In the Senate of the United States,
May 23, 2001.
Resolved, That the bill from the House of Representa-
tives (H.R. 1836) entitled ‘‘An Act to provide for reconcili-
ation pursuant to section 104 of the concurrent resolution on
the budget for fiscal year 2002.’’, do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Re-
storing Earnings To Lift Individuals and Empower Fami-
lies (RELIEF) Act of 2001’’.
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(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
(c) SECTION 15 NOT TO APPLY.—No amendment
made by this Act shall be treated as a change in a rate
of tax for purposes of section 15 of the Internal Revenue
Code of 1986.
(d) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; etc.
TITLE I—INDIVIDUAL INCOME TAX RATE REDUCTIONS
Subtitle A—In General
Sec. 101. Reduction in income tax rates for individuals.
Sec. 102. Increase in amount of income required before phaseout of itemized de-
ductions begins.
Sec. 103. Repeal of phaseout of deduction for personal exemptions.
Subtitle B—Compliance With Congressional Budget Act
Sec. 111. Sunset of provisions of title.
TITLE II—CHILD TAX CREDIT
Subtitle A—In General
Sec. 201. Modifications to child tax credit.
Sec. 202. Sense of the Senate on the modifications to the child tax credit.
Sec. 203. Expansion of adoption credit and adoption assistance programs.
Sec. 204. Refunds disregarded in the administration of Federal programs and
federally assisted programs.
Sec. 205. Dependent care credit.
Sec. 206. Allowance of credit for employer expenses for child care assistance.
Sec. 207. Allowance of credit for employer expenses for child care assistance.
Subtitle B—Compliance With Congressional Budget Act
Sec. 211. Sunset of provisions of title.
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TITLE III—MARRIAGE PENALTY RELIEF
Subtitle A—In General
Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in 15-percent bracket.
Sec. 303. Marriage penalty relief for earned income credit; earned income to in-
clude only amounts includible in gross income; simplification of
earned income credit.
Subtitle B—Compliance With Congressional Budget Act
Sec. 311. Sunset of provisions of title.
TITLE IV—AFFORDABLE EDUCATION PROVISIONS
Subtitle A—Education Savings Incentives
Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Subtitle B—Educational Assistance
Sec. 411. Permanent extension of exclusion for employer-provided educational as-
sistance.
Sec. 412. Elimination of 60-month limit and increase in income limitation on
student loan interest deduction.
Sec. 413. Exclusion of certain amounts received under the National Health Serv-
ice Corps Scholarship Program and the F. Edward Hebert
Armed Forces Health Professions Scholarship and Financial As-
sistance Program.
Sec. 414. Exclusion from income of certain amounts contributed to Coverdell edu-
cation savings accounts.
Subtitle C—Liberalization of Tax-Exempt Financing Rules for Public School
Construction
Sec. 421. Additional increase in arbitrage rebate exception for governmental
bonds used to finance educational facilities.
Sec. 422. Treatment of qualified public educational facility bonds as exempt facil-
ity bonds.
Sec. 423. Treatment of bonds issued to acquire renewable resources on land sub-
ject to conservation easement.
Subtitle D—Other Provisions
Sec. 431. Deduction for higher education expenses.
Sec. 432. Credit for interest on higher education loans.
Sec. 433. Above-the-line deduction for qualified emergency response expenses of el-
igible emergency response professionals.
Sec. 434. Contributions of book inventory.
Subtitle E—Miscellaneous Education Provisions
Sec. 441. Short title.
Sec. 442. Above-the-line deduction for qualified professional development expenses
of elementary and secondary school teachers.
Sec. 443. Credit to elementary and secondary school teachers who provide class-
room materials.
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Subtitle F—Compliance With Congressional Budget Act
Sec. 451. Sunset of provisions of title.
TITLE V—ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER
TAX PROVISIONS
Subtitle A—Repeal of Estate and Generation-Skipping Transfer Taxes
Sec. 501. Repeal of estate and generation-skipping transfer taxes.
Subtitle B—Reductions of Estate and Gift Tax Rates
Sec. 511. Additional reductions of estate and gift tax rates.
Subtitle C—Increase in Exemption Amounts
Sec. 521. Increase in exemption equivalent of unified credit, lifetime gifts exemp-
tion, and GST exemption amounts.
Subtitle D—Credit for State Death Taxes
Sec. 531. Reduction of credit for State death taxes.
Sec. 532. Credit for State death taxes replaced with deduction for such taxes.
Subtitle E—Carryover Basis at Death; Other Changes Taking Effect With
Repeal
Sec. 541. Termination of step-up in basis at death.
Sec. 542. Treatment of property acquired from a decedent dying after December
31, 2010.
Subtitle F—Conservation Easements
Sec. 551. Expansion of estate tax rule for conservation easements.
Subtitle G—Modifications of Generation-Skipping Transfer Tax
Sec. 561. Deemed allocation of GST exemption to lifetime transfers to trusts; ret-
roactive allocations.
Sec. 562. Severing of trusts.
Sec. 563. Modification of certain valuation rules.
Sec. 564. Relief provisions.
Subtitle H—Extension of Time for Payment of Estate Tax
Sec. 571. Expansion of availability of installment payment for estates with inter-
ests qualifying lending and finance businesses.
Sec. 572. Clarification of availability of installment payment.
Subtitle I—Compliance With Congressional Budget Act
Sec. 581. Sunset of provisions of title.
TITLE VI—PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT
PROVISIONS
Subtitle A—Individual Retirement Accounts
Sec. 601. Modification of IRA contribution limits.
Sec. 602. Deemed IRAs under employer plans.
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Sec. 603. Tax-free distributions from individual retirement accounts for chari-
table purposes.
Subtitle B—Expanding Coverage
Sec. 611. Increase in benefit and contribution limits.
Sec. 612. Plan loans for subchapter S owners, partners, and sole proprietors.
Sec. 613. Modification of top-heavy rules.
Sec. 614. Elective deferrals not taken into account for purposes of deduction lim-
its.
Sec. 615. Repeal of coordination requirements for deferred compensation plans of
State and local governments and tax-exempt organizations.
Sec. 616. Deduction limits.
Sec. 617. Option to treat elective deferrals as after-tax Roth contributions.
Sec. 618. Nonrefundable credit to certain individuals for elective deferrals and
IRA contributions.
Sec. 619. Credit for qualified pension plan contributions of small employers.
Sec. 620. Credit for pension plan startup costs of small employers.
Sec. 621. Elimination of user fee for requests to IRS regarding new pension
plans.
Sec. 622. Treatment of nonresident aliens engaged in international transpor-
tation services.
Subtitle C—Enhancing Fairness for Women
Sec. 631. Catch-up contributions for individuals age 50 or over.
Sec. 632. Equitable treatment for contributions of employees to defined contribu-
tion plans.
Sec. 633. Faster vesting of certain employer matching contributions.
Sec. 634. Modifications to minimum distribution rules.
Sec. 635. Clarification of tax treatment of division of section 457 plan benefits
upon divorce.
Sec. 636. Provisions relating to hardship distributions.
Sec. 637. Waiver of tax on nondeductible contributions for domestic or similar
workers.
Subtitle D—Increasing Portability for Participants
Sec. 641. Rollovers allowed among various types of plans.
Sec. 642. Rollovers of IRAs into workplace retirement plans.
Sec. 643. Rollovers of after-tax contributions.
Sec. 644. Hardship exception to 60-day rule.
Sec. 645. Treatment of forms of distribution.
Sec. 646. Rationalization of restrictions on distributions.
Sec. 647. Purchase of service credit in governmental defined benefit plans.
Sec. 648. Employers may disregard rollovers for purposes of cash-out amounts.
Sec. 649. Minimum distribution and inclusion requirements for section 457
plans.
Subtitle E—Strengthening Pension Security and Enforcement
PART I—GENERAL PROVISIONS
Sec. 651. Repeal of 160 percent of current liability funding limit.
Sec. 652. Maximum contribution deduction rules modified and applied to all de-
fined benefit plans.
Sec. 653. Excise tax relief for sound pension funding.
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Sec. 654. Treatment of multiemployer plans under section 415.
Sec. 655. Protection of investment of employee contributions to 401(k) plans.
Sec. 656. Prohibited allocations of stock in S corporation ESOP.
Sec. 657. Automatic rollovers of certain mandatory distributions.
Sec. 658. Clarification of treatment of contributions to multiemployer plan.
PART II—TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT
ACCRUALS
Sec. 659. Notice required for pension plan amendments having the effect of sig-
nificantly reducing future benefit accruals.
Subtitle F—Reducing Regulatory Burdens
Sec. 661. Modification of timing of plan valuations.
Sec. 662. ESOP dividends may be reinvested without loss of dividend deduction.
Sec. 663. Repeal of transition rule relating to certain highly compensated employ-
ees.
Sec. 664. Employees of tax-exempt entities.
Sec. 665. Clarification of treatment of employer-provided retirement advice.
Sec. 666. Reporting simplification.
Sec. 667. Improvement of employee plans compliance resolution system.
Sec. 668. Repeal of the multiple use test.
Sec. 669. Flexibility in nondiscrimination, coverage, and line of business rules.
Sec. 670. Extension to all governmental plans of moratorium on application of
certain nondiscrimination rules applicable to State and local
plans.
Subtitle G—Other ERISA Provisions
Sec. 681. Missing participants.
Sec. 682. Reduced PBGC premium for new plans of small employers.
Sec. 683. Reduction of additional PBGC premium for new and small plans.
Sec. 684. Authorization for PBGC to pay interest on premium overpayment re-
funds.
Sec. 685. Substantial owner benefits in terminated plans.
Subtitle H—Miscellaneous Provisions
Sec. 691. Tax treatment and information requirements of Alaska Native Settle-
ment Trusts.
Subtitle I—Compliance With Congressional Budget Act
Sec. 695. Sunset of provisions of title.
TITLE VII—ALTERNATIVE MINIMUM TAX
Subtitle A—In General
Sec. 701. Increase in alternative minimum tax exemption.
Subtitle B—Compliance With Congressional Budget Act
Sec. 711. Sunset of provisions of title.
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TITLE VIII—OTHER PROVISIONS
Subtitle A—In General
Sec. 801. Time for payment of corporate estimated taxes.
Sec. 802. Expansion of authority to postpone certain tax-related deadlines by rea-
son of presidentially declared disaster.
Sec. 803. No Federal income tax on restitution received by victims of the Nazi
regime or their heirs or estates.
Sec. 804. Removal of limitation.
Sec. 805. Circuit breaker.
Sec. 806. Deduction for health insurance costs of self-employed individuals in-
creased.
Sec. 807. Deduction for health insurance costs of self-employed individuals in-
creased.
Sec. 808. Charitable contributions of certain items created by the taxpayer.
Sec. 809. Waiver of statute of limitation for taxes on certain farm valuations.
Sec. 810. Research credit.
Sec. 811. Credit for medical research related to developing vaccines against wide-
spread diseases.
Sec. 812. Acceleration of benefits of wage tax credits for empowerment zones.
Sec. 813. Treatment of certain hospital support organizations as qualified organi-
zations for purposes of determining acquisition indebtedness.
Sec. 814. Tax-exempt bond authority for treatment facilities reducing arsenic lev-
els in drinking water.
Sec. 815. Time for payment of corporate estimated tax payments due in 2011.
Sec. 816. Disclosure of tax information to facilitate combined employment tax re-
porting.
Subtitle B—Compliance With Congressional Budget Act
Sec. 821. Sunset of provisions of title.
TITLE IX—SECTION 527 POLITICAL ORGANIZATION REPORTING
REQUIREMENTS
Sec. 901. Exemption for State and local candidate committees from notification
requirements.
Sec. 902. Exemption for certain State and local political committees from report-
ing and annual return requirements.
Sec. 903. Notification of interaction of reporting requirements.
Sec. 904. Waiver of penalties.
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TITLE I—INDIVIDUAL INCOME
TAX RATE REDUCTIONS
Subtitle A—In General
SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVID-
UALS.
(a) IN GENERAL.—Section 1 is amended by adding
at the end the following new subsection:
‘‘(i) RATE REDUCTIONS AFTER 2000.—
‘‘(1) 10-PERCENT RATE BRACKET.—
‘‘(A) IN GENERAL.—In the case of taxable
years beginning after December 31, 2000—
‘‘(i) the rate of tax under subsections
(a), (b), (c), and (d) on taxable income not
over the initial bracket amount shall be 10
percent, and
‘‘(ii) the 15 percent rate of tax shall
apply only to taxable income over the ini-
tial bracket amount but not over the max-
imum dollar amount for the 15-percent rate
bracket.
‘‘(B) INITIAL BRACKET AMOUNT.—For pur-
poses of this subsection, the initial bracket
amount is—
‘‘(i) $12,000 in the case of subsection
(a),
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‘‘(ii) $10,000 in the case of subsection
(b), and
‘‘(iii) 1⁄2 the amount applicable under
clause (i) (after adjustment, if any, under
subparagraph (C)) in the case of subsections
(c) and (d).
‘‘(C) INFLATION
ADJUSTMENT.—In pre-
scribing the tables under subsection (f) which
apply with respect to taxable years beginning in
calendar years after 2001—
‘‘(i) the Secretary shall make no ad-
justment to the initial bracket amount for
any taxable year beginning before January
1, 2007,
‘‘(ii) the cost-of-living adjustment used
in making adjustments to the initial bracket
amount for any taxable year beginning
after December 31, 2006, shall be deter-
mined under subsection (f)(3) by sub-
stituting ‘2005’ for ‘1992’ in subparagraph
(B) thereof, and
‘‘(iii) such adjustment shall not apply
to the amount referred to in subparagraph
(B)(iii).
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If any amount after adjustment under the pre-
ceding sentence is not a multiple of $50, such
amount shall be rounded to the next lowest mul-
tiple of $50.
‘‘(2) REDUCTIONS IN RATES AFTER 2001.—In the
case of taxable years beginning in a calendar year
after 2001, the corresponding percentage specified for
such calendar year in the following table shall be sub-
stituted for the otherwise applicable tax rate in the
tables under subsections (a), (b), (c), (d), and (e).
‘‘In the case of taxable years
beginning during calendar year:
The corresponding percent-
ages shall be substituted for
the following percentages:
28%
31%
36%
39.6%
2002, 2003, and 2004 ........................................................
27%
30%
35%
38.6%
2005 and 2006 ...................................................................
26%
29%
34%
37.6%
2007 and thereafter ............................................................
25%
28%
33%
36%
‘‘(3) ADJUSTMENT OF TABLES.—The Secretary
shall adjust the tables prescribed under subsection (f)
to carry out this subsection.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 1(g)(7) is
amended by striking ‘‘15 percent’’ in clause (ii)(II)
and inserting ‘‘10 percent.’’.
(2) Section 1(h) is amended—
(A) by striking ‘‘28 percent’’ both places it
appears 
in 
paragraphs 
(1)(A)(ii)(I) 
and
(1)(B)(i) and inserting ‘‘25 percent’’, and
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(B) by striking paragraph (13).
(3) Section 531 is amended by striking ‘‘equal
to’’ and all that follows and inserting ‘‘equal to the
product of the highest rate of tax under section 1(c)
and the accumulated taxable income.’’.
(4) Section 541 is amended by striking ‘‘equal
to’’ and all that follows and inserting ‘‘equal to the
product of the highest rate of tax under section 1(c)
and the undistributed personal holding company in-
come.’’.
(5) Section 3402(p)(1)(B) is amended by strik-
ing ‘‘7, 15, 28, or 31 percent’’ and inserting ‘‘7 per-
cent, any percentage applicable to any of the 3 lowest
income brackets in the table under section 1(c),’’.
(6) Section 3402(p)(2) is amended by striking
‘‘15 percent’’ and inserting ‘‘10 percent’’.
(7) Section 3402(q)(1) is amended by striking
‘‘equal to 28 percent of such payment’’ and inserting
‘‘equal to the product of the third lowest rate of tax
under section 1(c) and such payment’’.
(8) Section 3402(r)(3) is amended by striking
‘‘31 percent’’ and inserting ‘‘the fourth lowest rate of
tax under section 1(c)’’.
(9) Section 3406(a)(1) is amended by striking
‘‘equal to 31 percent of such payment’’ and inserting
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‘‘equal to the product of the fourth lowest rate of tax
under section 1(c) and such payment’’.
(10) Section 13273 of the Revenue Reconciliation
Act of 1993 is amended by striking ‘‘28 percent’’ and
inserting ‘‘the third lowest rate of tax under section
1(c) of the Internal Revenue Code of 1986’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after December 31,
2000.
(2) AMENDMENTS
TO
WITHHOLDING
PROVI-
SIONS.—The amendments made by paragraphs (6),
(7), (8), (9), (10), and (11) of subsection (b) shall
apply to amounts paid after the 60th day after the
date of the enactment of this Act.
SEC. 102. INCREASE IN AMOUNT OF INCOME REQUIRED BE-
FORE PHASEOUT OF ITEMIZED DEDUCTIONS
BEGINS.
(a) IN GENERAL.—Section 68(b)(1) (defining applica-
ble amount) is amended—
(1) by striking ‘‘$100,000’’ and inserting
‘‘$150,000’’, and
(2) 
by 
striking 
‘‘$50,000’’ 
and 
inserting
‘‘$75,000’’.
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(B) The heading for section 24(b)(1) is
amended to read as follows: ‘‘LIMITATION BASED
ON ADJUSTED GROSS INCOME.—’’.
(C) Section 24(d) is amended—
(i) by striking ‘‘section 26(a)’’ each
place it appears and inserting ‘‘subsection
(b)(3)’’, and
(ii) in paragraph (1)(B) by striking
‘‘aggregate amount of credits allowed by
this subpart’’ and inserting ‘‘amount of
credit allowed by this section’’.
(D) Paragraph (1) of section 26(a) is
amended by inserting ‘‘(other than section 24)’’
after ‘‘this subpart’’.
(E) Subsection (c) of section 23 is amended
by striking ‘‘and section 1400C’’ and inserting
‘‘and sections 24 and 1400C’’.
(F) Subparagraph (C) of section 25(e)(1) is
amended by inserting ‘‘, 24,’’ after ‘‘sections 23’’.
(G) Section 904(h) is amended by inserting
‘‘(other than section 24)’’ after ‘‘chapter’’.
(H) Subsection (d) of section 1400C is
amended by inserting ‘‘and section 24’’ after
‘‘this section’’.
(c) REFUNDABLE CHILD CREDIT.—
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(1) IN GENERAL.—So much of section 24(d) (re-
lating to additional credit for families with 3 or more
children) as precedes paragraph (2) is amended to
read as follows:
‘‘(d) PORTION OF CREDIT REFUNDABLE.—
‘‘(1) IN
GENERAL.—The aggregate credits al-
lowed to a taxpayer under subpart C shall be in-
creased by the lesser of—
‘‘(A) the credit which would be allowed
under this section without regard to this sub-
section and the limitation under subsection
(b)(3), or
‘‘(B) the amount by which the amount of
credit allowed by this section (determined with-
out regard to this subsection) would increase if
the limitation imposed by subsection (b)(3) were
increased by the greater of—
‘‘(i) 15 percent of so much of the tax-
payer’s earned income (within the meaning
of section 32) for the taxable year as exceeds
$10,000, or
‘‘(ii) in the case of a taxpayer with 3
or more qualifying children, the excess (if
any) of—
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‘‘(I) the taxpayer’s social security
taxes for the taxable year, over
‘‘(II) the credit allowed under sec-
tion 32 for the taxable year.
The amount of the credit allowed under this sub-
section shall not be treated as a credit allowed under
this subpart and shall reduce the amount of credit
otherwise allowable under subsection (a) without re-
gard to subsection (b)(3).’’.
(2) CONFORMING
AMENDMENT.—Section 32 is
amended by striking subsection (n).
(d) ELIMINATION OF REDUCTION OF CREDIT TO TAX-
PAYER SUBJECT TO ALTERNATIVE MINIMUM TAX PROVI-
SION.—Section 24(d) is amended—
(1) by striking paragraph (2), and
(2) by redesignating paragraph (3) as para-
graph (2).
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years beginning after December 31,
2000.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to taxable years beginning
after December 31, 2001.
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SEC. 202. SENSE OF THE SENATE ON THE MODIFICATIONS
TO THE CHILD TAX CREDIT.
(a) FINDINGS.—
(1) There are over 12,000,000 children in pov-
erty in the United States—about 78 percent of these
children live in working families.
(2) The child tax credit was originally designed
to benefit families with children in recognition of the
costs associated with raising children.
(3) There are 15,400,000 children whose families
would not benefit from the doubling of the child tax
credit unless it is made refundable and another
7,000,000 children live in families who will not re-
ceive an increased benefit under the bill unless the
credit is made refundable.
(4) A person who earns the Federal minimum
wage and works 40 hours a week for 50 weeks a year
earns approximately $10,300.
(5) The provision included in section 201 would
give families with children the benefit of a partially
refundable child tax credit based on 15 cents of their
income for every dollar earned above $10,000.
(6) For a family earning $15,000 that is an ad-
ditional $750 to help make ends meet.
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(7) Doubling the child tax credit to $1,000 and
making it partially refundable will benefit over
37,000,000 families with dependent children.
(8) The expansion of the child tax credit in-
cluded in section 201 is a meaningful and a respon-
sible effort on the part of the Senate to address the
needs of low income working families to promote work
and such an expansion would provide the benefit of
a child tax credit to 10,700,000 more children than
the provision passed by the House of Representatives.
(b) SENSE OF THE SENATE.—It is the sense of the Sen-
ate that the ‘‘10–15’’ child tax credit provision included in
section 201 is a worthy start, and should be maintained
as part of the final package.
SEC. 203. EXPANSION OF ADOPTION CREDIT AND ADOP-
TION ASSISTANCE PROGRAMS.
(a) IN GENERAL.—
(1) ADOPTION CREDIT.—Section 23(a)(1) (relat-
ing to allowance of credit) is amended to read as fol-
lows:
‘‘(1) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax im-
posed by this chapter—
‘‘(A) in the case of an adoption of a child
other than a child with special needs, the
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amount of the qualified adoption expenses paid
or incurred by the taxpayer, and
‘‘(B) in the case of an adoption of a child
with special needs, $10,000.’’.
(2) ADOPTION ASSISTANCE PROGRAMS.—Section
137(a) (relating to adoption assistance programs) is
amended to read as follows:
‘‘(a) IN GENERAL.—Gross income of an employee does
not include amounts paid or expenses incurred by the em-
ployer for adoption expenses in connection with the adop-
tion of a child by an employee if such amounts are fur-
nished pursuant to an adoption assistance program. The
amount of the exclusion shall be—
‘‘(1) in the case of an adoption of a child other
than a child with special needs, the amount of the
qualified adoption expenses paid or incurred by the
taxpayer, and
‘‘(2) in the case of an adoption of a child with
special needs, $10,000.’’.
