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paragraphs (R) through (U) as subparagraphs (S)
through (V), respectively, and by inserting after sub-
paragraph (P) the following new subparagraph:
‘‘(R) section 6050R(b) (relating to certain
long-term care benefits),’’.
(c) CLERICAL AMENDMENT.—The table of sections for
subpart B of part III of subchapter A of chapter 61 is
amended by adding at the end the following new item:
‘‘Sec. 6050R. Certain long-term care benefits.’’
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to benefits paid after December 31, 1995.
PART II—CONSUMER PROTECTION PROVISIONS
SEC. 11051. POLICY REQUIREMENTS.
Section 7702B (as added by section 11041) is amended
by adding at the end the following new subsection:
‘‘(f) CONSUMER PROTECTION PROVISIONS.—
‘‘(1) IN GENERAL.—The requirements of this sub-
section are met with respect to any contract if any
long-term care insurance policy issued under the con-
tract meets—
‘‘(A) the requirements of the model regula-
tion and model Act described in paragraph (2),
‘‘(B) the disclosure requirement of para-
graph (3), and
‘‘(C) 
the 
requirements 
relating 
to
nonforfeitability under paragraph (4).
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‘‘(2) REQUIREMENTS
OF
MODEL
REGULATION
AND ACT.—
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to any pol-
icy if such policy meets—
‘‘(i) MODEL REGULATION.—The follow-
ing requirements of the model regulation:
‘‘(I) Section 7A (relating to guar-
anteed renewal or noncancellability),
and the requirements of section 6B of
the model Act relating to such section
7A.
‘‘(II) Section 7B (relating to pro-
hibitions on limitations and exclu-
sions).
‘‘(III) Section 7C (relating to ex-
tension of benefits).
‘‘(IV) Section 7D (relating to con-
tinuation or conversion of coverage).
‘‘(V) Section 7E (relating to dis-
continuance and replacement of poli-
cies).
‘‘(VI) Section 8 (relating to unin-
tentional lapse).
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‘‘(VII) Section 9 (relating to dis-
closure), other than section 9F thereof.
‘‘(VIII) Section 10 (relating to
prohibitions against post-claims under-
writing).
‘‘(IX) Section 11 (relating to min-
imum standards).
‘‘(X) Section 12 (relating to re-
quirement to offer inflation protection),
except that any requirement for a sig-
nature on a rejection of inflation pro-
tection shall permit the signature to be
on an application or on a separate
form.
‘‘(XI) Section 23 (relating to pro-
hibition against preexisting conditions
and probationary periods in replace-
ment policies or certificates).
‘‘(ii) MODEL ACT.—The following re-
quirements of the model Act:
‘‘(I) Section 6C (relating to pre-
existing conditions).
‘‘(II) Section 6D (relating to
prior hospitalization).
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‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) MODEL
PROVISIONS.—The terms
‘model regulation’ and ‘model Act’ mean the
long-term care insurance model regulation,
and the long-term care insurance model Act,
respectively, promulgated by the National
Association of Insurance Commissioners (as
adopted as of January 1993).
‘‘(ii) COORDINATION.—Any provision
of the model regulation or model Act listed
under clause (i) or (ii) of subparagraph (A)
shall be treated as including any other pro-
vision of such regulation or Act necessary to
implement the provision.
‘‘(3) DISCLOSURE REQUIREMENT.—The require-
ment of this paragraph is met with respect to any
policy if such policy meets the requirements of section
4980C(d)(1).
‘‘(4) NONFORFEITURE REQUIREMENTS.—
‘‘(A) IN
GENERAL.—The requirements of
this paragraph are met with respect to any level
premium long-term care insurance policy, if the
issuer of such policy offers to the policyholder,
including 
any 
group 
policyholder, 
a
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nonforfeiture provision meeting the requirements
of subparagraph (B).
‘‘(B) REQUIREMENTS OF PROVISION.—The
nonforfeiture provision required under subpara-
graph (A) shall meet the following requirements:
‘‘(i) The nonforfeiture provision shall
be appropriately captioned.
‘‘(ii) The nonforfeiture provision shall
provide for a benefit available in the event
of a default in the payment of any pre-
miums and the amount of the benefit may
be adjusted subsequent to being initially
granted only as necessary to reflect changes
in claims, persistency, and interest as re-
flected in changes in rates for premium
paying policies approved by the Secretary
for the same policy form.
‘‘(iii) The nonforfeiture provision shall
provide at least one of the following:
‘‘(I) Reduced paid-up insurance.
‘‘(II) Extended term insurance.
‘‘(III) Shortened benefit period.
‘‘(IV) Other similar offerings ap-
proved by the Secretary.
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‘‘(5) LONG-TERM CARE INSURANCE POLICY DE-
FINED.—For purposes of this subsection, the term
‘long-term care insurance policy’ has the meaning
given such term by section 4980C(e).’’.
SEC. 11052. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
(a) IN GENERAL.—Chapter 43 is amended by adding
at the end the following new section:
‘‘SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM
CARE INSURANCE POLICIES.
‘‘(a) GENERAL RULE.—There is hereby imposed on
any person failing to meet the requirements of subsection
(c) or (d) a tax in the amount determined under subsection
(b).
‘‘(b) AMOUNT.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) shall be $100 per policy for
each day any requirements of subsection (c) or (d) are
not met with respect to each long-term care insurance
policy.
‘‘(2) WAIVER.—In the case of a failure which is
due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed
by subsection (a) to the extent that payment of the tax
would be excessive relative to the failure involved.
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‘‘(c) RESPONSIBILITIES.—The requirements of this
subsection are as follows:
‘‘(1) REQUIREMENTS OF MODEL PROVISIONS.—
‘‘(A) MODEL REGULATION.—The following
requirements of the model regulation must be
met:
‘‘(i) Section 13 (relating to application
forms and replacement coverage).
‘‘(ii) Section 14 (relating to reporting
requirements), except that the issuer shall
also report at least annually the number of
claims denied during the reporting period
for each class of business (expressed as a
percentage of claims denied), other than
claims denied for failure to meet the wait-
ing period or because of any applicable pre-
existing condition.
‘‘(iii) Section 20 (relating to filing re-
quirements for marketing).
‘‘(iv) Section 21 (relating to standards
for marketing), including inaccurate com-
pletion of medical histories, other than sec-
tions 21C(1) and 21C(6) thereof, except
that—
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‘‘(I) in addition to such require-
ments, no person shall, in selling or of-
fering to sell a long-term care insur-
ance policy, misrepresent a material
fact; and
‘‘(II) no such requirements shall
include a requirement to inquire or
identify whether a prospective appli-
cant or enrollee for long-term care in-
surance has accident and sickness in-
surance.
‘‘(v) Section 22 (relating to appro-
priateness of recommended purchase).
‘‘(vi) Section 24 (relating to standard
format outline of coverage).
‘‘(vii) Section 25 (relating to require-
ment to deliver shopper’s guide).
‘‘(B) MODEL ACT.—The following require-
ments of the model Act must be met:
‘‘(i) Section 6F (relating to right to re-
turn), except that such section shall also
apply to denials of applications and any
refund shall be made within 30 days of the
return or denial.
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‘‘(ii) Section 6G (relating to outline of
coverage).
‘‘(iii) Section 6H (relating to require-
ments for certificates under group plans).
‘‘(iv) Section 6I (relating to policy
summary).
‘‘(v) Section 6J (relating to monthly
reports on accelerated death benefits).
‘‘(vi) Section 7 (relating to incontest-
ability period).
‘‘(C) DEFINITIONS.—For purposes of this
paragraph, the terms ‘model regulation’ and
‘model Act’ have the meanings given such terms
by section 7702B(f)(2)(B).
‘‘(2) DELIVERY OF POLICY.—If an application
for a long-term care insurance policy (or for a certifi-
cate under a group long-term care insurance policy)
is approved, the issuer shall deliver to the applicant
(or policyholder or certificateholder) the policy (or
certificate) of insurance not later than 30 days after
the date of the approval.
‘‘(3) INFORMATION ON DENIALS OF CLAIMS.—If
a claim under a long-term care insurance policy is
denied, the issuer shall, within 60 days of the date of
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a 
written 
request 
by 
the 
policyholder 
or
certificateholder (or representative)—
‘‘(A) provide a written explanation of the
reasons for the denial, and
‘‘(B) make available all information di-
rectly relating to such denial.
‘‘(d) DISCLOSURE.—The requirements of this sub-
section are met if the issuer of a long-term care insurance
policy discloses in such policy and in the outline of coverage
required under subsection (c)(1)(B)(ii) that the policy is in-
tended to be a qualified long-term care insurance contract
under section 7702B(b).
‘‘(e) LONG-TERM
CARE
INSURANCE
POLICY
DE-
FINED.—For purposes of this section, the term ‘long-term
care insurance policy’ means any product which is adver-
tised, marketed, or offered as long-term care insurance.’’.
(b) CONFORMING AMENDMENT.—The table of sections
for chapter 43 is amended by adding at the end the follow-
ing new item:
‘‘Sec. 4980C. Requirements for issuers of long-term care insurance
policies.’’.
SEC. 11053. COORDINATION WITH STATE REQUIREMENTS.
Nothing in this part shall prevent a State from estab-
lishing, implementing, or continuing in effect standards re-
lated to the protection of policyholders of long-term care in-
surance policies (as defined in section 4980C(e) of the Inter-
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nal Revenue Code of 1986), if such standards are not in
conflict with or inconsistent with the standards established
under such Code.
SEC. 11054. EFFECTIVE DATES.
(a) IN GENERAL.—The provisions of, and amendments
made by, this part shall apply to contracts issued after De-
cember 31, 1995. The provisions of section 11041(g) of this
Act (relating to transition rule) shall apply to such con-
tracts.
(b) ISSUERS.—The amendments made by section
11052 shall apply to actions taken after December 31, 1995.
Subchapter B—Treatment of Accelerated
Death Benefits
SEC. 11061. TREATMENT OF ACCELERATED DEATH BENE-
FITS BY RECIPIENT.
(a) IN GENERAL.—Section 101 (relating to certain
death benefits) is amended by adding at the end the follow-
ing new subsection:
‘‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH
BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this section,
the following amounts shall be treated as an amount
paid by reason of the death of an insured:
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‘‘(A) Any amount received under a life in-
surance contract on the life of an insured who is
a terminally ill individual.
‘‘(B) Any amount received under a life in-
surance contract on the life of an insured who is
a chronically ill individual (as determined in
such manner as the Secretary may prescribe) but
only if such amount is received under a rider or
other provision of such contract which is treated
as a qualified long-term care insurance contract
under section 7702B.
‘‘(2) TREATMENT OF VIATICAL SETTLEMENTS.—
‘‘(A) IN GENERAL.—In the case of a life in-
surance contract on the life of an insured de-
scribed in paragraph (1), if—
‘‘(i) any portion of such contract is
sold to any viatical settlement provider, or
‘‘(ii) any portion of the death benefit is
assigned to such a provider,
the amount paid for such sale or assignment
shall be treated as an amount paid under the life
insurance contract by reason of the death of such
insured.
‘‘(B) VIATICAL
SETTLEMENT
PROVIDER.—
The term ‘viatical settlement provider’ means
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any person regularly engaged in the trade or
business of purchasing, or taking assignments of,
life insurance contracts on the lives of insureds
described in paragraph (1) if—
‘‘(i) such person is licensed for such
purposes in the State in which the insured
resides, or
‘‘(ii) in the case of an insured who re-
sides in a State not requiring the licensing
of such persons for such purposes—
‘‘(I) such person meets the re-
quirements of sections 8 and 9 of the
Viatical Settlements Model Act of the
National 
Association 
of 
Insurance
Commissioners, and
‘‘(II) meets the requirements of the
Model Regulations of the National As-
sociation of Insurance Commissioners
(relating to standards for evaluation of
reasonable payments) in determining
amounts paid by such person in con-
nection with such purchases or assign-
ments.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
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‘‘(A) TERMINALLY
ILL
INDIVIDUAL.—The
term ‘terminally ill individual’ means an indi-
vidual who has been certified by a physician as
having an illness or physical condition which
can reasonably be expected to result in death in
24 months or less after the date of the certifi-
cation.
‘‘(B) PHYSICIAN.—The term ‘physician’ has
the meaning given to such term by section
1861(r)(1) of the Social Security Act (42 U.S.C.
1395x(r)(1)).
‘‘(4) EXCEPTION FOR BUSINESS-RELATED POLI-
CIES.—This subsection shall not apply in the case of
any amount paid to any taxpayer other than the in-
sured if such taxpayer has an insurable interest with
respect to the life of the insured by reason of the in-
sured being a director, officer, or employee of the tax-
payer or by reason of the insured being financially
interested in any trade or business carried on by the
taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to amounts received after December
31, 1995.
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SEC. 11062. TAX TREATMENT OF COMPANIES ISSUING
QUALIFIED ACCELERATED DEATH BENEFIT
RIDERS.
(a) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—Section 818 (relating
to other definitions and special rules) is amended by adding
at the end the following new subsection:
‘‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RID-
ERS TREATED AS LIFE INSURANCE.—For purposes of this
part—
‘‘(1) IN GENERAL.—Any reference to a life insur-
ance contract shall be treated as including a reference
to a qualified accelerated death benefit rider on such
contract.
‘‘(2) QUALIFIED ACCELERATED DEATH BENEFIT
RIDERS.—For purposes of this subsection, the term
‘qualified accelerated death benefit rider’ means any
rider on a life insurance contract if the only pay-
ments under the rider are payments meeting the re-
quirements of section 101(g).
‘‘(3) EXCEPTION
FOR
LONG-TERM
CARE
RID-
ERS.—Paragraph (1) shall not apply to any rider
which is treated as a long-term care insurance con-
tract under section 7702B.’’
(b) EFFECTIVE DATE.—
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(1) IN GENERAL.—The amendment made by this
section shall take effect on January 1, 1996.
(2) ISSUANCE OF RIDER NOT TREATED AS MATE-
RIAL
CHANGE.—For purposes of applying sections
101(f), 7702, and 7702A of the Internal Revenue Code
of 1986 to any contract—
(A) the issuance of a qualified accelerated
death benefit rider (as defined in section 818(g)
of such Code (as added by this Act)), and
(B) the addition of any provision required
to conform an accelerated death benefit rider to
the requirements of such section 818(g),
shall not be treated as a modification or material
change of such contract.
CHAPTER 2—MEDICAL SAVINGS
ACCOUNTS
SEC. 11066. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chapter
1 (relating to additional itemized deductions for individ-
uals) is amended by redesignating section 222 as section
223 and by inserting after section 221 the following new
section:
‘‘SEC. 222. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during
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the taxable year, there shall be allowed as a deduction for
the taxable year an amount equal to the aggregate amount
paid in cash during such taxable year by such individual
to a medical savings account of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this subsection, the amount allowable as a deduc-
tion under subsection (a) to an individual for the tax-
able year shall not exceed—
‘‘(A) except as provided in subparagraph
(B), the lesser of—
‘‘(i) $2,000, or
‘‘(ii) the annual deductible limit for
any individual covered under the high de-
ductible health plan, or
‘‘(B) in the case of a high deductible health
plan covering the taxpayer and any other eligi-
ble individual who is the spouse or any depend-
ent (as defined in section 152) of the taxpayer,
the lesser of—
‘‘(i) $4,000, or
‘‘(ii) the annual limit under the plan
on the aggregate amount of deductibles re-
quired to be paid by all individuals.
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The preceding sentence shall not apply if the spouse
of such individual is covered under any other high de-
ductible health plan.
‘‘(2) SPECIAL
RULE
FOR
MARRIED
INDIVID-
UALS.—
‘‘(A) IN GENERAL.—This subsection shall be
applied separately for each married individual.
‘‘(B) SPECIAL RULE.—If individuals who
are married to each other are covered under the
same high deductible health plan, then the
amounts applicable under paragraph (1)(B)
shall be divided equally between them unless they
agree on a different division.
‘‘(3) COORDINATION WITH EXCLUSION FOR EM-
PLOYER CONTRIBUTIONS.—No deduction shall be al-
lowed under this section for any amount paid for any
taxable year to a medical savings account of an indi-
vidual if—
‘‘(A) any amount is paid to any medical
savings account of such individual which is ex-
cludable from gross income under section 106(b)
for such year, or
‘‘(B) in a case described in paragraph (2),
any amount is paid to any medical savings ac-
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count of either spouse which is so excludable for
such year.
‘‘(4) PRORATION OF LIMITATION.—
‘‘(A) IN GENERAL.—The limitation under
paragraph (1) shall be the sum of the monthly
limitations for months during the taxable year
that the individual is an eligible individual if—
‘‘(i) such individual is not an eligible
individual for all months of the taxable
year,
‘‘(ii) the deductible under the high de-
ductible health plan covering such individ-
ual is not the same throughout such taxable
year, or
‘‘(iii) such limitation is determined
under paragraph (1)(B) for some but not
all months during such taxable year.
‘‘(B) MONTHLY LIMITATION.—The monthly
limitation for any month shall be an amount
equal to 1⁄12 of the limitation which would (but
for this paragraph and paragraph (3)) be deter-
mined under paragraph (1) if the facts and cir-
cumstances as of the first day of such month that
such individual is covered under a high deduct-
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ible health plan were true for the entire taxable
year.
‘‘(5) DENIAL OF DEDUCTION TO DEPENDENTS.—
No deduction shall be allowed under this section to
any individual with respect to whom a deduction
under section 151 is allowable to another taxpayer for
a taxable year beginning in the calendar year in
which such individual’s taxable year begins.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible indi-
vidual’ means, with respect to any month, any
individual—
‘‘(i) who is covered under a high de-
ductible health plan as of the 1st day of
such month, and
‘‘(ii) who is not, while covered under a
high deductible health plan, covered under
any health plan—
‘‘(I) which is not a high deduct-
ible health plan, and
‘‘(II) which provides coverage for
any benefit which is covered under the
high deductible health plan.
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‘‘(B) CERTAIN COVERAGE DISREGARDED.—
Subparagraph (A)(ii) shall be applied without
regard to—
‘‘(i) coverage for any benefit provided
by permitted insurance, and
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability,
dental care, vision care, or long-term care.
‘‘(2) HIGH
DEDUCTIBLE
HEALTH
PLAN.—The
term ‘high deductible health plan’ means a health
plan which—
‘‘(A) has an annual deductible limit for
each individual covered by the plan which is not
less than $1,500, and
‘‘(B) has an annual limit on the aggregate
amount of deductibles required to be paid with
respect to all individuals covered by the plan
which is not less than $3,000.
Such term does not include a health plan if substan-
tially all of its coverage is coverage described in para-
graph (1)(B).
‘‘(3) PERMITTED
INSURANCE.—The term ‘per-
mitted insurance’ means—
‘‘(A) Medicare supplemental insurance,
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‘‘(B) insurance if substantially all of the
coverage provided under such insurance relates
to—
‘‘(i) liabilities incurred under workers’
compensation laws,
‘‘(ii) tort liabilities,
‘‘(iii) liabilities relating to ownership
or use of property, or
‘‘(iv) such other similar liabilities as
the Secretary may specify by regulations,
‘‘(C) insurance for a specified disease or ill-
ness, and
‘‘(D) insurance paying a fixed amount per
day (or other period) of hospitalization.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of
this section—
‘‘(1) MEDICAL
SAVINGS
ACCOUNT.—The term
‘medical savings account’ means a trust created or or-
ganized in the United States exclusively for the pur-
pose of paying the qualified medical expenses of the
account holder, but only if the written governing in-
strument creating the trust meets the following re-
quirements:
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‘‘(A) Except in the case of a rollover con-
tribution described in subsection (f)(5), no con-
tribution will be accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) to the extent such contribution,
when added to previous contributions to the
trust for the calendar year, exceeds $4,000.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as de-
fined in section 816), or another person who
demonstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be com-
mingled with other property except in a common
trust fund or common investment fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder for
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medical care (as defined in section 213(d)) for
such individual, the spouse of such individual,
and any dependent (as defined in section 152) of
such individual, but only to the extent such
amounts are not compensated for by insurance
or otherwise.
‘‘(B) HEALTH INSURANCE MAY NOT BE PUR-
CHASED FROM ACCOUNT.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall not apply to any payment for insur-
ance.
‘‘(ii) EXCEPTIONS.—Clause (i) shall
not apply to any expense for coverage
under—
‘‘(I) a health plan during any pe-
riod of continuation coverage required
under any Federal law,
‘‘(II) a qualified long-term care
contract (as defined in section 7702B),
or
‘‘(III) a health plan during a pe-
riod in which the individual is receiv-
ing unemployment compensation under
any Federal or State law.
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‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the med-
ical savings account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers).
‘‘(B) Section 219(f)(3) (relating to time
when contributions deemed made).
‘‘(C) Except as provided in section 106(b),
section 219(f)(5) (relating to employer pay-
ments).
‘‘(D) Section 408(g) (relating to community
property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A medical savings account is
exempt from taxation under this subtitle unless such
account has ceased to be a medical savings account by
reason of paragraph (2) or (3). Notwithstanding the
preceding sentence, any such account is subject to the
taxes imposed by section 511 (relating to imposition
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of tax on unrelated business income of charitable, etc.
organizations).
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar to
the rules of paragraphs (2) and (4) of section 408(e)
shall apply to medical savings accounts, and any
amount treated as distributed under such rules shall
be treated as not used to pay qualified medical ex-
penses.
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL
EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is used exclusively to pay qualified medi-
cal expenses of any account holder (or any
spouse or dependent of the holder) shall not be
includible in gross income.
‘‘(B) TREATMENT
AFTER
DEATH
OF
AC-
COUNT HOLDER.—
‘‘(i) 
TREATMENT
IF
HOLDER
IS
SPOUSE.—If, after the death of the account
holder, the account holder’s interest is pay-
able to (or for the benefit of) the holder’s
spouse, the medical savings account shall be
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treated as if the spouse were the account
holder.
‘‘(ii) 
TREATMENT
IF
DESIGNATED
HOLDER IS NOT SPOUSE.—In the case of an
account holder’s interest in a medical sav-
ings account which is payable to (or for the
benefit of) any person other than such hold-
er’s spouse upon the death of such holder—
‘‘(I) such account shall cease to be
a medical savings account as of the
date of death, and
‘‘(II) an amount equal to the fair
market value of the assets in such ac-
count on such date shall be includible
if such person is not the estate of such
holder, in such person’s gross income
for the taxable year which includes
such date, or if such person is the es-
tate of such holder, in such holder’s
gross income for the last taxable year
of such holder.
‘‘(2) INCLUSION
OF
AMOUNTS
NOT
USED
FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
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which is not used exclusively to pay the qualified
medical expenses of the account holder or of the
spouse or dependents of such holder shall be in-
cluded in the gross income of such holder.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of the
account holder shall be treated as 1 account,
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(3) EXCESS
CONTRIBUTIONS
RETURNED
BE-
FORE DUE DATE OF RETURN.—Paragraph (2) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount under subsection (d)(1)(A)(ii) if—
‘‘(A) such distribution is received by the in-
dividual on or before the last day prescribed by
law (including extensions of time) for filing such
individual’s return for such taxable year, and
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‘‘(B) such distribution is accompanied by
the amount of net income attributable to such ex-
cess contribution.
