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‘‘(A) IN GENERAL.—No election may be
made under paragraph (1) with respect to any
property unless adequate security is provided
with respect to such property.
‘‘(B) ADEQUATE SECURITY.—For purposes
of subparagraph (A), security with respect to
any property shall be treated as adequate secu-
rity if—
‘‘(i) it is a bond in an amount equal
to the deferred tax amount under para-
graph (2)(A) for the property, or
‘‘(ii) the taxpayer otherwise estab-
lishes to the satisfaction of the Secretary
that the security is adequate.
‘‘(4) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the
taxpayer consents to the waiver of any right under
any treaty of the United States which would pre-
clude assessment or collection of any tax imposed by
reason of this section.
‘‘(5) DISPOSITIONS.—For purposes of this sub-
section, a taxpayer making an election under this
subsection with respect to any property shall be
treated as having disposed of such property—
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‘‘(A) immediately before death if such
property is held at such time, and
‘‘(B) at any time the security provided
with respect to the property fails to meet the
requirements of paragraph (3) and the taxpayer
does not correct such failure within the time
specified by the Secretary.
‘‘(6) ELECTIONS.—An election under paragraph
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may
be under paragraph (1) with respect to an interest
in a trust with respect to which gain is required to
be recognized under subsection (f)(1).
‘‘(c) COVERED EXPATRIATE.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘covered expatri-
ate’ means an expatriate—
‘‘(A) whose average annual net income tax
(as defined in section 38(c)(1)) for the period
of 5 taxable years ending before the expatria-
tion date is greater than $100,000, or
‘‘(B) whose net worth as of such date is
$500,000 or more.
If the expatriation date is after 1996, such
$100,000 and $500,000 amounts shall be increased
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by an amount equal to such dollar amount multi-
plied by the cost-of-living adjustment determined
under section 1(f)(3) for such calendar year by sub-
stituting ‘1995’ for ‘1992’ in subparagraph (B)
thereof. Any increase under the preceding sentence
shall be rounded to the nearest multiple of $1,000.
‘‘(2) EXCEPTIONS.—An individual shall not be
treated as a covered expatriate if—
‘‘(A) the individual—
‘‘(i) became at birth a citizen of the
United States and a citizen of another
country and, as of the expatriation date,
continues to be a citizen of, and is taxed
as a resident of, such other country, and
‘‘(ii) has been a resident of the United
States 
(as 
defined 
in 
section
7701(b)(1)(A)(ii)) for not more than 8 tax-
able years during the 15-taxable year pe-
riod ending with the taxable year during
which the expatriation date occurs, or
‘‘(B)(i) the individual’s relinquishment of
United States citizenship occurs before such in-
dividual attains age 181⁄2, and
‘‘(ii) the individual has been a resident of
the United States (as so defined) for not more
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than 5 taxable years before the date of relin-
quishment.
‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For
purposes of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided by the Secretary, this section shall apply to—
‘‘(A) any interest in property held by a
covered expatriate on the expatriation date the
gain from which would be includible in the
gross income of the expatriate if such interest
had been sold for its fair market value on such
date in a transaction in which gain is recog-
nized in whole or in part, and
‘‘(B) any other interest in a trust to which
subsection (f) applies.
‘‘(2) EXCEPTIONS.—This section shall not
apply to the following property:
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other
than stock of a United States real property
holding corporation which does not, on the ex-
patriation date, meet the requirements of sec-
tion 897(c)(2).
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‘‘(B) INTEREST IN CERTAIN RETIREMENT
PLANS.—
‘‘(i) IN GENERAL.—Any interest in a
qualified retirement plan (as defined in
section 4974(c)), other than any interest
attributable to contributions which are in
excess of any limitation or which violate
any condition for tax-favored treatment.
‘‘(ii) FOREIGN PENSION PLANS.—
‘‘(I) IN GENERAL.—Under regu-
lations prescribed by the Secretary,
interests in foreign pension plans or
similar retirement arrangements or
programs.
‘‘(II) LIMITATION.—The value of
property which is treated as not sold
by reason of this subparagraph shall
not exceed $500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, or
‘‘(B) any long-term resident of the United
States who—
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‘‘(i) ceases to be a lawful permanent
resident of the United States (within the
meaning of section 7701(b)(6)), or
‘‘(ii) commences to be treated as a
resident of a foreign country under the
provisions of a tax treaty between the
United States and the foreign country and
who does not waive the benefits of such
treaty applicable to residents of the foreign
country.
