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(e) and by inserting after subsection (c) the following
new subsection:
‘‘(d) 10-PERCENT INTEREST.—For purposes of sub-
section (a), a 10-percent interest in a partnership is an
interest described in section 6038(e)(3)(C).’’.
(b) MODIFICATION OF PENALTY ON FAILURE TO RE-
PORT CHANGES IN OWNERSHIP INTERESTS IN FOREIGN
CORPORATIONS
AND PARTNERSHIPS.—Subsection (a) of
section 6679 (relating to failure to file returns, etc., with
respect to foreign corporations or foreign partnerships) is
amended to read as follows:
‘‘(a) CIVIL PENALTY.—
‘‘(1) IN GENERAL.—In addition to any criminal
penalty provided by law, any person required to file
a return under section 6035, 6046, or 6046A who
fails to file such return at the time provided in such
section, or who files a return which does not show the
information required pursuant to such section, shall
pay a penalty of $10,000, unless it is shown that such
failure is due to reasonable cause.
‘‘(2) INCREASE
IN
PENALTY
WHERE
FAILURE
CONTINUES AFTER NOTIFICATION.—If any failure de-
scribed in paragraph (1) continues for more than 90
days after the day on which the Secretary mails no-
tice of such failure to the United States person, such
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person shall pay a penalty (in addition to the
amount required under paragraph (1)) of $10,000 for
each 30-day period (or fraction thereof) during which
such failure continues after the expiration of such 90-
day period. The increase in any penalty under this
paragraph shall not exceed $50,000.
‘‘(3) REDUCED PENALTY FOR RETURNS RELAT-
ING TO FOREIGN PERSONAL HOLDING COMPANIES.—
In the case of a return required under section 6035,
paragraph (1) shall be applied by substituting
‘$1,000’ for ‘$10,000’, and paragraph (2) shall not
apply.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers and changes after the date
of the enactment of this Act.
SEC. 934. TRANSFERS OF PROPERTY TO FOREIGN PARTNER-
SHIPS SUBJECT TO INFORMATION REPORT-
ING COMPARABLE TO INFORMATION REPORT-
ING FOR SUCH TRANSFERS TO FOREIGN COR-
PORATIONS.
(a) IN GENERAL.—Paragraph (1) of section 6038B(a)
(relating to notice of certain transfers to foreign corpora-
tions) is amended to read as follows:
‘‘(1) transfers property to—
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‘‘(A) a foreign corporation in an exchange
described in section 332, 351, 354, 355, 356, or
361, or
‘‘(B) a foreign partnership in a contribu-
tion described in section 721 or in any other
contribution described in regulations prescribed
by the Secretary,’’.
(b) EXCEPTIONS.—Section 6038B is amended by re-
designating subsection (b) as subsection (c) and by inserting
after subsection (a) the following new subsection:
‘‘(b) EXCEPTIONS FOR CERTAIN TRANSFERS TO FOR-
EIGN PARTNERSHIPS; SPECIAL RULE.—
‘‘(1) EXCEPTIONS.—Subsection (a)(1)(B) shall
apply to a transfer by a United States person to a
foreign partnership only if—
‘‘(A) the United States person holds (imme-
diately after the transfer) directly or indirectly
at least a 10-percent interest (as defined in sec-
tion 6046A(d)) in the partnership, or
‘‘(B) the value of the property transferred
(when added to the value of the property trans-
ferred by such person or any related person to
such partnership or a related partnership during
the 12-month period ending on the date of the
transfer) exceeds $100,000.
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For purposes of the preceding sentence, the value of
any transferred property is its fair market value at
the time of its transfer.
‘‘(2) SPECIAL RULE.—If by reason of an adjust-
ment under section 482 or otherwise, a contribution
described in subsection (a)(1) is deemed to have been
made, such contribution shall be treated for purposes
of this section as having been made not earlier than
the date specified by the Secretary.’’.
(c) MODIFICATION OF PENALTY APPLICABLE TO FOR-
EIGN CORPORATIONS AND PARTNERSHIPS.—
(1) IN
GENERAL.—Paragraph (1) of section
6038B(b) is amended by striking ‘‘equal to’’ and all
that follows and inserting ‘‘equal to 10 percent of the
fair market value of the property at the time of the
exchange (and, in the case of a contribution described
in subsection (a)(1)(B), such person shall recognize
gain as if the contributed property had been sold for
such value at the time of such contribution).’’.
(2) LIMIT
ON
PENALTY.—Section 6038B(b) is
amended by adding at the end the following new
paragraph:
‘‘(3) LIMIT
ON
PENALTY.—The penalty under
paragraph (1) with respect to any exchange shall not
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exceed $100,000 unless the failure with respect to such
exchange was due to intentional disregard.’’.
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to transfers made after the
date of the enactment of this Act.
(2) ELECTION OF RETROACTIVE EFFECT.—Sec-
tion 1494(c) of the Internal Revenue Code of 1986
shall not apply to any transfer after August 20, 1996,
if all applicable reporting requirements under section
6038B of such Code (as amended by this section) are
satisfied. The Secretary of the Treasury or his dele-
gate may prescribe simplified reporting under the
preceding sentence.
SEC. 935. EXTENSION OF STATUTE OF LIMITATION FOR
FOREIGN TRANSFERS.
(a) IN GENERAL.—Paragraph (8) of section 6501(c)
(relating to failure to notify Secretary under section 6038B)
is amended to read as follows:
‘‘(8) FAILURE TO NOTIFY SECRETARY OF CER-
TAIN FOREIGN TRANSFERS.—In the case of any infor-
mation which is required to be reported to the Sec-
retary under section 6038, 6038A, 6038B, 6046,
6046A, or 6048, the time for assessment of any tax
imposed by this title with respect to any event or pe-
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riod to which such information relates shall not ex-
pire before the date which is 3 years after the date on
which the Secretary is furnished the information re-
quired to be reported under such section.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to information the due date for the
reporting of which is after the date of the enactment of this
Act.
SEC. 936. INCREASE IN FILING THRESHOLDS FOR RETURNS
AS TO ORGANIZATION OF FOREIGN CORPORA-
TIONS AND ACQUISITIONS OF STOCK IN SUCH
CORPORATIONS.
(a) IN GENERAL.—Subsection (a) of section 6046 (re-
lating to returns as to organization or reorganization of
foreign corporations and as to acquisitions of their stock)
is amended to read as follows:
‘‘(a) REQUIREMENT OF RETURN.—
‘‘(1) IN GENERAL.—A return complying with the
requirements of subsection (b) shall be made by—
‘‘(A) each United States citizen or resident
who becomes an officer or director of a foreign
corporation if a United States person (as defined
in section 7701(a)(30)) meets the stock ownership
requirements of paragraph (2) with respect to
such corporation,
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‘‘(B) each United States person—
‘‘(i) who acquires stock which, when
added to any stock owned on the date of
such acquisition, meets the stock ownership
requirements of paragraph (2) with respect
to a foreign corporation, or
‘‘(ii) who acquires stock which, without
regard to stock owned on the date of such
acquisition, meets the stock ownership re-
quirements of paragraph (2) with respect to
a foreign corporation,
‘‘(C) each person (not described in subpara-
graph (B)) who is treated as a United States
shareholder under section 953(c) with respect to
a foreign corporation, and
‘‘(D) each person who becomes a United
States person while meeting the stock ownership
requirements of paragraph (2) with respect to
stock of a foreign corporation.
In the case of a foreign corporation with respect to
which any person is treated as a United States share-
holder under section 953(c), subparagraph (A) shall
be treated as including a reference to each United
States person who is an officer or director of such cor-
poration.
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‘‘(2) STOCK
OWNERSHIP
REQUIREMENTS.—A
person meets the stock ownership requirements of this
paragraph with respect to any corporation if such
person owns 10 percent or more of—
‘‘(A) the total combined voting power of all
classes of stock of such corporation entitled to
vote, or
‘‘(B) the total value of the stock of such cor-
poration.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on January 1, 1998.
Subtitle E—Determination of For-
eign or Domestic Status of Part-
nerships
SEC. 941. DETERMINATION OF FOREIGN OR DOMESTIC STA-
TUS OF PARTNERSHIPS.
(a) IN GENERAL.—Paragraph (4) of section 7701(a)
is amended by inserting before the period ‘‘unless, in the
case of a partnership, the Secretary provides otherwise by
regulations’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after the
date of the enactment of this Act.
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Subtitle F—Other Simplification
Provisions
SEC. 951. TRANSITION RULE FOR CERTAIN TRUSTS.
(a) IN GENERAL.—Paragraph (3) of section 1907(a)
of the Small Business Job Protection Act of 1996 is amend-
ed by adding at the end the following flush sentence:
‘‘To the extent prescribed in regulations by the Sec-
retary of the Treasury or his delegate, a trust which
was in existence on August 20, 1996 (other than a
trust treated as owned by the grantor under subpart
E of part I of subchapter J of chapter 1 of the Inter-
nal Revenue Code of 1986), and which was treated as
a United States person on the day before the date of
the enactment of this Act may elect to continue to be
treated as a United States person notwithstanding
section 7701(a)(30)(E) of such Code.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect as if included in the amendments
made by section 1907(a) of the Small Business Job Protec-
tion Act of 1996.
SEC. 952. REPEAL OF STOCK AND SECURITIES SAFE HAR-
BOR REQUIREMENT THAT PRINCIPAL OFFICE
BE OUTSIDE THE UNITED STATES.
(a) IN GENERAL.—The last sentence of clause (ii) of
section 864(b)(2)(A) (relating to stock or securities) is
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amended by striking ‘‘, or in the case of a corporation’’
and all that follows and inserting a period.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
SEC. 953. MISCELLANEOUS CLARIFICATIONS.
(a) ATTRIBUTION OF DEEMED PAID FOREIGN TAXES
TO PRIOR DISTRIBUTIONS.—Subparagraph (B) of section
902(c)(2) is amended by striking ‘‘deemed paid with respect
to’’ and inserting ‘‘attributable to’’.
(b) FINANCIAL SERVICES INCOME DETERMINED WITH-
OUT REGARD TO HIGH-TAXED INCOME.—Subclause (II) of
section 904(d)(2)(C)(i) is amended by striking ‘‘subclause
(I)’’ and inserting ‘‘subclauses (I) and (III)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
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TITLE X—SIMPLIFICATION PRO-
VISIONS RELATING TO INDI-
VIDUALS AND BUSINESSES
Subtitle A—Provisions Relating to
Individuals
SEC. 1001. BASIC STANDARD DEDUCTION AND MINIMUM
TAX EXEMPTION AMOUNT FOR CERTAIN DE-
PENDENTS.
(a) BASIC STANDARD DEDUCTION.—
(1) IN GENERAL.—Paragraph (5) of section 63(c)
(relating to limitation on basic standard deduction in
the case of certain dependents) is amended by striking
‘‘shall not exceed’’ and all that follows and inserting
‘‘shall not exceed the greater of—
‘‘(A) $500, or
‘‘(B) the sum of $250 and such individual’s
earned income.’’.
(2) CONFORMING AMENDMENT.—Paragraph (4)
of section 63(c) is amended—
(A) by striking ‘‘(5)(A)’’ in the material
preceding subparagraph (A) and inserting ‘‘(5)’’,
and
(B) by striking ‘‘by substituting’’ and all
that follows in subparagraph (B) and inserting
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‘‘by substituting for ‘calendar year 1992’ in sub-
paragraph (B) thereof—
‘‘(i) ‘calendar year 1987’ in the case of
the dollar amounts contained in paragraph
(2) or (5)(A) or subsection (f), and
‘‘(ii) ‘calendar year 1997’ in the case
of the dollar amount contained in para-
graph (5)(B).’’.
(b) MINIMUM TAX EXEMPTION AMOUNT.—Subsection
(j) of section 59 is amended to read as follows:
‘‘(j) TREATMENT OF UNEARNED INCOME OF MINOR
CHILDREN.—
‘‘(1) IN GENERAL.—In the case of a child to
whom section 1(g) applies, the exemption amount for
purposes of section 55 shall not exceed the sum of—
‘‘(A) such child’s earned income (as defined
in section 911(d)(2)) for the taxable year, plus
‘‘(B) $5,000.
‘‘(2) INFLATION
ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
1998, the dollar amount in paragraph (1)(B) shall be
increased by an amount equal to the product of—
‘‘(A) such dollar amount, and
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year
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in which the taxable year begins, determined by
substituting ‘1997’ for ‘1992’ in subparagraph
(B) thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $50, such increase shall be
rounded to the nearest multiple of $50.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 1002. INCREASE IN AMOUNT OF TAX EXEMPT FROM ES-
TIMATED TAX REQUIREMENTS.
(a) IN GENERAL.—Paragraph (1) of section 6654(e)
(relating to exception where tax is small amount) is amend-
ed by striking ‘‘$500’’ and inserting ‘‘$1,000’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 1003. TREATMENT OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.
(a) IN GENERAL.—Section 162 (relating to trade or
business expenses), as amended by title VII, is amended by
redesignating subsection (p) as subsection (q) and by insert-
ing after subsection (o) the following new subsection:
‘‘(p) TREATMENT
OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.—
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‘‘(1) GENERAL RULE.—In the case of any em-
ployee of the United States Postal Service who per-
forms services involving the collection and delivery of
mail on a rural route and who receives qualified re-
imbursements for the expenses incurred by such em-
ployee for the use of a vehicle in performing such
services—
‘‘(A) the amount allowable as a deduction
under this chapter for the use of a vehicle in per-
forming such services shall be equal to the
amount of such qualified reimbursements; and
‘‘(B) such qualified reimbursements shall be
treated as paid under a reimbursement or other
expense allowance arrangement for purposes of
section 62(a)(2)(A) (and section 62(c) shall not
apply to such qualified reimbursements).
‘‘(2) DEFINITION
OF
QUALIFIED
REIMBURSE-
MENTS.—For purposes of this subsection, the term
‘qualified reimbursements’ means the amounts paid
by the United States Postal Service to employees as
an equipment maintenance allowance under the 1991
collective bargaining agreement between the United
States Postal Service and the National Rural Letter
Carriers’ Association. Amounts paid as an equipment
maintenance allowance by such Postal Service under
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later collective bargaining agreements that supersede
the 1991 agreement shall be considered qualified reim-
bursements if such amounts do not exceed the
amounts that would have been paid under the 1991
agreement, adjusted for changes in the Consumer
Price Index (as defined in section 1(f)(5)) since
1991.’’.
(b) TECHNICAL AMENDMENT.—Section 6008 of the
Technical and Miscellaneous Revenue Act of 1988 is hereby
repealed.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
SEC. 1004. TREATMENT OF TRAVELING EXPENSES OF CER-
TAIN FEDERAL EMPLOYEES ENGAGED IN
CRIMINAL INVESTIGATIONS.
(a) IN GENERAL.—Subsection (o) of section 162, as
added by title VII, is amended by adding at the end the
following new paragraph:
‘‘(3) TRAVELING
EXPENSES
OF
CERTAIN
FED-
ERAL EMPLOYEES ENGAGED IN CRIMINAL INVESTIGA-
TIONS.—Paragraph (1) shall not apply to any Fed-
eral employee during any period for which such em-
ployee is certified by the Attorney General (or the des-
ignee thereof) as traveling on behalf of the United
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States in temporary duty status to investigate, or
provide support services for the investigation of, a
Federal crime.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to amounts paid or incurred with
respect to taxable years ending after the date of the enact-
ment of this Act.
Subtitle B—Provisions Relating to
Businesses Generally
SEC. 1011. MODIFICATIONS TO LOOK-BACK METHOD FOR
LONG-TERM CONTRACTS.
(a) LOOK-BACK METHOD NOT TO APPLY IN CERTAIN
CASES.—Subsection (b) of section 460 (relating to percent-
age of completion method) is amended by adding at the end
the following new paragraph:
‘‘(6) ELECTION
TO
HAVE
LOOK-BACK
METHOD
NOT APPLY IN DE MINIMIS CASES.—
‘‘(A) 
AMOUNTS
TAKEN
INTO
ACCOUNT
AFTER COMPLETION OF CONTRACT.—Paragraph
(1)(B) shall not apply with respect to any tax-
able year (beginning after the taxable year in
which the contract is completed) if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
such taxable year, is within
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‘‘(ii) 10 percent of the cumulative look-
back taxable income (or loss) under the con-
tract as of the close of the most recent tax-
able year to which paragraph (1)(B) ap-
plied (or would have applied but for sub-
paragraph (B)).
‘‘(B) DE MINIMIS DISCREPANCIES.—Para-
graph (1)(B) shall not apply in any case to
which it would otherwise apply if—
‘‘(i) the cumulative taxable income (or
loss) under the contract as of the close of
each prior contract year, is within
‘‘(ii) 10 percent of the cumulative look-
back income (or loss) under the contract as
of the close of such prior contract year.
‘‘(C) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) CONTRACT YEAR.—The term ‘con-
tract year’ means any taxable year for
which income is taken into account under
the contract.
‘‘(ii) LOOK-BACK INCOME OR LOSS.—
The look-back income (or loss) is the
amount which would be the taxable income
(or loss) under the contract if the allocation
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method set forth in paragraph (2)(A) were
used in determining taxable income.
‘‘(iii) 
DISCOUNTING
NOT
APPLICA-
BLE.—The amounts taken into account
after the completion of the contract shall be
determined without regard to any discount-
ing under the 2nd sentence of paragraph
(2).
‘‘(D) CONTRACTS
TO
WHICH
PARAGRAPH
APPLIES.—This paragraph shall only apply if
the taxpayer makes an election under this sub-
paragraph. Unless revoked with the consent of
the Secretary, such an election shall apply to all
long-term contracts completed during the taxable
year for which election is made or during any
subsequent taxable year.’’.
(b) MODIFICATION OF INTEREST RATE.—
(1) IN GENERAL.—Subparagraph (C) of section
460(b)(2) is amended by striking ‘‘the overpayment
rate established by section 6621’’ and inserting ‘‘the
adjusted overpayment rate (as defined in paragraph
(7))’’.
(2) ADJUSTED OVERPAYMENT RATE.—Subsection
(b) of section 460 is amended by adding at the end
the following new paragraph:
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‘‘(7) ADJUSTED OVERPAYMENT RATE.—
‘‘(A) IN GENERAL.—The adjusted overpay-
ment rate for any interest accrual period is the
overpayment rate in effect under section 6621 for
the calendar quarter in which such interest ac-
crual period begins.
‘‘(B) INTEREST
ACCRUAL
PERIOD.—For
purposes of subparagraph (A), the term ‘interest
accrual period’ means the period—
‘‘(i) beginning on the day after the re-
turn due date for any taxable year of the
taxpayer, and
‘‘(ii) ending on the return due date for
the following taxable year.
For purposes of the preceding sentence, the term
‘return due date’ means the date prescribed for
filing the return of the tax imposed by this chap-
ter (determined without regard to extensions).’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to contracts completed in taxable years ending
after the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply for purposes of section
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167(g) of the Internal Revenue Code of 1986 to prop-
erty placed in service after September 13, 1995.
SEC. 1012. MINIMUM TAX TREATMENT OF CERTAIN PROP-
ERTY AND CASUALTY INSURANCE COMPA-
NIES.
(a) IN GENERAL.—Clause (i) of section 56(g)(4)(B)
(relating to inclusion of items included for purposes of com-
puting earnings and profits) is amended by adding at the
end the following new sentence: ‘‘In the case of any insur-
ance company taxable under section 831(b), this clause
shall not apply to any amount not described in section
834(b).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1997.
SEC. 1013. USE OF ESTIMATES OF SHRINKAGE FOR INVEN-
TORY ACCOUNTING.
(a) IN GENERAL.—Section 471 (relating to general
rule for inventories) is amended by redesignating subsection
(b) as subsection (c) and by inserting after subsection (a)
the following new subsection:
‘‘(b) ESTIMATES
OF INVENTORY SHRINKAGE PER-
MITTED.—A method of determining inventories shall not be
deemed not to clearly reflect income solely because it utilizes
estimates of inventory shrinkage that are confirmed by a
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physical count only after the last day of the taxable year
if—
‘‘(1) the taxpayer normally does a physical count
of inventories at each location on a regular and con-
sistent basis, and
‘‘(2) the taxpayer makes proper adjustments to
such inventories and to its estimating methods to the
extent such estimates are greater than or less than the
actual shrinkage.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by this
section shall apply to taxable years ending after the
date of the enactment of this Act.
(2) COORDINATION WITH SECTION 481.—In the
case of any taxpayer permitted by this section to
change its method of accounting to a permissible
method for any taxable year—
(A) such changes shall be treated as initi-
ated by the taxpayer,
(B) such changes shall be treated as made
with the consent of the Secretary, and
(C) the period for taking into account the
adjustments under section 481 by reason of such
change shall be 4 years.
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SEC. 1014. QUALIFIED LESSEE CONSTRUCTION ALLOW-
ANCES FOR SHORT-TERM LEASES.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 is amended by inserting after section 109 the following
new section:
‘‘SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOW-
ANCES FOR SHORT-TERM LEASES.
‘‘(a) IN GENERAL.—Gross income of a lessee does not
include any amount received in cash (or treated as a rent
reduction) by a lessee from a lessor—
‘‘(1) under a short-term lease of retail space, and
‘‘(2) for the purpose of such lessee’s constructing
or improving qualified long-term real property for use
in such lessee’s trade or business at such retail space,
but only to the extent that such amount does not exceed
the amount expended by the lessee for such construction or
improvement.
‘‘(b) CONSISTENT TREATMENT BY LESSOR.—Qualified
long-term real property constructed or improved in connec-
tion with any amount excluded from a lessee’s income by
reason of subsection (a) shall be treated as nonresidential
real property by the lessor.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED LONG-TERM REAL PROPERTY.—
The term ‘qualified long-term real property’ means
nonresidential real property which is part of, or oth-
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erwise present at, the retail space referred to in sub-
section (a) and which reverts to the lessor at the ter-
mination of the lease.
‘‘(2) SHORT-TERM LEASE.—The term ‘short-term
lease’ means a lease (or other agreement for occu-
pancy or use) of retail space for 15 years or less (as
determined under the rules of section 168(i)(3)).
‘‘(3) RETAIL
SPACE.—The term ‘retail space’
means real property leased, occupied, or otherwise
used by a lessee in its trade or business of selling tan-
gible personal property or services to the general pub-
lic.
‘‘(d) INFORMATION REQUIRED TO BE FURNISHED TO
SECRETARY.—Under regulations, the lessee and lessor de-
scribed in subsection (a) shall, at such times and in such
manner as may be provided in such regulations, furnish
to the Secretary—
‘‘(1) information concerning the amounts re-
ceived (or treated as a rent reduction) and expended
as described in subsection (a), and
‘‘(2) any other information which the Secretary
deems necessary to carry out the provisions of this
section.’’.