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(4) PENALTY
FOR
DISTRIBUTIONS
NOT
USED
FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The tax imposed by
this chapter on the account holder for any tax-
able year in which there is a payment or dis-
tribution from a medical savings account of such
holder which is includible in gross income under
paragraph (2) shall be increased by 10 percent
of the amount which is so includible.
‘‘(B) 
EXCEPTION
FOR
DISABILITY
OR
DEATH.—Subparagraph (A) shall not apply if
the payment or distribution is made after the ac-
count holder becomes disabled within the mean-
ing of section 72(m)(7) or dies.
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER AGE 591⁄2.—Subparagraph (A) shall not
apply to any payment or distribution after the
date on which the account holder attains age
591⁄2.
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‘‘(5) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribution
if it meets the requirements of subparagraphs (A) and
(B).
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any amount paid or distributed
from a medical savings account to the account
holder to the extent the amount received is paid
into a medical savings account for the benefit of
such holder not later than the 60th day after the
day on which the holder receives the payment or
distribution.
‘‘(B) LIMITATION.—This paragraph shall
not apply to any amount described in subpara-
graph (A) received by an individual from a med-
ical savings account if, at any time during the
1-year period ending on the day of such receipt,
such individual received any other amount de-
scribed in subparagraph (A) from a medical sav-
ings account which was not includible in the in-
dividual’s gross income because of the applica-
tion of this paragraph.
‘‘(6) COORDINATION
WITH
MEDICAL
EXPENSE
DEDUCTION.—For 
purposes 
of 
determining 
the
amount of the deduction under section 213, any pay-
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ment or distribution out of a medical savings account
for qualified medical expenses shall not be treated as
an expense paid for medical care.
‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DI-
VORCE.—The transfer of an individual’s interest in a
medical savings account to an individual’s spouse or
former spouse under a divorce or separation instru-
ment described in subparagraph (A) of section
71(b)(2) shall not be considered a taxable transfer
made by such individual notwithstanding any other
provision of this subtitle, and such interest shall, after
such transfer, be treated as a medical savings account
with respect to which the spouse is the account holder.
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1996, each
dollar amount in subsection (b)(1), (c)(2), or
(d)(1)(A) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the medical care cost adjustment for
such calendar year.
If any increase under the preceding sentence is not a
multiple of $50, such increase shall be rounded to the
nearest multiple of $50.
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‘‘(2) MEDICAL
CARE
COST
ADJUSTMENT.—For
purposes of paragraph (1), the medical care cost ad-
justment for any calendar year is the percentage (if
any) by which—
‘‘(A) the medical care component of the
Consumer Price Index (as defined in section
1(f)(5)) for August of the preceding calendar
year, exceeds
‘‘(B) such component for August of 1995.
‘‘(h) REPORTS.—The Secretary may require the trustee
of a medical savings account to make such reports regarding
such account to the Secretary and to the account holder with
respect to contributions, distributions, and such other mat-
ters as the Secretary determines appropriate. The reports
required by this subsection shall be filed at such time and
in such manner and furnished to such individuals at such
time and in such manner as may be required by those regu-
lations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDIVID-
UAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 is amended by inserting after paragraph (18)
the following new paragraph:
‘‘(19) MEDICAL SAVINGS ACCOUNTS.—The deduc-
tion allowed by section 222.’’
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(c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO
MEDICAL SAVINGS ACCOUNTS.—
(1) EXCLUSION FROM INCOME TAX.—Section 106
(relating to contributions by employer to accident and
health plans), as amended by this Act, is amended—
(A) by adding at the end the following new
subsection:
‘‘(c) CONTRIBUTIONS
TO
MEDICAL
SAVINGS
AC-
COUNTS.—
‘‘(1) IN GENERAL.—In the case of an employee
who is an eligible individual, gross income does not
include amounts contributed by such employee’s em-
ployer to any medical savings account of such em-
ployee.
‘‘(2) COORDINATION WITH DEDUCTION LIMITA-
TION.—The amount excluded from the gross income of
an employee under this subsection for any taxable
year shall not exceed the limitation under section
222(b)(1) (determined without regard to this sub-
section) which is applicable to such employee for such
taxable year.
‘‘(3) NO CONSTRUCTIVE RECEIPT.—No amount
shall be included in the gross income of any employee
solely because the employee may choose between the
contributions referred to in paragraph (1) and em-
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ployer contributions to another health plan of the em-
ployer.
‘‘(4) SPECIAL
RULE
FOR
DEDUCTION
OF
EM-
PLOYER CONTRIBUTIONS.—Any employer contribution
to a medical savings account, if otherwise allowable
as a deduction under this chapter, shall be allowed
only for the taxable year in which paid.
‘‘(5) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘medical
savings account’ have the respective meanings given
to such terms by section 222’’, and
(B) by striking ‘‘subsection (b)’’ in sub-
section (a) and inserting ‘‘this subsection’’.
(2) EXCLUSION FROM WITHHOLDING TAX.—Sub-
section (a) of section 3401 is amended by striking
‘‘or’’ at the end of paragraph (19), by striking the pe-
riod at the end of paragraph (20) and inserting ‘‘;
or’’, and by inserting after paragraph (20) the follow-
ing new paragraph:
‘‘(21) any payment made to or for the benefit of
an employee if at the time of such payment it is rea-
sonable to believe that the employee will be able to ex-
clude such payment from income under section
106(b).’’
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‘‘(2) a medical savings account (within the
meaning of section 222(d)), or’’, and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of a
medical savings account (within the meaning of section
222(d)), the term ‘excess contributions’ means the sum of—
‘‘(1) the amount by which the amount contrib-
uted for the taxable year to the account exceeds the
amount which may be contributed to the account
under section 222(d)(1)(B)(ii) for such taxable year,
and
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by the
sum of distributions out of the account included in
gross income under section 222(f) (2) or (3) and the
excess (if any) of the maximum amount allowable as
a deduction under section 222 for the taxable year
over the amount contributed.
For purposes of this subsection, any contribution which is
distributed out of the medical savings account in a distribu-
tion to which section 222(f)(3) applies shall be treated as
an amount not contributed.’’
(g) TAX ON PROHIBITED TRANSACTIONS.—
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(1) Section 4975 (relating to tax on prohibited
transactions) is amended by adding at the end of sub-
section (c) the following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
222(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect to
such transaction, the account ceases to be a medical
savings account by reason of the application of sec-
tion 222(e)(2) to such account.’’
(2) Paragraph (1) of section 4975(e) is amended
to read as follows:
‘‘(1) PLAN.—For purposes of this section, the
term ‘plan’ means—
‘‘(A) a trust described in section 401(a)
which forms a part of a plan, or a plan de-
scribed in section 403(a), which trust or plan is
exempt from tax under section 501(a),
‘‘(B) an individual retirement account de-
scribed in section 408(a),
‘‘(C) an individual retirement annuity de-
scribed in section 408(b),
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‘‘(D) a medical savings account described in
section 220(d), or
‘‘(E) a trust, plan, account, or annuity
which, at any time, has been determined by the
Secretary to be described in any preceding sub-
paragraph of this paragraph.’’
(h) 
FAILURE
TO
PROVIDE
REPORTS
ON
MEDICAREPLUS MSA’S.—
(1) Subsection (a) of section 6693 (relating to
failure to provide reports on individual retirement
accounts or annuities) is amended to read as follows:
‘‘(a) REPORTS.—
‘‘(1) IN GENERAL.—If a person required to file
a report under a provision referred to in paragraph
(2) fails to file such report at the time and in the
manner required by such provision, such person shall
pay a penalty of $50 for each failure unless it is
shown that such failure is due to reasonable cause.
‘‘(2) PROVISIONS.—The provisions referred to in
this paragraph are—
‘‘(A) subsections (i) and (l) of section 408
(relating to individual retirement plans), and
‘‘(B) section 222(h) (relating to medical
savings accounts).’’
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(i) EXCEPTION FROM CAPITALIZATION OF POLICY AC-
QUISITION
EXPENSES.—Subparagraph (B) of section
848(e)(1) (defining specified insurance contract) is amend-
ed by striking ‘‘and’’ at the end of clause (ii), by striking
the period at the end of clause (iii) and inserting ‘‘, and’’,
and by adding at the end the following new clause:
‘‘(iv) any contract which is a medical
savings account (as defined in section
222(d)).’’.
(j) 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:
‘‘Sec. 222. Medical savings accounts.
‘‘Sec. 223. Cross reference.’’
(k) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
CHAPTER 3—INCREASE IN DEDUCTION
FOR HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INDIVIDUALS
SEC. 11068. INCREASE IN DEDUCTION FOR HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l) is
amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—
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‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is an employee within the meaning
of section 401(c)(1), there shall be allowed as a
deduction under this section an amount equal to
the applicable percentage of the amount paid
during the taxable year for insurance which con-
stitutes medical care for the taxpayer, his spouse,
and dependents.
‘‘(B) APPLICABLE PERCENTAGE.—For pur-
poses of subparagraph (A), the applicable per-
centage shall be determined under the following
table:
The applicable
‘‘For taxable years beginning in
calendar year—
percentage is—
1996 or 1997 ..................................................................................
1998 or 1999 ..................................................................................
2000 or 2001 ..................................................................................
2002 or thereafter ..........................................................................
50.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
Subtitle D—Estate and Gift
Provisions
SEC. 11071. COST-OF-LIVING ADJUSTMENTS RELATING TO
ESTATE AND GIFT TAX PROVISIONS.
(a) INCREASE IN UNIFIED ESTATE AND GIFT TAX
CREDIT.—
(1) ESTATE TAX CREDIT.—
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(A) Subsection (a) of section 2010 (relating
to unified credit against estate tax) is amended
by striking ‘‘$192,800’’ and inserting ‘‘the appli-
cable credit amount’’.
(B) Section 2010 is amended by redesignat-
ing subsection (c) as subsection (d) and by in-
serting after subsection (b) the following new
subsection:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes of
this section—
‘‘(1) 
IN
GENERAL.—The 
applicable 
credit
amount is the amount of the tentative tax which
would be determined under the rate schedule set forth
in section 2001(c) if the amount with respect to which
such tentative tax is to be computed were the applica-
ble exclusion amount determined in accordance with
the following table:
‘‘In the case of estates of decedents
The applicable exclusion
dying, and gifts made, during:
amount is:
1996 ............................................................................
$625,000
1997 ............................................................................
$650,000
1998 ............................................................................
$675,000
1999 ............................................................................
$700,000
2000 ............................................................................
$725,000
2001 or thereafter .......................................................
$750,000.
‘‘(2) COST-OF-LIVING
ADJUSTMENTS.—In the
case of any decedent dying, and gift made, in a cal-
endar year after 2001, the $750,000 amount set forth
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in paragraph (1) shall be increased by an amount
equal to—
‘‘(A) $750,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 2000’ for
‘calendar year 1992’ in subparagraph (B) there-
of.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount shall
be rounded to the nearest multiple of $10,000.’’
(C) Paragraph (1) of section 6018(a) is
amended by striking ‘‘$600,000’’ and inserting
‘‘the applicable exclusion amount in effect under
section 2010(c) (as adjusted under paragraph (2)
thereof) for the calendar year which includes the
date of death’’.
(D) Paragraph (2) of section 2001(c) is
amended by striking ‘‘$21,040,000’’ and insert-
ing ‘‘the amount at which the average tax rate
under this section is 55 percent’’.
(E) Subparagraph (A) of section 2102(c)(3)
is amended by striking ‘‘$192,800’’ and inserting
‘‘the applicable credit amount in effect under sec-
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tion 2010(c) for the calendar year which includes
the date of death’’.
(2) UNIFIED GIFT TAX CREDIT.—Paragraph (1)
of section 2505(a) is amended by striking ‘‘$192,800’’
and inserting ‘‘the applicable credit amount in effect
under section 2010(c) for such calendar year’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to the estates of dece-
dents dying, and gifts made, after December 31, 1995.
(b) ALTERNATE VALUATION OF CERTAIN FARM, ETC.,
REAL PROPERTY.—Subsection (a) of section 2032A is
amended by adding at the end the following new paragraph:
‘‘(3) INFLATION ADJUSTMENT.—In the case of es-
tates of decedents dying in a calendar year after
2000, the $750,000 amount contained in paragraph
(2) shall be increased by an amount equal to—
‘‘(A) $750,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1999’ for
‘calendar year 1992’ in subparagraph (B) there-
of.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount shall
be rounded to the nearest multiple of $10,000.’’
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(c) ANNUAL GIFT TAX EXCLUSION.—Subsection (b) of
section 2503 is amended—
(1) by striking the subsection heading and in-
serting the following:
‘‘(b) EXCLUSIONS FROM GIFTS.—
‘‘(1) IN GENERAL.—’’,
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new para-
graph:
‘‘(2) INFLATION
ADJUSTMENT.—In the case of
gifts made in a calendar year after 2000, the $10,000
amount contained in paragraph (1) shall be increased
by an amount equal to—
‘‘(A) $10,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1999’ for
‘calendar year 1992’ in subparagraph (B) there-
of.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $1,000, such amount shall
be rounded to the nearest multiple of $1,000.’’
(d) EXEMPTION FROM GENERATION-SKIPPING TAX.—
Section 2631 (relating to GST exemption) is amended by
adding at the end the following new subsection:
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‘‘(c) INFLATION ADJUSTMENT.—In the case of an indi-
vidual who dies in any calendar year after 2000, the
$1,000,000 amount contained in subsection (a) shall be in-
creased by an amount equal to—
‘‘(1) $1,000,000, multiplied by
‘‘(2) the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year by sub-
stituting ‘calendar year 1999’ for ‘calendar year
1992’ in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is
not a multiple of $10,000, such amount shall be rounded
to the nearest multiple of $10,000.’’
(e) AMOUNT OF TAX ELIGIBLE FOR 4 PERCENT IN-
TEREST RATE ON EXTENSION OF TIME FOR PAYMENT OF
ESTATE TAX ON CLOSELY HELD BUSINESS.—
(1) Subparagraph (A) of section 6601(j)(2) is
amended by striking ‘‘$345,800’’ and inserting ‘‘the
applicable limitation amount’’.
(2) Subsection (j) of section 6601 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new para-
graph:
‘‘(3) APPLICABLE LIMITATION AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (2), the applicable limitation amount is
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the amount of the tentative tax which would be
determined under the rate schedule set forth in
section 2001(c) if the amount with respect to
which such tentative tax is to be computed were
$1,000,000.
‘‘(B) INFLATION ADJUSTMENT.—In the case
of estates of decedents dying in a calendar year
after 2000, the $1,000,000 amount contained in
subparagraph (A) shall be increased by an
amount equal to—
‘‘(i) $1,000,000, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such cal-
endar year by substituting ‘calendar year
1999’ for ‘calendar year 1992’ in subpara-
graph (B) thereof.
If any amount as adjusted under the preceding
sentence is not a multiple of $10,000, such
amount shall be rounded to the nearest multiple
of $10,000.’’
SEC. 11072. FAMILY-OWNED BUSINESS EXCLUSION.
(a) IN GENERAL.—Part III of subchapter A of chapter
11 (relating to gross estate) is amended by inserting after
section 2033 the following new section:
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‘‘SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.
‘‘(a) IN GENERAL.—In the case of an estate of a dece-
dent to which this section applies, the value of the gross
estate shall not include the lesser of—
‘‘(1) the adjusted value of the qualified family-
owned business interests of the decedent otherwise in-
cludible in the estate, or
‘‘(2) the sum of—
‘‘(A) $1,000,000, plus
‘‘(B) 50 percent of the excess (if any) of the
adjusted value of such interests over $1,000,000,
but not over $2,500,000.
‘‘(b) ESTATES TO WHICH SECTION APPLIES.—
‘‘(1) IN GENERAL.—This section shall apply to
an estate if—
‘‘(A) the decedent was (at the date of the de-
cedent’s death) a citizen or resident of the United
States,
‘‘(B) the sum of—
‘‘(i) the adjusted value of the qualified
family-owned business interests described in
paragraph (2), plus
‘‘(ii) the amount of the gifts of such in-
terests determined under paragraph (3),
exceeds 50 percent of the adjusted gross estate,
and
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‘‘(C) during the 8-year period ending on the
date of the decedent’s death there have been peri-
ods aggregating 5 years or more during which—
‘‘(i) such interests were owned by the
decedent or a member of the decedent’s fam-
ily, and
‘‘(ii) there was material participation
(within the meaning of section 2032A(e)(6))
by the decedent or a member of the dece-
dent’s family in the operation of the busi-
ness to which such interests relate.
‘‘(2) INCLUDIBLE
QUALIFIED
FAMILY-OWNED
BUSINESS
INTERESTS.—The qualified family-owned
business interests described in this paragraph are the
interests which—
‘‘(A) are included in determining the value
of the gross estate (without regard to this sec-
tion), and
‘‘(B) are acquired by any qualified heir
from, or passed to any qualified heir from, the
decedent 
(within 
the 
meaning 
of 
section
2032A(e)(9)).
‘‘(3) INCLUDIBLE
GIFTS
OF
INTERESTS.—The
amount of the gifts of qualified family-owned business
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interests determined under this paragraph is the ex-
cess of—
‘‘(A) the sum of—
‘‘(i) the amount of such gifts from the
decedent to members of the decedent’s family
taken 
into 
account 
under 
subsection
2001(b)(1)(B), plus
‘‘(ii) the amount of such gifts otherwise
excluded under section 2503(b),
to the extent such interests are continuously held
by members of such family (other than the dece-
dent’s spouse) between the date of the gift and the
date of the decedent’s death, over
‘‘(B) the amount of such gifts from the dece-
dent to members of the decedent’s family other-
wise included in the gross estate.
‘‘(c) ADJUSTED GROSS ESTATE.—For purposes of this
section, the term ‘adjusted gross estate’ means the value of
the gross estate (determined without regard to this sec-
tion)—
‘‘(1) reduced by any amount deductible under
paragraph (3) or (4) of section 2053(a), and
‘‘(2) increased by the excess of—
‘‘(A) the sum of—
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‘‘(i) the amount of gifts determined
under subsection (b)(3), plus
‘‘(ii) the amount (if more than de
minimis) of other transfers from the dece-
dent to the decedent’s spouse (at the time of
the transfer) within 10 years of the date of
the decedent’s death, plus
‘‘(iii) the amount of other gifts (not in-
cluded under clause (i) or (ii)) from the de-
cedent within 3 years of such date, other
than gifts to members of the decedent’s fam-
ily 
otherwise 
excluded 
under 
section
2503(b), over
‘‘(B) the sum of the amounts described in
clauses (i), (ii), and (iii) of subparagraph (A)
which are otherwise includible in the gross estate.
For purposes of the preceding sentence, the Secretary may
provide that de minimis gifts to persons other than members
of the decedent’s family shall not be taken into account.
‘‘(d) ADJUSTED VALUE OF THE QUALIFIED FAMILY-
OWNED BUSINESS INTERESTS.—For purposes of this sec-
tion, the adjusted value of any qualified family-owned busi-
ness interest is the value of such interest for purposes of
this chapter (determined without regard to this section), re-
duced by the excess of—
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‘‘(1) any amount deductible under paragraph (3)
or (4) of section 2053(a), over
‘‘(2) the sum of—
‘‘(A) any indebtedness on any qualified res-
idence of the decedent the interest on which is de-
ductible under section 163(h)(3), plus
‘‘(B) any indebtedness to the extent the tax-
payer establishes that the proceeds of such in-
debtedness were used for the payment of edu-
cational and medical expenses of the decedent,
the decedent’s spouse, or the decedent’s depend-
ents (within the meaning of section 152), plus
‘‘(C) any indebtedness not described in
clause (i) or (ii), to the extent such indebtedness
does not exceed $10,000.
‘‘(e) QUALIFIED FAMILY-OWNED BUSINESS INTER-
EST.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘qualified family-owned business interest’
means—
‘‘(A) an interest as a proprietor in a trade
or business carried on as a proprietorship, or
‘‘(B) an interest in an entity carrying on
a trade or business, if—
‘‘(i) at least—
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‘‘(I) 50 percent of such entity is
owned (directly or indirectly) by the
decedent and members of the decedent’s
family,
‘‘(II) 70 percent of such entity is
so owned by members of 2 families, or
‘‘(III) 90 percent of such entity is
so owned by members of 3 families,
and
‘‘(ii) for purposes of subclause (II) or
(III) of clause (i), at least 30 percent of
such entity is so owned by the decedent and
members of the decedent’s family.
‘‘(2) LIMITATION.—Such term shall not in-
clude—
‘‘(A) any interest in a trade or business the
principal place of business of which is not lo-
cated in the United States,
‘‘(B) any interest in an entity, if the stock
or debt of such entity or a controlled group (as
defined in section 267(f)(1)) of which such entity
was a member was readily tradable on an estab-
lished securities market or secondary market (as
defined by the Secretary) at any time within 3
years of the date of the decedent’s death,
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‘‘(C) any interest in a trade or business not
described in section 542(c)(2), if more than 35
percent of the adjusted ordinary gross income of
such trade or business for the taxable year which
includes the date of the decedent’s death would
qualify as personal holding company income (as
defined in section 543(a)),
‘‘(D) that portion of an interest in a trade
or business that is attributable to—
‘‘(i) cash or marketable securities, or
both, in excess of the reasonably expected
day-to-day working capital needs of such
trade or business, and
‘‘(ii) any other assets of the trade or
business (other than assets used in the ac-
tive conduct of a trade or business described
in section 542(c)(2)), the income of which is
described in section 543(a) or in subpara-
graph (B), (C), (D), or (E) of section
954(c)(1) (determined by substituting ‘trade
or business’ for ‘controlled foreign corpora-
tion’).
‘‘(3) RULES REGARDING OWNERSHIP.—
‘‘(A) OWNERSHIP OF ENTITIES.—For pur-
poses of paragraph (1)(B)—
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‘‘(i) CORPORATIONS.—Ownership of a
corporation shall be determined by the hold-
ing of stock possessing the appropriate per-
centage of the total combined voting power
of all classes of stock entitled to vote and the
appropriate percentage of the total value of
shares of all classes of stock.
‘‘(ii) PARTNERSHIPS.—Ownership of a
partnership shall be determined by the own-
ing of the appropriate percentage of the
capital interest in such partnership.
‘‘(B) OWNERSHIP OF TIERED ENTITIES.—
For purposes of this section, if by reason of hold-
ing an interest in a trade or business, a dece-
dent, any member of the decedent’s family, any
qualified heir, or any member of any qualified
heir’s family is treated as holding an interest in
any other trade or business—
‘‘(i) such ownership interest in the
other trade or business shall be disregarded
in determining if the ownership interest in
the first trade or business is a qualified
family-owned business interest, and
‘‘(ii) this section shall be applied sepa-
rately in determining if such interest in
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any other trade or business is a qualified
family-owned business interest.
