1135
(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 amend-
ments made by section 402 of the Tax Equity and Fiscal
Responsibility Act of 1982.
SEC. 14318. DETERMINATION OF PENALTIES AT PARTNER-
SHIP LEVEL.
(a) IN GENERAL.—Section 6221 (relating to tax
treatment determined 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 applicability of any penalty, addition to tax,
or additional amount which relates to an ad-
justment to a partnership item’’.
(2) Clause (i) of section 6230(a)(2)(A) is
amended to read as follows:
1136
‘‘(i) affected items which require part-
ner level determinations (other than pen-
alties, 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 14317, is amended by inserting
‘‘(including any liability for any penalty, addition to
tax, or additional amount relating to such adjust-
ment)’’ after ‘‘partnership item’’.
(B) Subparagraph (B) of such section is
amended by inserting ‘‘(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 14317, is amended by inserting be-
fore the period ‘‘(including any liability for any pen-
alties, additions to tax, or additional amounts relat-
ing to such adjustment)’’.
(D) Subparagraph (D) of section 6230(c)(5), as
added by section 14317, is amended by inserting
‘‘(and the applicability of any penalties, additions to
tax, or additional amounts)’’ after ‘‘partnership
items’’.
1137
(4) Paragraph (1) of section 6230(c) is amend-
ed 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 amend-
ed by adding at the end the following: ‘‘In addition,
the determination under the final partnership ad-
ministrative adjustment or under the decision of the
court (whichever is appropriate) concerning the ap-
plicability of any penalty, addition to tax, or addi-
tional amount which relates to an adjustment to a
partnership item shall also be conclusive. Notwith-
standing the preceding sentence, the partner shall be
allowed to assert any partner level defenses that may
1138
apply or to challenge the amount of the computa-
tional 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. 14319. PROVISIONS RELATING TO COURT JURISDIC-
TION, ETC.
(a) TAX COURT JURISDICTION TO ENJOIN PRE-
MATURE ASSESSMENTS 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 adjust-
ments that are the subject of such petition.’’
(b) JURISDICTION TO CONSIDER STATUTE OF LIMI-
TATIONS WITH RESPECT TO PARTNERS.—Paragraph (1)
of section 6226(d) is amended by adding at the end the
following new sentence:
‘‘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
1139
paragraph (2) of this subsection) solely for the pur-
pose of asserting that the period of limitations for
assessing 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 amend-
ed by striking ‘‘(or an affected item)’’.
(2) Paragraph (3) of section 6512(b) is amend-
ed by adding at the end the following new sentence:
‘‘In the case of a credit or refund relating to an af-
fected 
item 
(within 
the 
meaning 
of 
section
6231(a)(5)), the preceding sentence 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 amend-
ed 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 sub-
paragraph (E) the following new subparagraph:
1140
‘‘(F) in the case of a petition under section
6234(c)—
‘‘(i) the legal residence of the peti-
tioner if the petitioner is not a corporation,
and
‘‘(ii) the place or office applicable
under subparagraph (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 treat-
ment of items other than partnership items with re-
spect to an oversheltered return, see section 6234.’’
(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.
1141
SEC. 14320. 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 administra-
tive adjustments) is amended by redesignating paragraph
(5) as paragraph (6) and by inserting after paragraph (4)
the following new paragraph:
‘‘(5) 
TREATMENT
OF
PREMATURE
PETI-
TIONS.—If—
‘‘(A) a petition for a readjustment of part-
nership items for the taxable year involved is
filed by a notice partner (or a 5-percent group)
during the 90-day period described in sub-
section (a), and
‘‘(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 para-
graph (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.
1142
SEC. 14321. 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 inter-
est,’’, 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 amend-
ments made by section 402 of the Tax Equity and Fiscal
Responsibility Act of 1982.
SEC. 14322. SUSPENSION OF INTEREST WHERE DELAY IN
COMPUTATIONAL ADJUSTMENT RESULTING
FROM CERTAIN SETTLEMENTS.
(a) IN GENERAL.—Subsection (c) of section 6601
(relating to interest on underpayment, nonpayment, or ex-
tension 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 con-
version of partnership items to nonpartnership items pur-
suant 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
1143
were a deficiency and such settlement were a waiver re-
ferred 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. 14323. SPECIAL RULES FOR ADMINISTRATIVE ADJUST-
MENT REQUESTS WITH RESPECT TO BAD
DEBTS OR WORTHLESS SECURITIES.
(a) GENERAL RULE.—Section 6227 (relating to ad-
ministrative 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 re-
lates 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 (deter-
mined without regard to extensions).’’
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
subsection (a) shall take effect as if included in the
1144
amendments made by section 402 of the Tax Equity
and Fiscal Responsibility Act of 1982.
(2) TREATMENT OF REQUESTS FILED BEFORE
DATE OF ENACTMENT.—In the case of that portion
of any request (filed before the date of the enact-
ment 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 ex-
pire 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 be-
ginning of an administrative proceeding or a
final partnership administrative adjustment.
1145
Subtitle D—Foreign Provisions
PART I—MODIFICATIONS TO TREATMENT OF
PASSIVE FOREIGN INVESTMENT COMPANIES
SEC. 14401. UNITED 
STATES 
SHAREHOLDERS 
OF 
CON-
TROLLED 
FOREIGN 
CORPORATIONS 
NOT
SUBJECT TO PFIC INCLUSION.
