H. R. 2264—151
‘‘(II) 28 percent of so much of the taxable
excess as exceeds $175,000.
The amount determined under the preceding sentence
shall be reduced by the alternative minimum tax for-
eign tax credit for the taxable year.
‘‘(ii) TAXABLE EXCESS.—For purposes of clause (i),
the term ‘taxable excess’ means so much of the alter-
native minimum taxable income for the taxable year
as exceeds the exemption amount.
‘‘(iii) 
MARRIED
INDIVIDUAL
FILING
SEPARATE
RETURN.—In the case of a married individual filing
a separate return, clause (i) shall be applied by
substituting ‘$87,500’ for ‘$175,000’ each place it
appears. For purposes of the preceding sentence, mari-
tal status shall be determined under section 7703.
‘‘(B) CORPORATIONS.—In the case of a corporation, the
tentative minimum tax for the taxable year is—
‘‘(i) 20 percent of so much of the alternative mini-
mum taxable income for the taxable year as exceeds
the exemption amount, reduced by
‘‘(ii) the alternative minimum tax foreign tax credit
for the taxable year.’’
(b) INCREASE IN EXEMPTION AMOUNTS.—Paragraph (1) of section
55(d) (defining exemption amount) is amended—
(1) by striking ‘‘$40,000’’ in subparagraph (A) and inserting
‘‘$45,000’’,
(2) by striking ‘‘$30,000’’ in subparagraph (B) and inserting
‘‘$33,750’’, and
(3) by striking ‘‘$20,000’’ in subparagraph (C) and inserting
‘‘$22,500’’.
(c) CONFORMING AMENDMENTS.—
(1) The last sentence of section 55(d)(3) is amended by
striking ‘‘$155,000 or (ii) $20,000’’ and inserting ‘‘$165,000 or
(ii) $22,500’’.
(2)(A) Subparagraph (A) of section 897(a)(2) is amended
by striking ‘‘the amount determined under section 55(b)(1)(A)
shall not be less than 21 percent of’’ and inserting ‘‘the taxable
excess for purposes of section 55(b)(1)(A) shall not be less
than’’.
(B) The heading for paragraph (2) of section 897(a) is
amended by striking ‘‘21-PERCENT’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1992.
SEC. 13204. OVERALL LIMITATION ON ITEMIZED DEDUCTIONS FOR
HIGH-INCOME TAXPAYERS MADE PERMANENT.
Subsection (f) of section 68 (relating to overall limitation on
itemized deductions) is hereby repealed.
SEC. 13205. PHASEOUT OF PERSONAL EXEMPTION OF HIGH-INCOME
TAXPAYERS MADE PERMANENT.
Section 151(d)(3) (relating to phaseout of personal exemption)
is amended by striking subparagraph (E).
SEC. 13206. PROVISIONS TO PREVENT CONVERSION OF ORDINARY
INCOME TO CAPITAL GAIN.
(a) INTEREST EMBEDDED IN FINANCIAL TRANSACTIONS.—
H. R. 2264—152
(1) IN GENERAL.—Part IV of subchapter P of chapter 1
(relating to special rules for determining capital gains and
losses) is amended by adding at the end the following new
section:
‘‘SEC. 1258. RECHARACTERIZATION OF GAIN FROM CERTAIN FINAN-
CIAL TRANSACTIONS.
‘‘(a) GENERAL RULE.—In the case of any gain—
‘‘(1) which (but for this section) would be treated as gain
from the sale or exchange of a capital asset, and
‘‘(2) which is recognized on the disposition or other termi-
nation of any position which was held as part of a conversion
transaction,
such gain (to the extent such gain does not exceed the applicable
imputed income amount) shall be treated as ordinary income.
‘‘(b) APPLICABLE IMPUTED INCOME AMOUNT.—For purposes of
subsection (a), the term ‘applicable imputed income amount’ means,
with respect to any disposition or other termination referred to
in subsection (a), an amount equal to—
‘‘(1) the amount of interest which would have accrued on
the taxpayer’s net investment in the conversion transaction
for the period ending on the date of such disposition or other
termination (or, if earlier, the date on which the requirements
of subsection (c) ceased to be satisfied) at a rate equal to
120 percent of the applicable rate, reduced by
‘‘(2) the amount treated as ordinary income under sub-
section (a) with respect to any prior disposition or other termi-
nation of a position which was held as a part of such
transaction.
The Secretary shall by regulations provide for such reductions in
the applicable imputed income amount as may be appropriate by
reason of amounts capitalized under section 263(g), ordinary income
received, or otherwise.
‘‘(c) CONVERSION TRANSACTION.—For purposes of this section,
the term ‘conversion transaction’ means any transaction—
‘‘(1) substantially all of the taxpayer’s expected return from
which is attributable to the time value of the taxpayer’s net
investment in such transaction, and
‘‘(2) which is—
‘‘(A) the holding of any property (whether or not
actively traded), and the entering into a contract to sell
such property (or substantially identical property) at a
price determined in accordance with such contract, but
only if such property was acquired and such contract was
entered into on a substantially contemporaneous basis,
‘‘(B) an applicable straddle,
‘‘(C) any other transaction which is marketed or sold
as producing capital gains from a transaction described
in paragraph (1), or
‘‘(D) any other transaction specified in regulations pre-
scribed by the Secretary.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) APPLICABLE STRADDLE.—The term ‘applicable straddle’
means any straddle (within the meaning of section 1092(c));
except that the term ‘personal property’ shall include stock.
‘‘(2) APPLICABLE RATE.—The term ‘applicable rate’ means—
H. R. 2264—153
‘‘(A) the applicable Federal rate determined under
section 1274(d) (compounded semiannually) as if the
conversion transaction were a debt instrument, or
‘‘(B) if the term of the conversion transaction is indefi-
nite, the Federal short-term rates in effect under section
6621(b) during the period of the conversion transaction
(compounded daily).
‘‘(3) TREATMENT OF BUILT-IN LOSSES.—
‘‘(A) IN GENERAL.—If any position with a built-in loss
becomes part of a conversion transaction—
‘‘(i) for purposes of applying this subtitle to such
position for periods after such position becomes part
of such transaction, such position shall be taken into
account at its fair market value as of the time it
became part of such transaction, except that
‘‘(ii) upon the disposition or other termination of
such position in a transaction in which gain or loss
is recognized, such built-in loss shall be recognized
and shall have a character determined without regard
to this section.
‘‘(B) BUILT-IN LOSS.—For purposes of subparagraph (A),
the term ‘built-in loss’ means the loss (if any) which would
have been realized if the position had been disposed of
or otherwise terminated at its fair market value as of
the time such position became part of the conversion trans-
action.
‘‘(4) POSITION
TAKEN
INTO
ACCOUNT
AT
FAIR
MARKET
VALUE.—In determining the taxpayer’s net investment in any
conversion transaction, there shall be included the fair market
value of any position which becomes part of such transaction
(determined as of the time such position became part of such
transaction).
‘‘(5) SPECIAL RULE FOR OPTIONS DEALERS AND COMMODITIES
TRADERS.—
‘‘(A) IN GENERAL.—Subsection (a) shall not apply to
transactions —
‘‘(i) of an options dealer in the normal course of
the dealer’s trade or business of dealing in options,
or
‘‘(ii) of a commodities trader in the normal course
of the trader’s trade or business of trading section
1256 contracts.
‘‘(B) DEFINITIONS.—For purposes of this paragraph—
‘‘(i) OPTIONS DEALER.—The term ‘options dealer’
has the meaning given such term by section 1256(g)(8).
‘‘(ii) COMMODITIES TRADER.— The term ‘commod-
ities trader’ means any person who is a member (or,
except as otherwise provided in regulations, is entitled
to trade as a member) of a domestic board of trade
which is designated as a contract market by the
Commodity Futures Trading Commission.
‘‘(C) 
LIMITED
PARTNERS
AND
LIMITED
ENTRE-
PRENEURS.—In the case of any gain from a transaction
recognized by an entity which is allocable to a limited
partner or limited entrepreneur (within the meaning of
section 464(e)(2)), subparagraph (A) shall not apply if—
H. R. 2264—154
‘‘(i) substantially all of the limited partner’s (or
limited entrepreneur’s) expected return from the entity
is attributable to the time value of the partner’s (or
entrepreneur’s) net investment in such entity,
‘‘(ii) the transaction (or the interest in the entity)
was marketed or sold as producing capital gains treat-
ment from a transaction described in subsection (c)(1),
or
‘‘(iii) the transaction (or the interest in the entity)
is a transaction (or interest) specified in regulations
prescribed by the Secretary.’’
(2) CLERICAL AMENDMENT.—The table of sections for part
IV of subchapter P of chapter 1 is amended by adding at
the end thereof the following new item:
‘‘Sec. 1258. Recharacterization of gain from certain financial transactions.’’
(3) EFFECTIVE DATE.—The amendments made by this sec-
tion shall apply to conversion transactions entered into after
April 30, 1993.
(b) REPEAL
OF CERTAIN EXCEPTIONS
TO MARKET DISCOUNT
RULES.—
(1) MARKET DISCOUNT BONDS ISSUED ON OR BEFORE JULY
18, 1984.—The following provisions are hereby repealed:
(A) Section 1276(e).
(B) Section 1277(d).
(2) TAX-EXEMPT OBLIGATIONS.—
(A) IN
GENERAL.—Paragraph (1) of section 1278(a)
(defining market discount bond) is amended—
(i) by striking clause (ii) of subparagraph (B) and
redesignating clauses (iii) and (iv) of such subpara-
graph as clauses (ii) and (iii), respectively,
(ii) by redesignating subparagraph (C) as subpara-
graph (D), and
(iii) by inserting after subparagraph (B) the follow-
ing new subparagraph:
‘‘(C) SECTION
1277
NOT
APPLICABLE
TO
TAX-EXEMPT
OBLIGATIONS.—For purposes of section 1277, the term ‘mar-
ket discount bond’ shall not include any tax-exempt obliga-
tion (as defined in section 1275(a)(3)).’’
(B) CONFORMING AMENDMENTS.—
(i) Sections 1276(a)(4) and 1278(b)(1) are each
amended by striking ‘‘sections 871(a)’’ and inserting
‘‘sections 103, 871(a),’’.
(ii) Subparagraph (B) of section 1278(a)(4) is
amended by inserting before the period at the end
thereof the following: ‘‘or, in the case of a tax-exempt
obligation, the aggregate amount of the original issue
discount which accrued in the manner provided by
section 1272(a) (determined without regard to para-
graph (7) thereof) during periods before the acquisition
of the bond by the taxpayer’’.
(3) EFFECTIVE DATE.—The amendments made by this sec-
tion shall apply to obligations purchased (within the meaning
of section 1272(d)(1) of the Internal Revenue Code of 1986)
after April 30, 1993.
(c) TREATMENT OF STRIPPED PREFERRED STOCK.—
H. R. 2264—155
(1) IN GENERAL.—Section 305 is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection
(d) the following new subsection:
‘‘(e) TREATMENT
OF
PURCHASER
OF
STRIPPED
PREFERRED
STOCK.—
‘‘(1) IN GENERAL.—If any person purchases after April 30,
1993, any stripped preferred stock, then such person, while
holding such stock, shall include in gross income amounts equal
to the amounts which would have been so includible if such
stripped preferred stock were a bond issued on the purchase
date and having original issue discount equal to the excess,
if any, of—
‘‘(A) the redemption price for such stock, over
‘‘(B) the price at which such person purchased such
stock.
The preceding sentence shall also apply in the case of any
person whose basis in such stock is determined by reference
to the basis in the hands of such purchaser.
‘‘(2) BASIS
ADJUSTMENTS.—Appropriate adjustments to
basis shall be made for amounts includible in gross income
under paragraph (1).
‘‘(3) TAX TREATMENT OF PERSON STRIPPING STOCK.—If any
person strips the rights to 1 or more dividends from any stock
described in paragraph (5)(B) and after April 30, 1993, disposes
of such dividend rights, for purposes of paragraph (1), such
person shall be treated as having purchased the stripped pre-
ferred stock on the date of such disposition for a purchase
price equal to such person’s adjusted basis in such stripped
preferred stock.
‘‘(4) AMOUNTS TREATED AS ORDINARY INCOME.—Any amount
included in gross income under paragraph (1) shall be treated
as ordinary income.
‘‘(5) STRIPPED
PREFERRED
STOCK.—For purposes of this
subsection—
‘‘(A) IN GENERAL.—The term ‘stripped preferred stock’
means any stock described in subparagraph (B) if there
has been a separation in ownership between such stock
and any dividend on such stock which has not become
payable.
‘‘(B) DESCRIPTION OF STOCK.—Stock is described in this
subsection if such stock—
‘‘(i) is limited and preferred as to dividends and
does not participate in corporate growth to any signifi-
cant extent, and
‘‘(ii) has a fixed redemption price.
‘‘(6) PURCHASE.—For purposes of this subsection, the term
‘purchase’ means—
‘‘(A) any acquisition of stock, where
‘‘(B) the basis of such stock is not determined in whole
or in part by the reference to the adjusted basis of such
stock in the hands of the person from whom acquired.’’
(2) COORDINATION WITH SECTION 167(e).—Paragraph (2) of
section 167(e) is amended to read as follows:
‘‘(2) COORDINATION WITH OTHER PROVISIONS.—
‘‘(A) SECTION 273.—This subsection shall not apply to
any term interest to which section 273 applies.
H. R. 2264—156
‘‘(B) SECTION 305(e).—This subsection shall not apply
to the holder of the dividend rights which were separated
from any stripped preferred stock to which section 305(e)(1)
applies.’’
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall take effect on April 30, 1993.
(d) TREATMENT OF CAPITAL GAIN UNDER LIMITATION ON INVEST-
MENT INTEREST.—
(1) IN
GENERAL.—Subparagraph (B) of section 163(d)(4)
(defining investment income) is amended to read as follows:
‘‘(B) INVESTMENT
INCOME.—The term ‘investment
income’ means the sum of—
‘‘(i) gross income from property held for investment
(other than any gain taken into account under clause
(ii)(I)),
‘‘(ii) the excess (if any) of—
‘‘(I) the net gain attributable to the disposition
of property held for investment, over
‘‘(II) the net capital gain determined by only
taking into account gains and losses from disposi-
tions of property held for investment, plus
‘‘(iii) so much of the net capital gain referred to
in clause (ii)(II) (or, if lesser, the net gain referred
to in clause (ii)(I)) as the taxpayer elects to take into
account under this clause.’’
(2) COORDINATION
WITH
SPECIAL
CAPITAL
GAINS
RATE.—
Subsection (h) of section 1 is amended by adding at the end
the following new sentence:
‘‘For purposes of the preceding sentence, the net capital gain for
any taxable year shall be reduced (but not below zero) by the
amount which the taxpayer elects to take into account as investment
income for the taxable year under section 163(d)(4)(B)(iii).’’
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to taxable years beginning after December
31, 1992.
(e) TREATMENT OF CERTAIN APPRECIATED INVENTORY.—
(1) IN
GENERAL.—Paragraph (1) of section 751(d) is
amended to read as follows:
‘‘(1) SUBSTANTIAL APPRECIATION.—
‘‘(A) IN GENERAL.—Inventory items of the partnership
shall be considered to have appreciated substantially in
value if their fair market value exceeds 120 percent of
the adjusted basis to the partnership of such property.
‘‘(B) CERTAIN PROPERTY EXCLUDED.—For purposes of
subparagraph (A), there shall be excluded any inventory
property if a principal purpose for acquiring such property
was to avoid the provisions of this section relating to inven-
tory items.’’
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to sales, exchanges, and distributions after April
30, 1993.
Subpart B—Other Provisions
SEC. 13207. REPEAL OF LIMITATION ON AMOUNT OF WAGES SUBJECT
TO HEALTH INSURANCE EMPLOYMENT TAX.
(a) HOSPITAL INSURANCE TAX.—
H. R. 2264—157
(1) Paragraph (1) of section 3121(a) (defining wages) is
amended—
(A) by inserting ‘‘in the case of the taxes imposed
by sections 3101(a) and 3111(a)’’ after ‘‘(1)’’,
(B) by striking ‘‘applicable contribution base (as deter-
mined under subsection (x))’’ each place it appears and
inserting ‘‘contribution and benefit base (as determined
under section 230 of the Social Security Act)’’, and
(C) by striking ‘‘such applicable contribution base’’ and
inserting ‘‘such contribution and benefit base’’.
(2) Section 3121 is amended by striking subsection (x).
(b) SELF-EMPLOYMENT TAX.—
(1) Subsection (b) of section 1402 is amended—
(A) by striking ‘‘that part of the net’’ in paragraph
(1) and inserting ‘‘in the case of the tax imposed by section
1401(a), that part of the net’’,
(B) by striking ‘‘applicable contribution base (as deter-
mined under subsection (k))’’ in paragraph (1) and inserting
‘‘contribution and benefit base (as determined under section
230 of the Social Security Act)’’,
(C) by inserting ‘‘and’’ after ‘‘section 3121(b),’’, and
(D) by striking ‘‘and (C) includes’’ and all that follows
through ‘‘3111(b)’’.
(2) Section 1402 is amended by striking subsection (k).
(c) RAILROAD RETIREMENT TAX.—
(1) Subparagraph (A) of section 3231(e)(2) is amended by
adding at the end thereof the following new clause:
‘‘(iii) HOSPITAL INSURANCE TAXES.—Clause (i) shall
not apply to—
‘‘(I) so much of the rate applicable under sec-
tion 3201(a) or 3221(a) as does not exceed the
rate of tax in effect under section 3101(b), and
‘‘(II) so much of the rate applicable under sec-
tion 3211(a)(1) as does not exceed the rate of tax
in effect under section 1401(b).’’
(2) Clause (i) of section 3231(e)(2)(B) is amended to read
as follows:
‘‘(i) TIER 1 TAXES.—Except as provided in clause
(ii), the term ‘applicable base’ means for any calendar
year the contribution and benefit base determined
under section 230 of the Social Security Act for such
calendar year.’’
(d) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 6413(c) is amended by striking
‘‘section 3101 or section 3201’’ and inserting ‘‘section 3101(a)
or section 3201(a) (to the extent of so much of the rate
applicable under section 3201(a) as does not exceed the rate
of tax in effect under section 3101(a))’’.
(2) Subparagraphs (B) and (C) of section 6413(c)(2) are
each amended by striking ‘‘section 3101’’ each place it appears
and inserting ‘‘section 3101(a)’’.
(3) Subsection (c) of section 6413 is amended by striking
paragraph (3).
(4) Sections 3122 and 3125 are each amended by striking
‘‘applicable contribution base limitation’’ and inserting ‘‘con-
tribution and benefit base limitation’’.
H. R. 2264—158
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to 1994 and later calendar years.
SEC. 13208. TOP ESTATE AND GIFT TAX RATES MADE PERMANENT.
(a) GENERAL RULE.—The table contained in paragraph (1) of
section 2001(c) is amended by striking the last item and inserting
the following new items:
‘‘Over 
$2,500,000 
but 
not 
over
$3,000,000.
$1,025,800, plus 53% of the excess over
$2,500,000.
Over $3,000,000 .................................
$1,290,800, plus 55% of the excess over
$3,000,000.’’
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 2001 is amended by striking
paragraph (2) and by redesignating paragraph (3) as paragraph
(2).
(2) Paragraph (2) of section 2001(c), as redesignated by
paragraph (1), is amended by striking ‘‘($18,340,000 in the
case of decedents dying, and gifts made, after 1992)’’.
(3) The last sentence of section 2101(b) is amended by
striking ‘‘section 2001(c)(3)’’ and inserting ‘‘section 2001(c)(2)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply in the case of decedents dying and gifts made after
December 31, 1992.
SEC. 13209. REDUCTION IN DEDUCTIBLE PORTION OF BUSINESS
MEALS AND ENTERTAINMENT.
(a) GENERAL RULE.—Paragraph (1) of section 274(n) (relating
to only 80 percent of meal and entertainment expenses allowed
as deduction) is amended by striking ‘‘80 percent’’ and inserting
‘‘50 percent’’.
(b) CONFORMING AMENDMENT.—The subsection heading for sec-
tion 274(n) is amended by striking ‘‘80’’ and inserting ‘‘50’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1993.
SEC. 13210. ELIMINATION OF DEDUCTION FOR CLUB MEMBERSHIP
FEES.
(a) IN GENERAL.—Subsection (a) of section 274 (relating to
disallowance of certain entertainment, etc., expenses) is amended
by adding at the end thereof the following new paragraph:
‘‘(3) DENIAL OF DEDUCTION FOR CLUB DUES.—Notwithstand-
ing the preceding provisions of this subsection, no deduction
shall be allowed under this chapter for amounts paid or
incurred for membership in any club organized for business,
pleasure, recreation, or other social purpose.’’
(b) EXCEPTION FOR EMPLOYEE RECREATIONAL EXPENSES NOT
TO APPLY.—Paragraph (4) of section 274(e) is amended by adding
at the end thereof the following: ‘‘This paragraph shall not apply
for purposes of subsection (a)(3).’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or incurred after December 31, 1993.
SEC. 13211. DISALLOWANCE OF DEDUCTION FOR CERTAIN EMPLOYEE
REMUNERATION IN EXCESS OF $1,000,000.
(a) GENERAL RULE.—Section 162 (relating to trade or business
expenses) is amended by redesignating subsection (m) as subsection
(n) and by inserting after subsection (l) the following new sub-
section:
H. R. 2264—159
‘‘(m) CERTAIN EXCESSIVE EMPLOYEE REMUNERATION.—
‘‘(1) IN GENERAL.—In the case of any publicly held corpora-
tion, no deduction shall be allowed under this chapter for
applicable employee remuneration with respect to any covered
employee to the extent that the amount of such remuneration
for the taxable year with respect to such employee exceeds
$1,000,000.
‘‘(2) PUBLICLY HELD CORPORATION.—For purposes of this
subsection, the term ‘publicly held corporation’ means any cor-
poration issuing any class of common equity securities required
to be registered under section 12 of the Securities Exchange
Act of 1934.
‘‘(3) COVERED EMPLOYEE.—For purposes of this subsection,
the term ‘covered employee’ means any employee of the tax-
payer if—
‘‘(A) as of the close of the taxable year, such employee
is the chief executive officer of the taxpayer or is an individ-
ual acting in such a capacity, or
‘‘(B) the total compensation of such employee for the
taxable year is required to be reported to shareholders
under the Securities Exchange Act of 1934 by reason of
such employee being among the 4 highest compensated
officers for the taxable year (other than the chief executive
officer).
‘‘(4) APPLICABLE EMPLOYEE REMUNERATION.—For purposes
of this subsection—
‘‘(A) IN
GENERAL.—Except as otherwise provided in
this paragraph, the term ‘applicable employee remunera-
tion’ means, with respect to any covered employee for any
taxable year, the aggregate amount allowable as a deduc-
tion under this chapter for such taxable year (determined
without regard to this subsection) for remuneration for
services performed by such employee (whether or not dur-
ing the taxable year).
‘‘(B) EXCEPTION
FOR
REMUNERATION
PAYABLE
ON
COMMISSION BASIS.—The term ‘applicable employee remu-
neration’ shall not include any remuneration payable on
a commission basis solely on account of income generated
directly by the individual performance of the individual
to whom such remuneration is payable.
‘‘(C) OTHER PERFORMANCE-BASED COMPENSATION.—The
term ‘applicable employee remuneration’ shall not include
any remuneration payable solely on account of the attain-
ment of one or more performance goals, but only if—
‘‘(i) the performance goals are determined by a
compensation committee of the board of directors of
the taxpayer which is comprised solely of 2 or more
outside directors,
‘‘(ii) the material terms under which the remunera-
tion is to be paid, including the performance goals,
are disclosed to shareholders and approved by a major-
ity of the vote in a separate shareholder vote before
the payment of such remuneration, and
‘‘(iii) before any payment of such remuneration,
the compensation committee referred to in clause (i)
certifies that the performance goals and any other
material terms were in fact satisfied.
H. R. 2264—160
‘‘(D) EXCEPTION FOR EXISTING BINDING CONTRACTS.—
The term ‘applicable employee remuneration’ shall not
include any remuneration payable under a written binding
contract which was in effect on February 17, 1993, and
which was not modified thereafter in any material respect
before such remuneration is paid.
‘‘(E) REMUNERATION.—For purposes of this paragraph,
the term ‘remuneration’ includes any remuneration (includ-
ing benefits) in any medium other than cash, but shall
not include—
‘‘(i) any payment referred to in so much of section
3121(a)(5) as precedes subparagraph (E) thereof, and
‘‘(ii) any benefit provided to or on behalf of an
employee if at the time such benefit is provided it
is reasonable to believe that the employee will be able
to exclude such benefit from gross income under this
chapter.
