IIA
104TH CONGRESS
2D SESSION
H. R. 3286
IN THE SENATE OF THE UNITED STATES
MAY 13, 1996
Received; read twice and referred to the Committee on Finance
AN ACT
To help families defray adoption costs, and to promote the
adoption of minority children.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Adoption Promotion
and Stability Act of 1996’’.
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SEC. 2. TABLE OF CONTENTS.
The table of contents of this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I—CREDIT FOR ADOPTION EXPENSES
Sec. 101. Credit for adoption expenses.
TITLE II—INTERETHNIC ADOPTION
Sec. 201. Removal of barriers to interethnic adoption.
TITLE III—CHILD CUSTODY PROCEEDINGS AFFECTED BY THE
INDIAN CHILD WELFARE ACT OF 1978
Sec. 301. Inapplicability of the Indian Child Welfare Act of 1978 to child cus-
tody proceedings involving a child whose parents do not main-
tain affiliation with their Indian tribe.
Sec. 302. Membership and child custody proceedings.
Sec. 303. Effective date.
TITLE IV—REVENUE OFFSETS
Sec. 400. Amendment of 1986 Code.
Subtitle A—Exclusion for Energy Conservation Subsidies Limited to Subsidies
With Respect to Dwelling Units
Sec. 401. Exclusion for energy conservation subsidies limited to subsidies with
respect to dwelling units.
Subtitle B—Foreign Trust Tax Compliance
Sec. 411. Improved information reporting on foreign trusts.
Sec. 412. Comparable penalties for failure to file return relating to transfers to
foreign entities.
Sec. 413. Modifications of rules relating to foreign trusts having one or more
United States beneficiaries.
Sec. 414. Foreign persons not to be treated as owners under grantor trust
rules.
Sec. 415. Information reporting regarding foreign gifts.
Sec. 416. Modification of rules relating to foreign trusts which are not grantor
trusts.
Sec. 417. Residence of trusts, etc.
TITLE I—CREDIT FOR ADOPTION
EXPENSES
SEC. 101. CREDIT FOR ADOPTION EXPENSES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
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able year. No credit may be carried forward under this
subsection to any taxable year following the fifth taxable
year after the taxable year in which the credit arose. For
purposes of the preceding sentence, credits shall be treated
as used on a first-in first-out basis.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
ADOPTION
EXPENSES.—The
term ‘qualified adoption expenses’ means reasonable
and necessary adoption fees, court costs, attorney
fees, and other expenses—
‘‘(A) which are directly related to, and the
principal purpose of which is for, the legal
adoption of an eligible child by the taxpayer,
and
‘‘(B) which are not incurred in violation of
State or Federal law or in carrying out any sur-
rogate parenting arrangement.
‘‘(2) EXPENSES FOR ADOPTION OF SPOUSE’S
CHILD NOT ELIGIBLE.—The term ‘qualified adoption
expenses’ shall not include any expenses in connec-
tion with the adoption by an individual of a child
who is the child of such individual’s spouse.
‘‘(3) ELIGIBLE
CHILD.—The term ‘eligible
child’ means any individual—
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‘‘(A) who has not attained age 18 as of the
time of the adoption, or
‘‘(B) who is physically or mentally incapa-
ble of caring for himself.
‘‘(4) CHILD WITH SPECIAL NEEDS.—The term
‘child with special needs’ means any child if—
‘‘(A) a State has determined that the child
cannot or should not be returned to the home
of his parents, and
‘‘(B) such State has determined that there
exists with respect to the child a specific factor
or condition (such as his ethnic background,
age, or membership in a minority or sibling
group, or the presence of factors such as medi-
cal conditions or physical, mental, or emotional
handicaps) because of which it is reasonable to
conclude that such child cannot be placed with
adoptive parents without providing adoption as-
sistance.
‘‘(e) SPECIAL RULES FOR FOREIGN ADOPTIONS.—In
the case of a foreign adoption—
‘‘(1) subsection (a) shall not apply to any quali-
fied adoption expense with respect to such adoption
unless such adoption becomes final, and
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‘‘(2) any such expense which is paid or incurred
before the taxable year in which such adoption be-
comes final shall be taken into account under this
section as if such expense were paid or incurred dur-
ing such year.
