view of tax administration, and that during the legislative
process, the tax writing committees of the Congress should
hear from front-line technical experts at the Internal Rev-
enue Service with respect to the administrability of pend-
ing amendments to the Internal Revenue Code of 1986.
SEC. 422. TAX COMPLEXITY ANALYSIS.
(a) REQUIRING ANALYSIS TO ACCOMPANY CERTAIN
LEGISLATION.—
(1) IN GENERAL.—Chapter 92 (relating to pow-
ers and duties of the Joint Committee on Taxation)
is amended by adding at the end the following new
section:
‘‘SEC. 8024. TAX COMPLEXITY ANALYSIS.
‘‘(a) IN GENERAL.—If—
‘‘(1) a bill or joint resolution is reported by the
Committee on Finance of the Senate, the Committee
on Ways and Means of the House of Representa-
tives, or any committee of conference, and
‘‘(2) such legislation includes any provision
amending the Internal Revenue Code of 1986,
the report for such legislation shall contain a Tax Com-
plexity Analysis unless the committee involved causes to
have the Tax Complexity Analysis printed in the Congres-
sional Record prior to the consideration of the legislation
100
in the House of Representatives or the Senate (as the case
may be).
‘‘(b) LEGISLATION SUBJECT TO POINT OF ORDER.—
It shall not be in order in the Senate to consider any bill
or joint resolution described in subsection (a) required to
be accompanied by a Tax Complexity Analysis that does
not contain a Tax Complexity Analysis.
‘‘(c) RESPONSIBILITIES OF THE COMMISSIONER.—
The Commissioner shall provide the Joint Committee on
Taxation with such information as is necessary to prepare
Tax Complexity Analyses.
‘‘(d) TAX COMPLEXITY ANALYSIS DEFINED.—For
purposes of this section, the term ‘Tax Complexity Analy-
sis’ means, with respect to a bill or joint resolution, a re-
port which is prepared by the Joint Committee on Tax-
ation and which identifies the provisions of the legislation
adding significant complexity or providing significant sim-
plification (as determined by the Joint Committee) and
includes the basis for such determination.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter 92 is amended by adding at the
end the following new item:
‘‘Sec. 8024. Tax complexity analysis.’’.
(b) LEGISLATION SUBJECT TO POINT OF ORDER IN
HOUSE OF REPRESENTATIVES.—
101
(1) LEGISLATION
REPORTED
BY
COMMITTEE
ON WAYS AND MEANS.—Clause 2(l) of rule XI of the
Rules of the House of Representatives is amended
by adding at the end the following new subpara-
graph:
‘‘(8) The report of the Committee on Ways and
Means on any bill or joint resolution containing any provi-
sion amending the Internal Revenue Code of 1986 shall
include a Tax Complexity Analysis prepared by the Joint
Committee on Taxation in accordance with section 8024
of the Internal Revenue Code of 1986 unless the Commit-
tee on Ways and Means causes to have such Analysis
printed in the Congressional Record prior to the consider-
ation of the bill or joint resolution.’’.
(2) CONFERENCE REPORTS.—Rule XXVIII of
the Rules of the House of Representatives is amend-
ed by adding at the end the following new clause:
‘‘7. It shall not be in order to consider the report
of a committee of conference which contains any provision
amending the Internal Revenue Code of 1986 unless—
‘‘(a) the accompanying joint explanatory state-
ment contains a Tax Complexity Analysis prepared
by the Joint Committee on Taxation in accordance
with section 8024 of the Internal Revenue Code of
1986, or
102
‘‘(b) such Analysis is printed in the Congres-
sional Record prior to the consideration of the re-
port.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to legislation considered on or after
January 1, 1998.
TITLE V—CLARIFICATION OF DE-
DUCTION 
FOR 
DEFERRED
COMPENSATION
SEC. 501. CLARIFICATION OF DEDUCTION FOR DEFERRED
COMPENSATION.
(a) IN GENERAL.—Subsection (a) of section 404 is
amended by adding at the end the following new para-
graph:
‘‘(11) DETERMINATIONS
RELATING
TO
DE-
FERRED COMPENSATION.—
‘‘(A) IN GENERAL.—For purposes of deter-
mining under this section—
‘‘(i) whether compensation of an em-
ployee is deferred compensation, and
‘‘(ii) when deferred compensation is
paid,
no amount shall be treated as received by the
employee, or paid, until it is actually received
by the employee.