(b) DOLLAR LIMITATIONS.—
(1) DOLLAR AMOUNT OF ALLOWED EXPENSES.—
(A) ADOPTION EXPENSES.—Section 23(b)(1)
(relating to allowance of credit) is amended—
(i) by striking ‘‘$5,000’’ and inserting
‘‘$10,000’’,
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(ii) by striking ‘‘($6,000, in the case of
a child with special needs)’’, and
(iii) by striking ‘‘subsection (a)’’ and
inserting ‘‘subsection (a)(1)(A)’’.
(B) ADOPTION
ASSISTANCE
PROGRAMS.—
Section 137(b)(1) (relating to dollar limitations
for adoption assistance programs) is amended—
(i) by striking ‘‘$5,000’’ and inserting
‘‘$10,000’’, and
(ii) by striking ‘‘($6,000, in the case of
a child with special needs)’’, and
(iii) by striking ‘‘subsection (a)’’ and
inserting ‘‘subsection (a)(1)’’.
(2) PHASE-OUT LIMITATION.—
(A) ADOPTION
EXPENSES.—Clause (i) of
section 23(b)(2)(A) (relating to income limita-
tion) is amended by striking ‘‘$75,000’’ and in-
serting ‘‘$150,000’’.
(B) ADOPTION
ASSISTANCE
PROGRAMS.—
Section 137(b)(2)(A) (relating to income limita-
tion) is amended by striking ‘‘$75,000’’ and in-
serting ‘‘$150,000’’.
(c) YEAR CREDIT ALLOWED.—Section 23(a)(2) (relat-
ing to year credit allowed) is amended by adding at the
end the following new flush sentence:
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‘‘In the case of the adoption of a child with special
needs, the credit allowed under paragraph (1) shall be
allowed for the taxable year in which the adoption be-
comes final.’’.
(d) REPEAL OF SUNSET PROVISIONS.—
(1) CHILDREN
WITHOUT
SPECIAL
NEEDS.—
Paragraph (2) of section 23(d) (relating to definition
of eligible child) is amended to read as follows:
‘‘(2) ELIGIBLE CHILD.—The term ‘eligible child’
means any individual who—
‘‘(A) has not attained age 18, or
‘‘(B) is physically or mentally incapable of
caring for himself.’’.
(2) ADOPTION ASSISTANCE PROGRAMS.—Section
137 (relating to adoption assistance programs) is
amended by striking subsection (f).
(e) ADJUSTMENT OF DOLLAR AND INCOME LIMITA-
TIONS FOR INFLATION.—
(1) ADOPTION CREDIT.—Section 23 (relating to
adoption expenses) is amended by redesignating sub-
section (h) as subsection (i) and by inserting after
subsection (g) the following new subsection:
‘‘(h) ADJUSTMENTS FOR INFLATION.—In the case of a
taxable year beginning after December 31, 2002, each of the
dollar amounts in subsection (a)(1)(B) and paragraphs (1)
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and (2)(A)(i) of subsection (b) shall be increased by an
amount equal to—
‘‘(1) such dollar amount, multiplied by
‘‘(2) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
‘calendar year 2001’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.’’.
(2) ADOPTION ASSISTANCE PROGRAMS.—Section
137 (relating to adoption assistance programs), as
amended by subsection (d), is amended by adding at
the end the following new subsection:
‘‘(f) ADJUSTMENTS FOR INFLATION.—In the case of a
taxable year beginning after December 31, 2002, each of the
dollar amounts in subsection (a)(2) and paragraphs (1)
and (2)(A) of subsection (b) shall be increased by an
amount equal to—
‘‘(1) such dollar amount, multiplied by
‘‘(2) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
‘calendar year 2001’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof.’’.
(f) LIMITATION BASED ON AMOUNT OF TAX.—
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(1) IN
GENERAL.—Section 23(c) (relating to
carryforwards of unused credit) is amended by strik-
ing ‘‘the limitation imposed’’ and all that follows
through ‘‘1400C)’’ and inserting ‘‘the applicable tax
limitation’’.
(2) APPLICABLE TAX LIMITATION.—Section 23(d)
(relating to definitions) is amended by adding at the
end the following new paragraph:
‘‘(4) APPLICABLE
TAX
LIMITATION.—The term
‘applicable tax limitation’ means the sum of—
‘‘(A) the taxpayer’s regular tax liability for
the taxable year, reduced (but not below zero) by
the sum of the credits allowed by sections 21, 22,
24 (other than the amount of the increase under
subsection (d) thereof), 25, and 25A, and
‘‘(B) the tax imposed by section 55 for such
taxable year.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 26(a) (relating to limitation
based on amount of tax) is amended by inserting
‘‘(other than section 23)’’ after ‘‘allowed by this
subpart’’.
(B) Section 53(b)(1) (relating to minimum
tax credit) is amended by inserting ‘‘reduced by
the aggregate amount taken into account under
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section 23(d)(3)(B) for all such prior taxable
years,’’ after ‘‘1986,’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 204. REFUNDS DISREGARDED IN THE ADMINISTRA-
TION OF FEDERAL PROGRAMS AND FEDER-
ALLY ASSISTED PROGRAMS.
Any payment considered to have been made to any in-
dividual by reason of section 24 of the Internal Revenue
Code of 1986, as amended by section 201, shall not be taken
into account as income and shall not be taken into account
as resources for the month of receipt and the following
month, for purposes of determining the eligibility of such
individual or any other individual for benefits or assist-
ance, or the amount or extent of benefits or assistance,
under any Federal program or under any State or local
program financed in whole or in part with Federal funds.
SEC. 205. DEPENDENT CARE CREDIT.
(a) INCREASE IN DOLLAR LIMIT.—Subsection (c) of
section 21 (relating to expenses for household and dependent
care services necessary for gainful employment) is
amended—
(1) by striking ‘‘$2,400’’ in paragraph (1) and
inserting ‘‘$3,000’’, and
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(2) by striking ‘‘$4,800’’ in paragraph (2) and
inserting ‘‘$6,000’’.
(b) INCREASE IN APPLICABLE PERCENTAGE.—Section
21(a)(2) (defining applicable percentage) is amended—
(1) by striking ‘‘30 percent’’ and inserting ‘‘40
percent’’, and
(2) 
by 
striking 
‘‘$10,000’’ 
and 
inserting
‘‘$20,000’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 206. ALLOWANCE OF CREDIT FOR EMPLOYER EX-
PENSES FOR CHILD CARE ASSISTANCE.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 of the Internal Revenue Code of 1986 (relat-
ing to business related credits), as amended by sections 619
and 620, is further amended by adding at the end the fol-
lowing:
‘‘SEC. 45G. EMPLOYER-PROVIDED CHILD CARE CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the em-
ployer-provided child care credit determined under this sec-
tion for the taxable year is an amount equal to the sum
of—
‘‘(1) 25 percent of the qualified child care ex-
penditures, and
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‘‘(2) 10 percent of the qualified child care re-
source and referral expenditures,
of the taxpayer for such taxable year.
‘‘(b) DOLLAR
LIMITATION.—The credit allowable
under subsection (a) for any taxable year shall not exceed
$150,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care expenditure’ means any amount paid
or incurred—
‘‘(i) to acquire, construct, rehabilitate,
or expand property—
‘‘(I) which is to be used as part of
a qualified child care facility of the
taxpayer,
‘‘(II) with respect to which a de-
duction for depreciation (or amortiza-
tion in lieu of depreciation) is allow-
able, and
‘‘(III) which does not constitute
part of the principal residence (within
the meaning of section 121) of the tax-
payer or any employee of the taxpayer,
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‘‘(ii) for the operating costs of a quali-
fied child care facility of the taxpayer, in-
cluding costs related to the training of em-
ployees, to scholarship programs, and to the
providing of increased compensation to em-
ployees with higher levels of child care
training, or
‘‘(iii) under a contract with a quali-
fied child care facility to provide child care
services to employees of the taxpayer.
‘‘(B) FAIR
MARKET
VALUE.—The term
‘qualified child care expenditures’ shall not in-
clude expenses in excess of the fair market value
of such care.
‘‘(2) QUALIFIED CHILD CARE FACILITY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care facility’ means a facility—
‘‘(i) the principal use of which is to
provide child care assistance, and
‘‘(ii) which meets the requirements of
all applicable laws and regulations of the
State or local government in which it is lo-
cated, including the licensing of the facility
as a child care facility.
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Clause (i) shall not apply to a facility which is
the principal residence (within the meaning of
section 121) of the operator of the facility.
‘‘(B) SPECIAL RULES WITH RESPECT TO A
TAXPAYER.—A facility shall not be treated as a
qualified child care facility with respect to a tax-
payer unless—
‘‘(i) enrollment in the facility is open
to employees of the taxpayer during the tax-
able year,
‘‘(ii) if the facility is the principal
trade or business of the taxpayer, at least
30 percent of the enrollees of such facility
are dependents of employees of the taxpayer,
and
‘‘(iii) the use of such facility (or the
eligibility to use such facility) does not dis-
criminate in favor of employees of the tax-
payer who are highly compensated employ-
ees (within the meaning of section 414(q)).
‘‘(3) QUALIFIED CHILD CARE RESOURCE AND RE-
FERRAL EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care resource and referral expenditure’
means any amount paid or incurred under a
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contract to provide child care resource and refer-
ral services to an employee of the taxpayer.
‘‘(B) 
NONDISCRIMINATION.—The 
services
shall not be treated as qualified unless the provi-
sion of such services (or the eligibility to use such
services) does not discriminate in favor of em-
ployees of the taxpayer who are highly com-
pensated employees (within the meaning of sec-
tion 414(q)).
‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION
CREDIT.—
‘‘(1) IN GENERAL.—If, as of the close of any tax-
able year, there is a recapture event with respect to
any qualified child care facility of the taxpayer, then
the tax of the taxpayer under this chapter for such
taxable year shall be increased by an amount equal
to the product of—
‘‘(A) the applicable recapture percentage,
and
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the qualified
child care expenditures of the taxpayer described
in subsection (c)(1)(A) with respect to such facil-
ity had been zero.
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‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the recapture event occurs in:
percentage is:
Years 1–3 ........................................................................
100
Year 4 ..............................................................................
Year 5 ..............................................................................
Year 6 ..............................................................................
Year 7 ..............................................................................
Year 8 ..............................................................................
Years 9 and 10 ...............................................................
Years 11 and thereafter .................................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day of
the taxable year in which the qualified child care
facility is placed in service by the taxpayer.
‘‘(3) RECAPTURE
EVENT
DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’
means—
‘‘(A) CESSATION OF OPERATION.—The ces-
sation of the operation of the facility as a quali-
fied child care facility.
‘‘(B) CHANGE IN OWNERSHIP.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the disposition of a tax-
payer’s interest in a qualified child care fa-
cility with respect to which the credit de-
scribed in subsection (a) was allowable.
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‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not
apply if the person acquiring such interest
in the facility agrees in writing to assume
the recapture liability of the person dis-
posing of such interest in effect immediately
before such disposition. In the event of such
an assumption, the person acquiring the in-
terest in the facility shall be treated as the
taxpayer for purposes of assessing any re-
capture liability (computed as if there had
been no change in ownership).
‘‘(4) SPECIAL RULES.—
‘‘(A) TAX BENEFIT RULE.—The tax for the
taxable year shall be increased under paragraph
(1) only with respect to credits allowed by reason
of this section which were used to reduce tax li-
ability. In the case of credits not so used to re-
duce tax liability, the carryforwards and
carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for pur-
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poses of determining the amount of any credit
under subpart A, B, or D of this part.
‘‘(C) NO RECAPTURE BY REASON OF CAS-
UALTY LOSS.—The increase in tax under this
subsection shall not apply to a cessation of oper-
ation of the facility as a qualified child care fa-
cility by reason of a casualty loss to the extent
such loss is restored by reconstruction or replace-
ment within a reasonable period established by
the Secretary.
‘‘(e) SPECIAL RULES.—For purposes of this section—
‘‘(1) AGGREGATION RULES.—All persons which
are treated as a single employer under subsections (a)
and (b) of section 52 shall be treated as a single tax-
payer.
‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of
section 52 shall apply.
‘‘(3) ALLOCATION
IN
THE
CASE
OF
PARTNER-
SHIPS.—In the case of partnerships, the credit shall
be allocated among partners under regulations pre-
scribed by the Secretary.
‘‘(f) NO DOUBLE BENEFIT.—
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‘‘(1) REDUCTION IN BASIS.—For purposes of this
subtitle—
‘‘(A) IN
GENERAL.—If a credit is deter-
mined under this section with respect to any
property by reason of expenditures described in
subsection (c)(1)(A), the basis of such property
shall be reduced by the amount of the credit so
determined.
‘‘(B) CERTAIN
DISPOSITIONS.—If, during
any taxable year, there is a recapture amount
determined with respect to any property the
basis of which was reduced under subparagraph
(A), the basis of such property (immediately be-
fore the event resulting in such recapture) shall
be increased by an amount equal to such recap-
ture amount. For purposes of the preceding sen-
tence, the term ‘recapture amount’ means any
increase in tax (or adjustment in carrybacks or
carryovers) determined under subsection (d).
‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No de-
duction or credit shall be allowed under any other
provision of this chapter with respect to the amount
of the credit determined under this section.’’.
(b) CONFORMING AMENDMENTS.—
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(1) Section 38(b) of the Internal Revenue Code
of 1986 is amended by striking ‘‘plus’’ at the end of
paragraph (12), by striking the period at the end of
paragraph (13) and inserting ‘‘, plus’’, and by add-
ing at the end the following:
‘‘(14) the employer-provided child care credit de-
termined under section 45G.’’.
(2) The table of sections for subpart D of part
IV of subchapter A of chapter 1 of such Code is
amended by adding at the end the following:
‘‘Sec. 45G. Employer-provided child care credit.’’
(3) Section 1016(a) of such Code is amended by
striking ‘‘and’’ at the end of paragraph (26), by strik-
ing the period at the end of paragraph (27) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing:
‘‘(28) in the case of a facility with respect to
which a credit was allowed under section 45G, to the
extent provided in section 45G(f)(1).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 207. ALLOWANCE OF CREDIT FOR EMPLOYER EX-
PENSES FOR CHILD CARE ASSISTANCE.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 of the Internal Revenue Code of 1986 (relat-
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ing to business related credits), as amended by sections 619
and 620, is further amended by adding at the end the fol-
lowing:
‘‘SEC. 45G. EMPLOYER-PROVIDED CHILD CARE CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the em-
ployer-provided child care credit determined under this sec-
tion for the taxable year is an amount equal to the sum
of—
‘‘(1) 25 percent of the qualified child care ex-
penditures, and
‘‘(2) 10 percent of the qualified child care re-
source and referral expenditures,
of the taxpayer for such taxable year.
‘‘(b) DOLLAR
LIMITATION.—The credit allowable
under subsection (a) for any taxable year shall not exceed
$150,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care expenditure’ means any amount paid
or incurred—
‘‘(i) to acquire, construct, rehabilitate,
or expand property—
HR 1836 EAS
‘‘(I) which is to be used as part of
a qualified child care facility of the
taxpayer,
‘‘(II) with respect to which a de-
duction for depreciation (or amortiza-
tion in lieu of depreciation) is allow-
able, and
‘‘(III) which does not constitute
part of the principal residence (within
the meaning of section 121) of the tax-
payer or any employee of the taxpayer,
‘‘(ii) for the operating costs of a quali-
fied child care facility of the taxpayer, in-
cluding costs related to the training of em-
ployees, to scholarship programs, and to the
providing of increased compensation to em-
ployees with higher levels of child care
training, or
‘‘(iii) under a contract with a quali-
fied child care facility to provide child care
services to employees of the taxpayer.
‘‘(B) FAIR
MARKET
VALUE.—The term
‘qualified child care expenditures’ shall not in-
clude expenses in excess of the fair market value
of such care.
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‘‘(2) QUALIFIED CHILD CARE FACILITY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care facility’ means a facility—
‘‘(i) the principal use of which is to
provide child care assistance, and
‘‘(ii) which meets the requirements of
all applicable laws and regulations of the
State or local government in which it is lo-
cated, including the licensing of the facility
as a child care facility.
Clause (i) shall not apply to a facility which is
the principal residence (within the meaning of
section 121) of the operator of the facility.
‘‘(B) SPECIAL RULES WITH RESPECT TO A
TAXPAYER.—A facility shall not be treated as a
qualified child care facility with respect to a tax-
payer unless—
‘‘(i) enrollment in the facility is open
to employees of the taxpayer during the tax-
able year,
‘‘(ii) if the facility is the principal
trade or business of the taxpayer, at least
30 percent of the enrollees of such facility
are dependents of employees of the taxpayer,
and
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‘‘(iii) the use of such facility (or the
eligibility to use such facility) does not dis-
criminate in favor of employees of the tax-
payer who are highly compensated employ-
ees (within the meaning of section 414(q)).
‘‘(3) QUALIFIED CHILD CARE RESOURCE AND RE-
FERRAL EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
child care resource and referral expenditure’
means any amount paid or incurred under a
contract to provide child care resource and refer-
ral services to an employee of the taxpayer.
‘‘(B) 
NONDISCRIMINATION.—The 
services
shall not be treated as qualified unless the provi-
sion of such services (or the eligibility to use such
services) does not discriminate in favor of em-
ployees of the taxpayer who are highly com-
pensated employees (within the meaning of sec-
tion 414(q)).
‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION
CREDIT.—
‘‘(1) IN GENERAL.—If, as of the close of any tax-
able year, there is a recapture event with respect to
any qualified child care facility of the taxpayer, then
the tax of the taxpayer under this chapter for such
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taxable year shall be increased by an amount equal
to the product of—
‘‘(A) the applicable recapture percentage,
and
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the qualified
child care expenditures of the taxpayer described
in subsection (c)(1)(A) with respect to such facil-
ity had been zero.
‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, the applicable recapture percentage
shall be determined from the following table:
The applicable
recapture
‘‘If the recapture event occurs in:
percentage is:
Years 1–3 ........................................................................
100
Year 4 ..............................................................................
Year 5 ..............................................................................
Year 6 ..............................................................................
Year 7 ..............................................................................
Year 8 ..............................................................................
Years 9 and 10 ...............................................................
Years 11 and thereafter .................................................
0.
‘‘(B) YEARS.—For purposes of subpara-
graph (A), year 1 shall begin on the first day of
the taxable year in which the qualified child care
facility is placed in service by the taxpayer.
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‘‘(3) RECAPTURE
EVENT
DEFINED.—For pur-
poses of this subsection, the term ‘recapture event’
means—
‘‘(A) CESSATION OF OPERATION.—The ces-
sation of the operation of the facility as a quali-
fied child care facility.
‘‘(B) CHANGE IN OWNERSHIP.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the disposition of a tax-
payer’s interest in a qualified child care fa-
cility with respect to which the credit de-
scribed in subsection (a) was allowable.
‘‘(ii) AGREEMENT TO ASSUME RECAP-
TURE
LIABILITY.—Clause (i) shall not
apply if the person acquiring such interest
in the facility agrees in writing to assume
the recapture liability of the person dis-
posing of such interest in effect immediately
before such disposition. In the event of such
an assumption, the person acquiring the in-
terest in the facility shall be treated as the
taxpayer for purposes of assessing any re-
capture liability (computed as if there had
been no change in ownership).
‘‘(4) SPECIAL RULES.—
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‘‘(A) TAX BENEFIT RULE.—The tax for the
taxable year shall be increased under paragraph
(1) only with respect to credits allowed by reason
of this section which were used to reduce tax li-
ability. In the case of credits not so used to re-
duce tax liability, the carryforwards and
carrybacks under section 39 shall be appro-
priately adjusted.
‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for pur-
poses of determining the amount of any credit
under subpart A, B, or D of this part.
‘‘(C) NO RECAPTURE BY REASON OF CAS-
UALTY LOSS.—The increase in tax under this
subsection shall not apply to a cessation of oper-
ation of the facility as a qualified child care fa-
cility by reason of a casualty loss to the extent
such loss is restored by reconstruction or replace-
ment within a reasonable period established by
the Secretary.
‘‘(e) SPECIAL RULES.—For purposes of this section—
‘‘(1) AGGREGATION RULES.—All persons which
are treated as a single employer under subsections (a)
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and (b) of section 52 shall be treated as a single tax-
payer.
‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of
section 52 shall apply.
‘‘(3) ALLOCATION
IN
THE
CASE
OF
PARTNER-
SHIPS.—In the case of partnerships, the credit shall
be allocated among partners under regulations pre-
scribed by the Secretary.
‘‘(f) NO DOUBLE BENEFIT.—
‘‘(1) REDUCTION IN BASIS.—For purposes of this
subtitle—
‘‘(A) IN
GENERAL.—If a credit is deter-
mined under this section with respect to any
property by reason of expenditures described in
subsection (c)(1)(A), the basis of such property
shall be reduced by the amount of the credit so
determined.
‘‘(B) CERTAIN
DISPOSITIONS.—If, during
any taxable year, there is a recapture amount
determined with respect to any property the
basis of which was reduced under subparagraph
(A), the basis of such property (immediately be-
fore the event resulting in such recapture) shall
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be increased by an amount equal to such recap-
ture amount. For purposes of the preceding sen-
tence, the term ‘recapture amount’ means any
increase in tax (or adjustment in carrybacks or
carryovers) determined under subsection (d).
‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No de-
duction or credit shall be allowed under any other
provision of this chapter with respect to the amount
of the credit determined under this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 38(b) of the Internal Revenue Code
of 1986 is amended by striking ‘‘plus’’ at the end of
paragraph (12), by striking the period at the end of
paragraph (13) and inserting ‘‘, plus’’, and by add-
ing at the end the following:
‘‘(14) the employer-provided child care credit de-
termined under section 45G.’’.
(2) The table of sections for subpart D of part
IV of subchapter A of chapter 1 of such Code is
amended by adding at the end the following:
‘‘Sec. 45G. Employer-provided child care credit.’’
(3) Section 1016(a) of such Code is amended by
striking ‘‘and’’ at the end of paragraph (26), by strik-
ing the period at the end of paragraph (27) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing:
HR 1836 EAS
‘‘(28) in the case of a facility with respect to
which a credit was allowed under section 45G, to the
extent provided in section 45G(f)(1).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
Subtitle B—Compliance With
Congressional Budget Act
SEC. 211. SUNSET OF PROVISIONS OF TITLE.
All provisions of, and amendments made by, this title
which are in effect on September 30, 2011, shall cease to
apply as of the close of September 30, 2011.
TITLE III—MARRIAGE PENALTY
RELIEF
Subtitle A—In General
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STAND-
ARD DEDUCTION.
(a) IN GENERAL.—Paragraph (2) of section 63(c) (re-
lating to standard deduction) is amended—
(1) by striking ‘‘$5,000’’ in subparagraph (A)
and inserting ‘‘the applicable percentage of the dollar
amount in effect under subparagraph (C) for the tax-
able year’’;
(2) by adding ‘‘or’’ at the end of subparagraph
(B);
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(3) by striking ‘‘in the case of’’ and all that fol-
lows in subparagraph (C) and inserting ‘‘in any
other case.’’; and
(4) by striking subparagraph (D).
