1182
‘‘(2) OTHER RULES.—Rules similar to the rules
of paragraphs (2) and (4) of section 4052(b) shall
apply for purposes of this subchapter.
‘‘SEC. 4003. SPECIAL RULES.
‘‘(a) SEPARATE PURCHASE OF VEHICLE AND PARTS
AND ACCESSORIES THEREFOR.—Under regulations pre-
scribed by the Secretary—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if—
‘‘(A) the owner, lessee, or operator of any
passenger vehicle installs (or causes to be in-
stalled) any part or accessory on such vehicle,
and
‘‘(B) such installation is not later than the
date 6 months after the date the vehicle was
1st placed in service,
then there is hereby imposed on such installation a
tax equal to 10 percent of the price of such part or
accessory and its installation.
‘‘(2) LIMITATION.—The tax imposed by para-
graph (1) on the installation of any part or acces-
sory shall not exceed 10 percent of the excess (if
any) of—
‘‘(A) the sum of—
1183
‘‘(i) the price of such part or acces-
sory and its installation,
‘‘(ii) the aggregate price of the parts
and accessories (and their installation) in-
stalled before such part or accessory, plus
‘‘(iii) the price for which the pas-
senger vehicle was sold, over
‘‘(B) $30,000.
‘‘(3) EXCEPTIONS.—Paragraph (1) shall not
apply if—
‘‘(A) the part or accessory installed is a re-
placement part or accessory,
‘‘(B) the part or accessory is installed to
enable or assist an individual with a disability
to operate the vehicle, or to enter or exit the ve-
hicle, by compensating for the effect of such
disability, or
‘‘(C) the aggregate price of the parts and
accessories (and their installation) described in
paragraph (1) with respect to the vehicle does
not exceed $200 (or such other amount or
amounts as the Secretary may by regulation
prescribe).
The price of any part or accessory (and its installa-
tion) to which paragraph (1) does not apply by rea-
1184
son of this paragraph shall not be taken into ac-
count under paragraph (2)(A).
‘‘(4) INSTALLERS
SECONDARILY
LIABLE
FOR
TAX.—The owners of the trade or business installing
the parts or accessories shall be secondarily liable
for the tax imposed by this subsection.
‘‘(b) I MPOSITION OF TAX ON SALES, E TC., W ITHIN
2 YEARS OF VEHICLES PURCHASED TAX-FREE.—
‘‘(1) IN GENERAL.—If—
‘‘(A) no tax was imposed under this sub-
chapter on the 1st retail sale of any passenger
vehicle by reason of its exempt use, and
‘‘(B) within 2 years after the date of such
1st retail sale, such vehicle is resold by the pur-
chaser or such purchaser makes a substantial
nonexempt use of such vehicle,
then such sale or use of such vehicle by such pur-
chaser shall be treated as the 1st retail sale of such
vehicle for a price equal to its fair market value at
the time of such sale or use.
‘‘(2) E XEMPT USE.—For purposes of this sub-
section, the term ‘exempt use’ means any use of a
vehicle if the 1st retail sale of such vehicle is not
taxable under this subchapter by reason of such use.
1185
‘‘(c) PARTS AND ACCESSORIES SOLD WITH TAXABLE
ARTICLE.—Parts and accessories sold on, in connection
with, or with the sale of any passenger vehicle shall be
treated as part of the vehicle.
‘‘(d) PARTIAL PAYMENTS, E TC.—In the case of a
contract, sale, or arrangement described in paragraph (2),
(3), or (4) of section 4216(c), rules similar to the rules
of section 4217(e)(2) shall apply for purposes of this sub-
chapter.’’
(b) TECHNICAL AMENDMENTS.—
(1) Subsection (c) of section 4221 is amended
by striking ‘‘4002(b), 4003(c), 4004(a)’’ and insert-
ing ‘‘4001(d)’’.
(2) Subsection (d) of section 4222 is amended
by striking ‘‘4002(b), 4003(c), 4004(a)’’ and insert-
ing ‘‘4001(d)’’.
(3) The table of subchapters for chapter 31 is
amended by striking the item relating to subchapter
A and inserting the following:
‘‘Subchapter A. Luxury passenger vehicles.’’
(c) E FFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1993.
1186
SEC. 14162. EXEMPTION FROM LUXURY EXCISE TAX FOR
CERTAIN EQUIPMENT INSTALLED ON PAS-
SENGER VEHICLES FOR USE BY DISABLED IN-
DIVIDUALS.
