H. R. 2014—221
‘‘(1) IN
GENERAL.—In the case of a disqualified person,
the treatment under this chapter of such person’s distributive
share of any item of income, gain, loss, deduction, or credit
attributable to any partnership oil or gas property shall be
determined without regard to this part. Such person’s distribu-
tive share of any such items shall be excluded for purposes
of making determinations under sections 772 and 773.
‘‘(2) DISQUALIFIED PERSON.—For purposes of paragraph (1),
the term ‘disqualified person’ means, with respect to any part-
nership taxable year—
‘‘(A) any person referred to in paragraph (2) or (4)
of section 613A(d) for such person’s taxable year in which
such partnership taxable year ends, and
‘‘(B) any other person if such person’s average daily
production of domestic crude oil and natural gas for such
person’s taxable year in which such partnership taxable
year ends exceeds 500 barrels.
‘‘(3) AVERAGE DAILY PRODUCTION.—For purposes of para-
graph (2), a person’s average daily production of domestic crude
oil and natural gas for any taxable year shall be computed
as provided in section 613A(c)(2)—
‘‘(A) by taking into account all production of domestic
crude oil and natural gas (including such person’s propor-
tionate share of any production of a partnership),
‘‘(B) by treating 6,000 cubic feet of natural gas as
a barrel of crude oil, and
‘‘(C) by treating as 1 person all persons treated as
1 taxpayer under section 613A(c)(8) or among whom alloca-
tions are required under such section.
‘‘SEC. 777. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as may be
appropriate to carry out the purposes of this part.’’.
(b) CLERICAL AMENDMENT.—The table of parts for subchapter
K of chapter 1 is amended by adding at the end the following
new item:
‘‘Part IV. Special rules for electing large partnerships.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years beginning after December
31, 1997.
SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE
PARTNERSHIPS.
(a) GENERAL RULE.—Chapter 63 is amended by adding at the
end thereof the following new subchapter:
‘‘Subchapter D—Treatment of electing large partnerships
‘‘Part I. Treatment of partnership items and adjustments.
‘‘Part II. Partnership level adjustments.
‘‘Part III. Definitions and special rules.
‘‘PART I—TREATMENT OF PARTNERSHIP
ITEMS AND ADJUSTMENTS
‘‘Sec. 6240. Application of subchapter.
‘‘Sec. 6241. Partner’s return must be consistent with partnership return.
‘‘Sec. 6242. Procedures for taking partnership adjustments into account.
H. R. 2014—222
‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.
‘‘(a) GENERAL RULE.—This subchapter shall only apply to elect-
ing large partnerships and partners in such partnerships.
‘‘(b) COORDINATION WITH OTHER PARTNERSHIP AUDIT PROCE-
DURES.—
‘‘(1) IN GENERAL.—Subchapter C of this chapter shall not
apply to any electing large partnership other than in its capac-
ity as a partner in another partnership which is not an electing
large partnership.
‘‘(2) TREATMENT WHERE PARTNER IN OTHER PARTNERSHIP.—
If an electing large partnership is a partner in another partner-
ship which is not an electing large partnership—
‘‘(A) subchapter C of this chapter shall apply to items
of such electing large partnership which are partnership
items with respect to such other partnership, but
‘‘(B) any adjustment under such subchapter C shall
be taken into account in the manner provided by section
6242.
‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT WITH PARTNER-
SHIP RETURN.
‘‘(a) GENERAL RULE.—A partner of any electing large partner-
ship shall, on the partner’s return, treat each partnership item
attributable to such partnership in a manner which is consistent
with the treatment of such partnership item on the partnership
return.
‘‘(b) 
UNDERPAYMENT
DUE
TO
INCONSISTENT
TREATMENT
ASSESSED AS MATH ERROR.—Any underpayment of tax by a partner
by reason of failing to comply with the requirements of subsection
(a) shall be assessed and collected in the same manner as if such
underpayment were on account of a mathematical or clerical error
appearing on the partner’s return. Paragraph (2) of section 6213(b)
shall not apply to any assessment of an underpayment referred
to in the preceding sentence.
‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR OF PARTNERS.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
subsections (a) and (b) shall apply without regard to any adjust-
ment to the partnership item under part II.
‘‘(2) CERTAIN CHANGES IN DISTRIBUTIVE SHARE TAKEN INTO
ACCOUNT BY PARTNER.—
‘‘(A) IN GENERAL.—To the extent that any adjustment
under part II involves a change under section 704 in a
partner’s distributive share of the amount of any partner-
ship item shown on the partnership return, such adjust-
ment shall be taken into account in applying this title
to such partner for the partner’s taxable year for which
such item was required to be taken into account.
‘‘(B) COORDINATION WITH DEFICIENCY PROCEDURES.—
‘‘(i) IN GENERAL.—Subchapter B shall not apply
to the assessment or collection of any underpayment
of tax attributable to an adjustment referred to in
subparagraph (A).
‘‘(ii) ADJUSTMENT NOT PRECLUDED.—Notwithstand-
ing any other law or rule of law, nothing in subchapter
B (or in any proceeding under subchapter B) shall
preclude the assessment or collection of any underpay-
ment of tax (or the allowance of any credit or refund
H. R. 2014—223
of any overpayment of tax) attributable to an adjust-
ment referred to in subparagraph (A) and such assess-
ment or collection or allowance (or any notice thereof)
shall not preclude any notice, proceeding, or determina-
tion under subchapter B.
‘‘(C) PERIOD OF LIMITATIONS.—The period for—
‘‘(i) assessing any underpayment of tax, or
‘‘(ii) filing a claim for credit or refund of any over-
payment of tax,
attributable to an adjustment referred to in subparagraph
(A) shall not expire before the close of the period prescribed
by section 6248 for making adjustments with respect to
the partnership taxable year involved.
‘‘(D) TIERED STRUCTURES.—If the partner referred to
in subparagraph (A) is another partnership or an S corpora-
tion, the rules of this paragraph shall also apply to persons
holding interests in such partnership or S corporation (as
the case may be); except that, if such partner is an electing
large partnership, the adjustment referred to in subpara-
graph (A) shall be taken into account in the manner pro-
vided by section 6242.
‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY WITH SECTION.—
‘‘For addition to tax in case of partner’s disregard of require-
ments of this section, see part II of subchapter A of chapter 68.
‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS
INTO ACCOUNT.
‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS
FOR YEAR
IN WHICH ADJUSTMENT TAKES EFFECT.—
‘‘(1) IN
GENERAL.—If any partnership adjustment with
respect to any partnership item takes effect (within the mean-
ing of subsection (d)(2)) during any partnership taxable year
and if an election under paragraph (2) does not apply to such
adjustment, such adjustment shall be taken into account in
determining the amount of such item for the partnership tax-
able year in which such adjustment takes effect. In applying
this title to any person who is (directly or indirectly) a partner
in such partnership during such partnership taxable year, such
adjustment shall be treated as an item actually arising during
such taxable year.
‘‘(2) PARTNERSHIP LIABLE IN CERTAIN CASES.—If—
‘‘(A) a partnership elects under this paragraph to not
take an adjustment into account under paragraph (1),
‘‘(B) a partnership does not make such an election
but in filing its return for any partnership taxable year
fails to take fully into account any partnership adjustment
as required under paragraph (1), or
‘‘(C) any partnership adjustment involves a reduction
in a credit which exceeds the amount of such credit deter-
mined for the partnership taxable year in which the adjust-
ment takes effect,
the partnership shall pay to the Secretary an amount deter-
mined by applying the rules of subsection (b)(4) to the adjust-
ments not so taken into account and any excess referred to
in subparagraph (C).
‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO ACCOUNT.—If
a partnership adjustment requires another adjustment in a
H. R. 2014—224
taxable year after the adjusted year and before the partnership
taxable year in which such partnership adjustment takes effect,
such other adjustment shall be taken into account under this
subsection for the partnership taxable year in which such part-
nership adjustment takes effect.
‘‘(4) COORDINATION
WITH
PART
II.—Amounts taken into
account under this subsection for any partnership taxable year
shall continue to be treated as adjustments for the adjusted
year for purposes of determining whether such amounts may
be readjusted under part II.
‘‘(b) PARTNERSHIP LIABLE FOR INTEREST AND PENALTIES.—
‘‘(1) IN GENERAL.—If a partnership adjustment takes effect
during any partnership taxable year and such adjustment
results in an imputed underpayment for the adjusted year,
the partnership—
‘‘(A) shall pay to the Secretary interest computed under
paragraph (2), and
‘‘(B) shall be liable for any penalty, addition to tax,
or additional amount as provided in paragraph (3).
‘‘(2) DETERMINATION
OF
AMOUNT
OF
INTEREST.—The
interest computed under this paragraph with respect to any
partnership adjustment is the interest which would be deter-
mined under chapter 67—
‘‘(A) on the imputed underpayment determined under
paragraph (4) with respect to such adjustment,
‘‘(B) for the period beginning on the day after the
return due date for the adjusted year and ending on the
return due date for the partnership taxable year in which
such adjustment takes effect (or, if earlier, in the case
of any adjustment to which subsection (a)(2) applies, the
date on which the payment under subsection (a)(2) is
made).
Proper adjustments in the amount determined under the
preceding sentence shall be made for adjustments required
for partnership taxable years after the adjusted year and before
the year in which the partnership adjustment takes effect by
reason of such partnership adjustment.
‘‘(3) PENALTIES.—A partnership shall be liable for any pen-
alty, addition to tax, or additional amount for which it would
have been liable if such partnership had been an individual
subject to tax under chapter 1 for the adjusted year and the
imputed underpayment determined under paragraph (4) were
an actual underpayment (or understatement) for such year.
‘‘(4) IMPUTED UNDERPAYMENT.—For purposes of this sub-
section, the imputed underpayment determined under this
paragraph with respect to any partnership adjustment is the
underpayment (if any) which would result—
‘‘(A) by netting all adjustments to items of income,
gain, loss, or deduction and by treating any net increase
in income as an underpayment equal to the amount of
such net increase multiplied by the highest rate of tax
in effect under section 1 or 11 for the adjusted year, and
‘‘(B) by taking adjustments to credits into account as
increases or decreases (whichever is appropriate) in the
amount of tax.
H. R. 2014—225
For purposes of the preceding sentence, any net decrease in
a loss shall be treated as an increase in income and a similar
rule shall apply to a net increase in a loss.
‘‘(c) ADMINISTRATIVE PROVISIONS.—
‘‘(1) IN
GENERAL.—Any payment required by subsection
(a)(2) or (b)(1)(A)—
‘‘(A) shall be assessed and collected in the same manner
as if it were a tax imposed by subtitle C, and
‘‘(B) shall be paid on or before the return due date
for the partnership taxable year in which the partnership
adjustment takes effect.
‘‘(2) INTEREST.—For purposes of determining interest, any
payment required by subsection (a)(2) or (b)(1)(A) shall be treat-
ed as an underpayment of tax.
‘‘(3) PENALTIES.—
‘‘(A) IN GENERAL.—In the case of any failure by any
partnership to pay on the date prescribed therefor any
amount required by subsection (a)(2) or (b)(1)(A), there
is hereby imposed on such partnership a penalty of 10
percent of the underpayment. For purposes of the preceding
sentence, the term ‘underpayment’ means the excess of
any payment required under this section over the amount
(if any) paid on or before the date prescribed therefor.
‘‘(B) ACCURACY-RELATED AND FRAUD PENALTIES MADE
APPLICABLE.—For purposes of part II of subchapter A of
chapter 68, any payment required by subsection (a)(2) shall
be treated as an underpayment of tax.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) PARTNERSHIP
ADJUSTMENT.—The term ‘partnership
adjustment’ means any adjustment in the amount of any part-
nership item of an electing large partnership.
‘‘(2) WHEN
ADJUSTMENT
TAKES
EFFECT.—A partnership
adjustment takes effect—
‘‘(A) in the case of an adjustment pursuant to the
decision of a court in a proceeding brought under part
II, when such decision becomes final,
‘‘(B) in the case of an adjustment pursuant to any
administrative adjustment request under section 6251,
when such adjustment is allowed by the Secretary, or
‘‘(C) in any other case, when such adjustment is made.
‘‘(3) ADJUSTED YEAR.—The term ‘adjusted year’ means the
partnership taxable year to which the item being adjusted
relates.
‘‘(4) RETURN DUE DATE.—The term ‘return due date’ means,
with respect to any taxable year, the date prescribed for filing
the partnership return for such taxable year (determined with-
out regard to extensions).
‘‘(5) ADJUSTMENTS INVOLVING CHANGES IN CHARACTER.—
Under regulations, appropriate adjustments in the application
of this section shall be made for purposes of taking into account
partnership adjustments which involve a change in the char-
acter of any item of income, gain, loss, or deduction.
‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction shall be allowed
under subtitle A for any payment required to be made by an
electing large partnership under this section.
H. R. 2014—226
‘‘PART II—PARTNERSHIP LEVEL
ADJUSTMENTS
‘‘Subpart A. Adjustments by Secretary.
‘‘Subpart B. Claims for adjustments by partnership.
‘‘Subpart A—Adjustments by Secretary
‘‘Sec. 6245. Secretarial authority.
‘‘Sec. 6246. Restrictions on partnership adjustments.
‘‘Sec. 6247. Judicial review of partnership adjustment.
‘‘Sec. 6248. Period of limitations for making adjustments.
‘‘SEC. 6245. SECRETARIAL AUTHORITY.
‘‘(a) GENERAL RULE.—The Secretary is authorized and directed
to make adjustments at the partnership level in any partnership
item to the extent necessary to have such item be treated in
the manner required.
‘‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT.—
‘‘(1) IN GENERAL.—If the Secretary determines that a part-
nership adjustment is required, the Secretary is authorized
to send notice of such adjustment to the partnership by certified
mail or registered mail. Such notice shall be sufficient if mailed
to the partnership at its last known address even if the partner-
ship has terminated its existence.
‘‘(2) FURTHER NOTICES RESTRICTED.—If the Secretary mails
a notice of a partnership adjustment to any partnership for
any partnership taxable year and the partnership files a peti-
tion under section 6247 with respect to such notice, in the
absence of a showing of fraud, malfeasance, or misrepresenta-
tion of a material fact, the Secretary shall not mail another
such notice to such partnership with respect to such taxable
year.
‘‘(3) AUTHORITY TO RESCIND NOTICE WITH PARTNERSHIP CON-
SENT.—The Secretary may, with the consent of the partnership,
rescind any notice of a partnership adjustment mailed to such
partnership. Any notice so rescinded shall not be treated as
a notice of a partnership adjustment, for purposes of this sec-
tion, section 6246, and section 6247, and the taxpayer shall
have no right to bring a proceeding under section 6247 with
respect to such notice. Nothing in this subsection shall affect
any suspension of the running of any period of limitations
during any period during which the rescinded notice was
outstanding.
‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided in this chap-
ter, no adjustment to any partnership item may be made (and
no levy or proceeding in any court for the collection of any amount
resulting from such adjustment may be made, begun or prosecuted)
before—
‘‘(1) the close of the 90th day after the day on which
a notice of a partnership adjustment was mailed to the partner-
ship, and
‘‘(2) if a petition is filed under section 6247 with respect
to such notice, the decision of the court has become final.
‘‘(b) PREMATURE ACTION MAY BE ENJOINED.—Notwithstanding
section 7421(a), any action which violates subsection (a) may be
H. R. 2014—227
enjoined in the proper court, including the Tax Court. The Tax
Court shall have no jurisdiction to enjoin any action under this
subsection unless a timely petition has been filed under section
6247 and then only in respect of the adjustments that are the
subject of such petition.
‘‘(c) EXCEPTIONS TO RESTRICTIONS ON ADJUSTMENTS.—
‘‘(1) ADJUSTMENTS
ARISING
OUT
OF
MATH
OR
CLERICAL
ERRORS.—
‘‘(A) IN GENERAL.—If the partnership is notified that,
on account of a mathematical or clerical error appearing
on the partnership return, an adjustment to a partnership
item is required, rules similar to the rules of paragraphs
(1) and (2) of section 6213(b) shall apply to such adjust-
ment.
‘‘(B) SPECIAL RULE.—If an electing large partnership
is a partner in another electing large partnership, any
adjustment on account of such partnership’s failure to com-
ply with the requirements of section 6241(a) with respect
to its interest in such other partnership shall be treated
as an adjustment referred to in subparagraph (A), except
that paragraph (2) of section 6213(b) shall not apply to
such adjustment.
‘‘(2) PARTNERSHIP MAY WAIVE RESTRICTIONS.—The partner-
ship shall at any time (whether or not a notice of partnership
adjustment has been issued) have the right, by a signed notice
in writing filed with the Secretary, to waive the restrictions
provided in subsection (a) on the making of any partnership
adjustment.
‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.—If no proceeding
under section 6247 is begun with respect to any notice of a partner-
ship adjustment during the 90-day period described in subsection
(a), the amount for which the partnership is liable under section
6242 (and any increase in any partner’s liability for tax under
chapter 1 by reason of any adjustment under section 6242(a)) shall
not exceed the amount determined in accordance with such notice.
‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.
‘‘(a) GENERAL RULE.—Within 90 days after the date on which
a notice of a partnership adjustment is mailed to the partnership
with respect to any partnership taxable year, the partnership may
file a petition for a readjustment of the partnership items for
such taxable year with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for the district
in which the partnership’s principal place of business is located,
or
‘‘(3) the Claims Court.
‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING ACTION IN
DISTRICT COURT OR CLAIMS COURT.—
‘‘(1) IN GENERAL.—A readjustment petition under this sec-
tion may be filed in a district court of the United States
or the Claims Court only if the partnership filing the petition
deposits with the Secretary, on or before the date the petition
is filed, the amount for which the partnership would be liable
under section 6242(b) (as of the date of the filing of the petition)
if the partnership items were adjusted as provided by the
H. R. 2014—228
notice of partnership adjustment. The court may by order pro-
vide that the jurisdictional requirements of this paragraph
are satisfied where there has been a good faith attempt to
satisfy such requirement and any shortfall of the amount
required to be deposited is timely corrected.
‘‘(2) INTEREST
PAYABLE.—Any amount deposited under
paragraph (1), while deposited, shall not be treated as a pay-
ment of tax for purposes of this title (other than chapter 67).
‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court with which a petition
is filed in accordance with this section shall have jurisdiction to
determine all partnership items of the partnership for the partner-
ship taxable year to which the notice of partnership adjustment
relates and the proper allocation of such items among the partners
(and the applicability of any penalty, addition to tax, or additional
amount for which the partnership may be liable under section
6242(b)).
‘‘(d) DETERMINATION OF COURT REVIEWABLE.—Any determina-
tion by a court under this section shall have the force and effect
of a decision of the Tax Court or a final judgment or decree of
the district court or the Claims Court, as the case may be, and
shall be reviewable as such. The date of any such determination
shall be treated as being the date of the court’s order entering
the decision.
‘‘(e) EFFECT
OF DECISION DISMISSING ACTION.—If an action
brought under this section is dismissed other than by reason of
a rescission under section 6245(b)(3), the decision of the court
dismissing the action shall be considered as its decision that the
notice of partnership adjustment is correct, and an appropriate
order shall be entered in the records of the court.
‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.
‘‘(a) GENERAL RULE.—Except as otherwise provided in this sec-
tion, no adjustment under this subpart to any partnership item
for any partnership taxable year may be made after the date
which is 3 years after the later of—
‘‘(1) the date on which the partnership return for such
taxable year was filed, or
‘‘(2) the last day for filing such return for such year (deter-
mined without regard to extensions).
‘‘(b) EXTENSION BY AGREEMENT.—The period described in sub-
section (a) (including an extension period under this subsection)
may be extended by an agreement entered into by the Secretary
and the partnership before the expiration of such period.
‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—
‘‘(1) FALSE RETURN.—In the case of a false or fraudulent
partnership return with intent to evade tax, the adjustment
may be made at any time.
‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If any partnership
omits from gross income an amount properly includible therein
which is in excess of 25 percent of the amount of gross income
stated in its return, subsection (a) shall be applied by substitut-
ing ‘6 years’ for ‘3 years’.
‘‘(3) NO RETURN.—In the case of a failure by a partnership
to file a return for any taxable year, the adjustment may
be made at any time.
‘‘(4) RETURN FILED BY SECRETARY.—For purposes of this
section, a return executed by the Secretary under subsection
H. R. 2014—229
(b) of section 6020 on behalf of the partnership shall not be
treated as a return of the partnership.
‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE OF ADJUST-
MENT.—If notice of a partnership adjustment with respect to any
taxable year is mailed to the partnership, the running of the period
specified in subsection (a) (as modified by the other provisions
of this section) shall be suspended—
‘‘(1) for the period during which an action may be brought
under section 6247 (and, if a petition is filed under section
6247 with respect to such notice, until the decision of the
court becomes final), and
‘‘(2) for 1 year thereafter.
‘‘Subpart B—Claims for Adjustments by
Partnership
‘‘Sec. 6251. Administrative adjustment requests.
‘‘Sec. 6252. Judicial review where administrative adjustment request is not
allowed in full.
‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.
‘‘(a) GENERAL RULE.—A partnership may file a request for
an administrative adjustment of partnership items for any partner-
ship taxable year at any time which is—
‘‘(1) within 3 years after the later of—
‘‘(A) the date on which the partnership return for such
year is filed, or
‘‘(B) the last day for filing the partnership return for
such year (determined without regard to extensions), and
‘‘(2) before the mailing to the partnership of a notice of
a partnership adjustment with respect to such taxable year.
‘‘(b) SECRETARIAL ACTION.—If a partnership files an administra-
tive adjustment request under subsection (a), the Secretary may
allow any part of the requested adjustments.
‘‘(c) SPECIAL RULE
IN CASE
OF EXTENSION UNDER SECTION
6248.—If the period described in section 6248(a) is extended pursu-
ant to an agreement under section 6248(b), the period prescribed
by subsection (a)(1) shall not expire before the date 6 months
after the expiration of the extension under section 6248(b).
‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT
REQUEST IS NOT ALLOWED IN FULL.
