H. R. 3448—149
(d) STUDY AND REPORT.—The Secretary of the Treasury shall
study the effect on adoptions of the tax credit and gross income
exclusion established by the amendments made by this section
and shall submit a report regarding the study to the Committee
on Finance of the Senate and the Committee on Ways and Means
of the House of Representatives not later than January 1, 2000.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1996.
SEC. 1808. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION.
(a) STATE PLAN REQUIREMENTS.—Section 471(a) of the Social
Security Act (42 U.S.C 671(a)) is amended—
(1) by striking ‘‘and’’ at the end of paragraph (16);
(2) by striking the period at the end of paragraph (17)
and inserting ‘‘; and’’; and
(3) by adding at the end the following:
‘‘(18) not later than January 1, 1997, provides that neither
the State nor any other entity in the State that receives funds
from the Federal Government and is involved in adoption or
foster care placements may—
‘‘(A) deny to any person the opportunity to become
an adoptive or a foster parent, on the basis of the race,
color, or national origin of the person, or of the child,
involved; or
‘‘(B) delay or deny the placement of a child for adoption
or into foster care, on the basis of the race, color, or
national origin of the adoptive or foster parent, or the
child, involved.’’.
(b) ENFORCEMENT.—Section 474 of such Act (42 U.S.C. 674)
is amended by adding at the end the following:
‘‘(d)(1) If, during any quarter of a fiscal year, a State’s program
operated under this part is found, as a result of a review conducted
under section 1123A, or otherwise, to have violated section
471(a)(18) with respect to a person or to have failed to implement
a corrective action plan within a period of time not to exceed
6 months with respect to such violation, then, notwithstanding
subsection (a) of this section and any regulations promulgated under
section 1123A(b)(3), the Secretary shall reduce the amount other-
wise payable to the State under this part, for that fiscal year
quarter and for any subsequent quarter of such fiscal year, until
the State program is found, as a result of a subsequent review
under section 1123A, to have implemented a corrective action plan
with respect to such violation, by—
‘‘(A) 2 percent of such otherwise payable amount, in the
case of the 1st such finding for the fiscal year with respect
to the State;
‘‘(B) 3 percent of such otherwise payable amount, in the
case of the 2nd such finding for the fiscal year with respect
to the State; or
‘‘(C) 5 percent of such otherwise payable amount, in the
case of the 3rd or subsequent such finding for the fiscal year
with respect to the State.
In imposing the penalties described in this paragraph, the Secretary
shall not reduce any fiscal year payment to a State by more than
5 percent.
‘‘(2) Any other entity which is in a State that receives funds
under this part and which violates section 471(a)(18) during a
H. R. 3448—150
fiscal year quarter with respect to any person shall remit to the
Secretary all funds that were paid by the State to the entity
during the quarter from such funds.
‘‘(3)(A) Any individual who is aggrieved by a violation of section
471(a)(18) by a State or other entity may bring an action seeking
relief from the State or other entity in any United States district
court.
‘‘(B) An action under this paragraph may not be brought more
than 2 years after the date the alleged violation occurred.
‘‘(4) This subsection shall not be construed to affect the applica-
tion of the Indian Child Welfare Act of 1978.’’.
(c) CIVIL RIGHTS.—
(1) PROHIBITED CONDUCT.—A person or government that
is involved in adoption or foster care placements may not—
(A) deny to any individual the opportunity to become
an adoptive or a foster parent, on the basis of the race,
color, or national origin of the individual, or of the child,
involved; or
(B) delay or deny the placement of a child for adoption
or into foster care, on the basis of the race, color, or
national origin of the adoptive or foster parent, or the
child, involved.
(2) ENFORCEMENT.—Noncompliance with paragraph (1) is
deemed a violation of title VI of the Civil Rights Act of 1964.
(3) NO
EFFECT
ON
THE
INDIAN
CHILD
WELFARE
ACT
OF
1978.—This subsection shall not be construed to affect the
application of the Indian Child Welfare Act of 1978.
(d) CONFORMING AMENDMENT.—Section 553 of the Howard M.
Metzenbaum Multiethnic Placement Act of 1994 (42 U.S.C. 5115a)
is repealed.
