319
‘‘(3) INFORMATION INCLUDED WITH NOTICE.—
The notice required under paragraph (1) shall include
in simple and nontechnical terms—
‘‘(A) the amount of unpaid tax,
‘‘(B) the right of the person to request a
hearing during the applicable period under
paragraph (2), and
‘‘(C) the proposed action by the Secretary
and the rights of the person with respect to such
action, including a brief statement which sets
forth—
‘‘(i) the provisions of this title relating
to levy and sale of property,
‘‘(ii) the procedures applicable to the
levy and sale of property under this title,
‘‘(iii) the administrative appeals avail-
able to the taxpayer with respect to such
levy and sale and the procedures relating to
such appeals,
‘‘(iv) the alternatives available to tax-
payers which could prevent levy on the
property (including installment agreements
under section 6159), and
320
‘‘(v) the provisions of this title and
procedures relating to redemption of prop-
erty and release of liens on property.
‘‘(b) RIGHT TO FAIR HEARING.—
‘‘(1) IN GENERAL.—If the person requests a hear-
ing under subsection (a)(3)(B), such hearing shall be
held by the Internal Revenue Service Office of Ap-
peals.
‘‘(2) IMPARTIAL OFFICER.—The hearing under
this subsection shall be conducted by an officer or em-
ployee who has had no prior involvement with respect
to the unpaid tax specified in subsection (a)(3)(A) be-
fore the first hearing under this section or section
6320. A taxpayer may waive the requirement of this
paragraph.
‘‘(c) MATTERS CONSIDERED AT HEARING.—In the case
of any hearing conducted under this section—
‘‘(1) REQUIREMENT
OF
INVESTIGATION.—The
Secretary shall verify at the hearing that the require-
ments of any applicable law or administrative proce-
dure have been met.
‘‘(2) ISSUES
AT
HEARING.—The person may
raise at the hearing any relevant issue relating to the
unpaid tax or the proposed levy, including—
321
‘‘(A) challenges to the underlying tax liabil-
ity as to existence or amount,
‘‘(B) appropriate spousal defenses,
‘‘(C) challenges to the appropriateness of
collection actions, and
‘‘(D) offers of collection alternatives, which
may include the posting of a bond, the substi-
tution of other assets, an installment agreement,
or an offer-in-compromise.
‘‘(3) BASIS FOR THE DETERMINATION.—The de-
termination by an appeals officer under this sub-
section shall take into consideration—
‘‘(A) the verification presented under para-
graph (1),
‘‘(B) the issues raised under paragraph (2),
and
‘‘(C) whether the proposed collection action
balances the need for the efficient collection of
taxes with the legitimate concern of the person
that the collection action be no more intrusive
than necessary.
‘‘(4) CERTAIN
ISSUES
PRECLUDED.—An issue
may not be raised at the hearing if—
‘‘(A) the issue was raised at a previous
hearing under this section or section 6320 or in
322
any other previous administrative or judicial
proceeding, and
‘‘(B) the person seeking to raise the issue
participated meaningfully in such hearing or
proceeding.
This paragraph shall not apply to any issue with re-
spect to which subsection (d)(2)(B) applies.
‘‘(d) PROCEEDING AFTER HEARING.—
‘‘(1) JUDICIAL
REVIEW
OF
DETERMINATION.—
The person may appeal a determination under this
subsection to the Tax Court within 30 days of the
date of such determination.
‘‘(2) JURISDICTION RETAINED AT IRS OFFICE OF
APPEALS.—The Internal Revenue Service Office of
Appeals shall retain jurisdiction with respect to any
determination made under this section, including sub-
sequent hearings requested by the person who re-
quested the original hearing on issues regarding—
‘‘(A) collection actions taken or proposed
with respect to such determination, and
‘‘(B) after the person has exhausted all ad-
ministrative remedies, a change in circumstances
with respect to such person which affects such de-
termination.
323
‘‘(e) SUSPENSION OF COLLECTIONS AND STATUTE OF
LIMITATIONS.—If a hearing is requested under subsection
(a)(3)(B), the levy actions which are the subject of the re-
quested hearing and the running of any period of limita-
tions under section 6502 (relating to collection after assess-
ment), section 6531 (relating to criminal prosecutions), or
section 6532 (relating to other suits) shall be suspended for
the period during which such hearing, and appeals therein,
are pending. In no event shall any such period expire before
the 90th day after the day on which there is a final deter-
mination in such hearing.
‘‘(f) JEOPARDY COLLECTION.—If the Secretary has
made a finding under the last sentence of section 6331(a)
that the collection of tax is in jeopardy, this section shall
not apply, except that the taxpayer shall be given the oppor-
tunity for the hearing described in this section within a
reasonable period of time after the levy.
‘‘PART II—LEVY’’.
(c) REVIEW BY SPECIAL TRIAL JUDGES ALLOWED.—
(1) IN GENERAL.—Section 7443(b) (relating to
proceedings which may be assigned to special trial
judges) is amended by striking ‘‘and’’ at the end of
paragraph (3), by redesignating paragraph (4) as
paragraph (5), and by inserting after paragraph (3)
the following:
324
‘‘(4) any proceeding under section 6320 or 6330,
and’’.
(2) AUTHORITY TO MAKE DECISIONS.—Section
7443(c) (relating to authority to make court deci-
sions) is amended by striking ‘‘or (3)’’ and inserting
‘‘(3), or (4)’’.
(d) CONFORMING
AMENDMENT.—Section 6331 is
amended by striking subsection (d).
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to collection actions initiated after the
date which is 180 days after the date of the enactment of
this Act.
PART II—EXAMINATION ACTIVITIES
SEC. 3411. UNIFORM APPLICATION OF CONFIDENTIALITY
PRIVILEGE TO TAXPAYER COMMUNICATIONS
WITH FEDERALLY AUTHORIZED PRACTITION-
ERS.
(a) IN GENERAL.—Chapter 77 (relating to miscellane-
ous provisions) is amended by adding at the end the follow-
ing new section:
325
‘‘SEC. 7525. UNIFORM APPLICATION OF CONFIDENTIALITY
PRIVILEGE TO TAXPAYER COMMUNICATIONS
WITH FEDERALLY AUTHORIZED PRACTITION-
ERS.
‘‘(a) GENERAL RULE.—With respect to tax advice, the
same common law protections of confidentiality which
apply to a communication between a taxpayer and an at-
torney shall also apply to a communication between a tax-
payer and any federally authorized tax practitioner to the
extent the communication would be considered a privileged
communication if it were between a taxpayer and an attor-
ney.
‘‘(b) LIMITATIONS.—Subsection (a) may only be as-
serted in—
‘‘(1) any noncriminal tax matter before the In-
ternal Revenue Service, and
‘‘(2) any noncriminal tax proceeding in Federal
court with respect to such matter.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) FEDERALLY
AUTHORIZED
TAX
PRACTI-
TIONER.—The term ‘federally authorized tax practi-
tioner’ means any individual who is authorized under
Federal law to practice before the Internal Revenue
Service if such practice is subject to Federal regula-
tion under section 330 of title 31, United States Code.
326
‘‘(2) TAX ADVICE.—The term ‘tax advice’ means
advice given by an individual with respect to a mat-
ter which is within the scope of the individual’s au-
thority to practice described in paragraph (1).’’
(b) CONFORMING AMENDMENT.—The table of sections
for such chapter 77 is amended by adding at the end the
following new item:
‘‘Sec. 7525. Uniform application of confidentiality privilege to
taxpayer communications with federally authorized
practitioners.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to communications made on or after the
date of the enactment of this Act.
SEC. 3412. LIMITATION ON FINANCIAL STATUS AUDIT TECH-
NIQUES.
Section 7602 (relating to examination of books and
witnesses) is amended by adding at the end the following
new subsection:
‘‘(d) LIMITATION ON EXAMINATION ON UNREPORTED
INCOME.—The Secretary shall not use financial status or
economic reality examination techniques to determine the
existence of unreported income of any taxpayer unless the
Secretary has a reasonable indication that there is a likeli-
hood of such unreported income.’’
SEC. 3413. SOFTWARE TRADE SECRETS PROTECTION.
(a) IN GENERAL.—Subchapter A of chapter 78 (relat-
ing to examination and inspection) is amended by redesig-
327
nating section 7612 as section 7613 and by inserting after
7611 the following:
‘‘SEC. 7612. SPECIAL PROCEDURES FOR SUMMONSES FOR
COMPUTER SOFTWARE.
‘‘(a) GENERAL RULE.—For purposes of this title—
‘‘(1) except as provided in subsection (b), no
summons may be issued under this title, and the Sec-
retary may not begin any action under section 7604
to enforce any summons, to produce or analyze any
computer software source code, and
‘‘(2) any software and related materials which
are provided to the Secretary under this title shall be
subject to the safeguards under subsection (c).
‘‘(b) CIRCUMSTANCES
UNDER
WHICH
COMPUTER
SOFTWARE SOURCE CODE MAY BE PROVIDED.—
‘‘(1) IN GENERAL.—Subsection (a)(1) shall not
apply to any portion, item, or component of computer
software source code if—
‘‘(A) the Secretary is unable to otherwise
reasonably ascertain the correctness of any item
on a return from—
‘‘(i) the taxpayer’s books, papers,
records, or other data, or
‘‘(ii) the computer software executable
code (and any modifications thereof) to
328
which such source code relates and any as-
sociated data which, when executed, pro-
duces the output to ascertain the correctness
of the item,
‘‘(B) the Secretary identifies with reason-
able specificity the portion, item, or component
of such source code needed to verify the correct-
ness of such item on the return, and
‘‘(C) the Secretary determines that the need
for the portion, item, or component of such
source code with respect to such item outweighs
the risks of unauthorized disclosure of trade se-
crets.
‘‘(2) EXCEPTIONS.—Subsection (a)(1) shall not
apply to—
‘‘(A) any inquiry into any offense connected
with the administration or enforcement of the in-
ternal revenue laws,
‘‘(B) any computer software source code de-
veloped by the taxpayer or a related person for
internal use by the taxpayer or such person, or
‘‘(C) any communications between the
owner of the source code and the taxpayer or re-
lated persons.
329
‘‘(3) COOPERATION REQUIRED.—For purposes of
paragraph (1), the Secretary shall be treated as meet-
ing the requirements of subparagraphs (A) and (B) of
such paragraph if—
‘‘(A) the Secretary determines that it is not
feasible to determine the correctness of an item
without access to the computer software execut-
able code and associated data described in para-
graph (1)(A)(ii),
‘‘(B) the Secretary makes a formal request
to the taxpayer for such code and data and to
the owner of the computer software source code
for such executable code, and
‘‘(C) such code and data is not provided
within 180 days of such request.
‘‘(4) RIGHT
TO
CONTEST
SUMMONS.—In any
proceeding brought under section 7604 to enforce a
summons issued under the authority of this sub-
section, the court shall, at the request of any party,
hold a hearing to determine whether the applicable re-
quirements of this subsection have been met.
‘‘(c) SAFEGUARDS TO ENSURE PROTECTION OF TRADE
SECRETS AND OTHER CONFIDENTIAL INFORMATION.—
‘‘(1) ENTRY
OF
PROTECTIVE
ORDER.—In any
court proceeding to enforce a summons for any por-
330
tion of software, the court may receive evidence and
issue any order necessary to prevent the disclosure of
trade secrets or other confidential information with
respect to such software, including –requiring that
any information be placed under seal to be opened
only as directed by the court.
‘‘(2) PROTECTION OF SOFTWARE.—Notwithstand-
ing any other provision of this section, and in addi-
tion to any protections ordered pursuant to para-
graph (1), in the case of software that comes into the
possession or control of the Secretary in the course of
any examination with respect to any taxpayer—
‘‘(A) the software may be used only in con-
nection with the examination of such taxpayer’s
return, any appeal by the taxpayer to the Inter-
nal Revenue Service Office of Appeals, any judi-
cial proceeding (and any appeals therefrom),
and any inquiry into any offense connected with
the administration or enforcement of the internal
revenue laws,
‘‘(B) the Secretary shall provide, in ad-
vance, to the taxpayer and the owner of the soft-
ware a written list of the names of all individ-
uals who will analyze or otherwise have access to
the software,
331
‘‘(C) the software shall be maintained in a
secure area or place, and, in the case of com-
puter software source code, shall not be removed
from the owner’s place of business unless the
owner permits, or a court orders, such removal,
‘‘(D) the software may not be copied except
as necessary to perform such analysis, and the
Secretary shall number all copies made and cer-
tify in writing that no other copies have been (or
will be) made,
‘‘(E) at the end of the period during which
the software may be used under subparagraph
(A)—
‘‘(i) the software and all copies thereof
shall be returned to the person from whom
they were obtained and any copies thereof
made under subparagraph (D) on the hard
drive of a machine or other mass storage de-
vice shall be permanently deleted, and
‘‘(ii) the Secretary shall obtain from
any person who analyzes or otherwise had
access to such software a written certifi-
cation under penalty of perjury that all
copies and related materials have been re-
332
turned and that no copies were made of
them,
‘‘(F) the software may not be decompiled or
disassembled, and
‘‘(G) the Secretary shall provide to the tax-
payer and the owner of any interest in such soft-
ware, as the case may be, a written agreement,
between the Secretary and any person who is not
an officer or employee of the United States and
who will analyze or otherwise have access to such
software, which provides that such person agrees
not to—
‘‘(i) disclose such software to any per-
son other than authorized employees or
agents of the Secretary during and after
employment by the Secretary, or
‘‘(ii) participate for 2 years in the de-
velopment of software which is intended for
a similar purpose as the software examined.
For purposes of subparagraph (C), the owner shall
make available any necessary equipment or materials
for analysis of computer software source code required
to be conducted on the owner’s premises. The owner
of any interest in the software shall be considered a
333
party to any agreement described in subparagraph
(G).
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) SOFTWARE.—The term ‘software’ includes
computer software source code and computer software
executable code.
‘‘(2) COMPUTER SOFTWARE SOURCE CODE.—The
term ‘computer software source code’ means—
‘‘(A) the code written by a programmer
using a programming language which is com-
prehensible to appropriately trained persons, is
not machine readable, and is not capable of di-
rectly being used to give instructions to a com-
puter,
‘‘(B) related programmers’ notes, design
documents, memoranda, and similar documenta-
tion, and
‘‘(C) related customer communications.
‘‘(3) 
COMPUTER
SOFTWARE
EXECUTABLE
CODE.—The term ‘computer software executable code’
means—
‘‘(A) any object code, machine code, or other
code readable by a computer when loaded into its
memory and used directly by such computer to
execute instructions, and
334
‘‘(B) any related user manuals.
‘‘(4) OWNER.—The term ‘owner’ shall, with re-
spect to any software, include the developer of the soft-
ware.
‘‘(5) RELATED PERSON.—A person shall be treat-
ed as related to another person if such persons are re-
lated persons under section 267 or 707(b).’’
(b) UNAUTHORIZED DISCLOSURE
OF SOFTWARE.—
Section 7213 (relating to unauthorized disclosure of infor-
mation) is amended by redesignating subsection (d) as sub-
section (e) and by inserting after subsection (c) the follow-
ing:
‘‘(d) DISCLOSURE OF SOFTWARE.—Any person who
willfully divulges or makes known software (as defined in
section 7612(d)(1)) to any person in violation of section
7612 shall be guilty of a felony and, upon conviction there-
of, shall be fined not more than $5,000, or imprisoned not
more than 5 years, or both, together with the costs of pros-
ecution.’’
(c) APPLICATION
OF
SPECIAL
PROCEDURES
FOR
THIRD-PARTY
SUMMONSES.—Paragraph (2) of section
7603(b), as amended by section 3416(a), is amended by
striking ‘‘and’’ at the end of subparagraph (H), by striking
a period at the end of subparagraph (I) and inserting ‘‘,
and’’, and by adding at the end the following:
336
SEC. 3414. THREAT OF AUDIT PROHIBITED TO COERCE TIP
REPORTING 
ALTERNATIVE 
COMMITMENT
AGREEMENTS.
The Secretary of the Treasury or the Secretary’s dele-
gate shall instruct employees of the Internal Revenue Serv-
ice that they may not threaten to audit any taxpayer in
an attempt to coerce the taxpayer into entering into a Tip
Reporting Alternative Commitment Agreement.
SEC. 3415. TAXPAYERS ALLOWED MOTION TO QUASH ALL
THIRD-PARTY SUMMONSES.
(a) IN GENERAL.—Paragraph (1) of section 7609(a)
(relating to summonses to which section applies) is amend-
ed by striking so much of such paragraph as precedes ‘‘no-
tice of the summons’’ and inserting the following:
‘‘(1) IN GENERAL.—If any summons to which
this section applies requires the giving of testimony
on, or the production of any portion of records made
or kept on, any person (other than the person sum-
moned) who is identified in the summons, then’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 7609 is amended by
striking paragraphs (3) and (4), by redesignating
paragraph (5) as paragraph (3), and by striking in
paragraph (3) (as so redesignated) ‘‘subsection
(c)(2)(B)’’ and inserting ‘‘subsection (c)(2)(D)’’.
337
(2) Subsection (c) of section 7609 is amended to
read as follows:
‘‘(c) SUMMONS TO WHICH SECTION APPLIES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), this section shall apply to any summons
issued under paragraph (2) of section 7602(a) or
under section 6420(e)(2), 6421(g)(2), or 6427(j)(2).
‘‘(2) EXCEPTIONS.—This section shall not apply
to any summons—
‘‘(A) served on the person with respect to
whose liability the summons is issued, or any of-
ficer or employee of such person,
‘‘(B) issued to determine whether or not
records of the business transactions or affairs of
an identified person have been made or kept,
‘‘(C) issued solely to determine the identity
of any person having a numbered account (or
similar arrangement) with a bank or other insti-
tution described in section 7603(b)(2)(A),
‘‘(D) issued in aid of the collection of—
‘‘(i) an assessment made or judgment
rendered against the person with respect to
whose liability the summons is issued, or
338
‘‘(ii) the liability at law or in equity
of any transferee or fiduciary of any person
referred to in clause (i),
‘‘(E)(i) issued by a criminal investigator of
the Internal Revenue Service in connection with
the investigation of an offense connected with the
administration or enforcement of the internal
revenue laws, and
‘‘(ii) served on any person who is not a
third-party recordkeeper (as defined in section
7603(b)), or
‘‘(F) described in subsection (f) or (g).
‘‘(3) RECORDS.—For purposes of this section, the
term ‘records’ includes books, papers, and other data.’’
(3) Paragraph (2) of section 7609(e) is amended
by striking ‘‘third-party recordkeeper’s’’ and all that
follows through ‘‘subsection (f)’’ and inserting ‘‘sum-
moned party’s response to the summons’’.
(4) Subsection (f) of section 7609 is amended—
(A) by striking ‘‘described in subsection (c)’’
and inserting ‘‘described in subsection (c)(1)’’,
and
(B) by inserting ‘‘or testimony’’ after
‘‘records’’ in paragraph (3).
339
(5) Subsection (g) of section 7609 is amended by
striking ‘‘In the case of any summons described in
subsection (c), the provisions of subsections (a)(1) and
(b) shall not apply if’’ and inserting ‘‘A summons is
described in this subsection if’’.
(6)(A) Subsection (i) of section 7609 is amended
by striking ‘‘THIRD-PARTY RECORDKEEPER AND’’ in
the subsection heading.
(B) Paragraph (1) of section 7609(i) is amended
by striking ‘‘described in subsection (c), the third-
party recordkeeper’’ and inserting ‘‘to which this sec-
tion applies for the production of records, the sum-
moned party’’.
