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‘‘(v) SMALL EMPLOYER.—For purposes of this part,
the term ‘small employer’ means an employer (including
a professional service organization) that, on the 1st day
of the plan year, has 100 or fewer employees.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsections (b) and (c) of section 414
are each amended by inserting ‘‘subsection (v)
and’’ after ‘‘For purposes of’’.
(B) Paragraph (3) of section 414(n) is
amended by striking ‘‘and’’ at the end of sub-
paragraph (B), by striking the period at the
end of subparagraph (C) and inserting ‘‘, and’’,
and by adding at the end the following new sub-
paragraph:
‘‘(D) subsection (v).’’.
(c) DEDUCTION
FOR
CONTRIBUTIONS
OF
EM-
PLOYER.—Clause (i) of section 404(a)(3)(A) is amended
by striking ‘‘or’’ at the end of subclause (I), by striking
the period at the end of subclause (II) and inserting ‘‘,
or’’, and by adding at the end the following new subclause:
‘‘(III) the amount such employer is al-
lowed to contribute to such trust under
section 401(o) for such year, but not more
than 25 percent of aggregate compensa-
tion.’’.
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(d) SINGLE ANNUAL ENTRY DATE.—
(1) DEFINITION OF YEAR OF SERVICE.—Sub-
paragraph (A) of section 410(a)(3) of such Code (re-
lating to general rule for definition of year of serv-
ice) is amended by adding at the end the following:
‘‘In the case of service for an employer who has in
effect a qualified small employer plan under section
401(o), computation of any 12-month period shall be
made with reference to the first day of the calendar
year in which employment of the employee com-
menced.’’.
(2) TIME OF PARTICIPATION.—Paragraph (4)
of section 410(a) (relating to time of participation)
is amended by adding at the end the following: ‘‘In
the case of a qualified small employer plan under
section 401(o), the preceding sentence shall be ap-
plied without regard to subparagraph (B).’’.
(e) COMPENSATION.—Subparagraph (A) of section
404(a)(3) (relating to stock bonus and profit-sharing
trusts) is amended by redesignating clause (v) as clause
(vi) and by inserting after clause (iv) the following new
clause:
‘‘(v) COMPENSATION
DEFINED.—For
purposes of this paragraph, the term ‘com-
pensation’ means a participant’s com-
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pensation 
(as 
defined 
by 
section
415(c)(3))’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 1998.
SEC. 3. CREDIT FOR EMPLOYER EXPENSES IN ESTABLISH-
ING QUALIFIED SMALL EMPLOYER RETIRE-
MENT PLANS.
(a) GENERAL RULE.—Subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end
the following new section:
‘‘SEC. 45D. EXPENSES IN ESTABLISHING QUALIFIED SMALL
EMPLOYER RETIREMENT PLANS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the qualified small employer retirement plan credit deter-
mined under this section for the taxable year is an amount
equal to 50 percent of the qualified retirement plan ex-
penses paid or incurred in the taxable year by an eligible
small employer.
‘‘(b) LIMITATION.—The credit allowed under sub-
section (a) shall not exceed—
‘‘(1) $2,000 for the taxable year in which the
qualified small employer retirement plan is adopted,
and
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‘‘(2) $1,000 for each of the 4 years following
the year in which such plan was adopted and zero
thereafter.
‘‘(c) DEFINITIONS.—For purposes of subsection
(a)—
‘‘(1) 
QUALIFIED
RETIREMENT
PLAN
EX-
PENSE.—The term ‘qualified retirement plan ex-
pense’ means an expense—
‘‘(A) for establishing, maintaining, and ad-
ministering a qualified small employer retire-
ment plan, and
‘‘(B) for educating employees with respect
to such plan.