‘‘(a) IN GENERAL.—If any part of an administrative adjustment
request filed under section 6251 is not allowed by the Secretary,
the partnership may file a petition for an adjustment with respect
to the partnership items to which such part of the request relates
with—
‘‘(1) the Tax Court,
‘‘(2) the district court of the United States for the district
in which the principal place of business of the partnership
is located, or
‘‘(3) the Claims Court.
‘‘(b) PERIOD
FOR FILING PETITION.—A petition may be filed
under subsection (a) with respect to partnership items for a partner-
ship taxable year only—
‘‘(1) after the expiration of 6 months from the date of
filing of the request under section 6251, and
H. R. 2014—230
‘‘(2) before the date which is 2 years after the date of
such request.
The 2-year period set forth in paragraph (2) shall be extended
for such period as may be agreed upon in writing by the partnership
and the Secretary.
‘‘(c) COORDINATION WITH SUBPART A.—
‘‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT BEFORE FILING
OF PETITION.—No petition may be filed under this section after
the Secretary mails to the partnership a notice of a partnership
adjustment for the partnership taxable year to which the
request under section 6251 relates.
‘‘(2) NOTICE
OF
PARTNERSHIP
ADJUSTMENT
AFTER
FILING
BUT BEFORE HEARING OF PETITION.—If the Secretary mails to
the partnership a notice of a partnership adjustment for the
partnership taxable year to which the request under section
6251 relates after the filing of a petition under this subsection
but before the hearing of such petition, such petition shall
be treated as an action brought under section 6247 with respect
to such notice, except that subsection (b) of section 6247 shall
not apply.
‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF STATUTE OF
LIMITATIONS.—A notice of a partnership adjustment for the
partnership taxable year shall be taken into account under
paragraphs (1) and (2) only if such notice is mailed before
the expiration of the period prescribed by section 6248 for
making adjustments to partnership items for such taxable year.
‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in the case described
in paragraph (2) of subsection (c), a court with which a petition
is filed in accordance with this section shall have jurisdiction to
determine only those partnership items to which the part of the
request under section 6251 not allowed by the Secretary relates
and those items with respect to which the Secretary asserts adjust-
ments as offsets to the adjustments requested by the partnership.
‘‘(e) DETERMINATION OF COURT REVIEWABLE.—Any determina-
tion by a court under this section shall have the force and effect
of a decision of the Tax Court or a final judgment or decree of
the district court or the Claims Court, as the case may be, and
shall be reviewable as such. The date of any such determination
shall be treated as being the date of the court’s order entering
the decision.
‘‘PART III—DEFINITIONS AND SPECIAL RULES
‘‘Sec. 6255. Definitions and special rules.
‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this subchapter—
‘‘(1) ELECTING
LARGE
PARTNERSHIP.—The term ‘electing
large partnership’ has the meaning given to such term by
section 775.
‘‘(2) PARTNERSHIP ITEM.—The term ‘partnership item’ has
the meaning given to such term by section 6231(a)(3).
‘‘(b) PARTNERS BOUND
BY ACTIONS
OF PARTNERSHIP, ETC.—
‘‘(1) DESIGNATION OF PARTNER.—Each electing large part-
nership shall designate (in the manner prescribed by the Sec-
retary) a partner (or other person) who shall have the sole
H. R. 2014—231
authority to act on behalf of such partnership under this sub-
chapter. In any case in which such a designation is not in
effect, the Secretary may select any partner as the partner
with such authority.
‘‘(2) BINDING EFFECT.—An electing large partnership and
all partners of such partnership shall be bound—
‘‘(A) by actions taken under this subchapter by the
partnership, and
‘‘(B) by any decision in a proceeding brought under
this subchapter.
‘‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF BUSINESS OUT-
SIDE THE UNITED STATES.—For purposes of sections 6247 and 6252,
a principal place of business located outside the United States
shall be treated as located in the District of Columbia.
‘‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO EXIST.—If
a partnership ceases to exist before a partnership adjustment under
this subchapter takes effect, such adjustment shall be taken into
account by the former partners of such partnership under regula-
tions prescribed by the Secretary.
‘‘(e) DATE DECISION BECOMES FINAL.—For purposes of this sub-
chapter, the principles of section 7481(a) shall be applied in deter-
mining the date on which a decision of a district court or the
Claims Court becomes final.
‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF THE UNITED
STATES CODE.—
‘‘(1) SUSPENSION
OF
PERIOD
OF
LIMITATIONS
ON
MAKING
ADJUSTMENT, ASSESSMENT, OR
COLLECTION.—The running of
any period of limitations provided in this subchapter on making
a partnership adjustment (or provided by section 6501 or 6502
on the assessment or collection of any amount required to
be paid under section 6242) shall, in a case under title 11
of the United States Code, be suspended during the period
during which the Secretary is prohibited by reason of such
case from making the adjustment (or assessment or collection)
and—
‘‘(A) for adjustment or assessment, 60 days thereafter,
and
‘‘(B) for collection, 6 months thereafter.
A rule similar to the rule of section 6213(f)(2) shall apply
for purposes of section 6246.
‘‘(2) SUSPENSION OF PERIOD OF LIMITATION FOR FILING FOR
JUDICIAL REVIEW.—The running of the period specified in sec-
tion 6247(a) or 6252(b) shall, in a case under title 11 of the
United States Code, be suspended during the period during
which the partnership is prohibited by reason of such case
from filing a petition under section 6247 or 6252 and for 60
days thereafter.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the provisions of this sub-
chapter, including regulations—
‘‘(1) to prevent abuse through manipulation of the provi-
sions of this subchapter, and
‘‘(2) providing that this subchapter shall not apply to any
case described in section 6231(c)(1) (or the regulations pre-
scribed thereunder) where the application of this subchapter
to such a case would interfere with the effective and efficient
enforcement of this title.
H. R. 2014—232
In any case to which this subchapter does not apply by reason
of paragraph (2), rules similar to the rules of sections 6229(f)
and 6255(f) shall apply.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 7421 is amended by inserting
‘‘6246(b),’’ after ‘‘6213(a),’’.
(2) Subsection (c) of section 7459 is amended by striking
‘‘or section 6228(a)’’ and inserting ‘‘, 6228(a), 6247, or 6252’’.
(3) Subparagraph (E) of section 7482(b)(1) is amended by
striking ‘‘or 6228(a)’’ and inserting ‘‘, 6228(a), 6247, or 6252’’.
(4)(A) The text of section 7485(b) is amended by striking
‘‘or 6228(a)’’ and inserting ‘‘, 6228(a), 6247, or 6252’’.
(B) The subsection heading for section 7485(b) is amended
to read as follows:
‘‘(b) BOND
IN CASE
OF APPEAL
OF CERTAIN PARTNERSHIP-
RELATED DECISIONS.—’’.
(c) CLERICAL AMENDMENT.—The table of subchapters for chap-
ter 63 is amended by adding at the end thereof the following
new item:
‘‘Subchapter D. Treatment of electing large partnerships.’’.
SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS
OF ELECTING LARGE PARTNERSHIPS.
(a) GENERAL RULE.—Subsection (b) of section 6031 (relating
to copies to partners) is amended by adding at the end the following
new sentence: ‘‘In the case of an electing large partnership (as
defined in section 775), such information shall be furnished on
or before the first March 15 following the close of such taxable
year.’’.
(b) TREATMENT
AS INFORMATION RETURN.—Section 6724 is
amended by adding at the end the following new subsection:
‘‘(e) SPECIAL RULE
FOR CERTAIN PARTNERSHIP RETURNS.—If
any partnership return under section 6031(a) is required under
section 6011(e) to be filed on magnetic media or in other machine-
readable form, for purposes of this part, each schedule required
to be included with such return with respect to each partner shall
be treated as a separate information return.’’.
SEC. 1224. RETURNS REQUIRED ON MAGNETIC MEDIA.
Paragraph (2) of section 6011(e) (relating to returns on magnetic
media) is amended by adding at the end thereof the following
new sentence:
‘‘Notwithstanding the preceding sentence, the Secretary shall
require partnerships having more than 100 partners to file
returns on magnetic media.’’.
SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL
RETIREMENT ACCOUNTS.
Subsection (b) of section 6012 is amended by adding at the
end thereof the following new paragraph:
‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.—In the case of
a trust which is exempt from taxation under section 408(e),
for purposes of this section, the trust’s distributive share of
items of gross income and gain of any partnership to which
subchapter C or D of chapter 63 applies shall be treated as
equal to the trust’s distributive share of the taxable income
of such partnership.’’.
H. R. 2014—233
SEC. 1226. EFFECTIVE DATE.
The amendments made by this part shall apply to partnership
taxable years ending on or after December 31, 1997.
PART II—PROVISIONS RELATED TO TEFRA
PARTNERSHIP PROCEEDINGS
SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY
PROCEEDINGS.
(a) IN GENERAL.—Subchapter C of chapter 63 is amended by
adding at the end the following new section:
‘‘SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF
ITEMS 
OTHER 
THAN 
PARTNERSHIP 
ITEMS 
WITH
RESPECT TO AN OVERSHELTERED RETURN.
‘‘(a) GENERAL RULE.—If—
‘‘(1) a taxpayer files an oversheltered return for a taxable
year,
‘‘(2) the Secretary makes a determination with respect to
the treatment of items (other than partnership items) of such
taxpayer for such taxable year, and
‘‘(3) the adjustments resulting from such determination
do not give rise to a deficiency (as defined in section 6211)
but would give rise to a deficiency if there were no net loss
from partnership items,
the Secretary is authorized to send a notice of adjustment reflecting
such determination to the taxpayer by certified or registered mail.
‘‘(b) OVERSHELTERED RETURN.—For purposes of this section,
the term ‘oversheltered return’ means an income tax return which—
‘‘(1) shows no taxable income for the taxable year, and
‘‘(2) shows a net loss from partnership items.
‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.—Within 90 days,
or 150 days if the notice is addressed to a person outside the
United States, after the day on which the notice of adjustment
authorized in subsection (a) is mailed to the taxpayer, the taxpayer
may file a petition with the Tax Court for redetermination of
the adjustments. Upon the filing of such a petition, the Tax Court
shall have jurisdiction to make a declaration with respect to all
items (other than partnership items and affected items which
require partner level determinations as described in section
6230(a)(2)(A)(i)) for the taxable year to which the notice of adjust-
ment relates, in accordance with the principles of section 6214(a).
Any such declaration shall have the force and effect of a decision
of the Tax Court and shall be reviewable as such.
‘‘(d) FAILURE TO FILE PETITION.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
if the taxpayer does not file a petition with the Tax Court
within the time prescribed in subsection (c), the determination
of the Secretary set forth in the notice of adjustment that
was mailed to the taxpayer shall be deemed to be correct.
‘‘(2) EXCEPTION.—Paragraph (1) shall not apply after the
date that the taxpayer—
‘‘(A) files a petition with the Tax Court within the
time prescribed in subsection (c) with respect to a subse-
quent notice of adjustment relating to the same taxable
year, or
H. R. 2014—234
‘‘(B) files a claim for refund of an overpayment of
tax under section 6511 for the taxable year involved.
If a claim for refund is filed by the taxpayer, then solely
for purposes of determining (for the taxable year involved)
the amount of any computational adjustment in connection
with a partnership proceeding under this subchapter (other
than under this section) or the amount of any deficiency attrib-
utable to affected items in a proceeding under section
6230(a)(2), the items that are the subject of the notice of adjust-
ment shall be presumed to have been correctly reported on
the taxpayer’s return during the pendency of the refund claim
(and, if within the time prescribed by section 6532 the taxpayer
commences a civil action for refund under section 7422, until
the decision in the refund action becomes final).
‘‘(e) LIMITATIONS PERIOD.—
‘‘(1) IN GENERAL.—Any notice to a taxpayer under sub-
section (a) shall be mailed before the expiration of the period
prescribed by section 6501 (relating to the period of limitations
on assessment).
‘‘(2) SUSPENSION WHEN SECRETARY MAILS NOTICE OF ADJUST-
MENT.—If the Secretary mails a notice of adjustment to the
taxpayer for a taxable year, the period of limitations on the
making of assessments shall be suspended for the period during
which the Secretary is prohibited from making the assessment
(and, in any event, if a proceeding in respect of the notice
of adjustment is placed on the docket of the Tax Court, until
the decision of the Tax Court becomes final), and for 60 days
thereafter.
‘‘(3) RESTRICTIONS ON ASSESSMENT.—Except as otherwise
provided in section 6851, 6852, or 6861, no assessment of a
deficiency with respect to any tax imposed by subtitle A attrib-
utable to any item (other than a partnership item or any
item affected by a partnership item) shall be made—
‘‘(A) until the expiration of the applicable 90-day or
150-day period set forth in subsection (c) for filing a petition
with the Tax Court, or
‘‘(B) if a petition has been filed with the Tax Court,
until the decision of the Tax Court has become final.
‘‘(f) FURTHER NOTICES
OF ADJUSTMENT RESTRICTED.—If the
Secretary mails a notice of adjustment to the taxpayer for a taxable
year and the taxpayer files a petition with the Tax Court within
the time prescribed in subsection (c), the Secretary may not mail
another such notice to the taxpayer with respect to the same taxable
year in the absence of a showing of fraud, malfeasance, or misrepre-
sentation of a material fact.
‘‘(g) COORDINATION WITH OTHER PROCEEDINGS UNDER THIS
SUBCHAPTER.—
‘‘(1) IN
GENERAL.—The treatment of any item that has
been determined pursuant to subsection (c) or (d) shall be
taken into account in determining the amount of any computa-
tional adjustment that is made in connection with a partnership
proceeding under this subchapter (other than under this sec-
tion), or the amount of any deficiency attributable to affected
items in a proceeding under section 6230(a)(2), for the taxable
year involved. Notwithstanding any other law or rule of law
pertaining to the period of limitations on the making of assess-
ments, for purposes of the preceding sentence, any adjustment
H. R. 2014—235
made in accordance with this section shall be taken into account
regardless of whether any assessment has been made with
respect to such adjustment.
‘‘(2) SPECIAL
RULE
IN
CASE
OF
COMPUTATIONAL
ADJUST-
MENT.—In the case of a computational adjustment that is made
in connection with a partnership proceeding under this sub-
chapter (other than under this section), the provisions of para-
graph (1) shall apply only if the computational adjustment
is made within the period prescribed by section 6229 for assess-
ing any tax under subtitle A which is attributable to any
partnership item or affected item for the taxable year involved.
‘‘(3) CONVERSION TO DEFICIENCY PROCEEDING.—If—
‘‘(A) after the notice referred to in subsection (a) is
mailed to a taxpayer for a taxable year but before the
expiration of the period for filing a petition with the Tax
Court under subsection (c) (or, if a petition is filed with
the Tax Court, before the Tax Court makes a declaration
for that taxable year), the treatment of any partnership
item for the taxable year is finally determined, or any
such item ceases to be a partnership item pursuant to
section 6231(b), and
‘‘(B) as a result of that final determination or cessation,
a deficiency can be determined with respect to the items
that are the subject of the notice of adjustment,
the notice of adjustment shall be treated as a notice of deficiency
under section 6212 and any petition filed in respect of the
notice shall be treated as an action brought under section
6213.
‘‘(4) FINALLY DETERMINED.—For purposes of this subsection,
the treatment of partnership items shall be treated as finally
determined if—
‘‘(A) the Secretary enters into a settlement agreement
(within the meaning of section 6224) with the taxpayer
regarding such items,
‘‘(B) a notice of final partnership administrative adjust-
ment has been issued and—
‘‘(i) no petition has been filed under section 6226
and the time for doing so has expired, or
‘‘(ii) a petition has been filed under section 6226
and the decision of the court has become final, or
‘‘(C) the period within which any tax attributable to
such items may be assessed against the taxpayer has
expired.
‘‘(h) SPECIAL RULES IF SECRETARY INCORRECTLY DETERMINES
APPLICABLE PROCEDURE.—
‘‘(1) SPECIAL
RULE
IF
SECRETARY
ERRONEOUSLY
MAILS
NOTICE OF ADJUSTMENT.—If the Secretary erroneously deter-
mines that subchapter B does not apply to a taxable year
of a taxpayer and consistent with that determination timely
mails a notice of adjustment to the taxpayer pursuant to sub-
section (a) of this section, the notice of adjustment shall be
treated as a notice of deficiency under section 6212 and any
petition that is filed in respect of the notice shall be treated
as an action brought under section 6213.
‘‘(2) SPECIAL
RULE
IF
SECRETARY
ERRONEOUSLY
MAILS
NOTICE
OF
DEFICIENCY.—If the Secretary erroneously deter-
mines that subchapter B applies to a taxable year of a taxpayer
H. R. 2014—236
and consistent with that determination timely mails a notice
of deficiency to the taxpayer pursuant to section 6212, the
notice of deficiency shall be treated as a notice of adjustment
under subsection (a) and any petition that is filed in respect
of the notice shall be treated as an action brought under sub-
section (c).’’.
(b) TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEED-
INGS.—Section 6211 (defining deficiency) is amended by adding
at the end the following new subsection:
‘‘(c) COORDINATION WITH SUBCHAPTER C.—In determining the
amount of any deficiency for purposes of this subchapter, adjust-
ments to partnership items shall be made only as provided in
subchapter C.’’.
(c) CLERICAL AMENDMENT.—The table of sections for subchapter
C of chapter 63 is amended by adding at the end the following
new item:
‘‘Sec. 6234. Declaratory judgment relating to treatment of items other than
partnership items with respect to an oversheltered return.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT
PROCEDURES TO BE FOLLOWED.
(a) IN GENERAL.—Section 6231 (relating to definitions and spe-
cial rules) is amended by adding at the end the following new
subsection:
‘‘(g) PARTNERSHIP RETURN TO BE DETERMINATIVE OF WHETHER
SUBCHAPTER APPLIES.—
‘‘(1) DETERMINATION THAT SUBCHAPTER APPLIES.—If, on the
basis of a partnership return for a taxable year, the Secretary
reasonably determines that this subchapter applies to such
partnership for such year but such determination is erroneous,
then the provisions of this subchapter are hereby extended
to such partnership (and its items) for such taxable year and
to partners of such partnership.
‘‘(2) DETERMINATION THAT SUBCHAPTER DOES NOT APPLY.—
If, on the basis of a partnership return for a taxable year,
the Secretary reasonably determines that this subchapter does
not apply to such partnership for such year but such determina-
tion is erroneous, then the provisions of this subchapter shall
not apply to such partnership (and its items) for such taxable
year or to partners of such partnership.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.
(a) SUSPENSION
OF
STATUTE
WHERE
UNTIMELY
PETITION
FILED.—Paragraph (1) of section 6229(d) (relating to suspension
where Secretary makes administrative adjustment) is amended by
striking all that follows ‘‘section 6226’’ and inserting the following:
‘‘(and, if a petition is filed under section 6226 with respect to
such administrative adjustment, until the decision of the court
becomes final), and’’.
H. R. 2014—237
(b) SUSPENSION OF STATUTE DURING BANKRUPTCY PROCEED-
ING.—Section 6229 is amended by adding at the end the following
new subsection:
‘‘(h) SUSPENSION DURING PENDENCY OF BANKRUPTCY PROCEED-
ING.—If a petition is filed naming a partner as a debtor in a
bankruptcy proceeding under title 11 of the United States Code,
the running of the period of limitations provided in this section
with respect to such partner shall be suspended—
‘‘(1) for the period during which the Secretary is prohibited
by reason of such bankruptcy proceeding from making an
assessment, and
‘‘(2) for 60 days thereafter.’’.
(c) TAX MATTERS PARTNER IN BANKRUPTCY.—Section 6229(b)
is amended by redesignating paragraph (2) as paragraph (3) and
by inserting after paragraph (1) the following new paragraph:
‘‘(2) SPECIAL
RULE
WITH
RESPECT
TO
DEBTORS
IN
TITLE
11 CASES.—Notwithstanding any other law or rule of law, if
an agreement is entered into under paragraph (1)(B) and the
agreement is signed by a person who would be the tax matters
partner but for the fact that, at the time that the agreement
is executed, the person is a debtor in a bankruptcy proceeding
under title 11 of the United States Code, such agreement shall
be binding on all partners in the partnership unless the Sec-
retary has been notified of the bankruptcy proceeding in accord-
ance with regulations prescribed by the Secretary.’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amendments made by
subsections (a) and (b) shall apply to partnership taxable years
with respect to which the period under section 6229 of the
Internal Revenue Code of 1986 for assessing tax has not expired
on or before the date of the enactment of this Act.
(2) SUBSECTION (c).—The amendment made by subsection
(c) shall apply to agreements entered into after the date of
the enactment of this Act.
SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.
(a) IN GENERAL.—Clause (i) of section 6231(a)(1)(B) (relating
to exception for small partnerships) is amended to read as follows:
‘‘(i) IN GENERAL.—The term ‘partnership’ shall not
include any partnership having 10 or fewer partners
each of whom is an individual (other than a non-
resident alien), a C corporation, or an estate of a
deceased partner. For purposes of the preceding sen-
tence, a husband and wife (and their estates) shall
be treated as 1 partner.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR
LIMITATION ON ASSESSMENT.
(a) IN GENERAL.—Subsection (f) of section 6229 (relating to
items becoming nonpartnership items) is amended—
(1) by striking ‘‘(f) ITEMS BECOMING NONPARTNERSHIP
ITEMS.—If’’ and inserting the following:
‘‘(f) SPECIAL RULES.—
‘‘(1) ITEMS BECOMING NONPARTNERSHIP ITEMS.—If’’,
H. R. 2014—238
(2) by moving the text of such subsection 2 ems to the
right, and
(3) by adding at the end the following new paragraph:
‘‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT AGREEMENTS.—
If a partner enters into a settlement agreement with the Sec-
retary with respect to the treatment of some of the partnership
items in dispute for a partnership taxable year but other part-
nership items for such year remain in dispute, the period
of limitations for assessing any tax attributable to the settled
items shall be determined as if such agreement had not been
entered into.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to settlements entered into after the date of the enact-
ment of this Act.
SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINIS-
TRATIVE ADJUSTMENT.