(C) Paragraph (2) of section 7609(i) is amend-
ed—
(i) by striking ‘‘RECORDKEEPER’’ in the
heading and inserting ‘‘SUMMONED PARTY’’, and
(ii) by striking ‘‘the third-party record-
keeper’’ and inserting ‘‘the summoned party’’.
(D) Paragraph (3) of section 7609(i) is amended
to read as follows:
‘‘(3) PROTECTION FOR SUMMONED PARTY WHO
DISCLOSES.—Any summoned party, or agent or em-
ployee thereof, making a disclosure of records or testi-
mony pursuant to this section in good faith reliance
340
on the certificate of the Secretary or an order of a
court requiring production of records or the giving of
such testimony shall not be liable to any customer or
other person for such disclosure.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to summonses served after the date of
the enactment of this Act.
SEC. 3416. SERVICE OF SUMMONSES TO THIRD-PARTY REC-
ORDKEEPERS PERMITTED BY MAIL.
(a) IN GENERAL.—Section 7603 (relating to service of
summons) is amended by striking ‘‘A summons issued’’ and
inserting ‘‘(a) IN GENERAL.—A summons issued’’ and by
adding at the end the following new subsection:
‘‘(b) SERVICE BY MAIL TO THIRD-PARTY RECORD-
KEEPERS.—
‘‘(1) IN GENERAL.—A summons referred to in
subsection (a) for the production of books, papers,
records, or other data by a third-party recordkeeper
may also be served by certified or registered mail to
the last known address of such recordkeeper.
‘‘(2) THIRD-PARTY
RECORDKEEPER.—For pur-
poses of paragraph (1), the term ‘third-party record-
keeper’ means—
‘‘(A) any mutual savings bank, cooperative
bank, domestic building and loan association, or
341
other savings institution chartered and super-
vised as a savings and loan or similar associa-
tion under Federal or State law, any bank (as
defined in section 581), or any credit union
(within the meaning of section 501(c)(14)(A));
‘‘(B) any consumer reporting agency (as de-
fined under section 603(f) of the Fair Credit Re-
porting Act (15 U.S.C. 1681a(f)));
‘‘(C) any person extending credit through
the use of credit cards or similar devices;
‘‘(D) any broker (as defined in section
3(a)(4) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(4)));
‘‘(E) any attorney;
‘‘(F) any accountant;
‘‘(G) any barter exchange (as defined in sec-
tion 6045(c)(3));
‘‘(H) any regulated investment company (as
defined in section 851) and any agent of such
regulated investment company when acting as
an agent thereof, and
‘‘(I) any enrolled agent.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to summonses served after the date of
the enactment of this Act.
342
SEC. 3417. PROHIBITION ON IRS CONTACT OF THIRD PAR-
TIES WITHOUT PRIOR NOTICE.
(a) IN GENERAL.—Section 7602 (relating to examina-
tion of books and witnesses), as amended by section 3412,
is amended by redesignating subsections (c) and (d) as sub-
sections (d) and (e), respectively, and by inserting after sub-
section (b) the following new subsection:
‘‘(c) LIMITATION OF AUTHORITY TO CONTACT THIRD
PARTIES.—An officer or employee of the Internal Revenue
Service may not contact any person other than the taxpayer
with respect to the determination or collection of the tax
liability of such taxpayer without providing reasonable no-
tice to the taxpayer that such contact will be made. This
subsection shall not apply—
‘‘(1) to any contact which the taxpayer has au-
thorized,
‘‘(2) if the Secretary determines for good cause
shown that such notice would jeopardize collection of
any tax, or
‘‘(3) with respect to any pending criminal inves-
tigation.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to contacts made after the 180th day
after the date of the enactment of this Act.
343
PART III—COLLECTION ACTIVITIES
Subpart A—Approval Process
SEC. 3421. APPROVAL PROCESS FOR LIENS, LEVIES, AND
SEIZURES.
(a) IN GENERAL.—The Commissioner of Internal Rev-
enue shall develop and implement procedures under
which—
(1) a determination by an employee to file a no-
tice of lien or levy with respect to, or to levy or seize,
any property or right to property would, where ap-
propriate, be required to be reviewed by a supervisor
of the employee before the action was taken, and
(2) appropriate disciplinary action would be
taken against the employee or supervisor where the
procedures under paragraph (1) were not followed.
(b) REVIEW PROCESS.—The review process under sub-
section (a)(1) may include a certification that the employee
has—
(1) reviewed the taxpayer’s information,
(2) verified that a balance is due, and
(3) affirmed that the action proposed to be taken
is appropriate given the taxpayer’s circumstances,
considering the amount due and the value of the
property or right to property.
344
Subpart B—Liens and Levies
SEC. 3431. MODIFICATIONS TO CERTAIN LEVY EXEMPTION
AMOUNTS.
(a) FUEL, ETC.—Section 6334(a)(2) (relating to fuel,
provisions, furniture, and personal effects) is amended by
striking ‘‘$2,500’’ and inserting ‘‘$10,000’’.
(b) BOOKS, ETC.—Section 6334(a)(3) (relating to
books and tools of a trade, business, or profession) is amend-
ed by striking ‘‘$1,250’’ and inserting ‘‘$5,000’’.
(c) CONFORMING AMENDMENT .—Section 6334(g)(1)
(relating to inflation adjustment) is amended—
(1) by striking ‘‘1997’’ and inserting ‘‘1999’’,
and
(2) by striking ‘‘1996’’ in subparagraph (B) and
inserting ‘‘1998’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect with respect to levies issued after
the date of the enactment of this Act.
SEC. 3432. RELEASE OF LEVY UPON AGREEMENT THAT
AMOUNT IS UNCOLLECTIBLE.
(a) IN GENERAL.—Section 6343 (relating to authority
to release levy and return property) is amended by adding
at the end the following new subsection:
‘‘(e) IMMEDIATE RELEASE OF LEVY UPON AGREE-
MENT THAT AMOUNT IS NOT COLLECTIBLE.—In the case
of a levy on the salary or wages payable to or received by
345
the taxpayer, upon agreement with the taxpayer that the
tax is not collectible, the Secretary shall immediately release
such levy before any intervening salary or wage payment
period.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to levies imposed after the date of the
enactment of this Act.
SEC. 3433. LEVY PROHIBITED DURING PENDENCY OF RE-
FUND PROCEEDINGS.
(a) IN GENERAL.—Section 6331 (relating to levy and
distraint) is amended by redesignating subsection (i) as
subsection (j) and by inserting after subsection (h) the fol-
lowing new subsection:
‘‘(i) NO LEVY DURING PENDENCY OF PROCEEDINGS
FOR REFUND OF DIVISIBLE TAX.—
‘‘(1) IN GENERAL.—No levy may be made under
subsection (a) on the property or rights to property
of any person with respect to any unpaid divisible
tax during the pendency of any proceeding brought by
such person in a proper court for the recovery of any
portion of such divisible tax which was paid by such
person if—
‘‘(A) the decision in such proceeding would
be res judicata with respect to such unpaid tax,
or
346
‘‘(B) such person would be collaterally es-
topped from contesting such unpaid tax by rea-
son of such proceeding.
‘‘(2) DIVISIBLE
TAX.—For purposes of para-
graph (1), the term ‘divisible tax’ means—
‘‘(A) any tax imposed by subtitle C, and
‘‘(B) the penalty imposed by section 6672
with respect to any such tax.
‘‘(3) EXCEPTIONS.—
‘‘(A) CERTAIN UNPAID TAXES.—This sub-
section shall not apply with respect to any un-
paid tax if—
‘‘(i) the taxpayer files a written notice
with the Secretary which waives the restric-
tion imposed by this subsection on levy with
respect to such tax, or
‘‘(ii) the Secretary finds that the collec-
tion of such tax is in jeopardy.
‘‘(B) CERTAIN
LEVIES.—This subsection
shall not apply to—
‘‘(i) any levy to carry out an offset
under section 6402, and
‘‘(ii) any levy which was first made
before the date that the applicable proceed-
ing under this subsection commenced.
347
‘‘(4) LIMITATION ON COLLECTION ACTIVITY; AU-
THORITY TO ENJOIN COLLECTION.—
‘‘(A) LIMITATION ON COLLECTION.—No pro-
ceeding in court for the collection of any unpaid
tax to which paragraph (1) applies shall be
begun by the Secretary during the pendency of a
proceeding under such paragraph. This subpara-
graph shall not apply to—
‘‘(i) any counterclaim in a proceeding
under such paragraph, or
‘‘(ii) any proceeding relating to a pro-
ceeding under such paragraph.
‘‘(B) AUTHORITY
TO
ENJOIN.—Notwith-
standing section 7421(a), a levy or collection
proceeding prohibited by this subsection may be
enjoined (during the period such prohibition is
in force) by the court in which the proceeding
under paragraph (1) is brought.
‘‘(5) SUSPENSION OF STATUTE OF LIMITATIONS
ON
COLLECTION.—The period of limitations under
section 6502 shall be suspended for the period during
which the Secretary is prohibited under this sub-
section from making a levy.
‘‘(6) PENDENCY OF PROCEEDING.—For purposes
of this subsection, a proceeding is pending beginning
348
on the date such proceeding commences and ending
on the date the decision in such proceeding becomes
final.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to unpaid tax attributable to taxable
periods beginning after December 31, 1998.
SEC. 3434. APPROVAL REQUIRED FOR JEOPARDY AND TER-
MINATION 
ASSESSMENTS 
AND 
JEOPARDY
LEVIES.
(a) IN GENERAL.—Paragraph (1) of section 7429(a)
(relating to review of jeopardy levy or assessment proce-
dures) is amended to read as follows:
‘‘(1) ADMINISTRATIVE REVIEW.—
‘‘(A) PRIOR APPROVAL REQUIRED.—No as-
sessment may be made under section 6851(a),
6852(a), 6861(a), or 6862, and no levy may be
made under section 6331(a) less than 30 days
after notice and demand for payment is made,
unless the Chief Counsel for the Internal Revenue
Service (or such Counsel’s delegate) personally
approves (in writing) such assessment or levy.
‘‘(B) INFORMATION TO TAXPAYER.—Within
5 days after the day on which such an assess-
ment or levy is made, the Secretary shall provide
the taxpayer with a written statement of the in-
349
formation upon which the Secretary relied in
making such assessment or levy.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxes assessed and levies made after
the date of the enactment of this Act.
SEC. 3435. INCREASE IN AMOUNT OF CERTAIN PROPERTY
ON WHICH LIEN NOT VALID.
(a) CERTAIN PROPERTY.—
(1) IN GENERAL.—Subsection (b) of section 6323
(relating to validity and priority against certain per-
sons) is amended—
(A) by striking ‘‘$250’’ in paragraph (4)
(relating to personal property purchased in cas-
ual sale) and inserting ‘‘$1,000’’, and
(B) by striking ‘‘$1,000’’ in paragraph (7)
(relating to residential property subject to a me-
chanic’s lien for certain repairs and improve-
ments) and inserting ‘‘$5,000’’.
(2) INFLATION ADJUSTMENT.—Subsection (i) of
section 6323 (relating to special rules) is amended by
adding at the end the following new paragraph:
‘‘(4) COST-OF-LIVING ADJUSTMENT.—In the case
of notices of liens imposed by section 6321 which are
filed in any calendar year after 1998, each of the dol-
350
lar amounts under paragraph (4) or (7) of subsection
(b) shall 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, determined by substituting ‘calendar year
1996’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10, such amount shall be
rounded to the nearest multiple of $10.’’
(b) EXPANSION
OF
TREATMENT
OF
PASSBOOK
LOANS.—Paragraph (10) of section 6323(b) is amended—
(1) by striking ‘‘PASSBOOK LOANS’’ in the head-
ing and inserting ‘‘DEPOSIT-SECURED LOANS’’,
(2) by striking ‘‘, evidenced by a passbook,’’, and
(3) by striking all that follows ‘‘secured by such
account’’ and inserting a period.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
351
SEC. 3436. WAIVER OF EARLY WITHDRAWAL TAX FOR IRS
LEVIES ON EMPLOYER-SPONSORED RETIRE-
MENT PLANS OR IRAS.
(a) IN GENERAL.—Section 72(t)(2)(A) (relating to
subsection not to apply to certain distributions) is amended
by striking ‘‘or’’ at the end of clauses (iv) and (v), by strik-
ing the period at the end of clause (vi) and inserting ‘‘,
or’’, and by adding at the end the following new clause:
‘‘(vii) made on account of a levy under
section 6331 on the qualified retirement
plan.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to levies made after the date of the enact-
ment of this Act.
Subpart C—Seizures
SEC. 3441. PROHIBITION OF SALES OF SEIZED PROPERTY
AT LESS THAN MINIMUM BID.
(a) IN GENERAL.—Section 6335(e)(1)(A)(i) (relating
to determinations relating to minimum price) is amended
by striking ‘‘a minimum price for which such property
shall be sold’’ and inserting ‘‘a minimum price below which
such property shall not be sold’’.
(b) REFERENCE TO PENALTY FOR VIOLATION.—Sec-
tion 6335(e) is amended by adding at the end the following
new paragraph:
352
‘‘(4) CROSS REFERENCE.—
‘‘For provision providing for civil damages for vio-
lation of paragraph (1)(A)(i), see section 7433.’’
SEC. 3442. ACCOUNTING OF SALES OF SEIZED PROPERTY.
(a) IN GENERAL.—Section 6340 (relating to records
of sale) is amended—
(1) in subsection (a)—
(A) by striking ‘‘real’’, and
(B) by inserting ‘‘or certificate of sale of
personal property’’ after ‘‘deed’’, and
(2) by adding at the end the following new sub-
section:
‘‘(c) ACCOUNTING TO TAXPAYER.—The taxpayer with
respect to whose liability the sale was conducted or who re-
deemed the property shall be furnished—
‘‘(1) the record under subsection (a) (other than
the names of the purchasers),
‘‘(2) the amount from such sale applied to the
taxpayer’s liability, and
‘‘(3) the remaining balance of such liability.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to seizures occurring after the date of
the enactment of this Act.
SEC. 3443. UNIFORM ASSET DISPOSAL MECHANISM.
Not later than the date which is 2 years after the date
of the enactment of this Act, the Secretary of the Treasury
353
or the Secretary’s delegate shall implement a uniform asset
disposal mechanism for sales under section 6335 of the In-
ternal Revenue Code of 1986. The mechanism should be de-
signed to remove any participation in such sales by revenue
officers of the Internal Revenue Service and should consider
the use of outsourcing.
SEC. 3444. CODIFICATION OF IRS ADMINISTRATIVE PROCE-
DURES FOR SEIZURE OF TAXPAYER’S PROP-
ERTY.
(a) IN GENERAL.—Section 6331 (relating to levy and
distraint), as amended by section 3401(c), is amended by
inserting after subsection (c) the following new subsection:
‘‘(d) NO LEVY BEFORE INVESTIGATION OF STATUS OF
PROPERTY.—
‘‘(1) IN GENERAL.—For purposes of applying the
provisions of this subchapter, no levy may be made on
any property or right to property until a thorough
investigation of the status of such property has been
completed.
‘‘(2) ELEMENTS
IN
INVESTIGATION.—For pur-
poses of paragraph (1), an investigation of the status
of any property shall include—
‘‘(A) a verification of the taxpayer’s liabil-
ity,
354
‘‘(B) the completion of an analysis under
subsection (f),
‘‘(C) the determination that the equity in
such property is sufficient to yield net proceeds
from the sale of such property to apply to such
liability, and
‘‘(D) a thorough consideration of alternative
collection methods.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 3445. PROCEDURES FOR SEIZURE OF RESIDENCES
AND BUSINESSES.
(a) IN GENERAL.—Section 6334(a)(13) (relating to
property exempt from levy) is amended to read as follows:
‘‘(13) RESIDENCES
EXEMPT
IN
SMALL
DEFI-
CIENCY CASES AND PRINCIPAL RESIDENCES AND CER-
TAIN BUSINESS ASSETS EXEMPT IN ABSENCE OF CER-
TAIN APPROVAL OR JEOPARDY.—
‘‘(A) RESIDENCES
IN
SMALL
DEFICIENCY
CASES.—If the amount of the levy does not ex-
ceed $5,000, any real property used as a resi-
dence by the taxpayer or any other individual.
‘‘(B) PRINCIPAL RESIDENCES AND CERTAIN
BUSINESS
ASSETS.—Except to the extent pro-
355
vided in subsection (e), the principal residence of
the taxpayer (within the meaning of section
121), and assets used in the trade or business of
an individual taxpayer.’’
(b) CONFORMING AMENDMENTS.—Section 6334(e) is
amended—
(1) by striking ‘‘subsection (a)(13)’’ and insert-
ing ‘‘subsection (a)(13)(B)’’,
(2) by adding at the end the following new flush
sentence:
‘‘An official may not approve a levy under paragraph (1)
unless the official determines that the taxpayer’s other assets
subject to collection are insufficient to pay the amount due,
together with expenses of the proceedings.’’, and
(3) by inserting ‘‘AND CERTAIN BUSINESS AS-
SETS’’ after ‘‘PRINCIPAL RESIDENCE’’ in the heading.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
PART IV—PROVISIONS RELATING TO
EXAMINATION AND COLLECTION ACTIVITIES
SEC. 3461. PROCEDURES RELATING TO EXTENSIONS OF
STATUTE OF LIMITATIONS BY AGREEMENT.
(a) REPEAL
OF AUTHORITY TO EXTEND 10-YEAR
COLLECTION
PERIOD
AFTER
ASSESSMENT.—Section
356
6502(a) (relating to length of period after collection) is
amended—
(1) by striking paragraph (2) and inserting:
‘‘(2) if there is a release of levy under section
6343 after such 10-year period, prior to the expira-
tion of any period for collection agreed upon in writ-
ing by the Secretary and the taxpayer before such re-
lease.’’, and
(2) by striking the first sentence in the matter
following paragraph (2).
(b) NOTICE TO TAXPAYER OF RIGHT TO REFUSE OR
LIMIT EXTENSION.—Paragraph (4) of section 6501(c) (re-
lating to the period for limitations on assessment and col-
lection) is amended—
(1) by striking ‘‘Where’’ and inserting the follow-
ing:
‘‘(A) IN GENERAL.—Where’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(B) NOTICE TO TAXPAYER OF RIGHT TO
REFUSE OR LIMIT EXTENSION.—The Secretary
shall notify the taxpayer of the taxpayer’s right
to refuse to extend the period of limitations, or
to limit such extension to particular issues or to
a particular period of time, on each occasion
357
when the taxpayer is requested to provide such
consent.’’
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to requests to extend the pe-
riod of limitations made after the date of the enact-
ment of this Act.
(2) PRIOR REQUEST.—If, in any request to ex-
tend the period of limitations made on or before the
date of the enactment of this Act, a taxpayer agreed
to extend such period beyond the 10-year period re-
ferred to in section 6502(a) of the Internal Revenue
Code of 1986, such extension shall expire on the later
of—
(A) the last day of such 10-year period, or
(B) the date which is 180 days after such
date of the enactment.
SEC. 3462. OFFERS-IN-COMPROMISE.
(a) STANDARDS FOR EVALUATION OF OFFERS-IN-COM-
PROMISE.—Section 7122 (relating to offers-in-compromise)
is amended by adding at the end the following new sub-
section:
‘‘(c) STANDARDS FOR EVALUATION OF OFFERS.—
‘‘(1) IN GENERAL.—The Secretary shall prescribe
guidelines for officers and employees of the Internal
358
Revenue Service to determine whether an offer-in-
compromise is adequate.
