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other health professionals for which pay-
ment rates are based (in whole or in part)
on payments for physicians’ services.
‘‘(iii) UPDATE
IN
LAB
FEE
SCHED-
ULE.—To the computation of the fee sched-
ule amount under section 1833(h)(2) for
clinical diagnostic laboratory services fur-
nished during the calendar year in which
the fiscal year ends.
‘‘(iv) 
UPDATE
IN
REASONABLE
CHARGES FOR VACCINES.—To the computa-
tion of the reasonable charge for vaccines
described in section 1861(s)(10) for vaccines
furnished during the calendar year in
which the fiscal year ends.
‘‘(v) DURABLE
MEDICAL
EQUIPMENT-
RELATED
ITEMS.—To the computation of
the 
payment 
basis 
under 
section
1834(a)(1)(B) for covered items described in
section 1834(a)(13), for services furnished
during the calendar year in which the fiscal
year ends.
‘‘(vi) RADIOLOGIST SERVICES.—To the
computation of conversion factors for radi-
ologist services under section 1834(b), for
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services furnished during the calendar year
in which the fiscal year ends.
‘‘(vii) SCREENING MAMMOGRAPHY.—To
the computation of payment rates for
screening 
mammography 
under 
section
1834(c)(1)(C)(ii), for screening mammog-
raphy performed during the calendar year
in which the fiscal year ends.
‘‘(viii) 
PROSTHETICS
AND
ORTHOTICS..—To the computation of the
amount to be recognized under section
1834(h) for payment for prosthetic devices
and orthotics and prosthetics, for items fur-
nished during the calendar year in which
the fiscal year ends.
‘‘(ix) SURGICAL
DRESSINGS.—To the
computation of the payment amount re-
ferred to in section 1834(i)(1)(B) for sur-
gical dressings, for items furnished during
the calendar year in which the fiscal year
ends.
‘‘(x) PARENTERAL AND ENTERAL NU-
TRITION.—To the computation of reasonable
charge screens for payment for parenteral
and enteral nutrition under section 1834(h),
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for nutrients furnished during the calendar
year in which the fiscal year ends.
‘‘(xi) AMBULANCE SERVICES.—To the
computation of limits on reasonable charges
for ambulance services, for services fur-
nished during the calendar year in which
the fiscal year ends.
‘‘(6) APPLICATION TO PAYMENTS MADE BASED
ON COSTS DURING A COST REPORTING PERIOD.—
‘‘(A) IN GENERAL.—In applying subsection
(a) for a fiscal year with respect to items and
services for which payment is made under part
A or B on the basis of costs incurred for items
and services in a cost reporting period, the Sec-
retary shall provide for the payment adjustment
under such subsection for a fiscal year through
an appropriate proportional reduction in the
payment for costs for such items and services in-
curred at any time during each cost reporting
period any part of which occurs during the fiscal
year involved, but only (for each such cost re-
porting period) in the same proportion as the
fraction of the cost reporting period that occurs
during the fiscal year involved.
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‘‘(B) APPLICATION
IN
SPECIFIC
CASES.—
The payment adjustment described in subpara-
graph (A) applies for a fiscal year to at least the
following:
‘‘(i) CAPITAL-RELATED COSTS OF HOS-
PITAL
SERVICES.—To the computation of
payment amounts for inpatient and out-
patient hospital services under sections
1886(g) and 1861(v) for portions of cost re-
porting periods occurring during the fiscal
year.
‘‘(ii) OPERATING COSTS FOR PPS-EX-
EMPT HOSPITALS.—To the computation of
payment amounts under section 1886(b) for
operating costs of inpatient hospital services
of PPS-exempt hospitals for portions of cost
reporting periods occurring during the fis-
cal year.
‘‘(iii) DIRECT
GRADUATE
MEDICAL
EDUCATION.—To the computation of pay-
ment amounts under section 1886(h) for
reasonable costs of direct graduate medical
education costs for portions of cost reporting
periods occurring during the fiscal year.
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‘‘(iv) INPATIENT RURAL PRIMARY CARE
HOSPITAL SERVICES.—To the computation
of payment amounts under section 1814(j)
for inpatient rural primary care hospital
services for portions of cost reporting peri-
ods occurring during the fiscal year.
‘‘(v) EXTENDED CARE SERVICES OF A
SKILLED NURSING FACILITY.—To the com-
putation of payment amounts under section
1861(v) for post-hospital extended care serv-
ices of a skilled nursing facility (other than
covered non-routine services subject to sec-
tion 1888A) for portions of cost reporting
periods occurring during the fiscal year.
‘‘(vi) 
REASONABLE
COST
CON-
TRACTS.—To the computation of payment
amounts under section 1833(a)(1)(A) for or-
ganizations for portions of cost reporting
periods occurring during the fiscal year.
‘‘(vii) HOME
HEALTH
SERVICES.—
Subject to paragraph (4)(B)(ii), for pay-
ment amounts for home health services, for
portions of cost reporting periods occurring
during such fiscal year.
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‘‘(7) OTHER.—In applying subsection (a) for a
fiscal year with respect to items and services for
which payment is made under part A or B on a basis
not described in a previous paragraph of this sub-
section, the Secretary shall provide for the payment
adjustment under such subsection through an appro-
priate proportional reduction in the payments (or
payment bases for items and services furnished) dur-
ing the fiscal year.
‘‘(8) ADJUSTMENT
OF
PAYMENT
LIMITS.—The
Secretary shall provide for such proportional adjust-
ment in any limits on payment established under
part A or B for items and services within a sector as
may be appropriate based on (and in order to prop-
erly carry out) the adjustment to the amount of pay-
ment under this subsection in the sector.
‘‘(9) REFERENCES TO PAYMENT RATES.—Except
as the Secretary may provide, any reference in this
title (other than this section) to a payment rate is
deemed a reference to such a rate as adjusted under
this subsection.
‘‘(e) PUBLICATION OF DETERMINATIONS; JUDICIAL
REVIEW.—
‘‘(1) ONE-TIME PUBLICATION OF SECTORS AND
GENERAL
PAYMENT
ADJUSTMENT
METHODOLOGY.—
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Not later than October 1, 1996, the Secretary shall
publish in the Federal Register the classification of
medicare items and services into the sectors of medi-
care services under subsection (b) and the general
methodology to be used in applying payment adjust-
ments to the different classes of items and services
within the sectors.
‘‘(2) INCLUSION
OF
INFORMATION
IN
PRESI-
DENT’S BUDGET.—
‘‘(A) IN GENERAL.—With respect to fiscal
years beginning with fiscal year 1999, the Presi-
dent shall include in the budget submitted under
section 1105 of title 31, United States Code, in-
formation on—
‘‘(i) the fee-for-service expenditures,
within each sector, for the second previous
fiscal year, and how such expenditures com-
pare to the adjusted sector allotment for
that sector for that fiscal year, and
‘‘(ii) actual annual growth rates for
fee-for-service expenditures in the different
sectors in the second previous fiscal year.
‘‘(B) 
RECOMMENDATION
REGARDING
GROWTH FACTORS.—The President may include
in such budget for a fiscal year (beginning with
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fiscal year 1998) recommendations regarding
percentages that should be applied (for one or
more fiscal years beginning with that fiscal
year) instead of the baseline annual growth rates
under subsection (c)(3)(C). Such recommenda-
tions shall take into account medically appro-
priate practice patterns.
‘‘(3) DETERMINATIONS
CONCERNING
PAYMENT
ADJUSTMENTS.—
‘‘(A) 
RECOMMENDATIONS
OF
COMMIS-
SION.—By not later than March 1 of each year
(beginning with 1997), the Medicare Payment
Review Commission shall submit to the Sec-
retary and the Congress a report that analyzes
the previous operation (if any) of this section
and that includes recommendations concerning
the manner in which this section should be ap-
plied for the following fiscal year:
‘‘(B) 
PRELIMINARY
NOTICE
BY
SEC-
RETARY.—Not later than May 15 preceding the
beginning of each fiscal year (beginning with fis-
cal year 1998), the Secretary shall publish in the
FEDERAL REGISTER a notice containing the Sec-
retary’s preliminary determination, for each sec-
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tor of medicare services, concerning the follow-
ing:
‘‘(i) the projected allotment under sub-
section (c) for such sector for the fiscal year.
‘‘(ii) Whether there will be a payment
adjustment for items and services included
in such sector for the fiscal year under sub-
section (a).
‘‘(iii) If there will be such an adjust-
ment, the size of such adjustment and the
methodology to be used in making such a
payment adjustment for classes of items and
services included in such sector.
‘‘(iv) Beginning with fiscal year 1999,
the fee-for-service expenditures for such sec-
tor for the second preceding fiscal year.
Such notice shall include an explanation of the
basis for such determination. Determinations
under this subparagraph and subparagraph (C)
shall be based on the best data available at the
time of such determinations.
‘‘(C) FINAL
DETERMINATION.—Not later
than September 1 preceding the beginning of
each fiscal year (beginning with fiscal year
1998), the Secretary shall publish in the Federal
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items and services which are furnished during the fiscal
year, and—
‘‘(1) includes types of expenses otherwise reim-
bursable under parts A and B (including administra-
tive costs incurred by organizations described in sec-
tions 1816 and 1842) with respect to such items and
services, and
‘‘(2) does not include amounts paid under part
C.
‘‘(g) LOOK-BACK ADJUSTMENT IN ALLOTMENTS TO
REFLECT ACTUAL EXPENDITURES.—
‘‘(1) DETERMINATIONS.—
‘‘(A) IN GENERAL.—If the Secretary esti-
mates under subsection (e)(3)(B) with respect to
a particular fiscal year (beginning with fiscal
year 1998) that—
‘‘(i) the fee-for-service expenditures for
all sectors of medicare services for the sec-
ond preceding fiscal year, exceeded
‘‘(ii) the sum of the adjusted allotments
for all sectors for such year (as defined in
paragraph (2)),
then the allotment for each final excess
spending sector (as defined in subparagraph
(B)(i)) for the particular fiscal year shall be re-
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duced by the look-back sector reduction amount
determined under subparagraph (B)(ii) for such
sector and year.
‘‘(B) FINAL EXCESS SPENDING SECTORS.—
‘‘(i) IN GENERAL.—In this paragraph,
the term final excess spending sector’ means,
for a fiscal year, a sector of medicare serv-
ices for which the Secretary determines
under subsection (e)(B) that—
‘‘(I) the fee-for-service expendi-
tures (as defined in subsection (f) for
the fiscal year, exceeded
‘‘(II) the adjusted allotment for
such fiscal year.
For purposes of clause (ii), the term ‘final
excess spending’ means, for a fiscal year
with respect to such a sector, the amount by
which the amount described in subclause (I)
(for the fiscal year and sector) exceeds the
amount described in subclause (II) for such
year and sector.
‘‘(ii) LOOK BACK SECTOR REDUCTION
AMOUNT.—In subparagraph (A)(i), the ‘look
back sector reduction amount’ for a final
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excess spending sector for a fiscal year is
equal to the product of—
‘‘(I) the amount of the final excess
spending for such sector and year (as
defined in clause (i)); and
‘‘(II) the ratio of—
‘‘(a) the aggregate final ex-
cess spending for the year (de-
scribed in subparagraph (A)(i)),
to
‘‘(b) the sum of the amounts
of the final excess spending for all
final excess spending sectors.
‘‘(2) ADJUSTED ALLOTMENT.—The adjusted al-
lotment under this paragraph for a sector for a fiscal
year is—
‘‘(A) the amount that would be computed as
the allotment under subsection (c) for the sector
for the fiscal year if the actual amount of pay-
ments made in the fiscal year under the
MedicarePlus program under part C in the fiscal
year were substituted for the amount described
in subsection (c)(2)(A)(ii) for that fiscal year,
‘‘(B) adjusted to take into account the
amount of any adjustment under paragraph (1)
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for that fiscal year (based on expenditures in the
second preceding fiscal year).’’.
(b) REPORT OF TRUSTEES ON GROWTH RATE IN
PART A EXPENDITURES.—Section 1817 (42 U.S.C. 1395i)
is amended by adding at the end the following new sub-
section:
‘‘(k) Each annual report provided in subsection
(b)(2) shall include information regarding the annual rate
of growth in program expenditures that would be required
to maintain the financial solvency of the Trust Fund and
the extent to which the provisions of section 1895 restrain
the rate of growth of expenditures under this part in order
to achieve such solvency.’’.
Subtitle H—Rural Areas
SEC. 8701. MEDICARE-DEPENDENT, SMALL, RURAL HOS-
PITAL PAYMENT EXTENSION.
(a) SPECIAL TREATMENT EXTENDED.—
(1) 
PAYMENT
METHODOLOGY.—Section
1886(d)(5)(G) 
(42 
U.S.C. 
1395ww(d)(5)(G)) 
is
amended—
(A) in clause (i), by striking ‘‘October 1,
1994,’’ and inserting ‘‘October 1, 1994, or begin-
ning on or after September 1, 1995, and before
October 1, 2000,’’; and
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(B) in clause (ii)(II), by striking ‘‘October
1, 1994,’’ and inserting ‘‘October 1, 1994, or be-
ginning on or after September 1, 1995, and be-
fore October 1, 2000,’’.
(2) EXTENSION
OF
TARGET
AMOUNT.—Section
1886(b)(3)(D) 
(42 
U.S.C. 
1395ww(b)(3)(D)) 
is
amended—
(A) in the matter preceding clause (i), by
striking ‘‘September 30, 1994,’’ and inserting
‘‘September 30, 1994, and for cost reporting pe-
riods beginning on or after September 1, 1995,
and before October 1, 2000,’’;
(B) in clause (ii), by striking ‘‘and’’ at the
end;
(C) in clause (iii), by striking the period at
the end and inserting ‘‘, and’’; and
(D) by adding at the end the following new
clause:
‘‘(iv) with respect to discharges occurring during
September 1995 through fiscal year 1999, the target
amount for the preceding year increased by the appli-
cable 
percentage 
increase 
under 
subparagraph
(B)(iv).’’.
(3) PERMITTING
HOSPITALS
TO
DECLINE
RE-
CLASSIFICATION.—Section 13501(e)(2) of OBRA–93
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(42 U.S.C. 1395ww note) is amended by striking ‘‘or
fiscal year 1994’’ and inserting ‘‘, fiscal year 1994,
fiscal year 1995, fiscal year 1996, fiscal year 1997,
fiscal year 1998, or fiscal year 1999’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply with respect to discharges occurring
on or after September 1, 1995.
SEC. 8702. MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM.
(a) MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM.—Section 1820 (42 U.S.C. 1395i–4) is amended to
read as follows:
‘‘MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM
‘‘SEC. 1820. (a) ESTABLISHMENT.—Any State that
submits an application in accordance with subsection (b)
may establish a medicare rural hospital flexibility program
described in subsection (c).
‘‘(b) APPLICATION.—A State may establish a medicare
rural hospital flexibility program described in subsection
(c) if the State submits to the Secretary at such time and
in such form as the Secretary may require an application
containing—
‘‘(1) assurances that the State—
‘‘(A) has developed, or is in the process of
developing, a State rural health care plan that—
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‘‘(i) provides for the creation of one or
more rural health networks (as defined in
subsection (d)) in the State,
‘‘(ii) promotes regionalization of rural
health services in the State, and
‘‘(iii) improves access to hospital and
other health services for rural residents of
the State;
‘‘(B) has developed the rural health care
plan described in subparagraph (A) in consulta-
tion with the hospital association of the State,
rural hospitals located in the State, and the
State Office of Rural Health (or, in the case of
a State in the process of developing such plan,
that assures the Secretary that the State will
consult with its State hospital association, rural
hospitals located in the State, and the State Of-
fice of Rural Health in developing such plan);
‘‘(2) assurances that the State has designated
(consistent with the rural health care plan described
in paragraph (1)(A)), or is in the process of so des-
ignating, rural nonprofit or public hospitals or facili-
ties located in the State as critical access hospitals;
and
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‘‘(3) such other information and assurances as
the Secretary may require.
‘‘(c) MEDICARE RURAL HOSPITAL FLEXIBILITY PRO-
GRAM DESCRIBED.—
‘‘(1) IN GENERAL.—A State that has submitted
an application in accordance with subsection (b),
may establish a medicare rural hospital flexibility
program that provides that—
‘‘(A) the State shall develop at least one
rural health network (as defined in subsection
(d)) in the State; and
‘‘(B) at least one facility in the State shall
be designated as a critical access hospital in ac-
cordance with paragraph (2).
‘‘(2) STATE DESIGNATION OF FACILITIES.—
‘‘(A) IN GENERAL.—A State may designate
one or more facilities as a critical access hospital
in accordance with subparagraph (B).
‘‘(B) CRITERIA FOR DESIGNATION AS CRITI-
CAL ACCESS HOSPITAL.—A State may designate
a facility as a critical access hospital if the facil-
ity—
‘‘(i) is located in a county (or equiva-
lent unit of local government) in a rural
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area (as defined in section 1886(d)(2)(D))
that—
‘‘(I) is located more than a 35-
mile drive from a hospital, or another
facility described in this subsection, or
‘‘(II) is certified by the State as
being a necessary provider of health
care services to residents in the area;
‘‘(ii) makes available 24-hour emer-
gency care services that a State determines
are necessary for ensuring access to emer-
gency care services in each area served by
a critical access hospital;
‘‘(iii) provides not more than 6 acute
care inpatient beds (meeting such standards
as the Secretary may establish) for provid-
ing inpatient care for a period not to exceed
72 hours (unless a longer period is required
because transfer to a hospital is precluded
because of inclement weather or other emer-
gency conditions), except that a peer review
organization or equivalent entity may, on
request, waive the 72-hour restriction on a
case-by-case basis;
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‘‘(iv) meets such staffing requirements
as would apply under section 1861(e) to a
hospital located in a rural area, except
that—
‘‘(I) the facility need not meet
hospital standards relating to the num-
ber of hours during a day, or days
during a week, in which the facility
must be open and fully staffed, except
insofar as the facility is required to
make available emergency care services
as determined under clause (ii) and
must have nursing services available
on a 24-hour basis, but need not other-
wise staff the facility except when an
inpatient is present,
‘‘(II) the facility may provide any
services otherwise required to be pro-
vided by a full-time, on-site dietitian,
pharmacist, 
laboratory 
technician,
medical technologist, and radiological
technologist on a part-time, off-site
basis under arrangements as defined in
section 1861(w)(1), and
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‘‘(III) the inpatient care described
in clause (iii) may be provided by a
physician’s assistant, nurse practi-
tioner, or clinical nurse specialist sub-
ject to the oversight of a physician who
need not be present in the facility; and
‘‘(v) meets the requirements of sub-
paragraph (I) of paragraph (2) of section
1861(aa).
‘‘(d) RURAL HEALTH NETWORK DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘rural health network’ means, with respect to
a State, an organization consisting of—
‘‘(A) at least 1 facility that the State has
designated or plans to designate as a critical ac-
cess hospital, and
‘‘(B) at least 1 hospital that furnishes acute
care services.
‘‘(2) AGREEMENTS.—
‘‘(A) IN
GENERAL.—Each critical access
hospital that is a member of a rural health net-
work shall have an agreement with respect to
each item described in subparagraph (B) with at
least 1 hospital that is a member of the network.
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‘‘(B) ITEMS
DESCRIBED.—The items de-
scribed in this subparagraph are the following:
‘‘(i) Patient referral and transfer.
‘‘(ii) The development and use of com-
munications systems including (where fea-
sible)—
‘‘(I) telemetry systems, and
‘‘(II) systems for electronic shar-
ing of patient data.
‘‘(iii) The provision of emergency and
non-emergency transportation among the
facility and the hospital.
‘‘(C) CREDENTIALING AND QUALITY ASSUR-
ANCE.—Each critical access hospital that is a
member of a rural health network shall have an
agreement with respect to credentialing and
quality assurance with at least 1—
‘‘(i) hospital that is a member of the
network;
‘‘(ii) peer review organization or
equivalent entity; or
‘‘(iii) other appropriate and qualified
entity identified in the State rural health
care plan.
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‘‘(e) CERTIFICATION BY THE SECRETARY.—The Sec-
retary shall certify a facility as a critical access hospital
if the facility—
‘‘(1) is located in a State that has established a
medicare rural hospital flexibility program in accord-
ance with subsection (c);
‘‘(2) is designated as a critical access hospital by
the State in which it is located; and
‘‘(3) meets such other criteria as the Secretary
may require.
‘‘(f) PERMITTING MAINTENANCE OF SWING BEDS.—
Nothing in this section shall be construed to prohibit a State
from designating or the Secretary from certifying a facility
as a critical access hospital solely because, at the time the
facility applies to the State for designation as a critical
access hospital, there is in effect an agreement between the
facility and the Secretary under section 1883 under which
the facility’s inpatient hospital facilities are used for the
furnishing of extended care services, except that the number
of beds used for the furnishing of such services may not ex-
ceed 12 beds (minus the number of inpatient beds used for
providing inpatient care in the facility pursuant to sub-
section (c)(2)(B)(iii)). For purposes of the previous sen-
tence, the number of beds of the facility used for the furnish-
ing of extended care services shall not include any beds of
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a unit of the facility that is licensed as a distinct-part
skilled nursing facility at the time the facility applies to
the State for designation as a critical access hospital.
‘‘(g) WAIVER OF CONFLICTING PART A PROVISIONS.—
The Secretary is authorized to waive such provisions of this
part and part C as are necessary to conduct the program
established under this section.’’.
(b) PART A AMENDMENTS RELATING TO RURAL PRI-
MARY CARE HOSPITALS
AND CRITICAL ACCESS HOS-
PITALS.—
(1) 
DEFINITIONS.—Section 
1861(mm) 
(42
U.S.C. 1395x(mm)) is amended to read as follows:
‘‘CRITICAL ACCESS HOSPITAL; CRITICAL ACCESS HOSPITAL
SERVICES
‘‘(mm)(1) The term ‘critical access hospital’ means a
facility certified by the Secretary as a critical access hos-
pital under section 1820(e).
‘‘(2) The term ‘inpatient critical access hospital serv-
ices’ means items and services, furnished to an inpatient
of a critical access hospital by such facility, that would be
inpatient hospital services if furnished to an inpatient of
a hospital by a hospital.’’.
(2) COVERAGE
AND
PAYMENT.—(A) Section
1812(a)(1) (42 U.S.C. 1395d(a)(1)) is amended by
striking ‘‘or inpatient rural primary care hospital
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services’’ and inserting ‘‘or inpatient critical access
hospital services’’.
(B) Sections 1813(a) and section 1813(b)(3)(A)
(42 U.S.C. 1395e(a), 1395e(b)(3)(A)) are each amend-
ed by striking ‘‘inpatient rural primary care hospital
services’’ each place it appears, and inserting ‘‘inpa-
tient critical access hospital services’’.
(C) 
Section 
1813(b)(3)(B) 
(42 
U.S.C.
1395e(b)(3)(B)) is amended by striking ‘‘inpatient
rural primary care hospital services’’ and inserting
‘‘inpatient critical access hospital services’’.
(D) Section 1814 (42 U.S.C. 1395f) is amend-
ed—
(i) in subsection (a)(8) by striking ‘‘rural
primary care hospital’’ each place it appears
and inserting ‘‘critical access hospital’’; and
(ii) in subsection (b), by striking ‘‘other
than a rural primary care hospital providing
inpatient rural primary care hospital services,’’
and inserting ‘‘other than a critical access hos-
pital providing inpatient critical access hospital
services,’’; and
(iii) by amending subsection (l) to read as
follows:
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‘‘(l) PAYMENT FOR INPATIENT CRITICAL ACCESS HOS-
PITAL SERVICES.—The amount of payment under this part
for inpatient critical access hospital services is the reason-
able costs of the critical access hospital in providing such
services.’’.
