Calendar No. 291
105TH CONGRESS
1ST SESSION
H. R. 2513
AN ACT
To amend the Internal Revenue Code of 1986 to
restore and modify the provision of the Taxpayer
Relief Act of 1997 relating to exempting active
financing income from foreign personal holding
company income and to provide for the non-
recognition of gain on the sale of stock in agri-
cultural processors to certain farmers’ coopera-
tives, and for other purposes.
NOVEMBER 10, 1997
Read the second time and placed on the calendar
II
Calendar No. 291
105TH CONGRESS
1ST SESSION
H. R. 2513
IN THE SENATE OF THE UNITED STATES
NOVEMBER 9, 1997
Received and read the first time
NOVEMBER 10, 1997
Read the second time and placed on the calendar
AN ACT
To amend the Internal Revenue Code of 1986 to restore
and modify the provision of the Taxpayer Relief Act
of 1997 relating to exempting active financing income
from foreign personal holding company income and to
provide for the nonrecognition of gain on the sale of
stock in agricultural processors to certain farmers’ co-
operatives, and for other purposes.
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) EXEMPTION FROM FOREIGN PERSONAL HOLD-
ING COMPANY INCOME.—Section 954 of the Internal Rev-
enue Code of 1986 (as amended by subsection (d)) is
amended by adding at the end the following new sub-
section:
‘‘(h) SPECIAL RULE FOR INCOME DERIVED IN THE
ACTIVE
CONDUCT
OF
INSURANCE
BUSINESSES
AND
BANKING, FINANCING, OR SIMILAR BUSINESSES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income
shall not include income which is—
‘‘(A) derived in the active conduct by a
controlled foreign corporation of a banking, fi-
nancing, or similar business, but only if—
‘‘(i) the corporation is predominantly
engaged in the active conduct of such busi-
ness, and
‘‘(ii) such income is derived from
transactions with customers located within
the country under the laws of which the
corporation is created or organized,
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‘‘(B) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from the invest-
ments made by a qualifying insurance company
of its reserves or of 80 percent of its unearned
premiums (as both are determined in the man-
ner prescribed under paragraph (4)), or
‘‘(C) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from investments
made by a qualifying insurance company of an
amount of its assets equal to—
‘‘(i) in the case of property, casualty,
or health insurance contracts, one-third of
its premiums earned on such insurance
contracts during the taxable year (as de-
fined in section 832(b)(4)), and
‘‘(ii) in the case of life insurance or
annuity contracts, 10 percent of the re-
serves described in subparagraph (B) for
such contracts.
‘‘(2) PREDOMINANTLY
ENGAGED.—For pur-
poses of paragraph (1)(A), a controlled foreign cor-
poration shall be deemed predominantly engaged in
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the active conduct of a banking, financing, or similar
business only if—
‘‘(A) more than 70 percent of its gross in-
come is derived from such business from trans-
actions with customers which are located within
the country under the laws of which the cor-
poration is created or organized, or
‘‘(B) the corporation is—
‘‘(i) engaged in the active conduct of
a banking business and is an institution li-
censed to do business as a bank in the
United States (or is any other corporation
not so licensed which is specified by the
Secretary in regulations), or
‘‘(ii) engaged in the active conduct of
a securities business and is registered as a
securities broker or dealer under section
15(a) of the Securities Exchange Act of
1934 or is registered as a Government se-
curities broker or dealer under section
15C(a) of such Act (or is any other cor-
poration not so registered which is speci-
fied by the Secretary in regulations).
‘‘(3) PRINCIPLES
FOR
DETERMINING
INSUR-
ANCE
INCOME.—Except as provided by the Sec-
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retary, for purposes of paragraphs (1) (B) and
(C)—
‘‘(A) in the case of any contract which is
a separate account-type contract (including any
variable contract not meeting the requirements
of section 817), income credited under such
contract shall be allocable only to such contract,
and
‘‘(B) income not allocable under subpara-
graph (A) shall be allocated ratably among con-
tracts not described in subparagraph (A).