For purposes of clause (i), section 3121(a)(5) shall be applied
without regard to section 3121(v)(1).
‘‘(F) COORDINATION WITH DISALLOWED GOLDEN PARA-
CHUTE PAYMENTS.—The dollar limitation contained in para-
graph (1) shall be reduced (but not below zero) by the
amount (if any) which would have been included in the
applicable employee remuneration of the covered employee
for the taxable year but for being disallowed under section
280G.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to amounts which would otherwise be deductible for
taxable years beginning on or after January 1, 1994.
SEC. 13212. REDUCTION IN COMPENSATION TAKEN INTO ACCOUNT IN
DETERMINING CONTRIBUTIONS AND BENEFITS UNDER
QUALIFIED RETIREMENT PLANS.
(a) QUALIFICATION REQUIREMENT.—
(1) IN GENERAL.—Section 401(a)(17) is amended—
(A) by striking ‘‘$200,000’’ in the first sentence and
inserting ‘‘$150,000’’,
(B) by striking the second sentence, and
(C) by adding at the end the following new subpara-
graph:
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—If, for any calendar year after
1994, the excess (if any) of—
‘‘(I) $150,000, increased by the cost-of-living
adjustment for the calendar year, over
‘‘(II) the dollar amount in effect under
subparagraph (A) for taxable years beginning in
the calendar year,
is equal to or greater than $10,000, then the $150,000
amount 
under 
subparagraph 
(A) 
(as 
previously
adjusted under this subparagraph) for any taxable year
beginning in any subsequent calendar year shall be
increased by the amount of such excess, rounded to
the next lowest multiple of $10,000.
‘‘(ii) COST-OF-LIVING ADJUSTMENT.—The cost-of-liv-
ing adjustment for any calendar year shall be the
adjustment made under section 415(d) for such cal-
H. R. 2264—161
endar year, except that the base period for purposes
of section 415(d)(1)(A) shall be the calendar quarter
beginning October 1, 1993.’’
(2) 
CONFORMING
AMENDMENT.—Section 
401(a)(17) 
is
amended by striking ‘‘(17) A trust’’ and inserting:
‘‘(17) COMPENSATION LIMIT.—
‘‘(A) IN GENERAL.—A trust’’.
(b) SIMPLIFIED EMPLOYEE PENSIONS.—
(1) IN GENERAL.—Paragraphs (3)(C) and (6)(D)(ii) of section
408(k) are each amended by striking ‘‘$200,000’’ and inserting
‘‘$150,000’’.
(2) COST-OF-LIVING.—Paragraph (8) of section 408(k) is
amended to read as follows:
‘‘(8) COST-OF-LIVING
ADJUSTMENT.—The Secretary shall
adjust the $300 amount in paragraph (2)(C) at the same time
and in the same manner as under section 415(d) and shall
adjust the $150,000 amount in paragraphs (3)(C) and (6)(D)(ii)
at the same time, and by the same amount, as any adjustment
under section 401(a)(17)(B).’’
(c) OTHER RELATED PROVISIONS.—
(1) IN GENERAL.—Sections 404(l) and 505(b)(7) are each
amended—
(A) by striking ‘‘$200,000’’ in the first sentence and
inserting ‘‘$150,000’’, and
(B) by striking the second sentence and inserting ‘‘The
Secretary shall adjust the $150,000 amount at the same
time, and by the same amount, as any adjustment under
section 401(a)(17)(B).’’
(2) CONFORMING
AMENDMENT.—The heading for section
505(b)(7) is amended by striking ‘‘$200,000’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in this subsection,
the amendments made by this section shall apply to benefits
accruing in plan years beginning after December 31, 1993.
(2) COLLECTIVELY BARGAINED PLANS.—In the case of a plan
maintained pursuant to 1 or more collective bargaining agree-
ments between employee representatives and 1 or more employ-
ers ratified before the date of the enactment of this Act, the
amendments made by this section shall not apply to contribu-
tions or benefits pursuant to such agreements for plan years
beginning before the earlier of—
(A) the latest of—
(i) January 1, 1994,
(ii) the date on which the last of such collective
bargaining agreements terminates (without regard to
any extension, amendment, or modification of such
agreements on or after such date of enactment), or
(iii) in the case of a plan maintained pursuant
to collective bargaining under the Railway Labor Act,
the date of execution of an extension or replacement
of the last of such collective bargaining agreements
in effect on such date of enactment, or
(B) January 1, 1997.
(3) TRANSITION RULE FOR STATE AND LOCAL PLANS.—
(A) IN GENERAL.—In the case of an eligible participant
in a governmental plan (within the meaning of section
414(d) of the Internal Revenue Code of 1986), the dollar
H. R. 2264—162
limitation under section 401(a)(17) of such Code shall not
apply to the extent the amount of compensation which
is allowed to be taken into account under the plan would
be reduced below the amount which was allowed to be
taken into account under the plan as in effect on July
1, 1993.
(B) ELIGIBLE PARTICIPANT.—For purposes of subpara-
graph (A), an eligible participant is an individual who
first became a participant in the plan during a plan year
beginning before the 1st plan year beginning after the
earlier of—
(i) the plan year in which the plan is amended
to reflect the amendments made by this section, or
(ii) December 31, 1995.
(C) PLAN MUST BE AMENDED TO INCORPORATE LIMITS.—
This paragraph shall not apply to any eligible participant
of a plan unless the plan is amended so that the plan
incorporates by reference the dollar limitation under section
401(a)(17) of the Internal Revenue Code of 1986, effective
with respect to noneligible participants for plan years
beginning after December 31, 1995 (or earlier if the plan
amendment so provides).
SEC. 13213. MODIFICATIONS TO DEDUCTION FOR MOVING EXPENSES.
(a) DEFINITION OF DEDUCTIBLE EXPENSES.—
(1) IN GENERAL.—Subsection (b) of section 217 (defining
moving expenses) is amended to read as follows:
‘‘(b) DEFINITION OF MOVING EXPENSES.—
‘‘(1) IN GENERAL.—For purposes of this section, the term
‘moving expenses’ means only the reasonable expenses—
‘‘(A) of moving household goods and personal effects
from the former residence to the new residence, and
‘‘(B) of traveling (including lodging) from the former
residence to the new place of residence.
Such term shall not include any expenses for meals.
‘‘(2) INDIVIDUALS OTHER THAN TAXPAYER.—In the case of
any individual other than the taxpayer, expenses referred to
in paragraph (1) shall be taken into account only if such individ-
ual has both the former residence and the new residence as
his principal place of abode and is a member of the taxpayer’s
household.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 217 is amended by striking subsection (e).
(B) Subsection (f) of section 217 is amended to read
as follows:
‘‘(f) SELF-EMPLOYED INDIVIDUAL.—For purposes of this section,
the term ‘self-employed individual’ means an individual who per-
forms personal services—
‘‘(1) as the owner of the entire interest in an unincorporated
trade or business, or
‘‘(2) as a partner in a partnership carrying on a trade
or business.’’
(C) Paragraph (3) of section 217(g) is amended by
inserting ‘‘and’’ at the end of subparagraph (A), by striking
subparagraph (B), and by redesignating subparagraph (C)
as subparagraph (B).
H. R. 2264—163
(D) Subsection (h) of section 217 is amended by striking
paragraph (1) and redesignating the following paragraphs
accordingly.
(E) Section 1001 is amended by striking subsection
(f).
(F) Subsection (e) of section 1016 is amended to read
as follows:
‘‘(e) CROSS REFERENCE.—
‘‘For treatment of separate mineral interests as one property, see
section 614.’’
(b) INCREASE IN MILEAGE REQUIREMENT.—Paragraph (1) of sec-
tion 217(c) is amended by striking ‘‘35 miles’’ each place it appears
and inserting ‘‘50 miles’’.
(c) DEDUCTION
ALLOWED
IN
COMPUTING
ADJUSTED
GROSS
INCOME.—
(1) IN
GENERAL.—Subsection (a) of section 62 (defining
adjusted gross income) is amended by inserting after paragraph
(14) the following new paragraph:
‘‘(15) MOVING EXPENSES.—The deduction allowed by section
217.’’
(2) CONFORMING
AMENDMENT.—Subsection (b) of section
67 is amended by striking paragraph (6) and redesignating
the following paragraphs accordingly.
(d) EXCLUSION OF EMPLOYER REIMBURSEMENT FOR DEDUCTIBLE
EXPENSES.—
(1) IN GENERAL.—Subsection (a) of section 132 (relating
to certain fringe benefits) is amended by striking ‘‘or’’ at the
end of paragraph (4), by striking the period at the end of
paragraph (5) and inserting ‘‘, or’’, and by adding at the end
thereof the following new paragraph:
‘‘(6) qualified moving expense reimbursement.’’
(2) 
QUALIFIED
MOVING
EXPENSE
REIMBURSEMENT
DEFINED.—Section 132 is amended by redesignating subsections
(g), (h), (i), (j), (k), and (l), as subsections (h), (i), (j), (k),
(l), and (m), respectively, and by inserting after subsection
(f) the following new subsection:
‘‘(g) QUALIFIED MOVING EXPENSE REIMBURSEMENT.—For pur-
poses of this section, the term ‘qualified moving expense reimburse-
ment’ means any amount received (directly or indirectly) by an
individual from an employer as a payment for (or a reimbursement
of) expenses which would be deductible as moving expenses under
section 217 if directly paid or incurred by the individual. Such
term shall not include any payment for (or reimbursement of)
an expense actually deducted by the individual in a prior taxable
year.’’
(3) CONFORMING AMENDMENTS.—
(A) Section 82 is amended by striking ‘‘There shall’’
and inserting ‘‘Except as provided in section 132(a)(6), there
shall’’.
(B) Subsection (j) of section 132 (as redesignated by
paragraph (2)) is amended by striking ‘‘subsection (f)’’ in
paragraph (4)(B)(iii) thereof and inserting ‘‘subsection (h)’’.
(C) Subsection (l) of section 132 (as redesignated by
paragraph (2)) is amended by striking ‘‘subsection (e)’’ and
inserting ‘‘subsections (e) and (g)’’.
(D) Section 4977(c) is amended by striking ‘‘section
132(g)(2)’’ and inserting ‘‘section 132(i)(2)’’.
H. R. 2264—164
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to expenses incurred after December 31, 1993; except
that the amendments made by subsection (d) shall apply to
reimbursements or other payments in respect of expenses incurred
after such date.
SEC. 13214. SIMPLIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE
HARBOR BASED ON LAST YEAR’S TAX.
(a) IN GENERAL.—Paragraph (1) of section 6654(d) (relating
to amount of required estimated tax installments) is amended by
striking subparagraphs (C), (D), (E), and (F) and by inserting the
following new subparagraph:
‘‘(C) LIMITATION ON USE OF PRECEDING YEAR’S TAX.—
‘‘(i) IN
GENERAL.—If the adjusted gross income
shown on the return of the individual for the preceding
taxable year exceeds $150,000, clause (ii) of subpara-
graph (B) shall be applied by substituting ‘110 percent’
for ‘100 percent’.
‘‘(ii) SEPARATE RETURNS.—In the case of a married
individual (within the meaning of section 7703) who
files a separate return for the taxable year for which
the amount of the installment is being determined,
clause (i) shall be applied by substituting ‘$75,000’
for ‘$150,000’.
‘‘(iii) SPECIAL RULE.—In the case of an estate or
trust, adjusted gross income shall be determined as
provided in section 67(e).’’
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 6654(j)(3) is amended by
striking ‘‘and subsection (d)(1)(C)(iii) shall not apply’’.
(2) Paragraph (4) of section 6654(l) is amended by striking
‘‘paragraphs (1)(C)(iv) and (2)(B)(i) of subsection (d)’’ and insert-
ing ‘‘subsection (d)(2)(B)(i)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1993.
SEC. 13215. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT
BENEFITS.
(a) ADDITIONAL INCLUSION FOR CERTAIN TAXPAYERS.—
(1) IN GENERAL.—Subsection (a) of section 86 (relating to
social security and tier 1 railroad retirement benefits) is
amended by adding at the end the following new paragraph:
‘‘(2) ADDITIONAL AMOUNT.—In the case of a taxpayer with
respect to whom the amount determined under subsection
(b)(1)(A) exceeds the adjusted base amount, the amount
included in gross income under this section shall be equal
to the lesser of—
‘‘(A) the sum of—
‘‘(i) 85 percent of such excess, plus
‘‘(ii) the lesser of the amount determined under
paragraph (1) or an amount equal to one-half of the
difference between the adjusted base amount and the
base amount of the taxpayer, or
‘‘(B) 85 percent of the social security benefits received
during the taxable year.’’
(2) CONFORMING AMENDMENTS.—Subsection (a) of section
86 is amended—
(A) by striking ‘‘Gross’’ and inserting:
H. R. 2264—165
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
gross’’, and
(B) by redesignating paragraphs (1) and (2) as subpara-
graphs (A) and (B), respectively.
(b) ADJUSTED BASE AMOUNT.—Section 86(c) (defining base
amount) is amended to read as follows:
‘‘(c) BASE AMOUNT AND ADJUSTED BASE AMOUNT.—For purposes
of this section—
‘‘(1) BASE AMOUNT.—The term ‘base amount’ means—
‘‘(A) except as otherwise provided in this paragraph,
$25,000,
‘‘(B) $32,000 in the case of a joint return, and
‘‘(C) zero in the case of a taxpayer who—
‘‘(i) is married as of the close of the taxable year
(within the meaning of section 7703) but does not
file a joint return for such year, and
‘‘(ii) does not live apart from his spouse at all
times during the taxable year.
‘‘(2) ADJUSTED
BASE
AMOUNT.—The term ‘adjusted base
amount’ means—
‘‘(A) except as otherwise provided in this paragraph,
$34,000,
‘‘(B) $44,000 in the case of a joint return, and
‘‘(C) zero in the case of a taxpayer described in para-
graph (1)(C).’’
(c) TRANSFERS TO THE HOSPITAL INSURANCE TRUST FUND.—
(1) IN GENERAL.—Paragraph (1) of section 121(e) of the
Social Security Amendments of 1983 (Public Law 92–21) is
amended by—
(A) striking ‘‘There’’ and inserting:
‘‘(A) There’’;
(B) inserting ‘‘(i)’’ immediately following ‘‘amounts
equivalent to’’; and
(C) striking the period and inserting the following:
‘‘, less (ii) the amounts equivalent to the aggregate increase
in tax liabilities under chapter 1 of the Internal Revenue
Code of 1986 which is attributable to the amendments
to section 86 of such Code made by section 13215 of the
Revenue Reconciliation Act of 1993.
‘‘(B) There are hereby appropriated to the hospital
insurance trust fund amounts equal to the increase in
tax liabilities described in subparagraph (A)(ii). Such appro-
priated amounts shall be transferred from the general fund
of the Treasury on the basis of estimates of such tax
liabilities made by the Secretary of the Treasury. Transfers
shall be made pursuant to a schedule made by the Sec-
retary of the Treasury that takes into account estimated
timing of collection of such liabilities.’’
(2) DEFINITION.—Paragraph (3) of section 121(e) of such
Act is amended by redesignating subparagraph (B) as subpara-
graph (C), and by inserting after subparagraph (A) the following
new subparagraph:
‘‘(B) HOSPITAL INSURANCE TRUST FUND.—The term ‘hos-
pital insurance trust fund’ means the fund established
pursuant to section 1817 of the Social Security Act.’’.
H. R. 2264—166
(3) CONFORMING
AMENDMENT.—Paragraph (2) of section
121(e) of such Act is amended in the first sentence by striking
‘‘paragraph (1)’’ and inserting ‘‘paragraph (1)(A)’’.
(4) TECHNICAL AMENDMENTS.—Paragraph (1)(A) of section
121(e) of such Act, as redesignated and amended by paragraph
(1), is amended by striking ‘‘1954’’ and inserting ‘‘1986’’.
(d) EFFECTIVE DATE.—The amendments made by subsections
(a) and (b) shall apply to taxable years beginning after December
31, 1993.
PART II—PROVISIONS AFFECTING
BUSINESSES
SEC. 13221. INCREASE IN TOP MARGINAL RATE UNDER SECTION 11.
(a) GENERAL RULE.—Paragraph (1) of section 11(b) (relating
to amount of tax) is amended—
(1) by striking ‘‘and’’ at the end of subparagraph (B),
(2) by striking subparagraph (C) and inserting the follow-
ing:
‘‘(C) 34 percent of so much of the taxable income as
exceeds $75,000 but does not exceed $10,000,000, and
‘‘(D) 35 percent of so much of the taxable income as
exceeds $10,000,000.’’, and
(3) by adding at the end thereof the following new sentence:
‘‘In the case of a corporation which has taxable income in
excess of $15,000,000, the amount of the tax determined under
the foregoing provisions of this paragraph shall be increased
by an additional amount equal to the lesser of (i) 3 percent
of such excess, or (ii) $100,000.’’
(b) CERTAIN PERSONAL SERVICE CORPORATIONS.—Paragraph (2)
of section 11(b) is amended by striking ‘‘34 percent’’ and inserting
‘‘35 percent’’.
(c) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) is amended by strik-
ing ‘‘66 percent’’ and inserting ‘‘65 percent’’.
(2) Subsection (a) of section 1201 is amended by striking
‘‘34 percent’’ each place it appears and inserting ‘‘35 percent’’.
(3) Paragraphs (1) and (2) of section 1445(e) are each
amended by striking ‘‘34 percent’’ and inserting ‘‘35 percent’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning on or after January 1, 1993;
except that the amendment made by subsection (c)(3) shall take
effect on the date of the enactment of this Act.
SEC. 13222. DENIAL OF DEDUCTION FOR LOBBYING EXPENSES.
(a) DISALLOWANCE OF DEDUCTION.—Section 162(e) (relating to
appearances, etc., with respect to legislation) is amended to read
as follows:
‘‘(e) DENIAL OF DEDUCTION FOR CERTAIN LOBBYING AND POLITI-
CAL EXPENDITURES.—
‘‘(1) IN GENERAL.—No deduction shall be allowed under
subsection (a) for any amount paid or incurred in connection
with—
‘‘(A) influencing legislation,
‘‘(B) participation in, or intervention in, any political
campaign on behalf of (or in opposition to) any candidate
for public office,
H. R. 2264—167
‘‘(C) any attempt to influence the general public, or
segments thereof, with respect to elections, legislative mat-
ters, or referendums, or
‘‘(D) any direct communication with a covered executive
branch official in an attempt to influence the official actions
or positions of such official.
‘‘(2) EXCEPTION FOR LOCAL LEGISLATION.—In the case of
any legislation of any local council or similar governing body—
‘‘(A) paragraph (1)(A) shall not apply, and
‘‘(B) the deduction allowed by subsection (a) shall
include all ordinary and necessary expenses (including,
but not limited to, traveling expenses described in sub-
section (a)(2) and the cost of preparing testimony) paid
or incurred during the taxable year in carrying on any
trade or business—
‘‘(i) in direct connection with appearances before,
submission of statements to, or sending communica-
tions to the committees, or individual members, of
such council or body with respect to legislation or
proposed legislation of direct interest to the taxpayer,
or
‘‘(ii) in direct connection with communication of
information between the taxpayer and an organization
of which the taxpayer is a member with respect to
any such legislation or proposed legislation which is
of direct interest to the taxpayer and to such organiza-
tion,
and that portion of the dues so paid or incurred with
respect to any organization of which the taxpayer is a
member which is attributable to the expenses of the activi-
ties described in clauses (i) and (ii) carried on by such
organization.
‘‘(3) APPLICATION TO DUES OF TAX-EXEMPT ORGANIZATIONS.—
No deduction shall be allowed under subsection (a) for the
portion of dues or other similar amounts paid by the taxpayer
to an organization which is exempt from tax under this subtitle
which the organization notifies the taxpayer under section
6033(e)(1)(A)(ii) is allocable to expenditures to which paragraph
(1) applies.
‘‘(4) INFLUENCING
LEGISLATION.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The term ‘influencing legislation’
means any attempt to influence any legislation through
communication with any member or employee of a legisla-
tive body, or with any government official or employee
who may participate in the formulation of legislation.
‘‘(B) LEGISLATION.—The term ‘legislation’ has the
meaning given such term by section 4911(e)(2).
‘‘(5) OTHER SPECIAL RULES.—
‘‘(A) EXCEPTION FOR CERTAIN TAXPAYERS.—In the case
of any taxpayer engaged in the trade or business of conduct-
ing activities described in paragraph (1), paragraph (1)
shall not apply to expenditures of the taxpayer in conduct-
ing such activities directly on behalf of another person
(but shall apply to payments by such other person to the
taxpayer for conducting such activities).
‘‘(B) DE MINIMIS EXCEPTION.—
H. R. 2264—168
‘‘(i) IN GENERAL.—Paragraph (1) shall not apply
to any in-house expenditures for any taxable year if
such expenditures do not exceed $2,000. In determining
whether a taxpayer exceeds the $2,000 limit under
this clause, there shall not be taken into account over-
head costs otherwise allocable to activities described
in paragraphs (1)(A) and (D).
‘‘(ii) IN-HOUSE
EXPENDITURES.—For purposes of
clause (i), the term ‘in-house expenditures’ means
expenditures described in paragraphs (1)(A) and (D)
other than—
‘‘(I) payments by the taxpayer to a person
engaged in the trade or business of conducting
activities described in paragraph (1) for the con-
duct of such activities on behalf of the taxpayer,
or
‘‘(II) dues or other similar amounts paid or
incurred by the taxpayer which are allocable to
activities described in paragraph (1).
‘‘(C) EXPENSES INCURRED IN CONNECTION WITH LOBBY-
ING
AND
POLITICAL
ACTIVITIES.—Any amount paid or
incurred for research for, or preparation, planning, or
coordination of, any activity described in paragraph (1)
shall be treated as paid or incurred in connection with
such activity.
‘‘(6) COVERED EXECUTIVE BRANCH OFFICIAL.—For purposes
of this subsection, the term ‘covered executive branch official’
means—
‘‘(A) the President,
‘‘(B) the Vice President,
‘‘(C) any officer or employee of the White House Office
of the Executive Office of the President, and the 2 most
senior level officers of each of the other agencies in such
Executive Office, and
‘‘(D)(i) any individual serving in a position in level
I of the Executive Schedule under section 5312 of title
5, United States Code, (ii) any other individual designated
by the President as having Cabinet level status, and (iii)
any immediate deputy of an individual described in clause
(i) or (ii).
‘‘(7) SPECIAL RULE FOR INDIAN TRIBAL GOVERNMENTS.—For
purposes of this subsection, an Indian tribal government shall
be treated in the same manner as a local council or similar
governing body.
‘‘(8) CROSS REFERENCE.—
‘‘For reporting requirements and alternative taxes related to this
subsection, see section 6033(e).’’
(b) DISALLOWANCE
OF CHARITABLE DEDUCTION
IN CERTAIN
CASES.—Section 170(f) (relating to disallowance of deduction in
certain cases and special rules), as amended by section 13172,
is amended by adding at the end the following new paragraph:
‘‘(9) DENIAL
OF
DEDUCTION
WHERE
CONTRIBUTION
FOR
LOBBYING
ACTIVITIES.—No deduction shall be allowed under
this section for a contribution to an organization which conducts
activities to which section 162(e)(1) applies on matters of direct
financial interest to the donor’s trade or business, if a principal
purpose of the contribution was to avoid Federal income tax
H. R. 2264—169
by securing a deduction for such activities under this section
which would be disallowed by reason of section 162(e) if the
donor had conducted such activities directly. No deduction shall
be allowed under section 162(a) for any amount for which
a deduction is disallowed under the preceding sentence.’’
(c) REPORTING
REQUIREMENTS.—Section 6033 (relating to
returns by exempt organizations) is amended by redesignating sub-
section (e) as subsection (f) and by inserting after subsection (d)
the following new subsection:
‘‘(e) SPECIAL RULES RELATING TO LOBBYING ACTIVITIES.—
‘‘(1) REPORTING REQUIREMENTS.—
‘‘(A) IN
GENERAL.—If this subsection applies to an
organization for any taxable year, such organization—
‘‘(i) shall include on any return required to be
filed under subsection (a) for such year information
setting forth the total expenditures of the organization
to which section 162(e)(1) applies and the total amount
of the dues or other similar amounts paid to the
organization to which such expenditures are allocable,
and
‘‘(ii) except as provided in paragraphs (2)(A)(i) and
(3), shall, at the time of assessment or payment of
such dues or other similar amounts, provide notice
to each person making such payment which contains
a reasonable estimate of the portion of such dues or
other similar amounts to which such expenditures are
so allocable.