‘‘(f) MARRIED COUPLES MUST FILE JOINT RE-
TURNS.—Rules similar to the rules of paragraphs (2), (3),
and (4) of section 21(e) shall apply for purposes of this
section.
‘‘(g) BASIS ADJUSTMENTS.—For purposes of this
subtitle, if a credit is allowed under this section for any
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to carry out this
section and section 137, including regulations which treat
unmarried individuals who pay or incur qualified adoption
expenses with respect to the same child as 1 taxpayer for
purposes of applying the dollar limitation in subsection
(b)(1) of this section and in section 137(b)(1).’’.
(b) EXCLUSION OF AMOUNTS RECEIVED UNDER EM-
PLOYER’S ADOPTION ASSISTANCE PROGRAMS.—Part III
of subchapter B of chapter 1 of such Code (relating to
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items specifically excluded from gross income) is amended
by redesignating section 137 as section 138 and by insert-
ing after section 136 the following new section:
‘‘SEC. 137. ADOPTION ASSISTANCE PROGRAMS.
‘‘(a) IN GENERAL.—Gross income of an employee
does not include amounts paid or expenses incurred by the
employer for qualified adoption expenses in connection
with the adoption of a child by an employee if such
amounts are furnished pursuant to an adoption assistance
program.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR
LIMITATION.—The aggregate
amount excludable from gross income under sub-
section (a) for all taxable years with respect to the
adoption of a child by the taxpayer shall not exceed
$5,000.
‘‘(2) INCOME
LIMITATION.—The amount ex-
cludable from gross income under subsection (a) for
any taxable year shall be reduced (but not below
zero) by an amount which bears the same ratio to
the amount so excludable (determined without re-
gard to this paragraph but with regard to paragraph
(1)) as—
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‘‘(A) the amount (if any) by which the tax-
payer’s adjusted gross income exceeds $75,000,
bears to
‘‘(B) $40,000.
‘‘(3) DETERMINATION OF ADJUSTED GROSS IN-
COME.—For purposes of paragraph (2), adjusted
gross income shall be determined—
‘‘(A) without regard to this section and
sections 911, 931, and 933, and
‘‘(B) after the application of sections 86,
135, 219, and 469.
‘‘(c) ADOPTION ASSISTANCE PROGRAM.—For pur-
poses of this section, an adoption assistance program is
a plan of an employer—
‘‘(1) under which the employer provides employ-
ees with adoption assistance, and
‘‘(2) which meets requirements similar to the
requirements of paragraphs (2), (3), and (5) of sec-
tion 127(b).
An adoption reimbursement program operated under sec-
tion 1052 of title 10, United States Code (relating to
armed forces) or section 514 of title 14, United States
Code (relating to members of the Coast Guard) shall be
treated as an adoption assistance program for purposes
of this section.
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‘‘(d) QUALIFIED ADOPTION EXPENSES.—For pur-
poses of this section, the term ‘qualified adoption ex-
penses’ has the meaning given such term by section 23(d).
‘‘(e) CERTAIN RULES TO APPLY.—Rules similar to
the rules of subsections (e) and (g) of section 23 shall
apply for purposes of this section.’’.
(c) CONFORMING AMENDMENTS.—
(1) Sections 86(b)(2)(A) and 135(c)(4)(A) of
such Code are each amended by inserting ‘‘137,’’ be-
fore ‘‘911’’.
(2) Clause (i) of section 219(g)(3)(A) of such
Code is amended by inserting ‘‘, 137,’’ before ‘‘and
911’’.
(3) Clause (ii) of section 469(i)(3)(E) of such
Code is amended to read as follows:
‘‘(ii) the amounts excludable from
gross income under sections 135 and
137,’’.
(4) Subsection (a) of section 1016 of such Code
is amended by striking ‘‘and’’ at the end of para-
graph (24), by striking the period at the end of
paragraph (25) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(26) to the extent provided in sections 23(g)
and 137(e).’’