‘‘(C) INDIVIDUAL OWNERSHIP RULES.—For
purposes of this section, an interest owned, di-
rectly or indirectly, by or for an entity described
in paragraph (1)(B) shall be considered as being
owned proportionately by or for the entity’s
shareholders, partners, or beneficiaries. A person
shall be treated as a beneficiary of any trust
only if such person has a present interest in such
trust.
‘‘(f) TAX TREATMENT OF FAILURE TO MATERIALLY
PARTICIPATE IN BUSINESS OR DISPOSITIONS OF INTER-
ESTS.—
‘‘(1) IN GENERAL.—There is imposed an addi-
tional estate tax if, within 10 years after the date of
the decedent’s death and before the date of the quali-
fied heir’s death—
‘‘(A) the material participation require-
ments described in section 2032A(c)(6)(B) are
not met with respect to the qualified family-
owned business interest which was acquired (or
passed) from the decedent,
‘‘(B) the qualified heir disposes of any por-
tion of a qualified family-owned business interest
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(other than by a disposition to a member of the
qualified heir’s family or through a qualified
conservation contribution under section 170(h)),
‘‘(C) the qualified heir loses United States
citizenship (within the meaning of section 877)
or with respect to whom an event described in
subparagraph (A) or (B) of section 877(e)(1) oc-
curs, and such heir does not comply with the re-
quirements of subsection (g), or
‘‘(D) the principal place of business of a
trade or business of the qualified family-owned
business interest ceases to be located in the Unit-
ed States.
‘‘(2) ADDITIONAL ESTATE TAX.—
‘‘(A) IN GENERAL.—The amount of the ad-
ditional estate tax imposed by paragraph (1)
shall be equal to—
‘‘(i) the applicable percentage of the
adjusted tax difference attributable to the
qualified family-owned business interest (as
determined under rules similar to the rules
of section 2032A(c)(2)(B)), plus
‘‘(ii) interest on the amount deter-
mined 
under 
clause 
(i) 
at 
the
underpayment rate established under sec-
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tion 6621 for the period beginning on the
date the estate tax liability was due under
this chapter and ending on the date such
additional estate tax is due.
‘‘(B) APPLICABLE PERCENTAGE.—For pur-
poses of this paragraph, the applicable percent-
age shall be determined under the following table:
‘‘If the event described in para-
graph
(1) occurs in the following year
of
The applicable
material participation:
percentage is:
1 through 6 .....................................................................................
100
7 ......................................................................................................
8 ......................................................................................................
9 ......................................................................................................
10 ....................................................................................................
20.
‘‘(g) SECURITY
REQUIREMENTS
FOR
NONCITIZEN
QUALIFIED HEIRS.—
‘‘(1) IN GENERAL.—Except upon the application
of subparagraph (F) or (M) of subsection (h)(3), if a
qualified heir is not a citizen of the United States,
any interest under this section passing to or acquired
by such heir (including any interest held by such heir
at a time described in subsection (f)(1)(C)) shall be
treated as a qualified family-owned business interest
only if the interest passes or is acquired (or is held)
in a qualified trust.
‘‘(2) QUALIFIED
TRUST.—The term ‘qualified
trust’ means a trust—
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‘‘(A) which is organized under, and gov-
erned by, the laws of the United States or a
State, and
‘‘(B) except as otherwise provided in regula-
tions, with respect to which the trust instrument
requires that at least 1 trustee of the trust be an
individual citizen of the United States or a do-
mestic corporation.
‘‘(h) OTHER DEFINITIONS AND APPLICABLE RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
HEIR.—The term ‘qualified
heir’—
‘‘(A) has the meaning given to such term by
section 2032A(e)(1), and
‘‘(B) includes any active employee of the
trade or business to which the qualified family-
owned business interest relates if such employee
has been employed by such trade or business for
a period of at least 10 years before the date of
the decedent’s death.
‘‘(2) MEMBER OF THE FAMILY.—The term ‘mem-
ber of the family’ has the meaning given to such term
by section 2032A(e)(2).
‘‘(3) APPLICABLE RULES.—Rules similar to the
following rules shall apply:
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‘‘(A) Section 2032A(b)(4) (relating to dece-
dents who are retired or disabled).
‘‘(B) Section 2032A(b)(5) (relating to spe-
cial rules for surviving spouses).
‘‘(C) Section 2032A(c)(2)(D) (relating to
partial dispositions).
‘‘(D) Section 2032A(c)(3) (relating to only
1 additional tax imposed with respect to any 1
portion).
‘‘(E) Section 2032A(c)(4) (relating to due
date).
‘‘(F) Section 2032A(c)(5) (relating to liabil-
ity for tax; furnishing of bond).
‘‘(G) Section 2032A(c)(7) (relating to no
tax if use begins within 2 years; active manage-
ment by eligible qualified heir treated as mate-
rial participation).
‘‘(H) Section 2032A(e)(10) (relating to com-
munity property).
‘‘(I) Section 2032A(e)(14) (relating to treat-
ment of replacement property acquired in section
1031 or 1033 transactions).
‘‘(J) Section 2032A(f) (relating to statute of
limitations).
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‘‘(K) Section 6166(b)(3) (relating to farm-
houses and certain other structures taken into
account).
‘‘(L) Subparagraphs (B), (C), and (D) of
section 6166(g)(1) (relating to acceleration of
payment).
‘‘(M) Section 6324B (relating to special lien
for additional estate tax).
‘‘(4) COORDINATION WITH OTHER ESTATE TAX
BENEFITS.—If there is a reduction in the value of the
gross estate under this section—
‘‘(A) the dollar limitation applicable under
section 2032A(a)(2), and
‘‘(B) the $1,000,000 amount under section
6601(j)(3) (as adjusted),
shall each be reduced (but not below zero) by the
amount of such reduction.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part III of subchapter A of chapter 11 is amended by insert-
ing after the item relating to section 2033 the following new
item:
‘‘Sec. 2033A. Family-owned business exclusion.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 1995.
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SEC. 11073. TREATMENT OF LAND SUBJECT TO A QUALI-
FIED CONSERVATION EASEMENT.
(a) ESTATE TAX WITH RESPECT TO LAND SUBJECT
TO A QUALIFIED CONSERVATION EASEMENT.—Section 2031
(relating to the definition of gross estate) is amended by
redesignating subsection (c) as subsection (d) and by insert-
ing after subsection (b) the following new subsection:
‘‘(c) ESTATE TAX WITH RESPECT TO LAND SUBJECT
TO A QUALIFIED CONSERVATION EASEMENT.—
‘‘(1) IN
GENERAL.—If the executor makes the
election described in paragraph (4), then, except as
otherwise provided in this subsection, there shall be
excluded from the gross estate the applicable percent-
age of the lesser of—
‘‘(A) the value of land subject to a qualified
conservation easement, reduced by the amount of
any deduction under section 2055(f) with respect
to such land, or
‘‘(B) the excess (if any) of $5,000,000 over
the lesser of—
‘‘(i) $2,500,000, or
‘‘(ii) the adjusted value of the qualified
family-owned business interests of the dece-
dent determined under section 2033A.
‘‘(2) APPLICABLE
PERCENTAGE.—For purposes
of paragraph (1), the term ‘applicable percentage’
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means 40 percent reduced (but not below zero) by 2
percentage points for each percentage point (or frac-
tion thereof) by which the value of the qualified con-
servation easement is less than 30 percent of the value
of the land (determined without regard to the value
of such easement and reduced by the value of any re-
tained development right (as defined in paragraph
(4)).
‘‘(3) TREATMENT OF CERTAIN INDEBTEDNESS.—
‘‘(A) IN GENERAL.—The exclusion provided
in paragraph (1) shall not apply to the extent
that the land is debt-financed property.
‘‘(B) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) DEBT-FINANCED PROPERTY.—The
term ‘debt-financed property’ means any
property with respect to which there is an
acquisition indebtedness (as defined in
clause (ii)) on the date of the decedent’s
death.
‘‘(ii) ACQUISITION
INDEBTEDNESS.—
The term ‘acquisition indebtedness’ means,
with respect to debt-financed property, the
unpaid amount of—
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‘‘(I) the indebtedness incurred by
the donor in acquiring such property,
‘‘(II) the indebtedness incurred be-
fore the acquisition of such property if
such indebtedness would not have been
incurred but for such acquisition,
‘‘(III) the indebtedness incurred
after the acquisition of such property if
such indebtedness would not have been
incurred but for such acquisition and
the incurrence of such indebtedness was
reasonably foreseeable at the time of
such acquisition, and
‘‘(IV) the extension, renewal, or
refinancing of an acquisition indebted-
ness.
‘‘(4) TREATMENT OF RETAINED DEVELOPMENT
RIGHT.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to the value of any development right
retained by the donor in the conveyance of a
qualified conservation easement.
‘‘(B) TERMINATION OF RETAINED DEVELOP-
MENT RIGHT.—If every person in being who has
an interest (whether or not in possession) in the
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land executes an agreement to extinguish perma-
nently some or all of any development rights (as
defined in subparagraph (D)) retained by the
donor on or before the date for filing the return
of the tax imposed by section 2001, then any tax
imposed by section 2001 shall be reduced accord-
ingly. Such agreement shall be filed with the re-
turn of the tax imposed by section 2001. The
agreement shall be in such form as the Secretary
shall prescribe.
‘‘(C) ADDITIONAL TAX.—Any failure to im-
plement the agreement described in subpara-
graph (B) not later than the earlier of—
‘‘(i) the date which is 2 years after the
date of the decedent’s death, or
‘‘(ii) the date of the sale of such land
subject to the qualified conservation ease-
ment,
shall result in the imposition of an additional
tax in the amount of the tax which would have
been due on the retained development rights sub-
ject to such agreement. Such additional tax shall
be due and payable on the last day of the 6th
month following such date.
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‘‘(D) DEVELOPMENT RIGHT DEFINED.—For
purposes of this paragraph, the term ‘develop-
ment right’ means any right to use the land sub-
ject to the qualified conservation easement in
which such right is retained for any commercial
purpose which is not subordinate to and directly
supportive of the use of such land as a farm for
farming purposes (within the meaning of section
6420(c)).
‘‘(4) ELECTION.—The election under this sub-
section shall be made on the return of the tax imposed
by section 2001. Such an election, once made, shall be
irrevocable.
‘‘(5) CALCULATION OF ESTATE TAX DUE.—An
executor making the election described in paragraph
(4) shall, for purposes of calculating the amount of
tax imposed by section 2001, include the value of any
development right (as defined in paragraph (3)) re-
tained by the donor in the conveyance of such quali-
fied conservation easement. The computation of tax
on any retained development right prescribed in this
paragraph shall be done in such manner and on such
forms as the Secretary shall prescribe.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
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‘‘(A) LAND SUBJECT TO A QUALIFIED CON-
SERVATION EASEMENT.—The term ‘land subject
to a qualified conservation easement’ means
land—
‘‘(i) which is located—
‘‘(I) in or within 25 miles of an
area which, on the date of the dece-
dent’s death, is a metropolitan area (as
defined by the Office of Management
and Budget),
‘‘(II) in or within 25 miles of an
area which, on the date of the dece-
dent’s death, is a national park or wil-
derness area designated as part of the
National Wilderness Preservation Sys-
tem (unless it is determined by the
Secretary that land in or within 25
miles of such a park or wilderness area
is not under significant development
pressure), or
‘‘(III) in or within 10 miles of an
area which, on the date of the dece-
dent’s death, is an Urban National
Forest (as designated by the Forest
Service),
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‘‘(ii) which was owned by the decedent
or a member of the decedent’s family at all
times during the 3-year period ending on
the date of the decedent’s death, and
‘‘(iii) with respect to which a qualified
conservation easement has been made by the
decedent or a member of the decedent’s fam-
ily.
‘‘(B) 
QUALIFIED
CONSERVATION
EASE-
MENT.—The term ‘qualified conservation ease-
ment’ means a qualified conservation contribu-
tion (as defined in section 170(h)(1)) of a quali-
fied real property interest (as defined in section
170(h)(2)(C)), except that clause (iv) of section
170(h)(4)(A) shall not apply, and the restriction
on the use of such interest described in section
170(h)(2)(C) shall include a prohibition on com-
mercial recreational activity.
‘‘(C) MEMBER OF FAMILY.—The term ‘mem-
ber of the decedent’s family’ means any member
of the family (as defined in section 2032A(e)(2))
of the decedent.
‘‘(7) APPLICATION OF THIS SECTION TO INTER-
ESTS
IN
PARTNERSHIPS, 
CORPORATIONS, 
AND
TRUSTS.—This section shall apply to an interest in
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a partnership, corporation, or trust if at least 30 per-
cent of the entity is owned (directly or indirectly) by
the decedent, as determined under the rules described
in section 2033A(e)(3).’’.
(b) CARRYOVER BASIS.—Section 1014(a) (relating to
basis of property acquired from a decedent) is amended by
striking the period at the end of paragraph (3) and insert-
ing ‘‘, or’’ and by adding after paragraph (3) the following
new paragraph:
‘‘(4) to the extent of the applicability of the ex-
clusion described in section 2031(c), the basis in the
hands of the decedent.’’.
(c) QUALIFIED CONSERVATION CONTRIBUTION IS NOT
A DISPOSITION.—Subsection (c) of section 2032A (relating
to alternative valuation method) is amended by adding at
the end the following new paragraph:
‘‘(8) QUALIFIED
CONSERVATION
CONTRIBUTION
IS NOT A DISPOSITION.—A qualified conservation con-
tribution (as defined in section 170(h)) by gift or oth-
erwise shall not be deemed a disposition under sub-
section (c)(1)(A).’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 1995.
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SEC. 11074. EXPANSION OF EXCEPTION FROM GENERATION-
SKIPPING TRANSFER TAX FOR TRANSFERS TO
INDIVIDUALS WITH DECEASED PARENTS.
(a) IN GENERAL.—Section 2651 (relating to genera-
tion assignment) is amended by redesignating subsection (e)
as subsection (f), and by inserting after subsection (d) the
following new subsection:
‘‘(e) SPECIAL RULE FOR PERSONS WITH A DECEASED
PARENT.—
‘‘(1) IN GENERAL.—For purposes of determining
whether any transfer is a generation-skipping trans-
fer, if—
‘‘(A) an individual is a descendant of a
parent of the transferor (or the transferor’s
spouse or former spouse), and
‘‘(B) such individual’s parent who is a lin-
eal descendant of the parent of the transferor (or
the transferor’s spouse or former spouse) is dead
at the time the transfer (from which an interest
of such individual is established or derived) is
subject to a tax imposed by chapter 11 or 12
upon the transferor (and if there shall be more
than 1 such time, then at the earliest such time),
such individual shall be treated as if such individual
were a member of the generation which is 1 genera-
tion below the lower of the transferor’s generation or
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the generation assignment of the youngest living an-
cestor of such individual who is also a descendant of
the parent of the transferor (or the transferor’s spouse
or former spouse), and the generation assignment of
any descendant of such individual shall be adjusted
accordingly.
‘‘(2) LIMITED APPLICATION OF SUBSECTION TO
COLLATERAL HEIRS.—This subsection shall not apply
with respect to a transfer to any individual who is
not a lineal descendant of the transferor (or the trans-
feror’s spouse or former spouse) if, at the time of the
transfer, such transferor has any living lineal de-
scendant.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 2612(c) (defining direct skip) is
amended by striking paragraph (2) and by redesig-
nating paragraph (3) as paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is
amended by striking ‘‘section 2651(e)(2)’’ and insert-
ing ‘‘section 2651(f)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to terminations, distributions, and
transfers occurring after December 31, 1994.
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SEC. 11075. EXTENSION OF TREATMENT OF CERTAIN RENTS
UNDER SECTION 2032A TO LINEAL DESCEND-
ANTS.
(a) GENERAL
RULE.—Paragraph (7) of section
2032A(c) (relating to special rules for tax treatment of dis-
positions and failures to use for qualified use) is amended
by adding at the end the following new subparagraph:
‘‘(E) CERTAIN RENTS TREATED AS QUALI-
FIED USE.—For purposes of this subsection, a
surviving spouse or lineal descendant of the dece-
dent shall not be treated as failing to use quali-
fied real property in a qualified use solely be-
cause such spouse or descendant rents such prop-
erty to a member of the family of such spouse or
descendant on a net cash basis. For purposes of
the preceding sentence, a legally adopted child of
an individual shall be treated as the child of
such individual by blood.’’.
(b) 
CONFORMING
AMENDMENT.—Section
2032A(b)(5)(A) is amended by striking out the last sentence.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply with respect to leases entered into after
December 31, 1995.
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Subtitle E—Extension of Expiring
Provisions
CHAPTER 1—TEMPORARY EXTENSIONS
SEC. 11111. WORK OPPORTUNITY TAX CREDIT.
(a) AMOUNT OF CREDIT.—Subsection (a) of section 51
(relating to amount of credit) is amended by striking ‘‘40
percent’’ and inserting ‘‘35 percent’’.
(b) MEMBERS OF TARGETED GROUPS.—Subsection (d)
of section 51 is amended to read as follows:
‘‘(d) MEMBERS OF TARGETED GROUPS.—For purposes
of this subpart—
‘‘(1) IN GENERAL.—An individual is a member
of a targeted group if such individual is—
‘‘(A) a qualified IV–A recipient,
‘‘(B) a qualified veteran,
‘‘(C) a qualified ex-felon,
‘‘(D) a high-risk youth,
‘‘(E) a vocational rehabilitation referral, or
‘‘(F) a qualified summer youth employee.
‘‘(2) QUALIFIED IV–A RECIPIENT.—
‘‘(A) IN GENERAL.—The term ‘qualified IV–
A recipient’ means any individual who is cer-
tified by the designated local agency as being a
member of a family receiving assistance under a
IV–A program for at least a 9-month period end-
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ing during the 9-month period ending on the
hiring date.
‘‘(B) IV–A PROGRAM.—For purposes of this
paragraph, the term ‘IV–A program’ means any
program providing assistance under a State
plan approved under part A of title IV of the So-
cial Security Act (relating to assistance for
needy families with minor children) and any
successor of such program.
‘‘(3) QUALIFIED VETERAN.—
‘‘(A) IN GENERAL.—The term ‘qualified vet-
eran’ means any veteran who is certified by the
designated local agency as being—
‘‘(i) a member of a family receiving as-
sistance under a IV–A program (as defined
in paragraph (2)(B)) for at least a 9-month
period ending during the 12-month period
ending on the hiring date, or
‘‘(ii) a member of a family receiving
assistance under a food stamp program
under the Food Stamp Act of 1977 for at
least a 3-month period ending during the
12-month period ending on the hiring date.
‘‘(B) VETERAN.—For purposes of subpara-
graph (A), the term ‘veteran’ means any individ-
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ual who is certified by the designated local agen-
cy as—
‘‘(i)(I) having served on active duty
(other than active duty for training) in the
Armed Forces of the United States for a pe-
riod of more than 180 days, or
‘‘(II) having been discharged or re-
leased from active duty in the Armed Forces
of the United States for a service-connected
disability, and
‘‘(ii) not having any day during the
60-day period ending on the hiring date
which was a day of extended active duty in
the Armed Forces of the United States.
For purposes of clause (ii), the term ‘extended
active duty’ means a period of more than 90
days during which the individual was on active
duty (other than active duty for training).
‘‘(4) QUALIFIED EX-FELON.—The term ‘qualified
ex-felon’ means any individual who is certified by the
designated local agency—
‘‘(A) as having been convicted of a felony
under any statute of the United States or any
State,
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‘‘(B) as having a hiring date which is not
more than 1 year after the last date on which
such individual was so convicted or was released
from prison, and
‘‘(C) as being a member of a family which
had an income during the 6 months immediately
preceding the earlier of the month in which such
income determination occurs or the month in
which the hiring date occurs, which, on an an-
nual basis, would be 70 percent or less of the Bu-
reau of Labor Statistics lower living standard.
Any determination under subparagraph (C) shall be
valid for the 45-day period beginning on the date
such determination is made.
‘‘(5) HIGH-RISK YOUTH.—
‘‘(A) IN
GENERAL.—The term ‘high-risk
youth’ means any individual who is certified by
the designated local agency—
‘‘(i) as having attained age 18 but not
age 25 on the hiring date, and
‘‘(ii) as having his principal place of
abode within an empowerment zone or en-
terprise community.
‘‘(B) YOUTH MUST CONTINUE TO RESIDE IN
ZONE.—In the case of a high-risk youth, the term
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‘qualified wages’ shall not include wages paid or
incurred for services performed while such
youth’s principal place of abode is outside an
empowerment zone or enterprise community.
‘‘(6) VOCATIONAL REHABILITATION REFERRAL.—
The term ‘vocational rehabilitation referral’ means
any individual who is certified by the designated
local agency as—
‘‘(A) having a physical or mental disability
which, for such individual, constitutes or results
in a substantial handicap to employment, and
‘‘(B) having been referred to the employer
upon completion of (or while receiving) rehabili-
tative services pursuant to—
‘‘(i) an individualized written rehabili-
tation plan under a State plan for voca-
tional 
rehabilitation 
services 
approved
under the Rehabilitation Act of 1973, or
‘‘(ii) a program of vocational rehabili-
tation carried out under chapter 31 of title
38, United States Code.
‘‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
summer youth employee’ means any individ-
ual—
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‘‘(i) who performs services for the em-
ployer between May 1 and September 15,
‘‘(ii) who is certified by the designated
local agency as having attained age 16 but
not 18 on the hiring date (or if later, on
May 1 of the calendar year involved),
‘‘(iii) who has not been an employee of
the employer during any period prior to the
90-day period described in subparagraph
(B)(i), and
‘‘(iv) who is certified by the designated
local agency as having his principal place
of abode within an empowerment zone or
enterprise community.
‘‘(B) SPECIAL
RULES
FOR
DETERMINING
AMOUNT OF CREDIT.—For purposes of applying
this subpart to wages paid or incurred to any
qualified summer youth employee—
‘‘(i) subsection (b)(2) shall be applied
by substituting ‘any 90-day period between
May 1 and September 15’ for ‘the 1-year
period beginning with the day the individ-
ual begins work for the employer’, and
‘‘(ii) subsection (b)(3) shall be applied
by substituting ‘$3,000’ for ‘$6,000’.
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The preceding sentence shall not apply to an in-
dividual who, with respect to the same employer,
is certified as a member of another targeted
group after such individual has been a qualified
summer youth employee.
‘‘(C) YOUTH MUST CONTINUE TO RESIDE IN
ZONE.—Paragraph (5)(B) shall apply for pur-
poses of this paragraph.
‘‘(8) HIRING
DATE.—The term ‘hiring date’
means the day the individual is hired by the em-
ployer.
‘‘(9) DESIGNATED
LOCAL
AGENCY.—The term
‘designated local agency’ means a State employment
security agency established in accordance with the Act
of June 6, 1933, as amended (29 U.S.C. 49–49n).