‘‘(2) ALLOWANCES
FOR
BASIC
LIVING
EX-
PENSES.—
‘‘(A) IN GENERAL.—In prescribing guide-
lines under paragraph (1), the Secretary shall
develop and publish schedules of national and
local allowances designed to provide that tax-
payers entering into a compromise have an ade-
quate means to provide for basic living expenses.
‘‘(B) USE OF SCHEDULES.—The guidelines
shall provide that officers and employees of the
Internal Revenue Service shall determine, on the
basis of the facts and circumstances of each tax-
payer, whether the use of the schedules published
under subparagraph (A) is appropriate and
shall not use the schedules to the extent such use
would result in the taxpayer not having ade-
quate means to provide for basic living expenses.
‘‘(3) SPECIAL RULES RELATING TO TREATMENT
OF
OFFERS.—The guidelines under paragraph (1)
shall provide that—
‘‘(A) an officer or employee of the Internal
Revenue Service shall not reject an offer-in-com-
359
promise from a low-income taxpayer solely on
the basis of the amount of the offer, and
‘‘(B) in the case of an offer-in-compromise
which relates only to issues of liability of the
taxpayer—
‘‘(i) such offer shall not be rejected sole-
ly because the Secretary is unable to locate
the taxpayer’s return or return information
for verification of such liability, and
‘‘(ii) the taxpayer shall not be required
to provide a financial statement.’’
(b) LEVY PROHIBITED WHILE OFFER-IN-COMPROMISE
PENDING.—Section 6331 (relating to levy and distraint),
as amended by section 3433, is amended by redesignating
subsection (j) as subsection (k) and by inserting after sub-
section (i) the following new subsection:
‘‘(j) NO LEVY WHILE CERTAIN OFFERS PENDING.—
‘‘(1) OFFER IN COMPROMISE PENDING.—No levy
may be made under subsection (a) on the property or
rights to property of any person with respect to any
unpaid tax—
‘‘(A) during the period that an offer by such
person in compromise under section 7122 of such
unpaid tax is pending with the Secretary, and
360
‘‘(B) if such offer is rejected by the Sec-
retary, during the 30 days thereafter (and, if an
appeal of such rejection is filed within such 30
days, during the period that such appeal is
pending).
For purposes of subparagraph (A), an offer is pend-
ing beginning on the date the Secretary accepts such
offer for processing.
‘‘(2) CERTAIN RULES TO APPLY.—Rules similar
to the rules of paragraphs (3), (4), and (5) of sub-
section (i) shall apply for purposes of this sub-
section.’’
(c) REVIEW
OF REJECTIONS
OF OFFERS-IN-COM-
PROMISE AND INSTALLMENT AGREEMENTS.—
(1) IN
GENERAL.—Section 7122 (relating to
compromises), as amended by subsection (a), is
amended by adding at the end the following:
‘‘(d) ADMINISTRATIVE REVIEW.—The Secretary shall
establish procedures—
‘‘(1) for an independent administrative review of
any rejection of a proposed offer-in-compromise or in-
stallment agreement made by a taxpayer under this
section or section 6159 before such rejection is com-
municated to the taxpayer, and
361
‘‘(2) which allow a taxpayer to appeal any rejec-
tion of such offer or agreement to the Internal Reve-
nue Service Office of Appeals.’’
(2) CONFORMING
AMENDMENT.—Section 6159
(relating to installment agreements) is amended by
adding at the end the following new subsection:
‘‘(d) CROSS REFERENCE.—
‘‘For rights to administrative review and appeal,
see section 7122(d).’’
(d) PREPARATION OF STATEMENT RELATING TO OF-
FERS-IN-COMPROMISE.—The Secretary of the Treasury
shall prepare a statement which sets forth in simple, non-
technical terms the rights of a taxpayer and the obligations
of the Internal Revenue Service relating to offers-in-com-
promise. Such statement shall—
(1) advise taxpayers who have entered into a
compromise of the advantages of promptly notifying
the Internal Revenue Service of any change of address
or marital status,
(2) provide notice to taxpayers that in the case
of a compromise terminated due to the actions of 1
spouse or former spouse, the Internal Revenue Service
will, upon application, reinstate such compromise
with the spouse or former spouse who remains in
compliance with such compromise, and
363
following new sentence: ‘‘Any petition filed with the Tax
Court on or before the last date specified for filing such peti-
tion by the Secretary in the notice of deficiency shall be
treated as timely filed.’’
(c) EFFECTIVE DATE.—Subsection (a) and the amend-
ment made by subsection (b) shall apply to notices mailed
after December 31, 1998.
SEC. 3464. REFUND OR CREDIT OF OVERPAYMENTS BEFORE
FINAL DETERMINATION.
(a) TAX COURT PROCEEDINGS.—Subsection (a) of sec-
tion 6213 is amended—
(1) by striking ‘‘, including the Tax Court.’’ and
inserting ‘‘, including the Tax Court, and a refund
may be ordered by such court of any amount collected
within the period during which the Secretary is pro-
hibited from collecting by levy or through a proceed-
ing in court under the provisions of this subsection.’’,
and
(2) by striking ‘‘to enjoin any action or proceed-
ing’’ and inserting ‘‘to enjoin any action or proceed-
ing or order any refund’’.
(b) OTHER PROCEEDINGS.—Subsection (a) of section
6512 is amended by striking the period at the end of para-
graph (4) and inserting ‘‘, and’’, and by inserting after
paragraph (4) the following new paragraphs:
364
‘‘(5) As to any amount collected within the pe-
riod during which the Secretary is prohibited from
making the assessment or from collecting by levy or
through a proceeding in court under the provisions of
section 6213(a), and
‘‘(6) As to overpayments the Secretary is author-
ized to refund or credit pending appeal as provided
in subsection (b).’’
(c) REFUND OR CREDIT PENDING APPEAL.—Para-
graph (1) of section 6512(b) is amended by adding at the
end the following new sentence: ‘‘If a notice of appeal in
respect of the decision of the Tax Court is filed under section
7483, the Secretary is authorized to refund or credit the
overpayment determined by the Tax Court to the extent the
overpayment is not contested on appeal.’’
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 3465. IRS PROCEDURES RELATING TO APPEALS OF EX-
AMINATIONS AND COLLECTIONS.
(a) DISPUTE RESOLUTION PROCEDURES.—
(1) IN GENERAL.—Chapter 74 (relating to clos-
ing agreements and compromises) is amended by re-
designating section 7123 as section 7124 and by in-
serting after section 7122 the following new section:
365
‘‘SEC. 7123. APPEALS DISPUTE RESOLUTION PROCEDURES.
‘‘(a) EARLY REFERRAL TO APPEALS PROCEDURES.—
The Secretary shall prescribe procedures by which any tax-
payer may request early referral of 1 or more unresolved
issues from the examination or collection division to the In-
ternal Revenue Service Office of Appeals.
‘‘(b) ALTERNATIVE DISPUTE RESOLUTION PROCE-
DURES.—
‘‘(1) MEDIATION.—The Secretary shall prescribe
procedures under which a taxpayer or the Internal
Revenue Service Office of Appeals may request non-
binding mediation on any issue unresolved at the
conclusion of—
‘‘(A) appeals procedures, or
‘‘(B) unsuccessful attempts to enter into a
closing agreement under section 7121 or a com-
promise under section 7122.
‘‘(2) ARBITRATION.—The Secretary shall estab-
lish a pilot program under which a taxpayer and the
Internal Revenue Service Office of Appeals may joint-
ly request binding arbitration on any issue unre-
solved at the conclusion of—
‘‘(A) appeals procedures, or
‘‘(B) unsuccessful attempts to enter into a
closing agreement under section 7121 or a com-
promise under section 7122.’’
366
(2) CONFORMING AMENDMENT.—The table of sec-
tions for chapter 74 is amended by striking the item
relating to section 7123 and inserting the following
new items:
‘‘Sec. 7123. Appeals dispute resolution procedures.
‘‘Sec. 7124. Cross references.’’
(b) APPEALS OFFICERS IN EACH STATE.—The Com-
missioner of Internal Revenue shall ensure that an appeals
officer is regularly available within each State.
(c) APPEALS VIDEOCONFERENCING ALTERNATIVE FOR
RURAL AREAS.—The Commissioner of Internal Revenue
shall consider the use of the videoconferencing of appeals
conferences between appeals officers and taxpayers seeking
appeals in rural or remote areas.
SEC. 3466. APPLICATION OF CERTAIN FAIR DEBT COLLEC-
TION PROCEDURES.
(a) IN GENERAL.—Subchapter A of chapter 64 (relat-
ing to collection) is amended by inserting after section 6303
the following new section:
‘‘SEC. 6304. FAIR TAX COLLECTION PRACTICES.
‘‘(a) COMMUNICATION WITH THE TAXPAYER.—With-
out the prior consent of the taxpayer given directly to the
Secretary or the express permission of a court of competent
jurisdiction, the Secretary may not communicate with a
taxpayer in connection with the collection of any unpaid
tax—
367
‘‘(1) at any unusual time or place or a time or
place known or which should be known to be incon-
venient to the taxpayer;
‘‘(2) if the Secretary knows the taxpayer is rep-
resented by any person authorized to practice before
the Internal Revenue Service with respect to such un-
paid tax and has knowledge of, or can readily ascer-
tain, such person’s name and address, unless such
person fails to respond within a reasonable period of
time to a communication from the Secretary or unless
such person consents to direct communication with
the taxpayer; or
‘‘(3) at the taxpayer’s place of employment if the
Secretary knows or has reason to know that the tax-
payer’s employer prohibits the taxpayer from receiv-
ing such communication.
In the absence of knowledge of circumstances to the con-
trary, the Secretary shall assume that the convenient time
for communicating with a taxpayer is after 8 a.m. and be-
fore 9 p.m., local time at the taxpayer’s location.
‘‘(b) PROHIBITION OF HARASSMENT AND ABUSE.—The
Secretary may not engage in any conduct the natural con-
sequence of which is to harass, oppress, or abuse any person
in connection with the collection of any unpaid tax. With-
368
out limiting the general application of the foregoing, the
following conduct is a violation of this subsection:
‘‘(1) The use or threat of use of violence or other
criminal means to harm the physical person, reputa-
tion, or property of any person.
‘‘(2) The use of obscene or profane language or
language the natural consequence of which is to abuse
the hearer or reader.
‘‘(3) Causing a telephone to ring or engaging
any person in telephone conversation repeatedly or
continuously with intent to annoy, abuse, or harass
any person at the called number.
‘‘(4) Except as provided under rules similar to
the rules in section 804 of the Fair Debt Collection
Practices Act (15 U.S.C. 1692b), the placement of
telephone calls without meaningful disclosure of the
caller’s identity.
‘‘(c) CIVIL ACTION FOR VIOLATIONS OF SECTION.—
‘‘For civil action for violations of this section, see
section 7433.’’
(b) CLERICAL AMENDMENT.—The table of sections for
subchapter A of chapter 64 is amended by inserting after
the item relating to section 6303 the following new item:
‘‘Sec. 6304. Fair tax collection practices.’’
369
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 3467. GUARANTEED AVAILABILITY OF INSTALLMENT
AGREEMENTS.
(a) IN GENERAL.—Section 6159 (relating to agree-
ments for payment of tax liability in installments) is
amended by redesignating subsection (c) as subsection (d)
and by inserting after subsection (b) the following new sub-
section:
‘‘(c) SECRETARY REQUIRED TO ENTER INTO INSTALL-
MENT AGREEMENTS IN CERTAIN CASES.—In the case of a
liability for tax of an individual under subtitle A, the Sec-
retary shall enter into an agreement to accept the payment
of such tax in installments if, as of the date the individual
offers to enter into the agreement—
‘‘(1) the aggregate amount of such liability (de-
termined without regard to interest, penalties, addi-
tions to the tax, and additional amounts) does not ex-
ceed $10,000,
‘‘(2) the taxpayer (and, if such liability relates
to a joint return, the taxpayer’s spouse) has not, dur-
ing any of the preceding 5 taxable years—
‘‘(A) failed to file any return of tax imposed
by subtitle A,
370
‘‘(B) failed to pay any tax required to be
shown on any such return, or
‘‘(C) entered into an installment agreement
under this section for payment of any tax im-
posed by subtitle A,
‘‘(3) the Secretary determines that the taxpayer
is financially unable to pay such liability in full
when due (and the taxpayer submits such information
as the Secretary may require to make such determina-
tion),
‘‘(4) the agreement requires full payment of such
liability within 3 years, and
‘‘(5) the taxpayer agrees to comply with the pro-
visions of this title for the period such agreement is
in effect.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the date of the enactment of this
Act.
Subtitle F—Disclosures to
Taxpayers
SEC. 3501. EXPLANATION OF JOINT AND SEVERAL LIABIL-
ITY.
(a) IN GENERAL.—The Secretary of the Treasury or
the Secretary’s delegate shall, as soon as practicable, but
not later than 180 days after the date of the enactment of
371
this Act, establish procedures to clearly alert married tax-
payers of their joint and several liabilities on all appro-
priate publications and instructions.
(b) RIGHT TO LIMIT LIABILITY.—The procedures
under subsection (a) shall include requirements that notice
of an individual’s right to limit joint and several liability
under section 6015 of the Internal Revenue Code of 1986
shall be included in the statement required by section 6227
of the Omnibus Taxpayer Bill of Rights (Internal Revenue
Service Publication No. 1) and in any collection-related no-
tices.
SEC. 3502. EXPLANATION OF TAXPAYERS’ RIGHTS IN INTER-
VIEWS WITH THE INTERNAL REVENUE SERV-
ICE.
The Secretary of the Treasury or the Secretary’s dele-
gate shall, as soon as practicable, but not later than 180
days after the date of the enactment of this Act, revise the
statement required by section 6227 of the Omnibus Tax-
payer Bill of Rights (Internal Revenue Service Publication
No. 1) to more clearly inform taxpayers of their rights—
(1) to be represented at interviews with the In-
ternal Revenue Service by any person authorized to
practice before the Internal Revenue Service, and
(2) to suspend an interview pursuant to section
7521(b)(2) of the Internal Revenue Code of 1986.
372
SEC. 3503. DISCLOSURE OF CRITERIA FOR EXAMINATION
SELECTION.
(a) IN GENERAL.—The Secretary of the Treasury or
the Secretary’s delegate shall, as soon as practicable, but
not later than 180 days after the date of the enactment of
this Act, incorporate into the statement required by section
6227 of the Omnibus Taxpayer Bill of Rights (Internal
Revenue Service Publication No. 1) a statement which sets
forth in simple and nontechnical terms the criteria and pro-
cedures for selecting taxpayers for examination. Such state-
ment shall not include any information the disclosure of
which would be detrimental to law enforcement, but shall
specify the general procedures used by the Internal Revenue
Service, including whether taxpayers are selected for exam-
ination on the basis of information available in the media
or on the basis of information provided to the Internal Rev-
enue Service by informants.
(b) TRANSMISSION TO COMMITTEES OF CONGRESS.—
The Secretary shall transmit drafts of the statement re-
quired under subsection (a) (or proposed revisions to any
such statement) to the Committee on Ways and Means of
the House of Representatives and the Committee on Finance
of the Senate on the same day.
373
SEC. 3504. EXPLANATIONS OF APPEALS AND COLLECTION
PROCESS.
The Secretary of the Treasury or the Secretary’s dele-
gate shall, as soon as practicable but not later than 180
days after the date of the enactment of this Act, include
with any 1st letter of proposed deficiency which allows the
taxpayer an opportunity for administrative review in the
Internal Revenue Service Office of Appeals an explanation
of the entire process from examination through collection
with respect to such proposed deficiency, including the as-
sistance available to the taxpayer from the National Tax-
payer Advocate at various points in the process.
SEC. 3505. EXPLANATION OF REASON FOR REFUND DENIAL.
(a) IN GENERAL.—Section 6402 (relating to authority
to make credits or refunds) is amended by adding at the
end the following new subsection:
‘‘(j) EXPLANATION
OF REASON
FOR REFUND DE-
NIAL.—In the case of a denial of a claim for refund, the
Secretary shall provide the taxpayer with an explanation
for such denial.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to denials issued after the 180th day
after the date of the enactment of this Act.
374
SEC. 3506. STATEMENTS REGARDING INSTALLMENT AGREE-
MENTS.
The Secretary of the Treasury or the Secretary’s dele-
gate shall, as soon as practicable but not later than 180
days after the date of the enactment of this Act, provide
each taxpayer who has an installment agreement in effect
under section 6159 of the Internal Revenue Code of 1986
an annual statement setting forth the initial balance at the
beginning of the year, the payments made during the year,
and the remaining balance as of the end of the year.
SEC. 3507. NOTIFICATION OF CHANGE IN TAX MATTERS
PARTNER.
(a) IN GENERAL.—Section 6231(a)(7) (defining tax
matters partner) is amended by adding at the end the fol-
lowing new sentence: ‘‘The Secretary shall, within 30 days
of selecting a tax matters partner under the preceding sen-
tence, notify all partners required to receive notice under
section 6223(a) of the name and address of the individual
selected.’’
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to selections of tax matters partners
made by the Secretary of the Treasury after the date of the
enactment of this Act.
375
Subtitle G—Low Income Taxpayer
Clinics
SEC. 3601. LOW INCOME TAXPAYER CLINICS.
(a) IN GENERAL.—Chapter 77 (relating to miscellane-
ous provisions), as amended by section 3411, is amended
by adding at the end the following new section:
‘‘SEC. 7526. LOW INCOME TAXPAYER CLINICS.
‘‘(a) IN GENERAL.—The Secretary may, subject to the
availability of appropriated funds, make grants to provide
matching funds for the development, expansion, or continu-
ation of qualified low income taxpayer clinics.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED LOW INCOME TAXPAYER CLIN-
IC.—
‘‘(A) IN GENERAL.—The term ‘qualified low
income taxpayer clinic’ means a clinic which—
‘‘(i) does not charge more than a nomi-
nal fee for its services (except for reimburse-
ment of actual costs incurred), and
‘‘(ii)(I) represents low income tax-
payers in controversies with the Internal
Revenue Service, or
‘‘(II) operates programs to inform in-
dividuals for whom English is a second lan-
376
guage about their rights and responsibilities
under this title.
‘‘(B) REPRESENTATION
OF
LOW
INCOME
TAXPAYERS.—A clinic meets the requirements of
subparagraph (A)(ii)(I) if—
‘‘(i) at least 90 percent of the tax-
payers represented by the clinic have in-
comes which do not exceed 250 percent of
the poverty level, as determined in accord-
ance with criteria established by the Direc-
tor of the Office of Management and Budg-
et, and
‘‘(ii) the amount in controversy for
any taxable year generally does not exceed
the amount specified in section 7463.
‘‘(2) CLINIC.—The term ‘clinic’ includes—
‘‘(A) a clinical program at an accredited
law, business, or accounting school in which stu-
dents represent low income taxpayers in con-
troversies arising under this title, and
‘‘(B) an organization described in section
501(c) and exempt from tax under section 501(a)
which satisfies the requirements of paragraph (1)
through representation of taxpayers or referral of
taxpayers to qualified representatives.
377
‘‘(3) QUALIFIED
REPRESENTATIVE.—The term
‘qualified representative’ means any individual
(whether or not an attorney) who is authorized to
practice before the Internal Revenue Service or the
applicable court.
‘‘(c) SPECIAL RULES AND LIMITATIONS.—
‘‘(1) AGGREGATE LIMITATION.—Unless otherwise
provided by specific appropriation, the Secretary
shall not allocate more than $3,000,000 per year (ex-
clusive of costs of administering the program) to
grants under this section.
‘‘(2) LIMITATION ON ANNUAL GRANTS TO A CLIN-
IC.—The aggregate amount of grants which may be
made under this section to a clinic for a year shall
not exceed $100,000.