(b) TREATMENT
AS INFORMATION RETURN.—Sub-
paragraph (A) of section 6724(d)(1)(A) is amended by
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striking ‘‘or’’ at the end of clause (vii), by adding ‘‘or’’ at
the end of clause (viii), and by adding at the end the follow-
ing new clause:
‘‘(ix) section 110(d) (relating to quali-
fied lessee construction allowances for short-
term leases),’’.
(c) CROSS REFERENCE.—Paragraph (8) of section
168(i) (relating to treatment of leasehold improvements) is
amended by adding at the end the following new subpara-
graph:
‘‘(C) CROSS REFERENCE.—
‘‘For treatment of qualified long-term real property
constructed or improved in connection with cash or
rent reduction from lessor to lessee, see section
110(b).’’.
(d) CLERICAL AMENDMENT.—The table of sections for
part III of subchapter B of chapter 1 is amended by insert-
ing after the item relating to section 109 the following new
item:
‘‘Sec. 110. Qualified lessee construction allowances for short-term
leases.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to leases entered into after the date of
the enactment of this Act.
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Subtitle C—Simplification Relating
to Electing Large Partnerships
PART I—GENERAL PROVISIONS
SEC. 1021. SIMPLIFIED FLOW-THROUGH FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Subchapter K (relating to part-
ners and partnerships) is amended by adding at the end
the following new part:
‘‘PART IV—SPECIAL RULES FOR ELECTING LARGE
PARTNERSHIPS
‘‘Sec. 771. Application of subchapter to electing large partnerships.
‘‘Sec. 772. Simplified flow-through.
‘‘Sec. 773. Computations at partnership level.
‘‘Sec. 774. Other modifications.
‘‘Sec. 775. Electing large partnership defined.
‘‘Sec. 776. Special rules for partnerships holding oil and gas prop-
erties.
‘‘Sec. 777. Regulations.
‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING
LARGE PARTNERSHIPS.
‘‘The preceding provisions of this subchapter to the ex-
tent inconsistent with the provisions of this part shall not
apply to an electing large partnership and its partners.
‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH.
‘‘(a) GENERAL RULE.—In determining the income tax
of a partner of an electing large partnership, such partner
shall take into account separately such partner’s distribu-
tive share of the partnership’s—
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‘‘(1) taxable income or loss from passive loss lim-
itation activities,
‘‘(2) taxable income or loss from other activities,
‘‘(3) net capital gain (or net capital loss)—
‘‘(A) to the extent allocable to passive loss
limitation activities, and
‘‘(B) to the extent allocable to other activi-
ties,
‘‘(4) tax-exempt interest,
‘‘(5) applicable net AMT adjustment separately
computed for—
‘‘(A) passive loss limitation activities, and
‘‘(B) other activities,
‘‘(6) general credits,
‘‘(7) low-income housing credit determined under
section 42,
‘‘(8) rehabilitation credit determined under sec-
tion 47,
‘‘(9) foreign income taxes,
‘‘(10) the credit allowable under section 29, and
‘‘(11) other items to the extent that the Secretary
determines that the separate treatment of such items
is appropriate.
‘‘(b) SEPARATE COMPUTATIONS.—In determining the
amounts required under subsection (a) to be separately
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taken into account by any partner, this section and section
773 shall be applied separately with respect to such partner
by taking into account such partner’s distributive share of
the items of income, gain, loss, deduction, or credit of the
partnership.
‘‘(c) TREATMENT AT PARTNER LEVEL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, rules similar to the rules of section 702(b)
shall apply to any partner’s distributive share of the
amounts referred to in subsection (a).
‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIMI-
TATION
ACTIVITIES.—For purposes of this chapter,
any partner’s distributive share of any income or loss
described in subsection (a)(1) shall be treated as an
item of income or loss (as the case may be) from the
conduct of a trade or business which is a single pas-
sive activity (as defined in section 469). A similar
rule shall apply to a partner’s distributive share of
amounts referred to in paragraphs (3)(A) and (5)(A)
of subsection (a).
‘‘(3) INCOME
OR
LOSS
FROM
OTHER
ACTIVI-
TIES.—
‘‘(A) IN
GENERAL.—For purposes of this
chapter, any partner’s distributive share of any
income or loss described in subsection (a)(2)
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shall be treated as an item of income or expense
(as the case may be) with respect to property
held for investment.
‘‘(B) DEDUCTIONS FOR LOSS NOT SUBJECT
TO
SECTION
67.—The deduction under section
212 for any loss described in subparagraph (A)
shall not be treated as a miscellaneous itemized
deduction for purposes of section 67.
‘‘(4) TREATMENT
OF
NET
CAPITAL
GAIN
OR
LOSS.—For purposes of this chapter, any partner’s
distributive share of any gain or loss described in
subsection (a)(3) shall be treated as a long-term cap-
ital gain or loss, as the case may be.
‘‘(5) MINIMUM TAX TREATMENT.—In determin-
ing the alternative minimum taxable income of any
partner, such partner’s distributive share of any ap-
plicable net AMT adjustment shall be taken into ac-
count in lieu of making the separate adjustments pro-
vided in sections 56, 57, and 58 with respect to the
items of the partnership. Except as provided in regu-
lations, the applicable net AMT adjustment shall be
treated, for purposes of section 53, as an adjustment
or item of tax preference not specified in section
53(d)(1)(B)(ii).
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‘‘(6) GENERAL CREDITS.—A partner’s distribu-
tive share of the amount referred to in paragraph (6)
of subsection (a) shall be taken into account as a cur-
rent year business credit.
‘‘(d) OPERATING RULES.—For purposes of this sec-
tion—
‘‘(1) PASSIVE LOSS LIMITATION ACTIVITY.—The
term ‘passive loss limitation activity’ means—
‘‘(A) any activity which involves the con-
duct of a trade or business, and
‘‘(B) any rental activity.
For purposes of the preceding sentence, the term
‘trade or business’ includes any activity treated as a
trade or business under paragraph (5) or (6) of sec-
tion 469(c).
‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax-ex-
empt interest’ means interest excludable from gross
income under section 103.
‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—
‘‘(A) IN
GENERAL.—The applicable net
AMT adjustment is—
‘‘(i) with respect to taxpayers other
than corporations, the net adjustment deter-
mined by using the adjustments applicable
to individuals, and
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‘‘(ii) with respect to corporations, the
net adjustment determined by using the ad-
justments applicable to corporations.
‘‘(B) NET ADJUSTMENT.—The term ‘net ad-
justment’ means the net adjustment in the items
attributable to passive loss activities or other ac-
tivities (as the case may be) which would result
if such items were determined with the adjust-
ments of sections 56, 57, and 58.
‘‘(4) TREATMENT
OF
CERTAIN
SEPARATELY
STATED ITEMS.—
‘‘(A) 
EXCLUSION
FOR
CERTAIN
PUR-
POSES.—In determining the amounts referred to
in paragraphs (1) and (2) of subsection (a), any
net capital gain or net capital loss (as the case
may be), and any item referred to in subsection
(a)(11), shall be excluded.
‘‘(B) ALLOCATION RULES.—The net capital
gain shall be treated—
‘‘(i) as allocable to passive loss limita-
tion activities to the extent the net capital
gain does not exceed the net capital gain de-
termined by only taking into account gains
and losses from sales and exchanges of prop-
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erty used in connection with such activities,
and
‘‘(ii) as allocable to other activities to
the extent such gain exceeds the amount al-
located under clause (i).
A similar rule shall apply for purposes of allo-
cating any net capital loss.
‘‘(C) NET
CAPITAL
LOSS.—The term ‘net
capital loss’ means the excess of the losses from
sales or exchanges of capital assets over the gains
from sales or exchange of capital assets.
‘‘(5) GENERAL
CREDITS.—The term ‘general
credits’ means any credit other than the low-income
housing credit, the rehabilitation credit, the foreign
tax credit, and the credit allowable under section 29.
‘‘(6) FOREIGN INCOME TAXES.—The term ‘for-
eign income taxes’ means taxes described in section
901 which are paid or accrued to foreign countries
and to possessions of the United States.
‘‘(e) SPECIAL
RULE
FOR
UNRELATED
BUSINESS
TAX.—In the case of a partner which is an organization
subject to tax under section 511, such partner’s distributive
share of any items shall be taken into account separately
to the extent necessary to comply with the provisions of sec-
tion 512(c)(1).
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‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS
LIMITATIONS.—If any person holds an interest in an elect-
ing large partnership other than as a limited partner—
‘‘(1) paragraph (2) of subsection (c) shall not
apply to such partner, and
‘‘(2) such partner’s distributive share of the part-
nership items allocable to passive loss limitation ac-
tivities shall be taken into account separately to the
extent necessary to comply with the provisions of sec-
tion 469.
The preceding sentence shall not apply to any items alloca-
ble to an interest held as a limited partner.
‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.
‘‘(a) GENERAL RULE.—
‘‘(1) TAXABLE INCOME.—The taxable income of
an electing large partnership shall be computed in the
same manner as in the case of an individual except
that—
‘‘(A) the items described in section 772(a)
shall be separately stated, and
‘‘(B) the modifications of subsection (b)
shall apply.
‘‘(2) ELECTIONS.—All elections affecting the
computation of the taxable income of an electing large
partnership or the computation of any credit of an
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electing large partnership shall be made by the part-
nership; except that the election under section 901,
and any election under section 108, shall be made by
each partner separately.
‘‘(3) LIMITATIONS, ETC.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), all limitations and other pro-
visions affecting the computation of the taxable
income of an electing large partnership or the
computation of any credit of an electing large
partnership shall be applied at the partnership
level (and not at the partner level).
‘‘(B) CERTAIN
LIMITATIONS
APPLIED
AT
PARTNER LEVEL.—The following provisions shall
be applied at the partner level (and not at the
partnership level):
‘‘(i) Section 68 (relating to overall lim-
itation on itemized deductions).
‘‘(ii) Sections 49 and 465 (relating to
at risk limitations).
‘‘(iii) Section 469 (relating to limita-
tion on passive activity losses and credits).
‘‘(iv) Any other provision specified in
regulations.
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‘‘(4) COORDINATION WITH OTHER PROVISIONS.—
Paragraphs (2) and (3) shall apply notwithstanding
any other provision of this chapter other than this
part.
‘‘(b) MODIFICATIONS TO DETERMINATION OF TAXABLE
INCOME.—In determining the taxable income of an electing
large partnership—
‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—The
following deductions shall not be allowed:
‘‘(A) The deduction for personal exemptions
provided in section 151.
‘‘(B) The net operating loss deduction pro-
vided in section 172.
‘‘(C) The additional itemized deductions for
individuals provided in part VII of subchapter B
(other than section 212 thereof).
‘‘(2) CHARITABLE DEDUCTIONS.—In determining
the amount allowable under section 170, the limita-
tion of section 170(b)(2) shall apply.
‘‘(3) COORDINATION WITH SECTION 67.—In lieu
of applying section 67, 70 percent of the amount of
the miscellaneous itemized deductions shall be dis-
allowed.
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‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE
OF INDEBTEDNESS.—If an electing large partnership has
income from the discharge of any indebtedness—
‘‘(1) such income shall be excluded in determin-
ing the amounts referred to in section 772(a), and
‘‘(2) in determining the income tax of any part-
ner of such partnership—
‘‘(A) such income shall be treated as an
item required to be separately taken into account
under section 772(a), and
‘‘(B) the provisions of section 108 shall be
applied without regard to this part.
‘‘SEC. 774. OTHER MODIFICATIONS.
‘‘(a) TREATMENT
OF CERTAIN OPTIONAL ADJUST-
MENTS, ETC.—In the case of an electing large partner-
ship—
‘‘(1) computations under section 773 shall be
made without regard to any adjustment under section
743(b) or 108(b), but
‘‘(2) a partner’s distributive share of any
amount referred to in section 772(a) shall be appro-
priately adjusted to take into account any adjustment
under section 743(b) or 108(b) with respect to such
partner.
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‘‘(b) CREDIT RECAPTURE DETERMINED AT PARTNER-
SHIP LEVEL.—
‘‘(1) IN GENERAL.—In the case of an electing
large partnership—
‘‘(A) any credit recapture shall be taken
into account by the partnership, and
‘‘(B) the amount of such recapture shall be
determined as if the credit with respect to which
the recapture is made had been fully utilized to
reduce tax.
‘‘(2) METHOD OF TAKING RECAPTURE INTO AC-
COUNT.—An electing large partnership shall take into
account a credit recapture by reducing the amount of
the appropriate current year credit to the extent
thereof, and if such recapture exceeds the amount of
such current year credit, the partnership shall be lia-
ble to pay such excess.
‘‘(3) DISPOSITIONS
NOT
TO
TRIGGER
RECAP-
TURE.—No credit recapture shall be required by rea-
son of any transfer of an interest in an electing large
partnership.
‘‘(4) CREDIT RECAPTURE.—For purposes of this
subsection, the term ‘credit recapture’ means any in-
crease in tax under section 42(j) or 50(a).
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‘‘(c) PARTNERSHIP NOT TERMINATED BY REASON OF
CHANGE IN OWNERSHIP.—Subparagraph (B) of section
708(b)(1) shall not apply to an electing large partnership.
‘‘(d) PARTNERSHIP ENTITLED
TO CERTAIN CRED-
ITS.—The following shall be allowed to an electing large
partnership and shall not be taken into account by the part-
ners of such partnership:
‘‘(1) The credit provided by section 34.
‘‘(2) Any credit or refund under section
852(b)(3)(D).
‘‘(e) TREATMENT OF REMIC RESIDUALS.—For pur-
poses of applying section 860E(e)(6) to any electing large
partnership—
‘‘(1) all interests in such partnership shall be
treated as held by disqualified organizations,
‘‘(2) in lieu of applying subparagraph (C) of sec-
tion 860E(e)(6), the amount subject to tax under sec-
tion 860E(e)(6) shall be excluded from the gross in-
come of such partnership, and
‘‘(3) subparagraph (D) of section 860E(e)(6)
shall not apply.
‘‘(f) SPECIAL RULES
FOR APPLYING CERTAIN IN-
STALLMENT SALE RULES.—In the case of an electing large
partnership—
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‘‘(1) the provisions of sections 453(l)(3) and
453A shall be applied at the partnership level, and
‘‘(2) in determining the amount of interest pay-
able under such sections, such partnership shall be
treated as subject to tax under this chapter at the
highest rate of tax in effect under section 1 or 11.
‘‘SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.
‘‘(a) GENERAL RULE.—For purposes of this part—
‘‘(1) IN
GENERAL.—The term ‘electing large
partnership’ means, with respect to any partnership
taxable year, any partnership if—
‘‘(A) the number of persons who were part-
ners in such partnership in the preceding part-
nership taxable year equaled or exceeded 100,
and
‘‘(B) such partnership elects the application
of this part.
To the extent provided in regulations, a partnership
shall cease to be treated as an electing large partner-
ship for any partnership taxable year if in such tax-
able year fewer than 100 persons were partners in
such partnership.
‘‘(2) ELECTION.—The election under this sub-
section shall apply to the taxable year for which made
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and all subsequent taxable years unless revoked with
the consent of the Secretary.
‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART-
NERSHIPS.—
‘‘(1) CERTAIN
PARTNERS
NOT
COUNTED.—For
purposes of this section, the term ‘partner’ does not
include any individual performing substantial serv-
ices in connection with the activities of the partner-
ship and holding an interest in such partnership, or
an individual who formerly performed substantial
services in connection with such activities and who
held an interest in such partnership at the time the
individual performed such services.
‘‘(2) EXCLUSION.—For purposes of this part, an
election under subsection (a) shall not be effective
with respect to any partnership if substantially all
the partners of such partnership—
‘‘(A) are individuals performing substantial
services in connection with the activities of such
partnership or are personal service corporations
(as defined in section 269A(b)) the owner-em-
ployees (as defined in section 269A(b)) of which
perform such substantial services,
‘‘(B) are retired partners who had per-
formed such substantial services, or
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‘‘(C) are spouses of partners who are per-
forming (or had previously performed) such sub-
stantial services.
‘‘(3) SPECIAL RULE FOR LOWER TIER PARTNER-
SHIPS.—For purposes of this subsection, the activities
of a partnership shall include the activities of any
other partnership in which the partnership owns di-
rectly an interest in the capital and profits of at least
80 percent.
‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur-
poses of this part, an election under subsection (a) shall
not be effective with respect to any partnership the prin-
cipal activity of which is the buying and selling of commod-
ities (not described in section 1221(1)), or options, futures,
or forwards with respect to such commodities.
‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE-
TURN.—If, on the partnership return of any partnership,
such partnership is treated as an electing large partnership,
such treatment shall be binding on such partnership and
all partners of such partnership but not on the Secretary.
‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING
OIL AND GAS PROPERTIES.
‘‘(a) COMPUTATION OF PERCENTAGE DEPLETION.—In
the case of an electing large partnership, except as provided
in subsection (b)—
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‘‘(1) the allowance for depletion under section
611 with respect to any partnership oil or gas prop-
erty shall be computed at the partnership level with-
out regard to any provision of section 613A requiring
such allowance to be computed separately by each
partner,
‘‘(2) such allowance shall be determined without
regard to the provisions of section 613A(c) limiting
the amount of production for which percentage deple-
tion is allowable and without regard to paragraph (1)
of section 613A(d), and
‘‘(3) paragraph (3) of section 705(a) shall not
apply.
‘‘(b) TREATMENT OF CERTAIN PARTNERS.—
‘‘(1) IN GENERAL.—In the case of a disqualified
person, the treatment under this chapter of such per-
son’s distributive share of any item of income, gain,
loss, deduction, or credit attributable to any partner-
ship oil or gas property shall be determined without
regard to this part. Such person’s distributive share
of any such items shall be excluded for purposes of
making determinations under sections 772 and 773.
‘‘(2) DISQUALIFIED
PERSON.—For purposes of
paragraph (1), the term ‘disqualified person’ means,
with respect to any partnership taxable year—
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‘‘(A) any person referred to in paragraph
(2) or (4) of section 613A(d) for such person’s
taxable year in which such partnership taxable
year ends, and
‘‘(B) any other person if such person’s aver-
age daily production of domestic crude oil and
natural gas for such person’s taxable year in
which such partnership taxable year ends exceeds
500 barrels.
‘‘(3) AVERAGE
DAILY
PRODUCTION.—For pur-
poses of paragraph (2), a person’s average daily pro-
duction of domestic crude oil and natural gas for any
taxable year shall be computed as provided in section
613A(c)(2)—
‘‘(A) by taking into account all production
of domestic crude oil and natural gas (including
such person’s proportionate share of any produc-
tion of a partnership),
‘‘(B) by treating 6,000 cubic feet of natural
gas as a barrel of crude oil, and
‘‘(C) by treating as 1 person all persons
treated as 1 taxpayer under section 613A(c)(8)
or among whom allocations are required under
such section.
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‘‘SEC. 777. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as may
be appropriate to carry out the purposes of this part.’’.
(b) CLERICAL AMENDMENT.—The table of parts for
subchapter K of chapter 1 is amended by adding at the end
the following new item:
‘‘Part IV. Special rules for electing large partnerships.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to partnership taxable years beginning
after December 31, 1997.
SEC. 1022. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING
LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Chapter 63 is amended by add-
ing at the end thereof the following new subchapter:
‘‘Subchapter D—Treatment of electing large
partnerships
‘‘Part I. Treatment of partnership items and adjustments.
‘‘Part II. Partnership level adjustments.
‘‘Part III. Definitions and special rules.
‘‘PART I—TREATMENT OF PARTNERSHIP ITEMS
AND ADJUSTMENTS
‘‘Sec. 6240. Application of subchapter.
‘‘Sec. 6241. Partner’s return must be consistent with partnership
return.
‘‘Sec. 6242. Procedures for taking partnership adjustments into ac-
count.
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‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.
‘‘(a) GENERAL RULE.—This subchapter shall only
apply to electing large partnerships and partners in such
partnerships.
‘‘(b) COORDINATION
WITH
OTHER
PARTNERSHIP
AUDIT PROCEDURES.—
‘‘(1) IN GENERAL.—Subchapter C of this chapter
shall not apply to any electing large partnership
other than in its capacity as a partner in another
partnership which is not an electing large partner-
ship.
‘‘(2) TREATMENT
WHERE
PARTNER
IN
OTHER
PARTNERSHIP.—If an electing large partnership is a
partner in another partnership which is not an elect-
ing large partnership—
‘‘(A) subchapter C of this chapter shall
apply to items of such electing large partnership
which are partnership items with respect to such
other partnership, but
‘‘(B) any adjustment under such subchapter
C shall be taken into account in the manner pro-
vided by section 6242.
‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT
WITH PARTNERSHIP RETURN.
‘‘(a) GENERAL RULE.—A partner of any electing large
partnership shall, on the partner’s return, treat each part-
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nership item attributable to such partnership in a manner
which is consistent with the treatment of such partnership
item on the partnership return.
‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT TREAT-
MENT ASSESSED AS MATH ERROR.—Any underpayment of
tax by a partner by reason of failing to comply with the
requirements of subsection (a) shall be assessed and collected
in the same manner as if such underpayment were on ac-
count of a mathematical or clerical error appearing on the
partner’s return. Paragraph (2) of section 6213(b) shall not
apply to any assessment of an underpayment referred to
in the preceding sentence.
‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR OF
PARTNERS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a) and (b) shall apply without
regard to any adjustment to the partnership item
under part II.
‘‘(2) CERTAIN CHANGES IN DISTRIBUTIVE SHARE
TAKEN INTO ACCOUNT BY PARTNER.—
‘‘(A) IN GENERAL.—To the extent that any
adjustment under part II involves a change
under section 704 in a partner’s distributive
share of the amount of any partnership item
shown on the partnership return, such adjust-
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ment shall be taken into account in applying
this title to such partner for the partner’s taxable
year for which such item was required to be
taken into account.
‘‘(B) COORDINATION WITH DEFICIENCY PRO-
CEDURES.—
‘‘(i) IN GENERAL.—Subchapter B shall
not apply to the assessment or collection of
any underpayment of tax attributable to an
adjustment referred to in subparagraph (A).
‘‘(ii) ADJUSTMENT NOT PRECLUDED.—
Notwithstanding any other law or rule of
law, nothing in subchapter B (or in any
proceeding under subchapter B) shall pre-
clude the assessment or collection of any
underpayment of tax (or the allowance of
any credit or refund of any overpayment of
tax) attributable to an adjustment referred
to in subparagraph (A) and such assessment
or collection or allowance (or any notice
thereof) shall not preclude any notice, pro-
ceeding, or determination under subchapter
B.
‘‘(C) PERIOD OF LIMITATIONS.—The period
for—
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‘‘(i) assessing any underpayment of
tax, or
‘‘(ii) filing a claim for credit or refund
of any overpayment of tax,
attributable to an adjustment referred to in sub-
paragraph (A) shall not expire before the close of
the period prescribed by section 6248 for making
adjustments with respect to the partnership tax-
able year involved.