(a) IN GENERAL.—Paragraph (3) of section 4004(b)
(relating to separate purchase of article and parts and ac-
cessories therefor), as in effect on the day before the date
of the enactment of this Act, is amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(A),
(2) by redesignating subparagraph (B) as sub-
paragraph (C),
(3) by inserting after subparagraph (A) the fol-
lowing new subparagraph:
‘‘(B) the part or accessory is installed on
a passenger vehicle to enable or assist an indi-
vidual with a disability to operate the vehicle, or
to enter or exit the vehicle, by compensating for
the effect of such disability, or’’, and
(4) by inserting after subparagraph (C) the fol-
lowing flush sentence:
‘‘The price of any part or accessory (and its installa-
tion) to which paragraph (1) does not apply by rea-
son of this paragraph shall not be taken into ac-
count under paragraph (2)(A).’’
1187
(b) E FFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 11221(a) of the Omnibus Budget
Reconciliation Act of 1990.
(c) PERIOD FOR FILING CLAIMS.—If refund or credit
of any overpayment of tax resulting from the application
of the amendments made by this section is prevented at
any time before the close of the 1-year period beginning
on the date of the enactment of this Act by the operation
of any law or rule of law (including res judicata), refund
or credit of such overpayment (to the extent attributable
to such amendments) may, nevertheless, be made or al-
lowed if claim therefor is filed before the close of such
1-year period.
SEC. 14163. TAX ON DIESEL FUEL USED IN NONCOMMER-
CIAL BOATS.
(a) GENERAL RULE.—
(1) Paragraph (2) of section 4092(a) (defining
diesel fuel) is amended by striking ‘‘or a diesel-pow-
ered train’’ and inserting ‘‘, a diesel-powered train,
or a diesel-powered boat’’.
(2) Paragraph (1) of section 4041(a) is amend-
ed—
(A) by striking ‘‘diesel-powered highway
vehicle’’ each place it appears and inserting
1188
‘‘diesel-powered highway vehicle or diesel-pow-
ered boat’’, and
(B) by striking ‘‘such vehicle’’ and insert-
ing ‘‘such vehicle or boat’’.
(3) Subparagraph (B) of section 4092(b)(1) is
amended by striking ‘‘commercial and noncommer-
cial vessels’’ each place it appears and inserting
‘‘vessels for use in an off-highway business use (as
defined in section 6421(e)(2)(B))’’.
(b) E XEMPTION FOR USE IN FISHERIES OR COM-
MERCIAL NAVIGATION.—Subparagraph (B) of section
6421(e)(2) is amended to read as follows:
‘‘(B) USES IN BOATS.—The term ‘off-high-
way business use’ does not include any use in
a motorboat; except that such term shall in-
clude any use in—
‘‘(i) a vessel employed in the fisheries
or in the whaling business, and
‘‘(ii) in the case of diesel fuel, a boat
in the active conduct of—
‘‘(I) a trade or business of com-
mercial fishing or transporting per-
sons or property for compensation or
hire, or
1189
‘‘(II) any other trade or business
unless the boat is used predominantly
in any activity which is of a type gen-
erally considered to constitute enter-
tainment, amusement or recreation.’’
(c) RETENTION OF TAXES IN GENERAL FUND.—
(1) T AXES IMPOSED AT HIGHWAY TRUST FUND
FINANCING
RATE.—Paragraph 
(4) 
of 
section
9503(b) (relating to transfers to Highway Trust
Fund) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (A),
(B) by striking the period at the end of
subparagraph (B) and inserting ‘‘, and’’, and
(C) by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(C) there shall not be taken into account
the taxes imposed by sections 4041 and 4091
on diesel fuel sold for use or used as fuel in a
diesel-powered boat.’’
(2) TAXES
IMPOSED
AT
LEAKING
UNDER-
GROUND STORAGE TANK TRUST FUND FINANCING
RATE.—Subsection (b) of section 9508 (relating to
transfers to Leaking Underground Storage Tank
Trust Fund) is amended by adding at the end there-
1190
of the following new sentence: ‘‘For purposes of this
subsection, there shall not be taken into account the
taxes imposed by sections 4041 and 4091 on diesel
fuel sold for use or used as fuel in a diesel-powered
boat.’’
(d) E FFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1994.
PART VII—OTHER CHANGES
SEC. 14171. ALTERNATIVE MINIMUM TAX TREATMENT OF
CONTRIBUTIONS 
OF 
APPRECIATED 
PROP-
ERTY.
(a) R EPEAL OF TAX PREFERENCE.—Subsection (a)
of section 57 (as amended by section 14113) is amended
by striking paragraph (6) (relating to appreciated prop-
erty charitable deduction) and by redesignating para-
graphs (7) and (8) as paragraphs (6) and (7), respectively.