‘‘(2) EXPATRIATION
DATE.—The term ‘expa-
triation date’ means—
‘‘(A) the date an individual relinquishes
United States citizenship, or
‘‘(B) in the case of a long-term resident of
the United States, the date of the event de-
scribed in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT
OF
CITIZENSHIP.—A
citizen shall be treated as relinquishing his United
States citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant
to paragraph (5) of section 349(a) of the Immi-
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gration 
and 
Nationality 
Act 
(8 
U.S.C.
1481(a)(5)),
‘‘(B) the date the individual furnishes to
the United States Department of State a signed
statement of voluntary relinquishment of Unit-
ed States nationality confirming the perform-
ance of an act of expatriation specified in para-
graph (1), (2), (3), or (4) of section 349(a) of
the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)–(4)),
‘‘(C) the date the United States Depart-
ment of State issues to the individual a certifi-
cate of loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of nat-
uralization.
Subparagraph (A) or (B) shall not apply to any indi-
vidual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance
to the individual of a certificate of loss of nationality
by the United States Department of State.
‘‘(4) LONG-TERM RESIDENT.—
‘‘(A) IN GENERAL.—The term ‘long-term
resident’ means any individual (other than a
citizen of the United States) who is a lawful
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permanent resident of the United States in at
least 8 taxable years during the period of 15
taxable years ending with the taxable year dur-
ing which the expatriation date occurs. For pur-
poses of the preceding sentence, an individual
shall not be treated as a lawful permanent resi-
dent for any taxable year if such individual is
treated as a resident of a foreign country for
the taxable year under the provisions of a tax
treaty between the United States and the for-
eign country and does not waive the benefits of
such treaty applicable to residents of the for-
eign country.
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph (A), there shall not be taken into
account—
‘‘(i) any taxable year during which
any prior sale is treated under subsection
(a)(1) as occurring, or
‘‘(ii) any taxable year prior to the tax-
able year referred to in clause (i).
‘‘(f) SPECIAL
RULES
APPLICABLE
TO
BENE-
FICIARIES’ INTERESTS IN TRUST.—
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‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust—
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a
separate share in the trust, and
‘‘(C)(i) such separate share shall be treat-
ed as a separate trust consisting of the assets
allocable to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets immediately before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the in-
dividual as of such time, and
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate
trust.
Subsection (a)(2) shall apply to any income, gain, or
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii).
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
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‘‘(A) IN GENERAL.—If the trust interest
described in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such
interest a tax in the amount determined
under subparagraph (B).
‘‘(B) AMOUNT OF TAX.—The amount of
tax under subparagraph (A)(ii) shall be equal to
the lesser of—
‘‘(i) the highest rate of tax imposed by
section 1(e) for the taxable year in which
the expatriation date occurs, multiplied by
the amount of the distribution, or
‘‘(ii) the balance in the deferred tax
account immediately before the distribution
determined without regard to any increases
under subparagraph (C)(ii) after the 30th
day preceding the distribution.
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)—
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‘‘(i) OPENING BALANCE.—The open-
ing balance in a deferred tax account with
respect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
with respect to the trust interest if such
gain had been included in gross income
under subsection (a).
‘‘(ii) INCREASE FOR INTEREST.—The
balance in the deferred tax account shall
be increased by the amount of interest de-
termined (on the balance in the account at
the time the interest accrues), for periods
after the 90th day after the expatriation
date, by using the rates and method appli-
cable under section 6621 for underpay-
ments of tax for such periods.
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced—
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any
distribution to the person holding the
trust interest, and
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HR 2903 IH
‘‘(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subpara-
graph (A) on distributions from the
trust with respect to nonvested inter-
ests not held by such person.
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—
For purposes of this paragraph, the allocable
expatriation gain with respect to any bene-
ficiary’s interest in a trust is the amount of
gain which would be allocable to such bene-
ficiary’s vested and nonvested interests in the
trust if the beneficiary held directly all assets
allocable to such interests.
‘‘(E) TAX DEDUCTED AND WITHHELD.—
‘‘(i) IN GENERAL.—The tax imposed
by subparagraph (A)(ii) shall be deducted
and withheld by the trustees from the dis-
tribution to which it relates.
‘‘(ii) EXCEPTION WHERE FAILURE TO
WAIVE
TREATY
RIGHTS.—If an amount
may not be deducted and withheld under
clause (i) by reason of the distributee fail-
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HR 2903 IH
ing to waive any treaty right with respect
to such distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
trust and each trustee shall be person-
ally liable for the amount of such tax,
and
‘‘(II) any other beneficiary of the
trust shall be entitled to recover from
the distributee the amount of such tax
imposed on the other beneficiary.
