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of this subsection through the use of an issuer other
than a corporation.’’
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to indebtedness issued on or after De-
cember 7, 1995.
(2) TRANSITIONAL
RULE.—The amendments
made by this section shall not apply to—
(A) any indebtedness issued pursuant to a
commitment which was binding on December 6,
1995, and at all times thereafter before the in-
debtedness was issued,
(B) any indebtedness issued pursuant to
an exchange offer which was outstanding on
such date,
(C) any indebtedness which was priced for
purposes of issuance on or before such date,
(D) indebtedness issued pursuant to a reg-
istration statement filed with the Securities and
Exchange Commission on or before December
7, 1995 (other than a registration statement
which, under 17 CFR 230.415, contemplated a
delayed or continuous offering of such indebted-
ness), but only to the extent that such indebted-
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ness is described in, and the amount of such in-
debtedness does not exceed in the aggregate the
amount stated in, such registration statement
as of such date,
(E) indebtedness issued pursuant to a reg-
istration statement which is filed with the Secu-
rities and Exchange Commission on or before
December 7, 1995, and which, under 17 CFR
230.415, contemplated a delayed or continuous
offering of such indebtedness if a prospectus
supplement (including a preliminary prospectus
supplement) to such registration statement was
filed under 17 CFR 230.424 on or before De-
cember 7, 1995, but only to the extent that
such indebtedness is described in, and the
amount of such indebtedness does not exceed in
the aggregate the amount stated in, such pro-
spectus supplement as of such date (or, to the
extent a preliminary prospectus supplement as
of such date does not state a maximum amount
to be issued, the amount expected to be offered
may be established by other contemporaneous,
written evidence), and
(F) indebtedness issued pursuant to a pri-
vate placement that contemplates resales of the
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instruments pursuant to 17 CFR 230.144A,
but only if, on or before December 7, 1995—
(i) the issuer had made a public an-
nouncement of its intention to issue the in-
debtedness, and
(ii) an offering circular or memoran-
dum (including a preliminary offering cir-
cular or memorandum) with respect to the
indebtedness had been distributed to pro-
spective investors, but only to the extent
that such indebtedness is described in, and
the amount of such indebtedness does not
exceed in the aggregate the amount stated
in, such offering circular or memorandum
as of such date.
Indebtedness shall be treated as meeting the require-
ments of subparagraph (A) if such indebtedness is
issued, before the 30th day after the date of the en-
actment of this Act, as part of an issue substantially
identical (other than yield) to an issue which was
publicly announced as having been sold on December
7, 1995, but which was terminated on such date.
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Subtitle C—Foreign Provisions
PART I—FOREIGN TRUSTS
SEC. ll301. IMPROVED INFORMATION REPORTING ON
FOREIGN TRUSTS.
(a) IN GENERAL.—Section 6048 of the Internal Rev-
enue Code of 1986 (relating to returns as to certain for-
eign trusts) is amended to read as follows:
‘‘SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN
FOREIGN TRUSTS.
‘‘(a) NOTICE OF CERTAIN EVENTS.—
‘‘(1) GENERAL RULE.—On or before the 90th
day (or such later day as the Secretary may pre-
scribe) after any reportable event, the responsible
party shall provide written notice of such event to
the Secretary in accordance with paragraph (2).
‘‘(2) CONTENTS
OF
NOTICE.—The notice re-
quired by paragraph (1) shall contain such informa-
tion as the Secretary may prescribe, including—
‘‘(A) the amount of money or other prop-
erty (if any) transferred to the trust in connec-
tion with the reportable event, and
‘‘(B) the identity of the trust and of each
trustee and beneficiary (or class of bene-
ficiaries) of the trust.
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‘‘(3) REPORTABLE
EVENT.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘reportable
event’ means—
‘‘(i) the creation of any foreign trust
by a United States person,
‘‘(ii) the transfer of any money or
property (directly or indirectly) to a for-
eign trust by a United States person, in-
cluding a transfer by reason of death, and
‘‘(iii) the death of a citizen or resident
of the United States if—
‘‘(I) the decedent was treated as
the owner of any portion of a foreign
trust under the rules of subpart E of
part I of subchapter J of chapter 1,
or
‘‘(II) any portion of a foreign
trust was included in the gross estate
of the decedent.
‘‘(B) EXCEPTIONS.—
‘‘(i) FAIR
MARKET
VALUE
SALES.—
Subparagraph (A)(ii) shall not apply to
any transfer of property to a trust in ex-
change for consideration of at least the fair
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The appearance of persons or production of
records by reason of a United States person
being such an agent shall not subject such per-
sons or records to legal process for any purpose
other than determining the correct treatment
under this title of the amounts required to be
taken into account under the rules referred to
in subparagraph (A). A foreign trust which ap-
points an agent described in this subparagraph
shall not be considered to have an office or a
permanent establishment in the United States,
or to be engaged in a trade or business in the
United States, solely because of the activities of
such agent pursuant to this subsection.
‘‘(C) OTHER
RULES
TO
APPLY.—Rules
similar to the rules of paragraphs (2) and (4)
of section 6038A(e) shall apply for purposes of
this paragraph.
‘‘(c) REPORTING BY UNITED STATES BENEFICIARIES
OF FOREIGN TRUSTS.—
‘‘(1) IN GENERAL.—If any United States per-
son receives (directly or indirectly) during any tax-
able year of such person any distribution from a for-
eign trust, such person shall make a return with re-
spect to such trust for such year which includes—
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‘‘(A) the name of such trust,
‘‘(B) the aggregate amount of the distribu-
tions so received from such trust during such
taxable year, and
‘‘(C) such other information as the Sec-
retary may prescribe.
‘‘(2) INCLUSION IN INCOME IF RECORDS NOT
PROVIDED.—If adequate records are not provided to
the Secretary to determine the proper treatment of
any distribution from a foreign trust, such distribu-
tion shall be treated as an accumulation distribution
includible in the gross income of the distributee
under chapter 1. To the extent provided in regula-
tions, the preceding sentence shall not apply if the
foreign trust elects to be subject to rules similar to
the rules of subsection (b)(2)(B).
‘‘(d) SPECIAL RULES.—
‘‘(1) DETERMINATION
OF
WHETHER
UNITED
STATES
PERSON
RECEIVES
DISTRIBUTION.—For
purposes of this section, in determining whether a
United States person receives a distribution from a
foreign trust, the fact that a portion of such trust
is treated as owned by another person under the
rules of subpart E of part I of subchapter J of chap-
ter 1 shall be disregarded.
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‘‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVI-
TIES.—To the extent provided in regulations, a trust
which is a United States person shall be treated as
a foreign trust for purposes of this section and sec-
tion 6677 if such trust has substantial activities, or
holds substantial property, outside the United
States.
‘‘(3) TIME AND MANNER OF FILING INFORMA-
TION.—Any notice or return required under this sec-
tion shall be made at such time and in such manner
as the Secretary shall prescribe.
‘‘(4) MODIFICATION
OF
RETURN
REQUIRE-
MENTS.—The Secretary is authorized to suspend or
modify any requirement of this section if the Sec-
retary determines that the United States has no sig-
nificant tax interest in obtaining the required infor-
mation.’’
(b) INCREASED PENALTIES.—Section 6677 of such
Code (relating to failure to file information returns with
respect to certain foreign trusts) is amended to read as
follows:
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‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT
TO CERTAIN FOREIGN TRUSTS.
‘‘(a) CIVIL PENALTY.—In addition to any criminal
penalty provided by law, if any notice or return required
to be filed by section 6048—
‘‘(1) is not filed on or before the time provided
in such section, or
‘‘(2) does not include all the information re-
quired pursuant to such section or includes incorrect
information,
the person required to file such notice or return shall pay
a penalty equal to 35 percent of the gross reportable
amount. If any failure described in the preceding sentence
continues for more than 90 days after the day on which
the Secretary mails notice of such failure to the person
required to pay such penalty, such person shall pay a pen-
alty (in addition to the amount determined under the pre-
ceding sentence) of $10,000 for each 30-day period (or
fraction thereof) during which such failure continues after
the expiration of such 90-day period.
‘‘(b) SPECIAL RULES FOR RETURNS UNDER SEC-
TION 6048(b).—In the case of a return required under
section 6048(b)—
‘‘(1) the United States person referred to in
such section shall be liable for the penalty imposed
by subsection (a), and
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‘‘(2) subsection (a) shall be applied by sub-
stituting ‘5 percent’ for ‘35 percent’.
‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes
of subsection (a), the term ‘gross reportable amount’
means—
‘‘(1) the gross value of the property involved in
the event (determined as of the date of the event)
in the case of a failure relating to section 6048(a),
‘‘(2) the gross value of the portion of the trust’s
assets at the close of the year treated as owned by
the United States person in the case of a failure re-
lating to section 6048(b)(1), and
‘‘(3) the gross amount of the distributions in
the case of a failure relating to section 6048(c).
‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed by this section on any failure which is
shown to be due to reasonable cause and not due to willful
neglect. The fact that a foreign jurisdiction would impose
a civil or criminal penalty on the taxpayer (or any other
person) for disclosing the required information is not rea-
sonable cause.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—
Subchapter B of chapter 63 (relating to deficiency proce-
dures for income, estate, gift, and certain excise taxes)
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shall not apply in respect of the assessment or collection
of any penalty imposed by subsection (a).’’
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6724(d) of such
Code is amended by striking ‘‘or’’ at the end of sub-
paragraph (S), by striking the period at the end of
subparagraph (T) and inserting ‘‘, or’’, and by in-
serting after subparagraph (T) the following new
subparagraph:
‘‘(U) section 6048(b)(1)(B) (relating to
foreign trust reporting requirements).’’
(2) The table of sections for subpart B of part
III of subchapter A of chapter 61 is of such Code
amended by striking the item relating to section
6048 and inserting the following new item:
‘‘Sec. 6048. Information with respect to certain foreign trusts.’’
(3) The table of sections for part I of sub-
chapter B of chapter 68 of such Code is amended
by striking the item relating to section 6677 and in-
serting the following new item:
‘‘Sec. 6677. Failure to file information with respect to certain for-
eign trusts.’’
(d) EFFECTIVE DATES.—
(1) REPORTABLE EVENTS.—To the extent re-
lated to subsection (a) of section 6048 of the Inter-
nal Revenue Code of 1986, as amended by this sec-
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tion, the amendments made by this section shall
apply to reportable events (as defined in such section
6048) occurring after the date of the enactment of
this Act.