(a) IN GENERAL.—Section 6227 (relating to administrative
adjustment requests) is amended by redesignating subsections (b)
and (c) as subsections (c) and (d), respectively, and by inserting
after subsection (a) the following new subsection:
‘‘(b) SPECIAL RULE IN CASE OF EXTENSION OF PERIOD OF LIMITA-
TIONS UNDER SECTION 6229.—The period prescribed by subsection
(a)(1) for filing of a request for an administrative adjustment shall
be extended—
‘‘(1) for the period within which an assessment may be
made pursuant to an agreement (or any extension thereof)
under section 6229(b), and
‘‘(2) for 6 months thereafter.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendments made by section
402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT
OF PARTNERSHIP PROCEEDINGS.
(a) IN GENERAL.—Subsection (a) of section 6230 is amended
by adding at the end the following new paragraph:
‘‘(3) SPECIAL RULE IN CASE OF ASSERTION BY PARTNER’S
SPOUSE OF INNOCENT SPOUSE RELIEF.—
‘‘(A) Notwithstanding section 6404(b), if the spouse
of a partner asserts that section 6013(e) applies with
respect to a liability that is attributable to any adjustment
to a partnership item, then such spouse may file with
the Secretary within 60 days after the notice of computa-
tional adjustment is mailed to the spouse a request for
abatement of the assessment specified in such notice. Upon
receipt of such request, the Secretary shall abate the
assessment. Any reassessment of the tax with respect to
which an abatement is made under this subparagraph shall
be subject to the deficiency procedures prescribed by sub-
chapter B. The period for making any such reassessment
shall not expire before the expiration of 60 days after
the date of such abatement.
‘‘(B) If the spouse files a petition with the Tax Court
pursuant to section 6213 with respect to the request for
abatement described in subparagraph (A), the Tax Court
shall only have jurisdiction pursuant to this section to
determine whether the requirements of section 6013(e)
H. R. 2014—239
have been satisfied. For purposes of such determination,
the treatment of partnership items under the settlement,
the final partnership administrative adjustment, or the
decision of the court (whichever is appropriate) that gave
rise to the liability in question shall be conclusive.
‘‘(C) Rules similar to the rules contained in subpara-
graphs (B) and (C) of paragraph (2) shall apply for purposes
of this paragraph.’’.
(b) CLAIMS
FOR REFUND.—Subsection (c) of section 6230 is
amended by adding at the end the following new paragraph:
‘‘(5) RULES FOR SEEKING INNOCENT SPOUSE RELIEF.—
‘‘(A) IN GENERAL.—The spouse of a partner may file
a claim for refund on the ground that the Secretary failed
to relieve the spouse under section 6013(e) from a liability
that is attributable to an adjustment to a partnership
item.
‘‘(B) TIME
FOR
FILING
CLAIM.—Any claim under
subparagraph (A) shall be filed within 6 months after the
day on which the Secretary mails to the spouse the notice
of computational adjustment referred to in subsection
(a)(3)(A).
‘‘(C) SUIT IF CLAIM NOT ALLOWED.—If the claim under
subparagraph (B) is not allowed, the spouse may bring
suit with respect to the claim within the period specified
in paragraph (3).
‘‘(D) PRIOR DETERMINATIONS ARE BINDING.—For pur-
poses of any claim or suit under this paragraph, the treat-
ment of partnership items under the settlement, the final
partnership administrative adjustment, or the decision of
the court (whichever is appropriate) that gave rise to the
liability in question shall be conclusive.’’.
(c) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 6230(a) is amended by striking
‘‘paragraph (2)’’ and inserting ‘‘paragraph (2) or (3)’’.
(2) Subsection (a) of section 6503 is amended by striking
‘‘section 6230(a)(2)(A)’’ and inserting ‘‘paragraph (2)(A) or (3)
of section 6230(a)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect as if included in the amendments made by section
402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.
(a) IN GENERAL.—Section 6221 (relating to tax treatment deter-
mined at partnership level) is amended by striking ‘‘item’’ and
inserting ‘‘item (and the applicability of any penalty, addition to
tax, or additional amount which relates to an adjustment to a
partnership item)’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 6226 is amended—
(A) by striking ‘‘relates and’’ and inserting ‘‘relates,’’,
and
(B) by inserting before the period ‘‘, and the applicabil-
ity of any penalty, addition to tax, or additional amount
which relates to an adjustment to a partnership item’’.
(2) Clause (i) of section 6230(a)(2)(A) is amended to read
as follows:
H. R. 2014—240
‘‘(i) affected items which require partner level
determinations (other than penalties, additions to tax,
and additional amounts that relate to adjustments to
partnership items), or’’.
(3)(A) Subparagraph (A) of section 6230(a)(3), as added
by section 1237, is amended by inserting ‘‘(including any liabil-
ity for any penalties, additions to tax, or additional amounts
relating to such adjustment)’’ after ‘‘partnership item’’.
(B) Subparagraph (B) of such section is amended by insert-
ing ‘‘(and the applicability of any penalties, additions to tax,
or additional amounts)’’ after ‘‘partnership items’’.
(C) Subparagraph (A) of section 6230(c)(5), as added by
section 1237, is amended by inserting before the period ‘‘(includ-
ing any liability for any penalties, additions to tax, or additional
amounts relating to such adjustment)’’.
(D) Subparagraph (D) of section 6230(c)(5), as added by
section 1237, is amended by inserting ‘‘(and the applicability
of any penalties, additions to tax, or additional amounts)’’ after
‘‘partnership items’’.
(4) Paragraph (1) of section 6230(c) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘, or’’, and by
adding at the end the following new subparagraph:
‘‘(C) the Secretary erroneously imposed any penalty,
addition to tax, or additional amount which relates to an
adjustment to a partnership item.’’.
(5) So much of subparagraph (A) of section 6230(c)(2) as
precedes ‘‘shall be filed’’ is amended to read as follows:
‘‘(A) UNDER PARAGRAPH (1) (A) OR (C).—Any claim under
subparagraph (A) or (C) of paragraph (1)’’.
(6) Paragraph (4) of section 6230(c) is amended by adding
at the end the following: ‘‘In addition, the determination under
the final partnership administrative adjustment or under the
decision of the court (whichever is appropriate) concerning the
applicability of any penalty, addition to tax, or additional
amount which relates to an adjustment to a partnership item
shall also be conclusive. Notwithstanding the preceding sen-
tence, the partner shall be allowed to assert any partner level
defenses that may apply or to challenge the amount of the
computational adjustment.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.
(a) TAX COURT JURISDICTION TO ENJOIN PREMATURE ASSESS-
MENTS OF DEFICIENCIES ATTRIBUTABLE TO PARTNERSHIP ITEMS.—
Subsection (b) of section 6225 is amended by striking ‘‘the proper
court.’’ and inserting ‘‘the proper court, including the Tax Court.
The Tax Court shall have no jurisdiction to enjoin any action
or proceeding under this subsection unless a timely petition for
a readjustment of the partnership items for the taxable year has
been filed and then only in respect of the adjustments that are
the subject of such petition.’’.
(b) JURISDICTION TO CONSIDER STATUTE OF LIMITATIONS WITH
RESPECT TO PARTNERS.—Paragraph (1) of section 6226(d) is amend-
ed by adding at the end the following new sentence:
H. R. 2014—241
‘‘Notwithstanding subparagraph (B), any person treated under
subsection (c) as a party to an action shall be permitted to
participate in such action (or file a readjustment petition under
subsection (b) or paragraph (2) of this subsection) solely for
the purpose of asserting that the period of limitations for assess-
ing any tax attributable to partnership items has expired with
respect to such person, and the court having jurisdiction of
such action shall have jurisdiction to consider such assertion.’’.
(c) TAX COURT JURISDICTION TO DETERMINE OVERPAYMENTS
ATTRIBUTABLE TO AFFECTED ITEMS.—
(1) Paragraph (6) of section 6230(d) is amended by striking
‘‘(or an affected item)’’.
(2) Paragraph (3) of section 6512(b) is amended by adding
at the end the following new sentence:
‘‘In the case of a credit or refund relating to an affected item
(within the meaning of section 6231(a)(5)), the preceding sen-
tence shall be applied by substituting the periods under sections
6229 and 6230(d) for the periods under section 6511(b)(2), (c),
and (d).’’.
(d) VENUE ON APPEAL.—
(1) Paragraph (1) of section 7482(b) is amended by striking
‘‘or’’ at the end of subparagraph (D), by striking the period
at the end of subparagraph (E) and inserting ‘‘, or’’, and by
inserting after subparagraph (E) the following new subpara-
graph:
‘‘(F) in the case of a petition under section 6234(c)—
‘‘(i) the legal residence of the petitioner if the peti-
tioner is not a corporation, and
‘‘(ii) the place or office applicable under subpara-
graph (B) if the petitioner is a corporation.’’.
(2) The last sentence of section 7482(b)(1) is amended by
striking ‘‘or 6228(a)’’ and inserting ‘‘, 6228(a), or 6234(c)’’.
(e) OTHER PROVISIONS.—
(1) Subsection (c) of section 7459 is amended by striking
‘‘or section 6228(a)’’ and inserting ‘‘, 6228(a), or 6234(c)’’.
(2) Subsection (o) of section 6501 is amended by adding
at the end the following new paragraph:
‘‘(3) For declaratory judgment relating to treatment of items
other than partnership items with respect to an oversheltered
return, see section 6234.’’.
(3) Subsection (a) of section 7421, as amended by section
1222, is amended by inserting ‘‘6225(b),’’ after ‘‘6213(a),’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years ending after the date
of the enactment of this Act.
SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE
PARTNERS OR 5-PERCENT GROUPS.
(a) IN GENERAL.—Subsection (b) of section 6226 (relating to
judicial review of final partnership administrative adjustments)
is amended by redesignating paragraph (5) as paragraph (6) and
by inserting after paragraph (4) the following new paragraph:
‘‘(5) TREATMENT OF PREMATURE PETITIONS.—If—
‘‘(A) a petition for a readjustment of partnership items
for the taxable year involved is filed by a notice partner
(or a 5-percent group) during the 90-day period described
in subsection (a), and
H. R. 2014—242
‘‘(B) no action is brought under paragraph (1) during
the 60-day period described therein with respect to such
taxable year which is not dismissed,
such petition shall be treated for purposes of paragraph (1)
as filed on the last day of such 60-day period.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to petitions filed after the date of the enactment of
this Act.
SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.
(a) IN GENERAL.—Subsection (b) of section 7485 (relating to
bonds to stay assessment of collection) is amended—
(1) by inserting ‘‘penalties,’’ after ‘‘any interest,’’, and
(2) by striking ‘‘aggregate of such deficiencies’’ and inserting
‘‘aggregate liability of the parties to the action’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect as if included in the amendments made by section
402 of the Tax Equity and Fiscal Responsibility Act of 1982.
SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTA-
TIONAL 
ADJUSTMENT 
RESULTING 
FROM 
CERTAIN
SETTLEMENTS.
(a) IN GENERAL.—Subsection (c) of section 6601 (relating to
interest on underpayment, nonpayment, or extension of time for
payment, of tax) is amended by adding at the end the following
new sentence: ‘‘In the case of a settlement under section 6224(c)
which results in the conversion of partnership items to nonpartner-
ship items pursuant to section 6231(b)(1)(C), the preceding sentence
shall apply to a computational adjustment resulting from such
settlement in the same manner as if such adjustment were a
deficiency and such settlement were a waiver referred to in the
preceding sentence.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to adjustments with respect to partnership taxable
years beginning after the date of the enactment of this Act.
SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT
REQUESTS WITH RESPECT TO BAD DEBTS OR WORTH-
LESS SECURITIES.
(a) GENERAL RULE.—Section 6227 (relating to administrative
adjustment requests) is amended by adding at the end the following
new subsection:
‘‘(e) REQUESTS WITH RESPECT TO BAD DEBTS OR WORTHLESS
SECURITIES.—In the case of that portion of any request for an
administrative adjustment which relates to the deductibility by
the partnership under section 166 of a debt as a debt which became
worthless, or under section 165(g) of a loss from worthlessness
of a security, the period prescribed in subsection (a)(1) shall be
7 years from the last day for filing the partnership return for
the year with respect to which such request is made (determined
without regard to extensions).’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by subsection (a)
shall take effect as if included in the amendments made by
section 402 of the Tax Equity and Fiscal Responsibility Act
of 1982.
(2) TREATMENT OF REQUESTS FILED BEFORE DATE OF ENACT-
MENT.—In the case of that portion of any request (filed before
H. R. 2014—243
the date of the enactment of this Act) for an administrative
adjustment which relates to the deductibility of a debt as a
debt which became worthless or the deductibility of a loss
from the worthlessness of a security—
(A) paragraph (2) of section 6227(a) of the Internal
Revenue Code of 1986 shall not apply,
(B) the period for filing a petition under section 6228
of the Internal Revenue Code of 1986 with respect to such
request shall not expire before the date 6 months after
the date of the enactment of this Act, and
(C) such a petition may be filed without regard to
whether there was a notice of the beginning of an adminis-
trative proceeding or a final partnership administrative
adjustment.
PART III—PROVISION RELATING TO CLOSING
OF PARTNERSHIP TAXABLE YEAR WITH RE-
SPECT TO DECEASED PARTNER, ETC.
SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT
TO DECEASED PARTNER, ETC.
(a) GENERAL RULE.—Subparagraph (A) of section 706(c)(2)
(relating to disposition of entire interest) is amended to read as
follows:
‘‘(A) DISPOSITION
OF
ENTIRE
INTEREST.—The taxable
year of a partnership shall close with respect to a partner
whose entire interest in the partnership terminates
(whether by reason of death, liquidation, or otherwise).’’.
(b) CLERICAL AMENDMENT.—The paragraph heading for para-
graph (2) of section 706(c) is amended to read as follows:
‘‘(2) TREATMENT OF DISPOSITIONS.—’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years beginning after December
31, 1997.
Subtitle D—Provisions Relating to Real
Estate Investment Trusts
SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF
SHAREHOLDERS.
(a) RULES RELATING TO DETERMINATION OF OWNERSHIP.—
(1) FAILURE TO ISSUE SHAREHOLDER DEMAND LETTER NOT
TO DISQUALIFY REIT.—Section 857(a) (relating to requirements
applicable to real estate investment trusts) is amended by
striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(2) SHAREHOLDER
DEMAND
LETTER
REQUIREMENT; PEN-
ALTY.—Section 857 (relating to taxation of real estate invest-
ment trusts and their beneficiaries) is amended by redesignat-
ing subsection (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) REAL ESTATE INVESTMENT TRUSTS TO ASCERTAIN OWNER-
SHIP.—
‘‘(1) IN GENERAL.—Each real estate investment trust shall
each taxable year comply with regulations prescribed by the
H. R. 2014—244
Secretary for the purposes of ascertaining the actual ownership
of the outstanding shares, or certificates of beneficial interest,
of such trust.
‘‘(2) FAILURE TO COMPLY.—
‘‘(A) IN GENERAL.—If a real estate investment trust
fails to comply with the requirements of paragraph (1)
for a taxable year, such trust shall pay (on notice and
demand by the Secretary and in the same manner as
tax) a penalty of $25,000.
‘‘(B) INTENTIONAL
DISREGARD.—If any failure under
paragraph (1) is due to intentional disregard of the require-
ment under paragraph (1), the penalty under subparagraph
(A) shall be $50,000.
‘‘(C) FAILURE TO COMPLY AFTER NOTICE.—The Secretary
may require a real estate investment trust to take such
actions as the Secretary determines appropriate to
ascertain actual ownership if the trust fails to meet the
requirements of paragraph (1). If the trust fails to take
such actions, the trust shall pay (on notice and demand
by the Secretary and in the same manner as tax) an
additional penalty equal to the penalty determined under
subparagraph (A) or (B), whichever is applicable.
‘‘(D) REASONABLE CAUSE.—No penalty shall be imposed
under this paragraph with respect to any failure if it is
shown that such failure is due to reasonable cause and
not to willful neglect.’’.
(b) COMPLIANCE WITH CLOSELY HELD PROHIBITION.—
(1) IN GENERAL.—Section 856 (defining real estate invest-
ment trust) is amended by adding at the end the following
new subsection:
‘‘(k) REQUIREMENT THAT ENTITY NOT BE CLOSELY HELD TREAT-
ED AS MET IN CERTAIN CASES.—A corporation, trust, or associa-
tion—
‘‘(1) which for a taxable year meets the requirements of
section 857(f)(1), and
‘‘(2) which does not know, or exercising reasonable diligence
would not have known, whether the entity failed to meet the
requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection (a)(6)
for the taxable year.’’.
(2) CONFORMING
AMENDMENT.—Paragraph (6) of section
856(a) is amended by inserting ‘‘subject to the provisions of
subsection (k),’’ before ‘‘which is not’’.
SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.
(a) IN GENERAL.—Paragraph (2) of section 856(d) (defining rents
from real property) is amended by striking subparagraph (C) and
the last sentence and inserting:
‘‘(C) any impermissible tenant service income (as
defined in paragraph (7)).’’.
(b) IMPERMISSIBLE TENANT SERVICE INCOME.—Section 856(d)
is amended by adding at the end the following new paragraph:
‘‘(7) IMPERMISSIBLE TENANT SERVICE INCOME.—For purposes
of paragraph (2)(C)—
‘‘(A) IN
GENERAL.—The term ‘impermissible tenant
service income’ means, with respect to any real or personal
H. R. 2014—245
property, any amount received or accrued directly or
indirectly by the real estate investment trust for—
‘‘(i) services furnished or rendered by the trust
to the tenants of such property, or
‘‘(ii) managing or operating such property.
‘‘(B) DISQUALIFICATION OF ALL AMOUNTS WHERE MORE
THAN
DE
MINIMIS
AMOUNT.—If the amount described in
subparagraph (A) with respect to a property for any taxable
year exceeds 1 percent of all amounts received or accrued
during such taxable year directly or indirectly by the real
estate investment trust with respect to such property, the
impermissible tenant service income of the trust with
respect to the property shall include all such amounts.
‘‘(C) EXCEPTIONS.—For purposes of subparagraph (A)—
‘‘(i) services furnished or rendered, or management
or operation provided, through an independent contrac-
tor from whom the trust itself does not derive or receive
any income shall not be treated as furnished, rendered,
or provided by the trust, and
‘‘(ii) there shall not be taken into account any
amount which would be excluded from unrelated busi-
ness taxable income under section 512(b)(3) if received
by an organization described in section 511(a)(2).
‘‘(D) AMOUNT ATTRIBUTABLE TO IMPERMISSIBLE SERV-
ICES.—For purposes of subparagraph (A), the amount treat-
ed as received for any service (or management or operation)
shall not be less than 150 percent of the direct cost of
the trust in furnishing or rendering the service (or provid-
ing the management or operation).
‘‘(E) COORDINATION WITH LIMITATIONS.—For purposes
of paragraphs (2) and (3) of subsection (c), amounts
described in subparagraph (A) shall be included in the
gross income of the corporation, trust, or association.’’.
SEC. 1253. ATTRIBUTION RULES APPLICABLE TO STOCK OWNERSHIP.
Section 856(d)(5) (relating to constructive ownership of stock)
is amended by striking ‘‘except that’’ and all that follows and
inserting ‘‘except that—
‘‘(A) ‘10 percent’ shall be substituted for ‘50 percent’
in subparagraph (C) of paragraphs (2) and (3) of section
318(a), and
‘‘(B) section 318(a)(3)(A) shall be applied in the case
of a partnership by taking into account only partners who
own (directly or indirectly) 25 percent or more of the capital
interest, or the profits interest, in the partnership.’’.
SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL
GAINS.
(a) GENERAL RULE.—Paragraph (3) of section 857(b) (relating
to capital gains) is amended by redesignating subparagraph (D)
as subparagraph (E) and by inserting after subparagraph (C) the
following new subparagraph:
‘‘(D) TREATMENT BY SHAREHOLDERS OF UNDISTRIBUTED
CAPITAL GAINS.—
‘‘(i) Every shareholder of a real estate investment
trust at the close of the trust’s taxable year shall
include, in computing his long-term capital gains in
his return for his taxable year in which the last day
H. R. 2014—246
of the trust’s taxable year falls, such amount as the
trust shall designate in respect of such shares in a
written notice mailed to its shareholders at any time
prior to the expiration of 60 days after the close of
its taxable year (or mailed to its shareholders or hold-
ers of beneficial interests with its annual report for
the taxable year), but the amount so includible by
any shareholder shall not exceed that part of the
amount subjected to tax in subparagraph (A)(ii) which
he would have received if all of such amount had
been distributed as capital gain dividends by the trust
to the holders of such shares at the close of its taxable
year.
‘‘(ii) For purposes of this title, every such share-
holder shall be deemed to have paid, for his taxable
year under clause (i), the tax imposed by subparagraph
(A)(ii) on the amounts required by this subparagraph
to be included in respect of such shares in computing
his long-term capital gains for that year; and such
shareholders shall be allowed credit or refund as the
case may be, for the tax so deemed to have been
paid by him.
‘‘(iii) The adjusted basis of such shares in the
hands of the holder shall be increased with respect
to the amounts required by this subparagraph to be
included in computing his long-term capital gains, by
the difference between the amount of such includible
gains and the tax deemed paid by such shareholder
in respect of such shares under clause (ii).
‘‘(iv) In the event of such designation, the tax
imposed by subparagraph (A)(ii) shall be paid by the
real estate investment trust within 30 days after the
close of its taxable year.
‘‘(v) The earnings and profits of such real estate
investment trust, and the earnings and profits of any
such shareholder which is a corporation, shall be appro-
priately adjusted in accordance with regulations pre-
scribed by the Secretary.
‘‘(vi) As used in this subparagraph, the terms
‘shares’ and ‘shareholders’ shall include beneficial
interests and holders of beneficial interests, respec-
tively.’’.
(b) CONFORMING AMENDMENTS.—
(1) Clause (i) of section 857(b)(7)(A) is amended by striking
‘‘subparagraph (B)’’ and inserting ‘‘subparagraph (B) or (D)’’.
(2) Clause (iii) of section 852(b)(3)(D) is amended by strik-
ing ‘‘by 65 percent’’ and all that follows and inserting ‘‘by
the difference between the amount of such includible gains
and the tax deemed paid by such shareholder in respect of
such shares under clause (ii).’’.
SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.
(a) GENERAL RULE.—Subsection (c) of section 856 (relating to
limitations) is amended—
(1) by adding ‘‘and’’ at the end of paragraph (3),
(2) by striking paragraphs (4) and (8), and
H. R. 2014—247
(3) by redesignating paragraphs (5), (6), and (7) as para-
graphs (4), (5), and (6), respectively.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (G) of section 856(c)(5), as redesignated
by subsection (a), is amended by striking ‘‘and such agreement
shall be treated as a security for purposes of paragraph (4)(A)’’.
(2) Paragraph (5) of section 857(b) is amended by striking
‘‘section 856(c)(7)’’ and inserting ‘‘section 856(c)(6)’’.
(3) Subparagraph (C) of section 857(b)(6) is amended by
striking 
‘‘section 
856(c)(6)(B)’’ 
and 
inserting 
‘‘section
856(c)(5)(B)’’.
SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR
DETERMINING WHETHER REIT HAS EARNINGS AND
PROFITS FROM NON-REIT YEAR.
Subsection (d) of section 857 is amended by adding at the
end the following new paragraph:
‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS OF SUBSECTION
(a)(2)(B).—Any distribution which is made in order to comply
with the requirements of subsection (a)(2)(B)—
‘‘(A) shall be treated for purposes of this subsection
and subsection (a)(2)(B) as made from the earliest accumu-
lated earnings and profits (other than earnings and profits
to which subsection (a)(2)(A) applies) rather than the most
recently accumulated earnings and profits, and
‘‘(B) to the extent treated under subparagraph (A) as
made from accumulated earnings and profits, shall not
be treated as a distribution for purposes of subsection
(b)(2)(B).’’.
SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.
(a) GRACE PERIODS.—
(1) INITIAL PERIOD.—Paragraph (2) of section 856(e) (relat-
ing to special rules for foreclosure property) is amended by
striking ‘‘on the date which is 2 years after the date the trust
acquired such property’’ and inserting ‘‘as of the close of the
3d taxable year following the taxable year in which the trust
acquired such property’’.
(2) EXTENSION.—Paragraph (3) of section 856(e) is amend-
ed—
(A) by striking ‘‘or more extensions’’ and inserting
‘‘extension’’, and
(B) by striking the last sentence and inserting: ‘‘Any
such extension shall not extend the grace period beyond
the close of the 3d taxable year following the last taxable
year in the period under paragraph (2).’’.
(b) REVOCATION OF ELECTION.—Paragraph (5) of section 856(e)
is amended by striking the last sentence and inserting: ‘‘A real
estate investment trust may revoke any such election for a taxable
year by filing the revocation (in the manner provided by the Sec-
retary) on or before the due date (including any extension of time)
for filing its return of tax under this chapter for the taxable year.
If a trust revokes an election for any property, no election may
be made by the trust under this paragraph with respect to the
property for any subsequent taxable year.’’.
(c) CERTAIN ACTIVITIES NOT TO DISQUALIFY PROPERTY.—Para-
graph (4) of section 856(e) is amended by adding at the end the
following new flush sentence:
H. R. 2014—248
‘‘For purposes of subparagraph (C), property shall not be treated
as used in a trade or business by reason of any activities
of the real estate investment trust with respect to such property
to the extent that such activities would not result in amounts
received or accrued, directly or indirectly, with respect to such
property being treated as other than rents from real property.’’.
SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(5)(G) (relating to treatment of certain interest
rate agreements), as redesignated by section 1255, is amended
to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING INSTRUMENTS.—
Except to the extent provided by regulations, any—
‘‘(i) payment to a real estate investment trust
under an interest rate swap or cap agreement, option,
futures contract, forward rate agreement, or any simi-
lar financial instrument, entered into by the trust in
a transaction to reduce the interest rate risks with
respect to any indebtedness incurred or to be incurred
by the trust to acquire or carry real estate assets,
and
‘‘(ii) gain from the sale or other disposition of any
such investment,
shall be treated as income qualifying under paragraph
(2).’’.
SEC. 1259. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of amount of excess
noncash income) is amended—
(1) by striking subparagraph (B),
(2) by striking the period at the end of subparagraph (C)
and inserting a comma,
(3) by redesignating subparagraph (C) (as amended by
paragraph (2)) as subparagraph (B), and
(4) by adding at the end the following new subparagraphs:
‘‘(C) the amount (if any) by which—
‘‘(i) the amounts includible in gross income with
respect to instruments to which section 860E(a) or
1272 applies, exceed
‘‘(ii) the amount of money and the fair market
value of other property received during the taxable
year under such instruments, and
‘‘(D) amounts includible in income by reason of can-
cellation of indebtedness.’’.
SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.
Clause (iii) of section 857(b)(6)(C) (relating to certain sales
not to constitute prohibited transactions) is amended by striking
‘‘(other than foreclosure property)’’ in subclauses (I) and (II) and
inserting ‘‘(other than sales of foreclosure property or sales to which
section 1033 applies)’’.
SEC. 1261. SHARED APPRECIATION MORTGAGES.
(a) BANKRUPTCY SAFE HARBOR.—Section 856(j) (relating to
treatment of shared appreciation mortgages) is amended by
redesignating paragraph (4) as paragraph (5) and by inserting
after paragraph (3) the following new paragraph:
‘‘(4) COORDINATION WITH 4-YEAR HOLDING PERIOD.—
H. R. 2014—249
‘‘(A) IN GENERAL.—For purposes of section 857(b)(6)(C),
if a real estate investment trust is treated as having sold
secured property under paragraph (3)(A), the trust shall
be treated as having held such property for at least 4
years if—
‘‘(i) the secured property is sold or otherwise dis-
posed of pursuant to a case under title 11 of the United
States Code,
‘‘(ii) the seller is under the jurisdiction of the court
in such case, and
‘‘(iii) the disposition is required by the court or
is pursuant to a plan approved by the court.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
if—
‘‘(i) the secured property was acquired by the seller
with the intent to evict or foreclose, or
‘‘(ii) the trust knew or had reason to know that
default on the obligation described in paragraph (5)(A)
would occur.’’.
(b) CLARIFICATION
OF DEFINITION
OF SHARED APPRECIATION
PROVISION.—Clause (ii) of section 856(j)(5)(A) is amended by insert-
ing before the period ‘‘or appreciation in value as of any specified
date’’.
SEC. 1262. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidiary) is amend-
ed by striking ‘‘at all times during the period such corporation
was in existence’’.
SEC. 1263. EFFECTIVE DATE.
The amendments made by this part shall apply to taxable
years beginning after the date of the enactment of this Act.
Subtitle E—Provisions Relating to
Regulated Investment Companies
SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.
(a) GENERAL RULE.—Subsection (b) of section 851 (relating
to limitations) is amended by striking paragraph (3), by adding
‘‘and’’ at the end of paragraph (2), and by redesignating paragraph
(4) as paragraph (3).
(b) TECHNICAL AMENDMENTS.—
(1) The material following paragraph (3) of section 851(b)
(as redesignated by subsection (a)) is amended—
(A) by striking out ‘‘paragraphs (2) and (3)’’ and insert-
ing ‘‘paragraph (2)’’, and
(B) by striking out the last sentence thereof.
(2) Subsection (c) of section 851 is amended by striking
‘‘subsection (b)(4)’’ each place it appears (including the heading)
and inserting ‘‘subsection (b)(3)’’.
(3) Subsection (d) of section 851 is amended by striking
‘‘subsections (b)(4)’’ and inserting ‘‘subsections (b)(3)’’.
(4) Paragraph (1) of section 851(e) is amended by striking
‘‘subsection (b)(4)’’ and inserting ‘‘subsection (b)(3)’’.
(5) Paragraph (4) of section 851(e) is amended by striking
‘‘subsections (b)(4)’’ and inserting ‘‘subsections (b)(3)’’.
H. R. 2014—250
(6) Section 851 is amended by striking subsection (g) and
redesignating subsection (h) as subsection (g).
(7) Subsection (g) of section 851 (as redesignated by para-
graph (6)) is amended by striking paragraph (3).
(8) Section 817(h)(2) is amended—
(A) by striking ‘‘851(b)(4)’’ in subparagraph (A) and
inserting ‘‘851(b)(3)’’, and
(B) by striking ‘‘851(b)(4)(A)(i)’’ in subparagraph (B)
and inserting ‘‘851(b)(3)(A)(i)’’.
(9) Section 1092(f)(2) is amended by striking ‘‘Except for
purposes of section 851(b)(3), the’’ and inserting ‘‘The’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
Subtitle F—Taxpayer Protections
SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.
(a) INFORMATION ON DEDUCTIBLE EMPLOYEE CONTRIBUTIONS.—
Subsection (g) of section 6652 (relating to information required
in connection with deductible employee contributions) is amended
by adding at the end the following new sentence: ‘‘No penalty
shall be imposed under this subsection on any failure which is
shown to be due to reasonable cause and not willful neglect.’’.
(b) REPORTS ON STATUS AS QUALIFIED SMALL BUSINESS.—Sub-
section (k) of section 6652 (relating to failure to make reports
required under section 1202) is amended by adding at the end
the following new sentence: ‘‘No penalty shall be imposed under
this subsection on any failure which is shown to be due to reason-
able cause and not willful neglect.’’.
(c) RETURNS OF PERSONAL HOLDING COMPANY TAX BY FOREIGN
CORPORATIONS.—Section 6683 (relating to failure of foreign corpora-
tion to file return of personal holding company tax) is amended
by adding at the end the following new sentence: ‘‘No penalty
shall be imposed under this section on any failure which is shown
to be due to reasonable cause and not willful neglect.’’.
(d) FAILURE TO MAKE REQUIRED PAYMENTS.—Subparagraph
(A) of section 7519(f)(4) is amended by adding at the end the
following new sentence: ‘‘No penalty shall be imposed under this
subparagraph on any failure which is shown to be due to reasonable
cause and not willful neglect.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR
REFUNDS.
(a) IN GENERAL.—Paragraph (3) of section 6512(b) (relating
to overpayment determined by Tax Court) is amended by adding
at the end the following flush sentence:
‘‘In a case described in subparagraph (B) where the date of
the mailing of the notice of deficiency is during the third
year after the due date (with extensions) for filing the return
of tax and no return was filed before such date, the applicable
period under subsections (a) and (b)(2) of section 6511 shall
be 3 years.’’.
H. R. 2014—251
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to claims for credit or refund for taxable years ending
after the date of the enactment of this Act.
SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPEC-
TIVE JUROR HAS BEEN AUDITED.
(a) IN GENERAL.—Subsection (h) of section 6103 (relating to
disclosure to certain Federal officers and employees for purposes
of tax administration, etc.) is amended by striking paragraph (5)
and by redesignating paragraph (6) as paragraph (5).
(b) CONFORMING AMENDMENT.—Paragraph (4) of section 6103(p)
is amended by striking ‘‘(h)(6)’’ each place it appears and inserting
‘‘(h)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to judicial proceedings commenced after the date of
the enactment of this Act.
SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Subsection (a) of section 6501 (relating to
limitations on assessment and collection) is amended by adding
at the end thereof the following new sentence: ‘‘For purposes of
this chapter, the term ‘return’ means the return required to be
filed by the taxpayer (and does not include a return of any person
from whom the taxpayer has received an item of income, gain,
loss, deduction, or credit).’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.
(a) RIGHT
TO APPEAL TAX COURT DECISION.—Subsection (f)
of section 7430 (relating to right of appeal) is amended by adding
at the end the following new paragraph:
‘‘(3) APPEAL OF TAX COURT DECISION.—An order of the Tax
Court disposing of a petition under paragraph (2) shall be
reviewable in the same manner as a decision of the Tax Court,
but only with respect to the matters determined in such order.’’.
(b) PERIOD FOR APPLYING TO IRS FOR COSTS.—Subsection (b)
of section 7430 (relating to limitations) is amended by adding at
the end the following new paragraph:
‘‘(5) PERIOD
FOR
APPLYING
TO
IRS
FOR
ADMINISTRATIVE
COSTS.—An award may be made under subsection (a) by the
Internal Revenue Service for reasonable administrative costs
only if the prevailing party files an application with the Internal
Revenue Service for such costs before the 91st day after the
date on which the final decision of the Internal Revenue Service
as to the determination of the tax, interest, or penalty is mailed
to such party.’’.
(c) PERIOD FOR PETITIONING OF TAX COURT FOR REVIEW OF
DENIAL OF COSTS.—Paragraph (2) of section 7430(f) (relating to
right of appeal) is amended—
(1) by striking ‘‘appeal to’’ and inserting ‘‘the filing of a
petition for review with’’, and
(2) by adding at the end the following new sentence: ‘‘If
the Secretary sends by certified or registered mail a notice
of such decision to the petitioner, no proceeding in the Tax
Court may be initiated under this paragraph unless such peti-
tion is filed before the 91st day after the date of such mailing.’’.
H. R. 2014—252
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to civil actions or proceedings commenced after the
date of the enactment of this Act.
TITLE 
XIII—SIMPLIFICATION 
PROVI-
SIONS RELATING TO ESTATE AND
GIFT TAXES
SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING
REQUIREMENTS.
(a) IN GENERAL.—Section 6019 is amended by striking ‘‘or’’
at the end of paragraph (1), by adding ‘‘or’’ at the end of paragraph
(2), and by inserting after paragraph (2) the following new para-
graph:
‘‘(3) a transfer with respect to which a deduction is allowed
under section 2522 but only if—
‘‘(A)(i) such transfer is of the donor’s entire interest
in the property transferred, and
‘‘(ii) no other interest in such property is or has been
transferred (for less than adequate and full consideration
in money or money’s worth) from the donor to a person,
or for a use, not described in subsection (a) or (b) of section
2522, or
‘‘(B) such transfer is described in section 2522(d),’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to gifts made after the date of the enactment of this
Act.
SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOV-
ERY.
(a) AMENDMENT TO SECTION 2207A.—Paragraph (2) of section
2207A(a) (relating to right of recovery in the case of certain marital
deduction property) is amended to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—Paragraph (1)
shall not apply with respect to any property to the extent
that the decedent in his will (or a revocable trust) specifically
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.’’.
(b) AMENDMENT TO SECTION 2207B.—Paragraph (2) of section
2207B(a) (relating to right of recovery where decedent retained
interest) is amended to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—Paragraph (1)
shall not apply with respect to any property to the extent
that the decedent in his will (or a revocable trust) specifically
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) GENERAL RULE.—In the case of any trust created under
an instrument executed before the date of the enactment of the
Revenue Reconciliation Act of 1990, such trust shall be treated
as meeting the requirements of paragraph (1) of section 2056A(a)
H. R. 2014—253
of the Internal Revenue Code of 1986 if the trust instrument
requires that all trustees of the trust be individual citizens of
the United States or domestic corporations.
(b) EFFECTIVE DATE.—The provisions of subsection (a) shall
take effect as if included in the provisions of section 11702(g)
of the Revenue Reconciliation Act of 1990.
SEC. 1304. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM
OBLIGATIONS HELD BY NONRESIDENT ALIENS.
(a) IN GENERAL.—Subsection (b) of section 2105 is amended
by striking ‘‘and’’ at the end of paragraph (2), by striking the
period at the end of paragraph (3) and inserting ‘‘, and’’, and
by inserting after paragraph (3) the following new paragraph:
‘‘(4) obligations which would be original issue discount
obligations as defined in section 871(g)(1) but for subparagraph
(B)(i) thereof, if any interest thereon (were such interest
received by the decedent at the time of his death) would not
be effectively connected with the conduct of a trade or business
within the United States.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1305. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF
ESTATE.
(a) IN GENERAL.—Subpart A of part I of subchapter J (relating
to estates, trusts, beneficiaries, and decedents) is amended by add-
ing at the end the following new section:
‘‘SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF
ESTATE.
‘‘(a) GENERAL RULE.—For purposes of this subtitle, if both
the executor (if any) of an estate and the trustee of a qualified
revocable trust elect the treatment provided in this section, such
trust shall be treated and taxed as part of such estate (and not
as a separate trust) for all taxable years of the estate ending
after the date of the decedent’s death and before the applicable
date.
‘‘(b) DEFINITIONS.—For purposes of subsection (a)—
‘‘(1) QUALIFIED REVOCABLE TRUST.—The term ‘qualified rev-
ocable trust’ means any trust (or portion thereof) which was
treated under section 676 as owned by the decedent of the
estate referred to in subsection (a) by reason of a power in
the grantor (determined without regard to section 672(e)).
‘‘(2) APPLICABLE DATE.—The term ‘applicable date’ means—
‘‘(A) if no return of tax imposed by chapter 11 is
required to be filed, the date which is 2 years after the
date of the decedent’s death, and
‘‘(B) if such a return is required to be filed, the date
which is 6 months after the date of the final determination
of the liability for tax imposed by chapter 11.
‘‘(c) ELECTION.—The election under subsection (a) shall be made
not later than the time prescribed for filing the return of tax
imposed by this chapter for the first taxable year of the estate
(determined with regard to extensions) and, once made, shall be
irrevocable.’’.
(b) COMPARABLE
TREATMENT
UNDER
GENERATION-SKIPPING
TAX.—Paragraph (1) of section 2652(b) is amended by adding at
H. R. 2014—254
the end the following new sentence: ‘‘Such term shall not include
any trust during any period the trust is treated as part of an
estate under section 646.’’.
(c) CLERICAL AMENDMENT.—The table of sections for such sub-
part A is amended by adding at the end the following new item:
‘‘Sec. 646. Certain revocable trusts treated as part of estate.’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to estates of decedents dying after the
date of the enactment of this Act.
SEC. 1306. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR
OF ESTATE.
(a) IN GENERAL.—Subsection (b) of section 663 (relating to
distributions in first 65 days of taxable year) is amended by insert-
ing ‘‘an estate or’’ before ‘‘a trust’’ each place it appears.
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 663(b)
is amended by striking ‘‘the fiduciary of such trust’’ and inserting
‘‘the executor of such estate or the fiduciary of such trust (as
the case may be)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 1307. SEPARATE SHARE RULES AVAILABLE TO ESTATES.
(a) IN GENERAL.—Subsection (c) of section 663 (relating to
separate shares treated as separate trusts) is amended—
(1) by inserting before the last sentence the following new
sentence: ‘‘Rules similar to the rules of the preceding provisions
of this subsection shall apply to treat substantially separate
and independent shares of different beneficiaries in an estate
having more than 1 beneficiary as separate estates.’’, and
(2) by inserting ‘‘or estates’’ after ‘‘trusts’’ in the last sen-
tence.
(b) CONFORMING AMENDMENT.—The subsection heading of sec-
tion 663(c) is amended by inserting ‘‘ESTATES OR’’ before ‘‘TRUSTS’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1308. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS
RELATED PERSONS FOR DISALLOWANCE OF LOSSES,
ETC.
(a) DISALLOWANCE OF LOSSES.—Subsection (b) of section 267
(relating to losses, expenses, and interest with respect to trans-
actions between related taxpayers) is amended by striking ‘‘or’’
at the end of paragraph (11), by striking the period at the end
of paragraph (12) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(13) Except in the case of a sale or exchange in satisfaction
of a pecuniary bequest, an executor of an estate and a bene-
ficiary of such estate.’’.
(b) ORDINARY INCOME FROM GAIN FROM SALE OF DEPRECIABLE
PROPERTY.—Subsection (b) of section 1239 is amended by striking
the period at the end of paragraph (2) and inserting ‘‘, and’’ and
by adding at the end the following new paragraph:
H. R. 2014—255
‘‘(3) except in the case of a sale or exchange in satisfaction
of a pecuniary bequest, an executor of an estate and a bene-
ficiary of such estate.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 1309. TREATMENT OF FUNERAL TRUSTS.
(a) IN GENERAL.—Subpart F of part I of subchapter J of chapter
1 is amended by adding at the end the following new section:
‘‘SEC. 685. TREATMENT OF FUNERAL TRUSTS.
‘‘(a) IN GENERAL.—In the case of a qualified funeral trust—
‘‘(1) subparts B, C, D, and E shall not apply, and
‘‘(2) no deduction shall be allowed by section 642(b).
‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of this sub-
section, the term ‘qualified funeral trust’ means any trust (other
than a foreign trust) if—
‘‘(1) the trust arises as a result of a contract with a person
engaged in the trade or business of providing funeral or burial
services or property necessary to provide such services,
‘‘(2) the sole purpose of the trust is to hold, invest, and
reinvest funds in the trust and to use such funds solely to
make payments for such services or property for the benefit
of the beneficiaries of the trust,
‘‘(3) the only beneficiaries of such trust are individuals
with respect to whom such services or property are to be
provided at their death under contracts described in paragraph
(1),
‘‘(4) the only contributions to the trust are contributions
by or for the benefit of such beneficiaries,
‘‘(5) the trustee elects the application of this subsection,
and
‘‘(6) the trust would (but for the election described in para-
graph (5)) be treated as owned under subpart E by the pur-
chasers of the contracts described in paragraph (1).
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral trust’ shall
not include any trust which accepts aggregate contributions
by or for the benefit of an individual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of paragraph (1), all
trusts having trustees which are related persons shall be treat-
ed as 1 trust. For purposes of the preceding sentence, persons
are related if—
‘‘(A) the relationship between such persons is described
in section 267 or 707(b),
‘‘(B) such persons are treated as a single employer
under subsection (a) or (b) of section 52, or
‘‘(C) the Secretary determines that treating such per-
sons as related is necessary to prevent avoidance of the
purposes of this section.
‘‘(3) INFLATION ADJUSTMENT.—In the case of any contract
referred to in subsection (b)(1) which is entered into during
any calendar year after 1998, the dollar amount referred to
paragraph (1) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
H. R. 2014—256
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, by substituting ‘cal-
endar year 1997’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any dollar amount after being increased under the preceding
sentence is not a multiple of $100, such dollar amount shall
be rounded to the nearest multiple of $100.
‘‘(d) APPLICATION OF RATE SCHEDULE.—Section 1(e) shall be
applied to each qualified funeral trust by treating each beneficiary’s
interest in each such trust as a separate trust.