(b) APPLICABLE PERCENTAGE.—Section 63(c) (relat-
ing to standard deduction) is amended by adding at the
end the following new paragraph:
‘‘(7) APPLICABLE
PERCENTAGE.—For purposes
of paragraph (2), the applicable percentage shall be
determined in accordance with the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2005 ....................................................................................
174
2006 ....................................................................................
184
2007 ....................................................................................
187
2008 ....................................................................................
190
2009 and thereafter ...........................................................
200.’’.
(c) TECHNICAL AMENDMENTS.—
(1) Subparagraph (B) of section 1(f)(6), as
amended by section 103(b), is amended by striking
‘‘(other than with’’ and all that follows through ‘‘shall
be applied’’ and inserting ‘‘(other than with respect
to sections 63(c)(4) and 151(d)(3)(A)) shall be ap-
plied’’.
(2) Paragraph (4) of section 63(c) is amended by
adding at the end the following flush sentence:
‘‘The preceding sentence shall not apply to the
amount referred to in paragraph (2)(A).’’.
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(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2004.
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PER-
CENT BRACKET.
(a) IN GENERAL.—Section 1(f) (relating to adjust-
ments in tax tables so that inflation will not result in tax
increases) is amended by adding at the end the following
new paragraph:
‘‘(8) PHASEOUT OF MARRIAGE PENALTY IN 15-
PERCENT BRACKET.—
‘‘(A) IN GENERAL.—With respect to taxable
years beginning after December 31, 2004, in pre-
scribing the tables under paragraph (1)—
‘‘(i) the maximum taxable income in
the 15-percent rate bracket in the table con-
tained in subsection (a) (and the minimum
taxable income in the next higher taxable
income bracket in such table) shall be the
applicable percentage of the maximum tax-
able income in the 15-percent rate bracket
in the table contained in subsection (c)
(after any other adjustment under this sub-
section), and
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‘‘(ii) the comparable taxable income
amounts in the table contained in sub-
section (d) shall be 1⁄2 of the amounts deter-
mined under clause (i).
‘‘(B) APPLICABLE PERCENTAGE.—For pur-
poses of subparagraph (A), the applicable per-
centage shall be determined in accordance with
the following table:
‘‘For taxable years beginning
The applicable
in calendar year—
percentage is—
2005 ....................................................................................
174
2006 ....................................................................................
184
2007 ....................................................................................
187
2008 ....................................................................................
190
2009 and thereafter ...........................................................
200.
‘‘(C) ROUNDING.—If any amount deter-
mined under subparagraph (A)(i) is not a mul-
tiple of $50, such amount shall be rounded to the
next lowest multiple of $50.’’.
(b) TECHNICAL AMENDMENTS.—
(1) Subparagraph (A) of section 1(f)(2) is
amended by inserting ‘‘except as provided in para-
graph (8),’’ before ‘‘by increasing’’.
(2) The heading for subsection (f) of section 1 is
amended by inserting ‘‘PHASEOUT
OF MARRIAGE
PENALTY IN 15-PERCENT BRACKET;’’ before ‘‘ADJUST-
MENTS’’.
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2004.
SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED IN-
COME CREDIT; EARNED INCOME TO INCLUDE
ONLY AMOUNTS INCLUDIBLE IN GROSS IN-
COME; SIMPLIFICATION OF EARNED INCOME
CREDIT.
(a) INCREASED PHASEOUT AMOUNT.—
(1) IN GENERAL.—Section 32(b)(2) (relating to
amounts) is amended—
(A) by striking ‘‘AMOUNTS.—The earned’’
and inserting ‘‘AMOUNTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the earned’’, and
(B) by adding at the end the following new
subparagraph:
‘‘(B) JOINT
RETURNS.—In the case of a
joint return filed by an eligible individual and
such individual’s spouse, the phaseout amount
determined under subparagraph (A) shall be in-
creased by $3,000.’’.
(2) INFLATION ADJUSTMENT.—Paragraph (1)(B)
of section 32(j) (relating to inflation adjustments) is
amended to read as follows:
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‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year
in which the taxable year begins, determined—
‘‘(i) in the case of amounts in sub-
sections (b)(2)(A) and (i)(1), by sub-
stituting ‘calendar year 1995’ for ‘calendar
year 1992’ in subparagraph (B) thereof,
and
‘‘(ii) in the case of the $3,000 amount
in subsection (b)(2)(B), by substituting ‘cal-
endar year 2001’ for ‘calendar year 1992’
in subparagraph (B) of such section 1.’’.
(3) ROUNDING.—Section 32(j)(2)(A) (relating to
rounding) is amended by striking ‘‘subsection (b)(2)’’
and inserting ‘‘subsection (b)(2)(A) (after being in-
creased under subparagraph (B) thereof)’’.
(b) EARNED INCOME TO INCLUDE ONLY AMOUNTS IN-
CLUDIBLE
IN
GROSS
INCOME.—Clause (i) of section
32(c)(2)(A) (defining earned income) is amended by insert-
ing ‘‘, but only if such amounts are includible in gross in-
come for the taxable year’’ after ‘‘other employee compensa-
tion’’.
(c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS
SUBJECT TO ALTERNATIVE MINIMUM TAX.—Section 32(h)
is repealed.
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(d) REPLACEMENT OF MODIFIED ADJUSTED GROSS
INCOME WITH ADJUSTED GROSS INCOME.—
(1) IN GENERAL.—Section 32(a)(2)(B) is amend-
ed by striking ‘‘modified’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 32(c) is amended by striking
paragraph (5).
(B) Section 32(f)(2)(B) is amended by
striking ‘‘modified’’ each place it appears.
(e) RELATIONSHIP TEST.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
32(c)(3)(B) (relating to relationship test) is amended
to read as follows:
‘‘(i) 
IN
GENERAL.—An 
individual
bears a relationship to the taxpayer de-
scribed in this subparagraph if such indi-
vidual is—
‘‘(I) a son, daughter, stepson, or
stepdaughter, or a descendant of any
such individual,
‘‘(II) a brother, sister, stepbrother,
or stepsister, or a descendant of any
such individual, who the taxpayer
cares for as the taxpayer’s own child,
or
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‘‘(III) an eligible foster child of
the taxpayer.’’.
(2) ELIGIBLE FOSTER CHILD.—
(A) IN GENERAL.—Clause (iii) of section
32(c)(3)(B) is amended to read as follows:
‘‘(iii) ELIGIBLE FOSTER CHILD.—For
purposes of clause (i), the term ‘eligible fos-
ter child’ means an individual not described
in subclause (I) or (II) of clause (i) who—
‘‘(I) is placed with the taxpayer
by an authorized placement agency,
and
‘‘(II) the taxpayer cares for as the
taxpayer’s own child.’’.
(B) 
CONFORMING
AMENDMENT.—Section
32(c)(3)(A)(ii) is amended by striking ‘‘except as
provided in subparagraph (B)(iii),’’.
(f) 2 OR MORE CLAIMING QUALIFYING CHILD.—Sec-
tion 32(c)(1)(C) is amended to read as follows:
‘‘(C) 2 OR
MORE
CLAIMING
QUALIFYING
CHILD.—
‘‘(i) IN GENERAL.—Except as provided
in clause (ii), if (but for this paragraph) an
individual may be claimed, and is claimed,
as a qualifying child by 2 or more tax-
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payers for a taxable year beginning in the
same calendar year, such individual shall
be treated as the qualifying child of the tax-
payer who is—
‘‘(I) a parent of the individual, or
‘‘(II) if subclause (I) does not
apply, the taxpayer with the highest
adjusted gross income for such taxable
year.
‘‘(ii) MORE THAN 1 CLAIMING CRED-
IT.—If the parents claiming the credit with
respect to any qualifying child do not file a
joint return together, such child shall be
treated as the qualifying child of—
‘‘(I) the parent with whom the
child resided for the longest period of
time during the taxable year, or
‘‘(II) if the child resides with both
parents for the same amount of time
during such taxable year, the parent
with the highest adjusted gross in-
come.’’.
(g) EXPANSION OF MATHEMATICAL ERROR AUTHOR-
ITY.—Paragraph (2) of section 6213(g) is amended by strik-
ing ‘‘and’’ at the end of subparagraph (K), by striking the
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period at the end of subparagraph (L) and inserting ‘‘,
and’’, and by inserting after subparagraph (L) the fol-
lowing new subparagraph:
‘‘(M) the entry on the return claiming the
credit under section 32 with respect to a child if,
according to the Federal Case Registry of Child
Support Orders established under section 453(h)
of the Social Security Act, the taxpayer is a non-
custodial parent of such child.’’
(h) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 2001.
(2) SUBSECTION (g).—The amendment made by
subsection (g) shall take effect on January 1, 2004.
Subtitle B—Compliance With
Congressional Budget Act
SEC. 311. SUNSET OF PROVISIONS OF TITLE.
All provisions of, and amendments made by, this title
which are in effect on September 30, 2011, shall cease to
apply as of the close of September 30, 2011.
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TITLE IV—AFFORDABLE
EDUCATION PROVISIONS
Subtitle A—Education Savings
Incentives
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RE-
TIREMENT ACCOUNTS.
(a) MAXIMUM ANNUAL CONTRIBUTIONS.—
(1) IN GENERAL.—Section 530(b)(1)(A)(iii) (de-
fining education individual retirement account) is
amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’.
(2) 
CONFORMING
AMENDMENT.—Section
4973(e)(1)(A) is amended by striking ‘‘$500’’ and in-
serting ‘‘$2,000’’.
(b) MODIFICATION OF AGI LIMITS TO REMOVE MAR-
RIAGE PENALTY.—Section 530(c)(1) (relating to reduction
in permitted contributions based on adjusted gross income)
is amended—
(1) by striking ‘‘$150,000’’ in subparagraph
(A)(ii) and inserting ‘‘$190,000’’, and
(2) by striking ‘‘$10,000’’ in subparagraph (B)
and inserting ‘‘$30,000’’.
(c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND
SECONDARY SCHOOL EXPENSES.—
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(1) IN
GENERAL.—Section 530(b)(2) (defining
qualified higher education expenses) is amended to
read as follows:
‘‘(2) QUALIFIED EDUCATION EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
education expenses’ means—
‘‘(i) qualified higher education ex-
penses (as defined in section 529(e)(3)), and
‘‘(ii) qualified elementary and sec-
ondary education expenses (as defined in
paragraph (4)).
‘‘(B) QUALIFIED
STATE
TUITION
PRO-
GRAMS.—Such term shall include any contribu-
tion to a qualified State tuition program (as de-
fined in section 529(b)) on behalf of the des-
ignated beneficiary (as defined in section
529(e)(1)); but there shall be no increase in the
investment in the contract for purposes of apply-
ing section 72 by reason of any portion of such
contribution which is not includible in gross in-
come by reason of subsection (d)(2).’’.
(2) QUALIFIED
ELEMENTARY
AND
SECONDARY
EDUCATION EXPENSES.—Section 530(b) (relating to
definitions and special rules) is amended by adding
at the end the following new paragraph:
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‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified ele-
mentary and secondary education expenses’
means—
‘‘(i) expenses for tuition, fees, academic
tutoring, special needs services, books, sup-
plies, and other equipment which are in-
curred in connection with the enrollment or
attendance of the designated beneficiary of
the trust as an elementary or secondary
school student at a public, private, or reli-
gious school,
‘‘(ii) expenses for room and board, uni-
forms, transportation, and supplementary
items and services (including extended day
programs) which are required or provided
by a public, private, or religious school in
connection with such enrollment or attend-
ance, and
‘‘(iii) expenses for the purchase of any
computer technology or equipment (as de-
fined in section 170(e)(6)(F)(i)) or Internet
access and related services, if such tech-
nology, equipment, or services are to be used
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by the beneficiary and the beneficiary’s
family during any of the years the bene-
ficiary is in school. Such terms shall not in-
clude computer software including sports,
games, or hobbies unless the software is edu-
cational in nature.
‘‘(B) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.’’.
(3) CONFORMING AMENDMENTS.—Section 530 is
amended—
(A) by striking ‘‘higher’’ each place it ap-
pears in subsections (b)(1) and (d)(2), and
(B) by striking ‘‘HIGHER’’ in the heading
for subsection (d)(2).
(d) WAIVER
OF AGE LIMITATIONS
FOR CHILDREN
WITH SPECIAL NEEDS.—Section 530(b)(1) (defining edu-
cation individual retirement account) is amended by add-
ing at the end the following flush sentence:
‘‘The age limitations in subparagraphs (A)(ii) and
(E), and paragraphs (5) and (6) of subsection (d),
shall not apply to any designated beneficiary with
special needs (as determined under regulations pre-
scribed by the Secretary).’’.
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(e) ENTITIES PERMITTED TO CONTRIBUTE TO AC-
COUNTS.—Section 530(c)(1) (relating to reduction in per-
mitted contributions based on adjusted gross income) is
amended by striking ‘‘The maximum amount which a con-
tributor’’ and inserting ‘‘In the case of a contributor who
is an individual, the maximum amount the contributor’’.
(f) TIME WHEN CONTRIBUTIONS DEEMED MADE.—
(1) IN
GENERAL.—Section 530(b) (relating to
definitions and special rules), as amended by sub-
section (c)(2), is amended by adding at the end the
following new paragraph:
‘‘(5) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—An individual shall be deemed to have made
a contribution to an education individual retirement
account on the last day of the preceding taxable year
if the contribution is made on account of such taxable
year and is made not later than the time prescribed
by law for filing the return for such taxable year (not
including extensions thereof).’’.
(2) EXTENSION
OF
TIME
TO
RETURN
EXCESS
CONTRIBUTIONS.—Subparagraph 
(C) 
of 
section
530(d)(4) (relating to additional tax for distributions
not used for educational expenses) is amended—
(A) by striking clause (i) and inserting the
following new clause:
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‘‘(i) such distribution is made before
the first day of the sixth month of the tax-
able year following the taxable year, and’’,
and
(B) by striking ‘‘DUE DATE OF RETURN’’ in
the heading and inserting ‘‘CERTAIN DATE’’.
(g) COORDINATION
WITH
HOPE
AND
LIFETIME
LEARNING
CREDITS
AND
QUALIFIED
TUITION
PRO-
GRAMS.—
(1) 
IN
GENERAL.—Section 
530(d)(2)(C) 
is
amended to read as follows:
‘‘(C) COORDINATION WITH HOPE AND LIFE-
TIME LEARNING CREDITS AND QUALIFIED TUI-
TION PROGRAMS.—For purposes of subparagraph
(A)—
‘‘(i) 
CREDIT
COORDINATION.—The
total amount of qualified higher education
expenses with respect to an individual for
the taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
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the taxpayer or any other person under
section 25A.
‘‘(ii) COORDINATION WITH QUALIFIED
TUITION PROGRAMS.—If, with respect to an
individual for any taxable year—
‘‘(I) the aggregate distributions
during such year to which subpara-
graph (A) and section 529(c)(3)(B)
apply, exceed
‘‘(II) the total amount of qualified
education expenses (after the applica-
tion of clause (i)) for such year,
the taxpayer shall allocate such expenses
among such distributions for purposes of de-
termining the amount of the exclusion
under 
subparagraph 
(A) 
and 
section
529(c)(3)(B).’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (e) of section 25A is amend-
ed to read as follows:
‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A
taxpayer may elect not to have this section apply with re-
spect to the qualified tuition and related expenses of an in-
dividual for any taxable year.’’.
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(B) Section 135(d)(2)(A) is amended by
striking ‘‘allowable’’ and inserting ‘‘allowed’’.
(C) Section 530(d)(2)(D) is amended—
(i) by striking ‘‘or credit’’, and
(ii) by striking ‘‘CREDIT OR’’ in the
heading.
(D) Section 4973(e)(1) is amended by add-
ing ‘‘and’’ at the end of subparagraph (A), by
striking subparagraph (B), and by redesignating
subparagraph (C) as subparagraph (B).
(h) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PRO-
GRAMS.
(a) ELIGIBLE
EDUCATIONAL
INSTITUTIONS
PER-
MITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS.—
(1) IN
GENERAL.—Section 529(b)(1) (defining
qualified State tuition program) is amended—
(A) by inserting ‘‘or by 1 or more eligible
educational institutions’’ after ‘‘maintained by a
State or agency or instrumentality thereof ’’ in
the matter preceding subparagraph (A), and
(B) by adding at the end the following new
flush sentence:
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‘‘Except to the extent provided in regulations, a pro-
gram established and maintained by 1 or more eligi-
ble educational institutions shall not be treated as a
qualified tuition program unless such program has
received a ruling or determination that such program
meets the applicable requirements for a qualified tui-
tion program.’’.
(2) PRIVATE QUALIFIED TUITION PROGRAMS LIM-
ITED
TO
BENEFIT
PLANS.—Clause (ii) of section
529(b)(1)(A) is amended by inserting ‘‘in the case of
a program established and maintained by a State or
agency or instrumentality thereof,’’ before ‘‘may
make’’.
(3) CONFORMING AMENDMENTS.—
(A) 
Sections 
72(e)(9), 
135(c)(2)(C),
135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and
6693(a)(2)(C) are amended by striking ‘‘quali-
fied State tuition’’ each place it appears and in-
serting ‘‘qualified tuition’’.
(B) The headings for sections 72(e)(9) and
135(c)(2)(C) are amended by striking ‘‘QUALI-
FIED STATE TUITION’’ each place it appears and
inserting ‘‘QUALIFIED TUITION’’.
(C) The headings for sections 529(b) and
530(b)(2)(B) are amended by striking ‘‘QUALI-
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FIED STATE TUITION’’ each place it appears and
inserting ‘‘QUALIFIED TUITION’’.
(D) The heading for section 529 is amended
by striking ‘‘STATE’’.
(E) The item relating to section 529 in the
table of sections for part VIII of subchapter F of
chapter 1 is amended by striking ‘‘State’’.
(b) EXCLUSION FROM GROSS INCOME OF EDUCATION
DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.—
(1) IN GENERAL.—Section 529(c)(3)(B) (relating
to distributions) is amended to read as follows:
‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGH-
ER EDUCATION EXPENSES.—For purposes of this
paragraph—
‘‘(i) 
IN-KIND
DISTRIBUTIONS.—No
amount shall be includible in gross income
under subparagraph (A) by reason of a dis-
tribution which consists of providing a ben-
efit to the distributee which, if paid for by
the distributee, would constitute payment of
a qualified higher education expense.
‘‘(ii) CASH
DISTRIBUTIONS.—In the
case of distributions not described in clause
(i), if—
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‘‘(I) such distributions do not ex-
ceed the qualified higher education ex-
penses (reduced by expenses described
in clause (i)), no amount shall be in-
cludible in gross income, and
‘‘(II) in any other case, the
amount otherwise includible in gross
income shall be reduced by an amount
which bears the same ratio to such
amount as such expenses bear to such
distributions.
‘‘(iii) EXCEPTION FOR INSTITUTIONAL
PROGRAMS.—In the case of any taxable
year beginning before January 1, 2004,
clauses (i) and (ii) shall not apply with re-
spect to any distribution during such tax-
able year under a qualified tuition program
established and maintained by 1 or more el-
igible educational institutions.
‘‘(iv) 
TREATMENT
AS
DISTRIBU-
TIONS.—Any benefit furnished to a des-
ignated beneficiary under a qualified tui-
tion program shall be treated as a distribu-
tion to the beneficiary for purposes of this
paragraph.
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‘‘(v) COORDINATION WITH HOPE AND
LIFETIME
LEARNING
CREDITS.—The total
amount of qualified higher education ex-
penses with respect to an individual for the
taxable year shall be reduced—
‘‘(I) 
as 
provided 
in 
section
25A(g)(2), and
‘‘(II) by the amount of such ex-
penses which were taken into account
in determining the credit allowed to
the taxpayer or any other person under
section 25A.
‘‘(vi) COORDINATION WITH EDUCATION
INDIVIDUAL
RETIREMENT
ACCOUNTS.—If,
with respect to an individual for any tax-
able year—
‘‘(I) the aggregate distributions to
which clauses (i) and (ii) and section
530(d)(2)(A) apply, exceed
‘‘(II) the total amount of qualified
higher education expenses otherwise
taken into account under clauses (i)
and (ii) (after the application of clause
(v)) for such year,
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the taxpayer shall allocate such expenses
among such distributions for purposes of de-
termining the amount of the exclusion
under clauses (i) and (ii) and section
530(d)(2)(A).’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 135(d)(2)(B) is amended by
striking ‘‘the exclusion under section 530(d)(2)’’
and inserting ‘‘the exclusions under sections
529(c)(3)(B) and 530(d)(2)’’.
(B) Section 221(e)(2)(A) is amended by in-
serting ‘‘529,’’ after ‘‘135,’’.
(c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT
OF
SAME
DESIGNATED
BENEFICIARY.—Section
529(c)(3)(C) (relating to change in beneficiaries) is
amended—
(1) by striking ‘‘transferred to the credit’’ in
clause (i) and inserting ‘‘transferred—
‘‘(I) to another qualified tuition
program for the benefit of the des-
ignated beneficiary, or
‘‘(II) to the credit’’,
(2) by adding at the end the following new
clause:
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‘‘(iii) LIMITATION ON CERTAIN ROLL-
OVERS.—Clause (i)(I) shall not apply to
any transfer if such transfer occurs within
12 months from the date of a previous
transfer to any qualified tuition program
for the benefit of the designated bene-
ficiary.’’, and
(3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENE-
FICIARIES’’ in the heading.
(d) MEMBER OF FAMILY INCLUDES FIRST COUSIN.—
Section 529(e)(2) (defining member of family) is amended
by striking ‘‘and’’ at the end of subparagraph (B), by strik-
ing the period at the end of subparagraph (C) and by in-
serting ‘‘; and’’, and by adding at the end the following
new subparagraph:
‘‘(D) any first cousin of such beneficiary.’’.
(e) ADJUSTMENT
OF LIMITATION
ON ROOM
AND
BOARD
DISTRIBUTIONS.—Section 
529(e)(3)(B)(ii) 
is
amended to read as follows:
‘‘(ii) LIMITATION.—The amount treat-
ed as qualified higher education expenses by
reason of clause (i) shall not exceed—
‘‘(I) the allowance (applicable to
the student) for room and board in-
cluded in the cost of attendance (as de-
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fined in section 472 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087ll),
as in effect on the date of the enact-
ment of the Restoring Earnings To
Lift Individuals and Empower Fami-
lies (RELIEF) Act of 2001) as deter-
mined by the eligible educational insti-
tution for such period, or
‘‘(II) if greater, the actual invoice
amount the student residing in housing
owned or operated by the eligible edu-
cational institution is charged by such
institution for room and board costs
for such period.’’.
