1175
‘‘(xvii) TREATMENT
OF
BONA
FIDE
DEBT
SERVICE
FUNDS.—If the spending
requirements of clause (ii) are met with re-
spect to the available construction proceeds
of a construction issue, then paragraph (2)
shall not apply to earnings on a bona fide
debt service fund for such issue.’’
SEC. 14563. REPEAL OF DEBT SERVICE-BASED LIMITATION
ON INVESTMENT IN CERTAIN NONPURPOSE
INVESTMENTS.
Subsection (d) of section 148 (relating to special
rules for reasonably required reserve or replacement fund)
is amended by striking paragraph (3).
SEC. 14564. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) of section 148(c) is amended by
striking subparagraph (B) and by redesignating subpara-
graphs (C), (D), and (E) as subparagraphs (B), (C), and
(D), respectively.
(b) Paragraph (4) of section 148(f) is amended by
striking subparagraph (E).
SEC. 14565. EFFECTIVE DATES.
The amendments made by this part shall apply to
bonds issued after the date of the enactment of this Act.
1176
PART VI—INSURANCE PROVISIONS
SEC. 14571. TREATMENT OF CERTAIN INSURANCE CON-
TRACTS ON RETIRED LIVES.
(a) GENERAL RULE.—
(1) Paragraph (2) of section 817(d) (defining
variable contract) is amended by striking ‘‘or’’ at the
end of subparagraph (A), by striking ‘‘and’’ at the
end of subparagraph (B) and inserting ‘‘or’’, and by
inserting after subparagraph (B) the following new
subparagraph:
‘‘(C) provides for funding of insurance on
retired lives as described in section 807(c)(6),
and’’.
(2) Paragraph (3) of section 817(d) is amended
by striking ‘‘or’’ at the end of subparagraph (A), by
striking the period at the end of subparagraph (B)
and inserting ‘‘, or’’, and by inserting after subpara-
graph (B) the following new subparagraph:
‘‘(C) in the case of funds held under a con-
tract described in paragraph (2)(C), the
amounts paid in, or the amounts paid out, re-
flect the investment return and the market
value of the segregated asset account.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
1177
SEC. 14572. TREATMENT OF MODIFIED GUARANTEED CON-
TRACTS.
(a) GENERAL RULE.—Subpart E of part I of sub-
chapter L of chapter 1 (relating to definitions and special
rules) is amended by inserting after section 817 the follow-
ing new section:
‘‘SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED
CONTRACTS.
‘‘(a) COMPUTATION OF RESERVES.—In the case of
a modified guaranteed contract, clause (ii) of section
807(e)(1)(A) shall not apply.
‘‘(b) SEGREGATED ASSETS UNDER MODIFIED GUAR-
ANTEED CONTRACTS MARKED TO MARKET.—
‘‘(1) IN GENERAL.—In the case of any life in-
surance company, for purposes of this subtitle—
‘‘(A) Any gain or loss with respect to a
segregated asset shall be treated as ordinary in-
come or loss, as the case may be.
‘‘(B) If any segregated asset is held by
such company as of the close of any taxable
year—
‘‘(i) such company shall recognize
gain or loss as if such asset were sold for
its fair market value on the last business
day of such taxable year, and
1178
‘‘(ii) any such gain or loss shall be
taken into account for such taxable year.
Proper adjustment shall be made in the amount
of any gain or loss subsequently realized for
gain or loss taken into account under the pre-
ceding sentence. The Secretary may provide by
regulations for the application of this subpara-
graph at times other than the times provided in
this subparagraph.
‘‘(2) SEGREGATED
ASSET.—For purposes of
paragraph (1), the term ‘segregated asset’ means
any asset held as part of a segregated account re-
ferred to in subsection (d)(1) under a modified guar-
anteed contract.
‘‘(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE
RESERVES.—For 
purposes 
of 
applying 
section
816(b)(1)(A) to any modified guaranteed contract, an as-
sumed rate of interest shall include a rate of interest de-
termined, from time to time, with reference to a market
rate of interest.
‘‘(d) MODIFIED
GUARANTEED
CONTRACT
DE-
FINED.—For purposes of this section, the term ‘modified
guaranteed contract’ means a contract not described in
section 817—
1179
‘‘(1) all or part of the amounts received under
which are allocated to an account which, pursuant to
State law or regulation, is segregated from the gen-
eral asset accounts of the company and is valued
from time to time with reference to market values,
‘‘(2) which—
‘‘(A) provides for the payment of annuities,
‘‘(B) is a life insurance contract, or
‘‘(C) is a pension plan contract which is
not a life, accident, or health, property, cas-
ualty, or liability contract,
‘‘(3) for which reserves are valued at market for
annual statement purposes, and
‘‘(4) which provides for a net surrender value or
a policyholder’s fund (as defined in section
807(e)(1)).
If only a portion of a contract is not described in section
817, such portion shall be treated for purposes of this sec-
tion as a separate contract.
‘‘(e) REGULATIONS.—The Secretary may prescribe
regulations—
‘‘(1) to provide for the treatment of market
value adjustments under sections 72, 7702, 7702A,
and 807(e)(1)(B),
1180
‘‘(2) to determine the interest rates applicable
under sections 807(c)(3), 807(d)(2)(B), and 812
with respect to a modified guaranteed contract an-
nually, in a manner appropriate for modified guar-
anteed contracts and, to the extent appropriate for
such a contract, to modify or waive the applicability
of section 811(d),
‘‘(3) to provide rules to limit ordinary gain or
loss treatment to assets constituting reserves for
modified guaranteed contracts (and not other assets)
of the company,
‘‘(4) to provide appropriate treatment of trans-
fers of assets to and from the segregated account,
and
‘‘(5) as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart E of part I of subchapter L of chapter 1 is
amended by inserting after the item relating to section
817 the following new item:
‘‘Sec. 817A. Special rules for modified guaranteed contracts.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1995.
1181
(2) TREATMENT
OF
NET
ADJUSTMENTS.—In
the case of any taxpayer required by the amend-
ments made by this section to change its calculation
of reserves to take into account market value adjust-
ments and to mark segregated assets to market for
any taxable year—
(A) such changes shall be treated as a
change in method of accounting initiated by the
taxpayer,
(B) such changes shall be treated as made
with the consent of the Secretary, and
(C) the adjustments required by reason of
section 481 of the Internal Revenue Code of
1986 shall be taken into account as ordinary in-
come or loss by the taxpayer for the taxpayer’s
first taxable year beginning after December 31,
1995.
SEC. 14573. MINIMUM TAX TREATMENT OF CERTAIN PROP-
ERTY AND CASUALTY INSURANCE COMPA-
NIES.
(a) IN GENERAL.—Clause (i) of section 56(g)(4)(B)
(relating to inclusion of items included for purposes of
computing earnings and profits) is amended by adding at
the end the following new sentence: ‘‘In the case of any
insurance company taxable under section 831(b), this
1182
clause shall not apply to any amount not described in sec-
tion 834(b).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1995.
PART VII—OTHER PROVISIONS
SEC. 14581. CLOSING OF PARTNERSHIP TAXABLE YEAR
WITH RESPECT TO DECEASED PARTNER, ETC.
(a) GENERAL RULE.—Subparagraph (A) of section
706(c)(2) (relating to disposition of entire interest) is
amended to read as follows:
‘‘(A) DISPOSITION
OF
ENTIRE
INTER-
EST.—The taxable year of a partnership shall
close with respect to a partner whose entire in-
terest in the partnership terminates (whether
by reason of death, liquidation, or otherwise).’’
(b) CLERICAL AMENDMENT.—The paragraph head-
ing for paragraph (2) of section 706(c) is amended to read
as follows:
‘‘(2) TREATMENT OF DISPOSITIONS.—’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to partnership taxable years begin-
ning after December 31, 1995.
1183
SEC. 14582. CREDIT FOR SOCIAL SECURITY TAXES PAID
WITH RESPECT TO EMPLOYEE CASH TIPS.
(a) REPORTING REQUIREMENT NOT CONSIDERED.—
Subparagraph (A) of section 45B(b)(1) (relating to excess
employer social security tax) is amended by inserting
‘‘(without regard to whether such tips are reported under
section 6053)’’ after ‘‘section 3121(q)’’.
(b) TAXES PAID.—Subsection (d) of section 13443 of
the Revenue Reconciliation Act of 1993 is amended by in-
serting ‘‘, with respect to services performed before, on,
or after such date’’ after ‘‘1993’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by, and the provisions of, section 13443 of
the Revenue Reconciliation Act of 1993.
SEC. 14583. DUE DATE FOR FIRST QUARTER ESTIMATED
TAX PAYMENTS BY PRIVATE FOUNDATIONS.
(a) IN GENERAL.—Paragraph (3) of section 6655(g)
is amended by inserting after subparagraph (C) the follow-
ing new subparagraph:
‘‘(D) In the case of any private foundation,
subsection (c)(2) shall be applied by substitut-
ing ‘May 15’ for ‘April 15 ’ ’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1995.
1184
SEC. 14584. TREATMENT OF DUES PAID TO AGRICULTURAL
OR HORTICULTURAL ORGANIZATIONS.
(a) GENERAL RULE.—Section 512 (defining unre-
lated business taxable income) is amended by adding at
the end thereof the following new subsection:
‘‘(d) TREATMENT OF DUES OF AGRICULTURAL OR
HORTICULTURAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an agricultural or horticultural orga-
nization described in section 501(c)(5) requires
annual dues to be paid in order to be a member
of such organization, and
‘‘(B) the amount of such required annual
dues does not exceed $100,
in no event shall any portion of such dues be treated
as derived by such organization from an unrelated
trade or business by reason of any benefits or privi-
leges to which members of such organization are en-
titled.
‘‘(2) INDEXATION
OF
$100
AMOUNT.—In the
case of any taxable year beginning in a calendar
year after 1995, the $100 amount in paragraph (1)
shall be increased by an amount equal to—
‘‘(A) $100, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
1185
year in which the taxable year begins, by sub-
stituting ‘calendar year 1994’ for ‘calendar year
1992’ in subparagraph (B) thereof.