(3) TREATMENT OF CRITICAL ACCESS HOSPITALS
AS PROVIDERS OF SERVICES.—(A) Section 1861(u)
(42 U.S.C. 1395x(u)) is amended by striking ‘‘rural
primary care hospital’’ and inserting ‘‘critical access
hospital’’.
(B) The first sentence of section 1864(a) (42
U.S.C. 1395aa(a)) is amended by striking ‘‘a rural
primary care hospital’’ and inserting ‘‘a critical ac-
cess hospital’’.
(4) CONFORMING
AMENDMENTS.—(A) Section
1128A(b)(1) (42 U.S.C. 1320a–7a(b)(1)) is amended
by striking ‘‘rural primary care hospital’’ each place
it appears and inserting ‘‘critical access hospital’’.
(B) Section 1128B(c) (42 U.S.C. 1320a–7b(c)) is
amended by striking ‘‘rural primary care hospital’’
and inserting ‘‘critical access hospital’’.
(C) Section 1134 (42 U.S.C. 1320b–4) is amend-
ed by striking ‘‘rural primary care hospitals’’ each
place it appears and inserting ‘‘critical access hos-
pitals’’.
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(D) Section 1138(a)(1) (42 U.S.C. 1320b–
8(a)(1)) is amended—
(i) in the matter preceding subparagraph
(A), by striking ‘‘rural primary care hospital’’
and inserting ‘‘critical access hospital’’; and
(ii) in the matter preceding clause (i) of
subparagraph (A), by striking ‘‘rural primary
care hospital’’ and inserting ‘‘critical access hos-
pital’’.
(E) 
Section 
1816(c)(2)(C) 
(42 
U.S.C.
1395h(c)(2)(C)) is amended by striking ‘‘rural pri-
mary care hospital’’ and inserting ‘‘critical access
hospital’’.
(F) Section 1833 (42 U.S.C. 1395l) is amend-
ed—
(i) in subsection (h)(5)(A)(iii), by striking
‘‘rural primary care hospital’’ and inserting
‘‘critical access hospital’’;
(ii) in subsection (i)(1)(A), by striking
‘‘rural primary care hospital’’ and inserting
‘‘critical access hospital’’;
(iii) in subsection (i)(3)(A), by striking
‘‘rural primary care hospital services’’ and in-
serting ‘‘critical access hospital services’’;
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(iv) in subsection (l)(5)(A), by striking
‘‘rural primary care hospital’’ each place it ap-
pears and inserting ‘‘critical access hospital’’;
and
(v) in subsection (l)(5)(B), by striking
‘‘rural primary care hospital’’ each place it ap-
pears and inserting ‘‘critical access hospital’’.
(G) Section 1835(c) (42 U.S.C. 1395n(c)) is
amended by striking ‘‘rural primary care hospital’’
each place it appears and inserting ‘‘critical access
hospital’’.
(H) 
Section 
1842(b)(6)(A)(ii) 
(42 
U.S.C.
1395u(b)(6)(A)(ii)) is amended by striking ‘‘rural
primary care hospital’’ and inserting ‘‘critical access
hospital’’.
(I) Section 1861 (42 U.S.C. 1395x) is amend-
ed—
(i) in subsection (a)—
(I) in paragraph (1), by striking ‘‘in-
patient rural primary care hospital serv-
ices’’ and inserting ‘‘inpatient critical ac-
cess hospital services’’; and
(II) in paragraph (2), by striking
‘‘rural primary care hospital’’ and insert-
ing ‘‘critical access hospital’’;
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(ii) in the last sentence of subsection (e), by
striking ‘‘rural primary care hospital’’ and in-
serting ‘‘critical access hospital’’;
(iii) in subsection (v)(1)(S)(ii)(III), by
striking ‘‘rural primary care hospital’’ and in-
serting ‘‘critical access hospital’’;
(iv) in subsection (w)(1), by striking ‘‘rural
primary care hospital’’ and inserting ‘‘critical
access hospital’’; and
(v) in subsection (w)(2), by striking ‘‘rural
primary care hospital’’ each place it appears
and inserting ‘‘critical access hospital’’.
(J) 
Section 
1862(a)(14) 
(42 
U.S.C.
1395y(a)(14)) is amended by striking ‘‘rural primary
care hospital’’ each place it appears and inserting
‘‘critical access hospital’’.
(K) Section 1866(a)(1) (42 U.S.C 1395cc(a)(1))
is amended—
(i) in subparagraph (F)(ii), by striking
‘‘rural primary care hospitals’’ and inserting
‘‘critical access hospitals’’;
(ii) in subparagraph (H), in the matter
preceding clause (i), by striking ‘‘rural primary
care hospitals’’ and ‘‘rural primary care hospital
services’’ and inserting ‘‘critical access hospitals’’
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and ‘‘critical access hospital services’’, respec-
tively;
(iii) in subparagraph (I), in the matter
preceding clause (i), by striking ‘‘rural primary
care hospital’’ and inserting ‘‘critical access hos-
pital’’; and
(iv) in subparagraph (N)—
(I) in the matter preceding clause (i),
by striking ‘‘rural primary care hospitals’’
and inserting ‘‘critical access hospitals’’,
and
(II) in clause (i), by striking ‘‘rural
primary care hospital’’ and inserting ‘‘crit-
ical access hospital’’.
(L) Section 1866(a)(3) (42 U.S.C 1395cc(a)(3))
is amended—
(i) by striking ‘‘rural primary care hos-
pital’’ each place it appears in subparagraphs
(A) and (B) and inserting ‘‘critical access hos-
pital’’; and
(ii) in subparagraph (C)(ii)(II), by striking
‘‘rural primary care hospitals’’ each place it ap-
pears and inserting ‘‘critical access hospitals’’.
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(M) Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5))
is amended by striking ‘‘rural primary care hospital’’
and inserting ‘‘critical access hospital’’.
(c) PAYMENT CONTINUED TO DESIGNATED EACHS.—
Section 1886(d)(5)(D) (42 U.S.C. 1395ww(d)(5)(D)) is
amended—
(1) in clause (iii)(III), by inserting ‘‘as in effect
on September 30, 1995’’ before the period at the end;
and
(2) in clause (v)—
(A) by inserting ‘‘as in effect on September
30, 1995’’ after ‘‘1820 (i)(1)’’; and
(B) by striking ‘‘1820(g)’’ and inserting
‘‘1820(e)’’.
(d) PART B AMENDMENTS RELATING TO CRITICAL AC-
CESS HOSPITALS.—
(1) COVERAGE.—(A) Section 1861(mm) (42
U.S.C. 1395x(mm)) as amended by subsection (d)(1),
is amended by adding at the end the following new
paragraph:
‘‘(3) The term ‘outpatient critical access hospital serv-
ices’ means medical and other health services furnished by
a critical access hospital on an outpatient basis.’’.
(B) 
Section 
1832(a)(2)(H) 
(42 
U.S.C.
1395k(a)(2)(H)) is amended by striking ‘‘rural pri-
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mary care hospital services’’ and inserting ‘‘critical
access hospital services’’.
(2) PAYMENT.—(A) Section 1833(a) (42 U.S.C.
1395l(a)) is amended in paragraph (6), by striking
‘‘outpatient rural primary care hospital services’’ and
inserting ‘‘outpatient critical access hospital services’’.
(B) Section 1834(g) (42 U.S.C. 1395m(g)) is
amended to read as follows:
‘‘(g) PAYMENT FOR OUTPATIENT CRITICAL ACCESS
HOSPITAL SERVICES.—The amount of payment under this
part for outpatient critical access hospital services is the
reasonable costs of the critical access hospital in providing
such services.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after October
1, 1995.
SEC. 8703. ESTABLISHMENT OF RURAL EMERGENCY ACCESS
CARE HOSPITALS.
(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x) is
amended by adding at the end the following new subsection:
‘‘Rural Emergency Access Care Hospital; Rural
Emergency Access Care Hospital Services
‘‘(oo)(1) The term ‘rural emergency access care hos-
pital’ means, for a fiscal year, a facility with respect to
which the Secretary finds the following:
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‘‘(A) The facility is located in a rural area (as
defined in section 1886(d)(2)(D)).
‘‘(B) The facility was a hospital under this title
at any time during the 5-year period that ends on the
date of the enactment of this subsection.
‘‘(C) The facility is in danger of closing due to
low inpatient utilization rates and operating losses,
and the closure of the facility would limit the access
to emergency services of individuals residing in the
facility’s service area.
‘‘(D) The facility has entered into (or plans to
enter into) an agreement with a hospital with a par-
ticipation agreement in effect under section 1866(a),
and under such agreement the hospital shall accept
patients transferred to the hospital from the facility
and receive data from and transmit data to the facil-
ity.
‘‘(E) There is a practitioner who is qualified to
provide advanced cardiac life support services (as de-
termined by the State in which the facility is located)
on-site at the facility on a 24-hour basis.
‘‘(F) A physician is available on-call to provide
emergency medical services on a 24-hour basis.
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‘‘(G) The facility meets such staffing require-
ments as would apply under section 1861(e) to a hos-
pital located in a rural area, except that—
‘‘(i) the facility need not meet hospital
standards relating to the number of hours during
a day, or days during a week, in which the facil-
ity must be open, except insofar as the facility
is required to provide emergency care on a 24-
hour basis under subparagraphs (E) and (F);
and
‘‘(ii) the facility may provide any services
otherwise required to be provided by a full-time,
on-site dietitian, pharmacist, laboratory techni-
cian, medical technologist, or radiological tech-
nologist on a part-time, off-site basis.
‘‘(H) The facility meets the requirements appli-
cable to clinics and facilities under subparagraphs
(C) through (J) of paragraph (2) of section 1861(aa)
and of clauses (ii) and (iv) of the second sentence of
such paragraph (or, in the case of the requirements
of subparagraph (E), (F), or (J) of such paragraph,
would meet the requirements if any reference in such
subparagraph to a ‘nurse practitioner’ or to ‘nurse
practitioners’ were deemed to be a reference to a
‘nurse practitioner or nurse’ or to ‘nurse practitioners
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or nurses’); except that in determining whether a fa-
cility meets the requirements of this subparagraph,
subparagraphs (E) and (F) of that paragraph shall
be applied as if any reference to a ‘physician’ is a
reference to a physician as defined in section
1861(r)(1).
‘‘(2) The term ‘rural emergency access care hospital
services’ means the following services provided by a rural
emergency access care hospital and furnished to an individ-
ual over a continuous period not to exceed 24 hours (except
that such services may be furnished over a longer period
in the case of an individual who is unable to leave the hos-
pital because of inclement weather):
‘‘(A) An appropriate medical screening examina-
tion (as described in section 1867(a)).
‘‘(B) Necessary stabilizing examination and
treatment services for an emergency medical condition
and labor (as described in section 1867(b)).’’.
(b) REQUIRING RURAL EMERGENCY ACCESS CARE
HOSPITALS TO MEET HOSPITAL ANTI-DUMPING REQUIRE-
MENTS.—Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5)) is
amended by striking ‘‘1861(mm)(1))’’ and inserting
‘‘1861(mm)(1)) and a rural emergency access care hospital
(as defined in section 1861(oo)(1))’’.
(c) COVERAGE AND PAYMENT FOR SERVICES.—
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(1) COVERAGE.—Section 1832(a)(2) (42 U.S.C.
1395k(a)(2)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I);
(B) by striking the period at the end of sub-
paragraph (J) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
subparagraph:
‘‘(K) rural emergency access care hospital
services (as defined in section 1861(oo)(2)).’’.
(2) PAYMENT
BASED
ON
PAYMENT
FOR
OUT-
PATIENT CRITICAL ACCESS HOSPITAL SERVICES.—
(A) IN GENERAL.—Section 1833(a)(6) (42
U.S.C. 1395l(a)(6)), as amended by section
8702(f)(2), is amended by striking ‘‘services,’’
and inserting ‘‘services and rural emergency ac-
cess care hospital services,’’.
(B) PAYMENT METHODOLOGY DESCRIBED.—
Section 1834(g) (42 U.S.C. 1395m(g)), as
amended by section 8702(f)(2)(B), is amended—
(i) in the heading, by striking ‘‘SERV-
ICES’’ and inserting ‘‘SERVICES AND RURAL
EMERGENCY
ACCESS
CARE
HOSPITAL
SERVICES’’; and
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(ii) by adding at the end the following
new sentence: ‘‘The amount of payment for
rural emergency access care hospital serv-
ices provided during a year shall be deter-
mined using the applicable method provided
under this subsection for determining pay-
ment for outpatient rural primary care hos-
pital services during the year.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to fiscal years beginning on or after Oc-
tober 1, 1995.
SEC. 8704. CLASSIFICATION OF RURAL REFERRAL CENTERS.
(a) PROHIBITING DENIAL OF REQUEST FOR RECLAS-
SIFICATION ON BASIS OF COMPARABILITY OF WAGES.—
(1) IN
GENERAL.—Section 1886(d)(10)(D) (42
U.S.C. 1395ww(d)(10)(D)) is amended—
(A) by redesignating clause (iii) as clause
(iv); and
(B) by inserting after clause (ii) the follow-
ing new clause:
‘‘(iii) Under the guidelines published by the Secretary
under clause (i), in the case of a hospital which is classified
by the Secretary as a rural referral center under paragraph
(5)(C), the Board may not reject the application of the hos-
pital under this paragraph on the basis of any comparison
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between the average hourly wage of the hospital and the
average hourly wage of hospitals in the area in which it
is located.’’.
(2) EFFECTIVE DATE.—Notwithstanding section
1886(d)(10)(C)(ii) of the Social Security Act, a hos-
pital may submit an application to the Medicare Ge-
ographic Classification Review Board during the 30-
day period beginning on the date of the enactment of
this Act requesting a change in its classification for
purposes of determining the area wage index applica-
ble to the hospital under section 1886(d)(3)(D) of such
Act for fiscal year 1997, if the hospital would be eligi-
ble for such a change in its classification under the
standards described in section 1886(d)(10)(D) (as
amended by paragraph (1)) but for its failure to meet
the 
deadline 
for 
applications 
under 
section
1886(d)(10)(C)(ii).
(b) CONTINUING TREATMENT OF PREVIOUSLY DES-
IGNATED CENTERS.—Any hospital classified as a rural re-
ferral center by the Secretary of Health and Human Serv-
ices under section 1886(d)(5)(C) of the Social Security Act
for fiscal year 1994 shall be classified as such a rural refer-
ral center for fiscal year 1996 and each subsequent fiscal
year.
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SEC. 8705. FLOOR ON AREA WAGE INDEX.
(a) 
IN
GENERAL.—For 
purposes 
of 
section
1886(d)(3)(E) of the Social Security Act for discharges oc-
curring on or after October 1, 1995, the area wage index
applicable under such section to any hospital which is not
located in a rural area (as defined in section 1886(d)(2)(D)
of such Act) may not be less than the average of the area
wage indices applicable under such section to hospitals lo-
cated in rural areas in the State in which the hospital is
located.
(b) IMPLEMENTATION.—The Secretary of Health and
Human Services shall adjust the area wage indices referred
to in subsection (a) for hospitals not described in such sub-
section in a manner which assures that the aggregate pay-
ments made under section 1886(d) of the Social Security
Act in a fiscal year for the operating costs of inpatient hos-
pital services are not greater or less than those which would
have been made in the year if this section did not apply.
SEC. 8706. ADDITIONAL PAYMENTS FOR PHYSICIANS’ SERV-
ICES FURNISHED IN SHORTAGE AREAS.
(a) INCREASE
IN AMOUNT
OF ADDITIONAL PAY-
MENT.—Section 1833(m) (42 U.S.C. 1395l(m)) is amended
by striking ‘‘10 percent’’ and inserting ‘‘20 percent’’.
(b) RESTRICTION TO PRIMARY CARE SERVICES.—Sec-
tion 1833(m) (42 U.S.C. 1395l(m)) is amended by inserting
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after ‘‘physicians’ services’’ the following: ‘‘consisting of pri-
mary care services (as defined in section 1842(i)(4))’’.
(c) EXTENSION OF PAYMENT FOR FORMER SHORTAGE
AREAS.—
(1) IN GENERAL.—Section 1833(m) (42 U.S.C.
1395l(m)) is amended by striking ‘‘area,’’ and insert-
ing ‘‘area (or, in the case of an area for which the
designation as a health professional shortage area
under such section is withdrawn, in the case of physi-
cians’ services furnished to such an individual during
the 3-year period beginning on the effective date of the
withdrawal of such designation),’’.
(2) EFFECTIVE DATE.—The amendment made by
paragraph (1) shall apply to physicians’ services fur-
nished in an area for which the designation as a
health professional shortage area under section
332(a)(1)(A) of the Public Health Service Act is with-
drawn on or after January 1, 1996.
(d) REQUIRING CARRIERS TO REPORT ON SERVICES
PROVIDED.—Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is
amended—
(1) by striking ‘‘and’’ at the end of subpara-
graph (I); and
(2) by inserting after subparagraph (I) the fol-
lowing new subparagraph:
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‘‘(J) will provide information to the Secretary
(on such periodic basis as the Secretary may require)
on the types of providers to whom the carrier makes
additional payments for certain physicians’ services
pursuant to section 1833(m), together with a descrip-
tion of the services furnished by such providers; and’’.
(e) EFFECTIVE DATE.—The amendments made by sub-
sections (a), (b), and (d) shall apply to physicians’ services
furnished on or after October 1, 1995.
SEC. 8707. PAYMENTS TO PHYSICIAN ASSISTANTS AND
NURSE PRACTITIONERS FOR SERVICES FUR-
NISHED IN OUTPATIENT OR HOME SETTINGS.
(a) COVERAGE IN OUTPATIENT OR HOME SETTINGS
FOR PHYSICIAN ASSISTANTS
AND NURSE PRACTITION-
ERS.—Section 1861(s)(2)(K) (42 U.S.C. 1395x(s)(2)(K)) is
amended—
(1) in clause (i)—
(A) by striking ‘‘or’’ at the end of subclause
(II); and
(B) by inserting ‘‘or (IV) in an outpatient
or home setting as defined by the Secretary’’ fol-
lowing ‘‘shortage area,’’; and
(2) in clause (ii)—
(A) by striking ‘‘in a skilled’’ and inserting
‘‘in (I) a skilled’’; and
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(B) by inserting ‘‘, or (II) in an outpatient
or home setting (as defined by the Secretary),’’
after ‘‘(as defined in section 1919(a))’’.
(b) PAYMENTS TO PHYSICIAN ASSISTANTS AND NURSE
PRACTITIONERS IN OUTPATIENT OR HOME SETTINGS.—
(1) IN GENERAL.—Section 1833(r)(1) (42 U.S.C.
1395l(r)(1)) is amended—
(A) by inserting ‘‘services described in sec-
tion 1861(s)(2)(K)(ii)(II) (relating to nurse
practitioner services furnished in outpatient or
home settings), and services described in section
1861(s)(2)(K)(i)(IV) (relating to physician as-
sistant services furnished in an outpatient or
home setting’’ after ‘‘rural area),’’; and
(B) by striking ‘‘or clinical nurse special-
ist’’ and inserting ‘‘clinical nurse specialist, or
physician assistant’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amended
by striking ‘‘clauses (i), (ii), or (iv)’’ and inserting
‘‘subclauses (I), (II), or (III) of clause (i), clause
(ii)(I), or clause (iv)’’.
(c) PAYMENT UNDER THE FEE SCHEDULE TO PHYSI-
CIAN ASSISTANTS AND NURSE PRACTITIONERS IN OUT-
PATIENT OR HOME SETTINGS.—
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(1) 
PHYSICIAN
ASSISTANTS.—Section
1842(b)(12) (42 U.S.C. 1395u(b)(12)) is amended by
adding at the end the following new subparagraph:
‘‘(C) With respect to services described in clauses
(i)(IV), (ii)(II), and (iv) of section 1861(s)(2)(K) (relating
to physician assistants and nurse practitioners furnishing
services in outpatient or home settings)—
‘‘(i) payment under this part may only be made
on an assignment-related basis; and
‘‘(ii) the amounts paid under this part shall be
equal to 80 percent of (I) the lesser of the actual
charge or 85 percent of the fee schedule amount pro-
vided under section 1848 for the same service pro-
vided by a physician who is not a specialist; or (II)
in the case of services as an assistant at surgery, the
lesser of the actual charge or 85 percent of the amount
that would otherwise be recognized if performed by a
physician who is serving as an assistant at surgery.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(12)(A) 
(42 
U.S.C. 
1395u(b)(12)(A)) 
is
amended in the matter preceding clause (i) by strik-
ing ‘‘(i), (ii),’’ and inserting ‘‘subclauses (I), (II), or
(III) of clause (i), or subclause (I) of clause (ii)’’.
(3) 
TECHNICAL
AMENDMENT.—Section
1842(b)(12)(A) 
(42 
U.S.C. 
1395u(b)(12)(A)) 
is
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amended in the matter preceding clause (i) by strik-
ing ‘‘a physician assistants’’ and inserting ‘‘physi-
cian assistants’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to services furnished on or after October
1, 1995.
SEC. 8708. EXPANDING ACCESS TO NURSE AIDE TRAINING
IN UNDERSERVED AREAS.
(a) IN GENERAL.—Section 1819(f)(2)(B)(iii)(I) (42
U.S.C. 1396r(f)(2)(B)(iii)(I)) is amended in the matter pre-
ceding item (a), by striking ‘‘by or in a nursing facility’’
and inserting ‘‘by a nursing facility (or in such a facility,
unless the State determines that there is no other such pro-
gram offered within a reasonable distance, provides notice
of the approval to the State long term care ombudsman,
and assures, through an oversight effort, that an adequate
environment exists for such a program)’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to nurse aide training and com-
petency evaluation programs under section 1819 of the So-
cial Security Act which are offered on or after October 1,
1995.
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TITLE IX—TRANSPORTATION
AND RELATED PROVISIONS
SEC. 9001. MINIMUM ALLOCATION FOR HIGHWAY PRO-
GRAMS.
(a) TECHNICAL CORRECTION.—With respect to fiscal
year 1996—
(1) the Secretary of Transportation shall deter-
mine, in accordance with the policies established by
the Intermodal Surface Transportation Efficiency Act
of 1991 (105 Stat. 1914)—
(A) which of the States will no longer re-
quire an apportionment under section 157(a)(4)
of title 23, United States Code; and
(B) which of the States will require de-
creased funding under such section 157(a)(4);
as a result of the termination of the Interstate con-
struction program; and
(2) as a result of the reduced number of States
that may require an apportionment under such sec-
tion 157(a)(4), and the decrease in the amount of
funds some States will require under such section
157(a)(4), the maximum amount available for appor-
tionment under such section 157(a)(4) shall be re-
duced from the amount apportioned under such sec-
tion 157(a)(4) for fiscal year 1995 by 60.4 percent.
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(b) EFFECT ON CERTAIN CALCULATIONS.—The correc-
tion made by subsection (a) shall be made after the reduc-
tion required under section 1003(c) of the Intermodal Sur-
face Transportation Efficiency Act of 1991 (105 Stat. 1921)
and shall not be taken into account in making the calcula-
tions under sections 1003(c), 1013(c), and 1015 of such Act
(105 Stat. 1921, 1940, and 1943).
SEC. 9002. EXTENSION OF HIGHER VESSEL TONNAGE DU-
TIES.