‘‘(D) TIERED STRUCTURES.—If the partner
referred to in subparagraph (A) is another part-
nership or an S corporation, the rules of this
paragraph shall also apply to persons holding
interests in such partnership or S corporation
(as the case may be); except that, if such partner
is an electing large partnership, the adjustment
referred to in subparagraph (A) shall be taken
into account in the manner provided by section
6242.
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‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY
WITH SECTION.—
‘‘For addition to tax in case of partner’s disregard
of requirements of this section, see part II of sub-
chapter A of chapter 68.
‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP AD-
JUSTMENTS INTO ACCOUNT.
‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS
FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT.—
‘‘(1) IN GENERAL.—If any partnership adjust-
ment with respect to any partnership item takes effect
(within the meaning of subsection (d)(2)) during any
partnership taxable year and if an election under
paragraph (2) does not apply to such adjustment,
such adjustment shall be taken into account in deter-
mining the amount of such item for the partnership
taxable year in which such adjustment takes effect. In
applying this title to any person who is (directly or
indirectly) a partner in such partnership during such
partnership taxable year, such adjustment shall be
treated as an item actually arising during such tax-
able year.
‘‘(2) PARTNERSHIP LIABLE IN CERTAIN CASES.—
If—
‘‘(A) a partnership elects under this para-
graph to not take an adjustment into account
under paragraph (1),
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‘‘(B) a partnership does not make such an
election but in filing its return for any partner-
ship taxable year fails to take fully into account
any partnership adjustment as required under
paragraph (1), or
‘‘(C) any partnership adjustment involves a
reduction in 
a 
credit 
which 
exceeds 
the
amount of such credit determined for the part-
nership taxable year in which the adjustment
takes effect,
the partnership shall pay to the Secretary an amount
determined by applying the rules of subsection (b)(4)
to the adjustments not so taken into account and any
excess referred to in subparagraph (C).
‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO AC-
COUNT.—If a partnership adjustment requires an-
other adjustment in a taxable year after the adjusted
year and before the partnership taxable year in which
such partnership adjustment takes effect, such other
adjustment shall be taken into account under this
subsection for the partnership taxable year in which
such partnership adjustment takes effect.
‘‘(4) COORDINATION
WITH
PART
II.—Amounts
taken into account under this subsection for any part-
nership taxable year shall continue to be treated as
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adjustments for the adjusted year for purposes of de-
termining whether such amounts may be readjusted
under part II.
‘‘(b) PARTNERSHIP LIABLE FOR INTEREST AND PEN-
ALTIES.—
‘‘(1) IN GENERAL.—If a partnership adjustment
takes effect during any partnership taxable year and
such adjustment results in an imputed underpayment
for the adjusted year, the partnership—
‘‘(A) shall pay to the Secretary interest
computed under paragraph (2), and
‘‘(B) shall be liable for any penalty, addi-
tion to tax, or additional amount as provided in
paragraph (3).
‘‘(2) DETERMINATION
OF
AMOUNT
OF
INTER-
EST.—The interest computed under this paragraph
with respect to any partnership adjustment is the in-
terest which would be determined under chapter 67—
‘‘(A) on the imputed underpayment deter-
mined under paragraph (4) with respect to such
adjustment,
‘‘(B) for the period beginning on the day
after the return due date for the adjusted year
and ending on the return due date for the part-
nership taxable year in which such adjustment
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takes effect (or, if earlier, in the case of any ad-
justment to which subsection (a)(2) applies, the
date on which the payment under subsection
(a)(2) is made).
Proper adjustments in the amount determined under
the preceding sentence shall be made for adjustments
required for partnership taxable years after the ad-
justed year and before the year in which the partner-
ship adjustment takes effect by reason of such part-
nership adjustment.
‘‘(3) PENALTIES.—A partnership shall be liable
for any penalty, addition to tax, or additional
amount for which it would have been liable if such
partnership had been an individual subject to tax
under chapter 1 for the adjusted year and the im-
puted underpayment determined under paragraph (4)
were an actual underpayment (or understatement) for
such year.
‘‘(4) IMPUTED UNDERPAYMENT.—For purposes of
this subsection, the imputed underpayment deter-
mined under this paragraph with respect to any part-
nership adjustment is the underpayment (if any)
which would result—
‘‘(A) by netting all adjustments to items of
income, gain, loss, or deduction and by treating
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any net increase in income as an underpayment
equal to the amount of such net increase multi-
plied by the highest rate of tax in effect under
section 1 or 11 for the adjusted year, and
‘‘(B) by taking adjustments to credits into
account as increases or decreases (whichever is
appropriate) in the amount of tax.
For purposes of the preceding sentence, any net de-
crease in a loss shall be treated as an increase in in-
come and a similar rule shall apply to a net increase
in a loss.
‘‘(c) ADMINISTRATIVE PROVISIONS.—
‘‘(1) IN GENERAL.—Any payment required by
subsection (a)(2) or (b)(1)(A)—
‘‘(A) shall be assessed and collected in the
same manner as if it were a tax imposed by sub-
title C, and
‘‘(B) shall be paid on or before the return
due date for the partnership taxable year in
which the partnership adjustment takes effect.
‘‘(2) INTEREST.—For purposes of determining
interest, any payment required by subsection (a)(2)
or (b)(1)(A) shall be treated as an underpayment of
tax.
‘‘(3) PENALTIES.—
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‘‘(A) in the case of an adjustment pursuant
to the decision of a court in a proceeding brought
under part II, when such decision becomes final,
‘‘(B) in the case of an adjustment pursuant
to any administrative adjustment request under
section 6251, when such adjustment is allowed
by the Secretary, or
‘‘(C) in any other case, when such adjust-
ment is made.
‘‘(3) ADJUSTED YEAR.—The term ‘adjusted year’
means the partnership taxable year to which the item
being adjusted relates.
‘‘(4) RETURN DUE DATE.—The term ‘return due
date’ means, with respect to any taxable year, the
date prescribed for filing the partnership return for
such taxable year (determined without regard to ex-
tensions).
‘‘(5) ADJUSTMENTS
INVOLVING
CHANGES
IN
CHARACTER.—Under regulations, appropriate adjust-
ments in the application of this section shall be made
for purposes of taking into account partnership ad-
justments which involve a change in the character of
any item of income, gain, loss, or deduction.
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‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction shall
be allowed under subtitle A for any payment required to
be made by an electing large partnership under this section.
‘‘PART II—PARTNERSHIP LEVEL ADJUSTMENTS
‘‘Subpart A. Adjustments by Secretary.
‘‘Subpart B. Claims for adjustments by partnership.
‘‘Subpart A—Adjustments by Secretary
‘‘Sec. 6245. Secretarial authority.
‘‘Sec. 6246. Restrictions on partnership adjustments.
‘‘Sec. 6247. Judicial review of partnership adjustment.
‘‘Sec. 6248. Period of limitations for making adjustments.
‘‘SEC. 6245. SECRETARIAL AUTHORITY.
‘‘(a) GENERAL RULE.—The Secretary is authorized
and directed to make adjustments at the partnership level
in any partnership item to the extent necessary to have such
item be treated in the manner required.
‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—
‘‘(1) IN GENERAL.—If the Secretary determines
that a partnership adjustment is required, the Sec-
retary is authorized to send notice of such adjustment
to the partnership by certified mail or registered
mail. Such notice shall be sufficient if mailed to the
partnership at its last known address even if the
partnership has terminated its existence.
‘‘(2) FURTHER
NOTICES
RESTRICTED.—If the
Secretary mails a notice of a partnership adjustment
to any partnership for any partnership taxable year
and the partnership files a petition under section
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6247 with respect to such notice, in the absence of a
showing of fraud, malfeasance, or misrepresentation
of a material fact, the Secretary shall not mail an-
other such notice to such partnership with respect to
such taxable year.
‘‘(3) AUTHORITY
TO
RESCIND
NOTICE
WITH
PARTNERSHIP CONSENT.—The Secretary may, with
the consent of the partnership, rescind any notice of
a partnership adjustment mailed to such partnership.
Any notice so rescinded shall not be treated as a no-
tice of a partnership adjustment, for purposes of this
section, section 6246, and section 6247, and the tax-
payer shall have no right to bring a proceeding under
section 6247 with respect to such notice. Nothing in
this subsection shall affect any suspension of the run-
ning of any period of limitations during any period
during which the rescinded notice was outstanding.
‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUST-
MENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this chapter, no adjustment to any partnership item may
be made (and no levy or proceeding in any court for the
collection of any amount resulting from such adjustment
may be made, begun or prosecuted) before—
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‘‘(1) the close of the 90th day after the day on
which a notice of a partnership adjustment was
mailed to the partnership, and
‘‘(2) if a petition is filed under section 6247
with respect to such notice, the decision of the court
has become final.
‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—Not-
withstanding section 7421(a), any action which violates
subsection (a) may be enjoined in the proper court, includ-
ing the Tax Court. The Tax Court shall have no jurisdiction
to enjoin any action under this subsection unless a timely
petition has been filed under section 6247 and then only
in respect of the adjustments that are the subject of such
petition.
‘‘(c) EXCEPTIONS
TO RESTRICTIONS
ON ADJUST-
MENTS.—
‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR
CLERICAL ERRORS.—
‘‘(A) IN GENERAL.—If the partnership is
notified that, on account of a mathematical or
clerical error appearing on the partnership re-
turn, an adjustment to a partnership item is re-
quired, rules similar to the rules of paragraphs
(1) and (2) of section 6213(b) shall apply to such
adjustment.
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‘‘(B) SPECIAL RULE.—If an electing large
partnership is a partner in another electing
large partnership, any adjustment on account of
such partnership’s failure to comply with the re-
quirements of section 6241(a) with respect to its
interest in such other partnership shall be treat-
ed as an adjustment referred to in subparagraph
(A), except that paragraph (2) of section 6213(b)
shall not apply to such adjustment.
‘‘(2) PARTNERSHIP MAY WAIVE RESTRICTIONS.—
The partnership shall at any time (whether or not a
notice of partnership adjustment has been issued)
have the right, by a signed notice in writing filed
with the Secretary, to waive the restrictions provided
in subsection (a) on the making of any partnership
adjustment.
‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.—If no
proceeding under section 6247 is begun with respect to any
notice of a partnership adjustment during the 90-day pe-
riod described in subsection (a), the amount for which the
partnership is liable under section 6242 (and any increase
in any partner’s liability for tax under chapter 1 by reason
of any adjustment under section 6242(a)) shall not exceed
the amount determined in accordance with such notice.
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‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUST-
MENT.
‘‘(a) GENERAL RULE.—Within 90 days after the date
on which a notice of a partnership adjustment is mailed
to the partnership with respect to any partnership taxable
year, the partnership may file a petition for a readjustment
of the partnership items for such taxable year with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for
the district in which the partnership’s principal place
of business is located, or
‘‘(3) the Claims Court.
‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING
ACTION IN DISTRICT COURT OR CLAIMS COURT.—
‘‘(1) IN
GENERAL.—A readjustment petition
under this section may be filed in a district court of
the United States or the Claims Court only if the
partnership filing the petition deposits with the Sec-
retary, on or before the date the petition is filed, the
amount for which the partnership would be liable
under section 6242(b) (as of the date of the filing of
the petition) if the partnership items were adjusted as
provided by the notice of partnership adjustment. The
court may by order provide that the jurisdictional re-
quirements of this paragraph are satisfied where there
has been a good faith attempt to satisfy such require-
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ment and any shortfall of the amount required to be
deposited is timely corrected.
‘‘(2) INTEREST PAYABLE.—Any amount depos-
ited under paragraph (1), while deposited, shall not
be treated as a payment of tax for purposes of this
title (other than chapter 67).
‘‘(c) SCOPE
OF JUDICIAL REVIEW.—A court with
which a petition is filed in accordance with this section
shall have jurisdiction to determine all partnership items
of the partnership for the partnership taxable year to which
the notice of partnership adjustment relates and the proper
allocation of such items among the partners (and the appli-
cability of any penalty, addition to tax, or additional
amount for which the partnership may be liable under sec-
tion 6242(b)).
‘‘(d) DETERMINATION OF COURT REVIEWABLE.—Any
determination by a court under this section shall have the
force and effect of a decision of the Tax Court or a final
judgment or decree of the district court or the Claims Court,
as the case may be, and shall be reviewable as such. The
date of any such determination shall be treated as being
the date of the court’s order entering the decision.
‘‘(e) EFFECT OF DECISION DISMISSING ACTION.—If
an action brought under this section is dismissed other than
by reason of a rescission under section 6245(b)(3), the deci-
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sion of the court dismissing the action shall be considered
as its decision that the notice of partnership adjustment is
correct, and an appropriate order shall be entered in the
records of the court.
‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUST-
MENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, no adjustment under this subpart to any
partnership item for any partnership taxable year may be
made after the date which is 3 years after the later of—
‘‘(1) the date on which the partnership return for
such taxable year was filed, or
‘‘(2) the last day for filing such return for such
year (determined without regard to extensions).
‘‘(b) EXTENSION
BY AGREEMENT.—The period de-
scribed in subsection (a) (including an extension period
under this subsection) may be extended by an agreement
entered into by the Secretary and the partnership before
the expiration of such period.
‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—
‘‘(1) FALSE RETURN.—In the case of a false or
fraudulent partnership return with intent to evade
tax, the adjustment may be made at any time.
‘‘(2) SUBSTANTIAL
OMISSION
OF
INCOME.—If
any partnership omits from gross income an amount
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properly includible therein which is in excess of 25
percent of the amount of gross income stated in its re-
turn, subsection (a) shall be applied by substituting
‘6 years’ for ‘3 years’.
‘‘(3) NO RETURN.—In the case of a failure by a
partnership to file a return for any taxable year, the
adjustment may be made at any time.
‘‘(4) RETURN FILED BY SECRETARY.—For pur-
poses of this section, a return executed by the Sec-
retary under subsection (b) of section 6020 on behalf
of the partnership shall not be treated as a return of
the partnership.
‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE
OF ADJUSTMENT.—If notice of a partnership adjustment
with respect to any taxable year is mailed to the partner-
ship, the running of the period specified in subsection (a)
(as modified by the other provisions of this section) shall
be suspended—
‘‘(1) for the period during which an action may
be brought under section 6247 (and, if a petition is
filed under section 6247 with respect to such notice,
until the decision of the court becomes final), and
‘‘(2) for 1 year thereafter.
‘‘Subpart B—Claims for Adjustments by Partnership
‘‘Sec. 6251. Administrative adjustment requests.
‘‘Sec. 6252. Judicial review where administrative adjustment re-
quest is not allowed in full.
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‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.
‘‘(a) GENERAL RULE.—A partnership may file a re-
quest for an administrative adjustment of partnership
items for any partnership taxable year at any time which
is—
‘‘(1) within 3 years after the later of—
‘‘(A) the date on which the partnership re-
turn for such year is filed, or
‘‘(B) the last day for filing the partnership
return for such year (determined without regard
to extensions), and
‘‘(2) before the mailing to the partnership of a
notice of a partnership adjustment with respect to
such taxable year.
‘‘(b) SECRETARIAL ACTION.—If a partnership files an
administrative adjustment request under subsection (a), the
Secretary may allow any part of the requested adjustments.
‘‘(c) SPECIAL RULE IN CASE OF EXTENSION UNDER
SECTION 6248.—If the period described in section 6248(a)
is extended pursuant to an agreement under section
6248(b), the period prescribed by subsection (a)(1) shall not
expire before the date 6 months after the expiration of the
extension under section 6248(b).
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‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE
ADJUSTMENT REQUEST IS NOT ALLOWED IN
FULL.
‘‘(a) IN GENERAL.—If any part of an administrative
adjustment request filed under section 6251 is not allowed
by the Secretary, the partnership may file a petition for
an adjustment with respect to the partnership items to
which such part of the request relates with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for
the district in which the principal place of business
of the partnership is located, or
‘‘(3) the Claims Court.
‘‘(b) PERIOD FOR FILING PETITION.—A petition may
be filed under subsection (a) with respect to partnership
items for a partnership taxable year only—
‘‘(1) after the expiration of 6 months from the
date of filing of the request under section 6251, and
‘‘(2) before the date which is 2 years after the
date of such request.
The 2-year period set forth in paragraph (2) shall be ex-
tended for such period as may be agreed upon in writing
by the partnership and the Secretary.
‘‘(c) COORDINATION WITH SUBPART A.—
‘‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT BE-
FORE FILING OF PETITION.—No petition may be filed
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under this section after the Secretary mails to the
partnership a notice of a partnership adjustment for
the partnership taxable year to which the request
under section 6251 relates.
‘‘(2) NOTICE
OF
PARTNERSHIP
ADJUSTMENT
AFTER FILING BUT BEFORE HEARING OF PETITION.—
If the Secretary mails to the partnership a notice of
a partnership adjustment for the partnership taxable
year to which the request under section 6251 relates
after the filing of a petition under this subsection but
before the hearing of such petition, such petition shall
be treated as an action brought under section 6247
with respect to such notice, except that subsection (b)
of section 6247 shall not apply.
‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF
STATUTE OF LIMITATIONS.—A notice of a partnership
adjustment for the partnership taxable year shall be
taken into account under paragraphs (1) and (2) only
if such notice is mailed before the expiration of the
period prescribed by section 6248 for making adjust-
ments to partnership items for such taxable year.
‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in the case
described in paragraph (2) of subsection (c), a court with
which a petition is filed in accordance with this section
shall have jurisdiction to determine only those partnership
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items to which the part of the request under section 6251
not allowed by the Secretary relates and those items with
respect to which the Secretary asserts adjustments as offsets
to the adjustments requested by the partnership.
‘‘(e) DETERMINATION OF COURT REVIEWABLE.—Any
determination by a court under this subsection shall have
the force and effect of a decision of the Tax Court or a final
judgment or decree of the district court or the Claims Court,
as the case may be, and shall be reviewable as such. The
date of any such determination shall be treated as being
the date of the court’s order entering the decision.
‘‘PART III—DEFINITIONS AND SPECIAL RULES
‘‘Sec. 6255. Definitions and special rules.
‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this subchapter—
‘‘(1) ELECTING LARGE PARTNERSHIP.—The term
‘electing large partnership’ has the meaning given to
such term by section 775.
‘‘(2) PARTNERSHIP ITEM.—The term ‘partner-
ship item’ has the meaning given to such term by sec-
tion 6231(a)(3).
‘‘(b) PARTNERS BOUND BY ACTIONS OF PARTNERSHIP,
ETC.—
‘‘(1) DESIGNATION OF PARTNER.—Each electing
large partnership shall designate (in the manner pre-
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scribed by the Secretary) a partner (or other person)
who shall have the sole authority to act on behalf of
such partnership under this subchapter. In any case
in which such a designation is not in effect, the Sec-
retary may select any partner as the partner with
such authority.
‘‘(2) BINDING EFFECT.—An electing large part-
nership and all partners of such partnership shall be
bound—
‘‘(A) by actions taken under this subchapter
by the partnership, and
‘‘(B) by any decision in a proceeding
brought under this subchapter.
‘‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF
BUSINESS OUTSIDE THE UNITED STATES.—For purposes
of sections 6247 and 6252, a principal place of business
located outside the United States shall be treated as located
in the District of Columbia.
‘‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO
EXIST.—If a partnership ceases to exist before a partner-
ship adjustment under this subchapter takes effect, such ad-
justment shall be taken into account by the former partners
of such partnership under regulations prescribed by the Sec-
retary.
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‘‘(e) DATE DECISION BECOMES FINAL.—For purposes
of this subchapter, the principles of section 7481(a) shall
be applied in determining the date on which a decision of
a district court or the Claims Court becomes final.
‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF
THE UNITED STATES CODE.—The running of any period
of limitations provided in this subchapter on making a
partnership adjustment (or provided by section 6501 or
6502 on the assessment or collection of any amount required
to be paid under section 6242) shall, in a case under title
11 of the United States Code, be suspended during the pe-
riod during which the Secretary is prohibited by reason of
such case from making the adjustment (or assessment or
collection) and—
‘‘(1) for adjustment or assessment, 60 days there-
after, and
‘‘(2) for collection, 6 months thereafter.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the provi-
sions of this subchapter, including regulations—
‘‘(1) to prevent abuse through manipulation of
the provisions of this subchapter, and
‘‘(2) providing that this subchapter shall not
apply to any case described in section 6231(c)(1) (or
the regulations prescribed thereunder) where the ap-
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plication of this subchapter to such a case would
interfere with the effective and efficient enforcement of
this title.
In any case to which this subchapter does not apply by rea-
son of paragraph (2), rules similar to the rules of sections
6229(f) and 6255(f) shall apply.’’.
(b) CLERICAL AMENDMENT.—The table of subchapters
for chapter 63 is amended by adding at the end thereof the
following new item:
‘‘SUBCHAPTER D. Treatment of electing large partnerships.’’.
SEC. 1023. DUE DATE FOR FURNISHING INFORMATION TO
PARTNERS OF ELECTING LARGE PARTNER-
SHIPS.
(a) GENERAL RULE.—Subsection (b) of section 6031
(relating to copies to partners) is amended by adding at
the end the following new sentence: ‘‘In the case of an elect-
ing large partnership (as defined in section 775), such in-
formation shall be furnished on or before the first March
15 following the close of such taxable year.’’.
(b) TREATMENT AS INFORMATION RETURN.—Section
6724 is amended by adding at the end the following new
subsection:
‘‘(e) SPECIAL RULE FOR CERTAIN PARTNERSHIP RE-
TURNS.—If any partnership return under section 6031(a)
is required under section 6011(e) to be filed on magnetic
media or in other machine-readable form, for purposes of
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this part, each schedule required to be included with such
return with respect to each partner shall be treated as a
separate information return.’’.
SEC. 1024. RETURNS MAY BE REQUIRED ON MAGNETIC
MEDIA.
Paragraph (2) of section 6011(e) (relating to returns
on magnetic media) is amended by adding at the end there-
of the following new sentence:
‘‘Notwithstanding the preceding sentence, the Sec-
retary shall require partnerships having more than
100 partners to file returns on magnetic media.’’.
SEC. 1025. TREATMENT OF PARTNERSHIP ITEMS OF INDI-
VIDUAL RETIREMENT ACCOUNTS.
Subsection (b) of section 6012 is amended by adding
at the end thereof the following new paragraph:
‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.—In
the case of a trust which is exempt from taxation
under section 408(e), for purposes of this section, the
trust’s distributive share of items of gross income and
gain of any partnership to which subchapter C or D
of chapter 63 applies shall be treated as equal to the
trust’s distributive share of the taxable income of such
partnership.’’.
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SEC. 1026. EFFECTIVE DATE.
The amendments made by this part shall apply to
partnership taxable years ending on or after December 31,
1997.
PART II—PROVISIONS RELATED TO TEFRA
PARTNERSHIP PROCEEDINGS
SEC. 1031. TREATMENT OF PARTNERSHIP ITEMS IN DEFI-
CIENCY PROCEEDINGS.