103
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to severance pay.’’.
(b) SICK LEAVE PAY TREATED LIKE VACATION
PAY.—Paragraph (5) of section 404(a) is amended by in-
serting ‘‘or sick leave pay’’ after ‘‘vacation pay’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to taxable years ending after
October 8, 1997.
(2) CHANGE IN METHOD OF ACCOUNTING.—In
the case of any taxpayer required by this section to
change its method of accounting for its first taxable
year ending after October 8, 1997—
(A) such change shall be treated as initi-
ated by the taxpayer,
(B) such change shall be treated as made
with the consent of the Secretary of the Treas-
ury, and
(C) the net amount of the adjustments re-
quired to be taken into account by the taxpayer
under section 481 of the Internal Revenue Code
of 1986 shall be taken into account in such first
taxable year.
104
TITLE VI—TAX TECHNICAL
CORRECTIONS ACT OF 1997
SEC. 601. SHORT TITLE.
This title may be cited as the ‘‘Tax Technical Correc-
tions Act of 1997’’.
SEC. 602. DEFINITIONS.
For purposes of this title—
(1) 1986 CODE.—The term ‘‘1986 Code’’
means the Internal Revenue Code of 1986.
(2) 1997 ACT.—The term ‘‘1997 Act’’ means
the Taxpayer Relief Act of 1997.
SEC. 603. 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—
105
‘‘(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—
‘‘(i) the taxpayer’s social security
taxes for the taxable year, over
‘‘(ii) the credit allowed under section
32 (determined without regard to sub-
section (n)) for the taxable year.
The amount of the credit allowed under this
subsection shall not be treated as a credit al-
lowed under this subpart and shall reduce the
amount of credit otherwise allowable under sub-
section (a) without regard to section 26(a).
‘‘(2) REDUCTION
OF
CREDIT
TO
TAXPAYER
SUBJECT
TO
ALTERNATIVE
MINIMUM
TAX.—The
credit determined under this subsection for the tax-
able 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
106
respect to such taxpayer for such taxable year,
over
‘‘(B) the amount of the reduction under
section 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)’’.
(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 for the taxable year, the credit otherwise al-
lowable under this section shall be increased by the
lesser of—
‘‘(A) the credit which would be allowed
under section 24 without regard to this sub-
section and the limitation under section 26(a),
or
107
‘‘(B) the amount by which the aggregate
amount of credits allowed by subpart A (with-
out regard to this subsection) would be reduced
if the limitation imposed by section 26(a) were
reduced by the excess (if any) of—
‘‘(i) the credit allowed by this section
(without regard to this subsection) for the
taxable year, over
‘‘(ii) the taxpayer’s social security
taxes (as defined in section 24(d)) for the
taxable year.
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.—
‘‘(A) IN
GENERAL.—The amount of the
credit under this subsection shall reduce the
amount of the credit otherwise allowable under
section 24, but the amount of the credit under
this subsection (and such reduction) shall not
otherwise be taken into account in determining
the amount of any other credit allowable under
this part.
‘‘(B) TREATMENT OF CREDIT UNDER SEC-
TION 24(d).—For purposes of this subsection,
108
the credit determined under section 24(d) shall
be treated as not allowed under section 24.’’.
SEC. 604. 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 sub-
chapter 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—
‘‘(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
109
‘‘(3) except as provided in regulations, any per-
son which is engaged in a trade or business and, in
the course of which, receives from any individual in-
terest aggregating $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
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
tuition and related expenses),’ ’’.
(b) 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:
111
balance to the credit of a designated beneficiary as
of the close of the 30-day period referred to in such
subsection for making such distribution shall be
deemed distributed at the close of such period.’’.
(2)(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 following new paragraph:
‘‘(9) EXTENSION
OF
PARAGRAPH
(2)(B)
TO
QUALIFIED
STATE
TUITION
PROGRAMS
AND
EDU-
CATIONAL
INDIVIDUAL
RETIREMENT
ACCOUNTS.—
Notwithstanding any other provision of this sub-
section, paragraph (2)(B) shall apply to amounts re-
ceived under a qualified State tuition program (as
defined in section 529(b)) or under an education in-
dividual retirement account (as defined in section
530(b)). The rule of paragraph (8)(B) shall apply
for purposes of this paragraph.’’.
