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‘‘(i) IN GENERAL.—In the case of an
improvement made by the person who was
the lessor of such improvement when such
improvement was placed in service, such
improvement shall be qualified leasehold
improvement property (if at all) only so
long as such improvement is held by such
person.
‘‘(ii) EXCEPTION
FOR
CHANGES
IN
FORM
OF
BUSINESS.—Property shall not
cease to be qualified leasehold improve-
ment property under clause (i) by reason
of—
‘‘(I) death,
‘‘(II) a transaction to which sec-
tion 381(a) applies, or
‘‘(III) a mere change in the form
of conducting the trade or business so
long as the property is retained in
such trade or business as qualified
leasehold improvement property and
the taxpayer retains a substantial in-
terest in such trade or business.
‘‘(iii) TREATMENT
OF
FAILURES
TO
MAINTAIN
SUBSTANTIAL
INTEREST
IN
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TRADE OR BUSINESS.—In the case of prop-
erty to which clause (ii)(III) would apply
but for the failure of the taxpayer to retain
a substantial interest in a trade or busi-
ness, the remaining adjusted basis of such
property shall be depreciated under this
section over 39 years.’’
(c) REQUIREMENT TO USE STRAIGHT LINE METH-
OD.—Paragraph (3) of section 168(b) is amended by add-
ing at the end the following new subparagraph:
‘‘(G) 
Qualified 
leasehold 
improvement
property described in subsection (e)(6).’’
(d) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by adding at the end the
following new item:
‘‘(E)(iv) .................................................................................
15’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualified leasehold improvement
property placed in service after September 10, 2001.
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TITLE III—EXTENSIONS OF
CERTAIN EXPIRING PROVISIONS
Subtitle A—Extensions
SEC. 301. ALLOWANCE OF NONREFUNDABLE PERSONAL
CREDITS AGAINST REGULAR AND MINIMUM
TAX LIABILITY.
(a) IN GENERAL.—Paragraph (2) of section 26(a) is
amended—
(1) by striking ‘‘RULE FOR 2000 AND 2001.—’’
and inserting ‘‘RULE
FOR
2000, 2001, 2002, AND
2003.—’’, and
(2) by striking ‘‘during 2000 or 2001,’’ and in-
serting ‘‘during 2000, 2001, 2002, or 2003,’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 904(h) is amended by striking ‘‘dur-
ing 2000 or 2001’’ and inserting ‘‘during 2000,
2001, 2002, or 2003’’.
(2) The amendments made by sections 201(b),
202(f), and 618(b) of the Economic Growth and Tax
Relief Reconciliation Act of 2001 shall not apply to
taxable years beginning during 2002 and 2003.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
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SEC. 302. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) IN GENERAL.—Section 30 is amended—
(1) in subsection (b)(2)—
(A) by striking ‘‘December 31, 2001,’’ and
inserting ‘‘December 31, 2003,’’, and
(B) in subparagraphs (A), (B), and (C), by
striking ‘‘2002’’, ‘‘2003’’, and ‘‘2004’’, respec-
tively, and inserting ‘‘2004’’, ‘‘2005’’, and
‘‘2006’’, respectively, and
(2) in subsection (e), by striking ‘‘December 31,
2004’’ and inserting ‘‘December 31, 2006’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (C) of section 280F(a)(1) is
amended by adding at the end the following new
clause
‘‘(iii) 
APPLICATION
OF
SUBPARA-
GRAPH.—This subparagraph shall apply to
property placed in service after August 5,
1997, and before January 1, 2007.’’
(2) Subsection (b) of section 971 of the Tax-
payer Relief Act of 1997 is amended by striking
‘‘and before January 1, 2005’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
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SEC. 303. CREDIT FOR ELECTRICITY PRODUCED FROM RE-
NEWABLE RESOURCES.
(a) IN GENERAL.—Subparagraphs (A), (B), and (C)
of section 45(c)(3) are each amended by striking ‘‘2002’’
and inserting ‘‘2004’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 304. WORK OPPORTUNITY CREDIT.
(a) IN GENERAL.—Subparagraph (B) of section
51(c)(4) is amended by striking ‘‘2001’’ and inserting
‘‘2003’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to individuals who begin work
for the employer after December 31, 2001.
SEC. 305. WELFARE-TO-WORK CREDIT.
(a) IN GENERAL.—Subsection (f) of section 51A is
amended by striking ‘‘2001’’ and inserting ‘‘2003’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to individuals who begin work
for the employer after December 31, 2001.
SEC. 306. DEDUCTION FOR CLEAN-FUEL VEHICLES AND
CERTAIN REFUELING PROPERTY.
(a) IN GENERAL.—Section 179A is amended—
(1) in subsection (b)(1)(B)—
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(A) by striking ‘‘December 31, 2001,’’ and
inserting ‘‘December 31, 2003,’’, and
(B) in clauses (i), (ii), and (iii), by striking
‘‘2002’’, ‘‘2003’’, and ‘‘2004’’, respectively, and
inserting ‘‘2004’’, ‘‘2005’’, and ‘‘2006’’, respec-
tively, and
(2) in subsection (f), by striking ‘‘December 31,
2004’’ and inserting ‘‘December 31, 2006’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 307. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLE-
TION FOR OIL AND NATURAL GAS PRODUCED
FROM MARGINAL PROPERTIES.
(a) IN GENERAL.—Subparagraph (H) of section
613A(c)(6) is amended by striking ‘‘2002’’ and inserting
‘‘2004’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
SEC. 308. QUALIFIED ZONE ACADEMY BONDS.
(a) 
IN
GENERAL.—Paragraph 
(1) 
of 
section
1397E(e) is amended by striking ‘‘2000, and 2001’’ and
inserting ‘‘2000, 2001, 2002, and 2003’’.
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(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 309. COVER OVER OF TAX ON DISTILLED SPIRITS.
(a) IN GENERAL.—Paragraph (1) of section 7652(f)
is amended by striking ‘‘January 1, 2002’’ and inserting
‘‘January 1, 2004’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
SEC. 310. PARITY IN THE APPLICATION OF CERTAIN LIMITS
TO MENTAL HEALTH BENEFITS.
(a) IN GENERAL.—Subsection (f) of section 9812, as
amended by the Departments of Labor, Health and
Human Services, and Education, and Related Agencies
Appropriations Act, 2002, is amended to read as follows:
‘‘(f) APPLICATION OF SECTION.—This section shall
not apply to benefits for services furnished—
‘‘(1) on or after September 30, 2001, and be-
fore January 1, 2002, and
‘‘(2) after December 31, 2003.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to plan years beginning after
December 31, 2000.
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SEC. 311. TEMPORARY SPECIAL RULES FOR TAXATION OF
LIFE INSURANCE COMPANIES.
(a) REDUCTION IN MUTUAL LIFE INSURANCE COM-
PANY DEDUCTIONS NOT TO APPLY IN CERTAIN YEARS.—
Section 809 (relating to reduction in certain deductions
of material life insurance companies) is amended by add-
ing at the end the following:
‘‘(j) DIFFERENTIAL EARNINGS RATE TREATED AS
ZERO FOR CERTAIN YEARS.—Notwithstanding subsection
(c) or (f), the differential earnings rate shall be treated
as zero for purposes of computing both the differential
earnings amount and the recomputed differential earnings
amount for a mutual life insurance company’s taxable
years beginning in 2001, 2002, or 2003.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 312. AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Paragraphs (2) and (3)(B) of sec-
tion 220(i) (defining cut-off year) are each amended by
striking ‘‘2002’’ each place it appears and inserting
‘‘2003’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 220(j) is amended
by striking ‘‘1998, 1999, or 2001’’ each place it ap-
pears and inserting ‘‘1998, 1999, 2001, or 2002’’.
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(2) Subparagraph (A) of section 220(j)(4) is
amended by striking ‘‘and 2001’’ and inserting
‘‘2001, and 2002’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 313. INCENTIVES FOR INDIAN EMPLOYMENT AND
PROPERTY ON INDIAN RESERVATIONS.
(a) EMPLOYMENT.—Subsection (f) of section 45A is
amended by striking ‘‘December 31, 2003’’ and inserting
‘‘December 31, 2004’’.
(b) PROPERTY.—Paragraph (8) of section 168(j) is
amended by striking ‘‘December 31, 2003’’ and inserting
‘‘December 31, 2004’’.
SEC. 314. SUBPART F EXEMPTION FOR ACTIVE FINANCING.
(a) IN GENERAL.—
(1) Section 953(e)(10) is amended—
(A) by striking ‘‘January 1, 2002’’ and in-
serting ‘‘January 1, 2007’’, and
(B) by striking ‘‘December 31, 2001’’ and
inserting ‘‘December 31, 2006’’.
(2) Section 954(h)(9) is amended by striking
‘‘January 1, 2002’’ and inserting ‘‘January 1,
2007’’.
(b) LIFE INSURANCE AND ANNUITY CONTRACTS.—
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(1) IN GENERAL.—Subparagraph (B) of section
954(i)(4) is amended to read as follows:
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the amount of the re-
serve of a qualifying insurance company or
qualifying insurance company branch for
any life insurance or annuity contract shall
be equal to the greater of—
‘‘(I) the net surrender value of
such contract (as defined in section
807(e)(1)(A)), or
‘‘(II) 
the 
reserve 
determined
under paragraph (5).
‘‘(ii) RULING
REQUEST, ETC.—The
amount of the reserve under clause (i)
shall be the foreign statement reserve for
the contract (less any catastrophe, defi-
ciency, equalization, or similar reserves), if,
pursuant to a ruling request submitted by
the taxpayer or as provided in published
guidance, the Secretary determines that
the factors taken into account in deter-
mining the foreign statement reserve pro-
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vide an appropriate means of measuring
income.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 315. REPEAL OF REQUIREMENT FOR APPROVED DIE-
SEL OR KEROSENE TERMINALS.
(a) IN GENERAL.—Subsection (e) of section 4101 is
hereby repealed.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 2002.
Subtitle B—Temporary Assistance
for Needy Families
SEC. 321. REAUTHORIZATION OF TANF SUPPLEMENTAL
GRANTS FOR POPULATION INCREASES FOR
FISCAL YEAR 2002.