‘‘(e) TREATMENT
OF AMOUNTS REFUNDED
TO PURCHASER
ON
CANCELLATION.—No gain or loss shall be recognized to a purchaser
of a contract described in subsection (b)(1) by reason of any payment
from such trust to such purchaser by reason of cancellation of
such contract. If any payment referred to in the preceding sentence
consists of property other than money, the basis of such property
in the hands of such purchaser shall be the same as the trust’s
basis in such property immediately before the payment.
‘‘(f) SIMPLIFIED REPORTING.—The Secretary may prescribe rules
for simplified reporting of all trusts having a single trustee.’’.
(b) CLERICAL AMENDMENT.—The table of sections for subpart
F of part I of subchapter J of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 685. Treatment of funeral trusts.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
SEC. 1310. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT’S
DEATH.
(a) GENERAL RULE.—Section 2035 is amended to read as follows:
‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS
OF DECEDENT’S DEATH.
‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS ESTATE.—If—
‘‘(1) the decedent made a transfer (by trust or otherwise)
of an interest in any property, or relinquished a power with
respect to any property, during the 3-year period ending on
the date of the decedent’s death, and
‘‘(2) the value of such property (or an interest therein)
would have been included in the decedent’s gross estate under
section 2036, 2037, 2038, or 2042 if such transferred interest
or relinquished power had been retained by the decedent on
the date of his death,
the value of the gross estate shall include the value of any property
(or interest therein) which would have been so included.
‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DURING 3 YEARS
BEFORE DECEDENT’S DEATH.—The amount of the gross estate (deter-
mined without regard to this subsection) shall be increased by
the amount of any tax paid under chapter 12 by the decedent
or his estate on any gift made by the decedent or his spouse
during the 3-year period ending on the date of the decedent’s
death.
‘‘(c) OTHER RULES RELATING TO TRANSFERS WITHIN 3 YEARS
OF DEATH.—
‘‘(1) IN GENERAL.—For purposes of—
H. R. 2014—257
‘‘(A) section 303(b) (relating to distributions in redemp-
tion of stock to pay death taxes),
‘‘(B) section 2032A (relating to special valuation of
certain farms, etc., real property), and
‘‘(C) subchapter C of chapter 64 (relating to lien for
taxes),
the value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise,
during the 3-year period ending on the date of the decedent’s
death.
‘‘(2) COORDINATION
WITH
SECTION
6166.—An estate shall
be treated as meeting the 35 percent of adjusted gross estate
requirement of section 6166(a)(1) only if the estate meets such
requirement both with and without the application of paragraph
(1).
‘‘(3) MARITAL AND SMALL TRANSFERS.—Paragraph (1) shall
not apply to any transfer (other than a transfer with respect
to a life insurance policy) made during a calendar year to
any donee if the decedent was not required by section 6019
(other than by reason of section 6019(2)) to file any gift tax
return for such year with respect to transfers to such donee.
‘‘(d) EXCEPTION.—Subsection (a) shall not apply to any bona
fide sale for an adequate and full consideration in money or money’s
worth.
‘‘(e) TREATMENT
OF CERTAIN TRANSFERS FROM REVOCABLE
TRUSTS.—For purposes of this section and section 2038, any transfer
from any portion of a trust during any period that such portion
was treated under section 676 as owned by the decedent by reason
of a power in the grantor (determined without regard to section
672(e)) shall be treated as a transfer made directly by the
decedent.’’.
(b) CLERICAL AMENDMENT.—The table of sections for part III
of subchapter A of chapter 11 is amended by striking ‘‘gifts’’ in
the item relating to section 2035 and inserting ‘‘certain gifts’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 1311. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES
UNDER QUALIFIED TERMINABLE INTEREST RULES.
(a) IN GENERAL.—Subparagraph (C) of section 2056(b)(7) is
amended by inserting ‘‘(or, in the case of an interest in an annuity
arising under the community property laws of a State, included
in the gross estate of the decedent under section 2033)’’ after
‘‘section 2039’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1312. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES
OF FORMS OF OWNERSHIP WHICH ARE NOT TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 2056A (defining
qualified domestic trust) is amended by adding at the end the
following new paragraph:
‘‘(3) TRUST.—To the extent provided in regulations pre-
scribed by the Secretary, the term ‘trust’ includes other arrange-
ments which have substantially the same effect as a trust.’’.
H. R. 2014—258
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 1313. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER
SECTION 2032A.
(a) GENERAL RULE.—Paragraph (3) of section 2032A(d) (relating
to modification of election and agreement to be permitted) is amend-
ed to read as follows:
‘‘(3) MODIFICATION OF ELECTION AND AGREEMENT TO BE
PERMITTED.—The Secretary shall prescribe procedures which
provide that in any case in which the executor makes an
election under paragraph (1) (and submits the agreement
referred to in paragraph (2)) within the time prescribed there-
for, but—
‘‘(A) the notice of election, as filed, does not contain
all required information, or
‘‘(B) signatures of 1 or more persons required to enter
into the agreement described in paragraph (2) are not
included on the agreement as filed, or the agreement does
not contain all required information,
the executor will have a reasonable period of time (not exceed-
ing 90 days) after notification of such failures to provide such
information or signatures.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 1314. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES
TRUSTEE FOR QUALIFIED DOMESTIC TRUSTS.
(a) IN GENERAL.—Subparagraph (A) of section 2056A(a)(1) is
amended by inserting ‘‘except as provided in regulations prescribed
by the Secretary,’’ before ‘‘requires’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
TITLE 
XIV—SIMPLIFICATION 
PROVI-
SIONS RELATING TO EXCISE TAXES,
TAX-EXEMPT 
BONDS, 
AND 
OTHER
MATTERS
Subtitle A—Excise Tax Simplification
PART I—EXCISE TAXES ON HEAVY TRUCKS
AND LUXURY CARS
SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET ALTER-
ATIONS FOR HEAVY TRUCKS AND LUXURY CARS.
(a) IN
GENERAL.—Sections 4003(a)(3)(C) and 4051(b)(2)(B)
(relating to exceptions) are each amended by striking ‘‘$200’’ and
inserting ‘‘$1,000’’.
H. R. 2014—259
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to installations on vehicles sold after the date of
the enactment of this Act.
SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE
OF TIRES IN COMPUTING PRICE.
(a) IN GENERAL.—Subsection (e) of section 4051 is amended
to read as follows:
‘‘(e) CREDIT AGAINST TAX FOR TIRE TAX.—If—
‘‘(1) tires are sold on or in connection with the sale of
any article, and
‘‘(2) tax is imposed by this subchapter on the sale of such
tires,
there shall be allowed as a credit against the tax imposed by
this subchapter an amount equal to the tax (if any) imposed by
section 4071 on such tires.’’.
(b) CONFORMING AMENDMENT.—Subparagraph (B) of section
4052(b)(1) is amended by striking clause (iii), by adding ‘‘and’’
at the end of clause (ii), and by redesignating clause (iv) as clause
(iii).
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 1998.
PART II—PROVISIONS RELATED TO DISTILLED
SPIRITS, WINES, AND BEER
SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED
SPIRITS RETURNED TO DISTILLED SPIRITS PLANT.
(a) IN GENERAL.—Section 5008(c)(1) (relating to distilled spirits
returned to bonded premises) is amended by striking ‘‘withdrawn
from bonded premises on payment or determination of tax’’ and
inserting ‘‘on which tax has been determined or paid’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITH-
OUT SUBMISSION OF RECORDS.
(a) IN GENERAL.—Section 5175(c) (relating to cancellation of
credit of export bonds) is amended by striking ‘‘on the submission
of’’ and all that follows and inserting ‘‘if there is such proof of
exportation as the Secretary may by regulations require.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON
PREMISES OF DISTILLED SPIRITS PLANT.
(a) IN GENERAL.—Section 5207(c) (relating to preservation and
inspection) is amended by striking ‘‘shall be kept on the premises
where the operations covered by the record are carried on and’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
H. R. 2014—260
SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE
RECEIVED AT A DISTILLED SPIRITS PLANT.
(a) IN GENERAL.—Section 5222(b)(2) (relating to receipt) is
amended to read as follows:
‘‘(2) beer conveyed without payment of tax from brewery
premises, beer which has been lawfully removed from brewery
premises upon determination of tax, or’’.
(b) CLARIFICATION OF AUTHORITY TO PERMIT REMOVAL OF BEER
WITHOUT PAYMENT OF TAX FOR USE AS DISTILLING MATERIAL.—
Section 5053 (relating to exemptions) is amended by redesignating
subsection (f) as subsection (i) and by inserting after subsection
(e) the following new subsection:
‘‘(f) REMOVAL FOR USE AS DISTILLING MATERIAL.—Subject to
such regulations as the Secretary may prescribe, beer may be
removed from a brewery without payment of tax to any distilled
spirits plant for use as distilling material.’’.
(c) CLARIFICATION OF REFUND AND CREDIT OF TAX.—Section
5056 (relating to refund and credit of tax, or relief from liability)
is amended—
(1) by redesignating subsection (c) as subsection (d) and
by inserting after subsection (b) the following new subsection:
‘‘(c) BEER RECEIVED AT A DISTILLED SPIRITS PLANT.—Any tax
paid by any brewer on beer produced in the United States may
be refunded or credited to the brewer, without interest, or if the
tax has not been paid, the brewer may be relieved of liability
therefor, under regulations as the Secretary may prescribe, if such
beer is received on the bonded premises of a distilled spirits plant
pursuant to the provisions of section 5222(b)(2), for use in the
production of distilled spirits.’’, and
(2) by striking ‘‘or rendering unmerchantable’’ in subsection
(d) 
(as 
so 
redesignated) 
and 
inserting 
‘‘rendering
unmerchantable, or receipt on the bonded premises of a distilled
spirits plant’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN
LIQUORS TO POST SIGN.
(a) IN GENERAL.—Section 5115 (relating to sign required on
premises) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Section 5681(a) is amended by striking ‘‘, and every
wholesale dealer in liquors,’’ and by striking ‘‘section 5115(a)
or’’.
(2) Section 5681(c) is amended—
(A) by striking ‘‘or wholesale liquor establishment, on
which no sign required by section 5115(a) or’’ and inserting
‘‘on which no sign required by’’, and
(B) by striking ‘‘or wholesale liquor establishment, or
who’’ and inserting ‘‘or who’’.
(3) The table of sections for subpart D of part II of sub-
chapter A of chapter 51 is amended by striking the item relating
to section 5115.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
H. R. 2014—261
SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED
TO UNMERCHANTABLE WINE.
(a) IN GENERAL.—Section 5044(a) (relating to refund of tax
on 
unmerchantable 
wine) 
is 
amended 
by 
striking 
‘‘as
unmerchantable’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 5361 is amended by striking ‘‘unmerchantable’’.
(2) The section heading for section 5044 is amended by
striking ‘‘UNMERCHANTABLE’’.
(3) The item relating to section 5044 in the table of sections
for subpart C of part I of subchapter A of chapter 51 is amended
by striking ‘‘unmerchantable’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN
WINES.
(a) IN GENERAL.—Section 5384(b)(2)(D) (relating to ameliorated
fruit and berry wines) is amended by striking ‘‘loganberries, cur-
rants, or gooseberries,’’ and inserting ‘‘any fruit or berry with a
natural fixed acid of 20 parts per thousand or more (before any
correction of such fruit or berry)’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN
FREE OF TAX FOR USE OF FOREIGN EMBASSIES, LEGA-
TIONS, ETC.
(a) IN GENERAL.—Section 5053 (relating to exemptions), as
amended by section 1414(b), is amended by inserting after sub-
section (f) the following new subsection:
‘‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES, LEGATIONS,
ETC.—
‘‘(1) IN GENERAL.—Subject to such regulations as the Sec-
retary may prescribe—
‘‘(A) beer may be withdrawn from the brewery without
payment of tax for transfer to any customs bonded ware-
house for entry pending withdrawal therefrom as provided
in subparagraph (B), and
‘‘(B) beer entered into any customs bonded warehouse
under subparagraph (A) may be withdrawn for consump-
tion in the United States by, and for the official and family
use of, such foreign governments, organizations, and
individuals as are entitled to withdraw imported beer from
such warehouses free of tax.
Beer transferred to any customs bonded warehouse under
subparagraph (A) shall be entered, stored, and accounted for
in such warehouse under such regulations and bonds as the
Secretary may prescribe, and may be withdrawn therefrom
by such governments, organizations, and individuals free of
tax under the same conditions and procedures as imported
beer.
H. R. 2014—262
‘‘(2) OTHER RULES TO APPLY.—Rules similar to the rules
of paragraphs (2) and (3) of section 5362(e) shall apply for
purposes of this subsection.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUC-
TION.
(a) IN GENERAL.—Section 5053 (relating to exemptions), as
amended by section 1418(a), is amended by inserting after sub-
section (g) the following new subsection:
‘‘(h) REMOVALS FOR DESTRUCTION.—Subject to such regulations
as the Secretary may prescribe, beer may be removed from the
brewery without payment of tax for destruction.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER
WITHOUT SUBMISSION OF RECORDS.
(a) IN GENERAL.—The first sentence of section 5055 (relating
to drawback of tax on beer) is amended by striking ‘‘found to
have been paid’’ and all that follows and inserting ‘‘paid on such
beer if there is such proof of exportation as the Secretary may
by regulations require.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITH-
OUT PAYMENT OF TAX.
(a) IN GENERAL.—Part II of subchapter G of chapter 51 is
amended by adding at the end the following new section:
‘‘SEC. 5418. BEER IMPORTED IN BULK.
‘‘Beer imported or brought into the United States in bulk
containers may, under such regulations as the Secretary may pre-
scribe, be withdrawn from customs custody and transferred in such
bulk containers to the premises of a brewery without payment
of the internal revenue tax imposed on such beer. The proprietor
of a brewery to which such beer is transferred shall become liable
for the tax on the beer withdrawn from customs custody under
this section upon release of the beer from customs custody, and
the importer, or the person bringing such beer into the United
States, shall thereupon be relieved of the liability for such tax.’’.
(b) CLERICAL AMENDMENT.—The table of sections for such part
II is amended by adding at the end the following new item:
‘‘Sec. 5418. Beer imported in bulk.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
H. R. 2014—263
SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED
IN BULK WITHOUT PAYMENT OF TAX.
(a) IN GENERAL.—Part II of subchapter F of chapter 51 is
amended by inserting after section 5363 the following new section:
‘‘SEC. 5364. WINE IMPORTED IN BULK.
‘‘Wine imported or brought into the United States in bulk
containers may, under such regulations as the Secretary may pre-
scribe, be withdrawn from customs custody and transferred in such
bulk containers to the premises of a bonded wine cellar without
payment of the internal revenue tax imposed on such wine. The
proprietor of a bonded wine cellar to which such wine is transferred
shall become liable for the tax on the wine withdrawn from customs
custody under this section upon release of the wine from customs
custody, and the importer, or the person bringing such wine into
the United States, shall thereupon be relieved of the liability for
such tax.’’.
(b) CLERICAL AMENDMENT.—The table of sections for such part
II is amended by inserting after the item relating to section 5363
the following new item:
‘‘Sec. 5364. Wine imported in bulk.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the 1st day of the 1st calendar quarter that
begins at least 180 days after the date of the enactment of this
Act.
PART III—OTHER EXCISE TAX PROVISIONS
SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION
REQUIREMENTS.
(a) IN GENERAL.—Section 4222(b)(2) (relating to export) is
amended—
(1) by striking ‘‘in the case of any sale or resale for export,’’,
and
(2) by striking ‘‘EXPORT’’ and inserting ‘‘UNDER REGULA-
TIONS’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall take effect on the date of the enactment of this Act.
SEC. 1432. REPEAL OF EXPIRED PROVISIONS.
(a) PIGGY-BACK TRAILERS.—Section 4051 (relating to imposition
of tax on heavy trucks and trailers sold at retail) is amended
by striking subsection (d) and by redesignating subsection (e) as
subsection (d).
(b) DEEP SEABED MINING.—
(1) IN GENERAL.—Subchapter F of chapter 36 (relating to
tax on removal of hard mineral resources from deep seabed)
is hereby repealed.
(2) CONFORMING AMENDMENT.—The table of subchapters
for chapter 36 is amended by striking the item relating to
subchapter F.
(c) OZONE-DEPLETING CHEMICALS.—
(1) Paragraph (1) of section 4681(b) is amended by striking
subparagraphs (B) and (C) and inserting the following new
subparagraph:
‘‘(B) BASE TAX AMOUNT.—The base tax amount for pur-
poses of subparagraph (A) with respect to any sale or
H. R. 2014—264
use during any calendar year after 1995 shall be $5.35
increased by 45 cents for each year after 1995.’’.
(2) Subsection (g) of section 4682 is amended to read as
follows:
‘‘(g) CHEMICALS
USED
AS
PROPELLANTS
IN
METERED-DOSE
INHALERS.—
‘‘(1) EXEMPTION FROM TAX.—
‘‘(A) IN GENERAL.—No tax shall be imposed by section
4681 on—
‘‘(i) any use of any substance as a propellant in
metered-dose inhalers, or
‘‘(ii) any qualified sale by the manufacturer, pro-
ducer, or importer of any substance.
‘‘(B) QUALIFIED SALE.—For purposes of subparagraph
(A), the term ‘qualified sale’ means any sale by the manu-
facturer, producer, or importer of any substance—
‘‘(i) for use by the purchaser as a propellant in
metered dose inhalers, or
‘‘(ii) for resale by the purchaser to a 2d purchaser
for such use by the 2d purchaser.
The preceding sentence shall apply only if the manufac-
turer, producer, and importer, and the 1st and 2d pur-
chasers (if any) meet such registration requirements as
may be prescribed by the Secretary.
‘‘(2) OVERPAYMENTS.—If any substance on which tax was
paid under this subchapter is used by any person as a propel-
lant in metered-dose inhalers, credit or refund without interest
shall be allowed to such person in an amount equal to the
tax so paid. Amounts payable under the preceding sentence
with respect to uses during the taxable year shall be treated
as described in section 34(a) for such year unless claim thereof
has been timely filed under this paragraph.’’.
SEC. 1433. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON
ARROWS.
(a) IN GENERAL.—Subsection (b) of section 4161 (relating to
imposition of tax) is amended to read as follows:
‘‘(b) BOWS AND ARROWS, ETC.—
‘‘(1) BOWS.—
‘‘(A) IN
GENERAL.—There is hereby imposed on the
sale by the manufacturer, producer, or importer of any
bow which has a draw weight of 10 pounds or more, a
tax equal to 11 percent of the price for which so sold.
‘‘(B) 
PARTS
AND
ACCESSORIES.—There 
is 
hereby
imposed upon the sale by the manufacturer, producer, or
importer—
‘‘(i) of any part of accessory suitable for inclusion
in or attachment to a bow described in subparagraph
(A), and
‘‘(ii) of any quiver suitable for use with arrows
described in paragraph (2),
a tax equivalent to 11 percent of the price for which so
sold.
‘‘(2) ARROWS.—There is hereby imposed on the sale by
the manufacturer, producer, or importer of any shaft, point,
nock, or vane of a type used in the manufacture of any arrow
which after its assembly—
H. R. 2014—265
‘‘(A) measures 18 inches overall or more in length,
or
‘‘(B) measures less than 18 inches overall in length
but is suitable for use with a bow described in paragraph
(1)(A),
a tax equal to 12.4 percent of the price for which so sold.
‘‘(3) COORDINATION
WITH
SUBSECTION (a).—No tax shall
be imposed under this subsection with respect to any article
taxable under subsection (a).’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to articles sold by the manufacturer, producer, or
importer after September 30, 1997.
SEC. 1434. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.
(a) CERTAIN REPAIRS
AND MODIFICATIONS NOT TREATED
AS
MANUFACTURE.—Section 4052 is amended by redesignating the sub-
section defining a long-term lease as subsection (e) and by adding
at the end the following new subsection:
‘‘(f) CERTAIN REPAIRS
AND MODIFICATIONS NOT TREATED
AS
MANUFACTURE.—
‘‘(1) IN GENERAL.—An article described in section 4051(a)(1)
shall not be treated as manufactured or produced solely by
reason of repairs or modifications to the article (including any
modification which changes the transportation function of the
article or restores a wrecked article to a functional condition)
if the cost of such repairs and modifications does not exceed
75 percent of the retail price of a comparable new article.
‘‘(2) EXCEPTION.—Paragraph (1) shall not apply if the article
(as repaired or modified) would, if new, be taxable under section
4051 and the article when new was not taxable under this
section or the corresponding provision of prior law.’’.
(b) SIMPLIFICATION
OF
CERTIFICATION
PROCEDURES
WITH
RESPECT TO SALES OF TAXABLE ARTICLES.—
(1) REPEAL OF REGISTRATION REQUIREMENT.—Subsection (d)
of section 4052 is amended by striking ‘‘rules of—’’ and all
that follows through ‘‘shall apply’’ and inserting ‘‘rules of sub-
sections (c) and (d) of section 4216 (relating to partial payments)
shall apply’’.
(2) REQUIREMENT TO MODIFY REGULATIONS.—Section 4052
is amended by adding at the end the following new subsection:
‘‘(g) REGULATIONS.—The Secretary shall prescribe regulations
which permit, in lieu of any other certification, persons who are
purchasing articles taxable under this subchapter for resale or
leasing in a long-term lease to execute a statement (made under
penalties of perjury) on the sale invoice that such sale is for resale.
The Secretary shall not impose any registration requirement as
a condition of using such procedure.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 1998.
SEC. 1435. SKYDIVING FLIGHTS EXEMPT FROM TAX ON TRANSPOR-
TATION OF PERSONS BY AIR.
(a) IN GENERAL.—Section 4261 (relating to imposition of tax
on transportation of persons by air), as previously amended by
this Act, is amended by redesignating subsection (h) as subsection
(i) and by inserting after subsection (g) the following new subsection:
H. R. 2014—266
‘‘(h) EXEMPTION FOR SKYDIVING USES.—No tax shall be imposed
by this section or section 4271 on any air transportation exclusively
for the purpose of skydiving.’’.