(a) EXTENSION OF DUTIES.—Section 36 of the Act of
August 5, 1909 (36 Stat. 111; 46 U.S.C. App. 121), is
amended by striking ‘‘for fiscal years 1991, 1992, 1993,
1994, 1995, 1996, 1997, 1998,’’ each place it appears and
inserting ‘‘for fiscal years through fiscal year 2002,’’.
(b) CONFORMING AMENDMENT.—The Act entitled ‘‘An
Act concerning tonnage duties on vessels entering otherwise
than by sea’’, approved March 8, 1910 (36 Stat. 234; 46
U.S.C. App. 132), is amended by striking ‘‘for fiscal years
1991, 1992, 1993, 1994, 1995, 1996, 1997, and 1998,’’ and
inserting ‘‘for fiscal years through fiscal year 2002,’’.
SEC. 9003. FEMA RADIOLOGICAL EMERGENCY PREPARED-
NESS FEES.
(a) IN GENERAL.—The Director of the Federal Emer-
gency Management Agency may assess and collect fees ap-
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plicable to persons subject to radiological emergency pre-
paredness regulations issued by the Director.
(b) REQUIREMENTS.—The assessment and collection of
fees by the Director under subsection (a) shall be fair and
equitable and shall reflect the full amount of costs to the
Agency of providing radiological emergency planning, pre-
paredness, response, and associated services. Such fees shall
be assessed by the Director in a manner that reflects the
use of resources of the Agency for classes of regulated persons
and the administrative costs of collecting such fees.
(c) AMOUNT OF FEES.—The aggregate amount of fees
assessed under subsection (a) in a fiscal year shall approxi-
mate, but not be less than, 100 percent of the amounts an-
ticipated by the Director to be obligated for the radiological
emergency preparedness program of the Agency for such fis-
cal year.
(d) DEPOSIT OF FEES IN TREASURY.—Fees received
pursuant to subsection (a) shall be deposited in the general
fund of the Treasury as offsetting receipts.
(e) EXPIRATION OF AUTHORITY.—The authority of the
Director to assess and collect fees under subsection (a) shall
expire on September 30, 2002.
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TITLE X—VETERANS AND
RELATED PROVISIONS
SEC. 10001. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This title may be cited as the
‘‘Veterans Reconciliation Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents for
this title is as follows:
Sec. 10001. Short title; table of contents.
Subtitle A—Extension of Temporary Authorities
Sec. 10011. Authority to require that certain veterans make copayments in ex-
change for receiving health-care benefits.
Sec. 10012. Medical care cost recovery authority.
Sec. 10013. Income verification authority.
Sec. 10014. Limitation on pension for certain recipients of medicaid-covered
nursing home care.
Sec. 10015. Home loan fees.
Sec. 10016. Procedures applicable to liquidation sales on defaulted home loans
guaranteed by the Department of Veterans Affairs.
Sec. 10017. Enhanced loan asset sale authority.
Subtitle B—Other Matters
Sec. 10021. Revision to prescription drug copayment.
Sec. 10022. Rounding down of cost-of-living adjustments in compensation and
DIC rates.
Sec. 10023. Revised standard for liability for injuries resulting from Department
of Veterans Affairs treatment.
Sec. 10024. Withholding of payments and benefits.
Subtitle A—Extension of Temporary
Authorities
SEC. 10011. AUTHORITY TO REQUIRE THAT CERTAIN VETER-
ANS MAKE COPAYMENTS IN EXCHANGE FOR
RECEIVING HEALTH-CARE BENEFITS.
(a) HOSPITAL AND MEDICAL CARE.—Section 8013(e)
of the Omnibus Budget Reconciliation Act of 1990 (38
U.S.C. 1710 note) is amended by striking out ‘‘September
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30, 1998’’ and inserting in lieu thereof ‘‘September 30,
2002’’.
(b) OUTPATIENT MEDICATIONS.—Section 1722A(c) of
title 38, United States Code, is amended by striking out
‘‘September 30, 1998’’ and inserting in lieu thereof ‘‘Sep-
tember 30, 2002’’.
SEC. 10012. MEDICAL CARE COST RECOVERY AUTHORITY.
Section 1729(a)(2)(E) of title 38, United States Code,
is amended by striking out ‘‘before October 1, 1998,’’ and
inserting ‘‘before October 1, 2002,’’.
SEC. 10013. INCOME VERIFICATION AUTHORITY.
Section 5317(g) of title 38, United States Code, is
amended by striking out ‘‘September 30, 1998’’ and insert-
ing in lieu thereof ‘‘September 30, 2002’’.
SEC. 10014. LIMITATION ON PENSION FOR CERTAIN RECIPI-
ENTS 
OF 
MEDICAID-COVERED 
NURSING
HOME CARE.
Section 5503(f)(7) of title 38, United States Code, is
amended by striking out ‘‘September 30, 1998’’ and insert-
ing in lieu thereof ‘‘September 30, 2002’’.
SEC. 10015. HOME LOAN FEES.
Section 3729(a) of title 38, United States Code, is
amended—
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(1) in paragraph (4), by striking out ‘‘October 1,
1998’’ and inserting in lieu thereof ‘‘October 1, 2002’’;
and
(2) in paragraph (5)(C), by striking out ‘‘Octo-
ber 1, 1998’’ and inserting in lieu thereof ‘‘October 1,
2002’’.
SEC. 10016. PROCEDURES APPLICABLE TO LIQUIDATION
SALES ON DEFAULTED HOME LOANS GUAR-
ANTEED BY THE DEPARTMENT OF VETERANS
AFFAIRS.
Section 3732(c)(11) of title 38, United States Code, is
amended by striking out ‘‘October 1, 1998’’ and inserting
‘‘October 1, 2002’’.
SEC. 10017. ENHANCED LOAN ASSET SALE AUTHORITY.
Section 3720(h)(2) of title 38, United States Code, is
amended by striking out ‘‘December 31, 1995’’ and insert-
ing in lieu thereof ‘‘September 30, 2002’’.
Subtitle B—Other Matters
SEC. 
10021. 
REVISION 
TO 
PRESCRIPTION 
DRUG
COPAYMENT.
(a) INCREASE IN AMOUNT OF COPAYMENT.—Section
1722A(a) of title 38, United States Code, is amended—
(1) in paragraph (1), by striking out ‘‘$2’’ and
inserting in lieu thereof ‘‘$4’’;
(2) by striking out paragraph (2); and
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(3) by redesignating paragraph (3) as para-
graph (2) and in that paragraph—
(A) striking out ‘‘or’’ at the end of subpara-
graph (A);
(B) striking out the period at the end of
subparagraph (B) and inserting in lieu thereof
‘‘; or’’; and
(C) adding at the end the following new
subparagraph:
‘‘(C) to a veteran who is a former prisoner of
war.’’.
(b) RECOVERY OF INDEBTEDNESS.—(1) Section 5302
of such title is amended by adding at the end the following
new subsection:
‘‘(f) The Secretary may not waive under this section
the recovery of any payment or the collection of any indebt-
edness owed under section 1722A of this title.’’.
(2) The amendment made by paragraph (1) shall
apply with respect to amounts that become due to the Unit-
ed States under section 1722A of title 38, United States
Code, on or after the date of the enactment of this Act.
SEC. 10022. ROUNDING DOWN OF COST-OF-LIVING ADJUST-
MENTS IN COMPENSATION AND DIC RATES.
(a) FISCAL YEAR 1996 COLA.—(1) Effective as of De-
cember 1, 1995, the Secretary of Veterans Affairs shall re-
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compute any increase in an adjustment that is otherwise
provided by law to be effective during fiscal year 1996 in
the rates of disability compensation and dependency and
indemnity compensation paid by the Secretary as such
rates were in effect on November 30, 1995. The recomputa-
tion shall provide for the same percentage increase as pro-
vided under such law, but with amounts so recomputed (if
not a whole dollar amount) rounded down to the next lower
whole dollar amount (rather than to the nearest whole dol-
lar amount) and with each old-law DIC rate increased by
the amount by which the new-law DIC rate is increased
(rather than by a uniform percentage).
(2) For purposes of paragraph (1):
(A) The term ‘‘old-law DIC rate’’ means a dollar
amount in effect under section 1311(a)(3) of title 38,
United States Code.
(B) The term ‘‘new-law DIC rate’’ means the
dollar amount in effect under section 1311(a)(1) of
title 38, United States Code.
(b) OUT-YEAR COMPENSATION COLAS.—(1) Chapter
11 of title 38, United States Code, is amended by inserting
after section 1102 the following new section:
‘‘§ 1103. Cost-of-living adjustments
‘‘(a) In the computation of cost-of-living adjustments
for fiscal years 1997 through 2002 in the rates of, and dol-
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lar limitations applicable to, compensation payable under
this chapter, such adjustments shall be made by a uniform
percentage that is no more than the percentage equal to the
social security increase for that fiscal year, with all in-
creased monthly rates and limitations (other than increased
rates or limitations equal to a whole dollar amount) round-
ed down to the next lower whole dollar amount.
‘‘(b) For purposes of this section, the term ‘social secu-
rity increase’ means the percentage by which benefit
amounts payable under title II of the Social Security Act
(42 U.S.C. 401 et seq.) are increased for any fiscal year
as a result of a determination under section 215(i) of such
Act (42 U.S.C. 415(i)).’’.
(2) The table of sections at the beginning of such chap-
ter is amended by inserting after the item relating to section
1102 the following new item:
‘‘1103. Cost-of-living adjustments.’’.
(c) OUT-YEAR DIC COLAS.—(1) Chapter 13 of title
38, United States Code, is amended by inserting after sec-
tion 1302 the following new section:
‘‘§ 1303. Cost-of-living adjustments
‘‘(a) In the computation of cost-of-living adjustments
for fiscal years 1997 through 2002 in the rates of depend-
ency and indemnity compensation payable under this chap-
ter, such adjustments (except as provided in subsection (b))
shall be made by a uniform percentage that is no more than
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the percentage equal to the social security increase for that
fiscal year, with all increased monthly rates (other than in-
creased rates equal to a whole dollar amount) rounded down
to the next lower whole dollar amount.
‘‘(b)(1) Cost-of-living adjustments for each of fiscal
years 1997 through 2002 in old-law DIC rates shall be in
a whole dollar amount that is no greater than the amount
by which the new-law DIC rate is increased for that fiscal
year as determined under subsection (a).
‘‘(2) For purposes of paragraph (1):
‘‘(A) The term ‘old-law DIC rates’ means the
dollar amounts in effect under section 1311(a)(3) of
this title.
‘‘(B) The term ‘new-law DIC rate’ means the
dollar amount in effect under section 1311(a)(1) of
this title.
‘‘(c) For purposes of this section, the term ‘social secu-
rity increase’ means the percentage by which benefit
amounts payable under title II of the Social Security Act
(42 U.S.C. 401 et seq.) are increased for any fiscal year
as a result of a determination under section 215(i) of such
Act (42 U.S.C. 415(i)).’’.
(2) The table of sections at the beginning of such chap-
ter is amended by inserting after the item relating to section
1302 the following new item:
‘‘1303. Cost-of-living adjustments.’’.
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SEC. 10023. REVISED STANDARD FOR LIABILITY FOR INJU-
RIES RESULTING FROM DEPARTMENT OF
VETERANS AFFAIRS TREATMENT.
(a) REVISED STANDARD.—Section 1151 of title 38,
United States Code, is amended—
(1) by designating the second sentence as sub-
section (c);
(2) by striking out the first sentence and insert-
ing in lieu thereof the following:
‘‘(a) Compensation under this chapter and dependency
and indemnity compensation under chapter 13 of this title
shall be awarded for a qualifying additional disability of
a veteran or the qualifying death of a veteran in the same
manner as if such disability or death were service-con-
nected.
‘‘(b)(1) For purposes of this section, a disability or
death is a qualifying additional disability or a qualifying
death only if the disability or death—
‘‘(A) was caused by Department health care and
was a proximate result of—
‘‘(i) negligence on the part of the Depart-
ment in furnishing the Department health care;
or
‘‘(ii) an event not reasonably foreseeable; or
‘‘(B) was incurred as a proximate result of the
provision of training and rehabilitation services by
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the Secretary (including by a service-provider used by
the Secretary for such purpose under section 3115 of
this title) as part of an approved rehabilitation pro-
gram under chapter 31 of this title.
‘‘(2) For purposes of this section, the term ‘Department
health care’ means hospital care, medical or surgical treat-
ment, or an examination that is furnished under any law
administered by the Secretary to a veteran by a Depart-
ment employee or in a facility over which the Secretary
has direct jurisdiction.
‘‘(3) A disability or death of a veteran which is the
result of the veteran’s willful misconduct is not a qualifying
disability or death for purposes of this section.’’; and
(3) by adding at the end the following:
‘‘(d) Effective with respect to injuries, aggravations of
injuries, and deaths occurring after September 30, 2002, a
disability or death is a qualifying additional disability or
a qualifying death for purposes of this section (notwith-
standing the provisions of subsection (b)(1)) if the disability
or death—
‘‘(1) was the result of Department health care; or
‘‘(2) was the result of the pursuit of a course of
vocational rehabilitation under chapter 31 of this
title.’’.
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(b) CONFORMING AMENDMENTS.—Subsection (c) of
such section, as designated by subsection (a)(1), is amend-
ed—
(1) by striking out ‘‘, aggravation,’’ both places
it appears; and
(2) by striking out ‘‘sentence’’ and inserting in
lieu thereof ‘‘subsection’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to any administrative or judicial deter-
mination of eligibility for benefits under section 1151 of
title 38, United States Code, based on a claim that is re-
ceived by the Secretary on or after October 1, 1995, includ-
ing any such determination based on an original applica-
tion or an application seeking to reopen, revise, reconsider,
or otherwise readjudicate any claim for benefits under sec-
tion 1151 of that title or any predecessor provision of law.
SEC. 10024. WITHHOLDING OF PAYMENTS AND BENEFITS.
(a) NOTICE REQUIRED
IN LIEU
OF CONSENT
OR
COURT ORDER.—Section 3726 of title 38, United States
Code, is amended by striking out ‘‘unless’’ and all that fol-
lows and inserting in lieu thereof the following: ‘‘unless the
Secretary provides such veteran or surviving spouse with
notice by certified mail with return receipt requested of the
authority of the Secretary to waive the payment of indebt-
edness under section 5302(b) of this title. If the Secretary
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does not waive the entire amount of the liability, the Sec-
retary shall then determine whether the veteran or surviving
spouse should be released from liability under section
3713(b) of this title. If the Secretary determines that the
veteran or surviving spouse should not be released from li-
ability, the Secretary shall notify the veteran or surviving
spouse of that determination and provide a notice of the
procedure for appealing that determination, unless the Sec-
retary has previously made such determination and notified
the veteran or surviving spouse of the procedure for appeal-
ing the determination.’’.
(b) CONFORMING AMENDMENT.—Section 5302(b) of
such title is amended by inserting ‘‘with return receipt re-
quested’’ after ‘‘certified mail’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to any indebtedness to the
United States arising pursuant to chapter 37 of title 38,
United States Code, before, on, or after the date of the enact-
ment of this Act.
TITLE XI—REVENUE
PROVISIONS
SEC. 11000. SHORT TITLES; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) REVENUE RECONCILIATION ACT.—This title may
be cited as the ‘‘Revenue Reconciliation Act of 1995’’.
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(b) CONTRACT WITH AMERICA.—Subtitles A, B, C,
and D of this title may be cited as the ‘‘Contract With
America Tax Relief Act of 1995’’.
(c) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this title an amendment
or repeal is expressed in terms of an amendment to, or re-
peal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(d) TABLE OF CONTENTS.—The table of contents for
this title is as follows:
TITLE XI—REVENUE PROVISIONS
Sec. 11000. Short titles; amendment of 1986 Code; table of contents.
Subtitle A—Family Tax Relief
Sec. 11001. Child tax credit.
Sec. 11002. Reduction in marriage penalty.
Sec. 11003. Credit for adoption expenses.
Sec. 11004. Deduction for interest on education loans.
Sec. 11005. Deduction for taxpayers with certain persons requiring custodial care
in their households.
Subtitle B—Savings and Investment Incentives
CHAPTER 1—RETIREMENT SAVINGS INCENTIVES
SUBCHAPTER A—INDIVIDUAL RETIREMENT PLANS
PART I—RESTORATION OF IRA DEDUCTION
Sec. 11011. Restoration of IRA deduction.
Sec. 11012. Inflation adjustment for deductible amount.
Sec. 11013. Homemakers eligible for full IRA deduction.
PART II—NONDEDUCTIBLE TAX-FREE IRAS
Sec. 11015. Establishment of American Dream IRA.
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SUBCHAPTER B—PENALTY-FREE DISTRIBUTIONS
Sec. 11016. Distributions from certain plans may be used without penalty to pur-
chase first homes or to pay higher education or financially dev-
astating medical expenses.
SUBCHAPTER C—SIMPLE SAVINGS PLANS
Sec. 11018. Establishment of savings incentive match plans for employees of
small employers.
Sec. 11019. Extension of simple plan to 401(k) arrangements.
CHAPTER 2—CAPITAL GAINS REFORM
SUBCHAPTER A—TAXPAYERS OTHER THAN CORPORATIONS
Sec. 11021. Capital gains deduction.
Sec. 11022. Indexing of certain assets acquired after December 31, 2000, for pur-
poses of determining gain.
Sec. 11023. Modifications to exclusion of gain on certain small business stock.
SUBCHAPTER B—CORPORATE CAPITAL GAINS
Sec. 11025. Reduction of alternative capital gain tax for corporations.
SUBCHAPTER C—CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE
OR EXCHANGE OF PRINCIPAL RESIDENCE
Sec. 11026. Capital loss deduction allowed with respect to sale or exchange of
principal residence.
CHAPTER 3—CORPORATE ALTERNATIVE MINIMUM TAX REFORM
Sec. 11031. Modification of depreciation rules under minimum tax.
Sec. 11032. Long-term unused credits allowed against minimum tax.
CHAPTER 4—COST RECOVERY PROVISIONS
Sec. 11035. Treatment of abandonment of lessor improvements at termination of
lease.
Sec. 11036. Increase in expense treatment for small businesses.
Subtitle C—Health Related Provisions
CHAPTER 1—LONG-TERM CARE PROVISIONS
SUBCHAPTER A—LONG-TERM CARE SERVICES AND CONTRACTS
PART I—GENERAL PROVISIONS
Sec. 11041. Treatment of long-term care insurance.
Sec. 11042. Qualified long-term care services treated as medical care.
Sec. 11043. Certain exchanges of life insurance contracts for qualified long-term
care insurance contracts not taxable.
Sec. 11044. Exception from penalty tax for amounts withdrawn from certain re-
tirement plans for qualified long-term care insurance.
Sec. 11045. Reporting requirements.
PART II—CONSUMER PROTECTION PROVISIONS
Sec. 11051. Policy requirements.
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Sec. 11052. Requirements for issuers of long-term care insurance policies.
Sec. 11053. Coordination with State requirements.
Sec. 11054. Effective dates.
SUBCHAPTER B—TREATMENT OF ACCELERATED DEATH BENEFITS
Sec. 11061. Treatment of accelerated death benefits by recipient.
Sec. 11062. Tax treatment of companies issuing qualified accelerated death bene-
fit riders.
CHAPTER 2—MEDICAL SAVINGS ACCOUNTS
Sec. 11066. Medical savings accounts.
CHAPTER 3—INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INDIVIDUALS
Sec. 11068. Increase in deduction for health insurance costs of self-employed indi-
viduals.
Subtitle D—Estate and Gift Provisions
Sec. 11071. Cost-of-living adjustments relating to estate and gift tax provisions.
Sec. 11072. Family-owned business exclusion.
Sec. 11073. Treatment of land subject to a qualified conservation easement.
Sec. 11074. Expansion of exception from generation-skipping transfer tax for
transfers to individuals with deceased parents.
Sec. 11075. Extension of treatment of certain rents under section 2032A to lineal
descendants.
Subtitle E—Extension of Expiring Provisions
CHAPTER 1—TEMPORARY EXTENSIONS
Sec. 11111. Work opportunity tax credit.
Sec. 11112. Employer-provided educational assistance programs.
Sec. 11113. Research credit.
Sec. 11114. Orphan drug tax credit.
Sec. 11115. Contributions of stock to private foundations.
Sec. 11116. Delay of tax on fuel used in commercial aviation.
Sec. 11117. Extension of airport and airway trust fund excise taxes.
Sec. 11118. Extension of Internal Revenue Service user fees.
CHAPTER 2—SUNSET OF LOW-INCOME HOUSING CREDIT
Sec. 11121. Sunset of low-income housing credit.
CHAPTER 3—EXTENSIONS OF SUPERFUND AND OIL SPILL LIABILITY TAXES
Sec. 11131. Extension of Hazardous Substance Superfund taxes.
Sec. 11132. Extension of oil spill liability tax.
CHAPTER 4—EXTENSIONS RELATING TO FUEL TAXES
Sec. 11141. Ethanol blender refunds.
Sec. 11142. Extension of binding contract date for biomass and coal facilities.
Sec. 11143. Exemption from diesel fuel dyeing requirements with respect to cer-
tain States.
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Sec. 11144. Moratorium for excise tax on diesel fuel sold for use or used in diesel-
powered motorboats.
CHAPTER 5—PERMANENT EXTENSION OF FUTA EXEMPTION FOR ALIEN
AGRICULTURAL WORKERS
Sec. 11151. FUTA exemption for alien agricultural workers.
CHAPTER 6—DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF
CERTAIN VETERANS PROGRAMS
Sec. 11161. Disclosure of return information for administration of certain veter-
ans programs.
Subtitle F—Taxpayer Bill of Rights 2 Provisions
Sec. 11201. Expansion of authority to abate interest.
Sec. 11202. Extension of interest-free period for payment of tax after notice and
demand.
Sec. 11203. Joint return may be made after separate returns without full pay-
ment of tax.
Sec. 11204. Modifications to certain levy exemption amounts.
Sec. 11205. Offers-in-compromise.
Sec. 11206. Increased limit on attorney fees.
Sec. 11207. Award of litigation costs permitted in declaratory judgment proceed-
ings.
Sec. 11208. Increase in limit on recovery of civil damages for unauthorized collec-
tion actions.
Sec. 11209. Enrolled agents included as third-party recordkeepers.
Sec. 11210. Annual reminders to taxpayers with outstanding delinquent accounts.
Subtitle G—Casualty and Involuntary Conversion Provisions
Sec. 11251. Basis adjustment to property held by corporation where stock in cor-
poration is replacement property under involuntary conversion
rules.
Sec. 11252. Expansion of requirement that involuntarily converted property be
replaced with property acquired from an unrelated person.
Sec. 11253. Special rule for crop insurance proceeds and disaster payments.
Sec. 11254. Application of involuntary exclusion rules to presidentially declared
disasters.
Subtitle H—Exempt Organizations and Charitable Reforms
CHAPTER 1—EXCISE TAX ON AMOUNTS OF PRIVATE EXCESS BENEFITS
Sec. 11271. Excise taxes for failure by certain charitable organizations to meet
certain qualification requirements.
Sec. 11272. Reporting of certain excise taxes and other information.
Sec. 11273. Increase in penalties on exempt organizations for failure to file com-
plete and timely annual returns.
CHAPTER 2—OTHER PROVISIONS
Sec. 11276. Cooperative service organizations for certain foundations.
Sec. 11277. Exclusion from unrelated business taxable income for certain sponsor-
ship payments.
Sec. 11278. Treatment of dues paid to agricultural or horticultural organizations.
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Sec. 11279. Repeal of credit for contributions to community development corpora-
tions.
Subtitle I—Tax Reform and Other Provisions
CHAPTER 1—PROVISIONS RELATING TO BUSINESSES
Sec. 11301. Tax treatment of certain extraordinary dividends.