‘‘(4) METHODS FOR DETERMINING UNEARNED
PREMIUMS AND RESERVES.—For purposes of para-
graph (1)(B)—
‘‘(A) PROPERTY
AND
CASUALTY
CON-
TRACTS.—The unearned premiums and reserves
of a qualifying insurance company with respect
to property, casualty, or health insurance con-
tracts shall be determined using the same meth-
ods and interest rates which would be used if
such company were subject to tax under sub-
chapter L.
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.—The amount of the reserve of a quali-
fying insurance company for any life insurance
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or annuity contract shall be equal to the greater
of—
‘‘(i) the net surrender value of such
contract 
(as 
defined 
in 
section
807(e)(1)(A)), or
‘‘(ii) the reserve determined under
paragraph (5).
‘‘(C) LIMITATION
ON
RESERVES.—In no
event shall the reserve determined under this
paragraph for any contract as of any time ex-
ceed the amount which would be taken into ac-
count with respect to such contract as of such
time in determining foreign statement reserves
(less any catastrophe, deficiency, or similar re-
serves).
‘‘(5) AMOUNT OF RESERVE.—The amount of
the reserve determined under this paragraph with
respect to any contract shall be determined in the
same manner as it would be determined if the quali-
fying insurance company were subject to tax under
subchapter L, except that in applying such sub-
chapter—
‘‘(A) the interest rate determined for the
foreign country in which such company is cre-
ated or organized and which, except as provided
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by the Secretary, is calculated in the same man-
ner as the Federal mid-term rate under section
1274(d) shall be substituted for the applicable
Federal interest rate,
‘‘(B) the highest assumed interest rate
permitted to be used in determining foreign
statement reserves shall be substituted for the
prevailing State assumed interest rate, and
‘‘(C) tables for mortality and morbidity
which reasonably reflect the current mortality
and morbidity risks in the foreign country shall
be substituted for the mortality and morbidity
tables otherwise used for such subchapter.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFYING INSURANCE COMPANY.—
The term ‘qualifying insurance company’ means
any entity which—
‘‘(i) is subject to regulation as an in-
surance company by the country under the
laws of which the entity is created or orga-
nized,
‘‘(ii) derives at least 50 percent of its
net written premiums from the insurance
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or reinsurance of risks located within such
country, and
‘‘(iii) is engaged in the active conduct
of an insurance business and would be sub-
ject to tax under subchapter L if it were
a domestic corporation.
‘‘(B) LIFE INSURANCE OR ANNUITY CON-
TRACT.—For purposes of this section and sec-
tion 953, the determination of whether a con-
tract issued by a controlled foreign corporation
is a life insurance contract or an annuity con-
tract shall be made without regard to sections
72(s), 101(f), 817(h), and 7702 if—
‘‘(i) such contract is regulated as a
life insurance or annuity contract by the
country under the laws of which the cor-
poration is created or organized, and
‘‘(ii) no policyholder, insured, annu-
itant, or beneficiary with respect to the
contract is a United States person.
‘‘(C) NONCANCELLABLE
ACCIDENT
AND
HEALTH
INSURANCE
CONTRACTS.—A
noncancellable accident and health insurance
contract shall be treated for purposes of this
subsection in the same manner as a life insur-
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which has a customer relationship with
such corporation.
‘‘(ii) EXCEPTION FOR RELATED, ETC.
PERSONS.—A person who is a related per-
son (as defined in subsection (d)(3)), an
officer, a director, or an employee with re-
spect to any controlled foreign corporation
shall not be treated as a customer with re-
spect to any transaction if a principal pur-
pose of such transaction is to satisfy any
requirement of this subsection.
‘‘(7) ANTI-ABUSE RULES.—For purposes of ap-
plying this subsection and subsection (c)(2)(C)(ii),
there shall be disregarded any item of income, gain,
loss, or deduction with respect to any transaction or
series of transactions one of the principal purposes
of which is qualifying income or gain for the exclu-
sion under this section, including—
‘‘(A) any change in the method of comput-
ing reserves or any other transaction or series
of transactions a principal purpose of which is
the acceleration or deferral of any item in order
to claim the benefits of such exclusion through
the application of this subsection, and
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‘‘(B) organizing entities in order to satisfy
any same country requirement under this sub-
section.