(a) IN GENERAL.—Subchapter C of chapter 63 is
amended by adding at the end the following new section:
‘‘SEC. 
6234. 
DECLARATORY 
JUDGMENT 
RELATING 
TO
TREATMENT OF ITEMS OTHER THAN PART-
NERSHIP ITEMS WITH RESPECT TO AN OVER-
SHELTERED RETURN.
‘‘(a) GENERAL RULE.—If—
‘‘(1) a taxpayer files an oversheltered return for
a taxable year,
‘‘(2) the Secretary makes a determination with
respect to the treatment of items (other than partner-
ship items) of such taxpayer for such taxable year,
and
‘‘(3) the adjustments resulting from such deter-
mination do not give rise to a deficiency (as defined
in section 6211) but would give rise to a deficiency
if there were no net loss from partnership items,
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the Secretary is authorized to send a notice of adjustment
reflecting such determination to the taxpayer by certified
or registered mail.
‘‘(b) OVERSHELTERED RETURN.—For purposes of this
section, the term ‘oversheltered return’ means an income tax
return which—
‘‘(1) shows no taxable income for the taxable
year, and
‘‘(2) shows a net loss from partnership items.
‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.—Within
90 days, or 150 days if the notice is addressed to a person
outside the United States, after the day on which the notice
of adjustment authorized in subsection (a) is mailed to the
taxpayer, the taxpayer may file a petition with the Tax
Court for redetermination of the adjustments. Upon the fil-
ing of such a petition, the Tax Court shall have jurisdiction
to make a declaration with respect to all items (other than
partnership items and affected items which require partner
level 
determinations 
as 
described 
in 
section
6230(a)(2)(A)(i)) for the taxable year to which the notice
of adjustment relates, in accordance with the principles of
section 6214(a). Any such declaration shall have the force
and effect of a decision of the Tax Court and shall be
reviewable as such.
‘‘(d) FAILURE TO FILE PETITION.—
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‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if the taxpayer does not file a petition with
the Tax Court within the time prescribed in sub-
section (c), the determination of the Secretary set
forth in the notice of adjustment that was mailed to
the taxpayer shall be deemed to be correct.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply after the date that the taxpayer—
‘‘(A) files a petition with the Tax Court
within the time prescribed in subsection (c) with
respect to a subsequent notice of adjustment re-
lating to the same taxable year, or
‘‘(B) files a claim for refund of an overpay-
ment of tax under section 6511 for the taxable
year involved.
If a claim for refund is filed by the taxpayer, then
solely for purposes of determining (for the taxable
year involved) the amount of any computational ad-
justment in connection with a partnership proceeding
under this subchapter (other than under this section)
or the amount of any deficiency attributable to af-
fected items in a proceeding under section 6230(a)(2),
the items that are the subject of the notice of adjust-
ment shall be presumed to have been correctly re-
ported on the taxpayer’s return during the pendency
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of the refund claim (and, if within the time pre-
scribed by section 6532 the taxpayer commences a
civil action for refund under section 7422, until the
decision in the refund action becomes final).
‘‘(e) LIMITATIONS PERIOD.—
‘‘(1) IN GENERAL.—Any notice to a taxpayer
under subsection (a) shall be mailed before the expira-
tion of the period prescribed by section 6501 (relating
to the period of limitations on assessment).
‘‘(2) SUSPENSION WHEN SECRETARY MAILS NO-
TICE OF ADJUSTMENT.—If the Secretary mails a no-
tice of adjustment to the taxpayer for a taxable year,
the period of limitations on the making of assessments
shall be suspended for the period during which the
Secretary is prohibited from making the assessment
(and, in any event, if a proceeding in respect of the
notice of adjustment is placed on the docket of the Tax
Court, until the decision of the Tax Court becomes
final), and for 60 days thereafter.
‘‘(3) RESTRICTIONS ON ASSESSMENT.—Except as
otherwise provided in section 6851, 6852, or 6861, no
assessment of a deficiency with respect to any tax im-
posed by subtitle A attributable to any item (other
than a partnership item or any item affected by a
partnership item) shall be made—
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‘‘(A) until the expiration of the applicable
90-day or 150-day period set forth in subsection
(c) for filing a petition with the Tax Court, or
‘‘(B) if a petition has been filed with the
Tax Court, until the decision of the Tax Court
has become final.
‘‘(f) FURTHER
NOTICES
OF
ADJUSTMENT
RE-
STRICTED.—If the Secretary mails a notice of adjustment
to the taxpayer for a taxable year and the taxpayer files
a petition with the Tax Court within the time prescribed
in subsection (c), the Secretary may not mail another such
notice to the taxpayer with respect to the same taxable year
in the absence of a showing of fraud, malfeasance, or mis-
representation of a material fact.
‘‘(g) COORDINATION
WITH
OTHER
PROCEEDINGS
UNDER THIS SUBCHAPTER.—
‘‘(1) IN GENERAL.—The treatment of any item
that has been determined pursuant to subsection (c)
or (d) shall be taken into account in determining the
amount of any computational adjustment that is
made in connection with a partnership proceeding
under this subchapter (other than under this section),
or the amount of any deficiency attributable to af-
fected items in a proceeding under section 6230(a)(2),
for the taxable year involved. Notwithstanding any
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other law or rule of law pertaining to the period of
limitations on the making of assessments, for pur-
poses of the preceding sentence, any adjustment made
in accordance with this section shall be taken into ac-
count regardless of whether any assessment has been
made with respect to such adjustment.
‘‘(2) SPECIAL RULE IN CASE OF COMPUTATIONAL
ADJUSTMENT.—In the case of a computational adjust-
ment that is made in connection with a partnership
proceeding under this subchapter (other than under
this section), the provisions of paragraph (1) shall
apply only if the computational adjustment is made
within the period prescribed by section 6229 for as-
sessing any tax under subtitle A which is attributable
to any partnership item or affected item for the tax-
able year involved.
‘‘(3) CONVERSION
TO
DEFICIENCY
PROCEED-
ING.—If—
‘‘(A) after the notice referred to in sub-
section (a) is mailed to a taxpayer for a taxable
year but before the expiration of the period for
filing a petition with the Tax Court under sub-
section (c) (or, if a petition is filed with the Tax
Court, before the Tax Court makes a declaration
for that taxable year), the treatment of any part-
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nership item for the taxable year is finally deter-
mined, or any such item ceases to be a partner-
ship item pursuant to section 6231(b), and
‘‘(B) as a result of that final determination
or cessation, a deficiency can be determined with
respect to the items that are the subject of the no-
tice of adjustment,
the notice of adjustment shall be treated as a notice
of deficiency under section 6212 and any petition
filed in respect of the notice shall be treated as an ac-
tion brought under section 6213.
‘‘(4) FINALLY
DETERMINED.—For purposes of
this subsection, the treatment of partnership items
shall be treated as finally determined if—
‘‘(A) the Secretary enters into a settlement
agreement (within the meaning of section 6224)
with the taxpayer regarding such items,
‘‘(B) a notice of final partnership adminis-
trative adjustment has been issued and—
‘‘(i) no petition has been filed under
section 6226 and the time for doing so has
expired, or
‘‘(ii) a petition has been filed under
section 6226 and the decision of the court
has become final, or
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‘‘(C) the period within which any tax at-
tributable to such items may be assessed against
the taxpayer has expired.
‘‘(h) SPECIAL RULES IF SECRETARY INCORRECTLY
DETERMINES APPLICABLE PROCEDURE.—
‘‘(1) SPECIAL
RULE
IF
SECRETARY
ERRO-
NEOUSLY MAILS NOTICE OF ADJUSTMENT.—If the Sec-
retary erroneously determines that subchapter B does
not apply to a taxable year of a taxpayer and con-
sistent with that determination timely mails a notice
of adjustment to the taxpayer pursuant to subsection
(a) of this section, the notice of adjustment shall be
treated as a notice of deficiency under section 6212
and any petition that is filed in respect of the notice
shall be treated as an action brought under section
6213.
‘‘(2) SPECIAL
RULE
IF
SECRETARY
ERRO-
NEOUSLY MAILS NOTICE OF DEFICIENCY.—If the Sec-
retary erroneously determines that subchapter B ap-
plies to a taxable year of a taxpayer and consistent
with that determination timely mails a notice of defi-
ciency to the taxpayer pursuant to section 6212, the
notice of deficiency shall be treated as a notice of ad-
justment under subsection (a) and any petition that
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is filed in respect of the notice shall be treated as an
action brought under subsection (c).’’.
(b) TREATMENT OF PARTNERSHIP ITEMS IN DEFI-
CIENCY PROCEEDINGS.—Section 6211 (defining deficiency)
is amended by adding at the end the following new sub-
section:
‘‘(c) COORDINATION WITH SUBCHAPTER C.—In deter-
mining the amount of any deficiency for purposes of this
subchapter, adjustments to partnership items shall be made
only as provided in subchapter C.’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subchapter C of chapter 63 is amended by adding at the
end the following new item:
‘‘Sec. 6234. Declaratory judgment relating to treatment of items
other than partnership items with respect to an over-
sheltered return.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to partnership taxable years ending
after the date of the enactment of this Act.
SEC. 1032. PARTNERSHIP RETURN TO BE DETERMINATIVE
OF AUDIT PROCEDURES TO BE FOLLOWED.
(a) IN GENERAL.—Section 6231 (relating to defini-
tions and special rules) is amended by adding at the end
the following new subsection:
‘‘(g) PARTNERSHIP RETURN TO BE DETERMINATIVE
OF WHETHER SUBCHAPTER APPLIES.—
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‘‘(1) DETERMINATION
THAT
SUBCHAPTER
AP-
PLIES.—If, on the basis of a partnership return for
a taxable year, the Secretary reasonably determines
that this subchapter applies to such partnership for
such year but such determination is erroneous, then
the provisions of this subchapter are hereby extended
to such partnership (and its items) for such taxable
year and to partners of such partnership.
‘‘(2) DETERMINATION THAT SUBCHAPTER DOES
NOT APPLY.—If, on the basis of a partnership return
for a taxable year, the Secretary reasonably deter-
mines that this subchapter does not apply to such
partnership for such year but such determination is
erroneous, then the provisions of this subchapter shall
not apply to such partnership (and its items) for such
taxable year or to partners of such partnership.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to partnership taxable years ending
after the date of the enactment of this Act.
SEC. 1033. PROVISIONS RELATING TO STATUTE OF LIMITA-
TIONS.
(a) SUSPENSION OF STATUTE WHERE UNTIMELY PE-
TITION FILED.—Paragraph (1) of section 6229(d) (relating
to suspension where Secretary makes administrative adjust-
ment) is amended by striking all that follows ‘‘section
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6226’’ and inserting the following: ‘‘(and, if a petition is
filed under section 6226 with respect to such administrative
adjustment, until the decision of the court becomes final),
and’’.
(b) SUSPENSION OF STATUTE DURING BANKRUPTCY
PROCEEDING.—Section 6229 is amended by adding at the
end the following new subsection:
‘‘(h) SUSPENSION DURING PENDENCY OF BANKRUPTCY
PROCEEDING.—If a petition is filed naming a partner as
a debtor in a bankruptcy proceeding under title 11 of the
United States Code, the running of the period of limitations
provided in this section with respect to such partner shall
be suspended—
‘‘(1) for the period during which the Secretary is
prohibited by reason of such bankruptcy proceeding
from making an assessment, and
‘‘(2) for 60 days thereafter.’’.
(c) TAX MATTERS PARTNER IN BANKRUPTCY.—Sec-
tion 6229(b) is amended by redesignating paragraph (2)
as paragraph (3) and by inserting after paragraph (1) the
following new paragraph:
‘‘(2) SPECIAL RULE WITH RESPECT TO DEBTORS
IN TITLE 11 CASES.—Notwithstanding any other law
or rule of law, if an agreement is entered into under
paragraph (1)(B) and the agreement is signed by a
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person who would be the tax matters partner but for
the fact that, at the time that the agreement is exe-
cuted, the person is a debtor in a bankruptcy proceed-
ing under title 11 of the United States Code, such
agreement shall be binding on all partners in the
partnership unless the Secretary has been notified of
the bankruptcy proceeding in accordance with regula-
tions prescribed by the Secretary.’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amend-
ments made by subsections (a) and (b) shall apply to
partnership taxable years with respect to which the
period under section 6229 of the Internal Revenue
Code of 1986 for assessing tax has not expired on or
before the date of the enactment of this Act.
(2) SUBSECTION (c).—The amendment made by
subsection (c) shall apply to agreements entered into
after the date of the enactment of this Act.
SEC. 1034. EXPANSION OF SMALL PARTNERSHIP EXCEP-
TION.
(a) IN GENERAL.—Clause (i) of section 6231(a)(1)(B)
(relating to exception for small partnerships) is amended
to read as follows:
‘‘(i) IN GENERAL.—The term ‘partner-
ship’ shall not include any partnership hav-
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ing 10 or fewer partners each of whom is an
individual (other than a nonresident alien),
a C corporation, or an estate of a deceased
partner. For purposes of the preceding sen-
tence, a husband and wife (and their es-
tates) shall be treated as 1 partner.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to partnership taxable years ending
after the date of the enactment of this Act.
SEC. 1035. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-
YEAR LIMITATION ON ASSESSMENT.
(a) IN GENERAL.—Subsection (f) of section 6229 (re-
lating to items becoming nonpartnership items) is amend-
ed—
(1) by striking ‘‘(f) ITEMS BECOMING NONPART-
NERSHIP ITEMS.—If’’ and inserting the following:
‘‘(f) SPECIAL RULES.—
‘‘(1) 
ITEMS
BECOMING
NONPARTNERSHIP
ITEMS.—If’’,
(2) by moving the text of such subsection 2 ems
to the right, and
(3) by adding at the end the following new para-
graph:
‘‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT
AGREEMENTS.—If a partner enters into a settlement
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agreement with the Secretary with respect to the
treatment of some of the partnership items in dispute
for a partnership taxable year but other partnership
items for such year remain in dispute, the period of
limitations for assessing any tax attributable to the
settled items shall be determined as if such agreement
had not been entered into.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to settlements entered into after the date
of the enactment of this Act.
SEC. 1036. EXTENSION OF TIME FOR FILING A REQUEST
FOR ADMINISTRATIVE ADJUSTMENT.
(a) IN GENERAL.—Section 6227 (relating to adminis-
trative adjustment requests) is amended by redesignating
subsections (b) and (c) as subsections (c) and (d), respec-
tively, and by inserting after subsection (a) the following
new subsection:
‘‘(b) SPECIAL RULE IN CASE OF EXTENSION OF PE-
RIOD OF LIMITATIONS UNDER SECTION 6229.—The period
prescribed by subsection (a)(1) for filing of a request for
an administrative adjustment shall be extended—
‘‘(1) for the period within which an assessment
may be made pursuant to an agreement (or any ex-
tension thereof) under section 6229(b), and
‘‘(2) for 6 months thereafter.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect as if included in the amendments
made by section 402 of the Tax Equity and Fiscal Respon-
sibility Act of 1982.
SEC. 1037. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN
CONTEXT OF PARTNERSHIP PROCEEDINGS.
(a) IN GENERAL.—Subsection (a) of section 6230 is
amended by adding at the end the following new paragraph:
‘‘(3) SPECIAL RULE IN CASE OF ASSERTION BY
PARTNER’S SPOUSE OF INNOCENT SPOUSE RELIEF.—
‘‘(A) Notwithstanding section 6404(b), if the
spouse of a partner asserts that section 6013(e)
applies with respect to a liability that is attrib-
utable to any adjustment to a partnership item,
then such spouse may file with the Secretary
within 60 days after the notice of computational
adjustment is mailed to the spouse a request for
abatement of the assessment specified in such no-
tice. Upon receipt of such request, the Secretary
shall abate the assessment. Any reassessment of
the tax with respect to which an abatement is
made under this subparagraph shall be subject to
the deficiency procedures prescribed by sub-
chapter B. The period for making any such reas-
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sessment shall not expire before the expiration of
60 days after the date of such abatement.
‘‘(B) If the spouse files a petition with the
Tax Court pursuant to section 6213 with respect
to the request for abatement described in sub-
paragraph (A), the Tax Court shall only have ju-
risdiction pursuant to this section to determine
whether the requirements of section 6013(e) have
been satisfied. For purposes of such determina-
tion, the treatment of partnership items under
the settlement, the final partnership administra-
tive adjustment, or the decision of the court
(whichever is appropriate) that gave rise to the
liability in question shall be conclusive.
‘‘(C) Rules similar to the rules contained in
subparagraphs (B) and (C) of paragraph (2)
shall apply for purposes of this paragraph.’’.
(b) CLAIMS FOR REFUND.—Subsection (c) of section
6230 is amended by adding at the end the following new
paragraph:
‘‘(5) RULES FOR SEEKING INNOCENT SPOUSE RE-
LIEF.—
‘‘(A) IN GENERAL.—The spouse of a partner
may file a claim for refund on the ground that
the Secretary failed to relieve the spouse under
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section 6013(e) from a liability that is attrib-
utable to an adjustment to a partnership item.
‘‘(B) TIME FOR FILING CLAIM.—Any claim
under subparagraph (A) shall be filed within 6
months after the day on which the Secretary
mails to the spouse the notice of computational
adjustment referred to in subsection (a)(3)(A).
‘‘(C) SUIT IF CLAIM NOT ALLOWED.—If the
claim under subparagraph (B) is not allowed,
the spouse may bring suit with respect to the
claim within the period specified in paragraph
(3).
‘‘(D) PRIOR
DETERMINATIONS
ARE
BIND-
ING.—For purposes of any claim or suit under
this paragraph, the treatment of partnership
items under the settlement, the final partnership
administrative adjustment, or the decision of the
court (whichever is appropriate) that gave rise to
the liability in question shall be conclusive.’’.
(c) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 6230(a) is amended
by striking ‘‘paragraph (2)’’ and inserting ‘‘para-
graph (2) or (3)’’.
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(2) Subsection (a) of section 6503 is amended by
striking ‘‘section 6230(a)(2)(A)’’ and inserting ‘‘para-
graph (2)(A) or (3) of section 6230(a)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect as if included in the amendments
made by section 402 of the Tax Equity and Fiscal Respon-
sibility Act of 1982.
SEC. 1038. DETERMINATION OF PENALTIES AT PARTNER-
SHIP LEVEL.
(a) IN GENERAL.—Section 6221 (relating to tax treat-
ment determined at partnership level) is amended by strik-
ing ‘‘item’’ and inserting ‘‘item (and the applicability of
any penalty, addition to tax, or additional amount which
relates to an adjustment to a partnership item)’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 6226 is amended—
(A) by striking ‘‘relates and’’ and inserting
‘‘relates,’’, and
(B) by inserting before the period ‘‘, and the
applicability of any penalty, addition to tax, or
additional amount which relates to an adjust-
ment to a partnership item’’.
(2) Clause (i) of section 6230(a)(2)(A) is amend-
ed to read as follows:
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‘‘(i) affected items which require part-
ner level determinations (other than pen-
alties, additions to tax, and additional
amounts that relate to adjustments to part-
nership items), or’’.
(3)(A) Subparagraph (A) of section 6230(a)(3),
as added by section 14317, is amended by inserting
‘‘(including any liability for any penalty, addition to
tax, or additional amount relating to such adjust-
ment)’’ after ‘‘partnership item’’.
(B) Subparagraph (B) of such section is amend-
ed by inserting ‘‘(and the applicability of any pen-
alties, additions to tax, or additional amounts)’’ after
‘‘partnership items’’.
(C) Subparagraph (A) of section 6230(c)(5), as
added by section 14317, is amended by inserting be-
fore the period ‘‘(including any liability for any pen-
alties, additions to tax, or additional amounts relat-
ing to such adjustment)’’.
(D) Subparagraph (D) of section 6230(c)(5), as
added by section 14317, is amended by inserting
‘‘(and the applicability of any penalties, additions to
tax, or additional amounts)’’ after ‘‘partnership
items’’.
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(4) Paragraph (1) of section 6230(c) is amended
by striking ‘‘or’’ at the end of subparagraph (A), by
striking the period at the end of subparagraph (B)
and inserting ‘‘, or’’, and by adding at the end the
following new subparagraph:
‘‘(C) the Secretary erroneously imposed any
penalty, addition to tax, or additional amount
which relates to an adjustment to a partnership
item.’’.
(5) So much of subparagraph (A) of section
6230(c)(2) as precedes ‘‘shall be filed’’ is amended to
read as follows:
‘‘(A) UNDER PARAGRAPH (1) (A) OR (C).—
Any claim under subparagraph (A) or (C) of
paragraph (1)’’.
(6) Paragraph (4) of section 6230(c) is amended
by adding at the end the following: ‘‘In addition, the
determination under the final partnership adminis-
trative adjustment or under the decision of the court
(whichever is appropriate) concerning the applicabil-
ity of any penalty, addition to tax, or additional
amount which relates to an adjustment to a partner-
ship item shall also be conclusive. Notwithstanding
the preceding sentence, the partner shall be allowed to
assert any partner level defenses that may apply or
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to challenge the amount of the computational adjust-
ment.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to partnership taxable years ending
after the date of the enactment of this Act.
SEC. 1039. PROVISIONS RELATING TO COURT JURISDIC-
TION, ETC.
(a) TAX COURT JURISDICTION TO ENJOIN PRE-
MATURE ASSESSMENTS OF DEFICIENCIES ATTRIBUTABLE
TO PARTNERSHIP ITEMS.—Subsection (b) of section 6225
is amended by striking ‘‘the proper court.’’ and inserting
‘‘the proper court, including the Tax Court. The Tax Court
shall have no jurisdiction to enjoin any action or proceed-
ing under this subsection unless a timely petition for a re-
adjustment of the partnership items for the taxable year has
been filed and then only in respect of the adjustments that
are the subject of such petition.’’.
(b) JURISDICTION TO CONSIDER STATUTE OF LIMITA-
TIONS WITH RESPECT TO PARTNERS.—Paragraph (1) of
section 6226(d) is amended by adding at the end the follow-
ing new sentence:
‘‘Notwithstanding subparagraph (B), any person
treated under subsection (c) as a party to an action
shall be permitted to participate in such action (or
file a readjustment petition under subsection (b) or
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paragraph (2) of this subsection) solely for the pur-
pose of asserting that the period of limitations for as-
sessing any tax attributable to partnership items has
expired with respect to such person, and the court
having jurisdiction of such action shall have jurisdic-
tion to consider such assertion.’’.
(c) TAX COURT JURISDICTION TO DETERMINE OVER-
PAYMENTS ATTRIBUTABLE TO AFFECTED ITEMS.—
(1) Paragraph (6) of section 6230(d) is amended
by striking ‘‘(or an affected item)’’.
(2) Paragraph (3) of section 6512(b) is amended
by adding at the end the following new sentence:
‘‘In the case of a credit or refund relating to an af-
fected 
item 
(within 
the 
meaning 
of 
section
6231(a)(5)), the preceding sentence shall be applied
by substituting the periods under sections 6229 and
6230(d) for the periods under section 6511(b)(2), (c),
and (d).’’.