(b) E FFECT ON ADJUSTED CURRENT EARNINGS.—
Paragraph (4) of section 56(g) is amended by adding at
the end thereof the following new subparagraph:
‘‘(J) TREATMENT
OF
CHARITABLE
CON-
TRIBUTIONS.—Notwithstanding subparagraphs
(B) and (C), no adjustment related to the earn-
ings and profits effects of any charitable con-
tribution shall be made in computing adjusted
current earnings.’’
1191
(c) C ONFORMING AMENDMENT.—Subclause (II) of
section 53(d)(1)(B)(ii) (as amended by section 14113) is
amended by striking ‘‘(5), (6), and (8)’’ and inserting
‘‘(5), and (7)’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to contributions made after June
30, 1992, except that in the case of any contribution of
capital gain property which is not tangible personal prop-
erty, such amendments shall apply only if the contribution
is made after December 31, 1992.
(e) REPORT
ON
ADVANCE
DETERMINATION
OF
VALUE OF CHARITABLE GIFTS.—Not later than 1 year
after the date of the enactment of this Act, the Secretary
of the Treasury shall report to the Committee on Finance
of the Senate and the Committee on Ways and Means of
the House of Representatives on the development of a pro-
cedure under which taxpayers may elect to seek an agree-
ment with the Secretary as to the value of tangible per-
sonal property prior to the donation of such property to
a qualifying charitable organization if the time limits for
the donation and other conditions contained in the agree-
ment are satisfied. Such report shall address the setting
of possible threshold amounts for claimed value (and the
payment of fees) by a taxpayer in order to seek agreement
under the procedure, possible limitations on applying the
1192
procedure only to items with significant artistic or cultural
value, and recommendations for legislative action needed
to implement the proposed procedure.
SEC. 14172. CERTAIN TRANSFERS TO RAILROAD RETIRE-
MENT ACCOUNT MADE PERMANENT.
Subsection (c)(1)(A) of section 224 of the Railroad
Retirement Solvency Act of 1983 (relating to section 72(r)
revenue increase transferred to certain railroad accounts)
is amended by striking ‘‘with respect to benefits received
before October 1, 1992’’.
SEC. 14173. TEMPORARY EXTENSION OF DEDUCTION FOR
HEALTH INSURANCE COSTS OF SELF–EM-
PLOYED INDIVIDUALS.
(a) IN GENERAL.—
(1) EXTENSION.—Paragraph (6) of section
162(l) (relating to special rules for health insurance
costs of self-employed individuals) is amended by
striking ‘‘June 30, 1992’’ and inserting ‘‘December
31, 1993’’.
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 110(a) of the Tax Extension Act of 1991
is hereby repealed.
(3) E FFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years end-
ing after June 30, 1992.
1193
(b) DETERMINATION
OF
ELIGIBILITY
FOR
EM-
PLOYER-SPONSORED HEALTH PLAN.—
(1) I N GENERAL.—Paragraph (2)(B) of section
162(l) is amended to read as follows:
‘‘(B) OTHER COVERAGE.—Paragraph (1)
shall not apply to any taxpayer for any calendar
month for which the taxpayer is eligible to par-
ticipate in any subsidized health plan main-
tained by any employer of the taxpayer or of
the spouse of the taxpayer.’’
(2) E FFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1992.
Subtitle B—Revenue Increases
PART I—PROVISIONS AFFECTING INDIVIDUALS
Subpart A—Rate Increases
SEC. 14201. INCREASE IN TOP MARGINAL RATE UNDER SEC-
TION 1.
(a) G ENERAL RULE.—Section 1 (relating to tax im-
posed) is amended by striking subsections (a) through (e)
and inserting the following:
‘‘(a) MARRIED INDIVIDUALS FILING JOINT RETURNS
AND SURVIVING SPOUSES.—There is hereby imposed on
the taxable income of—
1194
‘‘(1) every married individual (as defined in sec-
tion 7703) who makes a single return jointly with
his spouse under section 6013, and
‘‘(2) every surviving spouse (as defined in sec-
tion 2(a)),
a tax determined in accordance with the following table:
‘‘If taxable income is:
The tax is:
Not over $36,900 ..........................
15% of taxable income.
Over 
$36,900 
but 
not 
over
$89,150.
$5,535, plus 28% of the excess over
$36,900.
Over 
$89,150 
but 
not 
over
$140,000.
$20,165, plus 31% of the excess over
$89,150.
Over $140,000 ...............................
$35,928.50, plus 36% of the excess
over $140,000.
‘‘(b) HEADS OF HOUSEHOLDS.—There is hereby im-
posed on the taxable income of every head of a household
(as defined in section 2(b)) a tax determined in accordance
with the following table:
‘‘If taxable income is:
The tax is:
Not over $29,600 ..........................