‘‘(8) COORDINATION
WITH
OTHER
PROVI-
SIONS.—
‘‘(A) SECTION 901(k).—
‘‘(i) IN
GENERAL.—The amount of
qualified taxes (as defined in section
901(k)(4)) to which paragraphs (1) and
(2) of section 901(k) do not apply by rea-
son of paragraph (4) of such section
901(k) shall be reduced by an amount
which bears the same ratio to such quali-
fied taxes as the amount of income from
the active conduct of a securities business
which is not subpart F income solely by
reason 
of 
this 
subsection, 
subsection
(c)(2)(C)(ii), 
and 
subsection 
(e)(2)(C)
bears to the total income from the active
conduct of a securities business by a con-
trolled foreign corporation which is not
subpart F income. The determination
under the preceding sentence shall be
made by treating all members of an affili-
ated group as 1 corporation. For purposes
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of this clause, the term ‘subpart F income’
has the meaning given such term by sec-
tion 952(a) but determined without regard
to section 952(c) and paragraphs (3) and
(4) of subsection (b) of this section.
‘‘(ii) ELECTION NOT TO HAVE SUB-
SECTION AND CERTAIN OTHER PROVISIONS
APPLY.—Clause (i) shall not apply for any
taxable year of a foreign corporation if
such corporation (and all members of the
affiliated group of which such corporation
is a member) elect not to have this sub-
section, subsection (c)(2)(C)(ii), and sub-
section (e)(2)(C) apply for such taxable
year.
‘‘(B) TREATMENT OF INCOME TO WHICH
SECTION 953 APPLIES.—Subparagraphs (B) and
(C) of paragraph (1) shall not apply to invest-
ment income allocable to contracts that insure
related party risks or risks located in a foreign
country other than the country in which the
qualifying insurance company is created or or-
ganized.
‘‘(9) 
APPLICATION.—This 
subsection, 
sub-
section (c)(2)(C)(ii), and subsection (e)(2)(C) shall
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apply only to the first full taxable year of a foreign
corporation beginning after December 31, 1997, and
before January 1, 1999, and to taxable years of
United States shareholders with or within which
such taxable year of such foreign corporation ends.’’
(b) 
SPECIAL
RULES
FOR
DEALERS.—Section
954(c)(2)(C) of such Code is amended to read as follows:
‘‘(C) EXCEPTION FOR DEALERS.—Except
as provided by regulations, in the case of a reg-
ular dealer in property (within the meaning of
paragraph (1)(B)), forward contracts, option
contracts, or similar financial instruments (in-
cluding notional principal contracts and all in-
struments referenced to commodities), there
shall not be taken into account in computing
foreign personal holding income—
‘‘(i) any item of income, gain, deduc-
tion, or loss (other than any item described
in subparagraph (A), (E), or (G) of para-
graph (1)) from any transaction (including
hedging transactions) entered into in the
ordinary course of such dealer’s trade or
business as such a dealer, and
‘‘(ii) if such dealer is a dealer in secu-
rities (within the meaning of section 475),
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any interest or dividend or equivalent
amount described in subparagraph (E) or
(G) of paragraph (1) from any transaction
(including any hedging transaction or
transaction 
described 
in 
section
956(c)(2)(J)) entered into in the ordinary
course of such dealer’s trade or business as
such a dealer in securities, but only if em-
ployees of the dealer which are located in
the country under the laws of which the
dealer is created or organized (or in the
case of a qualified business unit described
in section 989(a) which both maintains its
principal office and conducts substantial
business activity in a country, employees of
such unit which are located in such coun-
try) materially participate in such trans-
action.’’.
(c) EXEMPTION FROM FOREIGN BASE COMPANY
SERVICES INCOME.—Paragraph (2) of section 954(e) of
such Code (as amended by subsection (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 adding at the end the following:
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‘‘(C)(i) a transaction by the controlled for-
eign corporation if the income from the trans-
action is not foreign personal holding company
income by reason of subsection (h), or
‘‘(ii) a transaction by the controlled foreign
corporation if subsection (c)(2)(C)(ii) applies to
such transaction.’’.