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(5) The table of sections for subpart A of part
IV of subchapter A of chapter 1 of such Code is
amended by inserting after the item relating to sec-
tion 22 the following new item:
‘‘Sec. 23. Adoption expenses.’’.
(6) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 137 and insert-
ing the following:
‘‘Sec. 137. Adoption assistance programs.
‘‘Sec. 138. Cross reference to other Acts.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
TITLE II—INTERETHNIC
ADOPTION
SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC ADOP-
TION.
(a) STATE PLAN REQUIREMENTS.—Section 471(a)
of the Social Security Act (42 U.S.C 671(a)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of paragraph
(16);
(2) by striking the period at the end of para-
graph (17) and inserting ‘‘; and’’; and
(3) by adding at the end the following:
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‘‘(18) not later than January 1, 1997, provides
that neither the State nor any other entity in the
State that receives funds from the Federal Govern-
ment and is involved in adoption or foster care
placements may—
‘‘(A) deny to any person the opportunity to
become an adoptive or a foster parent, on the
basis of the race, color, or national origin of the
person, or of the child, involved; or
‘‘(B) delay or deny the placement of a
child for adoption or into foster care, on the
basis of the race, color, or national origin of the
adoptive or foster parent, or the child, in-
volved.’’.
(b) ENFORCEMENT.—Section 474 of such Act (42
U.S.C. 674) is amended by adding at the end the follow-
ing:
‘‘(d)(1) If a State’s program operated under this part
is found, as a result of a review conducted under section
1123, to have violated section 471(a)(18) during a quarter
with respect to any person, then, notwithstanding sub-
section (a) of this section and any regulations promulgated
under section 1123(b)(3), the Secretary shall reduce the
amount otherwise payable to the State under this part,
for the quarter and for each subsequent quarter before
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the 1st quarter for which the State program is found, as
a result of such a review, not to have violated section
471(a)(18) with respect to any person, by—
‘‘(A) 2 percent of such otherwise payable
amount, in the case of the 1st such finding with re-
spect to the State;
‘‘(B) 5 percent of such otherwise payable
amount, in the case of the 2nd such finding with re-
spect to the State; or
‘‘(C) 10 percent of such otherwise payable
amount, in the case of the 3rd or subsequent such
finding with respect to the State.
‘‘(2) Any other entity which is in a State that receives
funds under this part and which violates section
471(a)(18) during a quarter with respect to any person
shall remit to the Secretary all funds that were paid by
the State to the entity during the quarter from such funds.
‘‘(3)(A) Any individual who is aggrieved by a viola-
tion of section 471(a)(18) by a State or other entity may
bring an action seeking relief from the State or other en-
tity in any United States district court.
‘‘(B) An action under this paragraph may not be
brought more than 2 years after the date the alleged viola-
tion occurred.
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‘‘(4) This subsection shall not be construed to affect
the application of the Indian Child Welfare Act of 1978.’’.
(c) CIVIL RIGHTS.—
(1) PROHIBITED CONDUCT.—A person or gov-
ernment that is involved in adoption or foster care
placements may not—
(A) deny to any individual the opportunity
to become an adoptive or a foster parent, on the
basis of the race, color, or national origin of the
individual, or of the child, involved; or
(B) delay or deny the placement of a child
for adoption or into foster care, on the basis of
the race, color, or national origin of the adop-
tive or foster parent, or the child, involved.
(2) ENFORCEMENT.—Noncompliance with para-
graph (1) is deemed a violation of title VI of the
Civil Rights Act of 1964.
(3) NO EFFECT ON THE INDIAN CHILD WEL-
FARE ACT OF 1978.—This subsection shall not be
construed to affect the application of the Indian
Child Welfare Act of 1978.
(d) CONFORMING REPEAL.—Section 553 of the How-
ard M. Metzenbaum Multiethnic Placement Act of 1994
(42 U.S.C. 5115a) is repealed.
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TITLE III—CHILD CUSTODY PRO-
CEEDINGS AFFECTED BY THE
INDIAN CHILD WELFARE ACT
OF 1978
SEC. 301. INAPPLICABILITY OF THE INDIAN CHILD WEL-
FARE ACT OF 1978 TO CHILD CUSTODY PRO-
CEEDINGS INVOLVING A CHILD WHOSE PAR-
ENTS DO NOT MAINTAIN AFFILIATION WITH
THEIR INDIAN TRIBE.