‘‘(10) SPECIAL RULES FOR CERTIFICATIONS.—
‘‘(A) IN GENERAL.—An individual shall not
be treated as a member of a targeted group un-
less—
‘‘(i) on or before the day on which such
individual begins work for the employer, the
employer has received a certification from a
designated local agency that such individual
is a member of a targeted group, or
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‘‘(ii)(I) on or before the day the indi-
vidual is offered employment with the em-
ployer, a pre-screening notice is completed
by the employer with respect to such indi-
vidual, and
‘‘(II) not later than the 14th day after
the individual begins work for the employer,
the employer submits such notice, signed by
the employer and the individual under pen-
alties of perjury, to the designated local
agency as part of a written request for such
a certification from such agency.
For purposes of this paragraph, the term ‘pre-
screening notice’ means a document (in such
form as the Secretary shall prescribe) which con-
tains information provided by the individual on
the basis of which the employer believes that the
individual is a member of a targeted group.
‘‘(B) INCORRECT CERTIFICATIONS.—If—
‘‘(i) an individual has been certified by
a designated local agency as a member of a
targeted group, and
‘‘(ii) such certification is incorrect be-
cause it was based on false information pro-
vided by such individual,
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the certification shall be revoked and wages paid
by the employer after the date on which notice
of revocation is received by the employer shall
not be treated as qualified wages.
‘‘(C) EXPLANATION
OF
DENIAL
OF
RE-
QUEST.—If a designated local agency denies a
request for certification of membership in a tar-
geted group, such agency shall provide to the per-
son making such request a written explanation
of the reasons for such denial.’’
(c) MINIMUM EMPLOYMENT PERIOD.—Paragraph (3)
of section 51(i) (relating to certain individuals ineligible)
is amended to read as follows:
‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM-
PLOYMENT PERIOD.—No wages shall be taken into ac-
count under subsection (a) with respect to any indi-
vidual unless such individual either—
‘‘(A) is employed by the employer at least
180 days (20 days in the case of a qualified
summer youth employee), or
‘‘(B) has completed at least 500 hours (120
hours in the case of a qualified summer youth
employee) of services performed for the em-
ployer.’’
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(d) TERMINATION.—Paragraph (4) of section 51(c)
(relating to wages defined) is amended to read as follows:
‘‘(4) TERMINATION.—The term ‘wages’ shall not
include any amount paid or incurred to an individ-
ual who begins work for the employer—
‘‘(A) after December 31, 1994, and before
January 1, 1996, or
‘‘(B) after December 31, 1996.’’
(e) REDESIGNATION OF CREDIT.—
(1) Sections 38(b)(2) and 51(a) are each amend-
ed by striking ‘‘targeted jobs credit’’ and inserting
‘‘work opportunity credit’’.
(2) The subpart heading for subpart F of part IV
of subchapter A of chapter 1 is amended by striking
‘‘Targeted Jobs Credit’’ and inserting ‘‘Work
Opportunity Credit’’.
(3) The table of subparts for such part IV is
amended by striking ‘‘targeted jobs credit’’ and insert-
ing ‘‘work opportunity credit’’.
(4) The heading for paragraph (3) of section
1396(c) is amended by striking ‘‘TARGETED
JOBS
CREDIT’’ and inserting ‘‘WORK OPPORTUNITY CRED-
IT’’.
(f) TECHNICAL AMENDMENTS.—
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(1) Paragraph (1) of section 51(c) is amended by
striking ‘‘, subsection (d)(8)(D),’’.
(2) Paragraph (3) of section 51(i) is amended by
striking ‘‘(d)(12)’’ each place it appears and inserting
‘‘(d)(6)’’.
(g) EFFECTIVE DATE.—The amendments made by this
section shall apply to individuals who begin work for the
employer after December 31, 1995.
SEC. 11112. EMPLOYER-PROVIDED EDUCATIONAL ASSIST-
ANCE PROGRAMS.
(a) EXTENSION.—Subsection (d) of section 127 (relat-
ing to educational assistance programs) is amended by
striking ‘‘December 31, 1994’’ and inserting ‘‘December 31,
1996’’.
(b) LIMITATION TO EDUCATION BELOW GRADUATE
LEVEL.—The last sentence of section 127(c)(1) is amended
by inserting before the period ‘‘or at the graduate level’’.
(c) EFFECTIVE DATES.—
(1) EXTENSION.—The amendment made by sub-
section (a) shall apply to taxable years beginning
after December 31, 1994.
(2) LIMITATION.—The amendment made by sub-
section (b) shall apply to taxable years beginning
after December 31, 1995.
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SEC. 11113. RESEARCH CREDIT.
(a) IN GENERAL.—Subsection (h) of section 41 (relat-
ing to credit for research activities) is amended—
(1) by striking ‘‘June 30, 1995’’ each place it
appears and inserting ‘‘December 31, 1996’’, and
(2) by striking ‘‘July 1, 1995’’ each place it ap-
pears and inserting ‘‘January 1, 1997’’.
(b) BASE AMOUNT
FOR START-UP COMPANIES.—
Clause (i) of section 41(c)(3)(B) (relating to start-up com-
panies) is amended to read as follows:
‘‘(i) TAXPAYERS TO WHICH SUBPARA-
GRAPH APPLIES.—The fixed-base percentage
shall be determined under this subpara-
graph if—
‘‘(I) the first taxable year in
which a taxpayer had both gross re-
ceipts and qualified research expenses
begins after December 31, 1983, or
‘‘(II) there are fewer than 3 tax-
able years beginning after December
31, 1983, and before January 1, 1989,
in which the taxpayer had both gross
receipts and qualified research ex-
penses.’’.
(c) ELECTION OF ALTERNATIVE INCREMENTAL CRED-
IT.—Subsection (c) of section 41 is amended by redesignat-
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ing paragraphs (4) and (5) as paragraphs (5) and (6), re-
spectively, and by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) ELECTION OF ALTERNATIVE INCREMENTAL
CREDIT.—
‘‘(A) IN GENERAL.—At the election of the
taxpayer, the credit determined under subsection
(a)(1) shall be equal to the sum of—
‘‘(i) 1.65 percent of so much of the
qualified research expenses for the taxable
year as exceeds 1 percent of the average de-
scribed in subsection (c)(1)(B) but does not
exceed 1.5 percent of such average,
‘‘(ii) 2.2 percent of so much of such ex-
penses as exceeds 1.5 percent of such average
but does not exceed 2 percent of such aver-
age, and
‘‘(iii) 2.75 percent of so much of such
expenses as exceeds 2 percent of such aver-
age.
‘‘(B) ELECTION.—An election under this
paragraph may be made only for the first tax-
able year of the taxpayer beginning after June
30, 1995. Such an election shall apply to the
taxable year for which made and all succeeding
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taxable years unless revoked with the consent of
the Secretary.’’
(d) INCREASED CREDIT FOR CONTRACT RESEARCH
EXPENSES WITH RESPECT TO CERTAIN RESEARCH CON-
SORTIA.—Paragraph (3) of section 41(b) is amended by
adding at the end the following new subparagraph:
‘‘(C) AMOUNTS PAID TO CERTAIN RESEARCH
CONSORTIA.—
‘‘(i) IN GENERAL.—Subparagraph (A)
shall be applied by substituting ‘75 percent’
for ‘65 percent’ with respect to amounts
paid or incurred by the taxpayer to a quali-
fied research consortium for qualified re-
search.
‘‘(ii) QUALIFIED
RESEARCH
CONSOR-
TIUM.—The term ‘qualified research consor-
tium’ means any organization described in
subsection (e)(6)(B) if—
‘‘(I) at least 15 unrelated tax-
payers paid (during the calendar year
in which the taxable year of the tax-
payer begins) amounts to such organi-
zation for qualified research,
‘‘(II) no 3 persons paid during
such calendar year more than 50 per-
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cent of the total amounts paid during
such calendar year for qualified re-
search, and
‘‘(III) no person contributed more
than 20 percent of such total amounts.
For purposes of subclause (I), all persons
treated as a single employer under sub-
section (a) or (b) of section 52 shall be
treated as related taxpayers.’’
(e) CONFORMING AMENDMENT.—Subparagraph (D) of
section 28(b)(1) is amended by striking ‘‘June 30, 1995’’
and inserting ‘‘December 31, 1996’’.
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to taxable years ending after June 30, 1995.
(2) SUBSECTIONS (c) AND (d).—The amendments
made by subsections (c) and (d) shall apply to taxable
years beginning after June 30, 1995.
SEC. 11114. ORPHAN DRUG TAX CREDIT.
(a) RECATEGORIZED AS A BUSINESS CREDIT.—
(1) IN GENERAL.—Section 28 (relating to clini-
cal testing expenses for certain drugs for rare diseases
or conditions) is transferred to subpart D of part IV
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of subchapter A of chapter 1, inserted after section
45B, and redesignated as section 45C.
(2) CONFORMING
AMENDMENT.—Subsection (b)
of section 38 (relating to general business credit) is
amended by striking ‘‘plus’’ at the end of paragraph
(10), by striking the period at the end of paragraph
(11) and inserting ‘‘, plus’’, and by adding at the end
the following new paragraph:
‘‘(12) the orphan drug credit determined under
section 45C(a).’’.
(3) CLERICAL AMENDMENTS.—
(A) The table of sections for subpart B of
such part IV is amended by striking the item re-
lating to section 28.
(B) The table of sections for subpart D of
such part IV is amended by adding at the end
the following new item:
‘‘Sec. 45C. Clinical testing expenses for certain drugs for rare diseases or
conditions.’’.
(b) CREDIT TERMINATION.—Subsection (e) of section
45C, as redesignated by subsection (a)(1), is amended by
striking ‘‘December 31, 1994’’ and inserting ‘‘December 31,
1996’’.
(c) NO PRE-1995 CARRYBACKS.—Subsection (d) of sec-
tion 39 (relating to carryback and carryforward of unused
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credits) is amended by adding at the end the following new
paragraph:
‘‘(7) NO CARRYBACK OF SECTION 45C CREDIT BE-
FORE 1995.—No portion of the unused business credit
for any taxable year which is attributable to the or-
phan drug credit determined under section 45C may
be carried back to a taxable year beginning before
January 1, 1995.’’.
(d) ADDITIONAL CONFORMING AMENDMENTS.—
(1) Section 45C(a), as redesignated by subsection
(a)(1), is amended by striking ‘‘There shall be allowed
as a credit against the tax imposed by this chapter
for the taxable year’’ and inserting ‘‘For purposes of
section 38, the credit determined under this section
for the taxable year is’’.
(2) Section 45C(d), as so redesignated, is amend-
ed by striking paragraph (2) and by redesignating
paragraphs (3), (4), and (5) as paragraphs (2), (3),
and (4).
(3) Section 29(b)(6)(A) is amended by striking
‘‘sections 27 and 28’’ and inserting ‘‘section 27’’.
(4) Section 30(b)(3)(A) is amended by striking
‘‘sections 27, 28, and 29’’ and inserting ‘‘sections 27
and 29’’.
(5) Section 53(d)(1)(B) is amended—
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(A) by striking ‘‘or not allowed under sec-
tion 28 solely by reason of the application of sec-
tion 28(d)(2)(B),’’ in clause (iii), and
(B) by striking ‘‘or not allowed under sec-
tion 28 solely by reason of the application of sec-
tion 28(d)(2)(B)’’ in clause (iv)(II).
(6) Section 55(c)(2) is amended by striking
‘‘28(d)(2),’’.
(7) Section 280C(b) is amended—
(A) by striking ‘‘section 28(b)’’ in para-
graph (1) and inserting ‘‘section 45C(b)’’,
(B) by striking ‘‘section 28’’ in paragraphs
(1) and (2)(A) and inserting ‘‘section 45C(b)’’,
and
(C) by striking ‘‘subsection (d)(2) thereof’’
in paragraphs (1) and (2)(A) and inserting ‘‘sec-
tion 38(c)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 1994.
SEC. 11115. CONTRIBUTIONS OF STOCK TO PRIVATE FOUN-
DATIONS.
(a) IN
GENERAL.—Subparagraph (D) of section
170(e)(5) (relating to special rule for contributions of stock
for which market quotations are readily available) is
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amended by striking ‘‘December 31, 1994’’ and inserting
‘‘December 31, 1996’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made after December
31, 1994.
SEC. 11116. DELAY OF TAX ON FUEL USED IN COMMERCIAL
AVIATION.
(a) IN GENERAL.—Sections 4092(b)(2), 6421(f)(2)(B),
and 6427(l)(4)(B) are each amended by striking ‘‘Septem-
ber 30, 1995’’ and inserting ‘‘September 30, 1997’’.
(b) CONFORMING AMENDMENT.—Section 13245 of the
Omnibus Budget Reconciliation Act of 1993 is hereby re-
pealed.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall take effect after September 30, 1995,
but shall not take effect if section 11117 does not take
effect.
(2) CROSS REFERENCE.—
For refund of tax paid on commercial aviation fuel
before the date of the enactment of this Act, see sec-
tion 6427(l) of the Internal Revenue Code of 1986.
(d) FLOOR STOCKS TAX.—
(1) IMPOSITION OF TAX.—In the case of commer-
cial aviation fuel which is held by any person on Oc-
tober 1, 1997, there is hereby imposed a floor stocks
tax equal to 4.3 cents per gallon.
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(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person holding
aviation fuel on October 1, 1997, to which the
tax imposed by paragraph (1) applies shall be
liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed
by paragraph (1) shall be paid on or before
April 30, 1998.
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) HELD
BY
A
PERSON.—Aviation fuel
shall be considered as ‘‘held by a person’’ if title
thereto has passed to such person (whether or not
delivery to the person has been made).
(B) COMMERCIAL
AVIATION
FUEL.—The
term ‘‘commercial aviation fuel’’ means aviation
fuel (as defined in section 4093 of such Code)
which is held on October 1, 1997, for sale or use
in commercial aviation (as defined in section
4092(b) of such Code).
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(C) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or the Sec-
retary’s delegate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax
imposed by paragraph (1) shall not apply to aviation
fuel held by any person exclusively for any use for
which a credit or refund of the entire tax imposed by
section 4091 of such Code (other than the rate im-
posed by section 4091(b)(2) of such Code) is allowable
for aviation fuel so used.
(5) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
(A) IN GENERAL.—No tax shall be imposed
by paragraph (1) on aviation fuel held on Octo-
ber 1, 1997, by any person if the aggregate
amount of commercial aviation fuel held by such
person on such date does not exceed 2,000 gal-
lons. The preceding sentence shall apply only if
such person submits to the Secretary (at the time
and in the manner required by the Secretary)
such information as the Secretary shall require
for purposes of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
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from the tax imposed by paragraph (1) by rea-
son of paragraph (4).
(C) CONTROLLED GROUPS.—For purposes of
this paragraph—
(i) CORPORATIONS.—
(I) IN
GENERAL.—All persons
treated as a controlled group shall be
treated as 1 person.
(II) CONTROLLED
GROUP.—The
term ‘‘controlled group’’ has the mean-
ing given to such term by subsection
(a) of section 1563 of such Code; except
that for such purposes the phrase
‘‘more than 50 percent’’ shall be sub-
stituted for the phrase ‘‘at least 80 per-
cent’’ each place it appears in such
subsection.
(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, principles
similar to the principles of clause (i) shall
apply to a group of persons under common
control where 1 or more of such persons is
not a corporation.
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(6) OTHER LAWS APPLICABLE.—All provisions of
law, including penalties, applicable with respect to
the taxes imposed by section 4091 of such Code shall,
insofar as applicable and not inconsistent with the
provisions of this subsection, apply with respect to the
floor stock taxes imposed by paragraph (1) to the
same extent as if such taxes were imposed by such sec-
tion 4091.
SEC. 11117. EXTENSION OF AIRPORT AND AIRWAY TRUST
FUND EXCISE TAXES.
(a) FUEL TAX.—
(1) Subparagraph (A) of section 4091(b)(3) is
amended by striking ‘‘January 1, 1996’’ and insert-
ing ‘‘October 1, 1996’’.
(2) Paragraph (2) of section 4081(d), as amend-
ed by section 11651 of this Act, is amended by strik-
ing ‘‘January 1, 1996’’ and inserting ‘‘October 1,
1996’’.
(b) TICKET TAXES.—Sections 4261(g) and 4271(d) are
each amended by striking ‘‘January 1, 1996’’ and inserting
‘‘October 1, 1996’’.
(c) TRANSFER
TO AIRPORT
AND AIRWAY TRUST
FUND.—
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(1) Subsection (b) of section 9502 is amended by
striking ‘‘January 1, 1996’’ each place it appears and
inserting ‘‘October 1, 1996’’.
(2) Paragraph (3) of section 9502(f) is amended
by striking ‘‘December 31, 1995’’ and inserting ‘‘Sep-
tember 30, 1996’’.
SEC. 11118. EXTENSION OF INTERNAL REVENUE SERVICE
USER FEES.
Subsection (c) of section 10511 of the Revenue Act of
1987 is amended by striking ‘‘October 1, 2000’’ and by in-
serting ‘‘October 1, 2002’’.
CHAPTER 2—SUNSET OF LOW-INCOME
HOUSING CREDIT
SEC. 11121. SUNSET OF LOW-INCOME HOUSING CREDIT.
(a) REPEAL OF REALLOCATION OF UNUSED CREDITS
AMONG STATES.—Subparagraph (D) of section 42(h)(3) is
amended by adding at the end the following new clause:
‘‘(v) TERMINATION.—No amount may
be allocated under this paragraph for any
calendar year after 1995.’’
(b) TERMINATION.—Section 42 is amended by adding
at the end the following new subsection:
‘‘(o) TERMINATION.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2)—
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‘‘(A) clause (i) of subsection (h)(3)(C) shall
not apply to any amount allocated after Decem-
ber 31, 1997, and
‘‘(B) subsection (h)(4) shall not apply to
any building placed in service after such date.
‘‘(2) EXCEPTION FOR BOND-FINANCED BUILDINGS
IN PROGRESS.—For purposes of paragraph (1)(B), a
building shall be treated as placed in service before
January 1, 1998, if—
‘‘(A) the bonds with respect to such building
are issued before such date,
‘‘(B) the taxpayer’s basis in the project (of
which the building is a part) as of December 31,
1997, is more than 10 percent of the taxpayer’s
reasonably expected basis in such project as of
December 31, 1999, and
‘‘(C) such building is placed in service be-
fore January 1, 2000.’’
CHAPTER 3—EXTENSIONS OF SUPERFUND
AND OIL SPILL LIABILITY TAXES
SEC. 
11131. 
EXTENSION 
OF 
HAZARDOUS 
SUBSTANCE
SUPERFUND TAXES.
(a) EXTENSION OF TAXES.—
(1) ENVIRONMENTAL
TAX.—Section 59A(e) is
amended to read as follows:
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‘‘(e) APPLICATION OF TAX.—The tax imposed by this
section shall apply to taxable years beginning after Decem-
ber 31, 1986, and before January 1, 1997.’’.
(2) EXCISE TAXES.—Section 4611(e) is amended
to read as follows:
‘‘(e) 
APPLICATION
OF
HAZARDOUS
SUBSTANCE
SUPERFUND FINANCING RATE.—The Hazardous Substance
Superfund financing rate under this section shall apply
after December 31, 1986, and before October 1, 1996.’’.
(b) TERMINATION ON DEPOSITS OF TAXES INTO HAZ-
ARDOUS SUBSTANCE SUPERFUND.—Paragraph (1) of sec-
tion 9507(b) is amended by inserting ‘‘before August 1,
1996’’ after ‘‘received’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 11132. EXTENSION OF OIL SPILL LIABILITY TAX.
(a) IN GENERAL.—Section 4611(f)(1) (relating to ap-
plication of oil spill liability trust fund financing rate) is
amended by striking ‘‘after December 31, 1989, and before
January 1, 1995’’ and inserting ‘‘after December 31, 1995,
and before October 1, 2002’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on January 1, 1996.
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CHAPTER 4—EXTENSIONS RELATING TO
FUEL TAXES
SEC. 11141. ETHANOL BLENDER REFUNDS.
(a) IN GENERAL.—Paragraph (4) of section 6427(f)
(relating to gasoline, diesel fuel, and aviation fuel used to
produce certain alcohol fuels) is amended by striking
‘‘1995’’ and inserting ‘‘1999’’.
(b) SPECIAL RULE.—With respect to refund claims
which could have been filed under section 6427(f) of the In-
ternal Revenue Code of 1986 during the period beginning
on October 8, 1995, and ending on the date of the enactment
of this Act, but for the expiration of such section after Sep-
tember 30, 1995, interest shall accrue on such claims from
the date which is the later of—
(1) November 1, 1995, or
(2) 20 days after the claim could have been filed
under such section as in effect on September 30, 1995.
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
SEC. 11142. EXTENSION OF BINDING CONTRACT DATE FOR
BIOMASS AND COAL FACILITIES.
(a) IN
GENERAL.—Subparagraph (A) of section
29(g)(1) (relating to extension of certain facilities) is
amended by striking ‘‘January 1, 1997’’ and inserting
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‘‘January 1, 1998’’ and by striking ‘‘January 1, 1996’’ and
inserting ‘‘July 1, 1996’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 11143. EXEMPTION FROM DIESEL FUEL DYEING RE-
QUIREMENTS WITH RESPECT TO CERTAIN
STATES.
(a) IN GENERAL.—Section 4082 (relating to exemp-
tions for diesel fuel) is amended by redesignating sub-
sections (c) and (d) as subsections (d) and (e), respectively,
and by inserting after subsection (b) the following new sub-
section:
‘‘(c) EXCEPTION TO DYEING REQUIREMENTS.—Para-
graph (2) of subsection (a) shall not apply with respect to
any diesel fuel—
‘‘(1) removed, entered, or sold in a State for ulti-
mate sale or use in an area of such State on or after
the date on which such area is exempted from the fuel
dyeing requirements under subsection (i) of section
211 of the Clean Air Act (as in effect on the date of
the enactment of this subsection) by the Administrator
of the Environmental Protection Agency under para-
graph (4) of such subsection (i) (as so in effect), and
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‘‘(2) the use of which is certified pursuant to reg-
ulations issued by the Secretary.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the first day of the first calendar
quarter beginning after the date of the enactment of this
Act.
SEC. 11144. MORATORIUM FOR EXCISE TAX ON DIESEL
FUEL SOLD FOR USE OR USED IN DIESEL-
POWERED MOTORBOATS.
(a) IN
GENERAL.—Subparagraph (D) of section
4041(a)(1) (relating to the imposition of tax on diesel fuel
and special motor fuels) is amended to read as follows:
‘‘(D) DIESEL
FUEL
USED
IN
MOTOR-
BOATS.—
‘‘(i) MORATORIUM.—No tax shall be
imposed by subsection (a) or (d)(1) on die-
sel fuel sold for use or used in a diesel-pow-
ered motorboat during the period after De-
cember 31, 1995, and before July 1, 1997.