‘‘(3) DUES.—For purposes of this subsection,
the term ‘dues’ includes any payment required to be
made in order to be recognized by the organization
as a member of the organization.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
Subtitle F—Estates and Trusts
PART I—INCOME TAX PROVISIONS
SEC. 14601. CERTAIN REVOCABLE TRUSTS TREATED AS
PART OF ESTATE.
(a) IN GENERAL.—Subpart A of part I of subchapter
J (relating to estates, trusts, beneficiaries, and decedents)
is amended by adding at the end the following new section:
‘‘SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS
PART OF ESTATE.
‘‘(a) GENERAL RULE.—For purposes of this subtitle,
if both the executor of an estate and the trustee of a quali-
fied revocable trust elect the treatment provided in this
section, such trust shall be treated and taxed as part of
such estate (and not as a separate trust) for all taxable
1186
years of the estate ending after the date of the decedent’s
death and before the applicable date.
‘‘(b) DEFINITIONS.—For purposes of subsection
(a)—
‘‘(1) 
QUALIFIED
REVOCABLE
TRUST.—The
term ‘qualified revocable trust’ means any trust all
of which was treated under section 676 as owned by
the decedent of the estate referred to in subsection
(a).
‘‘(2) APPLICABLE DATE.—The term ‘applicable
date’ means—
‘‘(A) if no return of tax imposed by chap-
ter 11 is required to be filed, the date which is
2 years after the date of the decedent’s death,
and
‘‘(B) if such a return is required to be
filed, the date which is 6 months after the date
of the final determination of the liability for tax
imposed by chapter 11.
‘‘(c) ELECTION.—The election under subsection (a)
shall be made not later than the time prescribed for filing
the return of tax imposed by this chapter for the first tax-
able year of the estate (determined with regard to exten-
sions) and, once made, shall be irrevocable.’’
1187
(b) COMPARABLE TREATMENT UNDER GENERATION-
SKIPPING TAX.—Paragraph (1) of section 2652(b) is
amended by adding at the end the following new sentence:
‘‘Such term shall not include any trust during any period
the trust is treated as part of an estate under section
646.’’
(c) CLERICAL AMENDMENT.—The table of sections
for such subpart A is amended by adding at the end the
following new item:
‘‘Sec. 646. Certain revocable trusts treated as part of estate.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to estates of decedents
dying after the date of the enactment of this Act.
SEC. 14602. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAX-
ABLE YEAR OF ESTATE.
(a) IN GENERAL.—Subsection (b) of section 663 (re-
lating to distributions in first 65 days of taxable year) is
amended by inserting ‘‘an estate or’’ before ‘‘a trust’’ each
place it appears.
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 663(b) is amended by striking ‘‘the fiduciary of
such trust’’ and inserting ‘‘the executor of such estate or
the fiduciary of such trust (as the case may be)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
1188
SEC. 14603. SEPARATE SHARE RULES AVAILABLE TO ES-
TATES.
(a) IN GENERAL.—Subsection (c) of section 663 (re-
lating to separate shares treated as separate trusts) is
amended—
(1) by inserting before the last sentence the fol-
lowing new sentence: ‘‘Rules similar to the rules of
the preceding provisions of this subsection shall
apply to treat substantially separate and independ-
ent shares of different beneficiaries in an estate hav-
ing more than 1 beneficiary as separate estates.’’,
and
(2) by inserting ‘‘or estates’’ after ‘‘trusts’’ in
the last sentence.
(b) CONFORMING
AMENDMENT.—The subsection
heading of section 663(c) is amended by inserting ‘‘ES-
TATES OR’’ before ‘‘TRUSTS’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 14604. EXECUTOR OF ESTATE AND BENEFICIARIES
TREATED AS RELATED PERSONS FOR DIS-
ALLOWANCE OF LOSSES, ETC.
(a) DISALLOWANCE OF LOSSES.—Subsection (b) of
section 267 (relating to losses, expenses, and interest with
respect to transactions between related taxpayers) is
1189
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) Except in the case of a sale or exchange
in satisfaction of a pecuniary bequest, an executor of
an estate and a beneficiary of such estate.’’
(b) ORDINARY INCOME FROM GAIN FROM SALE OF
DEPRECIABLE PROPERTY.—Subsection (b) of section
1239 is amended by striking the period at the end of para-
graph (2) and inserting ‘‘, and’’ and by adding at the end
the following new paragraph:
‘‘(3) except in the case of a sale or exchange in
satisfaction of a pecuniary bequest, an executor of
an estate and a beneficiary of such estate.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 14605. LIMITATION ON TAXABLE YEAR OF ESTATES.
(a) IN GENERAL.—Section 645 (relating to taxable
year of trusts) is amended to read as follows:
‘‘SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.
‘‘(a) ESTATES.—For purposes of this subtitle, the
taxable year of an estate shall be a year ending on October
31, November 30, or December 31.
1190
‘‘(b) TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this sub-
title, the taxable year of any trust shall be the cal-
endar year.
‘‘(2) EXCEPTION FOR TRUSTS EXEMPT FROM
TAX
AND
CHARITABLE
TRUSTS.—Paragraph (1)
shall not apply to a trust exempt from taxation
under section 501(a) or to a trust described in sec-
tion 4947(a)(1).’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part I of subchapter J of chapter 1 is
amended by striking the item relating to section 645 and
inserting the following new item:
‘‘Sec. 645. Taxable year of estates and trusts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 14606. REPEAL OF CERTAIN THROWBACK RULES AP-
PLICABLE TO DOMESTIC TRUSTS.
(a) ACCUMULATION DISTRIBUTIONS.—
(1) IN GENERAL.—Section 665 is amended by
adding at the end the following new subsection:
‘‘(f) ACCUMULATION DISTRIBUTIONS AFTER 1995.—
For purposes of this subpart, in the case of a trust other
than a foreign trust, any distribution in any taxable year
1191
beginning after December 31, 1995, shall be computed
without regard to any undistributed net income.’’
(2) CONFORMING AMENDMENT.—Subsection (b)
of section 665 is amended by inserting ‘‘except as
provided in subsection (f),’’ after ‘‘subpart,’’
(b) PROPERTY TRANSFERRED
TO TRUSTS.—Sub-
section (e) of section 644 is amended by striking ‘‘or’’ at
the end of paragraph (3), by striking the period at the
end of paragraph (4) and inserting ‘‘, or ’’, and by adding
at the end the following new paragraph:
‘‘(5) in the case of a trust other than a foreign
trust, any sale or exchange of property after Decem-
ber 31, 1995.’’
(c) EFFECTIVE DATES.—
(1) 
ACCUMULATION
DISTRIBUTION.—The
amendments made by subsection (a) shall apply to
distributions in taxable years beginning after De-
cember 31, 1995.
(2) TRANSFERRED
PROPERTY.—The amend-
ments made by subsection (b) shall apply to sales or
exchanges after December 31, 1995.
SEC. 14607. TREATMENT OF FUNERAL TRUSTS.
(a) IN GENERAL.—Subpart F of part I of subchapter
J of chapter 1 is amended by adding at the end the follow-
ing new section:
1193
‘‘(5) the trustee elects the application of this
subsection, and
‘‘(6) the trust would (but for the election de-
scribed in paragraph (5)) be treated as owned by the
beneficiaries under subpart E.
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral
trust’ shall not include any trust which accepts con-
tributions by or for the benefit of an individual in
excess of $5,000.
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are relat-
ed persons shall be treated as 1 trust. For purposes
of the preceding sentence, persons are related if—
‘‘(A) the relationship between such persons
would result in the disallowance of losses under
section 267 or 707(b),
‘‘(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
‘‘(C) the Secretary determines that treat-
ing such persons as related is necessary to pre-
vent avoidance of the purposes of this section.
‘‘(3) INFLATION ADJUSTMENT.—In the case of
any contract referred to in subsection (b)(1) which
1194
is entered into during any calendar year after 1996,
the dollar amount referred to paragraph (1) shall be
increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1995’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any dollar amount after being increased under the
preceding sentence is not a multiple of $100, such
dollar amount shall be rounded to the nearest mul-
tiple of $100.
‘‘(d) APPLICATION
OF RATE SCHEDULE.—Section
1(e) shall be applied to each qualified funeral trust by
treating each beneficiary’s interest in each such trust as
a separate trust.
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BEN-
EFICIARY ON CANCELLATION.—No gain or loss shall be
recognized to a beneficiary described in subsection (b)(3)
of any qualified funeral trust by reason of any payment
from such trust to such beneficiary by reason of cancella-
tion of a contract referred to in subsection (b)(1). If any
payment referred to in the preceding sentence consists of
property other than money, the basis of such property in
1195
the hands of such beneficiary shall be the same as the
trust’s basis in such property immediately before the pay-
ment.
‘‘(f) SIMPLIFIED REPORTING.—The Secretary may
prescribe rules for simplified reporting of all trusts having
a single trustee.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart F of part I of subchapter J of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 684. Treatment of funeral trusts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
PART II—ESTATE AND GIFT TAX PROVISIONS
SEC. 14611. CLARIFICATION OF WAIVER OF CERTAIN
RIGHTS OF RECOVERY.
(a) AMENDMENT TO SECTION 2207A.—Paragraph
(2) of section 2207A(a) (relating to right of recovery in
the case of certain marital deduction property) is amended
to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—
Paragraph (1) shall not apply with respect to any
property to the extent that the decedent in his will
(or a revocable trust) specifically indicates an intent
to waive any right of recovery under this subchapter
with respect to such property.’’
1196
(b) AMENDMENT TO SECTION 2207B.—Paragraph
(2) of section 2207B(a) (relating to right of recovery
where decedent retained interest) is amended to read as
follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—
Paragraph (1) shall not apply with respect to any
property to the extent that the decedent in his will
(or a revocable trust) specifically indicates an intent
to waive any right of recovery under this subchapter
with respect to such property.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to the estates of dece-
dents dying after the date of the enactment of this Act.
SEC. 14612. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF
DECEDENT’S DEATH.
