IIA
103D CONGRESS
2D SESSION
H. R. 3419
IN THE SENATE OF THE UNITED STATES
MAY 23 (legislative day, MAY 6), 1994
Received; read twice and referred to the Committee on Finance
AN ACT
To simplify certain provisions of the Internal Revenue Code
of 1986, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Tax Simplification and Technical Corrections Act of
1993’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title, etc.
TITLE I—PROVISIONS RELATING TO INDIVIDUALS
Subtitle A—Provisions Relating to Rollover of Gain on Sale of Principal
Residence
Sec. 101. Multiple sales within rollover period.
Sec. 102. Special rules in case of divorce.
Subtitle B—Other Provisions
Sec. 111. De minimis exception to passive loss rules.
Sec. 112. Payment of tax by credit card.
Sec. 113. Modifications to election to include child’s income on parent’s return.
Sec. 114. Simplified foreign tax credit limitation for individuals.
Sec. 115. Treatment of personal transactions by individuals under foreign cur-
rency rules.
Sec. 116. Expanded access to simplified income tax returns.
Sec. 117. Treatment of certain reimbursed expenses of rural mail carriers.
Sec. 118. Exclusion of combat pay from withholding limited to amount exclud-
able from gross income.
TITLE II—PENSION SIMPLIFICATION
Subtitle A—Simplified Distribution Rules
Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.
Sec. 202. Repeal of $5,000 exclusion of employees’ death benefits.
Sec. 203. Simplified method for taxing annuity distributions under certain em-
ployer plans.
Sec. 204. Required distributions.
Subtitle B—Increased Access to Pension Plans
Sec. 211. Modifications of simplified employee pensions.
Sec. 212. Tax exempt organizations eligible under section 401(k).
Sec. 213. Duties of sponsors of certain prototype plans.
Subtitle C—Nondiscrimination Provisions
Sec. 221. Definition of highly compensated employees.
Sec. 222. Modification of additional participation requirements.
Sec. 223. Nondiscrimination rules for qualified cash or deferred arrangements
and matching contributions.
Subtitle D—Miscellaneous Simplification
Sec. 231. Treatment of leased employees.
Sec. 232. Modifications of cost-of-living adjustments.
Sec. 233. Plans covering self-employed individuals.
Sec. 234. Elimination of special vesting rule for multiemployer plans.
Sec. 235. Full-funding limitation of multiemployer plans.
Sec. 236. Alternative full-funding limitation.
Sec. 237. Distributions under rural cooperative plans.
Sec. 238. Treatment of governmental plans under section 415.
Sec. 239. Uniform retirement age.
Sec. 240. Uniform penalty provisions to apply to certain pension reporting re-
quirements.
Sec. 241. Contributions on behalf of disabled employees.
Sec. 242. Special rules for plans covering pilots.
Sec. 243. Treatment of deferred compensation plans of State and local govern-
ments and tax-exempt organizations.
Sec. 244. Treatment of employer reversions required by contract to be paid to
the United States.
Sec. 245. Continuation health coverage for employees of failed financial institu-
tions.
Sec. 246. Date for adoption of plan amendments.
TITLE III—TREATMENT OF LARGE PARTNERSHIPS
Subtitle A—General Provisions
Sec. 301. Simplified flow-through for large partnerships.
Sec. 302. Simplified audit procedures for large partnerships.
Sec. 303. Due date for furnishing information to partners of large partnerships.
Sec. 304. Returns may be required on magnetic media.
Sec. 305. Treatment of partnership items of individual retirement accounts.
Sec. 306. Effective date.
Subtitle B—Provisions Related to TEFRA Partnership Proceedings
Sec. 311. Treatment of partnership items in deficiency proceedings.
Sec. 312. Partnership return to be determinative of audit procedures to be fol-
lowed.
Sec. 313. Provisions relating to statute of limitations.
Sec. 314. Expansion of small partnership exception.
Sec. 315. Exclusion of partial settlements from 1 year limitation on assessment.
Sec. 316. Extension of time for filing a request for administrative adjustment.
Sec. 317. Availability of innocent spouse relief in context of partnership pro-
ceedings.
Sec. 318. Determination of penalties at partnership level.
Sec. 319. Provisions relating to court jurisdiction, etc.
Sec. 320. Treatment of premature petitions filed by notice partners or 5-per-
cent groups.
Sec. 321. Bonds in case of appeals from TEFRA proceeding.
Sec. 322. Suspension of interest where delay in computational adjustment re-
sulting from TEFRA settlements.
Sec. 323. Special rules for administrative adjustment requests with respect to
bad debts or worthless securities.
TITLE IV—FOREIGN PROVISIONS
Subtitle A—Simplification of Treatment of Passive Foreign Corporations
Sec. 401. Repeal of foreign personal holding company rules and foreign invest-
ment company rules.
Sec. 402. Replacement for passive foreign investment company rules.
Sec. 403. Technical and conforming amendments.
Sec. 404. Effective date.
Subtitle B—Treatment of Controlled Foreign Corporations
Sec. 411. Gain on certain stock sales by controlled foreign corporations treated
as dividends.
Sec. 412. Miscellaneous modifications to subpart F.
Sec. 413. Indirect foreign tax credit allowed for certain lower tier companies.
Subtitle C—Other Provisions
Sec. 421. Exchange rate used in translating foreign taxes.
Sec. 422. Election to use simplified section 904 limitation for alternative mini-
mum tax.
Sec. 423. Modification of section 1491.
Sec. 424. Modification of section 367(b).
TITLE V—OTHER INCOME TAX PROVISIONS
Subtitle A—Provisions Relating to Subchapter S Corporations
Sec. 501. Authority to validate certain invalid elections.
Sec. 502. Treatment of distributions during loss years.
Sec. 503. Electing small business trusts.
Sec. 504. Other modifications.
Subtitle B—Accounting Provision
Sec. 511. Modifications to look-back method for long-term contracts.
Subtitle C—Provisions Relating to Regulated Investment Companies
Sec. 521. Repeal of 30-percent gross income limitation.
Sec. 522. Basis rules for shares in open-end regulated investment companies.
Sec. 523. Nonrecognition treatment for certain transfers by common trust
funds to regulated investment companies.
Subtitle D—Tax-Exempt Bond Provisions
Sec. 531. Repeal of $100,000 limitation on unspent proceeds under 1-year ex-
ception from rebate.
Sec. 532. Exception from rebate for earnings on bona fide debt service fund
under construction bond rules.
Sec. 533. Repeal of debt service-based limitation on investment in certain
nonpurpose investments.
Sec. 534. Repeal of expired provisions.
Sec. 535. Clarification of investment-type property.
Sec. 536. Effective dates.
Subtitle E—Insurance Provisions
Sec. 541. Treatment of certain insurance contracts on retired lives.
Sec. 542. Treatment of modified guaranteed contracts.
Subtitle F—Other Provisions
Sec. 551. Closing of partnership taxable year with respect to deceased partner,
etc.
Sec. 552. Modification of credit for producing fuel from a nonconventional
source.
TITLE VI—ESTATE AND GIFT TAX PROVISIONS
Sec. 601. Clarification of waiver of certain rights of recovery.
Sec. 602. Adjustments for gifts within 3 years of decedent’s death.
Sec. 603. Clarification of qualified terminable interest rules.
Sec. 604. Transitional rule under section 2056A.
Sec. 605. Opportunity to correct certain failures under section 2032A.
TITLE VII—EXCISE TAX SIMPLIFICATION
Subtitle A—Provisions Related to Distilled Spirits, Wines, and Beer
Sec. 701. Credit or refund for imported bottled distilled spirits returned to dis-
tilled spirits plant.
Sec. 702. Authority to cancel or credit export bonds without submission of
records.
Sec. 703. Repeal of required maintenance of records on premises of distilled
spirits plant.
Sec. 704. Fermented material from any brewery may be received at a distilled
spirits plant.
Sec. 705. Repeal of requirement for wholesale dealers in liquors to post sign.
Sec. 706. Refund of tax to wine returned to bond not limited to
unmerchantable wine.
Sec. 707. Use of additional ameliorating material in certain wines.
Sec. 708. Domestically produced beer may be withdrawn free of tax for use of
foreign embassies, legations, etc.
Sec. 709. Beer may be withdrawn free of tax for destruction.
Sec. 710. Authority to allow drawback on exported beer without submission of
records.
Sec. 711. Transfer to brewery of beer imported in bulk without payment of tax.
Subtitle B—Other Excise Tax Provisions
Sec. 721. Authority to grant exemptions from registration requirements.
Sec. 722. Repeal of expired provisions.
TITLE VIII—ADMINISTRATIVE PROVISIONS
Subtitle A—General Provisions
Sec. 801. Use of reproductions of returns stored in digital image format.
Sec. 802. Repeal of authority to disclose whether prospective juror has been au-
dited.
Sec. 803. Repeal of special audit provisions for subchapter S items.
Sec. 804. Clarification of statute of limitations.
Sec. 805. Certain notices disregarded under provision increasing interest rate
on large corporate underpayments.
Subtitle B—Tax Court Procedures
Sec. 811. Overpayment determinations of Tax Court.
Sec. 812. Awarding of administrative costs.
Sec. 813. Redetermination of interest pursuant to motion.
Sec. 814. Application of net worth requirement for awards of litigation costs.
Subtitle C—Authority for Certain Cooperative Agreements
Sec. 821. Cooperative agreements with State tax authorities.
Subtitle D—Administrative Practice and Procedural Simplification
Sec. 831. Notification of reasons for termination or denial of installment agree-
ments.
Sec. 832. Joint return may be made after separate returns without full pay-
ment of tax.
Sec. 833. Offers-in-compromise.
Sec. 834. Preliminary notice requirement.
Sec. 835. Penalties under section 6672.
Sec. 836. Required content of certain notices.
Sec. 837. Required notice of certain payments.
Sec. 838. Improved procedures for notifying Service of change of address or
name.
Sec. 839. Rights and responsibilities of divorced individuals.
TITLE IX—FINANCING PROVISIONS
Sec. 901. Certain amounts derived from foreign corporations treated as unre-
lated business taxable income.
Sec. 902. Special rules for rental use of dwelling for less than 15 days per year.
Sec. 903. Loss carryovers and carrybacks not excluded in applying taxable in-
come limitation on certain reserve deductions.
Sec. 904. Extension of withholding to certain gambling winnings.
TITLE X—TECHNICAL CORRECTIONS
Subtitle A—Revenue Provisions
Sec. 1001. Amendments related to Revenue Reconciliation Act of 1990.
Sec. 1002. Amendments related to Revenue Reconciliation Act of 1993.
Sec. 1003. Miscellaneous provisions.
Subtitle B—Income Security and Human Resource Amendments
PART I—AMENDMENTS RELATING TO OLD-AGE, SURVIVORS, AND DISABILITY
INSURANCE PROGRAM
Sec. 1011. Technical corrections related to OASDI in the Omnibus Budget
Reconciliation Act of 1990.
Sec. 1012. Elimination of rounding distortion in the calculation of the old-age,
survivors, and disability insurance contribution and benefit
base and the earnings test exempt amounts.
PART II—HUMAN RESOURCES PROVISIONS
Sec. 1016. Corrections related to the income security and human resources pro-
visions of the Omnibus Budget Reconciliation Act of 1990.
Sec. 1017. Technical corrections related to the human resource and income se-
curity provisions of Omnibus Budget Reconciliation Act of
1989.
Sec. 1018. Elimination of obsolete provisions relating to treatment of the
earned income tax credit.
Sec. 1019. Redesignation of certain provisions.
Subtitle C—Tariff and Customs
Sec. 1021. Technical amendments to the Harmonized Tariff Schedule of the
United States.
Sec. 1022. Clarification regarding the application of customs user fees.
Sec. 1023. Technical amendments to the Omnibus Trade and Competitiveness
Act of 1988.
Sec. 1024. Technical amendment to the Customs and Trade Act of 1990.
Sec. 1025. Technical amendments regarding certain beneficiary countries.
Sec. 1026. Clarification of fees for certain customs services.
Sec. 1027. Conforming amendment to section 337 of the Tariff Act of 1930.
TITLE I—PROVISIONS RELATING
TO INDIVIDUALS
Subtitle A—Provisions Relating to
Rollover of Gain on Sale of
Principal Residence
SEC. 101. MULTIPLE SALES WITHIN ROLLOVER PERIOD.
(a) GENERAL RULE.—
(1) Section 1034 (relating to rollover of gain on
sale of principal residence) is amended by striking
subsection (d).
(2) Paragraph (4) of section 1034(c) is amend-
ed to read as follows:
‘‘(4) If the taxpayer, during the period de-
scribed in subsection (a), purchases more than 1 res-
idence which is used by him as his principal resi-
dence at some time within 2 years after the date of
the sale of the old residence, only the first of such
residences so used by him after the date of such sale
shall constitute the new residence.’’
(3) Subsections (h)(1) and (k) of section 1034
are each amended by striking ‘‘(other than the 2
years referred to in subsection (c)(4))’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales of old residences (within
the meaning of section 1034 of the Internal Revenue Code
of 1986) after the date of the enactment of this Act.
SEC. 102. SPECIAL RULES IN CASE OF DIVORCE.
(a) IN GENERAL.—Subsection (c) of section 1034 is
amended by adding at the end thereof the following new
paragraph:
‘‘(5) If—
‘‘(A) a residence is sold by an individual
pursuant to a divorce or marital separation,
and
‘‘(B) the taxpayer used such residence as
his principal residence at any time during the
2-year period ending on the date of such sale,
for purposes of this section, such residence shall be
treated as the taxpayer’s principal residence at the
time of such sale.’’