‘‘(ii) SPECIAL TERMINATION DATE.—In
the case of any sale for use, or use, of fuel
in a diesel-powered motorboat—
‘‘(I) effective during the period
after September 30, 1999, and before
January 1, 2000, the rate of tax im-
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posed by this paragraph is 24.3 cents
per gallon, and
‘‘(II) the termination of the tax
under subsection (d) shall not occur be-
fore January 1, 2000.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall take effect after December 31, 1995.
CHAPTER 5—PERMANENT EXTENSION OF
FUTA EXEMPTION FOR ALIEN AGRI-
CULTURAL WORKERS
SEC. 11151. FUTA EXEMPTION FOR ALIEN AGRICULTURAL
WORKERS.
(a) IN
GENERAL.—Subparagraph (B) of section
3306(c)(1) (defining employment) is amended by striking
‘‘before January 1, 1995,’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to services performed after December
31, 1994.
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CHAPTER 6—DISCLOSURE OF RETURN IN-
FORMATION FOR ADMINISTRATION OF
CERTAIN VETERANS PROGRAMS
SEC. 11161. DISCLOSURE OF RETURN INFORMATION FOR
ADMINISTRATION 
OF 
CERTAIN 
VETERANS
PROGRAMS.
(a) GENERAL RULE.—Subparagraph (D) of section
6103(l)(7) (relating to disclosure of return information to
Federal, State, and local agencies administering certain
programs) is amended by striking ‘‘Clause (viii) shall not
apply after September 30, 1998.’’ and inserting ‘‘Clause
(viii) shall not apply after September 30, 2002.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
Subtitle F—Taxpayer Bill of Rights
2 Provisions
SEC. 11201. EXPANSION OF AUTHORITY TO ABATE INTER-
EST.
(a) GENERAL
RULE.—Paragraph (1) of section
6404(e) (relating to abatement of interest in certain cases)
is amended—
(1) by inserting ‘‘unreasonable’’ before ‘‘error’’
each place it appears in subparagraphs (A) and (B),
and
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(2) by striking ‘‘in performing a ministerial
act’’ each place it appears and inserting ‘‘in perform-
ing a ministerial or managerial act’’.
(b) CLERICAL AMENDMENT.—The subsection heading
for subsection (e) of section 6404 is amended—
(1) by striking ‘‘ASSESSMENTS’’ and inserting
‘‘ABATEMENT’’, and
(2) by inserting ‘‘UNREASONABLE’’ before ‘‘ER-
RORS’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to interest accruing with respect to defi-
ciencies or payments for taxable years beginning after the
date of the enactment of this Act.
SEC. 11202. EXTENSION OF INTEREST-FREE PERIOD FOR
PAYMENT OF TAX AFTER NOTICE AND DE-
MAND.
(a) GENERAL
RULE.—Paragraph (3) of section
6601(e) (relating to payments made within 10 days after
notice and demand) is amended to read as follows:
‘‘(3) PAYMENTS
MADE
WITHIN
SPECIFIED
PE-
RIOD AFTER NOTICE AND DEMAND.—If notice and de-
mand is made for payment of any amount and if
such amount is paid within 21 calendar days (10
business days if the amount for which such notice and
demand is made equals or exceeds $100,000) after the
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date of such notice and demand, interest under this
section on the amount so paid shall not be imposed
for the period after the date of such notice and de-
mand.’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 6601(e)(2) is
amended by striking ‘‘10 days from the date of notice
and demand therefor’’ and inserting ‘‘21 calendar
days from the date of notice and demand therefor (10
business days if the amount for which such notice and
demand is made equals or exceeds $100,000)’’.
(2) Paragraph (3) of section 6651(a) is amended
by striking ‘‘10 days of the date of the notice and de-
mand therefor’’ and inserting ‘‘21 calendar days from
the date of notice and demand therefor (10 business
days if the amount for which such notice and demand
is made equals or exceeds $100,000)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply in the case of any notice and demand
given after June 30, 1996.
SEC. 11203. JOINT RETURN MAY BE MADE AFTER SEPARATE
RETURNS WITHOUT FULL PAYMENT OF TAX.
(a) GENERAL
RULE.—Paragraph (2) of section
6013(b) (relating to limitations on filing of joint return
after filing separate returns) is amended by striking sub-
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paragraph (A) and redesignating the following subpara-
graphs accordingly.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to taxable years beginning after the
date of the enactment of this Act.
SEC. 11204. MODIFICATIONS TO CERTAIN LEVY EXEMPTION
AMOUNTS.
(a) FUEL, ETC.—Paragraph (2) of section 6334(a) (re-
lating to fuel, provisions, furniture, and personal effects ex-
empt from levy) is amended—
(1) by striking ‘‘If the taxpayer is the head of a
family, so’’ and inserting ‘‘So’’,
(2) by striking ‘‘his household’’ and inserting
‘‘the taxpayer’s household’’, and
(3) by striking ‘‘$1,650 ($1,550 in the case of
levies issued during 1989)’’ and inserting ‘‘$2,500’’.
(b) BOOKS, ETC.—Paragraph (3) of section 6334(a)
(relating to books and tools of a trade, business, or profes-
sion) is amended by striking ‘‘$1,100 ($1,050 in the case
of levies issued during 1989)’’ and inserting ‘‘$1,250’’.
(c) INFLATION ADJUSTMENT.—Section 6334 (relating
to property exempt from levy) is amended by adding at the
end the following new subsection:
‘‘(f) INFLATION ADJUSTMENT.—
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‘‘(1) IN GENERAL.—In the case of any calendar
year beginning after 1996, each dollar amount re-
ferred to in paragraphs (2) and (3) of subsection (a)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1995’ for
‘calendar year 1992’ in subparagraph (B) there-
of.
‘‘(2) ROUNDING.—If any dollar amount after
being increased under paragraph (1) is not a mul-
tiple of $10, such dollar amount shall be rounded to
the nearest multiple of $10.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect with respect to levies issued after
December 31, 1995.
SEC. 11205. OFFERS-IN-COMPROMISE.
(a) REVIEW REQUIREMENTS.—Subsection (b) of sec-
tion 7122 (relating to records) is amended by striking
‘‘$500.’’ and inserting ‘‘$50,000. However, such compromise
shall be subject to continuing quality review by the Sec-
retary.’’.
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(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 11206. INCREASED LIMIT ON ATTORNEY FEES.
(a) IN GENERAL.—Paragraph (1) of section 7430(c)
(defining reasonable litigation costs) is amended—
(1) by striking ‘‘$75’’ in clause (iii) of subpara-
graph (B) and inserting ‘‘$110’’,
(2) by striking ‘‘an increase in the cost of living
or’’ in clause (iii) of subparagraph (B), and
(3) by adding after clause (iii) the following:
‘‘In the case of any calendar year beginning after
1996, the dollar amount referred to in clause (iii)
shall be increased by an amount equal to such dollar
amount multiplied by the cost-of-living adjustment
determined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1995’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof. If any
dollar amount after being increased under the preced-
ing sentence is not a multiple of $10, such dollar
amount shall be rounded to the nearest multiple of
$10.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply in the case of proceedings commenced
after the date of the enactment of this Act.
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SEC. 11207. AWARD OF LITIGATION COSTS PERMITTED IN
DECLARATORY JUDGMENT PROCEEDINGS.
(a) IN GENERAL.—Subsection (b) of section 7430 is
amended by striking paragraph (3) and by redesignating
paragraph (4) as paragraph (3).
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply in the case of proceedings commenced
after the date of the enactment of this Act.
SEC. 11208. INCREASE IN LIMIT ON RECOVERY OF CIVIL
DAMAGES FOR UNAUTHORIZED COLLECTION
ACTIONS.
(a) GENERAL RULE.—Subsection (b) of section 7433
(relating to damages) is amended by striking ‘‘$100,000’’
and inserting ‘‘$1,000,000’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to actions by officers or employees
of the Internal Revenue Service after the date of the enact-
ment of this Act.
SEC. 11209. ENROLLED AGENTS INCLUDED AS THIRD-PARTY
RECORDKEEPERS.
(a) IN GENERAL.—Paragraph (3) of section 7609(a)
(relating to third-party recordkeeper defined) is amended
by striking ‘‘and’’ at the end of subparagraph (G), by strik-
ing the period at the end of subparagraph (H) and inserting
‘‘; and’’, and by adding at the end the following the sub-
paragraph:
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‘‘(I) any enrolled agent.’’
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to summonses issued after the date
of the enactment of this Act.
SEC. 11210. ANNUAL REMINDERS TO TAXPAYERS WITH OUT-
STANDING DELINQUENT ACCOUNTS.
(a) IN GENERAL.—Chapter 77 (relating to miscellane-
ous provisions) is amended by adding at the end the follow-
ing new section:
‘‘SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.
‘‘Not less often than annually, the Secretary shall send
a written notice to each taxpayer who has a tax delinquent
account of the amount of the tax delinquency as of the date
of the notice.’’
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 77 is amended by adding at the end the following
new item:
‘‘Sec. 7524. Annual notice of tax delinquency.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to calendar years after 1995.
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Subtitle G—Casualty and
Involuntary Conversion Provisions
SEC. 11251. BASIS ADJUSTMENT TO PROPERTY HELD BY
CORPORATION WHERE STOCK IN CORPORA-
TION IS REPLACEMENT PROPERTY UNDER IN-
VOLUNTARY CONVERSION RULES.
(a) IN GENERAL.—Subsection (b) of section 1033 is
amended to read as follows:
‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN-
VOLUNTARY CONVERSION.—
‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(1).—If the property was acquired as the result of
a compulsory or involuntary conversion described in
subsection (a)(1), the basis shall be the same as in the
case of the property so converted—
‘‘(A) decreased in the amount of any money
received by the taxpayer which was not expended
in accordance with the provisions of law (appli-
cable to the year in which such conversion was
made) determining the taxable status of the gain
or loss upon such conversion, and
‘‘(B) increased in the amount of gain or de-
creased in the amount of loss to the taxpayer rec-
ognized upon such conversion under the law ap-
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plicable to the year in which such conversion
was made.
‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(2).—In the case of property purchased by the tax-
payer in a transaction described in subsection (a)(2)
which resulted in the nonrecognition of any part of
the gain realized as the result of a compulsory or in-
voluntary conversion, the basis shall be the cost of
such property decreased in the amount of the gain not
so recognized; and if the property purchased consists
of more than 1 piece of property, the basis determined
under this sentence shall be allocated to the purchased
properties in proportion to their respective costs.
‘‘(3) PROPERTY
HELD
BY
CORPORATION
THE
STOCK OF WHICH IS REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—If the basis of stock in
a corporation is decreased under paragraph (2),
an amount equal to such decrease shall also be
applied to reduce the basis of property held by
the corporation at the time the taxpayer ac-
quired 
control 
(as 
defined 
in 
subsection
(a)(2)(E)) of such corporation.
‘‘(B) LIMITATION.—Subparagraph (A) shall
not apply to the extent that it would (but for
this subparagraph) require a reduction in the
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aggregate adjusted bases of the property of the
corporation below the taxpayer’s adjusted basis
of the stock in the corporation (determined im-
mediately after such basis is decreased under
paragraph (2)).
‘‘(C) ALLOCATION OF BASIS REDUCTION.—
The decrease required under subparagraph (A)
shall be allocated—
‘‘(i) first to property which is similar
or related in service or use to the converted
property,
‘‘(ii) second to depreciable property (as
defined in section 1017(b)(3)(B)) not de-
scribed in clause (i), and
‘‘(iii) then to other property.
‘‘(D) SPECIAL RULES.—
‘‘(i) REDUCTION NOT TO EXCEED AD-
JUSTED BASIS OF PROPERTY.—No reduction
in the basis of any property under this
paragraph shall exceed the adjusted basis of
such property (determined without regard
to such reduction).
‘‘(ii) 
ALLOCATION
OF
REDUCTION
AMONG PROPERTIES.—If more than 1 prop-
erty is described in a clause of subpara-
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graph (C), the reduction under this para-
graph shall be allocated among such prop-
erty in proportion to the adjusted bases of
such property (as so determined).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to involuntary conversions occurring
after September 13, 1995.
SEC. 11252. EXPANSION OF REQUIREMENT THAT INVOLUN-
TARILY 
CONVERTED 
PROPERTY 
BE 
RE-
PLACED WITH PROPERTY ACQUIRED FROM
AN UNRELATED PERSON.
(a) IN GENERAL.—Subsection (i) of section 1033 is
amended to read as follows:
‘‘(i) REPLACEMENT PROPERTY MUST BE ACQUIRED
FROM UNRELATED PERSON IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—If the property which is in-
voluntarily converted is held by a taxpayer to which
this subsection applies, subsection (a) shall not apply
if the replacement property or stock is acquired from
a related person. The preceding sentence shall not
apply to the extent that the related person acquired
the replacement property or stock from an unrelated
person during the period applicable under subsection
(a)(2)(B).
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‘‘(2) TAXPAYERS
TO
WHICH
SUBSECTION
AP-
PLIES.—This subsection shall apply to—
‘‘(A) a C corporation,
‘‘(B) a partnership in which 1 or more C
corporations own, directly or indirectly (deter-
mined in accordance with section 707(b)(3)),
more than 50 percent of the capital interest, or
profits interest, in such partnership at the time
of the involuntary conversion, and
‘‘(C) any other taxpayer if, with respect to
property which is involuntarily converted during
the taxable year, the aggregate of the amount of
realized gain on such property on which there is
realized gain exceeds $100,000.
In the case of a partnership, subparagraph (C) shall
apply with respect to the partnership and with re-
spect to each partner. A similar rule shall apply in
the case of an S corporation and its shareholders.
‘‘(3) RELATED PERSON.—For purposes of this
subsection, a person is related to another person if the
person bears a relationship to the other person de-
scribed in section 267(b) or 707(b)(1).’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to involuntary conversions occurring
after September 13, 1995.
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SEC. 11253. SPECIAL RULE FOR CROP INSURANCE PRO-
CEEDS AND DISASTER PAYMENTS.
(a) IN GENERAL.—Section 451(d) (relating to special
rule for crop insurance proceeds and disaster payments) is
amended to read as follows:
‘‘(d) SPECIAL RULE FOR CROP INSURANCE PROCEEDS
AND DISASTER PAYMENTS.—
‘‘(1) GENERAL RULE.—In the case of any pay-
ment described in paragraph (2), a taxpayer report-
ing on the cash receipts and disbursements method of
accounting—
‘‘(A) may elect to treat any such payment
received in the taxable year of destruction or
damage of crops as having been received in the
following taxable year if the taxpayer establishes
that, under the taxpayer’s practice, income from
such crops involved would have been reported in
a following taxable year, or
‘‘(B) may elect to treat any such payment
received in a taxable year following the taxable
year of the destruction or damage of crops as
having been received in the taxable year of de-
struction or damage, if the taxpayer establishes
that, under the taxpayer’s practice, income from
such crops involved would have been reported in
the taxable year of destruction or damage.
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‘‘(2) PAYMENTS
DESCRIBED.—For purposes of
this subsection, a payment is described in this para-
graph if such payment—
‘‘(A) is insurance proceeds received on ac-
count of destruction or damage to crops, or
‘‘(B) is disaster assistance received under
any Federal law as a result of—
‘‘(i) destruction or damage to crops
caused by drought, flood, or other natural
disaster, or
‘‘(ii) inability to plant crops because of
such a disaster.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to payments received after December 31,
1992, as a result of destruction or damage occurring after
such date.
SEC. 11254. APPLICATION OF INVOLUNTARY EXCLUSION
RULES TO PRESIDENTIALLY DECLARED DIS-
ASTERS.
(a) IN GENERAL.—Section 1033(h) is amended by re-
designating paragraphs (2) and (3) as paragraphs (3) and
(4) and by inserting after paragraph (1) the following new
paragraph:
‘‘(2) TRADE
OR
BUSINESS
AND
INVESTMENT
PROPERTY.—If a taxpayer’s property held for produc-
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tive use in a trade or business or for investment is
compulsorily or involuntarily converted as a result of
a Presidentially declared disaster, tangible property
of a type held for productive use in a trade or busi-
ness shall be treated for purposes of subsection (a) as
property similar or related in use to the property so
converted.’’.
(b) CONFORMING AMENDMENTS.—Section 1033(h) is
amended—
(1) by striking ‘‘residence’’ in paragraph (3) (as
redesignated by subsection (a)) and inserting ‘‘prop-
erty’’,
(2) by striking ‘‘Principal Residences’’ in the
heading and inserting ‘‘Property’’, and
(3) by striking ‘‘(1) IN GENERAL.—’’ and insert-
ing ‘‘(1) PRINCIPAL RESIDENCES.—’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to disasters declared after December 31,
1994, in taxable years ending after such date.
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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 CHAR-
ITABLE ORGANIZATIONS TO MEET CERTAIN
QUALIFICATION REQUIREMENTS.
(a) IN GENERAL.—Chapter 42 (relating to private
foundations and certain other tax-exempt organizations) is
amended by redesignating subchapter D as subchapter E
and by inserting after subchapter C the following new sub-
chapter:
‘‘Subchapter D—Failure By Certain
Charitable 
Organizations 
To
Meet Certain Qualification Re-
quirements
‘‘Sec. 4958. Taxes on excess benefit transactions.
‘‘SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.
‘‘(a) INITIAL TAXES.—
‘‘(1) ON THE DISQUALIFIED PERSON.—There is
hereby imposed on each excess benefit transaction a
tax equal to 25 percent of the excess benefit. The tax
imposed by this paragraph shall be paid by any dis-
qualified person referred to in subsection (f)(1) with
respect to such transaction.
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‘‘(2) ON
THE
MANAGEMENT.—In any case in
which a tax is imposed by paragraph (1), there is
hereby imposed on the participation of any organiza-
tion manager in the excess benefit transaction, know-
ing that it is such a transaction, a tax equal to 10
percent of the excess benefit, unless such participation
is not willful and is due to reasonable cause. The tax
imposed by this paragraph shall be paid by any orga-
nization manager who participated in the excess ben-
efit transaction.
‘‘(b) ADDITIONAL TAX ON THE DISQUALIFIED PER-
SON.—In any case in which an initial tax is imposed by
subsection (a)(1) on an excess benefit transaction and the
excess benefit involved in such transaction is not corrected
within the taxable period, there is hereby imposed a tax
equal to 200 percent of the excess benefit involved. The tax
imposed by this subsection shall be paid by any disqualified
person referred to in subsection (f)(1) with respect to such
transaction.
‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BENE-
FIT.—For purposes of this section—
‘‘(1) EXCESS BENEFIT TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘excess benefit
transaction’ means any transaction in which an
economic benefit is provided by an applicable
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tax-exempt organization directly or indirectly to
or for the use of any disqualified person if the
value of the economic benefit provided exceeds the
value of the consideration (including the per-
formance of services) received for providing such
benefit. For purposes of the preceding sentence,
an economic benefit shall not be treated as con-
sideration for the performance of services unless
such organization clearly indicated its intent to
so treat such benefit.
‘‘(B) EXCESS BENEFIT.—The term ‘excess
benefit’ means the excess referred to in subpara-
graph (A).
‘‘(2) AUTHORITY TO INCLUDE CERTAIN OTHER
PRIVATE INUREMENT.—To the extent provided in reg-
ulations prescribed by the Secretary, the term ‘excess
benefit transaction’ includes any transaction in which
the amount of any economic benefit provided to or for
the use of a disqualified person is determined in
whole or in part by the revenues of 1 or more activi-
ties of the organization but only if such transaction
results in inurement not permitted under paragraph
(3) or (4) of section 501(c), as the case may be. In
the case of any such transaction, the excess benefit
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shall be the amount of the inurement not so per-
mitted.
‘‘(d) SPECIAL RULES.—For purposes of this section—
‘‘(1) JOINT AND SEVERAL LIABILITY.—If more
than 1 person is liable for any tax imposed by sub-
section (a) or subsection (b), all such persons shall be
jointly and severally liable for such tax.
‘‘(2) LIMIT FOR MANAGEMENT.—With respect to
any 1 excess benefit transaction, the maximum
amount of the tax imposed by subsection (a)(2) shall
not exceed $10,000.
‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—For
purposes of this subchapter, the term ‘applicable tax-exempt
organization’ means—
‘‘(1) any organization which (without regard to
any excess benefit) would be described in paragraph
(3) or (4) of section 501(c) and exempt from tax
under section 501(a), and
‘‘(2) any organization which was described in
paragraph (1) at any time during the 2-year period
ending on the date of the transaction.
Such term shall not include a private foundation (as de-
fined in section 509(a)).
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
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‘‘(1) DISQUALIFIED
PERSON.—The term ‘dis-
qualified person’ means, with respect to any trans-
action—
‘‘(A) any person who was, at any time dur-
ing the 5-year period ending on the date of such
transaction, in a position to exercise substantial
influence over the affairs of the organization,
‘‘(B) a member of the family of an individ-
ual described in subparagraph (A), and
‘‘(C) a 35-percent controlled entity.
‘‘(2) ORGANIZATION MANAGER.—The term ‘orga-
nization manager’ means, with respect to any appli-
cable tax-exempt organization, any officer, director,
or trustee of such organization (or any individual
having powers or responsibilities similar to those of
officers, directors, or trustees of the organization).
‘‘(3) 35-PERCENT CONTROLLED ENTITY.—
‘‘(A) IN
GENERAL.—The term ‘35-percent
controlled entity’ means—
‘‘(i) a corporation in which persons de-
scribed in subparagraph (A) or (B) of para-
graph (1) own more than 35 percent of the
total combined voting power,
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‘‘(ii) a partnership in which such per-
sons own more than 35 percent of the prof-
its interest, and
‘‘(iii) a trust or estate in which such
persons own more than 35 percent of the
beneficial interest.
‘‘(B) CONSTRUCTIVE OWNERSHIP RULES.—
Rules similar to the rules of paragraphs (3) and
(4) of section 4946(a) shall apply for purposes of
this paragraph.
‘‘(4) FAMILY MEMBERS.—The members of an in-
dividual’s family shall be determined under section
4946(d); except that such members also shall include
the brothers and sisters (whether by the whole or half
blood) of the individual and their spouses.
‘‘(5) TAXABLE PERIOD.—The term ‘taxable pe-
riod’ means, with respect to any excess benefit trans-
action, the period beginning with the date on which
the transaction occurs and ending on the earliest of—
‘‘(A) the date of mailing a notice of defi-
ciency under section 6212 with respect to the tax
imposed by subsection (a)(1), or
‘‘(B) the date on which the tax imposed by
subsection (a)(1) is assessed.
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‘‘(6) CORRECTION.—The terms ‘correction’ and
‘correct’ mean, with respect to any excess benefit
transaction, undoing the excess benefit to the extent
possible, and where fully undoing the excess benefit is
not possible, such additional corrective action as is
prescribed by the Secretary by regulations.’’