(2) GRANTOR TRUST REPORTING.—To the ex-
tent related to subsection (b) of such section 6048,
the amendments made by this section shall apply to
taxable years of United States persons beginning
after the date of the enactment of this Act.
(3) REPORTING
BY
UNITED
STATES
BENE-
FICIARIES.—To the extent related to subsection (c)
of such section 6048, the amendments made by this
section shall apply to distributions received after the
date of the enactment of this Act.
SEC. ll302. MODIFICATIONS OF RULES RELATING TO FOR-
EIGN TRUSTS HAVING ONE OR MORE UNITED
STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.—
(1) Paragraph (2) of section 679(a) of the In-
ternal Revenue Code of 1986 is amended by striking
subparagraph (B) and inserting the following:
‘‘(B) 
TRANSFERS
AT
FAIR
MARKET
VALUE.—To any transfer of property to a trust
in exchange for consideration of at least the fair
market value of the transferred property. For
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purposes of the preceding sentence, consider-
ation other than cash shall be taken into ac-
count at its fair market value.’’
(2) Subsection (a) of section 679 of such Code
(relating to foreign trusts having one or more Unit-
ed States beneficiaries) is amended by adding at the
end the following new paragraph:
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO
ACCOUNT
UNDER
FAIR
MARKET
VALUE
EXCEP-
TION.—
‘‘(A) IN GENERAL.—In determining wheth-
er paragraph (2)(B) applies to any transfer by
a person described in clause (ii) or (iii) of sub-
paragraph (C), there shall not be taken into ac-
count—
‘‘(i) any obligation of a person de-
scribed in subparagraph (C), and
‘‘(ii) to the extent provided in regula-
tions, any obligation which is guaranteed
by a person described in subparagraph (C).
‘‘(B) TREATMENT
OF
PRINCIPAL
PAY-
MENTS
ON
OBLIGATION.—Principal payments
by the trust on any obligation referred to in
subparagraph (A) shall be taken into account
on and after the date of the payment in deter-
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mining the portion of the trust attributable to
the property transferred.
‘‘(C) PERSONS DESCRIBED.—The persons
described in this subparagraph are—
‘‘(i) the trust,
‘‘(ii) any grantor or beneficiary of the
trust, and
‘‘(iii) any person who is related (with-
in the meaning of section 643(i)(3)) to any
grantor or beneficiary of the trust.’’
(b) EXEMPTION
OF TRANSFERS
TO CHARITABLE
TRUSTS.—Subsection (a) of section 679 of such Code is
amended by striking ‘‘section 404(a)(4) or 404A’’ and in-
serting ‘‘section 6048(a)(3)(B)(ii)’’.
(c) OTHER MODIFICATIONS.—Subsection (a) of sec-
tion 679 of such Code is amended by adding at the end
the following new paragraphs:
‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN
GRANTOR WHO LATER BECOMES A UNITED STATES
PERSON.—
‘‘(A) IN GENERAL.—If a nonresident alien
individual has a residency starting date within
5 years after directly or indirectly transferring
property to a foreign trust, this section and sec-
tion 6048 shall be applied as if such individual
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transferred to such trust on the residency start-
ing date an amount equal to the portion of such
trust attributable to the property transferred by
such individual to such trust in such transfer.
‘‘(B) TREATMENT OF UNDISTRIBUTED IN-
COME.—For purposes of this section, undistrib-
uted net income for periods before such individ-
ual’s residency starting date shall be taken into
account in determining the portion of the trust
which is attributable to property transferred by
such individual to such trust but shall not oth-
erwise be taken into account.
‘‘(C) RESIDENCY
STARTING
DATE.—For
purposes of this paragraph, an individual’s resi-
dency starting date is the residency starting
date determined under section 7701(b)(2)(A).
‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—
‘‘(A) an individual who is a citizen or resi-
dent of the United States transferred property
to a trust which was not a foreign trust, and
‘‘(B) such trust becomes a foreign trust
while such individual is alive,
then this section and section 6048 shall be applied
as if such individual transferred to such trust on the
date such trust becomes a foreign trust an amount
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equal to the portion of such trust attributable to the
property previously transferred by such individual to
such trust. A rule similar to the rule of paragraph
(4)(B) shall apply for purposes of this paragraph.’’
(d) MODIFICATIONS RELATING TO WHETHER TRUST
HAS UNITED STATES BENEFICIARIES.—Subsection (c) of
section 679 of such Code is amended by adding at the
end the following new paragraphs:
‘‘(3) CERTAIN UNITED STATES BENEFICIARIES
DISREGARDED.—A beneficiary shall not be treated
as a United States person in applying this section
with respect to any transfer of property to foreign
trust if such beneficiary first became a United
States person more than 5 years after the date of
such transfer.
‘‘(4) TREATMENT OF FORMER UNITED STATES
PERSONS.—To the extent provided by the Secretary,
for purposes of this subsection, the term ‘United
States person’ includes any person who was a Unit-
ed States person at any time during the existence of
the trust.’’
(e) TECHNICAL AMENDMENT.—Subparagraph (A) of
section 679(c)(2) is amended to read as follows:
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‘‘(A) in the case of a foreign corporation,
such corporation is a controlled foreign corpora-
tion (as defined in section 957(a)),’’.
(f) REGULATIONS.—Section 679 is amended by add-
ing at the end the following new subsection:
‘‘(d) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers of property after Feb-
ruary 6, 1995.
SEC. ll303. FOREIGN PERSONS NOT TO BE TREATED AS
OWNERS UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.—
(1) Subsection (f) of section 672 of the Internal
Revenue Code of 1986 (relating to special rule where
grantor is foreign person) is amended to read as fol-
lows:
‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNER-
SHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this subpart, this subpart shall apply
only to the extent such application results in an
amount being currently taken into account (directly
or through 1 or more entities) under this chapter in
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computing the income of a citizen or resident of the
United States or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN
REVOCABLE
AND
IR-REV-
OCABLE TRUSTS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), paragraph (1) shall not
apply to any trust if—
‘‘(I) the power to revest abso-
lutely in the grantor title to the trust
property is exercisable solely by the
grantor without the approval or con-
sent of any other person or with the
consent of a related or subordinate
party who is subservient to the grant-
or, or
‘‘(II) the only amounts distribut-
able from such trust (whether income
or corpus) during the lifetime of the
grantor are amounts distributable to
the grantor or the spouse of the
grantor.
‘‘(ii) EXCEPTION.—Clause (i) shall
not apply to any trust which has a bene-
ficiary who is a United States person to
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the extent such beneficiary has made
transfers of property by gift (directly or in-
directly) to a foreign person who is the
grantor of such trust. For purposes of the
preceding sentence, any gift shall not be
taken into account to the extent such gift
is excluded from taxable gifts under sec-
tion 2503(b).
‘‘(B) COMPENSATORY TRUSTS.—Except as
provided in regulations, paragraph (1) shall not
apply to any portion of a trust distributions
from which are taxable as compensation for
services rendered.
‘‘(3) SPECIAL
RULES.—Except as otherwise
provided in regulations prescribed by the Sec-
retary—
‘‘(A) a controlled foreign corporation (as
defined in section 957) shall be treated as a do-
mestic corporation for purposes of paragraph
(1), and
‘‘(B) paragraph (1) shall not apply for
purposes of applying part III of subchapter G
(relating to foreign personal holding companies)
and part VI of subchapter P (relating to treat-
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ment of certain passive foreign investment com-
panies).
‘‘(4) RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the case of any transfer directly or indi-
rectly from a partnership or foreign corporation
which the transferee treats as a gift or bequest, the
Secretary may recharacterize such transfer in such
circumstances as the Secretary determines to be ap-
propriate to prevent the avoidance of the purposes of
this subsection.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, including regulations providing that para-
graph (1) shall not apply in appropriate cases.’’
(2) The last sentence of subsection (c) of sec-
tion 672 of such Code is amended by inserting ‘‘sub-
section (f) and’’ before ‘‘sections 674’’.
(b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of
section 665(d) of such Code is amended by adding at the
end the following new sentence: ‘‘Under rules or regula-
tions prescribed by the Secretary, in the case of any for-
eign trust of which the settlor or another person would
be treated as owner of any portion of the trust under sub-
part E but for section 672(f), the term ‘taxes imposed on
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the trust’ includes the allocable amount of any income,
war profits, and excess profits taxes imposed by any for-
eign country or possession of the United States on the
settlor or such other person in respect of trust gross in-
come.’’
(c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—
(1) Section 643 of such Code is amended by
adding at the end the following new subsection:
‘‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS
THROUGH NOMINEES.—For purposes of this part, any
amount paid to a United States person which is derived
directly or indirectly from a foreign trust of which the
payor is not the grantor shall be deemed in the year of
payment to have been directly paid by the foreign trust
to such United States person.’’
(2) Section 665 of such Code is amended by
striking subsection (c).
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section
shall take effect on the date of the enactment of this
Act.
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(2) EXCEPTION
FOR
CERTAIN
TRUSTS.—The
amendments made by this section shall not apply to
any trust—
(A) which is treated as owned by the
grantor or another person under section 676 or
677 (other than subsection (a)(3) thereof) of
the Internal Revenue Code of 1986, and
(B) which is in existence on September 19,
1995.
The preceding sentence shall not apply to the por-
tion of any such trust attributable to any transfer to
such trust after September 19, 1995.
(e) TRANSITIONAL RULE.—If—
(1) by reason of the amendments made by this
section, any person other than a United States per-
son ceases to be treated as the owner of a portion
of a domestic trust, and
(2) before January 1, 1997, such trust becomes
a foreign trust, or the assets of such trust are trans-
ferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal
Revenue Code of 1986 by reason of such trust becoming
a foreign trust or the assets of such trust being trans-
ferred to a foreign trust.
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SEC. ll304. INFORMATION REPORTING REGARDING FOR-
EIGN GIFTS.
(a) IN GENERAL.—Subpart A of part III of sub-
chapter A of chapter 61 of the Internal Revenue Code of
1986 is amended by inserting after section 6039E the fol-
lowing new section:
‘‘SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN
PERSONS.
‘‘(a) IN GENERAL.—If the value of the aggregate for-
eign gifts received by a United States person (other than
an organization described in section 501(c) and exempt
from tax under section 501(a)) during any taxable year
exceeds $10,000, such United States person shall furnish
(at such time and in such manner as the Secretary shall
prescribe) such information as the Secretary may pre-
scribe regarding each foreign gift received during such
year.