(3) 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)
112
shall not apply to the distribution of any con-
tribution made during a taxable year on behalf
of the designated 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
taxable year, and’’.
(4) Subparagraph (C) of section 135(c)(2) of
the 1986 Code is amended—
(A) by inserting ‘‘AND EDUCATION INDI-
VIDUAL RETIREMENT ACCOUNTS’’ in the head-
ing after ‘‘PROGRAM’’, and
(B) by striking ‘‘section 529(c)(3)(A)’’ and
inserting ‘‘section 72’’.
(5) Subparagraph (A) of section 4973(e)(1) of
the 1986 Code is amended by inserting before the
comma ‘‘(or, if less, the sum of the maximum
amounts permitted to be contributed under section
530(c) by the contributors to such accounts for such
year)’’.
113
(d) AMENDMENT RELATED
TO SECTION 224 OF
1997 ACT.—Section 170(e)(6)(F) of the 1986 Code (relat-
ing to termination) is amended by striking ‘‘1999’’ and
inserting ‘‘2000’’.
(e) 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
individual 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
amended by striking ‘‘(or by an organization de-
scribed in paragraph (2)(E) from funds provided by
an organization described in paragraph (2)(D))’’.
(f) AMENDMENTS RELATED TO SECTION 226 OF
1997 ACT.—
114
(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
defined’’ and inserting ‘‘local educational agency as
defined’’.
SEC. 605. AMENDMENTS RELATED TO TITLE III OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 301 OF
1997 ACT.—Section 219(g) of the 1986 Code is amend-
ed—
(1) by inserting ‘‘or the individual’s spouse’’
after ‘‘individual’’ in paragraph (1), and
(2) by striking paragraph (7) and inserting:
‘‘(7) SPECIAL RULE FOR SPOUSES WHO ARE
NOT ACTIVE PARTICIPANTS.—If this subsection ap-
plies to an individual for any taxable year solely be-
cause their spouse is an active participant, then, in
applying 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.’’.
115
(b) AMENDMENTS RELATED TO SECTION 302 OF
1997 ACT.—
(1) Section 408A(c)(3)(A) of the 1986 Code is
amended by striking ‘‘shall be reduced’’ and insert-
ing ‘‘shall not exceed an amount equal to the
amount determined under paragraph (2)(A) for such
taxable year, reduced’’.
(2) Section 408A(c)(3) of the 1986 Code (relat-
ing to limits based on modified adjusted gross in-
come) is amended—
(A) by inserting ‘‘or a married individual
filing a separate return’’ after ‘‘joint return’’ in
subparagraph (A)(ii), and
(B) by striking ‘‘and the deduction under
section 219 shall be taken into account’’ in sub-
paragraph (C)(i).
(3) 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
a Roth IRA shall not be treated as a qualified
distribution under subparagraph (A) if such
payment or distribution is made before the ex-
clusion date for the Roth IRA.
116
‘‘(C) EXCLUSION DATE.—For purposes of
this section, the exclusion date for any Roth
IRA is the first day of the taxable year imme-
diately following the 5-taxable year period be-
ginning with—
‘‘(i) the first taxable year for which a
contribution to any Roth IRA maintained
for the benefit of the individual was made,
or
‘‘(ii) in the case of a Roth IRA to
which 1 or more qualified rollover con-
tributions were made—
‘‘(I) from an individual retire-
ment plan other than a Roth IRA, or
‘‘(II) from another Roth IRA to
the extent such contributions are
properly allocable to contributions de-
scribed in subclause (I),
the most recent taxable year for which any
such qualified rollover contribution was
made.’’.
(4) Section 408A(d)(3) of the 1986 Code (relat-
ing to rollovers from IRAs other than Roth IRAs)
is amended by adding at the end the following:
117
‘‘(F) SPECIAL RULE FOR APPLYING SEC-
TION 72.—
‘‘(i) IN GENERAL.—If—
‘‘(I) any distribution from a Roth
IRA is made before the exclusion
date, and
‘‘(II) any portion of such dis-
tribution is properly allocable to a
qualified 
rollover 
contribution 
de-
scribed in paragraph (2)(C)(ii),
then section 72(t) shall be applied as if
such portion were includible in gross in-
come.