15% of taxable income.
Over 
$29,600 
but 
not 
over
$76,400.
$4,440, plus 28% of the excess over
$29,600.
Over 
$76,400 
but 
not 
over
$127,500.
$17,544, plus 31% of the excess over
$76,400.
Over $127,500 ...............................
$33,385, plus 36% of the excess over
$127,500.
‘‘(c) U NMARRIED INDIVIDUALS (OTHER THAN SUR-
VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—There
is hereby imposed on the taxable income of every individ-
ual (other than a surviving spouse as defined in section
2(a) or the head of a household as defined in section 2(b))
who is not a married individual (as defined in section
1195
7703) a tax determined in accordance with the following
table:
‘‘If taxable income is:
The tax is:
Not over $22,100 ..........................
15% of taxable income.
Over 
$22,100 
but 
not 
over
$53,500.
$3,315, plus 28% of the excess over
$22,100.
Over 
$53,500 
but 
not 
over
$115,000.
$12,107, plus 31% of the excess over
$53,500.
Over $115,000 ...............................
$31,172, plus 36% of the excess over
$115,000.
‘‘(d) M ARRIED INDIVIDUALS FILING SEPARATE RE-
TURNS.—There is hereby imposed on the taxable income
of every married individual (as defined in section 7703)
who does not make a single return jointly with his spouse
under section 6013, a tax determined in accordance with
the following table:
‘‘If taxable income is:
The tax is:
Not over $18,450 ..........................
15% of taxable income.
Over 
$18,450 
but 
not 
over
$44,575.
$2,767.50, plus 28% of the excess
over $18,450.
Over 
$44,575 
but 
not 
over
$70,000.
$10,082.50, plus 31% of the excess
over $44,575.
Over $70,000 .................................
$17,964.25, plus 36% of the excess
over $70,000.
‘‘(e) ESTATES AND TRUSTS.—There is hereby im-
posed on the taxable income of—
‘‘(1) every estate, and
‘‘(2) every trust,
taxable under this subsection a tax determined in accord-
ance with the following table:
‘‘If taxable income is:
The tax is:
Not over $1,500 ............................
15% of taxable income.
Over $1,500 but not over $3,500 ..
$225, plus 28% of the excess over
$1,500.
1196
‘‘If taxable income is:
The tax is:
Over $3,500 but not over $5,500 ..
$785, plus 31% of the excess over
$3,500.
Over $5,500 ...................................
$1,405, plus 36% of the excess over
$5,500.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 531 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(2) Section 541 is amended by striking ‘‘28
percent’’ and inserting ‘‘36 percent’’.
(3)(A) Subsection (f) of section 1 is amended—
(i) by striking ‘‘1990’’ in paragraph (1)
and inserting‘‘1993’’, and
(ii) by striking ‘‘1989’’ in paragraph
(3)(B) and inserting ‘‘1992’’.
(B) Subsection (f) of section 1 is amended by
adding at the end thereof the following new para-
graph:
‘‘(7) SPECIAL RULE FOR CERTAIN BRACKETS.—
‘‘(A) C ALENDAR YEAR 1994.—In prescrib-
ing the tables under paragraph (1) which apply
with respect to taxable years beginning in cal-
endar year 1994, the Secretary shall make no
adjustment to the dollar amounts at which the
36 percent rate bracket begins or at which the
39.6 percent rate begins under any table con-
tained in subsection (a), (b), (c), (d), or (e).
1197
‘‘(B) LATER CALENDAR YEARS.—In pre-
scribing tables under paragraph (1) which apply
with respect to taxable years beginning in a cal-
endar year after 1994, the cost-of-living adjust-
ment used in making adjustments to the dollar
amounts referred to in subparagraph (A) shall
be determined under paragraph (3) by sub-
stituting ‘1993’ for ‘1992’.’’
(C) Subparagraph (C) of section 41(e)(5) is
amended by striking ‘‘1989’’ each place it appears
and inserting ‘‘1992’’.
(D) Subparagraph (B) of section 63(c)(4) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(E) Subparagraph (B) of section 68(b)(2) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
(F) Subparagraph (B) of section 132(f)(6) is
amended by striking ‘‘, determined by substituting’’
and all that follows down through the period at the
end thereof and inserting a period.
(G) Subparagraphs (A)(ii) and (B)(ii) of sec-
tion 151(d)(4) are each amended by striking ‘‘1989’’
and inserting ‘‘1992’’.
(H) Clause (ii) of section 513(h)(2)(C) is
amended by striking ‘‘1989’’ and inserting ‘‘1992’’.
1198
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14202. SURTAX ON HIGH-INCOME TAXPAYERS.