Title I of the Indian Child Welfare Act of 1978 (25
U.S.C. 1911 et seq.) is amended by adding at the end
the following:
‘‘SEC. 114. (a) This title does not apply to any child
custody proceeding involving a child who does not reside
or is not domiciled within a reservation unless—
‘‘(1) at least one of the child’s biological par-
ents is of Indian descent; and
‘‘(2) at least one of the child’s biological par-
ents maintains significant social, cultural, or politi-
cal affiliation with the Indian tribe of which either
parent is a member.
‘‘(b) The factual determination as to whether a bio-
logical parent maintains significant social, cultural, or po-
litical affiliation with the Indian tribe of which either par-
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with respect to any child custody proceeding in which a
final decree has not been entered as of such date.
TITLE IV—REVENUE OFFSETS
SEC. 400. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in
this title an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
Subtitle A—Exclusion for Energy
Conservation Subsidies Limited
to Subsidies With Respect to
Dwelling Units
SEC. 401. EXCLUSION FOR ENERGY CONSERVATION SUB-
SIDIES LIMITED TO SUBSIDIES WITH RE-
SPECT TO DWELLING UNITS.
(a) IN GENERAL.—Paragraph (1) of section 136(c)
(defining energy conservation measure) is amended by
striking ‘‘energy demand—’’ and all that follows and in-
serting ‘‘energy demand with respect to a dwelling unit.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 136 is amended to
read as follows:
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‘‘(a) EXCLUSION.—Gross income shall not include
the value of any subsidy provided (directly or indirectly)
by a public utility to a customer for the purchase or instal-
lation of any energy conservation measure.’’
(2) Paragraph (2) of section 136(c) is amend-
ed—
(A) by striking subparagraph (A) and by
redesignating subparagraphs (B) and (C) as
subparagraphs (A) and (B), respectively, and
(B) by striking ‘‘AND SPECIAL RULES’’ in
the paragraph heading.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after Decem-
ber 31, 1996, unless received pursuant to a written bind-
ing contract in effect on September 13, 1995, and at all
times thereafter.
Subtitle B—Foreign Trust Tax
Compliance
SEC. 411. IMPROVED INFORMATION REPORTING ON FOR-
EIGN TRUSTS.
(a) IN GENERAL.—Section 6048 (relating to returns
as to certain foreign trusts) is amended to read as follows:
‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN
FOREIGN TRUSTS.
‘‘(a) NOTICE OF CERTAIN EVENTS.—
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‘‘(1) GENERAL RULE.—On or before the 90th
day (or such later day as the Secretary may pre-
scribe) after any reportable event, the responsible
party shall provide written notice of such event to
the Secretary in accordance with paragraph (2).
‘‘(2) CONTENTS
OF
NOTICE.—The notice re-
quired by paragraph (1) shall contain such informa-
tion as the Secretary may prescribe, including—
‘‘(A) the amount of money or other prop-
erty (if any) transferred to the trust in connec-
tion with the reportable event, and
‘‘(B) the identity of the trust and of each
trustee and beneficiary (or class of bene-
ficiaries) of the trust.
‘‘(3) REPORTABLE
EVENT.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘reportable
event’ means—
‘‘(i) the creation of any foreign trust
by a United States person,
‘‘(ii) the transfer of any money or
property (directly or indirectly) to a for-
eign trust by a United States person, in-
cluding a transfer by reason of death, and
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‘‘(iii) the death of a citizen or resident
of the United States if—
‘‘(I) the decedent was treated as
the owner of any portion of a foreign
trust under the rules of subpart E of
part I of subchapter J of chapter 1,
or
‘‘(II) any portion of a foreign
trust was included in the gross estate
of the decedent.
‘‘(B) EXCEPTIONS.—
‘‘(i) FAIR
MARKET
VALUE
SALES.—
Subparagraph (A)(ii) shall not apply to
any transfer of property to a trust in ex-
change for consideration of at least the fair
market value of the transferred property.