(d) VENUE ON APPEAL.—
(1) Paragraph (1) of section 7482(b) is amended
by striking ‘‘or’’ at the end of subparagraph (D), by
striking the period at the end of subparagraph (E)
and inserting ‘‘, or’’, and by inserting after subpara-
graph (E) the following new subparagraph:
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‘‘(F) in the case of a petition under section
6234(c)—
‘‘(i) the legal residence of the petitioner
if the petitioner is not a corporation, and
‘‘(ii) the place or office applicable
under subparagraph (B) if the petitioner is
a corporation.’’.
(2) The last sentence of section 7482(b)(1) is
amended by striking ‘‘or 6228(a)’’ and inserting ‘‘,
6228(a), or 6234(c)’’.
(e) OTHER PROVISIONS.—
(1) Subsection (c) of section 7459 is amended by
striking ‘‘or section 6228(a)’’ and inserting ‘‘,
6228(a), or 6234(c)’’.
(2) Subsection (o) of section 6501 is amended by
adding at the end the following new paragraph:
‘‘(3) For declaratory judgment relating to treat-
ment of items other than partnership items with re-
spect to an oversheltered return, see section 6234.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to partnership taxable years ending
after the date of the enactment of this Act.
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SEC. 1040. TREATMENT OF PREMATURE PETITIONS FILED
BY 
NOTICE 
PARTNERS 
OR 
5-PERCENT
GROUPS.
(a) IN GENERAL.—Subsection (b) of section 6226 (re-
lating to judicial review of final partnership administrative
adjustments) is amended by redesignating paragraph (5)
as paragraph (6) and by inserting after paragraph (4) the
following new paragraph:
‘‘(5) TREATMENT OF PREMATURE PETITIONS.—
If—
‘‘(A) a petition for a readjustment of part-
nership items for the taxable year involved is
filed by a notice partner (or a 5-percent group)
during the 90-day period described in subsection
(a), and
‘‘(B) no action is brought under paragraph
(1) during the 60-day period described therein
with respect to such taxable year which is not
dismissed,
such petition shall be treated for purposes of para-
graph (1) as filed on the last day of such 60-day
period.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to petitions filed after the date of the
enactment of this Act.
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SEC. 1041. BONDS IN CASE OF APPEALS FROM CERTAIN
PROCEEDING.
(a) IN GENERAL.—Subsection (b) of section 7485 (re-
lating to bonds to stay assessment of collection) is amend-
ed—
(1) by inserting ‘‘penalties,’’ after ‘‘any inter-
est,’’, and
(2) by striking ‘‘aggregate of such deficiencies’’
and inserting ‘‘aggregate liability of the parties to the
action’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect as if included in the amendments
made by section 402 of the Tax Equity and Fiscal Respon-
sibility Act of 1982.
SEC. 1042. SUSPENSION OF INTEREST WHERE DELAY IN
COMPUTATIONAL ADJUSTMENT RESULTING
FROM CERTAIN SETTLEMENTS.
(a) IN GENERAL.—Subsection (c) of section 6601 (re-
lating to interest on underpayment, nonpayment, or exten-
sion of time for payment, of tax) is amended by adding
at the end the following new sentence: ‘‘In the case of a
settlement under section 6224(c) which results in the con-
version of partnership items to nonpartnership items pur-
suant to section 6231(b)(1)(C), the preceding sentence shall
apply to a computational adjustment resulting from such
settlement in the same manner as if such adjustment were
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a deficiency and such settlement were a waiver referred to
in the preceding sentence.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to adjustments with respect to partner-
ship taxable years beginning after the date of the enactment
of this Act.
SEC. 1043. SPECIAL RULES FOR ADMINISTRATIVE ADJUST-
MENT REQUESTS WITH RESPECT TO BAD
DEBTS OR WORTHLESS SECURITIES.
(a) GENERAL RULE.—Section 6227 (relating to ad-
ministrative adjustment requests) is amended by adding at
the end the following new subsection:
‘‘(e) REQUESTS WITH RESPECT TO BAD DEBTS OR
WORTHLESS SECURITIES.—In the case of that portion of
any request for an administrative adjustment which relates
to the deductibility by the partnership under section 166
of a debt as a debt which became worthless, or under section
165(g) of a loss from worthlessness of a security, the period
prescribed in subsection (a)(1) shall be 7 years from the
last day for filing the partnership return for the year with
respect to which such request is made (determined without
regard to extensions).’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall take effect as if included in the
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amendments made by section 402 of the Tax Equity
and Fiscal Responsibility Act of 1982.
(2) TREATMENT OF REQUESTS FILED BEFORE
DATE OF ENACTMENT.—In the case of that portion of
any request (filed before the date of the enactment of
this Act) for an administrative adjustment which re-
lates to the deductibility of a debt as a debt which be-
came worthless or the deductibility of a loss from the
worthlessness of a security—
(A) paragraph (2) of section 6227(a) of the
Internal Revenue Code of 1986 shall not apply,
(B) the period for filing a petition under
section 6228 of the Internal Revenue Code of
1986 with respect to such request shall not expire
before the date 6 months after the date of the en-
actment of this Act, and
(C) such a petition may be filed without re-
gard to whether there was a notice of the begin-
ning of an administrative proceeding or a final
partnership administrative adjustment.
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PART III—PROVISION RELATING TO CLOSING OF
PARTNERSHIP 
TAXABLE 
YEAR 
WITH 
RE-
SPECT TO DECEASED PARTNER, ETC.
SEC. 1046. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH
RESPECT TO DECEASED PARTNER, ETC.
(a) GENERAL RULE.—Subparagraph (A) of section
706(c)(2) (relating to disposition of entire interest) is
amended to read as follows:
‘‘(A) DISPOSITION OF ENTIRE INTEREST.—
The taxable year of a partnership shall close
with respect to a partner whose entire interest in
the partnership terminates (whether by reason of
death, liquidation, or otherwise).’’.
(b) CLERICAL AMENDMENT.—The paragraph heading
for paragraph (2) of section 706(c) is amended to read as
follows:
‘‘(2) TREATMENT OF DISPOSITIONS.—’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to partnership taxable years beginning
after December 31, 1997.
Subtitle D—Provisions Relating to
Real Estate Investment Trusts
SEC. 1051. CLARIFICATION OF LIMITATION ON MAXIMUM
NUMBER OF SHAREHOLDERS.
(a) RULES RELATING TO DETERMINATION OF OWNER-
SHIP.—
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(1) FAILURE TO ISSUE SHAREHOLDER DEMAND
LETTER NOT TO DISQUALIFY REIT.—Section 857(a)
(relating to requirements applicable to real estate in-
vestment trusts) is amended by striking paragraph
(2) and by redesignating paragraph (3) as paragraph
(2).
(2) SHAREHOLDER DEMAND LETTER REQUIRE-
MENT; PENALTY.—Section 857 (relating to taxation of
real estate investment trusts and their beneficiaries)
is amended by redesignating subsection (f) as sub-
section (g) and by inserting after subsection (e) the
following new subsection:
‘‘(f) REAL ESTATE INVESTMENT TRUSTS TO ASCER-
TAIN OWNERSHIP.—
‘‘(1) IN GENERAL.—Each real estate investment
trust shall each taxable year comply with regulations
prescribed by the Secretary for the purposes of
ascertaining the actual ownership of the outstanding
shares, or certificates of beneficial interest, of such
trust.
‘‘(2) FAILURE TO COMPLY.—
‘‘(A) IN GENERAL.—If a real estate invest-
ment trust fails to comply with the requirements
of paragraph (1) for a taxable year, such trust
shall pay (on notice and demand by the Sec-
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retary and in the same manner as tax) a pen-
alty of $25,000.
‘‘(B) INTENTIONAL
DISREGARD.—If any
failure under paragraph (1) is due to intentional
disregard of the requirement under paragraph
(1), the penalty under subparagraph (A) shall be
$50,000.
‘‘(C) FAILURE TO COMPLY AFTER NOTICE.—
The Secretary may require a real estate invest-
ment trust to take such actions as the Secretary
determines appropriate to ascertain actual own-
ership if the trust fails to meet the requirements
of paragraph (1). If the trust fails to take such
actions, the trust shall pay (on notice and de-
mand by the Secretary and in the same manner
as tax) an additional penalty equal to the pen-
alty determined under subparagraph (A) or (B),
whichever is applicable.
‘‘(D) REASONABLE
CAUSE.—No penalty
shall be imposed under this paragraph with re-
spect to any failure if it is shown that such fail-
ure is due to reasonable cause and not to willful
neglect.’’.
(b) COMPLIANCE WITH CLOSELY HELD PROHIBI-
TION.—
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(1) IN GENERAL.—Section 856 (defining real es-
tate investment trust) is amended by adding at the
end the following new subsection:
‘‘(k) REQUIREMENT THAT ENTITY NOT BE CLOSELY
HELD TREATED AS MET IN CERTAIN CASES.—A corpora-
tion, trust, or association—
‘‘(1) which for a taxable year meets the require-
ments of section 857(f)(1), and
‘‘(2) which does not know, or exercising reason-
able diligence would not have known, whether the en-
tity failed to meet the requirement of subsection
(a)(6),
shall be treated as having met the requirement of subsection
(a)(6) for the taxable year.’’.
(2) CONFORMING AMENDMENT.—Paragraph (6)
of section 856(a) is amended by inserting ‘‘subject to
the provisions of subsection (k),’’ before ‘‘which is
not’’.
SEC. 1052. DE MINIMIS RULE FOR TENANT SERVICES IN-
COME.
(a) IN GENERAL.—Paragraph (2) of section 856(d)
(defining rents from real property) is amended by striking
subparagraph (C) and the last sentence and inserting:
‘‘(C) any impermissible tenant service in-
come (as defined in paragraph (7)).’’.
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(b) IMPERMISSIBLE TENANT SERVICE INCOME.—Sec-
tion 856(d) is amended by adding at the end the following
new paragraph:
‘‘(7) 
IMPERMISSIBLE
TENANT
SERVICE
IN-
COME.—For purposes of paragraph (2)(C)—
‘‘(A) IN
GENERAL.—The term ‘impermis-
sible tenant service income’ means, with respect
to any real or personal property, any amount
received or accrued directly or indirectly by the
real estate investment trust for—
‘‘(i) services furnished or rendered by
the trust to the tenants of such property, or
‘‘(ii) managing or operating such
property.
‘‘(B) DISQUALIFICATION OF ALL AMOUNTS
WHERE MORE THAN DE MINIMIS AMOUNT.—If
the amount described in subparagraph (A) with
respect to a property for any taxable year ex-
ceeds 1 percent of all amounts received or ac-
crued during such taxable year directly or indi-
rectly by the real estate investment trust with re-
spect to such property, the impermissible tenant
service income of the trust with respect to the
property shall include all such amounts.
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‘‘(C) EXCEPTIONS.—For purposes of sub-
paragraph (A)—
‘‘(i) services furnished or rendered, or
management or operation provided, through
an independent contractor from whom the
trust itself does not derive or receive any in-
come shall not be treated as furnished, ren-
dered, or provided by the trust, and
‘‘(ii) there shall not be taken into ac-
count any amount which would be excluded
from unrelated business taxable income
under section 512(b)(3) if received by an or-
ganization described in section 511(a)(2).
‘‘(D) AMOUNT ATTRIBUTABLE TO IMPERMIS-
SIBLE SERVICES.—For purposes of subparagraph
(A), the amount treated as received for any serv-
ice (or management or operation) shall not be
less than 150 percent of the direct cost of the
trust in furnishing or rendering the service (or
providing the management or operation).
‘‘(E) COORDINATION WITH LIMITATIONS.—
For purposes of paragraphs (2) and (3) of sub-
section (c), amounts described in subparagraph
(A) shall be included in the gross income of the
corporation, trust, or association.’’.
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SEC. 1053. ATTRIBUTION RULES APPLICABLE TO TENANT
OWNERSHIP.
Section 856(d)(5) (relating to constructive ownership
of stock) is amended by adding at the end the following:
‘‘For purposes of paragraph (2)(B), section 318(a)(3)(A)
shall be applied under the preceding sentence in the case
of a partnership by taking into account only partners who
own (directly or indirectly) 25 percent or more of the cap-
ital interest, or the profits interest, in the partnership.’’.
SEC. 1054. CREDIT FOR TAX PAID BY REIT ON RETAINED
CAPITAL GAINS.
(a) GENERAL RULE.—Paragraph (3) of section 857(b)
(relating to capital gains) is amended by redesignating sub-
paragraph (D) as subparagraph (E) and by inserting after
subparagraph (C) the following new subparagraph:
‘‘(D) TREATMENT
BY
SHAREHOLDERS
OF
UNDISTRIBUTED CAPITAL GAINS.—
‘‘(i) Every shareholder of a real estate
investment trust at the close of the trust’s
taxable year shall include, in computing his
long-term capital gains in his return for his
taxable year in which the last day of the
trust’s taxable year falls, such amount as
the trust shall designate in respect of such
shares in a written notice mailed to its
shareholders at any time prior to the expi-
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HR 2014 EAS
ration of 60 days after the close of its tax-
able year (or mailed to its shareholders or
holders of beneficial interests with its an-
nual report for the taxable year), but the
amount so includible by any shareholder
shall not exceed that part of the amount
subjected to tax in subparagraph (A)(ii)
which he would have received if all of such
amount had been distributed as capital
gain dividends by the trust to the holders of
such shares at the close of its taxable year.
‘‘(ii) For purposes of this title, every
such shareholder shall be deemed to have
paid, for his taxable year under clause (i),
the tax imposed by subparagraph (A)(ii) on
the amounts required by this subparagraph
to be included in respect of such shares in
computing his long-term capital gains for
that year; and such shareholders shall be al-
lowed credit or refund as the case may be,
for the tax so deemed to have been paid by
him.
‘‘(iii) The adjusted basis of such shares
in the hands of the holder shall be increased
with respect to the amounts required by this
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subparagraph to be included in computing
his long-term capital gains, by the dif-
ference between the amount of such includ-
ible gains and the tax deemed paid by such
shareholder in respect of such shares under
clause (ii).
‘‘(iv) In the event of such designation,
the tax imposed by subparagraph (A)(ii)
shall be paid by the real estate investment
trust within 30 days after the close of its
taxable year.
‘‘(v) The earnings and profits of such
real estate investment trust, and the earn-
ings and profits of any such shareholder
which is a corporation, shall be appro-
priately adjusted in accordance with regula-
tions prescribed by the Secretary.
‘‘(vi) As used in this subparagraph, the
terms ‘shares’ and ‘shareholders’ shall in-
clude beneficial interests and holders of ben-
eficial interests, respectively.’’.
(b) CONFORMING AMENDMENTS.—
(1) Clause (i) of section 857(b)(7)(A) is amended
by striking ‘‘subparagraph (B)’’ and inserting ‘‘sub-
paragraph (B) or (D)’’.
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(2) Clause (iii) of section 852(b)(3)(D) is amend-
ed by striking ‘‘by 65 percent’’ and all that follows
and inserting ‘‘by the difference between the amount
of such includible gains and the tax deemed paid by
such shareholder in respect of such shares under
clause (ii).’’.
SEC. 1055. REPEAL OF 30-PERCENT GROSS INCOME RE-
QUIREMENT.
(a) GENERAL RULE.—Subsection (c) of section 856
(relating to limitations) is amended—
(1) by adding ‘‘and’’ at the end of paragraph
(3),
(2) by striking paragraphs (4) and (8), and
(3) by redesignating paragraphs (5), (6), and (7)
as paragraphs (4), (5), and (6), respectively.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (G) of section 856(c)(5), as re-
designated by subsection (a), is amended by striking
‘‘and such agreement shall be treated as a security for
purposes of paragraph (4)(A)’’.
(2) Paragraph (5) of section 857(b) is amended
by striking ‘‘section 856(c)(7)’’ and inserting ‘‘section
856(c)(6)’’.
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(3) Subparagraph (C) of section 857(b)(6) is
amended by striking ‘‘section 856(c)(6)(B)’’ and in-
serting ‘‘section 856(c)(5)(B)’’.
SEC. 1056. MODIFICATION OF EARNINGS AND PROFITS
RULES FOR DETERMINING WHETHER REIT
HAS EARNINGS AND PROFITS FROM NON-
REIT YEAR.
Subsection (d) of section 857 is amended by adding
at the end the following new paragraph:
‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS
OF SUBSECTION (a)(2)(B).—Any distribution which
is made in order to comply with the requirements of
subsection (a)(2)(B)—
‘‘(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from the earliest accumulated earnings and prof-
its (other than earnings and profits to which
subsection (a)(2)(A) applies) rather than the
most recently accumulated earnings and profits,
and
‘‘(B) to the extent treated under subpara-
graph (A) as made from accumulated earnings
and profits, shall not be treated as a distribution
for purposes of subsection (b)(2)(B).’’.
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SEC. 1057. TREATMENT OF FORECLOSURE PROPERTY.
(a) GRACE PERIODS.—
(1) INITIAL PERIOD.—Paragraph (2) of section
856(e) (relating to special rules for foreclosure prop-
erty) is amended by striking ‘‘on the date which is 2
years after the date the trust acquired such property’’
and inserting ‘‘as of the close of the 3d taxable year
following the taxable year in which the trust acquired
such property’’.
(2) EXTENSION.—Paragraph (3) of section
856(e) is amended—
(A) by striking ‘‘or more extensions’’ and
inserting ‘‘extension’’, and
(B) by striking the last sentence and insert-
ing: ‘‘Any such extension shall not extend the
grace period beyond the close of the 3d taxable
year following the last taxable year in the period
under paragraph (2).’’.
(b) REVOCATION OF ELECTION.—Paragraph (5) of sec-
tion 856(e) is amended by striking the last sentence and
inserting: ‘‘A real estate investment trust may revoke any
such election for a taxable year by filing the revocation (in
the manner provided by the Secretary) on or before the due
date (including any extension of time) for filing its return
of tax under this chapter for the taxable year. If a trust
revokes an election for any property, no election may be
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made by the trust under this paragraph with respect to the
property for any subsequent taxable year.’’.
(c) CERTAIN ACTIVITIES NOT TO DISQUALIFY PROP-
ERTY.—Paragraph (4) of section 856(e) is amended by add-
ing at the end the following new flush sentence:
‘‘For purposes of subparagraph (C), property shall
not be treated as used in a trade or business by rea-
son of any activities of the real estate investment
trust with respect to such property to the extent that
such activities would not result in amounts received
or accrued, directly or indirectly, with respect to such
property being treated as other than rents from real
property.’’.
SEC. 1058. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(5)(G) (relating to treatment of certain
interest rate agreements), as redesignated by section 1255,
is amended to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING IN-
STRUMENTS.—Except to the extent provided by
regulations, any—
‘‘(i) payment to a real estate invest-
ment trust under an interest rate swap or
cap agreement, option, futures contract, for-
ward rate agreement, or any similar finan-
cial instrument, entered into by the trust in
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a transaction to reduce the interest rate
risks with respect to any indebtedness in-
curred or to be incurred by the trust to ac-
quire or carry real estate assets, and
‘‘(ii) gain from the sale or other dis-
position of any such investment,
shall be treated as income qualifying under
paragraph (2).’’.
SEC. 1059. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of amount
of excess noncash income) is amended—
(1) by striking subparagraph (B),
(2) by striking the period at the end of subpara-
graph (C) and inserting a comma,
(3) by redesignating subparagraph (C) (as
amended by paragraph (2)) as subparagraph (B),
and
(4) by adding at the end the following new sub-
paragraphs:
‘‘(C) the amount (if any) by which—
‘‘(i) the amounts includible in gross in-
come with respect to instruments to which
section 860E(a) or 1272 applies, exceed
‘‘(ii) the amount of money and the fair
market value of other property received dur-
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ing the taxable year under such instru-
ments, and
‘‘(D) amounts includible in income by rea-
son of cancellation of indebtedness.’’.
SEC. 1060. PROHIBITED TRANSACTION SAFE HARBOR.
Clause (iii) of section 857(b)(6)(C) (relating to certain
sales not to constitute prohibited transactions) is amended
by striking ‘‘(other than foreclosure property)’’ in sub-
clauses (I) and (II) and inserting ‘‘(other than sales of fore-
closure property or sales to which section 1033 applies)’’.
SEC. 1061. SHARED APPRECIATION MORTGAGES.
(a) BANKRUPTCY SAFE HARBOR.—Section 856(j) (re-
lating to treatment of shared appreciation mortgages) is
amended by redesignating paragraph (4) as paragraph (5)
and by inserting after paragraph (3) the following new
paragraph:
‘‘(4) COORDINATION WITH 4-YEAR HOLDING PE-
RIOD.—
‘‘(A) IN GENERAL.—For purposes of section
857(b)(6)(C), if a real estate investment trust is
treated as having sold secured property under
paragraph (3)(A), the trust shall be treated as
having held such property for at least 4 years
if—
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HR 2014 EAS
‘‘(i) the secured property is sold or oth-
erwise disposed of pursuant to a case under
title 11 of the United States Code,
‘‘(ii) the seller is under the jurisdiction
of the court in such case, and
‘‘(iii) the disposition is required by the
court or is pursuant to a plan approved by
the court.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply if—
‘‘(i) the secured property was acquired
by the trust with the intent to evict or fore-
close, or
‘‘(ii) the trust knew or had reason to
know that default on the obligation de-
scribed in paragraph (5)(A) would occur.’’.
(b) CLARIFICATION OF DEFINITION OF SHARED AP-
PRECIATION PROVISION.—Clause (ii) of section 856(j)(5)(A)
is amended by inserting before the period ‘‘or appreciation
in value as of any specified date’’.
SEC. 1062. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidi-
ary) is amended by striking ‘‘at all times during the period
such corporation was in existence’’.
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SEC. 1063. EFFECTIVE DATE.
The amendments made by this part shall apply to tax-
able years beginning after the date of the enactment of this
Act.
Subtitle E—Provisions Relating to
Regulated Investment Companies
SEC. 1071. REPEAL OF 30-PERCENT GROSS INCOME LIMITA-
TION.
(a) GENERAL RULE.—Subsection (b) of section 851
(relating to limitations) is amended by striking paragraph
(3), by adding ‘‘and’’ at the end of paragraph (2), and by
redesignating paragraph (4) as paragraph (3).
(b) TECHNICAL AMENDMENTS.—
(1) The material following paragraph (3) of sec-
tion 851(b) (as redesignated by subsection (a)) is
amended—
(A) by striking out ‘‘paragraphs (2) and
(3)’’ and inserting ‘‘paragraph (2)’’, and
(B) by striking out the last sentence thereof.
(2) Subsection (c) of section 851 is amended by
striking ‘‘subsection (b)(4)’’ each place it appears (in-
cluding the heading) and inserting ‘‘subsection
(b)(3)’’.