(b) APPLICATION OF PRIVATE INUREMENT RULE TO
TAX-EXEMPT ORGANIZATIONS DESCRIBED
IN SECTION
501(c)(4).—
(1) Paragraph (4) of section 501(c) is amended
by inserting ‘‘(A)’’ after ‘‘(4)’’ and by adding at the
end the following:
‘‘(B) Subparagraph (A) shall not apply to an
entity unless no part of the net earnings of such en-
tity inures to the benefit of any private shareholder
or individual.’’
(2) In the case of an organization operating on
a cooperative basis which, before the date of the enact-
ment of this Act, was determined by the Secretary of
the Treasury or his delegate, to be described in section
501(c)(4) of the Internal Revenue Code of 1986 and
exempt from tax under section 501(a) of such Code,
the allocation or return of net margins or capital to
the members of such organization in accordance with
its incorporating statute and bylaws shall not be
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treated for purposes of such Code as the inurement of
the net earnings of such organization to the benefit of
any private shareholder or individual. The preceding
sentence shall apply only if such statute and bylaws
are substantially as such statute and bylaws were in
existence on the date of the enactment of this Act.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (e) of section 4955 is amended—
(A) by striking ‘‘SECTION 4945’’ in the
heading and inserting ‘‘SECTIONS 4945 and
4958’’, and
(B) by inserting before the period ‘‘or an ex-
cess benefit for purposes of section 4958’’.
(2) Subsections (a), (b), and (c) of section 4963
are each amended by inserting ‘‘4958,’’ after ‘‘4955,’’.
(3) Subsection (e) of section 6213 is amended by
inserting ‘‘4958 (relating to private excess benefit),’’
before ‘‘4971’’.
(4) Paragraphs (2) and (3) of section 7422(g)
are each amended by inserting ‘‘4958,’’ after ‘‘4955,’’.
(5) Subsection (b) of section 7454 is amended by
inserting ‘‘or whether an organization manager (as
defined in section 4958(f)(2)) has ‘knowingly’ partici-
pated in an excess benefit transaction (as defined in
section 4958(c)),’’ after ‘‘section 4912(b),’’.
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(6) The table of subchapters for chapter 42 is
amended by striking the last item and inserting the
following:
‘‘Subchapter D. Failure by certain charitable organizations to meet
certain qualification requirements.
‘‘Subchapter E. Abatement of first and second tier taxes in certain
cases.’’
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section (other than subsection (b)) shall apply to
excess benefit transactions occurring on or after Sep-
tember 14, 1995.
(2) BINDING CONTRACTS.—The amendments re-
ferred to in paragraph (1) shall not apply to any
benefit arising from a transaction pursuant to any
written contract which was binding on September 13,
1995, and at all times thereafter before such trans-
action occurred.
(3) APPLICATION OF PRIVATE INUREMENT RULE
TO TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SEC-
TION 501(C)(4).—
(A) IN
GENERAL.—The amendment made
by subsection (b) shall apply to inurement occur-
ring on or after September 14, 1995.
(B) BINDING CONTRACTS.—The amendment
made by subsection (b) shall not apply to any
inurement occurring before January 1, 1997,
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pursuant to a written contract which was bind-
ing on September 13, 1995, and at all times
thereafter before such inurement occurred.
SEC. 11272. REPORTING OF CERTAIN EXCISE TAXES AND
OTHER INFORMATION.
(a) REPORTING BY ORGANIZATIONS DESCRIBED IN
SECTION 501(c)(3).—Subsection (b) of section 6033 (relat-
ing to certain organizations described in section 501(c)(3))
is amended by striking ‘‘and’’ at the end of paragraph (9),
by redesignating paragraph (10) as paragraph (14), and
by inserting after paragraph (9) the following new para-
graphs:
‘‘(10) the respective amounts (if any) of the taxes
paid by the organization during the taxable year
under the following provisions:
‘‘(A) section 4911 (relating to tax on excess
expenditures to influence legislation),
‘‘(B) section 4912 (relating to tax on dis-
qualifying lobbying expenditures of certain orga-
nizations), and
‘‘(C) section 4955 (relating to taxes on po-
litical expenditures of section 501(c)(3) organiza-
tions),
‘‘(11) the respective amounts (if any) of the taxes
paid by the organization, or any disqualified person
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with respect to such organization, during the taxable
year under section 4958 (relating to taxes on private
excess benefit from certain charitable organizations),
‘‘(12) such information as the Secretary may re-
quire with respect to any excess benefit transaction
(as defined in section 4958),
‘‘(13) the name of each disqualified person (as
defined in section 4958(f)(1)(A)) with respect to such
organization and such other information as the Sec-
retary may prescribe, and’’.
(b) 
ORGANIZATIONS
DESCRIBED
IN
SECTION
501(c)(4).—Section 6033 is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) CERTAIN ORGANIZATIONS DESCRIBED IN SECTION
501(c)(4).—Every 
organization 
described 
in 
section
501(c)(4) which is subject to the requirements of subsection
(a) shall include on the return required under subsection
(a) the information referred to in paragraphs (11), (12) and
(13) of subsection (b) with respect to such organization.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns for taxable years beginning
after the date of the enactment of this Act.
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SEC. 11273. INCREASE IN PENALTIES ON EXEMPT ORGANI-
ZATIONS FOR FAILURE TO FILE COMPLETE
AND TIMELY ANNUAL RETURNS.
(a) IN
GENERAL.—Subparagraph (A) of section
6652(c)(1) (relating to annual returns under section 6033)
is amended by striking ‘‘$10’’ and inserting ‘‘$20’’ and by
striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.
(b) LARGER PENALTY
ON ORGANIZATIONS HAVING
GROSS RECEIPTS IN EXCESS OF $1,000,000.—Subpara-
graph (A) of section 6652(c)(1) is amended by adding at
the end the following new sentence: ‘‘In the case of an orga-
nization having gross receipts exceeding $1,000,000 for any
year, with respect to the return required under section 6033
for such year, the first sentence of this subparagraph shall
be applied by substituting ‘$100’ for ‘$20’ and, in lieu of
applying the second sentence of this subparagraph, the max-
imum penalty under this subparagraph shall not exceed
$50,000.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to returns for taxable years ending on
or after December 31, 1995.
CHAPTER 2—OTHER PROVISIONS
SEC. 11276. COOPERATIVE SERVICE ORGANIZATIONS FOR
CERTAIN FOUNDATIONS.
(a) IN GENERAL.—Section 501 (relating to exemption
from tax on corporations, certain trusts, etc.) is amended
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by redesignating subsection (n) as subsection (o) and by in-
serting after subsection (m) the following new subsection:
‘‘(n) COOPERATIVE SERVICE ORGANIZATIONS
FOR
CERTAIN FOUNDATIONS.—
‘‘(1) IN GENERAL.—For purposes of this title, if
an organization—
‘‘(A) is organized and operated solely for
purposes referred to in subsection (f)(1),
‘‘(B) is composed solely of members which
are exempt from taxation under subsection (a)
and are—
‘‘(i) private foundations, or
‘‘(ii) community foundations as to
which section 170(b)(1)(A)(vi) applies,
‘‘(C) has at least 20 members,
‘‘(D) does not at any time after the second
taxable year beginning after the date of its orga-
nization or, if later, beginning after the date of
the enactment of this subsection, have a member
which holds more than 10 percent (by value) of
the interests in the organization,
‘‘(E) is organized and controlled by its
members but is not controlled by any one mem-
ber and does not have a member which controls
another member of the organization, and
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‘‘(F) permits members of the organization to
require the dismissal of any of the organization’s
investment advisers, following reasonable notice,
if members holding a majority of interest in the
account managed by such adviser vote to remove
such adviser,
then such organization shall be treated as an organi-
zation organized and operated exclusively for chari-
table purposes.
‘‘(2) TREATMENT OF INCOME OF MEMBERS.—If
any member of an organization described in para-
graph (1) is a private foundation (other than an ex-
empt operating foundation, as defined in section
4940(d)), such private foundation’s allocable share of
the capital gain net income and gross investment in-
come of the organization for any taxable year of the
organization shall be treated, for purposes of section
4940, as capital gain net income and gross invest-
ment income of such private foundation (whether or
not distributed to such foundation) for the taxable
year of such private foundation with or within which
the taxable year of the organization described in
paragraph (1) ends (and such private foundation
shall take into account its allocable share of the de-
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ductions referred to in section 4940(c)(3) of the orga-
nization).
‘‘(3) APPLICABLE EXCISE TAXES.—Subchapter A
of chapter 42 (other than sections 4940 and 4942)
shall apply to any organization described in para-
graph (1).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 4945(d) is amended by adding at the
end the following new flush sentence:
‘‘Paragraph (4)(B) shall not apply to a grant to an organi-
zation described in section 501(n).’’
(2) Section 4942(g)(1)(A) is amended by insert-
ing ‘‘or an organization described in section 501(n)’’
after ‘‘subsection (j)(3))’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 1995.
SEC. 11277. EXCLUSION FROM UNRELATED BUSINESS TAX-
ABLE INCOME FOR CERTAIN SPONSORSHIP
PAYMENTS.
(a) IN GENERAL.—Section 513 (relating to unrelated
trade or business income) is amended by adding at the end
the following new subsection:
‘‘(i) TREATMENT
OF CERTAIN SPONSORSHIP PAY-
MENTS.—
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‘‘(1) IN GENERAL.—The term ‘unrelated trade or
business’ does not include the activity of soliciting
and receiving qualified sponsorship payments.
‘‘(2) QUALIFIED SPONSORSHIP PAYMENTS.—For
purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
sponsorship payment’ means any payment made
by any person engaged in a trade or business
with respect to which there is no arrangement or
expectation that such person will receive any
substantial return benefit other than the use or
acknowledgement of the name or logo (or product
lines) of such person’s trade or business in con-
nection with the activities of the organization
that receives such payment. Such a use or ac-
knowledgement does not include advertising such
person’s products or services (including messages
containing qualitative or comparative language,
price information or other indications of savings
or value, an endorsement, or an inducement to
purchase, sell, or use such products or services).
‘‘(B) LIMITATIONS.—
‘‘(i) 
CONTINGENT
PAYMENTS.—The
term ‘qualified sponsorship payment’ does
not include any payment if the amount of
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such payment is contingent upon the level
of attendance at one or more events, broad-
cast ratings, or other factors indicating the
degree of public exposure to one or more
events.
‘‘(ii) ACKNOWLEDGEMENTS OR ADVER-
TISING IN PERIODICALS.—The term ‘quali-
fied sponsorship payment’ does not include
any payment which entitles the payor to an
acknowledgement or advertising in regu-
larly scheduled and printed material pub-
lished by or on behalf of the payee organiza-
tion that is not related to and primarily
distributed in connection with a specific
event conducted by the payee organization.
‘‘(3) ALLOCATION OF PORTIONS OF SINGLE PAY-
MENT.—For purposes of this subsection, to the extent
that a portion of a payment would (if made as a sep-
arate payment) be a qualified sponsorship payment,
such portion of such payment and the other portion
of such payment shall be treated as separate pay-
ments.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to payments solicited or received after
December 31, 1995.
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SEC. 11278. TREATMENT OF DUES PAID TO AGRICULTURAL
OR HORTICULTURAL ORGANIZATIONS.
(a) GENERAL RULE.—Section 512 (defining unrelated
business taxable income) is amended by adding at the end
the following new subsection:
‘‘(d) TREATMENT
OF DUES
OF AGRICULTURAL
OR
HORTICULTURAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) an agricultural or horticultural orga-
nization described in section 501(c)(5) requires
annual dues to be paid in order to be a member
of such organization, and
‘‘(B) the amount of such required annual
dues does not exceed $100,
in no event shall any portion of such dues be treated
as derived by such organization from an unrelated
trade or business by reason of any benefits or privi-
leges to which members of such organization are enti-
tled.
‘‘(2) INDEXATION OF $100 AMOUNT.—In the case
of any taxable year beginning in a calendar year
after 1995, the $100 amount in paragraph (1) shall
be increased by an amount equal to—
‘‘(A) $100, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar year
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in which the taxable year begins, by substituting
‘calendar year 1994’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(3) DUES.—For purposes of this subsection, the
term ‘dues’ means any payment required to be made
in order to be recognized by the organization as a
member of the organization.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1994.
SEC. 11279. REPEAL OF CREDIT FOR CONTRIBUTIONS TO
COMMUNITY DEVELOPMENT CORPORATIONS.
(a) IN GENERAL.—Section 13311 of the Revenue Rec-
onciliation Act of 1993 (relating to credit for contributions
to certain community development corporations) is hereby
repealed.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to contributions made after the date of
the enactment of this Act (other than contributions made
pursuant to a legally enforceable agreement which is effect
on the date of the enactment of this Act).
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Subtitle I—Tax Reform and Other
Provisions
CHAPTER 1—PROVISIONS RELATING TO
BUSINESSES
SEC. 11301. TAX TREATMENT OF CERTAIN EXTRAORDINARY
DIVIDENDS.
(a) TREATMENT OF EXTRAORDINARY DIVIDENDS IN
EXCESS OF BASIS.—Paragraph (2) of section 1059(a) (re-
lating to corporate shareholder’s basis in stock reduced by
nontaxed portion of extraordinary dividends) is amended
to read as follows:
‘‘(2) AMOUNTS
IN
EXCESS
OF
BASIS.—If the
nontaxed portion of such dividends exceeds such basis,
such excess shall be treated as gain from the sale or
exchange of such stock for the taxable year in which
the extraordinary dividend is received.’’.
(b) TREATMENT OF REDEMPTIONS WHERE OPTIONS
INVOLVED.—Paragraph (1) of section 1059(e) (relating to
treatment of partial liquidations and non-pro rata redemp-
tions) is amended to read as follows:
‘‘(1) TREATMENT OF PARTIAL LIQUIDATIONS AND
CERTAIN
REDEMPTIONS.—Except as otherwise pro-
vided in regulations—
‘‘(A) REDEMPTIONS.—In the case of any re-
demption of stock—
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‘‘(i) which is part of a partial liquida-
tion (within the meaning of section 302(e))
of the redeeming corporation,
‘‘(ii) which is not pro rata as to all
shareholders, or
‘‘(iii) which would not have been treat-
ed (in whole or in part) as a dividend if
any options had not been taken into ac-
count under section 318(a)(4),
any amount treated as a dividend with respect
to such redemption shall be treated as an ex-
traordinary dividend to which paragraphs (1)
and (2) of subsection (a) apply without regard
to the period the taxpayer held such stock. In the
case of a redemption described in clause (iii),
only the basis in the stock redeemed shall be
taken into account under subsection (a).
‘‘(B) 
REORGANIZATIONS, 
ETC.—An 
ex-
change described in section 356(a)(1) which is
treated as a dividend under section 356(a)(2)
shall be treated as a redemption of stock for pur-
poses of applying subparagraph (A).’’.
(c) EFFECTIVE DATES.—
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(1) IN
GENERAL.—The amendments made by
this section shall apply to distributions after May 3,
1995.
(2) TRANSITION RULE.—The amendments made
by this section shall not apply to any distribution
made pursuant to the terms of—
(A) a written binding contract in effect on
May 3, 1995, and at all times thereafter before
such distribution, or
(B) a tender offer outstanding on May 3,
1995.
(3) CERTAIN DIVIDENDS NOT PURSUANT TO CER-
TAIN
REDEMPTIONS.—In determining whether the
amendment made by subsection (a) applies to any ex-
traordinary dividend other than a dividend treated as
an extraordinary dividend under section 1059(e)(1) of
the Internal Revenue Code of 1986 (as amended by
this Act), paragraphs (1) and (2) shall be applied by
substituting ‘‘September 13, 1995’’ for ‘‘May 3,
1995’’.
SEC. 11302. REGISTRATION OF CONFIDENTIAL CORPORATE
TAX SHELTERS.
(a) IN GENERAL.—Section 6111 (relating to registra-
tion of tax shelters) is amended by redesignating subsections
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(d) and (e) as subsections (e) and (f), respectively, and by
inserting after subsection (c) the following new subsection:
‘‘(d) CERTAIN CONFIDENTIAL ARRANGEMENTS TREAT-
ED AS TAX SHELTERS.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘tax shelter’ includes any entity, plan, ar-
rangement, or transaction—
‘‘(A) a significant purpose of the structure
of which is the avoidance or evasion of Federal
income tax for a direct or indirect participant
which is a corporation,
‘‘(B) which is offered to any potential par-
ticipant under conditions of confidentiality, and
‘‘(C) for which the tax shelter promoters
may receive fees in excess of $100,000 in the ag-
gregate.
‘‘(2) CONDITIONS
OF
CONFIDENTIALITY.—For
purposes of paragraph (1)(B), an offer is under con-
ditions of confidentiality if—
‘‘(A) the potential participant to whom the
offer is made (or any other person acting on be-
half of such participant) has an understanding
or agreement with or for the benefit of any pro-
moter of the tax shelter that such participant (or
such other person) will limit disclosure of the tax
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shelter or any significant tax features of the tax
shelter, or
‘‘(B) any promoter of the tax shelter—
‘‘(i) claims, knows, or has reason to
know,
‘‘(ii) knows or has reason to know that
any other person (other than the potential
participant) claims, or
‘‘(iii) causes another person to claim,
that the tax shelter (or any aspect thereof) is
proprietary to any person other than the poten-
tial participant or is otherwise protected from
disclosure to or use by others.
For purposes of this subsection, the term ‘promoter’
means any person or any related person (within the
meaning of section 267 or 707) who participates in
the organization, management, or sale of the tax shel-
ter.
‘‘(3) PERSONS
OTHER
THAN
PROMOTER
RE-
QUIRED TO REGISTER IN CERTAIN CASES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the requirements of subsection (a)
are not met with respect to any tax shelter
(as defined in paragraph (1)) by any tax
shelter promoter, and
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‘‘(ii) no tax shelter promoter is a Unit-
ed States person,
then each United States person who discussed
participation in such shelter shall register such
shelter under subsection (a).
‘‘(B) EXCEPTION.—Subparagraph (A) shall
not apply to a United States person who dis-
cussed participation in a tax shelter if—
‘‘(i) such person notified the promoter
in writing (not later than the close of the
90th day after the day on which such dis-
cussions began) that such person would not
participate in such shelter, and
‘‘(ii) such person does not participate
in such shelter.
‘‘(4) OFFER TO PARTICIPATE TREATED AS OFFER
FOR SALE.—For purposes of subsections (a) and (b),
an offer to participate in a tax shelter (as defined in
paragraph (1)) shall be treated as an offer for sale.’’.
(b) PENALTY.—Subsection (a) of section 6707 (relating
to failure to furnish information regarding tax shelters) is
amended by adding at the end the following new paragraph:
‘‘(3) CONFIDENTIAL ARRANGEMENTS.—
‘‘(A) IN GENERAL.—In the case of a tax
shelter (as defined in section 6111(d)), the pen-
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alty imposed under paragraph (1) shall be an
amount equal to the greater of—
‘‘(i) 50 percent of the fees paid to any
promoter of the tax shelter with respect to
offerings made before the date such shelter is
registered under section 6111, or
‘‘(ii) $10,000.
Clause (i) shall be applied by substituting ‘75
percent’ for ‘50 percent’ in the case of an inten-
tional failure or act described in paragraph (1).
‘‘(B) SPECIAL RULE FOR PARTICIPANTS RE-
QUIRED TO REGISTER SHELTER.—In the case of
a person required to register such a tax shelter
by reason of section 6111(d)(3)—
‘‘(i) such person shall be required to
pay the penalty under paragraph (1) only
if such person actually participated in such
shelter,
‘‘(ii) the amount of such penalty shall
be determined by taking into account under
subparagraph (A)(i) only the fees paid by
such person, and
‘‘(iii) such penalty shall be in addition
to the penalty imposed on any other person
for failing to register such shelter.’’.
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(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6707(a) is amended
by striking ‘‘The penalty’’ and inserting ‘‘Except as
provided in paragraph (3), the penalty’’.
(2) Subparagraph (A) of section 6707(a)(1) is
amended by striking ‘‘paragraph (2)’’ and inserting
‘‘paragraph (2) or (3), as the case may be’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to any tax shelter (as defined in section
6111(d) of the Internal Revenue Code of 1986, as amended
by this section) interests in which are offered to potential
participants after the Secretary of the Treasury prescribes
guidance with respect to meeting requirements added by
such amendments.
SEC. 11303. DENIAL OF DEDUCTION FOR INTEREST ON
LOANS WITH RESPECT TO COMPANY-OWNED
INSURANCE.
(a) IN GENERAL.—Paragraph (4) of section 264(a) is
amended—
(1) by inserting ‘‘, or any endowment or annuity
contracts owned by the taxpayer covering any indi-
vidual,’’ after ‘‘the life of any individual’’, and
(2) by striking all that follows ‘‘carried on by the
taxpayer’’ and inserting a period.
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(b) EXCEPTION FOR CONTRACTS RELATING TO KEY
PERSONS; PERMISSIBLE INTEREST RATES.—Section 264 is
amended—
(1) by striking ‘‘Any’’ in subsection (a)(4) and
inserting ‘‘Except as provided in subsection (d), any’’,
and
(2) by adding at the end the following new sub-
section:
‘‘(d) SPECIAL RULES FOR APPLICATION
OF SUB-
SECTION (a)(4).—
‘‘(1) EXCEPTION FOR KEY PERSONS.—Subsection
(a)(4) shall not apply to any interest paid or accrued
on any indebtedness with respect to policies or con-
tracts covering an individual who is a key person to
the extent that the aggregate amount of such indebted-
ness with respect to policies and contracts covering
such individual does not exceed $50,000.
‘‘(2) INTEREST RATE CAP ON KEY PERSONS AND
PRE-1986 CONTRACTS.—
‘‘(A) IN GENERAL.—No deduction shall be
allowed by reason of paragraph (1) or the last
sentence of subsection (a) with respect to interest
paid or accrued for any month to the extent the
amount of such interest exceeds the amount
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which would have been determined if the appli-
cable rate of interest were used for such month.
‘‘(B) APPLICABLE RATE OF INTEREST.—For
purposes of subparagraph (A)—
‘‘(i) IN GENERAL.—The applicable rate
of interest for any month is the rate of in-
terest described as Moody’s Corporate Bond
Yield Average-Monthly Average Corporates
as published by Moody’s Investors Service,
Inc., or any successor thereto, for such
month.
‘‘(ii) PRE-1986 CONTRACT.—In the case
of indebtedness on a contract to which the
last sentence of subsection (a) applies—
‘‘(I) which is a contract providing
a fixed rate of interest, the applicable
rate of interest for any month shall be
the Moody’s rate described in clause (i)
for the month in which the contract
was purchased, or
‘‘(II) which is a contract provid-
ing a variable rate of interest, the ap-
plicable rate of interest for any month
in an applicable period shall be such
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Moody’s rate for the last month preced-
ing such period.
For purposes of subclause (II), the taxpayer
shall elect an applicable period for such
contract on its return of tax imposed by
this chapter for its first taxable year ending
on or after October 13, 1995. Such applica-
ble period shall be for any number of
months (not greater than 12) specified in
the election and may not be changed by the
taxpayer without the consent of the Sec-
retary.