‘‘(ii) LIMITATION.—Clause (i) shall
apply only to the extent of the amount in-
cludible in gross income under subpara-
graph (A)(i) by reason of the qualified roll-
over contribution.
‘‘(G) 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) DEATH OF DISTRIBUTEE.—
118
‘‘(I) IN GENERAL.—If the indi-
vidual required to include amounts in
gross income under such subpara-
graph dies before all of such amounts
are included, all remaining amounts
shall be included in gross income for
the taxable year which includes the
date of death.
‘‘(II) SPECIAL RULE FOR SURVIV-
ING SPOUSE.—If the spouse of the in-
dividual described in subclause (I) ac-
quires the Roth IRA to which such
qualified rollover contribution is prop-
erly allocable, the spouse may elect to
include the remaining amounts de-
scribed in subclause (I) 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.
‘‘(ii) ADDITIONAL
TAX
FOR
EARLY
DISTRIBUTION.—
‘‘(I) IN
GENERAL.—If any dis-
tribution from a Roth IRA is made
119
before the exclusion date, and any
portion of such distribution is prop-
erly allocable to such qualified rollover
contribution, the distributee’s tax
under this chapter for the taxable
year in which the amount is received
shall be increased by 10 percent of the
amount of such portion not in excess
of the amount includible in gross in-
come under subparagraph (A)(i) by
reason of such qualified rollover con-
tribution.
‘‘(II) TREATMENT OF TAX.—For
purposes of this title, any tax imposed
by subclause (I) shall be treated as a
tax imposed by section 72(t) and shall
be in addition to any other tax im-
posed by such section.’’.
(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—
120
‘‘(i) Roth IRAs and other individual
retirement plans,
‘‘(ii) Roth IRAs described in para-
graph (2)(C)(ii) and Roth IRAs not so de-
scribed, and
‘‘(iii) Roth IRAs described in para-
graph (2)(C)(ii) with different exclusion
dates.
‘‘(B) ORDERING RULES.—For purposes of
applying section 72 to any distribution from a
Roth IRA which is not a qualified distribution,
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
‘‘(ii) from such contributions in the
following order:
‘‘(I) Qualified rollover contribu-
tions to the extent includible in gross
income in the manner described in
paragraph (3)(A)(iii).
‘‘(II) Qualified rollover contribu-
tions not described in subclause (I) to
121
the extent includible in gross income
under paragraph (3)(A).
‘‘(III) 
Contributions 
not 
de-
scribed in subclause (I) or (II).
Such rules shall also apply in determining the
character of qualified rollover contributions
from one Roth IRA to another Roth IRA.’’.
(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 (re-
lating 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
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
123
(8) 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, except as provided by the Secretary, the
term ‘individual retirement plan’ shall not include a sim-
plified employee pension or a simple retirement account.’’.
(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) of the 1986 Code is
amended by adding at the end the following:
‘‘(11) DENIAL OF ROLLOVER TREATMENT FOR
TRANSFERS OF HARDSHIP DISTRIBUTIONS TO INDI-
VIDUAL RETIREMENT PLANS.—This subsection shall
not apply to the transfer of any hardship distribu-
tion described in section 401(k)(2)(B)(i)(IV) from a
qualified cash or deferred arrangement to an eligible
retirement plan described in clause (i) or (ii) of
paragraph (8)(B).’’.
124
(B) The amendment made by this paragraph
shall apply to distributions made after December 31,
1997.
(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
capital 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 in-
come taxed at a rate below 28 per-
cent, or
‘‘(II) taxable income reduced by
the adjusted net capital gain,
125
‘‘(B) 10 percent of so much of the ad-
justed net capital gain (or, if less, taxable in-
come) 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 per-
cent, 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
subparagraph (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
income in excess of the sum of the amounts on
126
which tax is determined under the preceding
subparagraphs of this paragraph.