(a) GENERAL RULE.—
(1) Subsection (a) of section 1 (as amended by
section 14201) is amended by striking the last item
in the table contained therein and inserting the fol-
lowing:
Over 
$140,000 
but 
not 
over
$250,000.
$35,928.50, plus 36% of the excess
over $140,000.
Over $250,000 ...............................
$75,528.50, plus 39.6% of the excess
over $250,000.’’
(2) Subsection (b) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$127,500 
but 
not 
over
$250,000.
$33,385, plus 36% of the excess over
$127,500.
Over $250,000 ...............................
$77,485, plus 39.6% of the excess
over $250,000.’’
(3) Subsection (c) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over 
$115,000 
but 
not 
over
$250,000.
$31,172, plus 36% of the excess over
$115,000.
Over $250,000 ...............................
$79,772, plus 39.6% of the excess
over $250,000.’’
(4) Subsection (d) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
1199
Over 
$70,000 
but 
not 
over
$125,000.
$17,964.25, plus 36% of the excess
over $70,000.
Over $125,000 ...............................
$37,764.25, plus 39.6% of the excess
over $125,000.’’
(5) Subsection (e) of section 1 (as so amended)
is amended by striking the last item in the table
contained therein and inserting the following:
Over $5,500 but not over $7,500 ..
$1,405, plus 36% of the excess over
$5,500.
Over $7,500 ...................................
$2,125, plus 39.6% of the excess over
$7,500.’’
(b) TECHNICAL AMENDMENT.—Sections 531 and
541 (as amended by section 1420) are each amended by
striking ‘‘36 percent’’ and inserting ‘‘39.6 percent’’.
(c) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14203. MODIFICATIONS TO ALTERNATIVE MINIMUM
TAX RATES AND EXEMPTION AMOUNTS.
(a) I NCREASE IN RATE.—Paragraph (1) of section
55(b) (defining tentative minimum tax) is amended to
read as follows:
‘‘(1) AMOUNT OF TENTATIVE TAX.—
‘‘(A) NONCORPORATE TAXPAYERS.—
‘‘(i) IN GENERAL.—In the case of a
taxpayer other than a corporation, the ten-
tative minimum tax for the taxable year is
the sum of—
1200
‘‘(I) 26 percent of so much of the
taxable excess as does not exceed
$175,000, plus
‘‘(II) 28 percent of so much of
the 
taxable 
excess 
as 
exceeds
$175,000.
The amount determined under the preced-
ing sentence shall be reduced by the alter-
native minimum tax foreign tax credit for
the taxable year.
‘‘(ii) TAXABLE
EXCESS.—For pur-
poses of clause (i), the term ‘taxable ex-
cess’ means so much of the alternative
minimum taxable income for the taxable
year as exceeds the exemption amount.
‘‘(iii) MARRIED
INDIVIDUAL
FILING
SEPARATE RETURN.—In the case of a mar-
ried individual filing a separate return,
clause (i) shall be applied by substituting
‘$87,500’ for ‘$175,000’ each place it ap-
pears. For purposes of the preceding sen-
tence, marital status shall be determined
under section 7703.
1201
‘‘(B) CORPORATIONS.—In the case of a
corporation, the tentative minimum tax for the
taxable year is—
‘‘(i) 20 percent of so much of the al-
ternative minimum taxable income for the
taxable year as exceeds the exemption
amount, reduced by
‘‘(ii) the alternative minimum tax for-
eign tax credit for the taxable year.’’
(b) INCREASE
IN EXEMPTION AMOUNTS.—Para-
graph (1) of section 55(d) (defining exemption amount)
is amended—
(1) by striking ‘‘$40,000’’ in subparagraph (A)
and inserting ‘‘$45,000’’,
(2) by striking ‘‘$30,000’’ in subparagraph (B)
and inserting ‘‘$33,750’’, and
(3) by striking ‘‘$20,000’’ in subparagraph (C)
and inserting ‘‘$22,500’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 55(d)(3) is
amended by striking ‘‘$155,000 or (ii) $20,000’’ and
inserting ‘‘$165,000 or (ii) $22,500’’.
(2)(A) Subparagraph (A) of section 897(a)(2)
is amended by striking ‘‘the amount determined
under section 55(b)(1)(A) shall not be less than 21
1202
percent of’’ and inserting ‘‘the taxable excess for
purposes of section 55(b)(1)(A) shall not be less
than’’.
(B) The heading for paragraph (2) of section
897(a) is amended by striking ‘‘21-PERCENT’’.
(d) E FFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 14204. OVERALL LIMITATION ON ITEMIZED DEDUC-
TIONS FOR HIGH-INCOME TAXPAYERS MADE
PERMANENT.