(d) REPEAL
OF CANCELED PROVISIONS.—Section
1175 of the Taxpayer Relief Act of 1997, and the amend-
ments made by such section, are hereby repealed, and the
Internal Revenue Code of 1986 shall be applied and ad-
ministered as if such section (and amendments) had never
been enacted.
SEC. 2. NONRECOGNITION OF GAIN ON SALE OF STOCK TO
CERTAIN FARMERS’ COOPERATIVES.
(a) IN GENERAL.—Part III of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
nontaxable exchanges) is amended by inserting after sec-
tion 1042 the following new section:
‘‘SEC. 1042A. SALES OF STOCK TO CERTAIN FARMERS’ CO-
OPERATIVES.
‘‘(a) NONRECOGNITION OF GAIN.—If—
‘‘(1) the taxpayer elects the application of this
section with respect to any sale of qualified agricul-
tural processor stock,
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‘‘(2) the taxpayer purchases qualified replace-
ment property within the replacement period, and
‘‘(3) the requirements of subsection (c) are met
with respect to such sale,
then the gain (if any) on such sale which would be recog-
nized as long-term capital gain shall be recognized only
to the extent that the amount realized on such sale exceeds
the cost to the taxpayer of such qualified replacement
property. The preceding sentence shall not apply to a sale
by an eligible farmers’ cooperative.
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—If subsection (a) applies to
the sale of any stock by the taxpayer in a qualified
agricultural processor, the aggregate amount of gain
taken into account by the taxpayer under subsection
(a) with respect to stock in such processor shall not
exceed the amount of the limitation under paragraph
(2) which is allocated to such sale by the eligible
farmers’ cooperative.
‘‘(2) 
ALLOCATION.—The 
amount 
allocated
under this paragraph by any cooperative with re-
spect to stock acquired by such cooperative during
any taxable year of such cooperative shall not exceed
$75,000,000.
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‘‘(3) AGGREGATION RULES.—All eligible farm-
ers’ cooperatives which are under common control
(within the meaning of subsection (a) or (b) of sec-
tion 52) shall be treated as 1 cooperative for pur-
poses of paragraph (2), and the limitation under
such paragraph shall be allocated among such co-
operatives in such manner as the Secretary shall
prescribe.
‘‘(c) REQUIREMENTS
TO
QUALIFY
FOR
NON-
RECOGNITION.—A sale of qualified agricultural processor
stock meets the requirements of this subsection if—
‘‘(1) SALE TO ELIGIBLE FARMERS’ COOPERA-
TIVE.—Such stock is sold to an eligible farmers’ co-
operative.
‘‘(2) SPECIAL
RULE
FOR
CERTAIN
COOPERA-
TIVES.—
‘‘(A) IN GENERAL.—In the case of a sale
of such stock to an eligible farmers’ cooperative
described in subparagraph (B), the processor
purchased, during at least 3 of the 5 most re-
cent taxable years of such processor ending on
or before the date of the sale, more than one-
half of the agricultural or horticultural products
to be refined or processed by such processor
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from such cooperative or farmers who are mem-
bers of such cooperative.
‘‘(B) COOPERATIVES DESCRIBED.—A coop-
erative is described in this subparagraph with
respect to any sale if, for any taxable year end-
ing before the date of such sale—
‘‘(i) such cooperative had gross re-
ceipts of more than $1,000,000,000, or
‘‘(ii) such cooperative sold more than
a de minimis amount of specialty produce.
‘‘(C) SPECIALTY PRODUCE.—For purposes
of subparagraph (B), the term ‘specialty
produce’ means any agricultural or horticultural
product other than wheat, feed grains, oil seeds,
cotton, rice, cattle, hogs, sheep, or dairy prod-
ucts.
‘‘(D) SPECIAL RULES.—
‘‘(i) GROSS RECEIPTS.—For purposes
of subparagraph (B)(i), rules similar to the
rules of paragraph (2), and subparagraphs
(B) and (C) of paragraph (3), of section
448(c) shall apply.