‘‘(3) MULTI-YEAR GRANTS.—Upon application of
a qualified low income taxpayer clinic, the Secretary
is authorized to award a multi-year grant not to ex-
ceed 3 years.
‘‘(4) CRITERIA
FOR
AWARDS.—In determining
whether to make a grant under this section, the Sec-
retary shall consider—
‘‘(A) the numbers of taxpayers who will be
served by the clinic, including the number of tax-
378
payers in the geographical area for whom
English is a second language,
‘‘(B) the existence of other low income tax-
payer clinics serving the same population,
‘‘(C) the quality of the program offered by
the low income taxpayer clinic, including the
qualifications of its administrators and qualified
representatives, and its record, if any, in provid-
ing service to low income taxpayers, and
‘‘(D) alternative funding sources available
to the clinic, including amounts received from
other grants and contributions, and the endow-
ment and resources of the institution sponsoring
the clinic.
‘‘(5) REQUIREMENT
OF
MATCHING
FUNDS.—A
low income taxpayer clinic must provide matching
funds on a dollar for dollar basis for all grants pro-
vided under this section. Matching funds may in-
clude—
‘‘(A) the salary (including fringe benefits)
of individuals performing services for the clinic,
and
‘‘(B) the cost of equipment used in the clin-
ic.
379
Indirect expenses, including general overhead of the
institution sponsoring the clinic, shall not be counted
as matching funds.’’
(b) CLERICAL AMENDMENT.—The table of sections for
chapter 77 is amended by adding at the end the following
new section:
‘‘Sec. 7526. Low income taxpayer clinics.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
Subtitle H—Other Matters
SEC. 3701. CATALOGING COMPLAINTS.
In collecting data for the report required under section
1211 of Taxpayer Bill of Rights 2 (Public Law 104–168),
the Secretary of the Treasury or the Secretary’s delegate
shall maintain records of taxpayer complaints of mis-
conduct by Internal Revenue Service employees on an indi-
vidual employee basis.
SEC. 3702. ARCHIVE OF RECORDS OF INTERNAL REVENUE
SERVICE.
(a) IN GENERAL.—Subsection (l) of section 6103 (re-
lating to confidentiality and disclosure of returns and re-
turn information) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(17) DISCLOSURE TO NATIONAL ARCHIVES AND
RECORDS
ADMINISTRATION.—The Secretary shall,
380
upon written request from the Archivist of the United
States, disclose or authorize the disclosure of returns
and return information to officers and employees of
the National Archives and Records Administration
for purposes of, and only to the extent necessary in,
the appraisal of records for destruction or retention.
No such officer or employee shall, except to the extent
authorized by subsections (f), (i)(7), or (p), disclose
any return or return information disclosed under the
preceding sentence to any person other than to the
Secretary, or to another officer or employee of the Na-
tional Archives and Records Administration whose of-
ficial duties require such disclosure for purposes of
such appraisal.’’
(b) CONFORMING AMENDMENTS.—Section 6103(p) is
amended—
(1) in paragraph (3)(A), by striking ‘‘or (16)’’
and inserting ‘‘(16), or (17)’’,
(2) in paragraph (4), by striking ‘‘or (14)’’ and
inserting ‘‘, (14), or (17)’’ in the matter preceding
subparagraph (A), and
(3) in paragraph (4)(F)(ii), by striking ‘‘or
(15)’’ and inserting ‘‘, (15), or (17)’’.
381
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to requests made by the Archivist of the
United States after the date of the enactment of this Act.
SEC. 3703. PAYMENT OF TAXES.
The Secretary of the Treasury or the Secretary’s dele-
gate shall establish such rules, regulations, and procedures
as are necessary to allow payment of taxes by check or
money order made payable to the United States Treasury.
SEC. 3704. CLARIFICATION OF AUTHORITY OF SECRETARY
RELATING TO THE MAKING OF ELECTIONS.
Subsection (d) of section 7805 is amended by striking
‘‘by regulations or forms’’.
SEC. 3705. IRS EMPLOYEE CONTACTS.
(a) NOTICE.—The Secretary of the Treasury or the
Secretary’s delegate shall provide that any correspondence
or notice received by a taxpayer from the Internal Revenue
Service shall include in a prominent manner the name and
telephone number of an Internal Revenue Service employee
the taxpayer may contact with respect to the correspondence
or notice.
(b) SINGLE CONTACT.—The Secretary of the Treasury
or the Secretary’s delegate shall develop a procedure under
which, to the extent practicable and if advantageous to the
taxpayer, one Internal Revenue Service employee shall be
assigned to handle a taxpayer’s matter until it is resolved.
382
(c) EFFECTIVE DATE.—This section shall take effect
60 days after the date of the enactment of this Act.
SEC. 3706. USE OF PSEUDONYMS BY IRS EMPLOYEES.
(a) IN GENERAL.—Any employee of the Internal Reve-
nue Service may use a pseudonym only if—
(1) adequate justification for the use of a pseudo-
nym is provided by the employee, including protec-
tion of personal safety, and
(2) such use is approved by the employee’s super-
visor before the pseudonym is used.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
requests made after the date of the enactment of this Act.
SEC. 3707. CONFERENCES OF RIGHT IN THE NATIONAL OF-
FICE OF IRS.
(a) IN GENERAL.—In any conference of right in the
National Office of the Internal Revenue Service, participa-
tion in such conference shall, upon request of the taxpayer,
be limited to personnel of the National Office.
(b) EFFECTIVE DATE.—Subsection (a) shall apply to
requests made after the date of the enactment of this Act.
SEC. 3708. ILLEGAL TAX PROTESTER DESIGNATION.
(a) PROHIBITION.—The officers and employees of the
Internal Revenue Service—
(1) shall not designate taxpayers as illegal tax
protesters (or any similar designation), and
383
(2) in the case of any such designation made on
or before the date of the enactment of this Act—
(A) shall remove such designation from the
individual master file, and
(B) shall disregard any such designation
not located in the individual master file.
(b) DESIGNATION OF NONFILERS ALLOWED.—An offi-
cer or employee of the Internal Revenue Service may des-
ignate any appropriate taxpayer as a nonfiler, but shall
remove such designation once the taxpayer has filed income
tax returns for 2 consecutive taxable years and paid all
taxes shown on such returns.
(c) EFFECTIVE DATE.—The provisions of this section
shall take effect on the date of the enactment of this Act.
SEC. 3709. PROVISION OF CONFIDENTIAL INFORMATION TO
CONGRESS BY WHISTLEBLOWERS.
(a) IN GENERAL.—Paragraph (1) of section 6103(f)
(relating to disclosure of confidential information to com-
mittees of Congress) is amended—
(1) by striking ‘‘Upon written’’ and inserting the
following:
‘‘(A) WRITTEN REQUEST BY CHAIRMAN.—Upon
written’’; and
(2) by adding at the end the following new sub-
paragraph:
384
‘‘(B) WHISTLEBLOWER INFORMATION.—Any per-
son who otherwise has or had access to any return or
return information under this section may disclose
such return or return information to a chairman of
a committee referred to in subparagraph (A) or the
chief of staff of the Joint Committee of Taxation only
if—
‘‘(i) the disclosure is for the purpose of al-
leging an incident of employee misconduct or
taxpayer abuse, and
‘‘(ii) the chairman of the committee to
which the disclosure is made (or either chairman
in the case of disclosure to the chief of staff) gives
prior written approval for the disclosure.’’
(b) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 3710. LISTING OF LOCAL IRS TELEPHONE NUMBERS
AND ADDRESSES.
The Secretary of the Treasury or the Secretary’s dele-
gate shall, as soon as practicable, but not later than 180
days after the date of the enactment of this Act, provide
that the local telephone numbers and addresses of Internal
Revenue Service offices located in any particular area be
listed in the telephone book for that area.
385
SEC. 3711. IDENTIFICATION OF RETURN PREPARERS.
(a) IN GENERAL.—The last sentence of section 6109(a)
(relating to identifying numbers) is amended by striking
‘‘For purposes of this subsection’’ and inserting ‘‘For pur-
poses of paragraphs (1), (2), and (3)’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 3712. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE
STATE INCOME TAX OBLIGATIONS AGAINST
OVERPAYMENTS.
(a) IN GENERAL.—Section 6402 (relating to authority
to make credits or refunds) is amended by redesignating
subsections (e) through (i) as subsections (f) through (j), re-
spectively, and by inserting after subsection (d) the follow-
ing new subsection:
‘‘(e) COLLECTION OF PAST-DUE, LEGALLY ENFORCE-
ABLE STATE INCOME TAX OBLIGATIONS.—
‘‘(1) IN GENERAL.—Upon receiving notice from
any State that a named person owes a past-due, le-
gally enforceable State income tax obligation to such
State, the Secretary shall, under such conditions as
may be prescribed by the Secretary—
‘‘(A) reduce the amount of any overpayment
payable to such person by the amount of such
State income tax obligation;
386
‘‘(B) pay the amount by which such over-
payment is reduced under subparagraph (A) to
such State and notify such State of such person’s
name, taxpayer identification number, address,
and the amount collected; and
‘‘(C) notify the person making such over-
payment that the overpayment has been reduced
by an amount necessary to satisfy a past-due, le-
gally enforceable State income tax obligation.
If an offset is made pursuant to a joint return, the
notice under subparagraph (B) shall include the
names, taxpayer identification numbers, and address-
es of each person filing such return.
‘‘(2) OFFSET PERMITTED ONLY AGAINST RESI-
DENTS OF STATE SEEKING OFFSET.—Paragraph (1)
shall apply to an overpayment by any person for a
taxable year only if the address shown on the return
for such taxable year is an address within the State
seeking the offset.
‘‘(3) PRIORITIES
FOR
OFFSET.—Any overpay-
ment by a person shall be reduced pursuant to this
subsection—
‘‘(A) after such overpayment is reduced pur-
suant to—
387
‘‘(i) subsection (a) with respect to any
liability for any internal revenue tax on the
part of the person who made the overpay-
ment,
‘‘(ii) subsection (c) with respect to
past-due support, and
‘‘(iii) subsection (d) with respect to
any past-due, legally enforceable debt owed
to a Federal agency, and
‘‘(B) before such overpayment is credited to
the future liability for any Federal internal reve-
nue tax of such person pursuant to subsection
(b).
If the Secretary receives notice from 1 or more agen-
cies of the State of more than 1 debt subject to para-
graph (1) that is owed by such person to such an
agency, any overpayment by such person shall be ap-
plied against such debts in the order in which such
debts accrued.
‘‘(4) NOTICE; CONSIDERATION OF EVIDENCE.—
No State may take action under this subsection until
such State—
‘‘(A) notifies the person owing the past-due
State income tax liability that the State proposes
to take action pursuant to this section,
388
‘‘(B) gives such person at least 60 days to
present evidence that all or part of such liability
is not past-due or not legally enforceable,
‘‘(C) considers any evidence presented by
such person and determines that an amount of
such debt is past-due and legally enforceable, and
‘‘(D) satisfies such other conditions as the
Secretary may prescribe to ensure that the deter-
mination made under subparagraph (C) is valid
and that the State has made reasonable efforts to
obtain payment of such State income tax obliga-
tion.
‘‘(5) PAST-DUE, LEGALLY ENFORCEABLE STATE
INCOME TAX OBLIGATION.—For purposes of this sub-
section, the term ‘past-due, legally enforceable State
income tax obligation’ means a debt—
‘‘(A) which resulted from a judgment
which—
‘‘(i) was rendered by a court of com-
petent jurisdiction which has determined an
amount of State income tax to be due, and
‘‘(ii) is no longer subject to judicial re-
view, and
‘‘(B) which has not been delinquent for
more than 10 years.
389
For purposes of this paragraph, the term ‘State in-
come tax’ includes any local tax administered by the
chief tax administration agency of the State.
‘‘(6) REGULATIONS.—The Secretary shall issue
regulations prescribing the time and manner in
which States must submit notices of past-due, legally
enforceable State income tax obligations and the nec-
essary information that must be contained in or ac-
company such notices. The regulations shall specify
the types of State income taxes and the minimum
amount of debt to which the reduction procedure es-
tablished by paragraph (1) may be applied. The regu-
lations may require States to pay a fee to reimburse
the Secretary for the cost of applying such procedure.
Any fee paid to the Secretary pursuant to the preced-
ing sentence shall be used to reimburse appropriations
which bore all or part of the cost of applying such
procedure.
‘‘(7) ERRONEOUS
PAYMENT
TO
STATE.—Any
State receiving notice from the Secretary that an er-
roneous payment has been made to such State under
paragraph (1) shall pay promptly to the Secretary,
in accordance with such regulations as the Secretary
may prescribe, an amount equal to the amount of
such erroneous payment (without regard to whether
390
any other amounts payable to such State under such
paragraph have been paid to such State).’’.
(b) DISCLOSURE
OF
CERTAIN
INFORMATION
TO
STATES REQUESTING REFUND OFFSETS FOR PAST-DUE,
LEGALLY ENFORCEABLE STATE INCOME TAX OBLIGA-
TIONS.—
(1) Paragraph (10) of section 6103(l) is amended
by striking ‘‘(c) or (d)’’ each place it appears and in-
serting ‘‘(c), (d), or (e)’’.
(2) The paragraph heading for such paragraph
(10) is amended by striking ‘‘SECTION
6402(c) OR
6402(d)’’ and inserting ‘‘SUBSECTION (c), (d), OR (e)
OF SECTION 6402’’.
(c) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 6402 is amended by
striking ‘‘(c) and (d)’’ and inserting ‘‘(c), (d), and
(e)’’.
(2) Paragraph (2) of section 6402(d) is amended
by striking ‘‘and before such overpayment’’ and in-
serting ‘‘and before such overpayment is reduced pur-
suant to subsection (e) and before such overpayment’’.
(3) Subsection (f) of section 6402, as redesig-
nated by subsection (a), is amended—
(A) by striking ‘‘(c) or (d)’’ and inserting
‘‘(c), (d), or (e)’’, and
391
(B) by striking ‘‘Federal agency’’ and in-
serting ‘‘Federal agency or State’’.
(4) Subsection (h) of section 6402, as redesig-
nated by subsection (a), is amended by striking ‘‘sub-
section (c)’’ and inserting ‘‘subsection (c) or (e)’’.
(d) EFFECTIVE DATE.—The amendments made by this
section (other than subsection (d)) shall apply to refunds
payable under section 6402 of the Internal Revenue Code
of 1986 after December 31, 1998.
SEC. 3713. TREATMENT OF IRS NOTICES ON FOREIGN TAX
PROVISIONS.
(a) NOTICE 98–11.—
(1) MORATORIUM.—The Secretary of the Treas-
ury or his delegate shall not implement final or tem-
porary regulations with respect to Internal Revenue
Service Notice 98–11 during the period—
(A) beginning on January 16, 1998, and
(B) ending on the date which is 6 months
after the date of the enactment of this Act.
(2) SENSE OF SENATE REGARDING NOTICE.—It
is the sense of the Senate that—
(A) the Secretary of the Treasury or his del-
egate should withdraw Internal Revenue Service
Notice 98–11 and the regulations issued with re-
spect to such notice, and
392
(B) Congress, not the Department of the
Treasury or the Internal Revenue Service, should
determine the policy issues with respect to the
treatment of hybrid transactions under subpart
F of part III of subchapter N of chapter 1 of the
Internal Revenue Code of 1986.
(b) NOTICE 98–5.—It is the sense of the Senate that—
(1) the Secretary of the Treasury or his delegate
should limit any regulations issued with respect to
Internal Revenue Service Notice 98–5 to the specific
transactions contained in such notice, and
(2) such regulations should—
(A) not affect transactions undertaken in
the ordinary course of business,
(B) not have an effective date before the ear-
lier of the dates described in subparagraph (A)
or (B) of section 7805(b)(1) of the Internal Reve-
nue Code of 1986, and
(C) be issued in accordance with normal
regulatory procedures which include an oppor-
tunity for comment.
Nothing in the preceding sentence shall be construed as ex-
pressing any intent by the Senate to limit the Secretary’s
ability to address abusive transactions.
393
Subtitle I—Studies
SEC. 3801. ADMINISTRATION OF PENALTIES AND INTEREST.
The Joint Committee on Taxation and the Secretary
of the Treasury shall each conduct a separate study—
(1) reviewing the administration and implemen-
tation by the Internal Revenue Service of the interest
and penalty provisions of the Internal Revenue Code
of 1986 (including the penalty reform provisions of
the Omnibus Budget Reconciliation Act of 1989), and
(2) making any legislative and administrative
recommendations the Committee or the Secretary
deems appropriate to simplify penalty or interest ad-
ministration and reduce taxpayer burden.
Such studies shall be submitted to the Committee on Ways
and Means of the House of Representatives and the Commit-
tee on Finance of the Senate not later than 9 months after
the date of the enactment of this Act.
SEC. 3802. CONFIDENTIALITY OF TAX RETURN INFORMA-
TION.
The Joint Committee on Taxation and the Secretary
of the Treasury shall each conduct a separate study of the
scope and use of provisions regarding taxpayer confiden-
tiality, and shall report the findings of such study, together
with such recommendations as the Committee or the Sec-
retary deems appropriate, to the Congress not later than
394
one year after the date of the enactment of this Act. Such
study shall examine—
(1) the present protections for taxpayer privacy,
(2) any need for third parties to use tax return
information,
(3) whether greater levels of voluntary compli-
ance may be achieved by allowing the public to know
who is legally required to file tax returns, but does
not file tax returns, and
(4) the interrelationship of the taxpayer con-
fidentiality provisions in the Internal Revenue Code
of 1986 with such provisions in other Federal law, in-
cluding section 552a of title 5, United States Code
(commonly known as the ‘‘Freedom of Information
Act’’).
TITLE IV—CONGRESSIONAL AC-
COUNTABILITY FOR THE IN-
TERNAL REVENUE SERVICE
SEC. 4001. CENTURY DATE CHANGE.
(a) SENSE OF CONGRESS.—It is the sense of Congress
that the Internal Revenue Service should place a high prior-
ity on resolving the century date change computing prob-
lems.
395
(b) REPORT ON EFFECT OF LEGISLATION ON CENTURY
DATE CHANGE.—The Commissioner of Internal Revenue
shall expeditiously submit a report to Congress on—
(1) the overall impact of this Act on the ability
of the Internal Revenue Service to resolve the century
date change computing problems, and
(2) provisions of this Act that will require sig-
nificant amounts of computer programming prior to
December 31, 1999, in order to carry out such provi-
sions.
SEC. 4002. TAX LAW COMPLEXITY ANALYSIS.
(a) COMMISSIONER STUDY.—
(1) IN GENERAL.—The Commissioner of Internal
Revenue shall conduct each year an analysis of the
sources of the complexity of the administration of the
Federal tax laws. Such analysis may include an
analysis of—
(A) questions frequently asked by taxpayers
with respect to return filing,
(B) common errors made by taxpayers in
filling out their returns,
(C) areas of law which frequently result in
disagreements between taxpayers and the Inter-
nal Revenue Service,
396
(D) major areas of law in which there is no
(or incomplete) published guidance or in which
the law is uncertain,
(E) areas in which revenue officers make
frequent errors interpreting or applying the law,
(F) the impact of recent legislation on com-
plexity, and
(G) forms supplied by the Internal Revenue
Service, including the time it takes for taxpayers
to complete and review forms, the number of tax-
payers who use each form, and how recent legis-
lation has affected the time it takes to complete
and review forms.
(2) REPORT.—The Commissioner shall each year
report the results of the analysis conducted under
paragraph (1) to the Committee on Ways and Means
of the House of Representatives and the Committee on
Finance of the Senate, including any recommenda-
tions for reducing the complexity of the administra-
tion of the Federal tax laws.