Subsection (f) of section 68 (relating to overall limita-
tion on itemized deductions) is hereby repealed.
SEC. 14205. PHASEOUT OF PERSONAL EXEMPTION OF HIGH-
INCOME TAXPAYERS MADE PERMANENT.
Section 151(d)(3) (relating to phaseout of personal
exemption) is amended by striking subparagraph (E).
SEC. 14206. PROVISIONS TO PREVENT CONVERSION OF OR-
DINARY INCOME TO CAPITAL GAIN.
(a) INTEREST EMBEDDED IN FINANCIAL TRANS-
ACTIONS.—
(1) I N GENERAL.—Part IV of subchapter P of
chapter 1 (relating to special rules for determining
capital gains and losses) is amended by adding at
the end thereof the following new section:
1203
‘‘SEC. 1258. RECHARACTERIZATION OF GAIN FROM CER-
TAIN FINANCIAL TRANSACTIONS.
‘‘(a) GENERAL RULE.—In the case of any gain—
‘‘(1) which (but for this section) would be treat-
ed as gain from the sale or exchange of a capital
asset, and
‘‘(2) which is recognized on the disposition of
any property which was held as part of a conversion
transaction,
such gain (to the extent such gain does not exceed the
applicable imputed income amount) shall be treated as
ordinary income.
‘‘(b) A PPLICABLE IMPUTED INCOME AMOUNT.—For
purposes of subsection (a), the term ‘applicable imputed
income amount’ means, with respect to any disposition re-
ferred to in subsection (a), an amount equal to—
‘‘(1) the amount of interest which would have
accrued on the taxpayer’s net investment in the con-
version transaction for the period ending on the date
of such disposition (or, if earlier, the date on which
the requirements of subsection (c) ceased to be satis-
fied) at a rate equal to 120 percent of the applicable
rate, reduced by
‘‘(2) the amount treated as ordinary income
under subsection (a) with respect to any prior dis-
1204
position of property which was held as a part of
such transaction.
The Secretary shall by regulations provide for such reduc-
tions in the applicable imputed income amount as may be
appropriate by reason of amounts capitalized under sec-
tion 263(g), ordinary income received, or otherwise.
‘‘(c) C ONVERSION TRANSACTION.—For purposes of
this section, the term ‘conversion transaction’ means any
of the following where substantially all of the taxpayer’s
expected return from the transaction is attributable to the
time value of the taxpayer’s net investment in such trans-
action:
‘‘(1) The holding of any property (whether or
not actively traded), and the entering into a contract
to sell such property (or substantially identical prop-
erty) at a price determined in accordance with such
contract, but only if such property was acquired and
such contract was entered into on a substantially
contemporaneous basis.
‘‘(2) Any applicable straddle.
‘‘(3) Any other transaction which is marketed
or sold as producing capital gains.
‘‘(4) Any other transaction specified in regula-
tions prescribed by the Secretary.
1205
‘‘(d) D EFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE STRADDLE.—The term ‘appli-
cable straddle’ means any straddle (within the mean-
ing of section 1092(c)); except that the term ‘per-
sonal property’ shall include stock.
‘‘(2) A PPLICABLE RATE.—The term ‘applicable
rate’ means—
‘‘(A) the applicable Federal rate deter-
mined under section 1274(d) (compounded
semiannually) as if the conversion transaction
were a debt instrument, or
‘‘(B) if the term of the conversion trans-
action is indefinite, the Federal short-term
rates in effect under section 6621(b) during the
period 
of 
the 
conversion 
transaction
(compounded daily).
‘‘(3) TREATMENT OF PROPERTY WITH BUILT-IN
LOSS.—
‘‘(A) IN GENERAL.—If any property with a
built-in loss becomes part of a conversion trans-
action—
‘‘(i) for purposes of applying this sub-
title to such property for periods after such
property becomes part of such transaction,
1206
the adjusted basis of such property shall be
its fair market value as of the time it be-
came part of such transaction, except that
‘‘(ii) upon the disposition of such
property in a transaction in which gain or
loss is recognized, such built-in loss shall
be recognized and shall have a character
determined without regard to this section.
‘‘(B) BUILT-IN
LOSS.—For purposes of
subparagraph (A), the term ‘built-in loss’
means the excess (if any) of the adjusted basis
of any property over its fair market value (de-
termined as of the date on which such property
became part of such transaction).
‘‘(4) PROPERTY TAKEN INTO ACCOUNT AT FAIR
MARKET VALUE.—In determining the taxpayer’s net
investment in any conversion transaction, there shall
be included the fair market value of any property
which becomes part of such transaction (determined
as of the date on which such property became part
of such transaction).’’