‘‘(b) FOREIGN GIFT.—For purposes of this section,
the term ‘foreign gift’ means any amount received from
a person other than a United States person which the re-
cipient treats as a gift or bequest. Such term shall not
include any qualified transfer (within the meaning of sec-
tion 2503(e)(2)).
‘‘(c) PENALTY FOR FAILURE TO FILE INFORMA-
TION.—
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HR 2903 IH
‘‘(1) IN GENERAL.—If a United States person
fails to furnish the information required by sub-
section (a) with respect to any foreign gift within
the time prescribed therefor (including extensions)—
‘‘(A) the tax consequences of the receipt of
such gift shall be determined by the Secretary
in the Secretary’s sole discretion from the Sec-
retary’s own knowledge or from such informa-
tion as the Secretary may obtain through testi-
mony or otherwise, and
‘‘(B) such United States person shall pay
(upon notice and demand by the Secretary and
in the same manner as tax) an amount equal to
5 percent of the amount of such foreign gift for
each month for which the failure continues (not
to exceed 25 percent of such amount in the ag-
gregate).
‘‘(2) REASONABLE CAUSE EXCEPTION.— Para-
graph (1) shall not apply to any failure to report a
foreign gift if the United States person shows that
the failure is due to reasonable cause and not due
to willful neglect.
‘‘(d) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
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(b) CLERICAL AMENDMENT.—The table of sections
for such subpart is amended by inserting after the item
relating to section 6039E the following new item:
‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts received after the date
of the enactment of this Act in taxable years ending after
such date.
SEC. ll305. MODIFICATION OF RULES RELATING TO FOR-
EIGN TRUSTS WHICH ARE NOT GRANTOR
TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCU-
MULATION DISTRIBUTIONS.—Subsection (a) of section
668 of the Internal Revenue Code of 1986 (relating to
interest charge on accumulation distributions from foreign
trusts) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax de-
termined under section 667(a)—
‘‘(1) 
INTEREST
DETERMINED
USING
UNDERPAYMENT RATES.—The interest charge deter-
mined under this section with respect to any dis-
tribution is the amount of interest which would be
determined on the partial tax computed under sec-
tion 667(b) for the period described in paragraph
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(2) using the rates and the method under section
6621 applicable to underpayments of tax.
‘‘(2) PERIOD.—For purposes of paragraph (1),
the period described in this paragraph is the period
which begins on the date which is the applicable
number of years before the date of the distribution
and which ends on the date of the distribution.
‘‘(3) APPLICABLE
NUMBER
OF
YEARS.—For
purposes of paragraph (2)—
‘‘(A) IN GENERAL.—The applicable num-
ber of years with respect to a distribution is the
number determined by dividing—
‘‘(i) the sum of the products described
in subparagraph (B) with respect to each
undistributed income year, by
‘‘(ii) the aggregate undistributed net
income.
The quotient determined under the preceding
sentence shall be rounded under procedures
prescribed by the Secretary.
‘‘(B) PRODUCT
DESCRIBED.—For pur-
poses of subparagraph (A), the product de-
scribed in this subparagraph with respect to
any undistributed income year is the product
of—
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‘‘(i) the undistributed net income for
such year, and
‘‘(ii) the sum of the number of taxable
years between such year and the taxable
year of the distribution (counting in each
case the undistributed income year but not
counting the taxable year of the distribu-
tion).
‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur-
poses of this subsection, the term ‘undistributed in-
come year’ means any prior taxable year of the trust
for which there is undistributed net income, other
than a taxable year during all of which the bene-
ficiary receiving the distribution was not a citizen or
resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET
INCOME.—Notwithstanding section 666, for pur-
poses of this subsection, an accumulation distribu-
tion from the trust shall be treated as reducing pro-
portionately the undistributed net income for prior
taxable years.
‘‘(6) PERIODS BEFORE 1996.—Interest for the
portion of the period described in paragraph (2)
which occurs before January 1, 1996, shall be deter-
mined—
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‘‘(A) by using an interest rate of 6 percent,
and
‘‘(B) without compounding until January
1, 1996.’’
(b) ABUSIVE TRANSACTIONS.—Section 643(a) of
such Code is amended by inserting after paragraph (6)
the following new paragraph:
‘‘(7) ABUSIVE TRANSACTIONS.—The Secretary
shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this part,
including regulations to prevent avoidance of such
purposes.’’
(c) TREATMENT OF USE OF TRUST PROPERTY.—
(1) IN GENERAL.—Section 643 of such Code
(relating to definitions applicable to subparts A, B,
C, and D) is amended by adding at the end the fol-
lowing new subsection:
‘‘(i) USE OF FOREIGN TRUST PROPERTY.—For pur-
poses of subparts B, C, and D—
‘‘(1) GENERAL RULE.—If a foreign trust makes
a loan of cash or marketable securities directly or in-
directly to—
‘‘(A) any grantor or beneficiary of such
trust who is a United States person, or
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‘‘(B) any United States person not de-
scribed in subparagraph (A) who is related to
such grantor or beneficiary,
the amount of such loan shall be treated as a dis-
tribution by such trust to such grantor or bene-
ficiary (as the case may be).
‘‘(2) USE
OF
OTHER
PROPERTY.—Except as
provided in regulations prescribed by the Secretary,
any direct or indirect use of trust property (other
than cash or marketable securities) by a person re-
ferred to in subparagraph (A) or (B) of paragraph
(1) shall be treated as a distribution to the grantor
or beneficiary (as the case may be) equal to the fair
market value of the use of such property. The Sec-
retary may prescribe regulations treating a loan
guarantee by the trust as a use of trust property
equal to the value of the guarantee.
‘‘(3) DEFINITIONS AND SPECIAL RULES.—For
purposes of this subsection—
‘‘(A) CASH.—The term ‘cash’ includes for-
eign currencies and cash equivalents.
‘‘(B) RELATED PERSON.—
‘‘(i) IN GENERAL.—A person is relat-
ed to another person if the relationship be-
tween such persons would result in a dis-
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allowance of losses under section 267 or
707(b). In applying section 267 for pur-
poses of the preceding sentence, section
267(c)(4) shall be applied as if the family
of an individual includes the spouses of the
members of the family.
‘‘(ii) ALLOCATION
OF
USE.—If any
person described in paragraph (1)(B) is re-
lated to more than one person, the grantor
or beneficiary to whom the treatment
under this subsection applies shall be de-
termined under regulations prescribed by
the Secretary.
‘‘(C) EXCLUSION OF TAX-EXEMPTS.—The
term ‘United States person’ does not include
any entity exempt from tax under this chapter.
‘‘(D) TRUST
NOT
TREATED
AS
SIMPLE
TRUST.—Any trust which is treated under this
subsection as making a distribution shall be
treated as not described in section 651.
‘‘(4) SUBSEQUENT TRANSACTIONS REGARDING
LOAN PRINCIPAL.—If any loan is taken into account
under paragraph (1), any subsequent transaction be-
tween the trust and the original borrower regarding
the principal of the loan (by way of complete or par-
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tial repayment, satisfaction, cancellation, discharge,
or otherwise) shall be disregarded for purposes of
this title.’’
(2) TECHNICAL AMENDMENT.—Paragraph (8)
of section 7872(f) is amended by inserting ‘‘,
643(i),’’ before ‘‘or 1274’’ each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST CHARGE.—The amendment made
by subsection (a) shall apply to distributions after
the date of the enactment of this Act.
(2) ABUSIVE TRANSACTIONS.—The amendment
made by subsection (b) shall take effect on the date
of the enactment of this Act.
(3) USE OF TRUST PROPERTY.—The amend-
ment made by subsection (c) shall apply to—
(A) loans of cash or marketable securities
after September 19, 1995, and
(B) uses of other trust property after De-
cember 31, 1995.
SEC. ll306. RESIDENCE OF ESTATES AND TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN GENERAL.—Paragraph (30) of section
7701(a) of the Internal Revenue Code of 1986 is
amended by striking subparagraph (D) and by in-
serting after subparagraph (C) the following:
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‘‘(D) any estate or trust if—
‘‘(i) a court within the United States
is able to exercise primary supervision over
the administration of the estate or trust,
and
‘‘(ii) in the case of a trust, one or
more United States fiduciaries have the
authority to control all substantial deci-
sions of the trust.’’
(2) 
CONFORMING
AMENDMENT.—Paragraph
(31) of section 7701(a) of such Code is amended to
read as follows:
‘‘(31) FOREIGN ESTATE OR TRUST.—The term
‘foreign estate’ or ‘foreign trust’ means any estate or
trust other than an estate or trust described in sec-
tion 7701(a)(30)(D).’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply—
(A) to taxable years beginning after De-
cember 31, 1996, or
(B) at the election of the trustee of a
trust, to taxable years ending after the date of
the enactment of this Act.
Such an election, once made, shall be irrevocable.
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(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN
TRUSTS.—
(1) IN GENERAL.—Section 1491 of such Code
(relating to imposition of tax on transfers to avoid
income tax) is amended by adding at the end the fol-
lowing new flush sentence:
‘‘If a trust which is not a foreign trust becomes a foreign
trust, such trust shall be treated for purposes of this sec-
tion as having transferred, immediately before becoming
a foreign trust, all of its assets to a foreign trust.’’
(2) PENALTY.—Section 1494 of the Internal
Revenue Code of 1986 is amended by adding at the
end the following new subsection:
‘‘(c) PENALTY.—In the case of any failure to file a
return required by the Secretary with respect to any trans-
fer described in section 1491, the person required to file
such return shall be liable for the penalties provided in
section 6677 in the same manner as if such failure were
a failure to file a return under section 6048(a).’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on the date of the
enactment of this Act.
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PART II—OTHER FOREIGN PROVISIONS
SEC. ll311. DEFINITION OF FOREIGN PERSONAL HOLD-
ING COMPANY INCOME.
(a) INCOME
FROM
NOTIONAL
PRINCIPAL
CON-
TRACTS.—
(1) IN
GENERAL.—Paragraph (1) of section
954(c) (defining foreign personal holding company
income) is amended by adding at the end the follow-
ing new subparagraph:
‘‘(F) INCOME FROM NOTIONAL PRINCIPAL
CONTRACTS.—Net income from notional prin-
cipal contracts. Any item of income, gain, de-
duction, or loss from a notional principal con-
tract entered into for purposes of hedging any
item described in subparagraph (B), (C), (D),
or (E) shall not be taken into account for pur-
poses of this subparagraph but shall be taken
into account under such other subparagraph.’’