(f) TECHNICAL AMENDMENTS.—Section 529(c)(3)(D)
is amended—
(1) by inserting ‘‘except to the extent provided by
the Secretary,’’ before ‘‘all distributions’’ in clause
(ii), and
(2) by inserting ‘‘except to the extent provided by
the Secretary,’’ before ‘‘the value’’ in clause (iii).
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
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Subtitle B—Educational Assistance
SEC. 411. PERMANENT EXTENSION OF EXCLUSION FOR EM-
PLOYER-PROVIDED 
EDUCATIONAL 
ASSIST-
ANCE.
(a) IN GENERAL.—Section 127 (relating to exclusion
for educational assistance programs) is amended by strik-
ing subsection (d) and by redesignating subsection (e) as
subsection (d).
(b) REPEAL
OF LIMITATION
ON GRADUATE EDU-
CATION.—The last sentence of section 127(c)(1) is amended
by striking ‘‘, and such term also does not include any pay-
ment for, or the provision of any benefits with respect to,
any graduate level course of a kind normally taken by an
individual pursuing a program leading to a law, business,
medical, or other advanced academic or professional de-
gree’’.
(c) 
CONFORMING
AMENDMENT.—Section
51A(b)(5)(B)(iii) is amended by striking ‘‘or would be so
excludable but for section 127(d)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to expenses relating to
courses beginning after December 31, 2001.
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SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE
IN INCOME LIMITATION ON STUDENT LOAN
INTEREST DEDUCTION.
(a) ELIMINATION OF 60-MONTH LIMIT.—
(1) IN GENERAL.—Section 221 (relating to inter-
est on education loans), as amended by section
402(b)(2)(B), is amended by striking subsection (d)
and by redesignating subsections (e), (f), and (g) as
subsections (d), (e), and (f), respectively.
(2) 
CONFORMING
AMENDMENT.—Section
6050S(e) is amended by striking ‘‘section 221(e)(1)’’
and inserting ‘‘section 221(d)(1)’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply with respect to any
loan interest paid after December 31, 2001, in taxable
years ending after such date.
(b) INCREASE IN INCOME LIMITATION.—
(1) IN GENERAL.—Section 221(b)(2)(B) (relating
to amount of reduction) is amended by striking
clauses (i) and (ii) and inserting the following:
‘‘(i) the excess of—
‘‘(I) the taxpayer’s modified ad-
justed gross income for such taxable
year, over
‘‘(II) $50,000 ($100,000 in the
case of a joint return), bears to
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‘‘(ii) $15,000 ($30,000 in the case of a
joint return).’’.
(2) 
CONFORMING
AMENDMENT.—Section
221(g)(1) is amended by striking ‘‘$40,000 and
$60,000 amounts’’ and inserting ‘‘$50,000 and
$100,000 amounts’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years ending
after December 31, 2001.
SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED
UNDER THE NATIONAL HEALTH SERVICE
CORPS SCHOLARSHIP PROGRAM AND THE F.
EDWARD HEBERT ARMED FORCES HEALTH
PROFESSIONS SCHOLARSHIP AND FINANCIAL
ASSISTANCE PROGRAM.
(a) IN GENERAL.—Section 117(c) (relating to the ex-
clusion from gross income amounts received as a qualified
scholarship) is amended—
(1) by striking ‘‘Subsections (a)’’ and inserting
the following:
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), subsections (a)’’, and
(2) by adding at the end the following new para-
graph:
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‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply to any amount received by an individual
under—
‘‘(A) the National Health Service Corps
Scholarship 
Program 
under 
section
338A(g)(1)(A) of the Public Health Service Act,
or
‘‘(B) the Armed Forces Health Professions
Scholarship and Financial Assistance program
under subchapter I of chapter 105 of title 10,
United States Code.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to amounts received in taxable years
beginning after December 31, 2001.
SEC. 414. EXCLUSION FROM INCOME OF CERTAIN AMOUNTS
CONTRIBUTED TO COVERDELL EDUCATION
SAVINGS ACCOUNTS.
(a) IN GENERAL.—Section 127 (relating to education
assistance programs), as amended by section 411(a), is
amended by redesignating subsection (d) as subsection (e)
and by inserting after subsection (c) the following new sub-
section:
‘‘(d) QUALIFIED COVERDELL EDUCATION SAVINGS AC-
COUNT CONTRIBUTIONS.—
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‘‘(1) IN GENERAL.—Gross income of an employee
shall not include amounts paid or incurred by the
employer for a qualified Coverdell education savings
account contribution on behalf of the employee.
‘‘(2) QUALIFIED
COVERDELL
EDUCATION
SAV-
INGS ACCOUNT CONTRIBUTION.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
Coverdell education savings account contribu-
tion’ means an amount contributed pursuant to
an educational assistance program described in
subsection (b) by an employer to a Coverdell edu-
cation savings account established and main-
tained for the benefit of an employee or the em-
ployee’s spouse, or any lineal descendent of ei-
ther.
‘‘(B) DOLLAR LIMIT.—A contribution by an
employer to a Coverdell education savings ac-
count shall not be treated as a qualified Cover-
dell education savings account contribution to
the extent that the contribution, when added to
prior contributions by the employer during the
calendar year to Coverdell education savings ac-
counts established and maintained for the same
beneficiary, exceeds $500.
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‘‘(3) SPECIAL RULES.—
‘‘(A) CONTRIBUTIONS
NOT
TREATED
AS
EDUCATIONAL
ASSISTANCE
IN
DETERMINING
MAXIMUM
EXCLUSION.—For purposes of sub-
section (a)(2), qualified Coverdell education sav-
ings account contributions shall not be treated as
educational assistance.
‘‘(B) SELF-EMPLOYED NOT TREATED AS EM-
PLOYEE.—For purposes of this subsection, sub-
section (c)(2) shall not apply.
‘‘(C) ADJUSTED GROSS INCOME PHASEOUT
OF ACCOUNT CONTRIBUTION NOT APPLICABLE TO
INDIVIDUAL EMPLOYERS.—The limitation under
section 530(c) shall not apply to a qualified
Coverdell education savings account contribution
made by an employer who is an individual.
‘‘(D) CONTRIBUTIONS NOT TREATED AS AN
INVESTMENT IN THE CONTRACT.—For purposes
of section 530(d), a qualified Coverdell education
savings account contribution shall not be treated
as an investment in the contract.
‘‘(E) FICA EXCLUSION.—For purposes of
section 530(d), the exclusion from FICA taxes
shall not apply.’’.
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(b) REPORTING REQUIREMENT.—Section 6051(a) (re-
lating to receipts for employees) is amended by striking
‘‘and’’ at the end of paragraph (10), by striking the period
at the end of paragraph (11) and inserting ‘‘, and’’, and
by adding at the end the following new paragraph:
‘‘(12) the amount of any qualified Coverdell edu-
cation savings account contribution under section
127(d) with respect to such employee.’’.
(c) CONFORMING AMENDMENT.—Section 221(e)(2)(A)
is amended by inserting ‘‘(other than under subsection (d)
thereof)’’ after ‘‘section 127’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to contributions made in taxable years
beginning after December 31, 2001.
Subtitle C—Liberalization of Tax-
Exempt 
Financing 
Rules 
for
Public School Construction
SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE
EXCEPTION 
FOR 
GOVERNMENTAL 
BONDS
USED TO FINANCE EDUCATIONAL FACILITIES.
(a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relating
to increase in exception for bonds financing public school
capital expenditures) is amended by striking ‘‘$5,000,000’’
the second place it appears and inserting ‘‘$10,000,000’’.
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(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to obligations issued in calendar
years beginning after December 31, 2001.
SEC. 
422. 
TREATMENT 
OF 
QUALIFIED 
PUBLIC 
EDU-
CATIONAL FACILITY BONDS AS EXEMPT FA-
CILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND.—Sub-
section (a) of section 142 (relating to exempt facility bond)
is amended by striking ‘‘or’’ at the end of paragraph (11),
by striking the period at the end of paragraph (12) and
inserting ‘‘, or’’, and by adding at the end the following
new paragraph:
‘‘(13) qualified public educational facilities.’’.
(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
Section 142 (relating to exempt facility bond) is amended
by adding at the end the following new subsection:
‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a)(13), the term ‘qualified public educational facil-
ity’ means any school facility which is—
‘‘(A) part of a public elementary school or
a public secondary school, and
‘‘(B) owned by a private, for-profit corpora-
tion pursuant to a public-private partnership
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agreement with a State or local educational
agency described in paragraph (2).
‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT
DESCRIBED.—A public-private partnership agreement
is described in this paragraph if it is an agreement—
‘‘(A) under which the corporation agrees—
‘‘(i) to do 1 or more of the following:
construct, rehabilitate, refurbish, or equip a
school facility, and
‘‘(ii) at the end of the term of the
agreement, to transfer the school facility to
such agency for no additional consideration,
and
‘‘(B) the term of which does not exceed the
term of the issue to be used to provide the school
facility.
‘‘(3) SCHOOL
FACILITY.—For purposes of this
subsection, the term ‘school facility’ means—
‘‘(A) any school building,
‘‘(B) any functionally related and subordi-
nate facility and land with respect to such build-
ing, including any stadium or other facility pri-
marily used for school events, and
‘‘(C) any property, to which section 168 ap-
plies (or would apply but for section 179), for
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use in a facility described in subparagraph (A)
or (B).
‘‘(4) PUBLIC
SCHOOLS.—For purposes of this
subsection, the terms ‘elementary school’ and ‘sec-
ondary school’ have the meanings given such terms by
section 14101 of the Elementary and Secondary Edu-
cation Act of 1965 (20 U.S.C. 8801), as in effect on
the date of the enactment of this subsection.
‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-
EXEMPT FINANCING.—
‘‘(A) IN GENERAL.—An issue shall not be
treated as an issue described in subsection
(a)(13) if the aggregate face amount of bonds
issued by the State pursuant thereto (when
added to the aggregate face amount of bonds pre-
viously so issued during the calendar year) ex-
ceeds an amount equal to the greater of—
‘‘(i) $10 multiplied by the State popu-
lation, or
‘‘(ii) $5,000,000.
‘‘(B) ALLOCATION RULES.—
‘‘(i) IN GENERAL.—Except as otherwise
provided in this subparagraph, the State
may allocate the amount described in sub-
paragraph (A) for any calendar year in
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such manner as the State determines appro-
priate.
‘‘(ii) RULES FOR CARRYFORWARD OF
UNUSED LIMITATION.—A State may elect to
carry forward an unused limitation for any
calendar year for 3 calendar years following
the calendar year in which the unused limi-
tation arose under rules similar to the rules
of section 146(f), except that the only pur-
pose for which the carryforward may be
elected is the issuance of exempt facility
bonds described in subsection (a)(13).’’.
(c) EXEMPTION FROM GENERAL STATE VOLUME
CAPS.—Paragraph (3) of section 146(g) (relating to excep-
tion for certain bonds) is amended—
(1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or
(13)’’, and
(2) by striking ‘‘and environmental enhance-
ments of hydroelectric generating facilities’’ and in-
serting ‘‘environmental enhancements of hydroelectric
generating facilities, and qualified public educational
facilities’’.
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND
ACQUISITION.—Section 147(h) (relating to certain rules not
to apply to mortgage revenue bonds, qualified student loan
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bonds, and qualified 501(c)(3) bonds) is amended by adding
at the end the following new paragraph:
‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED
PUBLIC-PRIVATE SCHOOLS.—Subsection (c) shall not
apply to any exempt facility bond issued as part of
an issue described in section 142(a)(13) (relating to
qualified public educational facilities).’’.
(e) CONFORMING AMENDMENT.—The heading for sec-
tion 147(h) is amended by striking ‘‘MORTGAGE REVENUE
BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALI-
FIED 501(c)(3) BONDS’’ and inserting ‘‘CERTAIN BONDS’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to bonds issued after December 31, 2001.
SEC. 423. TREATMENT OF BONDS ISSUED TO ACQUIRE RE-
NEWABLE RESOURCES ON LAND SUBJECT TO
CONSERVATION EASEMENT.
(a) IN GENERAL.—Section 145 (defining qualified
501(c)(3) bond) is amended by redesignating subsection (e)
as subsection (f) and by inserting after subsection (d) the
following new subsection:
‘‘(e) BONDS ISSUED TO ACQUIRE RENEWABLE RE-
SOURCES
ON LAND SUBJECT
TO CONSERVATION EASE-
MENT.—
‘‘(1) IN GENERAL.—If—
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‘‘(A) the proceeds of any bond are used to
acquire land (or a long-term lease thereof) to-
gether with any renewable resource associated
with the land (including standing timber, agri-
cultural crops, or water rights) from an unaffili-
ated person,
‘‘(B) the land is subject to a conservation
restriction—
‘‘(i) which is granted in perpetuity to
an unaffiliated person that is—
‘‘(I) a 501(c)(3) organization, or
‘‘(II) a Federal, State, or local
government conservation organization,
‘‘(ii) which meets the requirements of
clauses 
(ii) 
and 
(iii)(II) 
of 
section
170(h)(4)(A),
‘‘(iii) which exceeds the requirements of
relevant environmental and land use stat-
utes and regulations, and
‘‘(iv) which obligates the owner of the
land to pay the costs incurred by the holder
of the conservation restriction in moni-
toring compliance with such restriction,
‘‘(C) a management plan which meets the
requirements of the statutes and regulations re-
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ferred to in subparagraph (B)(iii) is developed
for the conservation of the renewable resources,
and
‘‘(D) such bond would be a qualified
501(c)(3) bond (after the application of para-
graph (2)) but for the failure to use revenues de-
rived by the 501(c)(3) organization from the sale,
lease, or other use of such resource as otherwise
required by this part,
such bond shall not fail to be a qualified 501(c)(3)
bond by reason of the failure to so use such revenues
if the revenues which are not used as otherwise re-
quired by this part are used in a manner consistent
with the stated charitable purposes of the 501(c)(3)
organization.
‘‘(2) TREATMENT OF TIMBER, ETC.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the cost of any renewable resource ac-
quired with proceeds of any bond described in
paragraph (1) shall be treated as a cost of ac-
quiring the land associated with the renewable
resource and such land shall not be treated as
used for a private business use because of the sale
or leasing of the renewable resource to, or other
use of the renewable resource by, an unaffiliated
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person to the extent that such sale, leasing, or
other use does not constitute an unrelated trade
or business, determined by applying section
513(a).
‘‘(B) APPLICATION OF BOND MATURITY LIM-
ITATION.—For purposes of section 147(b), the
cost of any land or renewable resource acquired
with proceeds of any bond described in para-
graph (1) shall have an economic life commensu-
rate with the economic and ecological feasibility
of the financing of such land or renewable re-
source.
‘‘(C) UNAFFILIATED
PERSON.—For pur-
poses of this subsection, the term ‘unaffiliated
person’ means any person who controls not more
than 20 percent of the governing body of another
person.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to obligations issued after January
1, 2002, and before January 1, 2005.
Subtitle D—Other Provisions
SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED.—Part VII of subchapter B
of chapter 1 (relating to additional itemized deductions for
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individuals) is amended by redesignating section 222 as
section 223 and by inserting after section 221 the following:
‘‘SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction an amount
equal to the qualified tuition and related expenses paid by
the taxpayer during the taxable year.
‘‘(b) DOLLAR LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowed as a de-
duction under subsection (a) with respect to the tax-
payer for any taxable year shall not exceed the appli-
cable dollar limit.
‘‘(2) APPLICABLE DOLLAR LIMIT.—
‘‘(A) 2002 AND 2003.—In the case of a tax-
able year beginning in 2002 or 2003, the appli-
cable dollar limit shall be equal to—
‘‘(i) in the case of a taxpayer whose
adjusted gross income for the taxable year
does not exceed $65,000 ($130,000 in the
case of a joint return), $3,000, and—
‘‘(ii) in the case of any other taxpayer,
zero.
‘‘(B) 2004 AND 2005.—In the case of a tax-
able year beginning in 2004 or 2005, the appli-
cable dollar amount shall be equal to—
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‘‘(i) in the case of a taxpayer whose
adjusted gross income for the taxable year
does not exceed $65,000 ($130,000 in the
case of a joint return), $5,000,
‘‘(ii) in the case of a taxpayer not de-
scribed in clause (i) whose adjusted gross
income for the taxable year does not exceed
$80,000 ($160,000 in the case of a joint re-
turn), $2,000, and
‘‘(iii) in the case of any other tax-
payer, zero.
‘‘(C) ADJUSTED GROSS INCOME.—For pur-
poses of this paragraph, adjusted gross income
shall be determined—
‘‘(i) without regard to this section and
sections 911, 931, and 933, and
‘‘(ii) after application of sections 86,
135, 137, 219, 221, and 469.
‘‘(c) NO DOUBLE BENEFIT.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed under subsection (a) for any expense for which
a deduction is allowed to the taxpayer under any
other provision of this chapter.
‘‘(2) COORDINATION WITH OTHER EDUCATION IN-
CENTIVES.—
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‘‘(A) DENIAL
OF
DEDUCTION
IF
CREDIT
ELECTED.—No deduction shall be allowed under
subsection (a) for a taxable year with respect to
the qualified tuition and related expenses with
respect to an individual if the taxpayer or any
other person elects to have section 25A apply
with respect to such individual for such year.
‘‘(B) COORDINATION WITH EXCLUSIONS.—
The total amount of qualified tuition and related
expenses shall be reduced by the amount of such
expenses taken into account in determining any
amount excluded under section 135, 529(c)(1), or
530(d)(2). For purposes of the preceding sen-
tence, the amount taken into account in deter-
mining the amount excluded under section
529(c)(1) shall not include that portion of the
distribution which represents a return of any
contributions to the plan.
‘‘(3) DEPENDENTS.—No deduction shall be al-
lowed under subsection (a) to any individual with re-
spect to whom a deduction under section 151 is allow-
able to another taxpayer for a taxable year beginning
in the calendar year in which such individual’s tax-
able year begins.
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‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) QUALIFIED
TUITION
AND
RELATED
EX-
PENSES.—The term ‘qualified tuition and related ex-
penses’ has the meaning given such term by section
25A(f). Such expenses shall be reduced in the same
manner as under section 25A(g)(2).
‘‘(2) IDENTIFICATION REQUIREMENT.—No deduc-
tion shall be allowed under subsection (a) to a tax-
payer with respect to the qualified tuition and related
expenses of an individual unless the taxpayer includes
the name and taxpayer identification number of the
individual on the return of tax for the taxable year.
‘‘(3) LIMITATION ON TAXABLE YEAR OF DEDUC-
TION.—
‘‘(A) IN GENERAL.—A deduction shall be al-
lowed under subsection (a) for qualified tuition
and related expenses for any taxable year only to
the extent such expenses are in connection with
enrollment at an institution of higher education
during the taxable year.
‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—
Subparagraph (A) shall not apply to qualified
tuition and related expenses paid during a tax-
able year if such expenses are in connection with
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an academic term beginning during such taxable
year or during the first 3 months of the next tax-
able year.
‘‘(4) NO DEDUCTION FOR MARRIED INDIVIDUALS
FILING SEPARATE RETURNS.—If the taxpayer is a
married individual (within the meaning of section
7703), this section shall apply only if the taxpayer
and the taxpayer’s spouse file a joint return for the
taxable year.
‘‘(5) NONRESIDENT ALIENS.—If the taxpayer is
a nonresident alien individual for any portion of the
taxable year, this section shall apply only if such in-
dividual is treated as a resident alien of the United
States for purposes of this chapter by reason of an
election under subsection (g) or (h) of section 6013.
‘‘(6) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary or appro-
priate to carry out this section, including regulations
requiring recordkeeping and information reporting.
‘‘(e) TERMINATION.—This section shall not apply to
taxable years beginning after December 31, 2005.’’.
(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED
GROSS INCOME.—Section 62(a) is amended by inserting
after paragraph (17) the following:
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‘‘(18) HIGHER EDUCATION EXPENSES.—The de-
duction allowed by section 222.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and
219(g)(3) are each amended by inserting ‘‘222,’’ after
‘‘221,’’.
(2) Section 221(b)(2)(C) is amended by inserting
‘‘222,’’ before ‘‘911’’.
(3) Section 469(i)(3)(E) is amended by striking
‘‘and 221’’ and inserting ‘‘, 221, and 222’’.
(4) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 222 and inserting the fol-
lowing:
‘‘Sec. 222. Qualified tuition and related expenses.
‘‘Sec. 223. Cross reference.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to payments made in taxable years be-
ginning after December 31, 2001.
SEC. 432. CREDIT FOR INTEREST ON HIGHER EDUCATION
LOANS.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits)
is amended by inserting after section 25A the following new
section:
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‘‘SEC. 25B. INTEREST ON HIGHER EDUCATION LOANS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to the interest paid by the taxpayer during the taxable
year on any qualified education loan.
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the credit allowed by subsection (a) for the
taxable year shall not exceed $500.
‘‘(2) LIMITATION BASED ON MODIFIED ADJUSTED
GROSS INCOME.—
‘‘(A) IN GENERAL.—If the modified adjusted
gross income of the taxpayer for the taxable year
exceeds $35,000 ($70,000 in the case of a joint
return), the amount which would (but for this
paragraph) be allowable as a credit under this
section shall be reduced (but not below zero) by
the amount which bears the same ratio to the
amount which would be so allowable as such ex-
cess bears to $10,000 ($20,000 in the case of a
joint return).
‘‘(B) MODIFIED
ADJUSTED
GROSS
IN-
COME.—The term ‘modified adjusted gross in-
come’ means adjusted gross income determined
without regard to sections 911, 931, and 933.
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‘‘(C) INFLATION ADJUSTMENT.—In the case
of any taxable year beginning after 2009, the
$35,000 and $70,000 amounts referred to in sub-
paragraph (A) shall be increased by an amount
equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section (1)(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘2008’ for ‘1992’.
‘‘(D) ROUNDING.—If any amount as ad-
justed under subparagraph (C) is not a multiple
of $50, such amount shall be rounded to the
nearest multiple of $50.
‘‘(c) DEPENDENTS NOT ELIGIBLE FOR CREDIT.—No
credit shall be allowed by this section to an individual for
the taxable year if a deduction under section 151 with re-
spect to such individual is allowed to another taxpayer for
the taxable year beginning in the calendar year in which
such individual’s taxable year begins.
‘‘(d) LIMIT ON PERIOD CREDIT ALLOWED.—A credit
shall be allowed under this section only with respect to in-
terest paid on any qualified education loan during the first
60 months (whether or not consecutive) in which interest
payments are required. For purposes of this subsection, any
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loan and all refinancings of such loan shall be treated as
1 loan. Such 60 months shall be determined in the manner
prescribed by the Secretary in the case of multiple loans
which are refinanced by, or serviced as, a single loan and
in the case of loans incurred before January 1, 2009.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
EDUCATION
LOAN.—The term
‘qualified education loan’ has the meaning given such
term by section 221(e)(1).
‘‘(2) DEPENDENT.—The term ‘dependent’ has the
meaning given such term by section 152.