Section 403(a)(3) of the Social Security Act (42
U.S.C. 603(a)(3)) is amended by adding at the end the
following:
‘‘(H) REAUTHORIZATION OF GRANTS FOR
FISCAL YEAR 2002.—Notwithstanding any other
provision of this paragraph—
‘‘(i) any State that was a qualifying
State under this paragraph for fiscal year
2001 or any prior fiscal year shall be enti-
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tled to receive from the Secretary for fiscal
year 2002 a grant in an amount equal to
the amount required to be paid to the
State under this paragraph for the most
recent fiscal year in which the State was a
qualifying State;
‘‘(ii) subparagraph (G) shall be ap-
plied as if ‘2002’ were substituted for
‘2001’; and
‘‘(iii) out of any money in the Treas-
ury of the United States not otherwise ap-
propriated, there are appropriated for fis-
cal year 2002 such sums as are necessary
for grants under this subparagraph.’’.
SEC. 322. 1-YEAR EXTENSION OF CONTINGENCY FUND
UNDER THE TANF PROGRAM.
Section 403(b) of the Social Security Act (42 U.S.C.
603(b)) is amended—
(1) in paragraph (2), by striking ‘‘and 2001’’
and inserting ‘‘2001, and 2002’’; and
(2) in paragraph (3)(C)(ii), by striking ‘‘2001’’
and inserting ‘‘2002’’.
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TITLE IV—TAX BENEFITS FOR
AREA OF NEW YORK CITY
DAMAGED IN TERRORIST AT-
TACKS 
ON 
SEPTEMBER 
11,
2001
SEC. 401. TAX BENEFITS FOR AREA OF NEW YORK CITY
DAMAGED IN TERRORIST ATTACKS ON SEP-
TEMBER 11, 2001.
(a) IN GENERAL.—Chapter 1 is amended by adding
at the end the following new subchapter:
‘‘Subchapter Y—New York Liberty Zone
Benefits
‘‘Sec. 1400L. Tax benefits for New York Liberty Zone.
‘‘SEC. 1400L. TAX BENEFITS FOR NEW YORK LIBERTY ZONE.
‘‘(a) SPECIAL ALLOWANCE FOR CERTAIN PROPERTY
ACQUIRED AFTER SEPTEMBER 10, 2001.—
‘‘(1) ADDITIONAL ALLOWANCE.—In the case of
any qualified New York Liberty Zone property—
‘‘(A) the depreciation deduction provided
by section 167(a) for the taxable year in which
such property is placed in service shall include
an allowance equal to 30 percent of the ad-
justed basis of such property, and
‘‘(B) the adjusted basis of the qualified
New York Liberty Zone property shall be re-
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duced by the amount of such deduction before
computing the amount otherwise allowable as a
depreciation deduction under this chapter for
such taxable year and any subsequent taxable
year.
‘‘(2) QUALIFIED
NEW
YORK
LIBERTY
ZONE
PROPERTY.—For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
New York Liberty Zone property’ means
property—
‘‘(i)(I) to which section 168 applies
(other than railroad grading and tunnel
bores), or
‘‘(II) which is computer software (as
defined in section 167(f)(1)(B)) for which
a deduction is allowable under section
167(a) without regard to this subsection,
‘‘(ii) substantially all of the use of
which is in the New York Liberty Zone
and is in the active conduct of a trade or
business by the taxpayer in such Zone,
‘‘(iii) the original use of which in the
New York Liberty Zone commences with
the taxpayer after September 10, 2001,
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‘‘(iv) which is acquired by the tax-
payer by purchase (as defined in section
179(d)) after September 10, 2001, but
only if no written binding contract for the
acquisition was in effect before September
11, 2001, and
‘‘(v) which is placed in service by the
taxpayer on or before the termination date.
The term ‘termination date’ means December
31, 2006 (December 31, 2009, in the case of
nonresidential real property and residential
rental property).
‘‘(B) EXCEPTIONS.—
‘‘(i) 
ALTERNATIVE
DEPRECIATION
PROPERTY.—The term ‘qualified New York
Liberty Zone property’ shall not include
any property to which the alternative de-
preciation system under section 168(g) ap-
plies, determined—
‘‘(I) without regard to paragraph
(7) of section 168(g) (relating to elec-
tion to have system apply), and
‘‘(II) after application of section
280F(b) (relating to listed property
with limited business use).
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‘‘(ii) 30 PERCENT
ADDITIONAL
AL-
LOWANCE
PROPERTY.—Such term shall
not include property to which section
168(k) applies.
‘‘(iii) QUALIFIED
LEASEHOLD
IM-
PROVEMENT PROPERTY.—Such term shall
not include any qualified leasehold im-
provement property (as defined in section
168(e)(6)).
‘‘(iv) ELECTION OUT.—If a taxpayer
makes an election under this clause with
respect to any class of property for any
taxable year, this subsection shall not
apply to all property in such class placed
in service during such taxable year.
‘‘(C) SPECIAL RULES.—
‘‘(i) 
SELF-CONSTRUCTED
PROP-
ERTY.—In the case of a taxpayer manufac-
turing, constructing, or producing property
for the taxpayer’s own use, the require-
ments of clause (iv) of subparagraph (A)
shall be treated as met if the taxpayer be-
gins manufacturing, constructing, or pro-
ducing the property after September 10,
2001, and before the termination date.
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‘‘(ii) SALE-LEASEBACKS.—For pur-
poses 
of 
subparagraph 
(A)(iii), 
if
property—
‘‘(I) is originally placed in service
after September 10, 2001, by a per-
son, and
‘‘(II) sold and leased back by
such person within 3 months after the
date such property was originally
placed in service,
such property shall be treated as originally
placed in service not earlier than the date
on which such property is used under the
leaseback referred to in subclause (II).
‘‘(D) ALLOWANCE AGAINST ALTERNATIVE
MINIMUM TAX.—The deduction allowed by this
subsection shall be allowed in determining alter-
native minimum taxable income under section
55.
‘‘(b) 5-YEAR RECOVERY PERIOD FOR DEPRECIATION
OF CERTAIN LEASEHOLD IMPROVEMENTS.—
‘‘(1) IN
GENERAL.—For purposes of section
168, the term ‘5-year property’ includes any quali-
fied New York Liberty Zone leasehold improvement
property.
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‘‘(2) QUALIFIED
NEW
YORK
LIBERTY
ZONE
LEASEHOLD
IMPROVEMENT
PROPERTY.—For pur-
poses of this section, the term ‘qualified New York
Liberty Zone leasehold improvement property’
means qualified leasehold improvement property (as
defined in section 168(e)(6)) if—
‘‘(A) such building is located in the New
York Liberty Zone,
‘‘(B) such improvement is placed in service
after September 10, 2001, and before January
1, 2007, and
‘‘(C) no written binding contract for such
improvement was in effect before September 11,
2001.
‘‘(3) REQUIREMENT
TO
USE
STRAIGHT
LINE
METHOD.—The 
applicable 
depreciation 
method
under section 168 shall be the straight line method
in the case of qualified New York Liberty Zone
leasehold improvement property.
‘‘(4) 9-YEAR RECOVERY PERIOD UNDER ALTER-
NATIVE SYSTEM.—For purposes of section 168(g),
the class life of qualified New York Liberty Zone
leasehold improvement property shall be 9 years.
‘‘(c) INCREASE
IN EXPENSING UNDER SECTION
179.—
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‘‘(1) IN
GENERAL.—For purposes of section
179—
‘‘(A) the limitation under section 179(b)(1)
shall be increased by the lesser of—
‘‘(i) $35,000, or
‘‘(ii) the cost of section 179 property
which is qualified New York Liberty Zone
property placed in service during the tax-
able year, and
‘‘(B) the amount taken into account under
section 179(b)(2) with respect to any section
179 property which is qualified New York Lib-
erty Zone property shall be 50 percent of the
cost thereof.
‘‘(2) RECAPTURE.—Rules similar to the rules
under section 179(d)(10) shall apply with respect to
any qualified New York Liberty Zone property which
ceases to be used in the New York Liberty Zone.
‘‘(d) TAX-EXEMPT BOND FINANCING.—
‘‘(1) IN GENERAL.—For purposes of this title,
any qualified New York Liberty Bond shall be treat-
ed as an exempt facility bond.
‘‘(2) QUALIFIED NEW YORK LIBERTY BOND.—
For purposes of this subsection, the term ‘qualified
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New York Liberty Bond’ means any bond issued as
part of an issue if—
‘‘(A) 95 percent or more of the net pro-
ceeds (as defined in section 150(a)(3)) of such
issue are to be used for qualified project costs,
‘‘(B) such bond is issued by the State of
New York or any political subdivision thereof,
‘‘(C) the Governor of New York designates
such bond for purposes of this section, and
‘‘(D) such bond is issued during calendar
year 2002, 2003, or 2004.
‘‘(3) LIMITATION ON AMOUNT OF BONDS DES-
IGNATED.—
‘‘(A) AGGREGATE AMOUNT DESIGNATED.—
The maximum aggregate face amount of bonds
which may be designated under this subsection
shall not exceed $15,000,000,000.
‘‘(B) SPECIFIC LIMITS.—For purposes of
subparagraph (A), the aggregate face amount
of bonds issued which are to be used for—
‘‘(i) costs for property located outside
the New York Liberty Zone, shall not ex-
ceed $7,000,000,000,
‘‘(ii) costs for residential rental prop-
erty, shall not exceed $3,000,000,000, and
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‘‘(iii) costs for property used for retail
sales of tangible property, shall not exceed
$1,500,000,000.
‘‘(C) MOVABLE
FIXTURES
AND
EQUIP-
MENT.—No bonds shall be issued which are to
be used for movable fixtures and equipment.
‘‘(4) QUALIFIED
PROJECT
COSTS.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
project costs’ means the cost of acquisition,
construction, reconstruction, and renovation
of—
‘‘(i) nonresidential real property and
residential rental property (including fixed
tenant improvements associated with such
property) located in the New York Liberty
Zone, and
‘‘(ii) public utility property located in
the New York Liberty Zone.
‘‘(B) COSTS FOR CERTAIN PROPERTY OUT-
SIDE ZONE INCLUDED.—Such term includes the
cost of acquisition, construction, reconstruction,
and renovation of nonresidential real property
(including fixed tenant improvements associated
with such property) located outside the New
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York Liberty Zone but within the City of New
York, New York, if such property is part of a
project which consists of at least 100,000
square feet of usable office or other commercial
space located in a single building or multiple
adjacent buildings.