(2) EXCEPTION FOR DEALERS.—Paragraph (2)
of section 954(c) is amended by adding at the end
the following new subparagraph:
‘‘(C) EXCEPTION FOR DEALERS.—Except
as provided by regulations, in the case of a reg-
ular dealer in property, forward contracts, op-
tion contracts, or similar financial instruments
(including notional principal contracts), there
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shall not be taken into account in computing
foreign personal holding income any item of in-
come, gain, deduction, or loss from any trans-
action (including hedging transactions) entered
into in the ordinary course of such dealer’s
trade or business as such a dealer.’’
(3) CONFORMING AMENDMENT.—Subparagraph
(B) of section 954(c)(1) is amended—
(A) by striking the second sentence, and
(B) by striking ‘‘also’’ in the last sentence.
(b) PAYMENTS IN LIEU OF DIVIDENDS.—Paragraph
(1) of section 954(c), as amended by subsection (a), is
amended by adding at the end the following new subpara-
graph:
‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.—
Payments in lieu of dividends which are made
pursuant to an agreement to which section
1058 applies.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. ll312. TREATMENT OF FOREIGN OIL AND GAS EX-
TRACTION INCOME.
(a) DISALLOWANCE OF FOREIGN TAX CREDIT.—Sec-
tion 907(a) is amended to read as follows:
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‘‘(a) DENIAL OF FOREIGN TAX CREDIT FOR EX-
TRACTION INCOME.—
‘‘(1) IN GENERAL.—Notwithstanding any other
provision of this part—
‘‘(A) no credit shall be allowed under sec-
tion 901(a) for any income, war profits, or ex-
cess profits taxes paid or accrued (or deemed
paid under section 902 or 960) to any country
which are attributable to foreign oil and gas ex-
traction income, and
‘‘(B) subsections (a), (b), and (c) of sec-
tion 904 and sections 902 and 960 shall be ap-
plied separately with respect to foreign oil and
gas extraction income.
‘‘(2) TAXES ALLOWED AS DEDUCTION, ETC.—
Sections 78 and 275 shall not apply to any tax
which is not allowable as a credit under section
901(a) by reason of this subsection.’’
(b) ELIMINATION OF DEFERRAL.—Section 954(g) is
amended by adding at the end the following new para-
graph:
‘‘(3) NO
EXCEPTIONS
FOR
EXTRACTION
IN-
COME.—Notwithstanding paragraphs (1) and (2),
foreign base company oil related income shall include
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all foreign oil and gas extraction income (as defined
in section 907(c)(1)) for the taxable year.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995. The amendments made by this sec-
tion shall apply notwithstanding any treaty obligation of
the United States.
SEC. ll313. LIMITATION ON EXCLUSION OF EARNED IN-
COME OF CITIZENS OR RESIDENTS OF THE
UNITED STATES LIVING ABROAD.
(a) IN GENERAL.—Section 911 (relating to exclusion
of earned income of citizens or residents of the United
States living abroad) is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) EXCLUSION TO BE APPLIED AT LOWEST RATES
OF TAX.—If this section applies to a taxpayer for any tax-
able year, the tax imposed this chapter for such taxable
year shall be equal to the greater of—
‘‘(1) such tax determined without regard to this
subsection, or
‘‘(2) the excess of—
‘‘(A) such tax determined without regard
to this section, over
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‘‘(B) a tax determined under section 1 on
an amount of taxable income equal to the
amount of the exclusion under subsection (a).’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
Subtitle D—Accounting Provisions
SEC. ll401. REPEAL OF BAD DEBT RESERVE METHOD FOR
THRIFT SAVINGS ASSOCIATIONS.
(a) IN GENERAL.—Section 593 (relating to reserves
for losses on loans) is hereby repealed.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (d) of section 50 is amended by
adding at the end the following new sentence:
‘‘Paragraphs (1)(A), (2)(A), and (4) of section 46(e) re-
ferred to in paragraph (1) of this subsection shall not
apply to any taxable year beginning after December 31,
1995.’’
(2) Subsection (e) of section 52 is amended by
striking paragraph (1) and by redesignating para-
graphs (2) and (3) as paragraphs (1) and (2), re-
spectively.
(3) Subsection (a) of section 57 is amended by
striking paragraph (4).
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(4) Section 246 is amended by striking sub-
section (f).
(5) Clause (i) of section 291(e)(1)(B) is amend-
ed by striking ‘‘or to which section 593 applies’’.
(6) Subparagraph (A) of section 585(a)(2) is
amended by striking ‘‘other than an organization to
which section 593 applies’’.
(7) Sections 595 and 596 are hereby repealed.
(8) Subsection (a) of section 860E is amend-
ed—
(A) by striking ‘‘Except as provided in
paragraph (2), the’’ in paragraph (1) and in-
serting ‘‘The’’,
(B) by striking paragraphs (2) and (4) and
redesignating paragraphs (3) and (5) as para-
graphs (2) and (3), respectively, and
(C) by striking in paragraph (2) (as so re-
designated) all that follows ‘‘subsection’’ and
inserting a period.
(9) Paragraph (3) of section 992(d) is amended
by striking ‘‘or 593’’.
(10) Section 1038 is amended by striking sub-
section (f).
(11) Clause (ii) of section 1042(c)(4)(B) is
amended by striking ‘‘or 593’’.
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(12) Subsection (c) of section 1277 is amended
by striking ‘‘or to which section 593 applies’’.
(13) Subparagraph (B) of section 1361(b)(2) is
amended by striking ‘‘or to which section 593 ap-
plies’’.
(14) The table of sections for part II of sub-
chapter H of chapter 1 is amended by striking the
items relating to sections 593, 595, and 596.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to taxable years beginning after Decem-
ber 31, 1995.
(2) REPEAL OF SECTION 595.—The repeal of
section 595 under subsection (b)(7) shall apply to
property acquired in taxable years beginning after
December 31, 1995.
(d) 6-YEAR SPREAD OF ADJUSTMENTS.—
(1) IN GENERAL.—In the case of any taxpayer
who is required by reason of the amendments made
by this section to change its method of computing
reserves for bad debts—
(A) such change shall be treated as a
change in a method of accounting,
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(B) such change shall be treated as initi-
ated by the taxpayer and as having been made
with the consent of the Secretary, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481(a)—
(i) shall be determined by taking into
account only applicable excess reserves,
and
(ii) as so determined, shall be taken
into account ratably over the 6-taxable
year period beginning with the first taxable
year beginning after December 31, 1995.
(2) APPLICABLE EXCESS RESERVES.—
(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘applicable excess reserves’
means the excess (if any) of—
(i) the balance of the reserves de-
scribed in section 593(c)(1) of such Code
(as in effect on the day before the date of
the enactment of this Act) as of the close
of the taxpayer’s last taxable year begin-
ning before January 1, 1996, over
(ii) the lesser of—
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(I) the balance of such reserves
as of the close of the taxpayer’s last
taxable year beginning before January
1, 1988, or
(II) the balance of the reserves
described in subclause (I), reduce by
an amount determined in the same
manner 
as 
under 
section
585(b)(2)(B)(ii) on the basis of the
taxable years described in clause (i)
and this clause.
(B) SPECIAL RULE FOR THRIFTS WHICH
BECOME SMALL BANKS.—In the case of a bank
(as defined in section 581 of such Code) which
is not a large bank (as defined in section
585(c)(2) of such Code) for its first taxable
year beginning after December 31, 1995—
(i) the balance taken into account
under subparagraph (A)(ii) shall not be
less than the amount which would be the
balance of such reserve as of the close of
its last taxable year beginning before Jan-
uary 1, 1996, if the additions to such re-
serve for all taxable years had been deter-
mined under section 585(b)(2)(A), and
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(ii) the opening balance of the reserve
for bad debts as of the beginning of such
first taxable year shall be the balance
taken into account under subparagraph
(A)(ii) (determined after the application of
clause (i) of this subparagraph).
The preceding sentence shall not apply for pur-
poses of paragraphs (5), (6), and (7).
(3) RECAPTURE OF PRE-1988 RESERVES WHERE
TAXPAYER CEASES TO BE BANK.—If during any tax-
able year beginning after December 31, 1995, a tax-
payer to which paragraph (1) applied is not a bank
(as defined in section 581), paragraph (1) shall
apply to the reserves described in subparagraph
(A)(ii) except that such reserves shall be taken into
account ratably over the 6-taxable year period begin-
ning with such taxable year.
(4) SUSPENSION OF RECAPTURE IF RESIDEN-
TIAL LOAN REQUIREMENT MET.—
(A) IN GENERAL.—In the case of a bank
which meets the residential loan requirement of
subparagraph (B) for a taxable year beginning
after December 31, 1995, and before January
1, 1998—
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(i) no adjustment shall be taken into
account under paragraph (1) for such tax-
able year, and
(ii) such taxable year shall be dis-
regarded in determining—
(I) whether any other taxable
year is a taxable year for which an
adjustment is required to be taken
into account under paragraph (1), and
(II) the amount of such adjust-
ment.
(B) RESIDENTIAL LOAN REQUIREMENT.—
A taxpayer meets the residential loan require-
ment of this subparagraph for any taxable year
if the principal amount of the residential loans
made by the taxpayer during such year is not
less than the base amount for such year.
(C) RESIDENTIAL LOAN.—For purposes of
this paragraph, the term ‘‘residential loan’’
means any loan described in clause (v) of sec-
tion 7701(a)(19)(C) of such Code but only if
such loan is incurred in acquiring, constructing,
or improving the property described in such
clause.
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(D) BASE AMOUNT.—For purposes of sub-
paragraph (B), the base amount is the average
of the principal amounts of the residential loans
made by the taxpayer during the 6 most recent
taxable years beginning before January 1,
1996. At the election of the taxpayer who made
such loans during each of such 6 taxable years,
the preceding sentence shall be applied without
regard to the taxable year in which such prin-
cipal amount was the highest and the taxable
year in such principal amount was the lowest.
Such an election may be made only for the first
taxable year beginning after December 31,
1995, and, if made for such taxable year, shall
apply to the succeeding taxable year unless re-
voked with the consent of the Secretary of the
Treasury or his delegate.
(E) CONTROLLED GROUPS.—In the case of
a taxpayer which is a member of any controlled
group of corporations described in section
1563(a)(1) of such Code, subparagraph (B)
shall be applied with respect to such group.