‘‘(B) ORGANIZATIONS TO WHICH SUBSECTION APPLIES.—
‘‘(i) IN GENERAL.—This subsection shall apply to
any organization which is exempt from taxation under
this subtitle other than an organization described in
section 501(c)(3).
‘‘(ii) SPECIAL RULE FOR IN-HOUSE EXPENDITURES.—
This subsection shall not apply to the in-house expendi-
tures (within the meaning of section 162(e)(5)(B)(ii))
of an organization for a taxable year if such expendi-
tures do not exceed $2,000. In determining whether
a taxpayer exceeds the $2,000 limit under this clause,
there shall not be taken into account overhead costs
otherwise allocable to activities described in subpara-
graphs (A) and (D) of section 162(e)(1).
‘‘(C) ALLOCATION.—For purposes of this paragraph—
‘‘(i) IN GENERAL.—Expenditures to which section
162(e)(1) applies shall be treated as paid out of dues
or other similar amounts to the extent thereof.
‘‘(ii) CARRYOVER
OF
LOBBYING
EXPENDITURES
IN
EXCESS
OF
DUES.—If expenditures to which section
162(e)(1) applies exceed the dues or other similar
amounts for any taxable year, such excess shall be
treated as expenditures to which section 162(e)(1)
applies which are paid or incurred by the organization
during the following taxable year.
‘‘(2) TAX IMPOSED WHERE ORGANIZATION DOES NOT NOTIFY.—
‘‘(A) IN GENERAL.—If an organization—
‘‘(i) elects not to provide the notices described in
paragraph (1)(A) for any taxable year, or
H. R. 2264—170
‘‘(ii) fails to include in such notices the amount
allocable to expenditures to which section 162(e)(1)
applies (determined on the basis of actual amounts
rather than the reasonable estimates under paragraph
(1)(A)(ii)),
then there is hereby imposed on such organization for
such taxable year a tax in an amount equal to the product
of the highest rate of tax imposed by section 11 for the
taxable year and the aggregate amount not included in
such notices by reason of such election or failure.
‘‘(B) WAIVER WHERE FUTURE ADJUSTMENTS MADE.—The
Secretary may waive the tax imposed by subparagraph
(A)(ii) for any taxable year if the organization agrees to
adjust its estimates under paragraph (1)(A)(ii) for the fol-
lowing taxable year to correct any failures.
‘‘(C) TAX TREATED AS INCOME TAX.—For purposes of
this title, the tax imposed by subparagraph (A) shall be
treated in the same manner as a tax imposed by chapter
1 (relating to income taxes).
‘‘(3) EXCEPTION WHERE DUES GENERALLY NONDEDUCTIBLE.—
Paragraph (1)(A) shall not apply to an organization which estab-
lishes to the satisfaction of the Secretary that substantially
all of the dues or other similar amounts paid by persons to
such organization are not deductible without regard to section
162(e).’’
(d) CONFORMING AMENDMENT.—Section 7871(a)(6) is amended
by striking subparagraph (B) and by redesignating subparagraphs
(C) and (D) as subparagraphs (B) and (C), respectively.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to amounts paid or incurred after December 31, 1993.
SEC. 13223. MARK TO MARKET ACCOUNTING METHOD FOR SECURI-
TIES DEALERS.
(a) GENERAL RULE.—Subpart D of part II of subchapter E
of chapter 1 (relating to inventories) is amended by adding at
the end thereof the following new section:
‘‘SEC. 475. MARK TO MARKET ACCOUNTING METHOD FOR DEALERS
IN SECURITIES.
‘‘(a) GENERAL RULE.—Notwithstanding any other provision of
this subpart, the following rules shall apply to securities held by
a dealer in securities:
‘‘(1) Any security which is inventory in the hands of the
dealer shall be included in inventory at its fair market value.
‘‘(2) In the case of any security which is not inventory
in the hands of the dealer and which is held at the close
of any taxable year—
‘‘(A) the dealer shall recognize gain or loss as if such
security were sold for its fair market value on the last
business day of such taxable year, and
‘‘(B) any gain or loss shall be taken into account for
such taxable year.
Proper adjustment shall be made in the amount of any gain
or loss subsequently realized for gain or loss taken into account
under the preceding sentence. The Secretary may provide by
regulations for the application of this paragraph at times other
than the times provided in this paragraph.
‘‘(b) EXCEPTIONS.—
H. R. 2264—171
‘‘(1) IN GENERAL.—Subsection (a) shall not apply to—
‘‘(A) any security held for investment,
‘‘(B)(i) any security described in subsection (c)(2)(C)
which is acquired (including originated) by the taxpayer
in the ordinary course of a trade or business of the taxpayer
and which is not held for sale, and (ii) any obligation
to acquire a security described in clause (i) if such obliga-
tion is entered into in the ordinary course of such trade
or business and is not held for sale, and
‘‘(C) any security which is a hedge with respect to—
‘‘(i) a security to which subsection (a) does not
apply, or
‘‘(ii) a position, right to income, or a liability which
is not a security in the hands of the taxpayer.
To the extent provided in regulations, subparagraph (C) shall
not apply to any security held by a person in its capacity
as a dealer in securities.
‘‘(2) IDENTIFICATION
REQUIRED.—A security shall not be
treated as described in subparagraph (A), (B), or (C) of para-
graph (1), as the case may be, unless such security is clearly
identified in the dealer’s records as being described in such
subparagraph before the close of the day on which it was
acquired, originated, or entered into (or such other time as
the Secretary may by regulations prescribe).
‘‘(3) SECURITIES SUBSEQUENTLY NOT EXEMPT.—If a security
ceases to be described in paragraph (1) at any time after
it was identified as such under paragraph (2), subsection (a)
shall apply to any changes in value of the security occurring
after the cessation.
‘‘(4) SPECIAL RULE FOR PROPERTY HELD FOR INVESTMENT.—
To the extent provided in regulations, subparagraph (A) of
paragraph (1) shall not apply to any security described in
subparagraph (D) or (E) of subsection (c)(2) which is held by
a dealer in such securities.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) DEALER IN SECURITIES DEFINED.—The term ‘dealer in
securities’ means a taxpayer who—
‘‘(A) regularly purchases securities from or sells securi-
ties to customers in the ordinary course of a trade or
business; or
‘‘(B) regularly offers to enter into, assume, offset, assign
or otherwise terminate positions in securities with cus-
tomers in the ordinary course of a trade or business.
‘‘(2) SECURITY DEFINED.—The term ‘security’ means any—
‘‘(A) share of stock in a corporation;
‘‘(B) partnership or beneficial ownership interest in
a widely held or publicly traded partnership or trust;
‘‘(C) note, bond, debenture, or other evidence of indebt-
edness;
‘‘(D) interest rate, currency, or equity notional principal
contract;
‘‘(E) evidence of an interest in, or a derivative financial
instrument in, any security described in subparagraph (A),
(B), (C), or (D), or any currency, including any option,
forward contract, short position, and any similar financial
instrument in such a security or currency; and
‘‘(F) position which—
H. R. 2264—172
‘‘(i) is not a security described in subparagraph
(A), (B), (C), (D), or (E),
‘‘(ii) is a hedge with respect to such a security,
and
‘‘(iii) is clearly identified in the dealer’s records
as being described in this subparagraph before the
close of the day on which it was acquired or entered
into (or such other time as the Secretary may by regu-
lations prescribe).
Subparagraph (E) shall not include any contract to which sec-
tion 1256(a) applies.
‘‘(3) HEDGE.—The term ‘hedge’ means any position which
reduces the dealer’s risk of interest rate or price changes or
currency fluctuations, including any position which is reason-
ably expected to become a hedge within 60 days after the
acquisition of the position.
‘‘(d) SPECIAL RULES.—For purposes of this section—
‘‘(1) COORDINATION WITH CERTAIN RULES.—The rules of sec-
tions 263(g), 263A, and 1256(a) shall not apply to securities
to which subsection (a) applies, and section 1091 shall not
apply (and section 1092 shall apply) to any loss recognized
under subsection (a).
‘‘(2) IMPROPER IDENTIFICATION.—If a taxpayer—
‘‘(A) identifies any security under subsection (b)(2) as
being described in subsection (b)(1) and such security is
not so described, or
‘‘(B) fails under subsection (c)(2)(F)(iii) to identify any
position which is described in subsection (c)(2)(F) (without
regard to clause (iii) thereof) at the time such identification
is required,
the provisions of subsection (a) shall apply to such security
or position, except that any loss under this section prior to
the disposition of the security or position shall be recognized
only to the extent of gain previously recognized under this
section (and not previously taken into account under this para-
graph) with respect to such security or position.
‘‘(3) CHARACTER OF GAIN OR LOSS.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B) or section 1236(b)—
‘‘(i) IN GENERAL.—Any gain or loss with respect
to a security under subsection (a)(2) shall be treated
as ordinary income or loss.
‘‘(ii) SPECIAL RULE FOR DISPOSITIONS.—If—
‘‘(I) gain or loss is recognized with respect
to a security before the close of the taxable year,
and
‘‘(II) subsection (a)(2) would have applied if
the security were held as of the close of the taxable
year,
such gain or loss shall be treated as ordinary income
or loss.
‘‘(B) EXCEPTION.—Subparagraph (A) shall not apply
to any gain or loss which is allocable to a period during
which—
‘‘(i) the security is described in subsection (b)(1)(C)
(without regard to subsection (b)(2)),
H. R. 2264—173
‘‘(ii) the security is held by a person other than
in connection with its activities as a dealer in securi-
ties, or
‘‘(iii) the security is improperly identified (within
the meaning of subparagraph (A) or (B) of paragraph
(2)).
‘‘(e) REGULATORY AUTHORITY.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to carry out
the purposes of this section, including rules—
‘‘(1) to prevent the use of year-end transfers, related parties,
or other arrangements to avoid the provisions of this section,
and
‘‘(2) to provide for the application of this section to any
security which is a hedge which cannot be identified with
a specific security, position, right to income, or liability.’’
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 988(d) is amended—
(A) by striking ‘‘section 1256’’ and inserting ‘‘section
475 or 1256’’, and
(B) by striking ‘‘1092 and 1256’’ and inserting ‘‘475,
1092, and 1256’’.
(2) The table of sections for subpart D of part II of sub-
chapter E of chapter 1 is amended by adding at the end thereof
the following new item:
‘‘Sec. 475. Mark to market accounting method for dealers in securities.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to all taxable years ending on or after December
31, 1993.
(2) CHANGE IN METHOD OF ACCOUNTING.—In the case of
any taxpayer required by this section to change its method
of accounting for any taxable year—
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary, and
(C) except as provided in paragraph (3), the net amount
of the adjustments required to be taken into account by
the taxpayer under section 481 of the Internal Revenue
Code of 1986 shall be taken into account ratably over
the 5-taxable year period beginning with the first taxable
year ending on or after December 31, 1993.
(3) SPECIAL RULE FOR FLOOR SPECIALISTS AND MARKET MAK-
ERS.—
(A) IN GENERAL.—If—
(i) a taxpayer (or any predecessor) used the last-
in first-out (LIFO) method of accounting with respect
to any qualified securities for the 5-taxable year period
ending with its last taxable year ending before Decem-
ber 31, 1993, and
(ii) any portion of the net amount described in
paragraph (2)(C) is attributable to the use of such
method of accounting,
then paragraph (2)(C) shall be applied by taking such por-
tion into account ratably over the 15-taxable year period
beginning with the first taxable year ending on or after
December 31, 1993.
H. R. 2264—174
(B) QUALIFIED SECURITY.—For purposes of this para-
graph, the term ‘‘qualified security’’ means any security
acquired—
(i) by a floor specialist (as defined in section
1236(d)(2) of the Internal Revenue Code of 1986) in
connection with the specialist’s duties as a specialist
on an exchange, but only if the security is one in
which the specialist is registered with the exchange,
or
(ii) by a taxpayer who is a market maker in connec-
tion with the taxpayer’s duties as a market maker,
but only if—
(I) the security is included on the National
Association of Security Dealers Automated Quota-
tion System,
(II) the taxpayer is registered as a market
maker in such security with the National Associa-
tion of Security Dealers, and
(III) as of the last day of the taxable year
preceding the taxpayer’s first taxable year ending
on or after December 31, 1993, the taxpayer (or
any predecessor) has been actively and regularly
engaged as a market maker in such security for
the 2-year period ending on such date (or, if
shorter, the period beginning 61 days after the
security was listed in such quotation system and
ending on such date).
SEC. 13224. CLARIFICATION OF TREATMENT OF CERTAIN FSLIC
FINANCIAL ASSISTANCE.
(a) GENERAL RULE.—For purposes of chapter 1 of the Internal
Revenue Code of 1986—
(1) any FSLIC assistance with respect to any loss of prin-
cipal, capital, or similar amount upon the disposition of any
asset shall be taken into account as compensation for such
loss for purposes of section 165 of such Code, and
(2) any FSLIC assistance with respect to any debt shall
be taken into account for purposes of section 166, 585, or
593 of such Code in determining whether such debt is worthless
(or the extent to which such debt is worthless) and in determin-
ing the amount of any addition to a reserve for bad debts
arising from the worthlessness or partial worthlessness of such
debts.
(b) FSLIC ASSISTANCE.—For purposes of this section, the term
‘‘FSLIC assistance’’ means any assistance (or right to assistance)
with respect to a domestic building and loan association (as defined
in section 7701(a)(19) of such Code without regard to subparagraph
(C) thereof) under section 406(f) of the National Housing Act or
section 21A of the Federal Home Loan Bank Act (or under any
similar provision of law).
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as otherwise provided in this
subsection—
(A) The provisions of this section shall apply to taxable
years ending on or after March 4, 1991, but only with
respect to FSLIC assistance not credited before March 4,
1991.
H. R. 2264—175
(B) If any FSLIC assistance not credited before
March 4, 1991, is with respect to a loss sustained or
charge-off in a taxable year ending before March 4, 1991,
for purposes of determining the amount of any net operat-
ing loss carryover to a taxable year ending on or after
March 4, 1991, the provisions of this section shall apply
to such assistance for purposes of determining the amount
of the net operating loss for the taxable year in which
such loss was sustained or debt written off. Except as
provided in the preceding sentence, this section shall not
apply to any FSLIC assistance with respect to a loss
sustained or charge-off in a taxable year ending before
March 4, 1991.
(2) EXCEPTIONS.—The provisions of this section shall not
apply to any assistance to which the amendments made by
section 1401(a)(3) of the Financial Institutions Reform, Recov-
ery, and Enforcement Act of 1989 apply.
SEC. 13225. MODIFICATION OF CORPORATE ESTIMATED TAX RULES.
(a) INCREASE IN REQUIRED INSTALLMENT BASED ON CURRENT
YEAR TAX.—
(1) IN GENERAL.—Clause (i) of section 6655(d)(1)(B) (relat-
ing to amount of required installment) is amended by striking
‘‘91 percent’’ each place it appears and inserting ‘‘100 percent’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 6655 is amended—
(i) by striking paragraph (3), and
(ii) by striking ‘‘91
PERCENT’’ in the paragraph
heading of paragraph (2) and inserting ‘‘100 PERCENT’’.
(B) Clause (ii) of section 6655(e)(2)(B) is amended by
striking the table contained therein and inserting the fol-
lowing:
The
‘‘In the case of the following
applicable
required installments:
percentage is:
1st ..................................................................................
2nd .................................................................................
3rd ..................................................................................
4th ..................................................................................
100.’’
(C) Clause (i) of section 6655(e)(3)(A) is amended by
striking ‘‘91 percent’’ and inserting ‘‘100 percent’’.
(b) MODIFICATION OF PERIODS FOR APPLYING ANNUALIZATION.—
(1) Clause (i) of section 6655(e)(2)(A) is amended—
(A) by striking ‘‘or for the first 5 months’’ in subclause
(II),
(B) by striking ‘‘or for the first 8 months’’ in subclause
(III), and
(C) by striking ‘‘or for the first 11 months’’ in subclause
(IV).
(2) Paragraph (2) of section 6655(e) is amended by adding
at the end thereof the following new subparagraph:
‘‘(C) ELECTION
FOR
DIFFERENT
ANNUALIZATION
PERI-
ODS.—
‘‘(i) If the taxpayer makes an election under this
clause—
‘‘(I) subclause (I) of subparagraph (A)(i) shall
be applied by substituting ‘2 months’ for ‘3
months’,
H. R. 2264—176
‘‘(II) subclause (II) of subparagraph (A)(i) shall
be applied by substituting ‘4 months’ for ‘3
months’,
‘‘(III) subclause (III) of subparagraph (A)(i)
shall be applied by substituting ‘7 months’ for ‘6
months’, and
‘‘(IV) subclause (IV) of subparagraph (A)(i)
shall be applied by substituting ‘10 months’ for
‘9 months’.
‘‘(ii) If the taxpayer makes an election under this
clause—
‘‘(I) subclause (II) of subparagraph (A)(i) shall
be applied by substituting ‘5 months’ for ‘3
months’,
‘‘(II) subclause (III) of subparagraph (A)(i)
shall be applied by substituting ‘8 months’ for ‘6
months’, and
‘‘(III) subclause (IV) of subparagraph (A)(i)
shall be applied by substituting ‘11 months’ for
‘9 months’.
‘‘(iii) An election under clause (i) or (ii) shall apply
to the taxable year for which made and such an election
shall be effective only if made on or before the date
required for the payment of the first required install-
ment for such taxable year.’’
(3) The last sentence of section 6655(g)(3) is amended by
striking ‘‘and subsection (e)(2)(A)’’ and inserting ‘‘and, except
in the case of an election under subsection (e)(2)(C), subsection
(e)(2)(A)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1993.
SEC. 13226. MODIFICATIONS 
OF 
DISCHARGE 
OF 
INDEBTEDNESS
PROVISIONS.
(a) REPEAL OF STOCK FOR DEBT EXCEPTION IN DETERMINING
INCOME FROM DISCHARGE OF INDEBTEDNESS.—
(1) IN GENERAL.—Subsection (e) of section 108 is amended—
(A) by striking paragraph (10) and by redesignating
paragraph (11) as paragraph (10), and
(B) by amending paragraph (8) to read as follows:
‘‘(8) INDEBTEDNESS SATISFIED BY CORPORATION’S STOCK.—
For purposes of determining income of a debtor from discharge
of indebtedness, if a debtor corporation transfers stock to a
creditor in satisfaction of its indebtedness, such corporation
shall be treated as having satisfied the indebtedness with an
amount of money equal to the fair market value of the stock.’’
(2) CONFORMING AMENDMENTS.—
(A) Subparagraph (C) of section 382(l)(5) is amended
to read as follows:
‘‘(C) COORDINATION WITH SECTION 108.—In applying sec-
tion 108(e)(8) to any case to which subparagraph (A)
applies, there shall not be taken into account any indebted-
ness for interest described in subparagraph (B).’’
(B) Section 108(e)(6) is amended by striking ‘‘For’’ and
inserting ‘‘Except as provided in regulations, for’’.
(3) EFFECTIVE DATE.—
H. R. 2264—177
(A) IN GENERAL.—Except as otherwise provided in this
paragraph, the amendments made by this subsection shall
apply to stock transferred after December 31, 1994, in
satisfaction of any indebtedness.
(B) EXCEPTION FOR TITLE 11 CASES.—The amendments
made by this subsection shall not apply to stock transferred
in satisfaction of any indebtedness if such transfer is in
a title 11 or similar case (as defined in section 368(a)(3)(A)
of the Internal Revenue Code of 1986) which was filed
on or before December 31, 1993.
(b) TAX ATTRIBUTES SUBJECT TO REDUCTION.—
(1) MINIMUM TAX CREDIT.—Section 108(b)(2) (relating to
tax attributes affected; order of reduction) is amended by
redesignating subparagraphs (C), (D), and (E) as subparagraphs
(D), (E), and (F) and by adding after subparagraph (B) the
following new subparagraph:
‘‘(C) MINIMUM TAX CREDIT.—The amount of the mini-
mum tax credit available under section 53(b) as of the
beginning of the taxable year immediately following the
taxable year of the discharge.’’
(2) PASSIVE
ACTIVITY
LOSSES
AND
CREDITS.—Section
108(b)(2), as amended by paragraph (1), is amended by
redesignating subparagraph (F) as subparagraph (G) and by
adding after subparagraph (E) the following new subparagraph:
‘‘(F) PASSIVE ACTIVITY LOSS AND CREDIT CARRYOVERS.—
Any passive activity loss or credit carryover of the taxpayer
under section 469(b) from the taxable year of the dis-
charge.’’
(3) CONFORMING AMENDMENTS.—
(A) Subparagraph (B) of section 108(b)(3) is amended
to read as follows:
‘‘(B) CREDIT CARRYOVER REDUCTION.—The reductions
described in subparagraphs (B), (C), and (G) shall be 331⁄3
cents for each dollar excluded by subsection (a). The reduc-
tion described in subparagraph (F) in any passive activity
credit carryover shall be 331⁄3 cents for each dollar excluded
by subsection (a).’’
(B) Subparagraph (B) of section 108(b)(4) is amended
by striking ‘‘(C)’’ in the text and heading thereof and insert-
ing ‘‘(D)’’.
(C) Subparagraph (C) of section 108(b)(4) is amended
by striking ‘‘(E)’’ in the text and heading thereof and insert-
ing ‘‘(G)’’.
(D) Subparagraph (B) of section 108(g)(3) is amended—
(i) by striking ‘‘subparagraphs (A), (B), (C), and
(E)’’ and inserting ‘‘subparagraphs (A), (B), (C), (D),
(F), and (G)’’,
(ii) by striking ‘‘subparagraphs (B) and (E)’’ and
inserting ‘‘subparagraphs (B), (C), and (G)’’, and
(iii) by inserting before the period at the end the
following: ‘‘and the attribute described in subparagraph
(F) of subsection (b)(2) to the extent attributable to
any passive activity credit carryover’’.
(4) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply to discharges of indebtedness in taxable
years beginning after December 31, 1993.
H. R. 2264—178
SEC. 13227. LIMITATION ON SECTION 936 CREDIT.
(a) GENERAL RULE.—Subsection (a) of section 936 (relating
to Puerto Rico and possession tax credit) is amended—
(1) by striking ‘‘as provided in paragraph (3)’’ in paragraph
(1) and inserting ‘‘as otherwise provided in this section’’; and
(2) by adding at the end thereof the following new para-
graph:
‘‘(4) 
LIMITATIONS
ON
CREDIT
FOR
ACTIVE
BUSINESS
INCOME.—
‘‘(A) IN GENERAL.—The amount of the credit determined
under paragraph (1) for any taxable year with respect
to income referred to in subparagraph (A) thereof shall
not exceed the sum of the following amounts:
‘‘(i) 60 percent of the sum of—
‘‘(I) the aggregate amount of the possession
corporation’s qualified possession wages for such
taxable year, plus
‘‘(II) the allocable employee fringe benefit
expenses of the possession corporation for the tax-
able year.
‘‘(ii) The sum of—
‘‘(I) 15 percent of the depreciation allowances
for the taxable year with respect to short-life quali-
fied tangible property,
‘‘(II) 40 percent of the depreciation allowances
for the taxable year with respect to medium-life
qualified tangible property, and
‘‘(III) 65 percent of the depreciation allowances
for the taxable year with respect to long-life quali-
fied tangible property.
‘‘(iii) If the possession corporation does not have
an election to use the method described in subsection
(h)(5)(C)(ii) (relating to profit split) in effect for the
taxable year, the amount of qualified possession income
taxes for the taxable year allocable to nonsheltered
income.
‘‘(B) ELECTION TO TAKE REDUCED CREDIT.—
‘‘(i) IN
GENERAL.—If an election under this
subparagraph applies to a possession corporation for
any taxable year—
‘‘(I) subparagraph (A), and the provisions of
subsection (i), shall not apply to such possession
corporation for such taxable year, and
‘‘(II) the credit determined under paragraph
(1) for such taxable year with respect to income
referred to in subparagraph (A) thereof shall be
the applicable percentage of the credit which would
otherwise have been determined under such para-
graph with respect to such income.
Notwithstanding subclause (I), a possession corporation
to which an election under this subparagraph applies
shall be entitled to the benefits of subsection (i)(3)(B)
for taxes allocable (on a pro rata basis) to taxable
income the tax on which is not offset by reason of
this subparagraph.
H. R. 2264—179
‘‘(ii) 
APPLICABLE
PERCENTAGE.—The 
term
‘applicable percentage’ means the percentage deter-
mined in accordance with the following table:
‘‘In the case of taxable
The
years beginning in:
percentage is:
1994 ......................................................................
1995 ......................................................................
1996 ......................................................................
1997 ......................................................................
1998 and thereafter .............................................
40.