‘‘(5) SPECIAL RULES.—In applying this title to
any qualified New York Liberty Bond, the following
modifications shall apply:
‘‘(A) Section 146 (relating to volume cap)
shall not apply.
‘‘(B) Section 147(c) (relating to limitation
on use for land acquisition) shall be determined
by reference to the aggregate authorized face
amount of all qualified New York Liberty
Bonds rather than the net proceeds of each
issue.
‘‘(C) Section 147(d) (relating to acquisi-
tion of existing property not permitted) shall be
applied by substituting ‘50 percent’ for ‘15 per-
cent’ each place it appears.
‘‘(D) Section 148(f)(4)(C) (relating to ex-
ception from rebate for certain proceeds to be
used to finance construction expenditures) shall
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apply to available construction proceeds of
bonds issued under this section.
‘‘(E) Financing provided by such a bond
shall not be taken into account under section
168(g)(5)(A) with respect to property substan-
tially all of the use of which is in the New York
Liberty Zone and is in the active conduct of a
trade or business by the taxpayer in such Zone.
‘‘(F) Repayments of principal on financing
provided by the issue—
‘‘(i) may not be used to provide fi-
nancing, and
‘‘(ii) must be used not later than the
close of the 1st semiannual period begin-
ning after the date of the repayment to re-
deem bonds which are part of such issue.
The requirement of clause (ii) shall be treated
as met with respect to amounts received within
10 years after the date of issuance of the issue
(or, in the case of refunding bond, the date of
issuance of the original bond) if such amounts
are used by the close of such 10 years to re-
deem bonds which are part of such issue.
‘‘(G) Section 57(a)(5) shall not apply.
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‘‘(6) SEPARATE
ISSUE
TREATMENT
OF
POR-
TIONS
OF
AN
ISSUE.—This subsection shall not
apply to the portion of an issue which (if issued as
a separate issue) would be treated as a qualified
bond or as a bond that is not a private activity bond,
if the issuer elects to so treat such portion.
‘‘(e) EXTENSION
OF REPLACEMENT PERIOD
FOR
NONRECOGNITION
OF
GAIN.—Notwithstanding 
sub-
sections (g) and (h) of section 1033, clause (i) of section
1033(a)(2)(B) shall be applied by substituting ‘5 years’
for ‘2 years’ with respect to property which is compulsorily
or involuntarily converted as a result of the terrorist at-
tacks on September 11, 2001, in the New York Liberty
Zone but only if substantially all of the use of the replace-
ment property is in the City of New York, New York.
‘‘(f) NEW YORK LIBERTY ZONE.—For purposes of
this section, the term ‘New York Liberty Zone’ means the
area located on or south of Canal Street, East Broadway
(east of its intersection with Canal Street), or Grand
Street (east of its intersection with East Broadway) in the
Borough of Manhattan in the City of New York, New
York.’’
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 is amended by adding at the end
the following new item:
‘‘Subchapter Y. New York Liberty Zone Benefits.’’
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TITLE 
V—RELIEF 
PROVISIONS
FOR VICTIMS OF TERRORIST
ATTACKS, 
PRESIDENTIALLY
DECLARED DISASTERS, AND
CERTAIN OTHER DISASTERS
Subtitle A—Relief Provisions for
Victims of Terrorist Attacks
SEC. 501. INCOME TAXES OF VICTIMS OF TERRORIST AT-
TACKS.
(a) IN GENERAL.—Section 692 (relating to income
taxes of members of Armed Forces on death) is amended
by adding at the end the following new subsection:
‘‘(d) INDIVIDUALS DYING AS A RESULT OF CERTAIN
ATTACKS.—
‘‘(1) IN GENERAL.—In the case of a specified
terrorist victim, any tax imposed by this chapter
shall not apply—
‘‘(A) with respect to the taxable year in
which falls the date of death, and
‘‘(B) with respect to any prior taxable year
in the period beginning with the last taxable
year ending before the taxable year in which the
wounds, injury, or illness referred to in para-
graph (3) were incurred.
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‘‘(2) $10,000 MINIMUM BENEFIT.—If, but for
this paragraph, the amount of tax not imposed by
paragraph (1) with respect to a specified terrorist
victim is less than $10,000, then such victim shall
be treated as having made a payment against the
tax imposed by this chapter for such victim’s last
taxable year in an amount equal to the excess of
$10,000 over the amount of tax not so imposed.
‘‘(3) TAXATION OF CERTAIN BENEFITS.—Sub-
ject to such rules as the Secretary may prescribe,
paragraph (1) shall not apply to the amount of any
tax imposed by this chapter which would be com-
puted by only taking into account the items of in-
come, gain, or other amounts attributable to—
‘‘(A) deferred compensation which would
have been payable after death if the individual
had died other than as a specified terrorist vic-
tim, or
‘‘(B) amounts payable in the taxable year
which would not have been payable in such tax-
able year but for an action taken after Sep-
tember 11, 2001.
‘‘(4) SPECIFIED TERRORIST VICTIM.—For pur-
poses of this subsection, the term ‘specified terrorist
victim’ means any decedent—
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‘‘(A) who dies as a result of wounds or in-
jury incurred as a result of the terrorist attacks
against the United States on April 19, 1995, or
September 11, 2001, or
‘‘(B) who dies as a result of illness in-
curred as a result of an attack involving an-
thrax occurring on or after September 11,
2001, and before January 1, 2002.
Such term shall not include any individual identified
by the Attorney General to have been a participant
or conspirator in any such attack or a representative
of such an individual.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 5(b)(1) is amended by inserting
‘‘and victims of certain terrorist attacks’’ before ‘‘on
death’’.
(2) Section 6013(f)(2)(B) is amended by insert-
ing ‘‘and victims of certain terrorist attacks’’ before
‘‘on death’’.
(c) CLERICAL AMENDMENTS.—
(1) The heading of section 692 is amended to
read as follows:
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‘‘SEC. 692. INCOME TAXES OF MEMBERS OF ARMED FORCES
AND VICTIMS OF CERTAIN TERRORIST AT-
TACKS ON DEATH.’’.
(2) The item relating to section 692 in the table
of sections for part II of subchapter J of chapter 1
is amended to read as follows:
‘‘Sec. 692. Income taxes of members of Armed Forces and victims
of certain terrorist attacks on death.’’.
(d) EFFECTIVE DATE; WAIVER OF LIMITATIONS.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to taxable years ending
before, on, or after September 11, 2001.
(2) WAIVER
OF
LIMITATIONS.—If refund or
credit of any overpayment of tax resulting from the
amendments made by this section is prevented at
any time before the close of the 1-year period begin-
ning on the date of the enactment of this Act by the
operation of any law or rule of law (including res ju-
dicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the
close of such period.
SEC. 502. EXCLUSION OF CERTAIN DEATH BENEFITS.
(a) IN GENERAL.—Section 101 (relating to certain
death benefits) is amended by adding at the end the fol-
lowing new subsection:
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‘‘(i) CERTAIN EMPLOYEE DEATH BENEFITS PAY-
ABLE BY REASON OF DEATH OF CERTAIN TERRORIST
VICTIMS.—
‘‘(1) IN GENERAL.—Gross income does not in-
clude amounts (whether in a single sum or other-
wise) paid by an employer by reason of the death of
an employee who is a specified terrorist victim (as
defined in section 692(d)(4)).
‘‘(2) LIMITATION.—
‘‘(A) IN GENERAL.—Subject to such rules
as the Secretary may prescribe, paragraph (1)
shall not apply to amounts which would have
been payable after death if the individual had
died other than as a specified terrorist victim
(as so defined).
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to incidental death benefits paid
from a plan described in section 401(a) and ex-
empt from tax under section 501(a).
‘‘(3) TREATMENT OF SELF-EMPLOYED INDIVID-
UALS.—For purposes of paragraph (1), the term
‘employee’ includes a self-employed individual (as de-
fined in section 401(c)(1)).’’.
(b) EFFECTIVE DATE; WAIVER OF LIMITATIONS.—
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(1) EFFECTIVE DATE.—The amendment made
by this section shall apply to taxable years ending
before, on, or after September 11, 2001.
(2) WAIVER
OF
LIMITATIONS.—If refund or
credit of any overpayment of tax resulting from the
amendments made by this section is prevented at
any time before the close of the 1-year period begin-
ning on the date of the enactment of this Act by the
operation of any law or rule of law (including res ju-
dicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the
close of such period.
SEC. 503. ESTATE TAX REDUCTION.
(a) IN GENERAL.—Section 2201 is amended to read
as follows:
‘‘SEC. 2201. COMBAT ZONE-RELATED DEATHS OF MEMBERS
OF THE ARMED FORCES AND DEATHS OF VIC-
TIMS OF CERTAIN TERRORIST ATTACKS.
‘‘(a) IN GENERAL.—Unless the executor elects not to
have this section apply, in applying sections 2001 and
2101 to the estate of a qualified decedent, the rate sched-
ule set forth in subsection (c) shall be deemed to be the
rate schedule set forth in section 2001(c).
‘‘(b) QUALIFIED DECEDENT.—For purposes of this
section, the term ‘qualified decedent’ means—
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‘‘(1) any citizen or resident of the United
States dying while in active service of the Armed
Forces of the United States, if such decedent—
‘‘(A) was killed in action while serving in
a combat zone, as determined under section
112(c), or
‘‘(B) died as a result of wounds, disease,
or injury suffered while serving in a combat
zone (as determined under section 112(c)), and
while in the line of duty, by reason of a hazard
to which such decedent was subjected as an in-
cident of such service, and
‘‘(2) any specified terrorist victim (as defined in
section 692(d)(4)).
‘‘(c) RATE SCHEDULE.—
‘‘If the amount with respect
to which the tentative tax
to be computed is:
The tentative tax is:
Not over $150,000 ........................
1 percent of the amount by which
such amount exceeds $100,000.
Over 
$150,000 
but 
not 
over
$200,000.
$500 plus 2 percent of the excess
over $150,000.
Over 
$200,000 
but 
not 
over
$300,000.
$1,500 plus 3 percent of the excess
over $200,000.
Over 
$300,000 
but 
not 
over
$500,000.
$4,500 plus 4 percent of the excess
over $300,000.
Over 
$500,000 
but 
not 
over
$700,000.
$12,500 plus 5 percent of the excess
over $500,000.
Over 
$700,000 
but 
not 
over
$900,000.
$22,500 plus 6 percent of the excess
over $700,000.