‘‘(f) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No credit
shall be allowed under this section if any amount of
interest on a qualified education loan is taken into
account for any deduction under any other provision
of this chapter for the taxable year.
‘‘(2) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—If the taxpayer is married at the close of the
taxable year, the credit shall be allowed under sub-
section (a) only if the taxpayer and the taxpayer’s
spouse file a joint return for the taxable year.
‘‘(3) MARITAL STATUS.—Marital status shall be
determined in accordance with section 7703.’’.
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(b) CONFORMING AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1 is
amended by inserting after the item relating to section 25A
the following new item:
‘‘Sec. 25B. Interest on higher education loans.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to any qualified education loan (as de-
fined in section 25B(e)(1) of the Internal Revenue Code of
1986, as added by this section) incurred on, before, or after
December 31, 2008, but only with respect to any loan inter-
est payment due in taxable years beginning after December
31, 2008.
SEC. 433. ABOVE-THE-LINE DEDUCTION FOR QUALIFIED
EMERGENCY RESPONSE EXPENSES OF ELIGI-
BLE 
EMERGENCY 
RESPONSE 
PROFES-
SIONALS.
(a) DEDUCTION ALLOWED.—Part VII of subchapter B
of chapter 1 (relating to additional itemized deductions for
individuals), as amended by this Act, is amended by redes-
ignating section 224 as section 225 and by inserting after
section 223 the following new section:
‘‘SEC. 224. QUALIFIED EMERGENCY RESPONSE EXPENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
eligible emergency response professional, there shall be al-
lowed as a deduction an amount equal to the qualified ex-
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penses paid or incurred by the taxpayer during the taxable
year.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE EMERGENCY RESPONSE PROFES-
SIONAL.—The term ‘eligible emergency response pro-
fessional’ includes—
‘‘(A) a full-time employee of any police de-
partment or fire department which is organized
and operated by a governmental entity to pro-
vide police protection, firefighting service, or
emergency medical services for any area within
the jurisdiction of a governmental entity,
‘‘(B) an emergency medical technician li-
censed by a State who is employed by a State or
non-profit to provide emergency medical services,
and
‘‘(C) a member of a volunteer fire depart-
ment which is organized to provide firefighting
or emergency medical services for any area with-
in the jurisdiction of a governmental entity
which is not provided with any other firefighting
services.
‘‘(2) GOVERNMENTAL
ENTITY.—The term ‘gov-
ernmental entity’ means a State (or political subdivi-
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sion thereof), Indian tribal (or political subdivision
thereof), or Federal government.
‘‘(3) QUALIFIED EXPENSES.—The term ‘qualified
expenses’ means unreimbursed expenses for police and
firefighter activities, as determined by the Secretary.
‘‘(c) DENIAL OF DOUBLE BENEFIT.—
‘‘(1) IN GENERAL.—No other deduction or credit
shall be allowed under this chapter for any amount
taken into account for which a deduction is allowed
under this section.
‘‘(2) COORDINATION WITH EXCLUSIONS.—A de-
duction shall be allowed under subsection (a) for
qualified expenses only to the extent the amount of
such expenses exceeds the amount excludable under
section 135, 529(c)(1), or 530(d)(2) for the taxable
year.
‘‘(d) TERMINATION.—This section shall not apply to
taxable years beginning after December 31, 2006.’’.
(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED
GROSS INCOME.—Section 62(a) (relating to adjusted gross
income defined), as amended by this Act, is amended by
inserting after paragraph (19) the following new para-
graph:
‘‘(20) QUALIFIED PROFESSIONAL DEVELOPMENT
EXPENSES.—The deduction allowed by section 224.’’.
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(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and
219(g)(3), as amended by this Act, are each amended
by inserting ‘‘224,’’ after ‘‘221,’’.
(2) Section 221(b)(2)(C), as amended by this
Act, is amended by inserting ‘‘224,’’ before ‘‘911’’.
(3) Section 469(i)(3)(E), as amended by this
Act, is amended by striking ‘‘and 223’’ and inserting
‘‘, 223, and 224’’.
(4) The table of sections for part VII of sub-
chapter B of chapter 1, as amended by this Act, is
amended by striking the item relating to section 223
and inserting the following new items:
‘‘Sec. 224. Qualified emergency response expenses.
‘‘Sec. 225. Cross reference.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 434. CONTRIBUTIONS OF BOOK INVENTORY.
(a) IN GENERAL.—Section 170(e)(3) (relating to cer-
tain contributions of ordinary income and capital gain
property) is amended by adding at the end the following
new subparagraph:
‘‘(D) SPECIAL
RULE
FOR
CONTRIBUTIONS
OF
BOOK
INVENTORY
FOR
EDUCATIONAL
PUR-
POSES.—
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‘‘(i) CONTRIBUTIONS OF BOOK INVEN-
TORY.—In determining whether a qualified
book contribution is a qualified contribu-
tion, subparagraph (A) shall be applied
without regard to whether or not—
‘‘(I) the donee is an organization
described in the matter preceding
clause (i) of subparagraph (A), and
‘‘(II) the property is to be used by
the donee solely for the care of the ill,
the needy, or infants.
‘‘(ii) 
QUALIFIED
BOOK
CONTRIBU-
TION.—For purposes of this paragraph, the
term ‘qualified book contribution’ means a
charitable contribution of books, but only if
the contribution is to an organization—
‘‘(I) described in subclause (I) or
(III) of paragraph (6)(B)(i), or
‘‘(II) 
described 
in 
section
501(c)(3) and exempt from tax under
section 501(a) which is organized pri-
marily to make books available to the
general public at no cost or to operate
a literacy program.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made after the date of
the enactment of this Act.
Subtitle E—Miscellaneous
Education Provisions
SEC. 441. SHORT TITLE.
This subtitle may be cited as the ‘‘Teacher Relief Act
of 2001’’.
SEC. 442. ABOVE-THE-LINE DEDUCTION FOR QUALIFIED
PROFESSIONAL DEVELOPMENT EXPENSES OF
ELEMENTARY 
AND 
SECONDARY 
SCHOOL
TEACHERS.
(a) DEDUCTION ALLOWED.—Part VII of subchapter B
of chapter 1 (relating to additional itemized deductions for
individuals), as amended by section 431(a), is amended by
redesignating section 223 as section 224 and by inserting
after section 222 the following new section:
‘‘SEC. 223. QUALIFIED PROFESSIONAL DEVELOPMENT EX-
PENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
eligible educator, there shall be allowed as a deduction an
amount equal to the qualified professional development ex-
penses paid or incurred by the taxpayer during the taxable
year.
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‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed
under subsection (a) for any taxable year shall not exceed
$500.
‘‘(c) QUALIFIED PROFESSIONAL DEVELOPMENT EX-
PENSES OF ELIGIBLE EDUCATORS.—For purposes of this
section—
‘‘(1) QUALIFIED
PROFESSIONAL
DEVELOPMENT
EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
professional development expenses’ means ex-
penses for tuition, fees, books, supplies, equip-
ment, and transportation required for the enroll-
ment or attendance of an individual in a quali-
fied course of instruction.
‘‘(B) QUALIFIED
COURSE
OF
INSTRUC-
TION.—The term ‘qualified course of instruction’
means a course of instruction which—
‘‘(i) is—
‘‘(I) directly related to the cur-
riculum and academic subjects in
which an eligible educator provides in-
struction,
‘‘(II) designed to enhance the abil-
ity of an eligible educator to under-
stand and use State standards for the
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academic subjects in which such educa-
tor provides instruction,
‘‘(III) designed to provide instruc-
tion in how to teach children with dif-
ferent learning styles, particularly
children with disabilities and children
with special learning needs (including
children who are gifted and talented),
or
‘‘(IV) designed to provide instruc-
tion in how best to discipline children
in the classroom and identify early
and appropriate interventions to help
children described in subclause (III) to
learn,
‘‘(ii) is tied to—
‘‘(I) challenging State or local
content standards and student per-
formance standards, or
‘‘(II) strategies and programs that
demonstrate effectiveness in increasing
student academic achievement and stu-
dent performance, or substantially in-
creasing the knowledge and teaching
skills of an eligible educator,
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‘‘(iii) is of sufficient intensity and du-
ration to have a positive and lasting impact
on the performance of an eligible educator
in the classroom (which shall not include 1-
day or short-term workshops and con-
ferences), except that this clause shall not
apply to an activity if such activity is 1
component described in a long-term com-
prehensive professional development plan es-
tablished by an eligible educator and the
educator’s supervisor based upon an assess-
ment of the needs of the educator, the stu-
dents of the educator, and the local edu-
cational agency involved, and
‘‘(iv) is part of a program of profes-
sional development which is approved and
certified by the appropriate local edu-
cational agency as furthering the goals of
the preceding clauses.
‘‘(C) LOCAL
EDUCATIONAL
AGENCY.—The
term ‘local educational agency’ has the meaning
given such term by section 14101 of the Elemen-
tary and Secondary Education Act of 1965, as
in effect on the date of the enactment of this sec-
tion.
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‘‘(2) ELIGIBLE EDUCATOR.—
‘‘(A) IN GENERAL.—The term ‘eligible edu-
cator’ means an individual who is a kinder-
garten through grade 12 teacher, instructor,
counselor, principal, or aide in an elementary or
secondary school for at least 900 hours during a
school year.
‘‘(B) 
ELEMENTARY
OR
SECONDARY
SCHOOL.—The terms ‘elementary school’ and
‘secondary school’ have the meanings given such
terms by section 14101 of the Elementary and
Secondary Education Act of 1965 (20 U.S.C.
8801), as so in effect.
‘‘(d) DENIAL OF DOUBLE BENEFIT.—
‘‘(1) IN GENERAL.—No other deduction or credit
shall be allowed under this chapter for any amount
taken into account for which a deduction is allowed
under this section.
‘‘(2) COORDINATION WITH EXCLUSIONS.—A de-
duction shall be allowed under subsection (a) for
qualified professional development expenses only to
the extent the amount of such expenses exceeds the
amount excludable under section 135, 529(c)(1), or
530(d)(2) for the taxable year.’’.
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(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED
GROSS INCOME.—Section 62(a), as amended by section
431(b), is amended by inserting after paragraph (18) the
following new paragraph:
‘‘(19) QUALIFIED PROFESSIONAL DEVELOPMENT
EXPENSES.—The deduction allowed by section 223.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and
219(g)(3) are each amended by inserting ‘‘223,’’ after
‘‘221,’’.
(2) Section 221(b)(2)(C) is amended by inserting
‘‘223,’’ before ‘‘911’’.
(3) Section 469(i)(3)(E) is amended by striking
‘‘and 221’’ and inserting ‘‘, 221, and 223’’.
(4) The table of sections for part VII of sub-
chapter B of chapter 1, as amended by section 431(c),
is amended by striking the item relating to section
223 and inserting the following new items:
‘‘Sec. 223. Qualified professional development expenses.
‘‘Sec. 224. Cross reference.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001, and shall expire on December 31, 2005.
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SEC. 443. CREDIT TO ELEMENTARY AND SECONDARY
SCHOOL TEACHERS WHO PROVIDE CLASS-
ROOM MATERIALS.
(a) IN GENERAL.—Subpart B of part IV of subchapter
A of chapter 1 (relating to other credits) is amended by
adding at the end the following new section:
‘‘SEC. 30B. CREDIT TO ELEMENTARY AND SECONDARY
SCHOOL TEACHERS WHO PROVIDE CLASS-
ROOM MATERIALS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligi-
ble educator, there shall be allowed as a credit against the
tax imposed by this chapter for the taxable year an amount
equal to 50 percent of the qualified elementary and sec-
ondary education expenses which are paid or incurred by
the taxpayer during such taxable year.
‘‘(b) MAXIMUM CREDIT.—The credit allowed by sub-
section (a) for any taxable year shall not exceed $250.
‘‘(c) DEFINITIONS.—
‘‘(1) ELIGIBLE
EDUCATOR.—The term ‘eligible
educator’ has the same meaning given such term in
section 223(c).
‘‘(2) QUALIFIED ELEMENTARY AND SECONDARY
EDUCATION EXPENSES.—The term ‘qualified elemen-
tary and secondary education expenses’ means ex-
penses for books, supplies (other than nonathletic sup-
plies for courses of instruction in health or physical
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education), computer equipment (including related
software and services) and other equipment, and sup-
plementary materials used by an eligible educator in
the classroom.
‘‘(3) ELEMENTARY
OR
SECONDARY
SCHOOL.—
The term ‘elementary or secondary school’ means any
school which provides elementary education or sec-
ondary education (through grade 12), as determined
under State law.
‘‘(d) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduc-
tion shall be allowed under this chapter for any ex-
pense for which credit is allowed under this section.
‘‘(2) APPLICATION WITH OTHER CREDITS.—The
credit allowable under subsection (a) for any taxable
year shall not exceed the excess (if any) of—
‘‘(A) the regular tax for the taxable year, re-
duced by the sum of the credits allowable under
subpart A and the preceding sections of this sub-
part, over
‘‘(B) the tentative minimum tax for the tax-
able year.
‘‘(e) ELECTION TO HAVE CREDIT NOT APPLY.—A tax-
payer may elect to have this section not apply for any tax-
able year.’’.
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(b) CLERICAL AMENDMENT.—The table of sections for
subpart B of part IV of subchapter A of chapter 1 is amend-
ed by adding at the end the following new item:
‘‘Sec. 30B. Credit to elementary and secondary school teachers who
provide classroom materials.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001, and shall expire on December 31, 2005.
Subtitle F—Compliance With
Congressional Budget Act
SEC. 451. SUNSET OF PROVISIONS OF TITLE.
All provisions of, and amendments made by, this title
which are in effect on September 30, 2011, shall cease to
apply as of the close of September 30, 2011.
TITLE 
V—ESTATE, 
GIFT, 
AND
GENERATION-SKIPPING
TRANSFER TAX PROVISIONS
Subtitle A—Repeal of Estate and
Generation-Skipping 
Transfer
Taxes
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING
TRANSFER TAXES.
(a) ESTATE TAX REPEAL.—Subchapter C of chapter
11 of subtitle B (relating to miscellaneous) is amended by
adding at the end the following new section:
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‘‘SEC. 2210. TERMINATION.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), this chapter shall not apply to the estates of decedents
dying after December 31, 2010.
‘‘(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED DO-
MESTIC TRUSTS.—In applying section 2056A with respect
to the surviving spouse of a decedent dying before January
1, 2011—
‘‘(1) section 2056A(b)(1)(A) shall not apply to
distributions made after December 31, 2021, and
‘‘(2) section 2056A(b)(1)(B) shall not apply after
December 31, 2010.’’.
(b) GENERATION-SKIPPING
TRANSFER
TAX
RE-
PEAL.—Subchapter G of chapter 13 of subtitle B (relating
to administration) is amended by adding at the end the
following new section:
‘‘SEC. 2664. TERMINATION.
‘‘This chapter shall not apply to generation-skipping
transfers made after December 31, 2010.’’.
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for subchapter C of
chapter 11 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 2210. Termination.’’.
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(2) The table of sections for subchapter G of
chapter 13 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 2664. Termination.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to the estates of decedents dying, and
generation-skipping transfers made, after December 31,
2010.
Subtitle B—Reductions of Estate
and Gift Tax Rates
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT
TAX RATES.
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PER-
CENT.—The table contained in section 2001(c)(1) is amend-
ed by striking the two highest brackets and inserting the
following:
‘‘Over $2,500,000 ..............................
$1,025,800, plus 50% of the excess over
$2,500,000.’’.
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—
Subsection (c) of section 2001 is amended by striking para-
graph (2).
(c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF
TAX.—Subsection (c) of section 2001, as amended by sub-
section (b), is amended by adding at the end the following
new paragraph:
‘‘(2) PHASEDOWN OF MAXIMUM RATE OF TAX.—
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‘‘(A) IN GENERAL.—In the case of estates of
decedents dying, and gifts made, in calendar
years after 2002 and before 2011, the tentative
tax under this subsection shall be determined by
using a table prescribed by the Secretary (in lieu
of using the table contained in paragraph (1))
which is the same as such table; except that—
‘‘(i) the maximum rate of tax for any
calendar year shall be determined in the
table under subparagraph (B), and
‘‘(ii) the brackets and the amounts set-
ting forth the tax shall be adjusted to the ex-
tent necessary to reflect the adjustments
under subparagraph (A).
‘‘(B) MAXIMUM RATE.—
Maximum
‘‘Calendar year:
Rate:
2003 ................................................................................................ 49 percent
2004 ................................................................................................ 48 percent
2005 ................................................................................................ 47 percent
2006 ................................................................................................ 46 percent
2007, 2008, 2009, and 2010 ..........................................................
45 percent.’’.
(d) MAXIMUM GIFT TAX RATE REDUCED TO 40 PER-
CENT AFTER 2010.—Subsection (a) of section 2502 (relat-
ing to rate of tax) is amended to read as follows:
‘‘(a) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by section
2501 for each calendar year shall be an amount equal
to the excess of—
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‘‘(A) a tentative tax, computed under para-
graph (2), on the aggregate sum of the taxable
gifts for such calendar year and for each of the
preceding calendar periods, over
‘‘(B) a tentative tax, computed under para-
graph (2), on the aggregate sum of the taxable
gifts for each of the preceding calendar periods.
‘‘(2) RATE SCHEDULE.—
‘‘If the amount with respect to
which
The tentative tax is:
the tentative tax to be com-
puted is:
Not over $10,000 ..............................
18% of such amount.
Over $10,000 but not over $20,000
$1,800, plus 20% of the excess over
$10,000.
Over $20,000 but not over $40,000
$3,800, plus 22% of the excess over
$20,000.
Over $40,000 but not over $60,000
$8,200, plus 24% of the excess over
$40,000.
Over $60,000 but not over $80,000
$13,000, plus 26% of the excess over
$60,000.
Over $80,000 but not over $100,000
$18,200, plus 28% of the excess over
$80,000.
Over 
$100,000 
but 
not 
over
$150,000.
$23,800, plus 30% of the excess over
$100,000.
Over 
$150,000 
but 
not 
over
$250,000.
$38,800, plus 32% of the excess over
$150,000.
Over 
$250,000 
but 
not 
over
$500,000.
$70,800, plus 34% of the excess over
$250,000.
Over 
$500,000 
but 
not 
over
$750,000.
$155,800, plus 37% of the excess over
$500,000.
Over 
$750,000 
but 
not 
over
$1,000,000.
$248,300, plus 39% of the excess over
$750,000.
Over $1,000,000 ................................
$345,800, plus 40% of the excess over
$1,000,000.’’.
(e) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—
Section 2511 (relating to transfers in general) is amended
by adding at the end the following new subsection:
‘‘(c) 
TREATMENT
OF
CERTAIN
TRANSFERS
IN
TRUST.—Notwithstanding any other provision of this sec-
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tion and except as provided in regulations, a transfer in
trust shall be treated as a taxable gift under section 2503,
unless the trust is treated as wholly owned by the donor
or the donor’s spouse under subpart E of part I of sub-
chapter J of chapter 1.’’.
(f) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amendments
made by subsections (a) and (b) shall apply to estates
of decedents dying, and gifts made, after December
31, 2001.
(2) SUBSECTION (c).—The amendment made by
subsection (c) shall apply to estates of decedents
dying, and gifts made, after December 31, 2002.
(3) SUBSECTIONS (d) AND (e).—The amendments
made by subsections (d) and (e) shall apply to gifts
made after December 31, 2010.
Subtitle C—Increase in Exemption
Amounts
SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNI-
FIED CREDIT, LIFETIME GIFTS EXEMPTION,
AND GST EXEMPTION AMOUNTS.
(a) IN GENERAL.—Subsection (c) of section 2010 (re-
lating to applicable credit amount) is amended by striking
the table and inserting the following new table:
‘‘In the case of estates of decedents
The applicable
dying during:
exclusion amount is:
2002 and 2003 ...........................................................
$1,000,000
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2004 ............................................................................
$2,000,000
2005, 2006, 2007, and 2008 ......................................
$3,000,000
2009 ............................................................................
$3,500,000
2010 ............................................................................
$4,000,000.’’.
(b) LIFETIME
GIFT
EXEMPTION
INCREASED
TO
$1,000,000.—
(1) FOR
PERIODS
BEFORE
ESTATE
TAX
RE-
PEAL.—Paragraph (1) of section 2505(a) (relating to
unified credit against gift tax) is amended by insert-
ing ‘‘(determined as if the applicable exclusion
amount were $1,000,000)’’ after ‘‘calendar year’’.
(2) FOR PERIODS AFTER ESTATE TAX REPEAL.—
Paragraph (1) of section 2505(a) (relating to unified
credit against gift tax), as amended by paragraph
(1), is amended to read as follows:
‘‘(1) the amount of the tentative tax which would
be determined under the rate schedule set forth in sec-
tion 2502(a)(2) if the amount with respect to which
such tentative tax is to be computed were $1,000,000,
reduced by’’.
(c) GST EXEMPTION.—
(1) IN GENERAL.—Subsection (a) of 2631 (relat-
ing to GST exemption) is amended by striking ‘‘of
$1,000,000’’ and inserting ‘‘amount’’.
(2) EXEMPTION AMOUNT.—Subsection (c) of sec-
tion 2631 is amended to read as follows:
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‘‘(c) GST EXEMPTION AMOUNT.—For purposes of sub-
section (a), the GST exemption amount for any calendar
year shall be equal to the applicable exclusion amount
under section 2010(c) for such calendar year.’’.
(d) REPEAL
OF SPECIAL BENEFIT
FOR FAMILY-
OWNED BUSINESS INTERESTS.—
(1) IN
GENERAL.—Section 2057 is hereby re-
pealed.
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (10) of section 2031(c) is
amended by inserting ‘‘(as in effect on the day
before the date of the enactment of this par-
enthetical)’’ before the period.
(B) The table of sections for part IV of sub-
chapter A of chapter 11 is amended by striking
the item relating to section 2057.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amendments made by this sec-
tion shall apply to estates of decedents dying, and
gifts made, after December 31, 2001.
(2) SUBSECTION (b)(2).—The amendments made
by subsection (b)(2) shall apply to gifts made after
December 31, 2010.
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(3) SUBSECTIONS (c) AND (d).—The amendments
made by subsections (c) and (d) shall apply to estates
of decedents dying, and generation-skipping transfers
made, after December 31, 2003.
Subtitle D—Credit for State Death
Taxes
SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.
(a) MAXIMUM CREDIT REDUCED TO 8 PERCENT.—
(1) IN GENERAL.—The table contained in section
2011(b) is amended by striking the ten highest brack-
ets and inserting the following:
‘‘Over $2,040,000 ..............................
$106,800, plus 8% of the excess over
$2,040,000.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to estates of decedents
dying after December 31, 2001.
(b) MAXIMUM CREDIT REDUCED TO 7.2 PERCENT.—
(1) IN GENERAL.—The table contained in section
2011(b), as amended by subsection (a), is amended by
striking the two highest brackets and inserting the fol-
lowing:
‘‘Over $1,540,000 ..............................