Sec. 11302. Registration of confidential corporate tax shelters.
Sec. 11303. Denial of deduction for interest on loans with respect to company-
owned insurance.
Sec. 11304. Termination of suspense accounts for family corporations required to
use accrual method of accounting.
Sec. 11305. Termination of Puerto Rico and possession tax credit.
Sec. 11306. Depreciation under income forecast method.
Sec. 11307. Transfers of excess pension assets.
Sec. 11308. Repeal of exclusion for interest on loans used to acquire employer se-
curities.
CHAPTER 2—LEGAL REFORMS
Sec. 11311. Repeal of exclusion for punitive damages and for damages not attrib-
utable to physical injuries or sickness.
Sec. 11312. Reporting of certain payments made to attorneys.
CHAPTER 3—REFORMS RELATING TO NONRECOGNITION PROVISIONS
Sec. 11321. No rollover or exclusion of gain on sale of principal residence which
is attributable to depreciation deductions.
Sec. 11322. Nonrecognition of gain on sale of principal residence by noncitizens
limited to new residences located in the United States.
CHAPTER 4—EXCISE TAX AND TAX-EXEMPT BOND PROVISIONS
Sec. 11331. Repeal of diesel fuel tax rebate to purchasers of diesel-powered auto-
mobiles and light trucks.
Sec. 11332. Modifications to excise tax on ozone-depleting chemicals.
Sec. 11333. Election to avoid tax-exempt bond penalties for local furnishers of
electricity and gas.
Sec. 11334. Tax-exempt bonds for sale of Alaska Power Administration Facility.
CHAPTER 5—FOREIGN TRUST TAX COMPLIANCE
Sec. 11341. Improved information reporting on foreign trusts.
Sec. 11342. Modifications of rules relating to foreign trusts having one or more
United States beneficiaries.
Sec. 11343. Foreign persons not to be treated as owners under grantor trust rules.
Sec. 11344. Information reporting regarding foreign gifts.
Sec. 11345. Modification of rules relating to foreign trusts which are not grantor
trusts.
Sec. 11346. Residence of estates and trusts, etc.
CHAPTER 6—TREATMENT OF INDIVIDUALS WHO LOSE UNITED STATES
CITIZENSHIP
Sec. 11348. Revision of income, estate, and gift taxes on individuals who lose
United States citizenship.
Sec. 11349. Information on individuals losing United States citizenship.
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CHAPTER 7—FINANCIAL ASSET SECURITIZATION INVESTMENTS
Sec. 11351. Financial Asset Securitization Investment Trusts.
CHAPTER 8—DEPRECIATION PROVISIONS
Sec. 11361. Treatment of contributions in aid of construction.
Sec. 11362. Deduction for certain operating authority.
Sec. 11363. Class life for gas station convenience stores and similar structures.
CHAPTER 9—OTHER PROVISIONS
Sec. 11371. Application of failure-to-pay penalty to substitute returns.
Sec. 11372. Extension of withholding to certain gambling winnings.
Sec. 11373. Losses from foreclosure property.
Sec. 11374. Nonrecognition treatment for certain transfers by common trust funds
to regulated investment companies.
Sec. 11375. Exclusion for energy conservation subsidies limited to subsidies with
respect to dwelling units.
Sec. 11376. Election to cease status as qualified scholarship funding corporation.
Sec. 11377. Certain amounts derived from foreign corporations treated as unre-
lated business taxable income.
Sec. 11378. Repeal of financial institution transition rule to interest allocation
rules.
Sec. 11379. Repeal of bad debt reserve method for thrift savings associations.
Sec. 11380. Newspaper distributors treated as direct sellers.
Subtitle J—Tax Simplification
CHAPTER 1—PROVISIONS RELATING TO INDIVIDUALS
SUBCHAPTER A—PROVISIONS RELATING TO ROLLOVER OF GAIN ON SALE OF
PRINCIPAL RESIDENCE
Sec. 11401. Multiple sales within rollover period.
Sec. 11402. Special rules in case of divorce.
Sec. 11403. One-time exclusion of gain from sale of principal residence for cer-
tain spouses.
SUBCHAPTER B—OTHER PROVISIONS
Sec. 11411. Treatment of certain reimbursed expenses of rural mail carriers.
Sec. 11412. Treatment of traveling expenses of certain Federal employees engaged
in criminal investigations.
CHAPTER 2—PENSION SIMPLIFICATION
SUBCHAPTER A—SIMPLIFIED DISTRIBUTION RULES
Sec. 11421. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 11422. Repeal of $5,000 exclusion of employees’ death benefits.
Sec. 11423. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 11424. Required distributions.
SUBCHAPTER B—INCREASED ACCESS TO PENSION PLANS
Sec. 11431. Tax-exempt organizations eligible under section 401(k).
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SUBCHAPTER C—NONDISCRIMINATION PROVISIONS
Sec. 11441. Definition of highly compensated employees; repeal of family aggrega-
tion.
Sec. 11442. Modification of additional participation requirements.
Sec. 11443. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Sec. 11444. Definition of compensation for section 415 purposes.
SUBCHAPTER D—MISCELLANEOUS PROVISIONS
Sec. 11451. Plans covering self-employed individuals.
Sec. 11452. Elimination of special vesting rule for multiemployer plans.
Sec. 11453. Distributions under rural cooperative plans.
Sec. 11454. Treatment of governmental plans under section 415.
Sec. 11455. Uniform retirement age.
Sec. 11456. Contributions on behalf of disabled employees.
Sec. 11457. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 11458. Trust requirement for deferred compensation plans of State and local
governments.
Sec. 11459. Transition rule for computing maximum benefits under section 415
limitations.
Sec. 11460. Modifications of section 403(b).
Sec. 11461. Waiver of minimum period for joint and survivor annuity expla-
nation before annuity starting date.
Sec. 11462. Repeal of limitation in case of defined benefit plan and defined con-
tribution plan for same employee; excess distributions.
Sec. 11463. Tax on prohibited transactions.
Sec. 11464. Treatment of leased employees.
CHAPTER 3—TREATMENT OF LARGE PARTNERSHIPS
Sec. 11471. Simplified flow-through for electing large partnerships.
Sec. 11472. Returns may be required on magnetic media.
CHAPTER 4—FOREIGN PROVISIONS
SUBCHAPTER A—MODIFICATIONS TO TREATMENT OF PASSIVE FOREIGN
INVESTMENT COMPANIES
Sec. 11481. United States shareholders of controlled foreign corporations not sub-
ject to PFIC inclusion.
Sec. 11482. Election of mark to market for marketable stock in passive foreign
investment company.
Sec. 11483. Modifications to definition of passive income.
Sec. 11484. Effective date.
SUBCHAPTER B—TREATMENT OF CONTROLLED FOREIGN CORPORATIONS
Sec. 11486. Gain on certain stock sales by controlled foreign corporations treated
as dividends.
Sec. 11487. Miscellaneous modifications to subpart F.
Sec. 11488. Indirect foreign tax credit allowed for certain lower tier companies.
Sec. 11489. Repeal of inclusion of certain earnings invested in excess passive as-
sets.
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CHAPTER 5—OTHER INCOME TAX PROVISIONS
SUBCHAPTER A—PROVISIONS RELATING TO S CORPORATIONS
Sec. 11501. S corporations permitted to have 75 shareholders.
Sec. 11502. Electing small business trusts.
Sec. 11503. Expansion of post-death qualification for certain trusts.
Sec. 11504. Financial institutions permitted to hold safe harbor debt.
Sec. 11505. Rules relating to inadvertent terminations and invalid elections.
Sec. 11506. Agreement to terminate year.
Sec. 11507. Expansion of post-termination transition period.
Sec. 11508. S corporations permitted to hold subsidiaries.
Sec. 11509. Treatment of distributions during loss years.
Sec. 11510. Treatment of S corporations under subchapter C.
Sec. 11511. Elimination of certain earnings and profits.
Sec. 11512. Carryover of disallowed losses and deductions under at-risk rules al-
lowed.
Sec. 11513. Adjustments to basis of inherited S stock to reflect certain items of
income.
Sec. 11514. S corporations eligible for rules applicable to real property sub-
divided for sale by noncorporate taxpayers.
Sec. 11515. Effective date.
SUBCHAPTER B—REPEAL OF 30-PERCENT GROSS INCOME LIMITATION ON
REGULATED INVESTMENT COMPANIES
Sec. 11521. Repeal of 30-percent gross income limitation.
SUBCHAPTER C—ACCOUNTING PROVISIONS
Sec. 11551. Modifications to look-back method for long-term contracts.
Sec. 11552. Application of mark to market accounting method to traders in secu-
rities.
Sec. 11553. Modification of ruling amounts for nuclear decommissioning costs.
SUBCHAPTER D—TAX-EXEMPT BOND PROVISION
Sec. 11561. Repeal of debt service-based limitation on investment in certain
nonpurpose investments.
SUBCHAPTER E—INSURANCE PROVISIONS
Sec. 11571. Treatment of certain insurance contracts on retired lives.
Sec. 11572. Treatment of modified guaranteed contracts.
SUBCHAPTER F—OTHER PROVISIONS
Sec. 11581. Closing of partnership taxable year with respect to deceased partner,
etc.
Sec. 11582. Credit for social security taxes paid with respect to employee cash
tips.
Sec. 11583. Due date for first quarter estimated tax payments by private founda-
tions.
CHAPTER 6—ESTATES AND TRUSTS
SUBCHAPTER A—INCOME TAX PROVISIONS
Sec. 11601. Certain revocable trusts treated as part of estate.
Sec. 11602. Distributions during first 65 days of taxable year of estate.
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Sec. 11603. Separate share rules available to estates.
Sec. 11604. Executor of estate and beneficiaries treated as related persons for dis-
allowance of losses, etc.
Sec. 11605. Limitation on taxable year of estates.
Sec. 11606. Treatment of funeral trusts.
SUBCHAPTER B—ESTATE AND GIFT TAX PROVISIONS
Sec. 11611. Clarification of waiver of certain rights of recovery.
Sec. 11612. Adjustments for gifts within 3 years of decedent’s death.
Sec. 11613. Clarification of qualified terminable interest rules.
Sec. 11614. Transitional rule under section 2056A.
Sec. 11615. Opportunity to correct certain failures under section 2032A.
Sec. 11616. Gifts may not be revalued for estate tax purposes after expiration of
statute of limitations.
Sec. 11617. Clarifications relating to disclaimers.
Sec. 11618. Clarification of treatment of survivor annuities under qualified ter-
minable interest rules.
Sec. 11619. Treatment under qualified domestic trust rules of forms of ownership
which are not trusts.
SUBCHAPTER C—GENERATION-SKIPPING TAX PROVISIONS
Sec. 11631. Taxable termination not to include direct skips.
CHAPTER 7—EXCISE TAX SIMPLIFICATION
SUBCHAPTER A—PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND
BEER
Sec. 11641. Credit or refund for imported bottled distilled spirits returned to dis-
tilled spirits plant.
Sec. 11642. Fermented material from any brewery may be received at a distilled
spirits plant.
Sec. 11643. Refund of tax on wine returned to bond not limited to
unmerchantable wine.
Sec. 11644. Beer may be withdrawn free of tax for destruction.
Sec. 11645. Transfer to brewery of beer imported in bulk without payment of tax.
SUBCHAPTER B—CONSOLIDATION OF TAXES ON AVIATION GASOLINE
Sec. 11651. Consolidation of taxes on aviation gasoline.
SUBCHAPTER C—OTHER EXCISE TAX PROVISIONS
Sec. 11661. Certain combinations not treated as manufacture under retail sales
tax on heavy trucks.
CHAPTER 8—ADMINISTRATIVE PROVISION
Sec. 11671. Certain notices disregarded under provision increasing interest rate
on large corporate underpayments.
Subtitle K—Miscellaneous Provisions
Sec. 11701. Treatment of storage of product samples.
Sec. 11702. Adjustment of death benefit limits for certain policies.
Sec. 11703. Organizations subject to section 833.
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Sec. 11704. Correction of inflation adjustment in luxury excise tax on auto-
mobiles.
Sec. 11705. Extension and phasedown of luxury passenger automobile tax.
Subtitle L—Generalized System of Preferences
Sec. 11801. Short title.
Sec. 11802. Generalized System of Preferences.
Sec. 11803. Retroactive application for certain liquidations and reliquidations.
Sec. 11804. Conforming amendments.
Subtitle M—Increase in Public Debt Limit
Sec. 11901. Increase in public debt limit.
Subtitle A—Family Tax Relief
SEC. 11001. CHILD TAX CREDIT.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits)
is amended by inserting after section 22 the following new
section:
‘‘SEC. 23. CHILD TAX CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed
as a credit against the tax imposed by this chapter for the
taxable year an amount equal to $500 multiplied by the
number of qualifying children of the taxpayer.
‘‘(b) LIMITATION.—
‘‘(1) IN
GENERAL.—The amount of the credit
which would (but for this subsection) be allowed by
subsection (a) shall be reduced (but not below zero) by
$25 for each $1,000 (or fraction thereof) by which the
taxpayer’s adjusted gross income exceeds the threshold
amount.
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‘‘(2) THRESHOLD
AMOUNT.—For purposes of
paragraph (1), the term ‘threshold amount’ means—
‘‘(A) $110,000 in the case of a joint return,
‘‘(B) $75,000 in the case of an individual
who is not married, and
‘‘(C) $55,000 in the case of a married indi-
vidual filing a separate return.
For purposes of this paragraph, marital status shall
be determined under section 7703.
‘‘(c) QUALIFYING CHILD.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The term ‘qualifying child’
means any individual if—
‘‘(A) the taxpayer is allowed a deduction
under section 151 with respect to such individual
for such taxable year,
‘‘(B) such individual has not attained the
age of 18 as of the close of the calendar year in
which the taxable year of the taxpayer begins,
and
‘‘(C) such individual bears a relationship to
the taxpayer described in section 32(c)(3)(B) (de-
termined without regard to clause (ii) thereof).
‘‘(2) EXCEPTION FOR CERTAIN NONCITIZENS.—
The term ‘qualifying child’ shall not include any in-
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dividual who would not be a dependent if the first
sentence of section 152(b)(3) were applied without re-
gard to all that follows ‘resident of the United States’.
‘‘(d) TAXABLE
YEAR
MUST
BE
FULL
TAXABLE
YEAR.—Except in the case of a taxable year closed by rea-
son of the death of the taxpayer, no credit shall be allowable
under this section in the case of a taxable year covering
a period of less than 12 months.’’.
(b) NOTICE OF CREDIT.—The Secretary of the Treas-
ury shall transmit to all individual taxpayers by a separate
mailing made on or before February 1, 1996, a notice which
states only the following: ‘‘The Balanced Budget Act of 1995
was recently passed by the Congress. The Act’s child tax
credit allows taxpayers to reduce their taxes by $500 per
child. The credit is effective October 1, 1995. You may wish
to check with your employer about changing your tax with-
holding to take immediate advantage of the credit to which
you are entitled for the current tax year. In addition, the
Internal Revenue Service will be sending you a form in
June of this year which you may use to claim the credit
to which you are entitled for the period from October 1
through December 31, 1995 ($125 per child for 1995). In
order to obtain your 1995 credit, you should file this form
by August 15, 1996. Your refund will be sent to you some-
time after October 1, 1996.’’
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(c) CLERICAL AMENDMENT.—The table of sections for
subpart A of part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section 22 the fol-
lowing new item:
‘‘Sec. 23. Child tax credit.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
(e) PAYMENT OF 1995 CHILD CREDIT AMOUNT.—
(1) IN GENERAL.—The Secretary shall take such
actions as are necessary to ensure that the 1995 child
credit amount is paid to taxpayers entitled to pay-
ment of such credit amount.
(2) PAYMENTS
GENERALLY
DURING
OCTOBER
1996.—In the case of taxpayers submitting the form
referred to in paragraph (4) before August 16, 1996,
the Secretary shall take such actions as are necessary
to ensure that payments required by paragraph (1)
are mailed after September 30, 1996, and before Octo-
ber 16, 1996.
(3) 1995 CHILD CREDIT AMOUNT.—For purposes
of paragraph (1), the 1995 child credit amount is an
amount equal to 25 percent of the amount of the cred-
it which would be allowed to the taxpayer under sec-
tion 23 of the Internal Revenue Code of 1986 (as
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added by this section) if such section were in effect for
the taxpayer’s taxable year beginning in 1995.
(4) ENTITLEMENT TO CREDIT.—A taxpayer shall
be entitled to a 1995 child credit amount if (and only
if) the taxpayer submits to the Secretary a form
which the Secretary shall prescribe for purposes of de-
termining such amount. The Secretary shall mail
such form to taxpayers on or before June 1, 1996.
(5) PAYMENT TREATED AS OVERPAYMENT.—The
1995 child credit amount shall be treated for purposes
of subtitle F of such Code as a payment of tax for the
taxpayer’s taxable year beginning in 1995 which was
made on August 15, 1996, or, if later, the date the
form referred to in paragraph (4) is filed, and shall
be refunded or credited in the same manner as if it
were an overpayment of tax for such taxable year. No
interest shall be paid under section 6611 of such Code
on amounts paid under paragraph (1) before October
16, 1996.
(6) SECRETARY.—For purposes of this sub-
section, the term ‘‘Secretary’’ means the Secretary of
the Treasury or his delegate.
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SEC. 11002. REDUCTION IN MARRIAGE PENALTY.
(a) INCREASE IN BASIC STANDARD DEDUCTION FOR
MARRIED INDIVIDUALS.—Section 63(c) (relating to stand-
ard deduction) is amended—
(1) by striking ‘‘$5,000’’ in paragraph (2)(A)
and inserting ‘‘the applicable dollar amount’’,
(2) by striking ‘‘$2,500’’ in paragraph (2)(D)
and inserting ‘‘1⁄2 of the applicable dollar amount’’,
and
(3) by inserting after paragraph (6) the follow-
ing new paragraph:
‘‘(7) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (2), the applicable dollar amount
for any taxable year shall be the product of the dollar
amount in effect under paragraph (2)(C) for such
year multiplied by the applicable factor determined
under the following table:
‘‘For taxable years beginning in
calendar year—
The applicable
factor is—
1996 ................................................................................................
1.68
1997 ................................................................................................
1.71
1998 ................................................................................................
1.72
1999 ................................................................................................
1.73
2000 ................................................................................................
1.75
2001 ................................................................................................
1.77
2002 ................................................................................................
1.78
2003 ................................................................................................
1.88
2004 ................................................................................................
1.91
2005 and thereafter ........................................................................
2.00.
If the amount determined under the preceding sen-
tence is not a multiple of $50, such amount shall be
rounded to the nearest multiple of $50.’’
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(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11003. CREDIT FOR ADOPTION EXPENSES.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits),
as amended by section 11001, is amended by inserting after
section 23 the following new section:
‘‘SEC. 24. ADOPTION EXPENSES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi-
vidual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year the amount
of the qualified adoption expenses paid or incurred by the
taxpayer during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) 
DOLLAR
LIMITATION.—The 
aggregate
amount of qualified adoption expenses which may be
taken into account under subsection (a) with respect
to the adoption of a child shall not exceed $5,000.
‘‘(2) INCOME LIMITATION.—The amount allow-
able as a credit under subsection (a) for any taxable
year shall be reduced (but not below zero) by an
amount which bears the same ratio to the amount so
allowable (determined without regard to this para-
graph but with regard to paragraph (1)) as—
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‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income (determined with-
out regard to sections 911, 931, and 933) exceeds
$75,000, bears to
‘‘(B) $40,000.
‘‘(3) DENIAL OF DOUBLE BENEFIT.—
‘‘(A) IN GENERAL.—No credit shall be al-
lowed under subsection (a) for any expense for
which a deduction or credit is allowable under
any other provision of this chapter.
‘‘(B) GRANTS.—No credit shall be allowed
under subsection (a) for any expense to the ex-
tent that funds for such expense are received
under any Federal, State, or local program. The
preceding sentence shall not apply to expenses for
the adoption of a child with special needs.
‘‘(C) REIMBURSEMENT.—No credit shall be
allowed under subsection (a) for any expense to
the extent that such expense is reimbursed and
the reimbursement is excluded from gross income
under section 138.
‘‘(c) CARRYFORWARDS OF UNUSED CREDIT.—If the
credit allowable under subsection (a) for any taxable year
exceeds the limitation imposed by section 26(a) for such tax-
able year reduced by the sum of the credits allowable under
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this subpart (other than this section), such excess shall be
carried to the succeeding taxable year and added to the
credit allowable under subsection (a) for such taxable year.
No credit may be carried forward under this subsection to
any taxable year following the fifth taxable year after the
taxable year in which the credit arose. For purposes of the
preceding sentence, credits shall be treated as used on a
first-in first-out basis.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
ADOPTION
EXPENSES.—The
term ‘qualified adoption expenses’ means reasonable
and necessary adoption fees, court costs, attorney fees,
and other expenses—
‘‘(A) which are directly related to, and the
principal purpose of which is for, the legal adop-
tion of an eligible child by the taxpayer, and
‘‘(B) which are not incurred in violation of
State or Federal law or in carrying out any sur-
rogate parenting arrangement.
Such term shall not include expenses for a foreign
adoption unless the child is actually adopted.
‘‘(2) EXPENSES
FOR
ADOPTION
OF
SPOUSE’S
CHILD NOT ELIGIBLE.—The term ‘qualified adoption
expenses’ shall not include any expenses in connection
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with the adoption by an individual of a child who is
the child of such individual’s spouse.
‘‘(3) ELIGIBLE CHILD.—The term ‘eligible child’
means any individual—
‘‘(A) who has not attained age 18 as of the
time of the adoption, or
‘‘(B) who is physically or mentally incapa-
ble of caring for himself.
‘‘(4) CHILD WITH SPECIAL NEEDS.—The term
‘child with special needs’ means any child if—
‘‘(A) a State has determined that the child
cannot or should not be returned to the home of
his parents, and
‘‘(B) such State has determined that there
exists with respect to the child a specific factor
or condition (such as his ethnic background, age,
or membership in a minority or sibling group,
or the presence of factors such as medical condi-
tions or physical, mental, or emotional handi-
caps) because of which it is reasonable to con-
clude that such child cannot be placed with
adoptive parents without providing adoption as-
sistance.
‘‘(e) MARRIED COUPLES MUST FILE JOINT RE-
TURNS.—Rules similar to the rules of paragraphs (2), (3),
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and (4) of section 21(e) shall apply for purposes of this sec-
tion.’’.
(b) EXCLUSION OF AMOUNTS RECEIVED UNDER EM-
PLOYER’S ADOPTION ASSISTANCE PROGRAMS.—Part III of
subchapter B of chapter 1 (relating to items specifically ex-
cluded from gross income), as amended by title VIII, is
amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
‘‘SEC. 138. ADOPTION ASSISTANCE PROGRAMS.
‘‘(a) IN GENERAL.—Gross income of an employee does
not include amounts paid or expenses incurred by the em-
ployer for qualified adoption expenses in connection with
the adoption of a child by an employee if such amounts
are furnished pursuant to an adoption assistance program.
‘‘(b) LIMITATIONS.—
‘‘(1) 
DOLLAR
LIMITATION.—The 
aggregate
amount excludable from gross income under sub-
section (a) for all taxable years with respect to the
adoption of any single child by the taxpayer shall not
exceed $5,000.
‘‘(2) INCOME LIMITATION.—The amount exclud-
able from gross income under subsection (a) for any
taxable year shall be reduced (but not below zero) by
an amount which bears the same ratio to the amount
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so excludable (determined without regard to this
paragraph but with regard to paragraph (1)) as—
‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income (determined with-
out regard to this section and sections 911, 931,
and 933) exceeds $75,000, bears to
‘‘(B) $40,000.