Over 
$900,000 
but 
not 
over
$1,100,000.
$34,500 plus 7 percent of the excess
over $900,000.
Over $1,100,000 but not over
$1,600,000.
$48,500 plus 8 percent of the excess
over $1,100,000.
Over $1,600,000 but not over
$2,100,000.
$88,500 plus 9 percent of the excess
over $1,600,000.
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‘‘If the amount with respect
to which the tentative tax
to be computed is:
The tentative tax is:
Over $2,100,000 but not over
$2,600,000.
$133,500 plus 10 percent of the ex-
cess over $2,100,000.
Over $2,600,000 but not over
$3,100,000.
$183,500 plus 11 percent of the ex-
cess over $2,600,000.
Over $3,100,000 but not over
$3,600,000.
$238,500 plus 12 percent of the ex-
cess over $3,100,000.
Over $3,600,000 but not over
$4,100,000.
$298,500 plus 13 percent of the ex-
cess over $3,600,000.
Over $4,100,000 but not over
$5,100,000.
$363,500 plus 14 percent of the ex-
cess over $4,100,000.
Over $5,100,000 but not over
$6,100,000.
$503,500 plus 15 percent of the ex-
cess over $5,100,000.
Over $6,100,000 but not over
$7,100,000.
$653,500 plus 16 percent of the ex-
cess over $6,100,000.
Over $7,100,000 but not over
$8,100,000.
$813,500 plus 17 percent of the ex-
cess over $7,100,000.
Over $8,100,000 but not over
$9,100,000.
$983,500 plus 18 percent of the ex-
cess over $8,100,000.
Over $9,100,000 but not over
$10,100,000.
$1,163,500 plus 19 percent of the ex-
cess over $9,100,000.
Over $10,100,000 ..........................
$1,353,500 plus 20 percent of the ex-
cess over $10,100,000.
‘‘(d) DETERMINATION OF UNIFIED CREDIT.—In the
case of an estate to which this section applies, subsection
(a) shall not apply in determining the credit under section
2010.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 2011 is amended by striking sub-
section (d) and by redesignating subsections (e), (f),
and (g) as subsections (d), (e), and (f), respectively.
(2) Section 2053(d)(3)(B) is amended by strik-
ing ‘‘section 2011(e)’’ and inserting ‘‘section
2011(d)’’.
(3) Paragraph (9) of section 532(c) of the Eco-
nomic Growth and Tax Relief Reconciliation Act of
2001 is repealed.
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(c) CLERICAL AMENDMENT.—The item relating to
section 2201 in the table of sections for subchapter C of
chapter 11 is amended to read as follows:
‘‘Sec. 2201. Combat zone-related deaths of members of the Armed
Forces and deaths of victims of certain terrorist at-
tacks.’’.
(d) EFFECTIVE DATE; WAIVER OF LIMITATIONS.—
(1) EFFECTIVE DATE.—The amendments made
by this section shall apply to estates of decedents—
(A) dying on or after September 11, 2001,
and
(B) in the case of individuals dying as a
result of the April 19, 1995, terrorist attack,
dying on or after April 19, 1995.
(2) WAIVER
OF
LIMITATIONS.—If refund or
credit of any overpayment of tax resulting from the
amendments made by this section is prevented at
any time before the close of the 1-year period begin-
ning on the date of the enactment of this Act by the
operation of any law or rule of law (including res ju-
dicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the
close of such period.
SEC. 504. PAYMENTS BY CHARITABLE ORGANIZATIONS
TREATED AS EXEMPT PAYMENTS.
(a) IN GENERAL.—For purposes of the Internal Rev-
enue Code of 1986—
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(1) payments made by an organization de-
scribed in section 501(c)(3) of such Code by reason
of the death, injury, wounding, or illness of an indi-
vidual incurred as the result of the terrorist attacks
against the United States on September 11, 2001,
or an attack involving anthrax occurring on or after
September 11, 2001, and before January 1, 2002,
shall be treated as related to the purpose or function
constituting the basis for such organization’s exemp-
tion under section 501 of such Code if such pay-
ments are made in good faith using a reasonable
and objective formula which is consistently applied,
and
(2) in the case of a private foundation (as de-
fined in section 509 of such Code), any payment de-
scribed in paragraph (1) shall not be treated as
made to a disqualified person for purposes of section
4941 of such Code.
(b) EFFECTIVE DATE.—This section shall apply to
payments made on or after September 11, 2001.
SEC. 505. EXCLUSION OF CERTAIN CANCELLATIONS OF IN-
DEBTEDNESS.
(a) IN GENERAL.—For purposes of the Internal Rev-
enue Code of 1986—
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(1) gross income shall not include any amount
which (but for this section) would be includible in
gross income by reason of the discharge (in whole or
in part) of indebtedness of any taxpayer if the dis-
charge is by reason of the death of an individual in-
curred as the result of the terrorist attacks against
the United States on September 11, 2001, or as the
result of illness incurred as a result of an attack in-
volving anthrax occurring on or after September 11,
2001, and before January 1, 2002, and
(2) return requirements under section 6050P of
such Code shall not apply to any discharge described
in paragraph (1).
(b) EFFECTIVE DATE.—This section shall apply to
discharges made on or after September 11, 2001, and be-
fore January 1, 2002.
Subtitle B—Other Relief Provisions
SEC. 511. EXCLUSION FOR DISASTER RELIEF PAYMENTS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by redesignating section 139 as sec-
tion 140 and inserting after section 138 the following new
section:
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‘‘SEC. 139. DISASTER RELIEF PAYMENTS.
‘‘(a) GENERAL RULE.—Gross income shall not in-
clude any amount received by an individual as a qualified
disaster relief payment.
‘‘(b) QUALIFIED DISASTER RELIEF PAYMENT DE-
FINED.—For purposes of this section, the term ‘qualified
disaster relief payment’ means any amount paid to or for
the benefit of an individual—
‘‘(1) to reimburse or pay reasonable and nec-
essary personal, family, living, or funeral expenses
incurred as a result of a qualified disaster,
‘‘(2) to reimburse or pay reasonable and nec-
essary expenses incurred for the repair or rehabilita-
tion of a personal residence or repair or replacement
of its contents to the extent that the need for such
repair, rehabilitation, or replacement is attributable
to a qualified disaster,
‘‘(3) by a person engaged in the furnishing or
sale of transportation as a common carrier by reason
of the death or personal physical injuries incurred as
a result of a qualified disaster, or
‘‘(4) if such amount is paid by a Federal, State,
or local government, or agency or instrumentality
thereof, in connection with a qualified disaster in
order to promote the general welfare,
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but only to the extent any expense compensated by such
payment is not otherwise compensated for by insurance
or otherwise.
‘‘(c) QUALIFIED DISASTER DEFINED.—For purposes
of this section, the term ‘qualified disaster’ means—
‘‘(1) a disaster which results from a terroristic
or military action (as defined in section 692(c)(2)),
‘‘(2) a Presidentially declared disaster (as de-
fined in section 1033(h)(3)),
‘‘(3) a disaster which results from an accident
involving a common carrier, or from any other event,
which is determined by the Secretary to be of a cata-
strophic nature, or
‘‘(4) with respect to amounts described in sub-
section (b)(4), a disaster which is determined by an
applicable Federal, State, or local authority (as de-
termined by the Secretary) to warrant assistance
from the Federal, State, or local government or
agency or instrumentality thereof.
‘‘(d) COORDINATION WITH EMPLOYMENT TAXES.—
For purposes of chapter 2 and subtitle C, a qualified dis-
aster relief payment shall not be treated as net earnings
from self-employment, wages, or compensation subject to
tax.
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‘‘(e) NO RELIEF FOR CERTAIN INDIVIDUALS.—Sub-
sections (a) and (f) shall not apply with respect to any
individual identified by the Attorney General to have been
a participant or conspirator in a terroristic action (as so
defined), or a representative of such individual.
‘‘(f) EXCLUSION
OF CERTAIN ADDITIONAL PAY-
MENTS.—Gross income shall not include any amount re-
ceived as payment under section 406 of the Air Transpor-
tation Safety and System Stabilization Act.’’
(b) CONFORMING AMENDMENTS.—The table of sec-
tions for part III of subchapter B of chapter 1 is amended
by striking the item relating to section 139 and inserting
the following new items:
‘‘Sec. 139. Disaster relief payments.
‘‘Sec. 140. Cross references to other Acts.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending on or after
September 11, 2001.
SEC. 512. AUTHORITY TO POSTPONE CERTAIN DEADLINES
AND REQUIRED ACTIONS.
(a) EXPANSION OF AUTHORITY RELATING TO DISAS-
TERS AND TERRORISTIC OR MILITARY ACTIONS.—Section
7508A is amended to read as follows:
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‘‘SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN DEAD-
LINES BY REASON OF PRESIDENTIALLY DE-
CLARED 
DISASTER 
OR 
TERRORISTIC 
OR
MILITARY ACTIONS.
‘‘(a) IN GENERAL.—In the case of a taxpayer deter-
mined by the Secretary to be affected by a Presidentially
declared disaster (as defined in section 1033(h)(3)) or a
terroristic or military action (as defined in section
692(c)(2)), the Secretary may specify a period of up to
one year that may be disregarded in determining, under
the internal revenue laws, in respect of any tax liability
of such taxpayer—
‘‘(1) whether any of the acts described in para-
graph (1) of section 7508(a) were performed within
the time prescribed therefor (determined without re-
gard to extension under any other provision of this
subtitle for periods after the date (determined by the
Secretary) of such disaster or action),
‘‘(2) the amount of any interest, penalty, addi-
tional amount, or addition to the tax for periods
after such date, and
‘‘(3) the amount of any credit or refund.
‘‘(b) SPECIAL RULES REGARDING PENSIONS, ETC.—
In the case of a pension or other employee benefit plan,
or any sponsor, administrator, participant, beneficiary, or
other person with respect to such plan, affected by a dis-
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aster or action described in subsection (a), the Secretary
may specify a period of up to one year which may be dis-
regarded in determining the date by which any action is
required or permitted to be completed under this title. No
plan shall be treated as failing to be operated in accord-
ance with the terms of the plan solely as the result of dis-
regarding any period by reason of the preceding sentence.
‘‘(c) SPECIAL RULES
FOR OVERPAYMENTS.—The
rules of section 7508(b) shall apply for purposes of this
section.’’.