For purposes of the preceding sentence,
consideration other than cash shall be
taken into account at its fair market value
and the rules of section 679(a)(3) shall
apply.
‘‘(ii) DEFERRED COMPENSATION AND
CHARITABLE TRUSTS.—Subparagraph (A)
shall not apply with respect to a trust
which is—
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‘‘(I) described in section 402(b),
404(a)(4), or 404A, or
‘‘(II) determined by the Sec-
retary to be described in section
501(c)(3).
‘‘(4) RESPONSIBLE
PARTY.—For purposes of
this 
subsection, 
the 
term 
‘responsible 
party’
means—
‘‘(A) the grantor in the case of the cre-
ation of an inter vivos trust,
‘‘(B) the transferor in the case of a report-
able event described in paragraph (3)(A)(ii)
other than a transfer by reason of death, and
‘‘(C) the executor of the decedent’s estate
in any other case.
‘‘(b) UNITED
STATES
GRANTOR
OF
FOREIGN
TRUST.—
‘‘(1) IN GENERAL.—If, at any time during any
taxable year of a United States person, such person
is treated as the owner of any portion of a foreign
trust under the rules of subpart E of part I of sub-
chapter J of chapter 1, such person shall be respon-
sible to ensure that—
‘‘(A) such trust makes a return for such
year which sets forth a full and complete ac-
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counting of all trust activities and operations
for the year, the name of the United States
agent for such trust, and such other informa-
tion as the Secretary may prescribe, and
‘‘(B) such trust furnishes such information
as the Secretary may prescribe to each United
States person (i) who is treated as the owner of
any portion of such trust or (ii) who receives
(directly or indirectly) any distribution from the
trust.
‘‘(2) TRUSTS
NOT
HAVING
UNITED
STATES
AGENT.—
‘‘(A) IN
GENERAL.—If the rules of this
paragraph apply to any foreign trust, the deter-
mination of amounts required to be taken into
account with respect to such trust by a United
States person under the rules of subpart E of
part I of subchapter J of chapter 1 shall be de-
termined by the Secretary.
‘‘(B) UNITED STATES AGENT REQUIRED.—
The rules of this paragraph shall apply to any
foreign trust to which paragraph (1) applies un-
less such trust agrees (in such manner, subject
to such conditions, and at such time as the Sec-
retary shall prescribe) to authorize a United
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States person to act as such trust’s limited
agent solely for purposes of applying sections
7602, 7603, and 7604 with respect to—
‘‘(i) any request by the Secretary to
examine records or produce testimony re-
lated to the proper treatment of amounts
required to be taken into account under
the rules referred to in subparagraph (A),
or
‘‘(ii) any summons by the Secretary
for such records or testimony.
The appearance of persons or production of
records by reason of a United States person
being such an agent shall not subject such per-
sons or records to legal process for any purpose
other than determining the correct treatment
under this title of the amounts required to be
taken into account under the rules referred to
in subparagraph (A). A foreign trust which ap-
points an agent described in this subparagraph
shall not be considered to have an office or a
permanent establishment in the United States,
or to be engaged in a trade or business in the
United States, solely because of the activities of
such agent pursuant to this subsection.
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‘‘(C) OTHER
RULES
TO
APPLY.—Rules
similar to the rules of paragraphs (2) and (4)
of section 6038A(e) shall apply for purposes of
this paragraph.
‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES
OF FOREIGN TRUSTS.—
‘‘(1) IN GENERAL.—If any United States per-
son receives (directly or indirectly) during any tax-
able year of such person any distribution from a for-
eign trust, such person shall make a return with re-
spect to such trust for such year which includes—
‘‘(A) the name of such trust,
‘‘(B) the aggregate amount of the distribu-
tions so received from such trust during such
taxable year, and
‘‘(C) such other information as the Sec-
retary may prescribe.
‘‘(2) INCLUSION IN INCOME IF RECORDS NOT
PROVIDED.—
‘‘(A) IN
GENERAL.—If adequate records
are not provided to the Secretary to determine
the proper treatment of any distribution from a
foreign trust, such distribution shall be treated
as an accumulation distribution includible in
the gross income of the distributee under chap-