performed by an individual during any of the
first 3 quarters of a calendar year, an employer
may make an estimate of the hours of services
an individual is reasonably expected to perform
for the employer in such calendar year. The em-
ployer shall adjust the deemed payments in ac-
cordance with subsection (c) for the last quarter
of such calendar year to reflect the hours of
services actually performed by such individual
in such calendar year.
‘‘(2) ELIGIBLE TAX-EXEMPT EMPLOYER.—The
term ‘eligible tax-exempt employer’ means any orga-
nization which is exempt from tax under subtitle A
other than—
‘‘(A) any governmental unit, and
‘‘(B) any agency or instrumentality of a
governmental unit.
‘‘(c) COORDINATION WITH DEPOSITORY REQUIRE-
MENTS.—
‘‘(1) IN GENERAL.—Any employer who is enti-
tled to treat any amount as a payment under sub-
section (a) for any calendar quarter may reduce, in
such manner as the Secretary may by regulations
prescribe, by a like amount, the amount otherwise
required to be deposited during such quarter by rea-
son of the employment tax liability of such employer.
‘‘(2) 
QUARTERLY
DETERMINATIONS.—The
amount of reduction permitted under paragraph (1)
for any calendar quarter shall be based on a sepa-
rate estimate for such quarter of the amount of
deemed payments to which the employer reasonably
expects to be entitled under subsection (a) for the
calendar year which includes such quarter and shall
be properly adjusted (under regulations prescribed
by the Secretary) to reflect the amount by which
prior reductions under subsection (a) during such
calendar year were in excess of, or less than, the
amounts which would be proper under such esti-
mate.
‘‘(3) YEAR-END ADJUSTMENTS.—
‘‘(A) EXCESS OF DEEMED PAYMENTS AL-
LOWABLE
OVER
DEPOSITORY
BENEFIT
CLAIMED.—If the amount of deemed payments
to which an employer is entitled under sub-
section (a) for any calendar year exceeds the
amount claimed by the employer under para-
graph (1) during such year, such excess shall be
treated for purposes of this title as an overpay-
ment made by such employer. For purposes of
determining interest, such overpayment shall be
treated as made on January 31 of the following
calendar year.
‘‘(B) DEPOSITORY BENEFIT CLAIMED EX-
CEEDS DEEMED PAYMENT ALLOWABLE.—If the
amount claimed by the employer under para-
graph (1) during the calendar year exceeds the
amount of deemed payments to which such em-
ployer is entitled under subsection (a) for such
year, such excess shall be treated for purposes
of this title as an underpayment of the tax im-
posed by this chapter for such calendar year.
For purposes of determining interest, such un-
derpayment shall be allocated ratably among
the calendar quarters in such year (or in such
other manner as the Secretary may by regula-
tions prescribe).
‘‘(d) PAYMENT TREATED AS MADE ON DUE DATE.—
Notwithstanding subsection (c), for purposes of determin-
ing interest, any deemed payment under subsection (a) for
any calendar quarter shall be treated as made on the due
date for the return for such quarter.
‘‘(e) EMPLOYMENT TAX LIABILITY.—For purposes
of this section, the term ‘employment tax liability’ means
liability for the taxes imposed by chapters 21 and 24.
‘‘(f) SOCIAL SECURITY TRUST FUNDS.—This section
shall not be construed to affect amounts appropriated
under sections 201 and 1817(a) of the Social Security
Act.’’
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter 25 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 3511. Treatment of work opportunity wages as payment of
employment tax liability.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to individuals who
begin work for the employer after the date of the en-
actment of this Act.
SEC. 203. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDA-
TIONS.
(a) IN GENERAL.—Paragraph (5) of section 170(e)
of the Internal Revenue Code of 1986 is amended by strik-
ing subparagraph (D).
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to contributions made after
June 30, 1998.
SEC. 204. EXEMPTION FOR ACTIVE FINANCING INCOME.