SEC. 1809. 6-MONTH 
DELAY 
OF 
ELECTRONIC 
FUND 
TRANSFER
REQUIREMENT.
Notwithstanding any other provision of law, the increase in
the applicable required percentages for fiscal year 1997 in clauses
(i)(IV) and (ii)(IV) of section 6302(h)(2)(C) of the Internal Revenue
Code of 1986 shall not take effect before July 1, 1997.
Subtitle I—Foreign Trust Tax Compliance
SEC. 1901. IMPROVED 
INFORMATION 
REPORTING 
ON 
FOREIGN
TRUSTS.
(a) IN GENERAL.—Section 6048 (relating to returns as to certain
foreign trusts) is amended to read as follows:
‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN
TRUSTS.
‘‘(a) NOTICE OF CERTAIN EVENTS.—
‘‘(1) GENERAL RULE.—On or before the 90th day (or such
later day as the Secretary may prescribe) after any reportable
event, the responsible party shall provide written notice of
such event to the Secretary in accordance with paragraph (2).
‘‘(2) CONTENTS OF NOTICE.—The notice required by para-
graph (1) shall contain such information as the Secretary may
prescribe, including—
H. R. 3448—151
‘‘(A) the amount of money or other property (if any)
transferred to the trust in connection with the reportable
event, and
‘‘(B) the identity of the trust and of each trustee and
beneficiary (or class of beneficiaries) of the trust.
‘‘(3) REPORTABLE EVENT.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘reportable event’ means—
‘‘(i) the creation of any foreign trust by a United
States person,
‘‘(ii) the transfer of any money or property (directly
or indirectly) to a foreign trust by a United States
person, including a transfer by reason of death, and
‘‘(iii) the death of a citizen or resident of the United
States if—
‘‘(I) the decedent was treated as the owner
of any portion of a foreign trust under the
rules of subpart E of part I of subchapter J of
chapter 1, or
‘‘(II) any portion of a foreign trust was included
in the gross estate of the decedent.
‘‘(B) EXCEPTIONS.—
‘‘(i) FAIR
MARKET
VALUE
SALES.—Subparagraph
(A)(ii) shall not apply to any transfer of property to
a trust in exchange for consideration of at least the
fair market value of the transferred property. For pur-
poses of the preceding sentence, consideration other
than cash shall be taken into account at its fair market
value and the rules of section 679(a)(3) shall apply.
‘‘(ii) DEFERRED
COMPENSATION
AND
CHARITABLE
TRUSTS.—Subparagraph (A) shall not apply with
respect to a trust which is—
‘‘(I) described in section 402(b), 404(a)(4), or
404A, or
‘‘(II) determined by the Secretary to be
described in section 501(c)(3).
‘‘(4) RESPONSIBLE PARTY.—For purposes of this subsection,
the term ‘responsible party’ means—
‘‘(A) the grantor in the case of the creation of an
inter vivos trust,
‘‘(B) the transferor in the case of a reportable event
described in paragraph (3)(A)(ii) other than a transfer by
reason of death, and
‘‘(C) the executor of the decedent’s estate in any
other case.
‘‘(b) UNITED STATES GRANTOR OF FOREIGN TRUST.—
‘‘(1) IN GENERAL.—If, at any time during any taxable year
of a United States person, such person is treated as the owner
of any portion of a foreign trust under the rules of subpart
E of part I of subchapter J of chapter 1, such person shall
be responsible to ensure that—
‘‘(A) such trust makes a return for such year which
sets forth a full and complete accounting of all trust activi-
ties and operations for the year, the name of the United
States agent for such trust, and such other information
as the Secretary may prescribe, and
‘‘(B) such trust furnishes such information as the Sec-
retary may prescribe to each United States person (i) who
H. R. 3448—152
is treated as the owner of any portion of such trust or
(ii) who receives (directly or indirectly) any distribution
from the trust.
‘‘(2) TRUSTS NOT HAVING UNITED STATES AGENT.—
‘‘(A) IN GENERAL.—If the rules of this paragraph apply
to any foreign trust, the determination of amounts required
to be taken into account with respect to such trust by
a United States person under the rules of subpart E of
part I of subchapter J of chapter 1 shall be determined
by the Secretary.