$70,800, plus 7.2% of the excess over
$1,540,000.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to estates of decedents
dying after December 31, 2002.
(c) MAXIMUM CREDIT REDUCED TO 7.04 PERCENT.—
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(1) IN GENERAL.—The table contained in section
2011(b), as amended by subsections (a) and (b), is
amended by striking the highest bracket and inserting
the following:
‘‘Over $1,540,000 ..............................
$70,800, plus 7.04% of the excess over
$1,540,000.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to estates of decedents
dying after December 31, 2003.
SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED
WITH DEDUCTION FOR SUCH TAXES.
(a) REPEAL OF CREDIT.—Section 2011 (relating to
credit for State death taxes) is repealed.
(b) DEDUCTION FOR STATE DEATH TAXES.—Part IV
of subchapter A of chapter 11 is amended by adding at the
end the following new section:
‘‘SEC. 2058. STATE DEATH TAXES.
‘‘(a) ALLOWANCE OF DEDUCTION.—For purposes of
the tax imposed by section 2001, the value of the taxable
estate shall be determined by deducting from the value of
the gross estate the amount of any estate, inheritance, leg-
acy, or succession taxes actually paid to any State or the
District of Columbia, in respect of any property included
in the gross estate (not including any such taxes paid with
respect to the estate of a person other than the decedent).
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‘‘(b) PERIOD OF LIMITATIONS.—The deduction allowed
by this section shall include only such taxes as were actually
paid and deduction therefor claimed before the later of—
‘‘(1) 4 years after the filing of the return re-
quired by section 6018, or
‘‘(2) if—
‘‘(A) a petition for redetermination of a de-
ficiency has been filed with the Tax Court within
the time prescribed in section 6213(a), the expi-
ration of 60 days after the decision of the Tax
Court becomes final,
‘‘(B) an extension of time has been granted
under section 6161 or 6166 for payment of the
tax shown on the return, or of a deficiency, the
date of the expiration of the period of the exten-
sion, or
‘‘(C) a claim for refund or credit of an over-
payment of tax imposed by this chapter has been
filed within the time prescribed in section 6511,
the latest of the expiration of—
‘‘(i) 60 days from the date of mailing
by certified mail or registered mail by the
Secretary to the taxpayer of a notice of the
disallowance of any part of such claim,
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‘‘(ii) 60 days after a decision by any
court of competent jurisdiction becomes
final with respect to a timely suit instituted
upon such claim, or
‘‘(iii) 2 years after a notice of the
waiver of disallowance is filed under section
6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on
the deduction may be made if the claim for refund is filed
within the period provided in the preceding sentence. Any
such refund shall be made without interest.’’.
(c) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 2012 is amended by
striking ‘‘the credit for State death taxes provided by
section 2011 and’’.
(2) Subparagraph (A) of section 2013(c)(1) is
amended by striking ‘‘2011,’’.
(3) Paragraph (2) of section 2014(b) is amended
by striking ‘‘, 2011,’’.
(4) Sections 2015 and 2016 are each amended by
striking ‘‘2011 or’’.
(5) Subsection (d) of section 2053 is amended to
read as follows:
‘‘(d) CERTAIN FOREIGN DEATH TAXES.—
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‘‘(1) IN GENERAL.—Notwithstanding the provi-
sions of subsection (c)(1)(B), for purposes of the tax
imposed by section 2001, the value of the taxable es-
tate may be determined, if the executor so elects before
the expiration of the period of limitation for assess-
ment provided in section 6501, by deducting from the
value of the gross estate the amount (as determined in
accordance with regulations prescribed by the Sec-
retary) of any estate, succession, legacy, or inherit-
ance tax imposed by and actually paid to any foreign
country, in respect of any property situated within
such foreign country and included in the gross estate
of a citizen or resident of the United States, upon a
transfer by the decedent for public, charitable, or reli-
gious uses described in section 2055. The determina-
tion under this paragraph of the country within
which property is situated shall be made in accord-
ance with the rules applicable under subchapter B
(sec. 2101 and following) in determining whether
property is situated within or without the United
States. Any election under this paragraph shall be ex-
ercised in accordance with regulations prescribed by
the Secretary.
‘‘(2) CONDITION
FOR
ALLOWANCE
OF
DEDUC-
TION.—No deduction shall be allowed under para-
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graph (1) for a foreign death tax specified therein un-
less the decrease in the tax imposed by section 2001
which results from the deduction provided in para-
graph (1) will inure solely for the benefit of the pub-
lic, charitable, or religious transferees described in
section 2055 or section 2106(a)(2). In any case where
the tax imposed by section 2001 is equitably appor-
tioned among all the transferees of property included
in the gross estate, including those described in sec-
tions 2055 and 2106(a)(2) (taking into account any
exemptions, credits, or deductions allowed by this
chapter), in determining such decrease, there shall be
disregarded any decrease in the Federal estate tax
which any transferees other than those described in
sections 2055 and 2106(a)(2) are required to pay.
‘‘(3) EFFECT ON CREDIT FOR FOREIGN DEATH
TAXES OF DEDUCTION UNDER THIS SUBSECTION.—
‘‘(A) ELECTION.—An election under this
subsection shall be deemed a waiver of the right
to claim a credit, against the Federal estate tax,
under a death tax convention with any foreign
country for any tax or portion thereof in respect
of which a deduction is taken under this sub-
section.
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‘‘(B) CROSS REFERENCE.—
‘‘See section 2014(f) for the effect of a deduction
taken under this paragraph on the credit for foreign
death taxes.’’.
(6) Subparagraph (A) of section 2056A(b)(10) is
amended—
(A) by striking ‘‘2011,’’, and
(B) by inserting ‘‘2058,’’ after ‘‘2056,’’.
(7)(A) Subsection (a) of section 2102 is amended
to read as follows:
‘‘(a) IN GENERAL.—The tax imposed by section 2101
shall be credited with the amounts determined in accord-
ance with sections 2012 and 2013 (relating to gift tax and
tax on prior transfers).’’.
(B) Section 2102 is amended by striking sub-
section (b) and by redesignating subsection (c) as sub-
section (b).
(C) Section 2102(b)(5) (as redesignated by sub-
paragraph (B)) and section 2107(c)(3) are each
amended by striking ‘‘2011 to 2013, inclusive,’’ and
inserting ‘‘2012 and 2013’’.
(8) Subsection (a) of section 2106 is amended by
adding at the end the following new paragraph:
‘‘(4) STATE DEATH TAXES.—The amount which
bears the same ratio to the State death taxes as the
value of the property, as determined for purposes of
this chapter, upon which State death taxes were paid
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and which is included in the gross estate under sec-
tion 2103 bears to the value of the total gross estate
under section 2103. For purposes of this paragraph,
the term ‘State death taxes’ means the taxes described
in section 2011(a).’’.
(9) Section 2201 is amended—
(A) by striking ‘‘as defined in section
2011(d)’’, and
(B) by adding at the end the following new
flush sentence:
‘‘For purposes of this section, the additional estate tax is
the difference between the tax imposed by section 2001 or
2101 and the amount equal to 125 percent of the maximum
credit provided by section 2011(b), as in effect before its
repeal by the Restoring Earnings To Lift Individuals and
Empower Families (RELIEF) Act of 2001.’’.
(10) Section 2604 is repealed.
(11) Paragraph (2) of section 6511(i) is amend-
ed by striking ‘‘2011(c), 2014(b),’’ and inserting
‘‘2014(b)’’.
(12) Subsection (c) of section 6612 is amended
by striking ‘‘section 2011(c) (relating to refunds due
to credit for State taxes),’’.
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(13) The table of sections for part II of sub-
chapter A of chapter 11 is amended by striking the
item relating to section 2011.
(14) The table of sections for part IV of sub-
chapter A of chapter 11 is amended by adding at the
end the following new item:
‘‘Sec. 2058. State death taxes.’’.
(15) The table of sections for subchapter A of
chapter 13 is amended by striking the item relating
to section 2604.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 2004.
Subtitle 
E—Carryover 
Basis 
at
Death; Other Changes Taking
Effect With Repeal
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 (relating to basis of property acquired
from a decedent) is amended by adding at the end the fol-
lowing new subsection:
‘‘(f) TERMINATION.—This section shall not apply with
respect to decedents dying after December 31, 2010.’’.
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A
DECEDENT DYING AFTER DECEMBER 31, 2010.
(a) GENERAL RULE.—Part II of subchapter O of chap-
ter 1 (relating to basis rules of general application) is
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amended by inserting after section 1021 the following new
section:
‘‘SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A
DECEDENT DYING AFTER DECEMBER 31, 2010.
‘‘(a) IN GENERAL.—Except as otherwise provided in
this section—
‘‘(1) property acquired from a decedent dying
after December 31, 2010, shall be treated for purposes
of this subtitle as transferred by gift, and
‘‘(2) the basis of the person acquiring property
from such a decedent shall be the lesser of—
‘‘(A) the adjusted basis of the decedent, or
‘‘(B) the fair market value of the property
at the date of the decedent’s death.
‘‘(b) BASIS INCREASE FOR CERTAIN PROPERTY.—
‘‘(1) IN GENERAL.—In the case of property to
which this subsection applies, the basis of such prop-
erty under subsection (a) shall be increased by its
basis increase under this subsection.
‘‘(2) BASIS
INCREASE.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The basis increase
under this subsection for any property is the
portion of the aggregate basis increase which is
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allocated to the property pursuant to this sec-
tion.
‘‘(B) AGGREGATE BASIS INCREASE.—In the
case of any estate, the aggregate basis increase
under this subsection is $1,300,000.
‘‘(C) LIMIT INCREASED BY UNUSED BUILT-
IN LOSSES AND LOSS CARRYOVERS.—The limita-
tion under subparagraph (B) shall be increased
by—
‘‘(i) the sum of the amount of any cap-
ital loss carryover under section 1212(b),
and the amount of any net operating loss
carryover under section 172, which would
(but for the decedent’s death) be carried
from the decedent’s last taxable year to a
later taxable year of the decedent, plus
‘‘(ii) the sum of the amount of any
losses that would have been allowable under
section 165 if the property acquired from
the decedent had been sold at fair market
value immediately before the decedent’s
death.
‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT
CITIZENS OF THE UNITED STATES.—In the case of a
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decedent nonresident not a citizen of the United
States—
‘‘(A) paragraph (2)(B) shall be applied by
substituting ‘$60,000’ for ‘$1,300,000’, and
‘‘(B) paragraph (2)(C) shall not apply.
‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY AC-
QUIRED BY SURVIVING SPOUSE.—
‘‘(1) IN GENERAL.—In the case of property to
which this subsection applies and which is qualified
spousal property, the basis of such property under
subsection (a) (as increased under subsection (b))
shall be increased by its spousal property basis in-
crease.
‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—The spousal property
basis increase for property referred to in para-
graph (1) is the portion of the aggregate spousal
property basis increase which is allocated to the
property pursuant to this section.
‘‘(B) 
AGGREGATE
SPOUSAL
PROPERTY
BASIS INCREASE.—In the case of any estate, the
aggregate spousal property basis increase is
$3,000,000.
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‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For pur-
poses of this subsection, the term ‘qualified spousal
property’ means—
‘‘(A) outright transfer property, and
‘‘(B) qualified terminable interest property.
‘‘(4) OUTRIGHT TRANSFER PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘outright
transfer property’ means any interest in prop-
erty acquired from the decedent by the decedent’s
surviving spouse.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply where, on the lapse of time, on the oc-
currence of an event or contingency, or on the
failure of an event or contingency to occur, an
interest passing to the surviving spouse will ter-
minate or fail—
‘‘(i)(I) if an interest in such property
passes or has passed (for less than an ade-
quate and full consideration in money or
money’s worth) from the decedent to any
person other than such surviving spouse (or
the estate of such spouse), and
‘‘(II) if by reason of such passing such
person (or his heirs or assigns) may possess
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or enjoy any part of such property after
such termination or failure of the interest so
passing to the surviving spouse, or
‘‘(ii) if such interest is to be acquired
for the surviving spouse, pursuant to direc-
tions of the decedent, by his executor or by
the trustee of a trust.
For purposes of this subparagraph, an interest
shall not be considered as an interest which will
terminate or fail merely because it is the owner-
ship of a bond, note, or similar contractual obli-
gation, the discharge of which would not have the
effect of an annuity for life or for a term.
‘‘(C) INTEREST OF SPOUSE CONDITIONAL ON
SURVIVAL FOR LIMITED PERIOD.—For purposes
of this paragraph, an interest passing to the sur-
viving spouse shall not be considered as an inter-
est which will terminate or fail on the death of
such spouse if—
‘‘(i) such death will cause a termi-
nation or failure of such interest only if it
occurs within a period not exceeding 6
months after the decedent’s death, or only if
it occurs as a result of a common disaster
resulting in the death of the decedent and
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the surviving spouse, or only if it occurs in
the case of either such event, and
‘‘(ii) such termination or failure does
not in fact occur.
‘‘(5) QUALIFIED TERMINABLE INTEREST PROP-
ERTY.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified ter-
minable interest property’ means property—
‘‘(i) which passes from the decedent,
and
‘‘(ii) in which the surviving spouse has
a qualifying income interest for life.
‘‘(B) QUALIFYING
INCOME
INTEREST
FOR
LIFE.—The surviving spouse has a qualifying in-
come interest for life if—
‘‘(i) the surviving spouse is entitled to
all the income from the property, payable
annually or at more frequent intervals, or
has a usufruct interest for life in the prop-
erty, and
‘‘(ii) no person has a power to appoint
any part of the property to any person
other than the surviving spouse.
Clause (ii) shall not apply to a power exercisable
only at or after the death of the surviving spouse.
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To the extent provided in regulations, an annu-
ity shall be treated in a manner similar to an
income interest in property (regardless of wheth-
er the property from which the annuity is pay-
able can be separately identified).
‘‘(C) 
PROPERTY
INCLUDES
INTEREST
THEREIN.—The term ‘property’ includes an in-
terest in property.
‘‘(D) SPECIFIC PORTION TREATED AS SEPA-
RATE PROPERTY.—A specific portion of property
shall be treated as separate property. For pur-
poses of the preceding sentence, the term ‘specific
portion’ only includes a portion determined on a
fractional or percentage basis.
‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLICA-
TION OF SUBSECTIONS (b) AND (c).—
‘‘(1) PROPERTY TO WHICH SUBSECTIONS (b) AND
(c) APPLY.—
‘‘(A) IN GENERAL.—The basis of property
acquired from a decedent may be increased
under subsection (b) or (c) only if the property
was owned by the decedent at the time of death.
‘‘(B) RULES RELATING TO OWNERSHIP.—
‘‘(i) JOINTLY HELD PROPERTY.—In the
case of property which was owned by the
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decedent and another person as joint ten-
ants with right of survivorship or tenants
by the entirety—
‘‘(I) if the only such other person
is the surviving spouse, the decedent
shall be treated as the owner of only 50
percent of the property,
‘‘(II) in any case (to which sub-
clause (I) does not apply) in which the
decedent furnished consideration for
the acquisition of the property, the de-
cedent shall be treated as the owner to
the extent of the portion of the property
which is proportionate to such consid-
eration, and
‘‘(III) in any case (to which sub-
clause (I) does not apply) in which the
property has been acquired by gift, be-
quest, devise, or inheritance by the de-
cedent and any other person as joint
tenants with right of survivorship and
their interests are not otherwise speci-
fied or fixed by law, the decedent shall
be treated as the owner to the extent of
the value of a fractional part to be de-
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termined by dividing the value of the
property by the number of joint ten-
ants with right of survivorship.
‘‘(ii) REVOCABLE TRUSTS.—The dece-
dent shall be treated as owning property
transferred by the decedent during life to a
qualified revocable trust (as defined in sec-
tion 645(b)(1)).
‘‘(iii) POWERS OF APPOINTMENT.—The
decedent shall not be treated as owning any
property by reason of holding a power of
appointment with respect to such property.
‘‘(iv) COMMUNITY
PROPERTY.—Prop-
erty which represents the surviving spouse’s
one-half share of community property held
by the decedent and the surviving spouse
under the community property laws of any
State or possession of the United States or
any foreign country shall be treated for pur-
poses of this section as owned by, and ac-
quired from, the decedent if at least one-half
of the whole of the community interest in
such property is treated as owned by, and
acquired from, the decedent without regard
to this clause.
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‘‘(C) PROPERTY
ACQUIRED
BY
DECEDENT
BY GIFT WITHIN 3 YEARS OF DEATH.—
‘‘(i) IN GENERAL.—Subsections (b) and
(c) shall not apply to property acquired by
the decedent by gift or by inter vivos trans-
fer for less than adequate and full consider-
ation in money or money’s worth during
the 3-year period ending on the date of the
decedent’s death.
‘‘(ii) EXCEPTION FOR CERTAIN GIFTS
FROM SPOUSE.—Clause (i) shall not apply
to property acquired by the decedent from
the decedent’s spouse unless, during such 3-
year period, such spouse acquired the prop-
erty in whole or in part by gift or by inter
vivos transfer for less than adequate and
full consideration in money or money’s
worth.
‘‘(D) STOCK OF CERTAIN ENTITIES.—Sub-
sections (b) and (c) shall not apply to—
‘‘(i) stock or securities a foreign per-
sonal holding company,
‘‘(ii) stock of a DISC or former DISC,
‘‘(iii) stock of a foreign investment
company, or
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‘‘(iv) stock of a passive foreign invest-
ment company unless such company is a
qualified electing fund (as defined in section
1295) with respect to the decedent.
‘‘(2) FAIR MARKET VALUE LIMITATION.—The ad-
justments under subsections (b) and (c) shall not in-
crease the basis of any interest in property acquired
from the decedent above its fair market value in the
hands of the decedent as of the date of the decedent’s
death.
‘‘(3) ALLOCATION RULES.—
‘‘(A) IN GENERAL.—The executor shall allo-
cate the adjustments under subsections (b) and
(c) on the return required by section 6018.
‘‘(B) CHANGES IN ALLOCATION.—Any allo-
cation made pursuant to subparagraph (A) may
be changed only as provided by the Secretary.
‘‘(4) INFLATION ADJUSTMENT OF BASIS ADJUST-
MENT AMOUNTS.—
‘‘(A) IN GENERAL.—In the case of decedents
dying in a calendar year after 2011, the
$1,300,000, $60,000, and $3,000,000 dollar
amounts in subsections (b) and (c)(2)(B) shall
each be increased by an amount equal to the
product of—
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‘‘(i) such dollar amount, and
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such cal-
endar year, determined by substituting
‘2010’ for ‘1992’ in subparagraph (B) there-
of.
‘‘(B) ROUNDING.—If any increase deter-
mined under subparagraph (A) is not a multiple
of—
‘‘(i) $100,000 in the case of the
$1,300,000 amount,
‘‘(ii) $5,000 in the case of the $60,000
amount, and
‘‘(iii) $250,000 in the case of the
$3,000,000 amount,
such increase shall be rounded to the next lowest
multiple thereof.
‘‘(e) PROPERTY ACQUIRED FROM THE DECEDENT.—
For purposes of this section, the following property shall
be considered to have been acquired from the decedent:
‘‘(1) Property acquired by bequest, devise, or in-
heritance, or by the decedent’s estate from the dece-
dent.
‘‘(2) Property transferred by the decedent during
his lifetime—
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‘‘(A) to a qualified revocable trust (as de-
fined in section 645(b)(1)), or
‘‘(B) to any other trust with respect to
which the decedent reserved the right to make
any change in the enjoyment thereof through the
exercise of a power to alter, amend, or terminate
the trust.
‘‘(3) Any other property passing from the dece-
dent by reason of death to the extent that such prop-
erty passed without consideration.
‘‘(f) COORDINATION WITH SECTION 691.—This section
shall not apply to property which constitutes a right to re-
ceive an item of income in respect of a decedent under sec-
tion 691.
‘‘(g) CERTAIN LIABILITIES DISREGARDED.—
‘‘(1) IN GENERAL.—In determining whether gain
is recognized on the acquisition of property—
‘‘(A) from a decedent by a decedent’s estate
or any beneficiary other than a tax-exempt bene-
ficiary, and
‘‘(B) from the decedent’s estate by any bene-
ficiary other than a tax-exempt beneficiary,
and in determining the adjusted basis of such prop-
erty, liabilities in excess of basis shall be disregarded.
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‘‘(2) TAX-EXEMPT BENEFICIARY.—For purposes
of paragraph (1)(B)—
‘‘(A) IN GENERAL.—The term ‘tax-exempt
beneficiary’ means—
‘‘(i) the United States, any State or
political subdivision thereof, any possession
of the United States, any Indian tribal gov-
ernment (within the meaning of section
7871), or any agency or instrumentality of
any of the foregoing,
‘‘(ii) an organization (other than a co-
operative described in section 521) which is
exempt from tax imposed by chapter 1, and
‘‘(iii) any foreign person or entity
(within the meaning of section 168(h)(2)).
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(b) INFORMATION RETURNS, ETC.—
(1) LARGE TRANSFERS AT DEATH.—So much of
subpart C of part II of subchapter A of chapter 61
as precedes section 6019 is amended to read as fol-
lows:
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‘‘Subpart C—Returns Relating to Transfers During
Life or at Death
‘‘Sec. 6018. Returns relating to large transfers at death.
‘‘Sec. 6019. Gift tax returns.
‘‘SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT
DEATH.
‘‘(a) IN GENERAL.—If this section applies to property
acquired from a decedent, the executor of the estate of such
decedent shall make a return containing the information
specified in subsection (c) with respect to such property.
‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—
‘‘(1) LARGE
TRANSFERS.—This section shall
apply to all property (other than cash) acquired from
a decedent if the fair market value of such property
acquired from the decedent exceeds the dollar amount
applicable under section 1022(b)(2)(B) (without re-
gard to section 1022(b)(2)(C)).
‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED
BY DECEDENT WITHIN 3 YEARS OF DEATH.—This sec-
tion shall apply to any appreciated property acquired
from the decedent if—
‘‘(A) subsections (b) and (c) of section 1022
do not apply to such property by reason of sec-
tion 1022(d)(1)(C), and
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‘‘(B) such property was required to be in-
cluded on a return required to be filed under sec-
tion 6019.
‘‘(3) NONRESIDENTS
NOT
CITIZENS
OF
THE
UNITED STATES.—In the case of a decedent who is a
nonresident not a citizen of the United States, para-
graphs (1) and (2) shall be applied—
‘‘(A) by taking into account only—
‘‘(i) tangible property situated in the
United States, and
‘‘(ii) other property acquired from the
decedent by a United States person, and
‘‘(B) by substituting the dollar amount ap-
plicable under section 1022(b)(3) for the dollar
amount referred to in paragraph (1).
‘‘(4) 
RETURNS
BY
TRUSTEES
OR
BENE-
FICIARIES.—If the executor is unable to make a com-
plete return as to any property acquired from or
passing from the decedent, the executor shall include
in the return a description of such property and the
name of every person holding a legal or beneficial in-
terest therein. Upon notice from the Secretary, such
person shall in like manner make a return as to such
property.
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‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—
The information specified in this subsection with respect
to any property acquired from the decedent is—
‘‘(1) the name and TIN of the recipient of such
property,
‘‘(2) an accurate description of such property,
‘‘(3) the adjusted basis of such property in the
hands of the decedent and its fair market value at the
time of death,
‘‘(4) the decedent’s holding period for such prop-
erty,
‘‘(5) sufficient information to determine whether
any gain on the sale of the property would be treated
as ordinary income,
‘‘(6) the amount of basis increase allocated to the
property under subsection (b) or (c) of section 1022,
and
‘‘(7) such other information as the Secretary
may by regulations prescribe.
‘‘(d) PROPERTY ACQUIRED FROM DECEDENT.—For
purposes of this section, section 1022 shall apply for pur-
poses of determining the property acquired from a decedent.
‘‘(e) STATEMENTS TO BE FURNISHED TO CERTAIN
PERSONS.—Every person required to make a return under
subsection (a) shall furnish to each person whose name is
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required to be set forth in such return (other than the person
required to make such return) a written statement
showing—
‘‘(1) the name, address, and phone number of the
person required to make such return, and
‘‘(2) the information specified in subsection (c)
with respect to property acquired from, or passing
from, the decedent to the person required to receive
such statement.
The written statement required under the preceding sen-
tence shall be furnished not later than 30 days after the
date that the return required by subsection (a) is filed.’’.
(2) GIFTS.—Section 6019 (relating to gift tax re-
turns) is amended—
(A) by striking ‘‘Any individual’’ and in-
serting ‘‘(a) IN GENERAL.—Any individual’’,
and
(B) by adding at the end the following new
subsection:
‘‘(b) STATEMENTS TO BE FURNISHED TO CERTAIN
PERSONS.—Every person required to make a return under
subsection (a) shall furnish to each person whose name is
required to be set forth in such return (other than the person
required to make such return) a written statement
showing—
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‘‘(1) the name, address, and phone number of the
person required to make such return, and
‘‘(2) the information specified in such return
with respect to property received by the person re-
quired to receive such statement.
The written statement required under the preceding sen-
tence shall be furnished not later than 30 days after the
date that the return required by subsection (a) is filed.’’.
(3) TIME FOR FILING SECTION 6018 RETURNS.—
(A) RETURNS RELATING TO LARGE TRANS-
FERS AT DEATH.—Subsection (a) of section 6075
is amended to read as follows:
‘‘(a) RETURNS RELATING TO LARGE TRANSFERS AT
DEATH.—The return required by section 6018 with respect
to a decedent shall be filed with the return of the tax im-
posed by chapter 1 for the decedent’s last taxable year or
such later date specified in regulations prescribed by the
Secretary.’’.
(B) 
CONFORMING
AMENDMENTS.—Para-
graph (3) of section 6075(b) is amended—
(i) by striking ‘‘ESTATE TAX RETURN’’
in the heading and inserting ‘‘SECTION 6018
RETURN’’, and
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(ii) by striking ‘‘(relating to estate tax
returns)’’ and inserting ‘‘(relating to re-
turns relating to large transfers at death)’’.
(4) PENALTIES.—Part I of subchapter B of
chapter 68 (relating to assessable penalties) is amend-
ed by adding at the end the following new section:
‘‘SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT
TO CERTAIN TRANSFERS AT DEATH AND
GIFTS.
‘‘(a) INFORMATION REQUIRED TO BE FURNISHED TO
THE SECRETARY.—Any person required to furnish any in-
formation under section 6018 who fails to furnish such in-
formation on the date prescribed therefor (determined with
regard to any extension of time for filing) shall pay a pen-
alty of $10,000 ($500 in the case of information required
to be furnished under section 6018(b)(2)) for each such fail-
ure.
‘‘(b) INFORMATION REQUIRED TO BE FURNISHED TO
BENEFICIARIES.—Any person required to furnish in writ-
ing to each person described in section 6018(e) or 6019(b)
the information required under such section who fails to
furnish such information shall pay a penalty of $50 for
each such failure.
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subsection (a) or (b) with respect
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to any failure if it is shown that such failure is due to
reasonable cause.
‘‘(d) INTENTIONAL DISREGARD.—If any failure under
subsection (a) or (b) is due to intentional disregard of the
requirements under sections 6018 and 6019(b), the penalty
under such subsection shall be 5 percent of the fair market
value (as of the date of death or, in the case of section
6019(b), the date of the gift) of the property with respect
to which the information is required.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub-
chapter 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 pen-
alty imposed by this section.’’.
(5) CLERICAL AMENDMENTS.—
(A) The table of sections for part I of sub-
chapter B of chapter 68 is amended by adding
at the end the following new item:
‘‘Sec. 6716. Failure to file information with respect to certain
transfers at death and gifts.’’.
(B) The item relating to subpart C in the
table of subparts for part II of subchapter A of
chapter 61 is amended to read as follows:
‘‘Subpart C. Returns relating to transfers during life or at death.’’.
(c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESI-
DENCE MADE AVAILABLE TO HEIR OF DECEDENT IN CER-
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TAIN CASES.—Subsection (d) of section 121 (relating to ex-
clusion of gain from sale of principal residence) is amended
by adding at the end the following new paragraph:
‘‘(9) PROPERTY ACQUIRED FROM A DECEDENT.—
The exclusion under this section shall apply to prop-
erty sold by—
‘‘(A) the estate of a decedent, and
‘‘(B) any individual who acquired such
property from the decedent (within the meaning
of section 1022),
determined by taking into account the ownership and
use by the decedent.’’.
(d) TRANSFERS OF APPRECIATED CARRYOVER BASIS
PROPERTY TO SATISFY PECUNIARY BEQUEST.—
(1) IN
GENERAL.—Section 1040 (relating to
transfer of certain farm, etc., real property) is
amended to read as follows:
‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROP-
ERTY TO SATISFY PECUNIARY BEQUEST.
‘‘(a) IN GENERAL.—If the executor of the estate of any
decedent satisfies the right of any person to receive a pecu-
niary bequest with appreciated property, then gain on such
exchange shall be recognized to the estate only to the extent
that, on the date of such exchange, the fair market value
of such property exceeds such value on the date of death.
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‘‘(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the
extent provided in regulations prescribed by the Secretary,
a rule similar to the rule provided in subsection (a) shall
apply where—
‘‘(1) by reason of the death of the decedent, a
person has a right to receive from a trust a specific
dollar amount which is the equivalent of a pecuniary
bequest, and
‘‘(2) the trustee of a trust satisfies such right
with property.
‘‘(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE
DESCRIBED IN SUBSECTION (a) OR (b).—The basis of prop-
erty acquired in an exchange with respect to which gain
realized is not recognized by reason of subsection (a) or (b)
shall be the basis of such property immediately before the
exchange increased by the amount of the gain recognized
to the estate or trust on the exchange.’’.
(2) The item relating to section 1040 in the table
of sections for part III of subchapter O of chapter 1
is amended to read as follows:
‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy
pecuniary bequest.’’.
(e) MISCELLANEOUS AMENDMENTS RELATED TO CAR-
RYOVER BASIS.—
(1) RECOGNITION OF GAIN ON TRANSFERS TO
NONRESIDENTS.—
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(A) Subsection (a) of section 684 is amend-
ed by inserting ‘‘or to a nonresident alien’’ after
‘‘or trust’’.
(B) Subsection (b) of section 684 is amend-
ed by striking ‘‘any person’’ and inserting ‘‘any
United States person’’.
(C) The section heading for section 684 is
amended by inserting ‘‘AND
NONRESIDENT
ALIENS’’ after ‘‘ESTATES’’.
(D) The item relating to section 684 in the
table of sections for subpart F of part I of sub-
chapter J of chapter 1 is amended by inserting
‘‘and nonresident aliens’’ after ‘‘estates’’.
(2) CAPITAL GAIN TREATMENT FOR INHERITED
ART WORK OR SIMILAR PROPERTY.—
(A) IN
GENERAL.—Subparagraph (C) of
section 1221(a)(3) (defining capital asset) is
amended by inserting ‘‘(other than by reason of
section 1022)’’ after ‘‘is determined’’.
(B) COORDINATION
WITH
SECTION
170.—
Paragraph (1) of section 170(e) (relating to cer-
tain contributions of ordinary income and cap-
ital gain property) is amended by adding at the
end the following: ‘‘For purposes of this para-
graph, the determination of whether property is
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a capital asset shall be made without regard to
the exception contained in section 1221(a)(3)(C)
for basis determined under section 1022.’’.
(3) DEFINITION OF EXECUTOR.—Section 7701(a)
(relating to definitions) is amended by adding at the
end the following:
‘‘(47) EXECUTOR.—The term ‘executor’ means
the executor or administrator of the decedent, or, if
there is no executor or administrator appointed,
qualified, and acting within the United States, then
any person in actual or constructive possession of any
property of the decedent.’’.
(4) CERTAIN TRUSTS.—Subparagraph (A) of sec-
tion 4947(a)(2) is amended by inserting ‘‘642(c),’’
after ‘‘170(f)(2)(B),’’.
(5) OTHER AMENDMENTS.—
(A) Section 1246 is amended by striking
subsection (e).
(B) Subsection (e) of section 1291 is
amended—
(i) by striking ‘‘(e),’’; and
(ii) by striking ‘‘; except that’’ and all
that follows and inserting a period.
(C) Section 1296 is amended by striking
subsection (i).
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(6) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter O of chapter 1 is
amended by inserting after the item relating to sec-
tion 1021 the following new item:
‘‘Sec. 1022. Treatment of property acquired from a decedent dying
after December 31, 2010.’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to estates of decedents dying after December 31,
2010.
(2) 
TRANSFERS
TO
NONRESIDENTS.—The
amendments made by subsection (e)(1) shall apply to
transfers after December 31, 2010.
(3) SECTION
4947.—The amendment made by
subsection (e)(4) shall apply to deductions for taxable
years beginning after December 31, 2010.
Subtitle F—Conservation
Easements
SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CON-
SERVATION EASEMENTS.
(a) REPEAL OF CERTAIN RESTRICTIONS ON WHERE
LAND IS LOCATED.—Clause (i) of section 2031(c)(8)(A)
(defining land subject to a qualified conservation easement)
is amended to read as follows:
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‘‘(i) which is located in the United
States or any possession of the United
States,’’.
(b) CLARIFICATION
OF
DATE
FOR
DETERMINING
VALUE OF LAND AND EASEMENT.—Section 2031(c)(2) (de-
fining applicable percentage) is amended by adding at the
end the following new sentence: ‘‘The values taken into ac-
count under the preceding sentence shall be such values as
of the date of the contribution referred to in paragraph
(8)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 2000.
Subtitle G—Modifications of
Generation-Skipping Transfer Tax
SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO
LIFETIME TRANSFERS TO TRUSTS; RETRO-
ACTIVE ALLOCATIONS.
(a) IN GENERAL.—Section 2632 (relating to special
rules for allocation of GST exemption) is amended by redes-
ignating subsection (c) as subsection (e) and by inserting
after subsection (b) the following new subsections:
‘‘(c) DEEMED ALLOCATION
TO CERTAIN LIFETIME
TRANSFERS TO GST TRUSTS.—
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‘‘(1) IN GENERAL.—If any individual makes an
indirect skip during such individual’s lifetime, any
unused portion of such individual’s GST exemption
shall be allocated to the property transferred to the ex-
tent necessary to make the inclusion ratio for such
property zero. If the amount of the indirect skip ex-
ceeds such unused portion, the entire unused portion
shall be allocated to the property transferred.
‘‘(2) UNUSED PORTION.—For purposes of para-
graph (1), the unused portion of an individual’s GST
exemption is that portion of such exemption which
has not previously been—
‘‘(A) allocated by such individual,
‘‘(B) treated as allocated under subsection
(b) with respect to a direct skip occurring during
or before the calendar year in which the indirect
skip is made, or
‘‘(C) treated as allocated under paragraph
(1) with respect to a prior indirect skip.
‘‘(3) DEFINITIONS.—
‘‘(A) INDIRECT SKIP.—For purposes of this
subsection, the term ‘indirect skip’ means any
transfer of property (other than a direct skip)
subject to the tax imposed by chapter 12 made
to a GST trust.
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‘‘(B) GST TRUST.—The term ‘GST trust’
means a trust that could have a generation-skip-
ping transfer with respect to the transferor
unless—
‘‘(i) the trust instrument provides that
more than 25 percent of the trust corpus
must be distributed to or may be withdrawn
by one or more individuals who are non-
skip persons—
‘‘(I) before the date that the indi-
vidual attains age 46,
‘‘(II) on or before one or more
dates specified in the trust instrument
that will occur before the date that
such individual attains age 46, or
‘‘(III) upon the occurrence of an
event that, in accordance with regula-
tions prescribed by the Secretary, may
reasonably be expected to occur before
the date that such individual attains
age 46,
‘‘(ii) the trust instrument provides that
more than 25 percent of the trust corpus
must be distributed to or may be withdrawn
by one or more individuals who are non-
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skip persons and who are living on the date
of death of another person identified in the
instrument (by name or by class) who is
more than 10 years older than such individ-
uals,
‘‘(iii) the trust instrument provides
that, if one or more individuals who are
non-skip persons die on or before a date or
event described in clause (i) or (ii), more
than 25 percent of the trust corpus either
must be distributed to the estate or estates
of one or more of such individuals or is sub-
ject to a general power of appointment exer-
cisable by one or more of such individuals,
‘‘(iv) the trust is a trust any portion
of which would be included in the gross es-
tate of a non-skip person (other than the
transferor) if such person died immediately
after the transfer,
‘‘(v) the trust is a charitable lead an-
nuity trust (within the meaning of section
2642(e)(3)(A)) or a charitable remainder
annuity trust or a charitable remainder
unitrust (within the meaning of section
664(d)), or
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‘‘(vi) the trust is a trust with respect
to which a deduction was allowed under sec-
tion 2522 for the amount of an interest in
the form of the right to receive annual pay-
ments of a fixed percentage of the net fair
market value of the trust property (deter-
mined yearly) and which is required to pay
principal to a non-skip person if such per-
son is alive when the yearly payments for
which the deduction was allowed terminate.
For purposes of this subparagraph, the value of
transferred property shall not be considered to be
includible in the gross estate of a non-skip per-
son or subject to a right of withdrawal by reason
of such person holding a right to withdraw so
much of such property as does not exceed the
amount referred to in section 2503(b) with re-
spect to any transferor, and it shall be assumed
that powers of appointment held by non-skip
persons will not be exercised.
‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST
TRUSTS.—For purposes of this subsection, an indirect
skip to which section 2642(f) applies shall be deemed
to have been made only at the close of the estate tax
inclusion period. The fair market value of such trans-
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fer shall be the fair market value of the trust property
at the close of the estate tax inclusion period.
‘‘(5) APPLICABILITY AND EFFECT.—
‘‘(A) IN GENERAL.—An individual—
‘‘(i) may elect to have this subsection
not apply to—
‘‘(I) an indirect skip, or
‘‘(II) any or all transfers made by
such individual to a particular trust,
and
‘‘(ii) may elect to treat any trust as a
GST trust for purposes of this subsection
with respect to any or all transfers made by
such individual to such trust.
‘‘(B) ELECTIONS.—
‘‘(i) ELECTIONS WITH RESPECT TO IN-
DIRECT SKIPS.—An election under subpara-
graph (A)(i)(I) shall be deemed to be timely
if filed on a timely filed gift tax return for
the calendar year in which the transfer was
made or deemed to have been made pursu-
ant to paragraph (4) or on such later date
or dates as may be prescribed by the Sec-
retary.
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‘‘(ii) OTHER ELECTIONS.—An election
under clause (i)(II) or (ii) of subparagraph
(A) may be made on a timely filed gift tax
return for the calendar year for which the
election is to become effective.
‘‘(d) RETROACTIVE ALLOCATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a non-skip person has an interest or a
future interest in a trust to which any transfer
has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grand-
parent of the transferor or of a grandparent
of the transferor’s spouse or former spouse,
and
‘‘(ii) is assigned to a generation below
the generation assignment of the transferor,
and
‘‘(C) such person predeceases the transferor,
then the transferor may make an allocation of any of
such transferor’s unused GST exemption to any pre-
vious transfer or transfers to the trust on a chrono-
logical basis.
‘‘(2) SPECIAL RULES.—If the allocation under
paragraph (1) by the transferor is made on a gift tax
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return filed on or before the date prescribed by section
6075(b) for gifts made within the calendar year with-
in which the non-skip person’s death occurred—
‘‘(A) the value of such transfer or transfers
for purposes of section 2642(a) shall be deter-
mined as if such allocation had been made on a
timely filed gift tax return for each calendar
year within which each transfer was made,
‘‘(B) such allocation shall be effective imme-
diately before such death, and
‘‘(C) the amount of the transferor’s unused
GST exemption available to be allocated shall be
determined immediately before such death.
‘‘(3) FUTURE INTEREST.—For purposes of this
subsection, a person has a future interest in a trust
if the trust may permit income or corpus to be paid
to such person on a date or dates in the future.’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of sec-
tion 2632(b) is amended by striking ‘‘with respect to a prior
direct skip’’ and inserting ‘‘or subsection (c)(1)’’.
(c) EFFECTIVE DATES.—
(1) DEEMED ALLOCATION.—Section 2632(c) of
the Internal Revenue Code of 1986 (as added by sub-
section (a)), and the amendment made by subsection
(b), shall apply to transfers subject to chapter 11 or
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12 made after December 31, 2000, and to estate tax
inclusion periods ending after December 31, 2000.
(2) 
RETROACTIVE
ALLOCATIONS.—Section
2632(d) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to deaths of non-
skip persons occurring after December 31, 2000.
SEC. 562. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642 (re-
lating to inclusion ratio) is amended by adding at the end
the following new paragraph:
‘‘(3) SEVERING OF TRUSTS.—
‘‘(A) IN GENERAL.—If a trust is severed in
a qualified severance, the trusts resulting from
such severance shall be treated as separate trusts
thereafter for purposes of this chapter.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A)—
‘‘(i) IN GENERAL.—The term ‘qualified
severance’ means the division of a single
trust and the creation (by any means avail-
able under the governing instrument or
under local law) of two or more trusts if—
‘‘(I) the single trust was divided
on a fractional basis, and
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‘‘(II) the terms of the new trusts,
in the aggregate, provide for the same
succession of interests of beneficiaries
as are provided in the original trust.
‘‘(ii) TRUSTS WITH INCLUSION RATIO
GREATER THAN ZERO.—If a trust has an
inclusion ratio of greater than zero and less
than 1, a severance is a qualified severance
only if the single trust is divided into two
trusts, one of which receives a fractional
share of the total value of all trust assets
equal to the applicable fraction of the single
trust immediately before the severance. In
such case, the trust receiving such fractional
share shall have an inclusion ratio of zero
and the other trust shall have an inclusion
ratio of 1.
‘‘(iii) 
REGULATIONS.—The 
term
‘qualified severance’ includes any other sev-
erance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) 
TIMING
AND
MANNER
OF
SEVERANCES.—A severance pursuant to this
paragraph may be made at any time. The Sec-
retary shall prescribe by forms or regulations the
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manner in which the qualified severance shall be
reported to the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to severances after December 31, 2000.
SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR
DEEMED ALLOCATION MADE.—Paragraph (1) of section
2642(b) (relating to valuation rules, etc.) is amended to
read as follows:
‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED
OR DEEMED ALLOCATION MADE.—If the allocation of
the GST exemption to any transfers of property is
made on a gift tax return filed on or before the date
prescribed by section 6075(b) for such transfer or is
deemed to be made under section 2632 (b)(1) or
(c)(1)—
‘‘(A) the value of such property for purposes
of subsection (a) shall be its value as finally de-
termined for purposes of chapter 12 (within the
meaning of section 2001(f)(2)), or, in the case of
an allocation deemed to have been made at the
close of an estate tax inclusion period, its value
at the time of the close of the estate tax inclusion
period, and
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‘‘(B) such allocation shall be effective on
and after the date of such transfer, or, in the
case of an allocation deemed to have been made
at the close of an estate tax inclusion period, on
and after the close of such estate tax inclusion
period.’’.
(b) TRANSFERS AT DEATH.—Subparagraph (A) of sec-
tion 2642(b)(2) is amended to read as follows:
‘‘(A) TRANSFERS AT DEATH.—If property is
transferred as a result of the death of the trans-
feror, the value of such property for purposes of
subsection (a) shall be its value as finally deter-
mined for purposes of chapter 11; except that, if
the requirements prescribed by the Secretary re-
specting allocation of post-death changes in value
are not met, the value of such property shall be
determined as of the time of the distribution con-
cerned.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers subject to chapter 11 or 12
of the Internal Revenue Code of 1986 made after December
31, 2000.
SEC. 564. RELIEF PROVISIONS.
(a) IN GENERAL.—Section 2642 is amended by adding
at the end the following new subsection:
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‘‘(g) RELIEF PROVISIONS.—
‘‘(1) RELIEF FROM LATE ELECTIONS.—
‘‘(A) IN GENERAL.—The Secretary shall by
regulation prescribe such circumstances and pro-
cedures under which extensions of time will be
granted to make—
‘‘(i) an allocation of GST exemption
described in paragraph (1) or (2) of sub-
section (b), and
‘‘(ii) an election under subsection
(b)(3) or (c)(5) of section 2632.
Such regulations shall include procedures for re-
questing comparable relief with respect to trans-
fers made before the date of the enactment of this
paragraph.
‘‘(B) BASIS FOR DETERMINATIONS.—In de-
termining whether to grant relief under this
paragraph, the Secretary shall take into account
all relevant circumstances, including evidence of
intent contained in the trust instrument or in-
strument of transfer and such other factors as the
Secretary deems relevant. For purposes of deter-
mining whether to grant relief under this para-
graph, the time for making the allocation (or
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election) shall be treated as if not expressly pre-
scribed by statute.
‘‘(2) SUBSTANTIAL COMPLIANCE.—An allocation
of GST exemption under section 2632 that dem-
onstrates an intent to have the lowest possible inclu-
sion ratio with respect to a transfer or a trust shall
be deemed to be an allocation of so much of the trans-
feror’s unused GST exemption as produces the lowest
possible inclusion ratio. In determining whether there
has been substantial compliance, all relevant cir-
cumstances shall be taken into account, including evi-
dence of intent contained in the trust instrument or
instrument of transfer and such other factors as the
Secretary deems relevant.’’.
(b) EFFECTIVE DATES.—
(1) RELIEF
FROM
LATE
ELECTIONS.—Section
2642(g)(1) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to requests pend-
ing on, or filed after, December 31, 2000.
(2) 
SUBSTANTIAL
COMPLIANCE.—Section
2642(g)(2) of such Code (as so added) shall apply to
transfers subject to chapter 11 or 12 of the Internal
Revenue Code of 1986 made after December 31, 2000.