(a) GENERAL RULE.—Section 2035 is amended to
read as follows:
‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE
WITHIN 3 YEARS OF DECEDENT’S DEATH.
‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS
ESTATE.—If—
‘‘(1) the decedent made a transfer (by trust or
otherwise) of an interest in any property, or relin-
quished a power with respect to any property, during
1197
the 3-year period ending on the date of the dece-
dent’s death, and
‘‘(2) the value of such property (or an interest
therein) would have been included in the decedent’s
gross estate under section 2036, 2037, 2038, or
2042 if such transferred interest or relinquished
power had been retained by the decedent on the date
of his death,
the value of the gross estate shall include the value of any
property (or interest therein) which would have been so
included.
‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DUR-
ING
3 YEARS
BEFORE
DECEDENT’S
DEATH.—The
amount of the gross estate (determined without regard to
this subsection) shall be increased by the amount of any
tax paid under chapter 12 by the decedent or his estate
on any gift made by the decedent or his spouse during
the 3-year period ending on the date of the decedent’s
death.
‘‘(c) OTHER
RULES
RELATING
TO
TRANSFERS
WITHIN 3 YEARS OF DEATH.—
‘‘(1) IN GENERAL.—For purposes of—
‘‘(A) section 303(b) (relating to distribu-
tions in redemption of stock to pay death
taxes),
1198
‘‘(B) section 2032A (relating to special
valuation of certain farms, etc., real property),
and
‘‘(C) subchapter C of chapter 64 (relating
to lien for taxes),
the value of the gross estate shall include the value
of all property to the extent of any interest therein
of which the decedent has at any time made a trans-
fer, by trust or otherwise, during the 3-year period
ending on the date of the decedent’s death.
‘‘(2) COORDINATION WITH SECTION 6166.—An
estate shall be treated as meeting the 35 percent of
adjusted 
gross 
estate 
requirement 
of 
section
6166(a)(1) only if the estate meets such requirement
both with and without the application of paragraph
(1).
‘‘(3) MARITAL AND SMALL TRANSFERS.—Para-
graph (1) shall not apply to any transfer (other than
a transfer with respect to a life insurance policy)
made during a calendar year to any donee if the de-
cedent was not required by section 6019 (other than
by reason of section 6019(2)) to file any gift tax re-
turn for such year with respect to transfers to such
donee.
1199
‘‘(d) EXCEPTION.—Subsection (a) shall not apply to
any bona fide sale for an adequate and full consideration
in money or money’s worth.
‘‘(e) TREATMENT OF CERTAIN TRANSFERS FROM
REVOCABLE TRUSTS.—For purposes of this section and
section 2038, any transfer from any portion of a trust dur-
ing any period that such portion was treated under section
676 as owned by the decedent shall be treated as a trans-
fer made directly by the decedent.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter A of chapter 11 is amended
by striking ‘‘gifts’’ in the item relating to section 2035
and inserting ‘‘certain gifts’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to the estates of decedents dying
after the date of the enactment of this Act.
SEC. 14613. CLARIFICATION OF QUALIFIED TERMINABLE
INTEREST RULES.
(a) GENERAL RULE.—
(1) ESTATE TAX.—Subparagraph (B) of section
2056(b)(7) (defining qualified terminable interest
property) is amended by adding at the end the fol-
lowing new clause:
‘‘(vi) TREATMENT
OF
CERTAIN
IN-
COME DISTRIBUTIONS.—An income inter-
1200
est shall not fail to qualify as a qualified
income interest for life solely because in-
come for the period after the last distribu-
tion date and on or before the date of the
surviving spouse’s death is not required to
be distributed to the surviving spouse or to
the estate of the surviving spouse.’’
(2) GIFT
TAX.—Paragraph (3) of section
2523(f) is amended by striking ‘‘and (iv)’’ and in-
serting ‘‘(iv), and (vi)’’.
(b) CLARIFICATION OF SUBSEQUENT INCLUSIONS.—
Section 2044 is amended by adding at the end the follow-
ing new subsection:
‘‘(d) CLARIFICATION OF INCLUSION OF CERTAIN IN-
COME.—The amount included in the gross estate under
subsection (a) shall include the amount of any income
from the property to which this section applies for the pe-
riod after the last distribution date and on or before the
date of the decedent’s death if such income is not other-
wise included in the decedent’s gross estate.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply with respect to the estates of
decedents dying, and gifts made, after the date of
the enactment of this Act.
1201
(2) APPLICATION OF SECTION 2044 TO TRANS-
FERS BEFORE DATE OF ENACTMENT.—In the case
of the estate of any decedent dying after the date of
the enactment of this Act, if there was a transfer of
property on or before such date—
(A) such property shall not be included in
the gross estate of the decedent under section
2044 of the Internal Revenue Code of 1986 if
no prior marital deduction was allowed with re-
spect to such a transfer of such property to the
decedent, but
(B) such property shall be so included if
such a deduction was allowed.
SEC. 14614. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) GENERAL RULE.—In the case of any trust cre-
ated under an instrument executed before the date of the
enactment of the Revenue Reconciliation Act of 1990,
such trust shall be treated as meeting the requirements
of paragraph (1) of section 2056A(a) of the Internal Reve-
nue Code of 1986 if the trust instrument requires that
all trustees of the trust be individual citizens of the United
States or domestic corporations.
(b) EFFECTIVE DATE.—The provisions of subsection
(a) shall take effect as if included in the provisions of sec-
tion 11702(g) of the Revenue Reconciliation Act of 1990.
1202
SEC. 14615. OPPORTUNITY TO CORRECT CERTAIN FAIL-
URES UNDER SECTION 2032A.
(a) GENERAL RULE.—Paragraph (3) of section
2032A(d) (relating to modification of election and agree-
ment to be permitted) is amended to read as follows:
‘‘(3) MODIFICATION OF ELECTION AND AGREE-
MENT TO BE PERMITTED.—The Secretary shall pre-
scribe procedures which provide that in any case in
which the executor makes an election under para-
graph (1) (and submits the agreement referred to in
paragraph (2)) within the time prescribed therefor,
but—
‘‘(A) the notice of election, as filed, does
not contain all required information, or
‘‘(B) signatures of 1 or more persons re-
quired to enter into the agreement described in
paragraph (2) are not included on the agree-
ment as filed, or the agreement does not con-
tain all required information,
the executor will have a reasonable period of time
(not exceeding 90 days) after notification of such
failures to provide such information or signatures.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to the estates of decedents dying
after the date of the enactment of this Act.
1203
SEC. 14616. UNIFIED CREDIT OF DECEDENT INCREASED BY
UNIFIED CREDIT OF SPOUSE USED ON SPLIT
GIFT INCLUDED IN DECEDENT’S GROSS ES-
TATE.
(a) IN GENERAL.—Section 2010 (relating to unified
credit against estate tax) is amended by adding at the end
the following new subsection:
‘‘(d) TREATMENT OF UNIFIED CREDIT USED BY
SPOUSE
ON
SPLIT-GIFT
INCLUDED
IN
DECEDENT’S
GROSS ESTATE.—If—
‘‘(1) the decedent was the donor of any gift
one-half of which was considered under section 2513
as made by the decedent’s spouse, and
‘‘(2) the amount of such gift is includible in the
gross estate of the decedent by reason of section
2035, 2036, 2037, or 2038,
the amount of the credit allowable by subsection (a) to
the estate of the decedent shall be increased by the amount
of the unified credit allowed against the tax imposed by
section 2501 on the amount of such gift considered under
section 2513 as made by such spouse.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to gifts made after the date of
the enactment of this Act.
1204
SEC. 14617. REFORMATION OF DEFECTIVE BEQUESTS, ETC.
TO SPOUSE OF DECEDENT.
(a) IN GENERAL.—Subsection (b) of section 2056
(relating to bequests, etc., to surviving spouse) is amended
by adding at the end the following new paragraph:
‘‘(11) REFORMATIONS PERMITTED.—
‘‘(A) IN GENERAL.—In the case of any in-
terest in property with respect to which a de-
duction would be allowable under subsection (a)
but for a provision of this subsection, if—
‘‘(i) the surviving spouse is entitled to
all of the income from the property for life,
‘‘(ii) no person other than such spouse
is entitled to any distribution of such prop-
erty during such spouse’s life, and
‘‘(iii) there is a change of a governing
instrument (by reformation, amendment,
construction, or otherwise) as of the appli-
cable date which results in the satisfaction
of the requirements of such provision as of
the date of the decedent’s death,
the determination of whether such deduction is
allowable shall be made as of the applicable
date.
‘‘(B) SPECIAL RULE WHERE TIMELY COM-
MENCEMENT
OF
REFORMATION.—Clauses (i)
1205
and (ii) of subparagraph (A) shall not apply to
any interest if, not later than the date described
in subparagraph (C)(i), a judicial proceeding is
commenced to change such interest into an in-
terest which satisfies the requirements of the
provision by reason of which (but for this para-
graph) a deduction would not be allowable
under subsection (a) for such interest.
‘‘(C) APPLICABLE DATE.—For purposes of
subparagraph (A), the term ‘applicable date’
means—
‘‘(i) the last date (including exten-
sions) for filing the return of tax imposed
by this chapter, or
‘‘(ii) if a judicial proceeding is com-
menced to comply with such provision, the
time when the changes pursuant to such
proceeding are made.
‘‘(D) SPECIAL RULE.—If the change re-
ferred to in subparagraph (A)(iii) is to qualify
the passage of the interest under paragraph
(7), subparagraph (A) shall apply only if the
election under subparagraph (B) thereof is
made.
1206
‘‘(E) STATUTE OF LIMITATIONS.—If a ju-
dicial proceeding described in subparagraph
(C)(ii) is commenced with respect to any inter-
est, the period for assessing any deficiency of
tax attributable to such interest shall not expire
before the date 1 year after the date on which
the Secretary is notified that such provision has
been complied with or that such proceeding has
been terminated.’’