‘‘(B) UNITED STATES AGENT REQUIRED.—The rules of
this paragraph shall apply to any foreign trust to which
paragraph (1) applies unless such trust agrees (in such
manner, subject to such conditions, and at such time as
the Secretary shall prescribe) to authorize a United States
person to act as such trust’s limited agent solely for pur-
poses of applying sections 7602, 7603, and 7604 with
respect to—
‘‘(i) any request by the Secretary to examine
records or produce testimony related to the proper
treatment of amounts required to be taken into account
under the rules referred to in subparagraph (A), or
‘‘(ii) any summons by the Secretary for such
records or testimony.
The appearance of persons or production of records by
reason of a United States person being such an agent
shall not subject such persons or records to legal process
for any purpose other than determining the correct treat-
ment under this title of the amounts required to be taken
into account under the rules referred to in subparagraph
(A). A foreign trust which appoints an agent described
in this subparagraph shall not be considered to have an
office or a permanent establishment in the United States,
or to be engaged in a trade or business in the United
States, solely because of the activities of such agent pursu-
ant to this subsection.
‘‘(C) OTHER
RULES
TO
APPLY.—Rules similar to the
rules of paragraphs (2) and (4) of section 6038A(e) shall
apply for purposes of this paragraph.
‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES OF FOREIGN
TRUSTS.—
‘‘(1) IN GENERAL.—If any United States person receives
(directly or indirectly) during any taxable year of such person
any distribution from a foreign trust, such person shall make
a return with respect to such trust for such year which in-
cludes—
‘‘(A) the name of such trust,
‘‘(B) the aggregate amount of the distributions so
received from such trust during such taxable year, and
‘‘(C) such other information as the Secretary may
prescribe.
‘‘(2) INCLUSION IN INCOME IF RECORDS NOT PROVIDED.—
‘‘(A) IN GENERAL.—If adequate records are not provided
to the Secretary to determine the proper treatment of any
distribution from a foreign trust, such distribution shall
be treated as an accumulation distribution includible in
the gross income of the distributee under chapter 1. To
H. R. 3448—153
the extent provided in regulations, the preceding sentence
shall not apply if the foreign trust elects to be subject
to rules similar to the rules of subsection (b)(2)(B).
‘‘(B) APPLICATION
OF
ACCUMULATION
DISTRIBUTION
RULES.—For purposes of applying section 668 in a case
to which subparagraph (A) applies, the applicable number
of years for purposes of section 668(a) shall be 1⁄2 of the
number of years the trust has been in existence.
‘‘(d) SPECIAL RULES.—
‘‘(1) DETERMINATION OF WHETHER UNITED STATES PERSON
MAKES TRANSFER OR RECEIVES DISTRIBUTION.—For purposes of
this section, in determining whether a United States person
makes a transfer to, or receives a distribution from, a foreign
trust, the fact that a portion of such trust is treated as owned
by another person under the rules of subpart E of part I
of subchapter J of chapter 1 shall be disregarded.
‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVITIES.—To the
extent provided in regulations, a trust which is a United States
person shall be treated as a foreign trust for purposes of this
section and section 6677 if such trust has substantial activities,
or holds substantial property, outside the United States.
‘‘(3) TIME AND MANNER OF FILING INFORMATION.—Any notice
or return required under this section shall be made at such
time and in such manner as the Secretary shall prescribe.
‘‘(4) MODIFICATION OF RETURN REQUIREMENTS.—The Sec-
retary is authorized to suspend or modify any requirement
of this section if the Secretary determines that the United
States has no significant tax interest in obtaining the required
information.’’.
(b) INCREASED PENALTIES.—Section 6677 (relating to failure
to file information returns with respect to certain foreign trusts)
is amended to read as follows:
‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO
CERTAIN FOREIGN TRUSTS.