(b) ANALYSIS
TO ACCOMPANY CERTAIN LEGISLA-
TION.—
(1) IN GENERAL.—The Joint Committee on Tax-
ation, in consultation with the Internal Revenue
Service and the Department of the Treasury, shall in-
397
clude a tax complexity analysis in each report for leg-
islation, or provide such analysis to members of the
committee reporting the legislation as soon as prac-
ticable after the report is filed, if—
(A) such legislation is reported by the Com-
mittee on Finance in the Senate, the Committee
on Ways and Means of the House of Representa-
tives, or any committee of conference, and
(B) such legislation includes a provision
which would directly or indirectly amend the In-
ternal Revenue Code of 1986 and which has
widespread applicability to individuals or small
businesses.
(2) TAX COMPLEXITY ANALYSIS.—For purposes
of this subsection, the term ‘‘tax complexity analysis’’
means, with respect to any legislation, a report on the
complexity and administrative difficulties of each
provision described in paragraph (1)(B) which—
(A) includes—
(i) an estimate of the number of tax-
payers affected by the provision, and
(ii) if applicable, the income level of
taxpayers affected by the provision, and
(B) should include (if determinable)—
398
(i) the extent to which tax forms sup-
plied by the Internal Revenue Service would
require revision and whether any new forms
would be required,
(ii) the extent to which taxpayers
would be required to keep additional
records,
(iii) the estimated cost to taxpayers to
comply with the provision,
(iv) the extent to which enactment of
the provision would require the Internal
Revenue Service to develop or modify regu-
latory guidance,
(v) the extent to which the provision
may result in disagreements between tax-
payers and the Internal Revenue Service,
and
(vi) any expected impact on the Inter-
nal Revenue Service from the provision (in-
cluding the impact on internal training, re-
vision of the Internal Revenue Manual, re-
programming of computers, and the extent
to which the Internal Revenue Service
would be required to divert or redirect re-
sources in response to the provision).
399
(3) EFFECTIVE
DATE.—This subsection shall
apply to legislation considered on or after January 1,
1999.
TITLE V—REVENUE PROVISIONS
SEC. 5001. CLARIFICATION OF DEDUCTION FOR DEFERRED
COMPENSATION.
(a) IN GENERAL.—Section 404(a) (relating to deduc-
tion for contributions of an employer to an employee’s trust
or annuity plan and compensation under a deferred-pay-
ment plan) is amended by adding at the end the following
new paragraph:
‘‘(11) DETERMINATIONS RELATING TO DEFERRED
COMPENSATION.—For purposes of determining under
this section—
‘‘(A) whether compensation of an employee
is deferred compensation, and
‘‘(B) when deferred compensation is paid,
no amount shall be treated as received by the em-
ployee, or paid, until it is actually received by the
employee.’’
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall apply to taxable years ending after
the date of the enactment of this Act.
400
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by the amendment
made by subsection (a) to change its method of ac-
counting for its first taxable year ending after the
date of the enactment of this Act—
(A) such change shall be treated as initiated
by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treasury,
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 in such first
taxable year.
SEC. 
5002. 
MODIFICATION 
TO 
FOREIGN 
TAX 
CREDIT
CARRYBACK AND CARRYOVER PERIODS.
(a) IN GENERAL.—Section 904(c) (relating to limita-
tion on credit) is amended—
(1) by striking ‘‘in the second preceding taxable
year,’’, and
(2) by striking ‘‘or fifth’’ and inserting ‘‘fifth,
sixth, or seventh’’.
401
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to credits arising in taxable years
ending after the date of the enactment of this Act.
SEC. 5003. CLARIFICATION AND EXPANSION OF MATHE-
MATICAL ERROR ASSESSMENT PROCEDURES.
(a) TIN DEEMED INCORRECT IF INFORMATION ON RE-
TURN
DIFFERS
WITH
AGENCY
RECORDS.—Section
6213(g)(2) (defining mathematical or clerical error) is
amended by adding at the end the following flush sentence:
‘‘A taxpayer shall be treated as having omitted a cor-
rect TIN for purposes of the preceding sentence if in-
formation provided by the taxpayer on the return
with respect to the individual whose TIN was pro-
vided differs from the information the Secretary ob-
tains from the person issuing the TIN.’’
(b) EXPANSION OF MATHEMATICAL ERROR PROCE-
DURES TO CASES WHERE TIN ESTABLISHES INDIVIDUAL
NOT ELIGIBLE FOR TAX CREDIT.—Section 6213(g)(2), as
amended by title VI of this Act, is amended by striking
‘‘and’’ at the end of subparagraph (J), by striking the pe-
riod at the end of the subparagraph (K) and inserting ‘‘,
and’’, and by adding at the end the following new subpara-
graph:
402
‘‘(L) the inclusion on a return of a TIN re-
quired to be included on the return under section
21, 24, or 32 if—
‘‘(i) such TIN is of an individual
whose age affects the amount of the credit
under such section, and
‘‘(ii) the computation of the credit on
the return reflects the treatment of such in-
dividual as being of an age different from
the individual’s age based on such TIN.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years ending after the date
of the enactment of this Act.
SEC. 5004. TERMINATION OF EXCEPTION FOR CERTAIN
REAL ESTATE INVESTMENT TRUSTS FROM
THE TREATMENT OF STAPLED ENTITIES.
(a) IN GENERAL.—Notwithstanding paragraph (3) of
section 136(c) of the Tax Reform Act of 1984 (relating to
stapled stock; stapled entities), the REIT gross income pro-
visions shall be applied by treating the activities and gross
income of members of the stapled REIT group properly allo-
cable to any nonqualified real property interest held by the
exempt REIT or any stapled entity which is a member of
such group (or treated under subsection (c) as held by such
REIT or stapled entity) as the activities and gross income
403
of the exempt REIT in the same manner as if the exempt
REIT and such group were 1 entity.
(b) NONQUALIFIED REAL PROPERTY INTEREST.—For
purposes of this section—
(1) IN GENERAL.—The term ‘‘nonqualified real
property interest’’ means, with respect to any exempt
REIT, any interest in real property acquired after
March 26, 1998, by the exempt REIT or any stapled
entity.
(2) EXCEPTION FOR BINDING CONTRACTS, ETC.—
Such term shall not include any interest in real prop-
erty acquired after March 26, 1998, by the exempt
REIT or any stapled entity if—
(A) the acquisition is pursuant to a written
agreement which was binding on such date and
at all times thereafter on such REIT or stapled
entity, or
(B) the acquisition is described on or before
such date in a public announcement or in a fil-
ing with the Securities and Exchange Commis-
sion.
(3) IMPROVEMENTS AND LEASES.—
(A) IN GENERAL.—Except as otherwise pro-
vided in this paragraph, the term ‘‘nonqualified
real property interest’’ shall not include—
404
(i) any improvement to land owned or
leased by the exempt REIT or any member
of the stapled REIT group, and
(ii) any repair to, or improvement of,
any improvement owned or leased by the ex-
empt REIT or any member of the stapled
REIT group,
if such ownership or leasehold interest is a quali-
fied real property interest.
(B) LEASES.—Such term shall not include
any lease of a qualified real property interest.
(C) TERMINATION
WHERE
CHANGE
IN
USE.—
(i) IN
GENERAL.—Subparagraph (A)
shall not apply to any improvement placed
in service after December 31, 1999, which is
part of a change in the use of the property
to which such improvement relates unless
the cost of such improvement does not exceed
200 percent of—
(I) the cost of such property, or
(II) if such property is substituted
basis property (as defined in section
7701(a)(42) of the Internal Revenue
405
Code of 1986), the fair market value of
the property at the time of acquisition.
(ii) BINDING
CONTRACTS.—For pur-
poses of clause (i), an improvement shall be
treated as placed in service before January
1, 2000, if such improvement is placed in
service before January 1, 2004, pursuant to
a binding contract in effect on December 31,
1999, and at all times thereafter.
(4) TREATMENT OF ENTITIES WHICH ARE NOT
STAPLED, ETC. ON MARCH 26, 1998.—Notwithstanding
any other provision of this section, all interests in
real property held by an exempt REIT or any stapled
entity with respect to such REIT (or treated under
subsection (c) as held by such REIT or stapled entity)
shall be treated as nonqualified real property interests
unless—
(A) such stapled entity was a stapled entity
with respect to such REIT as of March 26, 1998,
and at all times thereafter, and
(B) as of March 26, 1998, and at all times
thereafter, such REIT was a real estate invest-
ment trust.
(5) QUALIFIED REAL PROPERTY INTEREST.—The
term ‘‘qualified real property interest’’ means any in-
406
terest in real property other than a nonqualified real
property interest.
(c) TREATMENT OF PROPERTY HELD BY 10-PERCENT
SUBSIDIARIES.—For purposes of this section—
(1) IN GENERAL.—Any exempt REIT and any
stapled entity shall be treated as holding their propor-
tionate shares of each interest in real property held
by any 10-percent subsidiary entity of the exempt
REIT or stapled entity, as the case may be.
(2) PROPERTY HELD BY 10-PERCENT SUBSIDI-
ARIES TREATED AS NONQUALIFIED.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), any interest in real property
held by a 10-percent subsidiary entity of an ex-
empt REIT or stapled entity shall be treated as
a nonqualified real property interest.
(B) EXCEPTION FOR INTERESTS IN REAL
PROPERTY HELD ON MARCH 26, 1998, ETC.—In
the case of an entity which was a 10-percent sub-
sidiary entity of an exempt REIT or stapled en-
tity on March 26, 1998, and at all times there-
after, an interest in real property held by such
subsidiary entity shall be treated as a qualified
real property interest if such interest would be so
407
treated if held directly by the exempt REIT or
the stapled entity.
(3) REDUCTION IN QUALIFIED REAL PROPERTY
INTERESTS IF INCREASE IN OWNERSHIP OF SUBSIDI-
ARY.—If, after March 26, 1998, an exempt REIT or
stapled entity increases its ownership interest in a
subsidiary entity to which paragraph (2)(B) applies
above its ownership interest in such subsidiary entity
as of such date, the additional portion of each interest
in real property which is treated as held by the ex-
empt REIT or stapled entity by reason of such in-
creased ownership shall be treated as a nonqualified
real property interest.
(4) SPECIAL RULES FOR DETERMINING OWNER-
SHIP.—For purposes of this subsection—
(A) percentage ownership of an entity shall
be determined in accordance with subsection
(e)(4),
(B) interests in the entity which are ac-
quired by the exempt REIT or stapled entity in
any acquisition described in an agreement, an-
nouncement, or filing described in subsection
(b)(2) shall be treated as acquired on March 26,
1998, and
408
(C) except as provided in guidance pre-
scribed by the Secretary, any change in propor-
tionate ownership which is attributable solely to
fluctuations in the relative fair market values of
different classes of stock shall not be taken into
account.
(d) TREATMENT OF PROPERTY SECURED BY MORT-
GAGE HELD BY EXEMPT REIT OR MEMBER OF STAPLED
REIT GROUP.—
(1) IN
GENERAL.—In the case of any non-
qualified obligation held by an exempt REIT or any
member of the stapled REIT group, the REIT gross
income provisions shall be applied by treating the ex-
empt REIT as having impermissible tenant service
income equal to—
(A) the interest income from such obligation
which is properly allocable to the property de-
scribed in paragraph (2), and
(B) the income of any member of the stapled
REIT group from services described in para-
graph (2) with respect to such property.
If the income referred to in subparagraph (A) or (B)
is of a 10-percent subsidiary entity, only the portion
of such income which is properly allocable to the ex-
409
empt REIT’s or the stapled entity’s interest in the
subsidiary entity shall be taken into account.
(2) NONQUALIFIED OBLIGATION.—Except as oth-
erwise provided in this subsection, the term ‘‘non-
qualified obligation’’ means any obligation secured by
a mortgage on an interest in real property if the in-
come of any member of the stapled REIT group for
services furnished with respect to such property would
be impermissible tenant service income were such
property held by the exempt REIT and such services
furnished by the exempt REIT.
(3) EXCEPTION FOR CERTAIN MARKET RATE OB-
LIGATIONS.—Such term shall not include any obliga-
tion—
(A) payments under which would be treated
as interest if received by a REIT, and
(B) the rate of interest on which does not
exceed an arm’s length rate.
(4) EXCEPTION FOR EXISTING OBLIGATIONS.—
Such term shall not include any obligation—
(A) which is secured on March 26, 1998, by
an interest in real property, and
(B) which is held on such date by the ex-
empt REIT or any entity which is a member of
410
the stapled REIT group on such date and at all
times thereafter,
but only so long as such obligation is secured by such
interest. The preceding sentence shall not cease to
apply by reason of the refinancing of the obligation
if (immediately after the refinancing) the principal
amount of the obligation resulting from the refinanc-
ing does not exceed the principal amount of the refi-
nanced obligation (immediately before the refinanc-
ing).
(5) TREATMENT OF ENTITIES WHICH ARE NOT
STAPLED, ETC. ON MARCH 26, 1998.—A rule similar to
the rule of subsection (b)(4) shall apply for purposes
of this subsection.
(6) INCREASE IN AMOUNT OF NONQUALIFIED OB-
LIGATIONS IF INCREASE IN OWNERSHIP OF SUBSIDI-
ARY.—A rule similar to the rule of subsection (c)(3)
shall apply for purposes of this subsection.
(7) COORDINATION WITH SUBSECTION (a).—This
subsection shall not apply to the portion of any inter-
est in real property that the exempt REIT or stapled
entity holds or is treated as holding under this section
without regard to this subsection.
(e) DEFINITIONS.—For purposes of this section—
411
(1) REIT GROSS
INCOME
PROVISIONS.—The
term ‘‘REIT gross income provisions’’ means—
(A) paragraphs (2), (3), and (6) of section
856(c) of the Internal Revenue Code of 1986, and
(B) section 857(b)(5) of such Code.
(2) EXEMPT REIT.—The term ‘‘exempt REIT’’
means a real estate investment trust to which section
269B of the Internal Revenue Code of 1986 does not
apply by reason of paragraph (3) of section 136(c) of
the Tax Reform Act of 1984.
(3) STAPLED REIT GROUP.—The term ‘‘stapled
REIT group’’ means, with respect to an exempt
REIT, the group consisting of—
(A) all entities which are stapled entities
with respect to the exempt REIT, and
(B) all entities which are 10-percent sub-
sidiary entities of the exempt REIT or any such
stapled entity.
(4) 10-PERCENT SUBSIDIARY ENTITY.—
(A) IN
GENERAL.—The term ‘‘10-percent
subsidiary entity’’ means, with respect to any
exempt REIT or stapled entity, any entity in
which the exempt REIT or stapled entity (as the
case may be) directly or indirectly holds at least
a 10-percent interest.
412
(B) EXCEPTION FOR CERTAIN C CORPORA-
TION
SUBSIDIARIES
OF
REITS.—A corporation
which would, but for this subparagraph, be treat-
ed as a 10-percent subsidiary of an exempt
REIT shall not be so treated if such corporation
is taxable under section 11 of the Internal Reve-
nue Code of 1986.
(C) 10-PERCENT INTEREST.—The term ‘‘10-
percent interest’’ means—
(i) in the case of an interest in a cor-
poration, ownership of 10 percent (by vote
or value) of the stock in such corporation,
(ii) in the case of an interest in a
partnership, ownership of 10 percent of the
assets or net profits interest in the partner-
ship, and
(iii) in any other case, ownership of 10
percent of the beneficial interests in the en-
tity.
(5) OTHER DEFINITIONS.—Terms used in this
section which are used in section 269B or section 856
of such Code shall have the respective meanings given
such terms by such section.
(f) GUIDANCE.—The Secretary may prescribe such
guidance as may be necessary or appropriate to carry out
413
the purposes of this section, including guidance to prevent
the avoidance of such purposes and to prevent the double
counting of income.
(g) EFFECTIVE DATE.—This section shall apply to
taxable years ending after March 26, 1998.
SEC. 5005. CERTAIN CUSTOMER RECEIVABLES INELIGIBLE
FOR MARK-TO-MARKET TREATMENT.
(a) CERTAIN RECEIVABLES NOT ELIGIBLE FOR MARK
TO MARKET.—Section 475(c) (relating to definitions) is
amended by adding at the end the following new paragraph:
‘‘(4) SPECIAL
RULES
FOR
CERTAIN
RECEIV-
ABLES.—
‘‘(A) IN GENERAL.—Paragraph (2)(C) shall
not include any note, bond, debenture, or other
evidence of indebtedness which is nonfinancial
customer paper.
‘‘(B) NONFINANCIAL
CUSTOMER
PAPER.—
For purposes of subparagraph (A), the term
‘nonfinancial customer paper’ means any receiv-
able—
‘‘(i) arising out of the sale of goods or
services by a person the principal activity
of which is the selling or providing of non-
financial goods and services, and
414
‘‘(ii) held by such person (or a person
who bears a relationship to such person de-
scribed in section 267(b) or 707(b)) at all
times since issue.’’
(b) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by
this section shall apply to taxable years ending after
the date of the enactment of this Act.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by the amendments
made by this section to change its method of account-
ing for its first taxable year ending after the date of
the enactment of this Act—
(A) such change shall be treated as initiated
by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treasury,
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 such
first taxable year.
415
SEC. 5006. INCLUSION OF ROTAVIRUS GASTROENTERITIS
TO LIST OF TAXABLE VACCINES.
(a) IN GENERAL.—Section 4132(1) (defining taxable
vaccine) is amended by adding at the end the following new
subparagraph:
‘‘(K) 
Any 
vaccine 
against 
rotavirus
gastroenteritis.’’
(b) EFFECTIVE DATE.—
(1) SALES.—The amendment made by this sec-
tion shall apply to sales after the date of the enact-
ment of this Act.
(2) DELIVERIES.—For purposes of paragraph
(1), in the case of sales on or before the date of the
enactment of this Act for which delivery is made after
such date, the delivery date shall be considered the
sale date.
TITLE VI—TECHNICAL
CORRECTIONS
SEC. 6001. SHORT TITLE.
This title may be cited as the ‘‘Tax Technical Correc-
tions Act of 1998’’.
SEC. 6002. DEFINITIONS.
For purposes of this title—
(1) 1986 CODE.—The term ‘‘1986 Code’’ means
the Internal Revenue Code of 1986.
416
(2) 1997 ACT.—The term ‘‘1997 Act’’ means the
Taxpayer Relief Act of 1997.
SEC. 6003. AMENDMENTS RELATED TO TITLE I OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 101(a) OF
1997 ACT.—
(1) Subsection (d) of section 24 of the 1986 Code
is amended—
(A) by striking paragraphs (3) and (4),
(B) by redesignating paragraph (5) as
paragraph (3), and
(C) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
‘‘(1) IN GENERAL.—In the case of a taxpayer
with 3 or more qualifying children for any taxable
year, the aggregate credits allowed under subpart C
shall be increased by the lesser of—
‘‘(A) the credit which would be allowed
under this section without regard to this sub-
section and the limitation under section 26(a),
or
‘‘(B) the amount by which the aggregate
amount of credits allowed by this subpart (with-
out regard to this subsection) would increase if
the limitation imposed by section 26(a) were in-
creased by the excess (if any) of—
417
‘‘(i) the taxpayer’s social security taxes
for the taxable year, over
‘‘(ii) the credit allowed under section
32 (determined without regard to subsection
(n)) for the taxable year.
The amount of the credit allowed under this sub-
section shall not be treated as a credit allowed under
this subpart and shall reduce the amount of credit
otherwise allowable under subsection (a) without re-
gard to section 26(a).