(b) EFFECTIVE DATES.—The amendment made by
subsection (a) shall apply to sales of old residences (within
the meaning of section 1034 of the Internal Revenue Code
of 1986) after the date of the enactment of this Act.
Subtitle B—Other Provisions
SEC. 111. DE MINIMIS EXCEPTION TO PASSIVE LOSS RULES.
(a) GENERAL RULE.—Section 469 (relating to pas-
sive activity losses and credits limited) is amended—
(1) by striking subsection (m),
(2) by redesignating subsection (l) as subsection
(m), and
(3) by inserting after subsection (k) the follow-
ing new subsection:
‘‘(l) DE MINIMIS EXCEPTION.—
‘‘(1) IN GENERAL.—In the case of a natural
person, subsection (a) shall not apply to the passive
activity loss for any taxable year if the amount of
such loss does not exceed $200.
‘‘(2) EXCEPTION FOR ITEMS ATTRIBUTABLE TO
PUBLICLY TRADED PARTNERSHIPS.—This subsection
shall not apply to items treated separately under
subsection (k) (and such items shall not be taken
into account in determining whether paragraph (1)
applies to the taxpayer for the taxable year with re-
spect to other items).
‘‘(3) ESTATES ELIGIBLE.—For purposes of this
subsection, an estate shall be treated as a natural
person with respect to any taxable year ending less
than 2 years after the death of the decedent.
‘‘(4) MARRIED
INDIVIDUALS
FILING
SEPA-
RATELY.—
‘‘(A) IN GENERAL.—This subsection shall
not apply to a taxpayer who—
‘‘(i) is a married individual filing a
separate return for the taxable year, and
‘‘(ii) does not live apart from his
spouse at all times during such taxable
year.
‘‘(B) LIMITATION.—Paragraph (1) shall be
applied by substituting ‘$100’ for ‘$200’ in the
case of a married individual who files a sepa-
rate return for the taxable year and to whom
this subsection applies after the application of
subparagraph (A).’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (C) of section 56(b)(1) is
amended by striking clause (ii) and redesignating
the following clauses accordingly.
(2) Subsection (b) of section 58 is amended by
inserting ‘‘and’’ at the end of paragraph (1), by
striking paragraph (2), and by redesignating para-
graph (3) as paragraph (2).
(3) Paragraph (4) of section 163(d) is amended
by striking subparagraph (E).
(4) Subsection (d) of section 163 is amended by
striking paragraph (6).
(5) Subsection (h) of section 163 is amended by
striking paragraph (5).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 112. PAYMENT OF TAX BY CREDIT CARD.
(a) GENERAL RULE.—Section 6311 is amended to
read as follows:
‘‘SEC. 6311. PAYMENT 
BY 
CHECK, 
MONEY 
ORDER, 
OR
OTHER MEANS.
‘‘(a) AUTHORITY TO RECEIVE.—It shall be lawful for
the Secretary to receive for internal revenue taxes (or in
payment for internal revenue stamps) checks, money or-
ders, or any other commercially acceptable means that the
Secretary deems appropriate, including payment by use of
credit cards or debit cards, to the extent and under the
conditions provided in regulations prescribed by the
Secretary.
‘‘(b) ULTIMATE
LIABILITY.—If a check, money
order, or other method of payment, including payment by
credit card or debit card, so received is not duly paid, or
is paid and subsequently charged back to the Secretary,
the person by whom such check, or money order, or other
method of payment has been tendered shall remain liable
for the payment of the tax or for the stamps, and for all
legal penalties and additions, to the same extent as if such
check, money order, or other method of payment had not
been tendered.
‘‘(c) LIABILITY OF BANKS AND OTHERS.—If any cer-
tified, treasurer’s, or cashier’s check (or other guaranteed
draft), or any money order, or any other means of pay-
ment that has been guaranteed by a financial institution
(such as a credit card or debit card transaction which has
been guaranteed expressly by a financial institution) so
received is not duly paid, the United States shall, in addi-
tion to its right to exact payment from the party originally
indebted therefor, have a lien for—
‘‘(1) the amount of such check (or draft) upon
all assets of the financial institution on which
drawn,
‘‘(2) the amount of such money order upon all
the assets of the issuer thereof, or
‘‘(3) the guaranteed amount of any other trans-
action upon all the assets of the institution making
such guarantee,
and such amount shall be paid out of such assets in pref-
erence to any other claims whatsoever against such finan-
cial institution, issuer, or guaranteeing institution, except
the necessary costs and expenses of administration and
the reimbursement of the United States for the amount
expended in the redemption of the circulating notes of
such financial institution.
‘‘(d) PAYMENT BY OTHER MEANS.—
‘‘(1) AUTHORITY
TO
PRESCRIBE
REGULA-
TIONS.—The Secretary shall prescribe such regula-
tions as the Secretary deems necessary to receive
payment by commercially acceptable means, includ-
ing regulations that—
‘‘(A) specify which methods of payment by
commercially acceptable means will be accept-
able,
‘‘(B) specify when payment by such means
will be considered received,
‘‘(C) identify types of nontax matters re-
lated to payment by such means that are to be
resolved by persons ultimately liable for pay-
ment and financial intermediaries, without the
involvement of the Secretary, and
‘‘(D) ensure that tax matters will be re-
solved by the Secretary, without the involve-
ment of financial intermediaries.
‘‘(2) 
AUTHORITY
TO
ENTER
INTO
CON-
TRACTS.—Notwithstanding section 3718(f) of title
31, United States Code, the Secretary is authorized
to enter into contracts to obtain services related to
receiving payment by other means where cost bene-
ficial to the Government and is further authorized to
pay any fees required by such contracts.
‘‘(3) SPECIAL PROVISIONS FOR USE OF CREDIT
CARDS.—If use of credit cards is accepted as a
method of payment of taxes pursuant to subsection
(a)—
‘‘(A) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by
a person by use of a credit card shall not be
subject to section 161 of the Truth-in-Lending
Act (15 U.S.C. 1666), or to any similar provi-
sions of State law, if the error alleged by the
person is an error relating to the underlying tax
liability, rather than an error relating to the
credit card account such as a computational
error or numerical transposition in the credit
card transaction or an issue as to whether the
person authorized payment by use of the credit
card,
‘‘(B) a payment of internal revenue taxes
(or a payment for internal revenue stamps)
shall not be subject to section 170 of the Truth-
in-Lending Act (15 U.S.C. 1666i), or to any
similar provisions of State law,
‘‘(C) a payment of internal revenue taxes
(or a payment for internal revenue stamps) by
a person by use of a debit card shall not be
subject to section 908 of the Electronic Fund
Transfer Act (15 U.S.C. 1693f), or to any simi-
lar provisions of State law, if the error alleged
by the person is an error relating to the under-
lying tax liability, rather than an error relating
to the debit card account such as a computa-
tional error or numerical transposition in the
debit card transaction or an issue as to whether
the person authorized payment by use of the
debit card,
‘‘(D) the term ‘creditor’ under section
103(f) of the Truth-in-Lending Act (15 U.S.C.
1602(f)) shall not include the Secretary with re-
spect to credit card transactions in payment of
internal revenue taxes (or payment for internal
revenue stamps), and
‘‘(E) notwithstanding any other provision
of law to the contrary, in the case of payment
made by credit card or debit card transaction of
an amount owed to a person as the result of the
correction of an error under section 161 of the
Truth-in-Lending Act (15 U.S.C. 1666) or sec-
tion 908 of the Electronic Fund Transfer Act
(15 U.S.C. 1693f), the Secretary is authorized
to provide such amount to such person as a
credit to that person’s credit card or debit card
account through the applicable credit card or
debit card system.
‘‘(e) CONFIDENTIALITY OF INFORMATION.—
‘‘(1) IN
GENERAL.—Except as otherwise au-
thorized by this subsection, no person may use or
disclose any information relating to credit or debit
card transactions obtained pursuant to section
6103(k)(8) other than for purposes directly related
to the processing of such transactions, or the billing
or collection of amounts charged or debited pursuant
thereto.
‘‘(2) EXCEPTIONS.—
‘‘(A) Debit or credit card issuers or others
acting on behalf of such issuers may also use
and disclose such information for purposes di-
rectly related to servicing an issuer’s accounts.
‘‘(B) Debit or credit card issuers or others
directly involved in the processing of credit or
debit card transactions or the billing or collec-
tion of amounts charged or debited thereto may
also use and disclose such information for pur-
poses directly related to—
‘‘(i) statistical risk and profitability
assessment;
‘‘(ii) 
transferring 
receivables, 
ac-
counts, or interest therein;
‘‘(iii) auditing the account informa-
tion;
‘‘(iv) complying with Federal, State,
or local law; and
‘‘(v) properly authorized civil, crimi-
nal, or regulatory investigation by Federal,
State, or local authorities.
‘‘(3) PROCEDURES.—Use and disclosure of in-
formation under this paragraph shall be made only
to the extent authorized by written procedures pro-
mulgated by the Secretary.
‘‘(4) CROSS REFERENCE.—
‘‘For provision providing for civil damages for vio-
lation of paragraph (1), see section 7431.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subchapter B of chapter 64 is amended by striking
the item relating to section 6311 and inserting the follow-
ing:
‘‘Sec. 6311. Payment by check, money order, or other means.’’
(c) AMENDMENTS
TO SECTIONS 6103 AND 7431
WITH RESPECT TO DISCLOSURE AUTHORIZATION.—
(1) Subsection (k) of section 6103 (relating to
confidentiality and disclosure of returns and return
information) is amended by adding at the end there-
of the following new paragraph:
‘‘(8) DISCLOSURE OF INFORMATION TO ADMIN-
ISTER SECTION 6311.—The Secretary may disclose
returns or return information to financial institu-
tions and others to the extent the Secretary deems
necessary for the administration of section 6311.
Disclosures of information for purposes other than
to accept payments by checks or money orders shall
be made only to the extent authorized by written
procedures promulgated by the Secretary.’’
(2) Section 7431 (relating to civil damages for
unauthorized disclosure of returns and return infor-
mation) is amended by adding at the end thereof the
following new subsection:
‘‘(g) SPECIAL RULE FOR INFORMATION OBTAINED
UNDER SECTION 6103(k)(8).—For purposes of this sec-
tion, any reference to section 6103 shall be treated as in-
cluding a reference to section 6311(e).’’
(3) Section 6103(p)(3)(A) is amended by strik-
ing ‘‘or (6)’’ and inserting in lieu thereof ‘‘(6), or
(8)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the day 9 months after
the date of the enactment of this Act.
SEC. 113. MODIFICATIONS 
TO 
ELECTION 
TO 
INCLUDE
CHILD’S INCOME ON PARENT’S RETURN.
(a) ELIGIBILITY FOR ELECTION.—Clause (ii) of sec-
tion 1(g)(7)(A) (relating to election to include certain un-
earned income of child on parent’s return) is amended to
read as follows:
‘‘(ii) such gross income is more than
the 
amount 
described 
in 
paragraph
(4)(A)(ii)(I) and less than 10 times the
amount so described,’’.
(b) COMPUTATION OF TAX.—Subparagraph (B) of
section 1(g)(7) (relating to income included on parent’s
return) is amended—
(1) by striking ‘‘$1,000’’ in clause (i) and in-
serting ‘‘twice the amount described in paragraph
(4)(A)(ii)(I)’’, and
(2) by amending subclause (II) of clause (ii) to
read as follows:
‘‘(II) for each such child, 15 per-
cent of the lesser of the amount de-
scribed in paragraph (4)(A)(ii)(I) or
the excess of the gross income of such
child over the amount so described,
and’’.
(c) MINIMUM TAX.—Subparagraph (B) of section
59(j)(1) is amended by striking ‘‘$1,000’’ and inserting
‘‘twice the amount in effect for the taxable year under sec-
tion 63(c)(5)(A)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 114. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION
FOR INDIVIDUALS.
(a) GENERAL RULE.—Section 904 (relating to limi-
tations on foreign tax credit) is amended by redesignating
subsection (j) as subsection (k) and by inserting after sub-
section (i) the following new subsection:
‘‘(j) SIMPLIFIED LIMITATION FOR CERTAIN INDIVID-
UALS.—
‘‘(1) IN GENERAL.—In the case of an individual
to whom this subsection applies for any taxable year,
the limitation of subsection (a) shall be the lesser
of—
‘‘(A) 25 percent of such individual’s gross
income for the taxable year from sources with-
out the United States, or
‘‘(B) the amount of the creditable foreign
taxes paid or accrued by the individual during
the taxable year (determined without regard to
subsection (c)).
No taxes paid or accrued by the individual during
such taxable year may be deemed paid or accrued in
any other taxable year under subsection (c).
‘‘(2) INDIVIDUALS TO WHOM SUBSECTION AP-
PLIES.—This subsection shall apply to an individual
for any taxable year if—
‘‘(A) the entire amount of such individual’s
gross income for the taxable year from sources
without the United States consists of qualified
passive income,
‘‘(B) the amount of the creditable foreign
taxes paid or accrued by the individual during
the taxable year does not exceed $200 ($400 in
the case of a joint return), and
‘‘(C) such individual elects to have this
subsection apply for the taxable year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFIED
PASSIVE
INCOME.—The
term ‘qualified passive income’ means any item
of gross income if—
‘‘(i) such item of income is passive in-
come (as defined in subsection (d)(2)(A)
without regard to clause (iii) thereof), and
‘‘(ii) such item of income is shown on
a payee statement furnished to the individ-
ual.