‘‘(iii) ELECTION.—
‘‘(I) IN
GENERAL.—An election under this
subparagraph by any possession corporation may
be made only for the corporation’s first taxable
year beginning after December 31, 1993, for which
it is a possession corporation.
‘‘(II) PERIOD OF ELECTION.—An election under
this subparagraph shall apply to the taxable year
for which made and all subsequent taxable years
unless revoked.
‘‘(III) AFFILIATED GROUPS.—If, for any taxable
year, an election is not in effect for any possession
corporation which is a member of an affiliated
group, any election under this subparagraph for
any other member of such group is revoked for
such taxable year and all subsequent taxable
years. For purposes of this subclause, members
of an affiliated group shall be determined without
regard to the exceptions contained in section
1504(b) and as if the constructive ownership rules
of section 1563(e) applied for purposes of section
1504(a). The Secretary may prescribe regulations
to prevent the avoidance of this subclause through
deconsolidation or otherwise.
‘‘(C) CROSS REFERENCE.—
‘‘For definitions and special rules applicable to this paragraph,
see subsection (i).’’
(b) DEFINITIONS AND SPECIAL RULES.—Section 936 is amended
by adding at the end thereof the following new subsection:
‘‘(i) DEFINITIONS AND SPECIAL RULES RELATING TO LIMITATIONS
OF SUBSECTION (a)(4).—
‘‘(1) QUALIFIED POSSESSION WAGES.—For purposes of this
section—
‘‘(A) IN
GENERAL.—The term ‘qualified possession
wages’ means wages paid or incurred by the possession
corporation during the taxable year in connection with
the active conduct of a trade or business within a possession
of the United States to any employee for services performed
in such possession, but only if such services are performed
while the principal place of employment of such employee
is within such possession.
‘‘(B) LIMITATION ON AMOUNT OF WAGES TAKEN INTO
ACCOUNT.—
‘‘(i) IN GENERAL.—The amount of wages which may
be taken into account under subparagraph (A) with
respect to any employee for any taxable year shall
not exceed 85 percent of the contribution and benefit
H. R. 2264—180
base determined under section 230 of the Social Secu-
rity Act for the calendar year in which such taxable
year begins.
‘‘(ii) TREATMENT OF PART-TIME EMPLOYEES, ETC.—
If—
‘‘(I) any employee is not employed by the
possession corporation on a substantially full-time
basis at all times during the taxable year, or
‘‘(II) the principal place of employment of any
employee with the possession corporation is not
within a possession at all times during the taxable
year,
the limitation applicable under clause (i) with respect
to such employee shall be the appropriate portion (as
determined by the Secretary) of the limitation which
would otherwise be in effect under clause (i).
‘‘(C) TREATMENT OF CERTAIN EMPLOYEES.—The term
‘qualified possession wages’ shall not include any wages
paid to employees who are assigned by the employer to
perform services for another person, unless the principal
trade or business of the employer is to make employees
available for temporary periods to other persons in return
for compensation. All possession corporations treated as
1 corporation under paragraph (5) shall be treated as 1
employer for purposes of the preceding sentence.
‘‘(D) WAGES.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii), the term ‘wages’ has the meaning given to such
term by subsection (b) of section 3306 (determined
without regard to any dollar limitation contained in
such section). For purposes of the preceding sentence,
such subsection (b) shall be applied as if the term
‘United States’ included all possessions of the United
States.
‘‘(ii) SPECIAL RULE FOR AGRICULTURAL LABOR AND
RAILWAY LABOR.—In any case to which subparagraph
(A) or (B) of paragraph (1) of section 51(h) applies,
the term ‘wages’ has the meaning given to such term
by section 51(h)(2).
‘‘(2) ALLOCABLE EMPLOYEE FRINGE BENEFIT EXPENSES.—
‘‘(A) IN GENERAL.—The allocable employee fringe bene-
fit expenses of any possession corporation for any taxable
year is an amount which bears the same ratio to the
amount determined under subparagraph (B) for such tax-
able year as—
‘‘(i) the aggregate amount of the possession cor-
poration’s qualified possession wages for such taxable
year, bears to
‘‘(ii) the aggregate amount of the wages paid or
incurred by such possession corporation during such
taxable year.
In no event shall the amount determined under the preced-
ing sentence exceed 15 percent of the amount referred
to in clause (i).
‘‘(B) EXPENSES TAKEN INTO ACCOUNT.—For purposes
of subparagraph (A), the amount determined under this
subparagraph for any taxable year is the aggregate amount
H. R. 2264—181
allowable as a deduction under this chapter to the posses-
sion corporation for such taxable year with respect to—
‘‘(i) employer contributions under a stock bonus,
pension, profit-sharing, or annuity plan,
‘‘(ii) 
employer-provided 
coverage 
under 
any
accident or health plan for employees, and
‘‘(iii) the cost of life or disability insurance provided
to employees.
Any amount treated as wages under paragraph (1)(D) shall
not be taken into account under this subparagraph.
‘‘(3) TREATMENT OF POSSESSION TAXES.—
‘‘(A) AMOUNT OF CREDIT FOR POSSESSION CORPORATIONS
NOT USING PROFIT SPLIT.—
‘‘(i) IN
GENERAL.—For purposes of subsection
(a)(4)(A)(iii), the amount of the qualified possession
income taxes for any taxable year allocable to
nonsheltered income shall be an amount which bears
the same ratio to the possession income taxes for such
taxable year as—
‘‘(I) the increase in the tax liability of the
possession corporation under this chapter for the
taxable year by reason of subsection (a)(4)(A)
(without regard to clause (iii) thereof), bears to
‘‘(II) the tax liability of the possession corpora-
tion under this chapter for the taxable year deter-
mined without regard to the credit allowable under
this section.
‘‘(ii) LIMITATION ON AMOUNT OF TAXES TAKEN INTO
ACCOUNT.—Possession income taxes shall not be taken
into account under clause (i) for any taxable year to
the extent that the amount of such taxes exceeds 9
percent of the amount of the taxable income for such
taxable year.
‘‘(B) DEDUCTION FOR POSSESSION CORPORATIONS USING
PROFIT SPLIT.—Notwithstanding subsection (c), if a posses-
sion corporation is not described in subsection (a)(4)(A)(iii)
for the taxable year, such possession corporation shall be
allowed a deduction for such taxable year in an amount
which bears the same ratio to the possession income taxes
for such taxable year as—
‘‘(i) the increase in the tax liability of the posses-
sion corporation under this chapter for the taxable
year by reason of subsection (a)(4)(A), bears to
‘‘(ii) the tax liability of the possession corporation
under this chapter for the taxable year determined
without regard to the credit allowable under this sec-
tion.
In determining the credit under subsection (a) and in apply-
ing the preceding sentence, taxable income shall be deter-
mined without regard to the preceding sentence.
‘‘(C) POSSESSION INCOME TAXES.—For purposes of this
paragraph, the term ‘possession income taxes’ means any
taxes of a possession of the United States which are treated
as not being income, war profits, or excess profits taxes
paid or accrued to a possession of the United States by
reason of subsection (c).
‘‘(4) DEPRECIATION RULES.—For purposes of this section—
H. R. 2264—182
‘‘(A) DEPRECIATION ALLOWANCES.—The term ‘deprecia-
tion allowances’ means the depreciation deductions allow-
able under section 167 to the possession corporation.
‘‘(B) CATEGORIES OF PROPERTY.—
‘‘(i) QUALIFIED
TANGIBLE
PROPERTY.—The term
‘qualified tangible property’ means any tangible prop-
erty used by the possession corporation in a possession
of the United States in the active conduct of a trade
or business within such possession.
‘‘(ii) SHORT-LIFE QUALIFIED TANGIBLE PROPERTY.—
The term ‘short-life qualified tangible property’ means
any qualified tangible property to which section 168
applies and which is 3-year property or 5-year property
for purposes of such section.
‘‘(iii) MEDIUM-LIFE
QUALIFIED
TANGIBLE
PROP-
ERTY.—The term ‘medium-life qualified tangible prop-
erty’ means any qualified tangible property to which
section 168 applies and which is 7-year property or
10-year property for purposes of such section.
‘‘(iv) LONG-LIFE QUALIFIED TANGIBLE PROPERTY.—
The term ‘long-life qualified tangible property’ means
any qualified tangible property to which section 168
applies and which is not described in clause (ii) or
(iii).
‘‘(v) TRANSITIONAL RULE.—In the case of any quali-
fied tangible property to which section 168 (as in effect
on the day before the date of the enactment of the
Tax Reform Act of 1986) applies, any reference in
this paragraph to section 168 shall be treated as a
reference to such section as so in effect.
‘‘(5) ELECTION
TO
COMPUTE
CREDIT
ON
CONSOLIDATED
BASIS.—
‘‘(A) IN GENERAL.—Any affiliated group may elect to
treat all possession corporations which would be members
of such group but for section 1504(b) (3) or (4) as 1 corpora-
tion for purposes of this section. The credit determined
under this section with respect to such 1 corporation shall
be allocated among such possession corporations in such
manner as the Secretary may prescribe.
‘‘(B) ELECTION.—An election under subparagraph (A)
shall apply to the taxable year for which made and all
succeeding taxable years unless revoked with the consent
of the Secretary.
‘‘(6) POSSESSION CORPORATION.—The term ‘possession cor-
poration’ means a domestic corporation for which the election
provided in subsection (a) is in effect.’’
(c) MINIMUM TAX TREATMENT.—
(1) IN
GENERAL.—Subclause (I) of section 56(g)(4)(C)(ii)
(relating to special rule for certain dividends) is amended by
striking ‘‘sections 936 and 921’’ and inserting ‘‘sections 936
(including subsections (a)(4) and (i) thereof) and 921’’.
(2) TREATMENT OF FOREIGN TAXES.—Clause (iii) of section
56(g)(4)(C) is amended by adding at the end thereof the follow-
ing subclauses:
‘‘(IV) SEPARATE APPLICATION OF FOREIGN TAX
CREDIT
LIMITATIONS.—In determining the alter-
native minimum foreign tax credit, section 904(d)
H. R. 2264—183
shall be applied as if dividends from a corporation
eligible for the credit provided by section 936 were
a separate category of income referred to in a
subparagraph of section 904(d)(1).
‘‘(V) COORDINATION WITH LIMITATION ON 936
CREDIT.—Any reference in this clause to a dividend
received from a corporation eligible for the credit
provided by section 936 shall be treated as a ref-
erence to the portion of any such dividend for
which the dividends received deduction is dis-
allowed under clause (i) after the application of
clause (ii)(I).’’
(d) CONFORMING AMENDMENT.—Paragraph (4) of section 904(b)
is amended by inserting before the period at the end thereof the
following: ‘‘(without regard to subsections (a)(4) and (i) thereof)’’.
(e) INCREASE IN LIMITATION ON COVER OVER.—Paragraph (1)
of section 7652(f) is amended to read as follows:
‘‘(1) $10.50 ($11.30 in the case of distilled spirits brought
into the United States during the 5-year period beginning on
October 1, 1993), or.’’
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1993;
except that the amendment made by subsection (e) shall take effect
on October 1, 1993.
SEC. 13228. MODIFICATION TO LIMITATION ON DEDUCTION FOR CER-
TAIN INTEREST.
(a) GENERAL RULE.—Paragraph (3) of section 163(j) (defining
disqualified interest) is amended to read as follows:
‘‘(3) DISQUALIFIED
INTEREST.—For purposes of this sub-
section, the term ‘disqualified interest’ means—
‘‘(A) any interest paid or accrued by the taxpayer
(directly or indirectly) to a related person if no tax is
imposed by this subtitle with respect to such interest,
and
‘‘(B) any interest paid or accrued by the taxpayer with
respect to any indebtedness to a person who is not a
related person if—
‘‘(i) there is a disqualified guarantee of such indebt-
edness, and
‘‘(ii) no gross basis tax is imposed by this subtitle
with respect to such interest.’’
(b) DEFINITIONS.—Paragraph (6) of section 163(j) is amended
by adding at the end thereof the following new subparagraphs:
‘‘(D) DISQUALIFIED GUARANTEE.—
‘‘(i) IN
GENERAL.—Except as provided in clause
(ii), the term ‘disqualified guarantee’ means any
guarantee by a related person which is—
‘‘(I) an organization exempt from taxation
under this subtitle, or
‘‘(II) a foreign person.
‘‘(ii) EXCEPTIONS.—The term ‘disqualified guaran-
tee’ shall not include a guarantee—
‘‘(I) in any circumstances identified by the Sec-
retary by regulation, where the interest on the
indebtedness would have been subject to a net
H. R. 2264—184
basis tax if the interest had been paid to the
guarantor, or
‘‘(II) if the taxpayer owns a controlling interest
in the guarantor.
For purposes of subclause (II), except as provided in
regulations, the term ‘a controlling interest’ means
direct or indirect ownership of at least 80 percent
of the total voting power and value of all classes of
stock of a corporation, or 80 percent of the profit and
capital interests in any other entity. For purposes of
the preceding sentence, the rules of paragraphs (1)
and (5) of section 267(c) shall apply; except that such
rules shall also apply to interest in entities other than
corporations.
‘‘(iii) GUARANTEE.—Except as provided in regula-
tions, the term ‘guarantee’ includes any arrangement
under which a person (directly or indirectly through
an entity or otherwise) assures, on a conditional or
unconditional basis, the payment of another person’s
obligation under any indebtedness.
‘‘(E) GROSS BASIS AND NET BASIS TAXATION.—
‘‘(i) GROSS BASIS TAX.—The term ‘gross basis tax’
means any tax imposed by this subtitle which is deter-
mined by reference to the gross amount of any item
of income without any reduction for any deduction
allowed by this subtitle.
‘‘(ii) NET
BASIS
TAX.—The term ‘net basis tax’
means any tax imposed by this subtitle which is not
a gross basis tax.’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 163(j)(5) is amended by
striking ‘‘to a related person’’.
(2) The subsection heading for subsection (j) of section
163 is amended to read as follows:
‘‘(j) LIMITATION
ON DEDUCTION
FOR INTEREST
ON CERTAIN
INDEBTEDNESS.—’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to interest paid or accrued in taxable years beginning
after December 31, 1993.
PART III—FOREIGN TAX PROVISIONS
Subpart A—Current Taxation of Certain Earnings
of Controlled Foreign Corporations
SEC. 13231. EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.
(a) GENERAL RULE.—Paragraph (1) of section 951(a) (relating
to amounts included in gross income of United States shareholders)
is amended by striking ‘‘and’’ at the end of subparagraph (A),
by striking the period at the end of subparagraph (B) and inserting
‘‘; and’’, and by adding at the end thereof the following new subpara-
graph:
‘‘(C) the amount determined under section 956A with
respect to such shareholder for such year (but only to
the extent not excluded from gross income under section
959(a)(3)).’’
H. R. 2264—185
(b) AMOUNT OF INCLUSION.—Subpart F of part III of subchapter
N of chapter 1 is amended by inserting after section 956 the
following new section:
‘‘SEC. 956A. EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.
‘‘(a) GENERAL RULE.—In the case of any controlled foreign cor-
poration, the amount determined under this section with respect
to any United States shareholder for any taxable year is the lesser
of—
‘‘(1) the excess (if any) of—
‘‘(A) such shareholder’s pro rata share of the amount
of the controlled foreign corporation’s excess passive assets
for such taxable year, over
‘‘(B) the amount of earnings and profits described in
section 959(c)(1)(B) with respect to such shareholder, or
‘‘(2) such shareholder’s pro rata share of the applicable
earnings of such controlled foreign corporation determined after
the application of section 951(a)(1)(B).
‘‘(b) APPLICABLE EARNINGS.—For purposes of this section, the
term ‘applicable earnings’ means, with respect to any controlled
foreign corporation, the sum of—
‘‘(1) the amount referred to in section 316(a)(1) to the
extent such amount was accumulated in taxable years begin-
ning after September 30, 1993, and
‘‘(2) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and
reduced by the earnings and profits described in section 959(c)(1)
to the extent that the earnings and profits so described were
accumulated in taxable years beginning after September 30, 1993.
‘‘(c) EXCESS PASSIVE ASSETS.—For purposes of this section—
‘‘(1) IN GENERAL.—The excess passive assets of any con-
trolled foreign corporation for any taxable year is the excess
(if any) of—
‘‘(A) the average of the amounts of passive assets held
by such corporation as of the close of each quarter of
such taxable year, over
‘‘(B) 25 percent of the average of the amounts of total
assets held by such corporation as of the close of each
quarter of such taxable year.
For purposes of the preceding sentence, the amount taken
into account with respect to any asset shall be its adjusted
basis as determined for purposes of computing earnings and
profits.
‘‘(2) PASSIVE ASSET.—
‘‘(A) IN
GENERAL.—Except as otherwise provided in
this section, the term ‘passive asset’ means any asset held
by the controlled foreign corporation which produces pas-
sive income (as defined in section 1296(b)) or is held for
the production of such income.
‘‘(B) COORDINATION WITH SECTION 956.—The term ‘pas-
sive asset’ shall not include any United States property
(as defined in section 956).
‘‘(3) CERTAIN RULES TO APPLY.—For purposes of this sub-
section, the rules of the following provisions shall apply:
‘‘(A) Section 1296(c) (relating to look-thru rules).
‘‘(B) Section 1297(d) (relating to leasing rules).
‘‘(C) Section 1297(e) (relating to intangible property).
H. R. 2264—186
‘‘(d) TREATMENT OF CERTAIN GROUPS OF CONTROLLED FOREIGN
CORPORATIONS.—
‘‘(1) IN GENERAL.—For purposes of applying subsection (c)—
‘‘(A) all controlled foreign corporations which are mem-
bers of the same CFC group shall be treated as 1 controlled
foreign corporation, and
‘‘(B) the amount of the excess passive assets deter-
mined with respect to such 1 corporation shall be allocated
among the controlled foreign corporations which are mem-
bers of such group in proportion to their respective amounts
of applicable earnings.
‘‘(2) CFC GROUP.—For purposes of paragraph (1), the term
‘CFC group’ means 1 or more chains of controlled foreign cor-
porations connected through stock ownership with a top tier
corporation which is a controlled foreign corporation, but only
if—
‘‘(A) the top tier corporation owns directly more than
50 percent (by vote or value) of the stock of at least 1
of the other controlled foreign corporations, and
‘‘(B) more than 50 percent (by vote or value) of the
stock of each of the controlled foreign corporations (other
than the top tier corporation) is owned (directly or
indirectly) by one or more other members of the group.
‘‘(e) SPECIAL RULE WHERE CORPORATION CEASES TO BE CON-
TROLLED FOREIGN CORPORATION DURING TAXABLE YEAR.—If any
foreign corporation ceases to be a controlled foreign corporation
during any taxable year—
‘‘(1) the determination of any United States shareholder’s
pro rata share shall be made on the basis of stock owned
(within the meaning of section 958(a)) by such shareholder
on the last day during the taxable year on which the foreign
corporation is a controlled foreign corporation,
‘‘(2) the amount of such corporation’s excess passive assets
for such taxable year shall be determined by only taking into
account quarters ending on or before such last day, and
‘‘(3) in determining applicable earnings, the amount taken
into account by reason of being described in paragraph (2)
of section 316(a) shall be the portion of the amount so described
which is allocable (on a pro rata basis) to the part of such
year during which the corporation is a controlled foreign cor-
poration.
‘‘(f) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section,
including regulations to prevent the avoidance of the provisions
of this section through reorganizations or otherwise.’’
(c) PREVIOUSLY TAXED INCOME RULES.—
(1) IN GENERAL.—Subsection (a) of section 959 (relating
to exclusion from gross income of previously taxed earnings
and profits) is amended by striking ‘‘or’’ at the end of paragraph
(1), by adding ‘‘or’’ at the end of paragraph (2), and by inserting
after paragraph (2) the following new paragraph:
‘‘(3) such amounts would, but for this subsection, be
included under section 951(a)(1)(C) in the gross income of,’’.
(2) ALLOCATION RULES.—
(A) Subsection (a) of section 959 is amended by adding
at the end thereof the following new sentence: ‘‘The rules
of subsection (c) shall apply for purposes of paragraph
H. R. 2264—187
(1) of this subsection and the rules of subsection (f) shall
apply for purposes of paragraphs (2) and (3) of this sub-
section.’’.
(B) Section 959 is amended by adding at the end
thereof the following new subsection:
‘‘(f) ALLOCATION RULES FOR CERTAIN INCLUSIONS.—
‘‘(1) IN GENERAL.—For purposes of this section—
‘‘(A) amounts that would be included under subpara-
graph (B) of section 951(a)(1) (determined without regard
to this section) shall be treated as attributable first to
earnings described in subsection (c)(2), and then to earnings
described in subsection (c)(3), and
‘‘(B) amounts that would be included under subpara-
graph (C) of section 951(a)(1) (determined without regard
to this section) shall be treated as attributable first to
earnings described in subsection (c)(2) to the extent the
earnings so described were accumulated in taxable years
beginning after September 30, 1993, and then to earnings
described in subsection (c)(3).
‘‘(2) TREATMENT OF DISTRIBUTIONS.—In applying this sec-
tion, actual distributions shall be taken into account before
amounts that would be included under subparagraphs (B) and
(C) of section 951(a)(1) (determined without regard to this
section).’’
(C) Paragraph (1) of section 959(c) is amended to read
as follows:
‘‘(1) first to the aggregate of—
‘‘(A) earnings and profits attributable to amounts
included in gross income under section 951(a)(1)(B) (or
which would have been included except for subsection (a)(2)
of this section), and
‘‘(B) earnings and profits attributable to amounts
included in gross income under section 951(a)(1)(C) (or
which would have been included except for subsection (a)(3)
of this section),
with any distribution being allocated between earnings and
profits described in subparagraph (A) and earnings and profits
described in subparagraph (B) proportionately on the basis
of the respective amounts of such earnings and profits,’’.
(3) COORDINATION WITH PFIC INCLUSIONS.—Subsection (c)
of section 1293 is amended by adding at the end thereof the
following new sentence: ‘‘If the passive foreign investment com-
pany is a controlled foreign corporation (as defined in section
957(a)), the preceding sentence shall not apply to any United
States shareholder (as defined in section 951(b)) in such cor-
poration, and, in applying section 959 to any such shareholder,
any inclusion under this section shall be treated as an inclusion
under section 951(a)(1)(A).’’.
(4) CONFORMING AMENDMENTS.—
(A) Subsections (a) and (b) of section 959 are each
amended by striking ‘‘earnings and profits for a taxable
year’’ and inserting ‘‘earnings and profits’’.
(B) Paragraph (2) of section 959(c) is amended to read
as follows:
‘‘(2) then to earnings and profits attributable to amounts
included in gross income under section 951(a)(1)(A) (but reduced
by amounts not included under subparagraph (B) or (C) of
H. R. 2264—188
section 951(a)(1) because of the exclusions in paragraphs (2)
and (3) of subsection (a) of this section), and’’
(C) Subsection (b) of section 989 is amended by striking
‘‘section 951(a)(1)(B)’’ and inserting ‘‘subparagraph (B) or
(C) of section 951(a)(1)’’.
(d) MODIFICATIONS TO PASSIVE FOREIGN INVESTMENT COMPANY
RULES.—
(1) ADJUSTED BASIS USED IN CERTAIN DETERMINATIONS.—
Subsection (a) of section 1296 is amended by striking the mate-
rial following paragraph (2) and inserting the following:
‘‘In the case of a controlled foreign corporation (or any other foreign
corporation if such corporation so elects), the determination under
paragraph (2) shall be based on the adjusted bases (as determined
for purposes of computing earnings and profits) of its assets in
lieu of their value. Such an election, once made, may be revoked
only with the consent of the Secretary.’’
(2) TREATMENT OF CERTAIN SUBPART F INCLUSIONS.—Sub-
section (b) of section 1297 is amended by adding at the end
thereof the following new paragraph:
‘‘(9) TREATMENT OF CERTAIN SUBPART F INCLUSIONS.—Any
amount included in gross income under subparagraph (B) or
(C) of section 951(a)(1) shall be treated as a distribution
received with respect to the stock.’’
(3) TREATMENT OF CERTAIN DEALERS IN SECURITIES.—Sub-
section (b) of section 1296 is amended by adding at the end
thereof the following new paragraph:
‘‘(3) TREATMENT OF CERTAIN DEALERS IN SECURITIES.—
‘‘(A) IN GENERAL.—In the case of any foreign corpora-
tion which is a controlled foreign corporation (as defined
in section 957(a)), the term ‘passive income’ does not
include any income derived in the active conduct of a
securities business by such corporation if such corporation
is registered as a securities broker or dealer under section
15(a) of the Securities Exchange Act of 1934 or is registered
as a Government securities broker or dealer under section
15C(a) of such Act. To the extent provided in regulations,
such term shall not include any income derived in the
active conduct of a securities business by a controlled for-
eign corporation which is not so registered.