‘‘(ii) PREDECESSOR.—Any reference
in this paragraph to a cooperative or proc-
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essor shall be treated as including a ref-
erence to any predecessor thereof.
‘‘(3) COOPERATIVE MUST HOLD 100 PERCENT
OF STOCK AFTER SALE.—The eligible farmers’ coop-
erative owns, immediately after the sale, all of the
qualified agricultural processor stock of the corpora-
tion.
‘‘(4) WRITTEN STATEMENT AND HOLDING PE-
RIOD.—Requirements similar to the requirements of
paragraphs (3) and (4) of section 1042(b) are met.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
AGRICULTURAL
PROCESSOR
STOCK.—The term ‘qualified agricultural processor
stock’ means stock (other than stock described in
section 1504(a)(4)) issued by a qualified agricultural
processor.
‘‘(2) QUALIFIED AGRICULTURAL PROCESSOR.—
The term ‘qualified agricultural processor’ means a
domestic C corporation substantially all of the assets
of which are used in the active conduct of the trade
or business of refining or processing agricultural or
horticultural products in the United States.
‘‘(3) ELIGIBLE FARMERS’ COOPERATIVE.—The
term ‘eligible farmers’ cooperative’ means an organi-
zation to which part I of subchapter T applies and
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which is engaged in the marketing of agricultural or
horticultural products.
‘‘(4) REPLACEMENT
PERIOD.—The term ‘re-
placement period’ means the period which begins 3
months before the date on which the sale of qualified
agricultural processor stock occurs and which ends
12 months after the date of such sale.
‘‘(5) QUALIFIED REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified replace-
ment property’ has the meaning given such
term by section 1042(c)(4).
‘‘(B) EXCEPTION.—The term ‘qualified re-
placement property’ shall not include any secu-
rity issued by the taxpayer or by any corpora-
tion controlled by the taxpayer immediately
after the purchase. For purposes of the preced-
ing sentence, the term ‘control’ has the mean-
ing given such term by section 304(c) (deter-
mined by substituting ‘10 percent’ for ‘50 per-
cent’ each place it appears in paragraph (1)
thereof).
‘‘(e) SPECIAL RULES.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, rules similar to the rules of
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paragraphs (5) and (6) of section 1042(c), sub-
sections (d), (e), and (f) of section 1042, section
1016(a)(22), and section 1223(13) shall apply for
purposes of this section.
‘‘(2) CERTAIN PROVISIONS NOT TO APPLY.—
‘‘(A) RECOGNITION
ON
COMPLETE
LIQ-
UIDATION.—Section 332 shall not apply to the
liquidation into the cooperative or any related
person of a qualified agricultural processor if
the cooperative or related person acquired the
stock in such processor in a sale to which sub-
section (a) applied.
‘‘(B) DEEMED SALE ELECTION NOT AVAIL-
ABLE.—No election may be made under section
338(h)(10) with respect to a sale to which sub-
section (a) applies.
‘‘(f) RECAPTURE OF TAX BENEFIT WHERE LACK OF
CONTINUITY.—
‘‘(1) IN
GENERAL.—If there is a recapture
event during any taxable year with respect to any
sale to an eligible farmers’ cooperative to which this
section applied, such cooperative’s tax imposed by
this chapter for such taxable year shall be increased
by an amount equal to—
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‘‘(A) the recapture percentage of the
amount allocated under subsection (b) to such
sale, multiplied by
‘‘(B) the highest rate of tax imposed by
section 11 for such taxable year.
‘‘(2) RECAPTURE EVENT.—For purposes of this
subsection, a recapture event shall be treated as oc-
curring in any taxable year if—
‘‘(A) any portion of such taxable year is
within the 3-year period beginning on the date
on which the eligible farmers’ cooperative ac-
quired stock in a qualified agricultural proc-
essor in a sale to which this section applied
and, as of the close of such portion, there is a
decrease in the direct or indirect percentage
ownership of such stock held by such coopera-
tive which was not previously taken into ac-
count under this subsection, or
‘‘(B) such taxable year is one of the first
5 taxable years ending after the date of such
sale and is the third of such taxable years dur-
ing which one-half or less of the agricultural or
horticultural products refined or processed by
the qualified agricultural processor are pur-
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chased from the eligible farmers’ cooperative or
farmers who are members of such cooperative.