(3) Subsection (d) of section 851 is amended by
striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
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(4) Paragraph (1) of section 851(e) is amended
by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub-
section (b)(3)’’.
(5) Paragraph (4) of section 851(e) is amended
by striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
(6) Section 851 is amended by striking sub-
section (g) and redesignating subsection (h) as sub-
section (g).
(7) Subsection (g) of section 851 (as redesignated
by paragraph (6)) is amended by striking paragraph
(3).
(8) Section 817(h)(2) is amended—
(A) by striking ‘‘851(b)(4)’’ in subpara-
graph (A) and inserting ‘‘851(b)(3)’’, and
(B) by striking ‘‘851(b)(4)(A)(i)’’ in sub-
paragraph (B) and inserting ‘‘851(b)(3)(A)(i)’’.
(9) Section 1092(f)(2) is amended by striking
‘‘Except for purposes of section 851(b)(3), the’’ and
inserting ‘‘The’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1997.
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Subtitle F—Taxpayer Protections
SEC. 1081. REASONABLE CAUSE EXCEPTION FOR CERTAIN
PENALTIES.
(a) INFORMATION ON DEDUCTIBLE EMPLOYEE CON-
TRIBUTIONS.—Subsection (g) of section 6652 (relating to
information required in connection with deductible em-
ployee contributions) is amended by adding at the end the
following new sentence: ‘‘No penalty shall be imposed under
this subsection on any failure which is shown to be due to
reasonable cause and not willful neglect.’’.
(b) REPORTS ON STATUS AS QUALIFIED SMALL BUSI-
NESS.—Subsection (k) of section 6652 (relating to failure
to make reports required under section 1202) is amended
by adding at the end the following new sentence: ‘‘No pen-
alty shall be imposed under this subsection on any failure
which is shown to be due to reasonable cause and not willful
neglect.’’.
(c) RETURNS OF PERSONAL HOLDING COMPANY TAX
BY FOREIGN CORPORATIONS.—Section 6683 (relating to
failure of foreign corporation to file return of personal hold-
ing company tax) is amended by adding at the end the fol-
lowing new sentence: ‘‘No penalty shall be imposed under
this section on any failure which is shown to be due to rea-
sonable cause and not willful neglect.’’.
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(d) FAILURE TO MAKE REQUIRED PAYMENTS.—Sub-
paragraph (A) of section 7519(f)(4) is amended by adding
at the end the following new sentence: ‘‘No penalty shall
be imposed under this subparagraph on any failure which
is shown to be due to reasonable cause and not willful ne-
glect.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 1082. CLARIFICATION OF PERIOD FOR FILING CLAIMS
FOR REFUNDS.
(a) IN GENERAL.—Paragraph (3) of section 6512(b)
(relating to overpayment determined by Tax Court) is
amended by adding at the end the following flush sentence:
‘‘In a case described in subparagraph (B) where the
date of the mailing of the notice of deficiency is dur-
ing the third year after the due date (with extensions)
for filing the return of tax and no return was filed
before such date, the applicable period under sub-
sections (a) and (b)(2) of section 6511 shall be 3
years.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to claims for credit or refund for
taxable years ending after the date of the enactment of this
Act.
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SEC. 1083. REPEAL OF AUTHORITY TO DISCLOSE WHETHER
PROSPECTIVE JUROR HAS BEEN AUDITED.
(a) IN GENERAL.—Subsection (h) of section 6103 (re-
lating to disclosure to certain Federal officers and employ-
ees for purposes of tax administration, etc.) is amended by
striking paragraph (5) and by redesignating paragraph (6)
as paragraph (5).
(b) CONFORMING AMENDMENT.—Paragraph (4) of sec-
tion 6103(p) is amended by striking ‘‘(h)(6)’’ each place
it appears and inserting ‘‘(h)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to judicial proceedings commenced after
the date of the enactment of this Act.
SEC. 1084. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Subsection (a) of section 6501 (re-
lating to limitations on assessment and collection) is
amended by adding at the end thereof the following new
sentence: ‘‘For purposes of this chapter, the term ‘return’
means the return required to be filed by the taxpayer (and
does not include a return of any person from whom the tax-
payer has received an item of income, gain, loss, deduction,
or credit).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 1085. PENALTY FOR UNAUTHORIZED INSPECTION OF
TAX RETURNS OR TAX RETURN INFORMA-
TION.
(a) IN GENERAL.—Part I of subchapter A of chapter
75 (relating to crimes, other offenses, and forfeitures) is
amended by adding after section 7213 the following new
section:
‘‘SEC. 7213A. UNAUTHORIZED INSPECTION OF RETURNS OR
RETURN INFORMATION.
‘‘(a) PROHIBITIONS.—
‘‘(1) FEDERAL
EMPLOYEES
AND
OTHER
PER-
SONS.—It shall be unlawful for—
‘‘(A) any officer or employee of the United
States, or
‘‘(B) any person described in section
6103(n) or an officer or employee of any such
person,
willfully to inspect, except as authorized in this title,
any return or return information.
‘‘(2) STATE AND OTHER EMPLOYEES.—It shall be
unlawful for any person (not described in paragraph
(1)) willfully to inspect, except as authorized in this
title, any return or return information acquired by
such person or another person under a provision of
section 6103 referred to in section 7213(a)(2).
‘‘(b) PENALTY.—
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‘‘(1) IN GENERAL.—Any violation of subsection
(a) shall be punishable upon conviction by a fine in
any amount not exceeding $1,000, or imprisonment of
not more than 1 year, or both, together with the costs
of prosecution.
‘‘(2) FEDERAL OFFICERS OR EMPLOYEES.—An
officer or employee of the United States who is con-
victed of any violation of subsection (a) shall, in ad-
dition to any other punishment, be dismissed from of-
fice or discharged from employment.
‘‘(c) DEFINITIONS.—For purposes of this section, the
terms ‘inspect’, ‘return’, and ‘return information’ have the
respective meanings given such terms by section 6103(b).’’.
(b) TECHNICAL AMENDMENTS.—
(1) Paragraph (2) of section 7213(a) is amended
by inserting ‘‘(5),’’ after ‘‘(m)(2), (4),’’.
(2) The table of sections for part I of subchapter
A of chapter 75 is amended by inserting after the
item relating to section 7213 the following new item:
‘‘Sec. 7213A. Unauthorized inspection of returns or return informa-
tion.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to violations occurring on and after the
date of the enactment of this Act.
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SEC. 1086. CIVIL DAMAGES FOR UNAUTHORIZED INSPEC-
TION OF RETURNS AND RETURN INFORMA-
TION; NOTIFICATION OF UNLAWFUL INSPEC-
TION OR DISCLOSURE.
(a) CIVIL DAMAGES
FOR UNAUTHORIZED INSPEC-
TION.—Subsection (a) of section 7431 is amended—
(1) by striking ‘‘DISCLOSURE’’ in the headings
for paragraphs (1) and (2) and inserting ‘‘INSPEC-
TION OR DISCLOSURE’’, and
(2) by striking ‘‘discloses’’ in paragraphs (1) and
(2) and inserting ‘‘inspects or discloses’’.
(b) NOTIFICATION OF UNLAWFUL INSPECTION OR DIS-
CLOSURE.—Section 7431 is amended by redesignating sub-
sections (e) and (f) as subsections (f) and (g), respectively,
and by inserting after subsection (d) the following new sub-
section:
‘‘(e) NOTIFICATION OF UNLAWFUL INSPECTION AND
DISCLOSURE.—If any person is criminally charged by in-
dictment or information with inspection or disclosure of a
taxpayer’s return or return information in violation of—
‘‘(1) paragraph (1) or (2) of section 7213(a),
‘‘(2) section 7213A(a), or
‘‘(3) subparagraph (B) of section 1030(a)(2) of
title 18, United States Code,
the Secretary shall notify such taxpayer as soon as prac-
ticable of such inspection or disclosure.’’.
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(c) NO DAMAGES FOR INSPECTION REQUESTED BY
TAXPAYER.—Subsection (b) of section 7431 is amended to
read as follows:
‘‘(b) EXCEPTIONS.—No liability shall arise under this
section with respect to any inspection or disclosure—
‘‘(1) which results from a good faith, but erro-
neous, interpretation of section 6103, or
‘‘(2) which is requested by the taxpayer.’’.
(d) CONFORMING AMENDMENTS.—
(1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d) of
section 7431 are each amended by inserting ‘‘inspec-
tion or’’ before ‘‘disclosure’’.
(2) Clause (ii) of section 7431(c)(1)(B) is
amended by striking ‘‘willful disclosure or a disclo-
sure’’ and inserting ‘‘willful inspection or disclosure
or an inspection or disclosure’’.
(3) Subsection (f) of section 7431, as redesig-
nated by subsection (b), is amended to read as follows:
‘‘(f) DEFINITIONS.—For purposes of this section, the
terms ‘inspect’, ‘inspection’, ‘return’, and ‘return informa-
tion’ have the respective meanings given such terms by sec-
tion 6103(b).’’.
(4) The section heading for section 7431 is
amended by inserting ‘‘INSPECTION
OR’’ before
‘‘DISCLOSURE’’.
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(5) The table of sections for subchapter B of
chapter 76 is amended by inserting ‘‘inspection or’’
before ‘‘disclosure’’ in the item relating to section
7431.
(6) Paragraph (2) of section 7431(g), as redesig-
nated by subsection (b), is amended by striking ‘‘any
use’’ and inserting ‘‘any inspection or use’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to inspections and disclosures occurring
on and after the date of the enactment of this Act.
TITLE XI—SIMPLIFICATION PRO-
VISIONS 
RELATING 
TO 
ES-
TATE AND GIFT TAXES
SEC. 1101. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX
FILING REQUIREMENTS.
(a) IN GENERAL.—Section 6019 is amended by strik-
ing ‘‘or’’ at the end of paragraph (1), by adding ‘‘or’’ at
the end of paragraph (2), and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) a transfer with respect to which a deduction
is allowed under section 2522, except that this para-
graph shall apply with respect to a transfer of prop-
erty (other than a transfer described in section
2522(d)) only if the entire value of such property is
allowed as a deduction under section 2522,’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to gifts made after the date of the enact-
ment of this Act.
SEC. 1102. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS
OF RECOVERY.
(a) AMENDMENT TO SECTION 2207A.—Paragraph (2)
of section 2207A(a) (relating to right of recovery in the case
of certain marital deduction property) is amended to read
as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—
Paragraph (1) shall not apply with respect to any
property to the extent that the decedent in his will (or
a revocable trust) specifically indicates an intent to
waive any right of recovery under this subchapter
with respect to such property.’’.
(b) AMENDMENT TO SECTION 2207B.—Paragraph (2)
of section 2207B(a) (relating to right of recovery where de-
cedent retained interest) is amended to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—
Paragraph (1) shall not apply with respect to any
property to the extent that the decedent in his will (or
a revocable trust) specifically indicates an intent to
waive any right of recovery under this subchapter
with respect to such property.’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to the estates of decedents
dying after the date of the enactment of this Act.
SEC. 1103. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) GENERAL RULE.—In the case of any trust created
under an instrument executed before the date of the enact-
ment of the Revenue Reconciliation Act of 1990, such trust
shall be treated as meeting the requirements of paragraph
(1) of section 2056A(a) of the Internal Revenue Code of
1986 if the trust instrument requires that all trustees of
the trust be individual citizens of the United States or do-
mestic corporations.
(b) EFFECTIVE DATE.—The provisions of subsection
(a) shall take effect as if included in the provisions of sec-
tion 11702(g) of the Revenue Reconciliation Act of 1990.
SEC. 1104. TREATMENT FOR ESTATE TAX PURPOSES OF
SHORT-TERM OBLIGATIONS HELD BY NON-
RESIDENT ALIENS.
(a) IN GENERAL.—Subsection (b) of section 2105 is
amended by striking ‘‘and’’ at the end of paragraph (2),
by striking the period at the end of paragraph (3) and in-
serting ‘‘, and’’, and by inserting after paragraph (3) the
following new paragraph:
‘‘(4) obligations which would be original issue
discount obligations as defined in section 871(g)(1)
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but for subparagraph (B)(i) thereof, if any interest
thereon (were such interest received by the decedent at
the time of his death) would not be effectively con-
nected with the conduct of a trade or business within
the United States.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after the
date of the enactment of this Act.
SEC. 1105. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAX-
ABLE YEAR OF ESTATE.
(a) IN GENERAL.—Subsection (b) of section 663 (relat-
ing to distributions in first 65 days of taxable year) is
amended by inserting ‘‘an estate or’’ before ‘‘a trust’’ each
place it appears.
(b) CONFORMING AMENDMENT.—Paragraph (2) of sec-
tion 663(b) is amended by striking ‘‘the fiduciary of such
trust’’ and inserting ‘‘the executor of such estate or the fidu-
ciary of such trust (as the case may be)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 1106. SEPARATE SHARE RULES AVAILABLE TO ES-
TATES.
(a) IN GENERAL.—Subsection (c) of section 663 (relat-
ing to separate shares treated as separate trusts) is amend-
ed—
(1) by inserting before the last sentence the fol-
lowing new sentence: ‘‘Rules similar to the rules of the
preceding provisions of this subsection shall apply to
treat substantially separate and independent shares of
different beneficiaries in an estate having more than
1 beneficiary as separate estates.’’, and
(2) by inserting ‘‘or estates’’ after ‘‘trusts’’ in the
last sentence.
(b) CONFORMING AMENDMENT.—The subsection head-
ing of section 663(c) is amended by inserting ‘‘ESTATES
OR’’ before ‘‘TRUSTS’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after the
date of the enactment of this Act.
SEC. 1107. EXECUTOR OF ESTATE AND BENEFICIARIES
TREATED AS RELATED PERSONS FOR DIS-
ALLOWANCE OF LOSSES, ETC.
(a) DISALLOWANCE OF LOSSES.—Subsection (b) of sec-
tion 267 (relating to losses, expenses, and interest with re-
spect to transactions between related taxpayers) is amended
by striking ‘‘or’’ at the end of paragraph (11), by striking
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the period at the end of paragraph (12) and inserting ‘‘;
or’’, and by adding at the end the following new paragraph:
‘‘(13) Except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an
estate and a beneficiary of such estate.’’.
(b) ORDINARY INCOME FROM GAIN FROM SALE OF
DEPRECIABLE PROPERTY.—Subsection (b) of section 1239
is amended by striking the period at the end of paragraph
(2) and inserting ‘‘, and’’ and by adding at the end the
following new paragraph:
‘‘(3) except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of an
estate and a beneficiary of such estate.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 1108. TREATMENT OF FUNERAL TRUSTS.
(a) IN GENERAL.—Subpart F of part I of subchapter
J of chapter 1 is amended by adding at the end the follow-
ing new section:
‘‘SEC. 684. TREATMENT OF FUNERAL TRUSTS.
‘‘(a) IN GENERAL.—In the case of a qualified funeral
trust—
‘‘(1) subparts B, C, D, and E shall not apply,
and
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‘‘(2) no deduction shall be allowed by section
642(b).
‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of
this subsection, the term ‘qualified funeral trust’ means any
trust (other than a foreign trust) if—
‘‘(1) the trust arises as a result of a contract
with a person engaged in the trade or business of pro-
viding funeral or burial services or property nec-
essary to provide such services,
‘‘(2) the sole purpose of the trust is to hold, in-
vest, and reinvest funds in the trust and to use such
funds solely to make payments for such services or
property for the benefit of the beneficiaries of the
trust,
‘‘(3) the only beneficiaries of such trust are indi-
viduals who have entered into contracts described in
paragraph (1) to have such services or property pro-
vided at their death,
‘‘(4) the only contributions to the trust are con-
tributions by or for the benefit of such beneficiaries,
‘‘(5) the trustee elects the application of this sub-
section, and
‘‘(6) the trust would (but for the election de-
scribed in paragraph (5)) be treated as owned by the
beneficiaries under subpart E.
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‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral
trust’ shall not include any trust which accepts aggre-
gate contributions by or for the benefit of an individ-
ual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are related
persons shall be treated as 1 trust. For purposes of the
preceding sentence, persons are related if—
‘‘(A) the relationship between such persons
is described in section 267 or 707(b),
‘‘(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
‘‘(C) the Secretary determines that treating
such persons as related is necessary to prevent
avoidance of the purposes of this section.
‘‘(3) INFLATION
ADJUSTMENT.—In the case of
any contract referred to in subsection (b)(1) which is
entered into during any calendar year after 1998, the
dollar amount referred to paragraph (1) shall be in-
creased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
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year, by substituting ‘calendar year 1997’ for
‘calendar year 1992’ in subparagraph (B) there-
of.
If any dollar amount after being increased under the
preceding sentence is not a multiple of $100, such dol-
lar amount shall be rounded to the nearest multiple
of $100.
‘‘(d) APPLICATION OF RATE SCHEDULE.—Section 1(e)
shall be applied to each qualified funeral trust by treating
each beneficiary’s interest in each such trust as a separate
trust.
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BENE-
FICIARY ON CANCELLATION.—No gain or loss shall be recog-
nized to a beneficiary described in subsection (b)(3) of any
qualified funeral trust by reason of any payment from such
trust to such beneficiary by reason of cancellation of a con-
tract referred to in subsection (b)(1). If any payment re-
ferred to in the preceding sentence consists of property other
than money, the basis of such property in the hands of such
beneficiary shall be the same as the trust’s basis in such
property immediately before the payment.
‘‘(f) SIMPLIFIED REPORTING.—The Secretary may
prescribe rules for simplified reporting of all trusts having
a single trustee.’’.
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(b) CLERICAL AMENDMENT.—The table of sections for
subpart F of part I of subchapter J of chapter 1 is amended
by adding at the end the following new item:
‘‘Sec. 684. Treatment of funeral trusts.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 1109. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF
DECEDENT’S DEATH.
(a) GENERAL RULE.—Section 2035 is amended to
read as follows:
‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE
WITHIN 3 YEARS OF DECEDENT’S DEATH.
‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS ES-
TATE.—If—
‘‘(1) the decedent made a transfer (by trust or
otherwise) of an interest in any property, or relin-
quished a power with respect to any property, during
the 3-year period ending on the date of the decedent’s
death, and
‘‘(2) the value of such property (or an interest
therein) would have been included in the decedent’s
gross estate under section 2036, 2037, 2038, or 2042
if such transferred interest or relinquished power had
been retained by the decedent on the date of his death,
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the value of the gross estate shall include the value of any
property (or interest therein) which would have been so in-
cluded.
‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DURING
3 YEARS BEFORE DECEDENT’S DEATH.—The amount of
the gross estate (determined without regard to this sub-
section) shall be increased by the amount of any tax paid
under chapter 12 by the decedent or his estate on any gift
made by the decedent or his spouse during the 3-year period
ending on the date of the decedent’s death.
‘‘(c) OTHER RULES RELATING TO TRANSFERS WITHIN
3 YEARS OF DEATH.—
‘‘(1) IN GENERAL.—For purposes of—
‘‘(A) section 303(b) (relating to distribu-
tions in redemption of stock to pay death taxes),
‘‘(B) section 2032A (relating to special
valuation of certain farms, etc., real property),
and
‘‘(C) subchapter C of chapter 64 (relating to
lien for taxes),
the value of the gross estate shall include the value of
all property to the extent of any interest therein of
which the decedent has at any time made a transfer,
by trust or otherwise, during the 3-year period ending
on the date of the decedent’s death.
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‘‘(2) COORDINATION WITH SECTION 6166.—An es-
tate shall be treated as meeting the 35 percent of ad-
justed gross estate requirement of section 6166(a)(1)
only if the estate meets such requirement both with
and without the application of paragraph (1).
‘‘(3) MARITAL AND SMALL TRANSFERS.—Para-
graph (1) shall not apply to any transfer (other than
a transfer with respect to a life insurance policy)
made during a calendar year to any donee if the dece-
dent was not required by section 6019 (other than by
reason of section 6019(2)) to file any gift tax return
for such year with respect to transfers to such donee.
‘‘(d) EXCEPTION.—Subsection (a) shall not apply to
any bona fide sale for an adequate and full consideration
in money or money’s worth.
‘‘(e) TREATMENT OF CERTAIN TRANSFERS FROM REV-
OCABLE TRUSTS.—For purposes of this section and section
2038, any transfer from any portion of a trust during any
period that such portion was treated under section 676 as
owned by the decedent by reason of a power in the grantor
(determined without regard to section 672(e)) shall be treat-
ed as a transfer made directly by the decedent.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part III of subchapter A of chapter 11 is amended by strik-
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ing ‘‘gifts’’ in the item relating to section 2035 and insert-
ing ‘‘certain gifts’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 1110. CLARIFICATION OF TREATMENT OF SURVIVOR
ANNUITIES UNDER QUALIFIED TERMINABLE
INTEREST RULES.
(a) IN
GENERAL.—Subparagraph (C) of section
2056(b)(7) is amended by inserting ‘‘(or, in the case of an
interest in an annuity arising under the community prop-
erty laws of a State, included in the gross estate of the dece-
dent under section 2033)’’ after ‘‘section 2039’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after the
date of the enactment of this Act.
SEC. 1111. TREATMENT UNDER QUALIFIED DOMESTIC
TRUST RULES OF FORMS OF OWNERSHIP
WHICH ARE NOT TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 2056A (de-
fining qualified domestic trust) is amended by adding at
the end the following new paragraph:
‘‘(3) TRUST.—To the extent provided in regula-
tions prescribed by the Secretary, the term ‘trust’ in-
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cludes other arrangements which have substantially
the same effect as a trust.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after the
date of the enactment of this Act.
SEC. 1112. OPPORTUNITY TO CORRECT CERTAIN FAILURES
UNDER SECTION 2032A.
(a) GENERAL
RULE.—Paragraph (3) of section
2032A(d) (relating to modification of election and agree-
ment to be permitted) is amended to read as follows:
‘‘(3) MODIFICATION OF ELECTION AND AGREE-
MENT TO BE PERMITTED.—The Secretary shall pre-
scribe procedures which provide that in any case in
which the executor makes an election under para-
graph (1) (and submits the agreement referred to in
paragraph (2)) within the time prescribed therefor,
but—
‘‘(A) the notice of election, as filed, does not
contain all required information, or
‘‘(B) signatures of 1 or more persons re-
quired to enter into the agreement described in
paragraph (2) are not included on the agreement
as filed, or the agreement does not contain all re-
quired information,
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the executor will have a reasonable period of time (not
exceeding 90 days) after notification of such failures
to provide such information or signatures.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 1113. AUTHORITY TO WAIVE REQUIREMENT OF UNITED
STATES TRUSTEE FOR QUALIFIED DOMESTIC
TRUSTS.
(a) IN
GENERAL.—Subparagraph (A) of section
2056A(a)(1) is amended by inserting ‘‘except as provided
in regulations prescribed by the Secretary,’’ before ‘‘re-
quires’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after the
date of the enactment of this Act.