‘‘(3) KEY PERSON.—For purposes of paragraph
(1), the term ‘key person’ means an officer or 20-per-
cent owner, except that the number of individuals who
may be treated as key persons with respect to any
taxpayer shall not exceed the greater of—
‘‘(A) 5 individuals, or
‘‘(B) the lesser of 5 percent of the total offi-
cers and employees of the taxpayer or 10 indi-
viduals.
‘‘(4) 20-PERCENT OWNER.—For purposes of this
subsection, the term ‘20-percent owner’ means—
‘‘(A) if the taxpayer is a corporation, any
person who owns directly 20 percent or more of
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the outstanding stock of the corporation or stock
possessing 20 percent or more of the total com-
bined voting power of all stock of the corpora-
tion, or
‘‘(B) if the taxpayer is not a corporation,
any person who owns 20 percent or more of the
capital or profits interest in the employer.
‘‘(5) AGGREGATION RULES.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (4)(A) and applying the $50,000 limita-
tion in paragraph (1)—
‘‘(i) all members of a controlled group
shall be treated as 1 taxpayer, and
‘‘(ii) such limitation shall be allocated
among the members of such group in such
manner as the Secretary may prescribe.
‘‘(B) CONTROLLED
GROUP.—For purposes
of this paragraph, all persons treated as a single
employer under subsection (a) or (b) of section
52 or subsection (m) or (o) of section 414 shall
be treated as members of a controlled group.’’.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to interest paid or accrued
after December 31, 1995.
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(2) TRANSITION RULE FOR EXISTING INDEBTED-
NESS.—
(A) IN GENERAL.—In the case of—
(i) indebtedness incurred before Janu-
ary 1, 1996, or
(ii) indebtedness incurred before Janu-
ary 1, 1997 with respect to any contract or
policy entered into in 1994 or 1995,
the amendments made by this section shall not
apply to qualified interest paid or accrued on
such indebtedness after October 13, 1995, and be-
fore January 1, 1999.
(B) QUALIFIED INTEREST.—For purposes of
subparagraph (A), the qualified interest with re-
spect to any indebtedness for any month is the
amount of interest which would be paid or ac-
crued for such month on such indebtedness if—
(i) in the case of any interest paid or
accrued after December 31, 1995, indebted-
ness with respect to no more than 20,000
insured individuals were taken into ac-
count, and
(ii) the lesser of the following rates of
interest were used for such month:
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(I) The rate of interest specified
under the terms of the indebtedness as
in effect on October 13, 1995 (and
without regard to modification of such
terms after such date).
(II) The applicable percentage
rate of interest described as Moody’s
Corporate Bond Yield Average-Monthly
Average Corporates as published by
Moody’s Investors Service, Inc., or any
successor thereto, for such month.
For purposes of clause (i), all persons treated as
a single employer under subsection (a) or (b) of
section 52 of the Internal Revenue Code of 1986
or subsection (m) or (o) of section 414 of such
Code shall be treated as one person.
(C) APPLICABLE
PERCENTAGE.—For pur-
poses of subparagraph (B), the applicable per-
centage is as follows:
For calendar year:
The percentage is:
1995 .................................................................................
100 percent
1996 .................................................................................
90 percent
1997 .................................................................................
80 percent
1998 .................................................................................
70 percent.
(3) SPECIAL RULE FOR GRANDFATHERED CON-
TRACTS.—This section shall not apply to any con-
tract purchased on or before June 20, 1986, except
that section 264(d)(2) of the Internal Revenue Code of
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1986 shall apply to interest paid or accrued after Oc-
tober 13, 1995.
(d) SPREAD OF INCOME INCLUSION ON SURRENDER,
ETC. OF CONTRACTS.—
(1) IN
GENERAL.—If any amount is received
under any life insurance policy or endowment or an-
nuity contract described in paragraph (4) of section
264(a) of the Internal Revenue Code of 1986—
(A) on the complete surrender, redemption,
or maturity of such policy or contract during
calendar year 1996, 1997, or 1998, or
(B) in full discharge during any such cal-
endar year of the obligation under the policy or
contract which is in the nature of a refund of the
consideration paid for the policy or contract,
then (in lieu of any other inclusion in gross income)
such amount shall be includible in gross income rat-
ably over the 4-taxable year period beginning with the
taxable year such amount would (but for this para-
graph) be includible. The preceding sentence shall
only apply to the extent the amount is includible in
gross income for the taxable year in which the event
described in subparagraph (A) or (B) occurs.
(2) SPECIAL
RULES
FOR
APPLYING
SECTION
264.—A contract shall not be treated as—
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(A) failing to meet the requirement of sec-
tion 264(c)(1) of the Internal Revenue Code of
1986, or
(B) a single premium contract under sec-
tion 264(b)(1) of such Code,
solely by reason of an occurrence described in sub-
paragraph (A) or (B) of paragraph (1) of this sub-
section or solely by reason of no additional premiums
being received under the contract by reason of a lapse
occurring after October 13, 1995.
(3) SPECIAL RULE FOR DEFERRED ACQUISITION
COSTS.—In the case of the occurrence of any event de-
scribed in subparagraph (A) or (B) of paragraph (1)
of this subsection with respect to any policy or con-
tract—
(A) section 848 of the Internal Revenue
Code of 1986 shall not apply to the unamortized
balance (if any) of the specified policy acquisi-
tion expenses attributable to such policy or con-
tract immediately before the insurance compa-
ny’s taxable year in which such event occurs,
and
(B) there shall be allowed as a deduction to
such company for such taxable year under chap-
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ter 1 of such Code an amount equal to such
unamortized balance.
SEC. 11304. TERMINATION OF SUSPENSE ACCOUNTS FOR
FAMILY CORPORATIONS REQUIRED TO USE
ACCRUAL METHOD OF ACCOUNTING.
(a) IN GENERAL.—Subsection (i) of section 447 (relat-
ing to method of accounting for corporations engaged in
farming) is amended by adding at the end the following
new paragraph:
‘‘(7) TERMINATION.—
‘‘(A) IN
GENERAL.—No suspense account
may be established under this subsection by any
corporation required by this section to change its
method of accounting for any taxable year end-
ing after September 13, 1995.
‘‘(B) 20-YEAR PHASEOUT OF EXISTING SUS-
PENSE
ACCOUNTS.—Each 
suspense 
account
under this subsection shall be reduced (but not
below zero) for each of the first 20 taxable years
beginning after September 13, 1995, by an
amount equal to the applicable portion of such
account. Any reduction in a suspense account
under this paragraph shall be included in gross
income for the taxable year of the reduction. The
amount of the reduction required under this
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paragraph for any taxable year shall be reduced
(but not below zero) by the amount of any reduc-
tion required for such taxable year under any
other provision of this subsection.
‘‘(C) APPLICABLE PORTION.—For purposes
of subparagraph (B), the term ‘applicable por-
tion’ means, for any taxable year, the amount
which would ratably reduce the amount in the
account (after taking into account prior reduc-
tions) to zero over the period consisting of such
taxable year and the remaining taxable years in
such first 20 taxable years.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years ending after September
13, 1995.
SEC. 11305. TERMINATION OF PUERTO RICO AND POSSES-
SION TAX CREDIT.
(a) IN GENERAL.—Section 936 is amended by adding
at the end the following new subsection:
‘‘(j) TERMINATION.—
‘‘(1) IN GENERAL.—Except as otherwise provided
in this subsection, this section shall not apply to any
taxable year beginning after December 31, 1995.
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‘‘(2) TRANSITION RULES FOR ACTIVE BUSINESS
INCOME CREDIT.—Except as provided in paragraph
(3)—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant to which subsection (a)(4)(B)
does not apply, the credit determined under sub-
section (a)(1)(A) shall be allowed for taxable
years beginning after December 31, 1995, and
before January 1, 2002.
‘‘(B) SPECIAL RULE FOR REDUCED CRED-
IT.—
‘‘(i) IN GENERAL.—In the case of an
existing credit claimant to which subsection
(a)(4)(B) applies, the credit determined
under subsection (a)(1)(A) shall be allowed
for taxable years beginning after December
31, 1995, and before January 1, 1998.
‘‘(ii) ELECTION
IRREVOCABLE
AFTER
1997.—An 
election 
under 
subsection
(a)(4)(B)(iii) which is in effect for the tax-
payer’s last taxable year beginning before
1997 may not be revoked unless it is re-
voked for the taxpayer’s first taxable year
beginning in 1997 and all subsequent tax-
able years.
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‘‘(3) ADDITIONAL RESTRICTED CREDIT.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant—
‘‘(i) 
the 
credit 
under 
subsection
(a)(1)(A) shall be allowed for the period be-
ginning with the first taxable year after the
last taxable year to which subparagraph (A)
or (B) of paragraph (2), whichever is ap-
propriate, applied and ending with the last
taxable year beginning before January 1,
2006, except that
‘‘(ii) the aggregate amount of taxable
income taken into account under subsection
(a)(1)(A) for any such taxable year shall
not exceed the adjusted base period income
of such claimant.
‘‘(B) COORDINATION
WITH
SUBSECTION
(a)(4).—The amount of income described in sub-
section (a)(1)(A) which is taken into account in
applying subsection (a)(4) shall be such income
as reduced under this paragraph.
‘‘(4) ADJUSTED
BASE
PERIOD
INCOME.—For
purposes of paragraph (3)—
‘‘(A) IN GENERAL.—The term ‘adjusted base
period income’ means the average of the infla-
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tion-adjusted possession incomes of the corpora-
tion for each base period year.
‘‘(B) INFLATION-ADJUSTED POSSESSION IN-
COME.—For purposes of subparagraph (A), the
inflation-adjusted possession income of any cor-
poration for any base period year shall be an
amount equal to the sum of—
‘‘(i) the possession income of such cor-
poration for such base period year, plus
‘‘(ii) such possession income multiplied
by the inflation adjustment percentage for
such base period year.
‘‘(C) INFLATION
ADJUSTMENT
PERCENT-
AGE.—For purposes of subparagraph (B), the in-
flation adjustment percentage for any base pe-
riod year means the percentage (if any) by
which—
‘‘(i) the CPI for 1995, exceeds
‘‘(ii) the CPI for the calendar year in
which the base period year for which the de-
termination is being made ends.
For purposes of the preceding sentence, the CPI
for any calendar year is the CPI (as defined in
section 1(f)(5)) for such year under section
1(f)(4).
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‘‘(D) INCREASE IN INFLATION ADJUSTMENT
PERCENTAGE
FOR
GROWTH
DURING
BASE
YEARS.—The inflation adjustment percentage
(determined under subparagraph (C) without re-
gard to this subparagraph) for each of the 5 tax-
able years referred to in paragraph (5)(A) shall
be increased by—
‘‘(i) 5 percentage points in the case of
a taxable year ending during the 1-year pe-
riod ending on October 13, 1995;
‘‘(ii) 10.25 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1994;
‘‘(iii) 15.76 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1993;
‘‘(iv) 21.55 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1992;
and
‘‘(v) 27.63 percentage points in the
case of a taxable year ending during the 1-
year period ending on October 13, 1991.
‘‘(5) BASE PERIOD YEAR.—For purposes of this
subsection—
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‘‘(A) IN GENERAL.—The term ‘base period
year’ means each of 3 taxable years which are
among the 5 most recent taxable years of the cor-
poration ending before October 14, 1995, deter-
mined by disregarding—
‘‘(i) one taxable year for which the cor-
poration had the largest inflation-adjusted
possession income, and
‘‘(ii) one taxable year for which the
corporation had the smallest inflation-ad-
justed possession income.
‘‘(B) CORPORATIONS NOT HAVING SIGNIFI-
CANT POSSESSION INCOME THROUGHOUT 5-YEAR
PERIOD.—
‘‘(i) IN
GENERAL.—If a corporation
does not have significant possession income
for each of the most recent 5 taxable years
ending before October 14, 1995, then, in lieu
of applying subparagraph (A), the term
‘base period year’ means only those taxable
years (of such 5 taxable years) for which the
corporation has significant possession in-
come; except that, if such corporation has
significant possession income for 4 of such
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5 taxable years, the rule of subparagraph
(A)(ii) shall apply.
‘‘(ii) SPECIAL RULE.—If there is no
year (of such 5 taxable years) for which a
corporation has significant possession in-
come—
‘‘(I) the term ‘base period year’
means the first taxable year ending on
or after October 14, 1995, but
‘‘(II) the amount of possession in-
come for such year which is taken into
account under paragraph (4) shall be
the amount which would be determined
if such year were a short taxable year
ending on September 30, 1995.
‘‘(iii) SIGNIFICANT
POSSESSION
IN-
COME.—For purposes of this subparagraph,
the term ‘significant possession income’
means possession income which exceeds 2
percent of the possession income of the tax-
payer for the taxable year (of the period of
6 taxable years ending with the first taxable
year ending on or after October 14, 1995)
having the greatest possession income.
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‘‘(C) ELECTION TO USE ONE BASE PERIOD
YEAR.—
‘‘(i) IN GENERAL.—At the election of
the taxpayer, the term ‘base period year’
means—
‘‘(I) only the last taxable year of
the corporation ending in calendar
year 1992, or
‘‘(II) a deemed taxable year which
includes the first ten months of cal-
endar year 1995.
‘‘(ii) 
BASE
PERIOD
INCOME
FOR
1995.—In determining the adjusted base pe-
riod income of the corporation for the
deemed taxable year under clause (i)(II),
the possession income shall be annualized
and shall be determined without regard to
any extraordinary item.
‘‘(iii) ELECTION.—An election under
this subparagraph by any possession cor-
poration may be made only for the corpora-
tion’s first taxable year beginning after De-
cember 31, 1995, for which it is a possession
corporation. The rules of subclauses (II)
and (III) of subsection (a)(4)(B)(iii) shall
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apply to the election under this subpara-
graph.
‘‘(D) ACQUISITIONS
AND
DISPOSITIONS.—
Rules similar to the rules of subparagraphs (A)
and (B) of section 41(f)(3) shall apply for pur-
poses of this subsection.
‘‘(6) POSSESSION INCOME.—For purposes of this
subsection, the term ‘possession income’ means the in-
come referred to in subsection (a)(1)(A), except that
there shall not be taken into account any such income
from an applicable possession (as defined in para-
graph (8)(B)). In no event shall possession income be
treated as being less than zero.
‘‘(7) SHORT YEARS.—If the current year or a
base period year is a short taxable year, the applica-
tion of this subsection shall be made with such
annualizations as the Secretary shall prescribe.
‘‘(8) SPECIAL
RULES
FOR
CERTAIN
POSSES-
SIONS.—
‘‘(A) IN GENERAL.—In the case of an exist-
ing credit claimant with respect to an applicable
possession, this section (other than the preceding
paragraphs of this subsection) shall apply to tax-
able years beginning after December 31, 1995,
and before January 1, 2006.
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‘‘(B) APPLICABLE POSSESSION.—For pur-
poses of this paragraph, the term ‘applicable pos-
session’ means Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
‘‘(9) EXISTING CREDIT CLAIMANT.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—The term ‘existing cred-
it claimant’ means a corporation—
‘‘(i) which was actively conducting a
trade or business in a possession on October
13, 1995, and
‘‘(ii) with respect to which an election
under this section is in effect for the cor-
poration’s taxable year which includes Octo-
ber 13, 1995.
‘‘(B) NEW
LINES
OF
BUSINESS
PROHIB-
ITED.—If, after October 13, 1995, a corporation
which would (but for this subparagraph) be an
existing credit claimant adds a substantial new
line of business, such corporation shall cease to
be treated as an existing credit claimant as of
the close of the taxable year ending before the
date of such addition.
‘‘(C) BINDING
CONTRACT
EXCEPTION.—If,
on October 13, 1995, and at all times thereafter,
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there is in effect with respect to a corporation a
binding contract for the acquisition of assets to
be used in, or for the sale of assets to be produced
from, a trade or business, the corporation shall
be treated for purposes of this paragraph as ac-
tively conducting such trade or business on Octo-
ber 13, 1995. The preceding sentence shall not
apply if such trade or business is not actively
conducted before January 1, 1996.
‘‘(D) SPECIAL RULE FOR APPLICABLE POS-
SESSIONS.—In determining under paragraph (8)
whether a taxpayer is an existing credit claim-
ant with respect to an applicable possession, this
paragraph shall be applied separately with re-
spect to such possession.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 1995.
SEC. 11306. DEPRECIATION UNDER INCOME FORECAST
METHOD.
(a) GENERAL RULE.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (g) as sub-
section (h) and by inserting after subsection (f) the follow-
ing new subsection:
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‘‘(g) DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduction
allowable under this section to any taxpayer with re-
spect to any property is determined under the income
forecast method or any similar method—
‘‘(A) in determining the amount of the de-
preciation deduction under such method, the esti-
mated income from the property shall include all
income earned before the close of the 10th taxable
year following the taxable year in which the
property was placed in service in connection
with the ultimate use of the property by, or the
ultimate sale of merchandise to, persons who are
not related persons (within the meaning of sec-
tion 267(b)) to the taxpayer,
‘‘(B) the adjusted basis of the property shall
only include amounts with respect to which the
requirements of section 461(h) are satisfied,
‘‘(C) the depreciation deduction under such
method for the 10th taxable year beginning after
the taxable year in which the property was
placed in service shall be equal to the adjusted
basis of such property as of the beginning of such
10th taxable year, and
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‘‘(D) such taxpayer shall pay (or be entitled
to receive) interest computed under the look-back
method of paragraph (2) for any recomputation
year.
‘‘(2) LOOK-BACK
METHOD.—The interest com-
puted under the look-back method of this paragraph
for any recomputation year shall be determined by—
‘‘(A) first determining the depreciation de-
ductions under this section with respect to such
property which would have been allowable for
prior taxable years if the determination of the
amounts so allowable had been made on the basis
of the sum of the following (instead of the esti-
mated income with respect to such property)—
‘‘(i) the actual income from such prop-
erty for periods before the close of the recom-
putation year, and
‘‘(ii) an estimate of the future income
with respect to such property for periods
after the recomputation year,
‘‘(B) second, determining (solely for pur-
poses of computing such interest) the overpay-
ment or underpayment of tax for each such prior
taxable year which would result solely from the
application of subparagraph (A), and
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‘‘(C) then using the adjusted overpayment
rate 
(as 
defined 
in 
section 
460(b)(7)),
compounded daily, on the overpayment or
underpayment determined under subparagraph
(B).
For purposes of the preceding sentence, any cost in-
curred after the property is placed in service (which
is not treated as a separate property under para-
graph (5)) shall be taken into account by discounting
(using the Federal mid-term rate determined under
section 1274(d) as of the time such cost is incurred)
such cost to its value as of the date the property is
placed in service. The taxpayer may elect with respect
to any property to have the preceding sentence not
apply to such property.
‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—
Paragraph (1)(D) shall not apply with respect to any
property which, when placed in service by the tax-
payer, had a basis of $100,000 or less.
‘‘(4) RECOMPUTATION
YEAR.—For purposes of
this subsection, except as provided in regulations, the
term ‘recomputation year’ means, with respect to any
property, the third and the 10th taxable years begin-
ning after the taxable year in which the property was
placed in service, unless the actual income from the
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property for the period before the close of such third
or 10th taxable year is within 10 percent of the esti-
mated income from the property for such period
which was taken into account under paragraph
(1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN
COSTS
TREATED
AS
SEPA-
RATE
PROPERTY.—For purposes of this sub-
section, the following costs shall be treated as
separate properties:
‘‘(i) Any costs incurred with respect to
any property after the 10th taxable year be-
ginning after the taxable year in which the
property was placed in service.
‘‘(ii) Any costs incurred after the prop-
erty is placed in service and before the close
of such 10th taxable year if such costs are
significant and give rise to a significant in-
crease in the income from the property
which was not included in the estimated in-
come from the property.
‘‘(B) SYNDICATION
INCOME
FROM
TELE-
VISION SERIES.—In the case of property which is
an episode in a television series, income from
syndicating such series shall not be required to
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be taken into account under this subsection be-
fore the earlier of—
‘‘(i) the 4th taxable year beginning
after the date the first episode in such series
is placed in service, or
‘‘(ii) the earliest taxable year in which
the taxpayer has an arrangement relating
to the future syndication of such series.
‘‘(C) COLLECTION OF INTEREST.—For pur-
poses of subtitle F (other than sections 6654 and
6655), any interest required to be paid by the
taxpayer under paragraph (1) for any recom-
putation year shall be treated as an increase in
the tax imposed by this chapter for such year.
‘‘(D) DETERMINATIONS.—For purposes of
paragraph (2), determinations of the amount of
income from any property shall be determined in
the same manner as for purposes of applying the
income forecast method; except that any income
from the disposition of such property shall be
taken into account.
‘‘(E) TREATMENT
OF
PASS-THRU
ENTI-
TIES.—Rules similar to the rules of section
460(b)(4) shall apply for purposes of this sub-
section.’’.
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(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to property placed in service
after September 13, 1995.
(2) 
BINDING
CONTRACTS.—The 
amendment
made by subsection (a) shall not apply to any prop-
erty produced or acquired by the taxpayer pursuant
to a written contract which was binding on Septem-
ber 13, 1995, and at all times thereafter before such
production or acquisition.
SEC. 11307. TRANSFERS OF EXCESS PENSION ASSETS.
(a) IN GENERAL.—Section 420 (relating to transfers
of excess pension assets to retiree health accounts) is amend-
ed by adding at the end the following new subsection:
‘‘(f) SIMILAR RULES TO APPLY TO OTHER TRANSFERS
OF EXCESS PLAN ASSETS.—
‘‘(1) IN GENERAL.—If there is a qualified em-
ployee benefit transfer of any excess pension assets of
a defined benefit plan (other than a multiemployer
plan) to an employer—
‘‘(A) a trust which is part of such plan
shall not be treated as failing to meet the re-
quirements of section 401(a) solely by reason of
such transfer (or any other action authorized
under this section), and
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‘‘(B) such transfer shall not be treated as—
‘‘(i) an employer reversion for purposes
of section 4980, or
‘‘(ii) a prohibited transaction for pur-
poses of section 4975.
The gross income of the employer shall include the
amount of any qualified employee benefit transfer
made during the taxable year.
‘‘(2) QUALIFIED
EMPLOYEE
BENEFIT
TRANS-
FER.—For purposes of this section—
‘‘(A) IN GENERAL.—The term ‘qualified em-
ployee benefit transfer’ means a transfer—
‘‘(i) of excess pension assets of a de-
fined benefit plan to the employer, and
‘‘(ii) with respect to which—
‘‘(I) the use requirements of para-
graph (3) are met, and
‘‘(II) the requirements of sub-
section (c)(2)(A) are met (determined
by treating such transfer as a qualified
transfer).