‘‘(3) RECAPTURE PERCENTAGE.—For purposes
of this subsection, the term ‘recapture percentage’
means—
‘‘(A) in the case of a recapture event de-
scribed in paragraph (2)(A), the percentage
equal to a fraction—
‘‘(i) the numerator of which is the
percentage decrease described in paragraph
(2)(A), and
‘‘(ii) the denominator of which is the
percentage which the qualified agricultural
processor stock acquired by the cooperative
in a sale to which this section applied
bears to all qualified agricultural processor
stock in the processor, and
‘‘(B) in the case of a recapture event de-
scribed in paragraph (2)(B), 100 percent.
In no event shall the recapture percentage for any
taxable year exceed 100 percent minus the sum of
the recapture percentages for all prior taxable years.
‘‘(4) EXCEPTIONS
TO
PURCHASE
REQUIRE-
MENT.—The purchase requirement of paragraph
(2)(B) shall be treated as met for any taxable year
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if the Secretary determines that such requirement
was not met due to 1 or more of the following: flood,
drought, or other weather-related conditions, envi-
ronmental contamination, disease, fire, or other
similar extenuating circumstances prescribed by the
Secretary.
‘‘(g) COORDINATION WITH SECTION 1042.—No elec-
tion may be made under this section with respect to any
sale if an election is made under section 1042 with respect
to such sale.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as are appropriate to carry out this sec-
tion, including regulations which treat 2 or more sales
which are part of the same transaction as 1 sale.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 26(b) of such Code
is amended by striking ‘‘and’’ at the end of subpara-
graph (P), by striking the period at the end of sub-
paragraph (Q) and inserting ‘‘, and’’, and by adding
at the end the following new subparagraph:
‘‘(R) section 1042A(f) (relating to recap-
ture of tax benefit where lack of continuity in
certain agricultural processors).’’
(2) The table of sections for part III of sub-
chapter O of chapter 1 of such Code is amended by
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inserting after the item relating to section 1042 the
following new item:
‘‘Sec. 1042A. Sales of stock to certain farmers’ cooperatives.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales after December 31, 1997.
SEC. 3. DISPOSAL OF PALLADIUM AND PLATINUM IN NA-
TIONAL DEFENSE STOCKPILE.
(a) DISPOSAL REQUIRED.—(1) During fiscal year
1998, the President shall dispose of not more than
130,000 troy ounces of palladium and not more than
20,000 troy ounces of platinum contained in the National
Defense Stockpile so as to result in receipts to the United
States in an amount equal to $17,000,000 during fiscal
year 1998.
(2) During each of the fiscal years 1999 through
2002, the President shall dispose of not more than 60,000
troy ounces of palladium contained in the National De-
fense Stockpile so as to result in receipts to the United
States in an amount equal to $4,000,000 during each of
the fiscal years 1999 through 2002.
(b) DEPOSIT OF RECEIPTS.—Notwithstanding sec-
tion 9 of the Strategic and Critical Materials Stock Piling
Act (50 U.S.C. 98h), funds received as a result of the dis-
posal of materials under subsection (a) shall be deposited
into the general fund of the Treasury for the purpose of
deficit reduction.
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(c) RELATIONSHIP TO OTHER DISPOSAL AUTHOR-
ITY.—The disposal authority provided in subsection (a) is
new disposal authority and is in addition to, and shall not
affect, any other disposal authority provided by law re-
garding palladium or platinum contained in the National
Defense Stockpile.
(d) TERMINATION OF DISPOSAL AUTHORITY.—The
disposal authority provided in subsection (a) shall termi-
nate with regard to a fiscal year specified in such sub-
section on the date on which the total amount of receipts
to the United States during that fiscal year from the dis-
posal of materials under such subsection equals the
amount specified in such subsection for that fiscal year.
(e) DEFINITION.—The term ‘‘National Defense
Stockpile’’ means the stockpile provided for in section 4
of the Strategic and Critical Materials Stock Piling Act
(50 U.S.C. 98c).
SEC. 4. RECOVERY OF COSTS OF HEALTH CARE SERVICES.
(a) AUTHORITIES.—Section 904 of the Foreign Serv-
ice Act of 1980 (22 U.S.C. 4084) is amended—
(1) in subsection (a)—
(A) by striking ‘‘and’’ after ‘‘employees,’’,
and
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(B) by inserting before the period ‘‘, and
(for care provided abroad) such other persons
as are designated by the Secretary of State’’;
(2) in subsection (d), by inserting ‘‘, subject to
subsections (g) through (i)’’ before ‘‘the Secretary’’;
and
(3) by adding at the end the following new sub-
sections:
‘‘(g)(1)(A) In the case of a covered beneficiary who
is provided health care under this section and who is en-
rolled in a covered health benefits plan of a third-party
payer, the United States shall have the right to collect
from the third-party payer a reasonable charge amount
for the care to the extent that the payment would be made
under such plan for such care under the conditions speci-
fied in paragraph (2) if a claim were submitted by or on
behalf of the covered beneficiary.
‘‘(B) Such a covered beneficiary is not required to
pay any deductible, copayment, or other cost-sharing
under the covered health benefits plan or under this sec-
tion for health care provided under this section.
‘‘(2) With respect to health care provided under this
section to a covered beneficiary, for purposes of carrying
out paragraph (1)—
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‘‘(A) the reasonable charge amount (as defined
in paragraph (9)(C)) shall be treated by the third-
party payer as the payment basis otherwise allowable
for the care under the plan;
‘‘(B) under regulations, if the covered health
benefits plan restricts or differentiates in benefit
payments based on whether a provider of health care
has a participation agreement with the third-party
payer, the Secretary shall be treated as having such
an agreement as results in the highest level of pay-
ment under this subsection;
‘‘(C) no provision of the health benefit plan
having the effect of excluding from coverage or limit-
ing payment of charges for certain care shall operate
to prevent collection under subsection (a), including
(but not limited to) any provision that limits cov-
erage or payment on the basis that—
‘‘(i) the care was provided outside the
United States,
‘‘(ii) the care was provided by a govern-
mental entity,
‘‘(iii) the covered beneficiary (or any other
person) has no obligation to pay for the care,
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‘‘(iv) the provider of the care is not li-
censed to provide the care in the United States
or other location,
‘‘(v) a condition of coverage relating to uti-
lization review, prior authorization, or similar
utilization control has not been met, or
‘‘(vi) in the case that drugs were provided,
the provision of the drugs for any indicated
purpose has not been approved by the Federal
Food, Drug, and Cosmetic Administration;
‘‘(D) if the covered health benefits plan con-
tains a requirement for payment of a deductible, co-
payment, or similar cost-sharing by the bene-
ficiary—
‘‘(i) the beneficiary’s not having paid such
cost-sharing with respect to the care shall not
preclude collection under this section, and
‘‘(ii) the amount the United States may
collect under this section shall be reduced by
application of the appropriate cost-sharing;
‘‘(E) amounts that would be payable by the
third-party payer under this section but for the ap-
plication of a deductible under subparagraph (D)(ii)
shall be counted towards such deductible notwith-
standing that under paragraph (1)(B) the individual
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is not charged for the care and did not pay an
amount towards such care; and
‘‘(F) the Secretary may apply such other provi-
sions as may be appropriate to carry out this section
in an equitable manner.
‘‘(3) In exercising authority under paragraph (1)—
‘‘(A) the United States shall be subrogated to
any right or claim that the covered beneficiary may
have against a third-party payer;
‘‘(B) the United States may institute and pros-
ecute legal proceedings against a third-party payer
to enforce a right of the United States under this
section; and
‘‘(C) the Secretary may compromise, settle, or
waive a claim of the United States under this sec-
tion.
‘‘(4) No law of any State, or of any political subdivi-
sion of a State, shall operate to prevent or hinder collec-
tion by the United States under this section.
‘‘(5) If collection is sought from a third-party payer
for health care furnished a covered beneficiary under this
section, under regulations medical records of the bene-
ficiary shall be made available for inspection and review
by representatives of the third-party payer for the sole
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purpose of permitting the third-party payer to verify, con-
sistent with this subsection that—
‘‘(A) the care for which recovery or collection is
sought were furnished to the beneficiary; and
‘‘(B) except as otherwise provided in this sub-
section, the provision of such care to the beneficiary
meets criteria generally applicable under the covered
health benefits plan.
‘‘(6) The Secretary shall establish (and periodically
update) a schedule of reasonable charge amounts for
health care provided under this section. The amount under
such schedule for health care shall be based on charges
or fee schedule amounts recognized by third-party payers
under covered health benefits plans for payment purposes
for similar health care services furnished in the Metropoli-
tan Washington, District of Columbia, area.
‘‘(7) The Secretary shall establish a procedure under
which a covered beneficiary may elect to have subsection
(h) apply instead of this subsection with respect to some
or all health care provided to the beneficiary under this
section.
‘‘(8) Amounts collected under this subsection, under
subsection (h), or under any authority referred to in sub-
section (i), from a third-party payer or from any other
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payer shall be deposited in the Treasury as a miscellane-
ous offsetting receipt.
‘‘(9) For purposes of this section:
‘‘(A) The term ‘covered beneficiary’ means a
member or employee (or family member of such a
member of employee) described in subsection (a)
who is enrolled under a covered health benefits plan.
‘‘(B)(i) Subject to clause (ii), the term ‘covered
health benefits plan’ means a health benefits plan
offered under the Federal Employees Health Bene-
fits Program under chapter 89 of title 5, United
States Code.
‘‘(ii) Such term does not include such a health
benefits plan (such as a plan of a staff-model health
maintenance organization) as the Secretary deter-
mines pursuant to regulations to be structured in a
manner that impedes the application of this sub-
section to individuals enrolled under the plan. To the
extent practicable, the Secretary shall seek to dis-
seminate to members of the Service and designated
employees described in subsection (a) who are eligi-
ble to receive health care under this section the
names of plans excluded under this clause.
‘‘(C) The term ‘reasonable charge amount’
means, with respect to health care provided under
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this section, the amount for such care specified in
the schedule established under paragraph (6).
‘‘(D) The term ‘third-party payer’ means an en-
tity that offers a covered health benefits plan.
‘‘(h)(1) In the case of an individual who—
‘‘(A) receives health care pursuant to this sec-
tion; and
‘‘(B)(i) is not a covered beneficiary (including
by virtue of enrollment only in a health benefits plan
excluded under subsection (g)(9)(B)(ii)), or
‘‘(ii) is such a covered beneficiary and has made
an election described in subsection (g)(7) with re-
spect to such care,
the Secretary is authorized to collect from the individual
the full reasonable charge amount for such care.
‘‘(2) The United States shall have the same rights
against such individuals with respect to collection of such
amounts as the United States has with respect to collec-
tion of amounts against a third-party payer under sub-
section (g), except that the rights under this subsection
shall be exercised without regard to any rules for
deductibles, coinsurance, or other cost-sharing.
‘‘(i) Subsections (g) and (h) shall apply to reimburse-
ment for the cost of hospitalization and related outpatient
expenses paid for under subsection (d) only to the extent
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provided in regulations. Nothing in this subsection, or sub-
sections (g) and (h), shall be construed as limiting any
authority the Secretary otherwise has with respect to ob-
taining reimbursement for the payments made under sub-
section (d).’’.
(b) EFFECTIVE DATE.—(1) The amendments made
by subsection (a) shall apply to items and services pro-
vided on and after January 1, 1998.
(2) In order to carry out such amendments in a time-
ly manner, the Secretary of State is authorized to issue
interim, final regulations that take effect pending notice
and opportunity for public comment.
(c) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated to the Secretary of State
$2,000,000 to offset the costs of carrying out the amend-
ments made by this section. Amounts appropriated under
this subsection shall remain available until expended.
Passed the House of Representatives November 8,
1997.
Attest:
ROBIN H. CARLE,
Clerk.
By RAY STRONG,
Assistant to the Clerk.