‘‘(B) APPLICATION OF LOOK-THRU RULES.—For purposes
of paragraph (2)(C), rules similar to the rules of subpara-
graph (A) of this paragraph shall apply in determining
whether any income of a related person (whether or not
a corporation) is passive income.
‘‘(C) LIMITATION.—The preceding provisions of this
paragraph shall only apply in the case of persons who
are United States shareholders (as defined in section
951(b)) in the controlled foreign corporation.’’
(4) LEASING AND INTANGIBLE ASSET RULES.—Section 1297
is amended by redesignating subsection (d) as subsection (f)
and by inserting after subsection (c) the following new sub-
sections:
‘‘(d) TREATMENT OF CERTAIN LEASED PROPERTY.—For purposes
of this part—
‘‘(1) IN
GENERAL.—Any tangible personal property with
respect to which a foreign corporation is the lessee under a
H. R. 2264—189
lease with a term of at least 12 months shall be treated as
an asset actually held by such corporation.
‘‘(2) DETERMINATION OF ADJUSTED BASIS.—
‘‘(A) IN
GENERAL.—The adjusted basis of any asset
to which paragraph (1) applies shall be the unamortized
portion (as determined under regulations prescribed by
the Secretary) of the present value of the payments under
the lease for the use of such property.
‘‘(B) PRESENT VALUE.—For purposes of subparagraph
(A), the present value of payments described in subpara-
graph (A) shall be determined in the manner provided
in regulations prescribed by the Secretary—
‘‘(i) as of the beginning of the lease term, and
‘‘(ii) except as provided in such regulations, by
using a discount rate equal to the applicable Federal
rate determined under section 1274(d)—
‘‘(I) by substituting the lease term for the term
of the debt instrument, and
‘‘(II) without regard to paragraph (2) or (3)
thereof.
‘‘(3) EXCEPTIONS.—This subsection shall not apply in any
case where—
‘‘(A) the lessor is a related person (as defined in section
954(d)(3)) with respect to the foreign corporation, or
‘‘(B) a principal purpose of leasing the property was
to avoid the provisions of this part or section 956A.
‘‘(e) SPECIAL RULES FOR CERTAIN INTANGIBLES.—
‘‘(1) RESEARCH EXPENDITURES.—The adjusted basis of the
total assets of a controlled foreign corporation shall be increased
by the research or experimental expenditures (within the mean-
ing of section 174) paid or incurred by such foreign corporation
during the taxable year and the preceding 2 taxable years.
Any expenditure otherwise taken into account under the preced-
ing sentence shall be reduced by the amount of any reimburse-
ment received by the controlled foreign corporation with respect
to such expenditure.
‘‘(2) CERTAIN LICENSED INTANGIBLES.—
‘‘(A) IN GENERAL.—In the case of any intangible prop-
erty (as defined in section 936(h)(3)(B)) with respect to
which a controlled foreign corporation is a licensee and
which is used by such foreign corporation in the active
conduct of a trade or business, the adjusted basis of the
total assets of such foreign corporation shall be increased
by an amount equal to 300 percent of the payments made
during the taxable year by such foreign corporation for
the use of such intangible property.
‘‘(B) EXCEPTIONS.—Subparagraph (A) shall not apply
to—
‘‘(i) any payments to a foreign person if such for-
eign person is a related person (as defined in section
954(d)(3)) with respect to the controlled foreign corpora-
tion, and
‘‘(ii) any payments under a license if a principal
purpose of entering into such license was to avoid
the provisons of this part or section 956A.
H. R. 2264—190
‘‘(3) CONTROLLED FOREIGN CORPORATION.—For purposes of
this subsection, the term ‘controlled foreign corporation’ has
the meaning given such term by section 957(a).’’
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of foreign corporations beginning after
September 30, 1993, and to taxable years of United States share-
holders in which or with which such taxable years of foreign corpora-
tions end.
SEC. 13232. MODIFICATION TO TAXATION OF INVESTMENT IN UNITED
STATES PROPERTY.
(a) GENERAL RULE.—Section 956 (relating to investment of
earnings in United States property) is amended—
(1) by redesignating subsections (b) and (c) as subsections
(c) and (d), respectively, and
(2) by striking subsection (a) and inserting the following:
‘‘(a) GENERAL RULE.—In the case of any controlled foreign cor-
poration, the amount determined under this section with respect
to any United States shareholder for any taxable year is the lesser
of—
‘‘(1) the excess (if any) of—
‘‘(A) such shareholder’s pro rata share of the average
of the amounts of United States property held (directly
or indirectly) by the controlled foreign corporation as of
the close of each quarter of such taxable year, over
‘‘(B) the amount of earnings and profits described in
section 959(c)(1)(A) with respect to such shareholder, or
‘‘(2) such shareholder’s pro rata share of the applicable
earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect
to any property shall be its adjusted basis as determined for pur-
poses of computing earnings and profits, reduced by any liability
to which the property is subject.
‘‘(b) SPECIAL RULES.—
‘‘(1) APPLICABLE EARNINGS.—For purposes of this section,
the term ‘applicable earnings’ has the meaning given to such
term by section 956A(b), except that the provisions of such
section excluding earnings and profits accumulated in taxable
years beginning before October 1, 1993, shall be disregarded.
‘‘(2) SPECIAL RULE FOR U.S. PROPERTY ACQUIRED BEFORE
CORPORATION
IS
A
CONTROLLED
FOREIGN
CORPORATION.—In
applying subsection (a) to any taxable year, there shall be
disregarded any item of United States property which was
acquired by the controlled foreign corporation before the first
day on which such corporation was treated as a controlled
foreign corporation. The aggregate amount of property dis-
regarded under the preceding sentence shall not exceed the
portion of the applicable earnings of such controlled foreign
corporation which were accumulated during periods before such
first day.
‘‘(3) SPECIAL RULE WHERE CORPORATION CEASES TO BE CON-
TROLLED
FOREIGN
CORPORATION.—Rules similar to the rules
of section 956A(e) shall apply for purposes of this section.’’
(b) REGULATORY AUTHORITY.—Section 956 is amended by add-
ing at the end thereof the following new subsection:
‘‘(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section,
H. R. 2264—191
including regulations to prevent the avoidance of the provisons
of this section through reorganizations or otherwise.’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 951(a)(1) is amended to
read as follows:
‘‘(B) the amount determined under section 956 with
respect to such shareholder for such year (but only to
the extent not excluded from gross income under section
959(a)(2)); and’’
(2) Subsection (a) of section 951 is amended by striking
paragraph (4).
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years of controlled foreign corporations begin-
ning after September 30, 1993, and to taxable years of United
States shareholders in which or with which such taxable years
of controlled foreign corporations end.
SEC. 13233. OTHER MODIFICATIONS TO SUBPART F.
(a) SAME COUNTRY EXCEPTION NOT TO APPLY TO CERTAIN DIVI-
DENDS.—
(1) IN GENERAL.—Paragraph (3) of section 954(c) (relating
to certain income received from related persons) is amended
by adding at the end thereof the following new subparagraph:
‘‘(C) EXCEPTION
FOR
CERTAIN
DIVIDENDS.—Subpara-
graph (A)(i) shall not apply to any dividend with respect
to any stock which is attributable to earnings and profits
of the distributing corporation accumulated during any
period during which the person receiving such dividend
did not hold such stock either directly, or indirectly through
a chain of one or more subsidiaries each of which meets
the requirements of subparagraph (A)(i).’’
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to taxable years of controlled foreign corporations
beginning after September 30, 1993, and to taxable years of
United States shareholders in which or with which such taxable
years of controlled foreign corporations end.
(b) AMENDMENTS TO SECTION 960(b).—
(1) IN
GENERAL.—Subsection (b) of section 960 is
amended—
(A) by redesignating paragraphs (3) and (4) as para-
graphs (4) and (5), respectively, and
(B) by striking paragraphs (1) and (2) and inserting
the following new paragraphs:
‘‘(1) INCREASE IN SECTION 904 LIMITATION.—In the case of
any taxpayer who—
‘‘(A) either (i) chose to have the benefits of subpart
A of this part for a taxable year beginning after September
30, 1993, in which he was required under section 951(a)
to include any amount in his gross income, or (ii) did
not pay or accrue for such taxable year any income, war
profits, or excess profits taxes to any foreign country or
to any possession of the United States,
‘‘(B) chooses to have the benefits of subpart A of this
part for any taxable year in which he receives 1 or more
distributions or amounts which are excludable from gross
income under section 959(a) and which are attributable
H. R. 2264—192
to amounts included in his gross income for taxable years
referred to in subparagraph (A), and
‘‘(C) for the taxable year in which such distributions
or amounts are received, pays, or is deemed to have paid,
or accrues income, war profits, or excess profits taxes to
a foreign country or to any possession of the United States
with respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which
such distributions or amounts are received shall be increased
by the lesser of the amount of such taxes paid, or deemed
paid, or accrued with respect to such distributions or amounts
or the amount in the excess limitation account as of the begin-
ning of such taxable year.
‘‘(2) EXCESS LIMITATION ACCOUNT.—
‘‘(A) ESTABLISHMENT
OF
ACCOUNT.—Each taxpayer
meeting the requirements of paragraph (1)(A) shall estab-
lish an excess limitation account. The opening balance of
such account shall be zero.
‘‘(B) INCREASES IN ACCOUNT.—For each taxable year
beginning after September 30, 1993, the taxpayer shall
increase the amount in the excess limitation account by
the excess (if any) of—
‘‘(i) the amount by which the limitation under sec-
tion 904(a) for such taxable year was increased by
reason of the total amount of the inclusions in gross
income under section 951(a) for such taxable year,
over
‘‘(ii) the amount of any income, war profits, and
excess profits taxes paid, or deemed paid, or accrued
to any foreign country or possession of the United
States which were allowable as a credit under section
901 for such taxable year and which would not have
been allowable but for the inclusions in gross income
described in clause (i).
Proper reductions in the amount added to the account
under the preceding sentence for any taxable year shall
be made for any increase in the credit allowable under
section 901 for such taxable year by reason of a carryback
if such increase would not have been allowable but for
the inclusions in gross income described in clause (i).
‘‘(C) DECREASES IN ACCOUNT.—For each taxable year
beginning after September 30, 1993, for which the limita-
tion under section 904 was increased under paragraph
(1), the taxpayer shall reduce the amount in the excess
limitation account by the amount of such increase.
‘‘(3) DISTRIBUTIONS OF INCOME PREVIOUSLY TAXED IN YEARS
BEGINNING BEFORE OCTOBER 1, 1993.—If the taxpayer receives
a distribution or amount in a taxable year beginning after
September 30, 1993, which is excluded from gross income under
section 959(a) and is attributable to any amount included in
gross income under section 951(a) for a taxable year beginning
before October 1, 1993, the limitation under section 904 for
the taxable year in which such amount or distribution is
received shall be increased by the amount determined under
this subsection as in effect on the day before the date of the
enactment of the Revenue Reconcilation Act of 1993.’’
H. R. 2264—193
(2) EFFECTIVE DATE.—The amendment made by paragraph
(1) shall apply to taxable years beginning after September
30, 1993.
Subpart B—Allocation of Research and
Experimental Expenditures
SEC. 13234. ALLOCATION 
OF 
RESEARCH 
AND 
EXPERIMENTAL
EXPENDITURES.
(a) GENERAL RULE.—Subparagraph (B) of section 864(f)(1)
(relating to allocation of research and experimental expenditures)
is amended by striking ‘‘64 percent’’ each place it appears and
inserting ‘‘50 percent’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (f) of section 864 is amended by striking
paragraph (5) and inserting the following new paragraphs:
‘‘(5) REGULATIONS.—The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes
of this subsection, including regulations relating to the deter-
mination of whether any expenses are attributable to activities
conducted in the United States or outside the United States
and regulations providing such adjustments to the provisions
of this subsection as may be appropriate in the case of cost-
sharing arrangements and contract research.
‘‘(6) APPLICABILITY.—This subsection shall apply to the tax-
payer’s first taxable year (beginning on or before August 1,
1994) following the taxpayer’s last taxable year to which Reve-
nue Procedure 92–56 applies or would apply if the taxpayer
elected the benefits of such Revenue Procedure.’’
(2) Subparagraph (D) of section 864(f)(4) is amended by
striking ‘‘subparagraph (C)’’ and inserting ‘‘subparagraph (B)
or (C)’’.
Subpart C—Other Provisions
SEC. 13235. REPEAL OF CERTAIN EXCEPTIONS FOR WORKING CAP-
ITAL.
(a) PROVISIONS RELATING TO OIL AND GAS INCOME.—
(1) AMENDMENTS TO SECTION 907.—
(A) Paragraph (1) of section 907(c) is amended by add-
ing at the end thereof the following new flush sentence:
‘‘Such term does not include any dividend or interest income which
is passive income (as defined in section 904(d)(2)(A)).’’.
(B) Paragraph (2) of section 907(c) is amended by add-
ing at the end thereof the following new flush sentence:
‘‘Such term does not include any dividend or interest income which
is passive income (as defined in section 904(d)(2)(A)).’’.
(2) SEPARATE APPLICATION OF FOREIGN TAX CREDIT.—Clause
(iii) of section 904(d)(2)(A) is amended by inserting ‘‘and’’ at
the end of subclause (II), by striking ‘‘, and’’ at the end of
subclause (III) and inserting a period, and by striking subclause
(IV).
(3) TREATMENT UNDER SUBPART F.—
(A) Paragraph (1) of section 954(g) is amended by
adding at the end thereof the following new flush sentence:
‘‘Such term shall not include any foreign personal holding company
income (as defined in subsection (c)).’’.
H. R. 2264—194
(B) Paragraph (8) of section 954(b) is amended by
striking ‘‘(1),’’.
(b) TREATMENT OF SHIPPING INCOME.—Subsection (f) of section
954 is amended by adding at the end thereof the following new
sentence: ‘‘Except as provided in paragraph (1), such term shall
not include any dividend or interest income which is foreign per-
sonal holding company income (as defined in subsection (c)).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1992.
SEC. 13236. MODIFICATIONS OF ACCURACY-RELATED PENALTY.
(a) 
THRESHOLD
REQUIREMENT.—Clause 
(ii) 
of 
section
6662(e)(1)(B) (relating to substantial valuation misstatement under
chapter 1) is amended to read as follows:
‘‘(ii) the net section 482 transfer price adjustment
for the taxable year exceeds the lesser of $5,000,000
or 10 percent of the taxpayer’s gross receipts.’’
(b) CERTAIN ADJUSTMENTS EXCLUDED IN DETERMINING THRESH-
OLD.—Subparagraph (B) of section 6662(e)(3) is amended to read
as follows:
‘‘(B) CERTAIN ADJUSTMENTS EXCLUDED IN DETERMINING
THRESHOLD.—For purposes of determining whether the
threshold requirements of paragraph (1)(B)(ii) are met, the
following shall be excluded:
‘‘(i) Any portion of the net increase in taxable
income referred to in subparagraph (A) which is attrib-
utable to any redetermination of a price if—
‘‘(I) it is established that the taxpayer deter-
mined such price in accordance with a specific
pricing method set forth in the regulations pre-
scribed under section 482 and that the taxpayer’s
use of such method was reasonable,
‘‘(II) the taxpayer has documentation (which
was in existence as of the time of filing the return)
which sets forth the determination of such price
in accordance with such a method and which estab-
lishes that the use of such method was reasonable,
and
‘‘(III) the taxpayer provides such documenta-
tion to the Secretary within 30 days of a request
for such documentation.
‘‘(ii) Any portion of the net increase in taxable
income referred to in subparagraph (A) which is attrib-
utable to a redetermination of price where such price
was not determined in accordance with such a specific
pricing method if—
‘‘(I) the taxpayer establishes that none of such
pricing methods was likely to result in a price
that would clearly reflect income, the taxpayer
used another pricing method to determine such
price, and such other pricing method was likely
to result in a price that would clearly reflect
income,
‘‘(II) the taxpayer has documentation (which
was in existence as of the time of filing the return)
which sets forth the determination of such price
in accordance with such other method and which
H. R. 2264—195
establishes that the requirements of subclause (I)
were satisfied, and
‘‘(III) the taxpayer provides such documenta-
tion to the Secretary within 30 days of request
for such documentation.
‘‘(iii) Any portion of such net increase which is
attributable to any transaction solely between foreign
corporations unless, in the case of any such corpora-
tions, the treatment of such transaction affects the
determination of income from sources within the
United States or taxable income effectively connected
with the conduct of a trade or business within the
United States.’’
(c) COORDINATION WITH REASONABLE CAUSE EXCEPTION.—Para-
graph (3) of section 6662(e) is amended by adding at the end
thereof the following new subparagraph:
‘‘(D) COORDINATION WITH REASONABLE CAUSE EXCEP-
TION.—For purposes of section 6664(c) the taxpayer shall
not be treated as having reasonable cause for any portion
of an underpayment attributable to a net section 482 trans-
fer price adjustment unless such taxpayer meets the
requirements of clause (i), (ii), or (iii) of subparagraph
(B) with respect to such portion.’’
(d) 
CONFORMING
AMENDMENT.—Clause 
(iii) 
of 
section
6662(h)(2)(A) is amended to read as follows:
‘‘(iii) in paragraph (1)(B)(ii)—
‘‘(I) ‘$20,000,000’ for ‘$5,000,000’, and
‘‘(II) ‘20 percent’ for ‘10 percent’.’’
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1993.
SEC. 13237. DENIAL 
OF 
PORTFOLIO 
INTEREST 
EXEMPTION 
FOR
CONTINGENT INTEREST.
(a) GENERAL RULE.—
(1) Subsection (h) of section 871 (relating to repeal of tax
on interest of nonresident alien individuals received from cer-
tain portfolio debt investments) is amended by redesignating
paragraphs (4), (5), and (6) as paragraphs (5), (6), and (7),
respectively, and by inserting after paragraph (3) the following
new paragraph:
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE CERTAIN CONTIN-
GENT INTEREST.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—Except as otherwise provided in
this paragraph, the term ‘portfolio interest’ shall not
include—
‘‘(i) any interest if the amount of such interest
is determined by reference to—
‘‘(I) any receipts, sales or other cash flow of
the debtor or a related person,
‘‘(II) any income or profits of the debtor or
a related person,
‘‘(III) any change in value of any property
of the debtor or a related person, or
‘‘(IV) any dividend, partnership distributions,
or similar payments made by the debtor or a
related person, or
H. R. 2264—196
‘‘(ii) any other type of contingent interest that is
identified by the Secretary by regulation, where a
denial of the portfolio interest exemption is necessary
or appropriate to prevent avoidance of Federal income
tax.
‘‘(B) RELATED
PERSON.—The term ‘related person’
means any person who is related to the debtor within
the meaning of section 267(b) or 707(b)(1), or who is a
party to any arrangement undertaken for a purpose of
avoiding the application of this paragraph.
‘‘(C) EXCEPTIONS.—Subparagraph (A)(i) shall not apply
to—
‘‘(i) any amount of interest solely by reason of
the fact that the timing of any interest or principal
payment is subject to a contingency,
‘‘(ii) any amount of interest solely by reason of
the fact that the interest is paid with respect to
nonrecourse or limited recourse indebtedness,
‘‘(iii) any amount of interest all or substantially
all of which is determined by reference to any other
amount of interest not described in subparagraph (A)
(or by reference to the principal amount of indebted-
ness on which such other interest is paid),
‘‘(iv) any amount of interest solely by reason of
the fact that the debtor or a related person enters
into a hedging transaction to reduce the risk of interest
rate or currency fluctuations with respect to such
interest,
‘‘(v) any amount of interest determined by ref-
erence to—
‘‘(I) changes in the value of property (including
stock) that is actively traded (within the meaning
of section 1092(d)) other than property described
in section 897(c)(1) or (g),
‘‘(II) the yield on property described in
subclause (I), other than a debt instrument that
pays interest described in subparagraph (A), or
stock or other property that represents a beneficial
interest in the debtor or a related person, or
‘‘(III) changes in any index of the value of
property described in subclause (I) or of the yield
on property described in subclause (II), and
‘‘(vi) any other type of interest identified by the
Secretary by regulation.
‘‘(D) EXCEPTION
FOR
CERTAIN
EXISTING
INDEBTED-
NESS.—Subparagraph (A) shall not apply to any interest
paid or accrued with respect to any indebtedness with
a fixed term—
‘‘(i) which was issued on or before April 7, 1993,
or
‘‘(ii) which was issued after such date pursuant
to a written binding contract in effect on such date
and at all times thereafter before such indebtedness
was issued.’’
(2) Subsection (c) of section 881 is amended by redesignat-
ing paragraphs (4), (5), and (6) as paragraphs (5), (6), and
H. R. 2264—197
(7), respectively, and by inserting after paragraph (3) the follow-
ing new paragraph:
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE CERTAIN CONTIN-
GENT INTEREST.—For purposes of this subsection, the term ‘port-
folio interest’ shall not include any interest which is treated
as not being portfolio interest under the rules of section
871(h)(4).’’
(b) ESTATE TAX TREATMENT.—Subsection (b) of section 2105
is amended—
(1) by striking ‘‘this subchapter’’ in the material preceding
paragraph (1) and inserting ‘‘this subchapter, the following
shall not be deemed property within the United States’’, and
(2) by striking paragraph (3) and all that follows down
through the period at the end thereof and inserting the follow-
ing:
‘‘(3) debt obligations, if, without regard to whether a state-
ment meeting the requirements of section 871(h)(5) has been
received, any interest thereon would be eligible for the exemp-
tion from tax under section 871(h)(1) were such interest
received by the decedent at the time of his death.
Notwithstanding the preceding sentence, if any portion of the
interest on an obligation referred to in paragraph (3) would not
be eligible for the exemption referred to in paragraph (3) by reason
of section 871(h)(4) if the interest were received by the decedent
at the time of his death, then an appropriate portion (as determined
in a manner prescribed by the Secretary) of the value (as determined
for purposes of this chapter) of such debt obligation shall be deemed
property within the United States.’’
(c) CONFORMING AMENDMENTS.—
(1) Clause (ii) of section 871(h)(2)(B) is amended by striking
‘‘paragraph (4)’’ and inserting ‘‘paragraph (5)’’.
(2) Clause (ii) of section 881(c)(2)(B) is amended by striking
‘‘section 871(h)(4)’’ and inserting ‘‘section 871(h)(5)’’.
(3) Paragraph (6) of section 881(c) (as redesignated by
subsection (a)) is amended by striking ‘‘section 871(h)(5)’’ each
place it appears and inserting ‘‘section 871(h)(6)’’.
(4) Paragraph (9) of section 1441(c) is amended by striking
‘‘section 871(h)(3)’’ and inserting ‘‘section 871(h)(3) or (4)’’.
(5) Subsection (a) of section 1442 is amended—
(A) by striking ‘‘871(h)(3)’’ and inserting ‘‘871(h)(3) or
(4)’’, and
(B) by striking ‘‘881(c)(3)’’ and inserting ‘‘881(c)(3) or
(4)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to interest received after December 31, 1993; except
that the amendments made by subsection (b) shall apply to the
estates of decedents dying after December 31, 1993.
SEC. 13238. REGULATIONS DEALING WITH CONDUIT ARRANGEMENTS.
Section 7701 is amended by redesignating subsection (l) as
subsection (m) and by inserting after subsection (k) the following
new subsection:
‘‘(l) REGULATIONS RELATING TO CONDUIT ARRANGEMENTS.—The
Secretary may prescribe regulations recharacterizing any multiple-
party financing transaction as a transaction directly among any
2 or more of such parties where the Secretary determines that
H. R. 2264—198
such recharacterization is appropriate to prevent avoidance of any
tax imposed by this title.’’
SEC. 13239. TREATMENT OF EXPORT OF CERTAIN SOFTWOOD LOGS.
(a) FOREIGN SALES CORPORATIONS.—Paragraph (2) of section
927(a) (relating to exclusion of certain property) is amended by
striking ‘‘or’’ at the end of subparagraph (C), by striking the period
at the end of subparagraph (D) and inserting ‘‘, or’’, and by adding
at the end the following:
‘‘(E) any unprocessed timber which is a softwood.
For purposes of subparagraph (E), the term ‘unprocessed tim-
ber’ means any log, cant, or similar form of timber.’’
(b) DOMESTIC INTERNATIONAL SALES CORPORATIONS.—Para-
graph (2) of section 993(c) (relating to exclusion of certain property)
is amended—
(1) by striking ‘‘or’’ at the end of subparagraph (C), by
striking the period at the end of subparagraph (D) and inserting
‘‘, or’’, and by adding after subparagraph (D) the following
new subparagraph:
‘‘(E) any unprocessed timber which is a softwood.’’,
and
(2) by adding at the end the following new sentence: ‘‘For
purposes of subparagraph (E), the term ‘unprocessed timber’
means any log, cant, or similar form of timber.’’