(b) TRANSPORTATION TREATED AS NONCOMMERCIAL AVIATION.—
The last sentence of section 4041(c)(2) is amended by inserting
before the period ‘‘or by reason of section 4261(h)’’.
(c) EFFECTIVE DATES.—
(1) SUBSECTION (a).—The amendment made by subsection
(a) shall apply to amounts paid after September 30, 1997.
(2) SUBSECTION (b).—The amendment made by subsection
(b) shall take effect on October 1, 1997.
SEC. 1436. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID AVIA-
TION FUEL PURCHASED BY REGISTERED PRODUCER OF
AVIATION FUEL.
(a) IN GENERAL.—Section 4091 (relating to aviation fuel) is
amended by adding at the end the following new subsection:
‘‘(d) REFUND OF TAX-PAID AVIATION FUEL TO REGISTERED PRO-
DUCER OF FUEL.—If—
‘‘(1) a producer of aviation fuel is registered under section
4101, and
‘‘(2) such producer establishes to the satisfaction of the
Secretary that a prior tax was paid (and not credited or
refunded) on aviation fuel held by such producer,
then an amount equal to the tax so paid shall be allowed as
a refund (without interest) to such producer in the same manner
as if it were an overpayment of tax imposed by this section.’’.
(b) CONFORMING AMENDMENT.—The last sentence of section
6416(d) is amended by inserting before the period ‘‘or to the tax
imposed by section 4091 in the case of refunds described in section
4091(d)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to fuel acquired by the producer after September 30,
1997.
Subtitle B—Tax-Exempt Bond Provisions
SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS
UNDER 1-YEAR EXCEPTION FROM REBATE.
Subclause (I) of section 148(f)(4)(B)(ii) (relating to additional
period for certain bonds) is amended by striking ‘‘the lesser of
5 percent of the proceeds of the issue or $100,000’’ and inserting
‘‘5 percent of the proceeds of the issue’’.
SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE
DEBT SERVICE FUND UNDER CONSTRUCTION BOND
RULES.
Subparagraph (C) of section 148(f)(4) is amended by adding
at the end the following new clause:
‘‘(xvii) TREATMENT
OF
BONA
FIDE
DEBT
SERVICE
FUNDS.—If the spending requirements of clause (ii)
are met with respect to the available construction pro-
ceeds of a construction issue, then paragraph (2) shall
not apply to earnings on a bona fide debt service fund
for such issue.’’.
H. R. 2014—267
SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVEST-
MENT IN CERTAIN NONPURPOSE INVESTMENTS.
Subsection (d) of section 148 (relating to special rules for reason-
ably required reserve or replacement fund) is amended by striking
paragraph (3).
SEC. 1444. REPEAL OF EXPIRED PROVISIONS.
(a) Paragraph (2) of section 148(c) is amended by striking
subparagraph (B) and by redesignating subparagraphs (C), (D),
and (E) as subparagraphs (B), (C), and (D), respectively.
(b) Paragraph (4) of section 148(f) is amended by striking
subparagraph (E).
SEC. 1445. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to bonds
issued after the date of the enactment of this Act.
Subtitle C—Tax Court Procedures
SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.
(a) APPEAL OF ORDER.—Paragraph (2) of section 6512(b) (relat-
ing to jurisdiction to enforce) is amended by adding at the end
the following new sentence: ‘‘An order of the Tax Court disposing
of a motion under this paragraph shall be reviewable in the same
manner as a decision of the Tax Court, but only with respect
to the matters determined in such order.’’.
(b) DENIAL OF JURISDICTION REGARDING CERTAIN CREDITS AND
REDUCTIONS.—Subsection (b) of section 6512 (relating to overpay-
ment determined by Tax Court) is amended by adding at the
end the following new paragraph:
‘‘(4) DENIAL OF JURISDICTION REGARDING CERTAIN CREDITS
AND REDUCTIONS.—The Tax Court shall have no jurisdiction
under this subsection to restrain or review any credit or reduc-
tion made by the Secretary under section 6402.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.
(a) IN GENERAL.—Subsection (c) of section 7481 (relating to
jurisdiction over interest determinations) is amended to read as
follows:
‘‘(c) JURISDICTION OVER INTEREST DETERMINATIONS.—
‘‘(1) IN
GENERAL.—Notwithstanding subsection (a), if,
within 1 year after the date the decision of the Tax Court
becomes final under subsection (a) in a case to which this
subsection applies, the taxpayer files a motion in the Tax
Court for a redetermination of the amount of interest involved,
then the Tax Court may reopen the case solely to determine
whether the taxpayer has made an overpayment of such
interest or the Secretary has made an underpayment of such
interest and the amount thereof.
‘‘(2) CASES TO WHICH THIS SUBSECTION APPLIES.—This sub-
section shall apply where—
‘‘(A)(i) an assessment has been made by the Secretary
under section 6215 which includes interest as imposed
by this title, and
H. R. 2014—268
‘‘(ii) the taxpayer has paid the entire amount of the
deficiency plus interest claimed by the Secretary, and
‘‘(B) the Tax Court finds under section 6512(b) that
the taxpayer has made an overpayment.
‘‘(3) SPECIAL RULES.—If the Tax Court determines under
this subsection that the taxpayer has made an overpayment
of interest or that the Secretary has made an underpayment
of interest, then that determination shall be treated under
section 6512(b)(1) as a determination of an overpayment of
tax. An order of the Tax Court redetermining interest, when
entered upon the records of the court, shall be reviewable
in the same manner as a decision of the Tax Court.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS
OF LITIGATION COSTS.
(a) IN GENERAL.—Paragraph (4) of section 7430(c) (defining
prevailing party) is amended by adding at the end thereof the
following new subparagraph:
‘‘(D) SPECIAL RULES FOR APPLYING NET WORTH REQUIRE-
MENT.—In 
applying 
the 
requirements 
of 
section
2412(d)(2)(B) of title 28, United States Code, for purposes
of subparagraph (A)(iii) of this paragraph—
‘‘(i) the net worth limitation in clause (i) of such
section shall apply to—
‘‘(I) an estate but shall be determined as of
the date of the decedent’s death, and
‘‘(II) a trust but shall be determined as of
the last day of the taxable year involved in the
proceeding, and
‘‘(ii) individuals filing a joint return shall be treat-
ed as separate individuals for purposes of clause (i)
of such section.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to proceedings commenced after the date of the enact-
ment of this Act.
SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STA-
TUS.
(a) IN GENERAL.—Subchapter B of chapter 76 (relating to
proceedings by taxpayers and third parties) is amended by
redesignating section 7436 as section 7437 and by inserting after
section 7435 the following new section:
‘‘SEC. 7436. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT
STATUS.
‘‘(a) CREATION OF REMEDY.—If, in connection with an audit
of any person, there is an actual controversy involving a determina-
tion by the Secretary as part of an examination that—
‘‘(1) one or more individuals performing services for such
person are employees of such person for purposes of subtitle
C, or
‘‘(2) such person is not entitled to the treatment under
subsection (a) of section 530 of the Revenue Act of 1978 with
respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may
determine whether such a determination by the Secretary is correct.
H. R. 2014—269
Any such redetermination by the Tax Court shall have the force
and effect of a decision of the Tax Court and shall be reviewable
as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed under this sec-
tion only by the person for whom the services are performed.
‘‘(2) TIME FOR FILING ACTION.—If the Secretary sends by
certified or registered mail notice to the petitioner of a deter-
mination by the Secretary described in subsection (a), no
proceeding may be initiated under this section with respect
to such determination unless the pleading is filed before the
91st day after the date of such mailing.
‘‘(3) NO
ADVERSE
INFERENCE
FROM
TREATMENT
WHILE
ACTION IS PENDING.—If, during the pendency of any proceeding
brought under this section, the petitioner changes his treatment
for employment tax purposes of any individual whose employ-
ment status as an employee is involved in such proceeding
(or of any individual holding a substantially similar position)
to treatment as an employee, such change shall not be taken
into account in the Tax Court’s determination under this sec-
tion.
‘‘(c) SMALL CASE PROCEDURES.—
‘‘(1) IN GENERAL.—At the option of the petitioner, concurred
in by the Tax Court or a division thereof before the hearing
of the case, proceedings under this section may (notwithstand-
ing the provisions of section 7453) be conducted subject to
the rules of evidence, practice, and procedure applicable under
section 7463 if the amount of employment taxes placed in
dispute is $10,000 or less for each calendar quarter involved.
‘‘(2) FINALITY OF DECISIONS.—A decision entered in any
proceeding conducted under this subsection shall not be
reviewed in any other court and shall not be treated as a
precedent for any other case not involving the same petitioner
and the same determinations.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar to the rules
of the last sentence of subsection (a), and subsections (c), (d),
and (e), of section 7463 shall apply to proceedings conducted
under this subsection.
‘‘(d) SPECIAL RULES.—
‘‘(1) RESTRICTIONS ON ASSESSMENT AND COLLECTION PEND-
ING ACTION, ETC.—The principles of subsections (a), (b), (c),
(d), and (f) of section 6213, section 6214(a), section 6215, section
6503(a), section 6512, and section 7481 shall apply to proceed-
ings brought under this section in the same manner as if
the Secretary’s determination described in subsection (a) were
a notice of deficiency.
‘‘(2) AWARDING OF COSTS AND CERTAIN FEES.—Section 7430
shall apply to proceedings brought under this section.
‘‘(e) EMPLOYMENT TAX.—The term ‘employment tax’ means any
tax imposed by subtitle C.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 6511 is amended by adding
at the end the following new paragraph:
‘‘(7) SPECIAL PERIOD OF LIMITATION WITH RESPECT TO SELF-
EMPLOYMENT TAX IN CERTAIN CASES.—If—
‘‘(A) the claim for credit or refund relates to an overpay-
ment of the tax imposed by chapter 2 (relating to the
H. R. 2014—270
tax on self-employment income) attributable to Tax Court
determination in a proceeding under section 7436, and
‘‘(B) the allowance of a credit or refund of such overpay-
ment is otherwise prevented by the operation of any law
or rule of law other than section 7122 (relating to com-
promises),
such credit or refund may be allowed or made if claim therefor
is filed on or before the last day of the second year after
the calendar year in which such determination becomes final.’’.
(2) Subsection (a) of section 7421 is amended by striking
‘‘and 7429(b)’’ and inserting ‘‘7429(b), and 7436’’.
(3) Sections 7453 and 7481(b) are each amended by striking
‘‘section 7463’’ and inserting ‘‘section 7436(c) or 7463’’.
(4) The table of sections for subchapter B of chapter 76
is amended by striking the last item and inserting the following:
‘‘Sec. 7436. Proceedings for determination of employment status.
‘‘Sec. 7437. Cross references.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle D—Other Provisions
SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED
TAX PAYMENT BY PRIVATE FOUNDATIONS.
(a) IN GENERAL.—Paragraph (3) of section 6655(g) is amended
by adding at the end the following new sentence: ‘‘In the case
of a private foundation, subsection (c)(2) shall be applied by
substituting ‘May 15’ for ‘April 15’.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply for purposes of determining underpayments of estimated
tax for taxable years beginning after the date of the enactment
of this Act.
SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO
RICO INCOME TAXES FROM SALARIES OF FEDERAL
EMPLOYEES.
(a) IN GENERAL.—Subsection (c) of section 5517 of title 5, United
States Code, is amended by striking ‘‘or territory or possession’’
and inserting ‘‘, territory, possession, or commonwealth’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall take effect on January 1, 1998.
SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION
INCREASING INTEREST RATE ON LARGE CORPORATE
UNDERPAYMENTS.
(a) GENERAL RULE.—Subparagraph (B) of section 6621(c)(2)
(defining applicable date) is amended by adding at the end the
following new clause:
‘‘(iii) EXCEPTION FOR LETTERS OR NOTICES INVOLV-
ING SMALL AMOUNTS.—For purposes of this paragraph,
any letter or notice shall be disregarded if the amount
of the deficiency or proposed deficiency (or the assess-
ment or proposed assessment) set forth in such letter
or notice is not greater than $100,000 (determined
by not taking into account any interest, penalties, or
additions to tax).’’.
H. R. 2014—271
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply for purposes of determining interest for periods after
December 31, 1997.
TITLE XV—PENSIONS AND EMPLOYEE
BENEFITS
Subtitle A—Simplification
SEC. 1501. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED INDIVID-
UALS NOT TREATED AS ELECTIVE EMPLOYER CONTRIBU-
TIONS.
(a) IN GENERAL.—Section 402(g) (relating to limitation on exclu-
sion for elective deferrals) is amended by adding at the end the
following:
‘‘(9) MATCHING
CONTRIBUTIONS
ON
BEHALF
OF
SELF-
EMPLOYED INDIVIDUALS NOT TREATED AS ELECTIVE EMPLOYER
CONTRIBUTIONS.—Except as provided in section 401(k)(3)(D)(ii),
any matching contribution described in section 401(m)(4)(A)
which is made on behalf of a self-employed individual (as
defined in section 401(c)) shall not be treated as an elective
employer contribution under a qualified cash or deferred
arrangement (as defined in section 401(k)) for purposes of this
title.’’.
(b) 
CONFORMING
AMENDMENT
FOR
SIMPLE
RETIREMENT
ACCOUNTS.—Section 408(p) (relating to simple retirement accounts)
is amended by adding at the end the following:
‘‘(8) MATCHING
CONTRIBUTIONS
ON
BEHALF
OF
SELF-
EMPLOYED INDIVIDUALS NOT TREATED AS ELECTIVE EMPLOYER
CONTRIBUTIONS.—Any matching contribution described in para-
graph (2)(A)(iii) which is made on behalf of a self-employed
individual (as defined in section 401(c)) shall not be treated
as an elective employer contribution to a simple retirement
account for purposes of this title.’’.
(c) EFFECTIVE DATES.—
(1) ELECTIVE DEFERRALS.—The amendment made by sub-
section (a) shall apply to years beginning after December 31,
1997.
(2) SIMPLE RETIREMENT ACCOUNTS.—The amendment made
by subsection (b) shall apply to years beginning after December
31, 1996.
SEC. 1502. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR
ALIENATION.
(a) AMENDMENT TO ERISA.—Section 206(d) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)) is
amended by adding at the end the following:
‘‘(4) Paragraph (1) shall not apply to any offset of a participant’s
benefits provided under an employee pension benefit plan against
an amount that the participant is ordered or required to pay to
the plan if—
‘‘(A) the order or requirement to pay arises—
‘‘(i) under a judgment of conviction for a crime involving
such plan,
H. R. 2014—272
‘‘(ii) under a civil judgment (including a consent order
or decree) entered by a court in an action brought in
connection with a violation (or alleged violation) of part
4 of this subtitle, or
‘‘(iii) pursuant to a settlement agreement between the
Secretary and the participant, or a settlement agreement
between the Pension Benefit Guaranty Corporation and
the participant, in connection with a violation (or alleged
violation) of part 4 of this subtitle by a fiduciary or any
other person,
‘‘(B) the judgment, order, decree, or settlement agreement
expressly provides for the offset of all or part of the amount
ordered or required to be paid to the plan against the partici-
pant’s benefits provided under the plan, and
‘‘(C) in a case in which the survivor annuity requirements
of section 205 apply with respect to distributions from the
plan to the participant, if the participant has a spouse at
the time at which the offset is to be made—
‘‘(i) either—
‘‘(I) such spouse has consented in writing to such
offset and such consent is witnessed by a notary public
or representative of the plan (or it is established to
the satisfaction of a plan representative that such con-
sent may not be obtained by reason of circumstances
described in section 205(c)(2)(B)), or
‘‘(II) an election to waive the right of the spouse
to a qualified joint and survivor annuity or a qualified
preretirement survivor annuity is in effect in accord-
ance with the requirements of section 205(c),
‘‘(ii) such spouse is ordered or required in such judg-
ment, order, decree, or settlement to pay an amount to
the plan in connection with a violation of part 4 of this
subtitle, or
‘‘(iii) in such judgment, order, decree, or settlement,
such spouse retains the right to receive the survivor annu-
ity under a qualified joint and survivor annuity provided
pursuant to section 205(a)(1) and under a qualified pre-
retirement survivor annuity provided pursuant to section
205(a)(2), determined in accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements
of section 205 solely by reason of an offset under this paragraph.
‘‘(5)(A) The survivor annuity described in paragraph (4)(C)(iii)
shall be determined as if—
‘‘(i) the participant terminated employment on the date
of the offset,
‘‘(ii) there was no offset,
‘‘(iii) the plan permitted commencement of benefits only
on or after normal retirement age,
‘‘(iv) the plan provided only the minimum-required qualified
joint and survivor annuity, and
‘‘(v) the amount of the qualified preretirement survivor
annuity under the plan is equal to the amount of the survivor
annuity payable under the minimum-required qualified joint
and survivor annuity.
‘‘(B) For purposes of this paragraph, the term ‘minimum-
required qualified joint and survivor annuity’ means the qualified
joint and survivor annuity which is the actuarial equivalent of
H. R. 2014—273
the participant’s accrued benefit (within the meaning of section
3(23)) and under which the survivor annuity is 50 percent of the
amount of the annuity which is payable during the joint lives
of the participant and the spouse.’’.
(b) AMENDMENT TO 1986 CODE.—Section 401(a)(13) (relating
to assignment and alienation) is amended by adding at the end
the following:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
JUDGMENTS
AND
SETTLEMENTS.—Subparagraph (A) shall not apply to any
offset of a participant’s benefits provided under a plan
against an amount that the participant is ordered or
required to pay to the plan if—
‘‘(i) the order or requirement to pay arises—
‘‘(I) under a judgment of conviction for a crime
involving such plan,
‘‘(II) under a civil judgment (including a con-
sent order or decree) entered by a court in an
action brought in connection with a violation (or
alleged violation) of part 4 of subtitle B of title
I of the Employee Retirement Income Security Act
of 1974, or
‘‘(III) pursuant to a settlement agreement
between the Secretary of Labor and the partici-
pant, or a settlement agreement between the Pen-
sion Benefit Guaranty Corporation and the partici-
pant, in connection with a violation (or alleged
violation) of part 4 of such subtitle by a fiduciary
or any other person,
‘‘(ii) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid
to the plan against the participant’s benefits provided
under the plan, and
‘‘(iii) in a case in which the survivor annuity
requirements of section 401(a)(11) apply with respect
to distributions from the plan to the participant, if
the participant has a spouse at the time at which
the offset is to be made—
‘‘(I) either such spouse has consented in writ-
ing to such offset and such consent is witnessed
by a notary public or representative of the plan
(or it is established to the satisfaction of a plan
representative that such consent may not be
obtained by reason of circumstances described in
section 417(a)(2)(B)), or an election to waive the
right of the spouse to either a qualified joint and
survivor annuity or a qualified preretirement
survivor annuity is in effect in accordance with
the requirements of section 417(a),
‘‘(II) such spouse is ordered or required in
such judgment, order, decree, or settlement to pay
an amount to the plan in connection with a viola-
tion of part 4 of such subtitle, or
‘‘(III) in such judgment, order, decree, or settle-
ment, such spouse retains the right to receive the
survivor annuity under a qualified joint and survi-
vor 
annuity 
provided 
pursuant 
to 
section
H. R. 2014—274
401(a)(11)(A)(i) and under a qualified preretire-
ment survivor annuity provided pursuant to sec-
tion 401(a)(11)(A)(ii), determined in accordance
with subparagraph (D).
A plan shall not be treated as failing to meet the require-
ments of this subsection, subsection (k), section 403(b),
or section 409(d) solely by reason of an offset described
in this subparagraph.
‘‘(D) SURVIVOR ANNUITY.—
‘‘(i) IN GENERAL.—The survivor annuity described
in subparagraph (C)(iii)(III) shall be determined as
if—
‘‘(I) the participant terminated employment on
the date of the offset,
‘‘(II) there was no offset,
‘‘(III) the plan permitted commencement of
benefits only on or after normal retirement age,
‘‘(IV) the plan provided only the minimum-
required qualified joint and survivor annuity, and
‘‘(V) the amount of the qualified preretirement
survivor annuity under the plan is equal to the
amount of the survivor annuity payable under the
minimum-required qualified joint and survivor
annuity.
‘‘(ii) DEFINITION.—For purposes of this subpara-
graph, the term ‘minimum-required qualified joint and
survivor annuity’ means the qualified joint and survi-
vor annuity which is the actuarial equivalent of the
participant’s accrued benefit (within the meaning of
section 411(a)(7)) and under which the survivor annu-
ity is 50 percent of the amount of the annuity which
is payable during the joint lives of the participant
and the spouse.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to judgments, orders, and decrees issued, and settlement
agreements entered into, on or after the date of the enactment
of this Act.
SEC. 1503. ELIMINATION OF PAPERWORK BURDENS ON PLANS.
(a) ELIMINATION OF UNNECESSARY FILING REQUIREMENTS.—Sec-
tion 101(b) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1021(b)) is amended by striking paragraphs (1),
(2), and (3) and by redesignating paragraphs (4) and (5) as para-
graphs (1) and (2), respectively.
(b) ELIMINATION OF PLAN DESCRIPTION.—
(1) IN GENERAL.—Section 102(a) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1022(a)) is amend-
ed—
(A) by striking paragraph (2), and
(B) by striking ‘‘(a)(1)’’ and inserting ‘‘(a)’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 102(b) of such Act (29 U.S.C. 1022(b)) is
amended by striking ‘‘The plan description and summary
plan description shall contain’’ and inserting ‘‘The summary
plan description shall contain’’.
(B) The heading for section 102 of such Act is amended
by striking ‘‘PLAN DESCRIPTION AND’’.
H. R. 2014—275
(c) FURNISHING OF REPORTS.—
(1) IN GENERAL.—Section 104(a)(1) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1024(a)(1)) is
amended to read as follows:
‘‘SEC. 104. (a)(1) The administrator of any employee benefit
plan subject to this part shall file with the Secretary the annual
report for a plan year within 210 days after the close of such
year (or within such time as may be required by regulations promul-
gated by the Secretary in order to reduce duplicative filing). The
Secretary shall make copies of such annual reports available for
inspection in the public document room of the Department of
Labor.’’.
(2) SECRETARY MAY REQUEST DOCUMENTS.—
(A) IN GENERAL.—Section 104(a) of such Act (29 U.S.C.
1024(a)) is amended by adding at the end the following:
‘‘(6) The administrator of any employee benefit plan subject
to this part shall furnish to the Secretary, upon request, any docu-
ments relating to the employee benefit plan, including but not
limited to, the latest summary plan description (including any sum-
maries of plan changes not contained in the summary plan descrip-
tion), and the bargaining agreement, trust agreement, contract,
or other instrument under which the plan is established or oper-
ated.’’.
(B) PENALTY.—Section 502(c) of such Act (29 U.S.C.
1132(c)) is amended by redesignating paragraph (6) as
paragraph (7) and by inserting after paragraph (5) the
following:
‘‘(6) If, within 30 days of a request by the Secretary to a
plan administrator for documents under section 104(a)(6), the plan
administrator fails to furnish the material requested to the Sec-
retary, the Secretary may assess a civil penalty against the plan
administrator of up to $100 a day from the date of such failure
(but in no event in excess of $1,000 per request). No penalty
shall be imposed under this paragraph for any failure resulting
from matters reasonably beyond the control of the plan adminis-
trator.’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 104(b)(1) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1024(b)(1)) is amended by
striking ‘‘section 102(a)(1)’’ each place it appears and inserting
‘‘section 102(a)’’.
(2) Section 104(b)(2) of such Act (29 U.S.C. 1024(b)(2))
is amended by striking ‘‘the plan description and’’ and inserting
‘‘the latest updated summary plan description and’’.
(3) Section 104(b)(4) of such Act (29 U.S.C. 1024(b)(4))
is amended by striking ‘‘plan description’’.
(4) Section 106(a) of such Act (29 U.S.C. 1026(a)) is amend-
ed by striking ‘‘descriptions,’’.
(5) Section 107 of such Act (29 U.S.C. 1027) is amended
by striking ‘‘description or’’.
(6) Section 108(2)(B) of such Act (29 U.S.C. 1028(2)(B))
is amended by striking ‘‘plan descriptions, annual reports,’’
and inserting ‘‘annual reports’’.
(7) Section 502(a)(6) of such Act (29 U.S.C. 1132(a)(6))
is amended by striking ‘‘or (5)’’ and inserting ‘‘(5), or (6)’’.
H. R. 2014—276
(e) TECHNICAL CORRECTION.—Section 1144(c) of the Social Secu-
rity Act (42 U.S.C. 1320b–14(c)) is amended by redesignating para-
graph (9) as paragraph (8).
SEC. 1504. MODIFICATION OF 403(b) EXCLUSION ALLOWANCE TO CON-
FORM TO 415 MODIFICATIONS.
(a) DEFINITION OF COMPENSATION.—
(1) IN GENERAL.—Section 403(b)(3) (defining includible com-
pensation) is amended by adding at the end the following:
‘‘Such term includes—
‘‘(A) any elective deferral (as defined in section
402(g)(3)), and
‘‘(B) any amount which is contributed or deferred by
the employer at the election of the employee and which
is not includible in the gross income of the employee by
reason of section 125 or 457.’’.
(2) EFFECTIVE DATE.—The amendment made by this sub-
section shall apply to years beginning after December 31, 1997.
(b) REPEAL OF RULES IN SECTION 415(e).—The Secretary of
the Treasury shall modify the regulations regarding the exclusion
allowance under section 403(b)(2) of the Internal Revenue Code
of 1986 to reflect the amendment made by section 1452(a) of the
Small Business Job Protection Act of 1996. Such modification shall
take effect for years beginning after December 31, 1999.
SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN
NONDISCRIMINATION RULES TO STATE AND LOCAL
GOVERNMENTS.
(a) GENERAL NONDISCRIMINATION AND PARTICIPATION RULES.—
(1) NONDISCRIMINATION REQUIREMENTS.—Section 401(a)(5)
(relating to qualified pension, profit-sharing, and stock bonus
plans) is amended by adding at the end the following:
‘‘(G) STATE AND LOCAL GOVERNMENTAL PLANS.—Para-
graphs (3) and (4) shall not apply to a governmental plan
(within the meaning of section 414(d)) maintained by a
State or local government or political subdivision thereof
(or agency or instrumentality thereof).’’.
(2) ADDITIONAL
PARTICIPATION
REQUIREMENTS.—Section
401(a)(26)(H) (relating to additional participation requirements)
is amended to read as follows:
‘‘(H) EXCEPTION FOR STATE AND LOCAL GOVERNMENTAL
PLANS.—This paragraph shall not apply to a governmental
plan (within the meaning of section 414(d)) maintained
by a State or local government or political subdivision
thereof (or agency or instrumentality thereof).’’.
(3) MINIMUM PARTICIPATION STANDARDS.—Section 410(c)(2)
(relating to application of participation standards to certain
plans) is amended to read as follows:
‘‘(2) A plan described in paragraph (1) shall be treated
as meeting the requirements of this section for purposes of
section 401(a), except that in the case of a plan described
in subparagraph (B), (C), or (D) of paragraph (1), this paragraph
shall apply only if such plan meets the requirements of section
401(a)(3) (as in effect on September 1, 1974).’’.
(b) PARTICIPATION AND DISCRIMINATION STANDARDS FOR QUALI-
FIED CASH OR DEFERRED ARRANGEMENTS.—Section 401(k)(3) (relat-
ing to application of participation and discrimination standards)
is amended by adding at the end the following:
H. R. 2014—277
‘‘(G) A governmental plan (within the meaning of sec-
tion 414(d)) maintained by a State or local government
or political subdivision thereof (or agency or instrumental-
ity thereof) shall be treated as meeting the requirements
of this paragraph.’’.
(c) NONDISCRIMINATION RULES FOR SECTION 403(b) PLANS.—
Section 403(b)(12) (relating to nondiscrimination requirements) is
amended by adding at the end the following:
‘‘(C) STATE
AND
LOCAL
GOVERNMENTAL
PLANS.—For
purposes of paragraph (1)(D), the requirements of subpara-
graph (A)(i) (other than those relating to section 401(a)(17))
shall not apply to a governmental plan (within the meaning
of section 414(d)) maintained by a State or local government
or political subdivision thereof (or agency or instrumental-
ity thereof).’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
apply to taxable years beginning on or after the date of enact-
ment of this Act.
(2) TREATMENT
FOR
YEARS
BEGINNING
BEFORE
DATE
OF
ENACTMENT.—A governmental plan (within the meaning of sec-
tion 414(d) of the Internal Revenue Code of 1986) maintained
by a State or local government or political subdivision thereof
(or agency or instrumentality thereof) shall be treated as
satisfying the requirements of sections 401(a)(3), 401(a)(4),
401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and (b)(12), and 410
of such Code for all taxable years beginning before the date
of enactment of this Act.
SEC. 
1506. 
CLARIFICATION 
OF 
CERTAIN 
RULES 
RELATING 
TO
EMPLOYEE STOCK OWNERSHIP PLANS OF S CORPORA-
TIONS.
(a) CERTAIN CASH DISTRIBUTIONS PERMITTED.—
(1) Paragraph (2) of section 409(h) is amended by adding
at the end the following new subparagraph:
‘‘(B) EXCEPTION FOR CERTAIN PLANS RESTRICTED FROM
DISTRIBUTING SECURITIES.—
‘‘(i) IN GENERAL.—A plan to which this subpara-
graph applies shall not be treated as failing to meet
the requirements of this subsection or section 401(a)
merely because it does not permit a participant to
exercise the right described in paragraph (1)(A) if such
plan provides that the participant entitled to a distribu-
tion has a right to receive the distribution in cash,
except that such plan may distribute employer securi-
ties subject to a requirement that such securities may
be resold to the employer under terms which meet
the requirements of paragraph (1)(B).
‘‘(ii) APPLICABLE PLANS.—This subparagraph shall
apply to a plan which otherwise meets the require-
ments of this subsection or section 4975(e)(7) and which
is established and maintained by—
‘‘(I) an employer whose charter or bylaws
restrict 
the 
ownership 
of 
substantially 
all
outstanding employer securities to employees or
to a trust described in section 401(a), or
‘‘(II) an S corporation.’’.
H. R. 2014—278
(2) Paragraph (2) of section 409(h), as in effect before
the amendment made by paragraph (1), is amended—
(A) by striking ‘‘A plan which’’ in the first sentence
and inserting the following:
‘‘(A) IN GENERAL.—A plan which’’, and
(B) by striking the last sentence.
(b) CERTAIN
SHAREHOLDER-EMPLOYEES
NOT
TREATED
AS
OWNER-EMPLOYEES.—
(1) AMENDMENT TO 1986 CODE.—
(A) IN GENERAL.—Section 4975(f) is amended by adding
at the end the following new paragraph:
‘‘(6) EXEMPTIONS
NOT
TO
APPLY
TO
CERTAIN
TRANS-
ACTIONS.—
‘‘(A) IN
GENERAL.—In the case of a trust described
in section 401(a) which is part of a plan providing contribu-
tions or benefits for employees some or all of whom are
owner-employees (as defined in section 401(c)(3)), the
exemptions provided by subsection (d) (other than para-
graphs (9) and (12)) shall not apply to a transaction in
which the plan directly or indirectly—
‘‘(i) lends any part of the corpus or income of
the plan to,
‘‘(ii) pays any compensation for personal services
rendered to the plan to, or
‘‘(iii) acquires for the plan any property from, or
sells any property to,
any such owner-employee, a member of the family (as
defined in section 267(c)(4)) of any such owner-employee,
or any corporation in which any such owner-employee owns,
directly or indirectly, 50 percent or more of the total com-
bined voting power of all classes of stock entitled to vote
or 50 percent or more of the total value of shares of all
classes of stock of the corporation.
‘‘(B) SPECIAL
RULES
FOR
SHAREHOLDER-EMPLOYEES,
ETC.—
‘‘(i) IN GENERAL.—For purposes of subparagraph
(A), the following shall be treated as owner-employees:
‘‘(I) A shareholder-employee.
‘‘(II) A participant or beneficiary of an individ-
ual retirement plan (as defined in section
7701(a)(37)).
‘‘(III) An employer or association of employees
which establishes such an individual retirement
plan under section 408(c).
‘‘(ii) 
EXCEPTION
FOR
CERTAIN
TRANSACTIONS
INVOLVING
SHAREHOLDER-EMPLOYEES.—Subparagraph
(A)(iii) shall not apply to a transaction which consists
of a sale of employer securities to an employee stock
ownership plan (as defined in subsection (e)(7)) by
a shareholder-employee, a member of the family (as
defined in section 267(c)(4)) of such shareholder-
employee, or a corporation in which such a shareholder-
employee owns stock representing a 50 percent or
greater interest described in subparagraph (A).
‘‘(C) 
SHAREHOLDER-EMPLOYEE.—For 
purposes 
of
subparagraph (B), the term ‘shareholder-employee’ means
an employee or officer of an S corporation who owns (or
H. R. 2014—279
is considered as owning within the meaning of section
318(a)(1)) more than 5 percent of the outstanding stock
of the corporation on any day during the taxable year
of such corporation.’’.
(B) CONFORMING
AMENDMENTS.—Section 4975(d) is
amended—
(i) by striking ‘‘The prohibitions’’ and inserting
‘‘Except as provided in subsection (f)(6), the prohibi-
tions’’, and
(ii) by striking the last two sentences thereof.
(2) AMENDMENT TO ERISA.—Section 408(d) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d))
is amended to read as follows:
‘‘(d)(1) Section 407(b) and subsections (b), (c), and (e) of this
section shall not apply to a transaction in which a plan directly
or indirectly—
‘‘(A) lends any part of the corpus or income of the plan
to,
‘‘(B) pays any compensation for personal services rendered
to the plan to, or
‘‘(C) acquires for the plan any property from, or sells any
property to,
any person who is with respect to the plan an owner-employee
(as defined in section 401(c)(3) of the Internal Revenue Code of
1986), a member of the family (as defined in section 267(c)(4)
of such Code) of any such owner-employee, or any corporation
in which any such owner-employee owns, directly or indirectly,
50 percent or more of the total combined voting power of all classes
of stock entitled to vote or 50 percent or more of the total value
of shares of all classes of stock of the corporation.
‘‘(2)(A) For purposes of paragraph (1), the following shall be
treated as owner-employees:
‘‘(i) A shareholder-employee.
‘‘(ii) A participant or beneficiary of an individual retirement
plan (as defined in section 7701(a)(37) of the Internal Revenue
Code of 1986).
‘‘(iii) An employer or association of employees which estab-
lishes such an individual retirement plan under section 408(c)
of such Code.
‘‘(B) Paragraph (1)(C) shall not apply to a transaction which
consists of a sale of employer securities to an employee stock owner-
ship plan (as defined in section 407(d)(6)) by a shareholder-
employee, a member of the family (as defined in section 267(c)(4)
of such Code) of any such owner-employee, or a corporation in
which such a shareholder-employee owns stock representing a 50
percent or greater interest described in paragraph (1).
‘‘(3) For purposes of paragraph (2), the term ‘shareholder-
employee’ means an employee or officer of an S corporation (as
defined in section 1361(a)(1) of such Code) who owns (or is consid-
ered as owning within the meaning of section 318(a)(1) of such
Code) more than 5 percent of the outstanding stock of the corpora-
tion on any day during the taxable year of such corporation.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
H. R. 2014—280
SEC. 1507. MODIFICATION OF 10-PERCENT TAX FOR NONDEDUCTIBLE
CONTRIBUTIONS.
(a) IN GENERAL.—Section 4972(c)(6)(B) (relating to exceptions)
is amended to read as follows:
‘‘(B) so much of the contributions to 1 or more defined
contribution plans which are not deductible when contrib-
uted solely because of section 404(a)(7) as does not exceed
the greater of—
‘‘(i) the amount of contributions not in excess of
6 percent of compensation (within the meaning of sec-
tion 404(a)) paid or accrued (during the taxable year
for which the contributions were made) to beneficiaries
under the plans, or
‘‘(ii) the sum of—
‘‘(I) the amount of contributions described in
section 401(m)(4)(A), plus
‘‘(II) the amount of contributions described in
section 402(g)(3)(A).’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1508. MODIFICATION OF FUNDING REQUIREMENTS FOR CERTAIN
PLANS.
(a) FUNDING RULES FOR CERTAIN PLANS.—Section 769 of the
Retirement Protection Act of 1994 is amended by adding at the
end the following new subsection:
‘‘(c) TRANSITION RULES FOR CERTAIN PLANS.—
‘‘(1) IN GENERAL.—In the case of a plan that—
‘‘(A) was not required to pay a variable rate premium
for the plan year beginning in 1996;
‘‘(B) has not, in any plan year beginning after 1995
and before 2009, merged with another plan (other than
a plan sponsored by an employer that was in 1996 within
the controlled group of the plan sponsor); and
‘‘(C) is sponsored by a company that is engaged pri-
marily in the interurban or interstate passenger bus serv-
ice,
the transition rules described in paragraph (2) shall apply
for any plan year beginning after 1996 and before 2010.
‘‘(2) TRANSITION RULES.—The transition rules described in
this paragraph are as follows:
‘‘(A) For purposes of section 412(l)(9)(A) of the Internal
Revenue Code of 1986 and section 302(d)(9)(A) of the
Employee Retirement Income Security Act of 1974—
‘‘(i) the funded current liability percentage for any
plan year beginning after 1996 and before 2005 shall
be treated as not less than 90 percent if for such
plan year the funded current liability percentage is
at least 85 percent, and
‘‘(ii) the funded current liability percentage for any
plan year beginning after 2004 and before 2010 shall
be treated as not less than 90 percent if for such
plan year the funded current liability percentage satis-
fies the minimum percentage determined according to
the following table:
H. R. 2014—281
‘‘In the case of a plan year beginning in:
The minimum per-
centage is:
2005 ..........................................................................
86 percent
2006 ..........................................................................
87 percent
2007 ..........................................................................
88 percent
2008 ..........................................................................
89 percent
2009 and thereafter ................................................
90 percent.
‘‘(B) Sections 412(c)(7)(E)(i)(I) of such Code and
302(c)(7)(E)(i)(I) of such Act shall be applied—
‘‘(i) by substituting ‘85 percent’ for ‘90 percent’
for plan years beginning after 1996 and before 2005,
and
‘‘(ii) by substituting the minimum percentage speci-
fied in the table contained in subparagraph (A)(ii) for
‘90 percent’ for plan years beginning after 2004 and
before 2010.
‘‘(C) In the event the funded current liability percent-
age of a plan is less than 85 percent for any plan year
beginning after 1996 and before 2005, the transition rules
under subparagraphs (A) and (B) shall continue to apply
to the plan if contributions for such a plan year are made
to the plan in an amount equal to the lesser of—
‘‘(i) the amount necessary to result in a funded
current liability percentage of 85 percent, or
‘‘(ii) the greater of—
‘‘(I) 2 percent of the plan’s current liability
as of the beginning of such plan year, or
‘‘(II) the amount necessary to result in a
funded current liability percentage of 80 percent
as of the end of such plan year.
For the plan year beginning in 2005 and for each of the
3 succeeding plan years, the transition rules under sub-
paragraphs (A) and (B) shall continue to apply to the
plan for such plan year only if contributions to the plan
for such plan year equal at least the expected increase
in current liability due to benefits accruing during such
plan year.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to plan years beginning after December 31, 1996.
SEC. 1509. CLARIFICATION OF DISQUALIFICATION RULES RELATING
TO ACCEPTANCE OF ROLLOVER CONTRIBUTIONS.
The Secretary of the Treasury or his delegate shall clarify
that, under the Internal Revenue Service regulations protecting
pension plans from disqualification by reason of the receipt of
invalid rollover contributions under section 402(c) of the Internal
Revenue Code of 1986, in order for the administrator of the plan
receiving any such contribution to reasonably conclude that the
contribution is a valid rollover contribution it is not necessary
for the distributing plan to have a determination letter with respect
to its status as a qualified plan under section 401 of such Code.
SEC. 1510. NEW TECHNOLOGIES IN RETIREMENT PLANS.
(a) IN GENERAL.—Not later than December 31, 1998, the Sec-
retary of the Treasury and the Secretary of Labor shall each issue
guidance which is designed to—
(1) interpret the notice, election, consent, disclosure, and
time requirements (and related recordkeeping requirements)
H. R. 2014—282
under the Internal Revenue Code of 1986 and the Employee
Retirement Income Security Act of 1974 relating to retirement
plans as applied to the use of new technologies by plan sponsors
and administrators while maintaining the protection of the
rights of participants and beneficiaries, and
(2) clarify the extent to which writing requirements under
the Internal Revenue Code of 1986 relating to retirement plans
shall be interpreted to permit paperless transactions.
(b) APPLICABILITY OF FINAL REGULATIONS.—Final regulations
applicable to the guidance regarding new technologies described
in subsection (a) shall not be effective until the first plan year
beginning at least 6 months after the issuance of such final regula-
tions.
Subtitle B—Other Provisions Relating to
Pensions and Employee Benefits
SEC. 1521. INCREASE IN CURRENT LIABILITY FUNDING LIMIT.
(a) AMENDMENT TO 1986 CODE.—Section 412(c)(7) (relating to
full-funding limitation) is amended—
(A) by striking ‘‘150 percent’’ in subparagraph (A)(i)(I)
and inserting ‘‘the applicable percentage’’, and
(B) by adding at the end the following:
‘‘(F) 
APPLICABLE
PERCENTAGE.—For 
purposes 
of
subparagraph (A)(i)(I), the applicable percentage shall be
determined in accordance with the following table:
‘‘In the case of any plan year begin-
ning in—
The applicable percentage is—
1999 or 2000 .....................................................................................
155
2001 or 2002 .....................................................................................
160
2003 or 2004 .....................................................................................
165
2005 and succeeding years ..............................................................
170.’’.
(b) AMENDMENT TO ERISA.—Section 302(c)(7) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is
amended—
(A) by striking ‘‘150 percent’’ in subparagraph (A)(i)(I)
and inserting ‘‘the applicable percentage’’, and
(B) by adding at the end the following:
‘‘(F) APPLICABLE PERCENTAGE.—For purposes of subpara-
graph (A)(i)(I), the applicable percentage shall be determined
in accordance with the following table:
‘‘In the case of any plan year begin-
ning in—
The applicable percentage is—
1999 or 2000 .....................................................................................
155
2001 or 2002 .....................................................................................
160
2003 or 2004 .....................................................................................
165
2005 and succeeding years ..............................................................
170.’’.
(c) SPECIAL AMORTIZATION RULE.—
(1) CODE AMENDMENT.—Section 412(b)(2) is amended by
striking ‘‘and’’ at the end of subparagraph (C), by striking
the period at the end of subparagraph (D) and inserting ‘‘,
and’’, and by inserting after subparagraph (D) the following:
‘‘(E) the amount necessary to amortize in equal annual
installments (until fully amortized) over a period of 20
years the contributions which would be required to be
H. R. 2014—283
made under the plan but for the provisions of subsection
(c)(7)(A)(i)(I).’’.
(2) ERISA AMENDMENT.—Section 302(b)(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)(2))
is amended by striking ‘‘and’’ at the end of subparagraph (C),
by striking the period at the end of subparagraph (D) and
inserting ‘‘, and’’, and by inserting after subparagraph (D) the
following:
‘‘(E) the amount necessary to amortize in equal annual
installments (until fully amortized) over a period of 20 years
the contributions which would be required to be made under
the plan but for the provisions of subsection (c)(7)(A)(i)(I).’’.
(3) CONFORMING AMENDMENTS.—
(A) Section 412(c)(7)(D) is amended by adding ‘‘and’’
at the end of clause (i), by striking ‘‘, and’’ at the end
of clause (ii) and inserting a period, and by striking clause
(iii).
(B) Section 302(c)(7)(D) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1082(c)(7)(D)) is
amended by adding ‘‘and’’ at the end of clause (i), by
striking ‘‘, and’’ at the end of clause (ii) and inserting
a period, and by striking clause (iii).
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to plan years beginning after December 31, 1998.