(b) CLARIFICATION OF SCOPE OF ACTS SECRETARY
MAY POSTPONE.—Section 7508(a)(1)(K) (relating to time
to be disregarded) is amended by striking ‘‘in regulations
prescribed under this section’’.
(c) CONFORMING AMENDMENTS TO ERISA.—
(1) Part 5 of subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1131 et seq.) is amended by adding at the
end the following new section:
‘‘SEC. 518. AUTHORITY TO POSTPONE CERTAIN DEADLINES
BY REASON OF PRESIDENTIALLY DECLARED
DISASTER OR TERRORISTIC OR MILITARY AC-
TIONS.
‘‘In the case of a pension or other employee benefit
plan, or any sponsor, administrator, participant, bene-
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ficiary, or other person with respect to such plan, affected
by a Presidentially declared disaster (as defined in section
1033(h)(3) of the Internal Revenue Code of 1986) or a
terroristic or military action (as defined in section
692(c)(2) of such Code), the Secretary may, notwith-
standing any other provision of law, prescribe, by notice
or otherwise, a period of up to one year which may be
disregarded in determining the date by which any action
is required or permitted to be completed under this Act.
No plan shall be treated as failing to be operated in ac-
cordance with the terms of the plan solely as the result
of disregarding any period by reason of the preceding sen-
tence.’’.
(2) Section 4002 of Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1302) is
amended by adding at the end the following new
subsection:
‘‘(i) 
SPECIAL
RULES
REGARDING
DISASTERS,
ETC.—In the case of a pension or other employee benefit
plan, or any sponsor, administrator, participant, bene-
ficiary, or other person with respect to such plan, affected
by a Presidentially declared disaster (as defined in section
1033(h)(3) of the Internal Revenue Code of 1986) or a
terroristic or military action (as defined in section
692(c)(2) of such Code), the corporation may, notwith-
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standing any other provision of law, prescribe, by notice
or otherwise, a period of up to one year which may be
disregarded in determining the date by which any action
is required or permitted to be completed under this Act.
No plan shall be treated as failing to be operated in ac-
cordance with the terms of the plan solely as the result
of disregarding any period by reason of the preceding sen-
tence.’’.
(d) ADDITIONAL CONFORMING AMENDMENTS.—
(1) Section 6404 is amended—
(A) by striking subsection (h),
(B) by redesignating subsection (i) as sub-
section (h), and
(C) by adding at the end the following new
subsection:
‘‘(i) CROSS REFERENCE.—
‘‘For authority to suspend running of interest, etc.
by reason of Presidentially declared disaster or ter-
roristic or military action, see section 7508A.’’.
(2) Section 6081(c) is amended to read as fol-
lows:
‘‘(c) CROSS REFERENCES.—
‘‘For time for performing certain acts postponed
by reason of war, see section 7508, and by reason of
Presidentially declared disaster or terroristic or
military action, see section 7508A.’’.
(3) Section 6161(d) is amended by adding at
the end the following new paragraph:
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‘‘(3) POSTPONEMENT OF CERTAIN ACTS.—
‘‘For time for performing certain acts postponed
by reason of war, see section 7508, and by reason of
Presidentially declared disaster or terroristic or
military action, see section 7508A.’’.
(d) CLERICAL AMENDMENTS.—
(1) The item relating to section 7508A in the
table of sections for chapter 77 is amended to read
as follows:
‘‘Sec. 7508A. Authority to postpone certain deadlines by reason
of Presidentially declared disaster or terroristic or
military actions.’’.
(2) The table of contents for the Employee Re-
tirement Income Security Act of 1974 is amended by
inserting after the item relating to section 517 the
following new item:
‘‘Sec. 518. Authority to postpone certain deadlines by reason of
Presidentially declared disaster or terroristic or
military actions.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to disasters and terroristic or mili-
tary actions occurring on or after September 11, 2001,
with respect to any action of the Secretary of the Treas-
ury, the Secretary of Labor, or the Pension Benefit Guar-
anty Corporation occurring on or after the date of the en-
actment of this Act.
SEC. 513. APPLICATION OF CERTAIN PROVISIONS TO TER-
RORISTIC OR MILITARY ACTIONS.
(a) DISABILITY INCOME.—Section 104(a)(5) (relat-
ing to compensation for injuries or sickness) is amended
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by striking ‘‘a violent attack’’ and all that follows through
the period and inserting ‘‘a terroristic or military action
(as defined in section 692(c)(2)).’’.
(b) EXEMPTION FROM INCOME TAX FOR CERTAIN
MILITARY OR CIVILIAN EMPLOYEES.—Section 692(c) is
amended—
(1) by striking ‘‘outside the United States’’ in
paragraph (1), and
(2) by striking ‘‘SUSTAINED OVERSEAS’’ in the
heading.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending on or after
September 11, 2001.
SEC. 514. CLARIFICATION OF DUE DATE FOR AIRLINE EX-
CISE TAX DEPOSITS.
(a) IN GENERAL.—Paragraph (3) of section 301(a)
of the Air Transportation Safety and System Stabilization
Act (Public Law 107–42) is amended to read as follows:
‘‘(3) AIRLINE-RELATED
DEPOSIT.—For pur-
poses of this subsection, the term ‘airline-related de-
posit’ means any deposit of taxes imposed by sub-
chapter C of chapter 33 of such Code (relating to
transportation by air).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect as if included in section 301
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of the Air Transportation Safety and System Stabilization
Act (Public Law 107–42).
SEC. 515. TREATMENT OF CERTAIN STRUCTURED SETTLE-
MENT PAYMENTS.
(a) IN GENERAL.—Subtitle E is amended by adding
at the end the following new chapter:
‘‘CHAPTER 55—STRUCTURED
SETTLEMENT FACTORING TRANSACTIONS
‘‘Sec. 5891. Structured settlement factoring transactions.
‘‘SEC. 5891. STRUCTURED SETTLEMENT FACTORING TRANS-
ACTIONS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
on any person who acquires directly or indirectly struc-
tured settlement payment rights in a structured settle-
ment factoring transaction a tax equal to 40 percent of
the factoring discount as determined under subsection
(c)(4) with respect to such factoring transaction.
‘‘(b) EXCEPTION FOR CERTAIN APPROVED TRANS-
ACTIONS.—
‘‘(1) IN GENERAL.—The tax under subsection
(a) shall not apply in the case of a structured settle-
ment factoring transaction in which the transfer of
structured settlement payment rights is approved in
advance in a qualified order.
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‘‘(2) QUALIFIED ORDER.—For purposes of this
section, the term ‘qualified order’ means a final
order, judgment, or decree which—
‘‘(A) finds that the transfer described in
paragraph (1)—
‘‘(i) does not contravene any Federal
or State statute or the order of any court
or responsible administrative authority,
and
‘‘(ii) is in the best interest of the
payee, taking into account the welfare and
support of the payee’s dependents, and
‘‘(B) is issued—
‘‘(i) under the authority of an applica-
ble State statute by an applicable State
court, or
‘‘(ii) by the responsible administrative
authority (if any) which has exclusive ju-
risdiction over the underlying action or
proceeding which was resolved by means of
the structured settlement.
‘‘(3) APPLICABLE STATE STATUTE.—For pur-
poses of this section, the term ‘applicable State stat-
ute’ means a statute providing for the entry of an
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order, judgment, or decree described in paragraph
(2)(A) which is enacted by—
‘‘(A) the State in which the payee of the
structured settlement is domiciled, or
‘‘(B) if there is no statute described in
subparagraph (A), the State in which either the
party to the structured settlement (including an
assignee under a qualified assignment under
section 130) or the person issuing the funding
asset for the structured settlement is domiciled
or has its principal place of business.
‘‘(4) APPLICABLE
STATE
COURT.—For pur-
poses of this section—
‘‘(A) IN GENERAL.—The term ‘applicable
State court’ means, with respect to any applica-
ble State statute, a court of the State which en-
acted such statute.
‘‘(B) SPECIAL RULE.—In the case of an
applicable State statute described in paragraph
(3)(B), such term also includes a court of the
State in which the payee of the structured set-
tlement is domiciled.
‘‘(5) QUALIFIED ORDER DISPOSITIVE.—A quali-
fied order shall be treated as dispositive for purposes
of the exception under this subsection.
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‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) STRUCTURED
SETTLEMENT.—The term
‘structured settlement’ means an arrangement—
‘‘(A) which is established by—
‘‘(i) suit or agreement for the periodic
payment of damages excludable from the
gross income of the recipient under section
104(a)(2), or
‘‘(ii) agreement for the periodic pay-
ment of compensation under any workers’
compensation law excludable from the
gross income of the recipient under section
104(a)(1), and
‘‘(B) under which the periodic payments
are—
‘‘(i) of the character described in sub-
paragraphs 
(A) 
and 
(B) 
of 
section
130(c)(2), and
‘‘(ii) payable by a person who is a
party to the suit or agreement or to the
workers’ compensation claim or by a per-
son who has assumed the liability for such
periodic payments under a qualified assign-
ment in accordance with section 130.
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‘‘(2) 
STRUCTURED
SETTLEMENT
PAYMENT
RIGHTS.—The term ‘structured settlement payment
rights’ means rights to receive payments under a
structured settlement.
‘‘(3) STRUCTURED
SETTLEMENT
FACTORING
TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘structured
settlement factoring transaction’ means a trans-
fer of structured settlement payment rights (in-
cluding portions of structured settlement pay-
ments) made for consideration by means of
sale, assignment, pledge, or other form of en-
cumbrance or alienation for consideration.
‘‘(B) EXCEPTION.—Such term shall not
include—
‘‘(i) the creation or perfection of a se-
curity interest in structured settlement
payment rights under a blanket security
agreement entered into with an insured de-
pository institution in the absence of any
action to redirect the structured settlement
payments to such institution (or agent or
successor thereof) or otherwise to enforce
such blanket security interest as against
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the structured settlement payment rights,
or
‘‘(ii) a subsequent transfer of struc-
tured settlement payment rights acquired
in a structured settlement factoring trans-
action.
‘‘(4) FACTORING
DISCOUNT.—The term ‘fac-
toring discount’ means an amount equal to the ex-
cess of—
‘‘(A) the aggregate undiscounted amount
of structured settlement payments being ac-
quired in the structured settlement factoring
transaction, over
‘‘(B) the total amount actually paid by the
acquirer to the person from whom such struc-
tured settlement payments are acquired.