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TITLE 
XII—SIMPLIFICATION
PROVISIONS 
RELATING 
TO
EXCISE TAXES, TAX-EXEMPT
BONDS, AND OTHER MATTERS
Subtitle A—Excise Tax
Simplification
PART I—EXCISE TAXES ON HEAVY TRUCKS AND
LUXURY CARS
SEC. 1201. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MAR-
KET ALTERATIONS FOR HEAVY TRUCKS AND
LUXURY CARS.
(a) 
IN
GENERAL.—Sections 
4003(a)(3)(C) 
and
4051(b)(2)(B) (relating to exceptions) are each amended by
striking ‘‘$200’’ and inserting ‘‘$1,000’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to installations on vehicles sold after
the date of the enactment of this Act.
PART II—PROVISIONS RELATED TO DISTILLED
SPIRITS, WINES, AND BEER
SEC. 1211. CREDIT OR REFUND FOR IMPORTED BOTTLED
DISTILLED SPIRITS RETURNED TO DISTILLED
SPIRITS PLANT.
(a) IN GENERAL.—Section 5008(c)(1) (relating to dis-
tilled spirits returned to bonded premises) is amended by
striking ‘‘withdrawn from bonded premises on payment or
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determination of tax’’ and inserting ‘‘on which tax has been
determined or paid’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 1212. AUTHORITY TO CANCEL OR CREDIT EXPORT
BONDS WITHOUT SUBMISSION OF RECORDS.
(a) IN GENERAL.—Section 5175(c) (relating to can-
cellation of credit of export bonds) is amended by striking
‘‘on the submission of’’ and all that follows and inserting
‘‘if there is such proof of exportation as the Secretary may
by regulations require.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 
1213. 
REPEAL 
OF 
REQUIRED 
MAINTENANCE 
OF
RECORDS ON PREMISES OF DISTILLED SPIR-
ITS PLANT.
(a) IN GENERAL.—Section 5207(c) (relating to preser-
vation and inspection) is amended by striking ‘‘shall be
kept on the premises where the operations covered by the
record are carried on and’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 1214. FERMENTED MATERIAL FROM ANY BREWERY
MAY BE RECEIVED AT A DISTILLED SPIRITS
PLANT.
(a) IN GENERAL.—Section 5222(b)(2) (relating to re-
ceipt) is amended to read as follows:
‘‘(2) beer conveyed without payment of tax from
brewery premises, beer which has been lawfully re-
moved from brewery premises upon determination of
tax, or’’.
(b) CLARIFICATION OF AUTHORITY TO PERMIT RE-
MOVAL OF BEER WITHOUT PAYMENT OF TAX FOR USE AS
DISTILLING MATERIAL.—Section 5053 (relating to exemp-
tions) is amended by redesignating subsection (f) as sub-
section (i) and by inserting after subsection (e) the following
new subsection:
‘‘(f) REMOVAL FOR USE AS DISTILLING MATERIAL.—
Subject to such regulations as the Secretary may prescribe,
beer may be removed from a brewery without payment of
tax to any distilled spirits plant for use as distilling mate-
rial.’’.
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(c) CLARIFICATION
OF REFUND
AND CREDIT
OF
TAX.—Section 5056 (relating to refund and credit of tax,
or relief from liability) is amended—
(1) by redesignating subsection (c) as subsection
(d) and by inserting after subsection (b) the following
new subsection:
‘‘(c) BEER
RECEIVED
AT
A
DISTILLED
SPIRITS
PLANT.—Any tax paid by any brewer on beer produced in
the United States may be refunded or credited to the brewer,
without interest, or if the tax has not been paid, the brewer
may be relieved of liability therefor, under regulations as
the Secretary may prescribe, if such beer is received on the
bonded premises of a distilled spirits plant pursuant to the
provisions of section 5222(b)(2), for use in the production
of distilled spirits.’’, and
(2) by striking ‘‘or rendering unmerchantable’’
in subsection (d) (as so redesignated) and inserting
‘‘rendering unmerchantable, or receipt on the bonded
premises of a distilled spirits plant’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
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SEC. 1215. REPEAL OF REQUIREMENT FOR WHOLESALE
DEALERS IN LIQUORS TO POST SIGN.
(a) IN GENERAL.—Section 5115 (relating to sign re-
quired on premises) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Section 5681(a) is amended by striking ‘‘,
and every wholesale dealer in liquors,’’ and by strik-
ing ‘‘section 5115(a) or’’.
(2) Section 5681(c) is amended—
(A) by striking ‘‘or wholesale liquor estab-
lishment, on which no sign required by section
5115(a) or’’ and inserting ‘‘on which no sign re-
quired by’’, and
(B) by striking ‘‘or wholesale liquor estab-
lishment, or who’’ and inserting ‘‘or who’’.
(3) The table of sections for subpart D of part
II of subchapter A of chapter 51 is amended by strik-
ing the item relating to section 5115.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 1216. REFUND OF TAX TO WINE RETURNED TO BOND
NOT LIMITED TO UNMERCHANTABLE WINE.
(a) IN GENERAL.—Section 5044(a) (relating to refund
of tax on unmerchantable wine) is amended by striking ‘‘as
unmerchantable’’.
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SEC. 1218. DOMESTICALLY PRODUCED BEER MAY BE WITH-
DRAWN FREE OF TAX FOR USE OF FOREIGN
EMBASSIES, LEGATIONS, ETC.
(a) IN GENERAL.—Section 5053 (relating to exemp-
tions), as amended by section 1414(b), is amended by in-
serting after subsection (f) the following new subsection:
‘‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES,
LEGATIONS, ETC.—
‘‘(1) IN GENERAL.—Subject to such regulations
as the Secretary may prescribe—
‘‘(A) beer may be withdrawn from the brew-
ery without payment of tax for transfer to any
customs bonded warehouse for entry pending
withdrawal therefrom as provided in subpara-
graph (B), and
‘‘(B) beer entered into any customs bonded
warehouse under subparagraph (A) may be with-
drawn for consumption in the United States by,
and for the official and family use of, such for-
eign governments, organizations, and individuals
as are entitled to withdraw imported beer from
such warehouses free of tax.
Beer transferred to any customs bonded warehouse
under subparagraph (A) shall be entered, stored, and
accounted for in such warehouse under such regula-
tions and bonds as the Secretary may prescribe, and
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may be withdrawn therefrom by such governments,
organizations, and individuals free of tax under the
same conditions and procedures as imported beer.
‘‘(2) OTHER RULES TO APPLY.—Rules similar to
the rules of paragraphs (2) and (3) of section 5362(e)
shall apply for purposes of this subsection.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 1219. BEER MAY BE WITHDRAWN FREE OF TAX FOR DE-
STRUCTION.
(a) IN GENERAL.—Section 5053 (relating to exemp-
tions), as amended by section 1418(a), is amended by in-
serting after subsection (g) the following new subsection:
‘‘(h) REMOVALS FOR DESTRUCTION.—Subject to such
regulations as the Secretary may prescribe, beer may be re-
moved from the brewery without payment of tax for destruc-
tion.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
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SEC. 1220. AUTHORITY TO ALLOW DRAWBACK ON EX-
PORTED BEER WITHOUT SUBMISSION OF
RECORDS.
(a) IN GENERAL.—The first sentence of section 5055
(relating to drawback of tax on beer) is amended by striking
‘‘found to have been paid’’ and all that follows and insert-
ing ‘‘paid on such beer if there is such proof of exportation
as the Secretary may by regulations require.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 1221. TRANSFER TO BREWERY OF BEER IMPORTED IN
BULK WITHOUT PAYMENT OF TAX.
(a) IN GENERAL.—Part II of subchapter G of chapter
51 is amended by adding at the end the following new sec-
tion:
‘‘SEC. 5418. BEER IMPORTED IN BULK.
‘‘Beer imported or brought into the United States in
bulk containers may, under such regulations as the Sec-
retary may prescribe, be withdrawn from customs custody
and transferred in such bulk containers to the premises of
a brewery without payment of the internal revenue tax im-
posed on such beer. The proprietor of a brewery to which
such beer is transferred shall become liable for the tax on
the beer withdrawn from customs custody under this section
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upon release of the beer from customs custody, and the im-
porter, or the person bringing such beer into the United
States, shall thereupon be relieved of the liability for such
tax.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such part II is amended by adding at the end the following
new item:
‘‘Sec. 5418. Beer imported in bulk.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
SEC. 1222. TRANSFER TO BONDED WINE CELLARS OF WINE
IMPORTED IN BULK WITHOUT PAYMENT OF
TAX.
(a) IN GENERAL.—Part II of subchapter F of chapter
51 is amended by inserting after section 5363 the following
new section:
‘‘SEC. 5364. WINE IMPORTED IN BULK.
‘‘Wine imported or brought into the United States in
bulk containers may, under such regulations as the Sec-
retary may prescribe, be withdrawn from customs custody
and transferred in such bulk containers to the premises of
a bonded wine cellar without payment of the internal reve-
nue tax imposed on such wine. The proprietor of a bonded
wine cellar to which such wine is transferred shall become
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liable for the tax on the wine withdrawn from customs cus-
tody under this section upon release of the wine from cus-
toms custody, and the importer, or the person bringing such
wine into the United States, shall thereupon be relieved of
the liability for such tax.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such part II is amended by inserting after the item relating
to section 5363 the following new item:
‘‘Sec. 5364. Wine imported in bulk.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the 1st day of the 1st calendar
quarter that begins at least 90 days after the date of the
enactment of this Act.
PART III—OTHER EXCISE TAX PROVISIONS
SEC. 1231. AUTHORITY TO GRANT EXEMPTIONS FROM REG-
ISTRATION REQUIREMENTS.
(a) IN GENERAL.—Section 4222(b)(2) (relating to ex-
port) is amended—
(1) by striking ‘‘in the case of any sale or resale
for export,’’, and
(2) by striking ‘‘EXPORT’’ and inserting ‘‘UNDER
REGULATIONS’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
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SEC. 1232. REPEAL OF EXPIRED PROVISIONS.
(a) PIGGY-BACK TRAILERS.—Section 4051 (relating to
imposition of tax on heavy trucks and trailers sold at re-
tail) is amended by striking subsection (d) and by redesig-
nating subsection (e) as subsection (d).
(b) DEEP SEABED MINING.—
(1) IN GENERAL.—Subchapter F of chapter 36
(relating to tax on removal of hard mineral resources
from deep seabed) is hereby repealed.
(2) CONFORMING
AMENDMENT.—The table of
subchapters for chapter 36 is amended by striking the
item relating to subchapter F.
(c) OZONE-DEPLETING CHEMICALS.—
(1) Paragraph (1) of section 4681(b) is amended
by striking subparagraphs (B) and (C) and inserting
the following new subparagraph:
‘‘(B) BASE
TAX
AMOUNT.—The base tax
amount for purposes of subparagraph (A) with
respect to any sale or use during any calendar
year after 1995 shall be $5.35 increased by 45
cents for each year after 1995.’’.
(2) Subsection (g) of section 4682 is amended to
read as follows:
‘‘(g) CHEMICALS USED
AS PROPELLANTS
IN ME-
TERED-DOSE INHALERS.—
‘‘(1) EXEMPTION FROM TAX.—
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‘‘(A) IN GENERAL.—No tax shall be imposed
by section 4681 on—
‘‘(i) any use of any substance as a pro-
pellant in metered-dose inhalers, or
‘‘(ii) any qualified sale by the manu-
facturer, producer, or importer of any sub-
stance.
‘‘(B) QUALIFIED
SALE.—For purposes of
subparagraph (A), the term ‘qualified sale’
means any sale by the manufacturer, producer,
or importer of any substance—
‘‘(i) for use by the purchaser as a pro-
pellant in metered dose inhalers, or
‘‘(ii) for resale by the purchaser to a
2d purchaser for such use by the 2d pur-
chaser.
The preceding sentence shall apply only if the
manufacturer, producer, and importer, and the
1st and 2d purchasers (if any) meet such reg-
istration requirements as may be prescribed by
the Secretary.
‘‘(2) OVERPAYMENTS.—If any substance on
which tax was paid under this subchapter is used by
any person as a propellant in metered-dose inhalers,
credit or refund without interest shall be allowed to
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such person in an amount equal to the tax so paid.
Amounts payable under the preceding sentence with
respect to uses during the taxable year shall be treated
as described in section 34(a) for such year unless
claim thereof has been timely filed under this para-
graph.’’.
SEC. 1233. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX
ON ARROWS.
(a) IN GENERAL.—Subsection (b) of section 4161 (re-
lating to imposition of tax) is amended to read as follows:
‘‘(b) BOWS AND ARROWS, ETC.—
‘‘(1) BOWS.—
‘‘(A) IN
GENERAL.—There is hereby im-
posed on the sale by the manufacturer, producer,
or importer of any bow which has a draw weight
of 10 pounds or more, a tax equal to 11 percent
of the price for which so sold.
‘‘(B) PARTS AND ACCESSORIES.—There is
hereby imposed upon the sale by the manufac-
turer, producer, or importer—
‘‘(i) of any part of accessory suitable
for inclusion in or attachment to a bow de-
scribed in subparagraph (A), and
‘‘(ii) of any quiver suitable for use
with arrows described in paragraph (2),
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a tax equivalent to 11 percent of the price for
which so sold.
‘‘(2) ARROWS.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of
any shaft, point, nock, or vane of a type used in the
manufacture of any arrow which after its assembly—
‘‘(A) measures 18 inches overall or more in
length, or
‘‘(B) measures less than 18 inches overall in
length but is suitable for use with a bow de-
scribed in paragraph (1)(A),
a tax equal to 12.4 percent of the price for which so
sold.
‘‘(3) COORDINATION WITH SUBSECTION (a).—No
tax shall be imposed under this subsection with re-
spect to any article taxable under subsection (a).’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to articles sold by the manufacturer,
producer, or importer after September 30 1997.
SEC. 1234. MODIFICATIONS TO RETAIL TAX ON HEAVY
TRUCKS.
(a) CERTAIN
REPAIRS
AND
MODIFICATIONS
NOT
TREATED AS MANUFACTURE.—Section 4052 is amended by
redesignating the subsection defining a long-term lease as
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subsection (e) and by adding at the end the following new
subsection:
‘‘(f) CERTAIN REPAIRS
AND MODIFICATIONS NOT
TREATED AS MANUFACTURE.—
‘‘(1) IN GENERAL.—An article described in sec-
tion 4051(a)(1) shall not be treated as manufactured
or produced solely by reason of repairs or modifica-
tions to the article (including any modification which
changes the transportation function of the article or
restores a wrecked article to a functional condition)
if the cost of such repairs and modifications does not
exceed 75 percent of the retail price of a comparable
new article.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply if the article (as repaired or modified) would,
if new, be taxable under section 4051 and the article
when new was not taxable under this section or the
corresponding provision of prior law.’’.
(b) SIMPLIFICATION OF CERTIFICATION PROCEDURES
WITH RESPECT TO SALES OF TAXABLE ARTICLES.—
(1) REPEAL OF REGISTRATION REQUIREMENT.—
Subsection (d) of section 4052 is amended by striking
‘‘rules of—’’ and all that follows through ‘‘shall
apply’’ and inserting ‘‘rules of subsections (c) and (d)
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of section 4216 (relating to partial payments) shall
apply’’.
(2) REQUIREMENT TO MODIFY REGULATIONS.—
Section 4052 is amended by adding at the end the fol-
lowing new subsection:
‘‘(g) REGULATIONS.—The Secretary shall prescribe
regulations which permit, in lieu of any other certification,
persons who are purchasing articles taxable under this sub-
chapter for resale or leasing in a long-term lease to execute
a statement (made under penalties of perjury) on the sale
invoice that such sale is for resale. The Secretary shall not
impose any registration requirement as a condition of using
such procedure.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on January 1, 1998.
SEC. 1235. SKYDIVING FLIGHTS EXEMPT FROM TAX ON
TRANSPORTATION OF PERSONS BY AIR.
(a) IN GENERAL.—Section 4261 (relating to imposi-
tion of tax on transportation of persons by air) is amended
by redesignating subsection (h) as subsection (i) and by in-
serting after subsection (g) the following new subsection:
‘‘(h) EXEMPTION FOR SKYDIVING USES.—No tax shall
be imposed by this section or section 4271 on any air trans-
portation exclusively for the purpose of skydiving.’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to transportation beginning after
September 30, 1997.
SEC. 1236. ALLOWANCE OR CREDIT OF REFUND FOR TAX-
PAID AVIATION FUEL PURCHASED BY REG-
ISTERED PRODUCER OF AVIATION FUEL.
(a) IN GENERAL.—Subsection (l) of section 6467 (re-
lating to nontaxable uses of diesel fuel and aviation fuel)
is amended by adding at the end the following new para-
graph:
‘‘(6) REFUND OF TAX-PAID AVIATION FUEL TO
REGISTERED PRODUCER OF FUEL.—For purposes of
this subsection, the term ‘nontaxable use’ includes the
taxable sale of aviation fuel by a producer of such fuel
who is registered under section 4101 if a prior tax
imposed by section 4091 was paid (and not credited
or refunded) on such fuel.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to sales by the producer after Sep-
tember 30, 1997.
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Subtitle B—Tax-Exempt Bond
Provisions
SEC. 1241. REPEAL OF $100,000 LIMITATION ON UNSPENT
PROCEEDS UNDER 1-YEAR EXCEPTION FROM
REBATE.
Subclause (I) of section 148(f)(4)(B)(ii) (relating to
additional period for certain bonds) is amended by striking
‘‘the lesser of 5 percent of the proceeds of the issue or
$100,000’’ and inserting ‘‘5 percent of the proceeds of the
issue’’.
SEC. 1242. EXCEPTION FROM REBATE FOR EARNINGS ON
BONA FIDE DEBT SERVICE FUND UNDER CON-
STRUCTION BOND RULES.
Subparagraph (C) of section 148(f)(4) is amended by
adding at the end the following new clause:
‘‘(xvii) TREATMENT
OF
BONA
FIDE
DEBT SERVICE FUNDS.—If the spending re-
quirements of clause (ii) are met with re-
spect to the available construction proceeds
of a construction issue, then paragraph (2)
shall not apply to earnings on a bona fide
debt service fund for such issue.’’.
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SEC. 1243. REPEAL OF DEBT SERVICE-BASED LIMITATION
ON INVESTMENT IN CERTAIN NONPURPOSE
INVESTMENTS.
Subsection (d) of section 148 (relating to special rules
for reasonably required reserve or replacement fund) is
amended by striking paragraph (3).
SEC. 1244. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) of section 148(c) is amended by
striking subparagraph (B) and by redesignating subpara-
graphs (C), (D), and (E) as subparagraphs (B), (C), and
(D), respectively.
(b) Paragraph (4) of section 148(f) is amended by
striking subparagraph (E).
SEC. 1245. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to
bonds issued after the date of the enactment of this Act.
Subtitle C—Tax Court Procedures
SEC. 
1251. 
OVERPAYMENT 
DETERMINATIONS 
OF 
TAX
COURT.
(a) APPEAL OF ORDER.—Paragraph (2) of section
6512(b) (relating to jurisdiction to enforce) is amended by
adding at the end the following new sentence: ‘‘An order
of the Tax Court disposing of a motion under this para-
graph shall be reviewable in the same manner as a decision
of the Tax Court, but only with respect to the matters deter-
mined in such order.’’.
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(b) DENIAL OF JURISDICTION REGARDING CERTAIN
CREDITS AND REDUCTIONS.—Subsection (b) of section 6512
(relating to overpayment determined by Tax Court) is
amended by adding at the end the following new paragraph:
‘‘(4) DENIAL OF JURISDICTION REGARDING CER-
TAIN
CREDITS
AND
REDUCTIONS.—The Tax Court
shall have no jurisdiction under this subsection to re-
strain or review any credit or reduction made by the
Secretary under section 6402.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 1252. REDETERMINATION OF INTEREST PURSUANT TO
MOTION.
(a) IN GENERAL.—Subsection (c) of section 7481 (re-
lating to jurisdiction over interest determinations) is
amended to read as follows:
‘‘(c) JURISDICTION
OVER
INTEREST
DETERMINA-
TIONS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), if, within 1 year after the date the decision of the
Tax Court becomes final under subsection (a) in a
case to which this subsection applies, the taxpayer
files a motion in the Tax Court for a redetermination
of the amount of interest involved, then the Tax Court
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may reopen the case solely to determine whether the
taxpayer has made an overpayment of such interest
or the Secretary has made an underpayment of such
interest and the amount thereof.
‘‘(2) CASES
TO
WHICH
THIS
SUBSECTION
AP-
PLIES.—This subsection shall apply where—
‘‘(A)(i) an assessment has been made by the
Secretary under section 6215 which includes in-
terest as imposed by this title, and
‘‘(ii) the taxpayer has paid the entire
amount of the deficiency plus interest claimed by
the Secretary, and
‘‘(B) the Tax Court finds under section
6512(b) that the taxpayer has made an overpay-
ment.
‘‘(3) SPECIAL RULES.—If the Tax Court deter-
mines under this subsection that the taxpayer has
made an overpayment of interest or that the Sec-
retary has made an underpayment of interest, then
that determination shall be treated under section
6512(b)(1) as a determination of an overpayment of
tax. An order of the Tax Court redetermining interest,
when entered upon the records of the court, shall be
reviewable in the same manner as a decision of the
Tax Court.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 1253. APPLICATION OF NET WORTH REQUIREMENT
FOR AWARDS OF LITIGATION COSTS.
(a) IN GENERAL.—Paragraph (4) of section 7430(c)
(defining prevailing party) is amended by adding at the
end thereof the following new subparagraph:
‘‘(D) SPECIAL RULES FOR APPLYING NET
WORTH
REQUIREMENT.—In applying the re-
quirements of section 2412(d)(2)(B) of title 28,
United States Code, for purposes of subpara-
graph (A)(iii) of this paragraph—
‘‘(i) the net worth limitation in clause
(i) of such section shall apply to—
‘‘(I) an estate but shall be deter-
mined as of the date of the decedent’s
death, and
‘‘(II) a trust but shall be deter-
mined as of the last day of the taxable
year involved in the proceeding, and
‘‘(ii) individuals filing a joint return
shall be treated as separate individuals for
purposes of clause (i) of such section.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to proceedings commenced after the date
of the enactment of this Act.
SEC. 1254. PROCEEDINGS FOR DETERMINATION OF EM-
PLOYMENT STATUS.
(a) IN GENERAL.—Subchapter B of chapter 76 (relat-
ing to proceedings by taxpayers and third parties) is
amended by redesignating section 7435 as section 7436 and
by inserting after section 7434 the following new section:
‘‘SEC. 7435. PROCEEDINGS FOR DETERMINATION OF EM-
PLOYMENT STATUS.