(c) SOURCE RULE.—Subsection (b) of section 865 (relating to
source rules for personal property sales) is amended by adding
at the end the following: ‘‘Notwithstanding the preceding sentence,
any income from the sale of any unprocessed timber which is
a softwood and was cut from an area in the United States shall
be sourced in the United States and the rules of sections 862(a)(6)
and 863(b) shall not apply to any such income. For purposes of
the preceding sentence, the term ‘unprocessed timber’ means any
log, cant, or similar form of timber.’’
(d) ELIMINATION OF DEFERRAL.—Subsection (d) of section 954
is amended by adding at the end the following new paragraph:
‘‘(4) SPECIAL RULE FOR CERTAIN TIMBER PRODUCTS.—For
purposes of subsection (a)(2), the term ‘foreign base company
sales income’ includes any income (whether in the form of
profits, commissions, fees, or otherwise) derived in connection
with—
‘‘(A) the sale of any unprocessed timber referred to
in section 865(b), or
‘‘(B) the milling of any such timber outside the United
States.
Subpart G shall not apply to any amount treated as subpart
F income by reason of this paragraph.’’
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales, exchanges, or other dispositions after the
date of the enactment of this Act.
H. R. 2264—199
PART IV—TRANSPORTATION FUELS
PROVISIONS
Subpart A—Transportation Fuels Tax
SEC. 13241. TRANSPORTATION FUELS TAX.
(a) GASOLINE.—Clause (iii) of section 4081(a)(2)(B) (relating
to rates of tax) is amended to read as follows:
‘‘(iii) the deficit reduction rate is 6.8 cents per
gallon.’’
(b) DIESEL FUEL AND NONCOMMERCIAL AVIATION FUEL.—
(1) DIESEL FUEL.—Paragraph (4) of section 4091(b) (relating
to rate of tax) is amended by striking ‘‘2.5 cents’’ and inserting
‘‘6.8 cents’’.
(2) AVIATION FUEL.—
(A) GASOLINE
IN
NONCOMMERCIAL
AVIATION.—Para-
graph (3) of section 4041(c) is amended to read as follows:
‘‘(3) RATE OF TAX.—The rate of tax imposed by paragraph
(2) on any gasoline is 1 cent per gallon.’’
(B) FUEL OTHER THAN GASOLINE.—
(i) Clause (ii) of section 4091(b)(1)(A) is amended
by inserting ‘‘and the aviation fuel deficit reduction
rate’’ after ‘‘financing rate’’.
(ii) Subsection (b) of section 4091 is amended by
redesignating paragraph (6) as paragraph (7) and by
inserting after paragraph (5) the following new para-
graph:
‘‘(6) AVIATION
FUEL
DEFICIT
REDUCTION
RATE.—For pur-
poses of paragraph (1), the aviation fuel deficit reduction rate
is 4.3 cents per gallon.’’
(iii) Paragraph (1) of section 4041(c) is amended—
(I) by striking ‘‘of 17.5 cents a gallon’’, and
(II) by inserting before the last sentence the
following new sentence:
‘‘The rate of the tax imposed by this paragraph shall be the
sum of the Airport and Airway Trust Fund financing rate
and the aviation fuel deficit reduction rate in effect under
section 4091 at the time of such sale or use.’’
(c) 
CERTAIN
ALCOHOL
FUELS.—Section 
4041(m)(1)(A) 
is
amended to read as follows:
‘‘(A) under subsection (a)(2)—
‘‘(i) the Highway Trust Fund financing rate shall
be 5.75 cents per gallon, and
‘‘(ii) the deficit reduction rate shall be 5.55 cents
per gallon.’’
(d) FUEL USED IN COMMERCIAL TRANSPORTATION ON INLAND
WATERWAYS.—
(1) IN GENERAL.—Section 4042(b)(1) (relating to amount
of tax) is amended—
(A) by striking ‘‘and’’ at the end of subparagraph (A),
(B) by striking the period at the end of subparagraph
(B) and inserting ‘‘, and’’, and
(C) by adding at the end thereof the following new
subparagraph:
‘‘(C) the deficit reduction rate.’’
H. R. 2264—200
(2) RATE.—Section 4042(b)(2) (relating to rates) is amended
by adding at the end the following new subparagraph:
‘‘(C) The deficit reduction rate is 4.3 cents per gallon.’’
(e) COMPRESSED NATURAL GAS.—
(1) IN GENERAL.—Subsection (a) of section 4041 is amended
by adding at the end thereof the following new paragraph:
‘‘(3) COMPRESSED NATURAL GAS.—
‘‘(A) IN GENERAL.—There is hereby imposed a tax on
compressed natural gas—
‘‘(i) sold by any person to an owner, lessee, or
other operator of a motor vehicle or motorboat for
use as a fuel in such motor vehicle or motorboat, or
‘‘(ii) used by any person as a fuel in a motor
vehicle or motorboat unless there was a taxable sale
of such gas under clause (i).
The rate of the tax imposed by this paragraph shall be
48.54 cents per MCF (determined at standard temperature
and pressure).
‘‘(B) BUS USES.—No tax shall be imposed by this para-
graph on any sale for use, or use, described in subpara-
graph (B) or (C) of section 6427(b)(2) (relating to school
bus and intracity transportation).
‘‘(C) ADMINISTRATIVE
PROVISIONS.—For purposes of
applying this title with respect to the taxes imposed by
this subsection, references to any liquid subject to tax
under this subsection shall be treated as including ref-
erences to compressed natural gas subject to tax under
this paragraph, and references to gallons shall be treated
as including references to MCF with respect to such gas.’’
(2) EXEMPTION FROM LEAKING UNDERGROUND STORAGE TANK
TRUST FUND TAX.—Paragraph (1) of section 4041(d) is amended
by striking ‘‘subsection (a)’’ the second place it appears in
the text and inserting ‘‘subsection (a)(1) or (2)’’.
(f) CONFORMING AMENDMENTS.—
(1) Paragraph (3) of section 4041(f) is hereby repealed.
(2) Subsection (g) of section 4041 is amended by striking
the last sentence.
(3) Subparagraphs (A) and (B) of section 4093(c)(2) are
amended to read as follows:
‘‘(A) NO EXEMPTION FROM CERTAIN TAXES ON FUEL USED
IN DIESEL-POWERED TRAINS.—In the case of fuel sold for
use in a diesel-powered train, paragraph (1) shall not apply
to so much of the tax imposed by section 4091 as is attrib-
utable to the Leaking Underground Storage Tank Trust
Fund financing rate and the diesel fuel deficit reduction
rate imposed under such section. The preceding sentence
shall not apply in the case of fuel sold for exclusive use
by a State or any political subdivision thereof.
‘‘(B) NO
EXEMPTION
FROM
LEAKING
UNDERGROUND
STORAGE
TANK
TRUST
FUND
TAXES
ON
FUEL
USED
IN
COMMERCIAL AVIATION.—In the case of fuel sold for use
in commercial aviation (other than supplies for vessels
or aircraft within the meaning of section 4221(d)(3)), para-
graph (1) also shall not apply to so much of the tax imposed
by section 4091 as is attributable to the Leaking Under-
ground Storage Tank Trust Fund financing rate imposed
by such section. For purposes of the preceding sentence,
H. R. 2264—201
the term ‘commercial aviation’ means any use of an aircraft
other than in noncommercial aviation (as defined in section
4041(c)(4)).’’
(4) Section 4093(d) is amended by inserting ‘‘and the avia-
tion fuel deficit reduction rate’’ after ‘‘rate’’.
(5) Section 6420 is amended by striking subsection (h).
(6) Paragraph (3) of section 6421(f) is amended by inserting
‘‘and at the deficit reduction rate’’ after ‘‘financing rate’’, and
by inserting ‘‘AND DEFICIT REDUCTION TAX’’ after ‘‘TAX’’ in the
heading.
(7) Section 6421 is amended by striking subsection (i).
(8) Paragraph (2) of section 6427(b) is amended—
(A) by striking ‘‘3.1 cents’’ in subparagraph (A) and
inserting ‘‘7.4 cents’’, and
(B) by striking ‘‘3-CENT REDUCTION’’ in the paragraph
heading and inserting ‘‘REDUCTION’’.
(9) Section 6427(l) is amended by striking paragraphs (3)
and (4) and inserting the following new paragraphs:
‘‘(3) NO REFUND OF CERTAIN TAXES ON FUEL USED IN DIESEL-
POWERED TRAINS.—In the case of fuel used in a diesel-powered
train, paragraph (1) shall not apply to so much of the tax
imposed by section 4091 as is attributable to the Leaking
Underground Storage Tank Trust Fund financing rate and
the diesel fuel deficit reduction rate imposed by such section.
The preceding sentence shall not apply in the case of fuel
sold for exclusive use by a State or any political subdivision
thereof.
‘‘(4) NO REFUND OF LEAKING UNDERGROUND STORAGE TANK
TRUST FUND TAXES ON FUEL USED IN COMMERCIAL AVIATION.—
In the case of fuel used in commercial aviation (as defined
in section 4093(c)(2)(B)) (other than supplies for vessels or
aircraft within the meaning of section 4221(d)(3)), paragraph
(1) shall not apply to so much of the tax imposed by section
4091 as is attributable to the Leaking Underground Storage
Tank Trust Fund financing rate imposed by such section.’’
(10) Section 6427 is amended by striking subsections (m)
and (o).
(g) EFFECTIVE DATE.—The amendments made by this section
shall take effect on October 1, 1993.
(h) FLOOR STOCKS TAXES.—
(1) IMPOSITION
OF
TAX.—In the case of gasoline, diesel
fuel, and aviation fuel on which tax was imposed under section
4081 or 4091 of the Internal Revenue Code of 1986 before
October 1, 1993, and which is held on such date by any person,
there is hereby imposed a floor stocks tax of 4.3 cents per
gallon on such gasoline, diesel fuel, and aviation fuel.
(2) LIABILITY FOR TAX AND METHOD OF PAYMENT.—
(A) LIABILITY
FOR
TAX.—A person holding gasoline,
diesel fuel, or aviation fuel on October 1, 1993, to which
the tax imposed by paragraph (1) applies shall be liable
for such tax.
(B) METHOD OF PAYMENT.—The tax imposed by para-
graph (1) shall be paid in such manner as the Secretary
shall prescribe.
(C) TIME FOR PAYMENT.—The tax imposed by para-
graph (1) shall be paid on or before November 30, 1993.
(3) DEFINITIONS.—For purposes of this subsection—
H. R. 2264—202
(A) HELD BY A PERSON.—Gasoline, diesel fuel, and avia-
tion fuel shall be considered as ‘‘held by a person’’ if title
thereto has passed to such person (whether or not delivery
to the person has been made).
(B) GASOLINE.—The term ‘‘gasoline’’ has the meaning
given such term by section 4082 of such Code.
(C) DIESEL FUEL.—The term ‘‘diesel fuel’’ has the mean-
ing given such term by section 4092 of such Code.
(D) AVIATION FUEL.—The term ‘‘aviation fuel’’ has the
meaning given such term by section 4092 of such Code.
(E) SECRETARY.—The term ‘‘Secretary’’ means the Sec-
retary of the Treasury or his delegate.
(4) EXCEPTION
FOR
EXEMPT
USES.—The tax imposed by
paragraph (1) shall not apply to gasoline, diesel fuel, or aviation
fuel held by any person exclusively for any use to the extent
a credit or refund of the tax imposed by section 4081 or 4091
of such Code, as the case may be, is allowable for such use.
(5) EXCEPTION FOR FUEL HELD IN VEHICLE TANK.—No tax
shall be imposed by paragraph (1) on gasoline or diesel fuel
held in the tank of a motor vehicle or motorboat.
(6) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL.—
(A) IN GENERAL.—No tax shall be imposed by para-
graph (1)—
(i) on gasoline held on October 1, 1993, by any
person if the aggregate amount of gasoline held by
such person on such date does not exceed 4,000 gallons,
and
(ii) on diesel fuel or aviation fuel held on October
1, 1993, by any person if the aggregate amount of
diesel fuel or aviation fuel held by such person on
such date does not exceed 2,000 gallons.
The preceding sentence shall apply only if such person
submits to the Secretary (at the time and in the manner
required by the Secretary) such information as the Sec-
retary shall require for purposes of this paragraph.
(B) EXEMPT FUEL.—For purposes of subparagraph (A),
there shall not be taken into account fuel held by any
person which is exempt from the tax imposed by paragraph
(1) by reason of paragraph (4) or (5).
(C) CONTROLLED
GROUPS.—For purposes of this
paragraph—
(i) CORPORATIONS.—
(I) IN GENERAL.—All persons treated as a con-
trolled group shall be treated as 1 person.
(II) CONTROLLED
GROUP.—The term ‘‘con-
trolled group’’ has the meaning given to such term
by subsection (a) of section 1563 of such Code;
except that for such purposes the phrase ‘‘more
than 50 percent’’ shall be substituted for the
phrase ‘‘at least 80 percent’’ each place it appears
in such subsection.
(ii) NONINCORPORATED
PERSONS
UNDER
COMMON
CONTROL.—Under regulations prescribed by the Sec-
retary, principles similar to the principles of clause
(i) shall apply to a group of persons under common
control where 1 or more of such persons is not a
corporation.
H. R. 2264—203
(7) OTHER LAW APPLICABLE.—All provisions of law, includ-
ing penalties, applicable with respect to the taxes imposed
by section 4081 of such Code in the case of gasoline and
section 4091 of such Code in the case of diesel fuel and aviation
fuel shall, insofar as applicable and not inconsistent with the
provisions of this subsection, apply with respect to the floor
stock taxes imposed by paragraph (1) to the same extent as
if such taxes were imposed by such section 4081 or 4091.
Subpart B—Modifications to Tax on Diesel Fuel
SEC. 13242. MODIFICATIONS TO TAX ON DIESEL FUEL.
(a) IN GENERAL.—Subparts A and B of part III of subchapter
A of chapter 32 (relating to manufacturers excise taxes), as amended
by subpart A, are amended to read as follows:
‘‘Subpart A—Gasoline and Diesel Fuel
‘‘Sec. 4081. Imposition of tax.
‘‘Sec. 4082. Exemptions for diesel fuel.
‘‘Sec. 4083. Definitions; special rule; administrative authority.
‘‘Sec. 4084. Cross references.
‘‘SEC. 4081. IMPOSITION OF TAX.
‘‘(a) TAX IMPOSED.—
‘‘(1) TAX ON REMOVAL, ENTRY, OR SALE.—
‘‘(A) IN GENERAL.—There is hereby imposed a tax at
the rate specified in paragraph (2) on—
‘‘(i) the removal of a taxable fuel from any refinery,
‘‘(ii) the removal of a taxable fuel from any termi-
nal,
‘‘(iii) the entry into the United States of any tax-
able fuel for consumption, use, or warehousing, and
‘‘(iv) the sale of a taxable fuel to any person who
is not registered under section 4101 unless there was
a prior taxable removal or entry of such fuel under
clause (i), (ii), or (iii).
‘‘(B) EXEMPTION FOR BULK TRANSFERS TO REGISTERED
TERMINALS OR REFINERIES.—The tax imposed by this para-
graph shall not apply to any removal or entry of a taxable
fuel transferred in bulk to a terminal or refinery if the
person removing or entering the taxable fuel and the opera-
tor of such terminal or refinery are registered under section
4101.
‘‘(2) RATES OF TAX.—
‘‘(A) IN
GENERAL.—The rate of the tax imposed by
this section is—
‘‘(i) in the case of gasoline, 18.3 cents per gallon,
and
‘‘(ii) in the case of diesel fuel, 24.3 cents per gallon.
‘‘(B) LEAKING
UNDERGROUND
STORAGE
TANK
TRUST
FUND
TAX.—The rates of tax specified in subparagraph
(A) shall each be increased by 0.1 cent per gallon. The
increase in tax under this subparagraph shall in this title
be referred to as the Leaking Underground Storage Tank
Trust Fund financing rate.
‘‘(b) TREATMENT
OF
REMOVAL
OR
SUBSEQUENT
SALE
BY
BLENDER.—
H. R. 2264—204
‘‘(1) IN GENERAL.—There is hereby imposed a tax at the
rate determined under subsection (a) on taxable fuel removed
or sold by the blender thereof.
‘‘(2) CREDIT FOR TAX PREVIOUSLY PAID.—If—
‘‘(A) tax is imposed on the removal or sale of a taxable
fuel by reason of paragraph (1), and
‘‘(B) the blender establishes the amount of the tax
paid with respect to such fuel by reason of subsection
(a),
the amount of the tax so paid shall be allowed as a credit
against the tax imposed by reason of paragraph (1).
‘‘(c) TAXABLE FUELS MIXED WITH ALCOHOL.—Under regulations
prescribed by the Secretary—
‘‘(1) IN GENERAL.—The rate of tax under subsection (a)
shall be the alcohol mixture rate in the case of the removal
or entry of any qualified alcohol mixture.
‘‘(2) TAX PRIOR TO MIXING.—
‘‘(A) IN GENERAL.—In the case of the removal or entry
of any taxable fuel for use in producing at the time of
such removal or entry a qualified alcohol mixture, the
rate of tax under subsection (a) shall be the applicable
fraction of the alcohol mixture rate. Subject to such terms
and conditions as the Secretary may prescribe (including
the application of section 4101), the treatment under the
preceding sentence also shall apply to use in producing
a qualified alcohol mixture after the time of such removal
or entry.
‘‘(B) APPLICABLE FRACTION.—For purposes of subpara-
graph (A), the applicable fraction is—
‘‘(i) in the case of a qualified alcohol mixture which
contains gasoline, the fraction the numerator of which
is 10 and the denominator of which is—
‘‘(I) 9 in the case of 10 percent gasohol,
‘‘(II) 9.23 in the case of 7.7 percent gasohol,
and
‘‘(III) 9.43 in the case of 5.7 percent gasohol,
and
‘‘(ii) in the case of a qualified alcohol mixture which
does not contain gasoline, 10⁄9.
‘‘(3) ALCOHOL; QUALIFIED ALCOHOL MIXTURE.—For purposes
of this subsection—
‘‘(A) ALCOHOL.—The term ‘alcohol’ includes methanol
and ethanol but does not include alcohol produced from
petroleum, natural gas, or coal (including peat). Such term
does not include alcohol with a proof of less than 190
(determined without regard to any added denaturants).
‘‘(B) QUALIFIED ALCOHOL MIXTURE.—The term ‘qualified
alcohol mixture’ means—
‘‘(i) any mixture of gasoline with alcohol if at least
5.7 percent of such mixture is alcohol, and
‘‘(ii) any mixture of diesel fuel with alcohol if at
least 10 percent of such mixture is alcohol.
‘‘(4) ALCOHOL MIXTURE RATES FOR GASOLINE MIXTURES.—
For purposes of this subsection—
‘‘(A) IN GENERAL.—The alcohol mixture rate for a quali-
fied alcohol mixture which contains gasoline is the excess
H. R. 2264—205
of the rate which would (but for this paragraph) be deter-
mined under subsection (a) over—
‘‘(i) 5.4 cents per gallon for 10 percent gasohol,
‘‘(ii) 4.158 cents per gallon for 7.7 percent gasohol,
and
‘‘(iii) 3.078 cents per gallon for 5.7 percent gasohol.
In the case of a mixture none of the alcohol in which
consists of ethanol, clauses (i), (ii), and (iii) shall be applied
by substituting ‘6 cents’ for ‘5.4 cents’, ‘4.62 cents’ for
‘4.158 cents’, and ‘3.42 cents’ for ‘3.078 cents’.
‘‘(B) 10 PERCENT GASOHOL.—The term ‘10 percent gas-
ohol’ means any mixture of gasoline with alcohol if at
least 10 percent of such mixture is alcohol.
‘‘(C) 7.7 PERCENT GASOHOL.—The term ‘7.7 percent gas-
ohol’ means any mixture of gasoline with alcohol if at
least 7.7 percent, but not 10 percent or more, of such
mixture is alcohol.
‘‘(D) 5.7 PERCENT GASOHOL.—The term ‘5.7 percent gas-
ohol’ means any mixture of gasoline with alcohol if at
least 5.7 percent, but not 7.7 percent or more, of such
mixture is alcohol.
‘‘(5) ALCOHOL MIXTURE RATE FOR DIESEL FUEL MIXTURES.—
The alcohol mixture rate for a qualified alcohol mixture which
does not contain gasoline is the excess of the rate which would
(but for this paragraph) be determined under subsection (a)
over 5.4 cents per gallon (6 cents per gallon in the case of
a qualified alcohol mixture none of the alcohol in which consists
of ethanol).
‘‘(6) LIMITATION.—In no event shall any alcohol mixture
rate determined under this subsection be less than 4.3 cents
per gallon.
‘‘(7) LATER SEPARATION OF FUEL FROM QUALIFIED ALCOHOL
MIXTURE.—If any person separates the taxable fuel from a
qualified alcohol mixture on which tax was imposed under
subsection (a) at a rate determined under paragraph (1) or
(2) (or with respect to which a credit or payment was allowed
or made by reason of section 6427(f)(1)), such person shall
be treated as the refiner of such taxable fuel. The amount
of tax imposed on any removal of such fuel by such person
shall be reduced by the amount of tax imposed (and not credited
or refunded) on any prior removal or entry of such fuel.
‘‘(8) TERMINATION.—Paragraphs (1) and (2) shall not apply
to any removal, entry, or sale after September 30, 2000.
‘‘(d) TERMINATION.—
‘‘(1) IN GENERAL.—On and after October 1, 1999, each rate
of tax specified in subsection (a)(2)(A) shall be 4.3 cents per
gallon.
‘‘(2) LEAKING UNDERGROUND STORAGE TANK TRUST FUND
FINANCING
RATE.—The Leaking Underground Storage Tank
Trust Fund financing rate under subsection (a)(2) shall not
apply after December 31, 1995.
‘‘(e) REFUNDS IN CERTAIN CASES.—Under regulations prescribed
by the Secretary, if any person who paid the tax imposed by
this section with respect to any taxable fuel establishes to the
satisfaction of the Secretary that a prior tax was paid (and not
credited or refunded) with respect to such taxable fuel, then an
amount equal to the tax paid by such person shall be allowed
H. R. 2264—206
as a refund (without interest) to such person in the same manner
as if it were an overpayment of tax imposed by this section.
‘‘SEC. 4082. EXEMPTIONS FOR DIESEL FUEL.
‘‘(a) IN GENERAL.—The tax imposed by section 4081 shall not
apply to diesel fuel—
‘‘(1) which the Secretary determines is destined for a non-
taxable use,
‘‘(2) which is indelibly dyed in accordance with regulations
which the Secretary shall prescribe, and
‘‘(3) which meets such marking requirements (if any) as
may be prescribed by the Secretary in regulations.
Such regulations shall allow an individual choice of dye color
approved by the Secretary or chosen from any list of approved
dye colors that the Secretary may publish.
‘‘(b) NONTAXABLE USE.—For purposes of this section, the term
‘nontaxable use’ means—
‘‘(1) any use which is exempt from the tax imposed by
section 4041(a)(1) other than by reason of a prior imposition
of tax,
‘‘(2) any use in a train, and
‘‘(3) any use described in section 6427(b)(1) (after the
application of section 6427(b)(3)).
‘‘(c) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out this section, including
regulations requiring the conspicuous labeling of retail diesel fuel
pumps and other delivery facilities to assure that persons are
aware of which fuel is available only for nontaxable uses.
‘‘(d) CROSS REFERENCE.—
‘‘For tax on train and certain bus uses of fuel purchased tax-free,
see section 4041(a)(1).
‘‘SEC. 4083. DEFINITIONS; SPECIAL RULE; ADMINISTRATIVE AUTHOR-
ITY.
‘‘(a) TAXABLE FUEL.—For purposes of this subpart—
‘‘(1) IN GENERAL.—The term ‘taxable fuel’ means—
‘‘(A) gasoline, and
‘‘(B) diesel fuel.
‘‘(2) GASOLINE.—The term ‘gasoline’ includes, to the extent
prescribed in regulations—
‘‘(A) gasoline blend stocks, and
‘‘(B) products commonly used as additives in gasoline.
For purposes of subparagraph (A), the term ‘gasoline blend
stock’ means any petroleum product component of gasoline.
‘‘(3) DIESEL FUEL.—The term ‘diesel fuel’ means any liquid
(other than gasoline) which is suitable for use as a fuel in
a diesel-powered highway vehicle, a diesel-powered train, or
a diesel-powered boat.