Section 1296 is amended by adding at the end the
following new subsection:
‘‘(e) EXCEPTION FOR UNITED STATES SHAREHOLD-
ERS OF CONTROLLED FOREIGN CORPORATIONS.—
‘‘(1) IN GENERAL.—For purposes of this part,
a corporation shall not be treated with respect to a
shareholder as a passive foreign investment company
during the qualified portion of such shareholder’s
holding period with respect to stock in such corpora-
tion.
‘‘(2) QUALIFIED
PORTION.—For purposes of
this subsection, the term ‘qualified portion’ means
the portion of the shareholder’s holding period—
‘‘(A) which is after December 31, 1995,
and
‘‘(B) during which the shareholder is a
United States shareholder (as defined in section
951(b)) of the corporation and the corporation
is a controlled foreign corporation.
1146
‘‘(3) NEW HOLDING PERIOD IF QUALIFIED POR-
TION ENDS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), if the qualified portion of a
shareholder’s holding period with respect to any
stock ends after December 31, 1995, solely for
purposes of this part, the shareholder’s holding
period with respect to such stock shall be treat-
ed as beginning as of the first day following
such period.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply if such stock was, with respect
to such shareholder, stock in a passive foreign
investment company at any time before the
qualified portion of the shareholder’s holding
period with respect to such stock and no elec-
tion under section 1298(b)(1) is made.’’
SEC. 14402. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK IN PASSIVE FOREIGN INVEST-
MENT COMPANY.
(a) IN GENERAL.—Part VI of subchapter P of chap-
ter 1 is amended by redesignating subpart C as subpart
D, by redesignating sections 1296 and 1297 as sections
1297 and 1298, respectively, and by inserting after sub-
part B the following new subpart:
1147
‘‘Subpart C—Election of Mark to Market For
Marketable Stock
‘‘Sec. 1296. Election of mark to market for marketable stock.
‘‘SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKET-
ABLE STOCK.
‘‘(a) GENERAL RULE.—In the case of marketable
stock in a passive foreign investment company which is
owned (or treated under subsection (g) as owned) by a
United States person at the close of any taxable year of
such person, at the election of such person—
‘‘(1) If the fair market value of such stock as
of the close of such taxable year exceeds its adjusted
basis, such United States person shall include in
gross income for such taxable year an amount equal
to the amount of such excess.
‘‘(2) If the adjusted basis of such stock exceeds
the fair market value of such stock as of the close
of such taxable year, such United States person
shall be allowed a deduction for such taxable year
equal to the lesser of—
‘‘(A) the amount of such excess, or
‘‘(B) the unreversed inclusions with respect
to such stock.
‘‘(b) BASIS ADJUSTMENTS.—
1148
‘‘(1) IN GENERAL.—The adjusted basis of stock
in a passive foreign investment company—
‘‘(A) shall be increased by the amount in-
cluded in the gross income of the United States
person under subsection (a)(1) with respect to
such stock, and
‘‘(B) shall be decreased by the amount al-
lowed as a deduction to the United States per-
son under subsection (a)(2) with respect to
such stock.
‘‘(2) SPECIAL
RULE
FOR
STOCK
CONSTRUC-
TIVELY OWNED.—In the case of stock in a passive
foreign investment company which the United States
person is treated as owning under subsection (g)—
‘‘(A) the adjustments under paragraph (1)
shall apply to such stock in the hands of the
person actually holding such stock but only for
purposes of determining the subsequent treat-
ment under this chapter of the United States
person with respect to such stock, and
‘‘(B) similar adjustments shall be made to
the adjusted basis of the property by reason of
which the United States person is treated as
owning such stock.
‘‘(c) CHARACTER AND SOURCE RULES.—
1149
‘‘(1) ORDINARY TREATMENT.—
‘‘(A) GAIN.—Any amount included in gross
income under subsection (a)(1), and any gain
on the sale or other disposition of marketable
stock in a passive foreign investment company
(with respect to which an election under this
section is in effect), shall be treated as ordinary
income.
‘‘(B) LOSS.—Any—
‘‘(i) amount allowed as a deduction
under subsection (a)(2), and
‘‘(ii) loss on the sale or other disposi-
tion of marketable stock in a passive for-
eign investment company (with respect to
which an election under this section is in
effect) to the extent that the amount of
such loss does not exceed the unreversed
inclusions with respect to such stock,
shall be treated as an ordinary loss. The
amount so treated shall be treated as a deduc-
tion allowable in computing adjusted gross in-
come.
‘‘(2) SOURCE.—The source of any amount in-
cluded in gross income under subsection (a)(1) (or
allowed as a deduction under subsection (a)(2)) shall
1150
be determined in the same manner as if such
amount were gain or loss (as the case may be) from
the sale of stock in the passive foreign investment
company.
‘‘(d) UNREVERSED INCLUSIONS.—For purposes of
this section, the term ‘unreversed inclusions’ means, with
respect to any stock in a passive foreign investment com-
pany, the excess (if any) of—
‘‘(1) the amount included in gross income of
the taxpayer under subsection (a)(1) with respect to
such stock for prior taxable years, over
‘‘(2) the amount allowed as a deduction under
subsection (a)(2) with respect to such stock for prior
taxable years.
The amount referred to in paragraph (1) shall include any
amount which would have been included in gross income
under subsection (a)(1) with respect to such stock for any
prior taxable year but for section 1291.
‘‘(e) MARKETABLE STOCK.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘marketable
stock’ means—
‘‘(A) any stock which is regularly traded
on—