‘‘(2) REDUCTION OF CREDIT TO TAXPAYER SUB-
JECT TO ALTERNATIVE MINIMUM TAX.—The credit de-
termined under this subsection for the taxable year
shall be reduced by the excess (if any) of—
‘‘(A) the amount of tax imposed by section
55 (relating to alternative minimum tax) with
respect to such taxpayer for such taxable year,
over
‘‘(B) the amount of the reduction under sec-
tion 32(h) with respect to such taxpayer for such
taxable year.’’
(2) Paragraph (3) of section 24(d) of the 1986
Code (as redesignated by paragraph (1)) is amended
by striking ‘‘paragraph (3)’’ and inserting ‘‘para-
graph (1)’’.
418
(b) AMENDMENTS RELATED TO SECTION 101(b) OF
1997 ACT.—
(1) The subsection (m) of section 32 of the 1986
Code added by section 101(b) of the 1997 Act is
amended to read as follows:
‘‘(n) SUPPLEMENTAL CHILD CREDIT.—
‘‘(1) IN GENERAL.—In the case of a taxpayer
with respect to whom a credit is allowed under sec-
tion 24(a) for the taxable year, the credit otherwise
allowable under this section shall be increased by the
lesser of—
‘‘(A) the excess of—
‘‘(i) the credits allowed under subpart
A (determined after the application of sec-
tion 26 and without regard to this sub-
section), over
‘‘(ii) the credits which would be al-
lowed under subpart A after the application
of section 26, determined without regard to
section 24 and this subsection, or
‘‘(B) the excess of—
‘‘(i) the sum of the credits allowed
under this part (determined without regard
to sections 31, 33, and 34 and this sub-
section), over
419
‘‘(ii) the sum of the regular tax and the
social security taxes (as defined in section
24(d)).
The credit determined under this subsection shall be
allowed without regard to any other provision of this
section, including subsection (d).
‘‘(2) COORDINATION
WITH
OTHER
CREDITS.—
The amount of the credit under this subsection shall
reduce the amount of the credits otherwise allowable
under subpart A for the taxable year (determined
after the application of section 26), but the amount
of the credit under this subsection (and such reduc-
tion) shall not be taken into account in determining
the amount of any other credit allowable under this
part.’’.
SEC. 6004. AMENDMENTS RELATED TO TITLE II OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 201 OF 1997
ACT.—
(1) The item relating to section 25A in the table
of sections for subpart A of part IV of subchapter A
of chapter 1 of the 1986 Code is amended to read as
follows:
‘‘Sec. 25A. Hope and Lifetime Learning credits.’’
(2) Subsection (a) of section 6050S of the 1986
Code is amended to read as follows:
‘‘(a) IN GENERAL.—Any person—
420
‘‘(1) which is an eligible educational institu-
tion—
‘‘(A) which receives payments for qualified
tuition and related expenses with respect to any
individual for any calendar year, or
‘‘(B) which makes reimbursements or re-
funds (or similar amounts) to any individual of
qualified tuition and related expenses,
‘‘(2) which is engaged in a trade or business of
making payments to any individual under an insur-
ance arrangement as reimbursements or refunds (or
similar amounts) of qualified tuition and related ex-
penses, or
‘‘(3) except as provided in regulations, which is
engaged in a trade or business and, in the course of
which, receives from any individual interest aggregat-
ing $600 or more for any calendar year on 1 or more
qualified education loans,
shall make the return described in subsection (b) with re-
spect to the individual at such time as the Secretary may
by regulations prescribe.’’
(3) Subparagraph (A) of section 201(c)(2) of the
1997 Act is amended to read as follows:
‘‘(A) 
Subparagraph 
(B) 
of 
section
6724(d)(1) (relating to definitions) is amended
421
by redesignating clauses (x) through (xv) as
clauses (xi) through (xvi), respectively, and by
inserting after clause (ix) the following new
clause:
‘‘ ‘(x) section 6050S (relating to re-
turns relating to payments for qualified tui-
tion and related expenses),’ ’’.
(b) AMENDMENT RELATED TO SECTION 202 OF 1997
ACT.—Paragraph (1) of section 221(e) of the 1986 Code is
amended by inserting ‘‘by the taxpayer’’ after ‘‘incurred’’
the first place it appears.
(c) AMENDMENTS RELATED TO SECTION 211 OF 1997
ACT.—
(1) Paragraph (3) of section 135(c) of the 1986
Code is amended to read as follows:
‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.—The
term ‘eligible educational institution’ has the mean-
ing given such term by section 529(e)(5).’’
(2) Subparagraph (A) of section 529(c)(3) of the
1986 Code is amended by striking ‘‘section 72(b)’’
and inserting ‘‘section 72’’.
(3) Paragraph (2) of section 529(e) of the 1986
Code is amended to read as follows:
422
‘‘(2) MEMBER OF FAMILY.—The term ‘member of
the family’ means, with respect to any designated
beneficiary—
‘‘(A) the spouse of such beneficiary,
‘‘(B) an individual who bears a relation-
ship to such beneficiary which is described in
paragraphs (1) through (8) of section 152(a),
and
‘‘(C) the spouse of any individual described
in subparagraph (B).’’
(d) AMENDMENTS RELATED TO SECTION 213 OF 1997
ACT.—
(1) Section 530(b)(1) of the 1986 Code (defining
education individual retirement account) is amended
by inserting ‘‘an individual who is’’ before ‘‘the des-
ignated beneficiary’’ in the material preceding sub-
paragraph (A).
(2)(A) Section 530(b)(1)(E) of the 1986 Code
(defining education individual retirement account) is
amended to read as follows:
‘‘(E) Except as provided in subsection
(d)(7), any balance to the credit of the des-
ignated beneficiary on the date on which the ben-
eficiary attains age 30 shall be distributed with-
in 30 days after such date to the beneficiary or,
423
if the beneficiary dies before attaining age 30,
shall be distributed within 30 days after the date
of death of such beneficiary.’’
(B) Paragraph (7) of section 530(d) of the 1986
Code is amended by inserting at the end the following
new sentence: ‘‘In applying the preceding sentence,
members of the family of the designated beneficiary
shall be treated in the same manner as the spouse
under such paragraph (8).’’
(C) Subsection (d) of section 530 of the 1986
Code is amended by adding at the end the following
new paragraph:
‘‘(8) DEEMED DISTRIBUTION ON REQUIRED DIS-
TRIBUTION DATE.—In any case in which a distribu-
tion is required under subsection (b)(1)(E), any bal-
ance to the credit of a designated beneficiary as of the
close of the 30-day period referred to in such sub-
section for making such distribution shall be deemed
distributed at the close of such period.’’
(3)(A) Paragraph (1) of section 530(d) of the
1986 Code is amended by striking ‘‘section 72(b)’’
and inserting ‘‘section 72’’.
(B) Subsection (e) of section 72 of the 1986 Code
is amended by inserting after paragraph (8) the fol-
lowing new paragraph:
424
‘‘(9) EXTENSION OF PARAGRAPH (2)(B) TO QUALI-
FIED STATE TUITION PROGRAMS AND EDUCATIONAL
INDIVIDUAL RETIREMENT ACCOUNTS.—Notwithstand-
ing any other provision of this subsection, paragraph
(2)(B) shall apply to amounts received under a quali-
fied State tuition program (as defined in section
529(b)) or under an education individual retirement
account (as defined in section 530(b)). The rule of
paragraph (8)(B) shall apply for purposes of this
paragraph.’’
(4) Paragraph (2) of section 135(d) of the 1986
Code is amended to read as follows:
‘‘(2) COORDINATION WITH OTHER HIGHER EDU-
CATION BENEFITS.—The amount of the qualified high-
er education expenses otherwise taken into account
under subsection (a) with respect to the education of
an individual shall be reduced (before the application
of subsection (b)) by—
‘‘(A) the amount of such expenses which are
taken into account in determining the credit al-
lowable to the taxpayer or any other person
under section 25A with respect to such expenses,
and
425
‘‘(B) the amount of such expenses which are
taken into account in determining the exclusion
under section 530(d)(2).’’
(5) Section 530(d)(2) (relating to distributions
for qualified higher education expenses) is amended
by adding at the end the following new subparagraph:
‘‘(D) 
DISALLOWANCE
OF
EXCLUDED
AMOUNTS AS CREDIT OR DEDUCTION.—No deduc-
tion or credit shall be allowed to the taxpayer
under any other section of this chapter for any
qualified education expenses to the extent taken
into account in determining the amount of the
exclusion under this paragraph.’’
(6) Section 530(d)(4)(B) of the 1986 Code (relat-
ing to exceptions) is amended by striking ‘‘or’’ at the
end of clause (ii), by striking the period at the end
of clause (iii) and inserting ‘‘, or’’, and by adding at
the end the following new clause:
‘‘(iv) an amount which is includible in
gross income solely because the taxpayer
elected under paragraph (2)(C) to waive the
application of paragraph (2) for the taxable
year.’’
426
(7) So much of section 530(d)(4)(C) of the 1986
Code as precedes clause (ii) thereof is amended to
read as follows:
‘‘(C) CONTRIBUTIONS
RETURNED
BEFORE
DUE DATE OF RETURN.—Subparagraph (A) shall
not apply to the distribution of any contribution
made during a taxable year on behalf of the des-
ignated beneficiary if—
‘‘(i) such distribution is made on or
before the day prescribed by law (including
extensions of time) for filing the bene-
ficiary’s return of tax for the taxable year
or, if the beneficiary is not required to file
such a return, the 15th day of the 4th
month of the taxable year following the tax-
able year, and’’.
(8) Subparagraph (C) of section 135(c)(2) of the
1986 Code is amended—
(A) by inserting ‘‘AND EDUCATION INDIVID-
UAL
RETIREMENT
ACCOUNTS’’ in the heading
after ‘‘PROGRAM’’, and
(B) by striking ‘‘section 529(c)(3)(A)’’ and
inserting ‘‘section 72’’.
(9) Paragraph (1) of section 4973(e) of the 1986
Code is amended to read as follows:
427
‘‘(1) IN GENERAL.—In the case of education in-
dividual retirement accounts maintained for the bene-
fit of any 1 beneficiary, the term ‘excess contributions’
means the sum of—
‘‘(A) the amount by which the amount con-
tributed for the taxable year to such accounts ex-
ceeds $500 (or, if less, the sum of the maximum
amounts permitted to be contributed under sec-
tion 530(c) by the contributors to such accounts
for such year),
‘‘(B) if any amount is contributed during
such year to a qualified State tuition program
for the benefit of such beneficiary, any amount
contributed to such accounts for any taxable
year, and
‘‘(C) the amount determined under this sub-
section for the preceding taxable year, reduced by
the sum of—
‘‘(i) the distributions out of the ac-
counts for the taxable year which are in-
cluded in gross income, and
‘‘(ii) the excess (if any) of the maxi-
mum amount which may be contributed to
the accounts for the taxable year (other than
excess contributions within the meaning of
428
subparagraphs (A) and (B)) over the
amount contributed to the accounts for the
taxable year.’’
(e) AMENDMENTS RELATED TO SECTION 224 OF 1997
ACT.—
(1) Clauses (vi) and (vii) of section 170(e)(6)(B)
of the 1986 Code are each amended by striking ‘‘enti-
ty’s’’ and inserting ‘‘donee’s’’.
(2) Clause (iv) of section 170(e)(6)(B) of the
1986 Code is amended by striking ‘‘organization or
entity’’ and inserting ‘‘donee’’.
(3) Subclause (I) of section 170(e)(6)(C)(ii) of
the 1986 Code is amended by striking ‘‘an entity’’
and inserting ‘‘a donee’’.
(4) Section 170(e)(6)(F) of the 1986 Code (relat-
ing to termination) is amended by striking ‘‘1999’’
and inserting ‘‘2000’’.
(f) AMENDMENTS RELATED TO SECTION 225 OF 1997
ACT.—
(1) The last sentence of section 108(f)(2) of the
1986 Code is amended to read as follows:
‘‘The term ‘student loan’ includes any loan made by
an educational organization described in section
170(b)(1)(A)(ii) or by an organization exempt from
tax under section 501(a) to refinance a loan to an in-
429
dividual to assist the individual in attending any
such educational organization but only if the refi-
nancing loan is pursuant to a program of the refi-
nancing organization which is designed as described
in subparagraph (D)(ii).’’
(2) Section 108(f)(3) of the 1986 Code is amend-
ed by striking ‘‘(or by an organization described in
paragraph (2)(E) from funds provided by an organi-
zation described in paragraph (2)(D))’’.
(g) AMENDMENTS RELATED TO SECTION 226 OF 1997
ACT.—
(1) Section 226(a) of the 1997 Act is amended
by striking ‘‘section 1397E’’ and inserting ‘‘section
1397D’’.
(2) Section 1397E(d)(4)(B) of the 1986 Code is
amended by striking ‘‘local education agency as de-
fined’’ and inserting ‘‘local educational agency as de-
fined’’.
(3) Section 1397E is amended by adding at the
end the following new subsection:
‘‘(h) CREDIT TREATED AS ALLOWED UNDER PART IV
OF SUBCHAPTER A.—For purposes of subtitle F, the credit
allowed by this section shall be treated as a credit allowable
under part IV of subchapter A of this chapter.’’
430
SEC. 6005. AMENDMENTS RELATED TO TITLE III OF 1997
ACT.
(a) AMENDMENTS RELATED TO SECTION 301 OF 1997
ACT.—
(1) Section 219(g) of the 1986 Code is amend-
ed—
(A) by inserting ‘‘or the individual’s
spouse’’ after ‘‘individual’’ in paragraph (1),
and
(B) by striking paragraph (7) and insert-
ing:
‘‘(7) SPECIAL RULE FOR SPOUSES WHO ARE NOT
ACTIVE PARTICIPANTS.—If this subsection applies to
an individual for any taxable year solely because
their spouse is an active participant, then, in apply-
ing this subsection to the individual (but not their
spouse)—
‘‘(A) the applicable dollar amount under
paragraph (3)(B)(i) shall be $150,000, and
‘‘(B) the amount applicable under para-
graph (2)(A)(ii) shall be $10,000.’’
(2) Paragraph (2) of section 301(a) of the 1997
Act is amended by inserting ‘‘after ‘$10,000’ ’’ before
the period.
(b) AMENDMENTS RELATED TO SECTION 302 OF 1997
ACT.—
431
(1) Section 408A(c)(3)(A) of the 1986 Code is
amended by striking ‘‘shall be reduced’’ and inserting
‘‘shall not exceed an amount equal to the amount de-
termined under paragraph (2)(A) for such taxable
year, reduced’’.
(2) Section 408A(c)(3) of the 1986 Code (relating
to limits based on modified adjusted gross income) is
amended—
(A) by inserting ‘‘or a married individual
filing a separate return’’ after ‘‘joint return’’ in
subparagraph (A)(ii),
(B) in subparagraph (B)—
(i) by inserting ‘‘, for the taxable year
of the distribution to which such contribu-
tion relates’’ after ‘‘if’’, and
(ii) by striking ‘‘for such taxable year’’
in clause (i), and
(C) by striking ‘‘and the deduction under
section 219 shall be taken into account’’ in sub-
paragraph (C)(i).
(3)(A) Section 408A(d)(2) of the 1986 Code (de-
fining qualified distribution) is amended by striking
subparagraph (B) and inserting the following:
‘‘(B) DISTRIBUTIONS
WITHIN
NONEXCLU-
SION PERIOD.—A payment or distribution from
432
a Roth IRA shall not be treated as a qualified
distribution under subparagraph (A) if such
payment or distribution is made within the 5-
taxable year period beginning with the 1st tax-
able year for which the individual made a con-
tribution to a Roth IRA (or such individual’s
spouse made a contribution to a Roth IRA) es-
tablished for such individual.’’
(B) Section 408A(d)(2) of the 1986 Code is
amended by adding at the end the following new sub-
paragraph:
‘‘(C) DISTRIBUTIONS OF EXCESS CONTRIBU-
TIONS AND EARNINGS.—The term ‘qualified dis-
tribution’ shall not include any distribution of
any contribution described in section 408(d)(4)
and any net income allocable to the contribu-
tion.’’
(4) Section 408A(d)(3) of the 1986 Code (relat-
ing to rollovers from IRAs other than Roth IRAs) is
amended—
(A) by striking clause (iii) of subparagraph
(A) and inserting:
‘‘(iii) unless the taxpayer elects not to
have this clause apply for any taxable year,
any amount required to be included in gross
433
income for such taxable year by reason of
this paragraph for any distribution before
January 1, 1999, shall be so included rat-
ably over the 4-taxable year period begin-
ning with such taxable year.
Any election under clause (iii) for any distribu-
tions during a taxable year may not be changed
after the due date for such taxable year.’’; and
(B) by adding at the end the following:
‘‘(F) SPECIAL RULES FOR CONTRIBUTIONS
TO WHICH 4-YEAR AVERAGING APPLIES.—In the
case of a qualified rollover contribution to a
Roth IRA of a distribution to which subpara-
graph (A)(iii) applied, the following rules shall
apply:
‘‘(i) ACCELERATION OF INCLUSION.—
‘‘(I) IN
GENERAL.—The amount
required to be included in gross income
for each of the first 3 taxable years in
the 4-year period under subparagraph
(A)(iii) shall be increased by the aggre-
gate distributions from Roth IRAs for
such taxable year which are allocable
under paragraph (4) to the portion of
such qualified rollover contribution re-
434
quired to be included in gross income
under subparagraph (A)(i).
‘‘(II) LIMITATION ON AGGREGATE
AMOUNT INCLUDED.—The amount re-
quired to be included in gross income
for any taxable year under subpara-
graph (A)(iii) shall not exceed the ag-
gregate amount required to be included
in gross income under subparagraph
(A)(iii) for all taxable years in the 4-
year period (without regard to sub-
clause (I)) reduced by amounts in-
cluded for all preceding taxable years.
‘‘(ii) DEATH OF DISTRIBUTEE.—
‘‘(I) IN GENERAL.—If the individ-
ual required to include amounts in
gross income under such subparagraph
dies before all of such amounts are in-
cluded, all remaining amounts shall be
included in gross income for the tax-
able year which includes the date of
death.
‘‘(II) SPECIAL RULE FOR SURVIV-
ING SPOUSE.—If the spouse of the indi-
vidual described in subclause (I) ac-
435
quires the individual’s entire interest
in any Roth IRA to which such quali-
fied rollover contribution is properly
allocable, the spouse may elect to treat
the remaining amounts described in
subclause (I) as includible in the
spouse’s gross income in the taxable
years of the spouse ending with or
within the taxable years of such indi-
vidual in which such amounts would
otherwise have been includible. Any
such election may not be made or
changed after the due date for the
spouse’s taxable year which includes
the date of death.
‘‘(G) SPECIAL RULE FOR APPLYING SECTION
72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) any portion of a distribution
from a Roth IRA is properly allocable
to a qualified rollover contribution de-
scribed in this paragraph, and
‘‘(II) such distribution is made
within the 5-taxable year period begin-
436
ning with the taxable year in which
such contribution was made,
then section 72(t) shall be applied as if such
portion were includible in gross income.
‘‘(ii) LIMITATION.—Clause (i) shall
apply only to the extent of the amount of
the qualified rollover contribution includible
in 
gross 
income 
under 
subparagraph
(A)(i).’’
(5)(A) Section 408A(d)(4) of the 1986 Code is
amended to read as follows:
‘‘(4) AGGREGATION AND ORDERING RULES.—
‘‘(A) 
AGGREGATION
RULES.—Section
408(d)(2) shall be applied separately with re-
spect to Roth IRAs and other individual retire-
ment plans.