‘‘(b) CERTAIN USES DEFINED AS REMOVAL.—If any person uses
taxable fuel (other than in the production of gasoline, diesel fuel,
or special fuels referred to in section 4041), such use shall for
the purposes of this chapter be considered a removal.
‘‘(c) ADMINISTRATIVE AUTHORITY.—
‘‘(1) IN GENERAL.—In addition to the authority otherwise
granted by this title, the Secretary may in administering
compliance with this subpart, section 4041, and penalties and
other administrative provisions related thereto—
H. R. 2264—207
‘‘(A) enter any place at which taxable fuel is produced
or is stored (or may be stored) for purposes of—
‘‘(i) examining the equipment used to determine
the amount or composition of such fuel and the equip-
ment used to store such fuel, and
‘‘(ii) taking and removing samples of such fuel,
and
‘‘(B) detain, for the purposes referred in subparagraph
(A), any container which contains or may contain any tax-
able fuel.
‘‘(2) INSPECTION
SITES.—The Secretary may establish
inspection sites for purposes of carrying out the Secretary’s
authority under paragraph (1)(B).
‘‘(3) PENALTY FOR REFUSAL OF ENTRY.—The penalty pro-
vided by section 7342 shall apply to any refusal to admit
entry or other refusal to permit an action by the Secretary
authorized by paragraph (1), except that section 7342 shall
be applied by substituting ‘$1,000’ for ‘$500’ for each such
refusal.
‘‘SEC. 4084. CROSS REFERENCES.
‘‘(1) For provisions to relieve farmers from excise tax in the case
of gasoline used on the farm for farming purposes, see section 6420.
‘‘(2) For provisions to relieve purchasers of gasoline from excise
tax in the case of gasoline used for certain nonhighway purposes,
used by local transit systems, or sold for certain exempt purposes,
see section 6421.
‘‘(3) For provisions to relieve purchasers from excise tax in the
case of taxable fuel not used for taxable purposes, see section 6427.
‘‘Subpart B—Aviation Fuel
‘‘Sec. 4091. Imposition of tax.
‘‘Sec. 4092. Exemptions.
‘‘Sec. 4093. Definitions.
‘‘SEC. 4091. IMPOSITION OF TAX.
‘‘(a) TAX ON SALE.—
‘‘(1) IN GENERAL.—There is hereby imposed a tax on the
sale of aviation fuel by the producer or the importer thereof
or by any producer of aviation fuel.
‘‘(2) USE TREATED AS SALE.—For purposes of paragraph
(1), if any producer uses aviation fuel (other than for a non-
taxable use as defined in section 6427(l)(2)(B)) on which no
tax has been imposed under such paragraph, then such use
shall be considered a sale.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—The rate of the tax imposed by subsection
(a) shall be 21.8 cents per gallon.
‘‘(2) LEAKING UNDERGROUND STORAGE TANK TRUST FUND
TAX.—The rate of tax specified in paragraph (1) shall be
increased by 0.1 cent per gallon. The increase in tax under
this paragraph shall in this title be referred to as the Leaking
Underground Storage Tank Trust Fund financing rate.
‘‘(3) TERMINATION.—
‘‘(A) On and after January 1, 1996, the rate of tax
specified in paragraph (1) shall be 4.3 cents per gallon.
‘‘(B) The Leaking Underground Storage Tank Fund
financing rate shall not apply during any period during
H. R. 2264—208
which the Leaking Underground Storage Tank Trust Fund
financing rate under section 4081 does not apply.
‘‘(c) REDUCED RATE OF TAX FOR AVIATION FUEL IN ALCOHOL
MIXTURE, ETC.—Under regulations prescribed by the Secretary—
‘‘(1) IN GENERAL.—The rate of tax under subsection (a)
shall be reduced by 13.4 cents per gallon in the case of the
sale of any mixture of aviation fuel if—
‘‘(A) at least 10 percent of such mixture consists of
alcohol (as defined in section 4081(c)(3)), and
‘‘(B) the aviation fuel in such mixture was not taxed
under paragraph (2).
In the case of such a mixture none of the alcohol in which
is ethanol, the preceding sentence shall be applied by substitut-
ing ‘14 cents’ for ‘13.4 cents’.
‘‘(2) TAX
PRIOR
TO
MIXING.—In the case of the sale of
aviation fuel for use (at the time of such sale) in producing
a mixture described in paragraph (1), the rate of tax under
subsection (a) shall be 10⁄9 of the rate which would (but for
this paragraph) have been applicable to such mixture had such
mixture been created prior to such sale.
‘‘(3) LATER SEPARATION.—If any person separates the avia-
tion fuel from a mixture of the aviation fuel and alcohol on
which tax was imposed under subsection (a) at a rate deter-
mined under paragraph (1) or (2) (or with respect to which
a credit or payment was allowed or made by reason of section
6427(f)(1)), such person shall be treated as the producer of
such aviation fuel. The amount of tax imposed on any sale
of such aviation fuel by such person shall be reduced by the
amount of tax imposed (and not credited or refunded) on any
prior sale of such fuel.
‘‘(4) LIMITATION.—In no event shall any rate determined
under paragraph (1) be less than 4.3 cents per gallon.
‘‘(5) TERMINATION.—Paragraphs (1) and (2) shall not apply
to any sale after September 30, 2000.
‘‘SEC. 4092. EXEMPTIONS.
‘‘(a) NONTAXABLE USES.—No tax shall be imposed by section
4091 on aviation fuel sold by a producer or importer for use by
the purchaser in a nontaxable use (as defined in section
6427(l)(2)(B)).
‘‘(b) NO EXEMPTION FROM CERTAIN TAXES ON FUEL USED IN
COMMERCIAL AVIATION.—In the case of fuel sold for use in commer-
cial aviation (other than supplies for vessels or aircraft within
the meaning of section 4221(d)(3)), subsection (a) shall not apply
to so much of the tax imposed by section 4091 as is attributable
to—
‘‘(1) the Leaking Underground Storage Tank Trust Fund
financing rate imposed by such section, and
‘‘(2) in the case of fuel sold after September 30, 1995,
4.3 cents per gallon of the rate specified in section 4091(b)(1).
For purposes of the preceding sentence, the term ‘commercial avia-
tion’ means any use of an aircraft other than in noncommercial
aviation (as defined in section 4041(c)(4)).
‘‘(c) SALES TO PRODUCER.—Under regulations prescribed by the
Secretary, the tax imposed by section 4091 shall not apply to
aviation fuel sold to a producer of such fuel.
H. R. 2264—209
‘‘SEC. 4093. DEFINITIONS.
‘‘(a) AVIATION FUEL.—For purposes of this subpart, the term
‘aviation fuel’ means any liquid (other than any product taxable
under section 4081) which is suitable for use as a fuel in an
aircraft.
‘‘(b) PRODUCER.—For purposes of this subpart—
‘‘(1) CERTAIN PERSONS TREATED AS PRODUCERS.—
‘‘(A) IN GENERAL.—The term ‘producer’ includes any
person described in subparagraph (B) and registered under
section 4101 with respect to the tax imposed by section
4091.
‘‘(B) PERSONS
DESCRIBED.—A person is described in
this subparagraph if such person is—
‘‘(i) a refiner, blender, or wholesale distributor of
aviation fuel, or
‘‘(ii) a dealer selling aviation fuel exclusively to
producers of aviation fuel.
‘‘(C) REDUCED RATE PURCHASERS TREATED AS PRODUC-
ERS.—Any person to whom aviation fuel is sold at a reduced
rate under this subpart shall be treated as the producer
of such fuel.
‘‘(2) WHOLESALE DISTRIBUTOR.—For purposes of paragraph
(1), the term ‘wholesale distributor’ includes any person who
sells aviation fuel to producers, retailers, or to users who pur-
chase in bulk quantities and accept delivery into bulk storage
tanks. Such term does not include any person who (excluding
the term ‘wholesale distributor’ from paragraph (1)) is a pro-
ducer or importer.’’
(b) CIVIL PENALTY FOR USING REDUCED-RATE FUEL FOR TAX-
ABLE USE, ETC.—
(1) IN GENERAL.—Part I of subchapter B of chapter 68
(relating to assessable penalties) is amended by adding at the
end thereof the following new section:
‘‘SEC. 6714. DYED FUEL SOLD FOR USE OR USED IN TAXABLE USE,
ETC.
‘‘(a) IMPOSITION OF PENALTY.—If—
‘‘(1) any dyed fuel is sold or held for sale by any person
for any use which such person knows or has reason to know
is not a nontaxable use of such fuel,
‘‘(2) any dyed fuel is held for use or used by any person
for a use other than a nontaxable use and such person knew,
or had reason to know, that such fuel was so dyed, or
‘‘(3) any person willfully alters, or attempts to alter, the
strength or composition of any dye or marking done pursuant
to section 4082 in any dyed fuel,
then such person shall pay a penalty in addition to the tax (if
any).
‘‘(b) AMOUNT OF PENALTY.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the amount of the penalty under subsection (a) on each act
shall be the greater of—
‘‘(A) $1,000, or
‘‘(B) $10 for each gallon of the dyed fuel involved.
‘‘(2) MULTIPLE
VIOLATIONS.—In determining the penalty
under subsection (a) on any person, paragraph (1) shall be
applied by increasing the amount in paragraph (1)(A) by the
H. R. 2264—210
product of such amount and the number of prior penalties
(if any) imposed by this section on such person (or a related
person or any predecessor of such person or related person).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) DYED FUEL.—The term ‘dyed fuel’ means any dyed
diesel fuel, whether or not the fuel was dyed pursuant to
section 4082.
‘‘(2) NONTAXABLE USE.—The term ‘nontaxable use’ has the
meaning given such term by section 4082(b).
‘‘(d) JOINT AND SEVERAL LIABILITY OF CERTAIN OFFICERS AND
EMPLOYEES.—If a penalty is imposed under this section on any
business entity, each officer, employee, or agent of such entity
who willfully participated in any act giving rise to such penalty
shall be jointly and severally liable with such entity for such pen-
alty.’’
(2) CLERICAL AMENDMENT.—The table of sections for such
part I is amended by adding at the end thereof the following
new item:
‘‘Sec. 6714. Dyed fuel sold for use or used in taxable use, etc.’’
(c) REGISTERED VENDORS TO ADMINISTER CLAIMS FOR CERTAIN
REFUNDS OF DIESEL FUEL.—
(1) IN GENERAL.—Section 6427(l) (relating to nontaxable
uses of diesel fuel and aviation fuel) is amended by adding
at the end the following new paragraph:
‘‘(5) REGISTERED
VENDORS
TO
ADMINISTER
CLAIMS
FOR
REFUND
OF
DIESEL
FUEL
SOLD
TO
FARMERS
AND
STATE
AND
LOCAL GOVERNMENTS.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
diesel fuel used—
‘‘(i) on a farm for farming purposes (within the
meaning of section 6420(c)), or
‘‘(ii) by a State or local government.
‘‘(B) PAYMENT TO ULTIMATE, REGISTERED VENDOR.—The
amount which would (but for subparagraph (A)) have been
paid under paragraph (1) with respect to any fuel shall
be paid to the ultimate vendor of such fuel, if such vendor—
‘‘(i) is registered under section 4101, and
‘‘(ii) meets the requirements of subparagraph (A),
(B), or (D) of section 6416(a)(1).’’
(2) SPECIAL REFUND RULES.—
(A) Subsection (i) of section 6427 is amended by adding
at the end thereof the following new paragraph:
‘‘(5) SPECIAL RULE FOR VENDOR REFUNDS.—
‘‘(A) IN GENERAL.—A claim may be filed under sub-
section (l)(5) by any person with respect to fuel sold by
such person for any period—
‘‘(i) for which $200 or more is payable under sub-
section (l)(5), and
‘‘(ii) which is not less than 1 week.
Notwithstanding subsection (l)(1), paragraph (3)(B) shall
apply to claims filed under the preceding sentence.
‘‘(B) TIME FOR FILING CLAIM.—No claim filed under
this paragraph shall be allowed unless filed on or before
the last day of the first quarter following the earliest quar-
ter included in the claim.’’
H. R. 2264—211
(B) Paragraph (1) of section 6427(i) is amended by
striking ‘‘provided in paragraphs (2), (3), and (4)’’ and
inserting ‘‘otherwise provided in this subsection’’.
(C) Paragraph (2) of section 6427(k) is amended by
striking ‘‘or (4)’’ and inserting ‘‘(4), or (5)’’.
(D) Paragraph (3) of section 6427(i) is amended by
adding at the end thereof the following new subparagraph:
‘‘(C) TIME FOR FILING CLAIM.—No claim filed under
this paragraph shall be allowed unless filed on or before
the last day of the first quarter following the earliest quar-
ter included in the claim.’’
(d) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Sections 4101(a) and 4103 are each amended by striking
‘‘4081’’ and inserting ‘‘4041(a)(1), 4081,’’.
(2) Section 4102 is amended by striking ‘‘gasoline’’ and
inserting ‘‘any taxable fuel (as defined in section 4083)’’.
(3) Paragraph (1) of section 4041(a), as amended by sub-
chapter A, is amended to read as follows:
‘‘(1) TAX ON DIESEL FUEL IN CERTAIN CASES.—
‘‘(A) IN GENERAL.—There is hereby imposed a tax on
any liquid other than gasoline (as defined in section 4083)—
‘‘(i) sold by any person to an owner, lessee, or
other operator of a diesel-powered highway vehicle,
a diesel-powered train, or a diesel-powered boat for
use as a fuel in such vehicle, train, or boat, or
‘‘(ii) used by any person as a fuel in a diesel-
powered highway vehicle, a diesel-powered train, or
a diesel-powered boat unless there was a taxable sale
of such fuel under clause (i).
‘‘(B) EXEMPTION FOR PREVIOUSLY TAXED FUEL.—No tax
shall be imposed by this paragraph on the sale or use
of any liquid if tax was imposed on such liquid under
section 4081 and the tax thereon was not credited or
refunded.
‘‘(C) RATE OF TAX.—
‘‘(i) IN
GENERAL.—Except as otherwise provided
in this subparagraph, the rate of the tax imposed by
this paragraph shall be the rate of tax specified in
section 4081(a)(2)(A) on diesel fuel which is in effect
at the time of such sale or use.
‘‘(ii) RATE OF TAX ON TRAINS.—In the case of any
sale for use, or use, of diesel fuel in a train, the
rate of tax imposed by this paragraph shall be—
‘‘(I) 6.8 cents per gallon after September 30,
1993, and before October 1, 1995,
‘‘(II) 5.55 cents per gallon after September 30,
1995, and before October 1, 1999, and
‘‘(III) 4.3 cents per gallon after September 30,
1999.
‘‘(iii) RATE OF TAX ON CERTAIN BUSES.—
‘‘(I) IN
GENERAL.—Except as provided in
subclause (II), in the case of fuel sold for use
or used in a use described in section 6427(b)(1)
(after the application of section 6427(b)(3)), the
rate of tax imposed by this paragraph shall be
7.3 cents per gallon (4.3 cents per gallon after
September 30, 1999).
H. R. 2264—212
‘‘(II) SCHOOL BUS AND INTRACITY TRANSPOR-
TATION.—No tax shall be imposed by this para-
graph on any sale for use, or use, described in
subparagraph (B) or (C) of section 6427(b)(2).
‘‘(D) DIESEL FUEL USED IN MOTORBOATS.—In the case
of any sale for use, or use, of fuel in a diesel-powered
motorboat—
‘‘(i) effective during the period after September
30, 1999, and before January 1, 2000, the rate of
tax imposed by this paragraph is 24.3 cents per gallon,
and
‘‘(ii) the termination of the tax under subsection
(d) shall not occur before January 1, 2000.’’
(4) Paragraph (2) of section 4041(a) is amended—
(A) by striking ‘‘or paragraph (1) of this subsection’’,
and
(B) by striking the last sentence and inserting the
following new flush sentence:
‘‘The rate of the tax imposed by this paragraph shall be the
rate of tax specified in section 4081(a)(2)(A) on gasoline which
is in effect at the time of such sale or use.’’
(5)(A) Subparagraph (B) of section 4041(b)(1) is amended
by striking ‘‘paragraph (1)(B) or (2)(B)’’ and inserting ‘‘para-
graph (1)(B), (2)(B), or (3)(A)(ii)’’ and by inserting before the
period ‘‘(if any)’’.
(B) Subparagraph (C) of section 4041(b)(1) is amended by
inserting before the period ‘‘; except that such term shall not,
for purposes of subsection (a)(1), include use in a diesel-powered
train’’.
(C) Clause (i) of section 4041(b)(2)(A) is amended by strik-
ing ‘‘Highway Trust Fund financing’’.
(6) Paragraph (1) of section 4041(c), as amended by subpart
A, is amended by striking the next to the last sentence and
inserting the following new flush sentence:
‘‘The rate of the tax imposed by this paragraph shall be the
rate of tax specified in section 4091(b)(1) which is in effect
at the time of such sale or use.’’
(7) Paragraph (2) of section 4041(c) is amended by striking
‘‘any product taxable under section 4081’’ and inserting ‘‘gaso-
line (as defined in section 4083)’’.
(8) Paragraph (5) of section 4041(c) is amended by adding
at the end thereof the following: ‘‘The termination under the
preceding sentence shall not apply to so much of the tax
imposed by paragraph (1) as does not exceed 4.3 cents per
gallon.’’.
(9) Subsection (d) of section 4041 is amended by striking
paragraph (2) and by redesignating paragraphs (3) and (4)
as paragraphs (2) and (3), respectively.
(10) Paragraph (2) of section 4041(d), as redesignated by
the preceding paragraph, is amended by striking ‘‘(other than
any product taxable under section 4081)’’ and inserting ‘‘(other
than gasoline (as defined in section 4083))’’.
(11) Subparagraph (A) of section 4041(k)(1) is amended—
(A) by striking ‘‘Highway Trust Fund financing’’, and
(B) by striking ‘‘sections 4081(c) and 4091(c), as the
case may be’’ and inserting ‘‘section 4081(c)’’.
H. R. 2264—213
(12) Subparagraph (B) of section 4041(k)(1) is amended
by striking ‘‘4091(d)’’ and inserting ‘‘4091(c)’’.
(13) Subparagraphs (A) and (B) of section 4041(m)(1) are
amended to read as follows:
‘‘(A) the rate of the tax imposed by subsection (a)(2)
shall be—
‘‘(i) 11.3 cents per gallon after September 30, 1993,
and before October 1, 1999, and
‘‘(ii) 4.3 cents per gallon after September 30, 1999,
and
‘‘(B) the rate of the tax imposed by subsection (c)(1)
shall be the comparable rate under section 4091(c)(1).’’
(14) Section 6206 is amended by striking ‘‘4041 or 4091’’
and inserting ‘‘4041, 4081, or 4091’’.
(15) The heading for subsection (f) of section 6302 is
amended by inserting ‘‘AND DIESEL FUEL’’ after ‘‘GASOLINE’’.
(16) Paragraph (1) of section 6412(a) is amended by striking
‘‘gasoline’’ each place it appears (including the heading) and
inserting ‘‘taxable fuel’’.
(17)(A) Subparagraph (A) of section 6416(a)(4) is amended
by striking ‘‘product’’ each place it appears and inserting ‘‘gaso-
line’’.
(B) Subparagraph (B) of section 6416(a)(4) is amended—
(i) by striking ‘‘section 4092(b)(2)’’ and inserting ‘‘sec-
tion 4093(b)(2)’’, and
(ii) by striking all that follows ‘‘substituting’’ and
inserting ‘‘ ‘any gasoline taxable under section 4081’ for
‘aviation fuel’ therein).’’
(18) The material following the first sentence of section
6416(b)(2) is amended by inserting ‘‘any tax imposed under
section 4041(a)(1) or 4081 on diesel fuel and’’ after ‘‘This para-
graph shall not apply in the case of’’.
(19)(A) Subparagraph (A) of section 6416(b)(3) is amended
by striking ‘‘gasoline taxable under section 4081 and other
than any fuel taxable under section 4091’’ and inserting ‘‘any
fuel taxable under section 4081 or 4091’’.
(B) Subparagraph (B) of section 6416(b)(3) is amended by
striking ‘‘gasoline taxable under section 4081 or any fuel taxable
under section 4091, such gasoline or fuel’’ and inserting ‘‘any
fuel taxable under section 4081 or 4091, such fuel’’.
(20) Sections 6420(c)(5) and 6421(e)(1) are each amended
by striking ‘‘section 4082(b)’’ and inserting ‘‘section 4083(a)’’.
(21) Subsections (a) and (c) of section 6427 are each amend-
ed by striking ‘‘section 4041(a) or (c)’’ and inserting ‘‘paragraph
(2) or (3) of section 4041(a) or section 4041(c)’’.
(22) Subsection (c) of section 6421 is amended by adding
at the end thereof the following: ‘‘The preceding sentence shall
apply notwithstanding paragraphs (2)(A) and (3) of subsection
(f).’’
(23) Subparagraph (B) of section 6421(f)(2) is amended
by inserting before the period ‘‘and, in the case of fuel purchased
after September 30, 1995, at so much of the rate specified
in section 4081(a)(2)(A) as does not exceed 4.3 cents per gallon’’.
(24) Paragraph (3) of section 6421(f), as amended by sub-
part A, is amended to read as follows:
H. R. 2264—214
‘‘(3) GASOLINE USED IN TRAINS.—In the case of gasoline
used as a fuel in a train, this section shall not apply with
respect to—
‘‘(A) the Leaking Underground Storage Tank Trust
Fund financing rate under section 4081, and
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed—
‘‘(i) 6.8 cents per gallon after September 30, 1993,
and before October 1, 1995,
‘‘(ii) 5.55 cents per gallon after September 30, 1995,
and before October 1, 1999, and
‘‘(iii) 4.3 cents per gallon after September 30,
1999.’’
(25) Subsection (b) of section 6427 is amended—
(A) by striking ‘‘if any fuel’’ in paragraph (1) and insert-
ing ‘‘if any fuel other than gasoline (as defined in section
4083(a))’’, and
(B) by striking ‘‘4091’’ each place it appears and insert-
ing ‘‘4081’’.
(26)(A) Paragraph (1) of section 6427(f) is amended by
striking ‘‘, 4091(c)(1)(A), or 4091(d)(1)(A)’’ and inserting ‘‘or
4091(c)(1)(A)’’.
(B) Paragraph (2) of section 6427(f) is amended to read
as follows:
‘‘(2) DEFINITIONS.—For purposes of paragraph (1)—
‘‘(A) REGULAR TAX RATE.—The term ‘regular tax rate’
means—
‘‘(i) in the case of gasoline or diesel fuel, the aggre-
gate rate of tax imposed by section 4081 determined
without regard to subsection (c) thereof, and
‘‘(ii) in the case of aviation fuel, the aggregate
rate of tax imposed by section 4091 determined without
regard to subsection (c) thereof.
‘‘(B) INCENTIVE
TAX
RATE.—The term ‘incentive tax
rate’ means—
‘‘(i) in the case of gasoline or diesel fuel, the aggre-
gate rate of tax imposed by section 4081 with respect
to fuel described in subsection (c)(2) thereof, and
‘‘(ii) in the case of aviation fuel, the aggregate
rate of tax imposed by section 4091 with respect to
fuel described in subsection (c)(2) thereof.’’
(27) Subsection (h) of section 6427 is amended by striking
‘‘section 4082(b)’’ and inserting ‘‘section 4083(a)(2)’’.
(28) Paragraph (3) of section 6427(i) is amended—
(A) by striking ‘‘GASOHOL’’ in the heading and inserting
‘‘ALCOHOL MIXTURE’’, and
(B) by striking ‘‘gasoline used to produce gasohol (as
defined in section 4081(c)(1))’’ in subparagraph (A) and
inserting ‘‘gasoline or diesel fuel used to produce a qualified
alcohol mixture (as defined in section 4081(c)(3))’’.
(29) Paragraph (1) of section 6427(j) is amended by striking
‘‘section 4041’’ and inserting ‘‘sections 4041, 4081, and 4091’’.
(30) The heading of paragraph (4) of section 6427(i) is
amended by inserting ‘‘4081 OR’’ before ‘‘4091’’.
(31) So much of subsection (l) of section 6427, as previously
amended by this part, as precedes paragraph (5) is amended
to read as follows:
H. R. 2264—215
‘‘(l) NONTAXABLE USES OF DIESEL FUEL AND AVIATION FUEL.—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection and in subsection (k), if—
‘‘(A) any diesel fuel on which tax has been imposed
by section 4041 or 4081, or
‘‘(B) any aviation fuel on which tax has been imposed
by section 4091,
is used by any person in a nontaxable use, the Secretary
shall pay (without interest) to the ultimate purchaser of such
fuel an amount equal to the aggregate amount of tax imposed
on such fuel under section 4041, 4081, or 4091, as the case
may be.