‘‘(B) LIMITATION
ON
AMOUNTS
TRANS-
FERRED.—The amount of excess pension assets
which may be transferred in qualified employee
benefit transfers during any taxable year shall
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not exceed the amount which is reasonably esti-
mated to be the amount the employer maintain-
ing the plan will pay (whether directly or
through reimbursement) during the taxable year
for qualified current employee benefit liabilities.
‘‘(C) COORDINATION WITH TRANSFERS TO
RETIREE HEALTH ACCOUNTS.—Such term shall
not include any qualified transfer (as defined in
subsection (b)).
‘‘(D) EXPIRATION.—No transfer in any tax-
able year beginning after December 31, 2001,
shall be treated as a qualified employee benefit
transfer.
‘‘(3) RESTRICTIONS ON USE OF TRANSFERRED
ASSETS.—
‘‘(A) IN GENERAL.—Any assets transferred
to an employer in a qualified employee benefit
transfer shall be used only to pay qualified cur-
rent employee benefit liabilities for the taxable
year of the transfer (whether directly or through
reimbursement).
‘‘(B) AMOUNTS NOT USED TO PAY BENE-
FITS.—An employer shall transfer to a plan an
amount equal to any assets transferred out of the
plan in a qualified employee benefit transfer
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which are not used as provided in subparagraph
(A). Such amount shall be treated in the same
manner as amounts are treated under subsection
(c)(1)(B), except that allocable income shall be
determined by using the Federal short-term rate
under section 1274(d).
‘‘(C) QUALIFIED CURRENT EMPLOYEE BEN-
EFIT
LIABILITIES.—For purposes of this sub-
section—
‘‘(i) IN GENERAL.—The term ‘qualified
current employee benefit liabilities’ means,
with respect to any taxable year, the aggre-
gate amounts (including administrative ex-
penses) for which a deduction is allowable
to the employer for such taxable year with
respect to applicable employee benefits.
‘‘(ii) APPLICABLE
EMPLOYEE
BENE-
FITS.—The term ‘applicable employee bene-
fits’ means—
‘‘(I) contributions to a trust de-
scribed in section 401(a) which is ex-
empt from tax under section 501(a),
‘‘(II) benefits under an accident
or health plan (within the meaning of
section 105),
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‘‘(III) disability benefits,
‘‘(IV) benefits under an edu-
cational assistance program of the em-
ployer described in section 127(b), and
‘‘(V) benefits under a dependent
care assistance program of the em-
ployer described in section 129(d).
‘‘(4) DEFINITION
AND
SPECIAL
RULES.—For
purposes of this subsection—
‘‘(A) EXCESS PENSION ASSETS.—The term
‘excess pension assets’ has the meaning given
such term by subsection (e)(2).
‘‘(B) COORDINATION WITH SECTION 412.—
In the case of a qualified employee benefit trans-
fer—
‘‘(i) any assets transferred in a plan
year on or before the valuation date for such
year (and any income allocable thereto)
shall, for purposes of section 412, be treated
as assets in the plan as of the valuation
date for such year, and
‘‘(ii) the plan shall be treated as hav-
ing a net experience loss under section
412(b)(2)(B)(iv) in an amount equal to the
amount of such transfer and for which am-
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ortization charges begin for the first plan
year after the plan year in which such
transfer occurs, except that such section
shall be applied to such amount by sub-
stituting ‘10 plan years’ for ‘5 plan years’.’’
(b) EXCESS ASSETS.—Section 420(e)(2) is amended to
read as follows:
‘‘(2) EXCESS PENSION ASSETS.—The term ‘excess
pension assets’ means the excess (if any) of—
‘‘(A) the amount determined under section
412(c)(7)(A)(ii), over
‘‘(B) the greater of—
‘‘(i) the amount determined under sec-
tion 412(c)(7)(A)(i)(II), or
‘‘(ii) 125 percent of termination liabil-
ity determined under section 414(l), except
that the actuarial assumptions used in
making such determinations shall be the as-
sumptions used by the Pension Benefit
Guaranty Corporation for single-employer
plan termination purposes under regula-
tions under title IV of the Employee Retire-
ment Income Security Act of 1974.
The determination under the preceding sentence with
respect to any transfer shall be made as of the date
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of the transfer. No substantial changes in the regula-
tions described in clause (ii) which are made after the
date of the enactment of the Revenue Reconciliation
Act of 1995 shall be taken into account for purposes
of such clause.’’
(c) TAXPAYERS
IN BANKRUPTCY MAY NOT MAKE
TRANSFERS.—Section 420(e) is amended by adding at the
end the following new paragraph:
‘‘(5) EXCLUSION
OF
TAXPAYERS
IN
BANK-
RUPTCY.—No qualified transfer or qualified employee
benefit transfer may be made under this section by a
taxpayer if—
‘‘(A) the taxpayer has filed, or has had filed
against it, a petition in a title 11 or similar
case (within the meaning of section 368(a)(3)),
and
‘‘(B) such case is still pending.’’
(d) CONFORMING AMENDMENTS TO ERISA.—
(1) NOTICE.—Section 101(e) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1021(e)) is amended—
(A) by inserting ‘‘or a qualified employee
benefit transfer,’’ after ‘‘to a health benefits ac-
count,’’ in paragraphs (1) and (2)(A),
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(B) by inserting ‘‘or qualified employee ben-
efits’’ after ‘‘the amount of health benefits liabil-
ities’’ in paragraph (1),
(C) in paragraph (3)—
(i) by striking ‘‘January 1, 1995’’ and
inserting ‘‘the date of the enactment of the
Revenue Reconciliation Act of 1995’’, and
(ii) by striking ‘‘paragraph (1)’’ and
inserting ‘‘this subsection’’, and
(D) by striking ‘‘TO HEALTH BENEFITS AC-
COUNTS’’ in the heading.
(2) EXCLUSIVE BENEFIT.—Paragraph (1) of sec-
tion 403(c) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ‘‘January 1, 1995’’ and insert-
ing ‘‘the date of the enactment of the Revenue Rec-
onciliation Act of 1995’’.
(3) EXEMPTION
FROM
PROHIBITED
TRANS-
ACTION.—Paragraph (13) of section 408(b) of such
Act (29 U.S.C. 1108(b)(13)) is amended—
(A) by striking ‘‘retiree health account’’ and
inserting ‘‘health benefits account’’,
(B) by inserting before the period at the end
‘‘, or any transfer of such assets in a taxable
year beginning before January 1, 2002, in a
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qualified employee benefit transfer permitted
under such section 420’’, and
(C) by striking ‘‘January 1, 1995’’ and in-
serting ‘‘the date of the enactment of the Revenue
Reconciliation Act of 1995’’.
(e) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to transfers on and after the
date of the enactment of this Act.
(2) QUALIFIED TRANSFERS.—To the extent the
amendments made by subsections (b), (c), and (d)
apply to qualified transfers under section 420 of the
Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of this Act), such
amendments shall apply to transfers occurring after
December 31, 1995.
SEC. 11308. REPEAL OF EXCLUSION FOR INTEREST ON
LOANS USED TO ACQUIRE EMPLOYER SECU-
RITIES.
(a) IN GENERAL.—Section 133 (relating to interest on
certain loans used to acquire employer securities) is hereby
repealed.
(b) CONFORMING AMENDMENTS.—
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(1) Subparagraph (B) of section 291(e)(1) is
amended by striking clause (iv) and by redesignating
clause (v) as clause (iv).
(2) Section 812 is amended by striking sub-
section (g).
(3) Paragraph (5) of section 852(b) is amended
by striking subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended
by striking subparagraph (A) and all that follows and
inserting the following:
‘‘(A) first from qualified securities to which
section 1042 applied acquired during the 3-year
period ending on the date of the disposition, be-
ginning with the securities first so acquired, and
‘‘(B) then from any other employer securi-
ties.
If subsection (d) applies to a disposition, the disposi-
tion shall be treated as made from employer securities
in the opposite order of the preceding sentence.’’.
(5)(A) Section 4978B (relating to tax on disposi-
tion of employer securities to which section 133 ap-
plied) is hereby repealed.
(B) The table of sections for chapter 43 is
amended by striking the item relating to section
4978B.
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(6) Subsection (e) of section 6047 is amended by
striking paragraphs (1), (2), and (3) and inserting
the following new paragraphs:
‘‘(1) any employer maintaining, or the plan ad-
ministrator (within the meaning of section 414(g)) of,
an employee stock ownership plan which holds stock
with respect to which section 404(k) applies to divi-
dends paid on such stock, or
‘‘(2) both such employer or plan administrator,’’.
(7) Subsection (f) of section 7872 is amended by
striking paragraph (12).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to loans made after October
13, 1995.
(2) REFINANCINGS.—The amendments made by
this section shall not apply to loans made after Octo-
ber 13, 1995, to refinance securities acquisition loans
(determined without regard to section 133(b)(1)(B) of
the Internal Revenue Code of 1986, as in effect on the
day before the date of the enactment of this Act) made
on or before such date or to refinance loans described
in this paragraph if—
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(A) the refinancing loans meet the require-
ments of section 133 of such Code (as so in ef-
fect),
(B) immediately after the refinancing the
principal amount of the loan resulting from the
refinancing does not exceed the principal amount
of the refinanced loan (immediately before the re-
financing), and
(C) the term of such refinancing loan does
not extend beyond the last day of the term of the
original securities acquisition loan.
For purposes of this paragraph, the term ‘‘securities
acquisition loan’’ includes a loan from a corporation
to an employee stock ownership plan described in sec-
tion 133(b)(3) of such Code (as so in effect).
CHAPTER 2—LEGAL REFORMS
SEC. 11311. REPEAL OF EXCLUSION FOR PUNITIVE DAM-
AGES AND FOR DAMAGES NOT ATTRIBUTABLE
TO PHYSICAL INJURIES OR SICKNESS.
(a) IN GENERAL.—Paragraph (2) of section 104(a)
(relating to compensation for injuries or sickness) is amend-
ed to read as follows:
‘‘(2) the amount of any damages (other than pu-
nitive damages) received (whether by suit or agree-
ment and whether as lump sums or as periodic pay-
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ments) on account of personal physical injuries or
physical sickness;’’.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT
PHYSICAL
INJURY
OR
PHYSICAL
SICKNESS.—Section
104(a) is amended by striking the last sentence and insert-
ing the following new sentence: ‘‘For purposes of paragraph
(2), emotional distress shall not be treated as a physical
injury or physical sickness. The preceding sentence shall not
apply to an amount of damages not in excess of the amount
paid for medical care (described in subparagraph (A) or
(B) of section 213(d)(1)) attributable to emotional dis-
tress.’’.
(c) SPECIAL RULE FOR STATES IN WHICH ONLY PUNI-
TIVE DAMAGES MAY BE AWARDED IN WRONGFUL DEATH
ACTIONS.—Section 104 is amended by redesignating sub-
section (c) as subsection (d) and by inserting after sub-
section (b) the following new subsection:
‘‘(c) RESTRICTION ON PUNITIVE DAMAGES NOT TO
APPLY IN CERTAIN CASES.—The restriction on the applica-
tion of subsection (a)(2) to punitive damages shall not
apply to punitive damages which—
‘‘(1) are awarded in a civil action—
‘‘(A) which is a wrongful death action, and
‘‘(B) with respect to which applicable State
law (as in effect on February 1, 1996, and with-
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out regard to any modification after such date)
provides, or has been construed to provide by a
court of competent jurisdiction pursuant to a de-
cision issued on or before February 1, 1996, that
only punitive damages may be awarded in such
an action, and
‘‘(2) would have been excludable from gross in-
come under subsection (a)(2) as in effect for amounts
received on December 31, 1995.
This subsection shall cease to apply to any civil action filed
on or after the first date on which the applicable State law
ceases to provide (or is no longer construed to provide) the
treatment described in paragraph (2).’’
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section shall
apply to amounts received after December 31, 1995,
in taxable years ending after such date.
(2) EXCEPTION.—The amendments made by this
section shall not apply to any amount received under
a written binding agreement, court decree, or medi-
ation award in effect on (or issued on or before) Sep-
tember 13, 1995.
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SEC. 11312. REPORTING OF CERTAIN PAYMENTS MADE TO
ATTORNEYS.
(a) IN GENERAL.—Section 6045 (relating to returns
of brokers) is amended by adding at the end the following
new subsection:
‘‘(f) RETURN REQUIRED IN THE CASE OF PAYMENTS
TO ATTORNEYS.—
‘‘(1) IN GENERAL.—Any person engaged in a
trade or business and making a payment (in the
course of such trade or business) to which this sub-
section applies shall file a return under subsection (a)
and a statement under subsection (b) with respect to
such payment.
‘‘(2) APPLICATION OF SUBSECTION.—
‘‘(A) IN
GENERAL.—This subsection shall
apply to any payment to an attorney in connec-
tion with legal services (whether or not such serv-
ices are performed for the payor).
‘‘(B) EXCEPTION.—This subsection shall not
apply to the portion of any payment which is re-
quired to be reported under section 6041(a) (or
would be so required but for the dollar limitation
contained therein) or section 6051.’’.
(b) REPORTING OF ATTORNEYS’ FEES PAYABLE TO
CORPORATIONS.—The regulations providing an exception
under section 6041 of the Internal Revenue Code of 1986
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for payments made to corporations shall not apply to pay-
ments of attorneys’ fees.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to payments made after December 31,
1996.
CHAPTER 3—REFORMS RELATING TO
NONRECOGNITION PROVISIONS
SEC. 11321. NO ROLLOVER OR EXCLUSION OF GAIN ON SALE
OF PRINCIPAL RESIDENCE WHICH IS ATTRIB-
UTABLE TO DEPRECIATION DEDUCTIONS.
(a) IN GENERAL.—Subsection (d) of section 1034 (re-
lating to limitations) is amended by adding at the end the
following new paragraph:
‘‘(3) RECOGNITION OF GAIN ATTRIBUTABLE TO
DEPRECIATION.—Subsection (a) shall not apply to so
much of the gain from the sale of any residence as
does not exceed the portion of the depreciation adjust-
ments (as defined in section 1250(b)(3)) attributable
to periods after December 31, 1995, in respect of such
residence.’’.
(b) COMPARABLE TREATMENT UNDER 1-TIME EXCLU-
SION OF GAIN ON SALE OF PRINCIPAL RESIDENCE.—Sub-
section (d) of section 121 is amended by adding at the end
the following new paragraph:
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‘‘(10) RECOGNITION OF GAIN ATTRIBUTABLE TO
DEPRECIATION.—
‘‘(A) IN GENERAL.—Subsection (a) shall not
apply to so much of the gain from the sale of
any property as does not exceed the portion of
the depreciation adjustments (as defined in sec-
tion 1250(b)(3)) attributable to periods after De-
cember 31, 1995, in respect of such property.
‘‘(B) 
COORDINATION
WITH
PARAGRAPH
(5).—If this section does not apply to gain at-
tributable to a portion of a residence by reason
of paragraph (5), subparagraph (A) shall not
apply to depreciation adjustments attributable to
such portion.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after December
31, 1995.
SEC. 11322. NONRECOGNITION OF GAIN ON SALE OF PRIN-
CIPAL RESIDENCE BY NONCITIZENS LIMITED
TO NEW RESIDENCES LOCATED IN THE UNIT-
ED STATES.
(a) IN GENERAL.—Subsection (d) of section 1034 (re-
lating to limitations) (as amended by section 11321) is
amended by adding at the end the following new paragraph:
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‘‘(4) NEW
RESIDENCE
MUST
BE
LOCATED
IN
UNITED STATES IN CERTAIN CASES.—
‘‘(A) IN GENERAL.—In the case of a sale of
an old residence by a taxpayer—
‘‘(i) who is not a citizen of the United
States at the time of sale, and
‘‘(ii) who is not a citizen or resident of
the United States on the date which is 2
years after the date of the sale of such old
residence,
subsection (a) shall apply only if the new resi-
dence is located in the United States or a posses-
sion of the United States.
‘‘(B) PROPERTY
HELD
JOINTLY
BY
HUS-
BAND AND WIFE.—Subparagraph (A) shall not
apply if—
‘‘(i) the old residence is held by a hus-
band and wife as joint tenants, tenants by
the entirety, or community property,
‘‘(ii) such husband and wife make a
joint return for the taxable year of the sale
or exchange, and
‘‘(iii) one spouse is a citizen of the
United States at the time of sale.’’.
(b) EFFECTIVE DATE.—
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(1) IN GENERAL.—The amendment made by this
section shall apply to sales of old residences after De-
cember 31, 1995.
(2) TREATMENT OF PURCHASES OF NEW RESI-
DENCES.—The amendment made by this section shall
not apply to new residences—
(A) purchased before September 13, 1995, or
(B) purchased on or after such date pursu-
ant to a binding contract in effect on such date
and at all times thereafter before such purchase.
(3) CERTAIN RULES TO APPLY.—For purposes of
this subsection, the rules of paragraphs (1), (2), and
(3) of section 1034(c) of the Internal Revenue Code of
1986 shall apply.
CHAPTER 4—EXCISE TAX AND TAX-
EXEMPT BOND PROVISIONS
SEC. 11331. REPEAL OF DIESEL FUEL TAX REBATE TO PUR-
CHASERS 
OF 
DIESEL-POWERED 
AUTO-
MOBILES AND LIGHT TRUCKS.
(a) IN GENERAL.—Section 6427 (relating to fuels not
used for taxable purposes) is amended by striking subsection
(g).
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 34(a) is amended to
read as follows:
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‘‘(3) under section 6427 with respect to fuels
used for nontaxable purposes or resold during the tax-
able year (determined without regard to section
6427(k)).’’.
(2) Paragraphs (1) and (2)(A) of section 6427(i)
are each amended—
(A) by striking ‘‘(g),’’, and
(B) by striking ‘‘(or a qualified diesel pow-
ered highway vehicle purchased)’’ each place it
appears.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to vehicles purchased after December 31,
1995.
SEC. 11332. MODIFICATIONS TO EXCISE TAX ON OZONE-DE-
PLETING CHEMICALS.
(a) IN GENERAL.—Section 4682(d)(1) (relating to re-
cycling) is amended by inserting ‘‘, or on any recycled
halon imported from any country which is a signatory to
the Montreal Protocol on Substances that Deplete the Ozone
Layer’’ before the period at the end.
(b) CERTIFICATION SYSTEM.—The Secretary of the
Treasury, after consultation with the Administrator of the
Environmental Protection Agency, shall develop a certifi-
cation system to ensure compliance with the recycling re-
quirement for imported halon under section 4682(d)(1) of
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the Internal Revenue Code of 1986, as amended by sub-
section (a).
(c) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment
of this Act.
SEC. 11333. ELECTION TO AVOID TAX-EXEMPT BOND PEN-
ALTIES FOR LOCAL FURNISHERS OF ELEC-
TRICITY AND GAS.
Section 142(f) (relating to local furnishing of electric
energy or gas) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(3) ELECTION TO AVOID PENALTIES FOR CER-
TAIN FURNISHERS.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a person engaged in the local fur-
nishing of electric energy or gas, directly or
indirectly financed facilities for such fur-
nishing in whole or in part with exempt fa-
cility bonds described in subsection (a)(8)
issued before the date of the enactment of
this paragraph,
‘‘(ii) such bonds would (but for this
paragraph) cease to be tax-exempt by reason
of such person failing to meet the local fur-
nishing requirement of such section as a re-
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sult of a service area expansion by such per-
son, and
‘‘(iii) an election described in subpara-
graph (B) is made by such person with re-
spect to all such facilities of the person,
then such bonds shall not cease to be tax-exempt
by reason of such expansion (and section
150(b)(4) shall not apply to interest on such
bonds).
‘‘(B) ELECTION.—An election is described
in this subparagraph if it is an election made in
such manner as the Secretary prescribes, and
such person agrees that—
‘‘(i) no bond exempt from tax under
section 103 and described in subsection
(a)(8) may be issued on or after the date of
the enactment of this paragraph with re-
spect to the facilities for the local furnishing
of electric energy or gas, or both of such per-
son, other than such a bond issued to refund
another bond if the amount of such bond
does not exceed the outstanding amount of
the refunded bond and the maturity date of
the refunding bond is not later than the av-
erage maturity date of the refunded bonds
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to be refunded by the issue of which the re-
funding bond is a part,
‘‘(ii) the expansion of the service
area—
‘‘(I) is not financed with the pro-
ceeds of any exempt facility bond de-
scribed in subsection (a)(8), and
‘‘(II) 
is 
not 
treated 
as 
a
nonqualifying use under the rules of
paragraph (2), and
‘‘(iii) all outstanding bonds used to fi-
nance the facilities for such person are re-
deemed not later than 6 months after the
later of—
‘‘(I) the earliest date on which
such bonds may be redeemed, or
‘‘(II) the date of the election.
‘‘(C) RELATED PERSONS.—For purposes of
this paragraph, the term ‘person’ includes a
group of related persons (within the meaning of
section 144(a)(3)) which includes such person.
‘‘(4) APPLICATION OF SECTION.—For purposes of
this section, no person may qualify on or after the
date of the enactment of this paragraph for tax-ex-
empt bond financing for the local furnishing of elec-
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tric energy or gas unless such person is engaged on
such date in the local furnishing of the energy source
for which facilities are financed.’’.
SEC. 11334. TAX-EXEMPT BONDS FOR SALE OF ALASKA
POWER ADMINISTRATION FACILITY.
Sections 142(f)(4) (as added by section 11333(a)) and
147(d) of the Internal Revenue Code of 1986 shall not apply
with respect to any private activity bond issued after the
date of the enactment of this Act and used to finance the
acquisition of the Snettisham hydroelectric project from the
Alaska Power Administration in determining if such bond
is a qualified bond for purposes of such Code.
CHAPTER 5—FOREIGN TRUST TAX
COMPLIANCE
SEC. 11341. IMPROVED INFORMATION REPORTING ON FOR-
EIGN TRUSTS.
(a) IN GENERAL.—Section 6048 (relating to returns
as to certain foreign trusts) is amended to read as follows:
‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOR-
EIGN TRUSTS.
‘‘(a) NOTICE OF CERTAIN EVENTS.—
‘‘(1) GENERAL RULE.—On or before the 90th day
(or such later day as the Secretary may prescribe)
after any reportable event, the responsible party shall
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provide written notice of such event to the Secretary
in accordance with paragraph (2).
‘‘(2) CONTENTS OF NOTICE.—The notice required
by paragraph (1) shall contain such information as
the Secretary may prescribe, including—
‘‘(A) the amount of money or other property
(if any) transferred to the trust in connection
with the reportable event, and
‘‘(B) the identity of the trust and of each
trustee and beneficiary (or class of beneficiaries)
of the trust.
‘‘(3) REPORTABLE EVENT.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The term ‘reportable
event’ means—
‘‘(i) the creation of any foreign trust
by a United States person,
‘‘(ii) the transfer of any money or
property (directly or indirectly) to a foreign
trust by a United States person, including
a transfer by reason of death, and
‘‘(iii) the death of a citizen or resident
of the United States if—
‘‘(I) the decedent was treated as
the owner of any portion of a foreign