‘‘(B) ORDERING RULES.—For purposes of
applying this section and section 72 to any dis-
tribution from a Roth IRA, such distribution
shall be treated as made—
‘‘(i) from contributions to the extent
that the amount of such distribution, when
added to all previous distributions from the
Roth IRA, does not exceed the aggregate
contributions to the Roth IRA, and
437
‘‘(ii) from such contributions in the
following order:
‘‘(I) Contributions other than
qualified 
rollover 
contributions 
to
which paragraph (3) applies.
‘‘(II) Qualified rollover contribu-
tions to which paragraph (3) applies
on a first-in, first-out basis.
Any distribution allocated to a qualified rollover
contribution under clause (ii)(II) shall be allo-
cated first to the portion of such contribution re-
quired to be included in gross income.’’
(B) Section 408A(d)(1) of the 1986 Code is
amended to read as follows:
‘‘(1) EXCLUSION.—Any qualified distribution
from a Roth IRA shall not be includible in gross in-
come.’’
(6)(A) Section 408A(d) of the 1986 Code (relat-
ing to distribution rules) is amended by adding at the
end the following:
‘‘(6) TAXPAYER
MAY
MAKE
ADJUSTMENTS
BE-
FORE DUE DATE.—
‘‘(A) IN GENERAL.—Except as provided by
the Secretary, if, on or before the due date for
any taxable year, a taxpayer transfers in a
438
trustee-to-trustee transfer any contribution to an
individual retirement plan made during such
taxable year from such plan to any other indi-
vidual retirement plan, then, for purposes of this
chapter, such contribution shall be treated as
having been made to the transferee plan (and not
the transferor plan).
‘‘(B) SPECIAL RULES.—
‘‘(i) TRANSFER
OF
EARNINGS.—Sub-
paragraph (A) shall not apply to the trans-
fer of any contribution unless such transfer
is accompanied by any net income allocable
to such contribution.
‘‘(ii) NO
DEDUCTION.—Subparagraph
(A) shall apply to the transfer of any con-
tribution only to the extent no deduction
was allowed with respect to the contribution
to the transferor plan.’’
(B) Section 408A(d)(3) of the 1986 Code, as
amended by this subsection, is amended by striking
subparagraph (D) and by redesignating subpara-
graphs (E), (F), and (G) as subparagraphs (D), (E),
and (F), respectively.
439
(7) Section 408A(d) of the 1986 Code, as amend-
ed by paragraph (6), is amended by adding at the
end the following new paragraph:
‘‘(7) DUE
DATE.—For purposes of this sub-
section, the due date for any taxable year is the date
prescribed by law (including extensions of time) for
filing the taxpayer’s return for such taxable year.’’
(8)(A) Section 4973(f) of the 1986 Code is
amended—
(i) by striking ‘‘such accounts’’ in para-
graph (1)(A) and inserting ‘‘Roth IRAs’’, and
(ii) by striking ‘‘to the accounts’’ in para-
graph (2)(B) and inserting ‘‘by the individual to
all individual retirement plans’’.
(B) Section 4973(b) of the 1986 Code is amend-
ed—
(i) by inserting ‘‘a contribution to a Roth
IRA or’’ after ‘‘other than’’ in paragraph (1)(A),
and
(ii) by inserting ‘‘(including the amount
contributed to a Roth IRA)’’ after ‘‘annuities’’ in
paragraph (2)(C).
(C) Section 302(b) of the 1997 Act is amended
by striking ‘‘Section 4973(b)’’ and inserting ‘‘Section
4973’’.
440
(9) Section 408A of the 1986 Code is amended
by adding at the end the following new subsection:
‘‘(f) INDIVIDUAL RETIREMENT PLAN.—For purposes of
this section—
‘‘(1) a simplified employee pension or a simple
retirement account may not be designated as a Roth
IRA, and
‘‘(2) contributions to any such pension or ac-
count shall not be taken into account for purposes of
subsection (c)(2)(B).’’
(c) AMENDMENTS RELATED TO SECTION 303 OF 1997
ACT.—
(1) Section 72(t)(8)(E) of the 1986 Code is
amended—
(A) by striking ‘‘120 days’’ and inserting
‘‘120th day’’, and
(B) by striking ‘‘60 days’’ and inserting
‘‘60th day’’.
(2)(A) Section 402(c)(4) of the 1986 Code is
amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, by inserting at
the end the following new subparagraph:
‘‘(C) any hardship distribution described in
section 401(k)(2)(B)(i)(IV).’’
441
(B) Section 403(b)(8)(B) of the 1986 Code is
amended by inserting ‘‘(including paragraph (4)(C)
thereof)’’ after ‘‘section 402(c)’’.
(C) The amendments made by this paragraph
shall apply to distributions after December 31, 1998.
(d) AMENDMENTS RELATED TO SECTION 311 OF 1997
ACT.—
(1) Subsection (h) of section 1 of the 1986 Code
(relating to maximum capital gains rate) is amended
to read as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
‘‘(1) IN GENERAL.—If a taxpayer has a net cap-
ital gain for any taxable year, the tax imposed by
this section for such taxable year shall not exceed the
sum of—
‘‘(A) a tax computed at the rates and in the
same manner as if this subsection had not been
enacted on the greater of—
‘‘(i) taxable income reduced by the net
capital gain, or
‘‘(ii) the lesser of—
‘‘(I) the amount of taxable income
taxed at a rate below 28 percent, or
‘‘(II) taxable income reduced by
the adjusted net capital gain,
442
‘‘(B) 10 percent of so much of the adjusted
net capital gain (or, if less, taxable income) as
does not exceed the excess (if any) of—
‘‘(i) the amount of taxable income
which would (without regard to this para-
graph) be taxed at a rate below 28 percent,
over
‘‘(ii) the taxable income reduced by the
adjusted net capital gain,
‘‘(C) 20 percent of the adjusted net capital
gain (or, if less, taxable income) in excess of the
amount on which a tax is determined under sub-
paragraph (B),
‘‘(D) 25 percent of the excess (if any) of—
‘‘(i) the unrecaptured section 1250
gain (or, if less, the net capital gain), over
‘‘(ii) the excess (if any) of—
‘‘(I) the sum of the amount on
which tax is determined under sub-
paragraph (A) plus the net capital
gain, over
‘‘(II) taxable income, and
‘‘(E) 28 percent of the amount of taxable in-
come in excess of the sum of the amounts on
443
which tax is determined under the preceding sub-
paragraphs of this paragraph.
‘‘(2) REDUCED CAPITAL GAIN RATES FOR QUALI-
FIED 5-YEAR GAIN.—
‘‘(A) REDUCTION IN 10-PERCENT RATE.—In
the case of any taxable year beginning after De-
cember 31, 2000, the rate under paragraph
(1)(B) shall be 8 percent with respect to so much
of the amount to which the 10-percent rate would
otherwise apply as does not exceed qualified 5-
year gain, and 10 percent with respect to the re-
mainder of such amount.
‘‘(B) REDUCTION
IN
20-PERCENT
RATE.—
The rate under paragraph (1)(C) shall be 18 per-
cent with respect to so much of the amount to
which the 20-percent rate would otherwise apply
as does not exceed the lesser of—
‘‘(i) the excess of qualified 5-year gain
over the amount of such gain taken into ac-
count under subparagraph (A) of this para-
graph, or
‘‘(ii) the amount of qualified 5-year
gain (determined by taking into account
only property the holding period for which
begins after December 31, 2000),
444
and 20 percent with respect to the remainder of
such amount. For purposes of determining under
the preceding sentence whether the holding period
of property begins after December 31, 2000, the
holding period of property acquired pursuant to
the exercise of an option (or other right or obli-
gation to acquire property) shall include the pe-
riod such option (or other right or obligation)
was held.
‘‘(3) NET CAPITAL GAIN TAKEN INTO ACCOUNT AS
INVESTMENT
INCOME.—For purposes of this sub-
section, the net capital gain for any taxable year
shall be reduced (but not below zero) by the amount
which the taxpayer takes into account as investment
income under section 163(d)(4)(B)(iii).
‘‘(4) ADJUSTED NET CAPITAL GAIN.—For pur-
poses of this subsection, the term ‘adjusted net capital
gain’ means net capital gain reduced (but not below
zero) by the sum of—
‘‘(A) unrecaptured section 1250 gain, and
‘‘(B) 28 percent rate gain.
‘‘(5) 28 PERCENT RATE GAIN.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The term ‘28 percent
rate gain’ means the excess (if any) of—
445
‘‘(i) the sum of—
‘‘(I) the aggregate long-term cap-
ital gain from property held for more
than 1 year but not more than 18
months,
‘‘(II) collectibles gain, and
‘‘(III) section 1202 gain, over
‘‘(ii) the sum of—
‘‘(I) the aggregate long-term cap-
ital loss (not described in subclause
(IV)) from property referred to in
clause (i)(I),
‘‘(II) collectibles loss,
‘‘(III) the net short-term capital
loss, and
‘‘(IV) the amount of long-term
capital loss carried under section
1212(b)(1)(B) to the taxable year.
‘‘(B) SPECIAL RULES.—
‘‘(i) SHORT SALE GAINS AND HOLDING
PERIODS.—Rules similar to the rules of sec-
tion 1233(b) shall apply where the substan-
tially identical property has been held more
than 1 year but not more than 18 months;
except that, for purposes of such rules—
446
‘‘(I) section 1233(b)(1) shall be
applied by substituting ‘18 months’ for
‘1 year’ each place it appears, and
‘‘(II) the holding period of such
property shall be treated as being 1
year on the day before the earlier of the
date of the closing of the short sale or
the date such property is disposed of.
‘‘(ii) 
LONG-TERM
LOSSES.—Section
1233(d) shall be applied separately by sub-
stituting ‘18 months’ for ‘1 year’ each place
it appears.
‘‘(iii) OPTIONS.—A rule similar to the
rule of section 1092(f) shall apply where the
stock was held for more than 18 months.
‘‘(iv) 
SECTION
1256
CONTRACTS.—
Amounts treated as long-term capital gain
or loss under section 1256(a)(3) shall be
treated as attributable to property held for
more than 18 months.
‘‘(6) COLLECTIBLES GAIN AND LOSS.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The terms ‘collectibles
gain’ and ‘collectibles loss’ mean gain or loss (re-
spectively) from the sale or exchange of a collect-
447
ible (as defined in section 408(m) without regard
to paragraph (3) thereof) which is a capital asset
held for more than 18 months but only to the ex-
tent such gain is taken into account in comput-
ing gross income and such loss is taken into ac-
count in computing taxable income.
‘‘(B) PARTNERSHIPS, ETC.—For purposes of
subparagraph (A), any gain from the sale of an
interest in a partnership, S corporation, or trust
which is attributable to unrealized appreciation
in the value of collectibles shall be treated as
gain from the sale or exchange of a collectible.
Rules similar to the rules of section 751 shall
apply for purposes of the preceding sentence.
‘‘(7) UNRECAPTURED SECTION 1250 GAIN.—For
purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘unrecaptured
section 1250 gain’ means the excess (if any) of—
‘‘(i) the amount of long-term capital
gain (not otherwise treated as ordinary in-
come) which would be treated as ordinary
income if—
‘‘(I) section 1250(b)(1) included
all depreciation and the applicable
448
percentage under section 1250(a) were
100 percent, and
‘‘(II) only gain from property
held for more than 18 months were
taken into account, over
‘‘(ii) the excess (if any) of—
‘‘(I) the amount described in
paragraph (5)(A)(ii), over
‘‘(II) the amount described in
paragraph (5)(A)(i).
‘‘(B) LIMITATION WITH RESPECT TO SEC-
TION 1231 PROPERTY.—The amount described in
subparagraph (A)(i) from sales, exchanges, and
conversions described in section 1231(a)(3)(A)
for any taxable year shall not exceed the net sec-
tion 1231 gain (as defined in section 1231(c)(3))
for such year.
‘‘(8) SECTION 1202 GAIN.—For purposes of this
subsection, the term ‘section 1202 gain’ means an
amount equal to the gain excluded from gross income
under section 1202(a).
‘‘(9) QUALIFIED 5-YEAR GAIN.—For purposes of
this subsection, the term ‘qualified 5-year gain’ means
the aggregate long-term capital gain from property
held for more than 5 years. The determination under
449
the preceding sentence shall be made without regard
to collectibles gain, gain described in paragraph
(7)(A)(i), and section 1202 gain.
‘‘(10) COORDINATION WITH RECAPTURE OF NET
ORDINARY
LOSSES
UNDER
SECTION
1231.—If any
amount is treated as ordinary income under section
1231(c), such amount shall be allocated among the
separate categories of net section 1231 gain (as de-
fined in section 1231(c)(3)) in such manner as the
Secretary may by forms or regulations prescribe.
‘‘(11) REGULATIONS.—The Secretary may pre-
scribe such regulations as are appropriate (including
regulations requiring reporting) to apply this sub-
section in the case of sales and exchanges by pass-thru
entities and of interests in such entities.
‘‘(12) PASS-THRU ENTITY DEFINED.—For pur-
poses of this subsection, the term ‘pass-thru entity’
means—
‘‘(A) a regulated investment company,
‘‘(B) a real estate investment trust,
‘‘(C) an S corporation,
‘‘(D) a partnership,
‘‘(E) an estate or trust,
‘‘(F) a common trust fund,
450
‘‘(G) a foreign investment company which
is described in section 1246(b)(1) and for which
an election is in effect under section 1247, and
‘‘(H) a qualified electing fund (as defined
in section 1295).
‘‘(13) SPECIAL
RULES
FOR
PERIODS
DURING
1997.—
‘‘(A) DETERMINATION OF 28 PERCENT RATE
GAIN.—In applying paragraph (5)—
‘‘(i) the amount determined under sub-
clause (I) of paragraph (5)(A)(i) shall in-
clude long-term capital gain (not otherwise
described in paragraph (5)(A)(i)) which is
properly taken into account for the portion
of the taxable year before May 7, 1997,
‘‘(ii) the amounts determined under
subclause (I) of paragraph (5)(A)(ii) shall
include long-term capital loss (not otherwise
described in paragraph (5)(A)(ii)) which is
properly taken into account for the portion
of the taxable year before May 7, 1997, and
‘‘(iii) clauses (i)(I) and (ii)(I) of para-
graph (5)(A) shall be applied by not taking
into account any gain and loss on property
held for more than 1 year but not more
451
than 18 months which is properly taken
into account for the portion of the taxable
year after May 6, 1997, and before July 29,
1997.
‘‘(B) OTHER SPECIAL RULES.—
‘‘(i) 
DETERMINATION
OF
UNRECAPTURED SECTION 1250 GAIN NOT TO
INCLUDE
PRE-MAY
7, 
1997
GAIN.—The
amount 
determined 
under 
paragraph
(7)(A)(i) shall not include gain properly
taken into account for the portion of the
taxable year before May 7, 1997.
‘‘(ii) OTHER TRANSITIONAL RULES FOR
18-MONTH
HOLDING
PERIOD.—Paragraphs
(6)(A) and (7)(A)(i)(II) shall be applied by
substituting ‘1 year’ for ‘18 months’ with
respect to gain properly taken into account
for the portion of the taxable year after May
6, 1997, and before July 29, 1997.
‘‘(C) SPECIAL RULES FOR PASS-THRU ENTI-
TIES.—In applying this paragraph with respect
to any pass-thru entity, the determination of
when gains and loss are properly taken into ac-
count shall be made at the entity level.’’
452
(2) Paragraph (3) of section 55(b) of the 1986
Code is amended to read as follows:
‘‘(3) MAXIMUM RATE OF TAX ON NET CAPITAL
GAIN OF NONCORPORATE TAXPAYERS.—The amount
determined under the first sentence of paragraph
(1)(A)(i) shall not exceed the sum of—
‘‘(A) the amount determined under such
first sentence computed at the rates and in the
same manner as if this paragraph had not been
enacted on the taxable excess reduced by the less-
er of—
‘‘(i) the net capital gain, or
‘‘(ii) the sum of—
‘‘(I) the adjusted net capital gain,
plus
‘‘(II) the unrecaptured section
1250 gain, plus
‘‘(B) 10 percent of so much of the adjusted
net capital gain (or, if less, taxable excess) as
does not exceed the amount on which a tax is de-
termined under section 1(h)(1)(B), plus
‘‘(C) 20 percent of the adjusted net capital
gain (or, if less, taxable excess) in excess of the
amount on which tax is determined under sub-
paragraph (B), plus
453
‘‘(D) 25 percent of the amount of taxable ex-
cess in excess of the sum of the amounts on which
tax is determined under the preceding subpara-
graphs of this paragraph.
In the case of taxable years beginning after December
31, 2000, rules similar to the rules of section 1(h)(2)
shall apply for purposes of subparagraphs (B) and
(C). Terms used in this paragraph which are also
used in section 1(h) shall have the respective mean-
ings given such terms by section 1(h) but computed
with the adjustments under this part.’’
(3) Section 57(a)(7) of the 1986 Code is amended
by adding at the end the following new sentence: ‘‘In
the case of stock the holding period of which begins
after December 31, 2000 (determined with the appli-
cation of the last sentence of section 1(h)(2)(B)), the
preceding sentence shall be applied by substituting ‘28
percent’ for ‘42 percent’.’’
(4) Paragraphs (11) and (12) of section 1223,
and section 1235(a), of the 1986 Code are each
amended by striking ‘‘1 year’’ each place it appears
and inserting ‘‘18 months’’.
(e) AMENDMENTS RELATED TO SECTION 312 OF 1997
ACT.—
454
(1) Paragraph (2) of section 121(b) of the 1986
Code is amended to read as follows:
‘‘(2) SPECIAL RULES FOR JOINT RETURNS.—In
the case of a husband and wife who make a joint re-
turn for the taxable year of the sale or exchange of the
property—
‘‘(A) $500,000 LIMITATION
FOR
CERTAIN
JOINT
RETURNS.—Paragraph (1) shall be ap-
plied by substituting ‘$500,000’ for ‘$250,000’
if—
‘‘(i) either spouse meets the ownership
requirements of subsection (a) with respect
to such property,
‘‘(ii) both spouses meet the use require-
ments of subsection (a) with respect to such
property, and
‘‘(iii) neither spouse is ineligible for
the benefits of subsection (a) with respect to
such property by reason of paragraph (3).
‘‘(B) OTHER
JOINT
RETURNS.—If such
spouses do not meet the requirements of subpara-
graph (A), the limitation under paragraph (1)
shall be the sum of the limitations under para-
graph (1) to which each spouse would be entitled
if such spouses had not been married. For pur-
455
poses of the preceding sentence, each spouse shall
be treated as owning the property during the pe-
riod that either spouse owned the property.’’
(2) Section 121(c)(1) of the 1986 Code is amend-
ed to read as follows:
‘‘(1) IN GENERAL.—In the case of a sale or ex-
change to which this subsection applies, the ownership
and use requirements of subsection (a), and subsection
(b)(3), shall not apply; but the dollar limitation
under paragraph (1) or (2) of subsection (b), which-
ever is applicable, shall be equal to—
‘‘(A) the amount which bears the same ratio
to such limitation (determined without regard to
this paragraph) as
‘‘(B)(i) the shorter of—
‘‘(I) the aggregate periods, during the
5-year period ending on the date of such
sale or exchange, such property has been
owned and used by the taxpayer as the tax-
payer’s principal residence, or
‘‘(II) the period after the date of the
most recent prior sale or exchange by the
taxpayer to which subsection (a) applied
and before the date of such sale or exchange,
bears to
456
‘‘(ii) 2 years.’’
(3) Section 312(d)(2) of the 1997 Act (relating to
sales before date of the enactment) is amended by in-
serting ‘‘on or’’ before ‘‘before’’ each place it appears
in the text and heading.