‘‘(B) CREDITABLE FOREIGN TAXES.—The
term ‘creditable foreign taxes’ means any taxes
for which a credit is allowable under section
901; except that such term shall not include
any tax unless such tax is shown on a payee
statement furnished to such individual.
‘‘(C) 
PAYEE
STATEMENT.—The 
term
‘payee statement’ has the meaning given to
such term by section 6724(d)(2).
‘‘(D) ESTATES
AND
TRUSTS
NOT
ELIGI-
BLE.—This subsection shall not apply to any
estate or trust.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1993.
SEC. 115. TREATMENT OF PERSONAL TRANSACTIONS BY
INDIVIDUALS UNDER FOREIGN CURRENCY
RULES.
(a) GENERAL RULE.—Subsection (e) of section 988
(relating to application to individuals) is amended to read
as follows:
‘‘(e) APPLICATION TO INDIVIDUALS.—
‘‘(1) IN GENERAL.—The preceding provisions of
this section shall not apply to any section 988 trans-
action entered into by an individual which is a per-
sonal transaction.
‘‘(2) EXCLUSION
FOR
CERTAIN
PERSONAL
TRANSACTIONS.—If—
‘‘(A) nonfunctional currency is disposed of
by an individual in any transaction, and
‘‘(B) such transaction is a personal trans-
action,
no gain shall be recognized for purposes of this sub-
title by reason of changes in exchange rates after
such currency was acquired by such individual and
before such disposition. The preceding sentence shall
not apply if the gain which would otherwise be rec-
ognized exceeds $200.
‘‘(3) PERSONAL TRANSACTIONS.—For purposes
of this subsection, the term ‘personal transaction’
means any transaction entered into by an individual,
except that such term shall not include any trans-
action to the extent that expenses properly allocable
to such transaction meet the requirements of section
162 or 212 (other than that part of section 212
dealing with expenses incurred in connection with
taxes).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 116. EXPANDED ACCESS TO SIMPLIFIED INCOME TAX
RETURNS.
(a) GENERAL RULE.—The Secretary of the Treasury
or his delegate shall take such actions as may be appro-
priate to expand access to simplified individual income tax
returns and to otherwise simplify the individual income tax
returns, including—
(1) (if appropriate) allowing taxpayers who
itemize deductions to file their return on Form
1040A, and
(2) removing or raising the taxable income limi-
tations on taxpayers who may file Form 1040A.
(b) REPORT.—Not later than the date 1 year after
the date of the enactment of this Act, the Secretary of
the Treasury or his delegate shall submit a report to the
Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate,
a report on his actions under subsection (a), together with
such recommendations as he may deem advisable.
SEC. 117. TREATMENT 
OF 
CERTAIN 
REIMBURSED 
EX-
PENSES OF RURAL MAIL CARRIERS.
(a) IN GENERAL.—Section 162 (relating to trade or
business expenses) is amended by redesignating subsection
(o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
‘‘(o) TREATMENT
OF CERTAIN REIMBURSED EX-
PENSES OF RURAL MAIL CARRIERS.—
‘‘(1) GENERAL RULE.—In the case of any em-
ployee of the United States Postal Service who per-
forms services involving the collection and delivery of
mail on a rural route and who receives qualified re-
imbursements for the expenses incurred by such em-
ployee for the use of a vehicle in performing such
services—
‘‘(A) the amount allowable as a deduction
under this chapter for the use of a vehicle in
performing such services shall be equal to the
amount of such qualified reimbursements; and
‘‘(B) such qualified reimbursements shall
be treated as paid under a reimbursement or
other expense allowance arrangement for pur-
poses of section 62(a)(2)(A) (and section 62(c)
shall not apply to such qualified reimburse-
ments).
‘‘(2) DEFINITION OF QUALIFIED REIMBURSE-
MENTS.—For purposes of this subsection, the term
‘qualified reimbursements’ means the amounts paid
by the United States Postal Service to employees as
an equipment maintenance allowance under the
1991 collective bargaining agreement between the
United States Postal Service and the National Rural
Letter Carriers’ Association. Amounts paid as an
equipment maintenance allowance by such Postal
Service under later collective bargaining agreements
that supersede the 1991 agreement shall be consid-
ered qualified reimbursements if such amounts do
not exceed the amounts that would have been paid
under the 1991 agreement, adjusted for changes in
the Consumer Price Index (as defined in section
1(f)(5)) since 1991.’’
(b) TECHNICAL AMENDMENT.—Section 6008 of the
Technical and Miscellaneous Revenue Act of 1988 is here-
by repealed.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
SEC. 118. EXCLUSION OF COMBAT PAY FROM WITHHOLD-
ING 
LIMITED 
TO 
AMOUNT 
EXCLUDABLE
FROM GROSS INCOME.
(a) IN GENERAL.—Paragraph (1) of section 3401(a)
(defining wages) is amended by inserting before the semi-
colon the following: ‘‘to the extent remuneration for such
service is excludable from gross income under such
section’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to remuneration paid after
December 31, 1994.
TITLE II—PENSION
SIMPLIFICATION
Subtitle A—Simplified Distribution
Rules
SEC. 201. REPEAL OF 5-YEAR INCOME AVERAGING FOR
LUMP-SUM DISTRIBUTIONS.
(a) IN GENERAL.—Subsection (d) of section 402 (re-
lating to taxability of beneficiary of employees’ trust) is
amended to read as follows:
‘‘(d) TAXABILITY
OF BENEFICIARY
OF CERTAIN
FOREIGN SITUS TRUSTS.—For purposes of subsections
(a), (b), and (c), a stock bonus, pension, or profit-sharing
trust which would qualify for exemption from tax under
section 501(a) except for the fact that it is a trust created
or organized outside the United States shall be treated
as if it were a trust exempt from tax under section
501(a).’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (D) of section 402(e)(4) (re-
lating to other rules applicable to exempt trusts) is
amended to read as follows:
‘‘(D) LUMP-SUM DISTRIBUTION.—For pur-
poses of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘lump
sum distribution’ means the distribution or
payment within one taxable year of the re-
cipient of the balance to the credit of an
employee which becomes payable to the re-
cipient—
‘‘(I) on account of the employee’s
death,
‘‘(II) after the employee attains
age 591⁄2,
‘‘(III) on account of the employ-
ee’s separation from service, or
‘‘(IV) after the employee has be-
come disabled (within the meaning of
section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is
exempt from tax under section 501 or from
a 
plan 
described 
in 
section 
403(a).
Subclause (III) of this clause shall be ap-
plied only with respect to an individual
who is an employee without regard to sec-
tion 401(c)(1), and subclause (IV) shall be
applied only with respect to an employee
within the meaning of section 401(c)(1).
For purposes of this clause, a distribution
to two or more trusts shall be treated as
a distribution to one recipient. For pur-
poses of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contribu-
tions under the plan (within the meaning
of section 72(o)(5)).
‘‘(ii) 
AGGREGATION
OF
CERTAIN
TRUSTS AND PLANS.—For purposes of de-
termining the balance to the credit of an
employee under clause (i)—
‘‘(I) all trusts which are part of
a plan shall be treated as a single
trust, all pension plans maintained by
the employer shall be treated as a sin-
gle plan, all profit-sharing plans main-
tained by the employer shall be treat-
ed as a single plan, and all stock
bonus plans maintained by the em-
ployer shall be treated as a single
plan, and
‘‘(II) trusts which are not quali-
fied trusts under section 401(a) and
annuity contracts which do not satisfy
the requirements of section 404(a)(2)
shall not be taken into account.
‘‘(iii) COMMUNITY PROPERTY LAWS.—
The provisions of this paragraph shall be
applied without regard to community prop-
erty laws.
‘‘(iv) AMOUNTS
SUBJECT
TO
PEN-
ALTY.—This paragraph shall not apply to
amounts described in subparagraph (A) of
section 72(m)(5) to the extent that section
72(m)(5) applies to such amounts.
‘‘(v) BALANCE
TO
CREDIT
OF
EM-
PLOYEE NOT TO INCLUDE AMOUNTS PAY-
ABLE UNDER QUALIFIED DOMESTIC RELA-
TIONS ORDER.—For purposes of this para-
graph, the balance to the credit of an em-
ployee shall not include any amount pay-
able to an alternate payee under a quali-
fied domestic relations order (within the
meaning of section 414(p)).
‘‘(vi) TRANSFERS TO COST-OF-LIVING
ARRANGEMENT
NOT
TREATED
AS
DIS-
TRIBUTION.—For purposes of this para-
graph, the balance to the credit of an em-
ployee under a defined contribution plan
shall not include any amount transferred
from such defined contribution plan to a
qualified cost-of-living arrangement (within
the meaning of section 415(k)(2)) under a
defined benefit plan.
‘‘(vii) LUMP-SUM
DISTRIBUTIONS
OF
ALTERNATE PAYEES.—If any distribution
or payment of the balance to the credit of
an employee would be treated as a lump-
sum distribution, then, for purposes of this
paragraph, the payment under a qualified
domestic relations order (within the mean-
ing of section 414(p)) of the balance to the
credit of an alternate payee who is the
spouse or former spouse of the employee
shall be treated as a lump-sum distribu-
tion. For purposes of this clause, the bal-
ance to the credit of the alternate payee
shall not include any amount payable to
the employee.’’
(2) Section 402(c) (relating to rules applicable
to rollovers from exempt trusts) is amended by strik-
ing paragraph (10).
(3) Paragraph (1) of section 55(c) (defining
regular tax) is amended by striking ‘‘shall not in-
clude any tax imposed by section 402(d) and’’.
(4) Paragraph (8) of section 62(a) (relating to
certain portion of lump-sum distributions from pen-
sion plans taxed under section 402(d)) is hereby
repealed.
(5) Section 401(a)(28)(B) (relating to coordina-
tion with distribution rules) is amended by striking
clause (v).
(6) Subparagraph (B)(ii) of section 401(k)(10)
(relating to distributions that must be lump-sum dis-
tributions) is amended to read as follows:
‘‘(ii) LUMP-SUM DISTRIBUTION.—For
purposes of this subparagraph, the term
‘lump-sum distribution’ means any dis-
tribution of the balance to the credit of an
employee immediately before the distribu-
tion.’’
(7) Section 406(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(8) Section 407(c) (relating to termination of
status as deemed employee not to be treated as sep-
aration from service for purposes of limitation of
tax) is hereby repealed.
(9) Section 691(c) (relating to deduction for es-
tate tax) is amended by striking paragraph (5).
(10) Paragraph (1) of section 871(b) (relating
to imposition of tax) is amended by striking ‘‘section
1, 55, or 402(d)(1)’’ and inserting ‘‘section 1 or
55’’.
(11) Subsection (b) of section 877 (relating to
alternative tax) is amended by striking ‘‘section 1,
55, or 402(d)(1)’’ and inserting ‘‘section 1 or 55’’.
(12) Section 4980A(c)(4) is amended—
(A) by striking ‘‘to which an election under
section 402(d)(4)(B) applies’’ and inserting
‘‘(as defined in section 402(e)(4)(D)) with re-
spect to which the individual elects to have this
paragraph apply’’,
(B) by adding at the end the following new
flush sentence:
‘‘An individual may elect to have this paragraph
apply to only one lump-sum distribution.’’, and
(C) by striking the heading and inserting:
‘‘(4) SPECIAL ONE-TIME ELECTION.—’’.
(13) Section 402(e) is amended by striking
paragraph (5).
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1993.
(2) RETENTION
OF
CERTAIN
TRANSITION
RULES.—Notwithstanding any other provision of
this section, the amendments made by this section
shall not apply to any distribution for which the tax-
payer elects the benefits of section 1122 (h)(3) or
(h)(5) of the Tax Reform Act of 1986. For purposes
of the preceding sentence, the rules of sections
402(c)(10) and 402(d) of the Internal Revenue Code
of 1986 (as in effect before the amendments made
by this Act) shall apply.
SEC. 202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’
DEATH BENEFITS.
(a) IN GENERAL.—Subsection (b) of section 101 is
hereby repealed.
(b) CONFORMING AMENDMENT.—Subsection (c) of
section 101 is amended by striking ‘‘subsection (a) or (b)’’
and inserting ‘‘subsection (a)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DIS-
TRIBUTIONS 
UNDER 
CERTAIN 
EMPLOYER
PLANS.
(a) GENERAL RULE.—Subsection (d) of section 72
(relating to annuities; certain proceeds of endowment and
life insurance contracts) is amended to read as follows:
‘‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER
RETIREMENT PLANS.—
‘‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY
PAYMENTS.—
‘‘(A) IN
GENERAL.—In the case of any
amount received as an annuity under a quali-
fied employer retirement plan—
‘‘(i) subsection (b) shall not apply,
and
‘‘(ii) the investment in the contract
shall be recovered as provided in this para-
graph.
‘‘(B) METHOD
OF
RECOVERING
INVEST-
MENT IN CONTRACT.—
‘‘(i) 
IN
GENERAL.—Gross 
income
shall not include so much of any monthly
annuity payment under a qualified em-
ployer retirement plan as does not exceed
the amount obtained by dividing—
‘‘(I) the investment in the con-
tract (as of the annuity starting date),
by
‘‘(II) the number of anticipated
payments determined under the table
contained in clause (iii) (or, in the
case of a contract to which subsection
(c)(3)(B) applies, the number of
monthly annuity payments under such
contract).
‘‘(ii) CERTAIN RULES MADE APPLICA-
BLE.—Rules similar to the rules of para-
graphs (2) and (3) of subsection (b) shall
apply for purposes of this paragraph.