‘‘(a) CREATION OF REMEDY.—If, in connection with
an audit of any person, there is an actual controversy in-
volving a determination by the Secretary as part of an ex-
amination that—
‘‘(1) one or more individuals performing services
for such person are employees of such person for pur-
poses of subtitle C, or
‘‘(2) such person is not entitled to the treatment
under subsection (a) of section 530 of the Revenue Act
of 1978 with respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court
may determine whether such a determination by the Sec-
retary is correct. Any such determination by the Tax Court
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shall have the force and effect of a decision of the Tax Court
and shall be reviewable as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed
under this section only by the person for whom the
services are performed.
‘‘(2) TIME FOR FILING ACTION.—If the Secretary
sends by certified or registered mail notice to the peti-
tioner of a determination by the Secretary described
in subsection (a), no proceeding may be initiated
under this section with respect to such determination
unless the pleading is filed before the 91st day after
the date of such mailing.
‘‘(3) NO ADVERSE INFERENCE FROM TREATMENT
WHILE ACTION IS PENDING.—If, during the pendency
of any proceeding brought under this section, the peti-
tioner changes his treatment for employment tax pur-
poses of any individual whose employment status as
an employee is involved in such proceeding (or of any
individual holding a substantially similar position)
to treatment as an employee, such change shall not be
taken into account in the Tax Court’s determination
under this section.
‘‘(c) SMALL CASE PROCEDURES.—
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‘‘(1) IN GENERAL.—At the option of the peti-
tioner, concurred in by the Tax Court or a division
thereof before the hearing of the case, proceedings
under this section may (notwithstanding the provi-
sions of section 7453) be conducted subject to the rules
of evidence, practice, and procedure applicable under
section 7463 if the amount of employment taxes
placed in dispute is $10,000 or less for each calendar
quarter involved.
‘‘(2) FINALITY OF DECISIONS.—A decision en-
tered in any proceeding conducted under this sub-
section shall not be reviewed in any other court and
shall not be treated as a precedent for any other case
not involving the same petitioner and the same deter-
minations.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the rules of the last sentence of subsection (a), and
subsections (c), (d), and (e), of section 7463 shall
apply to proceedings conducted under this subsection.
‘‘(d) SPECIAL RULES.—
‘‘(1) RESTRICTIONS ON ASSESSMENT AND COL-
LECTION PENDING ACTION, ETC.—The principles of
subsections (a), (b), and (d) of section 6213, section
6214(a), section 6215, section 6503(a), and section
6512 shall apply to proceedings brought under this
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section in the same manner as if the Secretary’s de-
termination described in subsection (a) were a notice
of deficiency.
‘‘(2) AWARDING OF COSTS AND CERTAIN FEES.—
Section 7430 shall apply to proceedings brought
under this section.
‘‘(e) EMPLOYMENT TAX.—The term ‘employment tax’
means any tax imposed by subtitle C.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 6511 is amended by
adding at the end the following new paragraph:
‘‘(7) SPECIAL PERIOD OF LIMITATION WITH RE-
SPECT
TO
SELF-EMPLOYMENT
TAX
IN
CERTAIN
CASES.—If—
‘‘(A) the claim for credit or refund relates
to an overpayment of the tax imposed by chapter
2 (relating to the tax on self-employment income)
attributable to Tax Court determination in a
proceeding under section 7435, and
‘‘(B) the allowance of a credit or refund of
such overpayment is otherwise prevented by the
operation of any law or rule of law other than
section 7122 (relating to compromises),
such credit or refund may be allowed or made if
claim therefor is filed on or before the last day of the
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second year after the calendar year in which such de-
termination becomes final.’’.
(2) Sections 7453 and 7481(b) are each amended
by striking ‘‘section 7463’’ and inserting ‘‘section
7435(c) or 7463’’.
(3) The table of sections for subchapter B of
chapter 76 is amended by striking the last item and
inserting the following:
‘‘Sec. 7435. Proceedings for determination of employment status.
‘‘Sec. 7436. Cross references.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
Subtitle D—Other Provisions
SEC. 1261. EXTENSION OF DUE DATE OF FIRST QUARTER
ESTIMATED TAX PAYMENT BY PRIVATE FOUN-
DATIONS.
(a) IN GENERAL.—Paragraph (3) of section 6655(g)
is amended by adding at the end the following new sentence:
‘‘In the case of a private foundation, subsection (c)(2) shall
be applied by substituting ‘May 15’ for ‘April 15’.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply for purposes of determining under-
payments of estimated tax for taxable years beginning after
the date of the enactment of this Act.
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SEC. 1262. CLARIFICATION OF AUTHORITY TO WITHHOLD
PUERTO RICO INCOME TAXES FROM SALA-
RIES OF FEDERAL EMPLOYEES.
(a) IN GENERAL.—Subsection (c) of section 5517 of
title 5, United States Code, is amended by striking ‘‘or ter-
ritory or possession’’ and inserting ‘‘, territory, possession,
or commonwealth’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on January 1, 1998.
SEC. 1263. CERTAIN NOTICES DISREGARDED UNDER PROVI-
SION INCREASING INTEREST RATE ON LARGE
CORPORATE UNDERPAYMENTS.
(a) GENERAL RULE.—Subparagraph (B) of section
6621(c)(2) (defining applicable date) is amended by adding
at the end the following new clause:
‘‘(iii) EXCEPTION
FOR
LETTERS
OR
NOTICES INVOLVING SMALL AMOUNTS.—For
purposes of this paragraph, any letter or
notice shall be disregarded if the amount of
the deficiency or proposed deficiency (or the
assessment or proposed assessment) set forth
in such letter or notice is not greater than
$100,000 (determined by not taking into ac-
count any interest, penalties, or additions
to tax).’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply for purposes of determining interest
for periods after December 31, 1997.
TITLE XIII—PENSION
SIMPLIFICATION
SEC. 1301. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED
INDIVIDUALS NOT TREATED AS ELECTIVE EM-
PLOYER CONTRIBUTIONS.
(a) IN GENERAL.—Section 402(g) (relating to limita-
tion on exclusion for elective deferrals) is amended by add-
ing at the end the following:
‘‘(9) MATCHING CONTRIBUTIONS ON BEHALF OF
SELF-EMPLOYED
INDIVIDUALS
NOT
TREATED
AS
ELECTIVE EMPLOYER CONTRIBUTIONS.—Any match-
ing contribution described in section 401(m)(4)(A))
which is made on behalf of a self-employed individual
(as defined in section 401(c)) shall not be treated as
an elective employer contribution under a qualified
cash or deferred arrangement (as defined in section
401(k)) for purposes of this title.’’.
(b) CONFORMING AMENDMENT FOR SIMPLE RETIRE-
MENT ACCOUNTS.—Section 408(p) (relating to simple re-
tirement accounts) is amended by adding at the end the
following:
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‘‘(8) MATCHING CONTRIBUTIONS ON BEHALF OF
SELF-EMPLOYED
INDIVIDUALS
NOT
TREATED
AS
ELECTIVE EMPLOYER CONTRIBUTIONS.—Any match-
ing contribution described in paragraph (2)(A)(iii)
which is made on behalf of a self-employed individual
(as defined in section 401(c)) shall not be treated as
an elective employer contribution to a simple retire-
ment account for purposes of this title.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to years beginning after December 31,
1997.
SEC. 1302. CONTRIBUTIONS TO IRAS THROUGH PAYROLL
DEDUCTIONS.
(a) DEFINITIONS.—For purposes of this section:
(1) CONTRIBUTION
CERTIFICATE.—The term
‘‘contribution certificate’’ means a certificate submit-
ted by an eligible employee to the employee’s employer
which—
(A) identifies the employee by name, ad-
dress, and social security number,
(B) includes a certification by the employee
that the employee is an eligible employee,
(C) identifies the individual retirement
plan to which the employee wishes to make con-
tributions through payroll deductions,
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(D) identifies the amount of such contribu-
tions, not to exceed the amount allowed under
section 408 of the Internal Revenue Code of 1986
to an individual retirement plan for such year.
(2) ELIGIBLE EMPLOYEE.—
(A) IN GENERAL.—The term ‘‘eligible em-
ployee’’ means, with respect to any taxable year,
an employee whose employer does not sponsor a
plan, contract, pension, account, or trust de-
scribed in section 219(g)(5) (A) or (B) of the In-
ternal Revenue Code of 1986.
(B) EMPLOYEE.—The term ‘‘employee’’ does
not include an employee as defined in section
401(c)(1) of such Code.
(3) INDIVIDUAL RETIREMENT PLANS.—The term
‘‘individual retirement plan’’ has the meaning given
the term by section 7701(a)(37) of the Internal Reve-
nue Code of 1986.
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of the Treasury.
(b) ESTABLISHMENT OF PAYROLL DEDUCTION SYS-
TEM.—An employer may establish a system under which
eligible employees, through employer payroll deductions,
may make contributions to individual retirement plans. An
employer shall not incur any liability under title I of the
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Employee Retirement Income Security Act of 1974 in pro-
viding for such a system.
(c) CONTRIBUTIONS
TO
INDIVIDUAL
RETIREMENT
PLANS.—
(1) IN GENERAL.—The system established under
subsection (b) shall provide that contributions made
to an individual retirement plan for any taxable year
are—
(A) contributions through employer payroll
deductions, and
(B) if the employer so elects, additional con-
tributions by the employee which, when added to
contributions under subparagraph (A), do not
exceed the amount allowed under section 408 of
the Internal Revenue Code of 1986 for the tax-
able year.
(2) EMPLOYER PAYROLL DEDUCTIONS.—
(A) IN GENERAL.—The system established
under subsection (b) shall provide that an eligi-
ble employee may establish and maintain an in-
dividual retirement plan simply by—
(i) completing a contribution certifi-
cate, and
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(ii) submitting such certificate to the
eligible employee’s employer in the manner
provided under subparagraph (D).
(B) EASE OF ADMINISTRATION.—An eligible
employee establishing and maintaining an indi-
vidual retirement plan under subparagraph (A)
may change the amount of an employer payroll
deduction in the same manner as under subpara-
graph (A).
(C) SIMPLIFIED
CONTRIBUTION
CERTIFI-
CATE.—The Secretary shall develop a model con-
tribution certificate for purposes of this para-
graph which is written in a clear and easily un-
derstandable manner.
(D) USE OF CERTIFICATE.—Each employer
electing to adopt a system under subsection (b)
shall, upon receipt of a contribution certificate
from an eligible employee, deduct the appro-
priate contribution as determined by such cer-
tificate from the employee’s wages in equal
amounts during the remaining payroll periods
for the taxable year and shall remit such
amounts for investment in the employee’s indi-
vidual retirement plan not later than the close of
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the 30-day period following the last day of the
month in which such payroll period occurs.
(E) FAILURE TO REMIT PAYROLL DEDUC-
TIONS.—For purposes of the Internal Revenue
Code of 1986, any amount which an employer
fails to remit on behalf of an eligible employee
pursuant to a contribution certificate of such
employee shall not be allowed as a deduction to
the employer under such Code.
SEC. 1303. PLANS NOT DISQUALIFIED MERELY BY ACCEPT-
ING ROLLOVER CONTRIBUTIONS.
(a) IN GENERAL.—Section 401(a) (relating to quali-
fied pension, profit-sharing, and stock bonus plans) is
amended by inserting after paragraph (34) the following:
‘‘(35) PLANS NOT DISQUALIFIED MERELY BY AC-
CEPTING ROLLOVER CONTRIBUTIONS.—A trust which
is part of a plan shall not fail to be a qualified trust
under this section solely because the plan accepts a
contribution of an eligible rollover distribution as de-
scribed in section 402(c)(4) from another plan with-
out such a qualified trust if, at the time of the trans-
fer, the trustee of the other plan provided notice of the
other plan’s intention to have such a qualified trust.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to rollover contributions made after De-
cember 31, 1997.
SEC. 1304. MODIFICATION OF PROHIBITION OF ASSIGN-
MENT OR ALIENATION.
(a) AMENDMENT TO ERISA.—Section 206(d) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1056(d)) is amended by adding at the end the follow-
ing:
‘‘(4) Paragraph (1) shall not apply to any offset of
a participant’s accrued benefit in an employee pension ben-
efit plan against an amount that the participant is ordered
or required to pay to the plan if—
‘‘(A) the order or requirement to pay arises—
‘‘(i) under a judgment of conviction for a
crime involving such plan,
‘‘(ii) under a civil judgment (including a
consent order or decree) entered by a court in an
action brought in connection with a violation (or
alleged violation) of part 4 of this subtitle, or
‘‘(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
settlement agreement between the Pension Benefit
Guaranty Corporation and the participant, in
connection with a violation (or alleged violation)
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of part 4 of this subtitle by a fiduciary or any
other person,
‘‘(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid to
the plan against the participant’s accrued benefit in
the plan, and
‘‘(C) if the participant has a spouse at the time
at which the offset is to be made—
‘‘(i) such spouse has consented in writing to
such offset and such consent is witnessed by a
notary public or representative of the plan,
‘‘(ii) such spouse is ordered or required in
such judgment, order, decree, or settlement to
pay an amount to the plan in connection with
a violation of part 4 of this subtitle, or
‘‘(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to re-
ceive the value of the survivor annuity under a
qualified joint and survivor annuity provided
pursuant to section 205(a)(1) and under a quali-
fied preretirement survivor annuity provided
pursuant to section 205(a)(2), determined in ac-
cordance with paragraph (5).
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A plan shall not be treated as failing to meet the require-
ments of section 205 solely by reason of an offset under this
paragraph.
‘‘(5)(A) The value of the survivor annuity described
in paragraph (4)(C)(iii) shall be determined as if—
‘‘(i) the participant terminated employment on
the date of the offset,
‘‘(ii) there was no offset,
‘‘(iii) the plan permitted retirement only on or
after normal retirement age,
‘‘(iv) the plan provided only the minimum-re-
quired qualified joint and survivor annuity, and
‘‘(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the
amount of the survivor annuity payable under the
minimum-required qualified joint and survivor annu-
ity.
‘‘(B) For purposes of this paragraph, the term ‘mini-
mum-required qualified joint and survivor annuity’ means
the qualified joint and survivor annuity which is the actu-
arial equivalent of a single annuity for the life of the partic-
ipant and under which the survivor annuity is 50 percent
of the amount of the annuity which is payable during the
joint lives of the participant and the spouse.’’.
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(b) AMENDMENT TO 1986 CODE.—Section 401(a)(13)
(relating to assignment and alienation) is made by adding
at the end the following:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
JUDG-
MENTS AND SETTLEMENTS.—Subparagraph (A)
shall not apply to any offset of a participant’s
accrued benefit in an employee pension benefit
plan against an amount that the participant is
ordered or required to pay to the plan if—
‘‘(i) the order or requirement to pay
arises—
‘‘(I) under a judgment of convic-
tion for a crime involving such plan,
‘‘(II) under a civil judgment (in-
cluding a consent order or decree) en-
tered by a court in an action brought
in connection with a violation (or al-
leged violation) of part 4 of subtitle B
of title I of the Employee Retirement
Income Security Act of 1974, or
‘‘(III) pursuant to a settlement
agreement between the Secretary and
the participant, or a settlement agree-
ment between the Pension Benefit
Guaranty Corporation and the partici-
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pant, in connection with a violation
(or alleged violation) of part 4 of such
subtitle by a fiduciary or any other
person,
‘‘(ii) the judgment, order, decree, or
settlement agreement expressly provides for
the offset of all or part of the amount or-
dered or required to be paid to the plan
against the participant’s accrued benefit in
the plan, and
‘‘(iii) if the participant has a spouse
at the time at which the offset is to be
made—
‘‘(I) such spouse has consented in
writing to such offset and such consent
is witnessed by a notary public or rep-
resentative of the plan,
‘‘(II) such spouse is ordered or re-
quired in such judgment, order, decree,
or settlement to pay an amount to the
plan in connection with a violation of
part 4 of such subtitle, or
‘‘(III) in such judgment, order,
decree, or settlement, such spouse re-
tains the right to receive the value of
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the survivor annuity under a qualified
joint and survivor annuity provided
pursuant to section 401(a)(11)(A)(i)
and under a qualified preretirement
survivor annuity provided pursuant to
section 401(a)(11)(A)(ii), determined
in accordance with subparagraph (D).
A plan shall not be treated as failing to meet the
requirements of this subsection, subsection (k),
section 403(b), or section 409(d) solely by reason
of an offset described in this subparagraph.
‘‘(D) VALUATION OF SURVIVOR ANNUITY.—
‘‘(i) IN
GENERAL.—The value of the
survivor annuity described in subparagraph
(C)(iii)(III) shall be determined as if—
‘‘(I) the participant terminated
employment on the date of the offset,
‘‘(II) there was no offset,
‘‘(III) the plan permitted retire-
ment only on or after normal retire-
ment age,
‘‘(IV) the plan provided only the
minimum-required qualified joint and
survivor annuity, and
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‘‘(V) the amount of the qualified
preretirement survivor annuity under
the plan is equal to the amount of the
survivor annuity payable under the
minimum-required qualified joint and
survivor annuity.
‘‘(ii) DEFINITION.—For purposes of
this subparagraph, the term ‘minimum-re-
quired qualified joint and survivor annuity’
means the qualified joint and survivor an-
nuity which is the actuarial equivalent of a
single annuity for the life of the participant
and under which the survivor annuity is 50
percent of the amount of the annuity which
is payable during the joint lives of the par-
ticipant and the spouse.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to judgments, orders, and decrees issued,
and settlement agreements entered into, on or after the date
of the enactment of this Act.
SEC. 1305. ELIMINATION OF PAPERWORK BURDENS ON
PLANS.
(a) ELIMINATION OF UNNECESSARY FILING REQUIRE-
MENTS.—Section 101(b) of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1021(b)) is amended
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by striking paragraphs (1), (2), and (3) and by redesignat-
ing paragraphs (4) and (5) as paragraphs (1) and (2), re-
spectively.
(b) ELIMINATION OF PLAN DESCRIPTION.—
(1) IN GENERAL.—Section 102(a) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1022(a)) is amended—
(A) by striking paragraph (2), and
(B) by striking ‘‘(a)(1)’’ and inserting
‘‘(a)’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 102(b) of such Act (29 U.S.C.
1022(b)) is amended by striking ‘‘The plan de-
scription and summary plan description shall
contain’’ and inserting ‘‘The summary plan de-
scription shall contain’’.
(B) The heading for section 102 of such Act
is amended by striking ‘‘PLAN
DESCRIPTION
AND’’.
(c) FURNISHING OF REPORTS.—
(1) IN GENERAL.—Section 104(a)(1) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1024(a)(1)) is amended to read as follows:
‘‘SEC. 104. (a)(1) The administrator of any employee
benefit plan subject to this part shall file with the Secretary
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the annual report for a plan year within 210 days after
the close of such year (or within such time as may be re-
quired by regulations promulgated by the Secretary in
order to reduce duplicative filing). The Secretary shall
make copies of such annual reports available for inspection
in the public document room of the Department of Labor.’’.
(2) SECRETARY MAY REQUEST DOCUMENTS.—
(A) IN GENERAL.—Section 104(a) of such
Act (29 U.S.C. 1024(a)) is amended by adding
at the end the following:
‘‘(6) The administrator of any employee benefit plan
subject to this part shall furnish to the Secretary, upon re-
quest, any documents relating to the employee benefit plan,
including but not limited to, the latest summary plan de-
scription (including any summaries of plan changes not
contained in the summary plan description), and the bar-
gaining agreement, trust agreement, contract, or other in-
strument under which the plan is established or operated.’’.
(B) PENALTY.—Section 502(c) of such Act
(29 U.S.C. 1132(c)) is amended by redesignating
paragraph (6) as paragraph (7) and by insert-
ing after paragraph (5) the following:
‘‘(6) If, within 30 days of a request by the Secretary
to a plan administrator for documents under section
104(a)(6), the plan administrator fails to furnish the mate-
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rial requested to the Secretary, the Secretary may assess
a civil penalty against the plan administrator of up to
$100 a day from the date of such failure (but in no event
in excess of $1,000 per request). No penalty shall be imposed
under this paragraph for any failure resulting from matters
reasonably beyond the control of the plan administrator.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 104(b)(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C.
1024(b)(1)) 
is 
amended 
by 
striking 
‘‘section
102(a)(1)’’ each place it appears and inserting ‘‘sec-
tion 102(a)’’.
(2) Section 104(b)(2) of such Act (29 U.S.C.
1024(b)(2)) is amended by striking ‘‘the plan descrip-
tion and’’ and inserting ‘‘the latest updated summary
plan description and’’.
(3) Section 104(b)(4) of such Act (29 U.S.C.
1024(b)(4)) is amended by striking ‘‘plan descrip-
tion’’.
(4) Section 106(a) of such Act (29 U.S.C.
1026(a)) is amended by striking ‘‘descriptions,’’.
(5) Section 107 of such Act (29 U.S.C. 1027) is
amended by striking ‘‘description or’’.
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(6) Paragraph (2)(B) of section 108 of such Act
(29 U.S.C. 1028) is amended to read as follows: ‘‘(B)
after publishing or filing the annual reports,’’.
(7) Section 502(a)(6) of such Act (29 U.S.C.
1132(a)(6)) is amended by striking ‘‘or (5)’’ and in-
serting ‘‘(5), or (6)’’.
(e) TECHNICAL CORRECTION.—Section 1144(c) of the
Social Security Act (42 U.S.C. 1320b–14(c)) is amended
by redesignating paragraph (9) as paragraph (8).
SEC. 1306. MODIFICATION OF 403(b) EXCLUSION ALLOW-
ANCE TO CONFORM TO 415 MODIFICATIONS.
(a) DEFINITION OF COMPENSATION.—
(1) IN
GENERAL.—Section 403(b)(3) (defining
includible compensation) is amended by adding at the
end the following: ‘‘Such term includes—
‘‘(A) any elective deferral (as defined in sec-
tion 402(g)(3)), and
‘‘(B) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the gross
income of the employee by reason of section 125
or 457.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to years beginning after
December 31, 1997.
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(b) REPEAL OF RULES IN SECTION 415(e).—The Sec-
retary of the Treasury shall modify the regulations regard-
ing the exclusion allowance under section 403(b)(2) of the
Internal Revenue Code of 1986 to reflect the amendment
made by section 1452(a) of the Small Business Job Protec-
tion Act of 1996. Such modification shall take effect for lim-
itation years beginning after December 31, 1999.
SEC. 1307. NEW TECHNOLOGIES IN RETIREMENT PLANS.
(a) IN GENERAL.—Not later than December 31, 1998,
the Secretary of the Treasury and the Secretary of Labor
shall each issue guidance which is designed to—
(1) interpret the notice, election, consent, disclo-
sure, and time requirements (and related record-
keeping requirements) under the Internal Revenue
Code of 1986 and the Employee Retirement Income
Security Act of 1974 relating to retirement plans as
applied to the use of new technologies by plan spon-
sors and administrators while maintaining the pro-
tection of the rights of participants and beneficiaries,
and
(2) clarify the extent to which writing require-
ments under the Internal Revenue Code of 1986 relat-
ing to retirement plans shall be interpreted to permit
paperless transactions.