‘‘(5) RESPONSIBLE ADMINISTRATIVE AUTHOR-
ITY.—The term ‘responsible administrative author-
ity’ means the administrative authority which had
jurisdiction over the underlying action or proceeding
which was resolved by means of the structured set-
tlement.
‘‘(6) STATE.—The term ‘State’ includes the
Commonwealth of Puerto Rico and any possession of
the United States.
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‘‘(d) COORDINATION WITH OTHER PROVISIONS.—
‘‘(1) IN GENERAL.—If the applicable require-
ments of sections 72, 104(a)(1), 104(a)(2), 130, and
461(h) were satisfied at the time the structured set-
tlement involving structured settlement payment
rights was entered into, the subsequent occurrence
of a structured settlement factoring transaction shall
not affect the application of the provisions of such
sections to the parties to the structured settlement
(including an assignee under a qualified assignment
under section 130) in any taxable year.
‘‘(2) NO WITHHOLDING OF TAX.—The provi-
sions of section 3405 regarding withholding of tax
shall not apply to the person making the payments
in the event of a structured settlement factoring
transaction.’’.
(b) CLERICAL AMENDMENT.—The table of chapters
for subtitle E is amended by adding at the end the fol-
lowing new item:
‘‘Chapter 55. Structured settlement factoring transactions.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than the provisions of section
5891(d) of the Internal Revenue Code of 1986, as
added by this section) shall apply to structured set-
tlement factoring transactions (as defined in section
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5891(c) of such Code (as so added)) entered into on
or after the 30th day following the date of the enact-
ment of this Act.
(2) CLARIFICATION OF EXISTING LAW.—Section
5891(d) of such Code (as so added) shall apply to
structured settlement factoring transactions (as de-
fined in section 5891(c) of such Code (as so added))
entered into before, on, or after such 30th day.
(3) TRANSITION RULE.—In the case of a struc-
tured settlement factoring transaction entered into
during the period beginning on the 30th day fol-
lowing the date of the enactment of this Act and
ending on July 1, 2002, no tax shall be imposed
under section 5891(a) of such Code if—
(A) the structured settlement payee is
domiciled in a State (or possession of the
United States) which has not enacted a statute
providing that the structured settlement fac-
toring transaction is ineffective unless the
transaction has been approved by an order,
judgment, or decree of a court (or where appli-
cable, a responsible administrative authority)
which finds that such transaction—
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(i) does not contravene any Federal or
State statute or the order of any court (or
responsible administrative authority), and
(ii) is in the best interest of the struc-
tured settlement payee or is appropriate in
light of a hardship faced by the payee, and
(B) the person acquiring the structured
settlement payment rights discloses to the
structured settlement payee in advance of the
structured settlement factoring transaction the
amounts and due dates of the payments to be
transferred, the aggregate amount to be trans-
ferred, the consideration to be received by the
structured settlement payee for the transferred
payments, the discounted present value of the
transferred payments (including the present
value as determined in the manner described in
section 7520 of such Code), and the expenses
required under the terms of the structured set-
tlement factoring transaction to be paid by the
structured settlement payee or deducted from
the proceeds of such transaction.
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SEC. 516. PERSONAL EXEMPTION DEDUCTION FOR CER-
TAIN DISABILITY TRUSTS.
(a) IN GENERAL.—Subsection (b) of section 642 (re-
lating to deduction for personal exemption) is amended to
read as follows:
‘‘(b) DEDUCTION FOR PERSONAL EXEMPTION.—
‘‘(1) ESTATES.—An estate shall be allowed a
deduction of $600.
‘‘(2) TRUSTS.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, a trust shall be al-
lowed a deduction of $100.
‘‘(B) TRUSTS DISTRIBUTING INCOME CUR-
RENTLY.—A trust which, under its governing
instrument, is required to distribute all of its
income currently shall be allowed a deduction of
$300.
‘‘(C) DISABILITY TRUSTS.—
‘‘(i) IN
GENERAL.—A qualified dis-
ability trust shall be allowed a deduction
equal to the exemption amount under sec-
tion 151(d), determined—
‘‘(I) by treating such trust as an
individual 
described 
in 
section
151(d)(3)(C)(iii), and
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‘‘(II) by applying section 67(e)
(without the reference to section
642(b)) for purposes of determining
the adjusted gross income of the
trust.
‘‘(ii) QUALIFIED DISABILITY TRUST.—
For purposes of clause (i), the term ‘quali-
fied disability trust’ means any trust if—
‘‘(I) such trust is a disability
trust 
described 
in 
subsection
(c)(2)(B)(iv) of section 1917 of the
Social 
Security 
Act 
(42 
U.S.C.
1396p), and
‘‘(II) all of the beneficiaries of
the trust as of the close of the taxable
year are determined by the Commis-
sioner of Social Security to have been
disabled (within the meaning of sec-
tion 1614(a)(3) of the Social Security
Act, 42 U.S.C. 1382c(a)(3)) for some
portion of such year.
A trust shall not fail to meet the require-
ments of subclause (II) merely because the
corpus of the trust may revert to a person
who is not so disabled after the trust
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ceases to have any beneficiary who is so
disabled.’’
‘‘(3) DEDUCTIONS IN LIEU OF PERSONAL EX-
EMPTION.—The deductions allowed by this sub-
section shall be in lieu of the deductions allowed
under section 151 (relating to deduction for personal
exemption).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years ending on or after
September 11, 2001.
SEC. 517. DISCLOSURE OF TAX INFORMATION IN TER-
RORISM AND NATIONAL SECURITY INVES-
TIGATIONS.
(a) DISCLOSURE WITHOUT A REQUEST OF INFORMA-
TION RELATING TO TERRORIST ACTIVITIES, ETC.—Para-
graph (3) of section 6103(i) (relating to disclosure of re-
turn information to apprise appropriate officials of crimi-
nal activities or emergency circumstances) is amended by
adding at the end the following new subparagraph:
‘‘(C) TERRORIST ACTIVITIES, ETC.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (6), the Secretary may
disclose in writing return information
(other than taxpayer return information)
that may be related to a terrorist incident,
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threat, or activity to the extent necessary
to apprise the head of the appropriate Fed-
eral law enforcement agency responsible
for investigating or responding to such ter-
rorist incident, threat, or activity. The
head of the agency may disclose such re-
turn information to officers and employees
of such agency to the extent necessary to
investigate or respond to such terrorist in-
cident, threat, or activity.
‘‘(ii) DISCLOSURE
TO
THE
DEPART-
MENT OF JUSTICE.—Returns and taxpayer
return information may also be disclosed to
the Attorney General under clause (i) to
the extent necessary for, and solely for use
in preparing, an application under para-
graph (7)(D).
‘‘(iii) TAXPAYER IDENTITY.—For pur-
poses of this subparagraph, a taxpayer’s
identity shall not be treated as taxpayer
return information.
‘‘(iv) TERMINATION.—No disclosure
may be made under this subparagraph
after December 31, 2003.’’.
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(b) DISCLOSURE UPON REQUEST OF INFORMATION
RELATING TO TERRORIST ACTIVITIES, ETC.—Subsection
(i) of section 6103 (relating to disclosure to Federal offi-
cers or employees for administration of Federal laws not
relating to tax administration) is amended by redesig-
nating paragraph (7) as paragraph (8) and by inserting
after paragraph (6) the following new paragraph:
‘‘(7) DISCLOSURE UPON REQUEST OF INFORMA-
TION RELATING TO TERRORIST ACTIVITIES, ETC.—
‘‘(A) DISCLOSURE TO LAW ENFORCEMENT
AGENCIES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (6), upon receipt by the
Secretary of a written request which meets
the requirements of clause (iii), the Sec-
retary may disclose return information
(other than taxpayer return information)
to officers and employees of any Federal
law enforcement agency who are personally
and directly engaged in the response to or
investigation of any terrorist incident,
threat, or activity.
‘‘(ii) DISCLOSURE
TO
STATE
AND
LOCAL
LAW
ENFORCEMENT
AGENCIES.—
The head of any Federal law enforcement
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agency may disclose return information ob-
tained under clause (i) to officers and em-
ployees of any State or local law enforce-
ment agency but only if such agency is
part of a team with the Federal law en-
forcement agency in such response or in-
vestigation and such information is dis-
closed only to officers and employees who
are personally and directly engaged in such
response or investigation.
‘‘(iii) 
REQUIREMENTS.—A 
request
meets the requirements of this clause if—
‘‘(I) the request is made by the
head of any Federal law enforcement
agency (or his delegate) involved in
the response to or investigation of any
terrorist incident, threat, or activity,
and
‘‘(II) the request sets forth the
specific reason or reasons why such
disclosure may be relevant to a ter-
rorist incident, threat, or activity.
‘‘(iv) LIMITATION ON USE OF INFOR-
MATION.—Information disclosed under this
subparagraph shall be solely for the use of
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the officers and employees to whom such
information is disclosed in such response
or investigation.
‘‘(B) 
DISCLOSURE
TO
INTELLIGENCE
AGENCIES.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (6), upon receipt by the
Secretary of a written request which meets
the requirements of clause (ii), the Sec-
retary may disclose return information
(other than taxpayer return information)
to those officers and employees of the De-
partment of Justice, the Department of
the Treasury, and other Federal intel-
ligence agencies who are personally and di-
rectly engaged in the collection or analysis
of intelligence and counterintelligence in-
formation or investigation concerning any
terrorist incident, threat, or activity. For
purposes of the preceding sentence, the in-
formation disclosed under the preceding
sentence shall be solely for the use of such
officers and employees in such investiga-
tion, collection, or analysis.
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‘‘(ii) 
REQUIREMENTS.—A 
request
meets the requirements of this subpara-
graph if the request—
‘‘(I) is made by an individual de-
scribed in clause (iii), and
‘‘(II) sets forth the specific rea-
son or reasons why such disclosure
may be relevant to a terrorist inci-
dent, threat, or activity.
‘‘(iii) REQUESTING INDIVIDUALS.—An
individual described in this subparagraph
is an individual—
‘‘(I) who is an officer or em-
ployee of the Department of Justice
or the Department of the Treasury
who is appointed by the President
with the advice and consent of the
Senate or who is the Director of the
United States Secret Service, and
‘‘(II) who is responsible for the
collection and analysis of intelligence
and counterintelligence information
concerning 
any 
terrorist 
incident,
threat, or activity.
