not be considered to have an
office or a permanent establishment in the United States,
or to be engaged in a trade or business in the United
States, solely because of the activities of such agent pursu-
ant to this subsection.
‘‘(C) OTHER
RULES
TO
APPLY.—Rules similar to the
rules of paragraphs (2) and (4) of section 6038A(e) shall
apply for purposes of this paragraph.
‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES OF FOREIGN
TRUSTS.—
‘‘(1) IN GENERAL.—If any United States person receives
(directly or indirectly) during any taxable year of such person
any distribution from a foreign trust, such person shall make
a return with respect to such trust for such year which
includes—
‘‘(A) the name of such trust,
‘‘(B) the aggregate amount of the distributions so
received from such trust during such taxable year, and
‘‘(C) such other information as the Secretary may pre-
scribe.
‘‘(2) INCLUSION IN INCOME IF RECORDS NOT PROVIDED.—
‘‘(A) IN GENERAL.—If adequate records are not provided
to the Secretary to determine the proper treatment of any
distribution from a foreign trust, such distribution shall
be treated as an accumulation distribution includible in
the gross income of the distributee under chapter 1. To
the extent provided in regulations, the preceding sentence
shall not apply if the foreign trust elects to be subject
to rules similar to the rules of subsection (b)(2)(B).
H. R. 2491—577
‘‘(B) APPLICATION
OF
ACCUMULATION
DISTRIBUTION
RULES.—For purposes of applying section 668 in a case
to which subparagraph (A) applies, the applicable number
of years for purposes of section 668(a) shall be 1⁄2 of the
number of years the trust has been in existence.
‘‘(d) SPECIAL RULES.—
‘‘(1) DETERMINATION OF WHETHER UNITED STATES PERSON
RECEIVES DISTRIBUTION.—For purposes of this section, in deter-
mining whether a United States person receives a distribution
from a foreign trust, the fact that a portion of such trust
is treated as owned by another person under the rules of
subpart E of part I of subchapter J of chapter 1 shall be
disregarded.
‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVITIES.—To the
extent provided in regulations, a trust which is a United States
person shall be treated as a foreign trust for purposes of this
section and section 6677 if such trust has substantial activities,
or holds substantial property, outside the United States.
‘‘(3) TIME AND MANNER OF FILING INFORMATION.—Any notice
or return required under this section shall be made at such
time and in such manner as the Secretary shall prescribe.
‘‘(4) MODIFICATION OF RETURN REQUIREMENTS.—The Sec-
retary is authorized to suspend or modify any requirement
of this section if the Secretary determines that the United
States has no significant tax interest in obtaining the required
information.’’.
(b) INCREASED PENALTIES.—Section 6677 (relating to failure
to file information returns with respect to certain foreign trusts)
is amended to read as follows:
‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CER-
TAIN FOREIGN TRUSTS.
‘‘(a) CIVIL PENALTY.—In addition to any criminal penalty pro-
vided by law, if any notice or return required to be filed by section
6048—
‘‘(1) is not filed on or before the time provided in such
section, or
‘‘(2) does not include all the information required pursuant
to such section or includes incorrect information,
the person required to file such notice or return shall pay a penalty
equal to 35 percent of the gross reportable amount. If any failure
described in the preceding sentence continues for more than 90
days after the day on which the Secretary mails notice of such
failure to the person required to pay such penalty, such person
shall pay a penalty (in addition to the amount determined under
the preceding sentence) of $10,000 for each 30-day period (or frac-
tion thereof) during which such failure continues after the expira-
tion of such 90-day period. In no event shall the penalty under
this subsection with respect to any failure exceed the gross report-
able amount.
‘‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION 6048(b).—
In the case of a return required under section 6048(b)—
‘‘(1) the United States person referred to in such section
shall be liable for the penalty imposed by subsection (a), and
‘‘(2) subsection (a) shall be applied by substituting ‘5 per-
cent’ for ‘35 percent’.
H. R. 2491—578
‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes of subsection
(a), the term ‘gross reportable amount’ means—
‘‘(1) the gross value of the property involved in the event
(determined as of the date of the event) in the case of a
failure relating to section 6048(a),
‘‘(2) the gross value of the portion of the trust’s assets
at the close of the year treated as owned by the United States
person in the case of a failure relating to section 6048(b)(1),
and
‘‘(3) the gross amount of the distributions in the case of
a failure relating to section 6048(c).
‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed by this section on any failure which is shown to be due
to reasonable cause and not due to willful neglect. The fact that
a foreign jurisdiction would impose a civil or criminal penalty
on the taxpayer (or any other person) for disclosing the required
information is not reasonable cause.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B
of chapter 63 (relating to deficiency procedures for income, estate,
gift, and certain excise taxes) shall not apply in respect of the
assessment or collection of any penalty imposed by subsection (a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6724(d), as amended by sections
11004 and 11045, is amended by striking ‘‘or’’ at the end
of subparagraph (U), by striking the period at the end of
subparagraph (V) and inserting ‘‘, or’’, and by inserting after
subparagraph (V) the following new subparagraph:
‘‘(W) section 6048(b)(1)(B) (relating to foreign trust
reporting requirements).’’.
(2) The table of sections for subpart B of part III of sub-
chapter A of chapter 61 is amended by striking the item relating
to section 6048 and inserting the following new item:
‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.
(3) The table of sections for part I of subchapter B of
chapter 68 is amended by striking the item relating to section
6677 and inserting the following new item:
‘‘Sec. 6677. Failure to file information with respect to certain foreign
trusts.’’.
(d) EFFECTIVE DATES.—
(1) REPORTABLE EVENTS.—To the extent related to sub-
section (a) of section 6048 of the Internal Revenue Code of
1986, as amended by this section, the amendments made by
this section shall apply to reportable events (as defined in
such section 6048) occurring after the date of the enactment
of this Act.
(2) GRANTOR TRUST REPORTING.—To the extent related to
subsection (b) of such section 6048, the amendments made
by this section shall apply to taxable years of United States
persons beginning after the date of the enactment of this Act.
(3) REPORTING BY UNITED STATES BENEFICIARIES.—To the
extent related to subsection (c) of such section 6048, the amend-
ments made by this section shall apply to distributions received
after the date of the enactment of this Act.
H. R. 2491—579
SEC. 11342. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS
HAVING ONE OR MORE UNITED STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.—
(1) Paragraph (2) of section 679(a) is amended by striking
subparagraph (B) and inserting the following:
‘‘(B) TRANSFERS AT FAIR MARKET VALUE.—To any trans-
fer of property to a trust in exchange for consideration
of at least the fair market value of the transferred property.
For purposes of the preceding sentence, consideration other
than cash shall be taken into account at its fair market
value.’’.
(2) Subsection (a) of section 679 (relating to foreign trusts
having one or more United States beneficiaries) is amended
by adding at the end the following new paragraph:
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO ACCOUNT UNDER
FAIR MARKET VALUE EXCEPTION.—
‘‘(A) IN GENERAL.—In determining whether paragraph
(2)(B) applies to any transfer by a person described in
clause (ii) or (iii) of subparagraph (C), there shall not
be taken into account—
‘‘(i) except as provided in regulations, any obliga-
tion of a person described in subparagraph (C), and
‘‘(ii) to the extent provided in regulations, any
obligation which is guaranteed by a person described
in subparagraph (C).
‘‘(B) TREATMENT OF PRINCIPAL PAYMENTS ON OBLIGA-
TION.—Principal payments by the trust on any obligation
referred to in subparagraph (A) shall be taken into account
on and after the date of the payment in determining the
portion of the trust attributable to the property transferred.
‘‘(C) PERSONS DESCRIBED.—The persons described in
this subparagraph are—
‘‘(i) the trust,
‘‘(ii) any grantor or beneficiary of the trust, and
‘‘(iii) any person who is related (within the mean-
ing of section 643(i)(2)(B)) to any grantor or beneficiary
of the trust.’’.
(b) EXEMPTION OF TRANSFERS TO CHARITABLE TRUSTS.—Sub-
section (a) of section 679 is amended by striking ‘‘section 404(a)(4)
or 404A’’ and inserting ‘‘section 6048(a)(3)(B)(ii)’’.
(c) OTHER MODIFICATIONS.—Subsection (a) of section 679 is
amended by adding at the end the following new paragraphs:
‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN GRANTOR WHO
LATER BECOMES A UNITED STATES PERSON.—
‘‘(A) IN GENERAL.—If a nonresident alien individual
has a residency starting date within 5 years after directly
or indirectly transferring property to a foreign trust, this
section and section 6048 shall be applied as if such individ-
ual transferred to such trust on the residency starting
date an amount equal to the portion of such trust attrib-
utable to the property transferred by such individual to
such trust in such transfer.
‘‘(B) TREATMENT OF UNDISTRIBUTED INCOME.—For pur-
poses of this section, undistributed net income for periods
before such individual’s residency starting date shall be
taken into account in determining the portion of the trust
which is attributable to property transferred by such