(f) AMENDMENT RELATED TO SECTION 313 OF 1997
ACT.—Section 1045 of the 1986 Code is amended by adding
at the end the following new subsection:
‘‘(c) LIMITATION ON APPLICATION TO PARTNERSHIPS
AND S CORPORATIONS.—Subsection (a) shall apply to a
partnership or S corporation for a taxable year only if at
all times during such taxable year all of the partners in
the partnership, or all of the shareholders of the S corpora-
tion, are natural persons, estates, or trusts (other than
trusts having any beneficiary which is a C corporation).’’
SEC. 6006. AMENDMENT RELATED TO TITLE IV OF 1997 ACT.
(a) AMENDMENT RELATED TO SECTION 401 OF 1997
ACT.—Paragraph (1) of section 55(e) of the 1986 Code is
amended to read as follows:
‘‘(1) IN GENERAL.—
‘‘(A) $7,500,000 GROSS RECEIPTS TEST.—
The tentative minimum tax of a corporation
shall be zero for any taxable year if the corpora-
tion’s average annual gross receipts for all 3-tax-
able-year periods ending before such taxable year
457
does not exceed $7,500,000. For purposes of the
preceding sentence, only taxable years beginning
after December 31, 1993, shall be taken into ac-
count.
‘‘(B) $5,000,000 GROSS RECEIPTS TEST FOR
FIRST 3-YEAR PERIOD.—Subparagraph (A) shall
be applied by substituting ‘$5,000,000’ for
‘$7,500,000’ for the first 3-taxable-year period
(or portion thereof) of the corporation which is
taken into account under subparagraph (A).
‘‘(C) FIRST TAXABLE YEAR CORPORATION IN
EXISTENCE.—If such taxable year is the first
taxable year that such corporation is in exist-
ence, the tentative minimum tax of such corpora-
tion for such year shall be zero.
‘‘(D) SPECIAL RULES.—For purposes of this
paragraph, the rules of paragraphs (2) and (3)
of section 448(c) shall apply.’’
(b) AMENDMENT RELATED TO SECTION 402 OF 1997
ACT.—Subsection (c) of section 168 of the 1986 Code is
amended—
(1) by striking paragraph (2), and
(2) by striking the portion of such subsection
preceding the table in paragraph (1) and inserting
the following:
458
‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes
of this section, the applicable recovery period shall be deter-
mined in accordance with the following table:’’.
SEC. 6007. AMENDMENTS RELATED TO TITLE V OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 501 OF 1997
ACT.—
(1) Paragraph (2) of section 2001(c) of the 1986
Code is amended by striking ‘‘$10,000,000’’ and all
that follows and inserting ‘‘$10,000,000. The amount
of the increase under the preceding sentence shall not
exceed the sum of the applicable credit amount under
section 2010(c) (determined without regard to section
2057(a)(3), and $359,200.’’
(2) Subsection (c) of section 2631 of the 1986
Code is amended to read as follows:
‘‘(c) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any calendar
year after 1998, the $1,000,000 amount contained in
subsection (a) shall be increased by an amount equal
to—
‘‘(A) $1,000,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1997’ for
459
‘calendar year 1992’ in subparagraph (B) there-
of.
If any amount as adjusted under the preceding sen-
tence is not a multiple of $10,000, such amount shall
be rounded to the next lowest multiple of $10,000.
‘‘(2) ALLOCATION OF INCREASE.—Any increase
under paragraph (1) for any calendar year shall
apply only to generation-skipping transfers made
during or after such calendar year; except that no
such increase for calendar years after the calendar
year in which the transferor dies shall apply to trans-
fers by such transferor.’’
(3) Subsection (f) of section 501 of the 1997 Act
is amended by inserting ‘‘(other than the amendment
made by subsection (d))’’ after ‘‘this section’’.
(b) AMENDMENTS RELATED TO SECTION 502 OF 1997
ACT.—
(1)(A) Section 2033A of the 1986 Code is hereby
moved to the end of part IV of subchapter A of chap-
ter 11 of the 1986 Code and redesignated as section
2057.
(B) So much of such section 2057 (as so redesig-
nated) as precedes subsection (b) thereof is amended
to read as follows:
460
‘‘SEC. 2057. FAMILY-OWNED BUSINESS INTERESTS.
‘‘(a) GENERAL RULE.—
‘‘(1) ALLOWANCE OF DEDUCTION.—For purposes
of the tax imposed by section 2001, in the case of an
estate of a decedent to which this section applies, the
value of the taxable estate shall be determined by de-
ducting from the value of the gross estate the adjusted
value of the qualified family-owned business interests
of the decedent which are described in subsection
(b)(2).
‘‘(2) MAXIMUM DEDUCTION.—The deduction al-
lowed by this section shall not exceed $675,000.
‘‘(3) COORDINATION WITH UNIFIED CREDIT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), if this section applies to an
estate, the applicable exclusion amount under
section 2010 shall be $625,000.
‘‘(B) INCREASE IN UNIFIED CREDIT IF DE-
DUCTION IS LESS THAN $675,000.—If the deduc-
tion allowed by this section is less than
$675,000, the amount of the applicable exclusion
amount under section 2010 shall be increased
(but not above the amount which would apply to
the estate without regard to this section) by the
excess of $675,000 over the amount of the deduc-
tion allowed.’’
461
(C) Subparagraph (A) of section 2057(b)(2) of
the 1986 Code (as so redesignated) is amended by
striking ‘‘(without regard to this section)’’.
(D) Subsection (c) of section 2057 of the 1986
Code (as so redesignated) is amended by striking
‘‘(determined without regard to this section)’’.
(E) The table of sections for part III of sub-
chapter A of chapter 11 of the 1986 Code is amended
by striking the item relating to section 2033A.
(F) The table of sections for part IV of such sub-
chapter is amended by adding at the end the follow-
ing new item:
‘‘Sec. 2057. Family-owned business interests.’’
(2) Section 2057(b)(3) of the 1986 Code (as so
redesignated) is amended to read as follows:
‘‘(3) INCLUDIBLE
GIFTS
OF
INTERESTS.—The
amount of the gifts of qualified family-owned business
interests determined under this paragraph is the sum
of—
‘‘(A) the amount of such gifts from the dece-
dent to members of the decedent’s family taken
into account under section 2001(b)(1)(B), plus
‘‘(B) the amount of such gifts otherwise ex-
cluded under section 2503(b),
to the extent such interests are continuously held by
members of such family (other than the decedent’s
462
spouse) between the date of the gift and the date of
the decedent’s death.’’
(3)(A) Section 2057(e)(2)(C) of the 1986 Code
(as so redesignated) is amended by striking ‘‘(as de-
fined in section 543(a))’’ and inserting ‘‘(as defined
in section 543(a) without regard to paragraph (2)(B)
thereof) if such trade or business were a corporation’’.
(B) Clause (ii) of section 2057(e)(2)(D) of the
1986 Code (as so redesignated) is amended by striking
‘‘income of which is described in section 543(a) or’’
and inserting ‘‘personal holding company income (as
defined in subparagraph (C)) or income described’’.
(4) Paragraph (2) of section 2057(f) of the 1986
Code (as so redesignated) is amended—
(A) by striking ‘‘(as determined under rules
similar to the rules of section 2032A(c)(2)(B))’’,
and
(B) by adding at the end the following new
subparagraph:
‘‘(C) ADJUSTED
TAX
DIFFERENCE.—For
purposes of subparagraph (A)—
‘‘(i) IN
GENERAL.—The adjusted tax
difference attributable to a qualified family-
owned business interest is the amount which
bears the same ratio to the adjusted tax dif-
463
ference with respect to the estate (deter-
mined under clause (ii)) as the value of
such interest bears to the value of all quali-
fied family-owned business interests de-
scribed in subsection (b)(2).
‘‘(ii) 
ADJUSTED
TAX
DIFFERENCE
WITH RESPECT TO THE ESTATE.—For pur-
poses of clause (i), the term ‘adjusted tax
difference with respect to the estate’ means
the excess of what would have been the es-
tate tax liability but for the election under
this section over the estate tax liability. For
purposes of this clause, the term ‘estate tax
liability’ means the tax imposed by section
2001 reduced by the credits allowable
against such tax.’’
(5)(A) Paragraph (1) of section 2057(e) of the
1986 Code (as so redesignated) is amended by adding
at the end the following:
‘‘For purposes of the preceding sentence, a decedent
shall be treated as engaged in a trade or business if
any member of the decedent’s family is engaged in
such trade or business.’’
464
(B) Subsection (f) of section 2057 of the 1986
Code (as so redesignated) is amended by adding at
the end the following new paragraph:
‘‘(3) USE IN TRADE OR BUSINESS BY FAMILY
MEMBERS.—A qualified heir shall not be treated as
disposing of an interest described in subsection
(e)(1)(A) by reason of ceasing to be engaged in a
trade or business so long as the property to which
such interest relates is used in a trade or business by
any member of such individual’s family.’’
(6) Paragraph (1) of section 2057(g) of the 1986
Code (as so redesignated) is amended by striking ‘‘or
(M)’’.
(7) Paragraph (3) of section 2057(i) of the 1986
Code (as so redesignated) is amended by redesignat-
ing subparagraphs (L), (M), and (N) as subpara-
graphs (N), (O), and (P), respectively, and by insert-
ing after subparagraph (K) the following new sub-
paragraphs:
‘‘(L) Section 2032A(g) (relating to applica-
tion to interests in partnerships, corporations,
and trusts).
‘‘(M) Subsections (h) and (i) of section
2032A.’’
465
(c) AMENDMENTS RELATED TO SECTION 503 OF THE
1997 ACT.—
(1) Clause (iii) of section 6166(b)(7)(A) of the
1986 Code is amended to read as follows:
‘‘(iii) for purposes of applying section
6601(j), the 2-percent portion (as defined in
such section) shall be treated as being zero.’’
(2) Clause (iii) of section 6166(b)(8)(A) of the
1986 Code is amended to read as follows:
‘‘(iii) 2-PERCENT INTEREST RATE NOT
TO APPLY.—For purposes of applying sec-
tion 6601(j), the 2-percent portion (as de-
fined in such section) shall be treated as
being zero.’’
(d) AMENDMENT RELATED TO SECTION 505 OF THE
1997 ACT.—Paragraphs (1) and (2) of section 7479(a) of
the 1986 Code are each amended by striking ‘‘an estate,’’
and inserting ‘‘an estate (or with respect to any property
included therein),’’.
(e) AMENDMENTS RELATED TO SECTION 506 OF THE
1997 ACT.—
(1) Paragraph (1) of section 506(e) of the 1997
Act is amended by striking ‘‘and (c)’’ and inserting
‘‘, (c), and (d)’’.
466
(2)(A) Paragraph (9) of section 6501(c) of the
1986 Code is amended by striking the last sentence.
(B) Subsection (f) of section 2001 of the 1986
Code is amended to read as follows:
‘‘(f) VALUATION OF GIFTS.—
‘‘(1) IN GENERAL—If the time has expired under
section 6501 within which a tax may be assessed
under chapter 12 (or under corresponding provisions
of prior laws) on—
‘‘(A) the transfer of property by gift made
during a preceding calendar period (as defined
in section 2502(b)), or
‘‘(B) an increase in taxable gifts required
under section 2701(d),
the value thereof shall, for purposes of computing the
tax under this chapter, be the value as finally deter-
mined for purposes of chapter 12.
‘‘(2) FINAL DETERMINATION.—For purposes of
paragraph (1), a value shall be treated as finally de-
termined for purposes of chapter 12 if—
‘‘(A) the value is shown on a return under
such chapter and such value is not contested by
the Secretary before the expiration of the time re-
ferred to in paragraph (1) with respect to such
return,
467
‘‘(B) in a case not described in subpara-
graph (A), the value is specified by the Secretary
and such value is not timely contested by the
taxpayer, or
‘‘(C) the value is determined by a court or
pursuant to a settlement agreement with the Sec-
retary.’’
(B) Subsection (c) of section 2504 of the 1986
Code is amended to read as follows:
‘‘(c) VALUATION OF GIFTS.—If the time has expired
under section 6501 within which a tax may be assessed
under this chapter 12 (or under corresponding provisions
of prior laws) on—
‘‘(1) the transfer of property by gift made during
a preceding calendar period (as defined in section
2502(b)), or
‘‘(2) an increase in taxable gifts required under
section 2701(d),
the value thereof shall, for purposes of computing the tax
under this chapter, be the value as finally determined (with-
in the meaning of section 2001(f)(2)) for purposes of this
chapter.’’
(f) AMENDMENTS RELATED TO SECTION 507 OF 1997
ACT.—
468
(1) Paragraph (3) of section 1(g) of the 1986
Code is amended by striking subparagraph (C) and
by redesignating subparagraph (D) as subparagraph
(C).
(2) Section 641 of the 1986 Code is amended by
striking subsection (c) and by redesignating sub-
section (d) as subsection (c).
(3) Paragraph (4) of section 1361(e) of the 1986
Code is amended by striking ‘‘section 641(d)’’ and in-
serting ‘‘section 641(c)’’.
(4) Subparagraph (A) of section 6103(e)(1) of
the 1986 Code is amended by striking clause (ii) and
by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii), respectively.
(g) AMENDMENTS RELATED TO SECTION 508 OF 1997
ACT.—
(1) Subsection (c) of section 2031 of the 1986
Code is amended by redesignating paragraph (9) as
paragraph (10) and by inserting after paragraph (8)
the following new paragraph:
‘‘(9) TREATMENT
OF
EASEMENTS
GRANTED
AFTER DEATH.—In any case in which the qualified
conservation easement is granted after the date of the
decedent’s death and on or before the due date (in-
cluding extensions) for filing the return of tax im-
470
(1) Section 1400B(b) of the 1986 Code is amend-
ed by inserting after paragraph (4) the following new
paragraph:
‘‘(5) TREATMENT OF DC ZONE TERMINATION.—
The termination of the designation of the DC Zone
shall be disregarded for purposes of determining
whether any property is a DC Zone asset.’’
(2) Paragraph (6) of section 1400B(b) of the
1986 Code is amended by striking ‘‘(4)(A)(ii)’’ and
inserting ‘‘(4)(A)(i) or (ii)’’.
(3) Section 1400B(c) of the 1986 Code is amend-
ed by striking ‘‘entity which is an’’.
(4) Section 1400B(d)(2) of the 1986 Code is
amended by inserting ‘‘as determined on the basis of
the 1990 census’’ after ‘‘percent’’.
(d) AMENDMENTS RELATED TO SECTION 1400C OF
1986 CODE.—
(1) Paragraph (1) of section 1400C(b) of the
1986 Code is amended by inserting ‘‘and subsection
(d)’’ after ‘‘this subsection’’.
(2) Paragraph (1) of section 1400C(c) of the
1986 Code is amended to read as follows:
‘‘(1) IN GENERAL.—The term ‘first-time home-
buyer’ means any individual if such individual (and
if married, such individual’s spouse) had no present
471
ownership interest in a principal residence in the
District of Columbia during the 1-year period ending
on the date of the purchase of the principal residence
to which this section applies.’’
(3) Subparagraph (B) of section 1400C(e)(2) of
the 1986 Code is amended by inserting before the pe-
riod ‘‘on the date the taxpayer first occupies such res-
idence’’.
(4) Paragraph (3) of section 1400C(e) of the
1986 Code is amended by striking all that follows
‘‘principal residence’’ and inserting ‘‘on the date such
residence is purchased.’’
(5) Subsection (i) of section 1400C of the 1986
Code is amended to read as follows:
‘‘(i) APPLICATION OF SECTION.—This section shall
apply to property purchased after August 4, 1997, and be-
fore January 1, 2001.’’
(6) Subsection (c) of section 23 of the 1986 Code
is amended by inserting ‘‘and section 1400C’’ after
‘‘other than this section’’.
(7) Subparagraph (C) of section 25(e)(1) of the
1986 Code is amended by striking ‘‘section 23’’ and
inserting ‘‘sections 23 and 1400C’’.
472
SEC. 6009. AMENDMENTS RELATED TO TITLE IX OF 1997
ACT.
(a) AMENDMENT RELATED TO SECTION 901 OF 1997
ACT.—Section 9503(c)(7) of the 1986 Code is amended—
(1) by striking ‘‘resulting from the amendments
made by’’ and inserting ‘‘(and transfers to the Mass
Transit Account) resulting from the amendments
made by subsections (a) and (b) of section 901 of’’,
and
(2) by inserting before the period ‘‘and deposits
in the Highway Trust Fund (and transfers to the
Mass Transit Account) shall be treated as made when
they would have been required to be made without re-
gard to section 901(e) of the Taxpayer Relief Act of
1997’’.
(b) AMENDMENT RELATED TO SECTION 907 OF 1997
ACT.—Paragraph (2) of section 9503(e) of the 1986 Code
is amended by striking the last sentence and inserting the
following new sentence: ‘‘For purposes of the preceding sen-
tence, the term ‘mass transit portion’ means, for any fuel
with respect to which tax was imposed under section 4041
or 4081 and deposited into the Highway Trust Fund, the
amount determined at the rate of—
‘‘(A) except as otherwise provided in this
sentence, 2.86 cents per gallon,
473
‘‘(B) 1.43 cents per gallon in the case of
any partially exempt methanol or ethanol fuel
(as defined in section 4041(m)) none of the alco-
hol in which consists of ethanol,
‘‘(C) 1.86 cents per gallon in the case of liq-
uefied natural gas,
‘‘(D) 2.13 cents per gallon in the case of liq-
uefied petroleum gas, and
‘‘(E) 9.71 cents per MCF (determined at
standard temperature and pressure) in the case
of compressed natural gas.’’
(c) AMENDMENT RELATED TO SECTION 908 OF 1997
ACT.—Paragraph (6) of section 5041(b) of the 1986 Code
is amended by inserting ‘‘which is a still wine’’ after ‘‘hard
cider’’.
(d) AMENDMENT RELATED TO SECTION 964 OF 1997
ACT.—
(1) IN GENERAL.—Subparagraph (C) of section
7704(g)(3) of the 1986 Code is amended by striking
the period at the end and inserting ‘‘and shall be
paid by the partnership. Section 6655 shall be ap-
plied to such partnership with respect to such tax in
the same manner as if the partnership were a cor-
poration, such tax were imposed by section 11, and
references in such section to taxable income were ref-
474
erences to the gross income referred to in subpara-
graph (A).’’
(2) EFFECTIVE DATE.—The second sentence of
section 7704(g)(3)(C) of the 1986 Code (as added by
paragraph (1)) shall apply to taxable years beginning
after the date of the enactment of this Act.
(e) AMENDMENT RELATED TO SECTION 971 OF 1997
ACT.—Clause (ii) of section 280F(a)(1)(C) is amended by
striking ‘‘subparagraph (A)’’ and inserting ‘‘subparagraphs
(A) and (B)’’.
(f) AMENDMENT RELATED TO SECTION 976 OF 1997
ACT.—Section 6103(d)(5) of the 1986 Code is amended by
striking ‘‘section 967 of the Taxpayer Relief Act of 1997.’’
and inserting ‘‘section 976 of the Taxpayer Relief Act of
1997. Subsections (a)(2) and (p)(4) and sections 7213 and
7213A shall not apply with respect to disclosures or inspec-
tions made pursuant to this paragraph.’’
(g) AMENDMENT RELATED TO SECTION 977 OF 1997
ACT.—Paragraph (2) of section 977(e) of the 1997 Act is
amended to read as follows:
‘‘(2) NON-AMTRAK STATE.—The term ‘non-Am-
trak State’ means any State which is not receiving
intercity passenger rail service from the Corporation
as of the date of the enactment of this Act.’’