‘‘(a) CIVIL PENALTY.—In addition to any criminal penalty
provided by law, if any notice or return required to be filed by
section 6048—
‘‘(1) is not filed on or before the time provided in such
section, or
‘‘(2) does not include all the information required pursuant
to such section or includes incorrect information,
the person required to file such notice or return shall pay a penalty
equal to 35 percent of the gross reportable amount. If any failure
described in the preceding sentence continues for more than 90
days after the day on which the Secretary mails notice of such
failure to the person required to pay such penalty, such person
shall pay a penalty (in addition to the amount determined under
the preceding sentence) of $10,000 for each 30-day period (or
fraction thereof) during which such failure continues after the
expiration of such 90-day period. In no event shall the penalty
under this subsection with respect to any failure exceed the gross
reportable amount.
‘‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION 6048(b).—
In the case of a return required under section 6048(b)—
‘‘(1) the United States person referred to in such section
shall be liable for the penalty imposed by subsection (a), and
H. R. 3448—154
‘‘(2) subsection (a) shall be applied by substituting ‘5 per-
cent’ for ‘35 percent’.
‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes of subsection
(a), the term ‘gross reportable amount’ means—
‘‘(1) the gross value of the property involved in the event
(determined as of the date of the event) in the case of a
failure relating to section 6048(a),
‘‘(2) the gross value of the portion of the trust’s assets
at the close of the year treated as owned by the United States
person in the case of a failure relating to section 6048(b)(1),
and
‘‘(3) the gross amount of the distributions in the case of
a failure relating to section 6048(c).
‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty shall be
imposed by this section on any failure which is shown to be due
to reasonable cause and not due to willful neglect. The fact that
a foreign jurisdiction would impose a civil or criminal penalty
on the taxpayer (or any other person) for disclosing the required
information is not reasonable cause.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Subchapter B
of chapter 63 (relating to deficiency procedures for income, estate,
gift, and certain excise taxes) shall not apply in respect of the
assessment or collection of any penalty imposed by subsection (a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6724(d) is amended by striking
‘‘or’’ at the end of subparagraph (S), by striking the period
at the end of subparagraph (T) and inserting ‘‘, or’’, and by
inserting after subparagraph (T) the following new subpara-
graph:
‘‘(U) section 6048(b)(1)(B) (relating to foreign trust
reporting requirements).’’.
(2) The table of sections for subpart B of part III of sub-
chapter A of chapter 61 is amended by striking the item relating
to section 6048 and inserting the following new item:
‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.
(3) The table of sections for part I of subchapter B of
chapter 68 is amended by striking the item relating to section
6677 and inserting the following new item:
‘‘Sec. 6677. Failure to file information with respect to certain foreign trusts.’’.
(d) EFFECTIVE DATES.—
(1) REPORTABLE EVENTS.—To the extent related to sub-
section (a) of section 6048 of the Internal Revenue Code of
1986, as amended by this section, the amendments made by
this section shall apply to reportable events (as defined in
such section 6048) occurring after the date of the enactment
of this Act.
(2) GRANTOR TRUST REPORTING.—To the extent related to
subsection (b) of such section 6048, the amendments made
by this section shall apply to taxable years of United States
persons beginning after December 31, 1995.
(3) REPORTING BY UNITED STATES BENEFICIARIES.—To the
extent related to subsection (c) of such section 6048, the amend-
ments made by this section shall apply to distributions received
after the date of the enactment of this Act.
H. R. 3448—155
SEC. 1902. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN
RELATING TO TRANSFERS TO FOREIGN ENTITIES.
(a) IN GENERAL.—Section 1494 is amended by adding at the
end the following new subsection:
‘‘(c) PENALTY.—In the case of any failure to file a return
required by the Secretary with respect to any transfer described
in section 1491, the person required to file such return shall be
liable for the penalties provided in section 6677 in the same manner
as if such failure were a failure to file a notice under section
6048(a).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to transfers after the date of the enactment of this
Act.
SEC. 1903. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS
HAVING ONE OR MORE UNITED STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.—
(1) Paragraph (2) of section 679(a) is amended by striking
subparagraph (B) and inserting the following:
‘‘(B) TRANSFERS AT FAIR MARKET VALUE.—To any trans-
fer of property to a trust in exchange for consideration
of at least the fair market value of the transferred property.