No implication is intended with respect to the avail-
ability of relief from late elections or the application
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of a rule of substantial compliance on or before such
date.
Subtitle H—Extension of Time for
Payment of Estate Tax
SEC. 571. EXPANSION OF AVAILABILITY OF INSTALLMENT
PAYMENT FOR ESTATES WITH INTERESTS
QUALIFYING LENDING AND FINANCE BUSI-
NESSES.
(a) IN GENERAL.—Section 6166(b) (relating to defini-
tions and special rules) is amended by adding at the end
the following new paragraph:
‘‘(10) STOCK IN QUALIFYING LENDING AND FI-
NANCE BUSINESS TREATED AS STOCK IN AN ACTIVE
TRADE OR BUSINESS COMPANY.—
‘‘(A) IN GENERAL.—If the executor elects the
benefits of this paragraph, then—
‘‘(i) STOCK
IN
QUALIFYING
LENDING
AND FINANCE BUSINESS TREATED AS STOCK
IN AN ACTIVE TRADE OR BUSINESS COM-
PANY.—For purposes of this section, any
asset used in a qualifying lending and fi-
nance business shall be treated as an asset
which is used in carrying on a trade or
business.
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‘‘(ii) 5-YEAR
DEFERRAL
FOR
PRIN-
CIPAL NOT TO APPLY.—The executor shall be
treated as having selected under subsection
(a)(3) the date prescribed by section
6151(a).
‘‘(iii) 5 EQUAL
INSTALLMENTS
AL-
LOWED.—For purposes of applying sub-
section (a)(1), ‘5’ shall be substituted for
‘10’.
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) QUALIFYING
LENDING
AND
FI-
NANCE
BUSINESS.—The term ‘qualifying
lending and finance business’ means a lend-
ing and finance business, if—
‘‘(I) based on all the facts and cir-
cumstances immediately before the date
of the decedent’s death, there was sub-
stantial activity with respect to the
lending and finance business, or
‘‘(II) during at least 3 of the 5
taxable years ending before the date of
the decedent’s death, such business had
at least 1 full-time employee substan-
tially all of the services of whom were
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in the active management of such busi-
ness, 10 full-time, nonowner employees
substantially all of the services of
whom were directly related to such
business, and $5,000,000 in gross re-
ceipts from activities described in
clause (ii).
‘‘(ii) LENDING
AND
FINANCE
BUSI-
NESS.—The term ‘lending and finance busi-
ness’ means a trade or business of—
‘‘(I) making loans,
‘‘(II) purchasing or discounting
accounts receivable, notes, or install-
ment obligations,
‘‘(III) engaging in rental and
leasing of real and tangible personal
property, including entering into leases
and purchasing, servicing, and dis-
posing of leases and leased assets,
‘‘(IV) rendering services or mak-
ing facilities available in the ordinary
course of a lending or finance business,
and
‘‘(V) rendering services or making
facilities available in connection with
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activities described in subclauses (I)
through (IV) carried on by the corpora-
tion rendering services or making fa-
cilities available, or another corpora-
tion which is a member of the same af-
filiated group (as defined in section
1504 
without 
regard 
to 
section
1504(b)(3)).
‘‘(iii) LIMITATION.—The term ‘quali-
fying lending and finance business’ shall
not include any interest in an entity, if the
stock or debt of such entity or a controlled
group (as defined in section 267(f)(1)) of
which such entity was a member was read-
ily tradable on an established securities
market or secondary market (as defined by
the Secretary) at any time within 3 years
before the date of the decedent’s death.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after De-
cember 31, 2001.
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SEC. 572. CLARIFICATION OF AVAILABILITY OF INSTALL-
MENT PAYMENT.
(a) IN
GENERAL.—Subparagraph (B) of section
6166(b)(8) (relating to all stock must be non-readily-
tradable stock) is amended to read as follows:
‘‘(B) ALL STOCK MUST BE NON-READILY-
TRADABLE STOCK.—
‘‘(i) IN GENERAL.—No stock shall be
taken into account for purposes of applying
this paragraph unless it is non-readily-
tradable stock (within the meaning of para-
graph (7)(B)).
‘‘(ii) SPECIAL
APPLICATION
WHERE
ONLY
HOLDING
COMPANY
STOCK
IS
NON-
READILY-TRADABLE STOCK.—If the require-
ments of clause (i) are not met, but all of
the stock of any holding company taken into
account is non-readily-tradable, then this
paragraph shall apply, but subsection (a)(1)
shall be applied by substituting ‘5’ for
‘10’.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to estates of decedents dying after De-
cember 31, 2001.
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Subtitle I—Compliance With
Congressional Budget Act
SEC. 581. SUNSET OF PROVISIONS OF TITLE.
All provisions of, and amendments made by, this title
which are in effect on September 30, 2011, shall cease to
apply as of the close of September 30, 2011.
TITLE VI—PENSION AND INDI-
VIDUAL 
RETIREMENT 
AR-
RANGEMENT PROVISIONS
Subtitle A—Individual Retirement
Accounts
SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) INCREASE IN CONTRIBUTION LIMIT.—
(1) IN GENERAL.—Paragraph (1)(A) of section
219(b) (relating to maximum amount of deduction) is
amended by striking ‘‘$2,000’’ and inserting ‘‘the de-
ductible amount’’.
(2) DEDUCTIBLE
AMOUNT.—Section 219(b) is
amended by adding at the end the following new
paragraph:
‘‘(5) DEDUCTIBLE
AMOUNT.—For purposes of
paragraph (1)(A)—
‘‘(A) IN GENERAL.—The deductible amount
shall be determined in accordance with the fol-
lowing table:
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‘‘For taxable years
The deductible
beginning in:
amount is:
2002 through 2005 ............................................................
$2,500
2006 and 2007 ...................................................................
$3,000
2008 and 2009 ...................................................................
$3,500
2010 ....................................................................................
$4,000
2011 and thereafter ...........................................................
$5,000.
‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDI-
VIDUALS 50 OR OLDER.—
‘‘(i) IN GENERAL.—In the case of an
individual who has attained the age of 50
before the close of the taxable year, the de-
ductible amount for such taxable year shall
be increased by the applicable amount.
‘‘(ii) APPLICABLE AMOUNT.—For pur-
poses of clause (i), the applicable amount
shall be the amount determined in accord-
ance with the following table:
‘‘For taxable years
The applicable
beginning in:
amount is:
2002 through 2005 ............................................................
$500
2006 through 2009 ............................................................
$1,000
2010 ....................................................................................
$1,500
2011 and thereafter ...........................................................
$2,000.
‘‘(C) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any
taxable year beginning in a calendar year
after 2011, the $5,000 amount under sub-
paragraph (A) shall be increased by an
amount equal to—
‘‘(I) such dollar amount, multi-
plied by
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‘‘(II) the cost-of-living adjustment
determined under section 1(f)(3) for
the calendar year in which the taxable
year begins, determined by substituting
‘calendar year 2010’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(ii) 
ROUNDING
RULES.—If 
any
amount after adjustment under clause (i) is
not a multiple of $500, such amount shall
be rounded to the next lower multiple of
$500.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in
excess of $2,000 on behalf of any individual’’ and in-
serting ‘‘on behalf of any individual in excess of the
amount in effect for such taxable year under section
219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(3) Section 408(b) is amended by striking
‘‘$2,000’’ in the matter following paragraph (4) and
inserting ‘‘the dollar amount in effect under section
219(b)(1)(A)’’.
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(4) Section 408(j) is amended by striking
‘‘$2,000’’.
(5) Section 408(p)(8) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2001.
SEC. 602. DEEMED IRAS UNDER EMPLOYER PLANS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (q) as subsection (r) and by inserting after sub-
section (p) the following new subsection:
‘‘(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER
PLANS.—
‘‘(1) GENERAL RULE.—If—
‘‘(A) a qualified employer plan elects to
allow employees to make voluntary employee
contributions to a separate account or annuity
established under the plan, and
‘‘(B) under the terms of the qualified em-
ployer plan, such account or annuity meets the
applicable requirements of this section or section
408A for an individual retirement account or
annuity,
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then such account or annuity shall be treated for pur-
poses of this title in the same manner as an indi-
vidual retirement plan and not as a qualified em-
ployer plan (and contributions to such account or an-
nuity as contributions to an individual retirement
plan and not to the qualified employer plan). For
purposes of subparagraph (B), the requirements of
subsection (a)(5) shall not apply.
‘‘(2) SPECIAL RULES FOR QUALIFIED EMPLOYER
PLANS.—For purposes of this title, a qualified em-
ployer plan shall not fail to meet any requirement of
this title solely by reason of establishing and main-
taining a program described in paragraph (1).
‘‘(3) 
DEFINITIONS.—For 
purposes 
of 
this
subsection—
‘‘(A) QUALIFIED
EMPLOYER
PLAN.—The
term ‘qualified employer plan’ has the meaning
given such term by section 72(p)(4); except such
term shall only include an eligible deferred com-
pensation plan (as defined in section 457(b))
which is maintained by an eligible employer de-
scribed in section 457(e)(1)(A).
‘‘(B) VOLUNTARY
EMPLOYEE
CONTRIBU-
TION.—The term ‘voluntary employee contribu-
tion’ means any contribution (other than a man-
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datory contribution within the meaning of sec-
tion 411(c)(2)(C))—
‘‘(i) which is made by an individual as
an employee under a qualified employer
plan which allows employees to elect to
make contributions described in paragraph
(1), and
‘‘(ii) with respect to which the indi-
vidual has designated the contribution as a
contribution to which this subsection ap-
plies.’’.
(b) AMENDMENT OF ERISA.—
(1) IN GENERAL.—Section 4 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C.
1003) is amended by adding at the end the following
new subsection:
‘‘(c) If a pension plan allows an employee to elect to
make voluntary employee contributions to accounts and an-
nuities as provided in section 408(q) of the Internal Rev-
enue Code of 1986, such accounts and annuities (and con-
tributions thereto) shall not be treated as part of such plan
(or as a separate pension plan) for purposes of any provi-
sion of this title other than section 403(c), 404, or 405 (re-
lating to exclusive benefit, and fiduciary and co-fiduciary
responsibilities).’’.
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(2) CONFORMING AMENDMENT.—Section 4(a) of
such Act (29 U.S.C. 1003(a)) is amended by inserting
‘‘or (c)’’ after ‘‘subsection (b)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 2002.
SEC. 603. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RE-
TIREMENT ACCOUNTS FOR CHARITABLE PUR-
POSES.
(a) IN GENERAL.—Subsection (d) of section 408 (relat-
ing to individual retirement accounts) is amended by add-
ing at the end the following new paragraph:
‘‘(8) DISTRIBUTIONS
FOR
CHARITABLE
PUR-
POSES.—
‘‘(A) IN GENERAL.—In the case of a quali-
fied charitable distribution from an individual
retirement account to an organization described
in section 170(c), no amount shall be includible
in the gross income of the account holder or bene-
ficiary.
‘‘(B) SPECIAL RULES RELATING TO CHARI-
TABLE
REMAINDER
TRUSTS, POOLED
INCOME
FUNDS, AND CHARITABLE GIFT ANNUITIES.—
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‘‘(i) IN GENERAL.—In the case of a
qualified charitable distribution from an in-
dividual retirement account—
‘‘(I) to a charitable remainder an-
nuity trust or a charitable remainder
unitrust (as such terms are defined in
section 664(d)),
‘‘(II) to a pooled income fund (as
defined in section 642(c)(5)), or
‘‘(III) for the issuance of a chari-
table gift annuity (as defined in sec-
tion 501(m)(5)),
no amount shall be includible in gross in-
come of the account holder or beneficiary.
The preceding sentence shall apply only if
no person holds any interest in the amounts
in the trust, fund, or annuity attributable
to such distribution other than one or more
of the following: the individual for whose
benefit such account is maintained, the
spouse of such individual, or any organiza-
tion described in section 170(c).
‘‘(ii) DETERMINATION
OF
INCLUSION
OF
AMOUNTS
DISTRIBUTED.—In 
deter-
mining the amount includible in the gross
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income of the distributee of a distribution
from a trust described in clause (i)(I) or an
annuity described in clause (i)(III), the
portion of any qualified charitable distribu-
tion to such trust or for such annuity which
would (but for this subparagraph) have been
includible in gross income—
‘‘(I) in the case of any such trust,
shall be treated as income described in
section 664(b)(1), or
‘‘(II) in the case of any such an-
nuity, shall not be treated as an invest-
ment in the contract.
‘‘(iii) NO
INCLUSION
FOR
DISTRIBU-
TION
TO
POOLED
INCOME
FUND.—No
amount shall be includible in the gross in-
come of a pooled income fund (as so de-
fined) by reason of a qualified charitable
distribution to such fund.
‘‘(C) QUALIFIED
CHARITABLE
DISTRIBU-
TION.—For purposes of this paragraph, the term
‘qualified charitable distribution’ means any dis-
tribution 
from 
an 
individual 
retirement
account—
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‘‘(i) which is made on or after the date
that the individual for whose benefit the ac-
count is maintained has attained age 701⁄2,
and
‘‘(ii) which is a charitable contribution
(as defined in section 170(c)) made directly
from the account to—
‘‘(I) an organization described in
section 170(c), or
‘‘(II) a trust, fund, or annuity de-
scribed in subparagraph (B).
‘‘(D) DENIAL OF DEDUCTION.—The amount
allowable as a deduction to the taxpayer for the
taxable year under section 170 (before the appli-
cation of section 170(b)) for qualified charitable
distributions shall be reduced (but not below
zero) by the sum of the amounts of the qualified
charitable distributions during such year which
(but for this paragraph) would have been includ-
ible in the gross income of the taxpayer for such
year.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 2009.
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Subtitle B—Expanding Coverage
SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIM-
ITS.
(a) DEFINED BENEFIT PLANS.—
(1) DOLLAR LIMIT.—
(A) Subparagraph (A) of section 415(b)(1)
(relating to limitation for defined benefit plans)
is amended by striking ‘‘$90,000’’ and inserting
‘‘the applicable limit’’.
(B) Section 415(b) is amended by adding at
the end the following new paragraph:
‘‘(12) APPLICABLE
LIMIT.—For purposes of
paragraph (1)(A), the applicable limit shall be deter-
mined in accordance with the following table:
‘‘For taxable years
The applicable
beginning in:
limit is:
2002, 2003, and 2004 ....................................................... $150,000
2005 and thereafter ........................................................... $160,000.’’.
(C) Subparagraphs (C) and (D) of section
415(b)(2) are each amended—
(i) in the headings, by striking
‘‘$90,000’’ and inserting ‘‘APPLICABLE’’,
(ii) by striking ‘‘$90,000 limitation’’
each place it appears and inserting ‘‘limita-
tion’’, and
(iii) by striking ‘‘a $90,000 annual
benefit’’ each place it appears and inserting
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‘‘an annual benefit equal to the applicable
limit’’.
(D) Paragraph (7) of section 415(b) (relat-
ing to benefits under certain collectively bar-
gained plans) is amended by striking ‘‘the great-
er of $68,212 or one-half the amount otherwise
applicable for such year under paragraph (1)(A)
for ‘$90,000’ ’’ and inserting ‘‘one-half the
amount otherwise applicable for such year under
paragraph (1)(A) for ‘the applicable limit’ ’’.
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BE-
FORE AGE 62.—Subparagraph (C) of section 415(b)(2)
is amended by striking ‘‘the social security retirement
age’’ each place it appears in the heading and text
and inserting ‘‘age 62’’ and by striking the second
sentence.
(3) LIMIT
INCREASED
WHEN
BENEFIT
BEGINS
AFTER
AGE
65.—Subparagraph 
(D) 
of 
section
415(b)(2) is amended by striking ‘‘the social security
retirement age’’ each place it appears in the heading
and text and inserting ‘‘age 65’’.
(4) COST-OF-LIVING ADJUSTMENTS.—Subsection
(d) of section 415 (related to cost-of-living adjust-
ments) is amended—
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(A) by striking ‘‘$90,000’’ in paragraph
(1)(A) and inserting ‘‘applicable limit’’; and
(B) in paragraph (3)(A)—
(i) by striking ‘‘$90,000’’ in the head-
ing and inserting ‘‘applicable limit’’; and
(ii) by striking ‘‘October 1, 1986’’ and
inserting ‘‘July 1, 2004’’.
(5) CONFORMING AMENDMENTS.—
(A) Section 415(b)(2) is amended by strik-
ing subparagraph (F).
(B) Section 415(b)(9) is amended to read as
follows:
‘‘(9) SPECIAL RULE FOR COMMERCIAL AIRLINE
PILOTS.—In the case of any participant who is a
commercial airline pilot, if, as of the time of the par-
ticipant’s retirement, regulations prescribed by the
Federal Aviation Administration require an indi-
vidual to separate from service as a commercial air-
line pilot after attaining any age occurring on or
after age 60 and before age 62, paragraph (2)(C) shall
be applied by substituting such age for age 62.’’.
(C) Section 415(b)(10)(C)(i) is amended by
striking ‘‘applied without regard to paragraph
(2)(F)’’.
(b) QUALIFIED TRUSTS.—
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(1) COMPENSATION LIMIT.—
(A) Section 401(a)(17) is amended—
(i) in subparagraph (A), by striking
‘‘$150,000’’ and inserting ‘‘the applicable
dollar amount’’,
(ii) in subparagraph (B), by striking
‘‘$150,000’’ and inserting ‘‘the applicable
dollar’’, and
(iii) by adding at the end the fol-
lowing:
‘‘(C) APPLICABLE
DOLLAR
AMOUNT.—For
purposes of this paragraph, the applicable dollar
amount shall be determined in accordance with
the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount is:
calendar year:
2002 .................................................................................... $180,000
2003 .................................................................................... $190,000
2004 or thereafter .............................................................. $200,000.’’.
(B) Section 404(l) is amended—
(i) by striking the second sentence,
(ii) by striking ‘‘$150,000’’ and insert-
ing ‘‘the applicable dollar amount in effect
under section 401(a)(17)(A)’’, and
(iii) by striking ‘‘the preceding sen-
tence’’ 
and 
inserting 
‘‘section
401(a)(17)(B)’’.
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(C) Section 408(k) is amended—
(i) in each of paragraphs (3)(C) and
(6)(D)(ii), by striking ‘‘$150,000’’ each
place it appears and inserting ‘‘amount of
compensation equal to the applicable dollar
amount 
in 
effect 
under 
section
401(a)(17)(A)’’, and
(ii) in paragraph (8), by striking ‘‘and
shall adjust’’ and all that follows through
‘‘section 401(a)(17)(B)’’.
(D) Section 505(b)(7) is amended—
(i) by striking ‘‘$150,000’’ and insert-
ing ‘‘the applicable dollar amount in effect
under section 401(a)(17)(A)’’, and
(ii) by striking the second sentence.
(2) BASE PERIOD AND ROUNDING OF COST-OF-
LIVING ADJUSTMENT.—Subparagraph (B) of section
401(a)(17) is amended—
(A) by striking ‘‘The Secretary’’ and insert-
ing ‘‘In calendar years beginning after 2005, the
Secretary’’,
(B) by striking ‘‘October 1, 1993’’ and in-
serting ‘‘July 1, 2005’’; and
(C) by striking ‘‘$10,000’’ both places it ap-
pears and inserting ‘‘$5,000’’.
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(c) ELECTIVE DEFERRALS.—
(1) IN
GENERAL.—Paragraph (1) of section
402(g) (relating to limitation on exclusion for elective
deferrals) is amended to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) LIMITATION.—Notwithstanding sub-
sections (e)(3) and (h)(1)(B), the elective defer-
rals of any individual for any taxable year shall
be included in such individual’s gross income to
the extent the amount of such deferrals for the
taxable year exceeds the applicable dollar
amount.
‘‘(B) APPLICABLE
DOLLAR
AMOUNT.—For
purposes of subparagraph (A), the applicable
dollar amount shall be the amount determined in
accordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount is:
calendar year:
2002 ....................................................................................
$11,000
2003 ....................................................................................
$11,500
2004 ....................................................................................
$12,000
2005 ....................................................................................
$12,500
2006 ....................................................................................
$13,000
2007 ....................................................................................
$13,500
2008 ....................................................................................
$14,000
2009 ....................................................................................
$14,500
2010 or thereafter ..............................................................
$15,000.’’.
(2) COST-OF-LIVING
ADJUSTMENT.—Paragraph
(5) of section 402(g) is amended to read as follows:
‘‘(5) COST-OF-LIVING ADJUSTMENT.—In the case
of taxable years beginning after December 31, 2010,
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the Secretary shall adjust the $15,000 amount under
paragraph (1)(B) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter beginning July 1,
2009, and any increase under this paragraph which
is not a multiple of $500 shall be rounded to the next
lowest multiple of $500.’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 402(g) (relating to limitation
on exclusion for elective deferrals), as amended
by paragraphs (1) and (2), is further amended
by striking paragraph (4) and redesignating
paragraphs (5), (6), (7), (8), and (9) as para-
graphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is
amended by striking ‘‘402(g)(8)(A)(iii)’’ and in-
serting ‘‘402(g)(7)(A)(iii)’’.
(C) Clause (iii) of section 501(c)(18)(D) is
amended by striking ‘‘(other than paragraph (4)
thereof)’’.
(d) DEFERRED COMPENSATION PLANS OF STATE AND
LOCAL
GOVERNMENTS
AND
TAX-EXEMPT
ORGANIZA-
TIONS.—
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(1) IN GENERAL.—Section 457 (relating to de-
ferred compensation plans of State and local govern-
ments and tax-exempt organizations) is amended—
(A) in subsections (b)(2)(A) and (c)(1) by
striking ‘‘$7,500’’ each place it appears and in-
serting ‘‘the applicable dollar amount’’; and
(B) in subsection (b)(3)(A) by striking
‘‘$15,000’’ and inserting ‘‘twice the dollar
amount in effect under subsection (b)(2)(A)’’.
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIV-
ING ADJUSTMENT.—Paragraph (15) of section 457(e)
is amended to read as follows:
‘‘(15) APPLICABLE DOLLAR AMOUNT.—
‘‘(A) IN GENERAL.—The applicable dollar
amount shall be the amount determined in ac-
cordance with the following table:
‘‘For taxable years
The applicable
beginning in
dollar amount is:
calendar year:
2002 ....................................................................................
$9,000
2003 ....................................................................................
$9,500
2004 ....................................................................................
$10,000
2005 ....................................................................................
$10,500
2006 ....................................................................................
$11,000
2007 ....................................................................................
$12,000
2008 ....................................................................................
$13,000
2009 ....................................................................................
$14,000
2010 or thereafter ..............................................................
$15,000.
‘‘(B) COST-OF-LIVING
ADJUSTMENTS.—In
the case of taxable years beginning after Decem-
ber 31, 2010, the Secretary shall adjust the
$15,000 amount under subparagraph (A) at the