(5) CONTINUED APPLICATION OF FRESH START
UNDER SECTION 585 TRANSITIONAL RULES.—In the
case of a taxpayer to which paragraph (1) applied
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and which was not a large bank (as defined in sec-
tion 585(c)(2) of such Code) for its first taxable
year beginning after December 31, 1995:
(A) IN GENERAL.—For purposes of deter-
mining the net amount of adjustments referred
to in section 585(c)(3)(A)(iii) of such Code,
there shall be taken into account only the ex-
cess of the reserve for bad debts as of the close
of the last taxable year before the disqualifica-
tion year over the balance taken into account by
such taxpayer under paragraph (2)(A)(ii) of
this subsection.
(B) TREATMENT
UNDER
ELECTIVE
CUT-
OFF METHOD.—For purposes of applying sec-
tion 585(c)(4) of such Code—
(i) the balance of the reserve taken
into account under subparagraph (B)
thereof shall be reduced by the balance
taken into account by such taxpayer under
paragraph (2)(A)(ii) of this subsection,
and
(ii) no amount shall be includible in
gross income by reason of such reduction.
(6) CONTINUED
APPLICATION
OF
SECTION
593(e).—Notwithstanding the amendments made by
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(B) for purposes of paragraph (3), the
credit union shall not be treated as if it were
a bank.
(9) REGULATIONS.—The Secretary of the
Treasury or his delegate shall prescribe such regula-
tions as may be necessary to carry out this sub-
section, including regulations providing for the appli-
cation of paragraphs (4) and (6) in the case of ac-
quisitions, mergers, spin-offs, and other reorganiza-
tions.
SEC. ll402. DEPRECIATION UNDER INCOME FORECAST
METHOD.
(a) GENERAL RULE.—Section 167 (relating to depre-
ciation) is amended by redesignating subsection (g) as
subsection (h) and by inserting after subsection (f) the
following new subsection:
‘‘(g) DEPRECIATION
UNDER
INCOME
FORECAST
METHOD.—
‘‘(1) IN GENERAL.—If the depreciation deduc-
tion allowable under this section to any taxpayer
with respect to any property is determined under the
income forecast method or any similar method—
‘‘(A) in applying such method, the income
from the property shall include all income
earned in connection with the property before
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the close of the 10th taxable year following the
taxable year in which the property was placed
in service,
‘‘(B) the adjusted basis of the property
shall only include amounts with respect to
which the requirements of section 461(h) are
satisfied,
‘‘(C) the depreciation deduction under such
method for the 10th taxable year beginning
after the taxable year in which the property was
placed in service shall be equal to the adjusted
basis of such property as of the beginning of
such 10th taxable year, and
‘‘(D) such taxpayer shall pay (or be enti-
tled to receive) interest computed under the
look-back method of paragraph (2) for any re-
computation year.
‘‘(2) LOOK-BACK METHOD.—The interest com-
puted under the look-back method of this paragraph
for any recomputation year shall be determined by—
‘‘(A) first determining the depreciation de-
ductions under this section with respect to such
property which would have been allowable for
prior taxable years if the determination of the
amounts so allowable had been made on the
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basis of the sum of the following (instead of the
estimated income with respect to such prop-
erty)—
‘‘(i) the actual income earned in con-
nection with such property for periods be-
fore the close of the recomputation year,
and
‘‘(ii) an estimate of the future income
to be earned in connection with such prop-
erty for periods after the recomputation
year,
‘‘(B) second, determining (solely for pur-
poses of computing such interest) the overpay-
ment or underpayment of tax for each such
prior taxable year which would result solely
from the application of subparagraph (A), and
‘‘(C) then using the adjusted overpayment
rate 
(as 
defined 
in 
section 
460(b)(7)),
compounded daily, on the overpayment or
underpayment determined under subparagraph
(B).
For purposes of the preceding sentence, any cost in-
curred after the property is placed in service (which
is not treated as a separate property under para-
graph (5)) shall be taken into account by discount-
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ing (using the Federal mid-term rate determined
under section 1274(d) as of the time such cost is in-
curred) such cost to its value as of the date the
property is placed in service. The taxpayer may elect
with respect to any property to have the preceding
sentence not apply to such property.
‘‘(3) EXCEPTION FROM LOOK-BACK METHOD.—
Paragraph (1)(D) shall not apply with respect to
any property which, when placed in service by the
taxpayer, had a basis of $100,000 or less.
‘‘(4) RECOMPUTATION YEAR.—For purposes of
this subsection, except as provided in regulations,
the term ‘recomputation year’ means, with respect to
any property, the 3d and the 10th taxable years be-
ginning after the taxable year in which the property
was placed in service, unless the actual income
earned in connection with the property for the pe-
riod before the close of such 3d or 10th taxable year
is within 10 percent of the income earned in connec-
tion with the property for such period which was
taken into account under paragraph (1)(A).
‘‘(5) SPECIAL RULES.—
‘‘(A) CERTAIN COSTS TREATED AS SEPA-
RATE
PROPERTY.—For purposes of this sub-
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section, the following costs shall be treated as
separate properties:
‘‘(i) Any costs incurred with respect
to any property after the 10th taxable year
beginning after the taxable year in which
the property was placed in service.
‘‘(ii) Any costs incurred after the
property is placed in service and before the
close of such 10th taxable year if such
costs are significant and give rise to a sig-
nificant increase in the income from the
property which was not included in the es-
timated income from the property.
‘‘(B) SYNDICATION INCOME FROM TELE-
VISION SERIES.—In the case of property which
is an episode in a television series, income from
syndicating such series shall not be required to
be taken into account under this subsection be-
fore the earlier of—
‘‘(i) the 4th taxable year beginning
after the date the first episode in such se-
ries is placed in service, or
‘‘(ii) the earliest taxable year in which
the taxpayer has an arrangement relating
to the future syndication of such series.
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‘‘(C) SPECIAL RULES FOR FINANCIAL EX-
PLOITATION OF CHARACTERS, ETC.—For pur-
poses of this subsection, in the case of television
and motion picture films, the income from the
property shall include income from the exploi-
tation of characters, designs, scripts, scores,
and other incidental income associated with
such films, but only to the extent that such in-
come is earned in connection with the ultimate
use of such items by, or the ultimate sale of
merchandise to, persons who are not related
persons (within the meaning of section 267(b))
to the taxpayer.
‘‘(D) COLLECTION
OF
INTEREST.—For
purposes of subtitle F (other than sections
6654 and 6655), any interest required to be
paid by the taxpayer under paragraph (1) for
any recomputation year shall be treated as an
increase in the tax imposed by this chapter for
such year.
‘‘(E) DETERMINATIONS.—For purposes of
paragraph (2), determinations of the amount of
income earned in connection with any property
shall be determined in the same manner as for
purposes of applying the income forecast meth-
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od; except that any income from the disposition
of such property shall be taken into account.
‘‘(F) TREATMENT
OF
PASS-THRU
ENTI-
TIES.—Rules similar to the rules of section
460(b)(4) shall apply for purposes of this sub-
section.’’
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendment made by
subsection (a) shall apply to property placed in serv-
ice after September 13, 1995.
(2) BINDING
CONTRACTS.—The amendment
made by subsection (a) shall not apply to any prop-
erty produced or acquired by the taxpayer pursuant
to a written contract which was binding on Septem-
ber 13, 1995, and at all times thereafter before such
production or acquisition.
SEC. 
ll403. 
REPEAL 
OF 
LOWER-OF-COST-OR-MARKET
METHOD 
OF 
ACCOUNTING 
FOR 
INVEN-
TORIES.
(a) IN GENERAL.—Section 471 (relating to general
rule for inventories) is amended by redesignating sub-
section (b) as subsection (c) and by inserting after sub-
section (a) the following new subsection:
‘‘(b) CERTAIN WRITE-DOWNS NOT PERMITTED; USE
OF MARK-DOWNS REQUIRED UNDER RETAIL METHOD.—
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‘‘(1) IN GENERAL.—A taxpayer—
‘‘(A) may not use the lower-of-cost-or-mar-
ket method of accounting for inventories, and
‘‘(B) may not write-down items by reason
of being unsalable at normal prices or unusable
in the normal way because of damage, imperfec-
tions, shop wear, changes of style, odd or bro-
ken lots, or other similar causes.
Subparagraph (B) shall not apply to a taxpayer
using a mark-to-market method of accounting for
both gains and losses in inventory values.
‘‘(2) MARK-DOWNS
REQUIRED
TO
BE
TAKEN
INTO ACCOUNT UNDER RETAIL METHOD.—The retail
method of accounting for inventories shall be applied
by taking into account mark-downs in determining
the approximate cost of the inventories.
‘‘(3) EXCEPTION
FOR
CERTAIN
SMALL
BUSI-
NESSES.—Paragraph (1) shall not apply to any tax-
payer for the taxable year if the average annual
gross receipts of the taxpayer for the 3 preceding
taxable years do not exceed $5,000,000. For pur-
poses of the preceding sentence, rules similar to the
rules of paragraph (2) and (3) of section 448(c)
shall apply.
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‘‘(4) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out the purposes of this subsection, including
regulations relating to wash-sale-type transactions.’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (iii) of section 312(n)(4)(C) is
amended to read as follows:
‘‘(iii) INVENTORY AMOUNT.—The in-
ventory amount of assets under the first-
in, first-out method authorized by section
471 shall be determined using the method
authorized to be used by the taxpayer
under such section.’’
(2) Subparagraph (C) of section 1363(d)(4) is
amended to read as follows:
‘‘(iii) INVENTORY AMOUNT.—The in-
ventory amount of assets under a method
authorized by section 471 shall be deter-
mined using the method authorized to be
used by the corporation under such sec-
tion.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years beginning
after December 31, 1995.
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(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method accounting for its first taxable
year beginning after December 31, 1995—
(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 ratably over
the 4-taxable year period beginning with the
first taxable year beginning after December 31,
1995.
Subtitle E—Administrative
Provisions
SEC. ll501. REPEAL OF DIESEL FUEL TAX REBATE TO
PURCHASERS OF DIESEL-POWERED AUTO-
MOBILES AND LIGHT TRUCKS.
(a) IN GENERAL.—Section 6427 (relating to fuels
not used for taxable purposes) is amended by striking sub-
section (g).
(b) CONFORMING AMENDMENTS.—
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(1) Paragraph (3) of section 34(a) is amended
to read as follows:
‘‘(3) under section 6427 with respect to fuels
used for nontaxable purposes or resold during the
taxable year (determined without regard to section
6427(k)).’’.