‘‘(2) NONTAXABLE USE.—For purposes of this subsection,
the term ‘nontaxable use’ means—
‘‘(A) in the case of diesel fuel, any use which is exempt
from the tax imposed by section 4041(a)(1) other than
by reason of a prior imposition of tax, and
‘‘(B) in the case of aviation fuel, any use which is
exempt from the tax imposed by section 4041(c)(1) other
than by reason of a prior imposition of tax.
‘‘(3) REFUND OF CERTAIN TAXES ON FUEL USED IN DIESEL-
POWERED TRAINS.—For purposes of this subsection, the term
‘nontaxable use’ includes fuel used in a diesel-powered train.
The preceding sentence shall not apply with respect to—
‘‘(A) the Leaking Underground Storage Tank Trust
Fund financing rate under sections 4041 and 4081, and
‘‘(B) so much of the rate specified in section
4081(a)(2)(A) as does not exceed—
‘‘(i) 6.8 cents per gallon after September 30, 1993,
and before October 1, 1995,
‘‘(ii) 5.55 cents per gallon after September 30, 1995,
and before October 1, 1999, and
‘‘(iii) 4.3 cents per gallon after September 30, 1999.
The preceding sentence shall not apply in the case of fuel
sold for exclusive use by a State or any political subdivision
thereof.
‘‘(4) NO
REFUND
OF
CERTAIN
TAXES
ON
FUEL
USED
IN
COMMERCIAL AVIATION.—In the case of fuel used in commercial
aviation (as defined in section 4092(b)) (other than supplies
for vessels or aircraft within the meaning of section 4221(d)(3)),
paragraph (1) shall not apply to so much of the tax imposed
by section 4091 as is attributable to—
‘‘(A) the Leaking Underground Storage Tank Trust
Fund financing rate imposed by such section, and
‘‘(B) in the case of fuel purchased after September
30, 1995, so much of the rate of tax specified in section
4091(b)(1) as does not exceed 4.3 cents per gallon.’’
(32) Section 9502 is amended by adding at the end thereof
the following new subsection:
‘‘(f) DEFINITION OF AIRPORT AND AIRWAY TRUST FUND FINANC-
ING RATE.—For purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, the Airport and Airway Trust Fund financing rate
is—
‘‘(A) in the case of fuel used in an aircraft in non-
commercial aviation (as defined in section 4041(c)(4)), 17.5
cents per gallon, and
H. R. 2264—216
‘‘(B) in the case of fuel used in an aircraft other than
in noncommercial aviation (as so defined), zero.
‘‘(2) ALCOHOL FUELS.—If the rate of tax on any fuel is
determined under section 4091(c), the Airport and Airway Trust
Fund financing rate is the excess (if any) of the rate of tax
determined under section 4091(c) over 4.4 cents per gallon
(10⁄9 of 4.4 cents per gallon in the case of a rate of tax deter-
mined under section 4091(c)(2)).
‘‘(3) TERMINATION.—Notwithstanding the preceding provi-
sions of this subsection, the Airport and Airway Trust Fund
financing rate is zero with respect to tax received after Decem-
ber 31, 1995.’’
(33) Paragraph (2) of section 9502(b) is amended by striking
‘‘(to the extent attributable to the Highway Trust Fund financ-
ing rate and the deficit reduction rate)’’ and inserting ‘‘(to
the extent of 14 cents per gallon)’’.
(34) Paragraph (1) of section 9503(b) is amended—
(A) by striking ‘‘gasoline),’’ in subparagraph (E) and
inserting ‘‘gasoline and diesel fuel), and’’,
(B) by striking subparagraph (F), and
(C) by redesignating subparagraph (G) as subpara-
graph (F).
(35)(A) Subparagraph (B) of section 9503(b)(4) is amended
by striking ‘‘, 4081, and 4091’’ and inserting ‘‘and 4081’’ and
by striking ‘‘rates under such sections’’ and inserting ‘‘rate’’.
(B) Subparagraph (C) of section 9503(b)(4), as amended
by subchapter A, is amended by striking ‘‘4091’’ and inserting
‘‘4081’’.
(36) Paragraph (5) of section 9503(b) is amended by striking
‘‘, (E), and (F)’’ and inserting ‘‘and (E)’’.
(37) Subparagraph (D) of section 9503(c)(6) is amended
by striking ‘‘, 4081, and 4091’’ and inserting ‘‘and 4081’’.
(38) Subparagraph (D) of section 9503(c)(4) is amended
by striking ‘‘rates under such sections’’ and inserting ‘‘rate’’.
(39) Subparagraph (B) of section 9503(c)(5) is amended
by striking ‘‘rate under such section’’ and inserting ‘‘rate’’.
(40) Paragraph (2) of section 9503(e) is amended—
(A) by striking ‘‘, 4081, and 4091’’ and inserting ‘‘and
4081’’, and
(B) by striking ‘‘, 4081, or 4091’’ and inserting ‘‘or
4081’’.
(41) Section 9503 is amended by adding at the end thereof
the following new subsection:
‘‘(f) DEFINITION OF HIGHWAY TRUST FUND FINANCING RATE.—
For purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
subsection, the Highway Trust Fund financing rate is—
‘‘(A) in the case of gasoline and special motor fuels,
11.5 cents per gallon (14 cents per gallon after September
30, 1995), and
‘‘(B) in the case of diesel fuel, 17.5 cents per gallon
(20 cents per gallon after September 30, 1995).
‘‘(2) CERTAIN USES.—
‘‘(A) TRAINS.—In the case of fuel used in a train, the
Highway Trust Fund financing rate is zero.
‘‘(B) CERTAIN BUSES.—In the case of diesel fuel used
in a use described in section 6427(b)(1) (after the applica-
H. R. 2264—217
tion of section 6427(b)(3)), the Highway Trust Fund financ-
ing rate is 3 cents per gallon.
‘‘(C) CERTAIN BOATS.—In the case of diesel fuel used
in a boat described in clause (iv) of section 6421(e)(2)(B),
the Highway Trust Fund financing rate is zero.
‘‘(D) COMPRESSED NATURAL GAS.—In the case of the
tax imposed by section 4041(a)(3), the Highway Trust Fund
financing rate is zero.
‘‘(E) CERTAIN OTHER NONHIGHWAY USES.—In the case
of gasoline and special motor fuels used as described in
paragraph (4)(D), (5)(B), or (6)(D) of subsection (c), the
Highway Trust Fund financing rate is 11.5 cents per gallon;
and, in the case of diesel fuel used as described in sub-
section (c)(6)(D), the Highway Trust Fund financing rate
is 17.5 cents per gallon.
‘‘(3) ALCOHOL FUELS.—
‘‘(A) IN GENERAL.—If the rate of tax on any fuel is
determined under section 4041(b)(2)(A), 4041(k), or 4081(c),
the Highway Trust Fund financing rate is the excess (if
any) of the rate so determined over—
‘‘(i) 6.8 cents per gallon after September 30, 1993,
and before October 1, 1999,
‘‘(ii) 4.3 cents per gallon after September 30, 1999.
In the case of a rate of tax determined under section
4081(c), the preceding sentence shall be applied by increas-
ing the rates specified in clauses (i) and (ii) by 0.1 cent.
‘‘(B) FUELS USED TO PRODUCE MIXTURES.—In the case
of a rate of tax determined under section 4081(c)(2),
subparagraph (A) shall be applied by substituting rates
which are 10⁄9 of the rates otherwise applicable under
clauses (i) and (ii) of subparagraph (A).
‘‘(C) PARTIALLY EXEMPT METHANOL OR ETHANOL FUEL.—
In the case of a rate of tax determined under section
4041(m), the Highway Trust Fund financing rate is the
excess (if any) of the rate so determined over—
‘‘(i) 5.55 cents per gallon after September 30, 1993,
and before October 1, 1995, and
‘‘(ii) 4.3 cents per gallon after September 30, 1995.
‘‘(4) TERMINATION.—Notwithstanding the preceding provi-
sions of this subsection, the Highway Trust Fund financing
rate is zero with respect to taxes received in the Treasury
after June 30, 2000.’’
(42) Subsection (b) of section 9508 is amended—
(A) by inserting ‘‘and diesel fuel’’ after ‘‘gasoline’’ in
paragraph (2),
(B) by striking ‘‘diesel fuel and’’ in paragraph (3), and
(C) by striking ‘‘4091’’ in the last sentence, as added
by subtitle A, and inserting ‘‘4081’’.
(43) The table of subparts for part III of subchapter A
of chapter 32 is amended by striking the items relating to
subparts A and B and inserting the following new items:
‘‘Subpart A. Gasoline and diesel fuel.
‘‘Subpart B. Aviation fuel.’’
(e) EFFECTIVE DATE.—The amendments made by this section
shall take effect on January 1, 1994.
H. R. 2264—218
SEC. 13243. FLOOR STOCKS TAX.
(a) IN GENERAL.—There is hereby imposed a floor stocks tax
on diesel fuel held by any person on January 1, 1994, if—
(1) no tax was imposed on such fuel under section 4041(a)
or 4091 of the Internal Revenue Code of 1986 as in effect
on December 31, 1993, and
(2) tax would have been imposed by section 4081 of such
Code, as amended by this Act, on any prior removal, entry,
or sale of such fuel had such section 4081 applied to such
fuel for periods before January 1, 1994.
(b) RATE OF TAX.—The rate of the tax imposed by subsection
(a) shall be the amount of tax which would be imposed under
section 4081 of the Internal Revenue Code of 1986 if there were
a taxable sale of such fuel on such date.
(c) LIABILITY AND PAYMENT OF TAX.—
(1) LIABILITY FOR TAX.—A person holding the diesel fuel
on January 1, 1994, to which the tax imposed by this section
applies shall be liable for such tax.
(2) METHOD OF PAYMENT.—The tax imposed by this section
shall be paid in such manner as the Secretary shall prescribe.
(3) TIME FOR PAYMENT.—The tax imposed by this section
shall be paid on or before July 31, 1994.
(d) DEFINITIONS.—For purposes of this section—
(1) DIESEL FUEL.—The term ‘‘diesel fuel’’ has the meaning
given such term by section 4083(a) of such Code.
(2) SECRETARY.—The term ‘‘Secretary’’ means the Secretary
of the Treasury or his delegate.
(e) EXCEPTIONS.—
(1) PERSONS
ENTITLED
TO
CREDIT
OR
REFUND.—The tax
imposed by this section shall not apply to fuel held by any
person exclusively for any use to the extent a credit or refund
of the tax imposed by section 4081 is allowable for such use.
(2) COMPLIANCE WITH DYEING REQUIRED.—Paragraph (1)
shall not apply to the holder of any fuel if the holder of such
fuel fails to comply with any requirement imposed by the Sec-
retary with respect to dyeing and marking such fuel.
(f) OTHER LAWS APPLICABLE.—All provisions of law, including
penalties, applicable with respect to the taxes imposed by section
4081 of such Code shall, insofar as applicable and not inconsistent
with the provisions of this section, apply with respect to the floor
stock taxes imposed by this section to the same extent as if such
taxes were imposed by such section 4081.
Subpart C—Other Provisions
SEC. 13244. INCREASED DEPOSITS INTO MASS TRANSIT ACCOUNT.
(a) IN GENERAL.—Paragraph (2) of section 9503(e) is amended
by striking ‘‘1.5 cents’’ and inserting ‘‘2 cents’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to amounts attributable to taxes imposed on or after
October 1, 1995.
SEC. 13245. FLOOR STOCKS TAX ON COMMERCIAL AVIATION FUEL
HELD ON OCTOBER 1, 1995.
(a) IMPOSITION OF TAX.—In the case of commercial aviation
fuel on which tax was imposed under section 4091 of the Internal
Revenue Code of 1986 before October 1, 1995, and which is held
H. R. 2264—219
on such date by any person, there is hereby imposed a floor stocks
tax of 4.3 cents per gallon.
(b) LIABILITY FOR TAX AND METHOD OF PAYMENT.—
(1) LIABILITY FOR TAX.—A person holding aviation fuel on
October 1, 1995, to which the tax imposed by subsection (a)
applies shall be liable for such tax.
(2) METHOD OF PAYMENT.—The tax imposed by subsection
(a) shall be paid in such manner as the Secretary shall pre-
scribe.
(3) TIME FOR PAYMENT.—The tax imposed by subsection
(a) shall be paid on or before April 30, 1996.
(c) DEFINITIONS.—For purposes of this subsection—
(1) HELD BY A PERSON.—Aviation fuel shall be considered
as ‘‘held by a person’’ if title thereto has passed to such person
(whether or not delivery to the person has been made).
(2) COMMERCIAL AVIATION FUEL.—The term ‘‘commercial
aviation fuel’’ means aviation fuel (as defined in section 4093
of such Code) which is held on October 1, 1995, for sale or
use in commercial aviation (as defined in section 4092(b) of
such Code).
(3) SECRETARY.—The term ‘‘Secretary’’ means the Secretary
of the Treasury or his delegate.
(d) EXCEPTION FOR EXEMPT USES.—The tax imposed by sub-
section (a) shall not apply to aviation fuel held by any person
exclusively for any use for which a credit or refund of the entire
tax imposed by section 4091 of such Code is allowable for aviation
fuel purchased after September 30, 1995, for such use.
(e) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL.—
(1) IN GENERAL.—No tax shall be imposed by subsection
(a) on aviation fuel held on October 1, 1995, by any person
if the aggregate amount of commercial aviation fuel held by
such person on such date does not exceed 2,000 gallons. The
preceding sentence shall apply only if such person submits
to the Secretary (at the time and in the manner required
by the Secretary) such information as the Secretary shall
require for purposes of this paragraph.
(2) EXEMPT FUEL.—For purposes of paragraph (1), there
shall not be taken into account fuel held by any person which
is exempt from the tax imposed by subsection (a) by reason
of subsection (d).
(3) 
CONTROLLED
GROUPS.—For 
purposes 
of 
this
subsection—
(A) CORPORATIONS.—
(i) IN GENERAL.—All persons treated as a controlled
group shall be treated as 1 person.
(ii) CONTROLLED
GROUP.—The term ‘‘controlled
group’’ has the meaning given to such term by sub-
section (a) of section 1563 of such Code; except that
for such purposes the phrase ‘‘more than 50 percent’’
shall be substituted for the phrase ‘‘at least 80 percent’’
each place it appears in such subsection.
(B) NONINCORPORATED PERSONS UNDER COMMON CON-
TROL.—Under regulations prescribed by the Secretary, prin-
ciples similar to the principles of subparagraph (A) shall
apply to a group of persons under common control where
1 or more of such persons is not a corporation.
H. R. 2264—220
(f) OTHER LAW APPLICABLE.—All provisions of law, including
penalties, applicable with respect to the taxes imposed by section
4091 of such Code shall, insofar as applicable and not inconsistent
with the provisions of this section, apply with respect to the floor
stock taxes imposed by subsection (a) to the same extent as if
such taxes were imposed by such section 4091.
PART V—COMPLIANCE PROVISIONS
SEC. 13251. MODIFICATIONS TO SUBSTANTIAL UNDERSTATEMENT
PENALTY.
(a) REASONABLE
BASIS
REQUIRED.—Clause (ii) of section
6662(d)(2)(B) (relating to reduction for understatement due to posi-
tion of taxpayer or disclosed item) is amended to read as follows:
‘‘(ii) any item if—
‘‘(I) the relevant facts affecting the item’s tax
treatment are adequately disclosed in the return
or in a statement attached to the return, and
‘‘(II) there is a reasonable basis for the tax
treatment of such item by the taxpayer.’’
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to returns the due dates for which (determined without
regard to extensions) are after December 31, 1993.
SEC. 13252. RETURNS RELATING TO THE CANCELLATION OF INDEBT-
EDNESS BY CERTAIN FINANCIAL ENTITIES.
(a) IN GENERAL.—Subpart B of part III of subchapter A of
chapter 61 (relating to information concerning transactions with
other persons) is amended by adding at the end thereof the following
new section:
‘‘SEC. 6050P. RETURNS RELATING TO THE CANCELLATION OF INDEBT-
EDNESS BY CERTAIN FINANCIAL ENTITIES.
‘‘(a) IN GENERAL.—Any applicable financial entity which dis-
charges (in whole or in part) the indebtedness of any person during
any calendar year shall make a return (at such time and in such
form as the Secretary may by regulations prescribe) setting forth—
‘‘(1) the name, address, and TIN of each person whose
indebtedness was discharged during such calendar year,
‘‘(2) the date of the discharge and the amount of the indebt-
edness discharged, and
‘‘(3) such other information as the Secretary may prescribe.
‘‘(b) EXCEPTION.—Subsection (a) shall not apply to any discharge
of less than $600.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) APPLICABLE FINANCIAL ENTITY.—The term ‘applicable
financial entity’ means—
‘‘(A) any financial institution described in section 581
or 591(a) and any credit union,
‘‘(B) the Federal Deposit Insurance Corporation, the
Resolution Trust Corporation, the National Credit Union
Administration, and any other Federal executive agency
(as defined in section 6050M), and any successor or subunit
of any of the foregoing, and
‘‘(C) any other corporation which is a direct or indirect
subsidiary of an entity referred to in subparagraph (A)
but only if, by virtue of being affiliated with such entity,
H. R. 2264—221
such other corporation is subject to supervision and exam-
ination by a Federal or State agency which regulates enti-
ties referred to in subparagraph (A).
‘‘(2) GOVERNMENTAL
UNITS.—In the case of an entity
described in paragraph (1)(B), any return under this section
shall be made by the officer or employee appropriately des-
ignated for the purpose of making such return.
‘‘(d) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT
TO WHOM INFORMATION IS REQUIRED TO BE FURNISHED.—Every
applicable financial entity required to make a return under sub-
section (a) shall furnish to each person whose name is required
to be set forth in such return a written statement showing—
‘‘(1) the name and address of the entity required to make
such return, and
‘‘(2) the information required to be shown on the return
with respect to such person.
The written statement required under the preceding sentence shall
be furnished to the person on or before January 31 of the year
following the calendar year for which the return under subsection
(a) was made.’’
(b) PENALTIES.—
(1) RETURNS.—Subparagraph (B) of section 6724(d)(1) is
amended by inserting after clause (vii) the following new clause
(and by redesignating the following clauses accordingly):
‘‘(viii) section 6050P (relating to returns relating
to the cancellation of indebtedness by certain financial
entities),’’.
(2) STATEMENTS.—Paragraph (2) of section 6724(d) is
amended by redesignating subparagraphs (P) through (S) as
subparagraphs (Q) through (T), respectively, and by inserting
after subparagraph (O) the following new subparagraph:
‘‘(P) section 6050P(d) (relating to returns relating to
the cancellation of indebtedness by certain financial enti-
ties),’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart
B of part III of subchapter A of chapter 61 is amended by adding
at the end thereof the following new item:
‘‘Sec. 6050P. Returns relating to the cancellation of indebtedness by certain
financial entities.’’
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to discharges
of indebtedness after December 31, 1993.
(2) GOVERNMENTAL
ENTITIES.—In the case of an entity
referred to in section 6050P(c)(1)(B) of the Internal Revenue
Code of 1986 (as added by this section), the amendments made
by this section shall apply to discharges of indebtedness after
the date of the enactment of this Act.
PART VI—TREATMENT OF INTANGIBLES
SEC. 13261. AMORTIZATION OF GOODWILL AND CERTAIN OTHER
INTANGIBLES.
(a) GENERAL RULE.—Part VI of subchapter B of chapter 1
(relating to itemized deductions for individuals and corporations)
is amended by adding at the end thereof the following new section:
H. R. 2264—222
‘‘SEC. 197. AMORTIZATION 
OF 
GOODWILL 
AND 
CERTAIN 
OTHER
INTANGIBLES.
‘‘(a) GENERAL RULE.—A taxpayer shall be entitled to an
amortization deduction with respect to any amortizable section
197 intangible. The amount of such deduction shall be determined
by amortizing the adjusted basis (for purposes of determining gain)
of such intangible ratably over the 15-year period beginning with
the month in which such intangible was acquired.
‘‘(b) NO OTHER DEPRECIATION OR AMORTIZATION DEDUCTION
ALLOWABLE.—Except as provided in subsection (a), no depreciation
or amortization deduction shall be allowable with respect to any
amortizable section 197 intangible.
‘‘(c) AMORTIZABLE SECTION 197 INTANGIBLE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
section, the term ‘amortizable section 197 intangible’ means
any section 197 intangible—
‘‘(A) which is acquired by the taxpayer after the date
of the enactment of this section, and
‘‘(B) which is held in connection with the conduct of
a trade or business or an activity described in section
212.
‘‘(2) EXCLUSION OF SELF-CREATED INTANGIBLES, ETC.—The
term ‘amortizable section 197 intangible’ shall not include any
section 197 intangible—
‘‘(A) which is not described in subparagraph (D), (E),
or (F) of subsection (d)(1), and
‘‘(B) which is created by the taxpayer.
This paragraph shall not apply if the intangible is created
in connection with a transaction (or series of related trans-
actions) involving the acquisition of assets constituting a trade
or business or substantial portion thereof.
‘‘(3) ANTI-CHURNING RULES.—
‘‘For exclusion of intangibles acquired in certain transactions,
see subsection (f)(9).
‘‘(d) SECTION 197 INTANGIBLE.—For purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise provided in this
section, the term ‘section 197 intangible’ means—
‘‘(A) goodwill,
‘‘(B) going concern value,
‘‘(C) any of the following intangible items:
‘‘(i) workforce in place including its composition
and terms and conditions (contractual or otherwise)
of its employment,
‘‘(ii) business books and records, operating systems,
or any other information base (including lists or other
information with respect to current or prospective cus-
tomers),
‘‘(iii) any patent, copyright, formula, process,
design, pattern, knowhow, format, or other similar
item,
‘‘(iv) any customer-based intangible,
‘‘(v) any supplier-based intangible, and
‘‘(vi) any other similar item,
‘‘(D) any license, permit, or other right granted by
a governmental unit or an agency or instrumentality
thereof,
H. R. 2264—223
‘‘(E) any covenant not to compete (or other arrangement
to the extent such arrangement has substantially the same
effect as a covenant not to compete) entered into in connec-
tion with an acquisition (directly or indirectly) of an interest
in a trade or business or substantial portion thereof, and
‘‘(F) any franchise, trademark, or trade name.
‘‘(2) CUSTOMER-BASED INTANGIBLE.—
‘‘(A) IN GENERAL.—The term ‘customer-based intangi-
ble’ means—
‘‘(i) composition of market,
‘‘(ii) market share, and
‘‘(iii) any other value resulting from future provi-
sion of goods or services pursuant to relationships
(contractual or otherwise) in the ordinary course of
business with customers.
‘‘(B) SPECIAL RULE FOR FINANCIAL INSTITUTIONS.—In
the case of a financial institution, the term ‘customer-
based intangible’ includes deposit base and similar items.
‘‘(3) SUPPLIER-BASED
INTANGIBLE.—The term ‘supplier-
based intangible’ means any value resulting from future
acquisitions of goods or services pursuant to relationships
(contractual or otherwise) in the ordinary course of business
with suppliers of goods or services to be used or sold by the
taxpayer.
‘‘(e) EXCEPTIONS.—For purposes of this section, the term ‘section
197 intangible’ shall not include any of the following:
‘‘(1) FINANCIAL INTERESTS.—Any interest—
‘‘(A) in a corporation, partnership, trust, or estate,
or
‘‘(B) under an existing futures contract, foreign cur-
rency contract, notional principal contract, or other similar
financial contract.
‘‘(2) LAND.—Any interest in land.
‘‘(3) COMPUTER SOFTWARE.—
‘‘(A) IN GENERAL.—Any—
‘‘(i) computer software which is readily available
for purchase by the general public, is subject to a
nonexclusive license, and has not been substantially
modified, and
‘‘(ii) other computer software which is not acquired
in a transaction (or series of related transactions)
involving the acquisition of assets constituting a trade
or business or substantial portion thereof.
‘‘(B) COMPUTER SOFTWARE DEFINED.—For purposes of
subparagraph (A), the term ‘computer software’ means any
program designed to cause a computer to perform a desired
function. Such term shall not include any data base or
similar item unless the data base or item is in the public
domain and is incidental to the operation of otherwise
qualifying computer software.
‘‘(4) CERTAIN
INTERESTS
OR
RIGHTS
ACQUIRED
SEPA-
RATELY.—Any of the following not acquired in a transaction
(or series of related transactions) involving the acquisition of
assets constituting a trade business or substantial portion
thereof:
‘‘(A) Any interest in a film, sound recording, video
tape, book, or similar property.