‘‘(F) DISPOSITION.—If a trust ceases to be
a qualified trust at any time, a covered expatri-
ate disposes of an interest in a qualified trust,
or a covered expatriate holding an interest in a
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of—
‘‘(i) the tax determined under para-
graph (1) as if the expatriation date were
the date of such cessation, disposition, or
death, whichever is applicable, or
‘‘(ii) the balance in the tax deferred
account immediately before such date.
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Such tax shall be imposed on the trust and
each trustee shall be personally liable for the
amount of such tax and any other beneficiary
of the trust shall be entitled to recover from the
covered expatriate or the estate the amount of
such tax imposed on the other beneficiary.
‘‘(G) DEFINITIONS AND SPECIAL RULE.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust—
‘‘(I) which is organized under,
and governed by, the laws of the Unit-
ed States or a State, and
‘‘(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a do-
mestic corporation.
‘‘(ii) VESTED
INTEREST.—The term
‘vested interest’ means any interest which,
as of the expatriation date, is vested in the
beneficiary.
‘‘(iii) NONVESTED
INTEREST.—The
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a
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trust which is not a vested interest. Such
interest shall be determined by assuming
the maximum exercise of discretion in
favor of the beneficiary and the occurrence
of all contingencies in favor of the bene-
ficiary.
‘‘(iv) ADJUSTMENTS.—The Secretary
may provide for such adjustments to the
bases of assets in a trust or a deferred tax
account, and the timing of such adjust-
ments, in order to ensure that gain is
taxed only once.
‘‘(3) DETERMINATION OF BENEFICIARIES’ IN-
TEREST IN TRUST.—
‘‘(A) 
DETERMINATIONS
UNDER
PARA-
GRAPH (1).—For purposes of paragraph (1), a
beneficiary’s interest in a trust shall be based
upon all relevant facts and circumstances, in-
cluding the terms of the trust instrument and
any letter of wishes or similar document, histor-
ical patterns of trust distributions, and the ex-
istence of and functions performed by a trust
protector or any similar advisor.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
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‘‘(i) CONSTRUCTIVE
OWNERSHIP.—If
a beneficiary of a trust is a corporation,
partnership, trust, or estate, the sharehold-
ers, partners, or beneficiaries shall be
deemed to be the trust beneficiaries for
purposes of this section.
‘‘(ii) TAXPAYER RETURN POSITION.—
A taxpayer shall clearly indicate on its in-
come tax return—
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest
under this section, and
‘‘(II) if the taxpayer knows (or
has reason to know) that any other
beneficiary of such trust is using a
different methodology to determine
such beneficiary’s trust interest under
this section.
‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the
date any property held by an individual is treated as sold
under subsection (a), notwithstanding any other provision
of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate, and
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HR 2903 IH
‘‘(2) any extension of time for payment of tax
shall cease to apply and the unpaid portion of such
tax shall be due and payable at the time and in the
manner prescribed by the Secretary.
‘‘(h) IMPOSITION OF TENTATIVE TAX.—
‘‘(1) IN GENERAL.—If an individual is required
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a
tax in an amount equal to the amount of tax which
would be imposed if the taxable year were a short
taxable year ending on the expatriation date.
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after
the expatriation date.
‘‘(3) TREATMENT OF TAX.—Any tax paid under
paragraph (1) shall be treated as a payment of the
tax imposed by this chapter for the taxable year to
which subsection (a) applies.
‘‘(4) DEFERRAL
OF
TAX.—The provisions of
subsection (b) shall apply to the tax imposed by this
subsection to the extent attributable to gain includ-
ible in gross income by reason of this section.
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‘‘(i) COORDINATION
WITH
ESTATE
AND
GIFT
TAXES.—If subsection (a) applies to property held by an
individual for any taxable year and—
‘‘(1) such property is includible in the gross es-
tate of such individual solely by reason of section
2107, or
‘‘(2) section 2501 applies to a transfer of such
property by such individual solely by reason of sec-
tion 2501(a)(3),
then there shall be allowed as a credit against the addi-
tional tax imposed by section 2101 or 2501, whichever is
applicable, solely by reason of section 2107 or 2501(a)(3)
an amount equal to the increase in the tax imposed by
this chapter for such taxable year by reason of this sec-
tion.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions—
‘‘(1) to prevent double taxation by ensuring
that—
‘‘(A) appropriate adjustments are made to
basis to reflect gain recognized by reason of
subsection (a) and the exclusion provided by
subsection (a)(3), and
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‘‘(B) any gain by reason of a deemed sale
under subsection (a) of an interest in a corpora-
tion, partnership, trust, or estate is reduced to
reflect that portion of such gain which is attrib-
utable to an interest in a trust which a share-
holder, partner, or beneficiary is treated as
holding directly under subsection (f)(3)(B)(i),
and
‘‘(2) which provide for the proper allocation of
the exclusion under subsection (a)(3) to property to
which this section applies.
‘‘(k) CROSS REFERENCE.—
‘‘For income tax treatment of individuals who
terminate United States citizenship, see section
7701(a)(47).’’.
(b) INCLUSION IN INCOME OF GIFTS AND INHERIT-
ANCES FROM COVERED EXPATRIATES.—Section 102 (re-
lating to gifts, etc. not included in gross income) is amend-
ed by adding at the end the following new subsection:
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.—Subsection (a) shall not exclude from gross
income the value of any property acquired by gift, bequest,
devise, or inheritance from a covered expatriate after the
expatriation date. For purposes of this subsection, any
term used in this subsection which is also used in section
877A shall have the same meaning as when used in section
877A.’’.
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this section if the Secretary determines that applying this
section to such individuals is not necessary to carry out
the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for such subpart A is amended by inserting after the item
relating to section 6039E the following new item:
‘‘Sec. 6039F. Information on individuals expatriating.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to individuals to whom section
877A of the Internal Revenue Code of 1986 applies and
whose expatriation date (as defined in section 877A(e)(2))
occurs on or after February 6, 1995, except that no state-
ment shall be required by such amendments before the
90th day after the date of the enactment of this Act.
Subtitle B—Corporate Reforms
SEC. ll201. TAX TREATMENT OF CERTAIN EXTRAOR-
DINARY DIVIDENDS.
(a) TREATMENT OF EXTRAORDINARY DIVIDENDS IN
EXCESS OF BASIS.—Paragraph (2) of section 1059(a) (re-
lating to corporate shareholder’s basis in stock reduced by
nontaxed portion of extraordinary dividends) is amended
to read as follows:
‘‘(2) AMOUNTS IN EXCESS OF BASIS.—If the
nontaxed portion of such dividends exceeds such
basis, such excess shall be treated as gain from the
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HR 2903 IH
sale or exchange of such stock for the taxable year
in which the extraordinary dividend is received.’’.
(b) TREATMENT OF REDEMPTIONS WHERE OPTIONS
INVOLVED.—Paragraph (1) of section 1059(e) (relating to
treatment of partial liquidations and non-pro rata redemp-
tions) is amended to read as follows:
‘‘(1) TREATMENT
OF
PARTIAL
LIQUIDATIONS
AND CERTAIN REDEMPTIONS.—Except as otherwise
provided in regulations—
‘‘(A) REDEMPTIONS.—In the case of any
redemption of stock—
‘‘(i) which is part of a partial liquida-
tion (within the meaning of section 302(e))
of the redeeming corporation,
‘‘(ii) which is not pro rata as to all
shareholders, or
‘‘(iii) which would not have been
treated (in whole or in part) as a dividend
if any options had not been taken into ac-
count under section 318(a)(4),
any amount treated as a dividend with respect
to such redemption shall be treated as an ex-
traordinary dividend to which paragraphs (1)
and (2) of subsection (a) apply without regard
to the period the taxpayer held such stock. In
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the case of a redemption described in clause
(iii), only the basis in the stock redeemed shall
be taken into account under subsection (a).
‘‘(B) REORGANIZATIONS, 
ETC.—An ex-
change described in section 356(a)(1) which is
treated as a dividend under section 356(a)(2)
shall be treated as a redemption of stock for
purposes of applying subparagraph (A).’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall apply to distributions after May 3,
1995.
(2) 
TRANSITION
RULE.—The 
amendments
made by this section shall not apply to any distribu-
tion made pursuant to the terms of—
(A) a written binding contract in effect on
May 3, 1995, and at all times thereafter before
such distribution, or
(B) a tender offer outstanding on May 3,
1995.
(3) CERTAIN
DIVIDENDS
NOT
PURSUANT
TO
CERTAIN
REDEMPTIONS.—In determining whether
the amendment made by subsection (a) applies to
any extraordinary dividend other than a dividend
treated as an extraordinary dividend under section