(2) Paragraphs (1) and (2)(A) of section
6427(i) are each amended—
(A) by striking ‘‘(g),’’, and
(B) by striking ‘‘(or a qualified diesel pow-
ered highway vehicle purchased)’’ each place it
appears.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to vehicles purchased after Decem-
ber 31, 1995.
SEC. ll502. INCREASED INFORMATION REPORTING PEN-
ALTIES.
(a) IN GENERAL.—Section 6721(a) (relating to impo-
sition of penalty) is amended by adding at the end the
following new paragraph:
‘‘(3) INCREASED
PENALTY
IF
LESS
THAN
PERCENT OF AGGREGATE AMOUNT OF ITEMS RE-
PORTED CORRECTLY.—
‘‘(A) IN GENERAL.—Subject to the overall
limitation of paragraph (1), the amount of the
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penalty under paragraph (1) for any failure
with respect to any information return shall be
equal to the greater of $50 or 5 percent of the
amount required to be reported correctly but
not so reported.
‘‘(B) EXCEPTION
WHERE
SUBSTANTIAL
COMPLIANCE.—Subparagraph (A) shall not
apply to failures with respect to information re-
turns required to be filed by a person during
any calendar year if the aggregate amount
which is timely and correctly reported on such
returns filed by the person for the calendar year
is at least 97 percent of the aggregate amount
which is required to be reported on such re-
turns by the person for the calendar year.’’
(b) CONFORMING AMENDMENT.—Paragraph (1) of
section 6721(a) is amended by striking ‘‘In’’ and inserting
‘‘Except as provided in paragraph (3), in’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns the due date for which
(without regard to extensions) is more than 90 days after
the date of the enactment of this Act.
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Subtitle F—Casualty and
Involuntary Conversion Provisions
SEC. ll601. BASIS ADJUSTMENT TO PROPERTY HELD BY
CORPORATION WHERE STOCK IN CORPORA-
TION IS REPLACEMENT PROPERTY UNDER
INVOLUNTARY CONVERSION RULES.
(a) IN GENERAL.—Subsection (b) of section 1033 is
amended to read as follows:
‘‘(b) BASIS OF PROPERTY ACQUIRED THROUGH IN-
VOLUNTARY CONVERSION.—
‘‘(1) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(1).—If the property was acquired as the result
of a compulsory or involuntary conversion described
in subsection (a)(1), the basis shall be the same as
in the case of the property so converted—
‘‘(A) decreased in the amount of any
money received by the taxpayer which was not
expended in accordance with the provisions of
law (applicable to the year in which such con-
version was made) determining the taxable sta-
tus of the gain or loss upon such conversion,
and
‘‘(B) increased in the amount of gain or
decreased in the amount of loss to the taxpayer
recognized upon such conversion under the law
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applicable to the year in which such conversion
was made.
‘‘(2) CONVERSIONS DESCRIBED IN SUBSECTION
(a)(2).—In the case of property purchased by the
taxpayer in a transaction described in subsection
(a)(2) which resulted in the nonrecognition of any
part of the gain realized as the result of a compul-
sory or involuntary conversion, the basis shall be the
cost of such property decreased in the amount of the
gain not so recognized; and if the property pur-
chased consists of more than 1 piece of property, the
basis determined under this sentence shall be allo-
cated to the purchased properties in proportion to
their respective costs.
‘‘(3) PROPERTY HELD BY CORPORATION THE
STOCK OF WHICH IS REPLACEMENT PROPERTY.—
‘‘(A) IN GENERAL.—If the basis of stock
in a corporation is decreased under paragraph
(2), an amount equal to such decrease shall also
be applied to reduce the basis of property held
by the corporation at the time the taxpayer ac-
quired 
control 
(as 
defined 
in 
subsection
(a)(2)(E)) of such corporation.
‘‘(B) 
LIMITATION.—Subparagraph 
(A)
shall not apply to the extent that it would (but
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for this subparagraph) require a reduction in
the aggregate adjusted bases of the property of
the corporation below the taxpayer’s adjusted
basis of the stock in the corporation (deter-
mined immediately after such basis is decreased
under paragraph (2)).
‘‘(C) ALLOCATION OF BASIS REDUCTION.—
The decrease required under subparagraph (A)
shall be allocated—
‘‘(i) first to property which is similar
or related in service or use to the converted
property,
‘‘(ii) second to depreciable property
(as defined in section 1017(b)(3)(B)) not
described in clause (i), and
‘‘(iii) then to other property.
‘‘(D) SPECIAL RULES.—
‘‘(i) REDUCTION NOT TO EXCEED AD-
JUSTED BASIS OF PROPERTY.—No reduc-
tion in the basis of any property under this
paragraph shall exceed the adjusted basis
of such property (determined without re-
gard to such reduction).
‘‘(ii) ALLOCATION
OF
REDUCTION
AMONG
PROPERTIES.—If more than 1
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property is described in a clause of sub-
paragraph (C), the reduction under this
paragraph shall be allocated among such
property in proportion to the adjusted
bases of such property (as so deter-
mined).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to involuntary conversions occur-
ring after September 13, 1995.
Subtitle G—Excise Tax on Amounts
of Private Excess Benefits
SEC. ll701. EXCISE TAXES FOR FAILURE BY CERTAIN
CHARITABLE ORGANIZATIONS TO MEET CER-
TAIN QUALIFICATION REQUIREMENTS.
(a) IN GENERAL.—Chapter 42 (relating to private
foundations and certain other tax-exempt organizations)
is amended by redesignating subchapter D as subchapter
E and by inserting after subchapter C the following new
subchapter:
‘‘Subchapter D—Failure By Certain
Charitable 
Organizations 
To
Meet Certain Qualification Re-
quirements
‘‘Sec. 4958. Taxes on excess benefit transactions.
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‘‘SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.
‘‘(a) INITIAL TAXES.—
‘‘(1) ON THE DISQUALIFIED PERSON.—There is
hereby imposed on each excess benefit transaction a
tax equal to 25 percent of the excess benefit. The
tax imposed by this paragraph shall be paid by any
disqualified person referred to in subsection (f)(1)
with respect to such transaction.
‘‘(2) ON THE MANAGEMENT.—In any case in
which a tax is imposed by paragraph (1), there is
hereby imposed on the participation of any organiza-
tion manager in the excess benefit transaction,
knowing that it is such a transaction, a tax equal to
10 percent of the excess benefit, unless such partici-
pation is not willful and is due to reasonable cause.
The tax imposed by this paragraph shall be paid by
any organization manager who participated in the
excess benefit transaction.
‘‘(b) ADDITIONAL TAX ON THE DISQUALIFIED PER-
SON.—In any case in which an initial tax is imposed by
subsection (a)(1) on an excess benefit transaction and the
excess benefit involved in such transaction is not corrected
within the taxable period, there is hereby imposed a tax
equal to 200 percent of the excess benefit involved. The
tax imposed by this subsection shall be paid by any dis-
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qualified person referred to in subsection (f)(1) with re-
spect to such transaction.
‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BEN-
EFIT.—For purposes of this section—
‘‘(1) EXCESS BENEFIT TRANSACTION.—
‘‘(A) IN GENERAL.—The term ‘excess ben-
efit transaction’ means any transaction in
which an economic benefit is provided by an ap-
plicable tax-exempt organization directly or in-
directly to or for the use of any disqualified
person if the value of the economic benefit pro-
vided exceeds the value of the consideration (in-
cluding the performance of services) received
for providing such benefit. For purposes of the
preceding sentence, an economic benefit shall
not be treated as consideration for the perform-
ance of services unless such organization clearly
indicated its intent to so treat such benefit.
‘‘(B) EXCESS BENEFIT.—The term ‘excess
benefit’ means the excess referred to in sub-
paragraph (A).
‘‘(2) AUTHORITY TO INCLUDE CERTAIN OTHER
PRIVATE
INUREMENT.—To the extent provided in
regulations prescribed by the Secretary, the term
‘excess benefit transaction’ includes any transaction
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in which the amount of any economic benefit pro-
vided to or for the use of a disqualified person is de-
termined in whole or in part by the revenues of 1
or more activities of the organization but only if
such transaction results in inurement not permitted
under paragraph (3) or (4) of section 501(c), as the
case may be. In the case of any such transaction,
the excess benefit shall be the amount of the
inurement not so permitted.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) JOINT AND SEVERAL LIABILITY.—If more
than 1 person is liable for any tax imposed by sub-
section (a) or subsection (b), all such persons shall
be jointly and severally liable for such tax.
‘‘(2) LIMIT FOR MANAGEMENT.—With respect
to any 1 excess benefit transaction, the maximum
amount of the tax imposed by subsection (a)(2) shall
not exceed $10,000.
‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—
For purposes of this subchapter, the term ‘applicable tax-
exempt organization’ means—
‘‘(1) any organization which (without regard to
any excess benefit) would be described in paragraph
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(3) or (4) of section 501(c) and exempt from tax
under section 501(a), and
‘‘(2) any organization which was described in
paragraph (1) at any time during the 10-year period
ending on the date of the transaction.
Such term shall not include a private foundation (as de-
fined in section 509(a)).
‘‘(f) OTHER DEFINITIONS.—For purposes of this sec-
tion—
‘‘(1) DISQUALIFIED PERSON.—The term ‘dis-
qualified person’ means, with respect to any trans-
action—
‘‘(A) any person who was, at any time dur-
ing the 5-year period ending on the date of
such transaction, in a position to exercise sub-
stantial influence over the affairs of the organi-
zation,
‘‘(B) a member of the family of an individ-
ual described in subparagraph (A), and
‘‘(C) a 35-percent controlled entity.
‘‘(2) ORGANIZATION MANAGER.—The term ‘or-
ganization manager’ means, with respect to any ap-
plicable tax-exempt organization, any officer, direc-
tor, or trustee of such organization (or any individ-
ual having powers or responsibilities similar to those
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of officers, directors, or trustees of the organiza-
tion).
‘‘(3) 35-PERCENT CONTROLLED ENTITY.—
‘‘(A) IN GENERAL.—The term ‘35-percent
controlled entity’ means—
‘‘(i) a corporation in which persons
described in subparagraph (A) or (B) of
paragraph (1) own more than 35 percent
of the total combined voting power,
‘‘(ii) a partnership in which such per-
sons own more than 35 percent of the
profits interest, and
‘‘(iii) a trust or estate in which such
persons own more than 35 percent of the
beneficial interest.