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‘‘(iv) TAXPAYER IDENTITY.—For pur-
poses of this subparagraph, a taxpayer’s
identity shall not be treated as taxpayer
return information.
‘‘(C) DISCLOSURE UNDER EX PARTE OR-
DERS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (6), any return or re-
turn information with respect to any speci-
fied taxable period or periods shall, pursu-
ant to and upon the grant of an ex parte
order by a Federal district court judge or
magistrate under clause (ii), be open (but
only to the extent necessary as provided in
such order) to inspection by, or disclosure
to, officers and employees of any Federal
law enforcement agency or Federal intel-
ligence agency who are personally and di-
rectly engaged in any investigation, re-
sponse to, or analysis of intelligence and
counterintelligence information concerning
any terrorist incident, threat, or activity.
Return or return information opened to in-
spection or disclosure pursuant to the pre-
ceding sentence shall be solely for the use
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of such officers and employees in the inves-
tigation, response, or analysis, and in any
judicial, administrative, or grand jury pro-
ceedings, pertaining to such terrorist inci-
dent, threat, or activity.
‘‘(ii) APPLICATION FOR ORDER.—The
Attorney General, the Deputy Attorney
General, the Associate Attorney General,
any Assistant Attorney General, or any
United States attorney may authorize an
application to a Federal district court
judge or magistrate for the order referred
to in clause (i). Upon such application,
such judge or magistrate may grant such
order if he determines on the basis of the
facts submitted by the applicant that—
‘‘(I) there is reasonable cause to
believe, based upon information be-
lieved to be reliable, that the return or
return information may be relevant to
a matter relating to such terrorist in-
cident, threat, or activity, and
‘‘(II) the return or return infor-
mation is sought exclusively for use in
a Federal investigation, analysis, or
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proceeding concerning any terrorist
incident, threat, or activity.
‘‘(D) SPECIAL RULE FOR EX PARTE DIS-
CLOSURE BY THE IRS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in paragraph (6), the Secretary may
authorize an application to a Federal dis-
trict court judge or magistrate for the
order referred to in subparagraph (C)(i).
Upon such application, such judge or mag-
istrate may grant such order if he deter-
mines on the basis of the facts submitted
by the applicant that the requirements of
subparagraph (C)(ii)(I) are met.
‘‘(ii) LIMITATION ON USE OF INFOR-
MATION.—Information 
disclosed 
under
clause (i)—
‘‘(I) may be disclosed only to the
extent necessary to apprise the head
of the appropriate Federal law en-
forcement agency responsible for in-
vestigating or responding to a ter-
rorist incident, threat, or activity, and
‘‘(II) shall be solely for use in a
Federal investigation, analysis, or pro-
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ceeding concerning any terrorist inci-
dent, threat, or activity.
The head of such Federal agency may dis-
close such information to officers and em-
ployees of such agency to the extent nec-
essary to investigate or respond to such
terrorist incident, threat, or activity.
‘‘(E) TERMINATION.—No disclosure may
be made under this paragraph after December
31, 2003.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 6103(a)(2) is amended by inserting
‘‘any local law enforcement agency receiving infor-
mation under subsection (i)(7)(A),’’ after ‘‘State,’’.
(2) Section 6103(b) is amended by adding at
the end the following new paragraph:
‘‘(11) TERRORIST INCIDENT, THREAT, OR AC-
TIVITY.—The term ‘terrorist incident, threat, or ac-
tivity’ means an incident, threat, or activity involv-
ing an act of domestic terrorism (as defined in sec-
tion 2331(5) of title 18, United States Code) or
international terrorism (as defined in section
2331(1) of such title).’’.
(3) The heading of section 6103(i)(3) is amend-
ed by inserting ‘‘OR TERRORIST’’ after ‘‘CRIMINAL’’.
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(4) Paragraph (4) of section 6103(i) is
amended—
(A) in subparagraph (A) by inserting ‘‘or
(7)(C)’’ after ‘‘paragraph (1)’’, and
(B) in subparagraph (B) by striking ‘‘or
(3)(A)’’ and inserting ‘‘(3)(A) or (C), or (7)’’.
(5) Paragraph (6) of section 6103(i) is
amended—
(A) by striking ‘‘(3)(A)’’ and inserting
‘‘(3)(A) or (C)’’, and
(B) by striking ‘‘or (7)’’ and inserting
‘‘(7), or (8)’’.
(6) Section 6103(p)(3) is amended—
(A) in subparagraph (A) by striking
‘‘(7)(A)(ii)’’ and inserting ‘‘(8)(A)(ii)’’, and
(B) in subparagraph (C) by striking
‘‘(i)(3)(B)(i)’’ and inserting ‘‘(i)(3)(B)(i) or
(7)(A)(ii)’’.
(7) Section 6103(p)(4) is amended—
(A) in the matter preceding subparagraph
(A)—
(i) by striking ‘‘or (5),’’ the first place
it appears and inserting ‘‘(5), or (7),’’, and
(ii) by striking ‘‘(i)(3)(B)(i),’’ and in-
serting ‘‘(i)(3)(B)(i) or (7)(A)(ii),’’, and
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(B) in subparagraph (F)(ii) by striking ‘‘or
(5),’’ the first place it appears and inserting
‘‘(5) or (7),’’.
(8) Section 6103(p)(6)(B)(i) is amended by
striking ‘‘(i)(7)(A)(ii)’’ and inserting ‘‘(i)(8)(A)(ii)’’.
(9) Section 6105(b) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (2),
(B) by striking ‘‘paragraphs (1) or (2)’’ in
paragraph (3) and inserting ‘‘paragraph (1),
(2), or (3)’’,
(C) by redesignating paragraph (3) as
paragraph (4), and
(D) by inserting after paragraph (2) the
following new paragraph:
‘‘(3) to the disclosure of tax convention infor-
mation on the same terms as return information
may be disclosed under paragraph (3)(C) or (7) of
section 6103(i), except that in the case of tax con-
vention information provided by a foreign govern-
ment, no disclosure may be made under this para-
graph without the written consent of the foreign
government, or’’.
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(10) Section 7213(a)(2) is amended by striking
‘‘(i)(3)(B)(i),’’ 
and 
inserting 
‘‘(i)(3)(B)(i) 
or
(7)(A)(ii),’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to disclosures made on or after
the date of the enactment of this Act.
TITLE VI—MISCELLANEOUS AND
TECHNICAL PROVISIONS
Subtitle A—General Miscellaneous
Provisions
SEC. 601. ALLOWANCE OF ELECTRONIC 1099’S.
Any person required to furnish a statement under
any section of subpart B of part III of subchapter A of
chapter 61 of the Internal Revenue Code of 1986 for any
taxable year ending after the date of the enactment of this
Act, may electronically furnish such statement (without
regard to any first class mailing requirement) to any re-
cipient who has consented to the electronic provision of
the statement in a manner similar to the one permitted
under regulations issued under section 6051 of such Code
or in such other manner as provided by the Secretary.
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SEC. 602. EXCLUDED CANCELLATION OF INDEBTEDNESS
INCOME OF S CORPORATION NOT TO RESULT
IN ADJUSTMENT TO BASIS OF STOCK OF
SHAREHOLDERS.
(a) IN GENERAL.—Subparagraph (A) of section
108(d)(7) (relating to certain provisions to be applied at
corporate level) is amended by inserting before the period
‘‘, including by not taking into account under section
1366(a) any amount excluded under subsection (a) of this
section’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendment made by this section shall
apply to discharges of indebtedness after October
11, 2001, in taxable years ending after such date.
(2) EXCEPTION.—The amendment made by this
section shall not apply to any discharge of indebted-
ness before March 1, 2002, pursuant to a plan of re-
organization filed with a bankruptcy court on or be-
fore October 11, 2001.
SEC. 603. LIMITATION ON USE OF NONACCRUAL EXPERI-
ENCE METHOD OF ACCOUNTING.
(a) IN GENERAL.—Paragraph (5) of section 448(d)
is amended to read as follows:
‘‘(5) SPECIAL RULE FOR CERTAIN SERVICES.—
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‘‘(A) IN
GENERAL.—In the case of any
person using an accrual method of accounting
with respect to amounts to be received for the
performance of services by such person, such
person shall not be required to accrue any por-
tion of such amounts which (on the basis of
such person’s experience) will not be collected
if—
‘‘(i) such services are in fields referred
to in paragraph (2)(A), or
‘‘(ii) such person meets the gross re-
ceipts test of subsection (c) for all prior
taxable years.
‘‘(B) EXCEPTION.—This paragraph shall
not apply to any amount if interest is required
to be paid on such amount or there is any pen-
alty for failure to timely pay such amount.
‘‘(C) REGULATIONS.—The Secretary shall
prescribe regulations to permit taxpayers to de-
termine amounts referred to in subparagraph
(A) using computations or formulas which,
based on experience, accurately reflect the
amount of income that will not be collected by
such person. A taxpayer may adopt, or request
consent of the Secretary to change to, a com-
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putation or formula that clearly reflects the tax-
payer’s experience. A request under the pre-
ceding sentence shall be approved if such com-
putation or formula clearly reflects the tax-
payer’s experience.’’.
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years ending after
the date of the enactment of this Act.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by the amend-
ments made by this section to change its method of
accounting for its first taxable year ending after the
date of the enactment of this Act—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treas-
ury, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
of 1986 shall be taken into account over a pe-
riod of 4 years (or if less, the number of taxable
years that the taxpayer used the method per-
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mitted under section 448(d)(5) of such Code as
in effect before the date of the enactment of
this Act) beginning with such first taxable year.
SEC. 604. EXCLUSION FOR FOSTER CARE PAYMENTS TO
APPLY TO PAYMENTS BY QUALIFIED PLACE-
MENT AGENCIES.
(a) IN GENERAL.—The matter preceding subpara-
graph (B) of section 131(b)(1) (defining qualified foster
care payment) is amended to read as follows:
‘‘(1) IN GENERAL.—The term ‘qualified foster
care payment’ means any payment made pursuant to
a foster care program of a State or political subdivi-
sion thereof—
‘‘(A) which is paid by—
‘‘(i) a State or political subdivision
thereof, or
‘‘(ii) a qualified foster care placement
agency, and’’.
(b) QUALIFIED FOSTER INDIVIDUALS TO INCLUDE
INDIVIDUALS PLACED BY QUALIFIED PLACEMENT AGEN-
CIES.—Subparagraph (B) of section 131(b)(2) (defining
qualified foster individual) is amended to read as follows:
‘‘(B) a qualified foster care placement
agency.’’