(2) C LERICAL AMENDMENT.—The table of sec-
tions for part IV of subchapter P of chapter 1 is
1207
amended by adding at the end thereof the following
new item:
‘‘Sec. 1258. Recharacterization of gain from certain financial
transactions.’’
(3) E FFECTIVE DATE.—The amendments made
by this section shall apply to conversion transactions
entered into after April 30, 1993.
(b) R EPEAL OF CERTAIN EXCEPTIONS TO MARKET
DISCOUNT RULES.—
(1) M ARKET DISCOUNT BONDS ISSUED ON OR
BEFORE JULY 18, 1984.—The following provisions
are hereby repealed:
(A) Section 1276(e).
(B) Section 1277(d).
(2) TAX-EXEMPT OBLIGATIONS.—
(A) I N GENERAL.—Paragraph (1) of sec-
tion 1278(a) (defining market discount bond) is
amended—
(i) by striking clause (ii) of subpara-
graph (B) and redesignating subclauses
(iii) and (iv) of such subparagraph as
clauses (ii) and (iii), respectively,
(ii) by redesignating subparagraph
(C) as subparagraph (D), and
(iii) by inserting after subparagraph
(B) the following new subparagraph:
1208
‘‘(C) SECTION 1277 NOT APPLICABLE TO
TAX-EXEMPT
OBLIGATIONS.—For purposes of
section 1277, the term ‘market discount bond’
shall not include any tax-exempt obligation (as
defined in section 1275(a)(3)).’’
(B) C ONFORMING AMENDMENT.—Sections
1276(a)(4) and 1278(b)(1) are each amended
by striking ‘‘sections 871(a)’’ and inserting
‘‘sections 103, 871(a),’’.
(3) E FFECTIVE DATE.—The amendments made
by this section shall apply to obligations purchased
(within the meaning of section 1272(d)(1) of the In-
ternal Revenue Code of 1986) after April 30, 1993.
(c) 
TREATMENT
OF
STRIPPED
PREFERRED
STOCK.—
(1) I N GENERAL.—Section 305 is amended by
redesignating subsection (e) as subsection (f) and by
inserting after subsection (d) the following new sub-
section:
‘‘(e) TREATMENT OF PURCHASER OF STRIPPED PRE-
FERRED STOCK.—
‘‘(1) IN GENERAL.—If any person purchases
after April 30, 1993 any stripped preferred stock,
then such person, while holding such stock, shall in-
clude in gross income amounts equal to the amounts
1209
which would have been so includible if such stripped
preferred stock were a bond issued on the purchase
date and having original issue discount equal to the
excess, if any, of—
‘‘(A) the redemption price for such stock,
over
‘‘(B) the price at which such person pur-
chased such stock.
The preceding sentence shall also apply in the case
of any person whose basis in such stock is deter-
mined by reference to the basis in the hands of such
purchaser.
‘‘(2) BASIS
ADJUSTMENTS.—Appropriate ad-
justments to basis shall be made for amounts includ-
ible in gross income under paragraph (1).
‘‘(3) TAX TREATMENT OF PERSON STRIPPING
STOCK.—If any person strips the rights to 1 or more
dividends from any stock described in paragraph
(5)(B) and after April 30, 1993 disposes of such
dividend rights, for purposes of paragraph (1), such
person shall be treated as having purchased the
stripped preferred stock on the date of such disposi-
tion for a purchase price equal to such person’s
adjusted basis in such stripped preferred stock.
1210
‘‘(4) AMOUNTS
TREATED
AS
ORDINARY
IN-
COME.—Any amount included in gross income under
paragraph (1) shall be treated as ordinary income.
‘‘(5) S TRIPPED PREFERRED STOCK.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘stripped
preferred stock’ means any stock described in
subparagraph (B) if there has been a separa-
tion in ownership between such stock and any
dividend on such stock which has not become
payable.
‘‘(B) DESCRIPTION OF STOCK.—Stock is
described in this subsection if such stock—
‘‘(i) is limited and preferred as to
dividends and does not participate in cor-
porate growth to any significant extent,
and
‘‘(ii) has a fixed redemption price.
‘‘(6) PURCHASE.—For purposes of this sub-
section, the term ‘purchase’ means—
‘‘(A) any acquisition of stock, where
‘‘(B) the basis of such stock is not deter-
mined in whole or in part by the reference to
the adjusted basis of such stock in the hands of
the person from whom acquired.’’
1211
(2) COORDINATION
WITH
SECTION
167(e).—
Paragraph (2) of section 167(e) is amended to read
as follows:
‘‘(2) COORDINATION
WITH
OTHER
PROVI-
SIONS.—
‘‘(A) S ECTION 273.—This subsection shall
not apply to any term interest to which section
273 applies.