(2) SPECIAL
RULE
FOR
UNAMORTIZED
BALANCES
UNDER
EXISTING LAW.—The unamortized balance (as of the close of
the plan year preceding the plan’s first year beginning in 1999)
of 
any 
amortization 
base 
established 
under 
section
412(c)(7)(D)(iii) of such Code and section 302(c)(7)(D)(iii) of such
Act (as repealed by subsection (c)(3)) for any plan year begin-
ning before 1999 shall be amortized in equal annual install-
ments (until fully amortized) over a period of years equal to
the excess of—
(A) 20 years, over
(B) the number of years since the amortization base
was established.
SEC. 1522. SPECIAL RULES FOR CHURCH PLANS.
(a) IN GENERAL.—Section 414(e)(5) (relating to special rules
for chaplains and self-employed ministers) is amended—
(1) by striking ‘‘not eligible to participate’’ in subparagraph
(C) and inserting ‘‘not otherwise participating’’, and
(2) by adding at the end the following new subparagraph:
‘‘(E) EXCLUSION.—In the case of a contribution to a
church plan made on behalf of a minister described in
subparagraph (A)(i)(II), such contribution shall not be
included in the gross income of the minister to the extent
that such contribution would not be so included if the
minister was an employee of a church.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to years beginning after December 31, 1997.
SEC. 1523. REPEAL OF APPLICATION OF UNRELATED BUSINESS
INCOME TAX TO ESOPS.
(a) IN GENERAL.—Section 512(e) is amended by adding at the
end the following new paragraph:
H. R. 2014—284
‘‘(3) EXCEPTION FOR ESOPS.—This subsection shall not apply
to employer securities (within the meaning of section 409(l))
held by an employee stock ownership plan described in section
4975(e)(7).’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 1524. DIVERSIFICATION OF SECTION 401(k) PLAN INVESTMENTS.
(a) LIMITATIONS ON INVESTMENT IN EMPLOYER SECURITIES AND
EMPLOYER REAL PROPERTY
BY CASH
OR DEFERRED ARRANGE-
MENTS.—Section 407(b) of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1107(b)) is amended by redesignating
paragraph (2) as paragraph (3) and by inserting after paragraph
(1) the following new paragraph:
‘‘(2)(A) If this paragraph applies to an eligible individual
account plan, the portion of such plan which consists of
applicable elective deferrals (and earnings allocable thereto)
shall be treated as a separate plan—
‘‘(i) which is not an eligible individual account plan,
and
‘‘(ii) to which the requirements of this section apply.
‘‘(B)(i) This paragraph shall apply to any eligible individual
account plan if any portion of the plan’s applicable elective
deferrals (or earnings allocable thereto) are required to be
invested in qualifying employer securities or qualifying
employer real property or both—
‘‘(I) pursuant to the terms of the plan, or
‘‘(II) at the direction of a person other than the partici-
pant on whose behalf such elective deferrals are made
to the plan (or a beneficiary).
‘‘(ii) This paragraph shall not apply to an individual account
plan for a plan year if, on the last day of the preceding plan
year, the fair market value of the assets of all individual
account plans maintained by the employer equals not more
than 10 percent of the fair market value of the assets of
all pension plans (other than multiemployer plans) maintained
by the employer.
‘‘(iii) This paragraph shall not apply to an individual
account plan that is an employee stock ownership plan as
defined in section 4975(e)(7) of the Internal Revenue Code
of 1986.
‘‘(iv) This paragraph shall not apply to an individual
account plan if, pursuant to the terms of the plan, the portion
of any employee’s applicable elective deferrals which is required
to be invested in qualifying employer securities and qualifying
employer real property for any year may not exceed 1 percent
of the employee’s compensation which is taken into account
under the plan in determining the maximum amount of the
employee’s applicable elective deferrals for such year.
‘‘(C) For purposes of this paragraph, the term ‘applicable
elective deferral’ means any elective deferral (as defined in
section 402(g)(3)(A) of the Internal Revenue Code of 1986)
which is made pursuant to a qualified cash or deferred arrange-
ment as defined in section 401(k) of the Internal Revenue
Code of 1986.’’.
H. R. 2014—285
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to elective deferrals for plan years beginning after
December 31, 1998.
SEC. 1525. SECTION 401(K) PLANS FOR CERTAIN IRRIGATION AND
DRAINAGE ENTITIES.
(a) IN GENERAL.—Subparagraph (B) of section 401(k)(7) (relat-
ing to rural cooperative plan) is amended—
(1) by striking ‘‘and’’ at the end of clause (iii), by redesignat-
ing clause (iv) as clause (v), and by inserting after clause
(iii) the following new clause:
‘‘(iv) any organization which—
‘‘(I) is a mutual irrigation or ditch company
described in section 501(c)(12) (without regard to
the 85 percent requirement thereof), or
‘‘(II) is a district organized under the laws
of a State as a municipal corporation for the pur-
pose of irrigation, water conservation, or drainage,
and’’, and
(2) in clause (v), as so redesignated, by striking ‘‘or (iii)’’
and inserting ‘‘, (iii), or (iv)’’.
(b) EFFECTIVE DATE.—The amendments made by subsection
(a) shall apply to years beginning after December 31, 1997.
SEC. 1526. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER
GOVERNMENTAL PENSION PLANS.
(a) IN GENERAL.—Section 415 (relating to limitations on bene-
fits and contributions under qualified plans) is amended by adding
at the end the following new subsection:
‘‘(n) SPECIAL RULES RELATING TO PURCHASE OF PERMISSIVE
SERVICE CREDIT.—
‘‘(1) IN GENERAL.—If an employee makes 1 or more con-
tributions to a defined benefit governmental plan (within the
meaning of section 414(d)) to purchase permissive service credit
under such plan, then the requirements of this section shall
be treated as met only if—
‘‘(A) the requirements of subsection (b) are met, deter-
mined by treating the accrued benefit derived from all
such contributions as an annual benefit for purposes of
subsection (b), or
‘‘(B) the requirements of subsection (c) are met, deter-
mined by treating all such contributions as annual addi-
tions for purposes of subsection (c).
‘‘(2) APPLICATION OF LIMIT.—For purposes of—
‘‘(A) applying paragraph (1)(A), the plan shall not fail
to meet the reduced limit under subsection (b)(2)(C) solely
by reason of this subsection, and
‘‘(B) applying paragraph (1)(B), the plan shall not fail
to meet the percentage limitation under subsection (c)(1)(B)
solely by reason of this subsection.
‘‘(3) PERMISSIVE SERVICE CREDIT.—For purposes of this sub-
section—
‘‘(A) IN GENERAL.—The term ‘permissive service credit’
means service credit—
‘‘(i) recognized by the governmental plan for pur-
poses of calculating a participant’s benefit under the
plan,
H. R. 2014—286
‘‘(ii) which such participant has not received under
such governmental plan, and
‘‘(iii) which such participant may receive only by
making a voluntary additional contribution, in an
amount determined under such governmental plan,
which does not exceed the amount necessary to fund
the benefit attributable to such service credit.
‘‘(B) LIMITATION ON NONQUALIFIED SERVICE CREDIT.—
A plan shall fail to meet the requirements of this section
if—
‘‘(i) more than 5 years of permissive service credit
attributable to nonqualified service are taken into
account for purposes of this subsection, or
‘‘(ii) any permissive service credit attributable to
nonqualified service is taken into account under this
subsection before the employee has at least 5 years
of participation under the plan.
‘‘(C) NONQUALIFIED SERVICE.—For purposes of subpara-
graph (B), the term ‘nonqualified service’ means service
for which permissive service credit is allowed other than—
‘‘(i) service (including parental, medical, sabbatical,
and similar leave) as an employee of the Government
of the United States, any State or political subdivision
thereof, or any agency or instrumentality of any of
the foregoing (other than military service or service
for credit which was obtained as a result of a repay-
ment described in subsection (k)(3)),
‘‘(ii) service (including parental, medical, sabbati-
cal, and similar leave) as an employee (other than
as an employee described in clause (i)) of an edu-
cational 
organization 
described 
in 
section
170(b)(1)(A)(ii) which is a public, private, or sectarian
school which provides elementary or secondary edu-
cation (through grade 12), as determined under State
law,
‘‘(iii) service as an employee of an association of
employees who are described in clause (i), or
‘‘(iv) military service (other than qualified military
service under section 414(u)) recognized by such
governmental plan.
In the case of service described in clauses (i), (ii), or (iii),
such service will be nonqualified service if recognition of
such service would cause a participant to receive a retire-
ment benefit for the same service under more than one
plan.’’.
(b) SPECIAL RULE
FOR REPAYMENT
OF CASHOUTS.—Section
415(k) (relating to special rules) is amended by adding at the
end the following new paragraph:
‘‘(3) REPAYMENTS
OF
CASHOUTS
UNDER
GOVERNMENTAL
PLANS.—In the case of any repayment of contributions (includ-
ing interest thereon) to the governmental plan with respect
to an amount previously refunded upon a forfeiture of service
credit under the plan or under another governmental plan
maintained by a State or local government employer within
the same State, any such repayment shall not be taken into
account for purposes of this section.’’.
(c) EFFECTIVE DATES.—
H. R. 2014—287
(1) IN GENERAL.—The amendments made by this section
shall apply to permissive service credit contributions made
in years beginning after December 31, 1997.
(2) TRANSITION RULE.—
(A) IN GENERAL.—In the case of an eligible participant
in a governmental plan (within the meaning of section
414(d) of the Internal Revenue Code of 1986), the limita-
tions of section 415(c)(1) of such Code shall not be applied
to reduce the amount of permissive service credit which
may be purchased to an amount less than the amount
which was allowed to be purchased under the terms of
the plan as in effect on the date of the enactment of
this Act.
(B) ELIGIBLE PARTICIPANT.—For purposes of subpara-
graph (A), an eligible participant is an individual who
first became a participant in the plan before the first
plan year beginning after the last day of the calendar
year in which the next regular session (following the date
of the enactment of this Act) of the governing body with
authority to amend the plan ends.
SEC. 1527. REMOVAL OF DOLLAR LIMITATION ON BENEFIT PAYMENTS
FROM A DEFINED BENEFIT PLAN MAINTAINED FOR CER-
TAIN POLICE AND FIRE EMPLOYEES.
(a) IN GENERAL.—Subparagraph (G) of section 415(b)(2) is
amended by striking ‘‘participant—’’ and all that follows and insert-
ing ‘‘participant, subparagraph (C) of this paragraph shall not
apply.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to years beginning after December 31, 1996.
SEC. 1528. SURVIVOR BENEFITS FOR PUBLIC SAFETY OFFICERS
KILLED IN THE LINE OF DUTY.
(a) IN GENERAL.—Section 101 (relating to certain death bene-
fits) is amended by adding at the end the following new subsection:
‘‘(h) SURVIVOR BENEFITS ATTRIBUTABLE TO SERVICE BY A PUBLIC
SAFETY OFFICER WHO IS KILLED IN THE LINE OF DUTY.—
‘‘(1) IN
GENERAL.—Gross income shall not include any
amount paid as a survivor annuity on account of the death
of a public safety officer (as such term is defined in section
1204 of the Omnibus Crime Control and Safe Streets Act of
1968) killed in the line of duty—
‘‘(A) if such annuity is provided, under a governmental
plan which meets the requirements of section 401(a), to
the spouse (or a former spouse) of the public safety officer
or to a child of such officer; and
‘‘(B) to the extent such annuity is attributable to such
officer’s service as a public safety officer.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply with
respect to the death of any public safety officer if, as determined
in accordance with the provisions of the Omnibus Crime Control
and Safe Streets Act of 1968—
‘‘(A) the death was caused by the intentional mis-
conduct of the officer or by such officer’s intention to bring
about such officer’s death;
‘‘(B) the officer was voluntarily intoxicated (as defined
in section 1204 of such Act) at the time of death;
H. R. 2014—288
‘‘(C) the officer was performing such officer’s duties
in a grossly negligent manner at the time of death; or
‘‘(D) the payment is to an individual whose actions
were a substantial contributing factor to the death of the
officer.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts received in taxable years beginning after
December 31, 1996, with respect to individuals dying after such
date.
SEC. 1529. TREATMENT OF CERTAIN DISABILITY BENEFITS RECEIVED
BY FORMER POLICE OFFICERS OR FIREFIGHTERS.
(a) GENERAL RULE.—For purposes of determining whether any
amount to which this section applies is excludable from gross income
under section 104(a)(1) of the Internal Revenue Code of 1986, the
following conditions shall be treated as personal injuries or sickness
in the course of employment:
(1) Heart disease.
(2) Hypertension.
(b) AMOUNTS TO WHICH SECTION APPLIES.—This section shall
apply to any amount—
(1) which is payable—
(A) to an individual (or to the survivors of an individ-
ual) who was a full-time employee of any police department
or fire department which is organized and operated by
a State, by any political subdivision thereof, or by any
agency or instrumentality of a State or political subdivision
thereof, and
(B) under a State law (as amended on May 19, 1992)
which irrebuttably presumed that heart disease and hyper-
tension are work-related illnesses but only for employees
separating from service before July 1, 1992; and
(2) which was received in calendar year 1989, 1990, or
1991.
(c) WAIVER OF STATUTE OF LIMITATIONS.—If, on the date of
the enactment of this Act (or at any time within the 1-year period
beginning on such date of enactment), credit or refund of any
overpayment of tax resulting from the provisions of this section
is barred by any law or rule of law (including res judicata), then
credit or refund of such overpayment shall, nevertheless, be allowed
or made if claim therefore is filed before the date 1 year after
such date of enactment.
SEC. 1530. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOY-
EES.
(a) IN GENERAL.—Subparagraph (C) of section 664(d)(1) and
subparagraph (C) of section 664(d)(2) are each amended by striking
the period at the end thereof and inserting ‘‘or, to the extent
the remainder interest is in qualified employer securities (as defined
in subsection (g)(4)), all or part of such securities are to be trans-
ferred to an employee stock ownership plan (as defined in section
4975(e)(7)) in a qualified gratuitous transfer (as defined by
subsection (g)).’’.
(b) QUALIFIED GRATUITOUS TRANSFER DEFINED.—Section 664
is amended by adding at the end the following new subsection:
‘‘(g) QUALIFIED GRATUITOUS TRANSFER OF QUALIFIED EMPLOYER
SECURITIES.—
H. R. 2014—289
‘‘(1) IN GENERAL.—For purposes of this section, the term
‘qualified gratuitous transfer’ means a transfer of qualified
employer securities to an employee stock ownership plan (as
defined in section 4975(e)(7)) but only to the extent that—
‘‘(A) the securities transferred previously passed from
a decedent dying before January 1, 1999, to a trust
described in paragraph (1) or (2) of subsection (d),
‘‘(B) no deduction under section 404 is allowable with
respect to such transfer,
‘‘(C) such plan contains the provisions required by para-
graph (3),
‘‘(D) such plan treats such securities as being attrib-
utable to employer contributions but without regard to
the limitations otherwise applicable to such contributions
under section 404, and
‘‘(E) the employer whose employees are covered by
the plan described in this paragraph files with the Sec-
retary a verified written statement consenting to the
application of sections 4978 and 4979A with respect to
such employer.
‘‘(2) EXCEPTION.—The term ‘qualified gratuitous transfer’
shall not include a transfer of qualified employer securities
to an employee stock ownership plan unless—
‘‘(A) such plan was in existence on August 1, 1996,
‘‘(B) at the time of the transfer, the decedent and
members of the decedent’s family (within the meaning of
section 2032A(e)(2)) own (directly or through the applica-
tion of section 318(a)) no more than 10 percent of the
value of the stock of the corporation referred to in para-
graph (4), and
‘‘(C) immediately after the transfer, such plan owns
(after the application of section 318(a)(4)) at least 60 per-
cent of the value of the outstanding stock of the corporation.
‘‘(3) PLAN REQUIREMENTS.—A plan contains the provisions
required by this paragraph if such plan provides that—
‘‘(A) the qualified employer securities so transferred
are allocated to plan participants in a manner consistent
with section 401(a)(4),
‘‘(B) plan participants are entitled to direct the plan
as to the manner in which such securities which are enti-
tled to vote and are allocated to the account of such partici-
pant are to be voted,
‘‘(C) an independent trustee votes the securities so
transferred which are not allocated to plan participants,
‘‘(D) each participant who is entitled to a distribution
from the plan has the rights described in subparagraphs
(A) and (B) of section 409(h)(1),
‘‘(E) such securities are held in a suspense account
under the plan to be allocated each year, up to the limita-
tions under section 415(c), after first allocating all other
annual additions for the limitation year, up to the limita-
tions under sections 415 (c) and (e), and
‘‘(F) on termination of the plan, all securities so trans-
ferred which are not allocated to plan participants as of
such termination are to be transferred to, or for the use
of, an organization described in section 170(c).
H. R. 2014—290
For purposes of the preceding sentence, the term ‘independent
trustee’ means any trustee who is not a member of the family
(within the meaning of section 2032A(e)(2)) of the decedent
or a 5-percent shareholder. A plan shall not fail to be treated
as meeting the requirements of section 401(a) by reason of
meeting the requirements of this subsection.
‘‘(4) QUALIFIED EMPLOYER SECURITIES.—For purposes of this
section, the term ‘qualified employer securities’ means employer
securities (as defined in section 409(l)) which are issued by
a domestic corporation—
‘‘(A) which has no outstanding stock which is readily
tradable on an established securities market, and
‘‘(B) which has only 1 class of stock.
‘‘(5) TREATMENT OF SECURITIES ALLOCATED BY EMPLOYEE
STOCK
OWNERSHIP
PLAN
TO
PERSONS
RELATED
TO
DECEDENT
OR 5-PERCENT SHAREHOLDERS.—
‘‘(A) IN GENERAL.—If any portion of the assets of the
plan attributable to securities acquired by the plan in
a qualified gratuitous transfer are allocated to the account
of—
‘‘(i) any person who is related to the decedent
(within the meaning of section 267(b)) or a member
of the decedent’s family (within the meaning of section
2032A(e)(2)), or
‘‘(ii) any person who, at the time of such allocation
or at any time during the 1-year period ending on
the date of the acquisition of qualified employer securi-
ties by the plan, is a 5-percent shareholder of the
employer maintaining the plan,
the plan shall be treated as having distributed (at the
time of such allocation) to such person or shareholder the
amount so allocated.
‘‘(B) 
5-PERCENT
SHAREHOLDER.—For 
purposes 
of
subparagraph (A), the term ‘5-percent shareholder’ means
any person who owns (directly or through the application
of section 318(a)) more than 5 percent of the outstanding
stock of the corporation which issued such qualified
employer securities or of any corporation which is a member
of the same controlled group of corporations (within the
meaning of section 409(l)(4)) as such corporation. For pur-
poses of the preceding sentence, section 318(a) shall be
applied without regard to the exception in paragraph
(2)(B)(i) thereof.
‘‘(C) CROSS REFERENCE.—
‘‘For excise tax on allocations described in subparagraph (A), see
section 4979A.
‘‘(6) TAX ON FAILURE TO TRANSFER UNALLOCATED SECURITIES
TO CHARITY ON TERMINATION OF PLAN.—If the requirements
of paragraph (3)(F) are not met with respect to any securities,
there is hereby imposed a tax on the employer maintaining
the plan in an amount equal to the sum of—
‘‘(A) the amount of the increase in the tax which would
be imposed by chapter 11 if such securities were not trans-
ferred as described in paragraph (1), and
‘‘(B) interest on such amount at the underpayment
rate under section 6621 (and compounded daily) from the
H. R. 2014—291
due date for filing the return of the tax imposed by chapter
11.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 401(a)(1) is amended by inserting ‘‘or by a
charitable remainder trust pursuant to a qualified gratuitous
transfer (as defined in section 664(g)(1)),’’ after ‘‘stock bonus
plans),’’.
(2) Section 404(a)(9) is amended by inserting after subpara-
graph (B) the following new subparagraph:
‘‘(C) A qualified gratuitous transfer (as defined in sec-
tion 664(g)(1)) shall have no effect on the amount or
amounts otherwise deductible under paragraph (3) or (7)
or under this paragraph.’’.
(3) Section 415(c)(6) is amended by adding at the end
thereof the following new sentence:
‘‘The amount of any qualified gratuitous transfer (as defined
in section 664(g)(1)) allocated to a participant for any limitation
year shall not exceed the limitations imposed by this section,
but such amount shall not be taken into account in determining
whether any other amount exceeds the limitations imposed
by this section.’’.
(4) Section 415(e) is amended—
(A) by redesignating paragraph (6) as paragraph (7),
and
(B) by inserting after paragraph (5) the following new
paragraph:
‘‘(6) SPECIAL RULE FOR QUALIFIED GRATUITOUS TRANSFERS.—
Any qualified gratuitous transfer of qualified employer securi-
ties (as defined by section 664(g)) shall not be taken into
account in calculating, and shall not be subject to, the limita-
tions provided in this subsection.’’.
(5) Subparagraph (B) of section 664(d)(1) and subparagraph
(B) of section 664(d)(2) are each amended by inserting ‘‘and
other than qualified gratuitous transfers described in subpara-
graph (C)’’ after ‘‘subparagraph (A)’’.
(6) Paragraph (4) of section 674(b) is amended by inserting
before the period ‘‘or to an employee stock ownership plan
(as defined in section 4975(e)(7)) in a qualified gratuitous trans-
fer (as defined in section 664(g)(1))’’.
(7) Section 2055(a) is amended—
(i) by striking ‘‘or’’ at the end of paragraph (3),
(ii) by striking the period at the end of paragraph
(4) and inserting ‘‘; or’’, and
(iii) by inserting after paragraph (4) the following new
paragraph:
‘‘(5) to an employee stock ownership plan if such transfer
qualifies as a qualified gratuitous transfer of qualified employer
securities within the meaning of section 664(g).’’.
(8) Paragraph (8) of section 2056(b) is amended to read
as follows:
‘‘(8) SPECIAL RULE FOR CHARITABLE REMAINDER TRUSTS.—
‘‘(A) IN
GENERAL.—If the surviving spouse of the
decedent is the only beneficiary of a qualified charitable
remainder trust who is not a charitable beneficiary nor
an ESOP beneficiary, paragraph (1) shall not apply to
any interest in such trust which passes or has passed
from the decedent to such surviving spouse.