(b) COMPARABLE RULE FOR GIFT TAX.—Section
2523 (relating to gift to spouse) is amended by adding
at the end the following new subsection:
‘‘(j) REFORMATIONS PERMITTED.—Rules similar to
the rules of section 2056(b)(11) shall apply for purposes
of this section.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying, and
gifts made, after the date of the enactment of this Act.
SEC. 14618. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX
PURPOSES AFTER EXPIRATION OF STATUTE
OF LIMITATIONS.
(a) IN GENERAL.—Section 2001 (relating to imposi-
tion and rate of estate tax) is amended by adding at the
end the following new subsection:
‘‘(f) VALUATION OF GIFTS.—If—
1207
‘‘(1) the time has expired within which a tax
may be assessed under chapter 12 (or under cor-
responding provisions of prior laws) on the transfer
of property by gift made during a preceding cal-
endar period (as defined in section 2502(b)), and
‘‘(2) the value of such gift is shown on the re-
turn for such preceding calendar period or is dis-
closed in such return, or in a statement attached to
the return, in a manner adequate to apprise the Sec-
retary of the nature of such gift,
the value of such gift shall, for purposes of computing the
tax under this chapter, be the value of such gift as finally
determined for purposes of chapter 12.’’
(b) MODIFICATION OF APPLICATION OF STATUTE OF
LIMITATIONS.—Paragraph (9) of section 6501(c) is
amended to read as follows:
‘‘(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN
ON RETURN.—If any gift of property the value of
which (or any increase in taxable gifts required
under section 2701(d)) is required to be shown on
a return of tax imposed by chapter 12 (without re-
gard to section 2503(b)), and is not shown on such
return, any tax imposed by chapter 12 on such gift
may be assessed, or a proceeding in court for the
collection of such tax may be begun without assess-
1208
ment, at any time. The preceding sentence shall not
apply to any item which is disclosed in such return,
or in a statement attached to the return, in a man-
ner adequate to apprise the Secretary of the nature
of such item. The value of any item which is so dis-
closed may not be redetermined by the Secretary
after the expiration of the period under subsection
(a).’’
(c) DECLARATORY JUDGMENT PROCEDURE FOR DE-
TERMINING VALUE OF GIFT.—
(1) IN GENERAL.—Part IV of subchapter C of
chapter 76 is amended by inserting after section
7476 the following new section:
‘‘SEC. 7477. DECLARATORY JUDGMENTS RELATING TO
VALUE OF CERTAIN GIFTS.
‘‘(a) CREATION OF REMEDY.—In a case of an actual
controversy involving a determination by the Secretary of
the value of any gift shown on the return of tax imposed
by chapter 12 or disclosed on such return or in any state-
ment attached to such return, upon the filing of an appro-
priate pleading, the Tax Court may make a declaration
of the value of such gift. Any such declaration shall have
the force and effect of a decision of the Tax Court and
shall be reviewable as such.
‘‘(b) LIMITATIONS.—
1209
‘‘(1) PETITIONER.—A pleading may be filed
under this section only by the donor.
‘‘(2) EXHAUSTION
OF
ADMINISTRATIVE
REM-
EDIES.—The court shall not issue a declaratory
judgment or decree under this section in any pro-
ceeding unless it determines that the petitioner has
exhausted all available administrative remedies with-
in the Internal Revenue Service.
‘‘(3) TIME FOR BRINGING ACTION.—If the Sec-
retary sends by certified or registered mail notice of
his determination as described in subsection (a) to
the petitioner, no proceeding may be initiated under
this section unless the pleading is filed before the
91st day after the date of such mailing.’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for such part IV is amended by inserting after
the item relating to section 7476 the following new
item:
‘‘Sec. 7477. Declaratory judgments relating to value of certain
gifts.’’
(d) CONFORMING AMENDMENT.—Subsection (c) of
section 2504 is amended by striking ‘‘, and if a tax under
this chapter or under corresponding provisions of prior
laws has been assessed or paid for such preceding calendar
period’’.
(e) EFFECTIVE DATES.—
1210
(1) IN GENERAL.—The amendments made by
subsections (a) and (c) shall apply to gifts made
after the date of the enactment of this Act.
(2) SUBSECTION (b).—The amendment made by
subsection (b) shall apply to gifts made in calendar
years ending after the date of the enactment of this
Act.
SEC. 14619. CLARIFICATIONS RELATING TO DISCLAIMERS.
(a) PARTIAL TRANSFER-TYPE DISCLAIMERS PER-
MITTED.—Paragraph (3) of section 2518(c) (relating to
certain transfers treated as disclaimers) is amended by in-
serting ‘‘(or an undivided portion of such interest)’’ after
‘‘entire interest in the property’’.
(b) RETENTION
OF
INTEREST
BY
DECEDENT’S
SPOUSE
PERMITTED
IN
TRANSFER-TYPE
DISCLAIM-
ERS.—Paragraph (3) of section 2518(c) is amended by
adding at the end the following new flush sentence:
‘‘For purposes of the preceding sentence, a written
transfer by the spouse of the decedent of property
to a trust shall not fail to be treated as a transfer
of such spouse’s interest in such property by reason
of such spouse having an interest in such trust.’’
(c) DISCLAIMERS ARE EFFECTIVE FOR INCOME TAX
PURPOSES.—Subsection (a) of section 2518 is amended
1211
by inserting ‘‘and subtitle A’’ after ‘‘this subtitle’’ each
place it appears.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers creating an interest
in the person disclaiming, and disclaimers, made after the
date of the enactment of this Act.
SEC. 14620. CLARIFICATION OF TREATMENT OF SURVIVOR
ANNUITIES UNDER QUALIFIED TERMINABLE
INTEREST RULES.
(a) IN GENERAL.—Subparagraph (C) of section
2056(b)(7) is amended by inserting ‘‘(or, in the case of
an interest in an annuity arising under the community
property laws of a State, included in the gross estate of
the decedent under section 2033)’’ after ‘‘section 2039’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 14621. TREATMENT UNDER QUALIFIED DOMESTIC
TRUST RULES OF FORMS OF OWNERSHIP
WHICH ARE NOT TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 2056A
(defining qualified domestic trust) is amended by adding
at the end the following new paragraph:
‘‘(3) TRUST.—To the extent provided in regula-
tions prescribed by the Secretary, the term ‘trust’
1212
includes other arrangements which have substan-
tially the same effect as a trust.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 14622. AUTHORITY TO WAIVE REQUIREMENT OF UNIT-
ED STATES TRUSTEE FOR QUALIFIED DOMES-
TIC TRUSTS.
(a) IN GENERAL.—Subparagraph (A) of section
2056A(a)(1) is amended by inserting ‘‘except as provided
in regulations prescribed by the Secretary,’’ before ‘‘re-
quires’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
PART III—GENERATION-SKIPPING TAX
PROVISIONS
SEC. 14631. SEVERING OF TRUSTS HOLDING PROPERTY
HAVING AN INCLUSION RATIO OF GREATER
THAN ZERO.
(a) IN GENERAL.—Subsection (a) of section 2642
(relating to inclusion ratio) is amended by adding at the
end the following new paragraph:
1213
‘‘(3) SEVERING OF TRUSTS HOLDING PROPERTY
HAVING AN INCLUSION RATIO OF GREATER THAN
ZERO.—
‘‘(A) IN
GENERAL.—If a trust holding
property having an inclusion ratio of greater
than zero is severed in a qualified severance, at
the election of the trustee of such trust, the
trusts resulting from such severance shall be
treated as separate trusts for purposes of this
chapter.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A), the term ‘qualified
severance’ means the creation of 2 trusts from
a single trust if each property held by the single
trust was divided between the 2 created trusts
such that one trust received an interest in each
such property equal to the applicable fraction of
the single trust. Such term includes any other
severance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) ELECTION.—The election under this
paragraph shall be made at the time prescribed
by the Secretary. Such an election, once made,
shall be irrevocable.’’
1214
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to severances after the date of
the enactment of this Act.
SEC. 14632. CLARIFICATION OF WHO IS TRANSFEROR
WHERE SUBSEQUENT GIFT BY REASON OF
POWER OF APPOINTMENT.
(a) IN GENERAL.—Paragraph (1) of section 2652(a)
(defining transferor) is amended by adding at the end the
following new sentence: ‘‘A transferor described in sub-
paragraph (A) shall not be treated as the transferor of
any property if another individual is treated as the trans-
feror of such property under subparagraph (B) by reason
of the exercise, release, or lapse of a general power of ap-
pointment with respect to such property.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to the exercise, release, or lapse
of a general power of appointment after the date of the
enactment of this Act.
SEC. 14633. TAXABLE TERMINATION NOT TO INCLUDE DI-
RECT SKIPS.
(a) IN GENERAL.—Paragraph (1) of section 2612(a)
(defining taxable termination) is amended by adding at
the end the following new flush sentence:
‘‘Such term shall not include a direct skip.’’
1215
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to generation-skipping transfers
(as defined in section 2611 of the Internal Revenue Code
of 1986) after the date of the enactment of this Act.
SEC. 14634. EXPANSION OF EXCEPTION FROM GENERA-
TION-SKIPPING TRANSFER TAX FOR TRANS-
FERS TO INDIVIDUALS WITH DECEASED PAR-
ENTS.
(a) IN GENERAL.—Section 2651 (relating to genera-
tion assignment) is amended by redesignating subsection
(e) as subsection (f), and by inserting after subsection (d)
the following new subsection:
‘‘(e) SPECIAL RULE
FOR PERSONS WITH
A DE-
CEASED PARENT.—
‘‘(1) IN GENERAL.—For purposes of determin-
ing whether any transfer is a generation-skipping
transfer, if—
‘‘(A) an individual is a descendant of a
parent of the transferor (or the transferor’s
spouse or former spouse), and
‘‘(B) such individual’s parent who is a lin-
eal descendant of the parent of the transferor
(or the transferor’s spouse or former spouse) is
dead at the time the transfer (from which an
interest of such individual is established or de-
1216
rived) is subject to a tax imposed by chapter 11
or 12 upon the transferor (and if there shall be
more than 1 such time, then at the earliest
such time),
such individual shall be treated as if such individual
were a member of the generation which is 1 genera-
tion below the lower of the transferor’s generation or
the generation assignment of the youngest living an-
cestor of such individual who is also a descendant of
the parent of the transferor (or the transferor’s
spouse or former spouse), and the generation assign-
ment of any descendant of such individual shall be
adjusted accordingly.
‘‘(2) LIMITED APPLICATION OF SUBSECTION TO
COLLATERAL
HEIRS.—This subsection shall not
apply with respect to a transfer to any individual
who is not a lineal descendant of the transferor (or
the transferor’s spouse or former spouse) if, at the
time of the transfer, such transferor has any living
lineal descendant.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 2612(c) (defining direct skip) is
amended by striking paragraph (2) and by redesig-
nating paragraph (3) as paragraph (2).
1217
(2) Section 2612(c)(2) (as so redesignated) is
amended by striking ‘‘section 2651(e)(2)’’ and in-
serting ‘‘section 2651(f)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to terminations, distributions, and
transfers occurring after the date of the enactment of this
Act.
Subtitle G—Excise Tax
Simplification
PART I—PROVISIONS RELATED TO DISTILLED
SPIRITS, WINES, AND BEER
SEC. 14701. CREDIT OR REFUND FOR IMPORTED BOTTLED
DISTILLED 
SPIRITS 
RETURNED 
TO 
DIS-
TILLED SPIRITS PLANT.
(a) IN GENERAL.—Paragraph (1) of section 5008(c)
(relating to distilled spirits returned to bonded premises)
is amended by striking ‘‘withdrawn from bonded premises
on payment or determination of tax’’ and inserting ‘‘on
which tax has been determined or paid’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
1218
SEC. 14702. AUTHORITY TO CANCEL OR CREDIT EXPORT
BONDS WITHOUT SUBMISSION OF RECORDS.
(a) IN GENERAL.—Subsection (c) of section 5175
(relating to export bonds) is amended by striking ‘‘on the
submission of’’ and all that follows and inserting ‘‘if there
is such proof of exportation as the Secretary may by regu-
lations require.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
SEC. 14703. REPEAL OF REQUIRED MAINTENANCE OF
RECORDS ON PREMISES OF DISTILLED SPIR-
ITS PLANT.
(a) IN GENERAL.—Subsection (c) of section 5207
(relating to records and reports) is amended by striking
‘‘shall be kept on the premises where the operations cov-
ered by the record are carried on and’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
1219
SEC. 14704. FERMENTED MATERIAL FROM ANY BREWERY
MAY BE RECEIVED AT A DISTILLED SPIRITS
PLANT.
(a) IN GENERAL.—Paragraph (2) of section 5222(b)
(relating to production, receipt, removal, and use of distill-
ing materials) is amended to read as follows:
‘‘(2) beer conveyed without payment of tax
from brewery premises, beer which has been lawfully
removed from brewery premises upon determination
of tax, or’’.
(b) CLARIFICATION OF AUTHORITY TO PERMIT RE-
MOVAL OF BEER WITHOUT PAYMENT OF TAX FOR USE
AS DISTILLING MATERIAL.—Section 5053 (relating to ex-
emptions) is amended by redesignating subsection (f) as
subsection (i) and by inserting after subsection (e) the fol-
lowing new subsection:
‘‘(f) REMOVAL
FOR USE
AS DISTILLING MATE-
RIAL.—Subject to such regulations as the Secretary may
prescribe, beer may be removed from a brewery without
payment of tax to any distilled spirits plant for use as
distilling material.’’
(c) CLARIFICATION
OF REFUND
AND CREDIT
OF
TAX.—Section 5056 (relating to refund and credit of tax,
or relief from liability) is amended—
1220
(1) by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b) the
following new subsection:
‘‘(c) BEER RECEIVED
AT
A DISTILLED SPIRITS
PLANT.—Any tax paid by any brewer on beer produced
in the United States may be refunded or credited to the
brewer, without interest, or if the tax has not been paid,
the brewer may be relieved of liability therefor, under reg-
ulations as the Secretary may prescribe, if such beer is
received on the bonded premises of a distilled spirits plant
pursuant to the provisions of section 5222(b)(2), for use
in the production of distilled spirits.’’, and
(2) by striking ‘‘or rendering unmerchantable’’
in subsection (d) (as so redesignated) and inserting
‘‘rendering unmerchantable, or receipt on the bond-
ed premises of a distilled spirits plant’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
SEC. 14705. REPEAL OF REQUIREMENT FOR WHOLESALE
DEALERS IN LIQUORS TO POST SIGN.
(a) IN GENERAL.—Section 5115 (relating to sign re-
quired on premises) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
1221
(1) Subsection (a) of section 5681 is amended
by striking ‘‘, and every wholesale dealer in liquors,’’
and by striking ‘‘section 5115(a) or’’.
(2) Subsection (c) of section 5681 is amend-
ed—
(A) by striking ‘‘or wholesale liquor estab-
lishment, on which no sign required by section
5115(a) or’’ and inserting ‘‘on which no sign
required by’’, and
(B) by striking ‘‘or wholesale liquor estab-
lishment, or who’’ and inserting ‘‘or who’’.
(3) The table of sections for subpart D of part
II of subchapter A of chapter 51 is amended by
striking the item relating to section 5115.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 14706. REFUND OF TAX ON WINE RETURNED TO BOND
NOT LIMITED TO UNMERCHANTABLE WINE.
(a) IN GENERAL.—Subsection (a) of section 5044
(relating to refund of tax on unmerchantable wine) is
amended by striking ‘‘as unmerchantable’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 5361 is amended by striking
‘‘unmerchantable’’.
1222
(2) The section heading for section 5044 is
amended by striking ‘‘UNMERCHANTABLE’’.
(3) The item relating to section 5044 in the
table of sections for subpart C of part I of sub-
chapter A of chapter 51 is amended by striking
‘‘unmerchantable’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
SEC. 14707. USE OF ADDITIONAL AMELIORATING MATERIAL
IN CERTAIN WINES.
(a) IN GENERAL.—Subparagraph (D) of section
5384(b)(2) (relating to ameliorated fruit and berry wines)
is amended by striking ‘‘loganberries, currants, or goose-
berries,’’ and inserting ‘‘any fruit or berry with a natural
fixed acid of 20 parts per thousand or more (before any
correction of such fruit or berry)’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
1223
SEC. 14708. DOMESTICALLY PRODUCED BEER MAY BE
WITHDRAWN FREE OF TAX FOR USE OF FOR-
EIGN EMBASSIES, LEGATIONS, ETC.
(a) IN GENERAL.—Section 5053 (relating to exemp-
tions) is amended by inserting after subsection (f) the fol-
lowing new subsection:
‘‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES,
LEGATIONS, ETC.—
‘‘(1) IN GENERAL.—Subject to such regulations
as the Secretary may prescribe—
‘‘(A) beer may be withdrawn from the
brewery without payment of tax for transfer to
any customs bonded warehouse for entry pend-
ing withdrawal therefrom as provided in sub-
paragraph (B), and
‘‘(B) beer entered into any customs bonded
warehouse under subparagraph (A) may be
withdrawn for consumption in the United
States by, and for the official and family use of,
such foreign governments, organizations, and
individuals as are entitled to withdraw imported
beer from such warehouses free of tax.
Beer transferred to any customs bonded warehouse
under subparagraph (A) shall be entered, stored,
and accounted for in such warehouse under such
regulations and bonds as the Secretary may pre-
1224
scribe, and may be withdrawn therefrom by such
governments, organizations, and individuals free of
tax under the same conditions and procedures as im-
ported beer.
‘‘(2) OTHER RULES TO APPLY.—Rules similar
to the rules of paragraphs (2) and (3) of section
5362(e) of such section shall apply for purposes of
this subsection.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
SEC. 14709. BEER MAY BE WITHDRAWN FREE OF TAX FOR
DESTRUCTION.
(a) IN GENERAL.—Section 5053 is amended by in-
serting after subsection (g) the following new subsection:
‘‘(h) REMOVALS
FOR DESTRUCTION.—Subject to
such regulations as the Secretary may prescribe, beer may
be removed from the brewery without payment of tax for
destruction.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
1225
SEC. 14710. AUTHORITY TO ALLOW DRAWBACK ON EX-
PORTED BEER WITHOUT SUBMISSION OF
RECORDS.
(a) IN GENERAL.—The first sentence of section 5055
(relating to drawback of tax on beer) is amended by strik-
ing ‘‘found to have been paid’’ and all that follows and
inserting ‘‘paid on such beer if there is such proof of ex-
portation as the Secretary may by regulations require.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
SEC. 14711. TRANSFER TO BREWERY OF BEER IMPORTED
IN BULK WITHOUT PAYMENT OF TAX.
(a) IN GENERAL.—Part II of subchapter G of chap-
ter 51 is amended by adding at the end the following new
section:
‘‘SEC. 5418. BEER IMPORTED IN BULK.
‘‘Beer imported or brought into the United States in
bulk containers may, under such regulations as the Sec-
retary may prescribe, be withdrawn from customs custody
and transferred in such bulk containers to the premises
of a brewery without payment of the internal revenue tax
imposed on such beer. The proprietor of a brewery to
which such beer is transferred shall become liable for the
tax on the beer withdrawn from customs custody under
1226
this section upon release of the beer from customs custody,
and the importer, or the person bringing such beer into
the United States, shall thereupon be relieved of the liabil-
ity for such tax.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part II is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 5418. Beer imported in bulk.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect at the beginning of the first
calendar quarter beginning more than 180 days after the
date of the enactment of this Act.
PART II—CONSOLIDATION OF TAXES ON
AVIATION GASOLINE
SEC. 14721. CONSOLIDATION OF TAXES ON AVIATION GASO-
LINE.
(a) IN GENERAL.—Subparagraph (A) of section
4081(a)(2) (relating to imposition of tax on gasoline and
diesel fuel) is amended by redesignating clause (ii) as
clause (iii) and by striking clause (i) and inserting the fol-
lowing:
‘‘(i) in the case of gasoline other than
aviation gasoline, 18.3 cents per gallon,
‘‘(ii) in the case of aviation gasoline,
19.3 cents per gallon, and’’.
1227
(b) TERMINATION.—Subsection (d) of section 4081
is amended by redesignating paragraph (2) as paragraph
(3) and by inserting after paragraph (1) the following new
paragraph:
‘‘(2) AVIATION GASOLINE.—On and after Janu-
ary 1, 1996, the rate specified in subsection
(a)(2)(A)(ii) shall be 4.3 cents per gallon.’’
(c) REPEAL OF RETAIL LEVEL TAX.—
(1) Subsection (c) of section 4041 is amended
by striking paragraphs (2) and (3) and by redesig-
nating paragraphs (4) and (5) as paragraphs (2)
and (3), respectively.
(2) Paragraph (3) of section 4041(c), as redes-
ignated by paragraph (1), is amended by striking
‘‘paragraphs (1) and (2)’’ and inserting ‘‘paragraph
(1)’’.
(d) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 4041(k) is amend-
ed by adding ‘‘and’’ at the end of subparagraph (A),
by striking ‘‘, and’’ at the end of subparagraph (B)
and inserting a period, and by striking subparagraph
(C).
(2) Paragraph (1) of section 4081(d) is amend-
ed by striking ‘‘each rate of tax specified in sub-
section (a)(2)(A)’’ and inserting ‘‘the rates of tax
1228
specified in clauses (i) and (iii) of subsection
(a)(2)(A)’’.
(3) Sections 6421(f)(2)(A) and 9502(f)(1)(A)
are each amended by striking ‘‘section 4041(c)(4)’’
and inserting ‘‘section 4041(c)(2)’’.
(4) Paragraph (2) of section 9502(b) is amend-
ed by striking ‘‘14 cents’’ and inserting ‘‘15 cents’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1996.
(f) FLOOR STOCKS TAX.—
(1) IMPOSITION OF TAX.—In the case of avia-
tion gasoline on which tax was imposed under sec-
tion 4081 of the Internal Revenue Code of 1986 be-
fore January 1, 1996, and which is held on such
date by any person, there is hereby imposed a floor
stocks tax of 1 cent per gallon of such gasoline.
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person hold-
ing aviation gasoline on January 1, 1996, to
which the tax imposed by paragraph (1) applies
shall be liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
1229
(C) TIME
FOR
PAYMENT.—The tax im-
posed by paragraph (1) shall be paid on or be-
fore June 30, 1996.
(3) DEFINITIONS.—For purposes of this sub-
section:
(A) HELD BY A PERSON.—Gasoline shall
be considered as ‘‘held by a person’’ if title
thereto has passed to such person (whether or
not delivery to the person has been made).
(B) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or his del-
egate.
(4) EXCEPTION FOR EXEMPT USES.—The tax
imposed by paragraph (1) shall not apply to gasoline
held by any person exclusively for any use to the ex-
tent a credit or refund of the tax imposed by section
4081 of such Code is allowable for such use.
(5) EXCEPTION FOR FUEL HELD IN AIRCRAFT
TANK.—No tax shall be imposed by paragraph (1)
on aviation gasoline held in the tank of an aircraft.
(6) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
(A) IN
GENERAL.—No tax shall be im-
posed by paragraph (1) on aviation gasoline
held on January 1, 1996, by any person if the
1230
aggregate amount of aviation gasoline held by
such person on such date does not exceed 6,000
gallons. The preceding sentence shall apply only
if such person submits to the Secretary (at the
time and in the manner required by the Sec-
retary) such information as the Secretary shall
require for purposes of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
from the tax imposed by paragraph (1) by rea-
son of paragraph (4) or (5).
(C) CONTROLLED GROUPS.—
(i) CORPORATIONS.—In the case of a
controlled group, the 6,000 gallon amount
in subparagraph (A) shall be apportioned
among the component members of such
group in such manner as the Secretary
shall by regulations prescribe. For pur-
poses of the preceding sentence, the term
‘‘controlled group’’ has the meaning given
to such term by subsection (a) of section
1563 of such Code; except that for such
purposes the phrase ‘‘more than 50 per-
cent’’ shall be substituted for the phrase
1231
‘‘at least 80 percent’’ each place it appears
in such subsection.
(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, prin-
ciples similar to the principles of clause (i)
shall apply to a group under common con-
trol where 1 or more of the members is not
a corporation.
(7) OTHER LAWS APPLICABLE.—All provisions
of law, including penalties, applicable with respect to
the taxes imposed by section 4081 of such Code
shall, insofar as applicable and not inconsistent with
the provisions of this subsection, apply with respect
to the floor stock taxes imposed by paragraph (1) to
the same extent as if such taxes were imposed by
such section 4081.
PART III—OTHER EXCISE TAX PROVISIONS
SEC. 14731. AUTHORITY TO GRANT EXEMPTIONS FROM
REGISTRATION REQUIREMENTS.
(a) IN GENERAL.—The first sentence of section 4222
(relating to registration) is amended to read as follows:
‘‘Except as provided in subsection (b), section 4221 shall
not apply with respect to the sale of any article by or to
1232
any person who is required by the Secretary to be reg-
istered under this section and who is not so registered.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to sales after the 180th day
after the date of the enactment of this Act.
SEC. 14732. CERTAIN COMBINATIONS NOT TREATED AS
MANUFACTURE UNDER RETAIL SALES TAX
ON HEAVY TRUCKS.
(a) IN GENERAL.—Paragraph (2) of section 4052(c)
(relating to certain combinations not treated as manufac-
ture) is amended by striking ‘‘or wood or metal floor’’ and
inserting ‘‘wood or metal floor, or a power take-off and
dump body’’.
(b) REMOVAL OF FIFTH WHEEL.—Paragraph (1) of
section 4052(c) is amended by inserting before the period
‘‘or the removal of any coupling device (including any fifth
wheel)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 14733. EXEMPTION FROM DIESEL FUEL DYEING RE-
QUIREMENTS WITH RESPECT TO CERTAIN
STATES.
(a) IN GENERAL.—Section 4082 (relating to exemp-
tions for diesel fuel) is amended by redesignating sub-
1233
sections (c) and (d) as subsections (d) and (e), respec-
tively, and by inserting after subsection (b) the following
new subsection:
‘‘(c) EXCEPTION
TO
DYEING
REQUIREMENTS.—
Paragraph (2) of subsection (a) shall not apply with re-
spect to any diesel fuel—
‘‘(1) removed, entered, or sold in a State for ul-
timate sale or use in an area of such State which
is exempted from the fuel dyeing requirements under
subsection (i) of section 211 of the Clean Air Act (as
in effect on the date of the enactment of this sub-
section) by the Administrator of the Environmental
Protection Agency under paragraph (4) of such sub-
section, and
‘‘(2) the use of which is certified pursuant to
regulations issued by the Secretary.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the first day of the first
calendar quarter beginning after the date of the enactment
of this Act.
SEC. 14734. REPEAL OF EXPIRED PROVISIONS.
(a) PIGGY-BACK TRAILERS.—Section 4051 is amend-
ed by striking subsection (d) and by redesignating sub-
section (e) as subsection (d).
(b) DEEP SEABED MINING.—
1234
(1) Subchapter F of chapter 36 (relating to tax
on removal of hard mineral resources from deep sea-
bed) is hereby repealed.
(2) The table of subchapters for chapter 36 is
amended by striking the item relating to subchapter
F.
Subtitle H—Administrative
Provisions
PART I—GENERAL PROVISIONS
SEC. 14801. REPEAL OF AUTHORITY TO DISCLOSE WHETH-
ER PROSPECTIVE JUROR HAS BEEN AU-
DITED.
(a) IN GENERAL.—Subsection (h) of section 6103
(relating to disclosure to certain Federal officers and em-
ployees for purposes of tax administration, etc.) is amend-
ed by striking paragraph (5) and by redesignating para-
graph (6) as paragraph (5).
(b) CONFORMING AMENDMENT.—Paragraph (4) of
section 6103(p) is amended by striking ‘‘(h)(6)’’ each
place it appears and inserting ‘‘(h)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to judicial proceedings pending on,
or commenced after, the date of the enactment of this Act.
1235
SEC. 14802. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Subsection (a) of section 6501
(relating to limitations on assessment and collection) is
amended by adding at the end the following new sentence:
‘‘For purposes of this chapter, the term ‘return’ means
the return required to be filed by the taxpayer (and does
not include a return of any person from whom the tax-
payer has received an item of income, gain, loss, deduc-
tion, or credit).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 14803. CERTAIN NOTICES DISREGARDED UNDER PRO-
VISION 
INCREASING 
INTEREST 
RATE 
ON
LARGE CORPORATE UNDERPAYMENTS.
(a) GENERAL RULE.—Subparagraph (B) of section
6621(c)(2) (defining applicable date) is amended by add-
ing at the end the following new clause:
‘‘(iii) EXCEPTION
FOR
LETTERS
OR
NOTICES
INVOLVING
SMALL
AMOUNTS.—
For purposes of this paragraph, any letter
or notice shall be disregarded if the
amount of the deficiency or proposed defi-
ciency (or the assessment or proposed as-
sessment) set forth in such letter or notice
is not greater than $100,000 (determined
1236
by not taking into account any interest,
penalties, or additions to tax).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply for purposes of determining in-
terest for periods after December 31, 1995.
SEC. 14804. CLARIFICATION OF AUTHORITY TO WITHHOLD
PUERTO RICO INCOME TAXES FROM SALA-
RIES OF FEDERAL EMPLOYEES.
(a) IN GENERAL.—Subsection (c) of section 5517 of
title 5, United States Code, is amended by striking ‘‘or
territory or possession’’ and inserting ‘‘, territory, posses-
sion, or commonwealth’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
PART II—TAX COURT PROCEDURES
SEC. 14811. OVERPAYMENT DETERMINATIONS OF TAX
COURT.
(a) APPEAL OF ORDER.—Paragraph (2) of section
6512(b) (relating to jurisdiction to enforce) is amended
by adding at the end the following new sentence: ‘‘An
order of the Tax Court disposing of a motion under this
paragraph shall be reviewable in the same manner as a
decision of the Tax Court, but only with respect to the
matters determined in such order.’’
1237
(b) DENIAL OF JURISDICTION REGARDING CERTAIN
CREDITS AND REDUCTIONS.—Subsection (b) of section
6512 (relating to overpayment determined by Tax Court)
is amended by adding at the end the following new
paragraph:
‘‘(4) DENIAL
OF
JURISDICTION
REGARDING
CERTAIN
CREDITS
AND
REDUCTIONS.—The Tax
Court shall have no jurisdiction under this sub-
section to restrain or review any credit or reduction
made by the Secretary under section 6402.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 14812. AWARDING OF ADMINISTRATIVE COSTS.
(a) RIGHT TO APPEAL TAX COURT DECISION.—Sub-
section (f) of section 7430 (relating to right of appeal)
is amended by adding at the end the following new
paragraph:
‘‘(3) APPEAL
OF
TAX
COURT
DECISION.—An
order of the Tax Court disposing of a petition under
paragraph (2) shall be reviewable in the same man-
ner as a decision of the Tax Court, but only with re-
spect to the matters determined in such order.’’
(b) PERIOD FOR APPLYING TO IRS FOR COSTS.—
Subsection (b) of section 7430 (relating to limitations) is
1238
amended by adding at the end the following new
paragraph:
‘‘(5) PERIOD FOR APPLYING TO IRS FOR AD-
MINISTRATIVE
COSTS.—An award may be made
under subsection (a) by the Internal Revenue Serv-
ice for reasonable administrative costs only if the
prevailing party files an application with the Inter-
nal Revenue Service for such costs before the 91st
day after the date on which the final decision of the
Internal Revenue Service as to the determination of
the tax, interest, or penalty is mailed to such party.’’
(c) PERIOD FOR PETITIONING OF TAX COURT FOR
REVIEW OF DENIAL OF COSTS.—Paragraph (2) of section
7430(f) (relating to right of appeal) is amended—
(1) by striking ‘‘appeal to’’ and inserting ‘‘the
filing of a petition for review with’’, and
(2) by adding at the end the following new sen-
tence: ‘‘If the Secretary sends by certified or reg-
istered mail a notice of such decision to the peti-
tioner, no proceeding in the Tax Court may be initi-
ated under this paragraph unless such petition is
filed before the 91st day after the date of such
mailing.’’
1239
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to civil actions or proceedings com-
menced after the date of the enactment of this Act.
SEC. 14813. REDETERMINATION OF INTEREST PURSUANT
TO MOTION.
(a) IN GENERAL.—Paragraph (3) of section 7481(c)
(relating to jurisdiction over interest determinations) is
amended by striking ‘‘petition’’ and inserting ‘‘motion’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 14814. APPLICATION OF NET WORTH REQUIREMENT
FOR AWARDS OF LITIGATION COSTS.
(a) IN GENERAL.—Paragraph (4) of section 7430(c)
(defining prevailing party) is amended by adding at the
end the following new subparagraph:
‘‘(C) SPECIAL RULES FOR APPLYING NET
WORTH
REQUIREMENT.—In applying the re-
quirements of section 2412(d)(2)(B) of title 28,
United States Code, for purposes of subpara-
graph (A)(iii) of this paragraph—
‘‘(i) the net worth limitation in clause
(i) of such section shall apply to—
1240
‘‘(I) an estate but shall be deter-
mined as of the date of the decedent’s
death, and
‘‘(II) a trust but shall be deter-
mined as of the last day of the taxable
year involved in the proceeding, and
‘‘(ii) individuals filing a joint return
shall be treated as 1 individual for pur-
poses of clause (i) of such section, except
in the case of a spouse relieved of liability
under section 6013(e).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to proceedings commenced after
the date of the enactment of this Act.
PART III—AUTHORITY FOR CERTAIN
COOPERATIVE AGREEMENTS
SEC. 14821. COOPERATIVE AGREEMENTS WITH STATE TAX
AUTHORITIES.
(a) GENERAL RULE.—Chapter 77 (relating to mis-
cellaneous provisions) is amended by adding at the end
the following new section:
‘‘SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX
AUTHORITIES.
‘‘(a) AUTHORIZATION OF AGREEMENTS.—The Sec-
retary is hereby authorized to enter into cooperative agree-
1241
ments with State tax authorities for purposes of enhancing
joint tax administration. Such agreements may provide
for—
‘‘(1) joint filing of Federal and State income
tax returns,
‘‘(2) single processing of such returns,
‘‘(3) joint collection of taxes (other than Fed-
eral income taxes), and
‘‘(4) such other provisions as may enhance joint
tax administration.
‘‘(b) SERVICES
ON REIMBURSABLE BASIS.—Any
agreement under subsection (a) may require reimburse-
ment for services provided by either party to the agree-
ment.
‘‘(c) AVAILABILITY OF FUNDS.—Any funds appro-
priated for purposes of the administration of this title
shall be available for purposes of carrying out the Sec-
retary’s responsibility under an agreement entered into
under subsection (a). Any reimbursement received pursu-
ant to such an agreement shall be credited to the amount
so appropriated.
‘‘(d) STATE TAX AUTHORITY.—For purposes of this
section, the term ‘State tax authority’ means agency,
body, or commission referred to in section 6103(d)(1).’’
1242
(b) CLERICAL AMENDMENT.—The table of sections
for chapter 77 is amended by adding at the end the follow-
ing new item:
‘‘Sec. 7524. Cooperative agreements with State tax authorities.’’
TITLE XV—MEDICARE
[Text to be supplied.]
TITLE XVI—TRANSFORMATION
OF THE MEDICAID PROGRAM
SEC. 16000. SHORT TITLE.
This title may be cited as the ‘‘Medicaid Trans-
formation Act of 1995’’.
SEC. 16001. TRANSFORMATION OF MEDICAID PROGRAM.
The Social Security Act is amended by adding at the
end the following new title:
‘‘TITLE XXI—MEDIGRANT PROGRAM FOR LOW-
INCOME INDIVIDUALS AND FAMILIES
‘‘TABLE OF CONTENTS OF TITLE
‘‘Sec. 2100. Purpose; State MediGrant plans.
‘‘PART A—OBJECTIVES, GOALS, AND PERFORMANCE UNDER STATE PLANS
‘‘Sec. 2101. Description of strategic objectives and performance goals.
‘‘Sec. 2102. Annual reports.
‘‘Sec. 2103. Periodic, independent evaluations.
‘‘Sec. 2104. Description of process for MediGrant plan development.
‘‘Sec. 2105. Consultation in MediGrant plan development.
‘‘Sec. 2106. MediGrant Task Force.
‘‘PART B—ELIGIBILITY, BENEFITS, AND SET-ASIDES
‘‘Sec. 2111. General description of eligibility and benefits.
‘‘Sec. 2112. Set-asides of funds for population groups.
‘‘Sec. 2113. Premiums and cost-sharing.
‘‘Sec. 2114. Description of process for developing capitation payment rates.
‘‘Sec. 2115. Construction.
1243
‘‘Sec. 2116. Limitations on causes of action.
‘‘PART C—PAYMENTS TO STATES
‘‘Sec. 2121. Allotment of funds among States.
‘‘Sec. 2122. Payments to States.
‘‘Sec. 2123. Limitation on use of funds; disallowance.
‘‘PART D—PROGRAM INTEGRITY AND QUALITY
‘‘Sec. 2131. Use of audits to achieve fiscal integrity.
‘‘Sec. 2132. Fraud prevention program.
‘‘Sec. 2133. Information concerning sanctions taken by State licensing authori-
ties against health care practitioners and providers.
‘‘Sec. 2134. State MediGrant fraud control units.
‘‘Sec. 2135. Recoveries from third parties and others.
‘‘Sec. 2136. Assignment of rights of payment.
‘‘Sec. 2137. Quality assurance standards for nursing facilities.
‘‘Sec. 2138. Other provisions promoting program integrity.
‘‘PART E—ESTABLISHMENT AND AMENDMENT OF STATE MEDIGRANT PLANS
‘‘Sec. 2151. Submittal and approval of MediGrant plans.
‘‘Sec. 2152. Submittal and approval of plan amendments.
‘‘Sec. 2153. Process for State withdrawal from program.
‘‘Sec. 2154. Sanctions for substantial noncompliance.
‘‘Sec. 2155. Secretarial authority.
‘‘PART F—GENERAL PROVISIONS
‘‘Sec. 2171. Definitions.
‘‘Sec. 2172. Treatment of territories.
‘‘Sec. 2173. Description of treatment of Indian Health Service facilities.
‘‘Sec. 2174. Application of certain general provisions.
‘‘Sec. 2175. MediGrant master drug rebate agreements.
‘‘SEC. 2100. PURPOSE; STATE MEDIGRANT PLANS.
‘‘(a) PURPOSE.—The purpose of this title is to pro-
vide block grants to States to enable them to provide medi-
cal assistance to low-income individuals and families in a
more effective, efficient, and responsive manner.
‘‘(b) STATE PLAN REQUIRED.—A State is not eligible
for payment under section 2122 of this title unless the
State has submitted to the Secretary under part E a plan
(in this title referred to as a ‘MediGrant plan’) that—
1244
‘‘(1) sets forth how the State intends to use the
funds provided under this title to provide medical as-
sistance to needy individuals and families consistent
with the provisions of this title, and
‘‘(2) is approved under such part.
‘‘(c) 
CONTINUED
APPROVAL.—An 
approved
MediGrant plan shall continue in effect unless and until—
‘‘(1) the State amends the plan under section
2152,
‘‘(2) the State terminates participation under
this title under section 2153, or
‘‘(3) the Secretary finds substantial noncompli-
ance of the plan with the requirements of this title
under section 2154.
‘‘(d) STATE ENTITLEMENT.—This title constitutes
budget authority in advance of appropriations Acts, and
represents the obligation of the Federal Government to
provide for the payment to States of amounts provided
under part C.
‘‘PART A—OBJECTIVES, GOALS, AND PERFORMANCE
UNDER STATE PLANS
‘‘SEC. 2101. DESCRIPTION OF STRATEGIC OBJECTIVES AND
PERFORMANCE GOALS.
‘‘(a) DESCRIPTION.—A MediGrant plan shall include
a description of the strategic objectives and performance
1245
goals the State has established for providing health care
services to low-income populations under this title, includ-
ing a general description of the manner in which the plan
is designed to meet these objectives and goals.
‘‘(b) 
CERTAIN
OBJECTIVES
AND
GOALS
RE-
QUIRED.—A MediGrant plan shall include strategic objec-
tives and performance goals relating to rates of childhood
immunizations and reductions in infant mortality and
morbidity.
‘‘(c) CONSIDERATIONS.—In specifying these objec-
tives and goals the State may consider factors such as the
following:
‘‘(1) The State’s priorities with respect to such
areas as providing assistance to low-income popu-
lations.
‘‘(2) The State’s priorities with respect to the
general public health and the health status of indi-
viduals eligible for assistance under the MediGrant
plan.
‘‘(3) The State’s financial resources, the par-
ticular economic conditions in the State, and relative
adequacy of the health care infrastructure in dif-
ferent regions of the State.
‘‘(d) PERFORMANCE
MEASURES.—To the extent
practicable—
1246
‘‘(1) one or more performance goals shall be es-
tablished by the State for each strategic objective
identified in the MediGrant plan; and
‘‘(2) the MediGrant plan shall describe, how
program performance will be—
‘‘(A) measured through objective, inde-
pendently verifiable means, and
‘‘(B) compared against performance goals,
in order to determine the State’s performance
under this title.
‘‘(e) PERIOD COVERED.—
‘‘(1) STRATEGIC
OBJECTIVES.—The strategic
objectives shall cover a period of not less than 5
years and shall be updated and revised at least every
3 years.
‘‘(2) PERFORMANCE GOALS.—The performance
goals shall be established for dates that are not more
than 3 years apart.
‘‘SEC. 2102. ANNUAL REPORTS.
‘‘(a) IN GENERAL.—In the case of a State with a
MediGrant plan that is in effect for part or all of a fiscal
year, no later than March 31 following such fiscal year
(or March 31, 1998, in the case of fiscal year 1996) the
State shall prepare and submit to the Secretary and the
1247
Congress a report on program activities and performance
under this title for such fiscal year.
‘‘(b) CONTENTS.—Each annual report under this sec-
tion for a fiscal year shall include the following:
‘‘(1) EXPENDITURE
AND
BENEFICIARY
SUM-
MARY.—
‘‘(A) INITIAL SUMMARY.—For the report
for fiscal year 1997 (and, if applicable, fiscal
year 1996), a summary of all expenditures
under the MediGrant plan during the fiscal
year (and during any portions of fiscal year
1996 during which the MediGrant plan was in
effect under this title) as follows:
‘‘(i) Aggregate medical assistance ex-
penditures, disaggregated to the extent re-
quired to determine compliance with the
set-aside requirements of subsections (a)
through (c) section 2112 and to compute
the 
case 
mix 
index 
under 
section
2121(d)(3).
‘‘(ii) For each general category of eli-
gible individuals (specified in subsection
(c)(1), aggregate medical assistance ex-
penditures and the total and average num-
1248
ber of eligible individuals under the
MediGrant plan.
‘‘(iii) By each general category of eli-
gible individuals, total expenditures for
each of the categories of health care items
and services (specified in subsection (c)(2))
which are covered under the MediGrant
plan and provided on a fee-for-service
basis.
‘‘(iv) By each general category of eli-
gible individuals, total expenditures for
payments to capitated health care organi-
zations (as defined in section 2114(c)(1)).
‘‘(v) Total administrative expendi-
tures.
‘‘(B) SUBSEQUENT SUMMARIES.—For re-
ports for each succeeding fiscal year, a sum-
mary of—
‘‘(i) 
all 
expenditures 
under 
the
MediGrant plan consistent with the report-
ing format specified by the MediGrant
Task Force under section 2106(d)(1), and
‘‘(ii) the total and average number of
eligible individuals under the MediGrant
1249
plan for each general category of eligible
individuals..
‘‘(2) UTILIZATION SUMMARY.—
‘‘(A) INITIAL SUMMARY.—For the report
for fiscal year 1997 (and, if applicable, fiscal
year 1996), summary statistics on the utiliza-
tion 
of 
health 
care 
services 
under 
the
MediGrant plan during the year (and during
any portions of fiscal year 1996 during which
the MediGrant plan was in effect under this
title) as follows:
‘‘(i) For each general category of eli-
gible individuals and for each of the cat-
egories of health care items and services
which are covered under the MediGrant
plan and provided on a fee-for-service
basis, the number and percentage of per-
sons who received such a type of service or
item during the period covered by the re-
port.
‘‘(ii) Summary of health care utiliza-
tion data reported to the State by
capitated health care organizations.
‘‘(B) SUBSEQUENT SUMMARIES.—For re-
ports for each succeeding fiscal year, summary
1250
statistics on the utilization of health care serv-
ices under the MediGrant plan consistent with
the 
reporting 
format 
specified 
by 
the
MediGrant 
Task 
Force 
under 
section
2106(d)(1).
‘‘(3) 
ACHIEVEMENT
OF
PERFORMANCE
GOALS.—With respect to each performance goal es-
tablished under section 2101 and applicable to the
year involved—
‘‘(A) a brief description of the goal;
‘‘(B) data on the actual performance with
respect to the goal;
‘‘(C) a review of the extent to which the
goal was achieved, based on such data; and
‘‘(D) where a performance goal has not
been met—
‘‘(i) why the goal was not met, and
‘‘(ii) actions to be taken in response
to such performance (including adjust-
ments in performance goals or program ac-
tivities for subsequent years).
‘‘(4) PROGRAM EVALUATIONS.—A summary of
the findings of evaluations under section 2103 com-
pleted during the fiscal year covered by the report.
1251
‘‘(5) FRAUD AND ABUSE AND QUALITY CON-
TROL
ACTIVITIES.—A general description of the
State’s activities under part D to detect and deter
fraud and abuse and to assure quality of services
provided under the program.
‘‘(6) PLAN ADMINISTRATION.—
‘‘(A) A description of the administrative
roles and responsibilities of entities in the State
responsible for administration of this title.
‘‘(B) Organizational charts for each entity
in the State primarily responsible for activities
under this title.
‘‘(C) A brief description of each interstate
compact (if any) the State has entered into
with other States with respect to activities
under this title.
‘‘(D) General citations to the State stat-
utes and administrative rules governing the
State’s activities under this title.
‘‘(7) INPATIENT
HOSPITAL
PAYMENTS.—With
respect to inpatient hospital services provided under
the MediGrant plan on a fee-for-service basis, a de-
scription of the average amount paid per discharge
in the fiscal year compared either to the average
charge for such services or to the State’s estimate
1252
of the average amount paid per discharge by com-
mercial health insurers in the State.
‘‘(c) DEFINITIONS.—In this section:
‘‘(1) Each of the following is a general category
of eligible individuals:
‘‘(A) Children.
‘‘(B) Blind or disabled adults under 65
years of age.
‘‘(C) Persons 65 years of age or older.
‘‘(D) Other adults.
‘‘(2) The health care items and services de-
scribed in each subparagraph of section 2171(a)(1)
shall be considered a separate category of health
care items and services.
‘‘SEC. 2103. PERIODIC, INDEPENDENT EVALUATIONS.
‘‘(a) IN GENERAL.—During fiscal year 1998 and
every third fiscal year thereafter, each State shall provide
for an evaluation of the operation of its MediGrant plan
under this title.
‘‘(b) INDEPENDENT.—Each such evaluation with re-
spect to an activity under the MediGrant plan shall be con-
ducted by an entity that is neither responsible under State
law for the submission of the State plan (or part thereof)
nor responsible for administering (or supervising the ad-
ministration of) the activity. If consistent with the pre-
1283
comply) with the provisions of this title or of a MediGrant
plan.
‘‘(b) NO EFFECT ON STATE LAW.—Nothing in sub-
section (a) may be construed as affecting any actions
brought under State law.
‘‘PART C—PAYMENTS TO STATES
‘‘SEC. 2121. ALLOTMENT OF FUNDS AMONG STATES.
‘‘(a) ALLOTMENTS.—
‘‘(1) COMPUTATION.—The Secretary shall pro-
vide for the computation of State obligation and out-
lay allotments in accordance with this section for
each fiscal year beginning with fiscal year 1996.
‘‘(2) LIMITATION ON OBLIGATIONS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Secretary shall not enter into
obligations with any State under this title for a
fiscal year in excess of the obligation allotment
for that State for the fiscal year under para-
graph (4). The sum of such obligation allot-
ments for all States in any fiscal year (exclud-
ing amounts carried over under subparagraph
(B) and excluding changes in allotments ef-
fected under paragraph (4)(D)) shall not exceed
the aggregate limit on new obligation authority
specified in paragraph (3) for that fiscal year.
1554
note) is amended by striking ‘‘, to the extent pro-
vided in appropriation Acts,’’ and inserting ‘‘without
appropriation’’.
SUBTITLE E—MISCELLANEOUS PROVISIONS
SEC. 17601. REFERENCES.
Any reference in any other Federal law, Executive
order, rule, regulation, or delegation of authority, or any
document of or pertaining to an office from which a func-
tion is transferred by this title—
(1) to the Secretary of Commerce or an officer
of the Department of Commerce, is deemed to refer
to the head of the department or office to which
such function is transferred; or
(2) to the Department of Commerce or an
agency in the Department of Commerce is deemed
to refer to the department or office to which such
function is transferred.
SEC. 17602. EXERCISE OF AUTHORITIES.
Except as otherwise provided by law, a Federal offi-
cial to whom a function is transferred by this title may,
for purposes of performing the function, exercise all au-
thorities under any other provision of law that were avail-
able with respect to the performance of that function to
the official responsible for the performance of the function