‘‘(2) REDUCED
CAPITAL
GAIN
RATES
FOR
QUALIFIED 5-YEAR GAIN.—
‘‘(A) REDUCTION IN 10-PERCENT RATE.—
In the case of any taxable year beginning after
December 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 re-
spect to the remainder of such amount.
‘‘(B) REDUCTION IN 20-PERCENT RATE.—
The rate under paragraph (1)(C) shall be 18
percent 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
account under subparagraph (A) of this
paragraph, 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),
127
and 20 percent with respect to the remainder of
such amount. For purposes of determining
under the preceding sentence whether the hold-
ing period of property begins after December
31, 2000, the holding period of property ac-
quired pursuant to the exercise of an option (or
other right or obligation to acquire property)
shall include the period 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 cap-
ital 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—
128
‘‘(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
SALES
AND
OPTIONS.—
Rules similar to the rules of subsections
(b) and (d) of section 1233 shall apply to
substantially identical property, and sec-
tion 1092(f) with respect to stock, held for
129
more than 1 year but not more than 18
months.
‘‘(ii) 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
(respectively) from the sale or exchange of a
collectible (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 extent such gain is taken into ac-
count in computing gross income and such loss
is taken into account in computing taxable in-
come.
‘‘(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 appre-
ciation in the value of collectibles shall be treat-
ed as gain from the sale or exchange of a col-
130
lectible. 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 ex-
cess (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
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).
131
‘‘(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 ex-
ceed the net section 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 in-
come under section 1202(a).
‘‘(9) QUALIFIED 5-YEAR GAIN.—For purposes
of this subsection, the term ‘qualified 5-year gain’
means the amount of long-term capital gain which
would be computed for the taxable year if only gains
from the sale or exchange of property held by the
taxpayer for more than 5 years were taken into ac-
count. The determination under the preceding sen-
tence shall be made without regard to collectibles
gain, gain described in paragraph (7)(A)(i), and sec-
tion 1202 gain.
‘‘(10) COORDINATION
WITH
RECAPTURE
OF
NET ORDINARY LOSSES UNDER SECTION 1231.—If
any amount is treated as ordinary income under sec-
tion 1231(c), such amount shall be allocated among
132
the separate categories of net section 1231 gain (as
defined 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,
‘‘(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.—
133
‘‘(A) DETERMINATION
OF
PERCENT
RATE GAIN.—In applying paragraph (5)—
‘‘(i) the amount determined under
subclause (I) of paragraph (5)(A)(i) shall
include long-term capital gain (not other-
wise 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 other-
wise 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
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.—
134
‘‘(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.—Para-
graphs (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 EN-
TITIES.—In applying this paragraph with re-
spect to any pass-thru entity, the determination
of when gains and loss are properly taken into
account shall be made at the entity level.’’.
(2) IN
GENERAL.—Paragraph (3) of section
55(b) of the 1986 Code is amended to read as fol-
lows:
‘‘(3) MAXIMUM RATE OF TAX ON NET CAPITAL
GAIN OF NONCORPORATE TAXPAYERS.—The amount
135
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
lesser 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 ad-
justed net capital gain (or, if less, taxable ex-
cess) as does not exceed the amount on which
a tax is determined 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
‘‘(D) 25 percent of the amount of taxable
excess in excess of the sum of the amounts on
136
which tax is determined under the preceding
subparagraphs of this paragraph.
In the case of taxable years beginning after Decem-
ber 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 respec-
tive meanings 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 application 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.—
(1) Section 121(c)(1) of the 1986 Code is
amended to read as follows:
137
‘‘(1) IN GENERAL.—In the case of a sale or ex-
change to which this subsection applies, the owner-
ship and use requirements of subsection (a), and
subsection (b)(3), shall not apply; but the dollar lim-
itation under paragraph (1) or (2) of subsection (b),
whichever is applicable, shall be equal to—
‘‘(A) the amount which bears the same
ratio to such limitation (determined without re-
gard 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
taxpayer’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 ex-
change, bears to
‘‘(ii) 2 years.’’.
(2) Section 312(d)(2) of the 1997 Act (relating
to sales before date of enactment) is amended by in-
serting ‘‘on or’’ before ‘‘before’’ each place it ap-
pears in the text and heading.