‘‘(2) ELIGIBLE SMALL EMPLOYER.—The term
‘eligible small employer’ means a small employer (as
defined in section 414(v)) who establishes a qualified
plan on or after January 1, 1998, and on or before
December 31, 2000.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 is amended by
striking ‘‘plus’’ at the end of paragraph (11), by striking
the period at the end of paragraph (12) and inserting ‘‘,
plus’’, and by adding at the end thereof the following new
paragraph:
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‘‘(13) the qualified small employer retirement
plan credit determined under section 45D(a).’’.
(c) CREDIT ALLOWED AGAINST REGULAR AND MINI-
MUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
(relating to limitation based on amount of tax) is
amended by redesignating paragraph (3) as para-
graph (4) and by inserting after paragraph (2) the
following new paragraph:
‘‘(3) SPECIAL
RULES
FOR
QUALIFIED
SMALL
EMPLOYER RETIREMENT PLAN CREDIT.—
‘‘(A) IN
GENERAL.—In the case of the
qualified 
small 
employer 
retirement 
plan
credit—
‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) subparagraph (A) thereof
shall not apply, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the
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taxable year (other than the qualified
small employer retirement plan cred-
it).
‘‘(B) QUALIFIED
SMALL
EMPLOYER
RE-
TIREMENT PLAN CREDIT.—For purposes of this
subsection, the term ‘qualified small employer
retirement plan credit’ means the credit allow-
able under subsection (a) by reason of section
45D(a).’’.
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) is amended by inserting
‘‘or the qualified small employer retirement plan
credit’’ after ‘‘employment credit’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 is amended by adding at the end thereof the
following new paragraph:
‘‘(7) NO CARRYBACK OF QUALIFIED SMALL EM-
PLOYER RETIREMENT PLAN CREDIT BEFORE EFFEC-
TIVE
DATE.—No portion of the unused business
credit for any taxable year which is attributable to
the credit determined under section 45D may be
carried back to any taxable year ending before the
date of the enactment of section 45D.’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Subsection (c) of section 196 is amended by
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ment plan that meets the requirements of section 401(o)
of the Internal Revenue Code of 1986.
(b) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
OWNERS AND THEIR SPOUSES.—
(1) IN GENERAL.—The Secretary of the Treas-
ury shall modify the requirements for filing annual
returns with respect to one-participant retirement
plans to ensure that such plans with assets of
$500,000 or less as of the close of the plan year
need not file a return for that year.
ONE-PARTICIPANT
RETIREMENT
PLAN
DE-
FINED.—For purposes of this subsection, the term
‘‘one-participant retirement plan’’ means a retire-
ment plan that—
(A) on the first day of the plan year—
(i) covered only the employer (and the
employer’s spouse) and the employer
owned the entire business (whether or not
incorporated), or
(ii) covered only one or more partners
(and their spouses) in a business partner-
ship (including partners in an S or C cor-
poration),
(B) meets the minimum coverage require-
ments of section 410(b) of the Internal Revenue
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Code of 1986 without being combined with any
other plan of the business that covers the em-
ployees of the business,
(C) does not provide benefits to anyone ex-
cept the employer (and the employer’s spouse)
or the partners (and their spouses),
(D) does not cover a business that is a
member of an affiliated service group, a con-
trolled group of corporations, or a group of
businesses under common control, and
(E) does not cover a business that leases
employees.
(3) OTHER DEFINITIONS.—Terms used in para-
graph (2) which are also used in section 414 of the
Internal Revenue Code of 1986 shall have the re-
spective meanings given such terms by such section.
(c) SIMPLIFIED ANNUAL FILING REQUIREMENT FOR
PLANS WITH FEWER THAN 25 EMPLOYEES.—In the case
of a retirement plan which covers less than 25 employees
on the 1st day of the plan year and meets the require-
ments described in subparagraphs (B), (D), and (E) of
subsection (b)(2), the Secretary of the Treasury shall pro-
vide for the filing of a simplified annual return that is
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substantially similar to the annual return required to be
filed by a one-participant retirement plan.
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