‘‘(c) ADOPTION ASSISTANCE PROGRAM.—For purposes
of this section, an adoption assistance program is a plan
of an employer—
‘‘(1) under which the employer provides employ-
ees with adoption assistance, and
‘‘(2) which meets requirements similar to the re-
quirements of paragraphs (2), (3), and (5) of section
127(b).
An adoption reimbursement program operated under sec-
tion 1052 of title 10, United States Code (relating to armed
forces) or section 514 of title 14, United States Code (relat-
ing to members of the Coast Guard) shall be treated as an
adoption assistance program for purposes of this section.
‘‘(d) QUALIFIED ADOPTION EXPENSES.—For purposes
of this section, the term ‘qualified adoption expenses’ has
the meaning given such term by section 24(d).’’.
(c) CONFORMING AMENDMENTS.—
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(1) The table of sections for subpart A of part IV
of subchapter A of chapter 1, as amended by section
11001, is amended by inserting after the item relating
to section 23 the following new item:
‘‘Sec. 24. Adoption expenses.’’.
(2) The table of sections for part III of sub-
chapter B of chapter 1 is amended by striking the
item relating to section 138 and inserting the follow-
ing:
‘‘Sec. 138. Adoption assistance programs.
‘‘Sec. 139. Cross reference to other Acts.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11004. DEDUCTION FOR INTEREST ON EDUCATION
LOANS.
(a) IN GENERAL.—Part VII of subchapter B of chapter
1 (relating to additional itemized deductions for individ-
uals) is amended by redesignating section 220 as section
221 and by inserting after section 219 the following new
section:
‘‘SEC. 220. INTEREST ON EDUCATION LOANS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction for the tax-
able year an amount equal to the interest paid by the tax-
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payer during the taxable year on any qualified education
loan.
‘‘(b) MAXIMUM DEDUCTION.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the deduction allowed by subsection (a) for
the taxable year shall not exceed $2,500.
‘‘(2) LIMITATION BASED ON MODIFIED ADJUSTED
GROSS INCOME.—
‘‘(A) IN GENERAL.—If the modified adjusted
gross income of the taxpayer for the taxable year
exceeds $45,000 ($65,000 in the case of a joint
return), the amount which would (but for this
paragraph) be allowable as a deduction under
this section shall be reduced (but not below zero)
by the amount which bears the same ratio to the
amount which would be so allowable as such ex-
cess bears to $20,000.
‘‘(B) MODIFIED
ADJUSTED
GROSS
IN-
COME.—The term ‘modified adjusted gross in-
come’ means adjusted gross income determined—
‘‘(i) without regard to this section and
sections 135, 911, 931, and 933, and
‘‘(ii) after application of sections 86,
219, and 469.
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For purposes of sections 86, 135, 219, and 469,
adjusted gross income shall be determined with-
out regard to the deduction allowed under this
section.
‘‘(C) INFLATION ADJUSTMENT.—In the case
of any taxable year beginning after 1996, the
$45,000 and $65,000 amounts referred to in sub-
paragraph (A) shall be increased by an amount
equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section (1)(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘1995’ for ‘1992’.
‘‘(D) ROUNDING.—If any amount as ad-
justed under subparagraph (C) is not a multiple
of $50, such amount shall be rounded to the
nearest multiple of $50.
‘‘(c) DEPENDENTS NOT ELIGIBLE FOR DEDUCTION.—
No deduction shall be allowed by this section to an individ-
ual for the taxable year if a deduction under section 151
with respect to such individual is allowed to another tax-
payer for the taxable year beginning in the calendar year
in which such individual’s taxable year begins.
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‘‘(d) LIMIT ON PERIOD DEDUCTION ALLOWED.—A de-
duction shall be allowed under this section only with respect
to interest paid on any qualified education loan during the
first 60 months (whether or not consecutive) in which inter-
est payments are required. For purposes of this paragraph,
any loan and all refinancings of such loan shall be treated
as 1 loan.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
EDUCATION
LOAN.—The term
‘qualified education loan’ means any indebtedness in-
curred to pay qualified higher education expenses—
‘‘(A) which are incurred on behalf of the
taxpayer or the taxpayer’s spouse,
‘‘(B) which are paid or incurred within a
reasonable period of time before or after the in-
debtedness is incurred, and
‘‘(C) which are attributable to education
furnished during a period during which the re-
cipient was at least a half-time student.
Such term includes indebtedness used to refinance in-
debtedness which qualifies as a qualified education
loan. The term ‘qualified education loan’ shall not in-
clude any indebtedness owed to a person who is relat-
ed (within the meaning of section 267(b) or
707(b)(1)) to the taxpayer.
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‘‘(2) 
QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—The term ‘qualified higher education ex-
penses’ means the cost of attendance (as defined in
section 472 of the Higher Education Act of 1965, 20
U.S.C. 1087ll, as in effect on the day before the date
of the enactment of this Act) of the taxpayer or the
taxpayer’s spouse at an eligible educational institu-
tion, reduced by the sum of—
‘‘(A) the amount excluded from gross in-
come under section 135 by reason of such ex-
penses, and
‘‘(B) the amount of the reduction described
in section 135(d)(1).
For purposes of the preceding sentence, the term ‘eli-
gible educational institution’ has the same meaning
given such term by section 135(c)(3), except that such
term shall also include an institution conducting an
internship or residency program leading to a degree
or certificate awarded by an institution of higher edu-
cation, a hospital, or a health care facility which of-
fers postgraduate training.
‘‘(3) HALF-TIME STUDENT.—The term ‘half-time
student’ means any individual who would be a stu-
dent as defined in section 151(c)(4) if ‘half-time’ were
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substituted for ‘full-time’ each place it appears in
such section.
‘‘(4) DEPENDENT.—The term ‘dependent’ has the
meaning given such term by section 152.
‘‘(f) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduc-
tion shall be allowed under this section for any
amount for which a deduction is allowable under any
other provision of this chapter.
‘‘(2) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—If the taxpayer is married at the close of the
taxable year, the deduction shall be allowed under
subsection (a) only if the taxpayer and the taxpayer’s
spouse file a joint return for the taxable year.
‘‘(3) MARITAL STATUS.—Marital status shall be
determined in accordance with section 7703.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 is amended by inserting after paragraph (15)
the following new paragraph:
‘‘(16) INTEREST ON EDUCATION LOANS.—The de-
duction allowed by section 220.’’
(c) REPORTING REQUIREMENT.—
(1) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 (relating to information con-
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cerning transactions with other persons) is amended
by inserting after section 6050P the following new
section:
‘‘SEC. 6050Q. RETURNS RELATING TO EDUCATION LOAN IN-
TEREST RECEIVED IN TRADE OR BUSINESS
FROM INDIVIDUALS.
‘‘(a) EDUCATION
LOAN
INTEREST
OF
$600 
OR
MORE.—Any person—
‘‘(1) who is engaged in a trade or business, and
‘‘(2) who, in the course of such trade or business,
receives from any individual interest aggregating
$600 or more for any calendar year on 1 or more
qualified education loans,
shall make the return described in subsection (b) with re-
spect to each individual from whom such interest was re-
ceived at such time as the Secretary may by regulations
prescribe.
‘‘(b) FORM AND MANNER OF RETURNS.—A return is
described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe,
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the in-
dividual from whom the interest described in
subsection (a)(2) was received,
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‘‘(B) the amount of such interest received
for the calendar year, and
‘‘(C) such other information as the Sec-
retary may prescribe.
‘‘(c) APPLICATION TO GOVERNMENTAL UNITS.—For
purposes of subsection (a)—
‘‘(1) TREATED AS PERSONS.—The term ‘person’
includes any governmental unit (and any agency or
instrumentality thereof).
‘‘(2) SPECIAL RULES.—In the case of a govern-
mental unit or any agency or instrumentality there-
of—
‘‘(A) subsection (a) shall be applied without
regard to the trade or business requirement con-
tained therein, and
‘‘(B) any return required under subsection
(a) shall be made by the officer or employee ap-
propriately designated for the purpose of making
such return.
‘‘(d) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under
subsection (a) shall furnish to each individual whose name
is required to be set forth in such return a written statement
showing—
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‘‘(1) the name and address of the person required
to make such return, and
‘‘(2) the aggregate amount of interest described
in subsection (a)(2) received by the person required to
make such return from the individual to whom the
statement is required to be furnished.
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the year
following the calendar year for which the return under sub-
section (a) was required to be made.
‘‘(e) QUALIFIED EDUCATION LOAN DEFINED.—For
purposes of this section, except as provided in regulations
prescribed by the Secretary, the term ‘qualified education
loan’ has the meaning given such term by section 220(e)(1).
‘‘(f) RETURNS WHICH WOULD BE REQUIRED TO BE
MADE BY 2 OR MORE PERSONS.—Except to the extent pro-
vided in regulations prescribed by the Secretary, in the case
of interest received by any person on behalf of another per-
son, only the person first receiving such interest shall be
required to make the return under subsection (a).’’.
(2) ASSESSABLE
PENALTIES.—Section 6724(d)
(relating to definitions) is amended—
(A) by redesignating clauses (ix) through
(xiv) as clauses (x) through (xv), respectively, in
paragraph (1)(B) and by inserting after clause
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(viii) of such paragraph the following new
clause:
‘‘(ix) section 6050Q (relating to re-
turns relating to education loan interest re-
ceived in trade or business from individ-
uals),’’, and
(B) by redesignating subparagraphs (Q)
through (T) as subparagraphs (R) through (U),
respectively, in paragraph (2) and by inserting
after subparagraph (P) of such paragraph the
following new subparagraph:
‘‘(Q) section 6050Q (relating to returns re-
lating to education loan interest received in
trade or business from individuals),’’.
(d) CLERICAL AMENDMENT.—The table of sections for
part VII of subchapter B of chapter 1 is amended by strik-
ing the last item and inserting the following new items:
‘‘Sec. 220. Interest on education loans.
‘‘Sec. 221. Cross reference.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to any qualified education loan (as de-
fined in section 220(e)(1) of the Internal Revenue Code of
1986, as added by this section) incurred on, before, or after
the date of the enactment of this Act, but only with respect
to any loan interest payment due after December 31, 1995.
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SEC. 11005. DEDUCTION FOR TAXPAYERS WITH CERTAIN
PERSONS REQUIRING CUSTODIAL CARE IN
THEIR HOUSEHOLDS.
(a) IN GENERAL.—Part VII of subchapter B of chapter
1 is amended by redesignating section 221 as section 222
and by inserting after section 220 the following new section:
‘‘SEC. 221. TAXPAYERS WITH CERTAIN PERSONS REQUIRING
CUSTODIAL CARE IN THEIR HOUSEHOLDS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual who maintains a household which includes as
a member one or more qualified persons, there shall be al-
lowed as a deduction for the taxable year an amount equal
to $1,000 for each such person.
‘‘(b) QUALIFIED PERSON.—For purposes of this sec-
tion, the term ‘qualified person’ means any individual—
‘‘(1) who is a father or mother of the taxpayer,
his spouse, or his former spouse or who is an ancestor
of such a father or mother,
‘‘(2) who is physically or mentally incapable of
caring for himself,
‘‘(3) who has as his principal place of abode for
more than half of the taxable year the home of the
taxpayer,
‘‘(4) over half of whose support, for the calendar
year in which the taxable year of the taxpayer begins,
was received from the taxpayer, and
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‘‘(5) whose name and TIN are included on the
taxpayer’s return for the taxable year.
For purposes of paragraph (1), a stepfather or stepmother
shall be treated as a father or mother.
‘‘(c) SPECIAL RULES.—For purposes of this section,
rules similar to the rules of paragraphs (1), (2), (3), and
(4) of section 21(e) shall apply.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT TAX-
PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 is amended by inserting after paragraph (16)
the following new paragraph:
‘‘(17) TAXPAYERS WITH CERTAIN PERSONS RE-
QUIRING CUSTODIAL CARE IN THEIR HOUSEHOLDS.—
The deduction allowed by section 221.’’
(c) CLERICAL AMENDMENT.—The table of sections for
part VII of subchapter B of chapter 1 is amended by strik-
ing the last item and inserting the following new items:
‘‘Sec. 221. Taxpayers with certain persons requiring custodial care
in their households.
‘‘Sec. 222. Cross reference.’’
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
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Subtitle B—Savings and Investment
Incentives
CHAPTER 1—RETIREMENT SAVINGS
INCENTIVES
Subchapter A—Individual Retirement Plans
PART I—RESTORATION OF IRA DEDUCTION
SEC. 11011. RESTORATION OF IRA DEDUCTION.
(a) INCREASE IN INCOME LIMITS FOR ACTIVE PAR-
TICIPANTS.—
(1) IN GENERAL.—Subparagraph (B) of section
219(g)(3) (relating to applicable dollar amount) is
amended to read as follows:
‘‘(B) APPLICABLE
DOLLAR
AMOUNT.—The
term ‘applicable dollar amount’ means the fol-
lowing:
‘‘(i) In the case of a taxpayer filing a
joint return:
The applicable
‘‘For taxable years beginning in:
dollar amount is:
1996 ................................................................................................
$45,000
1997 ................................................................................................
$50,000
1998 ................................................................................................
$55,000
1999 ................................................................................................
$60,000
2000 ................................................................................................
$65,000
2001 ................................................................................................
$70,000
2002 ................................................................................................
$75,000
2003 ................................................................................................
$80,000
2004 ................................................................................................
$85,000
2005 ................................................................................................
$90,000
2006 ................................................................................................
$95,000
2007 and thereafter ........................................................................
$100,000.
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‘‘(ii) In the case of any other taxpayer
(other than a married individual filing a
separate return):
The applicable
‘‘For taxable years beginning in:
dollar amount is:
1996 ................................................................................................
$30,000
1997 ................................................................................................
$35,000
1998 ................................................................................................
$40,000
1999 ................................................................................................
$45,000
2000 ................................................................................................
$50,000
2001 ................................................................................................
$55,000
2002 ................................................................................................
$60,000
2003 ................................................................................................
$65,000
2004 ................................................................................................
$70,000
2005 ................................................................................................
$75,000
2006 ................................................................................................
$80,000
2007 and thereafter ........................................................................
$85,000.
‘‘(iii) In the case of a married individ-
ual filing a separate return, zero.’’
(2) INCREASE IN PHASEOUT RANGE FOR JOINT
RETURNS.—
(A) IN
GENERAL.—Clause (ii) of section
219(g)(2)(A) is amended by inserting ‘‘(the
phaseout amount in the case of a joint return)’’
after ‘‘$10,000’’.
(B) PHASEOUT AMOUNT.—Paragraph (3) of
section 219(g) is amended—
(i) by adding at the end the following
new subparagraph:
‘‘(C) PHASEOUT
AMOUNT.—The phaseout
amount is:
The applicable
‘‘For taxable years beginning in:
dollar amount is:
1996 ................................................................................................
$12,500
1997 ................................................................................................
$15,000
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The applicable
‘‘For taxable years beginning in:
dollar amount is:
1998 ................................................................................................
$17,500
1999 and thereafter ........................................................................
$20,000.’’,
and
(ii) 
by 
inserting 
‘‘; 
PHASEOUT
AMOUNT’’ after ‘‘AMOUNT’’ in the heading.
(3) 
COST-OF-LIVING
ADJUSTMENTS.—Section
219(h), as added by section 11012(a), is amended—
(A) by adding at the end the following new
paragraph:
‘‘(2) PHASE-OUT RANGES.—In the case of any
taxable year beginning in a calendar year after 2007,
the $100,000 and $85,000 amounts in clauses (i) and
(ii) of subsection (g)(3)(B) shall each be increased by
an amount equal to the product of such dollar
amount and the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year, except
that subparagraph (B) thereof shall be applied by
substituting ‘2006’ for ‘1992’. If any amount to which
either such amount is increased is not a multiple of
$1,000, such amount shall be rounded to the next
lower multiple of $1,000.’’, and
(B) by striking ‘‘In the case’’ and inserting:
‘‘(1) DEDUCTIBLE AMOUNT.—In the case’’.
(b) INDIVIDUAL NOT DISQUALIFIED BY SPOUSE’S PAR-
TICIPATION.—Paragraph (1) of section 219(g) (relating to
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limitation on deduction for active participants in certain
pension plans) is amended by striking ‘‘or the individual’s
spouse’’.
(c) REPORTING REQUIREMENTS.—Section 408(i) is
amended by striking ‘‘under regulations’’ and ‘‘in such reg-
ulations’’ each place such terms appear.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11012. INFLATION ADJUSTMENT FOR DEDUCTIBLE
AMOUNT.
(a) IN GENERAL.—Section 219 is amended by redesig-
nating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
‘‘(h) COST-OF-LIVING ADJUSTMENTS.—In the case of
any taxable year beginning in a calendar year after 1996,
the $2,000 amount under subsection (b)(1)(A) shall be in-
creased by an amount equal to the product of $2,000 and
the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year be-
gins, except that subparagraph (B) thereof shall be applied
by substituting ‘1995’ for ‘1992’. If the amount to which
$2,000 would be increased under the preceding sentence is
not a multiple of $500, such amount shall be rounded to
the next lower multiple of $500.’’
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(b) CONFORMING AMENDMENTS.—
(1) Section 408(a)(1) is amended by striking ‘‘in
excess of $2,000 on behalf of any individual’’ and in-
serting ‘‘on behalf of any individual in excess of the
amount in effect for such taxable year under section
219(b)(1)(A)’’.
(2) Section 408(b)(2)(B) is amended by striking
‘‘$2,000’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(3) Section 408(j) is amended by striking
‘‘$2,000’’.
SEC. 11013. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUC-
TION.
(a) SPOUSAL IRA COMPUTED ON BASIS OF COM-
PENSATION OF BOTH SPOUSES.—Subsection (c) of section
219 (relating to special rules for certain married individ-
uals) is amended to read as follows:
‘‘(c) SPECIAL RULES FOR CERTAIN MARRIED INDIVID-
UALS.—
‘‘(1) IN GENERAL.—In the case of an individual
to whom this paragraph applies for the taxable year,
the limitation of paragraph (1) of subsection (b) shall
be equal to the lesser of—
‘‘(A) the dollar amount in effect under sub-
section (b)(1)(A) for the taxable year, or
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‘‘(B) the sum of—
‘‘(i) the compensation includible in
such individual’s gross income for the tax-
able year, plus
‘‘(ii) the compensation includible in
the gross income of such individual’s spouse
for the taxable year reduced by—
‘‘(I) the amount allowed as a de-
duction under subsection (a) to such
spouse for such taxable year, and
‘‘(II) the amount of any contribu-
tion on behalf of such spouse to an AD
IRA under section 408A for such tax-
able year.
‘‘(2) INDIVIDUALS TO WHOM PARAGRAPH (1) AP-
PLIES.—Paragraph (1) shall apply to any individual
if—
‘‘(A) such individual files a joint return for
the taxable year, and
‘‘(B) the amount of compensation (if any)
includible in such individual’s gross income for
the taxable year is less than the compensation
includible in the gross income of such individ-
ual’s spouse for the taxable year.’’
(b) CONFORMING AMENDMENTS.—
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(1) Paragraph (2) of section 219(f) (relating to
other definitions and special rules) is amended by
striking ‘‘subsections (b) and (c)’’ and inserting ‘‘sub-
section (b)’’.
(2) Section 408(d)(5) is amended by striking
‘‘$2,250’’ and inserting ‘‘the dollar amount in effect
under section 219(b)(1)(A)’’.
(3) Section 219(g)(1) is amended by striking
‘‘(c)(2)’’ and inserting ‘‘(c)(1)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
PART II—NONDEDUCTIBLE TAX-FREE IRAS
SEC. 11015. ESTABLISHMENT OF AMERICAN DREAM IRA.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to pension, profit-sharing, stock
bonus plans, etc.) is amended by inserting after section 408
the following new section:
‘‘SEC. 408A. AMERICAN DREAM IRA.
‘‘(a) GENERAL RULE.—Except as provided in this sec-
tion, an American Dream IRA shall be treated for purposes
of this title in the same manner as an individual retirement
plan.
‘‘(b) AMERICAN DREAM IRA.—For purposes of this
title, the term ‘American Dream IRA’ or ‘AD IRA’ means
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an individual retirement plan (as defined in section
7701(a)(37)) which is designated at the time of the estab-
lishment of the plan as an American Dream IRA. Such
designation shall be made in such manner as the Secretary
may prescribe.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO DEDUCTION ALLOWED.—No deduction
shall be allowed under section 219 for a contribution
to an AD IRA.
‘‘(2) 
CONTRIBUTION
LIMIT.—The 
aggregate
amount of contributions for any taxable year to all
AD IRAs maintained for the benefit of an individual
shall not exceed the excess (if any) of—
‘‘(A) the maximum amount allowable as a
deduction under section 219 with respect to such
individual for such taxable year (computed with-
out regard to subsection (g) of such section), over
‘‘(B) the amount so allowed.
‘‘(3) CONTRIBUTIONS
PERMITTED
AFTER
AGE
701⁄2.—Contributions to an AD IRA may be made
even after the individual for whom the account is
maintained has attained age 701⁄2.
‘‘(4) MANDATORY DISTRIBUTION RULES NOT TO
APPLY, ETC.—
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‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), subsections (a)(6) and (b)(3)
of section 408 (relating to required distributions)
and section 4974 (relating to excise tax on cer-
tain accumulations in qualified retirement
plans) shall not apply to any AD IRA.
‘‘(B) POST-DEATH
DISTRIBUTIONS.—Rules
similar to the rules of section 401(a)(9) (other
than subparagraph (A) thereof) shall apply for
purposes of this section.
‘‘(5) RULES RELATING TO ROLLOVER CONTRIBU-
TIONS.—
‘‘(A) IN
GENERAL.—No rollover contribu-
tion may be made to an AD IRA unless it is a
qualified rollover contribution.
‘‘(B) COORDINATION WITH LIMIT.—A quali-
fied rollover contribution shall not be taken into
account for purposes of paragraph (2).
‘‘(6) TIME
WHEN
CONTRIBUTIONS
MADE.—For
purposes of this section, the rule of section 219(f)(3)
shall apply.
‘‘(d) DISTRIBUTION RULES.—For purposes of this
title—
‘‘(1) GENERAL RULES.—
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‘‘(A) EXCLUSIONS FROM GROSS INCOME.—
Any qualified distribution from an AD IRA
shall not be includible in gross income.
‘‘(B) NONQUALIFIED
DISTRIBUTIONS.—In
applying section 72 to any distribution from an
AD IRA which is not a qualified distribution,
such distribution shall be treated as made from
contributions to the AD IRA to the extent that
such distribution, when added to all previous
distributions from the AD IRA, does not exceed
the aggregate amount of contributions to the AD
IRA. For purposes of the preceding sentence, all
AD IRAs maintained for the benefit of an indi-
vidual shall be treated as 1 account.
‘‘(C) EXCEPTION FROM PENALTY TAX.—Sec-
tion 72(t) shall not apply to—
‘‘(i) any qualified distribution from an
AD IRA, and
‘‘(ii) any qualified special purpose dis-
tribution (whether or not a qualified dis-
tribution) from an AD IRA.
‘‘(2) QUALIFIED
DISTRIBUTION.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified dis-
tribution’ means any payment or distribution—
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‘‘(i) made on or after the date on
which the individual attains age 591⁄2,
‘‘(ii) made to a beneficiary (or to the
estate of the individual) on or after the
death of the individual,
‘‘(iii) attributable to the individual’s
being disabled (within the meaning of sec-
tion 72(m)(7)), or
‘‘(iv) which is a qualified special pur-
pose distribution.
‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS.—No
payment or distribution shall be treated as a
qualified distribution if—
‘‘(i) it is made within the 5-taxable
year period beginning with the 1st taxable
year for which the individual made a con-
tribution to an AD IRA (or such individ-
ual’s spouse made a contribution to an AD
IRA) established for such individual, or
‘‘(ii) in the case of a payment or dis-
tribution properly allocable (as determined
in the manner prescribed by the Secretary)
to a qualified rollover contribution (or in-
come allocable thereto), it is made within
the 5-taxable year period beginning with the
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taxable year in which the rollover contribu-
tion was made.
Clause (ii) shall not apply to a qualified rollover
contribution from an AD IRA.
‘‘(3) ROLLOVERS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any distribution which is trans-
ferred in a qualified rollover contribution to an
AD IRA.
‘‘(B) INCOME
INCLUSION
FOR
ROLLOVERS
FROM NON-AD IRAS.—In the case of any quali-
fied rollover contribution from an individual re-
tirement plan (other than an AD IRA) to an AD
IRA established for the benefit of the payee or
distributee, as the case may be—
‘‘(i) sections 72(t) and 408(d)(3) shall
not apply, and
‘‘(ii) in any case where such contribu-
tion is made before January 1, 1998, any
amount required to be included in gross in-
come by reason of this paragraph shall be
so included ratably over the 4-taxable year
period beginning with the taxable year in
which the payment or distribution is made.
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‘‘(C) ADDITIONAL
REPORTING
REQUIRE-
MENTS.—The Secretary shall require that trust-
ees of AD IRAs, trustees of individual retirement
plans, or both, whichever is appropriate, shall
include such additional information in reports
required under section 408(i) as is necessary to
ensure that amounts required to be included in
gross income under subparagraph (B) are so in-
cluded.
‘‘(4) QUALIFIED
SPECIAL
PURPOSE
DISTRIBU-
TION.—For purposes of this section, the term ‘quali-
fied special purpose distribution’ means any distribu-
tion to which subparagraph (B), (D), or (E) of sec-
tion 72(t)(2) applies.
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified rollover
contribution’ means a rollover contribution to an AD
IRA from another such account, or from an individ-
ual retirement plan, but only if such rollover con-
tribution meets the requirements of section 408(d)(3).
For purposes of section 408(d)(3)(B), there shall be
disregarded any qualified rollover contribution from
an individual retirement plan to an AD IRA.
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‘‘(2) CONVERSIONS.—The conversion of an indi-
vidual retirement plan to an AD IRA shall be treated
as if it were a qualified rollover contribution.’’
(b) REPEAL OF NONDEDUCTIBLE CONTRIBUTIONS.—
(1) Subsection (f) of section 219 is amended by
striking paragraph (7).
(2) Paragraph (5) of section 408(d) is amended
by striking the last sentence.
(3) Section 408(o) is amended by adding at the
end the following new paragraph:
‘‘(5) TERMINATION.—This subsection shall not
apply to any designated nondeductible contribution
for any taxable year beginning after December 31,
1995.’’
(4) Subsection (b) of section 4973 is amended by
striking the last sentence.
(c) EXCESS DISTRIBUTIONS TAX NOT TO APPLY.—
Subparagraph (B) of section 4980A(e)(1) is amended by in-
serting ‘‘other than an AD IRA (as defined in section
408A(b))’’ after ‘‘retirement plan’’.
(d) EXCESS
CONTRIBUTIONS.—Section 4973(b) is
amended to read as follows:
‘‘(b) EXCESS CONTRIBUTIONS.—For purposes of this
section—
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‘‘(1) IN GENERAL.—In the case of individual re-
tirement accounts or individual retirement annuities,
the term ‘excess contributions’ means the sum of—
‘‘(A) the amount determined under para-
graph (2) for the taxable year, plus
‘‘(B) the carryover amount determined
under paragraph (3) for the taxable year.
‘‘(2) CURRENT YEAR.—The amount determined
under this paragraph for any taxable year is an
amount equal to the sum of—
‘‘(A) the excess (if any) of—
‘‘(i) the amount contributed for the
taxable year to the accounts or for the an-
nuities or bonds (other than AD IRAs), over
‘‘(ii) the amount allowable as a deduc-
tion under section 219 for the taxable year,
plus
‘‘(B) the excess (if any) of—
‘‘(i) the amount described in clause (i)
(taking into account contributions to AD
IRAs) contributed for the taxable year, over
‘‘(ii) the amount allowable as a deduc-
tion under section 219 for the taxable year
(computed 
without 
regard 
to 
section
219(g)).
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‘‘(3) 
CARRYOVER
AMOUNT.—The 
carryover
amount determined under this paragraph for any
taxable year is the amount determined under para-
graph (2) for the preceding taxable year, reduced by
the sum of—
‘‘(A) the distributions out of the account for
the taxable year which were included in the gross
income of the payee under section 408(d)(1),
‘‘(B) the distributions out of the account for
the taxable year to which section 408(d)(5) ap-
plies, and
‘‘(C) the excess (if any) of the amount deter-
mined under paragraph (2)(B)(ii) over the
amount determined under paragraph (2)(B)(i).
‘‘(4) SPECIAL RULES.—For purposes of this sub-
section—
‘‘(A) ROLLOVER CONTRIBUTIONS.—Rollover
distributions 
described 
in 
sections 
402(c),
403(a)(4), 403(b)(8), 408(d)(3), and 408A(e)
shall not be taken into account.
‘‘(B) CONTRIBUTIONS
RETURNED
BEFORE
DUE DATE.—Any contribution which is distrib-
uted from an individual retirement plan in a
distribution to which section 408(d)(4) applies
shall not be taken into account.
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‘‘(C) EXCESS CONTRIBUTIONS TREATED AS
CONTRIBUTIONS.—In 
applying 
paragraph
(3)(C), the determination as to amounts contrib-
uted for a taxable year shall be made without re-
gard to section 219(f)(6).’’
(e) CLERICAL AMENDMENT.—The table of sections for
subpart A of part I of subchapter D of chapter 1 is amended
by inserting after the item relating to section 408 the follow-
ing new item:
‘‘Sec. 408A. American Dream IRA.’’
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
Subchapter B—Penalty-Free Distributions
SEC. 11016. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE
USED 
WITHOUT 
PENALTY 
TO 
PURCHASE
FIRST HOMES OR TO PAY HIGHER EDU-
CATION OR FINANCIALLY DEVASTATING MED-
ICAL EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t) (re-
lating to exceptions to 10-percent additional tax on early
distributions from qualified retirement plans) is amended
by adding at the end the following new subparagraph:
‘‘(D) DISTRIBUTIONS FROM INDIVIDUAL RETIRE-
MENT PLANS FOR FIRST-TIME HOMEBUYERS OR EDU-
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CATIONAL EXPENSES.—Distributions to an individual
from an individual retirement plan—
‘‘(i) which are qualified first-time home-
buyer distributions (as defined in paragraph
(6)), or
‘‘(ii) to the extent such distributions do not
exceed the qualified higher education expenses (as
defined in paragraph (7)) of the taxpayer for the
taxable year.
(b) 
FINANCIALLY
DEVASTATING
MEDICAL
EX-
PENSES.—
(1) IN GENERAL.—Section 72(t)(3)(A) is amend-
ed by striking ‘‘(B),’’.
(2) CERTAIN LINEAL DESCENDANTS AND ANCES-
TORS TREATED AS DEPENDENTS.—Subparagraph (B)
of section 72(t)(2) is amended by striking ‘‘medical
care’’ and all that follows and inserting ‘‘medical care
determined—
‘‘(i) without regard to whether the em-
ployee itemizes deductions for such taxable
year, and
‘‘(ii) in the case of an individual re-
tirement plan, by treating such employee’s
dependents as including—
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‘‘(I) all children and grand-
children of the employee or such em-
ployee’s spouse, and
‘‘(II) all ancestors of the employee
or such employee’s spouse.’’
(3) CONFORMING
AMENDMENT.—Subparagraph
(B) of section 72(t)(2) is amended by striking ‘‘or
(C)’’ and inserting ‘‘, (C), (D), or (E)’’.
(c) DEFINITIONS.—Section 72(t) is amended by add-
ing at the end the following new paragraphs:
‘‘(6) QUALIFIED
FIRST-TIME
HOMEBUYER
DIS-
TRIBUTIONS.—For purposes of paragraph (2)(D)(i)—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent such payment or distribution is
used by the individual before the close of the 60th
day after the day on which such payment or dis-
tribution is received to pay qualified acquisition
costs with respect to a principal residence of a
first-time homebuyer who is such individual, the
spouse of such individual, or any child, grand-
child, or ancestor of such individual or the indi-
vidual’s spouse.
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‘‘(B) LIFETIME DOLLAR LIMITATION.—The
aggregate amount of payments or distributions
received by an individual which may be treated
as qualified first-time homebuyer distributions
for any taxable year shall not exceed the excess
(if any) of—
‘‘(i) $10,000, over
‘‘(ii) the aggregate amounts treated as
qualified first-time homebuyer distributions
with respect to such individual for all prior
taxable years.
‘‘(C) QUALIFIED ACQUISITION COSTS.—For
purposes of this paragraph, the term ‘qualified
acquisition costs’ means the costs of acquiring,
constructing, or reconstructing a residence. Such
term includes any usual or reasonable settlement,
financing, or other closing costs.
‘‘(D) 
FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For 
purposes 
of 
this 
para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
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present ownership interest in a prin-
cipal residence during the 2-year pe-
riod ending on the date of acquisition
of the principal residence to which this
paragraph applies, and
‘‘(II) subsection (h) or (k) of sec-
tion 1034 did not suspend the running
of any period of time specified in sec-
tion 1034 with respect to such individ-
ual on the day before the date the dis-
tribution is applied pursuant to sub-
paragraph (A).
‘‘(ii) 
PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is en-
tered into, or
‘‘(II) on which construction or re-
construction of such a principal resi-
dence is commenced.
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‘‘(E) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—If any distribution from any indi-
vidual retirement plan fails to meet the require-
ments of subparagraph (A) solely by reason of a
delay or cancellation of the purchase or construc-
tion of the residence, the amount of the distribu-
tion may be contributed to an individual retire-
ment plan as provided in section 408(d)(3)(A)(i)
(determined by substituting ‘120 days’ for ‘60
days’ in such section), except that—
‘‘(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
‘‘(ii) such amount shall not be taken
into account in determining whether section
408(d)(3)(A)(i) applies 
to 
any 
other
amount.
‘‘(7) 
QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For purposes of paragraph (2)(D)(ii)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
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‘‘(iii) any child (as defined in section
151(c)(3)), grandchild, or ancestor of the
taxpayer or the taxpayer’s spouse,
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(B) COORDINATION
WITH
SAVINGS
BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross in-
come under section 135.’’
(d) PENALTY-FREE DISTRIBUTIONS FOR CERTAIN UN-
EMPLOYED INDIVIDUALS.—Paragraph (2) of section 72(t)
is amended by adding at the end the following new subpara-
graph:
‘‘(E) DISTRIBUTIONS TO UNEMPLOYED INDI-
VIDUALS.—A distribution from an individual re-
tirement plan to an individual after separation
from employment, if—
‘‘(i) such individual has received un-
employment compensation for 12 consecu-
tive weeks under any Federal or State un-
employment compensation law by reason of
such separation, and
‘‘(ii) such distributions are made dur-
ing any taxable year during which such un-
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employment compensation is paid or the
succeeding taxable year.
To the extent provided in regulations, a self-em-
ployed individual shall be treated as meeting the
requirements of clause (i) if, under Federal or
State law, the individual would have received
unemployment compensation but for the fact the
individual was self-employed.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
Subchapter C—Simple Savings Plans
SEC. 
11018. 
ESTABLISHMENT 
OF 
SAVINGS 
INCENTIVE
MATCH PLANS FOR EMPLOYEES OF SMALL
EMPLOYERS.
(a) IN GENERAL.—Section 408 (relating to individual
retirement accounts) is amended by redesignating sub-
section (p) as subsection (q) and by inserting after sub-
section (o) the following new subsection:
‘‘(p) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) IN GENERAL.—For purposes of this title, the
term ‘simple retirement account’ means an individual
retirement plan (as defined in section 7701(a)(37))—
‘‘(A) with respect to which the requirements
of paragraphs (3), (4), and (5) are met; and
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‘‘(B) with respect to which the only con-
tributions allowed are contributions under a
qualified salary reduction arrangement.
‘‘(2) QUALIFIED SALARY REDUCTION ARRANGE-
MENT.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, the term ‘qualified salary reduction
arrangement’ means a written arrangement of
an eligible employer under which—
‘‘(i) an employee eligible to participate
in the arrangement may elect to have the
employer make payments—
‘‘(I) as elective employer contribu-
tions to a simple retirement account on
behalf of the employee, or
‘‘(II) to the employee directly in
cash,
‘‘(ii) the amount which an employee
may elect under clause (i) for any year is
required to be expressed as a percentage of
compensation and may not exceed a total of
$6,000 for any year,
‘‘(iii) the employer is required to make
a matching contribution to the simple re-
tirement account for any year in an
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amount equal to so much of the amount the
employee elects under clause (i)(I) as does
not exceed the applicable percentage of com-
pensation for the year, and
‘‘(iv) no contributions may be made
other than contributions described in clause
(i) or (iii).
‘‘(B) DEFINITIONS.—For purposes of this
subsection—
‘‘(i) ELIGIBLE EMPLOYER.—The term
‘eligible employer’ means an employer who
employs 100 or fewer employees on any day
during the year.
‘‘(ii) APPLICABLE PERCENTAGE.—
‘‘(I) IN GENERAL.—The term ‘ap-
plicable percentage’ means 3 percent.
‘‘(II) ELECTION OF LOWER PER-
CENTAGE.—An employer may elect to
apply a lower percentage (not less than
1 percent) for any year for all employ-
ees eligible to participate in the plan
for such year if the employer notifies
the employees of such lower percentage
within a reasonable period of time be-
fore the 60-day election period for such
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year under paragraph (5)(C). An em-
ployer may not elect a lower percent-
age under this subclause for any year
if that election would result in the ap-
plicable percentage being lower than 3
percent in more than 2 of the years in
the 5-year period ending with such
year.
‘‘(III) SPECIAL RULE FOR YEARS
ARRANGEMENT
NOT
IN
EFFECT.—If
any year in the 5-year period de-
scribed in subclause (II) is a year
prior to the first year for which any
qualified salary reduction arrangement
is in effect with respect to the employer
(or any predecessor), the employer
shall be treated as if the level of the
employer matching contribution was at
3 percent of compensation for such
prior year.
‘‘(C) ARRANGEMENT MAY BE ONLY PLAN OF
EMPLOYER.—
‘‘(i) IN
GENERAL.—An arrangement
shall not be treated as a qualified salary re-
duction arrangement for any year if the
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employer (or any predecessor employer)
maintained a qualified plan with respect to
which contributions were made, or benefits
were accrued, for service in any year in the
period beginning with the year such ar-
rangement became effective and ending with
the year for which the determination is
being made.
‘‘(ii) QUALIFIED PLAN.—For purposes
of this subparagraph, the term ‘qualified
plan’ means a plan, contract, pension, or
trust described in subparagraph (A) or (B)
of section 219(g)(5).
‘‘(D) COST-OF-LIVING
ADJUSTMENT.—The
Secretary shall adjust the $6,000 amount under
subparagraph (A)(ii) at the same time and in
the same manner as under section 415(d), except
that the base period taken into account shall be
the calendar quarter ending September 30, 1995,
and any increase under this subparagraph which
is not a multiple of $500 shall be rounded to the
next lower multiple of $500.
‘‘(3) VESTING
REQUIREMENTS.—The require-
ments of this paragraph are met with respect to a
simple retirement account if the employee’s rights to
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any contribution to the simple retirement account are
nonforfeitable. For purposes of this paragraph, rules
similar to the rules of subsection (k)(4) shall apply.
‘‘(4) PARTICIPATION REQUIREMENTS.—
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to any sim-
ple retirement account for a year only if, under
the qualified salary reduction arrangement, all
employees of the employer who—
‘‘(i) received at least $5,000 in com-
pensation from the employer during any 2
preceding years, and
‘‘(ii) are reasonably expected to receive
at least $5,000 in compensation during the
year,
are eligible to make the election under paragraph
(2)(A)(i).
‘‘(B) EXCLUDABLE
EMPLOYEES.—An em-
ployer may elect to exclude from the requirement
under subparagraph (A) employees described in
section 410(b)(3).
‘‘(5) ADMINISTRATIVE REQUIREMENTS.—The re-
quirements of this paragraph are met with respect to
any simplified retirement account if, under the quali-
fied salary reduction arrangement—
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‘‘(A) an employer must—
‘‘(i) make the elective employer con-
tributions under paragraph (2)(A)(i) not
later than the close of the 30-day period fol-
lowing the last day of the month with re-
spect to which the contributions are to be
made, and
‘‘(ii) make the matching contributions
under
paragraph
(2)(A)(iii)
not
later
than 
the 
date 
described 
in 
section
404(m)(2)(B),
‘‘(B) an employee may elect to terminate
participation in such arrangement at any time
during the year, except that if an employee so
terminates, the arrangement may provide that
the employee may not elect to resume participa-
tion until the beginning of the next year, and
‘‘(C) each employee eligible to participate
may elect, during the 60-day period before the
beginning of any year, to participate in the ar-
rangement, or to modify the amounts subject to
such arrangement, for such year.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) COMPENSATION.—
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‘‘(i) IN
GENERAL.—The term ‘com-
pensation’ means amounts described in
paragraphs (3) and (8) of section 6051(a).
‘‘(ii) SELF-EMPLOYED.—In the case of
an employee described in subparagraph (B),
the term ‘compensation’ means net earnings
from self-employment determined under sec-
tion 1402(a) without regard to any con-
tribution under this subsection.
‘‘(B) EMPLOYEE.—The term ‘employee’ in-
cludes an employee as defined in section
401(c)(1).
‘‘(C) YEAR.—The term ‘year’ means the cal-
endar year.’’
(b) TAX TREATMENT OF SIMPLE RETIREMENT AC-
COUNTS.—
(1) DEDUCTIBILITY OF CONTRIBUTIONS BY EM-
PLOYEES.—
(A) Section 219(b) (relating to maximum
amount of deduction) is amended by adding at
the end the following new paragraph:
‘‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT
ACCOUNTS.—This section shall not apply with respect
to any amount contributed to a simple retirement ac-
count established under section 408(p).’’
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(B) Section 219(g)(5)(A) (defining active
participant) is amended by striking ‘‘or’’ at the
end of clause (iv) and by adding at the end the
following new clause:
‘‘(vi) any simple retirement account
(within the meaning of section 408(p)), or’’.
(2) DEDUCTIBILITY
OF
EMPLOYER
CONTRIBU-
TIONS.—Section 404 (relating to deductions for con-
tributions of an employer to pension, etc. plans) is
amended by adding at the end the following new sub-
section:
‘‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT AC-
COUNTS.—
‘‘(1) IN GENERAL.—Employer contributions to a
simple retirement account shall be treated as if they
are made to a plan subject to the requirements of this
section.
‘‘(2) TIMING.—
‘‘(A) DEDUCTION.—Contributions described
in paragraph (1) shall be deductible in the tax-
able year of the employer with or within which
the calendar year for which the contributions
were made ends.
‘‘(B) 
CONTRIBUTIONS
AFTER
END
OF
YEAR.—For purposes of this subsection, contribu-
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tions shall be treated as made for a taxable year
if they are made on account of the taxable year
and are made not later than the time prescribed
by law for filing the return for the taxable year
(including extensions thereof).’’
(3) CONTRIBUTIONS AND DISTRIBUTIONS.—
(A) Section 402 (relating to taxability of
beneficiary of employees’ trust) is amended by
adding at the end the following new subsection:
‘‘(k) TREATMENT
OF
SIMPLE
RETIREMENT
AC-
COUNTS.—Rules similar to the rules of paragraphs (1) and
(3) of subsection (h) shall apply to contributions and dis-
tributions with respect to a simple retirement account
under section 408(p).’’
(B) Section 408(d)(3) is amended by add-
ing at the end the following new subparagraph:
‘‘(G) SIMPLE
RETIREMENT
ACCOUNTS.—
This paragraph shall not apply to any amount
paid or distributed out of a simple retirement
account (as defined in section 408(p)) unless—
‘‘(i) it is paid into another simple re-
tirement account, or
‘‘(ii) in the case of any payment or
distribution to which section 72(t)(8) does
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not apply, it is paid into an individual re-
tirement plan.’’
(C) Clause (i) of section 457(c)(2)(B) is
amended by striking ‘‘section 402(h)(1)(B)’’ and
inserting ‘‘section 402(h)(1)(B) or (k)’’.
(4) PENALTIES.—
(A) EARLY
WITHDRAWALS.—Section 72(t)
(relating to additional tax in early distribu-
tions), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(8) SPECIAL RULES FOR SIMPLE RETIREMENT
ACCOUNTS.—In the case of any amount received from
a simple retirement account (within the meaning of
section 408(p)) during the 2-year period beginning on
the date such individual first participated in any
qualified salary reduction arrangement maintained
by the individual’s employer under section 408(p)(2),
paragraph (1) shall be applied by substituting ‘25
percent’ for ‘10 percent’.’’
(B) FAILURE TO REPORT.—Section 6693 is
amended by redesignating subsection (c) as sub-
section (d) and by inserting after subsection (b)
the following new subsection:
‘‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT
ACCOUNTS.—
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‘‘(1) EMPLOYER PENALTIES.—An employer who
fails to provide 1 or more notices required by section
408(l)(2)(C) shall pay a penalty of $50 for each day
on which such failures continue.
‘‘(2) TRUSTEE
PENALTIES.—A trustee who
fails—
‘‘(A) to provide 1 or more statements re-
quired by the last sentence of section 408(i) shall
pay a penalty of $50 for each day on which such
failures continue, or
‘‘(B) to provide 1 or more summary de-
scriptions required by section 408(l)(2)(B) shall
pay a penalty of $50 for each day on which such
failures continue.
‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen-
alty shall be imposed under this subsection with re-
spect to any failure which the taxpayer shows was
due to reasonable cause.’’
(5) REPORTING REQUIREMENTS.—
(A)(i) Section 408(l) is amended by adding
at the end the following new paragraph:
‘‘(2) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(A) NO EMPLOYER REPORTS.—Except as
provided in this paragraph, no report shall be
required under this section by an employer
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maintaining a qualified salary reduction ar-
rangement under subsection (p).
‘‘(B) SUMMARY DESCRIPTION.—The trustee
of any simple retirement account established
pursuant to a qualified salary reduction ar-
rangement under subsection (p) shall provide to
the employer maintaining the arrangement, each
year a description containing the following in-
formation:
‘‘(i) The name and address of the em-
ployer and the trustee.
‘‘(ii) The requirements for eligibility
for participation.
‘‘(iii) The benefits provided with re-
spect to the arrangement.
‘‘(iv) The time and method of making
elections with respect to the arrangement.
‘‘(v) The procedures for, and effects of,
withdrawals (including rollovers) from the
arrangement.
‘‘(C) EMPLOYEE
NOTIFICATION.—The em-
ployer shall notify each employee immediately
before the period for which an election described
in subsection (p)(5)(C) may be made of the em-
ployee’s opportunity to make such election. Such
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notice shall include a copy of the description de-
scribed in subparagraph (B).’’
(ii) Section 408(l) is amended by striking
‘‘An employer’’ and inserting—
‘‘(1) IN GENERAL.—An employer’’.
(5) REPORTING REQUIREMENTS.—Section 408(i)
is amended by adding at the end the following new
flush sentence:
‘‘In the case of a simple retirement account under sub-
section (p), only one report under this subsection shall be
required to be submitted each calendar year to the Secretary
(at the time provided under paragraph (2)) but, in addition
to the report under this subsection, there shall be furnished,
within 30 days after each calendar year, to the individual
on whose behalf the account is maintained a statement with
respect to the account balance as of the close of, and the
account activity during, such calendar year.’’
(6) 
EXEMPTION
FROM
TOP-HEAVY
PLAN
RULES.—Section 416(g)(4) (relating to special rules
for top-heavy plans) is amended by adding at the end
the following new subparagraph:
‘‘(G) SIMPLE RETIREMENT ACCOUNTS.—The
term ‘top-heavy plan’ shall not include a simple
retirement account under section 408(p).’’
(7) CONFORMING AMENDMENTS.—
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(A) Section 280G(b)(6) is amended by strik-
ing ‘‘or’’ at the end of subparagraph (B), by
striking the period at the end of subparagraph
(C) and inserting ‘‘, or’’ and by adding after
subparagraph (C) the following new subpara-
graph:
‘‘(D) a simple retirement account described
in section 408(p).’’
(B) Section 402(g)(3) is amended by strik-
ing ‘‘and’’ at the end of subparagraph (B), by
striking the period at the end of subparagraph
(C) and inserting ‘‘, and’’, and by adding after
subparagraph (C) the following new subpara-
graph:
‘‘(D) any elective employer contribution
under section 408(p)(2)(A)(i).’’
(C) Subsections (b), (c), (m)(4)(B), and
(n)(3)(B) of section 414 are each amended by in-
serting ‘‘408(p),’’ after ‘‘408(k),’’.
(D) Section 4972(d)(1)(A) is amended by
striking ‘‘and’’ at the end of clause (ii), by strik-
ing the period at the end of clause (iii) and in-
serting ‘‘, and’’, and by adding after clause (iii)
the following new clause:
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‘‘(iv) any simple retirement account
(within the meaning of section 408(p)).’’
(c) REPEAL OF SIMPLIFIED EMPLOYEE PENSIONS.—
Section 408(k) is amended by adding at the end the follow-
ing new paragraph:
‘‘(10) TERMINATION.—This subsection shall not
apply to any years beginning after December 31,
1995. This paragraph shall not apply to a simplified
employee pension established before January 1,
1996.’’
(d) MODIFICATIONS OF ERISA.—
(1) REPORTING REQUIREMENTS.—Section 101 of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1021) is amended by redesignating
subsection (g) as subsection (h) and by inserting after
subsection (f) the following new subsection:
‘‘(g) SIMPLE RETIREMENT ACCOUNTS.—
‘‘(1) NO EMPLOYER REPORTS.—Except as pro-
vided in this subsection, no report shall be required
under this section by an employer maintaining a
qualified salary reduction arrangement under section
408(p) of the Internal Revenue Code of 1986.
‘‘(2) SUMMARY
DESCRIPTION.—The trustee of
any simple retirement account established pursuant
to a qualified salary reduction arrangement under
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section 408(p) of such Code shall provide to the em-
ployer maintaining the arrangement each year a de-
scription containing the following information:
‘‘(A) The name and address of the employer
and the trustee.
‘‘(B) The requirements for eligibility for
participation.
‘‘(C) The benefits provided with respect to
the arrangement.
‘‘(D) The time and method of making elec-
tions with respect to the arrangement.
‘‘(E) The procedures for, and effects of,
withdrawals (including rollovers) from the ar-
rangement.
‘‘(3) EMPLOYEE
NOTIFICATION.—The employer
shall notify each employee immediately before the pe-
riod for which an election described in section 408
(p)(5)(C) of such Code may be made of the employee’s
opportunity to make such election. Such notice shall
include a copy of the description described in para-
graph (2).’’
(2) FIDUCIARY DUTIES.—Section 404 (c) of such
Act (29 U.S.C. 1104(c)) is amended by inserting
‘‘(1)’’ after ‘‘(c)’’, by redesignating paragraphs (1)
and (2) as subparagraphs (A) and (B), respectively,
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and by adding at the end the following new para-
graph:
‘‘(2) In the case of a simple retirement account
established pursuant to a qualified salary reduction
arrangement under section 408(p) of the Internal
Revenue Code of 1986, a participant or beneficiary
shall, for purposes of paragraph (1), be treated as ex-
ercising control over the assets in the account upon
the earliest of—
‘‘(A) an affirmative election with respect to
the initial investment of any contribution,
‘‘(B) a rollover to any other simple retire-
ment account or individual retirement plan, or
‘‘(C) one year after the simple retirement
account is established.
No reports, other than those required under section
101(g), shall be required with respect to a simple re-
tirement account established pursuant to such a
qualified salary reduction arrangement.’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
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SEC. 11019. EXTENSION OF SIMPLE PLAN TO 401(k) AR-
RANGEMENTS.
(a) ALTERNATIVE METHOD OF SATISFYING SECTION
401(k) NONDISCRIMINATION TESTS.—Section 401(k) (relat-
ing to cash or deferred arrangements) is amended by adding
at the end the following new paragraph:
‘‘(11) ADOPTION OF SIMPLE PLAN TO MEET NON-
DISCRIMINATION TESTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement maintained by an eligible employer
shall be treated as meeting the requirements of
paragraph 
(3)(A)(ii) 
if 
such 
arrangement
meets—
‘‘(i) the contribution requirements of
subparagraph (B),
‘‘(ii) the exclusive benefit requirements
of subparagraph (C), and
‘‘(iii) the vesting requirements of sec-
tion 408(p)(3).
‘‘(B) CONTRIBUTION REQUIREMENTS.—The
requirements of this subparagraph are met if,
under the arrangement—
‘‘(i) an employee may elect to have the
employer make elective contributions for the
year on behalf of the employee to a trust
under the plan in an amount which is ex-
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pressed as a percentage of compensation of
the employee but which in no event exceeds
$6,000,
‘‘(ii) the employer is required to make
a matching contribution to the trust for the
year in an amount equal to so much of the
amount the employee elects under clause (i)
as does not exceed 3 percent of compensa-
tion for the year, and
‘‘(iii) no other contributions may be
made other than contributions described in
clause (i) or (ii).
‘‘(C) EXCLUSIVE
BENEFIT.—The require-
ments of this subparagraph are met for any year
to which this paragraph applies if no contribu-
tions were made, or benefits were accrued, for
services during such year under any qualified
plan of the employer on behalf of any employee
eligible to participate in the cash or deferred ar-
rangement, other than contributions described in
subparagraph (B).
‘‘(D) DEFINITIONS AND SPECIAL RULE.—
‘‘(i) DEFINITIONS.—For purposes of
this paragraph, any term used in this para-
graph which is also used in section 408(p)
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shall have the meaning given such term by
such section.
‘‘(ii) COORDINATION WITH TOP-HEAVY
RULES.—A plan meeting the requirements
of this paragraph for any year shall not be
treated as a top-heavy plan under section
416 for such year.’’
(b) ALTERNATIVE METHODS OF SATISFYING SECTION
401(m) NONDISCRIMINATION TESTS.—Section 401(m) (re-
lating to nondiscrimination test for matching contributions
and employee contributions) is amended by redesignating
paragraph (10) as paragraph (11) and by adding after
paragraph (9) the following new paragraph:
‘‘(10) ALTERNATIVE
METHOD
OF
SATISFYING
TESTS.—A defined contribution plan shall be treated
as meeting the requirements of paragraph (2) with re-
spect to matching contributions if the plan—
‘‘(A) meets the contribution requirements of
subparagraph (B) of subsection (k)(11),
‘‘(B) meets the exclusive benefit require-
ments of subsection (k)(11)(C), and
‘‘(C) meets the vesting requirements of sec-
tion 408(p)(3).’’
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(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to plan years beginning after December
31, 1995.
CHAPTER 2—CAPITAL GAINS REFORM
Subchapter A—Taxpayers Other Than
Corporations
SEC. 11021. CAPITAL GAINS DEDUCTION.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 (relating to treatment of capital gains) is amended by
redesignating section 1202 as section 1203 and by inserting
after section 1201 the following new section:
‘‘SEC. 1202. CAPITAL GAINS DEDUCTION.
‘‘(a) GENERAL RULE.—If for any taxable year a tax-
payer other than a corporation has a net capital gain, 50
percent of such gain shall be a deduction from gross income.
‘‘(b) ESTATES AND TRUSTS.—In the case of an estate
or trust, the deduction shall be computed by excluding the
portion (if any) of the gains for the taxable year from sales
or exchanges of capital assets which, under sections 652 and
662 (relating to inclusions of amounts in gross income of
beneficiaries of trusts), is includible by the income bene-
ficiaries as gain derived from the sale or exchange of capital
assets.
‘‘(c) COORDINATION WITH TREATMENT OF CAPITAL
GAIN UNDER LIMITATION ON INVESTMENT INTEREST.—For
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purposes of this section, the net capital gain for any taxable
year shall be reduced (but not below zero) by the amount
which the taxpayer takes into account as investment income
under section 163(d)(4)(B)(iii).
‘‘(d) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(1) IN GENERAL.—The rate of tax imposed by
section 1 on the excess of—
‘‘(A) the net capital gain for the taxable
year determined as if section 1222(12) had not
applied to any collectible which is sold or ex-
changed during the taxable year and the basis of
which was not adjusted under section 1022(a),
over
‘‘(B) the net capital gain for the taxable
year,
shall not exceed 28 percent.
‘‘(2) ELECTION.—A taxpayer may elect to treat
any collectible specified in such election as not being
an indexed asset for purposes of section 1022. Any
such election, and any specification therein, once
made, shall be irrevocable.
‘‘(e) TRANSITIONAL RULE.—
‘‘(1) IN GENERAL.—In the case of a taxable year
which includes January 1, 1995—
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‘‘(A) the amount taken into account as the
net capital gain under subsection (a) shall not
exceed the net capital gain determined by only
taking into account gains and losses properly
taken into account for the portion of the taxable
year on or after January 1, 1995, and
‘‘(B) the amount of the net capital gain
taken into account in applying section 1(h) for
such year shall be reduced by the amount taken
into account under subparagraph (A) for such
year.
‘‘(2) SPECIAL
RULES
FOR
PASS-THRU
ENTI-
TIES.—
‘‘(A) IN GENERAL.—In applying paragraph
(1) with respect to any pass-thru entity, the de-
termination of when gains and losses are prop-
erly taken into account shall be made at the en-
tity level.
‘‘(B) PASS-THRU
ENTITY
DEFINED.—For
purposes of subparagraph (A), the term ‘pass-
thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
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‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.’’.
(b) DEDUCTION
ALLOWABLE
IN
COMPUTING
AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62, as
amended by sections 11004 and 11005, is amended by in-
serting after paragraph (17) the following new paragraph:
‘‘(18) LONG-TERM CAPITAL GAINS.—The deduc-
tion allowed by section 1202.’’.
(c) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by
inserting after paragraph (11) the following new
paragraph:
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from
the sale or exchange of a collectible shall be treat-
ed as a short-term capital gain or loss (as the
case may be), without regard to the period such
asset was held. The preceding sentence shall
apply only to the extent the gain or loss is taken
into account in computing taxable income.
‘‘(B) TREATMENT OF CERTAIN SALES OF IN-
TEREST IN PARTNERSHIP, ETC.—For purposes of
subparagraph (A), any gain from the sale or ex-
change of an interest in a partnership, S cor-
poration, or trust which is attributable to unre-
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alized appreciation in the value of collectibles
held by such entity shall be treated as gain from
the sale or exchange of a collectible. Rules simi-
lar to the rules of section 751(f) shall apply for
purposes of the preceding sentence.
‘‘(C) COLLECTIBLE.—For purposes of this
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in sec-
tion 408(m) without regard to paragraph (3)
thereof).’’.
(2) CHARITABLE DEDUCTION NOT AFFECTED.—
(A) Paragraph (1) of section 170(e) is
amended by adding at the end the following new
sentence: ‘‘For purposes of this paragraph, sec-
tion 1222 shall be applied without regard to
paragraph (12) thereof (relating to special rule
for collectibles).’’.
(B) Clause (iv) of section 170(b)(1)(C) is
amended by inserting before the period at the
end the following: ‘‘and section 1222 shall be ap-
plied without regard to paragraph (12) thereof
(relating to special rule for collectibles)’’.
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection
(h).
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(2) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘50 per-
cent (80 percent in the case of a corporation) of the
amount of gain’’.
(3) Subparagraph (B) of section 172(d)(2) is
amended to read as follows:
‘‘(B) the deduction under section 1202 shall
not be allowed.’’.
(4) The last sentence of section 453A(c)(3) is
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net
capital gain under section 1201 or the deduction
under section 1202 (whichever is appropriate) shall
be taken into account.’’.
(5) Paragraph (4) of section 642(c) is amended
to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under this
subsection consists of gain from the sale or exchange
of capital assets held for more than 1 year, proper ad-
justment shall be made for any deduction allowable to
the estate or trust under section 1202 (relating to cap-
ital gains deduction). In the case of a trust, the de-
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duction allowed by this subsection shall be subject to
section 681 (relating to unrelated business income).’’.
(6) The last sentence of section 643(a)(3) is
amended to read as follows: ‘‘The deduction under sec-
tion 1202 (relating to capital gains deduction) shall
not be taken into account.’’.
(7) Subparagraph (C) of section 643(a)(6) is
amended by inserting ‘‘(i)’’ before ‘‘there shall’’ and
by inserting before the period ‘‘, and (ii) the deduc-
tion under section 1202 (relating to capital gains de-
duction) shall not be taken into account’’.
(8)(A) Paragraph (2) of section 904(b) is amend-
ed by striking subparagraph (A), by redesignating
subparagraph (B) as subparagraph (A), and by in-
serting after subparagraph (A) (as so redesignated)
the following new subparagraph:
‘‘(B) OTHER TAXPAYERS.—In the case of a
taxpayer other than a corporation, taxable in-
come from sources outside the United States shall
include gain from the sale or exchange of capital
assets only to the extent of foreign source capital
gain net income.’’.
(B) Subparagraph (A) of section 904(b)(2), as so
redesignated, is amended—
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(i) by striking all that precedes clause (i)
and inserting the following:
‘‘(A) CORPORATIONS.—In the case of a cor-
poration—’’, and
(ii) by striking in clause (i) ‘‘in lieu of ap-
plying subparagraph (A),’’.
(C) Paragraph (3) of section 904(b) is amended
by striking subparagraphs (D) and (E) and inserting
the following new subparagraph:
‘‘(D) RATE DIFFERENTIAL PORTION.—The
rate differential portion of foreign source net
capital gain, net capital gain, or the excess of
net capital gain from sources within the United
States over net capital gain, as the case may be,
is the same proportion of such amount as the ex-
cess of the highest rate of tax specified in section
11(b) over the alternative rate of tax under sec-
tion 1201(a) bears to the highest rate of tax spec-
ified in section 11(b).’’.
(D) Clause (v) of section 593(b)(2)(D) is amend-
ed—
(i) by striking ‘‘if there is a capital gain
rate 
differential 
(as 
defined 
in 
section
904(b)(3)(D)) for the taxable year,’’, and
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(ii) by striking ‘‘section 904(b)(3)(E)’’ and
inserting ‘‘section 904(b)(3)(D)’’.
(9) The last sentence of section 1044(d) is
amended by striking ‘‘1202’’ and inserting ‘‘1203’’.
(10)(A) Paragraph (2) of section 1211(b) is
amended to read as follows:
‘‘(2) the sum of—
‘‘(A) the excess of the net short-term capital
loss over the net long-term capital gain, and
‘‘(B) one-half of the excess of the net long-
term capital loss over the net short-term capital
gain.’’.
(B) So much of paragraph (2) of section 1212(b)
as precedes subparagraph (B) thereof is amended to
read as follows:
‘‘(2) SPECIAL RULES.—
‘‘(A) ADJUSTMENTS.—
‘‘(i) For purposes of determining the
excess referred to in paragraph (1)(A), there
shall be treated as short-term capital gain
in the taxable year an amount equal to the
lesser of—
‘‘(I) the amount allowed for the
taxable year under paragraph (1) or
(2) of section 1211(b), or
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‘‘(II) the adjusted taxable income
for such taxable year.
‘‘(ii) For purposes of determining the
excess referred to in paragraph (1)(B), there
shall be treated as short-term capital gain
in the taxable year an amount equal to the
sum of—
‘‘(I) the amount allowed for the
taxable year under paragraph (1) or
(2) of section 1211(b) or the adjusted
taxable income for such taxable year,
whichever is the least, plus
‘‘(II) the excess of the amount de-
scribed in subclause (I) over the net
short-term capital loss (determined
without regard to this subsection) for
such year.’’.
(C) Subsection (b) of section 1212 is amended by
adding at the end the following new paragraph:
‘‘(3) TRANSITIONAL RULE.—In the case of any
amount which, under this subsection and section
1211(b) (as in effect for taxable years beginning before
January 1, 1996), is treated as a capital loss in the
first taxable year beginning after December 31, 1995,
paragraph (2) and section 1211(b) (as so in effect)
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shall apply (and paragraph (2) and section 1211(b)
as in effect for taxable years beginning after December
31, 1995, shall not apply) to the extent such amount
exceeds the total of any capital gain net income (de-
termined without regard to this subsection) for tax-
able years beginning after December 31, 1995.’’.
(11) Paragraph (1) of section 1402(i) is amend-
ed by inserting ‘‘, and the deduction provided by sec-
tion 1202 shall not apply’’ before the period at the
end thereof.
(12) Subsection (e) of section 1445 is amended—
(A) in paragraph (1) by striking ‘‘35 per-
cent (or, to the extent provided in regulations, 28
percent)’’ and inserting ‘‘28 percent (or, to the
extent provided in regulations, 19.8 percent)’’,
and
(B) in paragraph (2) by striking ‘‘35 per-
cent’’ and inserting ‘‘28 percent’’.
(13)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) applies’’, and
(ii) by striking ‘‘28 percent (34 percent’’
and inserting ‘‘19.8 percent (28 percent’’.
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(B) The second sentence of section 607(h)(6)(A)
of the Merchant Marine Act, 1936 is amended—
(i) by striking ‘‘during a taxable year to
which section 1(h) or 1201(a) of such Code ap-
plies’’, and
(ii) by striking ‘‘28 percent (34 percent’’
and inserting ‘‘19.8 percent (28 percent’’.
(e) CLERICAL AMENDMENT.—The table of sections for
part I of subchapter P of chapter 1 is amended by striking
the item relating to section 1202 and by inserting after the
item relating to section 1201 the following new items:
‘‘Sec. 1202. Capital gains deduction.
‘‘Sec. 1203. Small business stock eligible for preferential rates.’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as otherwise provided
in this subsection, the amendments made by this sec-
tion shall apply to taxable years ending after Decem-
ber 31, 1994.
(2) COLLECTIBLES.—The amendments made by
subsection (c) shall apply to sales and exchanges after
December 31, 1994.
(3) REPEAL OF SECTION 1(h).—The amendment
made by subsection (d)(1) shall apply to taxable years
beginning after January 1, 1995.
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(4) CONTRIBUTIONS.—The amendment made by
subsection (d)(2) shall apply to contributions after
December 31, 1994.
(5) USE OF LONG-TERM LOSSES.—The amend-
ments made by subsection (d)(10) shall apply to tax-
able years beginning after December 31, 1995.
(6) WITHHOLDING.—The amendment made by
subsection (d)(12) shall apply only to amounts paid
after the date of the enactment of this Act.
SEC. 11022. INDEXING OF CERTAIN ASSETS ACQUIRED
AFTER DECEMBER 31, 2000, FOR PURPOSES OF
DETERMINING GAIN.
(a) IN GENERAL.—Part II of subchapter O of chapter
1 (relating to basis rules of general application) is amended
by inserting after section 1021 the following new section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED
AFTER DECEMBER 31, 2000, FOR PURPOSES OF
DETERMINING GAIN.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Solely for purposes of determining
gain on the sale or other disposition by a taxpayer
(other than a corporation) of an indexed asset which
has been held for more than 3 years, the indexed basis
of the asset shall be substituted for its adjusted basis.
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‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.—The
deductions for depreciation, depletion, and amortiza-
tion shall be determined without regard to the appli-
cation of paragraph (1) to the taxpayer or any other
person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘indexed asset’ means—
‘‘(A) common stock in a C corporation
(other than a foreign corporation), and
‘‘(B) tangible property,
which is a capital asset or property used in the trade
or business (as defined in section 1231(b)).
‘‘(2) STOCK IN CERTAIN FOREIGN CORPORATIONS
INCLUDED.—For purposes of this section—
‘‘(A) IN
GENERAL.—The term ‘indexed
asset’ includes common stock in a foreign cor-
poration which is regularly traded on an estab-
lished securities market.
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to—
‘‘(i) stock of a foreign investment com-
pany (within the meaning of section
1246(b)),
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‘‘(ii) stock in a passive foreign invest-
ment company (as defined in section 1296),
‘‘(iii) stock in a foreign corporation
held by a United States person who meets
the requirements of section 1248(a)(2), and
‘‘(iv) stock in a foreign personal hold-
ing company (as defined in section 552).
‘‘(C) TREATMENT
OF
AMERICAN
DEPOSI-
TORY
RECEIPTS.—An American depository re-
ceipt for common stock in a foreign corporation
shall be treated as common stock in such cor-
poration.
‘‘(c) INDEXED BASIS.—For purposes of this section—
‘‘(1) GENERAL RULE.—The indexed basis for any
asset is—
‘‘(A) the adjusted basis of the asset, in-
creased by
‘‘(B) the applicable inflation adjustment.
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—The
applicable inflation adjustment for any asset is an
amount equal to—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the percentage (if any) by which—
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‘‘(i) the gross domestic product deflator
for the last calendar quarter ending before
the asset is disposed of, exceeds
‘‘(ii) 
the 
gross 
domestic 
product
deflator for the last calendar quarter ending
before the asset was acquired by the tax-
payer.
The percentage under subparagraph (B) shall be
rounded to the nearest 1⁄10 of 1 percentage point.
‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.—
The gross domestic product deflator for any calendar
quarter is the implicit price deflator for the gross do-
mestic product for such quarter (as shown in the last
revision thereof released by the Secretary of Commerce
before the close of the following calendar quarter).
‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DI-
MINISHED RISK OF LOSS; TREATMENT OF SHORT SALES.—
‘‘(1) IN GENERAL.—If the taxpayer (or a related
person) enters into any transaction which substan-
tially reduces the risk of loss from holding any asset,
such asset shall not be treated as an indexed asset for
the period of such reduced risk.
‘‘(2) SHORT SALES.—
‘‘(A) IN GENERAL.—In the case of a short
sale of an indexed asset with a short sale period
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in excess of 3 years, for purposes of this title, the
amount realized shall be an amount equal to the
amount realized (determined without regard to
this paragraph) increased by the applicable in-
flation adjustment. In applying subsection (c)(2)
for purposes of the preceding sentence, the date
on which the property is sold short shall be treat-
ed as the date of acquisition and the closing date
for the sale shall be treated as the date of disposi-
tion.
‘‘(B) SHORT SALE PERIOD.—For purposes
of subparagraph (A), the short sale period begins
on the day that the property is sold and ends on
the closing date for the sale.