138
(f) AMENDMENT RELATED TO SECTION 313 OF 1997
ACT.—Section 1045 of the 1986 Code is amended by add-
ing at the end the following new subsection:
‘‘(c) LIMITATION
ON APPLICATION
TO PARTNER-
SHIPS 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 cor-
poration, are natural persons or estates.’’.
SEC. 606. AMENDMENTS RELATED TO TITLE V OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 501 OF
1997 ACT.—
(1) Subsection (c) of section 2631 of the 1986
Code is amended by striking ‘‘an individual who
dies’’ and inserting ‘‘a generation-skipping trans-
fer’’.
(2) 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) Subsection (a) of section 2033A of the 1986
Code is amended to read as follows:
‘‘(a) EXCLUSION.—
139
‘‘(1) IN GENERAL.—In the case of an estate of
a decedent to which this section applies, the value of
the gross estate shall not include the lesser of—
‘‘(A) the adjusted value of the qualified
family-owned business interests of the decedent
otherwise includible in the estate, or
‘‘(B) the exclusion limitation with respect
to such estate.
‘‘(2) EXCLUSION LIMITATION.—
‘‘(A) IN GENERAL.—The exclusion limita-
tion with respect to any estate is the amount of
reduction in the tentative tax base with respect
to such estate which would be required in order
to reduce the tax imposed by section 2001(b)
(determined without regard to this section) by
an amount equal to the maximum credit equiva-
lent benefit.
‘‘(B) MAXIMUM CREDIT EQUIVALENT BEN-
EFIT.—For purposes of subparagraph (A), the
term ‘maximum credit equivalent benefit’ means
the excess of—
‘‘(i) the amount by which the ten-
tative tax imposed by section 2001(b) (de-
termined without regard to this section)
140
would be reduced if the tentative tax base
were reduced by $675,000, over
‘‘(ii) the amount by which the applica-
ble credit amount under section 2010(c)
with respect to such estate exceeds such
applicable credit amount in effect for
1998.
‘‘(C) TENTATIVE
TAX
BASE.—For pur-
poses of this paragraph, the term ‘tentative tax
base’ means the amount with respect to which
the tax imposed by section 2001(b) would be
computed without regard to this section.’’.
(2) Section 2033A(b)(3) of the 1986 Code is
amended to read as follows:
‘‘(3) INCLUDIBLE GIFTS OF INTERESTS.—The
amount of the gifts of qualified family-owned busi-
ness interests determined under this paragraph is
the sum of—
‘‘(A) the amount of such gifts from the de-
cedent to members of the decedent’s family
taken 
into 
account 
under 
section
2001(b)(1)(B), plus
‘‘(B) the amount of such gifts otherwise
excluded under section 2503(b),
141
to the extent such interests are continuously held by
members of such family (other than the decedent’s
spouse) between the date of the gift and the date of
the decedent’s death.’’.
(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 es-
tate,’’ and inserting ‘‘an estate (or with respect to any
property included therein),’’.
142
(e) AMENDMENTS RELATED TO SECTION 506 OF
THE 1997 ACT.—
(1) Subsection (c) of section 2504 of the 1986
Code is amended by striking ‘‘was assessed or paid’’
and inserting ‘‘was finally determined for purposes
of this chapter’’.
(2) Paragraph (1) of section 506(e) of the 1997
Act is amended by striking ‘‘and (c)’’ and inserting
‘‘, (c), and (d)’’.
SEC. 607. AMENDMENTS RELATED TO TITLE VII OF 1997
ACT.
(a) AMENDMENT RELATED TO SECTION 1400 OF
1986 CODE.—Section 1400(b)(2)(B) of the 1986 Code is
amended by inserting ‘‘as determined on the basis of the
1990 census’’ after ‘‘percent’’.
(b) AMENDMENTS RELATED TO SECTION 1400B OF
1986 CODE.—
(1) Section 1400B(d)(2) of the 1986 Code is
amended by inserting ‘‘as determined on the basis of
the 1990 census’’ after ‘‘percent’’.
(2) Section 1400B(b) of the 1986 Code is
amended by redesignating paragraphs (6) and (7) as
paragraphs (5) and (6), respectively.
(c) AMENDMENTS RELATED TO SECTION 1400C OF
1986 CODE.—