(a) EXEMPTION FROM FOREIGN PERSONAL HOLD-
ING COMPANY INCOME.—Section 954 of the Internal Rev-
enue Code of 1986 (as amended by subsection (d)) is
amended by adding at the end the following new sub-
section:
‘‘(h) SPECIAL RULE FOR INCOME DERIVED IN THE
ACTIVE
CONDUCT
OF
INSURANCE
BUSINESSES
AND
BANKING, FINANCING, OR SIMILAR BUSINESSES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(c)(1), foreign personal holding company income
shall not include income which is—
‘‘(A) derived in the active conduct by a
controlled foreign corporation of a banking, fi-
nancing, or similar business, but only if—
‘‘(i) the corporation is predominantly
engaged in the active conduct of such busi-
ness, and
‘‘(ii) such income is derived from
transactions—
‘‘(I) with customers located with-
in the country under the laws of
which the corporation is created or or-
ganized, or
‘‘(II) with customers not de-
scribed in subclause (I), but only if
employees of the corporation which
are located in the country under the
laws of which the corporation is cre-
ated or organized (or in the case of a
qualified business unit described in
section 989(a) which both maintains
its principal office and conducts sub-
stantial business activity in a country,
employees of such unit which are lo-
cated in such country) materially par-
ticipate in such transaction,
‘‘(B) received from a customer by a con-
trolled foreign corporation which is a qualifying
insurance company for the issuing or reinsuring
of any insurance or annuity contract, but only
if the customer is located in the country under
the laws of which the controlled foreign cor-
poration is created or organized,
‘‘(C) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from the invest-
ments made by a qualifying insurance company
of its reserves or of 80 percent of its unearned
premiums (as both are determined in the man-
ner prescribed under paragraph (4)), or
‘‘(D) received from a person other than a
related person (within the meaning of sub-
section (d)(3)) and derived from investments
made by a qualifying insurance company of an
amount of its assets equal to—
‘‘(i) in the case of property, casualty,
or health insurance contracts, one-third of
its premiums earned on such insurance
contracts during the taxable year (as de-
fined in section 832(b)(4)), and
‘‘(ii) in the case of life insurance or
annuity contracts, 10 percent of the re-
serves described in subparagraph (B) for
such contracts.
Subparagraphs (C) and (D) shall not apply to in-
come allocable to any contract to which subpara-
graph (B) does not apply (determined after applying
paragraph (6)(D)(ii)).
‘‘(2) PREDOMINANTLY
ENGAGED.—For pur-
poses of paragraph (1)(A), a controlled foreign cor-
poration shall be deemed predominantly engaged in
the active conduct of a banking, financing, or similar
business only if—
‘‘(A) more than 70 percent of its gross in-
come is derived from such business from trans-
actions described in subclause (I) or (II) of
paragraph (1)(A)(ii), or
‘‘(B) the corporation is—
‘‘(i) engaged in the active conduct of
a banking business and is an institution li-
censed to do business as a bank in the
United States (or is any other corporation
not so licensed which is specified by the
Secretary in regulations), or
‘‘(ii) engaged in the active conduct of
a securities business and is registered as a
securities broker or dealer under section
15(a) of the Securities Exchange Act of
1934 or is registered as a Government se-
curities broker or dealer under section
15C(a) of such Act (or is any other cor-
poration not so registered which is speci-
fied by the Secretary in regulations).
‘‘(3) PRINCIPLES
FOR
DETERMINING
INSUR-
ANCE
INCOME.—Except as provided by the Sec-
retary, for purposes of subparagraphs (C) and (D)
of paragraph (1)—
‘‘(A) in the case of any contract which is
a separate account-type contract (including any
variable contract not meeting the requirements
of section 817), income credited under such
contract shall be allocable only to such contract,
and
‘‘(B) income not allocable under subpara-
graph (A) shall be allocated ratably among con-
tracts not described in subparagraph (A).