‘‘(B) 
CONSTRUCTIVE
OWNERSHIP
RULES.—Rules similar to the rules of para-
graphs (3) and (4) of section 4946(a) shall
apply for purposes of this paragraph.
‘‘(4) FAMILY MEMBERS.—The members of an
individual’s family shall be determined under section
4946(d); except that such members also shall in-
clude the brothers and sisters (whether by the whole
or half blood) of the individual and their spouses.
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‘‘(5) TAXABLE PERIOD.—The term ‘taxable pe-
riod’ means, with respect to any excess benefit
transaction, the period beginning with the date on
which the transaction occurs and ending on the ear-
liest of—
‘‘(A) the date of mailing a notice of defi-
ciency under section 6212 with respect to the
tax imposed by subsection (a)(1), or
‘‘(B) the date on which the tax imposed by
subsection (a)(1) is assessed.
‘‘(6) CORRECTION.—The terms ‘correction’ and
‘correct’ mean, with respect to any excess benefit
transaction, undoing the excess benefit to the extent
possible, and where fully undoing the excess benefit
is not possible, such additional corrective action as
is prescribed by the Secretary by regulations.’’
(b) APPLICATION OF PRIVATE INUREMENT RULE TO
TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SECTION
501(c)(4).—
(1) Paragraph (4) of section 501(c) is amended
by inserting ‘‘(A)’’ after ‘‘(4)’’ and by adding at the
end the following:
‘‘(B) Subparagraph (A) shall not apply to an
entity unless no part of the net earnings of such en-
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tity inures to the benefit of any private shareholder
or individual.’’
(2) In the case of an organization operating on
a cooperative basis which, before the date of the en-
actment of this Act, was determined by the Sec-
retary of the Treasury or his delegate, to be de-
scribed in section 501(c)(4) of the Internal Revenue
Code of 1986 and exempt from tax under section
501(a) of such Code, the allocation or return of net
margins or capital to the members of such organiza-
tion in accordance with its incorporating statute and
bylaws shall not be treated for purposes of such
Code as the inurement of the net earnings of such
organization to the benefit of any private share-
holder or individual. The preceding sentence shall
apply only if such statute and bylaws are substan-
tially as such statute and bylaws were in existence
on the date of the enactment of this Act.
(c) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) Subsection (e) of section 4955 is amend-
ed—
(A) by striking ‘‘SECTION 4945’’ in the
heading and inserting ‘‘SECTIONS 4945 and
4958’’, and
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(B) by inserting before the period ‘‘or an
excess benefit for purposes of section 4958’’.
(2) Subsections (a), (b), and (c) of section 4963
are each amended by inserting ‘‘4958,’’ after
‘‘4955,’’.
(3) Subsection (e) of section 6213 is amended
by inserting ‘‘4958 (relating to private excess bene-
fit),’’ before ‘‘4971’’.
(4) Paragraphs (2) and (3) of section 7422(g)
are each amended by inserting ‘‘4958,’’ after
‘‘4955,’’.
(5) Subsection (b) of section 7454 is amended
by inserting ‘‘or whether an organization manager
(as defined in section 4958(f)(2)) has ‘knowingly’
participated in an excess benefit transaction (as de-
fined in section 4958(c)),’’ after ‘‘section 4912(b),’’.
(6) The table of subchapters for chapter 42 is
amended by striking the last item and inserting the
following:
‘‘Subchapter D. Failure by certain charitable organizations to
meet certain qualification requirements.
‘‘Subchapter E. Abatement of first and second tier taxes in cer-
tain cases.’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (b)) shall apply
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to excess benefit transactions occurring on or after
September 14, 1995.
(2) BINDING
CONTRACTS.—The amendments
referred to in paragraph (1) shall not apply to any
benefit arising from a transaction pursuant to any
written contract which was binding on September
13, 1995, and at all times thereafter before such
transaction occurred.
(3) APPLICATION
OF
PRIVATE
INUREMENT
RULE TO TAX-EXEMPT ORGANIZATIONS DESCRIBED
IN SECTION 501(C)(4).—
(A) IN GENERAL.—The amendment made
by subsection (b) shall apply to inurement oc-
curring on or after September 14, 1995.
(B) BINDING
CONTRACTS.—The amend-
ment made by subsection (b) shall not apply to
any inurement occurring before January 1,
1997, pursuant to a written contract which was
binding on September 13, 1995, and at all
times thereafter before such inurement oc-
curred.
SEC. ll702. REPORTING OF CERTAIN EXCISE TAXES AND
OTHER INFORMATION.
(a) REPORTING BY ORGANIZATIONS DESCRIBED IN
SECTION 501(c)(3).—Subsection (b) of section 6033 (re-
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lating to certain organizations described in section
501(c)(3)) is amended by striking ‘‘and’’ at the end of
paragraph (9), by redesignating paragraph (10) as para-
graph (14), and by inserting after paragraph (9) the fol-
lowing new paragraphs:
‘‘(10) the respective amounts (if any) of the
taxes paid by the organization during the taxable
year under the following provisions:
‘‘(A) section 4911 (relating to tax on ex-
cess expenditures to influence legislation),
‘‘(B) section 4912 (relating to tax on dis-
qualifying lobbying expenditures of certain or-
ganizations), and
‘‘(C) section 4955 (relating to taxes on po-
litical expenditures of section 501(c)(3) organi-
zations),
‘‘(11) the respective amounts (if any) of the
taxes paid by the organization, or any disqualified
person with respect to such organization, during the
taxable year under section 4958 (relating to taxes on
private excess benefit from certain charitable organi-
zations),
‘‘(12) such information as the Secretary may
require with respect to any excess benefit trans-
action (as defined in section 4958),
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‘‘(13) the name of each disqualified person (as
defined in section 4958(f)(1)(A)) with respect to
such organization and such other information with
respect to such disqualified persons as the Secretary
may prescribe, and’’.
(b) 
ORGANIZATIONS
DESCRIBED
IN
SECTION
501(c)(4).—Section 6033 is amended by redesignating
subsection (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection:
‘‘(f) CERTAIN ORGANIZATIONS DESCRIBED IN SEC-
TION 501(c)(4).—Every organization described in section
501(c)(4) which is subject to the requirements of sub-
section (a) shall include on the return required under sub-
section (a) the information referred to in paragraphs (11),
(12) and (13) of subsection (b) with respect to such orga-
nization.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns for taxable years begin-
ning after the date of the enactment of this Act.
SEC. ll703. INCREASE IN PENALTIES ON EXEMPT ORGANI-
ZATIONS FOR FAILURE TO FILE COMPLETE
AND TIMELY ANNUAL RETURNS.
(a) IN GENERAL.—Subparagraph (A) of section
6652(c)(1) (relating to annual returns under section
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6033) is amended by striking ‘‘$10’’ and inserting ‘‘$20’’
and by striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.
(b) LARGER PENALTY ON ORGANIZATIONS HAVING
GROSS RECEIPTS IN EXCESS OF $1,000,000.—Subpara-
graph (A) of section 6652(c)(1) is amended by adding at
the end the following new sentence: ‘‘In the case of an
organization having gross receipts exceeding $1,000,000
for any year, with respect to the return required under
section 6033 for such year, the first sentence of this sub-
paragraph shall be applied by substituting ‘$100’ for ‘$20’
and, in lieu of applying the second sentence of this sub-
paragraph, the maximum penalty under this subparagraph
shall not exceed $50,000.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns for taxable years ending
on or after December 31, 1995.
Subtitle H—Extension of Certain
Taxes
SEC. ll801. EXTENSION OF HAZARDOUS SUBSTANCE
SUPERFUND TAXES.
(a) EXTENSION OF TAXES.—
(1) ENVIRONMENTAL TAX.—Section 59A(e) is
amended to read as follows:
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‘‘(e) APPLICATION OF TAX.—The tax imposed by this
section shall apply to taxable years beginning after De-
cember 31, 1986, and before January 1, 1997.’’.
(2) EXCISE TAXES.—Section 4611(e) is amend-
ed to read as follows:
‘‘(e) APPLICATION
OF
HAZARDOUS
SUBSTANCE
SUPERFUND FINANCING RATE.—The Hazardous Sub-
stance Superfund financing rate under this section shall
apply after December 31, 1986, and before October 1,
1996.’’.
(b) TERMINATION ON DEPOSITS OF TAXES INTO
HAZARDOUS SUBSTANCE SUPERFUND.—Paragraph (1) of
section 9507(b) is amended by inserting ‘‘before August
1, 1996’’ after ‘‘received’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. ll802. EXTENSION OF OIL SPILL LIABILITY TAX.
(a) IN GENERAL.—Section 4611(f)(1) (relating to
application of oil spill liability trust fund financing rate)
is amended by striking ‘‘after December 31, 1989, and
before January 1, 1995’’ and inserting ‘‘after December
31, 1995, and before October 1, 2002’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on January 1, 1996.
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SEC. ll803. EXTENSION OF FEDERAL UNEMPLOYMENT
TAX.
Section 3301 (relating to rate of Federal unemploy-
ment tax) is amended—
(1) by striking ‘‘1998’’ in paragraph (1) and in-
serting ‘‘2002’’, and
(2) by striking ‘‘1999’’ in paragraph (2) and in-
serting ‘‘2003’’.
Subtitle I—Provisions Relating To
Individuals
SEC. ll851. NO ROLLOVER OR EXCLUSION OF GAIN ON
SALE OF PRINCIPAL RESIDENCE WHICH IS
ATTRIBUTABLE TO DEPRECIATION DEDUC-
TIONS.
(a) IN GENERAL.—Subsection (d) of section 1034
(relating to limitations) is amended by adding at the end
the following new paragraph:
‘‘(3) RECOGNITION OF GAIN ATTRIBUTABLE TO
DEPRECIATION.—Subsection (a) shall not apply to
so much of the gain from the sale of any residence
as does not exceed the portion of the depreciation
adjustments (as defined in section 1250(b)(3)) at-
tributable to periods after December 31, 1995, in re-
spect of such residence.’’.
(b) COMPARABLE TREATMENT UNDER 1-TIME EX-
CLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE.—
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Subsection (d) of section 121 is amended by adding at
the end the following new paragraph:
‘‘(10) RECOGNITION
OF
GAIN
ATTRIBUTABLE
TO DEPRECIATION.—
‘‘(A) IN
GENERAL.—Subsection (a) shall
not apply to so much of the gain from the sale
of any property as does not exceed the portion
of the depreciation adjustments (as defined in
section 1250(b)(3)) attributable to periods after
December 31, 1995, in respect of such prop-
erty.