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(c) QUALIFIED FOSTER CARE PLACEMENT AGENCY
DEFINED.—Subsection (b) of section 131 is amended by
redesignating paragraph (3) as paragraph (4) and by in-
serting after paragraph (2) the following new paragraph:
‘‘(3) QUALIFIED
FOSTER
CARE
PLACEMENT
AGENCY.—The term ‘qualified foster care placement
agency’ means any placement agency which is li-
censed or certified by—
‘‘(A) a State or political subdivision there-
of, or
‘‘(B) an entity designated by a State or
political subdivision thereof,
for the foster care program of such State or political
subdivision to make foster care payments to pro-
viders of foster care.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 605. INTEREST RATE RANGE FOR ADDITIONAL FUND-
ING REQUIREMENTS.
(a) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) SPECIAL
RULE.—Clause (i) of section
412(l)(7)(C) (relating to interest rate) is amended
by adding at the end the following new subclause:
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‘‘(III) SPECIAL RULE FOR 2002
AND 2003.—For a plan year begin-
ning in 2002 or 2003, notwith-
standing subclause (I), in the case
that the rate of interest used under
subsection (b)(5) exceeds the highest
rate permitted under subclause (I),
the rate of interest used to determine
current liability under this subsection
may exceed the rate of interest other-
wise permitted under subclause (I);
except that such rate of interest shall
not exceed 120 percent of the weight-
ed average referred to in subsection
(b)(5)(B)(ii).’’
(2) QUARTERLY
CONTRIBUTIONS.—Subsection
(m) of section 412 is amended by adding at the end
the following new paragraph:
‘‘(7) SPECIAL RULES FOR 2002 AND 2004.—In
any case in which the interest rate used to deter-
mine current liability is determined under subsection
(l)(7)(C)(i)(III)—
‘‘(A) 2002.—For purposes of applying
paragraphs (1) and (4)(B)(ii) for plan years be-
ginning in 2002, the current liability for the
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preceding plan year shall be redetermined using
120 percent as the specified percentage deter-
mined under subsection (l)(7)(C)(i)(II).
‘‘(B) 2004.—For purposes of applying
paragraphs (1) and (4)(B)(ii) for plan years be-
ginning in 2004, the current liability for the
preceding plan year shall be redetermined using
105 percent as the specified percentage deter-
mined under subsection (l)(7)(C)(i)(II).’’
(b) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) SPECIAL
RULE.—Clause (i) of section
302(d)(7)(C) of such Act (29 U.S.C. 1082(d)(7)(C))
is amended by adding at the end the following new
subclause:
‘‘(III) SPECIAL RULE FOR 2002
AND 2003.—For a plan year begin-
ning in 2002 or 2003, notwith-
standing subclause (I), in the case
that the rate of interest used under
subsection (b)(5) exceeds the highest
rate permitted under subclause (I),
the rate of interest used to determine
current liability under this subsection
may exceed the rate of interest other-
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wise permitted under subclause (I);
except that such rate of interest shall
not exceed 120 percent of the weight-
ed average referred to in subsection
(b)(5)(B)(ii).’’
(2) QUARTERLY
CONTRIBUTIONS.—Subsection
(e) of section 302 of such Act (29 U.S.C. 1082) is
amended by adding at the end the following new
paragraph:
‘‘(7) SPECIAL RULES FOR 2002 AND 2004.—In
any case in which the interest rate used to deter-
mine current liability is determined under subsection
(d)(7)(C)(i)(III)—
‘‘(A) 2002.—For purposes of applying
paragraphs (1) and (4)(B)(ii) for plan years be-
ginning in 2002, the current liability for the
preceding plan year shall be redetermined using
120 percent as the specified percentage deter-
mined under subsection (d)(7)(C)(i)(II).
‘‘(B) 2004.—For purposes of applying
paragraphs (1) and (4)(B)(ii) for plan years be-
ginning in 2004, the current liability for the
preceding plan year shall be redetermined using
105 percent as the specified percentage deter-
mined under subsection (d)(7)(C)(i)(II).’’
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(c) PBGC.—Clause (iii) of section 4006(a)(3)(E) of
the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1306(a)(3)(E)) is amended by adding at the
end the following new subclause:
‘‘(IV) In the case of plan years beginning after De-
cember 31, 2001, and before January 1, 2004, subclause
(II) shall be applied by substituting ‘100 percent’ for ‘85
percent’. Subclause (III) shall be applied for such years
without regard to the preceding sentence. Any reference
to this clause by any other sections or subsections shall
be treated as a reference to this clause without regard to
this subclause.’’
SEC. 606. ADJUSTED GROSS INCOME DETERMINED BY TAK-
ING INTO ACCOUNT CERTAIN EXPENSES OF
ELEMENTARY 
AND 
SECONDARY 
SCHOOL
TEACHERS.
(a) IN GENERAL.—Section 62(a)(2) (relating to cer-
tain trade and business deductions of employees) is
amended by adding at the end the following:
‘‘(D) CERTAIN EXPENSES OF ELEMENTARY
AND SECONDARY SCHOOL TEACHERS.—In the
case of taxable years beginning during 2002 or
2003, the deductions allowed by section 162
which consist of expenses, not in excess of
$250, paid or incurred by an eligible educator
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in connection with books, supplies (other than
nonathletic supplies for courses of instruction in
health or physical education), computer equip-
ment (including related software and services)
and other equipment, and supplementary mate-
rials used by the eligible educator in the class-
room.’’.
(b) ELIGIBLE EDUCATOR.—Section 62 is amended by
adding at the end the following:
‘‘(d) DEFINITION; SPECIAL RULES.—
‘‘(1) ELIGIBLE EDUCATOR.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a)(2)(D), the term ‘eligible educator’
means, with respect to any taxable year, an in-
dividual who is a kindergarten through grade
12 teacher, instructor, counselor, principal, or
aide in a school for at least 900 hours during
a school year.
‘‘(B) SCHOOL.—The term ‘school’ means
any school which provides elementary education
or secondary education (kindergarten through
grade 12), as determined under State law.
‘‘(2) COORDINATION WITH EXCLUSIONS.—A de-
duction shall be allowed under subsection (a)(2)(D)
for expenses only to the extent the amount of such
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expenses exceeds the amount excludable under sec-
tion 135, 529(c)(1), or 530(d)(2) for the taxable
year.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
Subtitle B—Technical Corrections
SEC. 611. AMENDMENTS RELATED TO ECONOMIC GROWTH
AND TAX RELIEF RECONCILIATION ACT OF
2001.
(a) AMENDMENTS RELATED TO SECTION 101 OF
THE ACT.—
(1) IN
GENERAL.—Subsection (b) of section
6428 is amended to read as follows:
‘‘(b) CREDIT TREATED AS NONREFUNDABLE PER-
SONAL CREDIT.—For purposes of this title, the credit al-
lowed under this section shall be treated as a credit allow-
able under subpart A of part IV of subchapter A of chap-
ter 1.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (d) of section 6428 is
amended to read as follows:
‘‘(d) COORDINATION WITH ADVANCE REFUNDS OF
CREDIT.—
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‘‘(1) IN
GENERAL.—The amount of credit
which would (but for this paragraph) be allowable
under this section shall be reduced (but not below
zero) by the aggregate refunds and credits made or
allowed to the taxpayer under subsection (e). Any
failure to so reduce the credit shall be treated as
arising out of a mathematical or clerical error and
assessed according to section 6213(b)(1).
‘‘(2) JOINT RETURNS.—In the case of a refund
or credit made or allowed under subsection (e) with
respect to a joint return, half of such refund or cred-
it shall be treated as having been made or allowed
to each individual filing such return.’’.
(B) Paragraph (2) of section 6428(e) is
amended to read as follows:
‘‘(2) ADVANCE
REFUND
AMOUNT.—For pur-
poses of paragraph (1), the advance refund amount
is the amount that would have been allowed as a
credit under this section for such first taxable year
if—
‘‘(A) this section (other than subsections
(b) and (d) and this subsection) had applied to
such taxable year, and
‘‘(B) the credit for such taxable year were
not allowed to exceed the excess (if any) of—
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‘‘(i) the sum of the regular tax liabil-
ity (as defined in section 26(b)) plus the
tax imposed by section 55, over
‘‘(ii) the sum of the credits allowable
under part IV of subchapter A of chapter
1 (other than the credits allowable under
subpart C thereof, relating to refundable
credits).’’
(b) AMENDMENT RELATED TO SECTION 201 OF THE
ACT.—Subparagraph (B) of section 24(d)(1) is amended
by striking ‘‘amount of credit allowed by this section’’ and
inserting ‘‘aggregate amount of credits allowed by this
subpart’’.
(c) AMENDMENTS RELATED TO SECTION 202 OF
THE ACT.—
(1) CORRECTIONS TO CREDIT FOR ADOPTION
EXPENSES.—
(A) Paragraph (1) of section 23(a) is
amended to read as follows:
‘‘(1) IN
GENERAL.—In the case of an indi-
vidual, there shall be allowed as a credit against the
tax imposed by this chapter the amount of the quali-
fied adoption expenses paid or incurred by the tax-
payer.’’
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(B) Subsection (a) of section 23 is amend-
ed by adding at the end the following new para-
graph:
‘‘(3) $10,000 CREDIT FOR ADOPTION OF CHILD
WITH
SPECIAL
NEEDS
REGARDLESS
OF
EX-
PENSES.—In the case of an adoption of a child with
special needs which becomes final during a taxable
year, the taxpayer shall be treated as having paid
during such year qualified adoption expenses with
respect to such adoption in an amount equal to the
excess (if any) of $10,000 over the aggregate quali-
fied adoption expenses actually paid or incurred by
the taxpayer with respect to such adoption during
such taxable year and all prior taxable years.’’
(C) Paragraph (2) of section 23(a) is
amended by striking the last sentence.
(D) Paragraph (1) of section 23(b) is
amended by striking ‘‘subsection (a)(1)(A)’’ and
inserting ‘‘subsection (a)’’.
(E) Subsection (i) of section 23 is amend-
ed by striking ‘‘the dollar limitation in sub-
section (b)(1)’’ and inserting ‘‘the dollar
amounts in subsections (a)(3) and (b)(1)’’.
(F) Expenses paid or incurred during any
taxable year beginning before January 1, 2002,