‘‘(iii) NUMBER OF ANTICIPATED PAY-
MENTS.—
‘‘If the age of the
primary annuitant on
The number
the annuity starting
of anticipated
date is:
payments is:
Not more than 55 ................................
300
More than 55 but not more than 60 ...
260
More than 60 but not more than 65 ...
240
More than 65 but not more than 70 ...
170
More than 70 .......................................
120
‘‘(C) ADJUSTMENT FOR REFUND FEATURE
NOT APPLICABLE.—For purposes of this para-
graph, investment in the contract shall be de-
termined under subsection (c)(1) without re-
gard to subsection (c)(2).
‘‘(D) SPECIAL
RULE
WHERE
LUMP
SUM
PAID
IN
CONNECTION
WITH
COMMENCEMENT
OF ANNUITY PAYMENTS.—If, in connection with
the commencement of annuity payments under
any qualified employer retirement plan, the tax-
payer receives a lump sum payment—
‘‘(i) such payment shall be taxable
under subsection (e) as if received before
the annuity starting date, and
‘‘(ii) the investment in the contract
for purposes of this paragraph shall be de-
termined as if such payment had been so
received.
‘‘(E) EXCEPTION.—This paragraph shall
not apply in any case where the primary annu-
itant has attained age 75 on the annuity start-
ing date unless there are fewer than 5 years of
guaranteed payments under the annuity.
‘‘(F) ADJUSTMENT WHERE ANNUITY PAY-
MENTS NOT ON MONTHLY BASIS.—In any case
where the annuity payments are not made on a
monthly basis, appropriate adjustments in the
application of this paragraph shall be made to
take into account the period on the basis of
which such payments are made.
‘‘(G) QUALIFIED EMPLOYER RETIREMENT
PLAN.—For purposes of this paragraph, the
term ‘qualified employer retirement plan’ means
any plan or contract described in paragraph
(1), (2), or (3) of section 4974(c).
‘‘(2) TREATMENT
OF
EMPLOYEE
CONTRIBU-
TIONS
UNDER
DEFINED
CONTRIBUTION
PLANS.—
For purposes of this section, employee contributions
(and any income allocable thereto) under a defined
contribution plan may be treated as a separate
contract.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply in cases where the annuity start-
ing date is after December 31, 1993.
SEC. 204. REQUIRED DISTRIBUTIONS.
(a) IN GENERAL.—Section 401(a)(9)(C) (defining re-
quired beginning date) is amended to read as follows:
‘‘(C) REQUIRED
BEGINNING
DATE.—For
purposes of this paragraph—
‘‘(i) IN
GENERAL.—The term ‘re-
quired beginning date’ means April 1 of
the calendar year following the later of—
‘‘(I) the calendar year in which
the employee attains age 701⁄2, or
‘‘(II) the calendar year in which
the employee retires.
‘‘(ii) EXCEPTION.—Subclause (II) of
clause (i) shall not apply—
‘‘(I) except as provided in section
409(d), in the case of an employee
who is a 5-percent owner (as defined
in section 416) with respect to the
plan year ending in the calendar year
in which the employee attains age
701⁄2, or
‘‘(II) for purposes of section 408
(a)(6) or (b)(3).
‘‘(iii) ACTUARIAL
ADJUSTMENT.—In
the case of an employee to whom clause
(i)(II) applies who retires in a calendar
year after the calendar year in which the
employee attains age 701⁄2, the employee’s
accrued benefit shall be actuarially in-
creased to take into account the period
after age 701⁄2 in which the employee was
not receiving any benefits under the plan.
‘‘(iv) 
EXCEPTION
FOR
GOVERN-
MENTAL
AND
CHURCH
PLANS.—Clauses
(ii) and (iii) shall not apply in the case of
a governmental plan or church plan. For
purposes of this clause, the term ‘church
plan’ means a plan maintained by a church
for church employees, and the term
‘church’ means any church (as defined in
section 3121(w)(3)(A)) or qualified church-
controlled organization (as defined in sec-
tion 3121(w)(3)(B)).’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1993.
Subtitle B—Increased Access to
Pension Plans
SEC. 211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PEN-
SIONS.
(a) INCREASE IN NUMBER OF ALLOWABLE PARTICI-
PANTS FOR SALARY REDUCTION ARRANGEMENTS.—Sec-
tion 408(k)(6)(B) is amended by striking ‘‘25’’ each place
it appears in the text and heading thereof and inserting
‘‘100’’.
(b) REPEAL
OF PARTICIPATION REQUIREMENT.—
Section 408(k)(6)(A) is amended by striking clause (ii)
and by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii), respectively.
(c) CONFORMING AMENDMENTS.—Clause (ii) of sec-
tion 408(k)(6)(C) and clause (ii) of section 408(k)(6)(F)
are each amended by striking ‘‘subparagraph (A)(iii)’’ and
inserting ‘‘subparagraph (A)(ii)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 212. TAX EXEMPT ORGANIZATIONS ELIGIBLE UNDER
SECTION 401(k).
(a) GENERAL RULE.—Subparagraph (B) of section
401(k)(4) is amended to read as follows:
‘‘(B) STATE
AND
LOCAL
GOVERNMENTS
NOT ELIGIBLE.—A cash or deferred arrange-
ment shall not be treated as a qualified cash or
deferred arrangement if it is part of a plan
maintained by a State or local government or
political subdivision thereof, or any agency or
instrumentality thereof. This subparagraph
shall not apply to a rural cooperative plan.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to plan years beginning after De-
cember 31, 1993, but shall not apply to any cash or de-
ferred arrangement to which clause (i) of section
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.
SEC. 213. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE
PLANS.
(a) IN GENERAL.—The Secretary of the Treasury
may, as a condition of sponsorship, prescribe rules defin-
ing the duties and responsibilities of sponsors of master
and prototype plans, regional prototype plans, and other
Internal Revenue Service preapproved plans.
(b) DUTIES RELATING TO PLAN AMENDMENT, NOTI-
FICATION OF ADOPTERS, AND PLAN ADMINISTRATION.—
The duties and responsibilities referred to in subsection
(a) may include—
(1) the maintenance of lists of persons adopting
the sponsor’s plans, including the updating of such
lists not less frequently than annually,
(2) the furnishing of notices at least annually
to such persons and to the Secretary or his delegate,
in such form and at such time as the Secretary shall
prescribe,
(3) duties relating to administrative services to
such persons in the operation of their plans, and
(4) other duties that the Secretary considers
necessary to ensure that—
(A) the master and prototype, regional
prototype, and other preapproved plans of
adopting employers are timely amended to meet
the requirements of the Internal Revenue Code
of 1986 or of any rule or regulation of the Sec-
retary, and
(B) adopting employers receive timely noti-
fication of amendments and other actions taken
by sponsors with respect to their plans.
Subtitle C—Nondiscrimination
Provisions
SEC. 221. DEFINITION OF HIGHLY COMPENSATED EM-
PLOYEES.
(a) IN GENERAL.—Paragraph (1) of section 414(q)
(defining highly compensated employee) is amended to
read as follows:
‘‘(1) IN
GENERAL.—The term ‘highly com-
pensated employee’ means any employee who—
‘‘(A) was a 5-percent owner at any time
during the year or the preceding year, or
‘‘(B) had compensation for the preceding
year from the employer in excess of $50,000.
The Secretary shall adjust the $50,000 amount
under subparagraph (B) at the same time and in the
same manner as under section 415(d).’’
(b) SPECIAL RULE WHERE NO EMPLOYEES TREAT-
ED AS HIGHLY COMPENSATED.—Paragraph (2) of section
414(q) is amended to read as follows:
‘‘(2) SPECIAL
RULE
IF
NO
EMPLOYEE
DE-
SCRIBED
IN
PARAGRAPH
(1).—If no employee is
treated as a highly compensated employee under
paragraph (1), the highest paid officer for the year
shall be treated as a highly compensated employee.’’
(c) TREATMENT OF FAMILY MEMBERS.—Paragraph
(6) of section 414(q) is hereby repealed.
(d) CONFORMING AMENDMENTS.—
(1) Paragraphs (4), (5), (8), and (12) of section
414(q) are hereby repealed.
(2)(A) Section 414(r) is amended by adding at
the end thereof the following new paragraph:
‘‘(9) EXCLUDED EMPLOYEES.—For purposes of
this subsection, the following employees shall be ex-
cluded:
‘‘(A) Employees who have not completed 6
months of service.
‘‘(B) Employees who normally work less
than 171⁄2 hours per week.
‘‘(C) Employees who normally work not
more than 6 months during any year.
‘‘(D) Employees who have not attained the
age of 21.
‘‘(E) Except to the extent provided in reg-
ulations, employees who are included in a unit
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 222. MODIFICATION OF ADDITIONAL PARTICIPATION
REQUIREMENTS.
(a) GENERAL RULE.—Section 401(a)(26)(A) (relat-
ing to additional participation requirements) is amended
to read as follows:
‘‘(A) IN GENERAL.—In the case of a trust
which is a part of a defined benefit plan, such
trust shall not constitute a qualified trust under
this subsection unless on each day of the plan
year such trust benefits at least the lesser of—
‘‘(i) 50 employees of the employer, or
‘‘(ii) the greater of—
‘‘(I) 40 percent of all employees
of the employer, or
‘‘(II) 2 employees (or if there is
only 1 employee, such employee).’’
(b) SEPARATE LINE OF BUSINESS TEST.—Section
401(a)(26)(G) (relating to separate line of business) is
amended by striking ‘‘paragraph (7)’’ and inserting ‘‘para-
graph (2)(A) or (7)’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after December
31, 1993.
SEC. 223. NONDISCRIMINATION RULES FOR QUALIFIED
CASH OR DEFERRED ARRANGEMENTS AND
MATCHING CONTRIBUTIONS.
(a) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(k) 
NONDISCRIMINATION
TESTS.—Section
401(k) (relating to cash or deferred arrangements) is
amended by adding at the end thereof the following new
paragraph:
‘‘(11) ALTERNATIVE
METHODS
OF
MEETING
NONDISCRIMINATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—A cash or deferred ar-
rangement shall be treated as meeting the re-
quirements of paragraph (3)(A)(ii) if such ar-
rangement—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C), and
‘‘(ii) meets the notice requirements of
subparagraph (D).
‘‘(B) MATCHING CONTRIBUTIONS.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met if, under the
arrangement, the employer makes match-
ing contributions on behalf of each em-
ployee who is not a highly compensated
employee in an amount equal to—
‘‘(I) 100 percent of the elective
contributions of the employee to the
extent such elective contributions do
not exceed 3 percent of the employee’s
compensation, and
‘‘(II) 50 percent of the elective
contributions of the employee to the
extent that such elective contributions
exceed 3 percent but do not exceed 5
percent of the employee’s compensa-
tion.
‘‘(ii) 
RATE
FOR
HIGHLY
COM-
PENSATED
EMPLOYEES.—The 
require-
ments of this subparagraph are not met if,
under the arrangement, the matching con-
tribution with respect to any elective con-
tribution of a highly compensated employee
at any level of compensation is greater
than that with respect to an employee who
is not a highly compensated employee.
‘‘(iii) ALTERNATIVE PLAN DESIGNS.—
If the matching contribution with respect
to any elective contribution at any specific
level of compensation is not equal to the
percentage required under clause (i), an
arrangement shall not be treated as failing
to meet the requirements of clause (i) if—
‘‘(I) the level of an employer’s
matching contribution does not in-
crease as an employee’s elective con-
tributions increase, and
‘‘(II) the aggregate amount of
matching contributions with respect to
elective contributions not in excess of
such level of compensation is at least
equal to the amount of matching con-
tributions which would be made if
matching contributions were made on
the basis of the percentages described
in clause (i).
‘‘(C) 
NONELECTIVE
CONTRIBUTIONS.—
The requirements of this subparagraph are met
if, under the arrangement, the employer is re-
quired, without regard to whether the employee
makes an elective contribution or employee con-
tribution, to make a contribution to a defined
contribution plan on behalf of each employee
who is not a highly compensated employee and
who is eligible to participate in the arrangement
in an amount equal to at least 3 percent of the
employee’s compensation.
‘‘(D) NOTICE
REQUIREMENT.—An ar-
rangement meets the requirements of this para-
graph if, under the arrangement, each employee
eligible to participate is, within a reasonable pe-
riod before any year, given written notice of the
employee’s rights and obligations under the ar-
rangement which—
‘‘(i) is sufficiently accurate and com-
prehensive to appraise the employee of
such rights and obligations, and
‘‘(ii) is written in a manner calculated
to be understood by the average employee
eligible to participate.
‘‘(E) OTHER REQUIREMENTS.—
‘‘(i) WITHDRAWAL AND VESTING RE-
STRICTIONS.—An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) unless the re-
quirements of subparagraphs (B) and (C)
of paragraph (2) are met with respect to
all 
employer 
contributions 
(including
matching contributions).
‘‘(ii) SOCIAL SECURITY AND SIMILAR
CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT.—An arrangement shall not be
treated as meeting the requirements of
subparagraph (B) or (C) unless such re-
quirements are met without regard to sub-
section (l), and, for purposes of subsection
(l), employer contributions under subpara-
graph (B) or (C) shall not be taken into
account.
‘‘(F) OTHER
PLANS.—An arrangement
shall be treated as meeting the requirements
under subparagraph (A)(i) if any other plan
maintained by the employer meets such require-
ments with respect to employees eligible under
the arrangement.’’
(b) ALTERNATIVE METHODS OF SATISFYING SEC-
TION
401(m) 
NONDISCRIMINATION
TESTS.—Section
401(m) (relating to nondiscrimination test for matching
contributions and employee contributions) is amended by
redesignating paragraph (10) as paragraph (11) and by
adding after paragraph (9) the following new paragraph:
‘‘(10) ALTERNATIVE METHOD OF SATISFYING
TESTS.—
‘‘(A) IN GENERAL.—A defined contribution
plan shall be treated as meeting the require-
ments of paragraph (2) with respect to match-
ing contributions if the plan—
‘‘(i) meets the contribution require-
ments of subparagraph (B) or (C) of sub-
section (k)(11),
‘‘(ii) meets the notice requirements of
subsection (k)(11)(D), and
‘‘(iii) meets the requirements of sub-
paragraph (B).
‘‘(B) LIMITATION
ON
MATCHING
CON-
TRIBUTIONS.—The requirements of this sub-
paragraph are met if—
‘‘(i) matching contributions on behalf
of any employee may not be made with
respect to an employee’s contributions or
elective deferrals in excess of 6 percent of
the employee’s compensation,
‘‘(ii) the level of an employer’s match-
ing contribution does not increase as an
employee’s contributions or elective defer-
rals increase, and
‘‘(iii) the matching contribution with
respect to any highly compensated em-
ployee at a specific level of compensation is
not greater than that with respect to an
employee who is not a highly compensated
employee.’’
(c) YEAR
FOR
COMPUTING
NONHIGHLY
COM-
PENSATED EMPLOYEE PERCENTAGE.—
(1) CASH
OR
DEFERRED
ARRANGEMENTS.—
Clause (ii) of section 401(k)(3)(A) is amended—
(A) by striking ‘‘such year’’ and inserting
‘‘the plan year’’, and
(B) by striking ‘‘for such plan year’’ and
inserting ‘‘the preceding plan year’’.
(2) MATCHING
AND
EMPLOYEE
CONTRIBU-
TIONS.—Section 401(m)(2)(A) is amended—
(A) by inserting ‘‘for such plan year’’ after
‘‘highly compensated employees’’, and
(B) by inserting ‘‘for the preceding plan
year’’ after ‘‘eligible employees’’ each place it
appears in clause (i) and clause (ii).
(d) SPECIAL RULE FOR DETERMINING AVERAGE DE-
FERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC.—
(1) Paragraph (3) of section 401(k) is amended
by adding at the end thereof the following new sub-
paragraph:
‘‘(E) For purposes of this paragraph, in
the case of the first plan year of any plan, the
amount taken into account as the actual defer-
ral percentage of nonhighly compensated em-
ployees for the preceding plan year shall be—
‘‘(i) 3 percent, or
‘‘(ii) if the employer makes an election
under this subclause, the actual deferral
percentage of nonhighly compensated em-
ployees determined for such first plan
year.’’
(2) Paragraph (3) of section 401(m) is amend-
ed by adding at the end thereof the following:
‘‘Rules similar to the rules of subsection (k)(3)(E)
shall apply for purposes of this subsection.’’
(e) DISTRIBUTION OF EXCESS CONTRIBUTIONS.—
(1) Subparagraph (C) of section 401(k)(8) (re-
lating to arrangement not disqualified if excess con-
tributions distributed) is amended by striking ‘‘on
the basis of the respective portions of the excess con-
tributions attributable to each of such employees’’
and inserting ‘‘on the basis of the amount of con-
tributions by, or on behalf of, each of such employ-
ees’’.
(2) Subparagraph (C) of section 401(m)(6) (re-
lating to method of distributing excess aggregate
contributions) is amended by striking ‘‘on the basis
of the respective portions of such amounts attrib-
utable to each of such employees’’ and inserting ‘‘on
the basis of the amount of contributions on behalf
of, or by, each such employee’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
Subtitle D—Miscellaneous
Simplification
SEC. 231. TREATMENT OF LEASED EMPLOYEES.
(a) GENERAL RULE.—Subparagraph (C) of section
414(n)(2) (defining leased employee) is amended to read
as follows:
‘‘(C) such services are performed under
significant direction or control by the recipi-
ent.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1993, but shall not apply to any relationship deter-
mined under an Internal Revenue Service ruling issued be-
fore the date of the enactment of this Act pursuant to
section 414(n)(2)(C) of the Internal Revenue Code of
1986 (as in effect on the day before such date) not to
involve a leased employee.
SEC. 232. MODIFICATIONS OF COST-OF-LIVING ADJUST-
MENTS.
(a) IN GENERAL.—Section 415(d) (relating to cost-
of-living adjustments) is amended to read as follows:
‘‘(d) COST-OF-LIVING ADJUSTMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall adjust
annually—
‘‘(A) the $90,000 amount in subsection
(b)(1)(A), and
‘‘(B) in the case of a participant who sepa-
rated from service, the amount taken into ac-
count under subsection (b)(1)(B),
for increases in the cost-of-living in accordance with
regulations prescribed by the Secretary.
‘‘(2) METHOD.—
‘‘(A) IN GENERAL.—The regulations pre-
scribed under paragraph (1) shall provide for
adjustment procedures which are similar to the
procedures used to adjust benefit amounts
under section 215(i)(2)(A) of the Social Secu-
rity Act.
‘‘(B) PERIODS FOR ADJUSTMENT OF DOL-
LAR
AMOUNT.—For purposes of paragraph
(1)(A)—
‘‘(i) IN
GENERAL.—The adjustment
with respect to any calendar year shall be
based on the increase in the applicable
index as of the close of the calendar quar-
ter ending September 30 of the preceding
calendar year over such index as of the
close of the base period.
‘‘(ii) BASE PERIOD.—For purposes of
clause (i), the base period is the calendar
quarter beginning October 1, 1986.
‘‘(C) BASE PERIOD FOR SEPARATIONS.—
For purposes of paragraph (1)(B), the base pe-
riod is the last calendar quarter of the calendar
year preceding the calendar year in which the
participant separated from service.
‘‘(3) 
ROUNDING.—Any 
amount 
determined
under paragraph (1) (or by reference to this sub-
section) shall be rounded to the nearest $1,000, ex-
cept that the amounts under sections 402(g)(1),
408(k)(2)(C), and 457(e)(14) shall be rounded to
the nearest $100 and the amount under section
401(a)(17) shall be rounded, to the next lowest mul-
tiple of $10,000.’’
(b) EFFECTIVE DATE.—The amendments made by
this section apply to adjustments with respect to calendar
years beginning after December 31, 1993.
SEC. 233. PLANS 
COVERING 
SELF-EMPLOYED 
INDIVID-
UALS.
(a) AGGREGATION RULES.—Section 401(d) (relating
to additional requirements for qualification of trusts and
plans benefiting owner-employees) is amended to read as
follows:
‘‘(d) CONTRIBUTION LIMIT
ON OWNER-EMPLOY-
EES.—A trust forming part of a pension or profit-sharing
plan which provides contributions or benefits for employ-
ees some or all of whom are owner-employees shall con-
stitute a qualified trust under this section only if, in addi-
tion to meeting the requirements of subsection (a), the
plan provides that contributions on behalf of any owner-
employee may be made only with respect to the earned
income of such owner-employee which is derived from the
trade or business with respect to which such plan is
established.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 234. ELIMINATION OF SPECIAL VESTING RULE FOR
MULTIEMPLOYER PLANS.
(a) IN GENERAL.—Paragraph (2) of section 411(a)
(relating to minimum vesting standards) is amended—
(1) by striking ‘‘subparagraph (A), (B), or (C)’’
and inserting ‘‘subparagraph (A) or (B)’’; and
(2) by striking subparagraph (C).
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning on or after
the earlier of—
(1) the later of—
(A) January 1, 1994, or
(B) the date on which the last of the col-
lective bargaining agreements pursuant to
which the plan is maintained terminates (deter-
mined without regard to any extension thereof
after the date of the enactment of this Act), or
(2) January 1, 1996.
Such amendments shall not apply to any individual who
does not have more than 1 hour of service under the plan
on or after the 1st day of the 1st plan year to which such
amendments apply.
SEC. 235. FULL-FUNDING 
LIMITATION 
OF 
MULTIEM-
PLOYER PLANS.
(a) 
FULL-FUNDING
LIMITATION.—Section
412(c)(7)(C) (relating to full-funding limitation) is
amended—
(1) by inserting ‘‘or in the case of a multiem-
ployer plan,’’ after ‘‘paragraph (6)(B),’’, and
(2) by inserting ‘‘AND MULTIEMPLOYER PLANS’’
after ‘‘PARAGRAPH (6)(B)’’ in the heading thereof.
(b) VALUATION.—Section 412(c)(9) is amended—
(1) by inserting ‘‘(3 years in the case of a mul-
tiemployer plan)’’ after ‘‘year’’, and
(2) by striking ‘‘ANNUAL VALUATION’’ in the
heading and inserting ‘‘VALUATION’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 236. ALTERNATIVE FULL-FUNDING LIMITATION.
(a) IN GENERAL.—Subsection (c) of section 412 (re-
lating to minimum funding standards) is amended by re-
designating paragraphs (8) through (11) as paragraphs
(9) through (12), respectively, and by adding after para-
graph (7) the following new paragraph:
‘‘(8) ALTERNATIVE
FULL-FUNDING
LIMITA-
TION.—
‘‘(A) GENERAL RULE.—An employer may
elect the full-funding limitation under this para-
graph with respect to any defined benefit plan
of the employer in lieu of the full-funding limi-
tation determined under paragraph (7) if the
requirements of subparagraphs (C) and (D) are
met.
‘‘(B) ALTERNATIVE FULL-FUNDING LIMI-
TATION.—The full-funding limitation under this
paragraph is the full-funding limitation deter-
mined under paragraph (7) without regard to
subparagraph (A)(i)(I) thereof.
‘‘(C) REQUIREMENTS RELATING TO PLAN
ELIGIBILITY.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met with respect
to a defined benefit plan if—
‘‘(I) as of the 1st day of the elec-
tion period, the average accrued liabil-
ity of participants accruing benefits
under the plan for the 5 immediately
preceding plan years is at least 80
percent of the plan’s total accrued li-
ability,
‘‘(II) the plan is not a top-heavy
plan (as defined in section 416(g)) for
the 1st plan year of the election pe-
riod or either of the 2 preceding plan
years, and
‘‘(III) each defined benefit plan
of the employer (and each defined
benefit plan of each employer who is
a member of any controlled group
which includes such employer) meets
the requirements of subclauses (I) and
(II).
‘‘(ii) FAILURE TO CONTINUE TO MEET
REQUIREMENTS.—
‘‘(I) If any plan fails to meet the
requirement of clause (i)(I) for any
plan year during an election period,
the benefits of the election under this
paragraph shall be phased out under
regulations prescribed by the Sec-
retary.
‘‘(II) If any plan fails to meet
the requirement of clause (i)(II) for
any plan year during an election pe-
riod, such plan shall be treated as not
meeting the requirements of clause (i)
for the remainder of the election
period.
If there is a failure described in subclause
(I) or (II) with respect to any plan, such
plan (and each plan described in clause
(i)(III) with respect to such plan) shall be
treated as not meeting the requirements of
clause (i) for any of the 10 plan years be-
ginning after the election period.
‘‘(D) REQUIREMENTS RELATING TO ELEC-
TION.—
‘‘(i) IN GENERAL.—The requirements
of this subparagraph are met with respect
to an election if—
‘‘(I) FILING
DATE.—Notice of
such election is filed with the Sec-
retary (in such form and manner and
containing such information as the
Secretary may provide) by January 1
of any calendar year, and is effective
as of the 1st day of the election period
beginning on or after January 1 of
the following calendar year.
‘‘(II) CONSISTENT
ELECTION.—
Such an election is made for all de-
fined benefit plans maintained by the
employer or by any member of a con-
trolled group which includes the em-
ployer.
‘‘(ii) TRANSITION
PERIOD.—In the
case of any election period beginning on or
after July 1, 1994, and before January 1,
1995, the requirements of clause (i) shall
not apply and the requirements of this
subparagraph are met with respect to such
election period if—
‘‘(I) FILING
DATE.—Notice of
election is filed with the Secretary by
October 1, 1994.
‘‘(II) INFORMATION.—The notice
sets forth the name and tax identifica-
tion number of the plan sponsor, the
names and tax identification numbers
of the plans to which the election ap-
plies, the limitation under paragraph
(7) (determined with and without re-
gard to this paragraph), and a signed
certification by an officer of the em-
ployer stating that the requirements
of this paragraph have been met.
‘‘(iii) 
REVENUE
OFFSET
PROCE-
DURES.—The Secretary shall, by January
1, 1995, notify defined benefit plans that
have not made an election under this para-
graph for the transition period described in
clause (ii) of the adjustment required by
subparagraph (H). The revenue offset for
the transition period shall apply to plan
years beginning on or after July 1, 1994,
and before January 1, 1995.
‘‘(iv) EXCESS CONTRIBUTIONS MADE
BY NON-ELECTING PLANS.—To the extent
a defined benefit plan sponsor makes a
contribution to a defined benefit plan with
respect to the transition period described
in clause (ii) which exceeds the limitation
of paragraph (7), as adjusted by the Sec-
retary for the transition period, the spon-
sor shall offset the excess contribution
against allowable contributions to the plan
in subsequent quarters in the taxable year
of the sponsor. If no subsequent contribu-
tions may be made for the taxable year,
the trustee of the defined benefit plan shall
return the excess contribution to the spon-
sor in that taxable year or the following
taxable year. Notwithstanding any other
provision of this title, no deduction shall be
allowed for any contribution made in ex-
cess of the limitation of paragraph (7), as
adjusted by the Secretary for the transi-
tion period, and no penalty shall apply
with respect to contributions made in ex-
cess of such limitation to the extent such
excess contributions are either used to off-
set subsequent contributions, or returned
to the plan sponsor, as provided in this
clause.
‘‘(E) TERM OF ELECTION.—Any election
made under this paragraph shall apply for the
election period.
‘‘(F) OTHER
CONSEQUENCES
OF
ELEC-
TION.—
‘‘(i) NO FUNDING WAIVERS.—In the
case of a plan with respect to which an
election is made under this paragraph, no
waiver may be granted under subsection
(d) for any plan year beginning after the
date the election was made and ending at
the close of the election period with respect
thereto.
‘‘(ii) FAILURE TO MAKE SUCCESSIVE
ELECTIONS.—If an election is made under
this paragraph with respect to any plan
and such an election does not apply for
each successive plan year of such plan,
such plan shall be treated as not meeting
the requirements of subparagraph (C) for
the period of 10 plan years beginning after
the close of the last election period for
such plan.
‘‘(G) DEFINITIONS.—For purposes of this
paragraph—
‘‘(i) ELECTION
PERIOD.—The term
‘election period’ means the period of 5 con-
secutive plan years beginning with the 1st
plan year for which the election is made.
‘‘(ii) CONTROLLED GROUP.—The term
‘controlled group’ means all persons who
are treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414.
‘‘(H) 
PROCEDURES
IF
ALTERNATIVE
FUNDING LIMITATION REDUCES NET FEDERAL
REVENUES.—
‘‘(i) IN GENERAL.—At least once with
respect to each fiscal year, the Secretary
shall estimate whether the application of
this paragraph will result in a net reduc-
tion in Federal revenues for such fiscal
year.
‘‘(ii) ADJUSTMENT OF FULL-FUNDING
LIMITATION IF REVENUE SHORTFALL.—If
the Secretary estimates that the applica-
tion of this paragraph will result in a more
than insubstantial net reduction in Federal
revenues for any fiscal year, the Sec-
retary—
‘‘(I) shall make the adjustment
described in clause (iii), and
‘‘(II) to the extent such adjust-
ment is not sufficient to reduce such
reduction to an insubstantial amount,
shall make the adjustment described
in clause (iv).
Such adjustments shall apply only to de-
fined benefit plans with respect to which
an election under this paragraph is not in
effect.
‘‘(iii) 
REDUCTION
IN
LIMITATION
BASED ON 150 PERCENT OF CURRENT LI-
ABILITY.—The adjustment described in
this clause is an adjustment which sub-
stitutes a percentage (not lower than 140
percent) for the percentage described in
paragraph (7)(A)(i)(I) determined by re-
ducing the percentage of current liability
taken into account with respect to partici-
pants who are not accruing benefits under
the plan.
‘‘(iv) 
REDUCTION
IN
LIMITATION
BASED ON ACCRUED LIABILITY.—The ad-
justment described in this clause is an ad-
justment which reduces the percentage of
accrued liability taken into account under
paragraph (7)(A)(i)(II). In no event may
the amount of accrued liability taken into
account under such paragraph after the
adjustment be less than 140 percent of
current liability.’’
(b) ALTERATION OF DISCRETIONARY REGULATORY
AUTHORITY.—Subparagraph (D) of section 412(c)(7) is
amended by striking ‘‘provide—’’ and all that follows
through ‘‘(iii) for’’ and inserting ‘‘provide for’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1995, except
that, in the case of an election under subparagraph (D)(ii)
of paragraph (8) of section 412(c) of the Internal Revenue
Code of 1986, as added by this section, such amendments
shall take effect on July 1, 1994.
SEC. 237. DISTRIBUTIONS UNDER RURAL COOPERATIVE
PLANS.
(a) DISTRIBUTIONS AFTER CERTAIN AGE.—Section
401(k)(7) is amended by adding at the end thereof the
following new subparagraph:
‘‘(C) SPECIAL
RULE
FOR
CERTAIN
DIS-
TRIBUTIONS.—A rural cooperative plan which
includes a qualified cash or deferred arrange-
ment shall not be treated as violating the re-
quirements of section 401(a) merely by reason
of a distribution to a participant after attain-
ment of age 591⁄2.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions after the date of
the enactment of this Act.
‘‘(C) benefits described in subparagraph
(A) are not paid from a trust forming a part
of such governmental plan unless such trust is
maintained solely for the purpose of providing
such benefits.’’
(2) COORDINATION WITH SECTION 457.—Sub-
section (e) of section 457 is amended by adding at
the end thereof the following new paragraph:
‘‘(15) TREATMENT
OF
QUALIFIED
GOVERN-
MENTAL
EXCESS
BENEFIT
ARRANGEMENTS.—Sub-
sections (b)(2) and (c)(1) shall not apply to any
qualified governmental excess benefit arrangement
(as defined in section 415(m)(3)), and benefits pro-
vided under such an arrangement shall not be taken
into account in determining whether any other plan
is an eligible deferred compensation plan.’’
(3) CONFORMING AMENDMENT.—Paragraph (2)
of section 457(f) is amended by striking the word
‘‘and’’ at the end of subparagraph (C), by striking
the period after subparagraph (D) and inserting the
words ‘‘, and’’, and by inserting immediately there-
after the following new subparagraph:
‘‘(E) a qualified governmental excess bene-
fit arrangement described in section 415(m).’’
(d) EXEMPTION
FOR SURVIVOR
AND DISABILITY
BENEFITS.—Paragraph (2) of section 415(b) is amended
by adding at the end thereof the following new subpara-
graph:
‘‘(I) EXEMPTION FOR SURVIVOR AND DIS-
ABILITY BENEFITS PROVIDED UNDER GOVERN-
MENTAL
PLANS.—Subparagraph (B) of para-
graph (1), subparagraph (C) of this paragraph,
and paragraph (5) shall not apply to—
‘‘(i) income received from a govern-
mental plan (as defined in section 414(d))
as a pension, annuity, or similar allowance
as the result of the recipient becoming dis-
abled by reason of personal injuries or
sickness, or
‘‘(ii) amounts received from a govern-
mental plan by the beneficiaries, survivors,
or the estate of an employee as the result
of the death of the employee.’’
(e) REVOCATION
OF GRANDFATHER ELECTION.—
Subparagraph (C) of section 415(b)(10) is amended by
adding at the end thereof the following new sentence: ‘‘An
election made pursuant to the preceding sentence to have
the provisions of this paragraph applied to the plan may
be revoked not later than the last day of the 3rd plan year
beginning after the date of enactment with respect to all
plan years as to which such election has been applicable
and all subsequent plan years; provided that any amount
paid by the plan in a taxable year ending after revocation
of such election in respect of benefits attributable to a tax-
able year during which such election was in effect shall
be includible in income by the recipient in accordance with
the rules of this chapter in the taxable year in which such
amount is received (except that such amount shall be
treated as received for purposes of the limitations imposed
by this section in the earlier taxable year or years to which
such amount is attributable).’’
(f) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
subsections (a), (b), (c), and (d) shall apply to tax-
able years beginning on or after the date of the en-
actment of this Act. The amendments made by sub-
section (e) shall apply with respect to election rev-
ocations adopted after the date of the enactment of
this Act.
(2) TREATMENT
FOR
YEARS
BEGINNING
BE-
FORE DATE OF ENACTMENT.—In the case of a gov-
ernmental plan (as defined in section 414(d) of the
Internal Revenue Code of 1986), such plan shall be
treated as satisfying the requirements of section 415
of such Code for all taxable years beginning before
the date of the enactment of this Act.
SEC. 239. UNIFORM RETIREMENT AGE.
(a) DISCRIMINATION TESTING.—Paragraph (5) of
section 401(a) (relating to special rules relating to non-
discrimination requirements) is amended by adding at the
end thereof the following new subparagraph:
‘‘(F) 
SOCIAL
SECURITY
RETIREMENT
AGE.—For purposes of testing for discrimina-
tion under paragraph (4)—
‘‘(i) the social security retirement age
(as defined in section 415(b)(8)) shall be
treated as a uniform retirement age, and
‘‘(ii) subsidized early retirement bene-
fits and joint and survivor annuities shall
not be treated as being unavailable to em-
ployees on the same terms merely because
such benefits or annuities are based in
whole or in part on an employee’s social
security retirement age (as so defined).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 240. UNIFORM PENALTY PROVISIONS TO APPLY TO
CERTAIN 
PENSION 
REPORTING 
REQUIRE-
MENTS.
(a) IN GENERAL.—
(1) Paragraph (1) of section 6724(d) is amend-
ed by striking ‘‘and’’ at the end of subparagraph
(A), by striking the period at the end of subpara-
graph (B) and inserting ‘‘, and’’, and by inserting
after subparagraph (B) the following new subpara-
graph:
‘‘(C) any statement of the amount of pay-
ments to another person required to be made to
the Secretary under—
‘‘(i) section 408(i) (relating to reports
with respect to individual retirement ac-
counts or annuities), or
‘‘(ii) section 6047(d) (relating to re-
ports by employers, plan administrators,
etc.).’’
(2) Paragraph (2) of section 6724(d) is amend-
ed by striking ‘‘or’’ at the end of subparagraph (S),
by striking the period at the end of subparagraph
(T) and inserting a comma, and by inserting after
subparagraph 
(T) 
the 
following 
new
subparagraphs:
‘‘(U) section 408(i) (relating to reports
with respect to individual retirement plans) to
any person other than the Secretary with re-
spect to the amount of payments made to such
person, or
‘‘(V) section 6047(d) (relating to reports
by plan administrators) to any person other
than the Secretary with respect to the amount
of payments made to such person.’’
(b) MODIFICATION
OF REPORTABLE DESIGNATED
DISTRIBUTIONS.—
(1) SECTION 408.—Subsection (i) of section 408
(relating to individual retirement account reports) is
amended by inserting ‘‘aggregating $10 or more in
any calendar year’’ after ‘‘distributions’’.
(2) SECTION 6047.—Paragraph (1) of section
6047(d) (relating to reports by employers, plan ad-
ministrators, etc.) is amended by adding at the end
thereof the following new sentence: ‘‘No return or
report may be required under the preceding sentence
with respect to distributions to any person during
any year unless such distributions aggregate $10 or
more.’’
(c) QUALIFYING ROLLOVER DISTRIBUTIONS.—Sec-
tion 6652(i) is amended—
SEC. 241. CONTRIBUTIONS ON BEHALF OF DISABLED EM-
PLOYEES.
(a) ALL DISABLED PARTICIPANTS RECEIVING CON-
TRIBUTIONS.—Section 415(c)(3)(C) is amended by adding
at the end thereof the following: ‘‘If a defined contribution
plan provides for the continuation of contributions on be-
half of all participants described in clause (i) for a fixed
or determinable period, this subparagraph shall be applied
without regard to clauses (ii) and (iii).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1993.
SEC. 242. SPECIAL RULES FOR PLANS COVERING PILOTS.
(a) GENERAL RULE.—
(1) Subparagraph (B) of section 410(b)(3) is
amended to read as follows:
‘‘(B) in the case of a plan established or
maintained by one or more employers to provide
contributions or benefits for air pilots employed
by one or more common carriers engaged in
interstate or foreign commerce or air pilots em-
ployed by carriers transporting mail for or
under contract with the United States Govern-
ment, all employees who are not air pilots.’’
(2) Paragraph (3) of section 410(b) is amended
by striking the last sentence and inserting the fol-
lowing new sentence: ‘‘Subparagraph (B) shall not
apply in the case of a plan which provides contribu-
tions or benefits for employees who are not air pilots
or for air pilots whose principal duties are not cus-
tomarily performed aboard aircraft in flight.’’
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1993.
SEC. 243. TREATMENT 
OF 
DEFERRED 
COMPENSATION
PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) SPECIAL RULES FOR PLAN DISTRIBUTIONS.—
Paragraph (9) of section 457(e) (relating to other defini-
tions and special rules) is amended to read as follows:
‘‘(9) BENEFITS NOT TREATED AS MADE AVAIL-
ABLE BY REASON OF CERTAIN ELECTIONS, ETC.—
‘‘(A) TOTAL AMOUNT PAYABLE IS $3,500
OR LESS.—The total amount payable to a par-
ticipant under the plan shall not be treated as
made available merely because the participant
may elect to receive such amount (or the plan
may distribute such amount without the partici-
pant’s consent) if—
‘‘(i) such amount does not exceed
$3,500, and
‘‘(ii) such amount may be distributed
only if—
‘‘(I) no amount has been deferred
under the plan with respect to such
participant during the 2-year period
ending on the date of the distribution,
and
‘‘(II) there has been no prior dis-
tribution under the plan to such par-
ticipant to which this subparagraph
applied.
A plan shall not be treated as failing to
meet the distribution requirements of sub-
section (d) by reason of a distribution to which
this subparagraph applies.
‘‘(B) ELECTION
TO
DEFER
COMMENCE-
MENT OF DISTRIBUTIONS.—The total amount
payable to a participant under the plan shall
not be treated as made available merely because
the participant may elect to defer commence-
ment of distributions under the plan if—
‘‘(i) such election is made after
amounts may be available under the plan
in accordance with subsection (d)(1)(A)
and before commencement of such dis-
tributions, and
‘‘(ii) the participant may make only 1
such election.’’
(b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DE-
FERRAL AMOUNT.—Subsection (e) of section 457 is
amended by adding at the end thereof the following new
paragraph:
‘‘(14) COST-OF-LIVING ADJUSTMENT OF MAXI-
MUM DEFERRAL AMOUNT.—The Secretary shall ad-
just the $7,500 amount specified in subsections
(b)(2) and (c)(1) at the same time and in the same
manner as under section 415(d), except that the
base year in applying such section for purposes of
this paragraph shall be 1993.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 244. TREATMENT OF EMPLOYER REVERSIONS RE-
QUIRED BY CONTRACT TO BE PAID TO THE
UNITED STATES.
(a) IN GENERAL.—Subparagraph (B) of section
4980(c)(2) (defining employer reversion) is amended by
striking ‘‘or’’ at the end of clause (i), by striking the pe-
riod at the end of clause (ii) and inserting ‘‘, or’’, and
by adding at the end thereof the following new clause:
‘‘(iii) any distribution to the employer
to the extent that the distribution is paid
within a reasonable period to the United
States in satisfaction of a Federal claim
for an equitable share of the plan’s surplus
assets, as determined pursuant to Federal
contracting regulations.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to reversions on or after the date
of the enactment of this Act.
SEC. 245. CONTINUATION HEALTH COVERAGE FOR EM-
PLOYEES OF FAILED FINANCIAL INSTITU-
TIONS.
(a) ENFORCEMENT OF CONTINUATION OF HEALTH
PLAN REQUIREMENTS OF ACQUIRERS OF FAILED DEPOS-
ITORY INSTITUTIONS.—Subsection (f) of section 4980B
(relating to continuation of coverage requirements of
group health plans) is amended by adding at the end
thereof the following new paragraph:
‘‘(9) SPECIAL
RULES
FOR
ACQUIRERS
OF
FAILED DEPOSITORY INSTITUTIONS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), any acquirer of a failed de-
pository institution—
‘‘(i) shall have the same obligation to
provide a group health plan meeting the
requirements of this subsection with re-
spect to qualified individuals of such insti-
tution as the failed depository institution
would have had but for its failure, and
‘‘(ii) shall be treated as the employer
of such qualified individuals for purposes
of this section.
‘‘(B) TAX NOT TO APPLY IF FDIC OR RTC
PROVIDE CONTINUATION COVERAGE.—No per-
son shall be subject to any liability under this
section by reason of being an acquirer of a
failed depository institution if the Federal De-
posit Insurance Corporation or the Resolution
Trust Corporation elects to relieve such
acquirer from its obligations under subpara-
graph (A). In any such case, the requirements
of subparagraph (A) shall apply to the Federal
Deposit Insurance Corporation or the Resolu-
tion Trust Corporation, as the case may be.
‘‘(C) ACQUIRER.—For purposes of this
paragraph, an entity is an acquirer of a failed
depository institution during any period if—
‘‘(i) such entity holds substantially all
of the assets or liabilities of such institu-
tion, and
‘‘(ii)(I) such entity is a bridge bank,
or
‘‘(II) such entity acquired such assets
or liabilities from the Federal Deposit In-
surance Corporation, the Resolution Trust
Corporation, or a bridge bank.
‘‘(D) FAILED DEPOSITORY INSTITUTION.—
For purposes of this section, the term ‘failed
depository institution’ means any depository in-
stitution (as defined in section 3(c) of the Fed-
eral Deposit Insurance Act) for which a receiver
or conservator has been appointed.
‘‘(E) QUALIFIED
INDIVIDUAL.—For pur-
poses of this section, the term ‘qualified individ-
ual’ means—
‘‘(i) any individual who was, on the
day before the date of the appointment of
the receiver or conservator, provided cov-
erage under a group health plan of the
failed depository institution by reason of
the performance of services for such insti-
tution, and
‘‘(ii) any individual who was, on such
day, a beneficiary under such plan as the
spouse or dependent child of the individual
described in clause (i).’’
(b) TREATMENT OF DEPOSITORY INSTITUTION FAIL-
URES AS QUALIFYING EVENTS FOR RETIREES OF SUCH
INSTITUTIONS.—
(1) IN GENERAL.—Subparagraph (B) of section
4980B(f)(3) is amended—
(A) by striking ‘‘The termination’’ and in-
serting ‘‘(i) The termination’’,
(B) by striking the period at the end and
inserting ‘‘, or’’, and
(C) by inserting after clause (i) the follow-
ing new clause:
‘‘(ii) the appointment of a receiver or con-
servator for a failed depository institution from
whose employment the covered employee retired
at any time.’’
(2) CONFORMING AMENDMENT.—Subclause (I)
of section 4980B(f)(2)(B)(i) is amended by striking
‘‘AND REDUCED HOURS’’ and inserting ‘‘, REDUCED
HOURS, AND
FAILURES
OF
DEPOSITORY
INSTITU-
TIONS’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply as if included in section 451 of the Fed-
eral Deposit Insurance Corporation Improvement
Act of 1991 as of the date of the enactment of such
Act.
(2) LIABILITY OF FDIC.—In the case of the
Federal Deposit Insurance Corporation or any
acquirer from such Corporation, the amendments
made by this section shall apply only to failed depos-
itory institutions for which the receiver or conserva-
tor is appointed after the date of the enactment of
this Act.
(3) SPECIAL RULE FOR COVERAGE UNDER FDIC
PLAN.—Effective as of the date of the enactment of
the Federal Deposit Insurance Corporation Improve-
ment Act of 1991, coverage under the health care
continuation plan maintained by the Federal Deposit
Insurance Corporation on June 25, 1992, and any
other substantially similar plan maintained by such
Corporation, shall be deemed to satisfy the obliga-
tions of the Federal Deposit Insurance Corporation
(and any acquirer from such Corporation) under sec-
tion 4980B(f) of the Internal Revenue Code of 1986
and section 451 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 with respect
to qualified individuals of failed depository institu-
tions.
SEC. 246. DATE FOR ADOPTION OF PLAN AMENDMENTS.
If any amendment made by this title requires an
amendment to any plan, such plan amendment shall not
be required to be made before the first day of the first
plan year beginning on or after January 1, 1995, if—
(1) during the period after such amendment
takes effect and before such first plan year, the plan
is operated in accordance with the requirements of
such amendment, and
(2) such plan amendment applies retroactively
to such period.
TITLE III—TREATMENT OF
LARGE PARTNERSHIPS
Subtitle A—General Provisions
SEC. 301. SIMPLIFIED FLOW-THROUGH FOR LARGE PART-
NERSHIPS.
(a) GENERAL RULE.—Subchapter K (relating to
partners and partnerships) is amended by adding at the
end thereof the following new part:
‘‘(4) tax-exempt interest,
‘‘(5) applicable net AMT adjustment separately
computed for—
‘‘(A) passive loss limitation activities, and
‘‘(B) other activities,
‘‘(6) general credits,
‘‘(7) low-income housing credit determined
under section 42,
‘‘(8) rehabilitation credit determined under sec-
tion 47,
‘‘(9) foreign income taxes,
‘‘(10) the credit allowable under section 29, and
‘‘(11) other items to the extent that the Sec-
retary determines that the separate treatment of
such items is appropriate.
‘‘(b) SEPARATE COMPUTATIONS.—In determining
the amounts required under subsection (a) to be sepa-
rately taken into account by any partner, this section and
section 773 shall be applied separately with respect to
such partner by taking into account such partner’s dis-
tributive share of the items of income, gain, loss, deduc-
tion, or credit of the partnership.
‘‘(c) TREATMENT AT PARTNER LEVEL.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, rules similar to the rules of section
702(b) shall apply to any partner’s distributive share
of the amounts referred to in subsection (a).
‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIM-
ITATION ACTIVITIES.—For purposes of this chapter,
any partner’s distributive share of any income or
loss described in subsection (a)(1) shall be treated as
an item of income or loss (as the case may be) from
the conduct of a trade or business which is a single
passive activity (as defined in section 469). A similar
rule shall apply to a partner’s distributive share of
amounts referred to in paragraphs (3)(A) and
(5)(A) of subsection (a).
‘‘(3) INCOME OR LOSS FROM OTHER ACTIVI-
TIES.—
‘‘(A) IN GENERAL.—For purposes of this
chapter, any partner’s distributive share of any
income or loss described in subsection (a)(2)
shall be treated as an item of income or expense
(as the case may be) with respect to property
held for investment.
‘‘(B) DEDUCTIONS
FOR
LOSS
NOT
SUB-
JECT
TO
SECTION
67.—The deduction under
section 212 for any loss described in subpara-
graph (A) shall not be treated as a miscellane-
ous itemized deduction for purposes of section
67.
‘‘(4) TREATMENT
OF
NET
CAPITAL
GAIN
OR
LOSS.—For purposes of this chapter, any partner’s
distributive share of any gain or loss described in
subsection (a)(3) shall be treated as a long-term
capital gain or loss, as the case may be.
‘‘(5) MINIMUM TAX TREATMENT.—In determin-
ing the alternative minimum taxable income of any
partner, such partner’s distributive share of any ap-
plicable net AMT adjustment shall be taken into ac-
count in lieu of making the separate adjustments
provided in sections 56, 57, and 58 with respect to
the items of the partnership. Except as provided in
regulations, the applicable net AMT adjustment
shall be treated, for purposes of section 53, as an
adjustment or item of tax preference not specified in
section 53(d)(1)(B)(ii).
‘‘(6) GENERAL CREDITS.—A partner’s distribu-
tive share of the amount referred to in paragraph
(6) of subsection (a) shall be taken into account as
a current year business credit.
‘‘(d) OPERATING RULES.—For purposes of this sec-
tion—
‘‘(1) PASSIVE
LOSS
LIMITATION
ACTIVITY.—
The term ‘passive loss limitation activity’ means—
‘‘(A) any activity which involves the con-
duct of a trade or business, and
‘‘(B) any rental activity.
For purposes of the preceding sentence, the term
‘trade or business’ includes any activity treated as a
trade or business under paragraph (5) or (6) of sec-
tion 469(c).
‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax-
exempt interest’ means interest excludable from
gross income under section 103.
‘‘(3) APPLICABLE NET AMT ADJUSTMENT.—
‘‘(A) IN
GENERAL.—The applicable net
AMT adjustment is—
‘‘(i) with respect to taxpayers other
than corporations, the net adjustment de-
termined by using the adjustments applica-
ble to individuals, and
‘‘(ii) with respect to corporations, the
net adjustment determined by using the
adjustments applicable to corporations.
‘‘(B) NET ADJUSTMENT.—The term ‘net
adjustment’ means the net adjustment in the
items attributable to passive loss activities or
other activities (as the case may be) which
would result if such items were determined with
the adjustments of sections 56, 57, and 58.
‘‘(4) TREATMENT
OF
CERTAIN
SEPARATELY
STATED ITEMS.—
‘‘(A) EXCLUSION
FOR
CERTAIN
PUR-
POSES.—In determining the amounts referred
to in paragraphs (1) and (2) of subsection (a),
any net capital gain or net capital loss (as the
case may be), and any item referred to in sub-
section (a)(11), shall be excluded.
‘‘(B) ALLOCATION RULES.—The net cap-
ital gain shall be treated—
‘‘(i) as allocable to passive loss limita-
tion activities to the extent the net capital
gain does not exceed the net capital gain
determined by only taking into account
gains and losses from sales and exchanges
of property used in connection with such
activities, and
‘‘(ii) as allocable to other activities to
the extent such gain exceeds the amount
allocated under clause (i).
A similar rule shall apply for purposes of allo-
cating any net capital loss.
‘‘(C) NET CAPITAL LOSS.—The term ‘net
capital loss’ means the excess of the losses from
sales or exchanges of capital assets over the
gains from sales or exchange of capital assets.
‘‘(5) GENERAL
CREDITS.—The term ‘general
credits’ means any credit other than the low-income
housing credit, the rehabilitation credit, the foreign
tax credit, and the credit allowable under section 29.
‘‘(6) FOREIGN INCOME TAXES.—The term ‘for-
eign income taxes’ means taxes described in section
901 which are paid or accrued to foreign countries
and to possessions of the United States.
‘‘(e) SPECIAL RULE
FOR UNRELATED BUSINESS
TAX.—In the case of a partner which is an organization
subject to tax under section 511, such partner’s distribu-
tive share of any items shall be taken into account sepa-
rately to the extent necessary to comply with the provi-
sions of section 512(c)(1).
‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS
LIMITATIONS.—If any person holds an interest in a large
partnership other than as a limited partner—
‘‘(1) paragraph (2) of subsection (c) shall not
apply to such partner, and
‘‘(2) such partner’s distributive share of the
partnership items allocable to passive loss limitation
activities shall be taken into account separately to
the extent necessary to comply with the provisions of
section 469.
The preceding sentence shall not apply to any items alloca-
ble to an interest held as a limited partner.
‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.
‘‘(a) GENERAL RULE.—
‘‘(1) TAXABLE INCOME.—The taxable income of
a large partnership shall be computed in the same
manner as in the case of an individual except that—
‘‘(A) the items described in section 772(a)
shall be separately stated, and
‘‘(B) the modifications of subsection (b)
shall apply.
‘‘(2) ELECTIONS.—All elections affecting the
computation of the taxable income of a large part-
nership or the computation of any credit of a large
partnership shall be made by the partnership; except
that the election under section 901, and any election
under section 108, shall be made by each partner
separately.
‘‘(3) LIMITATIONS, ETC.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), all limitations and other pro-
visions affecting the computation of the taxable
100
income of a large partnership or the computa-
tion of any credit of a large partnership shall
be applied at the partnership level (and not at
the partner level).
‘‘(B) CERTAIN LIMITATIONS APPLIED AT
PARTNER
LEVEL.—The following provisions
shall be applied at the partner level (and not at
the partnership level):
‘‘(i) Section 68 (relating to overall
limitation on itemized deductions).
‘‘(ii) Sections 49 and 465 (relating to
at risk limitations).
‘‘(iii) Section 469 (relating to limita-
tion on passive activity losses and credits).
‘‘(iv) Any other provision specified in
regulations.
‘‘(4) COORDINATION
WITH
OTHER
PROVI-
SIONS.—Paragraphs (2) and (3) shall apply notwith-
standing any other provision of this chapter other
than this part.
‘‘(b) MODIFICATIONS TO DETERMINATION OF TAX-
ABLE INCOME.—In determining the taxable income of a
large partnership—
‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.—
The following deductions shall not be allowed:
101
‘‘(A) The deduction for personal exemp-
tions provided in section 151.
‘‘(B) The net operating loss deduction pro-
vided in section 172.
‘‘(C) The additional itemized deductions
for individuals provided in part VII of sub-
chapter B (other than section 212 thereof).
‘‘(2) CHARITABLE DEDUCTIONS.—In determin-
ing the amount allowable under section 170, the lim-
itation of section 170(b)(2) shall apply.
‘‘(3) COORDINATION WITH SECTION 67.—In lieu
of applying section 67, 70 percent of the amount of
the miscellaneous itemized deductions shall be dis-
allowed.
‘‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE
OF INDEBTEDNESS.—If a large partnership has income
from the discharge of any indebtedness—
‘‘(1) such income shall be excluded in determin-
ing the amounts referred to in section 772(a), and
‘‘(2) in determining the income tax of any part-
ner of such partnership—
‘‘(A) such income shall be treated as an
item required to be separately taken into ac-
count under section 772(a), and
102
‘‘(B) the provisions of section 108 shall be
applied without regard to this part.
‘‘SEC. 774. OTHER MODIFICATIONS.
‘‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUST-
MENTS, ETC.—In the case of a large partnership—
‘‘(1) computations under section 773 shall be
made without regard to any adjustment under sec-
tion 743(b) or 108(b), but
‘‘(2) a partner’s distributive share of any
amount referred to in section 772(a) shall be appro-
priately adjusted to take into account any adjust-
ment under section 743(b) or 108(b) with respect to
such partner.
‘‘(b) CREDIT RECAPTURE DETERMINED AT PART-
NERSHIP LEVEL.—
‘‘(1) IN GENERAL.—In the case of a large part-
nership—
‘‘(A) any credit recapture shall be taken
into account by the partnership, and
‘‘(B) the amount of such recapture shall be
determined as if the credit with respect to
which the recapture is made had been fully uti-
lized to reduce tax.
‘‘(2) METHOD OF TAKING RECAPTURE INTO AC-
COUNT.—A large partnership shall take into account
103
a credit recapture by reducing the amount of the ap-
propriate current year credit to the extent thereof,
and if such recapture exceeds the amount of such
current year credit, the partnership shall be liable to
pay such excess.
‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP-
TURE.—No credit recapture shall be required by rea-
son of any transfer of an interest in a large partner-
ship.
‘‘(4) CREDIT
RECAPTURE.—For purposes of
this subsection, the term ‘credit recapture’ means
any increase in tax under section 42(j) or 50(a).
‘‘(c) PARTNERSHIP NOT TERMINATED BY REASON
OF CHANGE IN OWNERSHIP.—Subparagraph (B) of sec-
tion 708(b)(1) shall not apply to a large partnership.
‘‘(d) PARTNERSHIP ENTITLED TO CERTAIN CRED-
ITS.—The following shall be allowed to a large partnership
and shall not be taken into account by the partners of
such partnership:
‘‘(1) The credit provided by section 34.
‘‘(2) Any credit or refund under section
852(b)(3)(D).
‘‘(e) TREATMENT OF REMIC RESIDUALS.—For pur-
poses of applying section 860E(e)(6) to any large partner-
ship—
104
‘‘(1) all interests in such partnership shall be
treated as held by disqualified organizations,
‘‘(2) in lieu of applying subparagraph (C) of
section 860E(e)(6), the amount subject to tax under
section 860E(e)(6) shall be excluded from the gross
income of such partnership, and
‘‘(3) subparagraph (D) of section 860E(e)(6)
shall not apply.
‘‘(f) SPECIAL RULES FOR APPLYING CERTAIN IN-
STALLMENT SALE RULES.—In the case of a large partner-
ship—
‘‘(1) the provisions of sections 453(l)(3) and
453A shall be applied at the partnership level, and
‘‘(2) in determining the amount of interest pay-
able under such sections, such partnership shall be
treated as subject to tax under this chapter at the
highest rate of tax in effect under section 1 or 11.
‘‘SEC. 775. LARGE PARTNERSHIP.
‘‘(a) GENERAL RULE.—For purposes of this part—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section or section 776, the term ‘large
partnership’ means, with respect to any partnership
taxable year, any partnership if the number of per-
sons who were partners in such partnership in such
taxable year or any preceding partnership taxable
105
year ending on or after December 31, 1994, equaled
or exceeded 250. To the extent provided in regula-
tions, a partnership shall cease to be treated as a
large partnership for any partnership taxable year if
in such taxable year fewer than 100 persons were
partners in such partnership.
‘‘(2) ELECTION FOR PARTNERSHIPS WITH AT
LEAST 100 PARTNERS.—If a partnership makes an
election under this paragraph, paragraph (1) shall
be applied by substituting ‘100’ for ‘250’. Such an
election shall apply to the taxable year for which
made and all subsequent taxable years unless re-
voked with the consent of the Secretary.
‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE PART-
NERSHIPS.—
‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For
purposes of this section, the term ‘partner’ does not
include any individual performing substantial serv-
ices in connection with the activities of the partner-
ship and holding an interest in such partnership, or
an individual who formerly performed substantial
services in connection with such activities and who
held an interest in such partnership at the time the
individual performed such services.
106
‘‘(2) EXCLUSION.—For purposes of this part,
the term ‘large partnership’ does not include any
partnership if substantially all the partners of such
partnership—
‘‘(A) are individuals performing substantial
services in connection with the activities of such
partnership or are personal service corporations
(as defined in section 269A(b)) the owner-em-
ployees (as defined in section 269A(b)) of which
perform such substantial services,
‘‘(B) are retired partners who had per-
formed such substantial services, or
‘‘(C) are spouses of partners who are per-
forming (or had previously performed) such
substantial services.
‘‘(3) SPECIAL RULE FOR LOWER TIER PART-
NERSHIPS.—For purposes of this subsection, the ac-
tivities of a partnership shall include the activities of
any other partnership in which the partnership owns
directly an interest in the capital and profits of at
least 80 percent.
‘‘(c) EXCLUSION OF COMMODITY POOLS.—For pur-
poses of this part, the term ‘large partnership’ does not
include any partnership the principal activity of which is
the buying and selling of commodities (not described in
107
section 1221(1)), or options, futures, or forwards with re-
spect to such commodities.
‘‘(d) SECRETARY MAY RELY ON TREATMENT ON RE-
TURN.—If, on the partnership return of any partnership,
such partnership is treated as a large partnership, such
treatment shall be binding on such partnership and all
partners of such partnership but not on the Secretary.
‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING
OIL AND GAS PROPERTIES.
‘‘(a) EXCEPTION FOR PARTNERSHIPS HOLDING SIG-
NIFICANT OIL AND GAS PROPERTIES.—
‘‘(1) IN GENERAL.—For purposes of this part,
the term ‘large partnership’ shall not include any
partnership if the average percentage of assets (by
value) held by such partnership during the taxable
year which are oil or gas properties is at least 25
percent. For purposes of the preceding sentence, any
interest held by a partnership in another partnership
shall be disregarded, except that the partnership
shall be treated as holding its proportionate share of
the assets of such other partnership.
‘‘(2) ELECTION
TO
WAIVE
EXCEPTION.—Any
partnership may elect to have paragraph (1) not
apply. Such an election shall apply to the partner-
ship taxable year for which made and all subsequent
108
partnership taxable years unless revoked with the
consent of the Secretary.
‘‘(b) SPECIAL RULES WHERE PART APPLIES.—
‘‘(1) COMPUTATION
OF
PERCENTAGE
DEPLE-
TION.—In the case of a large partnership, except as
provided in paragraph (2)—
‘‘(A) the allowance for depletion under sec-
tion 611 with respect to any partnership oil or
gas property shall be computed at the partner-
ship level without regard to any provision of
section 613A requiring such allowance to be
computed separately by each partner,
‘‘(B) such allowance shall be determined
without regard to the provisions of section
613A(c) limiting the amount of production for
which percentage depletion is allowable and
without regard to paragraph (1) of section
613A(d), and
‘‘(C) paragraph (3) of section 705(a) shall
not apply.
‘‘(2) TREATMENT OF CERTAIN PARTNERS.—
‘‘(A) IN GENERAL.—In the case of a dis-
qualified person, the treatment under this chap-
ter of such person’s distributive share of any
item of income, gain, loss, deduction, or credit
109
attributable to any partnership oil or gas prop-
erty shall be determined without regard to this
part. Such person’s distributive share of any
such items shall be excluded for purposes of
making determinations under sections 772 and
773.
‘‘(B) DISQUALIFIED
PERSON.—For pur-
poses of subparagraph (A), the term ‘disquali-
fied person’ means, with respect to any partner-
ship taxable year—
‘‘(i) any person referred to in para-
graph (2) or (4) of section 613A(d) for
such person’s taxable year in which such
partnership taxable year ends, and
‘‘(ii) any other person if such person’s
average daily production of domestic crude
oil and natural gas for such person’s tax-
able year in which such partnership tax-
able year ends exceeds 500 barrels.
‘‘(C) AVERAGE DAILY PRODUCTION.—For
purposes of subparagraph (B), a person’s aver-
age daily production of domestic crude oil and
natural gas for any taxable year shall be com-
puted as provided in section 613A(c)(2)—
110
‘‘(i) by taking into account all produc-
tion of domestic crude oil and natural gas
(including such person’s proportionate
share of any production of a partnership),
‘‘(ii) by treating 6,000 cubic feet of
natural gas as a barrel of crude oil, and
‘‘(iii) by treating as 1 person all per-
sons treated as 1 taxpayer under section
613A(c)(8) or among whom allocations 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 thereof the following new item:
‘‘Part IV. Special rules for large partnerships.’’
SEC. 302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE
PARTNERSHIPS.
(a) GENERAL RULE.—Chapter 63 is amended by
adding at the end thereof the following new subchapter:
‘‘Subchapter D—Treatment of Large
Partnerships
‘‘Part I. Treatment of partnership items and adjustments.
‘‘Part II. Partnership level adjustments.
‘‘Part III. Definitions and special rules.
111
‘‘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.
‘‘SEC. 6240. APPLICATION OF SUBCHAPTER.
‘‘(a) GENERAL RULE.—This subchapter shall only
apply to large partnerships and partners in such partner-
ships.
‘‘(b) COORDINATION WITH OTHER PARTNERSHIP
AUDIT PROCEDURES.—
‘‘(1) IN GENERAL.—Subchapter C of this chap-
ter shall not apply to any large partnership other
than in its capacity as a partner in another partner-
ship which is not a large partnership.
‘‘(2) TREATMENT WHERE PARTNER IN OTHER
PARTNERSHIP.—If a large partnership is a partner
in another partnership which is not a large partner-
ship—
‘‘(A) subchapter C of this chapter shall
apply to items of such large partnership which
are partnership items with respect to such other
partnership, but
‘‘(B) any adjustment under such sub-
chapter C shall be taken into account in the
manner provided by section 6242.
112
‘‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT
WITH PARTNERSHIP RETURN.
‘‘(a) GENERAL RULE.—A partner of any large part-
nership shall, on the partner’s return, treat each partner-
ship 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 cleri-
cal 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 para-
graph (2), subsections (a) and (b) shall apply with-
out regard to any adjustment 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
113
under section 704 in a partner’s distributive
share of the amount of any partnership 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 tax-
able 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 collec-
tion of any underpayment of tax attrib-
utable to an adjustment referred to in sub-
paragraph (A).
‘‘(ii) 
ADJUSTMENT
NOT
PRE-
CLUDED.—Notwithstanding 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 underpayment of tax (or the allow-
ance of any credit or refund of any over-
payment of tax) attributable to an adjust-
ment referred to in subparagraph (A) and
such assessment or collection or allowance
(or any notice thereof) shall not preclude
114
any notice, proceeding, or determination
under subchapter B.
‘‘(C) PERIOD OF LIMITATIONS.—The pe-
riod for—
‘‘(i) assessing any underpayment of
tax, or
‘‘(ii) filing a claim for credit or refund
of any overpayment 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 part-
ner referred to in subparagraph (A) is another
partnership or an S corporation, the rules of
this paragraph shall also apply to persons hold-
ing interests in such partnership or S corpora-
tion (as the case may be); except that, if such
partner is a large partnership, the adjustment
referred to in subparagraph (A) shall be taken
into account in the manner provided by section
6242.
115
‘‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY
WITH SECTION.—
‘‘For addition to tax in case of partner’s disregard
of requirements of this section, see part II of sub-
chapter A of chapter 68.
‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP AD-
JUSTMENTS INTO ACCOUNT.
‘‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS
FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT.—
‘‘(1) IN GENERAL.—If any partnership adjust-
ment with respect to any partnership item takes ef-
fect (within the meaning of subsection (d)(2)) during
any partnership taxable year and if an election
under paragraph (2) does not apply to such adjust-
ment, such adjustment shall be taken into account
in determining the amount of such item for the part-
nership taxable 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 adjust-
ment 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 para-
graph to not take an adjustment into account
under paragraph (1),