‘‘(e) TREATMENT OF REGULATED INVESTMENT COM-
PANIES AND REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.—
‘‘(A) IN
GENERAL.—Except as otherwise
provided in this paragraph, the adjustment
under subsection (a) shall be allowed to any
qualified investment entity (including for pur-
poses of determining the earnings and profits of
such entity).
‘‘(B) EXCEPTION FOR CORPORATE SHARE-
HOLDERS.—Under regulations—
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‘‘(i) in the case of a distribution by a
qualified investment entity (directly or in-
directly) to a corporation—
‘‘(I) the determination of whether
such distribution is a dividend shall be
made without regard to this section,
and
‘‘(II) the amount treated as gain
by reason of the receipt of any capital
gain dividend shall be increased by the
percentage by which the entity’s net
capital gain for the taxable year (de-
termined without regard to this sec-
tion) exceeds the entity’s net capital
gain for such year determined with re-
gard to this section, and
‘‘(ii) there shall be other appropriate
adjustments (including deemed distribu-
tions) so as to ensure that the benefits of
this section are not allowed (directly or in-
directly) to corporate shareholders of quali-
fied investment entities.
For purposes of the preceding sentence, any
amount includible in gross income under section
852(b)(3)(D) shall be treated as a capital gain
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dividend and an S corporation shall not be
treated as a corporation.
‘‘(C) EXCEPTION FOR QUALIFICATION PUR-
POSES.—This section shall not apply for pur-
poses of sections 851(b) and 856(c).
‘‘(D) EXCEPTION FOR CERTAIN TAXES IM-
POSED AT ENTITY LEVEL.—
‘‘(i) TAX ON FAILURE TO DISTRIBUTE
ENTIRE GAIN.—If any amount is subject to
tax under section 852(b)(3)(A) for any tax-
able year, the amount on which tax is im-
posed under such section shall be increased
by the percentage determined under sub-
paragraph (B)(i)(II). A similar rule shall
apply in the case of any amount subject to
tax under paragraph (2) or (3) of section
857(b) to the extent attributable to the ex-
cess of the net capital gain over the deduc-
tion for dividends paid determined with ref-
erence to capital gain dividends only. The
first sentence of this clause shall not apply
to so much of the amount subject to tax
under section 852(b)(3)(A) as is designated
by the company under section 852(b)(3)(D).
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‘‘(ii) OTHER
TAXES.—This section
shall not apply for purposes of determining
the amount of any tax imposed by para-
graph (4), (5), or (6) of section 857(b).
‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN EN-
TITY.—
‘‘(A) 
REGULATED
INVESTMENT
COMPA-
NIES.—Stock in a regulated investment company
(within the meaning of section 851) shall be an
indexed asset for any calendar quarter in the
same ratio as—
‘‘(i) the average of the fair market val-
ues of the indexed assets held by such com-
pany at the close of each month during such
quarter, bears to
‘‘(ii) the average of the fair market val-
ues of all assets held by such company at
the close of each such month.
‘‘(B) REAL ESTATE INVESTMENT TRUSTS.—
Stock in a real estate investment trust (within
the meaning of section 856) shall be an indexed
asset for any calendar quarter in the same ratio
as—
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‘‘(i) the fair market value of the in-
dexed assets held by such trust at the close
of such quarter, bears to
‘‘(ii) the fair market value of all assets
held by such trust at the close of such quar-
ter.
‘‘(C) RATIO OF 80 PERCENT OR MORE.—If
the ratio for any calendar quarter determined
under subparagraph (A) or (B) would (but for
this subparagraph) be 80 percent or more, such
ratio for such quarter shall be 100 percent.
‘‘(D) RATIO OF 20 PERCENT OR LESS.—If
the ratio for any calendar quarter determined
under subparagraph (A) or (B) would (but for
this subparagraph) be 20 percent or less, such
ratio for such quarter shall be zero.
‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For
purposes of this paragraph, a qualified invest-
ment entity which holds a partnership interest
shall be treated (in lieu of holding a partnership
interest) as holding its proportionate share of the
assets held by the partnership.
‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS-
TRIBUTIONS.—Except as otherwise provided by the
Secretary, a distribution with respect to stock in a
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qualified investment entity which is not a dividend
and which results in a reduction in the adjusted basis
of such stock shall be treated as allocable to stock ac-
quired by the taxpayer in the order in which such
stock was acquired.
‘‘(4) QUALIFIED INVESTMENT ENTITY.—For pur-
poses of this subsection, the term ‘qualified investment
entity’ means—
‘‘(A) a regulated investment company
(within the meaning of section 851), and
‘‘(B) a real estate investment trust (within
the meaning of section 856).
‘‘(f) OTHER PASS-THRU ENTITIES.—
‘‘(1) PARTNERSHIPS.—
‘‘(A) IN GENERAL.—In the case of a part-
nership, the adjustment made under subsection
(a) at the partnership level shall be passed
through to the partners.
‘‘(B) SPECIAL RULE IN THE CASE OF SEC-
TION 754 ELECTIONS.—In the case of a transfer
of an interest in a partnership with respect to
which the election provided in section 754 is in
effect—
‘‘(i) the adjustment under section
743(b)(1) shall, with respect to the trans-
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feror partner, be treated as a sale of the
partnership assets for purposes of applying
this section, and
‘‘(ii) with respect to the transferee
partner, the partnership’s holding period
for purposes of this section in such assets
shall be treated as beginning on the date of
such adjustment.
‘‘(2) S CORPORATIONS.—In the case of an S cor-
poration, the adjustment made under subsection (a)
at the corporate level shall be passed through to the
shareholders. This section shall not apply for purposes
of determining the amount of any tax imposed by sec-
tion 1374 or 1375.
‘‘(3) COMMON TRUST FUNDS.—In the case of a
common trust fund, the adjustment made under sub-
section (a) at the trust level shall be passed through
to the participants.
‘‘(4) INDEXING
ADJUSTMENT
DISREGARDED
IN
DETERMINING LOSS ON SALE OF INTEREST IN EN-
TITY.—Notwithstanding the preceding provisions of
this subsection, for purposes of determining the
amount of any loss on a sale or exchange of an inter-
est in a partnership, S corporation, or common trust
fund, the adjustment made under subsection (a) shall
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not be taken into account in determining the adjusted
basis of such interest.
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis of
such property in the hands of the transferee is a sub-
stituted basis.
‘‘(2) RELATED
PERSONS
DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set forth
in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT.—If any person transfers cash, debt, or any other
property to another person and the principal purpose of
such transfer is to secure or increase an adjustment under
subsection (a), the Secretary may disallow part or all of
such adjustment or increase.
‘‘(i) SPECIAL RULES.—For purposes of this section—
‘‘(1) TREATMENT
OF
IMPROVEMENTS, ETC.—If
there is an addition to the adjusted basis of any tan-
gible property or of any stock in a corporation during
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the taxable year by reason of an improvement to such
property or a contribution to capital of such corpora-
tion—
‘‘(A) such addition shall never be taken into
account under subsection (c)(1)(A) if the aggre-
gate amount thereof during the taxable year with
respect to such property or stock is less than
$1,000, and
‘‘(B) such addition shall be treated as a sep-
arate asset acquired at the close of such taxable
year if the aggregate amount thereof during the
taxable year with respect to such property or
stock is $1,000 or more.
A rule similar to the rule of the preceding sentence
shall apply to any other portion of an asset to the ex-
tent that separate treatment of such portion is appro-
priate to carry out the purposes of this section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—The applicable in-
flation adjustment shall be appropriately reduced for
periods during which the asset was not an indexed
asset.
‘‘(3) TREATMENT OF CERTAIN DISTRIBUTIONS.—
A distribution with respect to stock in a corporation
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which is not a dividend shall be treated as a disposi-
tion.
‘‘(4) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN PRIOR APPLICATION OF SUBSECTION (a)(1) WITH
RESPECT TO THE TAXPAYER.—If there has been a
prior application of subsection (a)(1) to an asset
while such asset was held by the taxpayer, the date
of acquisition of such asset by the taxpayer shall be
treated as not earlier than the date of the most recent
such prior application.
‘‘(5) COLLAPSIBLE CORPORATIONS.—The appli-
cation of section 341(a) (relating to collapsible cor-
porations) shall be determined without regard to this
section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections for
part II of subchapter O of chapter 1 is amended by insert-
ing after the item relating to section 1021 the following new
item:
‘‘Sec. 1022. Indexing of certain assets acquired after December 31,
2000, for purposes of determining gain.’’
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to the disposition of any
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property the holding period of which begins after De-
cember 31, 2000.
(2) CERTAIN TRANSACTIONS BETWEEN RELATED
PERSONS.—The amendments made by this section
shall not apply to the disposition of any property ac-
quired after December 31, 2000, from a related person
(as defined in section 1022(g)(2) of the Internal Reve-
nue Code of 1986, as added by this section) if—
(A) such property was so acquired for a
price less than the property’s fair market value,
and
(B) the amendments made by this section
did not apply to such property in the hands of
such related person.
(d) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD
ON JANUARY 1, 2001.—For purposes of the Internal Reve-
nue Code of 1986—
(1) IN GENERAL.—A taxpayer other than a cor-
poration may elect to treat—
(A) any readily tradable stock (which is an
indexed asset) held by such taxpayer on January
1, 2001, and not sold before the next business
day after such date, as having been sold on such
next business day for an amount equal to its
closing market price on such next business day
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(and as having been reacquired on such next
business day for an amount equal to such closing
market price), and
(B) any other indexed asset held by the tax-
payer on January 1, 2001, as having been sold
on such date for an amount equal to its fair
market value on such date (and as having been
reacquired on such date for an amount equal to
such fair market value).
(2) TREATMENT OF GAIN OR LOSS.—
(A) Any gain resulting from an election
under paragraph (1) shall be treated as received
or accrued on the date the asset is treated as sold
under paragraph (1) and shall be recognized not-
withstanding any provision of the Internal Reve-
nue Code of 1986.
(B) Any loss resulting from an election
under paragraph (1) shall not be allowed for any
taxable year.
(3) ELECTION.—An election under paragraph
(1) shall be made in such manner as the Secretary of
the Treasury or his delegate may prescribe and shall
specify the assets for which such election is made.
Such an election, once made with respect to any asset,
shall be irrevocable.
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(4) READILY TRADABLE STOCK.—For purposes of
this subsection, the term ‘‘readily tradable stock’’
means any stock which, as of January 1, 2001, is
readily tradable on an established securities market
or otherwise.
(e) TREATMENT OF PRINCIPAL RESIDENCES.—Prop-
erty held and used by the taxpayer on January 1, 2001,
as his principal residence (within the meaning of section
1034 of the Internal Revenue Code of 1986) shall be treat-
ed—
(1) for purposes of subsection (c)(1) of this sec-
tion and section 1022 of such Code, as having a hold-
ing period which begins on January 1, 2001, and
(2) for purposes of section 1022(c)(2)(B)(ii) of
such Code, as having been acquired on January 1,
2001.
Subsection (d) shall not apply to property to which this
subsection applies.
SEC. 11023. MODIFICATIONS TO EXCLUSION OF GAIN ON
CERTAIN SMALL BUSINESS STOCK.
(a) REDUCED RATE IN LIEU OF EXCLUSION.—
(1) Section 1, as amended by section 11021, is
amended by adding at the end the following new sub-
section:
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‘‘(h) MAXIMUM CAPITAL GAINS RATE FOR CERTAIN
SMALL BUSINESS STOCK.—
‘‘(1) IN GENERAL.—If for any taxable year a
taxpayer has gain from the sale or exchange of any
qualified small business stock held for more than 5
years, then the tax imposed by this section shall not
exceed the sum of—
‘‘(A) a tax computed on the taxable income
reduced by 1⁄2 the amount of the small business
gain, at the rates and in the manner as if this
subsection had not been enacted, plus
‘‘(B) a tax of 14 percent of the small busi-
ness gain.
‘‘(2) SMALL BUSINESS GAIN.—For purposes of
paragraph (1), the term ‘small business gain’ means
the lesser of—
‘‘(A) gain from the sale or exchange of any
qualified small business stock held for more than
5 years, or
‘‘(B) the net capital gain taken into account
under section 1202(a).
‘‘(3) QUALIFIED SMALL BUSINESS STOCK.—The
term ‘qualified small business stock’ has the meaning
given such term by section 1203(c).’’
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(B) by striking the last sentence.
(2) EXCEPTION
FROM
REDEMPTION
RULES
WHERE BUSINESS PURPOSE.—Paragraph (3) of sec-
tion 1203(c), as so redesignated, is amended by add-
ing at the end the following new subparagraph:
‘‘(D) WAIVER
WHERE
BUSINESS
PUR-
POSE.—A purchase of stock by the issuing cor-
poration shall be disregarded for purposes of sub-
paragraph (B) if the issuing corporation estab-
lishes that there was a business purpose for such
purchase and one of the principal purposes of the
purchase was not to avoid the limitations of this
section.’’.
(f) CLERICAL AMENDMENT.—The section heading for
section 1203, as redesignated by section 11021, is amended
to read as follows:
‘‘SEC. 1203. SMALL BUSINESS STOCK ELIGIBLE FOR PREF-
ERENTIAL RATES.’’
(g) EFFECTIVE DATES.—
(1) REDUCED RATES.—The amendments made
by subsections (a) and (b) shall apply to taxable years
beginning after the date of the enactment of this Act.
(2) INCREASE IN SIZE.—The amendment made
by subsection (c) shall apply to stock issued after the
date of the enactment of this Act.
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(3) OTHER RULES.—The amendments made by
subsections (d) and (e) shall apply to stock issued
after August 10, 1993.
Subchapter B—Corporate Capital Gains
SEC. 11025. REDUCTION OF ALTERNATIVE CAPITAL GAIN
TAX FOR CORPORATIONS.
(a) IN GENERAL.—Section 1201 is amended to read
as follows:
‘‘SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.
‘‘(a) GENERAL RULE.—If for any taxable year a cor-
poration has a net capital gain, then, in lieu of the tax
imposed by sections 11, 511, and 831 (a) and (b) (whichever
is applicable), there is hereby imposed a tax (if such tax
is less than the tax imposed by such sections) which shall
consist of the sum of—
‘‘(1) a tax computed on the taxable income re-
duced by the amount of the net capital gain, at the
rates and in the manner as if this subsection had not
been enacted, plus
‘‘(2) a tax of 28 percent of the net capital gain.
‘‘(b) SPECIAL RULES FOR QUALIFIED SMALL BUSI-
NESS GAIN.—
‘‘(1) IN GENERAL.—If for any taxable year a
corporation has gain from the sale or exchange of any
qualified small business stock held for more than 5
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years, the amount determined under subsection (a)(2)
for such taxable year shall be equal to the sum of—
‘‘(A) 21 percent of the lesser of such gain or
the corporation’s net capital gain, plus
‘‘(B) 28 percent of the net capital gain re-
duced by the gain taken into account under sub-
paragraph (A).
‘‘(2) QUALIFIED SMALL BUSINESS STOCK.—For
purposes of paragraph (1), the term ‘qualified small
business stock’ has the meaning given such term by
section 1203(c), except that stock shall not be treated
as qualified small business stock if such stock was at
any time held by a member of the parent-subsidiary
controlled group (as defined in section 1203(d)(3))
which includes the qualified small business.
‘‘(c) TRANSITIONAL RULE.—
‘‘(1) IN GENERAL.—In applying this section, net
capital gain for any taxable year shall not exceed the
net capital gain determined by taking into account
only gains and losses properly taken into account for
the portion of the taxable year after December 31,
1994.
‘‘(2) SPECIAL RULE FOR PASS-THRU ENTITIES.—
Section 1202(e)(2) shall apply for purposes of para-
graph (1).
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‘‘(d) CROSS REFERENCES.—
‘‘For computation of the alternative tax—
‘‘(1) in the case of life insurance companies, see
section 801(a)(2),
‘‘(2) in the case of regulated investment compa-
nies and their shareholders, see section 852(b)(3)(A)
and (D), and
‘‘(3) in the case of real estate investment trusts,
see section 857(b)(3)(A).’’.
(b) TECHNICAL AMENDMENT.—Clause (iii) of section
852(b)(3)(D) is amended by striking ‘‘65 percent’’ and in-
serting ‘‘72 percent’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years ending after
December 31, 1994.
(2) QUALIFIED SMALL BUSINESS STOCK.—Sec-
tion 1201(b) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to gain from
qualified small business stock acquired on or after the
date of the enactment of this Act.
Subchapter C—Capital Loss Deduction Al-
lowed With Respect to Sale or Exchange of
Principal Residence
SEC. 11026. CAPITAL LOSS DEDUCTION ALLOWED WITH RE-
SPECT TO SALE OR EXCHANGE OF PRINCIPAL
RESIDENCE.
(a) IN GENERAL.—Subsection (c) of section 165 (relat-
ing to limitation on losses of individuals) is amended by
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striking ‘‘and’’ at the end of paragraph (2), by striking the
period at the end of paragraph (3) and inserting ‘‘; and’’,
and by adding at the end the following new paragraph:
‘‘(4) losses arising from the sale or exchange of
the principal residence (within the meaning of section
1034) of the taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to sales and exchanges after Decem-
ber 31, 1994, in taxable years ending after such date.
CHAPTER 3—CORPORATE ALTERNATIVE
MINIMUM TAX REFORM
SEC. 
11031. 
MODIFICATION 
OF 
DEPRECIATION 
RULES
UNDER MINIMUM TAX.
(a) IN GENERAL.—Clause (i) of section 56(a)(1)(A) is
amended by inserting ‘‘and before January 1, 1996,’’ after
‘‘December 31, 1986,’’.
(b) CONFORMING AMENDMENT.—Clause (ii) of section
56(a)(1)(A) is amended by striking ‘‘The method’’ and in-
serting ‘‘In the case of property placed in service before Jan-
uary 1, 1996, the method’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 1995.
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SEC. 
11032. 
LONG-TERM 
UNUSED 
CREDITS 
ALLOWED
AGAINST MINIMUM TAX.
(a) IN GENERAL.—Section 53(c) (relating to limita-
tion) is amended by adding at the end the following new
paragraph:
‘‘(2) SPECIAL RULE FOR TAXPAYERS WITH LONG-
TERM UNUSED CREDITS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a corporation to which section
56(g) applies has a long-term unused mini-
mum tax credit for a taxable year, and
‘‘(ii) no credit would be allowable
under this section for the taxable year by
reason of paragraph (1),
then there shall be allowed a credit under sub-
section (a) for the taxable year in the amount de-
termined under subparagraph (B).
‘‘(B) AMOUNT OF CREDIT.—For purposes of
subparagraph (A), the amount of the credit shall
be equal to the least of the following for the tax-
able year:
‘‘(i) The long-term unused minimum
tax credit.
‘‘(ii) 50 percent of the taxpayer’s ten-
tative minimum tax.
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‘‘(iii) The excess (if any) of the amount
under paragraph (1)(B) over the amount
under paragraph (1)(A).
‘‘(C) LONG-TERM
UNUSED
MINIMUM
TAX
CREDIT.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—The long-term un-
used minimum tax credit for any taxable
year is the portion of the minimum tax
credit determined under subsection (b) at-
tributable to the adjusted net minimum tax
for taxable years beginning after 1986 and
ending before the 7th taxable year imme-
diately preceding the taxable year for which
the determination is being made.
‘‘(ii) FIRST-IN, FIRST-OUT
ORDERING
RULE.—For purposes of clause (i), credits
shall be treated as allowed under subsection
(a) on a first-in, first-out basis.’’.
(b) CONFORMING AMENDMENTS.—(1) Section 53(c) (as
in effect before the amendment made by subsection (a)) is
amended—
(A) by striking ‘‘The’’ and inserting:
‘‘(1) IN GENERAL.—The’’, and
(B) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively.
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(2) Subparagraph (C) of section 108(b)(4) is amended
by striking ‘‘and (G)’’ in the text and heading thereof and
inserting ‘‘, (C), and (G)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
CHAPTER 4—COST RECOVERY
PROVISIONS
SEC. 11035. TREATMENT OF ABANDONMENT OF LESSOR IM-
PROVEMENTS AT TERMINATION OF LEASE.
(a) IN GENERAL.—Paragraph (8) of section 168(i) is
amended to read as follows:
‘‘(8) TREATMENT
OF
LEASEHOLD
IMPROVE-
MENTS.—
‘‘(A) IN
GENERAL.—In the case of any
building erected (or improvements made) on
leased property, if such building or improvement
is property to which this section applies, the de-
preciation deduction shall be determined under
the provisions of this section.
‘‘(B) TREATMENT
OF
LESSOR
IMPROVE-
MENTS WHICH ARE ABANDONED AT TERMINATION
OF LEASE.—An improvement—
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‘‘(i) which is made by the lessor of
leased property for the lessee of such prop-
erty, and
‘‘(ii) which is irrevocably disposed of
or abandoned by the lessor at the termi-
nation of the lease by such lessee,
shall be treated for purposes of determining gain
or loss under this title as disposed of by the les-
sor when so disposed of or abandoned.’’
(b) EFFECTIVE DATE.—Subparagraph (B) of section
168(i)(8) of the Internal Revenue Code of 1986, as added
by the amendment made by subsection (a), shall apply to
improvements disposed of or abandoned after March 13,
1995.
SEC. 11036. INCREASE IN EXPENSE TREATMENT FOR SMALL
BUSINESSES.
(a) GENERAL RULE.—Paragraph (1) of section 179(b)
(relating to dollar limitation) is amended to read as follows:
‘‘(1) DOLLAR LIMITATION.—The aggregate cost
which may be taken into account under subsection (a)
for any taxable year shall not exceed the following ap-
plicable amount:
‘‘If the taxable year
The applicable
begins in:
amount is:
1996 ............................................................................
$19,000
1997 ............................................................................
20,000
1998 ............................................................................
21,000
1999 ............................................................................
22,000
2000 ............................................................................
23,000
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2001 ............................................................................
24,000
2002 or thereafter .......................................................
25,000.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after De-
cember 31, 1995.
Subtitle C—Health Related
Provisions
CHAPTER 1—LONG-TERM CARE
PROVISIONS
Subchapter A—Long-Term Care Services and
Contracts
PART I—GENERAL PROVISIONS
SEC. 11041. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) GENERAL RULE.—Chapter 79 (relating to defini-
tions) is amended by inserting after section 7702A the fol-
lowing new section:
‘‘SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE
INSURANCE.
‘‘(a) IN GENERAL.—For purposes of this title—
‘‘(1) a qualified long-term care insurance con-
tract shall be treated as an accident and health insur-
ance contract,
‘‘(2) amounts (other than policyholder dividends,
as defined in section 808, or premium refunds) re-
ceived under a qualified long-term care insurance
contract shall be treated as amounts received for per-
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sonal injuries and sickness and shall be treated as re-
imbursement for expenses actually incurred for medi-
cal care (as defined in section 213(d)),
‘‘(3) any plan of an employer providing coverage
under a qualified long-term care insurance contract
shall be treated as an accident and health plan with
respect to such coverage,
‘‘(4) except as provided in subsection (d)(3),
amounts paid for a qualified long-term care insur-
ance contract providing the benefits described in sub-
section (b)(2)(A) shall be treated as payments made
for insurance for purposes of section 213(d)(1)(D),
and
‘‘(5) a qualified long-term care insurance con-
tract shall be treated as a guaranteed renewable con-
tract subject to the rules of section 816(e).
‘‘(b) QUALIFIED LONG-TERM CARE INSURANCE CON-
TRACT.—For purposes of this title—
‘‘(1) IN
GENERAL.—The term ‘qualified long-
term care insurance contract’ means any insurance
contract if—
‘‘(A) the only insurance protection provided
under such contract is coverage of qualified long-
term care services,