‘‘(B) SECTION
305(e).—This subsection
shall not apply to the holder of the dividend
rights which were separated from any stripped
preferred stock to which section 305(e)(1) ap-
plies.’’
(3) E FFECTIVE DATE.—The amendments made
by this subsection shall take effect on April 30,
1993.
(d) T REATMENT OF CAPITAL GAIN UNDER LIMITA-
TION ON INVESTMENT INTEREST.—
(1) IN GENERAL.—Subparagraph (B) of section
163(d)(4) (defining investment income) is amended
to read as follows:
‘‘(B) INVESTMENT
INCOME.—The term
‘investment income’ means the sum of—
1212
‘‘(i) gross income from property held
for investment (other than any gain taken
into account under clause (ii)(I)),
‘‘(ii) the excess (if any) of—
‘‘(I) the net gain attributable to
the disposition of property held for in-
vestment, over
‘‘(II) the net capital gain deter-
mined by only taking into account
gains and losses from dispositions of
property held for investment, plus
‘‘(iii) so much of the net capital gain
referred to in clause (ii)(II) (or, if lesser,
the net gain referred to in clause (ii)(I)) as
the taxpayer elects to take into account
under this clause.’’
(2) COORDINATION
WITH
SPECIAL
CAPITAL
GAINS RATE.—Subsection (h) of section 1 is amend-
ed by adding at the end thereof the following new
sentence:
‘‘For purposes of the preceding sentence, the net capital
gain for any taxable year shall be reduced (but not below
zero) by the amount which the taxpayer elects to take into
account as investment income for the taxable year under
section 163(d)(4)(B)(iii).’’
1213
(3) E FFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1992.
(e) T REATMENT OF CERTAIN APPRECIATED INVEN-
TORY.—
(1) Paragraph (1) of section 751(d) is amended
to read as follows:
‘‘(1) SUBSTANTIAL APPRECIATION.—
‘‘(A) IN GENERAL.—Inventory items of the
partnership shall be considered to have appre-
ciated substantially in value if their fair market
value exceeds 120 percent of the adjusted basis
to the partnership of such property.
‘‘(B) CERTAIN
PROPERTY
EXCLUDED.—
For purposes of subparagraph (A), there shall
be excluded any inventory property if a prin-
cipal purpose for acquiring such property was
to avoid the provisions of this section relating
to inventory items.’’
(2) E FFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to sales, exchanges,
and distributions after April 30, 1993.
1250
(b) FSLIC ASSISTANCE.—For purposes of this sec-
tion, the term ‘‘FSLIC assistance’’ means any assistance
(or right to assistance) with respect to a domestic building
and loan association (as defined in section 7701(a)(19) of
such Code without regard to subparagraph (C) thereof)
under section 406(f) of the National Housing Act or sec-
tion 21A of the Federal Home Loan Bank Act (or under
any similar provision of law).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection—
(A) The provisions of this section shall
apply to taxable years ending on or after March
4, 1991, but only with respect to FSLIC assist-
ance not credited before March 4, 1991.
(B) If any FSLIC assistance not credited
before March 4, 1991, is with respect to a loss
sustained or charge-off in a taxable year ending
before March 4, 1991, for purposes of deter-
mining the amount of any net operating loss
carryover to a taxable year ending on or after
March 4, 1991, the provisions of this section
shall apply to such assistance for purposes of
determining the amount of the net operating
loss for the taxable year in which such loss was
1329
‘‘(1) ELECTRICITY USED IN CERTAIN ELECTRO-
LYTIC PROCESSES.—
‘‘(A) IN GENERAL.—In the case of elec-
tricity used in any electrolytic process, the tax
imposed by this section shall not apply to the
feedstock portion of such electricity.
‘‘(B) FEEDSTOCK PORTION.—For purposes
of subparagraph (A), the feedstock portion of
electricity is the portion of the electrical energy
which is incorporated into the manufactured
product.
‘‘(2) 
ELECTRICITY
USED
TO
GENERATE
PUMPED STORAGE, ETC.—The tax imposed by this
section shall not apply to electricity used in the
United States to create any hydropower source to
generate electricity. The electricity generated by
such hydropower source shall be disregarded in de-
termining the deemed Btu taxes of the electricity.
‘‘(3) USE TAX EXCEPTION.—The Secretary may
provide by regulations that the tax imposed by sub-
section (a)(2) shall not apply in cases where the Sec-
retary determines that such an exception is war-
ranted, after taking into account the protection of
revenues to the United States from this subchapter