‘‘(4) METHODS FOR DETERMINING UNEARNED
PREMIUMS AND RESERVES.—For purposes of para-
graph (1)(C)—
‘‘(A) PROPERTY
AND
CASUALTY
CON-
TRACTS.—The unearned premiums and reserves
of a qualifying insurance company with respect
to property, casualty, or health insurance con-
tracts shall be determined using the same meth-
ods and interest rates which would be used if
such company were subject to tax under sub-
chapter L.
‘‘(B) LIFE INSURANCE AND ANNUITY CON-
TRACTS.—The amount of the reserve of a quali-
fying insurance company 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).
‘‘(C) LIMITATION
ON
RESERVES.—In no
event shall the reserve determined under this
paragraph for any contract as of any time ex-
ceed the amount which would be taken into ac-
count with respect to such contract as of such
time in determining foreign statement reserves
(less any catastrophe, deficiency, or similar re-
serves).
‘‘(5) AMOUNT OF RESERVE.—The amount of
the reserve determined under this paragraph with
respect to any contract shall be determined in the
same manner as it would be determined if the quali-
fying insurance company were subject to tax under
subchapter L, except that in applying such sub-
chapter—
‘‘(A) the interest rate determined for the
foreign country in which such company is cre-
ated or organized and which, except as provided
by the Secretary, is calculated in the same man-
ner as the Federal mid-term rate under section
1274(d) shall be substituted for the applicable
Federal interest rate,
‘‘(B) the highest assumed interest rate
permitted to be used in determining foreign
statement reserves shall be substituted for the
prevailing State assumed interest rate, and
‘‘(C) tables for mortality and morbidity
which reasonably reflect the current mortality
and morbidity risks in the foreign country shall
be substituted for the mortality and morbidity
tables otherwise used for such subchapter.
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) QUALIFYING INSURANCE COMPANY.—
The term ‘qualifying insurance company’ means
any entity which—
‘‘(i) is subject to regulation as an in-
surance company by the country under the
laws of which the entity is created or orga-
nized, and
‘‘(ii) is engaged in the active conduct
of an insurance business and would be sub-
ject to tax under subchapter L if it were
a domestic corporation.
‘‘(B) LIFE INSURANCE OR ANNUITY CON-
TRACT.—For purposes of this section and sec-
tion 953, the determination of whether a con-
tract issued by a controlled foreign corporation
is a life insurance contract or an annuity con-
tract shall be made without regard to sections
72(s), 101(f), 817(h), and 7702 if—
‘‘(i) such contract is regulated as a
life insurance or annuity contract by the
country under the laws of which the cor-
poration is created or organized, and
‘‘(ii) no policyholder, insured, annu-
itant, or beneficiary with respect to the
contract is a United States person.
‘‘(C) NONCANCELLABLE
ACCIDENT
AND
HEALTH
INSURANCE
CONTRACTS.—A
noncancellable accident and health insurance
contract shall be treated for purposes of this
subsection in the same manner as a life insur-
ance contract except that paragraph (4)(B)(i)
shall not apply.
‘‘(D) LOCATED.—
‘‘(i) IN GENERAL.—The determination
of where a customer is located shall be
made under rules prescribed by the Sec-
retary.
‘‘(ii) SPECIAL RULE FOR QUALIFIED
BUSINESS
UNITS.—Gross income derived
by a corporation’s qualified business unit
(within the meaning of section 989(a))
from transactions with customers which
are located in the country in which the
qualified business unit both maintains its
principal office and conducts substantial
business activity shall be treated as derived
from transactions with customers which
are located within the country under the
laws of which the controlled foreign cor-
poration is created or organized.
‘‘(E) CUSTOMER.—
‘‘(i) IN
GENERAL.—The term ‘cus-
tomer’ means, with respect to any con-
trolled foreign corporation, any person
which has a customer relationship with
such corporation.
‘‘(ii) SPECIAL
RULES
RELATING
TO
INSURANCE.—For purposes of paragraph
(1)(B)—
‘‘(I) except as provided in regula-
tions, the customer shall be the in-
sured under the insurance or annuity
contract, and
‘‘(II) income received from a re-
lated person (as defined in subsection
(d)(3)) for a policy of reinsurance