For purposes of the preceding sentence, consideration other
than cash shall be taken into account at its fair market
value.’’.
(2) Subsection (a) of section 679 (relating to foreign trusts
having one or more United States beneficiaries) is amended
by adding at the end the following new paragraph:
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO ACCOUNT UNDER
FAIR MARKET VALUE EXCEPTION.—
‘‘(A) IN GENERAL.—In determining whether paragraph
(2)(B) applies to any transfer by a person described in
clause (ii) or (iii) of subparagraph (C), there shall not
be taken into account—
‘‘(i) except as provided in regulations, any obliga-
tion of a person described in subparagraph (C), and
‘‘(ii) to the extent provided in regulations, any
obligation which is guaranteed by a person described
in subparagraph (C).
‘‘(B) TREATMENT OF PRINCIPAL PAYMENTS ON OBLIGA-
TION.—Principal payments by the trust on any obligation
referred to in subparagraph (A) shall be taken into account
on and after the date of the payment in determining the
portion of the trust attributable to the property transferred.
‘‘(C) PERSONS DESCRIBED.—The persons described in
this subparagraph are—
‘‘(i) the trust,
‘‘(ii) any grantor or beneficiary of the trust, and
‘‘(iii) any person who is related (within the mean-
ing of section 643(i)(2)(B)) to any grantor or beneficiary
of the trust.’’.
(b) EXEMPTION OF TRANSFERS TO CHARITABLE TRUSTS.—Sub-
section (a) of section 679 is amended by striking ‘‘section 404(a)(4)
or 404A’’ and inserting ‘‘section 6048(a)(3)(B)(ii)’’.
(c) OTHER MODIFICATIONS.—Subsection (a) of section 679 is
amended by adding at the end the following new paragraphs:
H. R. 3448—156
‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN GRANTOR WHO
LATER BECOMES A UNITED STATES PERSON.—
‘‘(A) IN GENERAL.—If a nonresident alien individual
has a residency starting date within 5 years after directly
or indirectly transferring property to a foreign trust,
this section and section 6048 shall be applied as if such
individual transferred to such trust on the residency start-
ing date an amount equal to the portion of such trust
attributable to the property transferred by such individual
to such trust in such transfer.
‘‘(B) TREATMENT OF UNDISTRIBUTED INCOME.—For pur-
poses of this section, undistributed net income for periods
before such individual’s residency starting date shall be
taken into account in determining the portion of the trust
which is attributable to property transferred by such
individual to such trust but shall not otherwise be taken
into account.
‘‘(C) RESIDENCY STARTING DATE.—For purposes of this
paragraph, an individual’s residency starting date is the
residency 
starting 
date 
determined 
under 
section
7701(b)(2)(A).
‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—
‘‘(A) an individual who is a citizen or resident of the
United States transferred property to a trust which was
not a foreign trust, and
‘‘(B) such trust becomes a foreign trust while such
individual is alive,
then this section and section 6048 shall be applied as if such
individual transferred to such trust on the date such trust
becomes a foreign trust an amount equal to the portion of
such trust attributable to the property previously transferred
by such individual to such trust. A rule similar to the rule
of paragraph (4)(B) shall apply for purposes of this paragraph.’’.
(d) MODIFICATIONS RELATING TO WHETHER TRUST HAS UNITED
STATES BENEFICIARIES.—Subsection (c) of section 679 is amended
by adding at the end the following new paragraph:
‘‘(3) CERTAIN UNITED STATES BENEFICIARIES DISREGARDED.—
A beneficiary shall not be treated as a United States person
in applying this section with respect to any transfer of property
to foreign trust if such beneficiary first became a United States
person more than 5 years after the date of such transfer.’’.
(e) TECHNICAL
AMENDMENT.—Subparagraph (A) of section
679(c)(2) is amended to read as follows:
‘‘(A) in the case of a foreign corporation, such corpora-
tion is a controlled foreign corporation (as defined in section
957(a)),’’.
(f) REGULATIONS.—Section 679 is amended by adding at the
end the following new subsection:
‘‘(d) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’.
(g) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers of property after February 6, 1995.
SEC. 1904. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS
UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.—