‘‘(B) COORDINATION
WITH
PARAGRAPH
(5).—If this section does not apply to gain at-
tributable to a portion of a residence by reason
of paragraph (5), subparagraph (A) shall not
apply to depreciation adjustments attributable
to such portion.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 1995.
SEC. ll852. EXTENSION OF WITHHOLDING TO CERTAIN
GAMBLING WINNINGS.
(a) REPEAL
OF
EXEMPTION
FOR
BINGO
AND
KENO.—Paragraph (5) of section 3402(q) is amended to
read as follows:
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‘‘(5) EXEMPTION FOR SLOT MACHINES.—The
tax imposed under paragraph (1) shall not apply to
winnings from a slot machine.’’.
(b) THRESHOLD AMOUNT.—Paragraph (3) of section
3402(q) is amended—
(1) by striking ‘‘(B) and (C)’’ in subparagraph
(A) and inserting ‘‘(B), (C), and (D)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) BINGO
AND
KENO.—Proceeds of
more than $5,000 from a wager placed in a
bingo or keno game.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1996.
SEC. ll853. REPEAL OF SPECIAL RULE FOR RENTAL USE
OF VACATION HOMES, ETC., FOR LESS THAN
15 DAYS.
(a) IN GENERAL.—Section 280A (relating to dis-
allowance of certain expenses in connection with business
use of home, rental of vacation homes, etc.) is amended
by striking subsection (g).
(b) NO BASIS REDUCTION UNLESS DEPRECIATION
CLAIMED.—Section 1016 is amended by redesignating
subsection (e) as subsection (f) and by inserting after sub-
section (d) the following new subsection:
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‘‘(e) SPECIAL RULE WHERE RENTAL USE OF VACA-
TION HOME, ETC., FOR LESS THAN 15 DAYS.—If a dwell-
ing unit is used during the taxable year by the taxpayer
as a residence and such dwelling unit is actually rented
for less than 15 days during the taxable year, the reduc-
tion under subsection (a)(2) by reason of such rental use
in any taxable year beginning after December 31, 1995,
shall not exceed the depreciation deduction allowed for
such rental use.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
Subtitle J—Reform of Earned
Income Credit
SEC. ll901. EARNED INCOME CREDIT DENIED TO INDIVID-
UALS NOT AUTHORIZED TO BE EMPLOYED IN
THE UNITED STATES.
(a) IN GENERAL.—Section 32(c)(1) (relating to indi-
viduals eligible to claim the earned income credit) is
amended by adding at the end the following new subpara-
graph:
‘‘(F) IDENTIFICATION NUMBER REQUIRE-
MENT.—The term ‘eligible individual’ does not
include any individual who does not include on
the return of tax for the taxable year—
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‘‘(i) such individual’s taxpayer identi-
fication number, and
‘‘(ii) if the individual is married (with-
in the meaning of section 7703), the tax-
payer identification number of such indi-
vidual’s spouse.’’.
(b) SPECIAL IDENTIFICATION NUMBER.—Section 32
is amended by adding at the end the following new sub-
section:
‘‘(l) IDENTIFICATION NUMBERS.—Solely for pur-
poses of subsections (c)(1)(F) and (c)(3)(D), a taxpayer
identification number means a social security number is-
sued to an individual by the Social Security Administra-
tion (other than a social security number issued pursuant
to clause (II) (or that portion of clause (III) that relates
to clause (II)) of section 205(c)(2)(B)(i) of the Social Se-
curity Act).’’.
(c) EXTENSION OF PROCEDURES APPLICABLE TO
MATHEMATICAL
OR
CLERICAL
ERRORS.—Section
6213(g)(2) (relating to the definition of mathematical or
clerical errors) is amended by striking ‘‘and’’ at the end
of subparagraph (D), by striking the period at the end
of subparagraph (E) and inserting a comma, and by in-
serting after subparagraph (E) the following new subpara-
graphs:
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‘‘(F) an omission of a correct taxpayer
identification number required under section 32
(relating to the earned income credit) to be in-
cluded on a return, and
‘‘(G) an entry on a return claiming the
credit under section 32 with respect to net
earnings from self-employment described in sec-
tion 32(c)(2)(A) to the extent the tax imposed
by section 1401 (relating to self-employment
tax) on such net earnings has not been paid.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. ll902. RULES RELATING TO DENIAL OF EARNED IN-
COME CREDIT ON BASIS OF DISQUALIFIED
INCOME.
(a) DEFINITION OF DISQUALIFIED INCOME.—Para-
graph (2) of section 32(i) (defining disqualified income)
is amended by striking ‘‘and’’ at the end of subparagraph
(B), by striking the period at the end of subparagraph
(C) and inserting ‘‘, and’’, and by adding at the end the
following new subparagraph:
‘‘(D) the net capital gain (as defined in
section 1222) of the taxpayer for such taxable
year.’’
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(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1995.
TITLE 9—MIDDLE CLASS BILL OF
RIGHTS
SEC. ll00. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Middle-Class Bill of Rights Tax Relief Act of 1996’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
TITLE ll—MIDDLE CLASS BILL OF RIGHTS
Sec. ll00. Short title; amendment of 1986 Code.
Subtitle A—Middle Class Tax Relief
Sec. ll01. Credit for families with young children.
Sec. ll02. Deduction for higher education expenses.
Subtitle B—Provisions Relating To Individual Retirement Plans
PART I—RETIREMENT SAVINGS INCENTIVES
SUBPART A—IRA DEDUCTION
Sec. ll11. Increase in income limitations.
Sec. ll12. Inflation adjustment for deductible amount and income limita-
tions.
Sec. ll13. Coordination of IRA deduction limit with elective deferral limit.
SUBPART B—NONDEDUCTIBLE TAX-FREE IRA’S
Sec. ll21. Establishment of nondeductible tax-free individual retirement ac-
counts.
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PART II—PENALTY-FREE DISTRIBUTIONS
Sec. ll21. Distributions from certain plans may be used without penalty to
purchase first homes, to pay higher education or financially
devastating medical expenses, or by the unemployed.
Sec. ll22. Contributions must be held at least 5 years in certain cases.
Subtitle C—Increase in Deduction for Health Care Costs of Self-Employed
Individuals
Sec. ll31. Increase in self-employed individuals’ deduction for health insur-
ance costs.
Subtitle A—Middle Class Tax Relief
SEC. ll01. CREDIT FOR FAMILIES WITH YOUNG CHIL-
DREN.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 22 the fol-
lowing new section:
‘‘SEC. 23. FAMILIES WITH YOUNG CHILDREN.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—In the case of an individ-
ual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an
amount equal to $300 multiplied by the number of
eligible children of the taxpayer for the taxable year.
‘‘(2) INCREASE IN CREDIT.—In the case of tax-
able years beginning after December 31, 1998, para-
graph (1) shall be applied by substituting ‘$500’ for
‘$300’.
‘‘(b) LIMITATIONS.—
‘‘(1) PHASE-OUT OF CREDIT.—
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‘‘(A) IN
GENERAL.—The amount of the
credit allowed under subsection (a) shall be re-
duced (but not below zero) by the amount de-
termined under subparagraph (B).
‘‘(B) 
AMOUNT
OF
REDUCTION.—The
amount determined under this subparagraph
equals the amount which bears the same ratio
to the credit (determined without regard to this
subsection) as—
‘‘(i) the excess of—
‘‘(I) 
the 
taxpayer’s 
adjusted
gross income for such taxable year,
over
‘‘(II) $60,000, bears to
‘‘(ii) $15,000.
Any amount determined under this subpara-
graph which is not a multiple of $10 shall be
rounded to the next lowest $10.
‘‘(C) ADJUSTED GROSS INCOME.—For pur-
poses of this paragraph, adjusted gross income
of any taxpayer shall be increased by any
amount excluded from gross income under sec-
tion 911, 931, or 933.
‘‘(2) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed by subsection (a) for the
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taxable year (after the application of paragraph (1))
shall not exceed the excess (if any) of—
‘‘(A) the taxpayer’s regular tax liability for
the taxable year reduced by the credits allow-
able against such tax under this subpart (other
than this section) determined without regard to
section 26, over
‘‘(B) the sum of—
‘‘(i) the taxpayer’s tentative minimum
tax for such taxable year, plus
‘‘(ii) the credit allowed for the taxable
year under section 32.
‘‘(c) ELIGIBLE CHILD.—For purposes of this section,
the term ‘eligible child’ means any child (as defined in sec-
tion 151(c)(3)) of the taxpayer—
‘‘(1) who has not attained age 13 as of the
close of the calendar year in which the taxable year
of the taxpayer begins,
‘‘(2) who is a dependent of the taxpayer with
respect to whom the taxpayer is allowed a deduction
under section 151 for such taxable year, and
‘‘(3) whose TIN is included on the taxpayer’s
return for such taxable year.
‘‘(d) INFLATION ADJUSTMENTS.—In the case of a
taxable year beginning in a calendar year after 1999—
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‘‘(1) IN
GENERAL.—The $500 and $60,000
amounts contained in subsections (a)(2) and (b)(2)
shall each be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 1998’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
‘‘(2) INCREASE IN PHASEOUT RANGE.—If the
amount applicable under subsection (a) for any tax-
able year exceeds $500, subsection (b)(2)(B) shall be
applied by substituting an amount equal to 30 times
such applicable amount for ‘$15,000’.
‘‘(3) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $100, such
amount shall be rounded to the next lowest multiple
of $100.
‘‘(e) SPECIAL RULES.—
‘‘(1) AMOUNT OF CREDIT MAY BE DETERMINED
UNDER TABLES.—The amount of the credit allowed
by this section may be determined under tables pre-
scribed by the Secretary.
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‘‘(2) CERTAIN
OTHER
RULES
APPLY.—Rules
similar to the rules of subsections (c)(1)(E) and (F),
(d), and (e) of section 32 shall apply for purposes
of this section.
‘‘(f) TERMINATION.—This section shall not apply to
taxable years beginning after December 31, 2000.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
22 the following new item:
‘‘Sec. 23. Families with young children.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1995.
SEC. ll02. DEDUCTION FOR HIGHER EDUCATION EX-
PENSES.
(a) DEDUCTION ALLOWED.— Part VII of subchapter
B of chapter 1 (relating to additional itemized deductions
for individuals) is amended by redesignating section 220
as section 221 and by inserting after section 219 the fol-
lowing new section:
‘‘SEC. 220. HIGHER EDUCATION TUITION AND FEES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction the